ILRHR2020 Final

How to Pay

Many firms set pay on an ad hoc basis. Many have sophisticated systems in place for how to set pay within their organizations. Unionized workplaces, where wages, benefits and working conditions are negotiated with labor unions. Some people work for the government and have a set of pay schemes that are determined in another way What is the right level of pay for these occupations? How (relative to how much) should they be paid? Institutions matter and how the product is produced matters. Careful and clear knowledge of how a product is produced matters. One problem with the way firms pay is that it isn't always clear that they know the way they are paying is the right way to pay. Consider one set of companies that pays its employees only in cash (salaries). Consider another set that pays only in equity (stock and stock options). Suppose the companies in set A are less profitable than in set B. Just because a particular HR practice is associated with another set of firms and another practice is associated with a different set of firms doesn't mean that either HR practice had an effect on profits Maybe the more profitable firms can afford to pay a certain way and the causality actually goes in reverse. we could test this by having firms switch from one HR practice and observing what happens. But this is hard to do in practice. Most managers don't have the time energy or resources to see what works best. they typically need to make a decision and move on. Another big issue is organization strategy and the difficulties it imposes

Differences in pay structure

across all jobs, an organization may pay a wage bill that is roughly the same as that of other employers. however, within that overall level, an employer may choose alternative pay structures, variability in pay across jobs within a given organization. organizations that pay their executives for more than their entry level are said to have steep pay structures while those with more egalitarian distributions are said to have flat structures. steep- change incentives for promotion. important if the skills needed to execute an organization's strategy tend to be firm specific. induce high effort by offering very lucrative prizes for a small number or workers who are promoted to the highest level jobs. employers may decide to reduce the payoffs to promotion and seniority relative to other employers. encouraging greater harmony, shared vision and cooperation among others.

after the line, developing a system

all the pay line tells is a single level of pay that corresponds to a given number of job evaluation points. if organizations ended there then every single person a particular job at a particular time would be paid the exact same level whether the organization wants to pay at, above or below the market, organization may want o raise or lower the market line pay, in a perfectly competitive labor market, there is no reason to pay anything except exactly what everyone else is paying. also mix of pay- there is a different between how much to pay and how to pay. next step: put some sort of lee way into the system, sometimes called grades and range, or bonds and zones, the idea is to provide a distribution of possible sets of compensation levels for each set of job evaluation points. this is when you focus on the person, maybe one person has more experience or is more productive. more leadership skills and organizational ability then others. in this case, the person would not only earn more than the others because he or she performs the same job but is more productive. once a system that allows leeway has been put in place, the next step is to decide how formalized the system should be. after the organization goes through all the trouble of developing a strategy, considering job analyses and internal comparisons, and matching with external data to develop a structure and then providing a minimum and maximum levels for each job, the organization may want to stick to its place and not go outside of the structure. decisions about pay needs to be made at some point. a formalize system is much less likely to lead to bias, inappropriate pay levels, and even discrimination. even if your organization doesn't do this, payment will still be influence by this system.

relevant markets

although the notions of a single homogenous labor market may be a useful analytical device each organization operates in many labor markets, each with unique demand and supply. some face segmented supplies for the same skills in the same market. thus, think more broadly about which markets to use as sources of talent. what is the right pay to get people to do the right thing. Management must define the markets that are relevant for pay purposes and establish the appropriate competitive positions in these markets occupation, geography, competitors

the market pay line: combining the internal structure with the external data

assume the organization has the right data, merge the internal analysis clustered closely vertically- job is paid very similarly across firms. more dispersed- jobs that aren't defined perfectly, (mis-categorized jobs), the data are internally dispersed and wages differ dramatically by country, or because pay may be by performance and firms want to allow a lot of leeway in pay to coincide with potentially extraordinary performance outliers- give it special attention and make sure it is not a mistake each point represents data from some external company, all of the dots represent actual dollars that companies somewhere are paying to their employees the idea now is to decide why the external company data and the internal structure developed, how much to pay people in this company. if the organization comes up with a new position or has a position that is to part of a set of benchmark jobs, this equation can be used to place the job.

ways benefits can attract employees

benefits can have long term affects for two reasons. benefits are a hefty percentage of a firm's labor costs. can have a substantial impact on the firm's bottom line. benefits can be highly instrumental in attracting and retaining employees. firms can use benefits strategically with specific benefits to attract specific types of employees, employees that will perform in ways consistent with the firm's strategic goals. who they attract and retain depends on the benefit, individual differences in who will be attracted to a specific benefit. ads which mentioned more benefits resulted in greater job pursuit intentions. ex. truck driving company- safer drivers after offering retirement benefits people who are risk averse find supplemental retirement benefits attractive compared with people with a higher risk propensity different benefits are likely to attract different people and giving those gifts can pay off. for firms where safety is critical, providing benefits that attract risk averse employees is likely to be counterproductive to the firm's strategy some benefits may have an impact on employee behavior directly, monitoring new benefits directly affect EE behaviors can help identify the possible strategic implications of them.

people's preferences

better understanding of employee preferences is increasingly important in determining external competitiveness

non profits

bottom line not as clear in non profits, organization size and managerial pay strongly linked in nonprofits, managers who lead organizations where relatively higher share of the budget is spent on programs and serving the missing, and relatively lessor administration and fundraising are on average paid more if organized as a nonprofit, because of the non distribution constraint, those in charge of the organization will be much less likely to abscond with the money. they are also likely to arise in the case of public goods, fact that one person enjoys the sources of a public goods does not preclude others from doing so at the same time a lot of people don't know whats for profit and not for profit. the nonprofit firm may be optimal when there is a cost to observing output non profit signals to customers that there may be weakened incentives to maximize profits. employees of nonprofits may be less willing to work efficiently and quickly than those in for profits. utility of return of the wage and the social benefits provided by the organization for which they work. as jobs are more likely to generate social benefits, the is a greater change of a for profit/non profit wage gap. as we move higher away from the top of the hierarchy of the organization, occupations are less likely to have non profit vs for profit wage gap. because managers are not constrained to keep wages low, they may push wages up because it is pleasant and easy to do so. those in non profits are more likely to report their work is more important than the money they earn wage/salaries fell with increases of the social responsibility upsurge, even controlling for gender, courses, GPA, sector. lower wages because of amenities in non profit jobs, compensating differentials, more pleasant working environment greater job flexibility, more stable positions, more control over the job. but, higher turnover non profits are becoming increasingly innovative in how they pay managers as it is becoming harder to attract and retain them franchises may be important in non profits where performance is hard to measure. incentive pay increasing use to make NP workers motivated as stock price rises, so should the managers pay. if a firm were to simply tie a manager's pay to performance, the manager may take on too much risk, especially in the case of a volatile economy, solution- pay them relative to how they do in comparison to other organizations. difficult to measure output, managers may focus on the wrong objectives, implicit contracts may exist along other dimensions. donations may fail if the donators feel there is an incentive contract in place. for employees at nonprofit- problems with PFP at NPs. trustees- because they are working without pay in nonprofits, they won't expect something similar from managers of their organization's and then referencing non profit objectives might not want pay for performance. may not be fair if PFP would be punishing those who do not do well. intentionally secured and relaxed working environments, may be difficult to find managers for non profits who know about PFP. whether incentive payment can cause the organization to lose its exemption, needs to abide by the non distribution constraint, if performance measures are not clear, then performance contracts are not efficient. can be difficult to pay high managerial salaries which might lock out of turn and embarrassing the in the context of the charity. NP unable to attract high quality management talent, newer rules suggest that NP organizations must disclose compensation of top managers and that charities must justify the pay. across the board raises more common in NP then pay for performance wages. non profits with high levels of government grants pay their managers more. larger the number of paid board directors, the lower the pay of top executives in NPs

