Compensation Management Exam #1

The final result of the process is a structure, a hierarchy of work that translates

an internal alignment policy into practice

Incentives

are a one-time payment which differs from merit adjustments. - Incentives do not increase base wage. - Incentive payment is known beforehand. - Incentive programs use objective measures of performance.

Business strategy and the accompanying compensation strategy

are never static

Higher skill levels command higher wages, so skill level becomes useful criteria

for establishing differences among jobs

Most factor scales consist of

four to eight degrees. - One issue is whether to make each degree equidistant from adjacent degrees - interval scaling.

To avoid starting from scratch (if writing a job description for the first time) or as a way to cross-check externally, it can be useful to refer to

generic job descriptions that have not yet been tailored to a specific organization.

Pay objectives

guide the design of the pay system and are standards for judging success

When a stock option vests

it means that it is actually available for the employee to exercise - that is, to buy.

Point plans begin with a

job analysis and content of the jobs help define, scale, and weight compensable factors

Job Evaluation Perspectives differ on whether job evaluation is based on

job content or job value

The summary of the job itself is the

job description

An advantage of skill-based pay is

less bottlenecks as people are better matched to the work flow

Merit bonuses

paid in a lump sum rather than becoming a part of base pay.

Total compensation

pay received directly as cash and indirectly as benefits.

AMO theory states that

performance (P) is a function (f) of three factors: ability (A), motivation (M), and opportunity (O).

A supporting compensation strategy for an innovator

places more emphasis on incentives encouraging innovations.

One intention of differentials is

to motivate people to strive for promotion to a higher-paying level

External Competitiveness

to pay comparisons with competitors

Competency-Based Structure

try to abstract the underlying, broadly applicable knowledge, skills, and behaviors that form the foundation for success at any level or job in the organization. - These are the core competencies

Employee Contributions

understanding the basis for judging performance; helps perceive pay as fair

Whole Foods Management

uses a "no-secrets" management technique making salaries known to all and a "you decide" technique allowing employees to chose their health insurance

Whole Foods Employee contributions

uses a shared fate technique and monthly performance affects team pay

The final step in the job analysis process is to

verify the accuracy of the resulting job descriptions

Job Evaluation Content refers to

what work is performed and how it gets done

Verification often involves the jobholders as well as their supervisors to determine

whether the proposed job description is accurate and complete - The description is discussed, line by line, with the analyst, who makes notes of any omissions, ambiguities, or needed clarifications.

An effective organization strategy may require

an aligned, yet adaptable, structure.

The work design of organizations may change.

- Technology changes. - Outsourcing. - Delayering.

Forms of compensation are categorized in two ways:

Relational returns and Total compensation

Google positions itself as

a feisty startup

An important factor influencing the internal pay structure is its

acceptability to the employees involved.

A compensation strategy that supports the business strategy implies

alignment between compensation and overall HR strategies

Criteria for scaling factors:

- Ensure the number of degrees is necessary to distinguish jobs. - Use understandable terminology. - Anchor definitions with benchmark job titles and work behaviors. - Make it apparent how the degree applies to the job

Pay is usually

"market driven."

Some see job evaluation as a process for linking

(i) job content and internal value with (ii) external market rates

In the classification method of job evaluation:

- A series of classes covers the range of jobs. - Class descriptions are the labels. - Compare job descriptions to class descriptions to find the best fit. - The label captures work detail yet is general enough to cover jobs. - Describe classes further with titles of benchmark jobs.

Strategic Choices in Designing Internal Structures: Loosely Coupled

- A strategy of innovation and short cycle time is supported by a loosely coupled structure. - Turbulent, unpredictable competitive environment. - No steps are laid out and employees may work on several teams and products. - Pay structure is loosely linked to the organization to provide flexibility.

Strategic Choices in Designing Internal Structures: Tailored

- Adapted by organizations with a low-cost, customer-focused strategy. - Has well-designed jobs with detailed steps or tasks. - Very small pay differentials among jobs.

