HUMAN RESOURCES MANAGEMENT
CHECK POINT 33: BASIC JOB COMPENSATION
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HUMAN RESOURCES MANAGEMENT
CHECK POINT 33: BASIC JOB COMPENSATION
Please Select Any Topic In Check Point 33 Below And Click. |
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DO I NEED TO KNOW THIS CHECK POINT?
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WELCOME TO CHECK POINT 33 |
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HOW CAN YOU BENEFIT FROM CHECK POINT 33? |
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| The main purpose of this check point is to provide you and your management team with detailed information about Basic Job Compensation and how to apply this information to maximize your company's performance. |
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| In this check point you will learn: |
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• About main objectives of an employee compensation plan.
• About equal employment opportunity laws related to employee compensation.
• About major compensation and benefits laws.
• About the Fair Labor Standards Act of 1938.
• About three main elements of any compensation plan.
• About factors affecting basic job compensation.
• About five steps in developing a job compensation structure.
• About salary and wage compensation surveys.
• About four popular job evaluation methods.
• About the pay grade, pay range... and much more. |
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LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 33 |
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| You and your management team should become familiar with the basic Lean Management principles, guidelines, and tools provided in this program and apply them appropriately to the content of this check point. |
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| You and your team should adhere to basic lean management guidelines on a continuous basis: |
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Treat your customers as the most important part of your business. |
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Provide your customers with the best possible value of products and services. |
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Meet your customers' requirements with a positive energy on a timely basis. |
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Provide your customers with consistent and reliable after-sales service. |
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Treat your customers, employees, suppliers, and business associates with genuine respect. |
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Identify your company's operational weaknesses, non-value-added activities, and waste. |
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Implement the process of continuous improvements on organization-wide basis. |
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Eliminate or minimize your company's non-value-added activities and waste. |
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Streamline your company's operational processes and maximize overall flow efficiency. |
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Reduce your company's operational costs in all areas of business activities. |
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Maximize the quality at the source of all operational processes and activities. |
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Ensure regular evaluation of your employees' performance and required level of knowledge.
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Implement fair compensation of your employees based on their overall performance.
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Motivate your partners and employees to adhere to high ethical standards of behavior. |
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Maximize safety for your customers, employees, suppliers, and business associates. |
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Provide opportunities for a continuous professional growth of partners and employees. |
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Pay attention to "how" positive results are achieved and constantly try to improve them. |
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Cultivate long-term relationships with your customers, suppliers, employees, and business associates. |
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1.THE PURPOSE OF EMPLOYEE COMPENSATION PLAN |
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THE EMPLOYEE COMPENSATION PLAN |
Business owners and managers must be familiar with the basic procedures related to the development and implementation of an effective employee compensation plan which represents one of the prime functions of human resources management.
The Employee Compensation Plan entails determination of fair and equitable remuneration, incentives, and non-financial benefits to employees. The main objectives of an employee compensation plan are outlined below. |
MAIN OBJECTIVES OF EMPLOYEE COMPENSATION |
1. |
To attract suitable employees to the company. |
2. |
To motivate employees toward superior performance. |
3. |
To retain employee services during a specific period of time. |
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ADDITIONAL INFORMATION ONLINE |
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2. EQUAL EMPLOYMENT OPPORTUNITY LAWS
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EQUAL EMPLOYMENT OPPORTUNITY LAWS |
Development of a suitable employee compensation plan requires familiarization with various Equal Employment Opportunity Laws which prevail in the United States. These laws are developed in accordance with the following laws, principles, and guidelines:
• Equal Opportunity Employment.
• Civil And Political Rights.
