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Human Resource Management

Compensation and Benefits

Compensation
Hot topics
Compensation Management
Benefits

Hot or Warm Topics


Executive compensation - Are
corporate executives overpaid or
underpaid?
Sex discrimination and comparable
worth
Open vs. secret pay plans
Skill-based compensation plans
Team vs. individual pay

Executive Compensation (2005)


Rank
1
2
3
4
5
6
7
8
9
10
11
12

Name
Richard D Fairbank
Terry S Semel
Henry R Silverman
Bruce Karatz
Richard S Fuld Jr
Ray R Irani
Lawrence J Ellison
John W Thompson
Edwin M Crawford
Angelo R Mozilo
John T Chambers
R Chad Dreier

Company
Capital One
Yahoo
Cendant
KB Home
Lehman Bros
Occidental Pet
Oracle
Symantec
Caremark Rx
Countrywide
Cisco Systems
Ryland Group

Pay ($mil)
249.42
230.55
139.96
135.53
122.67
80.73
75.33
71.84
69.66
68.95
62.99
56.47

5-Yr Pay ($mil)


448.58
258.29
279.21
227.37
375.81
198.44
868.93
131.65
161.85
160.14
103.44
150.22

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html

Executive Compensation (2008)


Average compensation for 200 chief executives at America's largest
public companies was $10.8 million
Sanjay Jha
Larry Ellison
Robert Iger
Kenneth Chenault
Vikram Pandit
Mark Hurd
Jack Fusco
Rupert Murdoch
David Cote
A.G. Lafley

Motorola
$104.4 million
Oracle
$84.6 million
Walt Disney
$51.1 million
American Express
$42.8 million
Citigroup
$38.2 million
Hewlett-Packard
$34.0 million
Calpine
$32.7 million
News Corp.
$30.1 million
Honeywell International
$28.7 million
Procter & Gamble
$25.6 million

CEO Compensation Compared to


Average Production Worker
2007
2006
2005
2004
2003
2001
1990
1982
1970

344 to 1
364 to 1
465 to 1
431 to 1
301 to 1
525 to 1
107 to 1
42 to 1
28 to 1

Since 1990, if the minimum wage rate had risen at the same rate as
CEO pay, minimum wage would now be $23.03 instead of $7.25.
http://money.cnn.com/2005/08/26/news/economy/ceo_pay/

Europe's 25 Highest-Paid
CEOs(2005)
1. Lindsay Owen-Jones, L'Oreal (France), $28.3M
2. John Browne, BP (Britain), $14.0M
3. Arun Sarin, Vodaphone (Britain), $12.2M
4. Henri De Castries, AXA (France), $9.1M
5. Josef Ackermann, Deutsche Bank (Germany), $8.4M

http://www.timeinc.net/fortune/information/presscenter/fortune/press_releases
/20050627H_europe.html

% Change
1988-2005
Australia 292%
Belgium 157
Canada 152
France 197
Germany 187
Italy
232
Japan
8
Netherlands118
New Zealand -Spain
98
Sweden 304
Switzerland172
UK
161
US
169

CEO Pay/Relative to
Worker Pay (2005)*US CEO (2005)
15.6
33%
18
46
23.1
49
22.8
56
20.1
55
25.9
53
10.8
25
17.8
40
24.9
18
17.2
32
19.2
44
19.3
64
31.8
55
39

* Ratio of CEO compensation to the compensation of manufacturing production workers.


Source: Authors analysis of Towers Perrin (1988, 2003, and 2005).

