Reward Systems

Intrinsic Rewards
Status Growth Responsibility

Extrinsic Rewards
Non-financial (office, staff, title, etc.)
Financial (direct and indirect compensation)
 Financial Rewards:
Indirect Compensation
Protection Programs

Examples: pensions, health coverage, life

insurance, social welfare programs

Public
Private

Mandatory versus Voluntary

Contributory versus Non-contributory
 Financial Rewards:
Indirect Compensation
Pay for Time Not Worked (at work and off work)
Examples: breaks, meal time, transit time, medical
leave, military leave, education leave, vacation

Services and Perquisites

General (Examples: financial services,
counseling, dining discounts)
Limited (Examples: automobile, cellular phone,
clothing allowance, gym membership)
 Financial Rewards:
Direct Compensation
Base Pay

Incentives

Cost-of-Living Adjustments (COLAs)

Merit Pay
Compensation System
Objectives
External Competitiveness
Internal Equity
Legal Compliance
Motivational Soundness
Linkages to Performance
Cost Effectiveness
Culture Creating
Total Comp Policy Planning:
Key Issues
1. Degree of income protection and replacement
to be provided for employees, for dependents
and for retirees.
2. Provisions (if any) to be made for income
supplementation benefits.
3. Relation of benefits to job level.
4. Recognition for seniority.
5. Recognition for performance or productivity.
6. –Er’s responsibility for costs of –ee benefits,
dependent benefits, and retiree benefits.
7. Basis and use of external comparisons.
8. Effect of union settlements on benefits for non-
represented employees.
9. Application of plans to –ees of acquired orgs.
10. Coverage for part-time employees.
11. Employee choice and plan flexibility.
12. Responsibility for planning and managing
the plans/programs.
 Compensation Laws & Regs
Wages Wage Controls
Payment Schedules Pay Increases
Overtime Incentive Pay
Wage Adjustments (longevity, education, etc.)
Bonuses Contracts
Work Agreements Child Labor
Benefits
Basic Compensation
Markets
Blue Collar – “Labor”

Professional

Supervisory and Managerial

Entertainers and Athletes

 External Influences on
Compensation

Supply of Labor Demand for Labor

Org Location Economic State
Competition Union Influence
Product/Service Demand
 Internal Influences on
Compensation
Organization Size Willingness to Pay
Ability to Pay Tradition
Unionization Job Itself
Employer Prestige
Work Force Character
Desired Employee Quality
Ratio of Labor Costs to Total Costs
Organizational Compensation
System Requirements
Maximize ability to attract and retain
qualified employees

Be within ability to pay

Allow organization to remain

competitive
Compensation Terminology

Wage versus Salary

Exempt versus Nonexempt

 Assigning Pay to Jobs
Job Pricing = placing a monetary value on
the worth of a job to the organization

RULE: Each job is worth only so much to the

organization

OPTIONS:
1. Flat Rates
2. Pay Ranges
 Pay Considerations

Prevailing wages and salaries

Collective bargaining
Economic realities
Worth of position/job
Worth of employee
Difficulty in filling job
Priority of work in organization
Basic Compensation Decisions
Wage level decisions
compared to other organizations
Wage structure decisions
comparing job to job
Individual wage decisions
comparing individuals in same jobs
 Wage Level Decisions

Lead Competition

Match Competition

Lag Competition
 Wage Structure Decisions

System for assigning value to jobs

within an organization

Ranking
Classification
Point/Factor
 Wage Structures
Rankings
Each job in relation to other from most
important to least important

Classification
Jobs sorted by requirements, responsibilities

Point/Factor
Jobs evaluated and sorted by objective
factors
 Ranking System
Job A - President
Job B – Vice President
Job C1 – Treasurer/CFO
Job C2 – Manager of Operations/COO
Job D – Sales Manager
Job E – Salesperson
Job F – Order Entry Clerk
Job G – Cleaning Crew Member
 Classification System
Grade Step Step Step Step Step Step Step
1 2 3 4 5 6 7
1 15,625 16,146 16,666 17,183 18,009 19,039 19,543