The Civil Rights Act Of 1964 represents one of the most important civil right legislations in the U.S. One of the critical elements of this legislation is Title VII Of The Civil Right Act Of 1964. Title VII, as amended by The Equal Employment Opportunity Act Of 1972, specifies elements of an employer's unlawful behavior, as outlined below. (1) |
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TITLE VII OF THE 1964 CIVIL RIGHTS ACT |
It Is Unlawful For An Employer To: |
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Fail or to refuse to hire or to discharge any individual or otherwise to discriminate against an individual with respect to compensation, terms, conditions, or privileges of employment because of such individual's race, color, religion, sex, or national origin. |
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Limit, segregate, or classify employees or applicants for employment in any way that would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his or her status as an employee because of such individual's race, color, religion, sex, or national origin. |
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Compensation laws established by the federal and state governments relate to the minimal level of wages, overtime rates, and benefits payable to employees. Several major compensation laws are summarized next.
Equal Employment Opportunity Laws are discussed in detail in Tutorial 2. |
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ADDITIONAL INFORMATION ONLINE |
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3. SUMMARY OF MAJOR COMPENSATION AND BENEFITS LAWS |
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| Some of the major Compensation And Benefits Laws are outlined below. |
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SUMMARY OF MAJOR COMPENSATION AND BENEFITS LAWS |
Laws |
Coverage |
Basic
Requirements |
Agencies
Involved |
The Public Construction Act Of 1931 (Davis-Bacon Act) |
Employers with federal construction contracts, or sub-contracts, of $2,000 or more. |
Employers must pay not less than the wages prevailing in the area as determined by the Secretary of Labor. Overtime is to be paid at 1.5 times the basic wage for all work over 8 hours per day, or 40 hours per week. |
Wage and Hour Division of the Department of Labor. |
The Public Contracts Act Of 1936 (Walsh-Healy Act) |
Employers with federal contracts of $10,000 or more. |
Same as above. |
Same as above. |
The Fair Labor Standards Act Of 1938 (Wage And Hour Law) |
Private employers engaged in interstate commerce, and retailers having annual sales of $325,000. Many employers are exempted from overtime requirements. |
Employers must pay a minimum hourly wage and 1.5 times the basic rate for work over 40 hours per week to non-exempt employees and are limited (by jobs and school status) in employing persons under 18. |
Same as Davies-Bacon Act. |
The Equal Pay Act Of 1963 |
All employers. |
Men and women must receive equal pay for jobs requiring substantially the same skill, effort, responsibility, and working conditions. |
EEOC. |
The Civil Rights Act Of 1964 |
All employers. |
Also known as the Equal Employment Opportunity Act of 1964. Title VII makes it an unlawful practice for employer to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment on the basis of race, color, religion, gender, or national origin. |
EEOC. |
The McNamara-O'Hara Service Contract Act Of 1965 |
Employers with contracts to provide services worth $2,500 or more per year to the federal government. |
Same as Davis-Bacon Act. |
Same as Davies-Bacon Act. |
The Employee Retirement Income Security Act Of 1974 (ERISA) |
All employers that offer pensions. |
Employers must ensure the financial security of pension funds. Provides federal insurance if funds go bankrupt. |
IRS |
The Tax Reform Act Of 1986 |
All employers. |
This law affected employee compensation by reducing the number of tax brackets to three (15%, 28% and 31%) and by increasing the benefits for rank-and-file employees, while reducing tax-favored benefits that can be provided to highly compensated employees. |
IRS |
The Family And Medical Leave Act Of 1993 |
All employers of 50 or more employees. |
Employers must provide up to 12 weeks of unpaid leave for family and medical emergencies. |
EEOC |
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Extracted from the Bureau of National Affairs, BNA Policy and Practice Series: Wages and Hours (Washington D.C. GPO) |
ADDITIONAL INFORMATION ONLINE |
You can obtain additional information about Employee Compensation And Benefits Laws from the U.S. Department Of Labor online. |
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4. THE FAIR LABOR STANDARDS ACT |
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THE FAIR LABOR STANDARDS ACT |
The Fair Labor Standards Act Of 1938 (FLSA) establishes minimum wage, overtime pay, record-keeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state and local governments.
