Compensation and Benefits Exam 2 Prep

Design the Survey

Consulting firms offer a choice of ongoing surveys and offer clients access to survey databases. - Designing a survey requires answering the following questions. --Who should be involved in the survey design? --How many employers should be included? -- Which jobs should be included? --What information should be collected?

Modifications to the Supply Side

-Reservation Wage: the wage level below which they will not accept a job, no mater how attractive the other attributes are (may be above or below market wage) - Human Capital: higher earnings flow to those who improve their potential productivity by investing in themselves ( assumes people are paid at the value of their marginal product)

Competitive Pay Policy Alternatives

3 pay-level policies: 1. to lead 2. to meet or match 3. to follow competition, or lag * newer policies emphasize flexibility Pay level research focuses on base pay and ignores bonuses, incentives, employment security, benefits, or other forms of pay (relational returns)

Marginal Product and Marginal Revenue

Diminishing marginal productivity results when each new worker has a progressively smaller share of production factors available -Until fixed production factors change, each new hire produces less than the previous hire. --The amount each hire produces is the marginal product. - Marginal revenue is the money generated by sale of the marginal product, the additional output from one additional person.

Grade Overlap

High grade overlap and low midpoint differentials indicate small differences in the value of jobs in adjoining grades. Smaller ranges create less overlap and promotion to a new grade includes a larger pay increase. Optimal overlap between grades ought to be large enough to induce employees to seek promotion. Not all employers use grades and ranges. - Skill-based plans establish single flat rates for each skill level. - Many collective bargaining contracts establish flat rates per job. - Increasingly, broad bands are being adopted for greater flexibility.

Market Pricing

Market pricing is a pay strategy emphasizing external competitiveness and deemphasizing internal alignment. - Sets pay structures almost exclusively on external market rates. - Pure market pricing at its extreme ignores internal alignment. - How much or what mix of forms a company pays is no longer a potential source of competitive advantage. In contrast, an organization may choose to differentiate its pay strategy from competitors. -In sum, the process of balancing internal and external pressures is a matter of judgment.

Linking Content with the External Market

Some see job evaluation as a way to link job content and internal value with external market rates. Higher skill levels command higher wages, so skill level becomes useful criteria for establishing differences among jobs. If some aspect of job content is not related to wages (e.g., customer service), eliminate that aspect from the job evaluation. - The value of job content is based on what it can command in the external market - it has no intrinsic value. - Note that not everyone agrees. Job evaluation is an important tool for organizations wishing to differentiate themselves.

The Final Result: Structure

The final result of the process is a structure, a hierarchy of work that translates an internal alignment policy into practice. Organizations commonly have multiple structures that apply to different functional groups or units. Job evaluation provides work-related and business-related order and logic. At the same time, the world of work is changing. - The challenge is to ensure job evaluation plans are flexible. Some balance between chaos and control is required.

Develop Grades

The first step is to group different jobs considered substantially equal for pay purposes into grades. - Grades allow people to move among jobs with no pay change. Reconsider the original job evaluation results to decide which grade a job should be slotted into. - All the jobs within a single grade will have the same pay range. Though flexible, grades are difficult to design. - The objective is for all jobs similar for pay purposes to be in a grade. - If evaluation points are close and fall on either side of grade boundaries, the difference in salary may be out of proportion to the difference in the value of the job content.

"How-To" Major Decisions

The major decisions in the job evaluation process include: - Establishing the purpose(s). - Deciding on single versus multiple plans. - Choosing among alternative methods. - Obtaining involvement of relevant stakeholders. - Evaluating the usefulness of the plan (based on results).

Benchmark Jobs

Using benchmark jobs (aka: Key Jobs) captures all aspects of the work. - 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. A sample of benchmark jobs will capture the diversity of work. - The depth of work ranges from highest to lowest position. - The breadth of work depends on the nature of the business.

Interpret Survey Results

Verifying Data. - A common first step is to check the accuracy of the job matches. - Then check for anomalies, age of data, and nature of the organizations. Accuracy of Match (and Improving the Match). -If a company job is similar, but not identical, some use the benchmark conversion / survey leveling approach. - They multiply the survey data by some factor the analyst judges to be the difference between the company job and the survey job. Anomalies. - Does any one company dominate? - Do all employers show similar patterns? - Are there outliers?

Organization Factors

- industry and technology -- the industry influences the technology used -- labor intensive industries pay lower than technology intensive -- new technology within an industry influences pay levels - employer size -- large organizations tend to pay more than small ones - people's preferences -- better understanding employee preferences of pay forms is important in determining external competitiveness - organization strategy --a variety of pay level and pay mix strategies exist --higher pay satisfaction is an observable benefit of higher wages

Pay With Competition (Match)

- most common pay policy - tried to equal wages costs to that of its competitors - its ability to attract will be equal to its labor market competitors Classical economic models predict that employers meet competitive wages - while it avoids placing the employer at a disadvantage in pricing products, it may not provide a competitive advantage in its labor market.

