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
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
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
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
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
