Managing Human

Capital
Class 10
AISHA WALI MUHAMMAD

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 Learning Outcomes
1. Explain the various classifications of rewards.
2. Discuss why we call some rewards membership based.
3. Define the goal of compensation administration.
4. Discuss job evaluation and its three basic approaches.
5. Explain the evolution of the final wage structure..
6. Describe competency-based compensation programs.
7. Discuss why executives’ salaries are significantly higher than those of other employees.

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Intrinsic Vs Extrinsic Rewards

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Compensation Administration
The goal of compensation administration is to design a cost-effective pay structure that will
attract, motivate, and retain competent employees. The structure should also appear fair to
employees. Fairness is a term that frequently arises in the administration of an organization’s
compensation program.

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Government influence on compensation
administration
Minimum Wage
Overtime
 Benefits
Fair labor standard act 1938
Exempt and Non Exempt employees.

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Job Evaluation Methods
Ordering Method: The ordering method (or ranking method) requires a committee— typically composed of
both management and employee representatives—to arrange jobs in a simple rank order, from highest to
lowest. No attempt is made to break down the jobs by specific weighted criteria. The committee members
merely compare two jobs and judge which one is more important or more difficult to perform. Then they com-
pare another job with the first two, and so on until all the jobs have been evaluated and ranked.
Classification Method : The classification method was made popular by the U.S. Civil Service Commission,
now the Office of Personnel Management (OPM). The OPM requires that classification grades be established
and published in what they call their general schedules. These classifications are created by identifying
some common denominator—skills, knowledge, responsibilities—to create distinct classes or grades of jobs.
Examples might include shop jobs, clerical jobs, and sales jobs, depending, of course, on the type of jobs
the organization requires.
Point Method : The last method we will present breaks down jobs based on various identifiable criteria (such
as skill, effort, and responsibility) and allocates points to each of these criteria. Appropriate weights are given,
depending on the importance of each criterion to performing the job, points are summed, and jobs with similar
point totals are placed in similar pay grades.

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Establishing pay structure
Compensation Surveys
Wage Curve - A wage curve displays the current pay rates for various jobs within a pay grade in
relation to their company ranking. This is usually done during the job evaluation process as a
way to ensure that employees receive fair compensation for their skill and education level.

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Establishing pay structure
The Wage Structure It is only a short step from plotting a wage curve to developing the
organization’s wage structure. Jobs similar in terms of classes, grades, or points are grouped
together. For instance, pay grade 1 may cover the range from 0 to 150 points, pay grade 2 from
151 to 300 points, and so on. As shown in Exhibit 11-6, the result is a logical hierarchy of wages.
The more important jobs are paid more; and as individuals assume jobs of greater
importance, they rise within the wage hierarchy. Jobs may also be paid in accordance with
knowledge- or competency-based pay. We’ll return to this topic shortly.

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External Factors
Geographic differences
Labor supply
Competition
Cost of living
Collective Bargaining
Communicating with employees

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Special cases of compensation
Incentive compensation plans:
Merit Pay
Group incentive
Scanlon Plan - An organization-wide incentive pro- gram focusing on cooperation between
management and employees through sharing problems, goals, and ideas.
Improshare - An incentive plan that uses a specific mathematical formula for determin- ing
employee bonuses.

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Executive Compensation Programs
Base Salary and stock option
Hiring Bonus
Perquisites Attractive benefits, over and above a regular salary, granted to executives, also
known as “perks.”
Golden parachute: A financial protection plan for executives in case they are severed from the
organization.

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