Chapter 14

Administering Salaries of
Office Employees

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
1 Upper Saddle River, NJ 07458
 Reasons Why Fair, Equitable Compensation
is Important to Employees

1. It is a basic determinant of their worth to the

organization.
2. It provides a measure of status and recognition.
3. It directly affects their standard of living.
4. It is a reward for the time and effort they
contribute to the organization.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
2 Upper Saddle River, NJ 07458
 Goals of Salary Administration
Programs
1. To provide a systematic determination of
equitable compensation for employees.
2. To help the organization conform with existing
legislation pertaining to employee compensation.
3. To help the organization control its salary costs.
4. To help reduce employee turnover.
5. To motivate employees to perform at an
optimum level.
6. To promote good employer-employee relations.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
3 Upper Saddle River, NJ 07458
 Salary Administration Areas for Which
Policies Should Exist
(1 of 2)
1. Advancement of employees from one salary
range to another.
2. Plans for periodic review of organization’s
salary administration program.
3. Steps to be used when filing a compensation-
related grievance.
4. Plans for making merit increases.
5. Plans for awarding salary increases.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
4 Upper Saddle River, NJ 07458
 Salary Administration Areas for Which
Policies Should Exist
(2 of 2)
6. Types of fringe benefits available to
employees.
7. Plans for shift or overtime pay.
8. Plans for dealing with the union.
9. Plans for incentive pay or performance-based pay.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
5 Upper Saddle River, NJ 07458
 Responsibility for Salary
Administration Program

Generally falls under the

In large
guidance of the director of the
organizations,
salary administration program.
In small Generally falls under the guid-
organizations, ance of the human resources
manager.
In many The input of an advisory
organizations, committee is also available.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
6 Upper Saddle River, NJ 07458
 Factors that Affect the
Salary Structure
(1 of 2)
1. Relative worth of jobs-determined by job
evaluation.
2. Going rates-can determine comparable rates
for comparable jobs using salary surveys.
3. Cost-of-living index-giving raises that at least
match the cost-of-living index enables
employees to maintain their purchasing power.
4. Legislation-a variety of federal and state laws
affect employee’s salaries.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
7 Upper Saddle River, NJ 07458
 Factors that Affect the
Salary Structure
(2 of 2)
5. Collective bargaining-in unionized organizations,
collective bargaining often plays a role in
setting salaries and salary increases.
6. Organization’s ability to pay-the more able the
organization is to pay, the more likely its
salary program is comparable to other
organizations in the community.
7. Level of productivity-the more productive an
organization is, the more able it is to have a
competitive salary program.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
8 Upper Saddle River, NJ 07458
 Examples of Prepared Salary Surveys

Compensation Comparisons-Industrial
and Financial Management

Directory of Office Salaries

AMS Guide to Management Compensation

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
9 Upper Saddle River, NJ 07458
When an organization conducts its own salary
survey, these guidelines are important:
1. When surveying only a portion of the com-
munity’s organizations, make sure those selected
are done so using a random selection process.
2. The number selected to survey has to be suf-
ficiently large to be representative.
3. The organization should survey organizations
of like classification in the community.
4. The questionnaire used to collect data must be
complete and effective.
5. Job descriptions from other companies should be
collected to help provide assurance that jobs are
comparable.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
10 Upper Saddle River, NJ 07458
 Is used in determining the
Salary
monetary worth of each job.
Scattergram

Shows the relationship between the relative worth

and the monetary worth of each job.
Horizontal axis shows the points value or relative
worth of the job.
Vertical axis shows the monetary worth of the job.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
11 Upper Saddle River, NJ 07458
 Is drawn once the plot point
Correlation
for each job (point where
Line
relative worth and monetary
worth of the job intersect
each other on the scatter-
gram) is determined.

Line is drawn where approximately half of the

plot points are above the correlation line; the
other half are below the line.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
12 Upper Saddle River, NJ 07458
 The Organization’s Correlation Line

Is compared with the community’s

correlation line.

To be competitive, the correlation line will have to

be adjusted upward if the organization’s salaries
fall below the community’s line.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
13 Upper Saddle River, NJ 07458
 Once the correlation line is determined, salary
ranges are fixed.

Most organizations have overlapping

salary ranges between job levels.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
14 Upper Saddle River, NJ 07458
 Plans for salary increases also have to be put into
place.
Salaries are increased in three
different ways:

At specific time intervals

By merit
By using a combination of time and merit

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
15 Upper Saddle River, NJ 07458
 Interval Method Employees receive salary
increases at specific,
predetermined times,
such as once or twice a
year.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
16 Upper Saddle River, NJ 07458
 Merit Method Ties the quality of an
employee’s performance
to the amount of his or
her salary increase.

