The Compensation Handbook. A State-of-the-Art Guide to Compensation Strategy and Design

698 Pages·2008·5.36 MB·English

by  Lance Berger

THE
COMPENSATION
HANDBOOK
F I F T H E D I T I O N
A S - - -A
TATE OF THE RT
G
UIDETO
C
OMPENSATION
S D
TRATEGYAND ESIGN
LANCE A. BERGER and DOROTHY R. BERGER
New York San Francisco Washington, D.C. Auckland Bogotá
Caracas Lisbon London Madrid Mexico City Milan
Montreal New Delhi San Juan Singapore
Sydney Tokyo Toronto
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Except
as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form
or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.
0-07-164287-0
The material in this eBook also appears in the print version of this title: 0-07-149675-0.
All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trade-
marked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringe-
ment of the trademark. Where such designations appear in this book, they have been printed with initial caps.
McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate
training programs. For more information, please contact George Hoare, Special Sales, at [email protected] or (212)
904-4069.
TERMS OF USE
This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the
work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and
retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works
based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior con-
sent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right
to use the work may be terminated if you fail to comply with these terms.
THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES
AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE
WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTH-
ERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its
licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will
be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error
or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the con-
tent of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any
indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even
if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause what-
soever whether such claim or cause arises in contract, tort or otherwise.
DOI: 10.1036/0071496750
Professional
Want to learn more?
We hope you enjoy this
McGraw-Hill eBook! If
you’d like more information about this book,
its author, or related books and websites,
please click here.
For more information about this title, click here
Contents
Preface vii
About the Editors ix
Contributors xi
Part 1 Introduction
1 Employee Pay:A Riddle Wrapped in a Mystery Inside an Enigma 3
Lance A. Berger
2 Total Rewards and the Future Workforce 11
Steven E. Gross and Shelley Peterson
3 Total Rewards Strategy 21
Thomas B. Wilson
4 Three Trends Shaping the Future of Compensation and
Human Resources 31
Allan Schweyer
5 Demographics:The Tempest Driving Compensation 49
Dorothy R. Berger
Part 2 Base Salary
6 Salary Administration 63
Andrew S. Rosen
7 Merit Pay 85
Myrna Hellerman and James Kochanski
8 Job Analysis,Documentation,and Job Evaluation 95
Bernard Ingster, Ph.D.
9 Salary Surveys 111
Don York and Tim Brown
iii
iv CONTENTS
10 Benchmarking 125
Iain Fitzpatrick and Thomas D. McMullen
11 Skills,Knowledge,and Competency-Based Pay 143
Gerald E. Ledford, Jr, Ph.D., Robert L. Heneman, Ph.D. and Aino Salimäki
12 Broadbanding 159
Kenan S. Abosch
13 Nonmonetary Awards 167
Rodger D. Stotz and Melissa Van Dyke
14 Salary Administration at a Prestigious Cultural Institution:
Pennsylvania Academy of the Fine Arts 187
Leslie Moody
15 Compensation Practices in a Middle Market Company 191
David E. Griffith
16 A Vision for Information Technology in Compensation 197
Steven T. McGuire
Part 3 Variable Compensation
17 Incentive Compensation Program Design 205
Linda E. Amuso and David Knopping
18 Using Variable Pay Programs to Support Organization Goals 215
Erin C. Packwood
19 Rationalizing Variable Pay Plans 227
Kenan S. Abosch
20 Sales Compensation 239
Jerome A. Colletti and Mary S. Fiss
21 Team-Based Incentives 259
Theresa M. Welbourne, Ph.D. and Luis R. Gomez-Mejia, Ph.D.
22 Gainsharing or Profit Sharing 277
Robert L. Masternak
23 Scanlon Gainsharing 295
Paul Davis and Dow Scott, Ph.D.
Part 4 Executive Compensation
24 Executive Compensation Strategy 311
Ted Buyniski and Marvin A. Mazer
25 Long-Term Incentives 323
Jeffrey S. Hyman, Esq.
CONTENTS v
26 Executive Compensation:A Recruiter’s Recommendations 339
