Fundamentals of Human
Resource Management
Ninth Edition
DeCenzo and Robbins
Chapter 11
Establishing Rewards and Pay Plans
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Introduction
⚫ People do what they do to satisfy some
need and they look for a payoff or reward. ⚫
The most obvious reward is pay, but there
are many others, including:
⚫ promotions
⚫ desirablework assignments
⚫ peer recognition
⚫ work freedom
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Introduction
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Types of Reward Plans
Intrinsic versus Extrinsic Rewards ⚫
Intrinsic rewards (personal satisfactions)
come from the job itself, such as: ⚫ pride in
one’s work
⚫ feelings of accomplishment
⚫ being part of a work team
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Types of Reward Plans
Intrinsic versus Extrinsic Rewards ⚫
Extrinsic rewards come from a source
outside the job
⚫ include rewards offered mainly by management
⚫ Money
⚫ Promotions
⚫ Benefits
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Types of Reward Plans
Financial versus Nonfinancial
Rewards ⚫ Financial rewards include:
⚫ wages
⚫ bonuses
⚫ profitsharing
⚫ pension plans
⚫ paid leaves
⚫ purchase discounts
⚫ Nonfinancial rewards emphasize making life on the
job more attractive; employees vary greatly on what
types they find desirable.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Types of Reward Plans
Performance-based versus Membership-Based
Rewards
⚫ Performance-based rewards are tied to specific job
performance criteria.
⚫ commissions
⚫ piecework pay plans
⚫ incentive systems
⚫ group bonuses
⚫ merit pay
⚫ Membership-based rewards such as cost-of-living
increases, benefits, and salary increases are offered
to all employees.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Compensation Administration
⚫ The process of managing a compensation
program so that the organization can attract,
motivate and retain competent employees
who perceive that the program is fair.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Compensation Administration
⚫ Job evaluation – the process used to
determine each job’s appropriate worth within
the organization.
⚫ Based on job analysis information.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Compensation Administration
Government Influence on Compensation
Administration
⚫ Fair Labor Standards Act: 1938 act which
requires
⚫ minimum wage
⚫ overtime pay
⚫ record-keeping
⚫ child labor restrictions
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Compensation Administration
Government Influence on Compensation
Administration
Fair Labor Standards Act
⚫ Exempt employees
⚫ include
professional and managerial employees
⚫ not covered under FLSA overtime provisions ⚫
Nonexempt employees
⚫ eligible
for premium pay (time and one-half) ⚫
when they work more than 40 hours in a week
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Compensation Administration
Government Influence on Compensation
Administration
⚫ Equal Pay Act of 1963 act requires that men
and women hired for the same job be paid
the same.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Compensation Administration
Government Influence on Compensation
Administration
⚫ Civil Rights Act:
⚫ broader
than Equal Pay Act
⚫ prohibits discrimination on the basis of gender ⚫
used to support comparable worth concept ⚫
Salaries should be established on the basis
of skill, responsibility, effort, and working
conditions.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Job Evaluation
⚫ Use of job analysis information to determine
the relative value of each job in relation to all
jobs within the organization.
⚫ The ranking of jobs
⚫ Labor market conditions
?
⚫ Collective bargaining
⚫ Individual skill differences
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Isolating Job Evaluation Criteria
⚫ Judgment is involved in defining what factors
should be used to compare jobs.
⚫ Typical criteria:
⚫ mental requirements
⚫ supervisory control
⚫ complexity
⚫ physical demands
⚫ personal contacts
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Isolating Job Evaluation Criteria
⚫ Typically jobs are grouped according to type
and compared within their group
⚫ clericaljobs
⚫ sales jobs
⚫ professional jobs
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Job Evaluation Methods
⚫ Ordering method: A committee
places jobs in a simple rank order
from highest (worth highest pay)
to lowest.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Job Evaluation Methods
⚫ Classification method:
⚫ Jobs are placed in classification grades ⚫
Compare their descriptions to the classification
description and benchmarked jobs
⚫ Look for a common denominator such as skills,
knowledge, or responsibility
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Job Evaluation Methods
⚫ Point method:
⚫ Jobs are rated and allocated points on several
identifiable criteria, using clearly defined rating
scales.
⚫ Jobs with similar point totals are placed in
similar pay grades.
