Dessler Ch11

After studying this chapter, you should be able to:
Human Resource
Management
ELEVENTH EDITION
1. List the basic factors in determining pay rates.

2. Explain in detail how to establish pay rates.
3. Explain how to price managerial and professional jobs.
GARY DESSLER
4. Discuss competencycompetency-based pay and other current

trends in compensation.
Part 4 | Compensation
Chapter 11
Establishing Strategic Pay Plans

2008 Prentice Hall, Inc.
All rights reserved.
PowerPoint Presentation by Charlie Cook

The University of West Alabama
2008 Prentice Hall, Inc. All rights reserved.
Legal Considerations in Compensation
Basic Factors in Determining

Pay Rates
Employee
Compensation
Davis-Bacon Act (1931)
Equal Pay Act (1963)
Walsh-Healey Public
Contract Act (1936)
Employee Retirement
Income Security Act (ERISA)
Title VII of the 1964

Civil Rights Act
Direct Financial
Payments
112
Indirect Financial
Payments
Employee
Compensation
Age Discrimination in
Employment Act
Fair Labor Standards Act

(1938)
Americans with
Disabilities Act
The Family and Medical

Leave Act
The Social Security Act of

1935 (as amended)
Workers Compensation
FIGURE 111
113
Who Is Exempt? Who Is Not Exempt?
Exempt Professionals
Attorneys
Physicians
Dentists
Pharmacists
Optometrists
Architects
Engineers
Teachers
Certified public accountants
Scientists
Computer systems analysts
Nonexempt
Paralegals
Nonlicensed accountants
Accounting clerks
Newspaper writers
Exempt Executives
Corporate officers
Supervisors
Source: Jeffrey Friedman, The Fair Labor Standards Act Today: A Primer,
Compensation, January/ February 2002, p. 53. Reprinted with permission of Sage
Publications, Inc. Note: These lists are general in nature, and exceptions exist. Any
questionable allocation of exemption status should be reviewed by labor legal counsel.
FIGURE 112
Superintendents
General managers
Individual who is in sole charge of an
independent establishment or
branch
114
Primary Duties of White-Collar Exempt Positions
Executive (Three Duties Are Required)

1. Management of the enterprise in which the employee is employed or of a permanent
department or subdivision; AND
2. Who customarily and regularly directs the work of two or more other employees; AND
3. Who has the authority to hire or fire other employees or whose suggestions and
recommendations are given particular weight.
Nonexempt
Working foreman/forewoman
Working supervisor
Lead worker
Management trainees
Administrative (Both Duties Are Required)

1. Performance of office or nonmanual work directly related to the management or
general business operations of the employer or the employers customers; AND
2. The exercise of discretion and independent judgment with respect to matters of
significance.
Exempt Administrators
Executive assistant to the president
Personnel directors
Accountants
Purchasing agents
Professional (Either Duty Is Sufficient)

1. Performance of work requiring knowledge of an advanced type in a field of
science or learning customarily acquired by a prolonged course of specialized
intellectual instructions; OR
2. Performance of work requiring invention, imagination, originality, or talent in a
recognized field of artistic or creative endeavor.
Nonexempt
Secretaries
Clerical employees
Inspectors
Statisticians
Source: Andr Honore, The New Fair Labor Standards Act Regulations and the Sales Force:
Who is Entitled to Pay?, Compensation & Benefits Review, January/February 2006, p. 31.
115
Reprinted by permission of
Sage Publications, Inc.
116
FIGURE 113
Independent
Contractor
Corporate Policies, Competitive Strategy,

and Compensation
Aligned Reward Strategy
The employers basic task:
To create a bundle of rewards

rewardsa total reward package
package
that specifically elicits the employee behaviors that the firm
needs to support and achieve its competitive strategy.
The HR or compensation manager along with top
management creates pay policies that are consistent

with the firms strategic aims.
Source: Reprinted from www.HR.BLR.com

with permission of the publisher Business
and Legal Reports Inc., 141 Mill Rock Road
East, Old Saybrook, CT 2004.
TABLE 111
117
Developing an Aligned Reward Strategy
118
Compensation Policy Issues
Questions to Ask:
Pay for performance
1. What must our company do to be successful in fulfilling its