2 17,568 17,985 18,567 19,060 19,841 20,408 20,975

3 19,168 19,807 20,446 21,085 21,724 22,363 23,002

4 22,235 23,057 23,669 24,386 25,430 26,110 26,833

5 24,878 25,681 26,484 27,287 28,090 28,982 29,876

6 27,731 28,626 29,521 31,011 32,206 33,104 34,891

 Point/Factor Systems
Job A = 100
Job B = 110 points
Job C = 160 points
Job D = 180 points
Job E = 200 points
Job F = 220 points

Job P = 430 points

 Pay Adjustments
Fixed Rate Increases
step increases, flat dollar increases

Percentage Increases
across the board, competitive percent

Incentives
 Levels of Incentives
Individual

Group

Company-wide

Executive
Individual Incentive Plans
Piecework Payment
(Straight and Differential)
Standard Hour
Commissions
Bonuses
Skills-based Pay
Non-financial Awards
Group Incentive Plans
Piece-rate Systems

Standard Hour Plans

Group Bonuses

Profit Sharing
Company-wide Incentives

Profit Sharing
(Cash Plan or Deferred Plan)

Gainsharing

Stock Ownership Plans (ESOP)

 Executive Incentives
Salaries

Stock Options

Long-term Incentive Plan Payouts

Directors’ Fees

Perquisites
 Executive Compensation
Salary Long-term Company
Organization & Bonus Comp Performance
Boeing 2,684,000 1,245,000 -128%

Tenet Healthcare 116,400,000 72,000,000 +63%

Dell Computer 82,300,000 37,500,000 -13.2%

Disney 14,500,000 48,000,000 -60%

Household Intl 5,000,000 41,300,000 -50%

GE 6,900,000 43,000,000 -39%

 Directors’ Fees
Board Member Compensation
Fees
Insurance
Travel
Stocks
Retirement contributions
 Board Fees
Bear Sterns Investments $150,000
PM Industries $ 85,000
Pepsico $ 78,000
American Express $ 67,500
Coca-cola $ 61,000
Georgia Pacific $ 53,000
Microsoft $
42,000
 Perquisites
Memberships Company car/limo
Corporate Travel Corporate Jet/Yacht
Clothing Allowance Free Parking
Dining Privileges No/low Cost Loans
Memberships: Gym, Golf & Social Clubs
Entertainment Expenses
Season Tickets to Sporting Events
Financial and Legal Counseling
Education/seminar Funding
Funding for Family Education
Perquisites (Perks) continued

Kidnapping & Ransom Insurance & Services

Housing Allowance or Accommodations
Living Accommodations Away from Home
Company Credit Cards
Special Relocation Allowances
Spouse/family Travel

Golden Parachute/Severance Package

 Golden Parachute
In effect if acquisition or forced to leave

Typical severance package:

2-3 x annual salary and bonus
accelerated vesting of options

Example: Mattel Corporation

Package=5 years salary and bonuses = $26.4 mil
Purchase office furniture & equipment for $1.00
Forgiveness of $4.2mil personal loan
Forgiveness of $3mil home loan
Cash of $3.31mil to cover taxes on loans
Received $47mil, plus options
Executive Pay Decisions

Daily Dilbert, 29 October, 2005

 HRM Crises of Finances:
HRM Implications
Bankruptcies
Acquisitions and Mergers
Scandals with officers/managers
Private & Corporate Lawsuits
Government investigations and charges
Arrests and convictions
Tragedies
workplace accidents & illnesses travel accidents
work-related accidents
EXAMPLE: Air France – Concorde/SST crash
Union Carbide – Bophol, India, chemical spill
Merrill Lynch – 9/11 Twin Towers crashes
 Evaluation of Incentives
Attention getter?
Understandable?
Establishes culture through values?
Improves communication?
Pays when it should?
(achievements versus failures)
Improves individual performance?
Improves organizational performance?