The Wage And Hour Division Of The U.S. Department Of Labor (WHD) administers and enforces FLSA with respect to private employment, some federal and state and local government employees. The FLSA prescribes a basic minimum wage standard for all covered non-exempt workers and a 1.5 times regular compensation for all worked hours in excess of 40 hours of work in one week. On the other hand, FLSA does not regulate the following employment conditions outlined below. |
ITEMS NOT COVERED BY THE FAIR LABOR STANDARDS ACT |
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Vacation, holiday, severance, or sick pay. |
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Meal or rest periods, holidays or vacations. |
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Premium pay for weekend or holiday pay. |
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Pay raises or employee benefits. |
5. |
Discharge notice, reason for discharge, or immediate payment of final wages to terminated employees. |
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Note:
The current Minimum Wage Rate in U.S. in the year 2014 varies by state and can be found online at the U.S. Department Of Labor – U.S. Wage And Hours Division. In California, for example, the minimum wage rate is $8 per hour. Please check, therefore, the laws in your own state.
On February 12, 2014, President Barak Obama signed an Executive Order to increase the minimum wage for employees of federal contractors to $10.10 per hour, effective beginning in January 2015.
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ADDITIONAL INFORMATION ONLINE |
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5. WHO IS COVERED BY FLSA |
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WHO IS COVERED BY FLSA? |
All Employees of certain enterprises having workers engaged in interstate commerce, producing goods for interstate commerce, or handling, selling, or otherwise working on goods or materials that have been moved in or produced for such commerce by any person, are covered by FLSA. Types of companies covered by FLSA are outlined below. |
TYPES OF COMPANIES COVERED BY THE FAIR LABOR STANDARDS ACT |
1. |
Organizations with an annual gross volume of sales not less than $500,000 (excluding excise taxes at the retail level that are separately stated). |
2. |
Hospitals, care facilities, schools and other educational facility. |
3. |
Public agencies. |
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THE $500,000 TEST |
The $500,000 Test was introduced on April 1, 1990 and it indicates the minimum level of sales requirement for the application of The Fair Labor Standards Act (FLSA) Of 1938 to various businesses.
Construction and laundry/dry cleaning businesses, for example, which have been previously covered regardless of their annual dollar volume of business, became subject to the $500,000 test on April 1, 1990.
Any business that was covered by FLSA prior to April 1, 1990, and that ceased to be covered because of the $500,000 test, continues to be subject to the overtime pay, child labor and record-keeping provisions of FLSA. |
ADDITIONAL INFORMATION ONLINE |
You can obtain additional information about the FLSA Regulations And Coverage provided by the U.S. Department Of Labor online. |
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6. WHAT IS A LIVING WAGE? |
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WHAT IS A LIVING WAGE? |
Although The Fair Labor Standards Act (FLSA) Of 1938 prescribes the basic Minimum Wage standard for employees, some states have introduced laws which set the minimum wage higher than the minimum wage established by the federal government. This type of minimum wage, also known as the Living Wage, is prescribed within certain jurisdictions, whereby each jurisdiction sets its own living wage standard. |
Note:
You can obtain additional information about Employee Compensation and other related issues provided by the U.S. Department Of Labor online to ensure full compliance with local laws and regulations. |
ADDITIONAL INFORMATION ONLINE |
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7. THREE MAIN ELEMENTS OF ANY COMPENSATION PLAN |
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ADHERENCE TO ALL COMPENSATION LAWS |
There are many laws and regulations that have a considerable impact on establishing appropriate Pay Rates for employees. It is essential to adhere to all compensation laws imposed by federal and state governments and to develop a comprehensive employee Compensation Plan accordingly. Any compensation plan should include three major elements illustrated below. |
THREE MAIN ELEMENTS OF A COMPENSATION PLAN |
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Basic Job
Compensation |
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Financial
Incentives |
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Employee
Benefits |
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ADDITIONAL INFORMATION ONLINE |
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8. IMPORTANCE OF BASIC JOB COMPENSATION |
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IMPORTANCE OF BASIC JOB COMPENSATION |
Basic Job Compensation to employees is expressed in terms of monthly salaries and weekly or bi-weekly wages and constitutes one of the highest costs incurred by the organization during its operating activities.