mission or achieving its desired competitive position?
Pay for seniority
2. What are the employee behaviors or actions necessary to

successfully implement this competitive strategy?
The pay cycle
3. What compensation programs should we use to reinforce those

behaviors? What should be the purpose of each program in
reinforcing each desired behavior?
Overtime and shift pay
4. What measurable requirements should each compensation

program meet to be deemed successful in fulfilling its purpose?
Paid and unpaid leaves
5. How well do our current compensation programs match these

requirements?
Salary compression
Salary increases and promotions

Probationary pay
Paid holidays
Geographic costs of living differences
Source: Adapted from Jack Dolmat-Connell, Developing a Reward Strategy that Delivers Shareholder
and Employee Value, Compensation and Benefits Review, MarchApril 1999, p. 51.
119
Equity and Its Impact on Pay Rates
1110
Addressing Equity Issues

Salary Surveys
Forms of Equity
Methods to
Address Equity
Issues
External
Equity
Internal
Equity
Individual
Equity
Procedural
Equity
Job Analysis and

Job Evaluation
Performance Appraisal
and Incentive Pay
Communications, Grievance
Mechanisms, and Employees
Participation
1111
1112
Establishing Pay Rates
The Salary Survey
Steps in Establishing Pay Rates

1
Conduct a salary survey of what other employers are

paying for comparable jobs (to help ensure external equity).
Determine the worth of each job in your organization

through job evaluation (to ensure internal equity).
Group similar jobs into pay grades.
Price each pay grade by using wave curves.
Fine-tune pay rates.
Step 1. The Wage Survey:

Uses for Salary Surveys
To price
benchmark
jobs
1113
Sources of Wage and

Salary Information
Employer SelfConducted
Surveys
Consulting
Firms
Professional
Associations
Government
Agencies
The
Internet
1115
Establishing Pay Rates (contd)
To make
decisions
about benefits
TABLE 112
Sources for Salary Surveys
To marketprice wages
for jobs
1114
Some Pay Data Web Sites
Sponsor
Internet Address
What It Provides
Downside
Salary.com
Salary.com
Salary by job and zip code,

plus job and description, for
hundreds of jobs
Adapts national averages

by applying local cost-ofliving differences
Wageweb
www.wageweb.com
Average salaries for more

than 150 clerical, professional,
and managerial jobs
Charges $169 for

breakdowns by industry,
location, etc.
U.S. Office of
Personnel
Management
www.opm.gov/oca/
07tables/
Salaries and wages for U.S.

government jobs, by location
Limited to U.S. government

jobs
Job Smart
http://jobstar.org/tools/
salary/sal-prof.php
Profession-specific salary
surveys
Necessary to review
numerous salary surveys
for each profession
moving.com
moving.com
Median salaries for thousands

of jobs, by city
Doesnt consider factors

like company size or
benefits
cnnmoney.com
cnnmoney.com
Input your current salary and

city, and this gives you
comparable salary in
destination city
Based on national averages

adapted to cost of living
differences
1116

Preparing for the Job Evaluation
Skills
Identifying the need for the job evaluation
Getting the cooperation of employees
Choosing an evaluation committee
Performing the actual evaluation
Effort
Step 2. Job Evaluation:
Identifying
Compensable Factors
Responsibility
Working Conditions
1117
1118
Job Evaluation Methods: Ranking

Ranking each job relative to all other jobs,
usually based on some overall factor.
Methods for
Evaluating Jobs
Steps in job ranking:

1. Obtain job information.
2. Select and group jobs.
Job
Classification
Ranking
Point
Method
Factor
Comparison
3. Select compensable factors.

4. Rank jobs.
5. Combine ratings.
TABLE 113
1119
Job Ranking by Olympia Health Care
Ranking Order
1120
Job Evaluation Methods:

Job Classification
Annual Pay Scale
1. Office manager
Raters categorize jobs into groups or classes of

jobs that are of roughly the same value for pay
purposes.
$43,000
2. Chief nurse
42,500
3. Bookkeeper
34,000
4. Nurse
32,500
5. Cook
31,000
6. Nurses aide
28,500
7. Orderly
25,500
Classes contain similar jobs.

