Compensation
Salary/wage structure grade
(pay grades)-X-axis; uses JE points. Large # of pay grades coincides with narrow range, allowing more promotions
Purpose of compensation
Attract, retain & develop skills
Employee Benefits employers should include
Benefit package (5 factors) and benefit options (2 factors)
Brito case
Brito v Zia Co.- gov't contracting company used performance evaluations based on a rating format to lay off employees. Layoffs resulted in a disproportionate # of minorities being discharged. Failed to comply with testing guidelines issued by Affirmative Action; did not develop job-related criteria fr evaluating ee's work performance to determine promotion & discharges
Equity theory
Employees are motivated when perceived outputs (pay) are equal to perceived inputs(effort, work, behaviors).
2 Factors affecting employee prefernces Benefits Options
Equity: fairness historically & in relation to what others receive Personal needs: linked to age, sex, marital status, dependents (flexible benefits plan-cafeteria style)
Which theory is best for pay for performance plans?
Expectancy theory
Unemployment Insurance
Federal rate = 6.2% of the first $7000 by each worker, covers 97% of workers
What are conventional pay-level policies?
Lead, match, lag
Relevant Market -Selecting labor market -general
Managers look at both competitors (their products, location, size) and the jobs (skills & knowledge required) & importance to the organization's success
Social Security benefit categories
Old Age or Disability Dependents of retired or disabled workers Surviving family members of a deceased worker Lump Sum death payments
Relevant Market -Selecting labor market- competitors
Product market competitors receive greater weight
5 Causes of failure of team effectiveness
Teams are varied 'Level' problem Complexity Control Communication
Major laws covering compensation
Title VII-Civil Rights Act of 1964 ADEA -Age Discrimination in Employment Act ADA -Americans with Disabilities Act Lilly Ledbetter Fair Pay Act of 2009
Consequences of pay-level/pay-mix decisions -Compliance
Wage laws, pay forms are regulated (pensions, healthcare, etc), ER's need to be careful when sharing salary information
3 laws affecting employee benefits (legally required)
Workers Compensation, Social Security & Unemployment Insurance
Relevant Market -Selecting labor market -company
a company may be deemed a relevant market comparison based on its location & size even if it's not in the same product market.
What is the market policy line?
a pay policy line that reflects the organization's policy with respect to the external labor market
High overlap indicates?
a promotion may lead to a title change but not much change in pay; few opportunities for promotion.
Verdict on incentive pay
add-on variable to fixed base pay (commission, bonus, piece rates) measures or performance are objective;
Competitive Pay Policy Alternatives -general
competitive pay affects the company's ability to achieve compensation and performance objectivies
Consequences of pay-level/pay-mix decisions -Competitiveness of total compensation
contain: operating costs (control costs) increases in qualified applicant pool, quality & experience, increase probability of union free status; reduce voluntary turnover and pay related work stoppages
Social Security
contributions made by employees, employers & self-employed;
What are pay alternatives?
conventional pay-level policies pay-mix strategies
Relevant market - managers
managers must define the markets that are relevant for pay purposes, &establish the appropriate competitive position in those markets
Incentive pay plans
offer a promise of pay for some objective pre-established level of performance.
Range overlap
overlap indicates differences in the value of jobs in the adjoining grades. Less overlap is better.
Agency theory
pay directly motivates employee performance
Salary/wage structure range
range breadth (distance from top to bottom), maximum & minimum
Pay range opportunities
recognize individual differences with pay meet ees expectations what pay will increase over time encourage ees to remain with the organization
Benchmark jobs
stable job content, common across different employers and include sizable # of employees
Lead pay level policy
to lead competition, pay above market rate
Pay with competition/Match
to match competition, pay at market rate
Steps in Performance Evaluation Process
Set performance measure relative to company's strategic plan/bottom line involve employees at every stage train raters & employees in evaluation system ensure raters are motivated to rate accurately document ee performance analyze performance to determine cause of problems provide timely feedback
Major decisions ins designing pay structures
Specify pay level policy, define purpose of survey, select relevant market, design & conduct survey, interpret results & construct market line, combine internal/external market rates (grades & ranges)
Lilly Ledbetter Fair Pay Act of 2009
addressed the 180 day time period statute of limitations when a discriminatory paycheck is issued not when ER makes an adverse pay setting decision.
