MGT 3320

• Total Rewards


  The sum of all rewards employees receive in exchange for their time, efforts, and performance
• Total Rewards


  • Financial compensation
  • Nonfinancial compensation
• Financial compensation


  • Fixed pay
  • Variable pay
  • Benefits
• Direct financial compensation


  Compensation received in the form of salary, wages, commissions, stock options, or bonuses
• Indirect financial compensation


  Any and all financial rewards not considered direct financial compensation, including health insurance, wellness benefits, paid vacations, and free meals
• Nonfinancial compensation


  Rewards and incentives given to employees that are not financial in nature, including intrinsic rewards received from the job itself or from the physical or psychological work environment (e.g., feeling successful or appreciated, flexible work schedules, casual dress codes)
• Importance of Pay (Employer Perspective)

  • Pay is critical in attaining strategic goals
  • It impacts employee attitudes and behaviors (attraction, retention, motivation)
  • Important if we want to hold on to talent
  • It is a significant organizational cost
• Importance of Pay (Employee Perspective)

  • Pay policies affect overall income and standard of living
  • Level of pay and perceived fairness are important
  • Employees work to cover expenses, survival at the very least
  • Pay as a sign of status and success
  • "feel good" factor
• Pay is a part of job satisfaction
• Decisions about Pay


  • Pay structure
  • Job structure
  • Pay level
  • Individual pay
• Pay structure


  The relative pay of different jobs (job structure) and how much they are paid (pay level)
• Job structure


  The relative pay of jobs in an organization
• Pay level


  The average pay of jobs in an organization (incl. wages, salaries, bonuses)
• Equity Theory and Fairness

  People evaluate the fairness of their situations by comparing them with those of other people. Outcomes include pay, benefits, working conditions. Inputs include effort, ability, experience.
• If p's ratio (output to input) is smaller than the comparison other's ratio

  Underreward inequity results
• If p's ratio is larger

  Overreward inequity results
• Statistics show that people don't really do anything with overreward inequity
• In the case of perceived inequity, the person is expected to change their attitudes or behaviors in an effort to restore equity. This is done either by reducing one's own inputs, increasing one's own outcomes, or leaving the situation.
• External equity


  Comparing to pay of employees doing the same work in other organizations. Use of market pay surveys to determine pay levels in the organization.
• Internal equity


  Comparing to pay of employees within the organization (lower, same, and higher levels). Use of job evaluations to design job structures in the organization.
• Equity perceptions lead to external employee movement, labor costs, employee attitudes
• Equity perceptions lead to internal employee movement, cooperation among employees, employee attitudes
• Developing Pay Levels


  • Market pressures
  • Labor market competition
• Market pressures


  Product market competition places an upper bound on labor costs, including pay levels
• Labor market competition


  Competition includes companies with similar products and companies in other product markets hiring similar types of workers. Worker shortage puts upward pressure on wages and salaries.
• Labor cost components: Average cost per employee (direct and indirect payments) and staffing level (number of employees)
• The more the organization pays its workers, the higher labor costs will be. The more workers the organization employs, the higher labor costs will be. Thus, organizations need to balance out their staffing levels and the cost per worker.
• Employees as a resource

  Having the best and most effective workforce that produces more efficiently and with better quality makes higher labor costs less of a concern
• Evaluate pay policies and programs in terms of costs and the returns they generate (i.e., how they attract, retain, and motivate a high-quality workforce)
• Deciding what to pay

  Product market competition and labor market competition create a range of discretion for pay, falling somewhere between the points of paying above, at, or below the market average
• Paying above market


  Can help attract and retain top talent and generate positive job attitudes, but also adds cost. It is warranted when decentralized decision-making is emphasized, higher-caliber employees are required for high-autonomy jobs, and observing and monitoring employee performance is difficult.
• Efficiency wage theory


  States that workers are more reluctant to shirk because they wish to retain their jobs
• External alignment: Market pay surveys


  Market pay surveys provide information on ongoing rates of pay among competing organizations. Benchmarking against product market and labor market competitors.
• External competitiveness ensures that jobs in a company are valued appropriately relative to similar jobs in the company's external labor market. Market pay surveys are important in the consideration of employees' perceived external equity.
• Benchmarking


  Comparing an organization's practices against those of the competition
• Market pay surveys can be obtained from consulting firms, from the Society for Human Resource Management (SHRM), from Glassdoor, Indeed, and the like, or from the government. Employers may also have custom market pay surveys produced, but that is the most expensive alternative.
• Rate ranges


  Different employees in the same job may have different pay rates. Recognize differences in employee performance, seniority, training, etc. Use of market rate as a midpoint of pay ranges, minimums, or maximums.
• Key jobs and non-key jobs

  Key jobs are benchmark jobs, which are used in pay surveys. Relatively stable content, common to many organizations. Non-key jobs cannot be directly valued or compared through market surveys, as they are unique to organizations.
• Job evaluation


  Consists of compensable factors and a weighing scheme. Compensable factors are characteristics of jobs that an organization values and chooses to pay for (e.g., job complexity, working conditions, required education, required experience, responsibility).
• Point-factor system


  Yields job evaluation points for each compensable factor. A priori weights using expert judgments about the importance of each factor or empirically-based weights in accordance with importance of each factor for determining pay in the labor market.