Administrative assistants
Grades are jobs similar in difficulty but otherwise
different.
Mechanics, welders, electricians, and machinists
Jobs are classed by the amount or level of
compensable factors they contain.

FIGURE 114
1121
Example of a Grade Level Definition
1122
Job Evaluation Methods: Point Method

A quantitative technique that involves:
Identifying the degree to which each compensable
factor is present in the job.

Awarding points for each degree of each factor.
Calculating a total point value for the job by adding
up the corresponding points for each factor.

This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance
work. Do not use this chart alone for classification purposes; additional grade level criteria are in the
Web-based chart.
Source: www.opm.gov/fedclass/gscler.pdf. Accessed May 18, 2007.

1123
1124

Step 4. Price Each Pay Grade
GradeWage Curve
Shows the pay rates paid for jobs in each pay grade,
relative to the points or rankings assigned to each

job or grade by the job evaluation.
Point Method
Step 3. Group
Similar Jobs
into Pay Grades
Shows the relationships between the value of the job
Ranking Method
as determined by one of the job evaluation methods

and the current average pay rates for your grades.
Classification Methods
1125
FIGURE 115
Plotting a
Wage Curve
1126

Step 5. FineFine-Tune Pay Rates
Developing pay ranges
Flexibility in meeting external job market rates.
Easier for employees to move into higher pay grades.
Allows for rewarding performance differences and seniority.
Correcting outout-of
of--line rates
1127
FIGURE 116
Wage Structure
Raising underpaid jobs to the minimum of the rate range for

their pay grade.
Freezing rates or cutting pay rates for overpaid (red circle)

jobs to maximum in the pay range for their pay grade.
TABLE 114
1128
Federal Government Pay Schedule: Grades GS-8, GS-9, GS-10,

GS-11 for Dallas-Fort Worth, Texas
EFFECTIVE JANUARY 2007

Annual Rates by Grade and Step
1129
GS-8
41,246
42,621
43,997
45,372
46,747
48,122
49,498
50,873
52,248
GS-9
45,556
47,074
48,593
50,111
51,630
53,148
54,666
56,185
57,703
59,221
GS-10
50,169
51,841
53,513
55,185
56,857
58,529
60,201
61,873
63,545
65,218
GS-11
55,119
56,957
58,794
60,632
62,469
64,307
66,145
67,982
69,820
71,657
Source: http://opm.gov/oca/07tables/pdf/DFW.pdf. Accessed May 18, 2007.

53,623
1130
FIGURE 117
Compensation
Administration
Checklist
Pricing Managerial and Professional Jobs

Compensating Executives
and Managers
Base
Pay
Source: Reprinted from www.HR.BLR.com

with permission of the publisher Business
and Legal Reports Inc., 141 Mill Rock
Road East, Old Saybrook, CT 2004.
1131
Short-term
Incentives
Long-Term
Incentives
Executive
Benefits and
Perks
1132
Pricing Managerial and Professional Jobs
Compensating Professional Employees
What Really Determines Executive Pay?
Employers can use job evaluation for

professional jobs.
CEO pay is set by the board of directors taking into
account factors such as the business strategy,

corporate trends, and where they want to be in the
short and long term.
Firms pay CEOs based on the complexity of the jobs
they filled.
Boards are reducing the relative importance of base
salary while boosting the emphasis on performanceperformancebased pay.
1133
Competency--Based Pay
Competency
Compensable factors focus on problem solving,

creativity, job scope, and technical knowledge
and expertise.
Firms use the point method and factor
comparison methods, although job classification
seems most popular.
Professional jobs are marketmarket-priced to establish
the values for benchmark jobs.
1134
Competency--Based Pay (contd)

Competency
Competencies
Demonstrable characteristics of a person, including
Why Use CompetencyBased Pay?
knowledge, skills, and behaviors, that enable

performance.
What is CompetencyCompetency-Based Pay?