Employees whose work is distinctly superior

receive a larger increase than those whose
performance is less than superior.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
17 Upper Saddle River, NJ 07458
 Combination Typically gives
Method employees salary in-
creases until they reach
the midpoint or average
salary for their range.

After that point, then any increase is merit

based.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
18 Upper Saddle River, NJ 07458
 Incentive Pay Are designed to take into
Plans consideration employees’
performance in relation to
work standards established
through work measurement
procedures.
Properly Designed Incentive Pay Plans
Benefit Both Employees and the Organization
Are able to increase their level
Employees
of compensation.
Organization Is able to increase its productivity,
which improves its profitability.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
19 Upper Saddle River, NJ 07458
Characteristics of Effective Incentive Pay Plans
(1 of 2)
1. Employees are convinced that a direct correlation
exists between their level of performance and the
amount of incentive pay they receive.
2. Employees are aware of the precise level at
which they must perform to be eligible to receive
incentive pay.
3. Management thoroughly communicates its
expectations to employees.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
20 Upper Saddle River, NJ 07458
Characteristics of Effective Incentive Pay Plans
(2 of 2)
4. Incentive pay is given only to those employees
who increase their effectiveness.
5. Employees are fully convinced they will benefit
substantially as a result of improved performance.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
21 Upper Saddle River, NJ 07458
 Types of Incentive Pay Plans

Individual incentive plans

Group incentive plans

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
22 Upper Saddle River, NJ 07458
 Individual Plans

A portion of the employee’s

compensation is based on
Partial Plans his or her output that exceeds
a minimum threshold amount.

The entire paycheck is based

Whole Plans on the amount of the
employee’s output.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
23 Upper Saddle River, NJ 07458
 Group Incentive Plans

Are often based on

1. Amount of profit earned by the organization.
2. Amount of cost reduction it realizes.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
24 Upper Saddle River, NJ 07458
 Performance-Based Pay Plans

Tend to put greater emphasis on key employees than

do the incentive plans.
Reward total performance
Performance- rather than just one component
Based Plans of an employee’s job.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
25 Upper Saddle River, NJ 07458
 Performance-Based Pay Plans

Key Contributor Employees labeled as

Plans key contributors earn
as much as 140-160 per-
cent of their annual salary.
Are goal-based,
Gain Sharing organizationwide plans
Plans that involve employees
extensively in the plans’
operations.
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
26 Upper Saddle River, NJ 07458
 Trends in Salary Administration

Competency-based pay: paying employees on the

basis of the breadth and depth of skills they
possess as well as on the basis of the job
knowledge they use in carrying out their
assigned duties.

Broadbanding: reduces the number of salary

grades and pay ranges in an organization.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
27 Upper Saddle River, NJ 07458
 Legally Required Plans

Social Security
Worker’s Compensation
Unemployment Compensation
Disability Insurance

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
28 Upper Saddle River, NJ 07458
 Fringe Benefits

Are supplemental compensation in excess of the

direct compensation employees receive for
performing a specific job.

Approximately 40 percent of an organization’s

total employee compensation program is
attributed to fringe benefits.

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
29 Upper Saddle River, NJ 07458
 Types of Fringe Benefits
(1 of 2)
Paid holidays
Paid vacations
Sick leave
Paid personal days
Educational assistance
Life insurance programs
Health care insurance
Disability insurance
Health maintenance organizations (HM0s)
Preferred provider organizations
Medical and fitness facilities
Administrative Office Management, 8/e
Maternity leave ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
30 Upper Saddle River, NJ 07458
 Types of Fringe Benefits
(2 of 2)
Employee assistance programs
Pension plans
Profit sharing
Child-care services
Car pools
Cafeteria services
Company discounts
Wellness programs
Eldercare
Reimbursement account programs
Time-off bank
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
31 Upper Saddle River, NJ 07458
 Federal Legislation Impacting
Salary Administration
(1 of 2)

Fair Labor Standards Act

Equal Pay Act
Civil Rights Act
Walsh-Healy Act
Davis-Bacon Act
Pregnancy Discrimination Act
Pension Reform Act
Age Discrimination in Employment Act
Administrative Office Management, 8/e ©2005 Pearson Education, Inc.
by Zane Quible Pearson Prentice Hall
32 Upper Saddle River, NJ 07458
 Federal Legislation Impacting
Salary Administration
(2 of 2)

Economic Recovery Tax Act

Deficit Reduction Act
Consolidated Omnibus Budget Reconciliation Act
Family and Medical Leave Act
Health Insurance Portability and Accountability Act

Administrative Office Management, 8/e ©2005 Pearson Education, Inc.

by Zane Quible Pearson Prentice Hall
33 Upper Saddle River, NJ 07458