The Wage Gap Over Time


Year

Women's
Earnings

Men's
Dollar
Percent
Earnings Difference

2005

$31,858

$41,386

$9,528

77.0%

2004* $32,285

$42,160

$9,875

76.6%

2003

$30,724

$40,668

$9,944

75.5%

2002

$30,203

$39,429

$9,226

76.6%

2001

$29,215

$38,275

$9,060

76.3%

2000

$27,355

$37,339

$9,984

73.3%

1999

$27,208

$37,701

$10,493

72.2%

1998

$27,290

$37,296

$10,006

73.2%

1997

$26,720

$36,030

$9,310

74.2%

1996

$25,919

$35,138

$9,219

73.8%

1995

$25,260

$35,365

$10,105

71.4%

1994

$25,558

$35,513

$9,955

72.0%

1993

$25,579

$35,765

$10,186

71.5%

1992

$25,791

$36,436

$10,645

70.8%

The Wage Gap Over Time


Year

Women's
Earnings

Men's
Dollar
Percent
Earnings Difference

1991

$25,457

$36,440

$10,983

69.9%

1990

$25,451

$35,538

$10,087

71.6%

1989

$25,310

$36,855

$11,545

66.0%

1988

$24,774

$37,509

$12,735

66.0%

1987

$24,663

$37,389

$12,726

65.2%

1986

$24,479

$38,088

$13,609

64.3%

1985

$23,978

$37,131

$13,153

64.6%

1984

$23,453

$36,842

$13,389

63.7%

1983

$22,961

$36,106

$13,055

63.6%

1982

$22,367

$36,224

$13,857

61.7%

1981

$21,830

$36,854

$15,024

59.2%

1980

$22,279

$37,033

$14,754

60.2%

1979

$22,446

$37,622

$15,176

59.7%

The Wage Gap Over Time


Year

Women's
Earnings

Men's
Dollar
Percent
Earnings Difference

1978

$22,617

$38,051

$15,005

59.4%

1977

$21,743

$36,901

$15,158

58.9%

1976

$21,738

$36,114

$14,376

60.2%

1975

$21,297

$36,207

$14,910

58.8%

1974

$21,419

$36,456

$15,037

58.8%

1973

$21,397

$37,381

$15,984

56.6%

1972

$21,185

$36,614

$15,429

57.9%

1971

$20,691

$34,771

$14,080

59.5%

1970

$20,567

$34,642

$14,075

59.4%

1969

$20,156

$34,241

$14,085

58.9%

1968

$18,836

$32,389

$13,553

58.2%

1967

$18,241

$31,568

$13,327

57.8%

1966

$17,874

$31,055

$13,181

57.6%

1965

$17,852

$29,791

$11,939

59.9%

http://www.pay-equity.org/info-time.html

Median Annual Earnings of Fulltime Workers (Bureau of Labor


Statistics, 2000 census)
Male Female
Physicians, surgeons
Lawyers
Judges, magistrates
Actuaries
Pharmacists
Teacher assistants
Cooks

$140,000
90,000
88,000
80,000
70,000
20,000
17.000

http://gblakely.com/BADM553/censr-15.pdf

88,000
66,000
50,000
56,000
63,000
15,000
15,000

Compensation Goals
Attracting good employees
Retaining good employees
Motivating employees
Complying with the law
Having a cost effective compensation
system

Compensation and the


Three Equities
External Equity
Attracting good employees

Internal Equity
Retaining good employees

Individual or Employee Equity


Motivating employees

External Equity
Attracting good employees
Labor Market Model
Market Surveys
http://salarysource.com/
http://swz.salary.com/

Pay strategy/policies

Internal Equity
Retaining good employees
Job Evaluation Techniques
Ranking
Jobs are compared to each other based on their overall
worth to the company. The worth of a job is usually
measured by judgments of skill, effort, responsibility, and
working conditions.
The advantage of the ranking method is that it is simple.
The disadvantages, similar to the ranking method of
performance appraisal, are that the intervals between the
ranks are assumed to be equal, the judgments are
global, and as the number of jobs for evaluation
increases it becomes increasingly difficult. Also, the
evaluators must have knowledge of all jobs.

Classification method
Jobs are classified into a grade/category structure. Each tier of
the structure has a description and associated job titles. For
example, the Westinghouse system had:

Grade 1 Unskilled ex. File clerk


Grade 2 Skilled ex. Typist, lathe operator
Grade 3 Interpretive ex. Chief clerk
Grade 4 Creative ex. Engineers, sales reps
Grade 5 Executive ex. Department heads
Grade 6 Administrative ex. Chief engineer, Director of R&D
Grade 7 Policy ex. Vice-president of Marketing

Each job is assigned to the grade/category providing the


closest match to the job. Standards are developed mainly
along occupational lines. The standards help identify and
describe key characteristics of occupations that are important
for distinguishing different levels of work.
Pay ranges are then assigned to grades.
The advantages of this method are that it is simple and has
been in use for many years.
Its disadvantages include the fact that classification judgments
are subjective, and the standard used for comparison may have
built-in biases. Also, some jobs may fit into more than one
grade/category or their descriptions are so broad that they do
not relate to specific jobs.

Factor Comparison
Select benchmark jobs.
Sets of compensable factors are identified as
determining the worth of jobs. The number of factors is
usually four or five and typically relate to skill,
responsibility, effort and working conditions.
Jobs are then ranked on each factor.
Wages are then allocated to the factors. The
organizations other jobs are then compared to the
benchmark jobs and rates of pay for each of the other
jobs.
Factor comparison has the advantage that the value of
the job is expressed in monetary terms, and the method
is applicable to a wide range of jobs.
The methods disadvantages are that the pay points for
each factor is based on subjective judgments.

