MADM 710 Module 4

example of job ranking system

"Example of a Paired Comparison for a Job Evaluation", four jobs are compared based on a ranking of 0, 1, or 2. Zero indicates the job is less important than the one being compared, 1 means the job is about the same, and 2 means the job is more important. When the scores are added up, it is a quick way to see which jobs are of more importance to the organization.

Example of Market Plus Philosophy

An example of a philosophy is Cisco Systems, listed as one of the top-paying companies on Fortune's annual list. For example, they pay $131,716 for software engineers, while at Yahoo! software engineers are paid an average of $101,669, using a market philosophy. The pay at Cisco reflects its compensation philosophy and objectives: Cisco operates in the extremely competitive and rapidly changing high-technology industry.

Example of a Market Minus Philosophy

An example of an organization with a market minus philosophy is Whole Foods. The executive compensation for Whole Foods is a maximum of nineteen times the average store worker (or $608,000), very low by Fortune 500 executive pay standards, which average 343 times. According to John Mackey, Whole Foods CEO, paying on a market minus philosophy makes good business sense: "Fewer things harm an organization's morale more than great disparities in compensation. When a workplace is perceived as unfair and greedy, it begins to destroy the social fabric of the organization." Another example of an organization with a market minus philosophy is Southwest Airlines. Despite the lower pay (and more hours), the organization boasts just a 1.4 percent turnover rate, which can be attributed not to pay but to the workplace culture and, as a result, loyalty to the company.

Pay-for-performance philosophy

Assumes that compensation decisions reflect performance differences. Pay and raises are based on performance.

Entitlement philosophy

Assumes that individuals who have worked another year with the company are entitled to pay increases with little regard for performance differences. Pay and raises are based on length of service.

An advantage of this method is its quantitative nature, but a disadvantage is the expense of performing an elaborate job evaluation.

Hay profile method advantage & disadvantage

Leniency Bias

If a supervisor is doing performance appraisals on a number of employees and makes too many high ratings, that supervisor is displaying a___________

Severity Bias

If a supervisor is making too many low ratings, there is a__________________________

management fit model

In this model, each manager makes a decision about who should be paid what when that person is hired. The downside to this model may be potential discrimination, halo effects, and resentment within the organization.

Graphic Rating Scales (GRS)

Managers evaluate an employee's performance on a number of performance dimensions, using a scale with definitions for each point on the scale. The primary advantage of GRS over other performance appraisal methods is that they are easy to develop, easy for supervisors to learn to use, and easy for employees to understand. Other methods of performance appraisal cannot match these advantages.

compensable factors

Once the compensable factors are determined, each is given a weight compared to the importance of this skill or ability to the organization. When this system is applied to every job in the organization, expected compensable factors for each job are listed, along with corresponding points to determine which jobs have the most relative importance within the organization.

example of job classification system

The US military is perhaps the best known for this type of classification system. The navy, for example, has job classification codes, such as HM (hospital man). Then the jobs are divided into specialties, such as HM-8483, the classification for surgical technologist, and HM-8451 for a hospital man-X-ray technician. The federal government and most state governments use this type of system

advantages and disadvantages of pay grade scale

The advantage of this type of system is fairness. Everyone performing the same job is within a given range and there is little room for pay discrimination to occur. However, since the system is rigid, it may not be appropriate for some organizations in hiring the best people. Organizations that operate in several cities might use a pay grade scale, but they may add percentages based on where someone lives.,

Reward

The job analysis sets the standards for satisfactory job performance, and performance appraisal evaluates the employee's job performance against these standards. This evaluation can then be used for making administrative decisions about continued employment, transfer, promotion, merit pay, bonuses, profit sharing, incentives, and other organizational rewards.

compensable factors

The points given to a specific job are called compensable factors. These can range from leadership ability to specific responsibilities and skills required for the job.

The develop function

This function is to give employees feedback on their job performance, which can be used for career planning and employee development. Where the performance appraisal indicates areas of unsatisfactory performance, this may be used to identify training or development needs. Where the performance appraisal indicates areas of superior performance, this may be used to identify strengths the employee can build on to be more effective in the future.

Promote

This function is to identify candidates for promotion by using the performance appraisal data to predict the future job performance of an employee in a higher level position.

job ranking system

This is the simplest evaluation. In this type of evaluation, job titles are listed and ranked in order of importance to the organization. A paired comparison can also occur, in which individual jobs are compared with every other job, based on a ranking system, and an overall score is given for each job, determining the highest-valued job to the lowest-valued job

going rate model

This model can work well if market pressures or labor supply-and-demand pressures greatly impact your particular business. - In this model, analysis of the going rate for a particular job at a particular time is considered when creating the compensation package. This model can work well if market pressures or labor supply-and-demand pressures greatly impact your particular business.

Market Minus Philosophy

This philosophy pays a particular percentage less than the market; so in our example, if a company pays 5 percent less, the same job would pay $54,150.

Market Plus Philosophy

This philosophy will determine the going rate and add a percentage to that rate, such as 5 percent. So if a particular job category median pays $57,000, the organization with a market plus of 5 percent philosophy will pay $59,850.