business strategy

certain employers may find high ability or highly motivated workers more valuable. firms focusing on more of a differentiation (as opposed to a cost leadership) strategy may need more able and motivated workers and may use high wages as building this sort of work force. Business strategy has a substantial effect on earnings.

benefit determination process

companies now recognize the importance of taking care of employees needs as a key factor in attracting and retaining the best employees. a first class benefit plan includes some mix of the following benefits: education and reimbursement, on site child care services, car cleaning, financial counseling, and concierge services and retirement benefits. employees consistently rate benefits a big factor in job satisfaction, the cost to employers of thee benefits is much higher than employees estimate. unit we can early identify is the advantages of employee benefits, we need to find ways to control their costs or at least slow their growth. employee benefits- the part of the total compensation package, other than for time workers, provided to employees whole or in part by employer payments. over the twenty year period, 1955-1975, employee benefit costs rose at a rate almost 4 times greater than employee wages over the consumer price index. 1963-1987- the rate of growth have slowed, benefit costs rose twice as fast as wage costs. a later time period- 1993-1999 the cost of benefits actually stabilized at about 4700 per full time worker. benefits costs have began to heat up again. pension plans- with looking retirement of baby boomers, this could spell catastrophe for already burdened state budgets. why the growth in employee benefits? wage and price controls- compliance agency charged with enforcing those controls was relatively lenient in permitted reasonable increases in benefits. with strict limitations on the size of wage increases, both unions and employees sought new improve benefits to satisfy worker demands. this was the catalyst for grown in pensions, health care coverage, time off and the broad spectrum of benefits unthinkable before 1950. since NLRB rulings during the 1940's freed unions to negotiate over employee benefits, with little freedom to raise wages during the war, unions fought for the introduction of new benefits and the improvement of existing benefits and the improvement of existing benefits. success during the war led to further position demands. pattern pension plans, supplementary unemployment compensation, extended vacation plans, and guaranteed annual wage plans. many of the benefits provided today were provided by employer initiative. can be traced to pragmatic concerns about employee satisfaction and productivity. ex. rest breaks, savings and profit sharing plans. cost effectiveness of benefits -most employee benefits are not taxable. giving a benefit rather than an equivalent increase in wages avoids payment of federal and state personal income tax. recurrent tax reform proposals continue to threaten the favorable tax status granted to many benefits. many group based benefits can be obtained at a lower rate then and be obtained by employees in acting on their own. group insurance also has relatively easy qualifications standards, greater security to a set of employees who might no otherwise qualify employee retirement income security ace, which affects pension administration and values sectors of the internal revenue code. affordable care act- the majority of americans will either have employee provided health care or will be required to self insure. medical payments regularly are listed as one of the most important benefits employees receive (health are costs are growing and are difficult to control) employees frequently are not ovenware of the undervalue of the benefits provided by the organization benefits are taken for granted. companies are cutting back benefits or shirting costs to employees or retirees, the air of entitlement may be disappearing. employees and HR professionals see benefits as a top factor in job satisfaction. employees looking for more choice in benefits- perceived value of benefits rises when employers introduce choice through flexible benefits package. maybe better planning, design and administration offer an appealing to improve effectiveness. employers are making serious efforts to educate employees about benefits, with an outcome of increased employee awareness. key element in reward attractiveness may be their visibility. need to communicate value to employees. key issues in benefit planning in addition to integrating benefits with other compensation components, the planning process also should involve strategies for ensuring external competitiveness and adequacy of benefits. competitiveness requires understanding what other firms in your product and labor market offer as benefits. either other firms must have a good package comparable to that or surviving participants or there should be a justification as to why this deviation makes sense for the firm. ensuring that benefits are adequate is a more difficult task. most evaluating adequacy consider the financial liability of the employees with and without a benefit. more organizations need to consider whether employee benefits are cost justified. companies are increasingly saying no to absorbing the cost increases of benefits (higher deductions and copay)

what differences does pay level policy make

competitiveness of pay will affect the organizations ability to achieve its compensation objectives and this in turn will affect its performance

data how and what to collect

consider both the job and the employee when doing this. one could consider the job content, employee characteristics, internship relationships and external relationships ways to collect data 1. asking employees about their job content, responsibility, and relationships, takes a very long time and it is difficult to be fair and have consistent information because many people will be giving the questioning. 2. questionnaire- restrictive because it is set up and formal in advance, subjective and interesting information would be lost, but it is objective, and easily administered, tabulated and compared across organizations. O*Net- focuses on seven O*Net descriptors: knowledge, skills, abilities, work activities, interest, work context, and work values FJA- variation and includes items to measure discretion and development JIMS- focuses on what the worker does, uses, the knowledge the worker must have, worker's responsibilities and working conditions PAQ- 194 element system that has six parts including info input, mental process, work input, relationships with others, job context and other job characteristics PMPQ- like PAQ but focuses on managers with this sort of detail, many pay decisions may end up being made on "gut feelings" and may introduce all sorts of bias, also it is difficult to compare to market rates without knowing what employers in each organization are going

the international dimension

differences across countries create high levels of difference in pay levels. data on GDP per person across countries measures productivity, US has the highest productivity. high labor costs may be less of an issue in cases when they represent a small share of total costs. economy wide data can obscure important differences in relative productivity of specific industries of firms within industries.

