Comp MGT exam 1
To be useful, compensable factors should be:
- Based on the strategy and values of the organization. - Based on the work performed. - Acceptable to the stakeholders affected by the resulting pay structure.
consequences of a narrow approach
- expensive and time-consuming (difficult to justify) - hard for jobs that are flexible and changing - however, detail may be needed to comply with ADA -more titles mean more promotion opportunities and chances to influence employee behavior -if jobs are different pay can differ
other valuable sources of job analytic data inlclude:
-Managers two levels above give a valuable strategic view of jobs - subordinates or other employees that interact with the job may be included. -SME's
outcomes of an egalitarian structure:
-Sends the message that all employees are valued equally -Related to greater performance when close collaboration and sharing knowledge are required
Steps in formulating a total compensation strategy:
1. Assess Total compensation implications 2. Map a total compensation strategy 3. Implement strategy 4. Reassess (and realign)
2 strategic choices in aligning pay structures:
1. How to specifically tailor the organization design and work flow to make the structure 2.How to distribute pay throughout the levels in the structure.
Products that result form Job analysis:
1. Job Description 2. Job specification
three aspects of the alignment of the pay strategy
1. align w/ business strategy 2. align internally w/n the overall HR system 3. align externally w/ economic and sociopolitical conditions
In compensation job analysis has 2 critical uses:
1. establishes similarities and differences in the work contents of the job 2. establishes an internally fair and aligned job structure
4 policy decisions:
1. internal alignment 2. external competitiveness 3. employee contributions 4. management of the pay systems
3 basic building blocks of the pay model
1. objectives 2. policies 3. techniques
pay structures are more likely to be perceived as fair if:
1. they are consistently applied to all employees 2. If Employees participated in the process 3. If appeal procedure are included 4. if the data used are accurate
8 steps in point-plan design:
1.Conduct job analysis . 2.Determine compensable factors. 3.Scale the factors. 4.Weight the factors according to importance. 5.Select criterion pay structure. 6.Communicate the plan and train users. 7.Apply to nonbenchmark jobs. 8.Develop online software support.
factors that directly affect performance(incentive effect)
1.Organizational design(support, resources, etc.) 2.Motivation 3.Ability Pay/comp: affects motivation so it affects performance indirectly
5 strategic compensation choices
1.objectives: how should compensation support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment? 2.internal alignment: how differently should the different types and levels of skills and work be paid within the organization? 3.external competitiveness: How should total compensation be positioned against competitors? 4.employee contributions: what should pay increases be based on? 5.management: how open and transparent should pay decisions be to all employees and who should be designing an managing the system?
HR systems will be most effective when employee ability is developed through selective hiring and training and development, when the compensation system motivates employees to act on their abilities, and when roles are designed to allow employees to be involved in designs and have an impact.
AMO theory
Performance (P) is a function (f) of three factors: ability (A), motivation (M), and opportunity (O). P= f( A, M, O)
AMO theory of performance
an individuals ability to engage in a specific behavior
Ability
job holders and managers must be satisfied with the initial data collected and the process to buy into the resulting job structure or the pay rates attached to that structure
Acceptability
the cash compensation an employer pays for work performed. •reflects the value of work or skills and ignores differences in individuals.
Base wage
captures all aspects of the work.(prototype) •Its contents are well known and relatively stable over time. •The job is common across employers. •A reasonable proportion of the work force holds this job.
Bench-mark jobs
income protection, work/life services, and allowances
Benefits
the belief that there are compensation practices that allow employers to gain preferential access to superior human resource talent and competencies, which in turn influence the strategies the organization adopts. the belief is also that these practices can be applied universally across all situations
Best-pay practices
payment tied directly to achievement of performance standards. They are directly tied to a profit index and employee costs, so they ride and fall with revenues.
Comission
What business Should we be in? - takes place at the top -porters 5 forces? - differentiation and cost leaderhsip?
Corporate level strategy
may be based on: •Changes in what other employers are paying for the same work. •Changes in living costs. •Changes in experience or skill.
Cost of Living Adjustments (COLAs)
pay differences among levels w/n an organization, such as the differences in pay btwn adjacent levels in a career path.
Differentials
fairness in the amount of reward distributed to employees
Distributive justice
have fewer levels, and/or smaller differentials btwn adjacent levels and btwn the highest and lowest paid workers
Egalitarian pay structure
says people compare the ratio of their own outcomes to inputs with ratios of internals, externals and themselves in a past or future situation. •Comparing to jobs similar to their own (internal equity). •Comparing their jobs to others at the same employer (internal equity). •Comparing their jobs' pay against external pay levels (external equity).
