MGT 461 Midterm

Jacob works at PrimeClean Corp., a carwash company. He is asked to follow a set of instructions in a predetermined order to wash a car. All the details including the amount of washing liquid to use for each type of car are clearly specified. In this case, Jacob's company is most likely to use a:

closely tailored pay structure.

Judging Job Analysis: Validity

examines the convergence of results among sources of data and methods (reliable and accurate) - Data and process must be acceptable to jobholders and managers - The job information must be current - Usefulness: practicality of the information collected

Distributive Justice

fairness of the final decision

Merit increase

increments to base pay based on performance

Incentives can also be long term

multiyear performance, stock based

Merit bonuses

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

All of the following are advantages of a lead pay-level policy EXCEPT _____.

Higher Turnover rates

Incentives are based on

Individual performance or team/unit performance, or some combination of both

Policy Choices

Internal alignment, external competitiveness, employee contributions, management

contrasting approaches: Mechanisms to translate into pay

Job based: Assign points that reflect criterion pay structure Skill based: Certification and price skills in external market Competency Based: Certification and price competencies in external market

contrasting approaches: Pay Structure

Job based: Based on the job performed/market Skill based: Based on skills certified/market Competency Based: Based on competency developed/market

contrasting approaches: Advantages

Job based: Clear expectations sense of progress pay based on value of work performed Skill based: Continuous learning flexibility reduced work force Competency Based: Continuous learning flexibility lateral movement

contrasting approaches: What is valued

Job based: Compensable factors Skill based: Skill blocks Competency Based: Competencies

contrasting approaches: Quantify the value

Job based: Factor degree weights Skill based: Skill levels Competency Based: Competency levels

contrasting approaches: Procedures

Job based: Job analysis job evaluation Skill based: Skills analysis skill certification Competency Based: Competency analysis competency certification

contrasting approaches: Managers' focus

Job based: Link employees to work promotion and placement cost control vie pay for job and budget increase Skill based: Utilize skills efficiently provide training and control costs via training, certification, and work assignments Competency Based: Be sure competencies add value provide competency-developing opportunities control costs via certification and assignments

contrasting approaches: Limitations

Job based: Potential bureaucracy Potential inflexibility Skill based: Potential bureaucracy requires cost controls Competency Based: Potentail bureaucracy requires cost controls

contrasting approaches: Pay increases

Job based: Promotion Skill based: Skill acquisition Competency Based: Competency development

contrasting approaches: Employee focus

Job based: Seek promotions to earn more pay Skill based: acquire skills Competency Based: acquire Competencies

job specification

Knowledge, skills, and abilities needed to perform the job

internal structure

Levels, Differentials, Criteria

Which of the following companies is taking efforts to improve the work/life balance of its employees?

MH Corp. increases the number of paid holidays given to its senior employees.

relevant labor market def.

Markets that are relevant for talent management and pay purposes

Which of the following is given as an increment to the base pay in recognition of past work behavior?

Merit Pay

Organization Factors

strategy, technology, human capital, HR policy, employee acceptance, cost implications

job description

tasks, duties, and responsibilities that make up a job

procedural justice

the fairness of the process by which a decision was reached

Work Flow

the process by which goods/services are produced and delivered to the customer

Incentives

One-time payment

AMO Theory (Boxall & Purcell)

P (Performance) = f(A,M,O) Ability Motivation Opportunity

The _____ method of job evaluation uses compensable factors.

Point

Labor Demand Theories: Efficiency Wage

Prediction: Above-market wage/pay level may improve efficiency by attracting higher-ability workers and by discouraging shrinking because of risk of losing high-wage job. A high-wage policy may substitute for intense monitoring So What?: The payoff to a higher way depends on the employee selection system's ability to validly identify the best workers

Supply Theory: Human Capital

Prediction: General and specific skills require an investment in human capital. Firms will invest in firm-specific skills, but not general skills. Workers must pay for investment in general skills So What?: Skill/ability requires investment by workers and firms. There must be a sufficient return (pay level) on investment for the investment to take place. Workers, for example, must see a payoff for training.

Labor Demand Theories: Sorting and Signaling

Prediction: Pay policies signal to applicants the attributes that fit the organization. Applicants may signal their attributes by the investments they have made in themselves So What?: How much, but also will influence attraction-selection-attrition and resulting workforce composition

Labor Demand Theories: Compensating Differentials

Prediction: Work with negative characteristics requires higher pay to attract/retain workers So What?: Job evaluation and compensable factors must capture these negative characterists

Supply Theory: Reservation Wage

Prediction: job seekers won't accept jobs if pay is below a certain wage, no matter how attractive other job aspects are. So What?: Pay level will affect ability to recruit. Pay must meet some minimum level

Egalitarian pay structures have all BUT which of the following characteristics?

Prefer individual performance over team performance

The Pay Model

Serves as both a framework for examining current pay systems. Three basic building blocks: (1) the strategic compensation objectives, (2) the strategic policies that form the foundation of the compensation system, and (3) the techniques of compensation.