Hay profile method

This proprietary job evaluation method focuses on three factors called know-how, problem solving, and accountability. Within these factors are specific statements such as "procedural proficiency." Each of these statements is given a point value in each category of knowhow, problem solving, and accountability. Then job descriptions are reviewed and assigned a set of statements that most accurately reflect the job. The point values for each of the statements are added for each job description, providing a quantitative basis for job evaluation and eventually, compensation

variable pay system

This type of system provides employees with a pay basis but then links the attainment of certain goals or achievements directly to their pay. For example, a salesperson may receive a certain base pay but earn more if he or she meets the sales quota

Example of point factor system

Tompkins County in New York uses a point-factor system. Some of their compensable factors include the following: 1. Knowledge 2. Autonomy 3. Supervision 4. Psychological demands 5. Interpersonal skills 6. Internal and external contacts In this point-factor system, autonomy ranks the highest and is given a weight of twenty-nine, while knowledge is given a rate of twenty, for example. Each of the compensable factors has a narrative that explains how points should be distributed for each factor

pay, incentives, and other types of compensation.

We can divide our total pay system into three categories:

One major internal factor is the compensation strategy the company has decided to use. Sixty-two percent of organizations have a written, documented compensation policy

What are internal pay factors?

Other internal pay factors might include the employer's ability to pay, the type of industry, and the value of the employee and the particular job to the organization.

What are other internal pay factors?

· Rewards distributed in equal amounts to all members may be perceived as unfair. · There may be free rider issues. Free rider refers to a member of the team who contributes little. · Large team size can be a challenge because individual efforts of employees have little effect on the total performance of the team in large teams.

What are the challenges with work team incentives?

A Checklist Rank Ordering Narrative Appraisals Graphic Rating Scales (GRS) A Behaviorally Anchored Rating Scale (BARS).

What are the five common ways of conducting a performance appraisal?

relevance, sensitivity, reliability, and acceptability

What are the four requirements for an effective performance appraisal system?

a Central Tendency

if the supervisor is making too many ratings in the middle of the scale, there is a________________________

Failure to reward better performing employees reduces their motivation to exert higher levels of effort. Failure to identify employees who are ready for promotion leads to less effective promotion decisions. Failure to identify areas of employees' job performance that need improvement makes employees less productive than they could be.

What are the negative consequences of ineffective performance appraisals?

Leniency Bias, Severity Bias, Central Tendency, Contrast Effect, Halo Effect, Recency Error, and Similarity

What are the rating errors?

· It may be easier to measure group output than individual output. · It can foster team cohesiveness. · It can improve productivity. · It can increase retention. · It can improve quality.

What are the reasons for using work team variable pay?

The performance standards against which employees are to be evaluated may be unclear, the manager may not have had opportunities to observe the employee's job performance, the manager may lack skill in conducting the appraisal, or the appraisal is not taken seriously by the person doing the rating.

What are the reasons that performance appraisals fail?

The two philosophies are market plus and market minus

What are the two market compensation philosophies?

A market compensation policy is to pay the going rate for a particular job, within a particular market based on research and salary studies.

What is a market compensation policy?

Pay Grade Scale

When employees receive raises, their raises stay within the range of their individual pay grade, until they receive a promotion that may result in a higher pay grade.

· Aid recruiting and retention - Which employer to work for - Whether to stay with or leave an organization - When to retire · Improve organizational performance · Meet legal requirements · Reinforce the company philosophy of social and corporate citizenship

Why can benefits be offered as a competitive advantage? Benefits are offered to:

There are many reasons why an organization would choose one philosophy over another. A market minus philosophy may tie into the company's core values, as in Whole Foods, or it may be because the types of jobs require an unskilled workforce that may be easier and less expensive to replace. A company may use a market plus philosophy because the industry's cutting-edge nature requires the best and the brightest

Why would an organization choose one philosophy over another?

Rank Ordering

a group of employees on their job performance is easy for the manager to do, as long as the number of employees is not too large. With larger numbers of employees, it may be easy for the manager to determine which employees should get the highest and lowest ranks, but deciding on appropriate rankings for employees in between can be more difficult.

A Behaviorally Anchored Rating Scale (BARS)

a kind of GRS in which the definitions of the points on the scale (the anchors) are behaviors (Smith & Kendall, 1963). To evaluate the employee's job performance, the manager matches the behavior on the scale that is typical of the employee. This improves the response clarity of the scale, because raters do not have to interpret a subjective term such as "outstanding" or "satisfactory." A BARS is typically more than a 5-point scale, which improves its sensitivity to differences in job performance between employees and within an employee over time.

To develop a BARS

a large number of critical incidents (i.e., examples of effective and ineffective job performance) is generated, typically by job incumbents and their supervisors, which are then clustered into a set of performance dimensions.

Checklist

a list of job tasks that the employee is expected to perform, and the manager checks off whether the employee has accomplished those tasks.