Paying for the employees range, depth, and types of
skills and knowledge, rather than for the job title he

or she holds.
Support HighPerformance
Work Systems
1135
Support
Strategic Aims
Support
Performance
Management
1136
Competency--Based Pay in Practice

Competency
Competency--Based Pay: Pros and Cons

Competency
Main elements of skill/competency/knowledge

skill/competency/knowledge
based pay programs:
Pros
1. A system that defines specific skills, and a process
for tying the persons pay to his or her skill.
Higher quality
Lower absenteeism
Fewer accidents
2. A training system that lets employees seek and
Cons
acquire skills.
3. A formal competency testing system.
Pay program implementation problems
4. A work design that lets employees move among
Costs of paying for unused knowledge, skills, and
behaviors
jobs to permit work assignment flexibility.
Complexity of program
Uncertainty that the program improves productivity
1137
1138
FIGURE 118
Broadbanded
Structure and
How It Relates
to Traditional
Pay Grades
and Ranges
Other Compensation Trends

Broadbanding
Consolidating salary grades and ranges into just a
few wide levels or bands, each of which contains a

relatively wide range of jobs and salary levels.
Pro and Cons
More flexibility in assigning workers to different job grades.
Provides support for flatter hierarchies and teams.
Promotes skills learning and mobility.
Lack of permanence in job responsibilities can be unsettling

to new employees.
1139
Other Compensation Trends (contd)
The Pay Gap
Comparable Worth
Factors Lowering the Earnings of Women:
Refers to the requirement to pay men and women
1140
Womens starting salaries are traditionally lower.
equal wages for dissimilar jobs that are of

comparable (rather than strictly equal) value to the
employer.
Salary increases for women in professional jobs do
not reflect their aboveabove-average performance.

In whitewhite-collar jobs, men change jobs more
Seeks to address the issue that women have jobs
that are dissimilar to those of men and those jobs are

often consistently valued less than mens jobs.
frequently, enabling them to be promoted to higherhigherlevel jobs over women with more seniority.
In blueblue-collar jobs, women tend to be placed in
departments with lowerlower-paying jobs.
1141
1142
Board Oversight of Executive Pay
Improving Productivity Through HRIS:

Automating Compensation Administration
Factors Influencing Executive Compensation

FASB requirements for expensing of stock options at
fair market value.
Benefits of Compensation Automation:

Allows for quick updating of compensation programs.
Increased SEC reporting requirements for
Eliminates costs of formerly manual processes.
compensation--related information.
compensation
Coordinates centralized compensation budgets to
Increased executive liability for accuracy in corporate
prevent overages in compensation and raises.
financial reporting under the Sarbanes Oxley Act.

Shareholder activism protesting excessive executive
Can integrate and automatically administer other pay
compensation due to lack of independence by

executive board compensation committees.
actions.
1143
1144
KEY TERMS
employee compensation
direct financial payments
indirect financial payments
Davis--Bacon Act (1931)
Davis
Walsh--Healey Public Contract Act
Walsh
(1936)
Title VII of the 1964 Civil Rights Act
Fair Labor Standards Act (1938)
Equal Pay Act (1963)
Employee Retirement Income
Security Act (ERISA)
salary compression
salary survey
benchmark job
job evaluation
compensable factor
ranking method
job classification (or grading) method
classes
grades
grade definition
point method
factor comparison method
pay grade
wage curve
pay ranges
competency--based pay
competency
competencies
broadbanding
comparable worth
1145
Human Resource
Management
ELEVENTH EDITION
GARY DESSLER
Part 4 | Compensation
Appendix for Chapter 11
Quantitative Job Evaluation Methods

2008 Prentice Hall, Inc.
All rights reserved.
FIGURE 11A1
Quantitative Job Evaluation Methods
PowerPoint Presentation by Charlie Cook

The University of West Alabama
Sample Definitions of Five Factors Typically Used in Factor Comparison Method
1. Mental Requirements
Factor Comparison Job Evaluation Method
Either the possession of and/or the active application of the following:

A. (inherent) Mental traits, such as intelligence, memory, reasoning, facility in verbal expression,
ability to get along with people, and imagination.
B. (acquired) General education, such as grammar and arithmetic; or general information as to sports, world
events, etc.
C. (acquired) Specialized knowledge such as chemistry, engineering, accounting, advertising, etc.
Step 1. Obtain job information