What is the purpose of salary surveys?
adjust pay level in response to competitor's changing rates set pay mix relative to competitors establish or price a pay structure analyze pay-related issues estimate the labor costs of product/service market competitors
What is 360 degree feedback
assess employee performance by supervisor, peers, subordinates, customers and self
Which jobs should be included in a salary survey?
benchmark jobs, high-low approach, benchmark conversion/survey leveling
Who should design a salary survey?
compensation managers, other managers, outside consulting firms
Workers Compensation
covers injuries & diseases that arise out of and while int he course of employment
Why conduct salary surveys?
determine rate competitors pay determine a how a company wants to position its total compensation relative to market (lead, match, lag)
Why is expectancy theory best for performance plans?
directly relates to fair exchange (pay based performance)
Consequences of pay level & pay mix decisions
efficiency, fairness, compliance & competitiveness of total compensation
Lead pay-level pros
maximize ability to attract/retain quality employees offsets less attractive job qualities industry can pass along high pay rates to consumers less vacancy, turnover, training time, absenteeism better ee's
Salary/wage structure midpoint
middle range, in between maximum & minimum
Salary/wage structure overlap
one pay grade overlaps the adjacent pay grade; allows ee in lower pay grade to be paid same as ee on a higher grade
Median
order all points from highest to lowest; middle is the median
Consequences of pay-level/pay-mix decisions -Fairness
pay satisfaction is related to pay level & EE's sense of fairness is related to how much others are paid
Verdict on pay performance
pay-for-performance is linked to employee satisfaction, turnover and productivity, not the only element that decides if an employees stay or leave
Gain -sharing plan
pays off for teams defined at the level of a strategic business unit
What are pay-mix strategies?
performance driven market match work/life balance security
ADA -Americans with Disabilities Act
prohibits discrimination based on disability
Differences among organizations -Pay grades/ranges
quality (skills, abilities, experience) among individuals productivity or value of quality variations (software engineer @MS v software engineer at Best Buy) mix of pay forms competitors use (more stock options & lower base)
Weighted mean
rate for each company is multiplied by the # of employees. Total of all rates is divided by total # of employees. Best measurement.
Components of a salary/wage structure
rate range, overlap, grade width & midpoints
PA-Ranking format~Alternation ranking
raters asked to indicate the best and worst employees
Steps in Performance Appraisal Proces
set subordinate at ease give a general overall impression of evaluation discuss each dimension separately develop action plans to correct problems close the interview on positive note
Lump sum bonus plans
substitute for merit pay, usually paid at end of year and less expensive in long run.
Group Incentive Plan
team performance is measured against a set standard to determine the magnitude of the incentive pay
Relevant Market - labor market
those employers with which an organization competes for skills and products/services
Lag pay policy level
to follow competition, pay below market rate
Valence perception
value the employees attach to the organization rewards offered for satisfactory job performance
What is the best way to measure data in an aggregating survey?
weighted mean
What kind of Performance Appraisals (PA) are there
Ranking format, Essay format, Management by Objectives (MBO), Standard Rating Scales & Behaviorally Anchored Rating Scales (BARS)
5 Factors of determining desirable employee Benefits Package
Relationship to Total Compensation Costs Costs Relative to Benefits Competitors offering Legal requirements Role of benefits in attraction, retention & motivating EE
Goal Setting theory
challenging performance goals influences greater intensity and duration in employee performance. Goals serve as feedback standards to which employees can compare their performance.
Team plan's effectiveness
company's report that they are generally not satisfied with the way their teams compensation systems work. Failures attributed to 5 causes.*
Shared choice-risk
employee might make 'wrong' choices because the company is offering too many choices which may lead to confusion, mistakes, and dissatisfaction
Product market competitors receive great weight when?
employee skills are specific to market labor costs are a la large share of total costs product demand is sensitive to price changes supply of labor is not responsive to changes in pay
Purpose of 360 feedback
employee understanding of self-awareness better communication and performance best used for developmental purposes not administrative
Expectancy perception
employee's assessment of their ability to perform required job tsks
Instrumentality perception
employee's beliefs that requisite job performance will be rewarded by the organization
PA-Ranking format~ Straight ranking
employees ranked relative to each other
Employer choice
employers compete based on their reputation as a company, the reputation and brand of company they project themselves
How do managers feel about pay plans?
employers less likely to offer performance based pay when job involves multitasking, quality control issues and teamwork because it's harder to measure all 3
Pay grades
enhances an organization's ability to move people among jobs with no differences in pay.
Intrinsic rewards
enjoyment of the task for its own sake
Exemptions for overtime status
executive, administrative, professional, creative professional, computer employee, outside sales, highly compensated ee, non-exempt
Pay range
exist whenever 2 or more rated are paid to employees in the same job.
Team Incentive Plans
focus on people working together (teams, dept., div.)
Relevant Market -general
focus on the fact organizations operate in many different labor markets, each with a unique supply & demand, contrary to belief that 'market determines wages".