how to get employees to value their compensation

employers don't often enough consider how employees value certain forms of compensation. it is very hard to ask these questions about compensation preferences and extremely difficult to get honest answers to the questions. change comp systems and observe how employees behaves. requires actual data and actual behavior of employees. see what decisions employees have and from that elicit the true values of employees place on certain types of compensation relative to other types. all employees would better serve themselves if they thought more clearly and carefully about what certain parts of their compensation total package meant to them. how they would be willing to trade of each of these components for another. men prefer more risky types of pay, such as stock options, and performance based bonus, whereas women preferred guaranteed compensation. in many cases, employ organizations and employers value compensation exactly the same. however many forms of pay were valued differently by different people.

benefits

firms can often purchase goods and services more cheaply than individuals can. firms can get much better rates (per worker) when negotiating with health insurance companies than workers could get for themselves individually, for a number of reasons. firms can take advantage of the fact that they are buying in bulk. Employee valuation of benefits- if companies want to recruit workers who value certain benefits highly, than these firms will provide more of that benefit. as a result, workers who value that benefit may be more likely to go to that firm. employees with families are more likely to select jobs that have employer provided health insurance than those without families. providing benefits reduces the cost of effort at work if it is relatively costly for a worker to leave (ex. can get laundry done at work), then the workers will be more likely to stay at work. many thought these to be generous perks often thought to be associated with high tech firms. Sneaky way to get already overworked employees to toll even hard. those perks are often for publicity value an additional reason that firms may offer benefits is that they are tax advantaged, many benefits are provided to workers tax free.

globalization of relevant labor markets: offshoring and outsourcing

first, it was low skill and low wage jobs then higher paid blue collar jobs, now it is service and professional jobs. vastly improved communication and software connectivity have accelerated these trends computer programming jobs are most susceptible to offshoring. Offshoring is also happening to lawyers, and financial services jobs offshoring back office work and also production of research reports, trading recommendations and so forth. continue with lower average labor costs and also tend to have lower average productivity. assuming that labor cost savings will not be neutralized by lower productivity customers reaction must be considered if labor costs are the driving force behind packing jobs one must ask for how long the labor cost advantage at a significantly lower wage will hold and whether sufficiently qualified employees will continue to be available as other companies also dip in this pool of labor.

benefit administration issues

four major administration issues occur when setting up a benefit package. 1. who should be protected or benefited 2. how much choice should employees have among an array of benefits. 3. how should benefits be financed 4. are your benefits legally justified historically, companies provide fewer benefits for part time workers. consider: probationary periods for benefits, covering dependance of benefits, retirees, survivors of deceased employees, disabled employees, lay off benefits second, administrative issues surrounding choice (flexibility) in plan coverage, in the standard benefit package, employees not offered a change among employee benefits. package designed with average employee in mind. cafeteria style- flexible benefit plans, greater flexibility, higher value to employees of benefit plans. such plans might provide 1. optimal levels or going term life insurance 2. availability of death or disability benefits under pension or profit sharing plans 3. chances of covering dependents under group reduce expense average 4. variety of participating cash distribution, and investing options under profit sharing, thrift and capital accumulations depends on the relative advantages and disadvantages of flexibility. cost savings is a primary motivation. cost persons related to increased diversity of workforce, increased employee access to the costs of the benefits and recognition of benefit value critics argue that benefits do not meet current employee needs, changing values necessitate a re-evaluation of benefit packages. bandwagon effect- new benefits offered by a competitor are adopted without careful consideration, simply to avoid hard feelings

business strategy- starting with a basic framework

helpful to think about what the objective of the organization really is. many for profit organizations claim a responsibility to shareholders, customers and employees, the government and society but, many people think that most for profit organizations are interests in some combination of profitability, share price increase and dividends payments to the shareholders, owners. in fact, many executive compensation plans are quite explicit about this and suggest that these should be a strong link between the pay of the CEO and performance of the company. it doesn't matter what the end of the day or bottom line objective actually is, so long as people in the organization actually understand what it is. the fundamental framework and discussion of pay and work for for-profits and non-profits work equally well. it is fundamental to consider the end of the day objective of an organization before designing a compensation plan because in essence, the ideal compensation systems should help the organization reach its goal. irregularities that exist, which underpin compensation strategy, including the organization's culture, business strategy and human resource strategy. these lead to a total rewards strategy" that includes a lot more than cash pay, including compensation, benefits, work life issues, performance and recognition and development and career options. this compensation strategy is designed to attract employees, motivate them and retain them. AMR employees can lead to: -performance and results -attracting, motivating and retaining the right employees leads to better results. fulfillment of objectives, and better fulfillment of objects also leads t more successful attraction, motivation and retention of employees. those designing compensation plans must really understand how the organization does what it wants to do. very important that the organization's strategy for getting done whatever it wants to get done be aligned with the compensation strategy and compensation systems that is designed. just doing something different from a rival and a successful one may be a very bad idea. it is quite likely that the rival is doing what it is doing in this particular way for a great reason. On the other hand, doing something different that also mends well with your overall activities may prove a great idea. Few companies have competed successfully on the basis of operational effectiveness over an extended period, because competitors can quickly imitate management techniques, mote technologies, put improvements and superior ways of meeting customer needs. because these are easy to copy, they may not be valuable for sustaining comparative advantage. success of strategy depends on doing many things well-not just a few and integrating among them. if there is no fit among activities, there is no distinctive strategy and little sustainability. management reverts to the simpler tasks of overseeing independent functions and operational effectiveness determines an organization's relative performance

efficiency wage

hig wages may increase efficiency and lower labor costs if they 1. attract higher quality workers 2. lower turnover 3. increase worker effort 4. reduce shirking- higher the wage, the less likely it is that an employee would be able to find another job that pays as well. also, the risking of losing's one high paying job depends on how likely it is that you can be replaced, risk of losing one's high paying job, wage premium is high and unemployment is high 5. reduce the need to supervise employees efficiency increases by hiring better employees or motivating present employees to work smarter and harder rent- a return (profits) receive from activities that are in excess of the minimum pay level needed to attract people to these activities how much to pay and what pay forms offered establishes a brand that sends a message to prospective employees, just like brands of competition products and services. a policy of paying below the market for base pay, yet offering generous bonuses or training opportunities sends additional signals and attracts type people then does a policy of matching the market wage and offering no performance based pay. lower base pay with higher bonuses might be signaling to employees who are risk takers. pay policy helps communicate expectations. students wanted jobs that offered higher pay but they also shared a preference for individual based (rather than team based) pay, fixed rather than variable pay, job based rather than skill based pay and flexible benefits. pay level is most important to materialists and less important to those who are risk averse, Applicants appear to select among job opportunities based on the perceived match between their personal disposition and the nature of the organization as signaled by the pay system. both pay level and pay mix send a signal which results in sorting effects people who are better trained, have higher grades in relevant courses and or have related work experience signal to prospective employees they are likely to be better performers. both characteristics about applicants (degrees, grades, experience) and organizational decisions about pay level (lead, match, lag) and mix (higher bonuses, benefit choices) act as signals that help communicate