Step 2. Select key benchmark jobs
2. Skill Requirements
Step 3. Rank key jobs by factor
A. (acquired) Facility in muscular coordination, as in operating machines, repetitive movements, careful

coordinations, dexterity, assembling, sorting, etc.
B. (acquired) Specific job knowledge necessary to the muscular coordination only; acquired by
performance of the work and not to be confused with general education or specialized knowledge.
It is very largely training in the interpretation of sensory impressions.
Examples
1. In operating an adding machine, the knowledge of which key to depress for a subtotal would be skill.
2. In automobile repair, the ability to determine the significance of a knock in the motor would be skill.
3. In hand-firing a boiler, the ability to determine from the appearance of the firebed how coal should be
shoveled over the surface would be skill.
Step 4. Distribute wage rates by factors

Step 5. Rank key jobs according to wages
assigned to each factor
Step 6. Compare the two sets of rankings to
screen out unusable key jobs
3. Physical Requirements
Step 7. Construct the jobjob-comparison scale
A. Physical effort, such as sitting, standing, walking, climbing, pulling, lifting, etc.; both the amount
exercised and the degree of the continuity should be taken into account.
B. Physical status, such as age, height, weight, sex, strength, and eyesight.
Step 8. Use the jobjob-comparison scale

1147
Source: Jay L. Otis and Richard H. Leukart, Job Evaluation: A Basis for Sound Wage Administration,
p. 181. 1954, revised 1983. Reprinted by permission of Prentice Hall, Upper Saddle River, NJ.
1148
FIGURE 11A1
Sample Definitions of Five Factors Typically Used in Factor Comparison Method (contd)
TABLE 11A1
Ranking Key Jobs by Factors1
4. Responsibilities
A.
B.
C.
D.
E.
F.
1.
For raw materials, processed materials, tools, equipment, and property.

For money or negotiable securities.
For profits or loss, savings or methods improvement.
For public contact.
For records.
For supervision.
Primarily the complexity of supervision given to subordinates; the number of subordinates is a secondary
feature. Planning, direction, coordination, instruction, control, and approval characterize this kind of supervision.
2. Also, the degree of supervision received. If Jobs A and B gave no supervision to subordinates,
but A received much closer immediate supervision than B, then B would be entitled to a higher rating than A in
the supervision factor.
To summarize the four degrees of supervision:
Highest degreegives muchgets little
High degreegives muchgets much
Low degreegives nonegets little
Lowest degreegives nonegets much
Mental
Requirements
Physical
Requirements
Skill
Requirements
Responsibility
Welder
Crane operator
Working
Conditions
Punch press operator
Security guard
11
is high, 4 is low.
5. Working Conditions
A. Environmental influences such as atmosphere, ventilation, illumination, noise, congestion,
fellow workers, etc.
B. Hazardsfrom the work or its surroundings.
C. Hours.
Source: Jay L. Otis and Richard H. Leukart, Job Evaluation: A Basis for Sound Wage Administration,
p. 181. 1954, revised 1983. Reprinted by permission of Prentice Hall, Upper Saddle River, NJ.
TABLE 11A2
1149
Ranking Key Jobs by Wage Rates1
Welder
TABLE 11A3
Requirements
Hourly
Wage
Mental
Physical
Skill
Responsibility
Working
Conditions
$9.80
4.00(1)
0.40(4)
3.00(1)
2.00(1)
0.40(2)
Crane operator
$5.60
1.40(3)
2.00(1)
1.80(3)
0.20(4)
0.20(4)
$6.00
1.60(2)
1.30(3)
2.00(2)
0.80(2)
0.30(3)
Security guard
11
$4.00
1.20(4)
1.40(2)
0.40(4)
0.40(3)
0.60(1)
1150
Comparison of Factor and Wage Rankings
Mental
Requirements
Physical
Requirements
Skill
Requirements
Responsibility
Working
Conditions
A1
$2
A1
$2
A1
$2
A1
$2
A1
Welder
$2
2
Crane operator
is high, 4 is low.
TABLE 11A4
1151
Job (Factor) Comparison Scale
Mental Requirements
Physical Requirements
Skill Requirements
0.20
Working Conditions
Crane Operator
Crane Operator
Sec. Guard
1Amount
of each factor based on step 3.
2Ratings
based on distribution of wages to each factor from step 5.
1152
Step 1. Determine clusters of jobs to be

