Perfect Compensation Assignment 1
Compensation
1 X APA Paper (milestone 3)
First two milestones attached
rubric attached
instructors message attached
additional reading attached
Congratulations! The bulk of your compensation project is now complete. This week you’ll be submitting your final project. Your final project will include the 3 milestones you have completed so far, with any adjustments needed based on my feedback.
You will also include a 1-2 page historical perspective on compensation and a 1–2 page summary of how you used a strategic approach, research, communication, analytical skills, and problem-solving to present a compensation package tailored for e-sonic. Also, please be sure to go back to your Executive Summary from the 1st milestone and make any necessary adjustments to incorporate all of the work you have done since the 1st milestone.
I strongly encourage you to review the sample final project outline that is included in the resources I posted in the General Discussions thread. I will be working this week to provide you feedback on your 3rd milestone so you can make any necessary adjustments for your final submission.
The reading this week will continue to focus on global compensation. There are also 2 articles to read.
This week you’ll need to complete the following:
· Read Chapter 15 in the Pearson text
· Review the PDF – Fixing Minimum Wage Levels in Developing Countries
· Review the PDF – Culture, Infrastructure and International Health Benefits Delivery
· While there are no required discussion posts this week, I encourage you to continue to engage with your classmates in the previous discussion threads and I may post a new discussion topic that would NOT be required.
OL 325: Final Project Guidelines and Rubric
Overview Acting as a recently hired compensation consultant, you will assist the burgeoning online music firm e-sonic to develop an internally consistent and market- competitive compensation system that recognizes the achievements of individual contributors.
The major portion of the project is divided into three milestones, which will build upon the previous milestone. The milestones are submitted in Modules Three, Five, and Six. The final version of the entire project will be due at the end of Module Seven. Sample report outlines are included in the project text found in MyManagementLab. Each of the sections for this assignment will be submitted via Brightspace.
Outcomes The project helps students to meet the following course outcomes:
• Students will gain an understanding of the evolution and administration of compensation and benefit programs for organizations • Students will explore wage theory, principles and practices, unemployment security, worker income security, group insurance, disability insurance,
and pension plans and how these compensation and benefit items are balanced to provide incentive and recruitment of a high-performance workforce
• The connection between the organization’s mission, objectives, policies, and the implementation and revision of their respective compensation and benefit systems will be analyzed to gain a deeper understanding of the importance of such systems to the organization’s overall human resource management
• At the conclusion of this course, students will be able to demonstrate the acquisition and application of theories and concepts that support the enhancement and proficiency in 7 primary competencies: strategic approach, research, teamwork, communication, analytical skills, problem solving, and legal and ethical practices
Preparation 1. Read the Building Strategic Compensation Project narrative linked in the course menu of the MyManagementLab home page. Note: Section 3:
Recognition of Individual Achievements WILL NOT be included in the course project.
2. Download the Comp Analysis Software Microsoft Excel file. Directions on accessing this file are located in the Module Resources section of Module One. To run on a PC, the file requires Microsoft Excel 2007 or later. To run on a Mac, the version requires Excel 2011 or later. o NOTE: Users of the CompAnalysis software must set the macros to a low level in order for the software to work. If the macros are set on too high of a
security level, then the software will be disabled and will not work properly. Navigate to the Tools menu, click Macros, and then click Security. Lower the security level, save the spreadsheet, close, and re-open.
o Click on the External Market Survey feature, which will be used in Section 2 of the project, titled Market Competitiveness. Make your decisions first by following the directions in the Building Strategic Compensation Project (Appendix 3 in the student version, Appendix 5 in the instructor’s version) and jot down the pertinent information on paper.
o After completing the External Market Survey section, move on to the Merit Pay Planning feature, which will be used in Section 3 of the project, titled Recognition of Individual Achievements. Input your choices as indicated in CompAnalysis and analyze the data.
Milestones Milestone One: Strategic Analysis The development of a strategic analysis guides all decisions made regarding your compensation systems throughout the project. The strategic analysis reveals firm-specific challenges, objectives, and initiatives that allow you to align the goals of a compensation system effectively with those of the company strategy. The strategic analysis allows you to better understand the external market challenges e-sonic faces in addition to its internal capabilities. As a consultant, a thorough understanding of e-sonic’s business environment allows you to better align your competitive system design with e-sonic’s goals, challenges, and objectives. Follow the outline below when completing this portion of the project. The strategic analysis is fully described in the MyManagementLab Building Strategic Compensation Systems casebook for faculty and students, linked in the course menu in MyLab. Follow the explanations and outline to complete this milestone. Strategic Analysis Outline:
1. Executive Summary (Concisely conveys the project objectives and main findings. The executive summary is completed last, but included first in the strategic analysis.)
2. Strategic Analysis a) Identification of e-sonic’s industry based on the North American Industry Classification System (NAICS) b) Analysis of e-sonic’s external market environment
i. Industry Profile ii. Competition iii. Foreign Demand iv. Long-Term Industry Prospects v. Labor-Market Assessment
c) Analysis of Internal Capabilities i. Functional Capabilities ii. Human Resource Capabilities
Each section of the final project should be 5–7 pages in length. The Strategic Analysis section is due at the end of Module Three. It will be graded with the Milestone One Rubric.
Milestone Two: Section 1: Internally Consistent Job Structures Section 1 introduces you to the specification of internally consistent job structures. Through writing job descriptions, the development of job structures, and both the development and implementation of a point evaluation method to quantify job differences objectively, you build the framework for internal equity. In Section 1, you will focus on building an internally consistent compensation system. An internally consistent compensation system design will clearly define the relative value of each e-sonic sample job, creating a job hierarchy and an objective rationale for pay differences. As an e-sonic consultant, you are offered a sample of e-sonic jobs in Section 1. Currently, e-sonic employs 100 people and will be hiring many more. However, for the purpose of this simulation, you are asked to work with the sample of four jobs offered (see Appendix 2 for sample jobs, located in the MyManagementLab project tab). Limiting the number of jobs removes one level of complexity from the simulation and allows you to focus on learning the functions of compensation system design. The framework you develop classifying sample jobs can easily be adapted in the future to include all e-sonic positions. Section 1 Outline:
1. Create Job Descriptions 2. Create Job Structures 3. Build Point Evaluation Method
a) Select benchmark jobs. b) Choose compensable factors based upon benchmark jobs. c) Define factor degree statements. d) Determine weights for each compensable factor.
4. Calculate Point Values for e-Sonic Jobs a) Determine point value for each compensable factor. b) Use the job evaluation worksheet to calculate point values for each position. c) Distribute points for each compensable factor across degree statements. d) Rate jobs using point method. e) Individually rate jobs to ensure reliability. f) Resolve any discrepancies in point totals. g) Rank jobs in each job structure according to results of your point evaluation.
Each section of the final project should be 5–7 pages in length. Section 1: Internally Consistent Job Structures is due at the end of Module Five. It will be graded with the Milestone Two Rubric. Milestone Three: Section 2: External Competitiveness Section 2 shifts your focus outside of the firm to understand its relationship with the external marketplace. You will use market survey data to compare pay rates of positions inside the firm with those in the marketplace to establish the foundations of market-competitive pay. The analysis of market data also leads you to the determination of appropriate pay-policy mixes for each of its job structures. In this section, you are asked to use CompAnalysis software developed by Howard Weiss at Temple University, which is also available in MyManagementLab.
In Section 2 of this simulation, you will shift your focus from concentrating on e-sonic’s internal consistency to its external competitiveness. First, you will be introduced to the tools compensation professionals use to allocate total compensation most effectively within job structures. Many employees are unaware that their total compensation consists of much more than just base pay. Compensation professionals allocate total pay (for example, base pay, benefits, and different types of incentives) to motivate employees in different ways. You will use some of these tools to develop pay policy mixes for each e-sonic job structure. Next, you will consider pay policy level decisions for each job structure. You will then use CompAnalysis (the included software program) to conduct an external market survey. Specific instructions provided with the software program will guide you through the steps involved in the compensation survey exercise. Finally, you will report survey findings, interpreting regression analysis results generated by the software, and provide an explanation of major decisions reached. Section 2 Outline: Executive Summary Findings
1. Determine Appropriate Pay-Policy Mix 2. Pay-Policy Level Decisions 3. Compensation Survey
a) Choose competitors based upon industry, size, and union status. b) Select benchmark jobs for each structure using benchmark job descriptions. c) Reconcile differences using the benchmark job comparison sheet. d) Update salary data for inflation using CPI-U.
4. Implementation of Salary Survey Results a) Report and interpret results of regression analysis for each job. b) Integrate external and internal structures by creating pay grades and ranges. c) Evaluate and summarize decisions made for each job structure.
Each section of the final project should be 5–7 pages in length. Section 2: External Marketplace is due at the end of Module Six. It will be graded with the Milestone Three Rubric.
Final Submission:
The final project is due at the end of Module Seven. This version will include all revisions based on feedback from your instructor to the Executive Summary/Strategic Analysis, Section 1: Internally Consistent Job Structures, and Section 2: External Competitiveness. It should be prefaced with a 1–2-page historical perspective on compensation and close with a 1–2-page summary of how you used strategic approach, research, communication, analytical skills, and problem-solving to present a compensation package tailored for e-sonic. Each section of the final project should be 5–7 pages in length. This submission will be graded with the Final Project Rubric (below).David Goldman
Final Project Rubric Requirements of submission: Each section of the final project must follow these formatting guidelines: 5–7 pages per section, double spacing, 12-point Times New Roman font, one-inch margins, and discipline-appropriate citations.
Critical Elements Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value Historical
Perspective
Meets “Proficient” criteria and includes pertinent facts that demonstrate a sound grasp of the historical perspective
Describes compensation in the U.S., including several facts from a historical perspective
Describes compensation in the U.S., including facts from a historical perspective, but may have gaps in the chronology
Does not present a historical perspective of compensation in the U.S.