why it may pay to pay more

high wage level simplifies the recruitment problem, faster and with less persuasion. paying a high wage can help establish strict hiring specifications designed to fill the plan with a nice class of working. a high wage level also has public relations value for the firm. some firms are believed to have more incentives than others to pay high wages. organizations that put greater discretion in the hands of employees are more likely to be dependent on their efforts and abilities and hence to pay higher wages. firms that make greater use of work teams or computer assisted manufacturing may pay more in order to generate a larger and stronger applicant pool, which permits more intensive screaming and selective hiring of applicants. efficiency wages seen as a way to spur effort and reduce shirking sorting by ability argues that some employees may choose higher rates of pay as a means of hiring and retaining higher ability employees. workers invest in their own productive capacity as a means of enhancing future rates of return to their employment. human capital theory provided a means or responding to post institutionalizes observations that the large differences in pay across employees seem to exist largely cause sorting mechanisms for workers of varying quality. workers re assumed to prefer leisure but most work to fund their consumption of goods and services. thus, the work itself is not something that has motivational value to workers in the neoclassical model. set pay levels above what a worker can obtain elsewhere, less likely to shirk because they will not want to risk the wage premium. rent sharing rules out the possibility that higher compensation is used for other efficiency purposes. competitive advantage and financial performance do not necessarily go together because different stockholders compete for the same economic units, relative power of these stakeholder groups determines the allocation.

human capital

higher earnings flow to those who improve their potential productivity by investing in themselves, through additional education, training and experience, this theory assumes that people are in fact paid the value of their marginal product improving productive abilities by investing in training or even in one's physical health will increase one's marginal product in general, the value of an individual's skills, and abilities is a function of the time, expense and effort to acquire them. Consequently, jobs that require long and expensive training should receive higher pay than jobs that require less investment. as pay level increases, the number of people willing to make the investment increases, upward sloping supply supply of labor is also affected by geographic barriers to mobility among jobs, uneven requirements, lack of information about job openings, the degree of risk involved, degree of unemployment non monetary aspects are important in regards to return on investment

labor market factors

if the inducements (total compensation) offered by the employer and the skilled offered by the employee are mutually acceptable, a deal is struck. this activity makes up the labor market, the result is that people and jobs match up at specific pay rates. organizations claim to be market driven, they pay competitively with the market or even market leaders. demand side focuses on the actions of the employers and supply side looks at potential employees. the market rate is where the lines for labor demand and labor supply cross labor demand, in the short term, an employer cannot change any other factor of production, thus, its level of production can change only if it changes the level of human resources. under such conditions, a single employer's demand for labor coincides with the marginal product of labor. marginal product- diminishing marginal productivity- results from the fact that each additional employee has a progressively smaller share of the other factors of production with which to produce Until other factors of production are changed, fixed in short term, each new hire produces less than the previous hire. the amount each hire produces is the marginal product. marginal revenue -money generated by the sale of the marginal product employer will continue to hire until the marginal revenue generated by the last hire equals the cost associated with employing that last person. the level of demand that maximizes profits is that level at which the marginal revenue of the last hire is equal to the wage rate for that hire the point on the graph at which the increase income generated by an additional employee equals the wage rate is the marginal revenue product. determine the pay level set by market forces determine the marginal revenue generated by each new hire This model assumes that many people are seeking jobs, they possess accurate information about all job openings and that no barriers to mobility exist

modifications to the supply side

if the pay level does not meet their minimum standards no other job attributes can make up for this inadequacy a reservation wage may be above or below the market wage, theory seeks to explain differences in workers response to offers

total compensation

if you were an employer na had very high costs of employee compensation that were not paid out directly to the employees, you wold want to tell your employees. you want to do this to let the workers know that they are actually being paid much more than their hourly wage. many companies do not do a good job of this. employers who pay more should use that to their advantage, relative to their competitors, given that they are essentially paying more and could attract better workers if you were an employer and you have relatively poor benefits, you probably want to be pretty quiet about the "total compensation package" if you have almost no non wage and non salary benefits, your total compensation equals the wage and salary. you don't want to publicize that you have lousy benefits the reason that employers should be aware of this is so that they can be better informed when they shop for jobs. it is also interesting to consider differences in wages and salaries versus benefit levels for different kinds of workers. Benefits between management occupations and service occupations are not that different. On average, service related jobs have less paid leave as a fraction of the total compensation cost. management has higher levels of supplemental pay and retirement and savings. however, management occupations have a lower fraction of total compensation than in service occupations for legally required benefits and insurances. more health insurance for service occupations. fraction of the total compensation costs attributable to health insurance is actually higher in service occupations.

industry and technology

in addition to differences in technology across industries affection compensation, the introduction of new technology within an industry affects pay levels. qualifications and experience tailored to particular technologies is important in the analysis of labor markets

benefit contribution

in defined ____ plans, the employer agrees to pay a preset amount per month upon retirement. usually based on a function of your years of service and highest earnings while working. defined ____ plans- plan where money is built into an account and invested and that money can be withdrawn at retirement. this depends on how much money is contributed and how the money is invested employers are required to pay for a set of benefits, SS, medicare, unemployment insurance, workers compensation insurance) only some of these benefits are required of firms to pay and others are not. roughly 30% of the costs of an average worker does not go directly into the pocket of the worker and are simply costs firms face

evaluating performance incentives and incentive pay

industry matters a lot, just as context and the way the company workers matters, it also matters in many other industries and for many other occupations. even in the science industry, from the perspective of paying people appropriately, it is critically important to understand that organizations business philosophy and compensation philosophy

how and how much to pay

it is important to have external data from places where organizations will be drawing workers and to where workers might go if they leave

lag pay policy

it is possible to lag competition on pay levels but lead on other returns from work, hot assignments, desirable location, outstanding colleagues, work life balance

employer size

large organizations tend to pay more than small ones this relationship between organization size, ability to pay and pay level is consistent with economic theory that says that talented individuals have a higher marginal value in a larger organization because they can influence more people and decisions thereby leading to more profits

defining the relative market

managers look at both competitors- their products, location and size, and the jobs skills and knowledge required and their important to the organization's success. so depending on its location and size, a company many be deemed a relevant competition even if it is not a product market competitor the data from the product market competitors are likely to receive greater weight when 1. employee skills are specific to the product market 2. labor costs are a large share of total costs 3. product demand is responsive to price changes 4. supply of labor is not responsive to changes in pay