Point Method
The point method is an extension of the factor
comparison method. Usually between eight
and fourteen compensable factors (typically
related to skill, effort, responsibility, and working
conditions) are identified as determining the
worth of jobs.
Factors are divided into degrees
Points are assigned the degrees
Benchmark jobs are compared to market rates

Individual or Employee Equity


Motivating performance

JOB ATTRIBUTE RANKING


Please rank, from 1 to 10 in order of importance, with 1 being the most important,
the following job attributes. In the first column indicate the rank in terms of your own
preferences and in the second column indicate how you think others will rank these
same job attributes.
Your Ranking
Others' Ranking
Advancement

_____

_____

Benefits

_____

_____

Company

_____

_____

Co-workers

_____

_____

Hours

_____

_____

Pay

_____

_____

Job Security

_____

_____

Supervisor
Type of Work
Working Conditions

_____
_____

_____
_____

_____

_____

JOB ATTRIBUTE RANKING

The following median rankings are based on the responses of 39,788 job applicants
(Minneapolis Gas Company).
MEN

WOMEN

Self

Others

Self

Others

Advancement

3.3

3.8

5.3

4.3

Benefits

6.8

5.2

8.0

5.9

4.5

6.8

4.6

Company
Co-workers

6.0

7.7

5.2

7.3

Hours

7.6

5.4

6.9

5.0

Pay

5.6

2.1

6.0

2.1

Job Security

2.5

3.6

4.9

5.4

6.3

7.4

5.3

4.9

1.5

3.5

7.9

6.9

6.5

Supervisor
Type of Work
Working Conditions

3.3

7.1

7.0

6.8

What Do Workers Want From Their Jobs?


Supervisors
Good working conditions
Feeling "in" on things
Tactful disciplining
Full appreciation for work done
Management loyalty to workers
Good wages
Promotion and growth with company
Sympathetic understanding of personal problems
Job security
Interesting work
1 = most important in job
10 = least important in job

(From Lawrence Lindahl, " What Makes a Good Job?", Personnel, (January 1949)

10
8
6
1
2

Workers
4

3
5

1
8
5
9

9
10

7
3
6

What do new graduates value in jobs?


Company culture
Advancement opportunities
Nature of work (e.g., challenging)
Training provided
Work/non-work balance
Monetary compensation
Benefits
Location
Vacation time
Level of job security
Size of company
International assignments
Rated on seven point scale (1 = not important to 7 = very important).
Source: Human Resource Management (2003), 42, p. 23-37.

6.2
6.0
5.9
5.7
5.5
5.3
5.2
5.0
4.6
3.9
3.7
3.3

What do applicants with college degrees want in jobs?


1993

1978

Type of work

2.2

1.5

Advancement

4.6

3.6

Co-workers

5.1

5.2

Company

5.7

4.4

Security

5.8

5.5

Location

6.2

Supervisor

6.3

5.5

Pay

6.3

5.2

Working conditions

7.2

7.2

Benefits

7.4

7.9

Hours

9.3

8.0

1993 sample = 623, 1978 sample = 4,535


Source: Journal of Occupational & Organizational Psychology (2003) , 66, p. 71-81

Individual or Employee Equity


Motivating performance
At the individual level
Pluses and minuses
Methods/techniques

At the organization level


Pluses and minuses
Methods/techniques

Compensation and the Legal


Environment
The Fair Labor Standards Act of 1938
Minimum Wage
Exempt vs. Non-exempt and overtime
http://www.ewin.com/articles/exneot.htm
http://www.dol.gov/elaws/esa/flsa/screen75.
asp

The Equal Pay Act of 1963

Benefits
The Cost of Benefits
Mandatory
Workers Compensation
https://www.brickstreet.com/default.aspx
Unemployment Insurance
Family Medical Leave
Social Security http://www.ssa.gov/
Retirement income
Disability income
Medicare
Survivor benefits
2006 rates
Social security 6.2% on first $94,200
Medicare 1.45% unlimited

Benefits
Non-mandatory
Insurance
Health

Cost escalation
COBRA
HIPAA
Types of health insurance
Traditional indemnity plans
HMO
PPO

Retirement
ERISA (1974)
Vesting
Full vesting after 5 years
20% per year after 3 years
Fiduciary standards
Pension Benefit Guarantee Corporation

Defined benefit
Defined contribution
401(k), 403(b)
http://invest-faq.com/articles/ret-plan-401k.html
IRA
SEP
Keogh

http://www.dallasfed.org/ca/wealth/3.html
http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

Benefits continued
Paid time off
Employee services

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