Moreover, basic job compensation is of notable importance to the company's employees. It usually represents a single source of the employees' financial support, unless they have a second job or have a working spouse, and it is one of the most influential factors in determining their status in society. |
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ADDITIONAL INFORMATION ONLINE |
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9. FACTORS AFFECTING BASIC JOB COMPENSATION |
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BASIC JOB COMPENSATION |
| The most significant Factors affecting the determination of a Basic Job Compensation, apart from employee compensation laws, are illustrated below. |
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THE FOUR MAIN FACTORS AFFECTING BASIC JOB COMPENSATION |
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The Principle
Of Labor
Supply
And Demand |
Labor
Unions |
A
Company's
Financial
Condition |
Cost-
Of-
Living
Factor |
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ADDITIONAL INFORMATION ONLINE |
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10. THE PRINCIPLE OF LABOR SUPPLY AND DEMAND |
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THE PRINCIPLE OF LABOR SUPPLY AND DEMAND |
Employers and Employees will always be in a situation of continuous and reciprocal need. Organizations require professional employees and skilled labor to meet their corporate objectives. People, on the other hand, need jobs to keep them occupied and to earn a living.
The process of satisfying mutual needs and wants is based on a service for money exchange and is regulated by the Principle Of Labor Supply And Demand.
As a business owner, you should always keep in mind that it is never easy to find the right person to meet your company's specific needs. For this reason, you should remain patient and take as much time as necessary until the right candidate comes along. It is always better to wait a little longer to hire a suitable employee, instead of rushing in and paying the price for your hiring mistake later.
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11. LABOR UNIONS |
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LABOR UNIONS |
The main objective of Labor Unions is to provide general support for employees and to establish an important mechanism for regulating supply and demand of skills in an open labor market.
Labor unions often play an important role in determining a minimum level of salaries and wages payable to employees in a company. The actual hourly remuneration rates are usually developed on the basis of employees' abilities and work experience, thus ensuring a fair level of compensation and a "square deal" for both the company and the employee. |
Note:
Labor-Management Relations and Labor Unions are discussed in detail in Tutorial 2.
If you a small business, you probably don't need to be concerned with labor unions at this stage. |
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12. THE COMPANY'S FINANCIAL CONDITION |
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THE COMPANY'S FINANCIAL CONDITION |
The Company's Financial Condition normally determines its ability to employ suitable employees to meet its organizational objectives.
The question is whether or not the company can afford to retain the services of certain employees. Obviously, if the company is going through a difficult period, management will be forced to reduce the number of employees to a functional minimum. However, if the company is prospering, management will be in a position to offer an above average compensation package, thus attracting the most suitable people to the organization. |
Note:
Financial Statements and Financial Performance Evaluation are discussed in detail in Tutorial 3. |
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13. THE COST-OF-LIVING INDEX |
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THE COST-OF-LIVING INDEX |
The Cost-Of-Living Index depends mainly upon the overall economic situation, rate of inflation, and specific geographic location. Sometimes, this factor is regulated by the Cost-Of-Living Adjustment (COLA) provision, which was first adopted by the United Auto Workers in 1950.
At present, approximately one half of all major labor union contracts contain a COLA provision. The cost-of-living factor provides a realistic measure related to the salaries and wages adjustment process and, subsequently, enables management to review the company's remuneration policy from time to time. |
Note:
The only known relationship between the Cost-Of-Living Adjustment (COLA) and the Coca-Cola Bottling Company is the price of Coke! |
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14. FIVE STEPS IN DEVELOPING A JOB COMPENSATION STRUCTURE |
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BASIC JOB COMPENSATION STRUCTURE |
The process of establishing a Basic Job Compensation Structure generally entails five steps illustrated below.(21) |
THE BASIC JOB COMPENSATION STRUCTURE DEVELOPMENT PROCESS |
Step 1: Conduct A Salary And Wage Compensation Survey.
