Determining Pay Rates

Presented to:

Sir Ahmed Tasmaan Pasha

Presented by:

Alia Ashraf

Roll no.07-19

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Determining pay rates

In this topic we will discussEmployee compensationHow to formulate plans for paying

employees– Time based wages or salary– Performance based pay

Pay plans– Legal– Union company policy– An equity

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Determining Pay RatesEmployee compensation

– All forms of pay or rewards going to employees and arising from their employment.

Direct financial payments– Pay in the form of wages, salaries,

incentives, commissions, and bonuses.Indirect financial payments

– Pay in the form of financial benefits such as insurance

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Determining Pay Rates

Direct financial payments– base on two factor

• Pay for Time

• Pay for Performance

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Determining Pay Rates

Pay for time:– Blue collar and clerical workers get

hourly or daily wages,– And others, like managers paid by the

week, month or week.– Time pay is still the foundation of

most employer’s pay plans.

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Determining Pay Rates

Pay for performance:– It ties compensation to the amount of

production the worker turns out.

– For example• Piecework

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Overview of Compensation LawsDavis-Bacon Act (1931)

– A law that sets wage rates for laborers employed by contractors working for the federal government.

Walsh-Healey Public Contract Act (1936)– A law that requires minimum wage

and working conditions for employees working on any government contract amounting to more than $10,000.

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Overview of Compensation Laws (cont’dTitle VII of the 1964 Civil Rights Act

– This act makes it unlawful for employers to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin.

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Overview of Compensation Laws (cont’d)Fair Labor Standards Act (1938)

– This act provides for minimum wages, maximum hours, overtime pay for nonexempt employees after 40 hours worked per week, and child labor protection.

– The law has been amended many times and covers most employees.

– It covers majority of worker engaged in• Production and sale of goods for interstate and

foreign commerce

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Some feature of FLSA

Overtime provisions– Applies to nonexempt employees who work

in excess of 40 hours/week– Overtime pay rate must be no less than 1.5

times the employees regular pay rate.

Exempt/non exempt– Specific categories of employees are exempt

from the act.– A person exemption is depends on his/her

responsibilities, duties and salary.

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Some feature of FLSA

Exempt employees• Not governed by minimum wage and overtime

requirements• Consist of those holding executive, administrative,

professional, and outside sales jobs

Nonexempt employees• Governed by minimum wage and overtime

requirements• Consists of all employees not considered exempt

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Who Is Exempt? Who Is Not Exempt?

Exempt Professionals– Attorneys– Physicians– Dentists– Pharmacists– Optometrists– Architects– Engineers– Teachers– Certified public accountants– Scientists– Computer systems analysts

Exempt Executives– Corporate officers– Department heads– Superintendents– General managers– Individual who is in sole charge

of an “independent establishment” or branch

Exempt Administrators Executive assistant to the

president Personnel directors Credit managers Purchasing agents Nonexempt

– Paralegals– Non licensed accountants– Accounting clerks– Newspaper writers– Working foreman/forewoman– Working supervisor– Lead worker– Management trainees– Secretaries– Clerical employees– Inspectors– Statisticians

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Overview of Compensation Laws (cont’d)

The Equal Pay Act– Passed as an amendment to the FLSA in

1963– Prohibits sex discrimination in pay– Unequal pay is allowed for equal work under

circumstances that are based on differences in:

• Seniority• Productivity• Merit • Any factor other than sex

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Overview of Compensation Laws (cont’d)Employee Retirement Income Security Act

(ERISA)– The law that provides government protection

of pensions for all employees with company pension plans. It also regulates vesting rights.

– vesting rights:• Employees who leave before retirement may claim

compensation from the pension planThe Age Discrimination in Employment

Act – Prohibits age discrimination against

employees who are 40 years of age and older in all aspects of employment, including compensation.

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Other legislation affecting compensationThe Americans with Disabilities Act

– Prohibits discrimination against qualified persons with disabilities in all aspects of employment, including compensation.