Pay Structure

The number of levels, the differentials in pay between the levels, and the criterial used to determine those differences

Source of competitive advantage

Three tests to determine if a pay strategy is a source of competitive advantage: 1. Is it aligned? (With the business strategy?, Externally with the economic and socio-political conditions?, Internally with overall HR system?) 2. Does it differentiate? 3. Does it add value? (Calculate the return on investment (ROI), dehumanizing?)

Judging Job Analysis: Reliability

- A measure of the consistency of results among various analysts, various methods, various data sources, or over time - Is a necessary, but not sufficient condition for validty

best practices

- A set of best-pay practices exists - Practices can be applied universally - Results in better performance with almost any business stratefy

Loosely coupled structure

- Appropriate for business that required constant innovation or short product-design-to-markey cycel times - Pay strucutre is more loosely linked to the organization in order to proved flexibility - Example: 3M

Cash Compensation: Base Wage

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

Tailored Structure

- Closely aligned with the overall business - Appropriate for low-cost, customer-focused business strategy - Jobs are well defined with detailed tasks and steps - Examples: McDonald's and Walmart

Policy Choices: Internal Alignment

- Comparisons among jobs or skill levels inside a single organization - When pay is aligned with the relative contributions of different jobs to the organizational goals and performance

Compensable factors

- Compensable factors should be: (based on the stratefy and valus of the organization, based on the work performed, acceptable to the stakeholders, current and up to date contingent upon changes in strategy and goals) - Can use factors from existing plans

Support Business Strategy

- Compensation strategies can be based on generic strategy frameworks - Each company will have a unique combination of different strategy types - When business strategy changes, pay strategy should also change

How to collect information

- Conventional methods - Quantitative method

Support Business Strategy: Michael Porter's framework

- Cost leadership strategy: reducing costs - Differentiator strategy: Providing a unique and/or innovative product/service at premium prices

External factos

- Economic pressures - Government policies, laws, regulations - Stakeholders - Cultures and customs

Theories related to pay

- Equity theory - Tournament theory - Institutional theory

Compensation Strategy: Cost cutter

- Focus on efficiency - Business Response: operational excellence, pursue effective solutions - HR Program Alignment: do more with less - Compensation systems: Focus on competitors' labor costs, increase variable pay, emphasize productivity, focus on system contrail and work specifications

Incentives tie pay to performance but differs from merit adjustments:

- Incentives do not increase base wage - Incentive payment is known beforehand - Incentive programs use objective measures of performance

Compensation Strategy: Customer focused

- Increase customer expectations - Business Response: deliver solutions to customers, speed to market - HR Program Alignment: Delight customer, exceed expectations - Compensation systems: customer satisfaction incentives and value of jobs and skills based on customer contact

What is the best approach to pay structures?

- It depends - Provide sufficient ambiguity to afford flexibility (generic approach may not provide sufficient detail to make a clear link between pay, work, and results, Too detailed approach may become rigid)

When is a pay system "internally aligned"?

- It supports organization's strategy - It supports work flow - It motivated behavior (clear link between their work, others' works, and organizational objectives, fair to employees)

How labor markets work? Why would pay be different from the market-based rate?

- Labor demand theories (compensating differentials, efficiency wage, sorting and signaling) - Labor supply theories (reservation wage and human capital)

Cost-of-living adjustment (COLA)

- Made to base pay on the basis of changes in: what others are paying and living costs

Policy Choices: Managment

- Making sure that the "right people get the right pay for achieving the right objectives in the right way" - Understanding the impact of compensation decisions

Relevant Labor Markets

- Managers define relevant labor markets by: occupation (skill/knowledge required), geography (willingness to relocate, commute, or become virtual employees), and competitors (other employees in the same product market and/or labor market) - relevant labor market competitors may not be the same as product market competitor's

Hay Group compensable factor: Problem Solving

- Measures the nature and complexity of the issues and challenges that the job has to face - Two dimensions: 1. Environment, the availably of guidance for the thinking in terms of policies, procedures, guidelines, and instructions, along with the degree of definition around the problems 2. Challenge- the inherent complexity of the uses and the thought process required

Theories Related To Pay: Institutional Theory; copy others and conform

- Organizations adopt universally "best practices" - Criticism: what aligns with the strategy of one organization may not align with that of another

Policy Choices: External Competitiveness

- Pay comparisons with competitors - Pay is "market driven" - Goals of external competitiveness policy

Theories Related To Pay: Tournament Theory; motivation and performance

- Pay dispersion motivates employees (the greater the differential between your and your boss' salary, the harder you work)

Policy Choices: Employee contributions

- Pay for performance - Identify and communicate the basis for judging performance - Individual vs. team performance and incentives - Helps employees perceives pay as fair

Cash Compensation: Wage

- Pay for workers-nonexempts-coverd by overtime and reporting provisions of FLSA - Calculated on an hourly basis

Cash Compensation: Salary

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

Employee Acceptance

- Pay structure needs to be accepted well by employees - Two sources of fairness (Procedural justice and distributive justice) - Pay procedures are more likely to be perceives as fair if: they are consistency applied, employees participate in the process, appeal procedures are included, and the data used are accurate

Theories Related To Pay: Equity Theory; fairness

- Peole compare the ratio of their own outcomes to inpurts with that of others - Employees judge fairness by comparing (to jobs similar to their own. their job to others at the same employer, and their pay against external pay levels) - Accuracy of employee knowledge of other employees' input and output - Does not mean equity

What information is collected for competency analysis?

