strategic compensation - Semantic Scholar

3 downloads 4419 Views 35KB Size Report
Health Insurance Portability and Accountability Act of 1996 (HIPAA) 92 ... Labor Unions as Contextual Influences. 94. Market Influences. 97. Summary. 98.
FIFTH

EDITION

STRATEGIC COMPENSATION, • A Human Resource Management Approach J J J .: ,- :r

Joseph J. Martocchio University of Illinois at Urbana-Champaign

PEARSON

Prentice Flail Pearson Education International

Contents Preface PART I

21

SETTING THE STAGE FOR STRATEGIC COMPENSATION

17

CHAPTER 1

Strategic Compensation: A Component of Human Resource Systems 27 Chapter Outline 27 Exploring and Defining the Compensation Context 29 What Is Compensation? 29 Core Compensation 31 Employee Benefits 33

A Historical Perspective on Compensation: The Road Toward Strategic Compensation 35 Strategic versus Tactical Decisions 37 Competitive Strategy Choices 40 Tactical Decisions That Support the Firm's Strategy 41

Compensation Professionals1 Goals

42

How HR Professionals Fit into the Corporate Hierarchy 42 How the Compensation Function Fits into HR Departments 42 The Compensation Department's Main Goals 46

Stakeholders of the Compensation System Summary 49 Key Terms 49 Discussion Questions 50 Exercises 50 Endnotes 51

48

CHAPTER 2

Strategic Compensation in Action: Strategic Analysis and Contextual Factors 52 Chapter Outline 52 Strategic Analysis 53 External Market Environment Internal Capabilities 60

56

Factors That Influence Companies' Competitive Strategies and Compensation Practices 61

10

Contents National Culture 61 Organizational Culture 64 Organizational and Product Life Cycles Summary

66

69

Key Terms

70

Discussion Questions Exercises

70

Endnotes

71

CHAPTER 3

70

Contextual Influences on Compensation Practice

Chapter Outline

72

72

**'

Compensation and the Social Good Employees' Goals 74 Employers' Goals 74 Government's Goals 74

73

Employment Laws That Influence Compensation Tactics 75 Income Continuity, Safety, and Work Hours 76 Pay Discrimination 81 Accommodating Disabilities and Family Needs 87 Prevailing Wage Laws 88 Laws That Guide Discretionary Employee Benefits 89 Internal Revenue Code (IRC) 89 Employee Retirement Income Security Act of 1974 (ERISA) 90 Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) 91 Health Insurance Portability and Accountability Act of 1996 (HIPAA) 92 Pension Protection Act of 2006 93 Contextual Influences on the Federal Government as an Employer Labor Unions as Contextual Influences Market Influences Summary

97

98

Discussion Questions Exercises

99

Endnotes

100

BASES FOR PAY

94

98

Key Terms

PART II

93

99

101

CHAPTER 4 Chapter Outline

Traditional Bases for Pay: Seniority and Merit 101

Seniority and Longevity Pay 102 Historical Overview 103 Who Participates? 104 Effectiveness of Seniority Pay Systems 104 Design of Seniority Pay and Longevity Pay Plans 104

101

Contents Advantages of Seniority Pay 106 - — Fitting Seniority Pay with Competitive Strategies

Merit Pay •i,-..„ i* ^

106

107

Who Participates? Exploring the Elements

107 of Merit

Performance Appraisal

Pay

107

110

Types of Performance Appraisal Plans 110 Exploring the Performance Appraisal Process

Strengthening the Pay-for-Performance Link Link Performance Appraisals to Business Goals Analyze Jobs 120 Communicate 120 "^ Establish Effective Appraisals 120 Empower Employees 120 Differentiate among Performers

•'• 115

119 119

120

Possible Limitations of Merit Pay Programs

f

'

122

Failure to Differentiate among Performers 122 Poor Performance Measures 122 Supervisors' Biased Ratings of Employee Job Performance 122 Lack of Open Communication between Management and Employees Undesirable Social Structures 122 Factors Other Than Merit 123 Undesirable Competition 123 Little Motivational Value

123

Linking Merit Pay with Competitive Strategy Lowest-Cost Competitive Strategy

124

Differentiation Competitive Strategy

Summary 124 Key Terms 124 Discussion Questions Exercises 125 Endnotes 126

123

124

125

CHAPTER 5 Incentive Pay 128 Chapter Outline 128 Exploring Incentive Pay 129 Contrasting incentive Pay with Traditional Pay Individual Incentives 132

130

Defining Individual Incentives 133 Types of Individual Incentive Plans 133 Advantages of Individual Incentive Pay Programs 135 Disadvantages of Individual Incentive Pay Programs 136

f

Group Incentives

136

Defining Group Incentives 137 Types of Group Incentive Plans 137

r • -

122

I I

12

Contents Advantages of Group Incentives 143 Disadvantages of Group Incentives 143