Step 2: Evaluate A Range Of Jobs.
Step 3: Group Similar Jobs Into Pay Grades.
Step 4: Allocate Pay Rates To Each Grade.
Step 5: Fine Tune Pay Rates.
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ADDITIONAL INFORMATION ONLINE |
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15. SALARY AND WAGE COMPENSATION SURVEYS |
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SALARY AND WAGE COMPENSATION SURVEYS |
Salary And Wage Compensation Surveys play a major part in the process of determining basic job compensation for employees. Such surveys may be useful in establishing a preliminary compensation range for jobs that are comparable with other jobs in similar organizations.
Furthermore, the salary and wage compensation surveys may assist management in classifying various jobs in the order of their relative worth to the company. Finally, these surveys provide important data about additional benefits such as medical insurance or pension plans offered in the open market.
Compensation surveys are conducted and published by several reliable sources, as outlined below. (22) |
ADDITIONAL INFORMATION ONLINE |
You can obtain additional information about Salary And Wage Surveys, and other related issues provided online: |
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U.S. Bureau Of Labor Statistics, for example, conducts three types of surveys annually as outlined below. |
SURVEYS CONDUCTED BY U.S. BUREAU OF LABOR STATISTICS |
1. |
Area wage surveys for clerical and manual jobs in different industries. |
2. |
Industry wage surveys for different industries. |
3. |
Professional, administrative, technical, and clerical (PATC) surveys in fields such as legal, accounting services, or engineering and chemical industries. |
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AMERICAN MANAGEMENT ASSOCIATION |
American Management Association (AMA) conducts surveys and provides executive, managerial, and professional compensation data as one of its services. AMA also publishes extensive reports on middle management compensation covering a wide range of jobs and industries on a regional and national basis. |
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16. JOB EVALUATION METHODS |
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IMPORTANCE OF JOB EVALUATION METHODS |
Many small and medium-sized companies develop their basic job compensation policies solely on information provided by the above mentioned organizations or from specific industry publications.
If, however, management wants to ensure consistency in salary and wage structures and to establish a systematic relationship among basic compensation rates, it should evaluate various jobs within the company. There are a number of Job Evaluation Methods available for this purpose as illustrated below. (23) |
JOB EVALUATION METHODS |
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The
Ranking
Method |
The Job
Classification
Method |
The
Point
Method |
The Factor
Comparison
Method |
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ADDITIONAL INFORMATION ONLINE |
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17. THE RANKING METHOD |
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THE RANKING METHOD |
The Ranking Method is considered to be one of the most useful and inexpensive methods of job evaluation. This method necessitates that management prepares brief job descriptions for all major jobs within the company and ranks them in order of importance.
During the actual Ranking Process, the most important jobs will be selected as the top of the range and the least significant jobs will represent the bottom of the range. All jobs in between will be compared with one another and will be placed according to their considered worth. (23) |
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18. THE JOB CLASSIFICATION METHOD |
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THE JOB CLASSIFICATION METHOD |
The Job Classification Method is a simple and widely used method, whereby jobs are grouped into grades, or classes. This method necessitates that management select a range of compensation factors and then develops a scale of grades, or classes for different groups of jobs.
The Federal Classification System, for example, includes several Compensation Factors outlined below. (23) |
THE FEDERAL CLASSIFICATION SYSTEM'S COMPENSATION FACTORS |
1. |
Difficulty and variety of work. |
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Supervision received and exercised. |
3. |
Judgment exercised. |
4. |
Originality required. |
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Nature and purpose of interpersonal work relationships. |
6. |
Responsibility. |
7. |
Experience. |
8. |
Knowledge required. |
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Each job is measured as a whole, compared with other jobs, and finally classified on the basis of the established scale of compensation factors. |
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19. THE POINT METHOD |
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THE POINT METHOD |
The Point Method is considered to be one of the most popular methods in the job evaluation process. A standard procedure describing the Point Method entails a number of steps outlined below. (23) |
STEPS IN THE POINT METHOD |
Step 1: Selection Of Job Factors (e.g. Education, Skill, Responsibility, Effort).