A Behaviorally Anchored Rating Scale (BARS)

a type of GRS in which the points on the scale are behaviors.

rank ordering

an ordinal scale, which hides differences between groups of employees evaluated by different managers. If one manager had three employees, one a superior performer and two below-average performers on an absolute measure of performance, they would be ranked first, second, and third. If another manager had three employees, two superior performers and one below-average performer, they would also be ranked first, second, and third.

expectancy theory

another key theory in relation to pay. This theory says that employees will put in as much work as they expect to receive.

glass ceiling

refers to the smaller percentage of women than men in management positions

External pay factors

can include the current economic state. For example, in June 2011, the US unemployment rate was 9.2 percent, which is quite high for the country. As a result of surplus workers, compensation may be reduced within organizations because of oversupply of workers. Inflation and cost of living in a given area can also determine compensation in a given market.

Checklist

contains a list of job tasks, and the manager conducting the performance appraisal checks off those tasks that have been completed satisfactorily. The employee's score on the performance appraisal is the number of items on the Checklist that have been checked off. Essentially, each job task is evaluated as satisfactory or unsatisfactory, although relatively more important job tasks can be given more weight in the total score. Checklists are easy for the supervisor to use and for the employee to understand, but they are relatively insensitive to differences between employees and within an employee over time, because it is only a 2-point scale.

point-factor system

determines the value of a job by calculating the total points assigned to it

the reinforcement theory

developed by Edward L. Thorndike, says that if high performance is followed by some reward, that desired behavior will likely occur in the future. Likewise, if high performance isn't followed by a reward, it is less likely the high performance will occur in the future.

job classification system

every job is classified and grouped based on the knowledge and skills required for the job, years of experience, and amount of authority for that job.

Halo Effect

occurs when raters let an overall impression of an employee affect their ratings across a set of performance dimensions (i.e., an employee receives higher ratings; or lower ratings, if there is a negative impression) so that the ratings they make tend to be consistent with the rater's overall impression.

Recency Error

occurs when the rater focuses only on recent performance, instead of evaluating the employee's job performance over the entire evaluation period.

Narrative Appraisals

require managers to write an essay about each employee's job performance.

Narrative Appraisals

require managers to write an essay about the job performance of the employee. Although this has the advantage of providing a richer description of the employee's performance (e.g., the mitigating and aggravating circumstances, the situational constraints, and unexpected events), the result is words, not numbers. Administrative decisions about continued employment, transfer, promotion, and merit pay must still be made, and these decisions are easier to make when they are based on numbers. Also, the quality of narrative appraisals depends on the writing skills of the manager doing the appraisal.

Graphic Rating Scales (GRS)

require the manager to evaluate the employee's job performance on a scale across a number of performance dimensions.

Rank Ordering

requires the manager to rank-order a group of employees from highest performer to lowest.

What are the three basic functions of performance appraisal?

reward, develop, and promote

skill-based pay system

salary levels are based on an employee's skills, as opposed to job title. This method is implemented similarly to the pay grade model, but rather than job title, a set of skills is assigned a particular pay grade.

Broadbanding

similar to a pay grade system, except all jobs in a particular category are assigned a specific pay category. For example, everyone working in customer service, or all administrative assistants (regardless of department), are paid within the same general band. McDonald's uses this compensation philosophy in their corporate offices, stating that it allows for flexibility in terms of pay, movement, and growth of employees.

Benefit

tangible indirect rewards provided to an employee or group of employees for organizational membership. · U.S. employers often provide benefits. · U.S. benefit cost average 33%-50% of payroll expenses. · Health insurance is the largest percentage.

Sensitivity

the performance appraisal system can distinguish effective from ineffective performers.

Acceptability

the performance appraisal system has the support of the managers and employees who use it. If the system is not acceptable, it may be undermined or used ineffectively.

Job evaluation

the process of determining the relative worth of jobs to determine pay structure. can help us determine if pay is equitable and fair among our employees.

Pay Grading

the process of setting the pay scale for specific jobs or types of jobs. The first method to pay grade is to develop a variety of pay grade levels.

Similarity

the tendency for raters to judge more favorably those perceived to be similar to themselves (i.e., employees are rated more favorably if they are similar in background, attitudes, or other characteristics).

Relevance

there are clear links between the performance standards for jobs and the organization's goals and between the performance standards for jobs and the performance dimensions evaluated in the performance appraisal.

Reliability

there is consistency in the performance appraisal process. Different raters should agree with each other about the performance of a given employee; if they are evaluating the employee on the same performance dimensions, they should give the same score.

competency-based pay

this approach looks at the employee's traits or characteristics as opposed to a specific skills set. This model focuses more on what the employee can become as opposed to the skills he or she already has.

equity theory

this theory is concerned with the relational satisfaction employees get from pay and inputs they provide to the organization. It says that people will evaluate their own compensation by comparing their compensation to others' compensation and their inputs to others' inputs.

know-how, problem solving, and accountability

three factors of the Hay Profile Method

Entitlement philosophy Pay-for-performance philosophy

two basic philosophies about strategic compensation decisions.