Lag Pay-Level Policy

-paying below market rates may not attract employees unless coupled with higher future returns -the combination may: increase employee commitment, foster teamwork, which may increase productivity -- how long this works is unknown and unmet expectations can have negative effects - it is possible to lag on pay-level but lead on other work returns (relational returns)

Product Market Factors and Ability to Pay

2 key factors: 1. Product Demand: the product market caps the pay level an employer can set 2. Degree of competition: employers in competitive markets are less able to raise prices * Other factors include the productivity of labor, the technology employed, and the level of production relative to plant capacity

Design of a Point Plan

There are eight steps in the design of a point plan. 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 non-benchmark (non-key) jobs. 8. Develop online software support.

Point Plan - 7. Apply and 8. Support

The compensable factors and weights are derived using a sample of benchmark jobs. The final step is to apply the plan to remaining jobs. - If the policy-capturing approach is used, an equation translates job evaluation points into salaries. Once the plan is developed and accepted, it becomes a tool for managers and HR specialists. The last step is to develop online software support. - Online job evaluation is widely used in larger organizations.

Who Should Be Involved?

Usually the compensation manager is responsible for the survey, but including managers and employees makes sense. - Use outside consulting firms as third-party protection against possible "price-fixing" lawsuits. -- Lawsuits allege the direct exchange of survey data violates Section 1 of the Sherman Act outlawing conspiracies in restraint of trade. -- Price fixing happens if survey participants interfere with competitive prices and artificially hold down wages. -- Identifying participants' data by company name is considered price fixing.

Adjust Pay Structure?

- Many employers use market surveys to validate their own job evaluation results. --If evaluations place two jobs at the same rate of pay, yet the market shows different pay rates, some will recheck the evaluation process. --Some may establish a separate structure for different types of work. - The resulting job structure may not match competitors' pay structures - reconciling the two structures is a major issue. - Some employers go straight to market surveys to establish their internal structures. - "Market pricing" mimics competitor's pay structures. - Accurate information and informed judgment are vital.

Single Versus Multiple Plans

- Rarely do employers evaluate all jobs in the organization at one time. - Many employers design different evaluation plans for different types of work, because they believe that the work content is too diverse to be usefully evaluated by one plan. - The most commonly used plans that have been successfully applied across a wide breadth and depth of work include the Hay plan (this chapter) and the Position Analysis Questionnaire (PAQ) (Chapter 4). - The number of job evaluation plans hinges on how detailed it needs to be to make pay decisions, and how much it will cost.

What about discrepancies?

-Differences in job data may arise among the jobholders. -If employees and supervisors disagree on what is part of the job, the manager should collect more data. -Holding a focus group to discuss discrepancies, and asking participants to sign off on the revised results ensures agreement. -Disagreements can help clarify expectations, learn better ways to do the job, and document how the job is performed. -Support of top management and union officials is essential.

Utility Analysis

-Utility is the dollar value created by increasing revenues and/or decreasing costs by changing one or more HR practices. - Compensation decisions can be analyzed by modeling the cost and value created by different pay-level and pay-mix strategies. - To estimate utility in a basic approach, model it as a function of several parameters.

How Labor Markets Work

2 basic types of markets: 1. Quoted price: amazon is a quoted price market, price is known 2. Bourse: eBay is an example, allows haggling Theories of labor markets come from 4 assumptions: 1. Employers always seek to maximize profits 2. People are homogeneous and interchangeable 3. Pay rated reflect all costs associated with employment 4. Competitive markets give no advantage on paying non-market rates Labor Markets work with supply and demand of labor: - demand focuses on the actions of the employers - supply looks at potential employees - market rate is whether labor demand and labor supply cross

Select Relevant Market Competitors

A relevant labor market includes employers who compete in: - The same occupations or skills. -- Microsoft and Google include both product market and labor market competitors. - Hiring employees within the same geographic area. -- As importance and complexity of qualifications increase, the geographic limits also increase. - The same products and services. --If the skills are tied to a particular industry, define the market by industry. --International comparisons are improving, but use judgment. - New organizations and jobs fuse diverse knowledge and experience, so "relevant" markets appear more "fuzzy."

From Policy to Practice: Broad Banning

Broad banding consolidates four or five traditional grades into a single band with a minimum and maximum. Advantages over traditional approaches. - Provide flexibility to broadly define job responsibilities. - Support organizations that have eliminated layers of managerial jobs. - They foster cross-functional growth and development. - Helps manage the reality of fewer promotions in flat organizations. - The flexibility eases mergers and acquisitions. Broad bands may be combined with traditional practices by using midpoints, zones, or other control points.