Purpose of salary grades and ranges
grades and ranges offer flexibility to deal with pressures from external markets and differences among organizations
Kohn's view on incentive pay
harms productivity; rewarding a person for performing a task reduces interest in the task. Extrinsic rewards reduces intrinsic rewards
Lead pay-level cons
higher wages may force ER to increase wages for current ee's, may mask negative job aspects that cause turnover later
Lag pay-level cons
hinder a firm's ability to attract employees
Lag pay-level pros
if coupled with a promise of higher future returns (stocks), this combination could increase ee commitment & teamwork which would increase productivity
High-Low approach
if no benchmark job to match competitors, identify the lowest and highest paid benchmark jobs for relevant skills in the relevant market & use these wages as anchors. Non-benchmark jobs will be between these 2 factors)
Shared choice
includes the traditional options of lead, meet, or lag, then adds the options offering employees choice in the pay mix
Surveys -Information to be collected
info on organization, total comp. system, specific pay data on incumbents in jobs being studied, base salaries, increase %age or amounts, merit increases, salary ranges, starting salary, incentives/bonuses, allowance & benefits, working hours, educational requirements, geographic location, source of hire (internal/external), working conditions
Benchmark/Conversion Leveling
magnitude of the difference between job evaluation points for internal jobs and for survey jobs, serves as guidance
PA-EEO issues
mandates all firms make employment decisions 'blind' to minority/gender status Affirmative Action - gov't contracts must take affirmative steps to hire women and minorities document decisions to ensure PA's are tied to performance affects HR & legal practices subject to same scrutiny as employment tests courts stress 6 issues for setting up PA systems
Least risk approach (pay level/mix efficiency)
match competition in both pay level & pay mix lead policy for skills that are critical to org's success lag policy for jobs easy to fill
Major employee benefits
medical, dental, vacation, holidays, sick pay, LTD, life insurance, pension/retirement plan
Verdict on merit pay
merit pay increases performance by 18/20% when tied to performance
Pay-for-performance plans
merit pay is a reward that recognizes outstanding past performance. Lump sum payments or increments of base pay
Match pay-level cons
might not provide a competitive advantage against competitors
What are the measurements of central tendency?
mode, median, mean, weighted mean
Extrinsic rewards
money
Match pay-level pros
most common policy because failure to match competitor's rates could cause dissatisfaction in current ee's voids placing ER at disadvantage in pricing products
Mode
most commonly occurring rate
Expectancy theory
motivation is the product of 3 perceptions -expectancy, instrumentality & valence
How many employers should you compare?
no firm rule, large firms with a lead policy may only exchange data with a few top paying competitors
3 factors used to determine relevant markets
occupation or skills/knowledge required geography or willingness to relocate or commute other employers compete in the product/service labor market
Sorting Effect
people who don't want to have their pay tied to performance don't work for companies where pay-for-performance is implemented
Team Plan Standards
performance based on productivity improvements, customer satisfaction measures, financial performance, or quality of goods/services
PA- MBO (management by objectives)
planning & appraisal tool. Organizations objectives are identified from the strategic plan of the company. Objectives support organization goals
Pay-for -Performance
plans that vary with some measure of individual or organizational performance, such as merit pay, lump-sum bonus plans, skill-based pay, incentive plans, variable pay plans, risk sharing & success sharing
What are merit pay plans
programs designed t pay different amounts depending on the level of performance.
ADEA -Age Discrimination in Employment Act
prohibits discrimination base on age; (OWBOA -Older Workers Benefit Protection Act) rules on separation agreements with older workers
Title VII-Civil Rights Act of 1964
prohibits discrimination on the basis of sex, race, color, religion and national origin.
Why are salary grades/ranges important?
promotion increases matter size of differentials between grades should support career movement overlap must be large enough to encourage promotions
PA-Ranking Format
raters compare employees against each other
PA-Ranking format-Paired comparison ranking
raters make ranking judgments about a discrete pairs of people
Reinforcement theory
rewards reinforce (motivate & sustain) performance; rewards must follow after behaviors to be reinforcing. Behaviors not rewarded will be discontinued.
Differences between Individual vs Team Plans
set standards are compared on group performance rather than individually to determine incentive pay or level of performance
Compensation can reinforce what behaviors?
should attract employees & make them want to perform in way that lead to better organization performace
Consequences of pay-level/pay-mix decisions -Efficiency
stated pay level policies don't reflect actual pay level (overstated) effects of pay level being sufficient to offset costs or pay level variation makes a difference to ee is unknown no research to suggest which pay mix alternative should be used wrong level pay could cause less competitive edge Least risk approach
Mean
sum of all rated divided by # of rates
PA-Essay Format
supervisors describe employee performance in an essay format answering open ended questions
PA-BARS (behaviorally anchored rating scales)
variants on standard rating scales in which the various scale levels are anchored with behavioral descriptions directly applicable to jobs being evaluated
What is a pay policy line?
way to translate pay-level policy into practice by simply specifying a percent above or below the regression line (market line) that an employer intends to match and then draw a new line at this higher (or lower) level.