some factors that matter in influencing strategy

national culture, organizational culture, organizational and product life cycle understanding the industry and company history, regulation, mergers, acquisitions and institutions compensation plan designers can become overwhelmed with national culture and forget about other important aspects of culture. national culture is a set of shared norms and beliefs held in one nation. power distance, individualism vs. collectivism, masculinity vs. femininity, uncertainty avoidance) power distance- whether people feel more comfortable in a rigid hierarchical system or one that is more consultative and democratic. this is not necessarily the true way things are but reflects how people perceive the power distance. some nations are much more likely to be known as low in power distance. Individualism and collectivism are related-whether people are more comfortable being on their own or as part of a group. masculine cultures- people in both genders are more likely to be tending towards traits such as agreeableness, competition, ambition and money. in feminine culture, people of both genders are more likely to value issues such as quality of life and work balance this is not to suggest that people in more feminine cultures do not seek higher compensation, rather, they seek compensation in different forms. in those cultures that are more risk averse, it would make more sense relatively to favor forms of compensation that tend toward fixed components such as salary and fixed benefits. in cultures that feel less lost in the face of risk, more emphasis should be put on variable aspects of pay. some organizations are particularly hierarchical, these organizations have many layers including CEO, senior or vice presidents, directors, managers, and so on, they are very formalized and structured, others are much fitter, have fewer organizational structures and are less formal it is interesting when two firms with much differently cultures and strategies merge organization and product life cycle as factors could influence strategy. he suggests growth, maturity and declines through parts of the organizational cycle. it would be natural to have different kinds of strategies early in the growth stages of an organization, relative to a more nature time in the history of the organization. this would naturally lead to potentially different ways to pay. early on it makes more sense for a company to pay with more stock and stock options relative to cash because the company may not have much cash on hand. industry can influence strategy as can regulation and institutions, minimum wage laws, labor unions and stock and international laws on hiring and firing workers can all have extraordinary consequences for how workers are paid.

work flows to the people, on site, off site, offshore

on site- at the firm location off site- contract employees from throughout the US off shore- outside the U.S., which source EEs come from depends on customer preferences, time scheduling, nature of the project 1. reality is complex and theories abstract. not that our theories are useless. they just abstact away detail, clarifying the underlying factors that help us understand how reality works, theories of market dynamics, interaction of supply, and demand for a useful function 2. segmented sources of markets that determine pay levels and mix increasingly requires understanding market condition differently, even worldwide locations. managers also need to know the jobs required to do the work, tasks to be performed and knowledge and behaviors required to perform them so they can bundle the various tasks in different locations.

organization's strategy

organizations making greater use of high performance work practices and computer based technology and having a higher skilled workers also pay higher wages need for HR practices designed to encourage ability, motivation and opportunity to contribute

Competitive pay policy alternatives

pay level is the average array of rates inside an organization. there are these conventional pay level policies; to lead, meet or follow competition newer policies emphasize flexibility, among policies for different employee groups, among pay forms for individual employers and among elements of the employee relationship that the company wishes to emphasize in its external competitiveness policy

product demand

product market puts a lid on the maximum pay level than an employer can set. if the employer pay above the maximum, it must either press on to consumers the higher pay level through price increases or hold price fixed and allocate a greater share of revenues to labor costs.

internal comparisons really matter

relative pay matters, there are instances where coaches or others employers have negotiated situations where they are guaranteed to earn more than some group or more than the median or average of some group not the level of pay but the relative value that mattes in some situations evidence that pay is not exactly equal to what one is producing and so something else is obviously involved it takes considerable time to develop the compensation strategy and organization the structures so that it makes sense internally before going to the outside market to think about actual compensation levels.

ways executives are paid

salary, bonus, non equity incentive, stock, stock options, change in pension and non qualified deferred earnings and other compensation .. SEC recently began to require public traded firms to more carefully disclose compensation for the CEO, CFO and three other most highly paid named executive officers this bonus is listed in the summary compensation table of proxy statements for publicly traded companies. formula based beyond cash salary. non equity incentives is similar to a standard bonus but slightly different. non equity incentive compensation can be both ST or LT pay that is based on some preset criteria based on performance, the outcome of which is uncertain. equity compensation- stock and stock options, stock options represent the value of options to buy stock over the prior year, those are accounting based numbers and d not necessarily reflect the value of options at the time of the grant. use the value of stock options from the stock option grant summary tables, which are also included in the firm proxy statements. other compensation refers to amounts of perquisitihons of 10000 or more or to tax gross ups, company contributions for security payments, use of aircraft, financial policy, etc. in reality, most people probabyl think of elements in the following categories- based, bonus, equity, benefits, retirement, prerequisites. one reason for listing more than 5 executives is that some may have retired or otherwise left the firm during the year. or, listing co-CEOs. at some companies, the CEO is not the highest paid executive, was only the highest paid in 81% of companies. could be because of a one time signing bonus for other executives, larger than normal option grants, common place when hiring new employees, severance. if a company is publicly traded it is very easy to look up the pay of senior managers, SEC website. proxy includes the summer compensation to managers other required tables and a long discussion and analyses of the company compensation philosophy and justification for the executive compensation program. 3 major commercial data sources of showed no link between CEO pay and performance, tried a new method and found a strong relationship between CEO pay and performance.e first difference methods- for every 1000 increase in shareholder value, CEO pay increased 3.25, relationship between pay and performance as weak and could be strengthened rise in the use of stock and stock options in executive compensation contracts- options and stock become much more important component of executive pay packages starting in the early 1990s\ because we are diversified investors, individuals can chose a mix of investments that generates the right level of risk and expected rates of return to make themselves comfortable. having a set of firms with heterogenous levels of risk allows investors to come up with their own optimal choices.