Defining Job Evaluation

Content refers to what work is performed and how it gets done. - Perspectives differ on whether job evaluation is based on job content or job value. - Internal alignment based on content orders jobs by skills, duties, and responsibilities. - A structure based on job value orders jobs by the relative contribution of the skills, duties, and responsibilities to the organization's goals. - Job content matters, but it is not the only basis for pay. Job value may include the job's value in the external market. - Value added may be more (or less) in two different organizations. - There is not a one-to-one correspondence between internal job value and pay rates.

From Policy to Practice: Grades and Ranges

Designing pay grades and pay ranges is usually done with base pay data, since this reflects the basic value of the work. Grades and ranges offer flexibility for: - Differences in quality among applicants. - Differences in productivity or value of quality variations. - Differences in the mix of pay forms used by competitors. A pay range exists whenever two or more rates are paid to employees in the same job - allows managers to: - Recognize individual performance differences with pay. - Meet employees' expectations that their pay will increase over time. - Encourage employees to remain with the organization.

Job Analysis: Bedrock or Bureaucracy?

Disagreement centers on the issue of flexibility. -Organizations are using fewer employees to do a wider variety of tasks in order to increase productivity and reduce costs. -Reducing jobs and cross-training can make work more fluid and employees more flexible. Generic job descriptions can increase flexibility. Traditional job analysis may reinforce rigidity. In some organization, analyzing work content is now conducted as part of work flow and supply chain analysis

Compensation Strategy: External Competitiveness

External competitiveness is expressed in practice by: - Setting a pay level that is above, below, or equal to competitors. - Determining the pay mix relative to those of competitors - External competitiveness refers to the pay relationships among organizations - pay relative to competitors. -Pay level is the average of the array of rates an employer pays. - Pay mix is the various types of payments, or pay forms, that make up total compensation.

Job Analysis Procedures

Job analysis collects information about specific tasks or behaviors. - A group of tasks performed by one person makes up a position. - Identical positions make up a job. - Broadly similar jobs combine into a job family. The U.S. government developed a step-by-step approach to conducting conventional job analysis. - Develop preliminary information. - Interview jobholders and supervisors. - Use the information to create and verify job descriptions.

Job Analysis

Job analysis is the systematic method of discovering and describing differences and similarities among jobs. Two products result from job analysis. - A job description is the list of tasks, duties, and responsibilities that make up a job - observable actions. - A job specification is the list of knowledge, skills, abilities, and other characteristics necessary to perform the job.

Establish the Purpose

Job evaluation helps establish an aligned pay structure which: -Supports organization strategy. -- Answers the question: "How does the job add value?" - Supports workflow. -- Integrates the job's pay with its relative contribution to the organization. -- Helps set pay for new, unique, or changing jobs. - Is fair to employees. -- Reduces disputes and grievances over pay differences. - Motivates behavior toward organization objectives. -- Shows employees what about their work is valued. -- Helps employees adapt to organization changes. --Helps create the network of rewards.

Point Plan - 5. Select Criterion Pay Structure

Job evaluations help committees judge weights. The committee then recommends the criterion pay structure. Statistical modeling determines the weight for each factor and the factor scales that will reproduce the chosen structure. - The statistical approach is labeled policy capturing to differentiate it from the committee a priori judgment approach. Not only do the weights reflect the relative importance, they influence the resulting pay structure.

Structures Based on Jobs, People, or Both

Job-based structures look at what people are doing and the expected outcomes.• - Skill- and competency-based structures look at the person. The underlying purpose remains the same for both.• - Collect and summarize work content information that identifies similarities and differences.• - Determine what to value. - Assess the relative value. - Translate the relative value into an internal structure.

Why perform Job Analysis?

Nearly every HR function uses job analysis. An internal structure based on job-related information provides a work-related rationale for pay differences. Employees who understand the rationale can see where their work fits into the bigger picture - It can direct their behavior toward organization objectives .In compensation, job analysis has two critical uses. - It establishes similarities and differences in the work content of the jobs. - It helps establish an internally fair and aligned job structure. * The key issue is to ensure the data is useful and acceptable.

Establish Range Features

Ranges set upper and lower pay limits for all jobs in each grade. A range has three features: - A midpoint where the pay-policy line crosses the center of the grade. - Minimum. - Maximum. The size of the range is a judgment about how the range supports career paths, promotions, and other systems. - Larger ranges in the managerial jobs reflect the greater opportunity for performance variations in the work. Some firms use percentiles as maximums and minimums while other establish them separately.