Equity Theory
A single rate, rather than a range of rates, for all individuals performing, a certain job, Ignores seniority and performance differences
Flat rate
the various types of pay, which may be received directly in the form of cash, or indirectly through series and benefits. This excludes other forms of rewards or returns an employee may receive such as promotions, recognition for outstanding work behavior, etc.
Forms of compensation
have multiple levels, detailed work descriptions, and outline who is responsible for what, can also be compared to layered structures
Hierarchical pay structure
the degree to which pay influences individual and aggregate motivation among employees at any point in time (the effect of pay upon performance)
Incentive effect
Sees firms as responding/conforming to normative pressures in their environments so as to gain legitimacy and to reduce risk. As such, it predicts that very few firms re first movers and copy innovative practices after innovators have learned hot to make the practices work
Institutional theory
the systematic method of discovering and describing differences and similarities among jobs.
Job Analysis
the list of tasks, duties, and responsibilities that make up a job - observable actions.
Job Description
Criteria for evaluating job in job evaluation
Job content Skills required Value to the organization Organizational culture External market
what must be the focus of job analysis?
Job content is the heart of job analysis Data involves the elemental tasks or units of work, with emphasis on the purpose of each task There is an emphasis on the objective of the task Task data reveals the actual work [performed and its purpose or outcome
is the process of systematically determining the relative worth of jobs to create a job structure for the organization.
Job evaluation
relationship between job evaluation and internal consistency
Job evaluation helps establish an aligned pay structure which: -Supports organization strategy -Fits the workflow -Is fair to employees -Motivates their behavior toward organization objectives
the structure that relies on the work content- tasks, behaviors, and responsibilities.
Job-based structure
compensable factor examples:
Know-how Problem solving Accountability Decision making
a theory that focuses on labor demand rather than labor supply and argues that employers will pay a wage to a unit of labor that equals that unit's use (not exchange) value. That is work is compensated in proportion to its contribution to the organization's production objectives
Marginal productivity
also based on performance rating but are paid in one lump sum rather than a permanent change to base pay.
Merit bonuses
are given as performance-based increments to the base pay. (base salary is PERMANANTLEY changed)
Merit increases
an individuals willingness to engage in some behavior. Primarily concerned with (1) what energizes human behavior, (2) what directs or channels such behavior (3)how is this behavior maintained or sustained
Motivation
relative emphasis among compensation components such as base pay, merit, incentives, and benefits
Pay mix (pay forms)
refers to the array of pay rates for different work or skills within a single organization. 1. the number of levels of work 2. the differentials between the levels 3. the criteria or bases used to determine the levels
Pay structure
job evaluation method that employs (1) compensable factors (2) Factor degrees are numerically scaled (3)weights reflecting the relative importance of each factor. once scaled degrees and weights are established for each factor each job is measured against the factors and a total score is calculated for each job. The total points determine a jobs relative value and its location in the pay structure
Point (factor) method
concept concerned with the process used to make and implement decisions about pay. It suggests that the way pay decisions are made implemented may be as important to employees as the results of the decisions
Procedural justice
job analysis method that relies on scaled questionnaires and inventories that produce job-related data that are documentable, can be statistically analyzed, and be more objective than other analyses,
Quantitative Job Analysis
simply orders the job descriptions from highest to lowest based on relative value or contribution to success. (two ways, alternation and paired comparison)
Ranking method og job eval
a measure of the consistency of results among various analysts, methods, sources of data, or over time. •A necessary, but not sufficient, condition for validity.
Reliability
What factors are important for determining the usefulness of job analysis
Reliability, validity, acceptability, and Currency
Outcomes of Hierarchical structure:
Sends the message that the organization values the differences in work content, individual skills, and contribution to the organization Related to greater performance when the work flow depends on individual contributors
the effect that pay can have on the composition of the workforce. Different types of pay strategies may cause different types of people to apply and stay w/n an org
Sorting effect
a focus on those compensation choices that help the org gain and sustain competitive advantage
Strategic perspective
the fundamental direction of the organization. IT guides the deployment of all resources, including compensation
Strategy
group incentive, restrictive to team members, with payout usually based on improvements in productivity, customer satisfaction, financial performance, or quality of goods and services directly attributable to the team.