evaluated
Punch Press Operator

Welder
Security guard
The Point Method of Job Evaluation

Responsibility
0.30
0.40
Sec. Guard
Welder
0.50
0.60
Sec. Guard
0.70
0.80
Step 2. Collect job information
0.90
1.00
(Plater)
1.10
1.20
1.30
1.40
Step 3. Select compensable factors
Sec. Guard
Crane Operator
1.50
Sec. Guard
(Inspector)
(Plater)
(Inspector)
1.60
1.70
(Plater)
1.80
(Inspector)
Crane Operator
(Inspector)
Welder
Step 4. Define compensable factors

Step 5. Define factor degrees
1.90
2.00
Crane Operator
2.20
2.40
(Plater)
(Inspector)
(Plater)
Step 6. Determine relative values of factors
2.60
2.80
3.00
Welder
3.20
3.40
3.60
3.80
4.00
Welder
1153
1154
FIGURE 11A2
Example of
One Factor
(Complexity/
Problem
Solving) in
a Point Factor
System
TABLE 11A5
Source: Richard W.
Beatty and James R.
Beatty, Job Evaluation,
in Ronald A. Berk (ed.),
Performance
Assessment: Methods
and Applications
(Baltimore, MD: Johns
Hopkins University
Press, 1986), p. 322.
Evaluation Points Assigned to Factors and Degrees
FirstDegree
Points
SecondDegree
Points
ThirdDegree
Points
FourthDegree
Points
FifthDegree
Points
Decision making
41
82
123
164
204
Problem solving
35
70
105
140
174
Knowledge
24
48
72
96
123
Reprinted by
permission.
1155
1156
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After studying this chapter, you should be able to:

1. List the basic factors in determining pay rates.

4. Discuss competencycompetency-based pay and other current

Establishing Strategic Pay Plans

PowerPoint Presentation by Charlie Cook

2008 Prentice Hall, Inc. All rights reserved.

Legal Considerations in Compensation

Basic Factors in Determining

Davis-Bacon Act (1931)

Equal Pay Act (1963)

Title VII of the 1964

Fair Labor Standards Act

The Family and Medical

The Social Security Act of

2008 Prentice Hall, Inc. All rights reserved.

Who Is Exempt? Who Is Not Exempt?

2008 Prentice Hall, Inc. All rights reserved.

2008 Prentice Hall, Inc. All rights reserved.

Primary Duties of White-Collar Exempt Positions

Executive (Three Duties Are Required)

Administrative (Both Duties Are Required)

Professional (Either Duty Is Sufficient)

2008 Prentice Hall, Inc. All rights reserved.

Corporate Policies, Competitive Strategy,

To create a bundle of rewards

The HR or compensation manager along with top

management creates pay policies that are consistent

Source: Reprinted from www.HR.BLR.com

Developing an Aligned Reward Strategy

2008 Prentice Hall, Inc. All rights reserved.

Compensation Policy Issues

Pay for performance

1. What must our company do to be successful in fulfilling its

Pay for seniority

2. What are the employee behaviors or actions necessary to

The pay cycle

3. What compensation programs should we use to reinforce those

Overtime and shift pay

4. What measurable requirements should each compensation

Paid and unpaid leaves

5. How well do our current compensation programs match these

Salary increases and promotions

Equity and Its Impact on Pay Rates

2008 Prentice Hall, Inc. All rights reserved.

Addressing Equity Issues

Job Analysis and

2008 Prentice Hall, Inc. All rights reserved.

2008 Prentice Hall, Inc. All rights reserved.

Establishing Pay Rates

The Salary Survey

Steps in Establishing Pay Rates

Conduct a salary survey of what other employers are

Determine the worth of each job in your organization

Group similar jobs into pay grades.

Price each pay grade by using wave curves.

Fine-tune pay rates.

Step 1. The Wage Survey:

2008 Prentice Hall, Inc. All rights reserved.

Sources of Wage and

2008 Prentice Hall, Inc. All rights reserved.

Establishing Pay Rates (contd)

2008 Prentice Hall, Inc. All rights reserved.

Sources for Salary Surveys

Some Pay Data Web Sites