- Personal characteristics: personality, traits (integrity, maturity of judgement, flexibility, respect for others) - Visionary: highest-level competencies (have global perspective, take initiative, set strategic goals) - Organization-specific: competencies tied specifically to a particular organization or unit (customer orientation, functional expertise)

Conventional method to collect information

- Questionnaires with open-ended questions, interviews - Pro: Employee involvement increases understanding of the process - Cons: open to bias and favoritism

Quantitative method to collect information

- Structured questionnaries - Use of statistical analyses - Pros: Practical, cost effective - Cons: important aspects specific to particular jobs may be omitted resulting in a fault job description

Hay Group compensable factor: Accountability

- The measured impact that the job is designed to have on the success of the enterprise - Two dimensions: 1. Freedom to Act: the delegated authority vested in the job to act, approve, or make decisions 2. Impact: the magnitude and nature of the impact that the job has on the organization's ability to achieve its mandate

Hay Group compensable factor: Know-how

- The sum total of all knowledge and skill, however acquired, required to do the competently - Three dimensions: 1. Practical, technical, and specialized knowledge & skills (includes depth and breadth) 2. Planning, organizing, coordinating, and integrating knowledge 3. Communication and influencing skills

core competencies

- The underlying, broadly applicable knowledge, skills, and behaviors that form the foundation for success - Core competencies are often linked to the organization's mission statement - Competency is defined and measured using behavioral indicators called competency indicators

Goals of external competitiveness policy

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

HR systems will be most effective when:

- employee ability is developed through selective hiring and training, - compensation system motivates employees - roles and the working environment allow employees to be involved in decision making.

Compensation Strategy: Innovator

- increase product complexity and shorten product life cycle - Business response: product leadership, shift to mass customization, cycle time - HR Program Alignment: committed to agile, risk-taking, innovative people - Compensation Systems: reward innovation in products and processes, market-based pay, flexible - generic job descriptions

Skill-based structures

- link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work. - Pay individuals for all the skills that they have been certified (regardless of whether the work actually requires all or just few of those skills) - The wage attaches to the person - In contrast, a job-based plan pays employees for the job to which they are assigned (regardless of the skills they possess)

job evaluation

- process of systematically determining the relative value of jobs to create a job structure for the organization - Based on a combination of job content, skills required, value to organization, organizational culture, and external market

External Competitiveness

- the pay relationships among organizations - the organization's pay relative to its competitors - Expressed by: (setting a pay level that is above, below, or equal to that of competitors, determining the pay mix relative to those competitors)

What shapes internal structures?

1. External Factors 2. Organization Factors 3. Internal Structure

Conventional pay-level policies are too:

1. Meet or match competitors 2. Lead: pay more than competitors 3. Lag: pay less than competitors

TreeWind Inc. is a bookstore that uses skill and responsibility as its compensable factors. It assigns 20 percent weight to responsibility and 80 percent weight to skill. If the responsibility factor scores a 60 after multiplying the subfactors with their corresponding weights, and if the skill factor has two subfactors that are rated as 4 and 5, what is the total weightage given to the job?

420

Major decision approach: Classification

Advantage: Can group a wide range of work together in one system Disadvantage: Descriptions may leave too much room for manipulation

Major decision approach: Point

Advantage: Compensable factors call out basis for comparisons. Compensable factors communicate what is valued Disadvantage: can become bureaucratic and rule-bound

Major decision approach: Ranking

Advantage: fast, simple, easy to explain Disadvantage: cumbersome as number of jobs increase. Basis for comparisons is not called out

Internal Alignment

An evaluation of pay relationships among different jobs, skills, or competencies within a single organization

best fit

An organization is likely to achieve competitive advantage if the pay system: -reflects the company's strategies and values, -is responsive to employees' and unions' needs, and -is globally competitive

Incentives can be short term

Annual cash incentives

Job Analysis

a systematic method to discover and describe similarities and differences among jobs

Who among the following is most likely to be working for a company that uses a competency-based pay plan?

Carlos, who focuses on obtaining certifications in her field to get a pay increase

Compensation

Compensation does not mean the same to everyone

All of the following EXCEPT _______ are compensation systems associated with a cost-cutter strategy.

Customer satisfaction incentives