10
The Strategic Analysis
Provides in-depth analysis that includes an executive summary and the strategic analysis with all of the elements of the outlines provided in the Building Strategic Compensation Project documentation, demonstrating a complete understanding of all concepts
Provides in-depth analysis that includes an executive summary and the strategic analysis with most of the elements of the outlines provided in the Building Strategic Compensation Project documentation
Provides an analysis that includes an executive summary and the strategic analysis with some of the elements in the outlines provided in the Building Strategic Compensation Project documentation
Does not provide an analysis that includes an executive summary and/or the strategic analysis with elements in the outlines provided in the Building Strategic Compensation Project documentation
20
Section 1: Internally Consistent Job
Structures
Provides in-depth job structures with all of the elements of Section 1 of the Building Strategic Compensation Project documentation
Provides all job structures with most of the elements of Section 1 of the Building Strategic Compensation Project documentation
Provides most job structures with some of the elements of Section 1 of the Building Strategic Compensation Project documentation
Does not provide job structures with elements of Section 1 of the Building Strategic Compensation Project documentation
25
Section 2: External Competitiveness
Provides in-depth market competitiveness report with all of the elements of the outline provided in Section 2 of the Building Strategic Compensation Project documentation
Provides market competitiveness report with most of the elements of the outline provided in Section 2 of the Building Strategic Compensation Project documentation
Provides market competitiveness report with some of the elements of the outline provided in Section 2 of the Building Strategic Compensation Project documentation
Does not provide market competitiveness report with elements of the outline provided in Section 2 of the Building Strategic Compensation Project documentation
25
Summary Presents a 2-page summary explaining in depth use of strategic approach, research, communication, analytical skills, and problem-solving to present a compensation package tailored for e-sonic
Presents a 1-2-page summary explaining use of Strategic Approach, research, communication, analytical skills, and problem-solving to present a compensation package tailored for e-sonic
Presents a 1-2-page summary explaining use of some of the elements such as strategic approach, research, communication, analytical skills, and problem-solving to present a compensation package tailored for e-sonic
Does not present a summary explaining use of strategic approach, research, communication, analytical skills, and problem-solving to present a compensation package tailored for e-sonic
10
Writing (Mechanics/
Citations)
No errors related to organization, grammar and style, and citations
Minor errors related to organization, grammar and style, and citations
Some errors related to organization, grammar and style, and citations
Major errors related to organization, grammar and style, and citations
10
Total 100%
! Health Issues
Culture, Infrastructure and International
Health Benefits Delivery by Allen Koski, CEBS
When selecting a health insurance carrier for international employees, it is advantageous to recognize that valid assumptions made when selecting domestic benefits simply do not apply in the international realm and can lead to costly errors. This article examines some scenarios and cultural anomalies that invalidate commonly accepted domestic health insurance practices. It explores strategies for simplifying benefit design, providing access to quality care abroad, assessing costs, minimizing overseas risks and understanding the cultural impact on health care delivery.
SIMPLIFYING THE PLAN, ENHANCING THE EXPATRIATE EXPERIENCE
C opayments and deductibles are widely accepted domestically, but they can be problematic when exported overseas. International health professionals aren’t accustomed to accepting a com- bination of cash from patients and pay- ment guarantees from insurance com- panies. They may view the requisite international phone calls and currency exchange as unnecessarily burdensome,
and may be reluctant to treat individuals if the insur- ance plan requires member out-of-pocket administra- tion. Employees may face the difficult decision of paying for services upfront or seeking treatment with another health professional. On a recent visit to four countries in the Persian Gulf, the author heard multi- ple firsthand anecdotes from very vocal employees lobbying against plan designs with copayments and deductibles. Employers have the opportunity to over- come some barriers to medical care delivery by se- lecting a plan without point-of-service member cost sharing.
The table compares a typical domestic-type plan against a model that provides greater consideration to the needs of expatriate employees and interna- tional health care practitioners. The recommended in- ternational model eliminates deductibles to simplify the expatriate experience, but does not provide expa- triates with a free ride. In exchange for eliminating the deductible, the out-of-pocket maximum increases by the same amount as the deductible, $200/$400 in this example. Although the table provides a basic model that demonstrates deductible and out-of- pocket manipulations only, the same tactic can be ap- plied to other elements of member cost sharing, such as copayment and coinsurance. The objective is to en- hance the expatriate’s health care delivery experience by shifting member cost sharing away from the point of service to administrative transactions that are transparent to the provider.
Language, currency and culture complicate the administration of health benefits for international employees, resulting in issues and challenges that domestic employees do not face. Benefits managers can alleviate the complexity by selecting an insur- ance company with the experience, resources and global presence necessary to negotiate the intricate
BENEFITS QUARTERLY, First Quarter 2006 19
20 BENEFITS QUARTERLY, First Quarter 2006
cultural norms that can inhibit appropriate delivery of care.
“Dealing with additional layers of complexity and stress are normal conditions for expatriates living and working in a foreign culture. The last thing they need is the added burden of sorting out ambiguous insur- ance benefits and tricky administrative protocols while undergoing medical treatment in a foreign en- vironment,” suggests Noel Kreicker, president, IOR Global Services.
DOES NETWORK SIZE MATTER?
Health practitioner network size is one common benchmark for selecting a domestic benefits carrier. Benefits managers can safely assume that domestic plan network professionals meet minimum licensing and credentialing standards as plans strive to com- ply with regulation, quality accreditation and indus- try standards. The same minimum quality standards do not necessarily apply in other parts of the world. A large list of unscreened practitioners is not nearly as valuable as a network that has been subjected to rigorous physician-reviewed quality standards.
Elizabeth Hermann, IOR Global Services’ direc- tor of training, notes the importance of health prac- titioner quality, particularly in an emergency: “Some of the foremost expatriate concerns are around health care and coping with medical emergencies. Many employees curtail their overseas assignments because they and their families are adversely affected by health care professionals that are sub- standard.”
It is also important to consider the geographic dis- tribution of the practitioner network. If the network has high concentrations of practitioners in large in- ternational cities but few choices in smaller cities and remote areas, the network may not meet the needs of the employer’s expatriate population. Travel time and expense for health care appointments in major metropolitan areas can be hidden factors that esca- late the true cost and negatively impact employee satisfaction.
THE COST OF OVERSEAS CARE
Benefit managers who have witnessed a continu- ing trend of double-digit annual rate increases may assume that the cost of health care is more expensive in the United States compared to overseas locations. While this may be true in some cases, it is inaccurate to make that assumption across the board. In Japan, for example, immunizations are much more expen- sive due to the lack of local manufacturing. Most vac- cines must be imported, thus raising the delivery cost.
Highly compensated expatriates in a medical need scenario are not necessarily the most cost-conscious consumers. In an unfamiliar environment facing a real or perceived urgency, they will likely seek care through health professionals and facilities that allevi- ate their concerns and approach the standard of care they are accustomed to receiving in their home coun- try. They will often seek care from prominent, presti- gious health professionals and facilities, with com- mensurate fees.
The cost of care may also be impacted by the availability of local specialists. In remote locations, specialty or even primary care may not be readily available. Transportation and evacuation costs must be considered when evaluating the overall cost of care.
Expatriate members may also experience increased administration costs due to local infrastructure limita- tions. In Qatar, there is no international telephone ser- vice provider, such as AT&T, to facilitate overseas call- ing. Further, toll-free telephone calls to U.S. numbers are not accessible from many overseas locations. Calls to the United States to resolve claims issues, for exam- ple, may exceed $3 per minute. A low-cost alternative, if accepted by the insurance carrier, is to send scanned claims as an e-mail attachment.
The cost of international health care is indeed high, but the expense can be alleviated by selecting a specialized international benefits carrier. Their ex- pertise can achieve efficiencies and savings that
! TABLE
DOMESTIC VS. INTERNATIONAL BENEFITS DESIGN MODEL
Typical Recommended Domestic Model International Model
Deductible $200/$400 N/A
Out-of-Pocket Maximum $1,000/$2,000 $1,200/$2,400
BENEFITS QUARTERLY, First Quarter 2006 21
nearly always result in lower overall premium cost than carriers that offer benefits based on the U.S. do- mestic model.
BEST PRACTICES: INTERNATIONAL CLAIM EXPERIENCE REPORTING AND ANALYSIS METHODOLOGY
When examining expatriate claim experience, em- ployers should avoid generating reports based on the current population of the group’s domestic plan, as it may result in faulty analysis. For example, consider a scenario in which an employee leaves international as- signment due to health issues in March, incurring $20,000 in claims. If a claims experience report is gener- ated in July using the current domestic population data, the claim data would be artificially low by $20,000. Even if this expatriate were included in the population, the home office staff may not recognize that the host country operations may enroll the expatriates into the local group medical plan or pay for an individual med- ical policy due to assignment necessity, legal issues or service issues. In such a case, the claims paid by an alter- nate plan would not be captured in the reporting that considers only the group’s primary coverage.
Reporting may not capture claims data for carved out programs’ prescription drug and employee assis- tance plan (EAP), as well as amounts above the stop- loss threshold, claims covered by the previous medical carrier and claims put on corporate expense accounts.
Maurice “Beau” Gable, a broker with International Insurance & Investments observes, “The hidden expenses of international health care are typically greater than what the home office has anticipated. When comparing an international medical plan to the current U.S. domestic plan, benefits managers should consider the nonbudgeted items that impact the total cost such as reimbursement charges, staff time for claims assistance, expatriate time resolving administrative issues, increased costs resulting from treatment delays, and expensed items. If the finance department determined the true total of how much they spend per year for the international claims and interest, they would change plans overnight. The cost can be further inflated if expatriates use credit cards to pay for health services, because many credit card companies now charge 1% for foreign purchases. In- ternational health care expenses are like an iceberg. The hidden expenses of corporate staff time, local staff time, expatriate time, medical claims cost shifting, postponed treatments, taxes and fines, health related returns, reimbursements and local coverage costs might actually be larger than the cost of the budgeted premium equivalent.”
NAVIGATING INTERNATIONAL RISKS
Self-insurance is an option that many large employ- ers entertain as a cost-saving strategy. By adopting the risk, self-insurers potentially can save thousands of dollars. In the international arena, self-insurance isn’t as attractive an option. In the United States, it is rela- tively easy to void, trace, reissue and reconcile lost checks. Tracing lost checks internationally is fre- quently not feasible. This puts the international self-in- surer at risk of not only paying the claim, but also co- ordinating with international banks and postal systems in a reconciliation effort that is often much larger than anticipated.
International employers and expatriate employees are typically subject to the numerous rules and regu- lations of the host country. Covering international as- signees on an insurance plan that is designed for U.S. domestic employees is likely to be an inadequate strategy from a benefits delivery and legal compli- ance perspective. Some insurers have established re- lationships with local insurers in countries that may have restrictions or prohibitions on foreign insurance carriers, which enables them to comply with host country laws and obtain network discounts while pro- viding members with comprehensive, worldwide cov- erage and extensive access to local health care provider networks. Direct provider payment agree- ments may be in place, reducing the likelihood that members will have to pay out of pocket and submit a claim for reimbursement.