Strategic Choices in Designing Internal Structures: Egalitarian

- All employees are valued equally. - Advantages: Fewer levels and smaller differentials. - Disadvantages: Equal treatment can mean more knowledgeable employees feel underpaid.

Job Analysis Information and Comparability Across Borders

- As firms spread work across countries, job analysis maintains consistency in job content. - One potential challenge is that perceptions of what is part of the job may vary by country.

The design process of Job Evaluation matters

- Attend to fairness of the design rather than results. - Review procedures help ensure procedural fairness. - Powerful members of the job evaluation committee may sway results

To be useful, compensable factors should be

- Based on the strategy and values of the organization. - Based on the work performed. - Acceptable to the stakeholders affected by the resulting pay structure.

Assess Total Compensation Implications:

- Business strategy and competitive dynamics - understand the business. - HR strategy - pay as a supporting player or a catalyst for change? - Culture / Values - pay systems mirror image and reputation. - Social and political context affects compensation choices.

Structures Based on Jobs, People, or Both

- Collect and summarize work content information that identifies similarities and differences. - Determine what to value. - Assess the relative value. - Translate the relative value into an internal structure.

Cultures and Customs

- Cultural factors play a role in shaping pay structures. - Shared mind-sets may judge what size pay differential is fair.

Employees and managers are the source of information for

- Defining the skills. - Arranging them into a hierarchy. - Bundling them into skill blocks. - And certifying whether a person actually possesses these skills

Discrepancies in Job Analysis

- Differences in job data may arise among the jobholders. - If employees and supervisors disagree on what is part of the job, the analyst should collect more data. - Holding a focus group to discuss discrepancies, and asking participants to sign off on the revised results ensures agreement. - Disagreements can help clarify expectations, learn better ways to do the job, and document how the job is performed.

Skill Plans Generalist/Multi-skill Based: Breadth

- Earn pay increases by acquiring new knowledge. - Certification rather than job assignments. - Assigned to jobs based on certification and work flow. - Responsibilities can change over a short time.

These Skill-based Pay plans become increasingly expensive if all workers top-out

- Employers may have an average wage higher than competitors. - Unless flexibility permits a leaner staff, labor costs will be higher. - Some employers require employees to stay at a rate for a certain time. - Labor-intensive products may create a competitive disadvantage

Compensation influences manager's success in two ways.

- First, it is a major expense that must be managed. - Second, it is a major determinant of employee attitudes and behaviors.

The impact of internal structures depends on the context in which they operate.

- Hierarchical structures show greater performance when the work flow depends on individual contributors. - High performers quit less under hierarchical systems than those systems based on performance rather than seniority. - More egalitarian structures perform better when close collaboration and sharing of knowledge is required.

Who Collects the Information for Job analysis?

- Human resource generalists and supervisors. - Someone thoroughly familiar with the organization and its job.

Outcomes of Skill-Based Pay Plans

- If labor costs are a small portion of a company's entire operating costs, then the increased compensation may be negligible and worth the acquired flexibility. - A company with a cost-cutter strategy can still use a skills-based pay structure if they are willing to do more with less

Job Descriptions Summarize the Data

- If possible, use existing job descriptions to avoid starting from scratch or to cross-check externally. - Descriptions of managerial/professional jobs are often more detailed. - Verify the description with jobholders and supervisors to make sure it is accurate and complete, and note any needed clarifications. - May include job specifications (i.e., knowledge, skills and abilities required to perform the tasks).

Ranking Drawbacks

- If ranking criteria is poorly defined, evaluations become only opinions. - Evaluators must be knowledgeable about every single job under study. - Results are difficult to defend and costly solutions may be required

Institutional Theory "Copy Others and Conform"

- Internal pay structures may become "best practice" and are simply copied or imitated from others. - Recent examples include outsourcing jobs, emphasizing teams, and de-emphasizing individual contributions.

Using benchmark jobs (in theory) captures all aspects of the work

- Its contents are well known and relatively stable over time. - The job is common across employers. - A reasonable proportion of the work force holds this job.

Some people see pay as a measure of justice.

