Week 3 The Pay Modjjjjjjjjelnnnnnnnnnnn.pptx

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1. The Pay Model Dony Firman Santosa , S.Stat ., M.M.

2. Compensation : Definition Forms of Pay The Pay Model Outline

3. Compensation : Entitlement, Return & Reward (multiple meanings) China  dai yu  how you’re being treated Your wages, benefit, training opportunity & so on. Japan  teate  taking care of something Compensation that takes care of employees’ financial needs. This concept is consistent with the family, housing & commuting allowances that are still used in many Japanese companies. Compensation : Definition

4. Compensation : Definition

5. Some people see pay as a measure of justice For example, a comparison of earnings between men and women highlights what many consider inequities in pay decisions In 2007, among full-time workers in the U.S, women earned 80% of what men earned, up from 62% in 1979. If women had the same education , experience, and union coverage as men and also worked in the same industries and occupations , they would be expected to earn about 90% of what men earned. Perspective of Society

6. Stockholder are also interested in how employees are paid. Some believe that using stock to pay employees creates a sense of ownership that will improve performance, which will, in turn, increase stockholder wealth. But others argue that granting employees too much ownership dilutes stockholder wealth. Perspective of Stockholders

7. For managers, compensation influences their success in two ways. First, it is a major expense  Labor costs can account for more than 50% of total costs. For example, small neighborhood grocery stores , with labor cost between 15 – 18%, have been driven out of business by supermarkets that delivered the same products at a lower cost of labor (9 – 12%). Supermarkets today are losing market share to the warehouse club stores such as Sam’s Club and Costco , who enjoy an even lower cost of labor (4 – 6%), even though Costco pays above-average wages for the industry Thus, rather than treating pay only as an expense to be minimized, a manager can also use it to influence employee behaviours and to improve the organization’s performance. Perspective of Managers

8. Case Study

9. The pay individuals receive in return for the work they perform is usually the major source of their financial security Hence, pay plays a vital role in person’s economic and social well-being Employee may seen compensation as : Return in an exchange between their employer and themselves An entitlement for being an employee of the company A reward for a job well done Perspective of Employees

10. Total Return  Total Compensation + Relational Return Total compensation : more transactional Relational return : more psychological Forms of Pay

11. Forms of Pay

12. Base Wage : cash compensation that an employer pays for the work performed Some pay systems set base wage as a function of the skill or education on employee possesses; this common for engineers & school teachers Salary  pay for employees who are exempt from regulations of the Fair Labor Standards Act (FLSA) & hence do not receive overtime pay Wage  non exempt from regulations of the FLSA, receive overtime pay and calculated as an hourly wage. Cash Compensation : Base

13. Merit Pay : given as increments to the base pay in recognition of past work behaviour  Performance Around 90% U.S. firms use merit pay increase outstanding employee  10 – 12% per year average employee  3 – 4% per year Cost of Living Adjusment : give some increases to everyone, regardless of performance Cash Compensation : Merit / Cost of Living

14. Incentives tie pay increases directly to performance. However, incentives differ from merit adjustments. Incentives do not increase the base wage and so must be reearned each pay periode . The potential size of the incentive payment will generally be known before hand. Example : a Toyota sales person knows the commission on Land Cruiser versus a Avanza prior to make the sale. Both merit pay & incentives try to influence performance , incentives try to influence future behaviour whereas merit recognizes (rewards) past behaviour . Cash Compensation : Incentives

15. Performance Objective Expense reduction Volume increases Customer satisfaction Revenue growth Return on investment Incentives Individual Team of employees Total business unit Combination of individual, team & unit Cash Compensation : Incentives

16. Are intended to focus employee efforts on multi-year results Stock ownership ; option to buy at specified and advantageous price Usually for managers & professionals Sun Microsystems, Intel, Google & Starbucks offer stock option to all their employees Long-Term Incentives

17. Employers must pay into a fund that provides income replacement for workers who become disabled or unemployed Medical insurance Retirement program Life insurances Saving plans Benefit : Income Protection

18. Programs that help employees better integrate their work and life responsibility Time away from work (vacations , jury duty) Access to services to meet specific needs (drug counseling, financial planning, referrals for child, elder care) Flexible working arrangements Benefit : Work / Life Balances

19. Housing (dormitories & apartments) Transportation  Car provided Rice allowance Benefit : Allowances

20. MedTronic is a medical technology company that pioneered cardiac pacemakers. Its compensation objective emphasize performance, business success, minimazinf fixed cost and energizing top talent Whole Foods is the nation’s largest organic and natural food grocer. Its market are a “celebration of food”: Bright, well-stocked and well-staffed . The company describes its commitment to offering the highest quality and least processed foods as a shared responsibility.