Prescription medications require special handling and attention. Importing a long-term supply may compromise efficacy. Mail ordering may result in customs challenges and some FDA-approved prescription drugs are illegal in certain countries.
! THE AUTHOR
Allen Koski, CEBS, is CIGNA International’s director of international sales for the mid- Atlantic region. He has been actively involved in developing and supporting international health care, dental, disability and travel medical plans that multinational employers provide to inter- national assignees, traveling executives and key local nationals employees. Mr. Koski earned a bachelor of arts degree from Drew University and has attained his Certified Employee Benefit Specialist (CEBS) designation. He is a fellow of the International Society of Certified Employee Benefit Specialists.
22 BENEFITS QUARTERLY, First Quarter 2006
It is important to select a benefits carrier experi- enced in assisting members with overseas pharmacy fulfillment.
CULTURAL CONSIDERATIONS
Culture plays a role in health care delivery and payment. For example, a U.S. domestic plan typically would not cover acupuncture, but coverage for these services would be expected in China. Similarly, a claim from a doula, or nonmedical midwife, would likely be rejected on a U.S. domestic claims model, but payment would be appropriate if care was deliv- ered in Singapore, where doulas are common. Even obtaining routine care is more difficult and complex while on assignment abroad.
“In a foreign country, a simple bout of influenza seems more serious than it does in the home country. Expatriates greatly value the assurance that they will be supported in matters of life and death by a caring and responsible health insurance company that will en- able them to consult quality health care suppliers with minimum hassle,” Ms. Hermann observed.
When selecting an international health benefits carrier, it is important to choose a carrier that has
built its infrastructure specifically to handle issues re- lated to international health delivery and recognizes the importance of cultural issues in facilitating and fi- nancing health care delivery.
Greg Kirkwood, vice president, business develop- ment with RELO Direct, Inc., notes, “Applying do- mestic health care plans to international assignments just doesn’t work for today’s global work teams, ex- patriates and their families, and third-country nation- als. Employers want to attract and retain their top candidates to accept foreign assignments and must now provide comprehensive health and welfare ben- efits, including evacuation services if necessary, to get acceptance.”
An understanding of the health system in the host country is necessary to effectively manage delivery of care. In the United States, it is safe to assume that publicly funded institutions are less expensive than those in the private sector. In Switzerland and several other locations, expatriates can expect to pay more at a public hospital than a private hospital. Health sys- tems vary widely throughout the world. It is impor- tant that the member have the resources and guid- ance of an insurer with an international presence so that he or she can receive the most appropriate care locally available.
CONCLUSION: SELECT AN INTERNATIONAL PLAN DESIGNED FOR EXPATRIATES
Seasoned expatriates are increasingly sophisti- cated and have elevated expectations regarding health benefits while on assignment. Mr. Kirkwood observes, “Top foreign assignment candidates are aware of and are demanding true international health and welfare benefits before accepting assignments abroad. Expatriates talk in a global community so employers must constantly stay competitive by offer- ing true international benefits.”
Noel Kreicker, president of IOR Global Services adds, “Industry norms are closely monitored by overseas populations. If a company provides a sub- standard benefits package, the result is a negative image overseas accompanied by a barrage of com- plaints to HR.” !
. . . a claim from a doula, or nonmedical midwife, would likely be rejected on a U.S. domestic claims model, but payment would be appropriate if care was delivered in Singapore, where doulas are common. !
Running Head: E-SONIC STRATEGIC ANALYSIS 1
E-SONIC STRATEGIC ANALYSIS 4
E-Sonic Strategic Analysis
Executive Summary
This paper will do an analysis of the external and internal environments of E-Sonic, the digital subsidiary of sonic records. The specific areas that it will focus on are the classification of the company in the North American Industry Classification System, the Industry profile, the competitors, the foreign demand, the long-term prospects and the labor market assessment. Internally, the paper will look at the functional capabilities and the human resource capabilities of the organization.
Analysis of External Environment
According to the North American Industry Classification System, -Sonic falls under two categories that have two different codes: 334614 and 512220. The first category 334614 deals with reproduction of media and software on magnetic and optical media. This deals with compact discs reproduction of music, videos, and software. The second category 512220 is engaged in the production, promotion, and distribution of media. This means that it also produces, releases, promotes and distributes sound recordings and videos.
Industry profile
The music production and distribution industry have greatly changed over the years with the development in technology. The mother company of E-Sonic called Sonic Records was a leading producer, promoter, and distributor of music boasting up to 15 billion dollars in sales. However, with the changing face of technology and music consumption, these sales have reduced. This is so since the consumption of compact discs has reduced over time. People listen to music and other digital content online on applications such as iTunes and SoundCloud or other online radio stations such as IHeart radio. This led to the need for the development of a platform that distributes this digital content online, thus the creation of E-Sonic.
Competition
There are a lot of already established online music stores such as iTunes and Amazon and customizable radio stations such as Pandora that are the main competition for E-Sonic. To stay ahead of the competition, it is necessary for E-Sonic to create a software platform that is user-friendly and offers more functionality than their competition. E-Sonic also has competition from content pirates who also distribute their content at a cheaper rate.
Foreign Demand
Demand for digital music and videos is growing all over the globe. In many countries such as the United States, Sweden, Norway and India, digital sales already make up more than half of the sales in music (Garside, 2014). This means that distribution through digital channels is quickly becoming the norm not just in the United States but globally which mean there is rising demand for the digital music that E-Sonic produces even outside the state.
Long-Term Industry Prospects
According to PwC (Price Waterhouse Coopers), the digital demand for music is going to increase further into 2018. It is estimated that of the total sales in the music industry, two thirds will come from digital sales. This means that the long-term industry prospects are not only good but very encouraging for sustaining business into the future (Moore and Domingo,2014).
Labor Market Assessment
E-Sonic has demand for a unique labor force due to their digital platform. The company has the need for software engineers and web technicians who will work to make the system more interactive and the customer experience more pleasurable. The engineers at E-Sonic earn an average wage of 14.70 dollars per hour as of May 2012 and this is expected to rise with time by an estimated 13 percent by 2022 (Pfanner, 2013). This means that their employees are earning above the minimum wage by a comfortable margin.
Analysis of Internal Capabilities
Functional capabilities
Through focusing on the functional areas of the company such as engineering, marketing, human resource, research, and development among other, E-Sonic will be able to keep the products and services that it offers at a competitive margin in comparison to the other producers of the same content. Focusing on research and development will ensure that it stays ahead of the digital race.
Human Resource Capabilities
Like all other organizations, E-Sonic is mainly preoccupied with getting skilled labor and retaining them. This means that they focus on initiatives to ensure that their employees are well motivated through compensation and welfare.
References
Garside, J. (2014, March 18). Music streaming breaks through $1bn sales barrier. Retrieved from http://www.theguardian.com
Moore, F., & Domingo, P. (2014). IFPI Digital Music Report 2014. Retrieved from http://www.ifpi.org/
Pfanner, E. (2013, February 26). Music Industry Sales Rise, and Digital Revenue Gets the Credit. Retrieved from http://www.nytimes.com/2013/02/27/technology/music-industry-records-first-revenue-increase-since-1999.html
International Labour Review, Vol. 147 (2008), No. 1
Fixing minimum wage levels in developing countries:
Common failures and remedies
Catherine SAGET*
Abstract. Some developing countries have set their minimum wages too high or too low to constitute a meaningful constraint on employers. The article compares minimum wages worldwide, proposes several ways of measuring them in develop- ing countries and discusses whether they are effective thresholds in those countries. The second part of the article considers the institutional factors leading countries to set minimum wages at extreme levels. The author concludes that the minimum wage is used as a policy instrument to several ends – wage negotiation, deflation and social dialogue – which results in the absence of a wage floor, weak collective bargaining, or non-compliance.
In the political economy of minimum wage setting, the debate about mini-mum wages among mainstream labour economists typically opposes two points of view. The first is that a judiciously set minimum wage can make a modest contribution to meeting social goals, without much distortion of employment patterns; and the second, that the best policy is to leave wage set- ting entirely to supply and demand (and, maybe, to collective bargaining), without any recourse to legislation or other regulatory measures to establish a minimum wage. This article will not engage in that debate (as it would require at least a book!): it adopts the former view (Saget, 2001). Working from that perspective, the article shows that a considerable number of countries set mini- mum wages at levels that seem either far too low or far too high to be con- sidered reasonable. Having documented these anomalies, it then analyses why such policy choices emerged in those countries.
* ILO, Geneva. I am very grateful to Duncan Campbell, Philippe Egger, Rolph van der Hoeven, David Kucera, Sangheon Lee, Malte Luebker, Andrés Marinakis, Marleen Rueda, Bill Salter and Paul Swaim for their valuable comments and suggestions. I would also like to thank François Eyraud for his help and encouragement. This article is a revised version of a working paper drafted for the ILO’s Jakarta Office.
Responsibility for opinions expressed in signed articles rests solely with their authors and publication does not constitute an endorsement by the ILO.
Copyright © International Labour Organization 2008
26 International Labour Review
This article proposes several measures of the minimum wage in develop- ing countries, i.e. in a context where the quality of indicators of productivity and average wage can be questioned. By using data from more than 130 tran- sition, industrialized and developing countries, this article presents a compre- hensive overview of minimum wage levels worldwide. It shows that in a sizeable number of countries, the minimum wage is so low in the wage struc- ture that it is not, or hardly, a constraint for enterprises (“mini minimum wage”). These countries are mainly located in the former Soviet Union, Africa and, to a lesser extent, Latin America. The article also shows that the situation is quite the opposite in other countries located in Asia, and also Latin America and Africa, where the minimum wage appears to be very high in the wage dis- tribution. In these countries, the article argues, the minimum wage is in fact too high to be considered as a genuine minimum wage. This situation is labelled “maxi minimum wage”.i Finally, in the intermediate group of countries, the minimum wage is set at levels, which, although they may differ greatly from one country to another, seem to correspond more closely to the definition of minimum wage.