Companywide Incentives

144

Defining Companywide Incentives 144 Types of Companywide Incentive Plans 144 Profit Sharing Plan 144 Calculating Profit Sharing Awards 145 Advantages of Profit Sharing Plans 146 Disadvantages of Profit Sharing Plans 146 Employee Stock Option Plans 146

Designing Incentive Pay Programs

147

Group versus Individual Incentives **- 147 Level of Risk 147 Complementing or Replacing Base Pay 148 Performance Criteria 148 Time Horizon: Short Term versus Long Term 148

Linking Incentive Pay with Competitive Strategy

149

Lowest-Cost Competitive Strategy 149 Differentiation Competitive Strategy 150

Summary 150 Key Terms 150 Discussion Questions Exercises 151 Endnotes 152

150

CHAPTER 6 Person-Focused Pay 153 Chapter Outline 153 Defining Competency-Based Pay, Pay-for-Knowledge, and Skill-Based Pay What Is a "Competency"?

155

Usage of Pay-for-Knowledge Pay Programs 156 Reasons to Adopt Pay-for-Knowledge Pay Programs

157

Technological Innovation 157 Increased Global Competition 158

Varieties of Pay-for-Knowledge Pay Programs 159 Contrasting Person-Focused Pay with Job-Based Pay 163 Advantages of Pay-for-Knowledge Pay Programs 165 Advantages to Employees Advantages to Employers

165 166

Disadvantages of Pay-for-Knowledge Pay Programs 167 Linking Pay-for-Knowledge Pay with Competitive Strategy Lowest-Cost Competitive Strategy 168 Differentiation Competitive Strategy 169

Summary Key Terms

169 169

168

154

jj

Contents Discussion Questions 1

1

i *"" "

PART III

;•,.••!

Exercises

170

Endnotes

171

170

'••'[

DESIGNING COMPENSATION SYSTEMS

13

• A-a^r.- i '''• -/if.n.,..,./.

.

,

. 172

CHAPTER 7

Building Internally Consistent Compensation Systems 172 Chapter Outline 172 Internal Consistency 173 Job Analysis 174 Steps in the Job Analysis Process 175 Legal Considerations for Job Analysis 180 Job Analysis Techniques 181 U.S. Department of Labor's Occupational Information Network (O*NET) 181 Job Evaluation 192 Compensable Factors- 192 The Job Evaluation Process 193 Job Evaluation Techniques 194 The Point Method 195 Alternative Job-Content Evaluation Approaches 199 Alternatives to Job Evaluation 200

Internally Consistent Compensation Systems and Competitive Strategy Summary 201 Key Terms 202 Discussion Questions 202 Exercises 202 Endnotes 203

201

CHAPTER 8

Building Market-Competitive Compensation Systems 204 Chapter Outline 204 Market-Competitive Pay Systems: The Basic Building Blocks 205 Compensation Surveys 206 Preliminary Considerations 206 Using Published Compensation Survey Data 208 Compensation Surveys:Strategic Considerations 212 Compensation Survey Data 214

'l\

Integrating Internal Job Structures with External Market Pay Rates Compensation Policies and Strategic Mandates 225 Summary 226 Key Terms 226 Discussion Questions 226 Exercises 227

V!

221

14

Contents Endnotes

228

Appendix: U.S. 2007/2008 Total Salary Increase Budget Survey CHAPTER 9

Building Pay Structures That Recognize Employee Contributions

Chapter Outline

236

236

Constructing a Pay Structure Step Step Step Step

237

I: Deciding on the Number of Pay Structures 2: Determining a Market Pay Line 238 3: Defining Pay Grades 238 4: Calculating Pay Ranges for Each Pay Grade

Step 5: Evaluating the Results

237

Merit Pay Increase Budgets

Designing Pay-for-Knowledge Programs Establishing Skill Blocks Transition Matters 257 Training and Certification

Summary

255

256 258

Pay Structure Variations

262

262

Two-Tier Pay Structures

263

264 264

Discussion Questions Exercises

265

Endnotes

266

PART IV EMPLOYEE BENEFITS CHAPTER 10 Chapter Outline

265

267 Discretionary Benefits

267

267

An Overview of Discretionary Benefits Components of Discretionary Benefits Protection Programs Paid Time-Off 273

247

249

Designing Sales Incentive Compensation Plans Alternative Sales Compensation Plans 252 Sales Compensation Plans and Competitive Strategy Determining Fixed Pay and the Compensation Mix

Broadbanding

240

244*-

Designing Merit Pay Systems 245 Merit Increase Amounts 245 Timing 247 Recurring versus Nonrecurring Merit Pay Increases Present Level of Base Pay 247 Rewarding Performance: The Merit Pay Grid 247

Key Terms

229

270

268 270

251 254 254

Contents Volunteerism

Services

275

.:--. J .