Choose Among Job Evaluation Methods

Ranking, classification, and point method are the most common job evaluation methods (there are numerous variations). - Research consistently finds that different job evaluation plans generate different pay structures - so choice matters. - All methods begin by assuming a useful job analysis has been translated into job description methods. - A survey of 1,000 compensation professionals found that market pricing is the primary method of job evaluation.

Banding in Two Steps

Set the number of bands. - Establish bands at major breaks, or differences, in work or skill. - Titles used to label each band reflect these breaks. - The challenge is how much to pay employees in the same band but performing different functions. Price the bands: reference market rates. - There may be four bands - associates, professionals, lead professionals, senior professionals - including multiple job families. - Three job families in the professional band - purchasing, finance, and engineering - have different reference rates drawn from survey data.

Survey Purpose

Study special situations. - May focus on a targeted group. - Unusual increases in turnover may require focused market surveys. Estimate competitors' labor costs.• Survey data is part of gathering competitive intelligence. - Companies seek benchmark practices, costs, and compensation to better understand competitor's achievements. -The Department of Labor regularly publishes the Employment Cost Index, one of four types of salary surveys. - The index allows comparisons. - They may have limited value if they do not reflect relevant competitors.

Job Descriptions and Summarize the Data

The summary of the job itself is the job description. -Job specifications can be used for hiring. It may be useful to refer to generic job descriptions that can be tailored to a specific organization. Managerial or professional job descriptions often have detailed information on the job, its scope, and accountability. -They capture the relationship between the job, the person performing it, and the organization objectives. The final step in the job analysis is to verify the accuracy of the resulting job description.

Judging Job Analysis: Validity and Acceptability

Validity examines the agreement of results among sources and methods. - If several job holders, supervisors, and peers respond in similar ways, the information is likely valid. - A sign-off on results does not guarantee validity. If job holders and managers are dissatisfied with the process, they will likely not buy into the resulting job structure or pay rates. - Analysts collecting information through interviews and observation are not always accepted due to the potential for bias. - Quantitative approaches may not be accepted if they collect too much information for too many purposes.

Level of Analysis

he level at which analysis of a job begins influences whether the work is similar or different. If job data suggest the jobs are similar, pay the jobs equally. - If jobs are different, the pay can differ. Using broad descriptions closer to the job-family level increases flexibility. - Employees can switch tasks without job transfer requests and wage adjustments. A countering view is that a promotion to a new job title is part of the organization's network of returns. -Reducing the number of titles reduces opportunities for promotion.

The Purpose of a Survey

-To adjust the pay level in response to changing rates paid by competitors. - To set the mix of pay forms relative to that paid by competitors. -To establish or price a pay structure. - To analyze pay-related problems. - To estimate the labor costs of product, or service market competitors.

Construct a Market Pay Line

A *market line*: - Links benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis. - It summarizes the distribution of going rates paid by competitors in the market. -Draw a market line freehand by connecting data points. *Regression* generates a straight line that best fits the data by minimizing variance around the line. - As the number of jobs in the survey increases, the advantages of the straight-line regression provides becomes clear.

Adjusting the Pay Structure

A job structure orders jobs on the basis of internal factors. - The pay structure is anchored by the organization's external competitive position and reflected in its pay-policy line. - When using two standards (internal and external) to create a structure, they are likely to result in two different structures. - Differences warrant a review of the basic decisions in evaluating and pricing a particular job. - Managers often weight external market date more heavily. - Differences may arise due to a shortage of a particular skill driving up the market rate. -- Creating a special market responsive range may be a good approach.

Point Plan - 6. Communicate and Train Users

A manual allows others to apply the plan. Users will require training on how to apply the plan. An appeals process may be included for employee recourse. Employee acceptance of the process is crucial. - To build acceptance, communicate to all employees whose jobs are part of the process used to build the structure. - Communicate through informational meetings, websites, or other methods.

Who Collects and Who Provides the Information

Analysis is best done by someone trained for such analysis and thoroughly familiar with the organization and its jobs. - The decision on the source of the data hinges on ensuring consistent, accurate, useful, and acceptable data. --Principal sources are the jobholders and supervisors. --Managers two levels above give a valuable strategic view of jobs. --Sometimes, subordinates or other employees that interact with the job may be included.

Combine Internal Structure and External Market Rate

At this point, two parts of the total pay model have merged. Two components - internal alignment and external competitiveness - come together in the pay structure. The pay structure has two aspects: - The pay-policy line. - Pay ranges.