The Family and Medical Leave Act– Entitles eligible employees, both men and

women, to take up to 12 weeks of unpaid, job-protected leave for the birth of a child or for the care of a child, spouse, or parent.

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Compensation Policy IssuesWorkers’ compensation

– Designed to provide financial protection for individuals injured on the job

– Compensation is provided for:• Medical expenses• Lost wages from the time of injury until

their return to the job• Death, dismemberment, or permanent

disability– Payouts have more than tripled in the past 20

years.• Much of this increase is due to fraud.

– The fastest growing category of workers’ compensation claims is mental stress.

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Corporate Policies, Competitive Strategy,and Compensation

Aligned reward strategy– The employer’s basic task is to create a

bundle of rewards—a total reward package—specifically aimed at eliciting the employee behaviors the firm needs to support and achieve its competitive strategy.

– The HR or compensation manager will write the policies in conjunction with top management, in a manner such that the policies are consistent with the firm’s strategic aims.

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Compensation Policy IssuesPay for performancePay for seniorityThe pay cycleSalary increases and promotionsOvertime and shift payProbationary payPaid and unpaid leavesPaid holidaysSalary compressionGeographic costs of living differences

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Compensation Policy Issues (cont’d)

Salary compression– A salary inequity problem, generally

caused by inflation, resulting in longer-term employees in a position earning less than workers entering the firm today.

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Compensation Policy Issues (cont’d)

Geography– Employers handle cost-of-living

differentials way.– One is to give the transferred person a

nonrecurring payment.– Other pay differential in several ways.

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Compensation Policy Issues (cont’d)IBM example.It dominated its industry into the 1980s.But by 1990s, it was failing to exploit

new technologies and losing touch with its customers.

Its board hired Louis Gerstener as CEO.Its first strategic aim was to transform

IBM from a sluggish giant to a lean winner.

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IBM example

To change this situation, Gerstner’s team made four main change sin what become the firm's new strategic compensation plan.

The Market place Rule:– The company switched from its

pervious single salary structure to new different salary structure and merit budget for different job families.

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IBM example

Fewer job, evaluated differently, in broadband:– Second, IBM scraped its point factor

job evaluation system and its 24 traditional salary grade.

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IBM example

Mangers manage:– Manger rank employees on a variety of

factors (such as critical skills and results).

– Manager decide which factors are used and weights they are given.

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IBM example

Big stack for stockholders:– Every nonexecutive employee’s cash

compensation consisted of base salary.

– There was no concept of pay for performance.

– In new system, there are three performance appraisal rating:

• A top-rated employee receives two-and-one-half times the award of an employee within the lowest ranking.

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Equity and Its Impact on Pay RatesEquity theory

– Formulated by J. Stacy Adams– People form equity beliefs based on two

factors:• Inputs (I)

– Refer to the perceptions that people have concerning what they contribute to the job (e.g., skill and effort)

• Outputs (O)– Refer to the perceptions that people have regarding

the returns they get (e.g., pay) for the work they perform

– Comparison person is referred to as one’s “referent other”

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Equity and Its Impact on Pay Rates

The equity theory of motivation– States that if a person perceives an

inequity, the person will be motivated to reduce or eliminate the tension and perceived inequity.

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Inequity– Occurs when the ratio of outputs to inputs is

perceived to be unequal– When employees’ O/I ratios are less than

that of their referent others, they feel they are being underpaid.

– When employees’ O/I ratios are greater, they feel they are being overpaid.

Equity– Occurs when the ratio of outputs to inputs is

perceived to be equal

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Forms of EquityExternal equity

– How a job’s pay rate in one company compares to the job’s pay rate in other companies.

Internal equity– How fair the job’s pay rate is, when compared to other

jobs within the same company Individual equity

– How fair an individual’s pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company.

Procedural equity– The perceived fairness of the process and procedures

to make decisions regarding the allocation of pay.

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Impact of equity perceptions on employee behavior– Responses to feeling underpaid:

• Decrease inputs• Escape the situation

– Responses to feeling overpaid:• Just as satisfying as equity• Somewhat dissatisfying, but not nearly as

dissatisfying as underpayment

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