Compensation Basics For Managers and Supervisors
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1 Compensation Basics For Managers and Supervisors
2 Truths About Compensation Truth #1: Compensation management is more of an art than a science. 2
3 Truths About Compensation Many elements influence pay decisions 1. Job duties 2. Market value 3. Organization s pay philosophy 4. Salary budget and financial condition 5. Business pressures 6. Labor supply 7. Individual qualification & performance 3
4 Truths About Compensation Truth #2: The best employees are not attracted, motivated and retained solely by money. Pay, benefits, career, & work/life attraction, motivation & retention 4
5 Truths About Compensation The Royal Bank Workforce 2000 Study indicated 67% choose very positive work environment + average compensation package 31% choose above average compensation package + average work environment 5
6 Truths About Compensation Truth # 3: Fairness does not mean equal pay. 6
7 Truths About Compensation Distinct Forms of Fairness External equity pay vs. market pay Internal equity pay across different jobs Individual equity pay between similar jobs Procedural equity how pay is decided 7
8 Truths About Compensation Truth # 4: An employee s knowledge of base pay correlates highly with pay satisfaction which is highly associated with job satisfaction. (Source: Knowledge of Pay Study (2000) conducted by The LeBlanc Group) 8
9 Truths About Compensation.54 Commitment Base Pay Knowledge.59 Pay Satisfaction.62 Trust.40 * Number reflects degree of correlation between 2 items. Retention 9
10 Truths About Compensation This study shows 1.employees lack understanding of how pay decisions are made 2.understanding how pay decisions are made is a better predictor of job satisfaction than the actual amount an employee is paid 10
11 Truths About Compensation The study also shows 1. most effective source for an employee s understanding about pay is the employee s supervisor 2. understanding pay concepts is not enough needs to be personalized 3. one-on-one communication is key 11
12 Truths About Compensation Some Statistics One/One Satisfied Discussion Satisfied With With Supervisor With Job Supervisor Very often 74% 88% Occasionally 50% 48% Never 32% 15% 12
13 Truths About Compensation Truth #7: Talking about pay with an employee is an emotional and uncomfortable experience BUT it is worthwhile having these conversations 13
14 Manager/HR Partnership Effective compensation management requires collaboration and partnership between managers and Human Resources. Job Classification Market Surveys Pay Decisions Legal Compliance 14
15 Manager/HR Partnership Job Classification 15
16 Manager/HR Partnership Job Classification Process Review of job duties, responsibilities and requirements Assign the job a role, level, and salary range Identify market pay for the job 16
17 Manager/HR Partnership Job Classification System Key concepts 1. Job classification depends on accurate job information & understanding 2. Job classification involves interpretation & judgment 17
18 Manager/HR Partnership Job Classification System Key concepts 3. Consensus & consistency are vital 4. Look at a job when work is done properly 5. Level does not equal salary range 18
19 Manager/HR Partnership Job Classification Managers/Supervisors Provide accurate job information Assist HR/Comp understand the job Provide objective insight/input Understand/explain job classification HR/Compensation Understand job; ask questions & listen Make objective assessments Make internal comparisons Make classification decision 19
20 Manager/HR Partnership Market Surveys 20
21 Manager/HR Partnership Market Surveys Process Participate in market surveys annually Purchase market surveys annually Collect & analyze market data regularly 21
22 Manager/HR Partnership Market Surveys Uses of Market Surveys How we compare What we need to pay Range to assign a job How much to adjust ranges Amount of annual salary increase 22
23 Manager/HR Partnership Market Surveys Market Pricing Process Step 1: Step 2: Step 3: Step 4: Match JHU job to survey job Select market data to use Calculate market rate composite Determine appropriate salary range 23
24 Manager/HR Partnership Market Surveys Key concepts 1. Market data not available for all jobs 2. No such thing as 100% match 3. Market reference point is not an exact amount 24
25 Manager/HR Partnership Market Surveys Key concepts 4. Valid and reliable data is critical 5. A job s market value does not always reflect internal equity 25
26 Manager/HR Partnership Market Surveys Managers/Supervisors Alert HR of market pay pressures HR/Compensation Conduct survey Identify market and sources of data Collect/analyze data Assist with job matching Help you make sense of data 26
27 Manager/HR Partnership Pay Decisions 27
28 Manager/HR Partnership Pay Decisions Process Know the different salary increase opportunities available Know your internal approval path & parameters Identify need find $$$ request/justify 28
29 Manager/HR Partnership Pay Decisions Key concepts 1. Pay is a significant & important consideration 2. Employees expect fairness in pay 3. Knowledge of base pay more strongly predicts pay satisfaction than actual $$ 29
30 Manager/HR Partnership Pay Decisions Key concepts 4. Pay discussions with employees correlate with job, supervisor, and pay satisfaction 5. Pay decisions must be made appropriately and timely 30
31 Manager/HR Partnership Pay Decisions Managers/Supervisors Be aware of different salary increase opportunities Make the case for compensation awards HR/Compensation Provide market data & conduct research Provide tools, guidelines and resources Create development plan Assist and review development plan 31
32 Manager/HR Partnership Pay Decisions Managers/Supervisors Be fiscally responsible Monitor & maintain equity & fairness HR/Compensation Review and support salary increase requests for fairness and equity across departments Communicate/explain pay decisions to staff Assist with salary planning and costing 32
33 Manager/HR Partnership Legal Compliance 33
34 Manager/HR Partnership Legal Compliance Key Regulations Fair Labor Standards Act Wage & Hour Laws Sherman Anti-trust Act Equal Pay Act Title VII of Civil Rights Act (EEO) 34
35 Manager/HR Partnership Legal Compliance Your role Know & observe what the law requires Update and maintain accurate job documentation Use bona fide occupational qualification 35