Point Plan - 2. Compensable Factors

Based on the strategy and values of the organization. - If the direction changes, then compensable factors may also change. - Factors may be eliminated if they no longer support business strategy. Based on the work itself. - Work-related documentation helps gain acceptance by employees, is easier to understand, and withstands challenges to the pay structure. Acceptable to the stakeholders. - Acceptance of compensable factors may depend on tradition. - So the question is, "Acceptable to whom?"

Broad Bands: Flexibility and Control

Broad banding encourages employees to seek growth by moving cross-functionally. - The assumption is that this will benefit the organization. The principal payoff is flexibility. - The other side of the same coin is chaos and favoritism. Banding presumes managers will design pay to accomplish the organization's objectives, and not their own. - The challenge is to take advantage of flexibility without increasing labor costs or leaving the organization vulnerable.

Employer of Choice/Shared Choice

Employer of choice corresponds to the brand or image a company projects as an employer (prestige, status) Shared choice begins with the lead, meet, or lag alternatives - it adds a second part to offer employees choices in the pay mix - the "employee-as-customer" is not new in the U.S. - Does offering people choices matter? -- one risk is employees make the "wrong" choice - offering too many choices may lead to confusion, mistakes, and dissatisfaction

Point Plan - Adapting Factors from Existing Plans

Factors tend to fall into four generic groups. - Skills required, effort required, responsibility, and working conditions. These four were used in the National Electric Manufacturers Association (NEMA) plan and included in the Equal Pay Act. The Hay Group Guide Chart-Profile Method is widely used. - The Hay factors are know-how, problem solving, and accountability. - Add working condition when appropriate or required by law. Some factors may overlap or fail to account for unique criteria. Another challenge is called "small numbers."

Statistical Analysis

Frequency Distribution - Help visualize information and may highlight anomalies, or outliers. - Shapes can vary but unusual shapes may reflect problems. Central Tendency. - A measure reducing a large amount of data into a single number. - Calculate a mean by adding each company's base wage and dividing by the number of companies. - Calculate a weighted mean by adding base wages for all employees and dividing by the number of employees. Variation. - Distribution of rates around the central tendency is the variation.

Job Data: Identification and Content

Identification includes: - Job titles, departments, the number of people who hold the job and whether it is exempt from the Fair Labor Standards Act. 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 also an emphasis on the objective of the task. - Task data reveals the actual work performed and its purpose or outcome.

Classification

In the classification method of job evaluation: - 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. To determine the number of classes and to write class descriptions, define boundaries between each class. Class descriptions can be troublesome and may be too vague. The end result is a job structure made up of a series of classes with a number of jobs in each class.

Judging Job Analysis: A Judgement Call

In the face of all the difficulties, managers bother with job analysis for the information needed to determine pay. - Differences in work determine differences in pay. If work information is required, the issue becomes how much detail is needed to make these pay decisions. - Collect enough information to: - Help set individual employees' pay. - Encourage continuous learning. - Increase the experience and skill of the work force. -Minimize the risk of pay-related grievances. - The response to inadequate analysis is to collect more useful analysis.

What Information to Collect?

Information about the organization. - Competitors' data has not been used to compare competitors' productivity (revenues to compensation) or labor costs. - But this is changing. Information about the total compensation system. - Base pay, total cash, and total compensation are the most commonly used measures of compensation. - Misinterpreting competitors' pay practices can lead to costly mispricing of pay levels and structures. Specific pay data on each incumbent in the jobs under study

Who Should be Involved?

Managers and employees with a stake in the results should be involved in the design process. Common approaches use committees, task forces, or teams. - Compensation professionals are primarily responsible for job evaluation of most jobs. The design process matters. - Attend to fairness of the design rather than results. - Review procedures help ensure procedural fairness. - Powerful members of the job evaluation committee may sway results.

Different Policies for Different Employee Groups

Many employers go beyond a single choice and may: - vary the policy for different occupational families - vary the policy for different forms of pay - adopt different policies for different business units facing different competitive conditions * it is not just about the money $$$

Adjust Pay Level - How much to pay?

Most organizations adjust pay on a regular basis. Such adjustments can be based on: - The overall movement of pay rates caused by competition for people in the market. - Performance. - Ability to pay. -Terms specified in a contract.

Job Analysis and Globalization

Offshoring is the movement of jobs beyond a country's borders. - Hourly compensation differ across countries. - There are productivity differences across countries as well. - Availability of qualified workers and proximity to customers are issues. - Both low-skill jobs and white-collar jobs are at risk for offshoring. As firms spread work across multiple countries, there is a need to: - Analyze jobs to maintain consistent job content or to measure the ways jobs are similar or different. - One challenge is that norms or perceptions of what is or is not part of a particular job may vary across countries.