Team incentive
groups work information into seven basic factors and includes 194 items.
The position analysis Questionnaire (PAQ)
the complete package for employees, including all forms of money, bonuses, benefits, services, and stock.
Total compensatoin
the notion that larger differences in pay are more motivating than smaller differences.Like prize awards in a golf tournament, pay increases should be successively greater as one moves up the job hierarchy. Differences between the top job and the second-highest job should be the largest "players play better when the prize differentials are larger"
Tournament theory
Class descriptions can be troublesome and may be too vague. T or F?
True
Compensation is often a company's largest controllable expense. T or F?
True
Compensation policies work through incentive and sorting effects to either achieve or not achieve company objectives T or F?
True
Pay objectives guide the design of the pay system and serve as the standards for judging success of the pay system. T or F?
True
The greater the alignment between a business strategy and the compensation system, the more effective the organization. T or F?
True
The key issue in job analysis is to ensure the data is useful and acceptable. T or f?
True
The number of job evaluation plans hinges on how detailed it needs to be to make pay decisions, and how much it will cost. T or F?
True
Your objectives will often drive your policies and techniques bc they are the foundation of the pay system T or F?
True
an internal structure based on job-related information provides both managers and employees a work-related rationale for pay differences. T or F?
True
point plans are the most commonly used job evaluation approach in the U.S. and Europe T or F?
True
increase reliability by:
Use multiple raters and average ratings using correlation
-Value -Rare(only you or a few other competitors have it or can do it) -Perfectly Inimitable - Organization
VRIO framework
the accuracy of the results obtained: that is, the extent to which any measuring device measures what it purports to measure
Validity
the worth of the work; it relative contribution to organization objectives.
Value
an employees ability to see how individual performance affects incentive payout
`"line-of-sight"
an individuals capability to engage in a specific behavior
ability
often grow out of whatever is in short supply. •Housing and transportation allowances are frequent in China.
allowances
How do we gain and sustain competitive advantage in this business? -rbv model of firm -VRIO framework
business unit level/ competitive strategy
•A series of classes covers the range of jobs. •Class descriptions are the labels. •Compare job descriptions to class descriptions to find the best fit. •The label captures work detail yet is general enough to cover jobs. •Describe classes further with titles of benchmark jobs.
classification method of job evaluation
Job attributes that provide the basis for evaluating the relative worth of jobs in an organization must be work-related, business-related, and acceptable to the parties involved. These factors reflect how work adds value to the organization
compensable factor
refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.
compensation
compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. typically used in managerial or professional work where what is accomplished may be difficult to identify.
competency-based pay system
the comparison of the compensation offered by one employer relative to that paid by its competitors.
competitive position
as a pay objective conforming to federal and state compensation laws and regs
compliance
the work performed in a job and how it gets done
content
methods that typically involve an analyst using a questionnaire in conjunction with structured interviews of job incumbents and supervisors. Places significant reliance on analyst's ability to understand the work performance and accurately describe it
conventional job analysis
the informal rules, rituals, and value systems that influence how people behave
culture
to be valid, acceptable, and useful, job information must be up to date
currency
eliminating some layers of job levels in the pay structure
delayering
comparisons among individuals doing the same job for the same organization.
employee contributions
employee belief that returns and/or rewards are due regardless of individual or company performance.
entitlement
the price of labor (the wage) determined in a competitive market: in other words, labors worth(price) is whatever the buyer and seller agree upon
exchange value
the pay relationships among organizations; focus attention on the competitive positions reflected in these relationships •Employees must perceive their pay as competitive or they may leave. •Controlling labor costs keeps the company's products competitive. •Look at pay/wage surveys in similar industries
external competitiveness/ external equity
Performance=
f( a X M X e)
How should total compensation help this business gain and sustain a competitive advantage?
functional level strategy
inducement offered in advance to influence future performance (ex: sales commissions)
incentive
the pay relationships among jobs or skill levels w/n an organization; focuses attention on employee and management acceptance of those relationships. It involves establishing equal pay for jobs of equal worth and acceptable pay differentials for jobs of unequal worth
internal alignment/internal equity
A pay structure must meet what criteria if it is to be a source of competitive advantage:
it must be aligned(easiest test to pass), differentiated, and add value(most difficult)
Identical positions make up a
job
Broadly similar jobs combine into a
job family
principal sources of job analytic data
job holders and supervisors
means ensuring the right people get the right pay for achieving the right objectives in the right way.