- Laws and regulations aim to eliminate the gap between male/female earnings differentials. - Benefits may also be seen as a reflection of equality or justice in society. - Current political issue: Income Inequality

Organization Factors Overall HR Policies:

- Most organizations tie money to promotions as motivation. - Internal labor markets determine pay for jobs within the firm and allocate employees among the different jobs.

Strategic Choices in Designing Internal Structures: Hierarchical

- Multiple levels, detailed work descriptions, and outline who is responsible for what. - Values the differences in work content, skills, and contribution. - Includes detailed descriptions of work done at each level.

Job Evaluations Alternation Ranking

- Orders job descriptions alternately at each extreme. - Evaluators agree on which jobs are the most and least valuable, then the next, etc.

The impact of any internal structure on organization performance is affected by the other dimensions of the pay model.

- Pay levels (competitiveness). - Employee performance (contributions). - Employee knowledge of the pay structure (management).

Who Provides the Information for Job analysis?

- Principal sources: Jobholders and supervisors. - Subordinates and employees in other jobs that interface with the job under study. Number of incumbents from which to collect data varies with stability of the job and ease of collecting the information

Employee acceptance relies on two sources of fairness:

- Procedural justice - Distributive justice

Relational returns from work include:

- Recognition and status - Employment security - Challenging work - Opportunities to learn - Personal satisfaction from successfully facing new challenges - Teaming with great co-workers

Employee Data

- Skills - Behaviors - Experience - Internal & External Reporting Relationships

Although a wide variety of factors may be used in Compensable factors, the factors tend to fall into four generic groups:

- Skills required - Effort required - Responsibility, and - Working conditions.

Restricted stock does not have asymmetric incentives.

- Some refer to it as compensation for "showing up to work." - The stock has value even if the price of the stock went down after the grant.

Job evaluation helps establish an aligned pay structure which:

- Supports organization strategy. - Supports work flow. - Is fair to employees. - Motivates behavior toward organization objectives.

Compensation Strategy:Internal Alignment

- Supports organization strategy. - Supports work flow. - Motivates behavior

Purpose of the Skill-Based Structure

- Supports the strategy and objectives. - Supports work flow - a main advantage. - Is fair to employees. - Motivates behavior toward organization objectives. - But Beware!

Government Policies, Laws, and Regulations

- The Equal Pay Act and the Civil Rights Act require "equal pay for equal work." - U.S. legislation forbids discrimination and some legislation aims at differentials, producing a flatter wage rate structure. - Some legislation aims at differentials with the so-called "living wage."

Pay Model Three basic building blocks:

- The compensation objectives. - The policies that form the foundation of the compensation system. - The techniques that make up the compensation system.

The rationale behind stock options is that it creates an incentive to manage the firm in such a way that the stock price increases.

- This benefits both the shareholders and the executive. - Their interests are aligned.

Step four of Implement and Reassess closes the loop

- This step recognizes that compensation strategy must change to fit changing conditions. - Periodic reassessment is needed to continuously learn, adapt, and improve.

Programs that help employees integrate their work and life responsibilities include:

- Time away from work, - Access to services to meet specific needs, and - Flexible work arrangements.

Pay Model: Policies Objectives

- To ensure that pay is sufficient to attract and retain employees. - To control labor costs to ensure competitive pricing of products/ services.

External Stakeholders

- Unions, stockholders, and political groups may have a stake in a company's pay structure. - Unions seek smaller pay differences among jobs and seniority-based promotions. - A current focus is on the pay differences between executives and others (maybe the average employee pay).

Map A Total Compensation Strategy:

- Use the five dimensions of the Pay Model. - Objectives: Is comp a catalyst or more of a supporting role to other HR programs? - Internal Alignment: How much does pay differ among job levels? - External Competiveness: How much are our competitors paying and in what forms? - Employee Contributions: Performance-based pay?

Job Evaluations Paired Comparison

- Uses a matrix to compare all possible pairs of jobs. - When all comparisons are completed, the job judged "more valuable" becomes the highest ranked job, and so on

Job value may include the job's value in the external market

- Value added may be more (or less) in two different organizations. - There is not a one-to-one correspondence between internal job value and pay rates.