⚫ Offers the greatest stability.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Establishing the Pay
Structure ⚫ Compensation
surveys
⚫ Used to gather factual data on pay rates for
other organizations
⚫ Information is often collected on associated
employee benefits as well
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Establishing the Pay Structure
⚫ Wage curves
⚫ Drawn by plotting job evaluation data (such as job
points or grades) against pay rates (actual or from
survey data).
⚫ Indicate whether the pay structure is logical
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Job Evaluation and the Pay
Structure
Establishing the Pay Structure
⚫ Wage structure
⚫ Designates pay ranges for groups of jobs which
are
⚫ similar
in value to the organization
⚫ grouped by their classifications, grades or points. ⚫
Results in a logical hierarchy of wages, consisting
of ranges that overlap.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Incentive Compensation Plans
Incentives can be added to the basic pay
structure to provide rewards for
performance.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Incentive Compensation Plans
⚫ Individual Incentives include
⚫ merit pay plans (annual increase, based on
performance)
⚫ piecework plans (pay based on number of units
produced typically in a specified time period.) ⚫
time-savings bonuses and commissions
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Incentive Compensation Plans
Individual Incentives:
⚫ Work best where clear objectives can be set and
tasks are independent.
⚫ Many organizations today require employees to
place a percentage of their salary “at risk” so that
merit pay does not become a substitute for
automatic cost-of-living raises.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Incentive Compensation Plans
⚫ Group Incentives
⚫ Incentives can be offered to groups, rather than
individuals, when employees' tasks are
interdependent and require cooperation.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Incentive Compensation Plans:
⚫ Plant-wide Incentives:
⚫ Direct employee efforts toward organizational goals
(such as cost reduction)
⚫ Scanlon Plan - supervisor and employee committees
suggest labor-saving improvements
⚫ IMPROSHARE - formula is used to determine bonuses
based on labor cost savings
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Paying for Performance
⚫ Pay is based on some measure of
performance.
⚫ Common performance measures are:
⚫ piece-rate plans
⚫ gainsharing
⚫ wage incentive plans
⚫ profit sharing
⚫ lump sum bonuses
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Paying for Performance
⚫ Competency-based compensation
⚫ Rewarded for skills, knowledge and behaviors
⚫ leadership
⚫ problem solving
⚫ decision making
⚫ strategic planning
⚫ Broad-banding - pre-set pay levels that
determine what people are paid based upon the
type and level of competencies they possess.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Special Cases of
Compensation
Team-Based Compensation
⚫ Incentivesfor empowered work teams to exceed
established goals and share equally in rewards. ⚫
Depends on:
⚫ clarity of team purpose and goals
⚫ ability of the team to obtain needed resources
⚫ effective team communication skills and trust
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Executive Compensation
Programs
Salaries of Top Managers
⚫ Executive salaries, bonuses and stock options
may seem high.
⚫ Top twenty CEOs average more than $100
million in total compensation.
⚫ Competition for executive talent raises the
price of hiring an executive.
⚫ High salaries can be a motivator for
executives and lower-level managers
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Executive Compensation
Programs
Supplemental Financial Compensation ⚫
Deferred bonuses – paid to executives over
extended time periods, to encourage them to stay
with the company.
⚫ Stock options – allow executives to purchase
stock in the future at a fixed price.
⚫ Hiring bonuses – compensate for the deferred
compensation lost when leaving a former
company.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Executive Compensation
Programs
Supplemental Nonfinancial Compensation:
Perquisites
⚫ Perks may include:
⚫ paid life insurance
⚫ club memberships
⚫ company cars
⚫ expense accounts
⚫ interest-free loans
⚫ free financial
⚫ legal and tax counseling
⚫ mortgage assistance
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
Executive Compensation
Programs
⚫ Supplemental Nonfinancial
Compensation: Perquisites
⚫ Golden parachutes protect executives when a
merger or hostile takeover occurs by providing
severance pay or a guaranteed position.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
International Compensation
⚫ Important to understand the statutory
requirements of each country.
⚫ International compensation packages
generally utilize the “balance-sheet
approach,” using the four factors
below: ⚫ Base Pay
⚫ Differentials
⚫ Incentives
⚫ Assistance Programs
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
International Compensation
⚫ Base Pay: The pay of employees in
comparable jobs at home.
⚫ Differentials: Compensation given to offset
higher costs of living abroad.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
International Compensation
⚫ Incentives:Inducements given to
encourage employees to accept overseas
assignments.
⚫ Assistance Programs: Payment for
expenses involved in moving a family abroad
and in providing some services overseas.
Fundamentals of Human Resource Management 9e, DeCenzo and Robbins