The article shows, on the one hand, that in many countries there is a link between the minimum wage and the level of public-sector wages, pensions and social benefits. It also documents how price stabilization policies have relied on the minimum wage. All of these factors are explored to explain “mini mini- mum wage” situations. The article also shows, on the other hand, that in some countries, minimum wage legislation amounts to average wage fixation. It also shows that poorly developed collective bargaining is a driving factor behind the emergence of “maxi minimum wages”: if minimum wage consultations are the only forum where trade unions can make their demands known, there is a danger that the resulting minimum wage is not a genuine threshold, but rather the actual wage earned by most formal workers.
Thus, the article demonstrates that countries are trying to pursue multiple goals with a single policy instrument. Governments have used the minimum wage as a reference to fix wages and incomes, as a deflator tool and as a means of promoting social dialogue. The result has been trouble. As is known from macroeconomic policy, it is desirable to have as many policy instruments as pol- icy goals.
The problems and dangers deriving from what tends to be a “maxi mini- mum wage” situation – notably, the effect of a high minimum wage on employ- ment and non-compliance – have received a lot of attention in the literature. “Mini minimum wage” situations also create failures – and not only for workers. They will be illustrated as well.
‘ This situation is sometimes referred to as “maximum wage” in the literature, an expres- sion which, though it has the advantage of being catchy, can lead to some confusion. What it refers to here are the wages earned by blue-collar workers which, even if very high, do not belong to the top-wages structure, as the expression “maximum wage” could suggest.
Fixing minimum wage ieveis In developing countries 27
Finally, the article will review some of the solutions applied to fix the minimum wage at a more appropriate and meaningful level, sometimes with a measure of success.
The article is structured as follows. The first section presents minimum wage levels in the world and compares them with various estimates of average wages and labour productivity. It also discusses whether the minimum wage is actually economically binding in these countries, that is, whether it really con- stitutes a wages floor on the labour market. The next section suggests institu- tional explanations of the two extreme, though common, situations of “mini minimum wage” and “maxi minimum wage”. The third section discusses prob- lems created by these situations, then presents a couple of innovative solutions. The article concludes on the role and weaknesses of such a key institution in developing countries.
With what indicators should the minimum wage be compared? In order to establish the level of a minimum wage, it is compared with three dif- ferent estimators of wages and productivity: GDP per capita, GDP per worker and average wage. Box 1 summarizes the advantages and disadvantages of each of the three estimators. As a first indication of the ranking of minimum wages, rates were compared with a broad indicator of income, namely, GDP per capita in purchasing power parity (PPP) dollars (table 1). Countries are classified as being in a situation of “mini minimum wage” if their ratio of minimum wage to GDP per capita is less than 0.30, and as being in a situation of “maxi minimum wage” if their ratio is above 0.60. These two figures are used as cut-off points, in an arbitrary way, based on the distribution of ratios of the minimum wage to GDP per capita.
One of the striking characteristics emerging from table 1 is the number of developing countries where the ratio of minimum wage to GDP per capita is as low as between 0.15 and 0.30. This group includes several exporters of mineral resources, such as oil, which are highly valued on the world market. As a result, their average GDP per capita is high. However, capital-intensive sectors, often isolated and employing few workers, are not representative of the whole econ- omy. This feature might be partly responsible for the very low ratio of minimum wage to GDP per capita.
As can be seen from the second and third columns of table 1, about half of the variation in the ratio stems from variation in GDP per capita across countries, rather than from variation in the minimum wage. Hence it is import- ant to understand how GDP is measured. In fact, one big problem with com- paring the minimum wage to GDP, whether per capita or per worker, hes in the underestimation of GDP in some transition countries. Saget (2000) shows that, in some transition countries, GDP estimates may be even less reUable than employment data. There may be a similar issue in developing countries generally. Marinakis and Velasco (2005) argue that one of the reasons for the
28 International Labour Review
Box 1 . With what indicators should the minimum wage be compared?
1. The minimum wage Minimum wage levels come from the ILO database on Conditions of Work and
Employment Laws, which is available at www.ilo.org/travdatabase for more than 100 countries. In countries where the minimum wage is fixed through collective bar- gaining, the level for the leading sector has been reported. In cases where there are multiple rates of minimum wages across regions, sectors and/or occupations, the minimum and the maximum levels for an adult unskilled worker are considered. For the purposes of this article, the average of these two levels is used. For countries not mentioned In the database, information on minimum wage levels was obtained from the United States Department of Labor. All minimum wage rates are in PPP dollars. The reference year is between 2002 and 2004. In order to make the comparison more meaningful, standardized monthly minimum wages were calculated on the basis of 40 hours of work per week. Legal maximum hours of work from the ILO database were used for this purpose (also see McCann, 2005, Annex I).
2. GDP per capita – = (Z wages + ï profits)/(2 workers +1 non-workers) GDP is a measure of the total flows of goods and services produced by the
economy over one year. By a principle of national accounts, GDP at factors cost is equal to the value of incomes paid to the factors of production (wages + profits). “Factors cost” simply means that indirect taxes are deducted. However, what is usually available is GDP estimated at purchaser price without deducting indirect taxes.
The advantages of comparing the minimum wage with GDP per capita include availability of the latter for almost all countries. The main shortcomings arise from cross-country variations in the numbers of dependants. A second problem occurs because of differences in the percentage of profits in GDP across countries. Another significant problem is that GDP estimates can be quite distorted in countries with a high level of informality and/or with a small, isolated capital-intensive sector.
3. GDP per worker.- = (£ wages + £ profits)/(2: workers) GDP per worker is a much better indicator of labour productivity than GDP per
capita. However, figures on the number of workers are not always available and the quality of employment data can be a problem. Similar issues arise with varying profit shares across countries (and across time), underestimation of the size of the informal economy, and non-deduction of indirect taxes.
4. The average wage – = (£ wages)/(£ workers) In principle, comparing the minimum wage with the average wage gives a bet-
ter indication of its rank in the wage distribution. The problems here are threefold. First, wage data are either unavailable or of poor quality. Second, the wages used to compute the average wage may not correspond to the sectors or geographical zones used to compute the minimum wage. For example, minimum wage legislation may not cover domestic, agricultural and young workers. Yet wages from these categories of worker are used to compute the average wage. As a result, the ratio is not mean- ingful. Third, the average is not a good indicator of the wage distribution in high- inequality countries. In this respect, the median would be a better indicator, but the data available were insufficient to calculate it.
Fixing minimum wage levels in developing countries 29
Table 1. Standardized minimum wages and GDP per capita (PPP doiiars, 2002/2004). Countries with a “mini minimum wage” are given in itailcs; those with a “maxi minimum wage”, in boid.
Country
Albania Algeria Angoia Argentina Armenia Australia Austria Azerbaijan Bangiadesh Barbados Belarus Beigium Benin Bolivia Bosnia and Herzegovina Botswana Brazii Buigaria Burkina Faso Burundi Cambodia Cameroon Canada Central African Republic Chad Chile China Colombia Congo, Democratic Republic Costa Rica Côte d’Ivoire Croatia Czech Repubiic Denmark Djibouti Dominica Dominican Repubiic Ecuador
Monthly minimum wages
195.27 389.41
65.63 443.17
88.54 1 474.50 1 345.23
50.93 80.32
420.60 74.40
1 417.12 92.87
136.43 594.93 164.37 214.01 213.02 162.40 15.90
255.94 108.16
1 065.55 77.99
161.50 321.53 227.50 402.62
87.30 471.36 111.51 483.82 466.49
1 913.86 299.36 244.59 228.83 173.36
GDP per capita per month Ratio
380.94 520.66 193.29 965.48 300.60
2 428.61 2 497.71
300.50 148.80
1 309.46 501.02
2 366.34 93.68
212.21 502.40 696.56 647.27 650.60 98.03 52.24
182.43 172.39
2 538.60 90.41
100.50 850.49 416.27 565.32
79.00 790.79 122.38 928.29
1 370.69 2 635.85
176.65 454.20 558.61 306.96
0.51 0.75 0.34 0.46 0.29 0.61 0.54 0.17 0.54 0.32 0.15 0.60 0.99 0.64 1.18 0.24 0.33 0.33 1.66 0.30 1.40 0.63 0.42 0.86 1.61 0.38 0.55 0.71 1.10 0.60 0.91 0.52 0.34 0.73 1.68 0.54 0.41 0.56
(continued overleaf)
30 International Labour Review
Table 1. Standardized minimum wages and GDP per capita (PPP dollars, 2002/2004) (cont.)
Country
Egypt El Salvador Estonia Ethiopia Fiji Finland France Gabon Gambia Germany Ghana Grenada Guatemala Guinea-Bissau Haiti Honduras Hungary Iceland India Indonesia Ireland Italy Jamaica Japan Jordan Kazakhstan Kenya Korea, Republic of Kyrgyzstan Lao People’s Demooratic Republic Latvia Lebanon Lesotho Lithuania Luxembourg Madagascar Malawi Malaysia Mali Mauritania Mauritius
Monthly minimum wages
227.94 187.94 384.76 103.44 302.44
1 220.31 1 395.46
111.35 61.58
1 465.28 167.30 506.74 219.88 139.51 180.67 55.07
420.80 914.42 177.06 184.42
1 343.23 1 195.32
157.98 815.89 232.29 109.82 75.56
519.49 10.51 38.50
335.61 199.17 386.88 313.73
1 820.91 75.98 42.87
103.40 119.77 169.94 273.94
GDP per capita per month
329.15 416.20
1 112.36 59.63
459.75 2 271.01 2 277.27
511.19 142.84
2 300.73 186.21 611.42 343.48 56.72
136.25 221.52
1 214.36 2 554.85
242.41 280.37
3 064.57 2 254.16
348.69 2 346.85
359.96 546.34 86.24
1 492.37 142.87 158.04 831.75 422.76 220.45 937.53
5 237.00 67.35 51.54
808.00 82.84
157.99 938.17
Ratio
0.69 0.45 0.35 1.73 0.66 0.54 0.61 0.22 0.43 0.64 0.90 0.83 0.64 2.46 1.33 0.25 0.35 0.36 0.73 0.66 0.44 0.53 0.45 0.35 0.65 0.20 0.88 0.35 0.07 0.24 0.40 0.47 1.75 0.33 0.35 1.13 0.83 0.13 1.45 1.08 0.29
Fixing minimum wage levels in developing countries 31
Table 1. Standardized minimum wages and GDP per capita (PPP dollars, 2002/2004) (cont.)