Employees may see compensation as:

- a return in an exchange, - an entitlement for being an employee of the company, - an incentive to take/stay in a job and invest in performing well, or - as a reward for having done so.

Ranking simply orders the job descriptions from highest to lowest based on relative value or contribution to success

Cheap, simple, fast, easy to understand and explain to employees

In compensation, job analysis has two critical uses:

- it establishes similarities and differences in the work contents of the jobs, and - it helps establish an internally fair and aligned job structure.

Internal Alignment

- refers to comparisons among jobs or skill levels inside a single organization. - pertains to the pay rates both for employees doing equal work and for those doing dissimilar work.

Higher pay is usually due to work:

- requiring more skill/knowledge, - performed in unpleasant work conditions, or - work that adds more value to the company.

Marginal productivity

- says that employers pay its employees their use value. - Marx would disagree ("surplus value")

Human capital is

- the education, experience, knowledge, abilities, and skills required for the job. - a major influence on internal structures. - The greater the added value, the higher the pay.

An internal pay structure can be defined by:

- the number of levels of work, - the pay differentials between the levels, and - the criteria or bases used to determine those levels and differentials.

Well-designed compensation systems

can help an organization achieve and sustain competitive advantage.

Employees judge fairness by comparing:

- to jobs similar to their own, - their job to others at the same employer, or - their pay against external pay levels.

Three main objectives of the Traditional Compensation Method

-compensation objectives, -policy decisions -techniques.

Point methods have three common characteristics:

1. Compensable factors. 2. Factor degrees are numerically scaled. 3. Weights reflect the relative importance of each factor

Two strategic choices are involved in internally aligning pay structures

1.How to specifically tailor the organization design and work flow to make the structure. 2.How to distribute pay throughout the levels in the structure.

Criteria: Content and Value

A structure based on content ranks jobs based on skills required, complexity of tasks, problem solving, and/or responsibility. A structure based on value focuses on the relative contribution of the skills, tasks, and responsibilities.

Job Analysis

A systematic method to discover and describe similarities and differences among jobs.

Generally, the employee can exercise the stock option within 10 years from the grant date.

After 10 years, the options are voided.

Compensation

All forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

At some stage of its business life, it will concentrate on one or two over the others

And as the company matures, its strategy will often change

Downfalls of Job evaluation method Classification:

Class descriptions can be troublesome and may be too vague

A sample of benchmark jobs will capture the

Diversity of work - The depth of work ranges from highest to lowest position. - The breadth of work depends on the nature of the business

Single or Multiple Plans?

Employers design different evaluation plans for different work

Strategy: Cost Cutter

Focus on Efficiency

Internally aligned pay structures can be designed to

Help determine pay for the wide variety of work and ensure that pay influences attitudes and behaviors and directs toward objectives

Allowances often grow out of short labor supply.

Housing and transportation allowances.

The real issue in job analysis should be

How much detail is needed to make these pay decisions? - Enough to set pay levels, encourage continuous learning, increase the experience / skill of the work force, and minimize the risk of pay-related grievances.

Work/life balance.

Includes time away from work, access to services, and flexible work arrangements.

Strategy: Customer Focused

Increase Customer Expectations

Generic job descriptions can

Increase flexibility

Strategy: Innovator

Increase product complexity and Shorten Product Life Cycle

Google, Nucor, and Merrill Lynch are all

Industry innovators. - All three have pay strategies that support their business strategies

Most firms do not have a single "generic" strategy.

Instead, companies tend to be a unique blend of all three generic strategies

Institutional Theory

Institutional theory predicts that very few firms are "first movers" but instead copy innovative practices from others. - The potential drawback of such behavior is that what aligns with the strategy of one organization may not align with another. - Also, it is not possible to outperform competitors simply by imitating their practices.

AMO theory is expressed:

P = f (A, M, O)

Compensation in a cost cutter strategy

encourages productivity increases

Identical positions make a

Job

Why Perform Job Analysis?

Job analysis potentially aids every HR function.