Step 2: Construction Of The Job Factor Scales Based On Points (e.g. 1 to 10).
Step 3: Evaluation Of The Job According To The Job Factor Scales.
Step 4: Completion Of Salary And Wage Surveys.
Step 5: Development Of Salaries And Wages Structure.
Step 6: Adjustment Of Salaries And Wages Structure. |
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20. THE FACTOR COMPARISON METHOD |
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THE FACTOR COMPARISON METHOD |
The Factor Comparison Method is based on a job-to-job comparison method reduced to the detailed evaluation of relevant job factors. This method entails a number of steps outlined below.(23) |
STEPS IN THE FACTOR COMPARISON METHOD |
Step 1: Selection Of Job Factors.
Step 2: Identification Of Key Jobs.
Step 3: Determination Of Correct Rates For Relevant Key Jobs.
Step 4: Ranking Of Key Jobs By Selected Job Factors.
Step 5: Allocation Of Correct Rates For Identified Key Jobs.
Step 6: Evaluation Of Other Jobs Using These Factors.
Step 7: Development Of Salaries And Wages Structure.
Step 8: Adjustment Of Salaries And Wages Structure. |
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21. THE PRINCIPLE OF EQUITY IN COMPENSATION |
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THE PRINCIPLE OF EQUITY IN COMPENSATION |
The process of job evaluation provides management with the ability to create a systematic remuneration structure. Such a structure must be based on the Principle Of Equity In Compensation to ensure satisfaction and a high level of motivation among the company's employees. |
ADDITIONAL INFORMATION ONLINE |
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22. WHAT IS A PAY GRADE? |
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A PAY GRADE |
Once the evaluation of jobs has been completed and their relative worth has been established, it is necessary to group similar jobs into specific pay grades. A Pay Grade is generally comprised of jobs of similar complexity or importance as determined by the job evaluation process.
The pay grade may be comprised of all jobs that fall into two or three ranks, if a ranking method was used, or a range of classes, if job classification method was used. Irrespective of the job evaluation method used, all jobs should be included in a range of pay grades.
A small or medium-sized company, for example, may have four pay grades for the following jobs as illustrated below. (23) |
A PAY GRADE STRUCTURE |
Pay Grade |
Designation |
Pay Grade 1 |
This is for the president and vice presidents, finance, operations, and marketing. |
Pay Grade 2 |
This is for managers and supervisors. |
Pay Grade 3 |
This is for senior operations, office, and sales employees. |
Pay Grade 4 |
This is for junior operations, office, and sales employees. |
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23. WHAT IS A PAY RATE RANGE? |
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A PAY RATE RANGE |
The next step is to allocate a Pay Rate Range to each pay grade in accordance with the prevailing level of compensation in the market place.
A typical pay rate range for a small or medium-sized company is illustrated below. |
A PAY RATE STRUCTURE RANGE |
Pay Grade |
Designation |
Pay Grade 1 |
The pay rate range is: $60,000 - $120,000. |
Pay Grade 2 |
The pay rate range is: $45,000 - $ 55,000. |
Pay Grade 3 |
The pay rate range is: $35,000 - $ 45,000. |
Pay Grade 4 |
The pay rate range is: $25,000 - $ 35,000. |
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Finally, it is necessary to adjust, or "fine tune" the salary and wage structure for all jobs in every pay grade in accordance with the job evaluation results. (23) |
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ADDITIONAL INFORMATION ONLINE |
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24. FOR SERIOUS BUSINESS OWNERS ONLY |
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ARE YOU SERIOUS ABOUT YOUR BUSINESS TODAY? |
Reprinted with permission. |
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25. THE LATEST INFORMATION ONLINE |
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LESSON FOR TODAY:
Look After Your People And They Will Look After Your Business!
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Go To The Next Open Check Point In This Promotion Program Online. |
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