Randy Jayne
27 Executive Compensation:An Academic’s Perspective 349
Johannes M. Pennings, Ph.D.
28 Regulation of Executive Compensation 365
Frank P. VanderPloeg, Esq.
29 Executive Employment Agreements 385
Richard L. Alpern
Part 5 Compensation and the Board
30 The Compensation Committee and Executive Pay 397
Seymour Burchman and Blair Jones
31 New Dynamics of CEO Pay 415
David N. Swinford
32 Board Compensation 423
Pearl Meyer and Nora McCord
33 Board Critical Issues in Executive Pay 433
Bruce R. Ellig
Part 6 Performance and Compensation
34 Performance Management Best Practices 447
Thomas B. Wilson and Susan Malanowski
35 Guidelines for Effective Executive Performance Appraisals 459
James F. Reda
36 Forced Ranking 479
Dick Grote
37 The Balanced Scorecard and Compensation 493
Paul R. Niven
38 Performance Metrics and Compensation 511
Mark Graham Brown
39 Using Compensation to Drive Workforce Productivity 521
Christian M. Ellis and Summer F. Barnes
40 Return on Investment of Compensation Expenditures 531
Fred Whittlesey
41 Pay-for-Performance:New Developments and Issues 543
Mark D. Cannon, Ph.D.
vi CONTENTS
Part 7 Talent Management and Compensation
42 Using Compensation to Win the Talent Wars 559
Deborah Rees
43 Talent Management,Organization Transformation,and Compensation 571
Lance A. Berger
44 Work–Life Effectiveness and Total Rewards Strategy 585
Kathleen M. Lingle
45 Compensating and Motivating a Diverse Workforce 597
Martin G. Wolf, Ph.D.
46 Communicating Compensation Programs 607
John A. Rubino
47 Talent Management and Compensation in the Fast Food Industry 617
Jerry M. Newman
Part 8 Global Compensation
48 Expatriate Compensation Practices 627
Geoffrey W. Latta
49 Global Local National Compensation Practices 641
Paul Coleman
50 Global Compensation Processes 653
Robert Mattson and David Turetsky
Index 665
Preface
T
HE COMPENSATION HANDBOOK HAS BEEN recognized as
the most authoritative reference book in the compensation field for over
35 years.
The book’s success has resulted from:
■ Identifying the most significant issues impacting compensation and human
resources practitioners
■ Providing the best straightforward, comprehensive, and understandable
solutions to deal with issues
■ Presenting the thoughts and research of respected and prestigious compensa-
tion leaders
■ Offering unique and innovative approaches not found elsewhere
■ Building on the strong foundation of past editions
■ Imparting the best historical and current compensation tools, methods, and
diagnostics for compensation and human resources professionals to align
their programs with key issues
Each edition of the book has its own novel foundation. The first three editions
focused on the evolution of new compensation techniques and methodologies as
they applied to the business and social environment of their eras. The fourth edition
is based on a framework of compensation diagnostics. It structures prior and cur-
rent approaches into a cohesive set of guiding principles that helps practitioners
to select the most appropriate compensation methodology.
vii
Copyright © 2008 by The McGraw-Hill Companies, Inc. Click here for terms of use.
viii PREFACE
The fifth edition’s objective is to demonstrate to human resources and com-
pensation professionals how they can address a dramatically changing set of
human capital issues. These include:
■ New strategies for winning the talent wars
■ Addressing the retirement of the baby boomers, the greatest talent manage-
ment issue of the twenty-first century
■ Responding to a multicultural, multigenerational workforce
■ The globalization of human capital
Thanks to the contributions of 64 compensation specialists, 45 of whom are
new authors to The Compensation Handbook, this edition contains new, updated,
or revised chapters. This “linkage” to talent management issues provides com-
mon threads and a roadmap for developing a comprehensive approach to com-
pensation program design and implementation. The fourth edition’s structural
integrity is maintained because our readers have expressed their appreciation of
consistency when seeking updated information and solutions to compensation
issues.
We again, as we did for the fourth edition, dedicate this book with apprecia-
tion and affection to Milton L. Rock, consummate compensation and business
guru, whose vision spearheaded the first through third editions of The
Compensation Handbook.
Dorothy R. Berger
Lance A. Berger