Segmented Supplies of Labor and Going Rates

People Flow to the Work: - a hospital staffs and pays its nurses with different methods and associated costs - segmented supply results in nurses working the same jobs on the same shift but earning different pay and/or benefits - a hospital cannot outsource its nurses to another city or country Work Flows to the People: - some companies can staff a project with employees who are on-site, off-site, or off-shore -- mixing and matching its people with sources - Reality is complex and theories abstract. - Segmented labor requires understanding various markets conditions. - Managers must know the jobs so they can bundle them out.

Point Method

Point methods have three common characteristics: 1. Compensable factors. 2. Factor degrees are numerically scaled. 3. Weights reflect the relative importance of each factor Each job's relative value is determined by total points. Compensable factors are based on strategic direction and how the work contributes. - Factors are scaled for presence and weighted for importance. - Points are attached to each factor weight. - Total points determine its position in the job structure.

Point Plan: 1. Job Analysis and Compensable Factors

Point plans begin with a job analysis and content of the jobs help define, scale, and weight compensable factors. Compensable factors are those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives. 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.

Sorting and Signaling

Sorting: the effect pay strategy has on who is attracted and who is retaining the job Signaling: employers design pay levels and mix to a signal of kinds of behaviors they seek - works on the supply side of the model

Essential Elements and the ADA

The Americans with Disabilities Act (ADA) requires the essential elements of a job be specified. - Essential elements are those that cannot be reassigned to other workers. - If an applicant can perform the essential elements, the applicant can perform the job. - Reasonable accommodations must be made to enable qualified persons to perform those elements. - The law does not make allowances for special pay rates or special benefits.

Labor Supply

The behavior model assumes potential employees: -Are seeking jobs. -Possess accurate information about all job openings. -Have no barriers to mobility. * As the assumptions change, so does the supply. - The upward sloping supply assumes that as pay increases, more people are willing to take a job. - If unemployment is low, higher pay many not increase supply. - Competitors may match offers of higher pay, keeping supply stable.

From Policy to Practice: The Pay-Policy Line

There are several ways to translate external competitiveness policy into practice. - Choice of measure. -- A company can use a specific percentile for base pay and another percentile for total compensation. - Updating. -- If a company chooses a "match" policy, they will be lagging the market. -- Aging the market data to a point halfway through the plan year is called lead / lag. - Policy line as percent of market line. -- Specify a percent above or below the regression line an employer intends to match and draw a new line at this level. -- This pay-policy line carries a message.

Judging Job Analysis: Currency and Usefulness

To be valid, acceptable, and useful, job information must be up to date. - Out-of-date job information only hinders not only pay practices and decision-making, but also hiring, training, and development. Develop a systematic protocol for evaluating when job information needs updated. Usefulness refers to the practicality of the information collected. - Job analysis provides information to help determine how much to pay for a job and whether the job is similar or different from other jobs. - If done in a reliable, valid, acceptable way, job analysis can be used to make pay decision and is therefore useful. - Multiple purposes may require more information than required for pay decisions.

Update the Survey Data

Wages paid by competitors is constantly changing, so a survey is outdated before it is available. - The pay data is usually updated, a process called aging or trending, to forecast rates for when pay decisions are implemented. The amount to update is based on several factors. - Historical trends in the labor market. - Prospects for the economy where the employer is operating. -The manager's judgment - Various other factors. It is not advisable to use the Consumer Price Index (CPI) as that measures the rate of change in prices, not wage changes.

Utility Analysis Example

When filling a position with a salary of $100,000 under our new selective hiring approach (versus $90,000 under the old system). - If we increase Z (the mean standard score on a selection tool) from .80 to 2.06 through selective hiring and assume the average cost per applicant is $200, this is the comparison. - Old Selection Strategy: SR = .50 (Z = .80), r = .40, SD = $40,000, cost = $200. u = .40 *$40,000* .80-$200/.50 = $12,400/ hire New Selection Strategy: SR = .05 (Z = 2.06), r = .40, SD = $40,000, cost = $200. u = .40 * $40,000 * 2.06 - $200/.05 = $28,950

Lead Pay-Level Policy

maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay - a lead policy can have negative effects: -- it may force the employer to increase wages of current employees too - it may mask negative job attributes that contribute to high turnover

The Pitfalls of Pies

thinking about the mix of pay forms as pieces in a pie chart has limitations: - these are particularly clear when the value of stock is volatile - the mix can change without the company changing its pay strategy - possible volatility in the value of different pay forms needs anticipated

Basic Utility Analysis Formula

u = r * SDy * Z - C/SR u is the utility (revenue - cost) per hire per year .r is the validity coefficient, the correlation between criterion, y, and one or more pre-employment assessments. SDy is the standard deviation of the dollar value of different employee performance levels. Z is the mean standard score of those hired. C is the cost per applicant. SR is the selection ration, which is hires/applicants.