Broadly similar jobs combine into a

Job family

Job Data Identification includes:

Job titles, departments, the number of people who hold the job and whether it is exempt from the Fair Labor Standards Act

Job Specification

Knowledge, skills, and abilities necessary to perform the job

There is _________ uniformity in the use of terms in person-based plan than there is in a job-based plan

Less

Skill Plans

Link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work. Structures based on skill compensate individuals for all their skills, for which they have been certified, regardless of whether the work they are doing requires all or just a few of those particular skills. The wage attaches to the person

Stockholders have a particular interest in executive pay

Linking executive pay to company performance increases stockholders' returns

Who Should Be Involved in Job Evaluation

Managers and employees with a stake in the results should be involved in the design process. Common approaches use committees, task forces, or teams. - Compensation professionals are primarily responsible for job evaluation of most jobs. Union representatives help gain acceptance

Income protection.

Medical insurance, retirement programs, life insurance, and savings plans are common.

Job Analysis Disagreement centers on the issue of flexibility.

Organizations are using fewer employees to do a wider variety of tasks in order to increase productivity and reduce costs. Reducing jobs and cross-training can make work more fluid and employees more flexible.

The Final Result: Structure

Organizations commonly have multiple structures that apply to different functional groups or business units. Job evaluation provides work-related and business-related order and logic

Establish Certification Methods:

Organizations may use peer review, on-the-job demonstrations, or tests to certify that employees possess and apply skills. Newer applications are moving to fixed review points in the year. Scheduling makes it easier to budget and control payroll increases. Other changes include: -Ongoing recertification. - Removal of certification when a skill is deemed obsolete

Some stockholders say using stock to pay employees creates a sense of ownership

Others argue it dilutes stockholder wealth

Offshoring

Refers to the movement of jobs to locations beyond a country's borders

Skill Plans Specialist: Depth

Pay is based on knowledge of the person doing the job, rather than on job content or output. Basic responsibilities do not vary on a day-to-day basis.

Equity Theory: Fairness

People compare the ratio of their own outcomes to inputs with that of others

Skill-based plans have very specific information on every aspect of the production process

Plans are suited for continuous-flow technologies where employees work in teams

Quantitative Methods of obtaining information

Quantitative Job Analysis (QJA) facilitates statistical analysis of results, allowing faster data collection. - Advantage: - Practical and cost effective. - Disadvantage: - Important job aspects may be omitted resulting in a faulty job description.

Conventional Methods of obtaining information

Questionnaires and interviews are common. - Advantage: - Employee involvement increases the understanding of the process. - Disadvantage: - They are open to bias and favoritism.

Compensation Strategy: Pay Structure

Refers to the array of pay rates for different work or skills within a single organization. The number of levels, the differentials in pay between the levels, and the criteria used to determine those differences describe the structure

What Information Should Be Collected in Job Analysis?

Start by reviewing information already collected to develop a framework for further analysis. - Job titles, major duties, task dimensions and work flow information may already exist. - However, it may no longer be accurate so verify existing information. Collect sufficient information to adequately identify, define, and describe a job. Categorize information by: - The job - job identification and job content. - The employee: characteristics and both internal and external relationships.

Economic Pressures

Supply and demand for both labor and the company's products or services affect internal pay structures.

Job Description

Tasks, duties, and responsibilities that make up a job.

Pay Model: Techniques

Techniques tie the four basic policies to the compensation objectives

Work Design

Technology used in producing goods and services influences the organizational design, the work, and the skills/knowledgerequired to perform the work.

Company and employee enter into a contract which outlines the terms of the stock options.

The contract will specify the grant date, which is the day you receive the options and they begin to vest.

The skill- or competency-based plans pay for the highest level of skill regardless of work performed - maximizing flexibility

The employer must control the rate of certification of skills and offset the higher rates with greater productivity

"How-To" - Competency Analysis

The first decision is to clarify the objective of the plan. - The structure may exist on paper through competency sets and scaled behavioral indicators but bear little connection to the actual work. Core competencies are not unique for each company. - What differs is how each company applies their competencies.