Country
Mexico Moldova, Republic of Mongolia Morocco Mozambique Namibia Nepal Netherlands New Zealand Nicaragua Niger Nigeria Norway Pakistan Panama Papua New Guinea Paraguay Peru Philippines Poland Portugal Romania Russian Federation Senegal Sierra Leone Slovakia Slovenia Solomon Islands South Africa Spain Sri Lanka Sudan Swaziland Sweden Switzerland Syrian Arab Republic Tajikistan Tanzania Thailand Togo
Monthly minimum wages
131.44 79.42 98.41
392.82 166.19 139.54 165.61
1 330.86 1 007.29
155.40 122.66 117.77
1 844.42 182.08 309.76 122.30 580.59 258.28 322.45 448.86 518.95 224.02 59.47
152.97 33.43
376.63 818.16 91.35
354.81 706.58 89.84
109.51 135.57
1251.09 1732.78 154.74
8.71 102.61 259.95 137.26
GDP per capita per month Ratio
761.35 125,38 150.19 334.32 94.40
531.25 118,15
2 450,98 1 764,75
210,26 68,94 85,34
3 088,61 164,29 539,60 208,76 393,66 438,88 360,09 968,57
1 536,96 601,83 766.27 140.18 46.30
1 122.40 1 608.36
136.62 874.32
1 855,33 314,71 170,48 393.22
2 221,29 2 515,52
297.92 93,22 50,88
631,69 127,28
0,17 0,63 0,66 1,17 1,76 0,26 1,40 0,54 0,57 0,74 1,78 1,38 0,60 1.11 0.57 0.59 1.47 0.59 0.90 0.46 0.34 0.37 0.08 1.09 0.72 0.34 0,51 0,67 0,41 0,38 0,29 0.64 0,34 0,56 0,69 0,52 0.09 2.02 0.41 1.08
(continued overleaf)
32 International Labour Review
Table 1. Standardized minimum wages and GDP per capita (PPP doilars, 2002/2004) (concl.)
Country
Trinidad and Tobago Tunisia Turkey Uganda Ukraine United Kingdonn United States Uruguay Uzbekistan Venezuela, Bolivian Republio Viet Nam Zambia
Monthly minimum wages
283.72 362.79 590.93
19.12 205.34
1 233.48 895.23 110.19 24.85
203.44 153.14 34.67
GDP per capita per montti
831.23 590.24 562.44 122.57 456.00
2 258.85 3112.67
690.00 144.77 409.08 207.49
73.57
Ratio
0.34 0.61 1.05 0.16 0.45 0.55 0.29 0.16 0.17 0.50 0.74 0.47
Source: Minimum wage in PPP doilars: ILO Database on Conditions of Work and Empioyment Laws and United States Department ot Labor. Monthly minimum wage rates have been standardized on the basis ot 40 hours of work a week, using information on legal maximum hours of work. GDP per capita at purchaser price in 2003 were taken from the World Development Indicators (Worid Bank). In the third column, “ratio” is the ratio of the standardized monthly minimum wage to GDP per capita per month.
high value of the minimum wage with respect to GDP per worker in Paraguay lies precisely in the underestimation of GDP (see table 2).
The comparison of standardized monthly minimum wage in PPP dollars with GDP per worker is reported in table 2 for a sample of countries. The first conclusion to be drawn is that, owing to the poor quality of employment data generally, comparing the minimum wage with GDP per worker instead of GDP per capita may not be the best option. The sizeable difference in the ratio between the two tables readily leads one to this conclusion. It is to be expected that the ratio of the minimum wage to GDP per capita should be higher than that of minimum wage to GDP per worker – and it is indeed so. While in most cases, the former ratio is more or less three times the latter, the increase is much more modest for Ukraine, and even more so for China (a 77 per cent increase). It is hard to believe that this solely reflects differences in the depend- ency rate across countries.2 As GDP is calculated in the same way in tables 1 and 2, this result casts serious doubt on the validity of the employment data used. The source of the problem lies in the mis-measurement and treatment of seasonal workers, informal workers and workers in small firms, particularly in the service sector.
To conclude this section, table 3 compares minimum wage levels with aver- age wages. In principle, this comparison makes more sense, as it provides infor-
2′- The difference between the ratios of GDP per capita and GDP per worker can largely be explained by the value of the dependency rate, which is the ratio of the economically inactive to the economically active (workers).
88.50 50.90 164.40 227.50 109.80 10.50
169.90 131.40 580.60 205.30
1 271.00 659.20
2 802.40 743.30
1 158.20 411.80
2 391.00 1 935.80 935.40 1129.50
0.07 0.08 0.06 0.31 0.09 0.03 0.07 0.07 0.62 0.18
Fixing minimum wage levels in developing countries 33
Table 2. Monthly nninimum wages and GDP per v\/orker in selected countries (PPP dollars, 2003/2004)
Country Minimum wage GDP per worker per month Ratio
Armenia Azerbaijan Botswana China Kazakhstan Kyrgyzstan Mauritius Mexico Paraguay Ukraine
Sources: GDP at purchaser price: International Monetary Fund, World Economic Outlook Database, September 2005 (GDP is in biliions of PPP dollars); Employment: ILO Laborsta, latest available year; Minimum wage in PPP dollars: ILO Database on Conditions of Work and Employment Laws, monfhiy standardized on the basis of 40 hours of work a week.
mation on the location of the minimum wage in the wage distribution. Yet there are shortcomings here too. First, the average wage, which is very sensitive to extreme values, is not a good indicator of the wage distribution in high-inequality countries (see box 1). Second, available data on wages are generally restricted to formal wages or to wages in the manufacturing sector, while what are needed are data on all wages. Another major issue is that few countries release recent and reliable wage data. Finally, the minimum wage may not be applied in certain sec- tors or geographical zones that are nevertheless used to compute the average wage. For example, agricultural workers are excluded from minimum wage pro- tection in Botswana, but wages from agriculture are included in the computation of the average wage. In Paraguay, agricultural workers, domestic workers and apprentices earn less than the standard minimum wage used in the three tables, which then calls into question the significance of the ratio of the minimum to the average wage in this case.
The fact remains that some countries show extreme values of the mini- mum wage whatever the estimator of wages and productivity used for compari- son purposes. In addition, the estimators used – GDP per capita, or per worker, and average wages – all have shortcomings and one has to be careful before drawing hasty conclusions based merely on ratios. This is, however, the case of the World Bank’s “Doing Business” database, which establishes a rank- ing of countries based on the ratio of their minimum wage to value added per worker. 3
5 The Doing Business database assigns 1 to countries where the ratio of the minimum wage to average value added per worker is higher than 0.75; 0.67 for a ratio between 0.5 and 0.75; 0.33 between 0.25 and 0.50; and 0 for a ratio less than 0.25. Minimum wage regulations represent one of several labour laws that are measured across countries and assigned numbers. These numbers are then averaged. Countries with a high average have the most “rigid” employment regulations.
13 000.00
60 000.00
417.60
412.50
456 560.00
2 964.00
950.00
813 471.00
6 837.00
903.00
3 870.00
205.00
1 242.00
29 307.00
302 666.00
783.00
729.00
759 235.00
3 747.00
3 969.30
816 428.00
7 300.00
2 604.00
5 841.00
289.00
5 914.00
0.44
0.20
0.53
0.57
0.60
0.79
0.24
0.99
0.94
0.35
0.66
0.71
0.21
34 International Labour Review
Table 3. Wages and minimum wages in selected countries (monthly levels in local currency, 2002/2004)
Country Minimum wages Average wages Ratio
Armenia Azerbaijan Botswana China Indonesia Mauritius Mexico Paraguay Philippines South Africa Thailand Ukraine Uruguay
Sources: Wages: ILO Laborsta and KILM, third edition (2003), latest available year; Indonesia and South Afrioa: Labour Force Survey 2004; Thailand (2003, private sector): Statisticai Yearbook, The Philippines: Bureau of Labor and Employment Statistics, Employment, Hours and Earnings Survey, manufacturing establishments with more than 20 workers; Minimum wage in local currency: ILO Database on Conditions of Work and Employment Laws, except Armenia and Azerbaijan: United States Department of Labor.
To some extent, the level of the minimum wage determines the degree to which the minimum wage is actually binding, that is to say, what fraction of workers earns roughly the minimum wage, and what fraction earns less. A low minimum wage is unlikely to be binding, resulting in few workers at, or below, the minimum. Conversely, a high minimum wage is more likely to be binding, although it may also be associated with a high level of non-compliance, i.e. with many workers receiving a wage below the legal threshold. Data of the same quality on the fraction of workers (formal and informal) at, or below, the min- imum wage are not available everywhere. However, estimating these fractions has become possible for a number of developing countries as more survey data have been published and thanks to the renewed interest in minimum wage set- ting institutions since the mid-1990s. Using various sources Eyraud and Saget (2005) provide an overview of the percentage of workers earning below the minimum wage in 17 developing countries, while Saget (2006) produces fur- ther estimates for informal workers using raw data, which are reported below (table 4). For the purpose of this analysis, informality is defined as not having an employment record card (Brazil), working casually (India and Indonesia) and performing domestic or farm work (South Africa).
What is particularly astonishing is the relatively high fraction (higher than expected) of informal workers earning exactly the minimum wage in some of these countries. For example, 21 per cent of casual workers in the con- struction sector in Punjab, India, were in that situation, against 15 per cent of casual workers in agriculture. In Brazil, too, a significant fraction of informal
Fixing minimum wage levels in developing countries 35
Table 4. Percentage of informal workers earning less ttian the minimum wage
Country Year Percentage
Brazil 2003 35 India (Punjab) 2000 61 (agriculture)
32 (construction) Indonesia 2004 19-32 (depending on provinces and sectors) South Africa 2003 45-72 (depending on areas and occupations)
workers – 1 8 per cent – earns exactly the minimum wage, and in South Africa, between 10 and 16 per cent of farm workers receive the minimum wage. By contrast, no cluster of informal workers at the minimum wage is observed in Indonesia, nor in Gujarat, another Indian State, nor among domestic workers in South Africa (Saget, 2006). This suggests that in certain situations, the min- imum wage is used as a reference wage in the bargaining between an individual worker and an informal employer.
How informal workers can also benefit from the minimum wage can only be summarized here. First, the simplicity of the concept of the minimum wage means that it is well known to the general public, which is the best way of ensur- ing it is respected in a sector of the economy largely beyond the reach of labour inspectors. Second, the minimum wage must be fixed taking into account the wages paid in the informal sector, in order to target the poorest workers.