stock

some executives are paid in part in company stock. a common restriction if for the stock to require vesting. a common form of vesting is time vesting, in which the stock cannot be sold by the employee for some time some companies pay in stock so as to make employees feel like owners. some companies require executives to keep (hold) a certain multiple of their company stock. this is called a holding requirement if your options aren't vested yet and you leave for a new job and new options in a new company, you forfeit all the options in the original company. increasingly firms offer a cash less option/exercise, where can individual can come in with a best option, hand it over and be given the difference between the current stock price and the strike price of the option minus a bit for the transaction there is still time over which the price of the stock can go up. if the exercise price of the stock goes up, then the value if the stock option should fall one would be willing to pay more than the intrinsic value because although one could immediately exercise the option, there is a chance that over the next two years, the price of the stock may rise. as the price of the stock goes up, so should the value of the stock. as the time left to exercise the stock option decreases, so does the value of the option. there is less time over which to exercise a jump in the stock price. the higher the stock price volatility, (how much the price historically rises from day to day) the higher the value of the option. this is more risky, and probably should want to be less, but with options, you don't have to exercise them so you are protected from the bottom end. large fluctuations in price, you are protected from the large decrease you are left to enjoy the advantages of the increases may tech firms before 2006 granted stock options, unusual accounting rule that allowed companies to account options as an expense in order to lower the tax burden but did not require companies to count them as an expense in terms of reporting profits to shareholders. so some firms though options to be free, and they obviously were not. options are tied to a single firm and thus give employees quite a bit of risk, there should be some offsetting benefits. might stay at a firm longer then otherwise would, just to keep the opportunity of the option payoff. change in accounting for stock options, until 2006- there was an enormous disconnect between the tax and accounting treatment of employee stock options. if the number of options and the stock price of options were fixed in advance, then options were not treated as an expense on the firm's balance sheet. although they did bear a cost to the firm and value to the recipient, employers they do not count against the firm's profits. some argued it was difficult to calculate the value of options because employee options are a bit more complicated than market traded options mentioned earlier. options were labeled as 0$ of an expense on the balance sheet prior to 2006. this was changed so they are more uniform and clear now. now, taxing and accounting treatment are identical whether employees are paid in cash or stock options employee options are granted to employees in the firm in which they work b&s model was for risk neutral diversified investors who could trade their options. but the formula was not designed for employee options. There is a market for market traded options and the intrinsic value must be less than the value of the option. hillock finds they value options more than the b&s model says they should this is surprising

business strategy

some jobs may be more important than others for executing the organization's strategy

pay for performance plans

studies show a substantial positive effect of financial incentives on performance of about 30%. the variance in effects is likely to be wide. most of the research was done in the distant past. the results typically apply to employees performing simple tasks in laboratory and field setting. in the two studies, the effectiveness of non financial programs on task performance and productivity is better than for financial incentives. in two of the studies, where researchers tried to connect financial incentives with quality of performance, no positive or negative relationship was found. the frequently cited study of incentives is not a true meta-analytical study

pitfalls of pies

the company's intended strategy may not change but in reality the mix can change. so the possible volatility in the value of different pay forms needs to be anticipated. sadhboard- changes the focus from emphasizing the relative impact of each form within a single company to couple each firm by itself to the market. the mix employers receive different at different levels in the internal job market, greater emphasis is on performance at higher levels and this is common practice. this is based on the belief that jobs at higher levels in the organization have greater opportunity to influence organization performance consequences of pay level and mix decisions external competitiveness- has two major consequences - 1. operating expenses 2. employee attitudes and work behaviors efficiency which policy achieves a competitive advantage ? pay level affects costs but we do not know what total effect is might have on productivity or attracting and retaining employees are sufficient to offset costs. also, not known how much of a pay level variation makes a difference to employees maybe a certain pay will not achieve a competitive advantage but the it will not create a disadvantage fairness- satisfaction with pay is directly related to the pay level, more is better but employees sense of fairness is also related to how others are paid. even if the decision is made to invest in improving people's feeling about fairness of the pay, this may not improve feeling about fair treatment in the work place.

pay inequality

the difference between CEO pay and that of most other workers has greatly increased in the last generation median- 16.83 per hour, men and women earn considerably different levels of wages. for some time in the uS, women did earn about 60 cents for every dollar men earned. men earn more per hour than women. as was the case at the median, men also earn more at all points in their wage distribution than women there is a great deal of dispersion in wages. some have very high wages and have very low wages. 1979-2010- wages have become progressively more dispersed over the time period. as we go back to previous years of data, the percentiles get closer so the wages are less dispersed. the lower percentiles of the wage distribution have increased little over time, especially relative to the upper percentiles of the wage distribution 90-50 ratio- the 90th percentiles hourly wage/50th percentiles hourly wage, which is a measure of inequality. this has grown from 2 to 2.25 between 1979 and 2010. the 50-10 ration, 50th percentile's hourly wages, 10th percentiles hourly wages, also rose over this time period. was 1.75 in 1979, rose quickly mid 1990's and then flattened out and is now about 2.0. so, those at the 50th percentile of the hourly wage earn a little bit more than twice as much as those at the 10th percentile. Wider measures- comparing percentiles that are further apart 90-to-10 ratio- was about 3.5 in 1979 and has grown rather steadily over the past three decades to around 4.75 in 2010. 95-to-5 ratio is even larger, was 4.8 in 1979 and has grown to 6.6 in 2010. changes in the rate of return to education over time, investing in education has had an incredibly higher pay off over time. CEO pay was relatively stable for the first few years of the period and then sharply increased over the last 3 decades. plainly seen when you consider real dollar median CEO in 2010 earned 6M, including salary, bonus non equity incentive pay, stock, stock options, pension and other pay. total compensation fell for CEOs from 2008-2009, as a result of the financial crisis. eco pay to typical low wage worker pay in 1979, ratio was 140. ratio remained flat during the 1980's, this ratio stayed flat because both the CEO pay and the pay of the worker at the 5th percentile became relatively flat over the decade. starting in early 1990's, CEO pay increased dramatically ratio of CEO pay to low wage worker pay increased to about 400 by 2009. many have argued that this is inappropriate. median CEO to median work- ratios that are much lower and increased at a much slower rate. this is not surprising because the wages of the median worker increased relatively quickly than those of low wage workers. typical earnings of eco to annual earnings of person at the 95th percentile of wage distribution, more comparable to CEOs . ratio= 30 in 1979, remained flat until the 1990's when it sharply increased now this ratio is about 60 is the correlation stemming from the fact that some parents are able to invest more in their children than others. is this something people canc change? why do people earn different wages? differences in education and training and changes in institutions and technology

developing a structure for a particular organization, internal comparisons are tricky

the idea that people will be paid differently for the same work makes many people in work situations upset. paying people the same for working for a period of time may make others upset, because some are more productive during the period that others.