Job-Based Structures: Job Evaluation

The focus here is on what to value in the jobs, how to assess that value, and how to translate it into a job-based structure

One feature of any pay structure is its hierarchical nature

The number of levels and reporting relationships

vesting period

The options vest gradually, over a period of time

Pay Model: Policies

The policies are the foundation (the bedrock) on which our comp system is built

Use Value

The value of goods/services an employee produces in a job within a single company

Exchange Value

The wage agreed upon by the employer and employee

Value

The worth of the work.

Job Analysis and Susceptibility to Offshoring

There are productivity differences across countries as well, meaning that lower labor costs may in some cases be offset by lower productivity. - Availability of workers with needed education and skills is another potential constraint. - Proximity to customers is yet another issue

"line-of-sight" relationship

There should be a "line-of-sight" relationship between each job and the organization's objectives

Compensable Weights are often determined through

an advisory committee that allocates 100% of the total value among the factors

Tournament Theory

This theory says all players play better when the prize differentials are larger - Applying this to organization structures, the bigger the prize for getting to the next level of structure, the greater the motivation. - The greater the differential between your and your boss's salary; the harder you work. - Does not directly address turnover.

(T/F) Incentives may be long-term (stock ownership or stock options) or short-term.

True

Content

Work performed in a job and how it gets done

A job-based approach pays only as much

as the work is worth

A questionnaire typically asks jobholders to

assess each item in terms of whether or not that particular item is part of their job. - If it is, they then rate how important it is and the amount of job time spent on it. - The results can be used to develop a profile of the job.

Pay Model: Fairness

attempts to ensure fair treatment for all the employees, by recognizing both employee contributions and employee needs

Merrill Lynch pay objectives are to

attract, motivate, and retain the best talent

Competencies derive from leadership's

beliefs about the organization and its strategic intent. - Not all employees understand the connection

In reality, when evaluating higher-value, non-routine work, the distinction between job-based versus person-based approaches

blurs

Poorly designed compensation systems

can play a major role in undermining organization success.

Restricted stock

common stock that is granted and vests over a period of time.

Pay relationships affect the

compensation objectives of efficiency, fairness and compliance

Pay Model: Compliance

conforming to federal and state compensation laws and regulations

The customer focused strategy uses

customer satisfaction incentives in the compensation strategy

To determine the number of classes and to write class descriptions in job evaluation

define boundaries between each class

The purpose of job- and person-based procedures is to

design and manage a pay structure that aids success

Work-related information is needed to

determine pay, and differences in work determine pay differences

The pay differences among levels are

differentials

Job Data Content is the

heart of job analysis. - Data involves the elemental tasks or units of work, with emphasis on the purpose of each task. - There is also an emphasis on the objective of the task. - Task data reveals the actual work performed and its purpose or outcome.

Nucor emphasizes

high productivity, high quality, and low cost

The number of job evaluation plans hinges on

how detailed it needs to be to make pay decisions, and how much it will cost

Skill analysis is a systematic process of

identifying and collecting information about skills required to perform work in an organization.

Step three of Implement and Reassess is to

implement the strategy through the design and execution of the compensation system. - The compensation system translates strategy into practice.

Pay Model: Efficiency

improving performance, increasing quality, and controlling costs

Whole Foods Objectives

increase shareholder value, satisfy and delight customers, and seek employees who will help the company make money

Merit increases

increments to base pay based on performance.

Job analysis collects

information on specific tasks or behaviors

Long-term incentives

intended to focus employee efforts on multiyear results.

Greater internal alignment - fit

is more likely to lead to success

The incentive effect

is the degree to which pay influences individual and aggregate motivation.

Work flow

is the process by which good and services are delivered to the customer

Skill- and competency-based structures

look at the person

Job-based structures

look at what people are doing and the expected outcomes.

cost of living adjustment (COLA)

made to base pay on the basis of changes in what others are paying or living costs (inflation).

Skill-based pay is mostly used in

manufacturing, where the work involves teams, multi-skills, and flexibility

Core competencies are often linked to

mission statements that express an organization's philosophy, values, business strategies, and plans

Whole Foods External competitiveness

offers a unique total compensation package compared to competitors.