Causes of the two policy failures The next section attempts to describe the motivations and constraints of devel- oping countries for setting either very low, or very high minimum wages.
To understand how the minimum wage is fixed, it is instructive to look first at the legislation and then at its application. In general, a number of cri- teria are used to fix the level of the minimum wage, reflecting both the needs of workers and their families and economic factors. As shown in Eyraud and Saget (2008), criteria commonly found in the legislation include the basic needs of workers and their families, the increase in the consumer price index, product- ivity, the level of employment, and the levels of wages and of social security benefits. These last two criteria are especially relevant for this analysis and should be examined carefully.
Causes of the “mini minimum wage” In a number of countries, social benefits such as minimum old-age pension and disability benefits and, to a lesser extent, maternity benefits and unemployment benefits are fixed according to the level of the minimum wage (for example, the minimum old-age pension is equal to 75 per cent of the minimum wage in Algeria). An analysis of the legislation in 101 countries carried out by Eyraud and Saget (2005) shows that about a third of them establish such a link between the minimum wage and at least one social benefit. The analysis also shows that
36 International Labour Review
this link originates in the wish to protect the living standards of vulnerable people such as old-age pensioners and disabled persons. This social policy objec- tive can, of course, create pressure on social security schemes and conflict with the macroeconomic equilibrium. The pressure on social security schemes, espe- cially on pensions, can be illustrated with the examples of Algeria, Brazil and Uruguay.
In Algeria, it was estimated that the increase in the minimum wage from 8,000 to 10,000 DZD (Algerian dinars) in 2004 cost 24 billion DZD per year ($US 310 miUion), due to the indexation of public-sector wages and salaries and of benefits; half of this increase was paid for by the State, the other half, through the social security schemes.”* In Brazil, the drop in the real value of the minimum wage between the 1980s and 1990s stems from the fact that the authorities wanted to moderate the impact on the massive public deficit of that period through the payment of beneflts and pensions (DIEESE; 2004). The purchasing power of the minimum wage has since been partly restored; the ratio of the mini- mum wage to GDP per capita is now 0.33 (table 1).
The case of Uruguay, up to 2004, exemplifies a minimum wage that fails to establish a wages floor in the labour market. However, the minimum wage was used for other purposes, such as fixing the level of taxes, fees, social benefits and many other prices. In this country, the minimum wage represented 21 per cent of the average wage in 2003 (table 3). At such a low value, under 3 per cent of workers were receiving the minimum wage or even less (ILO, 2004). The analy- sis undertaken by Furtado (2004) shows that the minimum wage was used, for example, in fixing the level of family allowances. Families whose income lay between six and ten times the minimum wage received 8 per cent of the mini- mum wage per child, while famiHes whose income was less than six minimum wages received 16 per cent of the minimum wage per child. Many other allow- ances were fixed relative to the minimum wage: maternity allowance (one mini- mum wage), seniority bonuses, disability allowance, unemployment benefit, marriage allowance for public-sector workers, widow’s pension, and certain medical benefits. This direct relation between the minimum wage and a number of social benefits weighed heavily on the public deficit. This may be the main reason why, as shown by the ILO (2004), Uruguay had the lowest relative mini- mum wage in the whole region and recorded the largest fall in the minimum wage since its mid-1990s level.
In 2004, the Government enacted legislation that ended the links between the minimum wage and social benefits {Ley de Base de Prestaciones y Contribu- ciones, Law No. 17.856 of 20.12.2004), forbidding the use of the minimum wage in the calculation of incomes and for indexation purposes. At the same time, efforts were made to introduce another mechanism to protect social security benefits. This mechanism established a new baseline, which is equal to the value of the minimum wage on the date the law was enacted. The regulation specifies that the baseline was to be adjusted according to the budgetary situation of the
Source: Algerian Ministry of Labour and Social Security.
Fixing minimum wage ieveis in developing countries 37
State, to variations either in the consumer price index or in the average earnings index by plus or minus 20 per cent at most. This should, in theory, protect the level of pensions. Given the short period of time elapsed since the reform was passed, it is too early to assess its impact.
The minimum wage in Uruguay was thus de-linked from the payment of social security benefits, and a major obstacle to readjusting the minimum wage disappeared. The minimum wage subsequently increased by 70 per cent in real terms in 2005, which put it at around 35 per cent of the average wage.
In some countries, increases in the minimum wage may also put pressure on the state budget – not only on social security funds. This is the case in coun- tries where the minimum wage is used as a reference wage or a threshold to fix wages in the public sector, especially those of government officials, as in several former Soviet bloc countries, such as Mongolia and the Russian Federation. In Brazil, a number of local government workers receive the minimum wage. They represent 5.2 per cent of all public-sector workers, and in the municipalities of the North-East region as many as 15 to 20 per cent (DIEESE, 2004).
This section has shown that in some countries minimum wage legislation puts pressure on public budgets because social benefits and/or public wages are directly linked to the minimum wage. This is a plausible explanation for low minimum wages. However, it is not a feature specific to the “mini minimum wage” countries. For example, African countries such as Chad and Burkina Faso set social benefits on the basis of the level of the minimum wage, although they have very high minimum wages (see tables 1 and 2).
One also has to remember the context in which “mini minimum wages” started to mushroom, namely amidst the structural adjustment processes of the 1980s-90s. In Mexico, for example, reducing inflation in the 1980s became the main consideration when fixing the minimum wage: adjustments were indexed to expected future inflation, which consistently turned out to be higher than anticipated (Marinakis, 1998). The objective of price stability was therefore a driving force behind the fall in the minimum wage in Mexico after the debt cri- sis of 1982. In former communist countries, another reason why the value of the minimum wage dropped so much was that it came to be perceived as a kind of symbol of communism, hence not very much in favour after the start of liberal- ization in 1990.
In all of these cases, involving links with social benefits and public wages, the fight against inflation or an unfavourable political environment, minimum wage fixing occurs for reasons other than establishing a wage floor for workers. This appears to be the key to explaining “mini minimum wages”. What is the best way out of this situation? The obvious approach would seem to be breaking the link between the minimum wage and social beneflts, while providing for some other form of protection for social benefits.
Causes of “maxi minimum wages” Why is the minimum wage in some countries very high with respect to the value added per worker or the general level of wages? To understand this outcome, it
38 Internationai Labour Review
is best to recall how the first minimum wages were set. Originally, the minimum wage was set for sectors where collective bargaining was weak. Weak organiza- tion of workers and employers actually provided the main justification for intro- ducing the minimum wage in Europe at the beginning of the twentieth century. Minimum wages in those sectors could then serve as a basis for collective bar- gaining on wage scales, as well as on other issues.
Things developed differently in other countries, however. In this section it is argued that some developing countries have gone from negotiating a minimum wage to negotiating a kind of average wage. A close examination of the legisla- tion in some Asian countries indicates that in a number of cases the minimum wage is not really a minimum wage, but rather the effective wage paid to most unskilled or semi-skilled workers. In Indonesia, for instance, legislation provides for exceptions to be made for companies that are not in a position to pay the minimum wage to their workforce. This practice is clearly contrary to the basic definition of the minimum wage as compulsory and not optional. Indonesian le- gislation specifies that an agreement must be reached between employers and employees. 5 Exceptions seem to be granted fairly easily as shown by the declar- ation from the Ministry of Labour during minimum wage negotiations in the autumn of 2005, which followed huge increases in oil prices. According to this declaration, small enterprises would be asked to show two-year balance sheets, while large enterprises would face audits (Jakarta Post, 8 October 2005).
The Philippines is another country where the minimum wage seems to be set at a high level (more than 90 per cent of the average wage in 2000, as shown in table 3). Here, too, legislation allows for small enterprises to be exempted from paying the statutory minimum wage. Exemptions may also be granted to estabhshments experiencing temporary financial difficulties, and to new businesses.^ Domestic workers are paid much lower wages.
Thailand is another clear example of a country where the minimum wage is in reality an effective wage. This can be seen from the fact that, at around 66 per cent of the average wage in 2003, the minimum wage is fairly close to it (table 3); and also from the fact that many low-paid workers, such as agricultural, home- and domestic workers, are excluded from coverage. In these countries, minimum wage negotiations tend to become the forum for collective bargaining on wages. The minimum wage thus crowds out collective bargaining.
A fourth example of a “maxi minimum wage” situation is Paraguay. As the minimum wage in Paraguay is almost equal to the average wage (table 3), it clearly does not represent a threshold for unskilled-labour wages. The mini- mum wage legislation of Paraguay is highly complex and provides for a minimum wage for “unspecified activities” and a minimum wage for “specified occupa-
5 Regulation of the Manpower Minister No. Per-Ol/MEN/1999 on minimum wages, article 24; Law on Manpower Affairs (No. 25 of 1997), article 90 (2).
* Rules on exemption from compliance with the prescribed wage increases/cost of living allow- ances granted by the Regional Tripartite Wages and Productivity Boards, Department of Labor and Development, National Wages and Productivity Commission (NWPC) Guidelines No 1 Series of 1996, dated 18 November, 1996.
Fixing minimum wage levels in developing countries 39
tions”, which acts as a kind of wage scale. Domestic workers, young workers and apprentices are not entitled to the minimum wage for “unspecified activities” but to a much smaller percentage of it, ranging between 40 and 60 per cent.” As these three categories of workers are traditionally among the lowest-paid and hence, typically, minimum wage earners, their exclusion is a strong indication that the minimum wage is not really a minimum wage but rather an effective wage. The triple fixing mechanism of sub-minimum wages, a minimum wage for “unspecified activities” and minimum wages for “specified occupations” mean that the minimum wage system in Paraguay has a strong effect on the wage struc- ture. This means that many wages are determined by minimum wage legislation. Marinakis and Velasco (2005, p. 10) conclude from their review that: “Minimum wages in Paraguay are not a floor, they are the effective wages paid in the mod- ern private sector; hence they are a central element of wage policy. The system, which was established to counteract the weakness of collective bargaining, is turning into a system which prevents the development of bargaining.”
