Establishing Strategic

Pay Plans
11
Copyright 2013 Pearson Education Chapter 6-1
Learning Objectives
1. List the basic factors determining
pay rates.
2. Define and give an example of how
to conduct a job evaluation.
3. Explain in detail how to establish a
market-competitive pay plan.
Copyright 2013 Pearson Education Chapter 6-2
Learning Objectives
4. Explain how to price managerial
and professional jobs.
5. Explain the difference between
competency-based and traditional
pay plans.
6. List and explain six important trends
in compensation management.
Copyright 2013 Pearson Education Chapter 6-3
List the basic factors
determining pay rates.
Copyright 2013 Pearson Education Chapter 6-4
Basic Factors in
Determining Pay Rates
Aligning total rewards with strategy
Equity and its impact on pay rates
Equity theory of motivation
Addressing equity issues
Copyright 2013 Pearson Education Chapter 6-5
Legal Considerations in
Compensation
Fair Labor Standards Act (1938)
Exempt/nonexempt
Equal Pay Act (1963)
Employee Retirement Income
Security Act (1974)
Other legislation
Copyright 2013 Pearson Education Chapter 6-6
Other Factors
Union influences on compensation
decisions
Pay policies
Geography
Copyright 2013 Pearson Education Chapter 6-7
Review
Alignment with strategy
Equity external, internal
Legal Considerations
Union influences
Pay policies
Geography

Copyright 2013 Pearson Education Chapter 6-8
Define and give an example
of how to conduct
a job evaluation.
Copyright 2013 Pearson Education Chapter 6-9
Job Evaluation Methods
Compensable
factors
Preparing for the
job evaluation
Copyright 2013 Pearson Education Chapter 6-10
Job Evaluation Methods:
Ranking
1. Obtain job information
2. Select and group jobs
3. Select compensable factors
4. Rank jobs
5. Combine ratings
Copyright 2013 Pearson Education Chapter 6-11
Job Evaluation Methods
Job classification
Point method
oPackaged point
plans
Computerized job
evaluations
Copyright 2013 Pearson Education Chapter 6-12
Review
Compensable factors
Preparation
Ranking
Classification
Point method
Computer-based
Copyright 2013 Pearson Education Chapter 6-13
Explain in detail how to
establish a market-
competitive pay plan.
Copyright 2013 Pearson Education Chapter 6-14
How to Create a Market-
Competitive Pay Plan
Choose benchmark jobs
Select compensable factors
Assign weights
Convert percentages to points
Define each factors degrees
Determine degrees and assign points
for job factors



Copyright 2013 Pearson Education Chapter 6-15
How to Create a Market-
Competitive Pay Plan
Review job descriptions and
specifications
Evaluate the jobs
oWhat is a market competitive pay plan?
oWhat are wage curves?

Copyright 2013 Pearson Education Chapter 6-16
How to Create a Market-
Competitive Pay Plan
Draw current (internal) wage curve
Conduct market analysis: salary
surveys
oCommercial, professional, and
government
Using internet to do compensation
surveys
Copyright 2013 Pearson Education Chapter 6-17
How to Create a Market-
Competitive Pay Plan
Draw market (external) wage curve
Compare and adjust
Develop pay grades
Establish rate ranges
Address remaining jobs
Correct out-of-line rates
Copyright 2013 Pearson Education Chapter 6-18
Review
Copyright 2013 Pearson Education Chapter 6-19
Explain how to price
managerial and professional
jobs.
Copyright 2013 Pearson Education Chapter 6-20
Pricing Managerial and
Professional Jobs
Compensating executives and
managers
What determines executive pay?
oElements of executive pay
oManagerial job evaluation
Compensating professional
employees
Copyright 2013 Pearson Education Chapter 6-21
Review
Executives
Professionals
Pay
Copyright 2013 Pearson Education Chapter 6-22
Explain the difference
between competency-based
and traditional pay plans.
Copyright 2013 Pearson Education Chapter 6-23
Contemporary Topics in
Compensation
Competency-based
pay
What is it?
Why use it?
In practice
The bottom line
Copyright 2013 Pearson Education Chapter 6-24
Review
Copyright 2013 Pearson Education Chapter 6-25
List and explain six important
trends in compensation
management.
Copyright 2013 Pearson Education Chapter 6-26
Trends
Broadbanding
Actively managing
Comparable worth
oThe pay gap
Board oversight
Total rewards and tomorrows pay
programs
Copyright 2013 Pearson Education Chapter 6-27
Review
Broadbanding
Management
Worth
Boards
Tomorrow
Copyright 2013 Pearson Education Chapter 6-28
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Copyright 2013 Pearson Education Chapter 6-29