A group of tasks performed by one person makes up a

position

Skill-based plans are readily accepted by employees and

provide strong motivation to increase individual skills

Relational returns

psychological.

Managers must ensure the structure remains aligned by

reassessing work/skills/competencies when necessary

Traditional job analysis may

reinforce rigidity

Weight the compensable factors according to the

relative importance of the job to the organization

A job-based structure

relies on the work content - tasks, behaviors, responsibilities

The underlying purpose of Structures Based on Jobs, People, or Both

remains the same for both Job-based and Skill & Competency-based structures

Management

right people get the right pay for achieving the right objectives in the rightway

Structure must

seem fair to employees

A person-based structure

shifts the focus to the employee - the skills, knowledge, or competencies the employee possesses - In the real workplace, it is difficult to describe a job without reference to the jobholder's knowledge and skills. - It is also difficult to define a person's job-related knowledge without referring to work content. - So, rather than a job-or person-based structure, reality includes both jobandperson

Performance shares

similar to restricted stock except that the number of shares is dependent on achieving certain performance metrics. - Usually includes a threshold, target and maximum. - Usually a multi-year vesting period (3-5 years)

Employee involvement is built into

skill-based plans

Internal alignment based on job content orders jobs by

skills, duties, and responsibilities

Whole Foods Internal alignment

store is organized into self-managed teams, executive salaries capped at 19X average full-time employee pay, and all full-time employees qualify for stock options.

Compensable factors are based on

strategic direction and how the work contributes. - Factors are scaled for presence and weighted for importance. - Points are attached to each factor weight. - Total points determine its position in the job structure

The Americans With Disabilities Act (ADA) requires that essential elementsof a job

those that cannot be reassigned to other workers - must be specified - Many employers have modified their job descriptions to include these essential elements; - With or without a reasonable accommodation.

Job evaluation is the process of

systematically determining the relative worthof jobs to create a job structure for the organization. - The evaluation is based on a combination of job content, skills required, value to the organization, organizational culture, and the external market. - This potential to blend organizational forces and external market forces is both a strength and a challenge of job evaluation.

Task Data reveals

the actual work performed and its purpose or outcome.

The sorting effect

the effect that pay can have on the composition of the workforce. - How an organization pays can result in sorting effects.

The contract allows one to buy shares of stock at a designated price, called

the exercise price or grant price

The greater the alignment between a business strategy and the compensation system,

the more effective the organization

Stock Options

the most common form of market-oriented incentive pay. - They have value only if stock price goes up. - Stock options are believed to align managers' goals with shareholders' goals. - Stock options have asymmetric incentives. - Stock options can lead to increased risk taking by managers.

Pay Model: Ethics

the organization cares about how its results are achieved

A structure based on job value orders jobs by

the relative contribution of the skills, duties, and responsibilities to the organization's goals

The best approach to pay structures depends on

the situation

If people are paid based on competencies, there must be a way to certify

their possession of that competency. - There seems to be no objective way of certifying competency

Employees should "see" links between

their work, the work of others, and the organization's objectives

Even if you are in the innovation mode, the compensation strategy may differ from other companies in this mode because

they face different issues than your company

Compensable factors are

those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives

Forms of Long-term incentives

×Restricted Stock ×Performance Stock Units ×Stock Options

Base Wage

•Cash that an employer pays in return for the work performed. •A function of the skill or education an employee possesses.

Eight Steps in Designing a Point Plan

•Conduct job analysis •Determine compensable factors •Scale the factors •Weight factors by importance •Select criterion pay structure •Communicate and train users •Apply to remaining jobs •Develop online support

Internal Alignment Compensation Strategy

•Often called internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization

Wage: Cash Compensation

•Pay for workers - non-exempt - covered by overtime and reporting provisions of FLSA. •Calculated on an hourly basis.

Salary: Cash compensation

•Pay given to employees who are exempt from regulations of the Fair Labor Standards Act (FLSA). •Calculated at an annual or monthly rate.