who makes what

the problem with just statistics on wages from certain occupations is that people cannot just pick any occupation they want, nor can we switch without cost from one to another. gap is not zero because there are potentially more measurables in this analysis hourly wage of those identified as black is 15% than those identified as white. this comparison has no controls for the fact that people also differed by gender, occupation, place they live, their age, etc. once a set of controls is used, those identified as black earn less than those identified as white. we can expect to have faster increases in wages per year when you are younger than later in life. once we control for other characteristics, the wage bonus is only about 5% per extra year of age and a reasonable fraction of that is likely a result of labor market experience. gar becker- human capital factors can be considered just as physical capital. we can invest in education or human capital and expect a return to those investments. those with less than high school earn 27% less than those with exactly a high school degree, those with college degree earn 62% more than those with a college degree. O*Net online- to find info about wages in a particular occupation. provides details about tasks required on the job, knowledge, skills and ability necessary in the job, work activities, work context, work styles and work values also provides median wages for each occupation, estimates of employment growth on the next decade. occupational employment statistics you can look up specific details on occupational wages with many specific regions. can filter by: 1. multiple occupation for one geographic area 2. one occupation for multiple geographic areas. then you choose the types of data that he or she may find of interest 1. employment levels 2. hourly wages 3. annual earnings 4. benefits in what way should pay be measured? should employee age and hours worked be measured in a continuous way or be grouped into categories.

job evaluation: the basic

value work in a simple, perfectly competitive market, the idea is that the worker's output should just equal her wage. point here is to sign each position and job a number of points that the job is worth, you want to make sure that the system is internally consistent not yet considering compensation, only the relative value of given jobs in an organization, can be different in one company from another. given an organizational strategy, a given job description and worker in a job could be worth considerably more or less in one organization than another, depending on the business and compensation strategy of the organization. if your organization has unique or unusual jobs, they cannot be used as benchmarks, because the ideal benchmark matches to similar jobs in other organizations. So benchmark jobs have to be the ones that are clearly defined, the content of which probably doesn't change much over time and that many other organizations have as well, also helpful to have a set of benchmark jobs that run from lower value to higher value all the compensable factors are listed and although the five factors are all given weights, they each have five degrees within each factor. complete this for each of the benchmark jobs

using a compensation survey

you can sometime use data from compensation consulting companies that are in the business of collecting market data. for most organizations, the data that are used are dependent on the kinds of positions being considered national data for people who are more willing to move to a new position or can work via telecommuting small companies may want to use data only from small companies rather than compare themselves with large, more mature organizations.

what shapes external competitiveness

1. competition in the labor market for people with various skills 2. competition in the product and service markets which affects the financial condition of the organization 3. characteristics unique to each organization and its employees, such as its business strategy, technology, and the productivity and experience of the workforce

6 dangerous myths about pay

1. labor rates and labor costs are the same thing 2. you can lower your labor costs by cutting your labor rates 3. labor costs constitute a significant portion of total costs 4. lower labor costs are a potent and sustainable competitive weapon 5. individual incentive pay improves performance 6. people work for money

lower mobility

Adam Smith argued that market forces would compel employers to offer jobs of roughly equal attractiveness and that any short run differences in attractiveness would disappear in the long run. workers seek to maximize total utility, not just wages with total utility being a function of the whole of the advantages and disadvantages of a job. agreeableness or disagreeableness of the work. Difficulty and expense of working it. job security, responsibility, and the probability of success, or risk of failure. more advantageous jobs could offer ____ wages. smith believed his model of the labor market was accurate only when workers are free to choose and move and when ____ across jobs is not particularly costly. Workers must be sufficiently well informed to know there are better opportunities to be had. by assuming a ceteris paribus assumption, models were developed in which labor allocation revolved around wages, as opposed to overall utility demand high, supply low, shortage, low wage rate. high wage rate- employers wish to hire fewer workers than are willing to work, resulting in a labor surplus, neither wage enables employers to hire the desired number of workers and all workers to find acceptable jobs. equilibrium wage is the wage at which the market clears. market is always adjusting in that direction. the equilibrium rate is the one faced by all workers and employees in the market. no single employer or employee is assumed to be large or powerful enough to influence the overall going rate- they are price takers. the observed pay policy is also the most efficient policy, a firm employing suboptimal policies would earn less profit and eventually fail. because labor is a derived demand, the reduced product demand would also be expected to reduce employment levels. in addition to product market constraints employers must compete for employees in the labor market, when their competitors may or may not be product market competitors employers that pay below market rates can be expected to encounter high recruiting costs and turnover and to have greater difficulty maintaining product quality. employers are constantly pressured toward market clearing, wages that are bound by product market competitors at the high end and labor market competitors at the bottom. with this logic, it makes little sense to talk about employers pay policies, since the only effective policy is to pay what others do. perfect competition seems to be the exception rather than the norm. observed that there were differences in wages for the same job across industries, and these differences appeared to be fairly stable across time. workers of low skilled workers tended to co-vary with those of high skilled workers in the same industry, suggests that managerial policy plays a role in creating wage differentials that is not captured by the standard neoclassical model. organization size has a substantical effect, workers covered be the collective bargaining agreement, command more total compensation than those not covered. goods producing industries pay more than twice as much as retail industries. existence of employer differences in pay. 8% of the variance in cash compensation was due to firm differences, however it was not totally possible to separate the variance sources because the variables were correlated. differences in how organizations paid managers by measuring the ratio of annual bonus payments to base pay and the percentage of managers eligible for long term incentives. significant and stable differences in base pay over the 5 year period. found even larger stabler employer differences in the degree to which their compensation was composed of a fixed component versus a variable component. inferred that although organizations had some discretion regarding how much they paid, they had more regarding how they paid. labor market pressures, paying enough to attract and retain employees of acceptable quality, set a floor for pay level while product market pressures, keeping labor costs low enough to maintain product price competitiveness, set a ceiling. on the other hand, this same amount of pay could've declined in a variety of ways. focusing exclusively on pay level probably ignores some of the most significant and most interesting differences in compensation practices and strategies.

measurement matters

even when one examines an extraordinary task and even when we know quite a lot about the business practices, really determining the best way to pay can be difficult many studies that claim to measure the efforts of one particular HR practice on some outcome, must try to do everything to control for whatever else may be going on we don't know anything else about the companies, maybe there is something about them that leads to these higher profits. next, some workers choose firms based on HR practices they like. Satellite example- move from a time rate to a piece rate. instituted a pay for performance plan because they though the workers were not currently productive enough although it is one thing to decide to design a new pay plan that is intended to motivate employees, it is entirely a different thing to actually design the plan. 2. communicating the new pay plan is a tricky undertaking and worth considering seriously 3. after the plan has been designed and communicated, how can one tell if it actually worked different kinds of workers came to the firm and others left in part because of the PPP firms productivity went up and workers wages went up, productivity. productivity went up by more than the wage increase so that the firm became more profitable. both firm and workers better off. performance appraisal, environmental influences, organizational influences, how to obtain information about performance standards and goals and errors in assessing performance. very easy to see that errors can be made and if those completing performance reviews understand potential biases, reviews are likely to be better. errors include leniency, central tendency, strict/lenient rating, initial/latest impression, and status effect errors leniency errors can occur when managers rat employees performance more softly than probably should based on objective criteria strict/lenient ratings- managers being more or less strict most of the time. this is not fair especially if appraisal are not adjusted for these differences in severity and were used in compensation decisions. trait systems are easy to use and can apply to many jobs. relative to other types of performance appraisal systems, these are subjective and are evaluator's opinion of someone may be much different than that of another evaluator comparison appraisals- ordinal rankings or there could be a forced distribution, often managers will argue their employees are all better than average, if they are, this is difficult to justify a forced distribution behavioral systems are much more expensive then other methods but also provide richer detail on performance. equity theory- if someone thinks she is paid unfairly, she will be uncomfortable and unmotivated further, one way to create the match between inputs and outputs by engaging in counterproductive behavior such as shirking rewards don't motivate, rewards punish, they rupture relationships, they ignore reason, they discourage risk taking and undermine interest. only create temporary compliance.