Adjust Pay Mix - What Forms?

- Adjustments to the different forms of pay occur less frequently. - It is unclear why changes occur less often.• Perhaps the high costs of redesigning a mix creates a barrier.• Perhaps inertia prevails.• More likely, insufficient attention is paid to mix decisions.• The mix used may have been based on external pressures. - Some pay forms may affect employee behavior more than others. - Good information on total compensation, the mix competitor's use, and costs of various forms in increasingly important.

Modifications to the Demand Side

- Compensating Differentials: Employers offer higher wages if a job has negative characteristics. - Efficiency Wage: high wages increase efficiency and lower labor costs if they attract high-quality applicants, lower turnover, increase worker effort, reduce shirking, and reduce the need for supervision. -- Utility theory can help compare costs and benefits of pay level policies. -- organization's ability to pay is related to this model -- rent is a return on activities in excess of the minimum

Labor Demand

- an employer cannot change any factor of production except by changing the level of human resources (hiring) - A single employer's demand for labor coincides with the marginal product of labor. -- Which is the additional output associated with the employment of one additional person, with other production factors held constant. - The marginal revenue of labor is the additional revenue generated from employing one additional person. -- With other production factors held constant. * This model provides a valuable analytic framework, but it oversimplifies the real world - a manager using this model must be able to: 1. determine the pay level set by market forces 2. determine the marginal revenue generated by each new hire

Job Based Approach

- most common approach - Major decisions in designing 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?

Pay-Mix Policy Alternative Strategies

- some obvious alternatives include performance drive, market match, work/life balance, and security

Which Jobs to Include?

Benchmark-Job Approach. - If the purpose of the survey is to price the entire structure, then select benchmark jobs to include the entire structure. - The degree of match is assessed by various means. Low-High Approach. - Convert market data to fit the skill - or competency-based structure. - Use the lowest- and highest-paid benchmark jobs as anchors. Benchmark Conversion / Survey Leveling. - When jobs do not match survey jobs, quantify the difference using benchmark conversion. - If an organization uses job evaluation, then apply that system to the survey jobs.

Chapter8:Major Decisions

- Specify the employer's competitive pay policy. - Define the purpose of the survey. - Select relevant market competitors. - Design the survey. - Interpret survey results and construct the market line. -Construct a pay policy line that reflects the external pay policy. -Balance competitiveness with internal alignment through the use of ranges, flat rates and, or bands.

Pay-level and Pay-Mix Objectives

Control Costs and Increase Revenues: - Labor Costs = (pay level) X (number of employees). - The higher the pay level relative to competitors, the greater the relative costs to provide similar products or services. Attract and Retain the Right Employees: -Companies often set different pay-level policies for different job families. - How a company compares to the market depends on what competitors is compares to and what pay forms are included. -- Comparison of base wage may show one factor but a look at total compensation may show a different pattern. -- There is no single "going mix" of pay forms.

Point Plan - 3. Scale and 4. Weigh the Factors

Most factor scales consist of four to eight degrees. - In practice, evaluators use undefined degrees. - Another issue is whether to make each degree equidistant from adjacent degrees - interval scaling. Criteria for scaling factors: - Ensure the number of degrees is necessary to distinguish jobs. - Use understandable terminology. - Anchor definitions with benchmark job titles and work behaviors. - Make it apparent how the degree applies to the job. Factor weights reflect the relative importance of each factor. - Advisory committees often determine weights.

What information should be collected?

Start by reviewing information already collected to develop a framework for further analysis. - Job titles, major duties, task dimensions and work flow information may already exist. - However, it may no longer be accurate so verify existing information. Collect sufficient information to adequately identify, define, and describe a job. - Categorize information by:• --The job - job identification and job content. --The employee - characteristics and both internal and external relationships.

Employee Data

he Position Analysis Questionnaire (PAQ), groups work information into seven basic factors (information output, mental processes, work output, relationship with others, job context, other job characteristics, general dimensions) and includes 194 items. A more nuanced view focuses on the nature of interactions. - Interactions are the knowledge and behaviors involved in searching, monitoring, and coordinating required to do the work. - Some interactions are transactional, or routine, and some more tacit, or complex and ambiguous. - Tacit interactions are believed to add greater value than transactional tasks.

How Many Employers?

Publicly Available Data. - The Bureau of Labor Statistics (BLS) is the major source. - The data are often not specific enough to be used alone. "Word of Mouse." - Ease of access to salary information means managers must be able to explain salary variations among employees. - The quality of some salary data on the web is unclear. Many Surveys - But Few That Are Validated. - Different surveys imply different pay levels and many firms cross-check or validate results. - Without reliability and validity metrics, survey data are open to challenge.