Thus, minimum wage negotiations tend to become a platform for actual wage negotiations in a range of countries. This result seems to be independent from the minimum wage fixing procedure. Further examples include Thailand and Paraguay where tripartite bodies make recommendations to the (regional) government concerning adjustments to the minimum wage. In the South Afri- can clothing industry, too, there are indications that the minimum wage corre- sponds quite closely to actual wages; and here minimum wages are fixed by collective agreement within bargaining councils. In the Philippines, they are fixed by a tripartite body.^
What can be done to get out of a “maxi minimum wages” situation? Many would argue for the simple removal of the minimum wage, on the grounds that it fails to fulfil the main objective of protecting the living standards of low-paid workers. Given the above observation that the minimum wage is in fact a substi- tute for wage negotiation, another solution would be to set the minimum wage at a lower level and develop collective bargaining on other wages. Lowering the minimum wage is of course politically difficult to do. An important practical question also arises: how does one manage a move to a lower minimum wage? Could employers immediately reduce workers’ wages, for example? Or would workers on the old minimum wage have their wages frozen until inflation brought the new minimum wage up to the former level? These are very delicate political issues that deserve some exploration, in particular to find out what guar- antees might be given (by governments and employers) to rigorously enforce a new, lower minimum wage (rather than permit exceptions, expressly or tacitly, as at present). Furthermore, developing collective bargaining raises other prob- lems. Clearly, the minimum wage crowds out collective bargaining in Thailand and, in theory, bargaining could be strengthened by diminishing the statutory
‘ ILO Database on Conditions of Work and Employment Laws, available at www.ilo.org/ travdatabase.
8 ibid.
40 International Labour Review
process of minimum wage fixing. In reality, bargaining is hardly a solution to anything in Thailand, since trade union density there is barely above 1 per cent in the private sector.
A more practical solution would be for trade unions, employers’ repre- sentatives and officials from the Ministry of Labour (as well as academics and international organizations) to recognize, or be aware of, the role of the mini- mum wage in different countries. Countries cannot be treated as applying the same minimum wage policy. The process of negotiating minimum wages varies considerably between the two extreme situations outlined above, when the minimum wage serves two widely different purposes. These two situations illustrate the danger of having fewer policy instruments than policy goals.
Concluding remarks This article compared the level of the minimum wage with three estimators of productivity and wages (GDP per capita, GDP per worker and average wage) for a number of countries. On the basis of these three estimators of wages, the article showed that two groups of developing countries find themselves in extreme situations with respect to the minimum wage: one has very low mini- mum wages (“mini minimum wages”) and the other, very high minimum wages (“maxi minimum wages”). The article pointed out that, depending on the choice of estimator, the ranking of some countries changed. This change was explained by the specific production structure of some export countries, under- estimation of the informal economy in former Soviet bloc and other countries, and differences in the sectors/occupations/regions used to calculate minimum and average wages.
The article also provides evidence on the effect of the minimum wage on informal wages in a few developing countries, showing that under certain con- ditions, the minimum wage may also benefit informal workers.
Focusing on “mini minimum wage” and “maxi minimum wage” countries, the rest of the article sought to explain these two extremes. On the one hand, it showed that the link between the minimum wage and the level of social benefits and public wages, structural adjustment and an unfavourable political environ- ment might be a major explanation for the existence of a “mini minimum wage” in Uruguay, Mexico and former Soviet bloc countries.^ On the other hand, an examination of the legislation in Indonesia, Paraguay, the Philippines and Thai- land – taken as illustrative of “maxi minimum wage” countries – revealed that in these countries the minimum wage is not set to establish a wage floor in the labour market for unskilled workers. Indeed, several categories of low-paid workers are excluded from coverage, and the minimum wage tends to be fixed at a level close to the actual wage.
‘ Recently, many former Soviet bloc countries have tried to remove the link between the level of the minimum wage and the payment of social benefits.
Fixing minimum wage levels in developing countries 41
These two situations create problems. In “mini minimum wage” coun- tries, such as Uruguay, the biggest problem until the reform of December 2004 was the absence of a wage reference in the labour market on the basis of which other wages could be fixed or negotiated. The social partners and, especially, the Ministry of Labour, felt the need for an effective minimum wage that could act as a floor in the labour market. The system was subsequently reformed to end the links between the minimum wage and social benefits while tentatively establishing a mechanism to protect the level of social benefits.
In “maxi minimum wage” countries, the high level of the minimum wage results in widespread non-compliance and prevents the development of collect- ive bargaining. In Indonesia for example, 30 per cent of all full-time workers earn below the minimum wage. This percentage increases to 50 per cent for full-time casual workers, i” The minimum wage therefore fails to protect vul- nerable and low-paid workers in this country. It is currently set as an effective wage for workers in the private formal sector, or even as a maximum wage. It would appear that the labour movement in Indonesia is aware of the danger that the “maxi minimum wage” situation entails for collective bargaining.”
How did such a situation develop? In this article, I have argued that in cases where minimum wage negotiations are the only forum where trade unions can act to protect workers’ interests, the minimum wage tends to be set as an effective wage for a sizeable group of workers, and not as a threshold at the lower end of the labour market. The “maxi minimum wage” situation is therefore a consequence of the weakness of collective bargaining. However, by focusing almost entirely on the minimum wage, collective bargaining does not develop on other issues. Thus “maxi minimum wage” situations might also be a cause of the weakness of collective bargaining.
References DIEESE (Departamento Intersindical de Estatística e Estudos Socio-Econômicos). 2004.
Inter Trade Union Department of Statistics and Socio-Economic Studies Newsletter. Sao Paulo. May.
Eyraud, François; Saget, Catherine. 2008 (forthcoming). “The revival of minimum wage set- ting institutions”, in Janine Berg and David Kucera (eds): In defence of labour market institutions: Cultivating justice in the developing world. New York, NY, Palgrave Mac- millan/ILO, pp. 100-tt8.
— ; —.2005. The fundamentals of minimum wage fixing. Geneva, ILO. Furtado; Magdalena. 2004. Impacto social y económico del salario mínimo. Santiago, Chile,
ILO. ILO. 2004. 2004 Labour Overview: Latin America and the Caribbean. Lima, ILO Regional
Office. Available at: http://www.oit.org.pe/portal/documentos/20041abouroverview_l. pdf [accessed 27 Nov. 2007].
‘” Indonesia’s 2004 Labour Force Survey. ” A trade union leader in Indonesia has publicly stated that too much attention was paid
to the minimum wage, to the detriment of other issues.
42 internationai Labour Review
Marinakis, Andrés E. 1998. Minimum wage fixing in Mexico. Labour Law and Labour Rela- tions Briefing Note No. 11. Geneva, ILO.
— ; Velasco, Juan Jacobo. 2005. Análisis de la evolución reciente del salario minimo en Para- guay. Santiago, Chile, ILO.
McCann, Deirdre. 2005. Working time laws: A global perspective. Findings from the ILO’s Con- ditions of Work and Employment Database. Geneva, ILO. Available at: http://www.ilo. org/public/english/protection/condtrav/pdf/wtwo-dm-05.pdf [accessed 27 Nov. 2007].
Saget, Catherine. 2006. Wage fixing in the informal economy: Evidence from Brazil, India, Indonesia and South Africa. Conditions of Work and Employment Series No. 16. Geneva, ILO.
—. 2001. “Poverty reduction and decent work in developing countries: Do minimum wages help?”, in International Labour Review^oX. 140, No. 3, pp. 237-269.
—. 2000. “Can the level of employment be explained by GDP growth in transition countries? Theory versus the quality of data”, in Labour, Vol. 14, No. 4 (Dec), pp. 623-643.
The current state of globalization has resulted in a high level of connectivity between the economies of various parts of the world. U.S. employers will increasingly conduct business with entities in a variety of other countries as former underdeveloped parts of the world experience tremendous economic, trade, and standard-of-living growth. In addition, the move from traditional manufacturing to knowledge- and service-based employment also means that jobs as well as markets are more likely to be dispersed geographically. As the need for employers to interact globally increases, HR management professionals are going to have increased opportunities to develop compensation and benefits programs for U.S. employees in foreign assignments, as well as for local employees in foreign offices of the parent company.
It is essential that compensation professionals know the basic legal employment context and the minimum statutory employment standards of the country where they propose to do business. After that, compensation professionals may consider the norms for competitive pay and benefits needed to attract the desired talent.
In this module, we will provide a glimpse of the wide variation in compensation and benefits practices across several regions of the world. We will review governmental structure, norms, and historical events that help shed light on pay and benefits. For each country, we will examine statutory minimum wage rates. Next, we will consider such basic benefits issues as paid time off, protection programs (including retirement and health care), and stand-out benefits in particular regions. We will note where such protection programs as retirement and health care are required by the government or offered at the discretion of the employer. It is important to note that many other governments do not regularly assess pay levels in their economies, which stands in stark contrast to the wealth of data provided regularly on U.S. markets by the U.S. Bureau of Labor Statistics. The U.S. Bureau of Labor Statistics regularly compares the hourly compensation costs in several countries (U.S. Department of Labor, Bureau of Labor Statistics, 2010; International Labour Organization, 2013).
References
International Labour Organization. (2013). ILO database on conditions of work and employment laws. Retrieved from http://ilo.org/dyn/travail
Martocchio, J. L. (2015). Strategic compensation: A human resource management approach (8th ed.). Upper Saddle River, NJ: Prentice Hall.
U.S. Department of Labor, Bureau of Labor Statistics. (2010). USDL: 10-1173. Retrieved from www.bls.gov
Running Head: COMPENSATION 1
COMPENSATION 13
E-Sonic Compensation
Institution
Name
E-Sonic Compensation
Appropriate Pay-Policy Mix
There are several critical factors to be considered in the determination of a right pay policy mix of an organization. Firstly, it is important to consider the company’s performance in business. Secondly, how the other organizations especially, competitors treat and pay their employees is very crucial. This is because it influences the decision-making process when it comes to compensation. This is based on the fact that companies must remain competitive to attract talent. E-sonic should implement an intrinsic compensation. Such a compensation focuses on intrinsic rewards. Rewards reflect employee mindset as a result of performing their jobs. This is achieved through effective job design, fostering supportive and engaging work environments and demonstrating respect for employees. These ways managers can promote and intrinsic pay mix policy. In the case of E-Sonic, the company has used their marketing and distribution departments significantly efficient as evidenced by the exorbitant production levels that the company boasts. This means that employees should be well compensated (Mattson, 2008). This pay mix will also ensure that the highly skilled artists are effectively utilized to market the company brands. Concerning the finances and stability of the company, it is arguable that it has a positive retention rate that binds the artists for the long run. This is a good representative of maximum production for the future.