degree of competition

employers in highly competitive markets are less able to raise prices without loss of revenues, single sellers can set whatever price they choose but not too high a price as this often invites the eye of government regulations

segmented supplies of labor and (different) going rates

faced with competition, a number of employers have cut pay. significant differences in wages paid around the world and the ease of offshoring work have also led many companies to consider this action. other options to reduce labor costs include segmenting this curve of labor.

education

graduates of prestigious Universities earn more because they would have earned more no matter where they went to college or because they actually learn more at Prestigious university than the local U twins study- found estimates of higher earnings in life produced by higher quality schooling. the gain to lifetime earnings needs to be offset by the direct costs of getting that education, plus the earnings you gave up while in school

lead pay policy

high wages tend to ease of attraction, reduce vacancy rates and training time and better quality employees lower quit rates, turnover equity theory- that fairness/ justice perceptions both distributive (based on how much they would receive) and procedural (what process was used to decide) matter negative effects- force employers to increase wages of current employees to avoid misalignment and murmuring. may mark negative jobs aspects that would otherwise lead to turnover

gift giving and dead weight loss

holiday gift giving destroys between 10% and 1/3 of the value of the gifts. the probability of giving cash vs. non cash gifts varies depending on the age difference between the giver and the receiver and their relationship- in ways that make economic sense. receiver does not know about some product or service that he/she really does prefer until she receives a gift

attract and retain better employees

one company may pay more because it believes its higher paid engineers are more productive than those are other companies. another may pay because it is differentiating itself on non financial ways- more challenging and interesting projects, possibility of international assignments, superior training, rapid promotions or greater job security different employers set different pay levels, they deliberately choose to pay above or below what others are paying for the same work not only do the pay rates for similar jobs vary among employers, but a single company may set a different pay level for different job families, comparisons of base wage. how a company compares to the market depends on what competitors it compares to and what pay forms are included

product market factors and ability to pay

organization must, over time, generate enough revenue to cover expenses, including compensation. pay level is constrained by its ability to compete in the product/service market. so product market conditions to a large extent determine what the organization can afford to pay. if prices cannot be changed without decreasing sales, the ability of the employer to select a higher pay level is constrained

measurement- what do we mean by level

organizations having the same pay level may appear to differ if you the definition and measures of pay level are deficient. typically defined as the wage rate. great variance in how employers allocate given sums of money to managers and executives and variance in pay form for all types of employers. the processes by which decisions are actually made as opposed to how they are explained to the public after they are made. are typically clothed in secrecy, although occasionally a former executive of compensation consultant decides to lift the veil and reveal the working of compensation committees for the decision about which firm to be included in the initial survey, union status was the most important factor based on self reported weights but geographic location was most important based on self reported weights. differences in pay level might occur through the unintentional decision processes rather than through differences in strategic intent. core jobs and higher pay levels are associated with greater reliance on product market as opposed to product market compensation factors that determine the choice of benchmark firms by BOD's in setting the pay of CEO's in S&P 500's compensation committees may also be tempted to look outside the industry for benchmark firms that will make the subject look better. adding firms in industries that underpeformed in the market. more explanatory text when you add outside benchmark firms. also, changing benchmark firms outside the industry would be associated with the lower overall performance of the benchmark firms. main justification for product market comparison is to ensure one's labor costs do not exceed those of product market competitors. when managers describe how they make decisions, their respond focus less on shirking and adverse selection and more on psychologically based explanations of efficiency wage theory

not by pay level average

performance driven, market match work life balance and selectivity incentives and stock ownership make up a greater percent of total compensation in performance driven policies the market match simply mimics the pay mix competitors are getting. total returns from work and offering people choices among tastes

compliance

provisions of prevailing wage laws and equal rights legislation must also be met various pay forms are also regulated, pensions and health care exercise caution when sharing salary info to avoid anti trust violations starting point is to research the market though a salary survey.

employer of choice/ shared choice

some companies compute based on their overall reputation as a place to work, beyond pay level and mix mass customization- being able to select among a variety of factors we risk that employees will make the wrong choices that will jeopardize their well being 24 jars of jam- consumers feel overwhelmed by too many choices and simply walk away. offering employees too many choices leads to confusion, mistakes or unsatisfaction.

differences in pay levels for particular jobs

some employers appear to pay above market wages for some jobs but not for others

why incentive plans cannot work

temporary compliance why rewards fail 1. pay is not a motivator 2. rewards punish 3. rewards rupture relationships 4. rewards ignore reasons 5. rewards discourage risk taking 6. rewards undermine interest

what managers say

the company's profitability was considered a factor for higher management in setting the overall pay budget but not sometimes, managers consider for individual pay adjustments managers believed that problems attracting and keeping people were the result of poor management rather than inadequate compensation. pay was the most often cited source among high performing employees for leaving, whereas relationship with supervisor was cited only 1 percent of the time by such employees

control costs and increase revenues

the higher the pay level, the higher the labor costs labor costs= pay level x number of employees the higher the pay level relative to what competitors pay, the greater the relative costs to provide similar products or services

data: how do we tell what other organizations pay? filling out a survey

the wrong people are given the survey- they either don't answer or they are not the person qualified to be answering not all jobs that sound the same are the same one part of doing the early part of job evaluation and job analysis is to consider benchmark jobs these are jobs that exist frequently and that have attributes that are said to be known, but not all jobs fit this bill and some times organizations provide information to compensation consulting firms that doesn't exactly match the job, leads to a bad estimation of market values. make sure surveys are appropriate to your situation

different policies for different employee groups

vary the policy for different occupational families. they may vary the policy for different forms of pay, adopt different policies for different business units that face very different competitive conditions