Ability to Pay

What managers say: - unemployment rate makes little difference - profitability is a factor for higher management to set the pay budget - poor management results in turnover, not inadequate compensation * when unemployment is high, companies may make pay cuts, reduce hours, or force employees to take unpaid days off (furlough) - or reduce 401k contributions or impose pay freezes economic factors: - unemployment rate makes little difference - profitability is a factor - poor mgmt results in turnover, not inadequate compensation

What Shapes External Competitiveness

- Competition in the labor market for people with various skills. - Competition in the product and service markets, which affects the financial condition of the organization. - Characteristics unique to each organization. -- Such as business strategy, technology, and the productivity and experience of its work force. - These factors act in concert to influence pay-level and pay-mix decisions.

Specify Competitive Pay Policy

- Translating any external pay policy into practice requires information on the external market. - Surveys provide the data for translating that policy into pay levels, pay mix, and structures. - A *survey* is the systematic process of collecting and making judgments about the compensation paid by other employers.

Job-Based Structures: Job Evaluation

- What to value in a job - How to assess that value, and - How to translate it into a job-based structure. *Job evaluation is a process for determining relative value. Job evaluation is the process of systematically determining the relative worth of jobs to create a job structure for the organization. We do this using a combination of -job content - skills required• value to the organization - organizational culture - the external market - This potential to blend organizational forces and external market forces is both a strength and a challenge of job evaluation.

How can the information be collected?

Conventional methods are questionnaires, interviews, and observation. - Employee involvement increases their understanding of the process, however, the results are only as good as the people involved. Quantitative methods move the questionnaire online for a quantitative job analysis (QJA) - statistical analysis is possible. -Jobholders assess each item as to its importance to their job. - Questions are grouped around five factors, and subcategorized. - Results help prepare a job profile based on compensable factors. -They can be tailored to the needs of the organization *If important job aspects are omitted or importance is unrecognized, the resulting job descriptions will be faulty.

Ranking

Ranking simply orders the job descriptions from highest to lowest based on relative value or contribution to success. - Cheap, simple, fast, easy to understand and explain to employees. Two most common forms: - Alternation ranking: Orders job descriptions alternately at each extreme (i.e., finding the median). - Paired comparison: Uses a matrix to compare all possible pairs of jobs. Ranking has drawbacks: - 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.

Relevant Markets

Relevant Markets: - each organization operates in many labor markets, each with unique demand and supply - managers must define the markets relevant for pay purposes and establish appropriate competitive positions in the markets 3 factors to determine relevant labor markets: 1. occupation - skill or knowledge required 2. geography - willingness to relocate, commute or become virtual employee 3. competitors - other employers in the same product or service and labor markets Studies about how employers choose relevant market shows: - managers look at both the competitors and the jobs - depending on location and size, a company may be a relevant comparison even if it is not a product market competitor

Judging Job Analysis: Reliability

Reliability is 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. Using multiple raters and average ratings increases reliability. Outcome of a job analysis depends greatly on who conducts it. Research on employee and supervisor agreement on the reliability of job analysis information is mixed. To increase reliability is to understand and reduce differences. - Quantitative job analysis helps. - Take care not to eliminate rich responses while eliminating differences. - Training can improve reliability.

Setting Pay for Non-Benchmark Jobs

Setting pay for benchmark jobs is easy with a good survey match. For non-benchmark jobs, the market pay lines are useful. - One approach is to find a similar job such as one with a close job evaluation point assignment. - Divide the evaluation points and multiply by base pay. - Or use the market survey line regression equation. - The results are close but not identical. There is no "right way" to analyze survey data.

Dashboard - Total Pay Mix Breakdown vs. Competitors

Some companies prefer to report the mix using a dashboard - changes the focus to comparing each form by itself to the market - the mix employees receive differs at the different levels in the internal job structure - while percentages vary, greater emphasis on performance at higher levels is a common practice among organizations

Technical and Process Dimensions

Some researchers argue that if job evaluation can be rigorous and systematic (objective, numerical, generalizable, documented, and reliable), then it can be judged according to technical standards. - Used in that way may help gain acceptance of pay differences. Statistical validity is not the only issue. - Usefulness comes from providing a framework for give-and-take. Some say evaluation uncovers job content with intrinsic value - Others say the only fair measure of job value is in the external market. Some say contemporary job evaluation practices are just and fair. - Others say they are just fair.

Globalization of Relevant Markets

Job characteristics than can increase susceptibility to offshoring: - Easily routinized.• - Inputs or outputs easily transmitted electronically. - Little need for interaction with other workers. - Little need for local knowledge. * Savings from offshoring may be difficult to ignore. - Offshoring in now happening to lawyers and financial services jobs.