Pay-Policy Level Decisions
The company’s sales and marketing, as well as development departments, are provided with incentives as their company positions contribute to the success of the organization. However, administrative positions will maintain a higher pay rate. In fact, this is normal for the top administration positions in any organization. In this case, the least paid will be the artists. It is notable that developing artists cannot content with themselves, but still the company has been able to maintain maximum production. This implies that with time, they will be on the recipient end of a higher pay rate for their endeavors and loyalty to the organization (Brickley et al., 2017). This role of the company’s strategic initiative does not warrant extra funds to attract experienced artists. In fact, it is arguable that the company does not require professionals with higher pay demands. With a 5.00% 7.00% Base Wages 5.00% STI 2.00% LTI 5.00% 76.00% Discretionary Benefits Required Benefits Paid Leave; the job structure will maintain an 8% pay rate increase. This means that E-sonic will want to entice the best in sales and marketing departments and keep them within the organization once employed through regular pay rises to keep up with competition for talented marketing and sales personnel (Brickley et al., 2017).
Compensation Survey
1. Choose competitors based on industry, size, and union status.
It is clear that E-sonic is not among the top-ranked companies when it comes to compensation for their workers. This also means that the industry where E-Sonic operates is highly competitive. In fact, the competitors grow on a daily basis. Such competition includes companies such as Warner Bros,Cash Money Billionaire, Aftermath Shady Records and Def Jam among others. These competitors offer more comprehensive and attractive compensation to their employees. The company produces good music as part of their strategy to secure a position at the top of the competition. However, compensation practices help organizations attract talent which is integral to securing that top position. Retention and attracting skilled employees and artists represent an increase in productivity and efficiency. This analysis shows that E-sonic has a lot to learn from the competition that has impacted the change in mainstream music perceptions (Barcelona & Martocchio, 2017).
Similarly, the choice of competitors based on industry size and union aspects reveals that E-sonic which is not unionized chose competitors to compare with from non-unionized categories. This does not provide a comprehensive approach to compare the industry dynamics and compensation influences. It is critical to note that without the collective bargaining feature provided for by unions, E-sonic does not have to worry about negotiations for higher pay rates. The company’s focus should be to compete with non-unionized companies (Barcelona & Martocchio, 2017).
2. Select benchmark jobs for each structure using benchmark job descriptions.
E-sonic positions were evaluated against select trademark positions. These positions were selected based on job responsibility similarities, academic qualifications, and experience. The compensation survey was done based on these select positions.
| E- Sonic Position | Selected Benchmark Position |
| Marketing Director | Marketing 4 |
| Artist relationship Manager | Business Development I |
| Creative Director | Marketing III |
| Copy Writer | Marketing II |
| Director of Software Development | Software Development V |
| Software Project Manager | Software Development IV |
| Software Engineer | Software Development III |
| Software testing Specialist | Software Development I |
| Director of Market Analysis | Analyst III |
3. Reconcile differences between benchmark jobs and E-Sonic positions
Considering that similar jobs may have different degrees of compensation, the following comparison sheet was used to account for the differences;
| Skill | Adj Pay | |
| My (employee’s) job requires substantially more skill than the benchmark job | X | +4% |
| My (employee’s) job requires somewhat more skill than the benchmark | +2% | |
| My (employee’s) job and benchmark job require equal skill | 0% | |
| My (employee’s) job requires somewhat less skill than the benchmark job | -2% | |
| My (employee’s) job requires substantially less skill than the benchmark job | -4% | |
| Effort | ||
| My (employee’s) job requires substantially more effort than the benchmark job | X | +4% |
| My (employee’s) job requires somewhat more effort than the benchmark | +2% | |
| My (employee’s) job and benchmark job require equal effort | 0% | |
| My (employee’s) job requires somewhat less effort than the benchmark job | -2% | |
| My (employee’s) job requires substantially less effort than the benchmark job | -4% | |
| Responsibility | ||
| My (employee’s) job requires substantially more responsibility than the benchmark job | X | +4% |
| My (employee’s) job requires somewhat more responsibility than the benchmark | +2% | |
| My (employee’s) job and benchmark job require equal responsibility | 0% | |
| My (employee’s) job requires somewhat less responsibility then the benchmark job | -2% | |
| My (employee’s) job requires substantially less responsibility then the benchmark job | -4% |
4. Update salary data for inflation using CPI-U.
After a comprehensive compensation analysis ran using Microsoft Excel, as represented by the screenshot below, the data was tabulated in tables for efficiency.
The results of the CPI-U are tabulated below;
| Performance Appraisal | Base Salary | Total Employees | 400 | |||||
| Excellent | 30% | Q4 $80k+ | 55% | |||||
| Above Average | 25% | Q3 $50k- $79,999 | 30% | Median Pay Rates | ||||
| Average | 10% | Q2 $30k – $49,999 | 15% | Q4 | Q3 | Q2 | Q1 | |
| Below Average | 5% | Q1 $0- $29,999 | 10% | $99,354 | $71,218 | $37,270 | $28,833 | |
| Poor | 0% | |||||||
| Employee Distro Grid | Excellent | Above Average | Average | Below Average | Poor | |||
| Q4 | $80k+ | 16.5% | 13.7% | 5.5% | 2.75% | 0% | ||
| Q3 | $50k+ | 9% | 7.5% | 3% | 1.5% | 0% | ||
| Q2 | $30k+ | 4.5% | 3.75% | 1.5% | .75% | 0% | ||
| Q1 | 0-29k | 3% | 2.5% | 1% | .50% | 0% | ||
| # of Employees | Excellent | Above Average | Average | Below Average | Poor | |||
| Q4 | $80k+ | 66 | 55 | 22 | 11 | 0 | ||
| Q3 | $50k+ | 36 | 30 | 12 | 6 | 0 | ||
| Q2 | $30k+ | 18 | 15 | 6 | 3 | 0 | ||
| Q1 | 0-29k | 12 | 10 | 4 | 2 | 0 | ||
| Desired Merit Pay Increases | Excellent | Above Average | Average | Below Average | Poor | |||
| Q4 | $80k+ | 6% | 5% | 4% | 0% | 0% | ||
| Q3 | $50k+ | 5% | 4% | 3% | 0% | 0% | ||
| Q2 | $30k+ | 4% | 3% | 2% | 0% | 0% | ||
| Q1 | 0-29k | 3% | 2% | 1% | 0% | 0% | ||
| Merit Pay Allocations | Excellent | Above Average | Average | Below Average | Poor | |||
| Q4 | $80k+ | $393,443 | $273,224 | $87,431 | $0 | $0 | ||
| Q3 | $50k+ | $128,192 | $85,461 | $25,638 | $0 | $0 | ||
| Q2 | $30k+ | $26,834 | $16,771 | $4472 | $0 | $0 | ||
| Q1 | 0-29k | $10,379 | $5,766 | $1153 | $0 | $0 | Merit Budget | Total |
| $558,850 | $381,224 | $118,696 | $0 | $0 | $1,058,771 | $5,643,330 | ||
| % of payroll | 18.76% | |||||||
| Average Merit Pay Increase | Excellent | Above Average | Average | Below Average | Poor | |||
| Q4 | $80k+ | $5961 | $4967 | $3974 | $0 | $0 | ||
| Q3 | $50k+ | $3560 | $2848 | $2136 | $0 | $0 | ||
| Q2 | $30k+ | $1490 | $1118 | $745 | $ 0 | $ 0 |
Implementation of Salary Survey Results
The following chart provides the results of the regression analysis of the market for sales and marketing divisions of E-sonic
Regression Results
| R2 | 0.84 |
| Regression equation | y = 85x + 7226.67 |
These results are indicative that 84% of the variation in salary explained through the regression equation. According to this line equation, the estimated compensation for the Marketing Director is $114,947 (based off of a 1200 job evaluation point). The Creative Director compensation is estimated to be $70,850 (based off of 800 job evaluation points). Lastly, the CopyWriter position salary is predicted to be $57,881 (based off of 700 job evaluation points).
The following chart summarizes the regression analysis for each job;
| Position | Job Evaluation Points | Annual Salary |
| Administrative Assistant | 775 | $28k |
| Administrative Assistant | 775 | $32k |
| Administrative Assistant | 775 | $34k |
| Administrative Assistant | 775 | $26k |
| Administrative Assistant | 775 | $31k |
| Administrative Assistant | 775 | $35k |
| Administrative Assistant | 775 | $33k |
| Administrative Assistant | 755 | $31k |
| Executive Assistant | 1250 | $36k |
| Executive Assistant | 1250 | $39k |
Pay Grades and Ranges
The pay grades and ranges were based off the qualifications skills and abilities for a given job structure along with compAnalysis as a guide (Sangwan, 2015). The following charts show the outcomes of eight various levels with overlaps in salaries between grades.
| Grade | Minimum | Medium | Maximum |
| 1 | 35,114.03 | 39,982.59 | 45,209.70 |
| 2 | 43,204.23 | 47,831.81 | 53,502.62 |
| 3 | 51,238.26 | 56,448.30 | 62,049.06 |
| 4 | 55,486.96 | 64,876.31 | 73,600.02 |
| 5 | 65,624.28 | 76,984.70 | 89,340.05 |
| 6 | 80,336.29 | 96,991.60 | 115,574.82 |
| 7 | 85,321.20 | 104,109.78 | 126,010.66 |
| 8 | 110,346.05 | 135,890.45 | 157,236.13 |
Evaluate and summarize decisions made for each job structure
In conclusion, the company should conduct a survey of salaries across markets requiring similar jobs. This is critical in determining optimal levels of compensation that are competitive and at the same level with competitors in the industry and labor market counterparts (Sangwan, 2015).This survey would make it possible to establish fair pay grades and ranges that align with internal equity. Such a mechanism would also be crucial in attracting top talent over competitors into jobs that determine the external competitiveness of E-Sonic.
References
Barcelona, D. & Martocchio, J. J. (2017). Building Strategic Compensation Systems Project: Strategic Compensation: A Human Resource Management Approach, 8th Edition.
Brickley, J., Smith, C., & Zimmerman, J. (2017). Managerial Economics and Organizational Architecture (6th ed.). New York: McGraw Hill/Irwin.
Mattson, R. (2008). Managing the challenges of global compensation. Employment Relations Today, 35(2), 51-57.
Sangwan, S. (2015). Impact of compensation management practices on employee’s performance in private sector banks.
Market Pay Graph
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