36 Manager/HR Partnership Legal Compliance Managers/Supervisors Know & observe what the law requires Update and maintain accurate job documentation Use bona fide occupational qualification HR/Compensation Monitor compliance and enforce the law Provide guidance & answers to issues & questions Keep up with changes in the law 36
37 FLSA 37
38 Fair Labor Standards Act (FLSA) Enacted in 1938 Defines the criteria for determining exemption status for white collar employees Either exempt or non-exempt from overtime pay, minimum wage, and time record keeping requirements 38
39 FLSA Background According to the FLSA regulations, employers do not have to pay overtime to white collar employees who are determined to be exempt. Employers are required to pay non-exempt employees at least the minimum wage and overtime pay at time and a half of their regular hourly rate for hours worked in excess of 40 in a work week. Employers are required to maintain accurate records of actual hours work for non-exempt employees. 39
40 FLSA Background Recently, the U.S. Department of Labor (DOL) revised the FLSA regulations. These new rules are the first significant update of the FLSA regulations in nearly 50 years. Failure to comply with these rules could result in back pay liability, penalties, payment of attorney fees, and/or class action claims. 40
41 Exempt Employees University job titles and salary grades do not determine exempt status. Exempt employees must make a minimum salary of $455 per week or $23,660 annually (cannot annualize or use FTE figures). Exempt employees must meet one of the primary duties tests/exemptions. 41
42 Primary Duty The principal, main, or most important duty that the employee performs. Factors to consider The relative importance of the exempt duties as compared with other types of duties. The amount of time spent performing exempt work. The employee s relative freedom from direct supervision. The relationship between the employee s salary and the wages paid to other employees for the same kind of non-exempt work performed by the employee. 42
43 Primary Duty Primary duty also includes the exercise of discretion and independent judgment with respect to matters of significance beyond the use of skill or experience in applying specific standards described in a manual or other sources. 43
44 Discretion & Independent Judgment in Matters of Significance Must have 3 examples Authority to waive or deviate from established policies and procedures without prior approval. Authority to negotiate and bind the company on significant matters. Provides consultation or expert advice to management involved in planning long- or shortterm business objectives. Investigates and resolves matters of significance on behalf of management. Represents the company in handling complaints, arbitrating disputes, or resolving grievances. 44
45 Discretion & Independent Judgment in Matters of Significance Must have 3 examples Authority to formulate, affect, interpret, or implement management policies or operating practices. Carries out major assignments in conducting the operations of the business. Performs work that affects business operations to a substantial degree, even if the employee s assignments are related to operation of a particular segment of the business. Authority to commit the employer in matters that have significant financial impact. 45
46 Discretion & Independent Judgment in Matters of Significance Discretion and independent judgment does not include: Applying well-established techniques, procedures or specific standards described in manuals or other sources Clerical or secretarial work Recording or tabulating data Performing mechanical, repetitive, recurrent or routine work 46
47 FLSA Exemptions The following are the various kinds of exemption classifications defined in the Fair Labor Standards Act: Executive Exemption Administrative Exemption Learned Professional Creative Professional Computer Exemption Outside Sales Exemption Combination Exemption 47
48 Executive Exemption All must be met Employee s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent. Employee must have the authority to hire or fire other employees, or the employee s suggestions and recommendations as to the hiring, advancement, promotion or any other change of status of other employees must be given particular weight. 48
49 Administrative Exemption All must be met Employee s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer s customers. Employee s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 49
50 Professional Exemption All must be met Learned Professional Employee s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominately intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. Advanced knowledge must be in a field of science or learning. Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. 50
51 Professional Exemption All must be met Creative Professional Employee s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. 51
52 Computer Employee Exemption The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below: The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; The design, development documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications. 52
53 Computer Employee Exemption (cont.) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or A combination of the aforementioned duties, the performance of which requires the same level of skill. 53
54 Exemptions Simplified Executive Exemption Exempt: Supervisor of dept. or subdivision with full authority over 2+ FTE. Non-Exempt: Lead worker Administrative Exemption Exempt: Administrator in functional area making decisions re: matters of significance. Non-Exempt: Administrative support Learned Professional Exempt: Specialized analyst, lawyer, medical provider in recognized field of science or learning. Non-Exempt: High level technician 54
55 Exemptions Simplified Continued Creative Professional Exempt: Work requiring invention, imagination, originality or talent in recognized field (Graphic Designer). Non-Exempt: Work requiring intelligence, diligence and accuracy (Desktop Publishing Specialist). Computer Exemption Exempt: Systems analysis; design, create, test computer systems or programs; design, create, test machine operating systems (all mainframe oriented). Non-Exempt: High-level technical work. 55
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