management
Employees Perspective of Compensation
may view pay as financial security, a return in an exchange, an entitlement, an incentive, or a reward. the y can view it on the surface level or as symbolic
describes who a firm is and this is what they value
mission statement
an individual's willingness to engage in some behavior. Primarily concerned with (1) what energizes human behavior, (2) what directs or channels such behavior, and (3) how this behavior is maintained or sustained
motivation
the practice of hiring outside vendors to perform functions that do not directly contribute to business objectives in which the organization does not have a comparative advantage
outsourcing
what an organization seeks to achieve through its compensation strategy. Basic objectives are efficiency, fairness, ethics, and compliance laws and regulations
pay objectives
mechanisms or technologies of compensation management, such as job analysis, job descriptions, market surveys, job evaluation, and the like, that tie the 4 basic pay policies to the pay objectives
pay techniques
shifts the focus to the employee - the skills, knowledge, or competencies the employee possesses.
person-based structure
A group of tasks performed by one person makes up a
position
the process used to make pay decisions
procedural justice
Resource-based view of the firm
proposes that a company's resources and competencies can produce a sustained competitive advantage
•If ranking criteria is poorly defined, evaluations become only opinions. •Evaluators must be knowledgeable about every single job under study. •Results are difficult to defend and costly solutions may be required.
ranking drawbacks
paying someone more than the value they create for the org
red circle job
consequences of job approach
reducing the number of titles may reduce opportunities to reinforce employee behavior, increases flexibility because more tasks will be defined under one title. less transfers means lower bureaucratic burden
the nonquantifiable returns employees get from employment, such as social satisfaction, friendship, feeling of belonging, or accomplishment, recognition and status, learning opportunities and challenging work. (psychological)
relational returns
the relative contribution of jobs to organizational goals, to their external market rates, or to some other agreed-upon rates
relative value of jobs
pay is given to employees who are exempt from the FLSA and do not receive overtime pay. Calculated at an annual or monthly rate
salary
determining the intervals on measurement instrument
scaling
reveals the actual work performed and its purpose or outcome.
task data
Base wage plus cash bonus, does not include benefits or stock options
total cash
a present-value perspective which considers future bonuses, merit increases, and promotions
total earnings opportunities
incentives can be short-term or long term(stock ownership options) T or F?
true
the value or price ascribed to the use or consumption of labor in the production of goods and services
use value
pay tied to productivity or some measure that can vary with a firm's profitability. (example: incentive)
variable pay
pay given to employees who are covered by overtime and reporting provisions of the FLSA. Pay for workers who are nonexempt is usually calculated by an hourly rate
wage
is the process of delivering products to the customers.
work flow
Time away from work, access to services to meet specific needs, and flexible work arrangements
work/life services
manager perspective of compensation
•Compensation is a major expense that must be managed. •It is also a major determinant of employee attitudes and behaviors.
problems with egalitarian structures:
•Equal treatment means high-performers feel underpaid. •They may quit or change their behavior.
major decisions in the job evaluation process include
•Establishing the purposes . •Deciding on single versus multiple plans. •Choosing among alternative methods. •Obtaining involvement of relevant stakeholders. •Evaluating the usefulness of the results.(does it allow you to differentiate btwn jobs?)
how do incentive programs differ from merit adjustments:
•Incentive programs use objective measures of performance. •Incentives do not increase base wage and must be re-earned. •Incentive payment is known beforehand - such as a commission. •Incentives try to influence future behavior and merit rewards past behavior - a matter of timing.
a content base structure ranks jobs based on:
•Skills required. •Complexity of tasks. •Problem solving . •And, or, responsibility.
shareholder perspective of compensation:
•Some stockholders say using stock to pay employees creates a sense of ownership while others say it dilutes shareholder wealth. •Stockholders have an interest in linking executive pay to performance.
Internal pay relationships form a pay structure that should:
•Support the organization strategy. •Support the work flow. •And motivate behavior toward organization objectives.
value based structure focuses on the relative contribution of:
•The skills, tasks, and responsibilities of a job to the organization's goals.
What questions should be asked when conducting a job analysis?
•Why are we performing job analysis? •What information do we need? •How should we collect it? •who should be involved? •How useful are the results?
compensation from society's perspective:
•see pay (and benefits in general) as a measure of justice, such as pay inequalities between men and women. (job gains and losses in a country is aprtly a function of labor costs)