Compensation Management: Exam 1

What is internal alignment?

(Same as internal equity) ... pay relationships between job/skills/competencies in one organization ... why does this job pay more than this job, what's the logic behind that?

Describe the Innovator Business Strategy

- Increase product complexity and shorten product life cycle - Business Response: product leadership, mass customization, cycle time - HR Program Alignment: committed to Agile, risk taking, innovative people - Comp System: reward innovation in products and processes, market based pay, flexible-generic job descriptions

Describe the Cost Cutter Business Strategy

- focus on efficiency - Business Response: operational excellence, cost effective solutions - HR Alignment: do more with less - Comp System: focus on competitors' labor costs, increase variable pay, emphasize productivity, focus on system control and work specifications

Describe the Customer Focused Business Strategy

- increase customer expectations - Business Response: deliver solutions to customers, speed to market - HR Alignment: delight customer, exceed expectations - Comp System: customer satisfaction incentives, value of job and skills based on customer contact

What are the four steps to developing a total compensation system?

1. Assess total compensation implications (HR/Business strategy, culture/values, employee needs, etc.) 2. Map a total compensation strategy (objectives, alignment, competitiveness, contributions, management) (ACTIVITY #1) 3. Implement Strategy 4. Reassess

Describe the different types of cash compensation

1. Base Pay = employer pays for the work performed 2. Merit/Cost of Living = change in living costs or change in experience/skill ... merit pay is based off of performance and can increase base pay OR one time lump sum 3. Short/Long term incentives = do NOT increase base pay and based off of performance

Describe the different compensation objectives (Pay Model)

1. Efficiency = improving performance, increasing quality, delighting customers & stockholders, controlling labor costs 2. Fairness = ensure fair treatment 3. Compliance = conforming to state and federal compensation laws and regulations (if laws change pay systems need to change) 4. Ethics = all three of the others need to be met along with it being ethical

Different methods for collecting job information and pros/cons

1. Existing job information: O*Net, old job descriptions... pros = cheap and easy to get ... cons = could be outdated or no accurate 2. Interviews ... pros = detailed information ... cons = time consuming 3. Surveys ... pros = efficient, breadth of answers ... cons = skewed answers, lack of depth in answers, can't get clarification 4. Focus groups ... pros = efficient ... cons = group think 5. Observation ... pros = observer can see all details of job ... cons = people may behave differently because they are being watched, time consuming 6. Diaries ... pros = good depth of info, helps with forgetting ... cons = misunderstanding of "jargon", work intensive for the SME

Describe the different categories of benefits.

1. Income protection = medical insurance, retirement programs, life insurance, savings plans 2. Work/life balance = programs that help employees better integrate their work and life responsibilities include time away from work, access to services to meet specific needs, and flexible work arrangements 3. Allowances =

What are the 3 different Business Strategies for compensation systems?

1. Innovator 2. Cost Cutter 3. Customer Focused

What are the 4 policy choices? (Pay Model)

1. Internal alignment 2. External competitiveness 3. Employee contributions 4. Management of the pay system

Determining the Internal Job Structure

1. Internal work relationships within the organization 2. Job analysis 3. Job descriptions 4. Job evaluation 5. Job structure

How do you tell if a strategy is a source of competitive advantage?

1. Is is Aligned? - align with business strategy, HR strategy, externally with economic and sociopolitical conditions 2. Does it differentiate? 3. Does it add value? (ROI)

What types of information need to be collected in a job analysis?

1. Job Data: Identification and Content Identification - job title, who do you report to, job family Content - tasks, outcomes, duties, responsibilities 2. KSAO's: knowledge, skills, abilities, other characteristics 3. Contextual Information: travel, hazard info, indoors/outdoors, sitting, etc.

Describe all the different sources of information for job analysis (pros and cons)

1. Job analyst .. pros = no bias ... cons = source of info could lack up to date info 2. Incumbents ... pros = ones that are doing job, should have up to date info and know what should be put on for description ... cons = not doing what they are supposed to, potential bias 3. Supervisors ... pros = know what they want to have done and what employees should be doing, good sources for KSAO's ... cons = potential bias, may not be aware of how things are actually happening 4. SME ... pros = less potential of bias ... cons = quality of data

What are the factors associated with Objectives, Internal Alignment, Competitiveness, Employee Contributions & Management?

1. Objectives - prominence 2. Internal Alignment - flexible design, hierarchy, career growth 3. Competitiveness - how much, form, work/life balance 4. Employee Contributions - incentive to base, individual, share group success 5. Management - line ownership, transparency, technology, choice

Why is compensation important to organizations?

1. Payroll - largest expense for an organization 2. Business strategy, is it sustainable? Ex: pay more than your competitors and you get higher performance/quality then good but is "strategy" sustainable? 3. How people are paid affects their behaviors at work, which affects org's success 4. well designed pay structures can help org achieve & sustain competitive advantage

Describe the different types of relational returns.

1. Recognition and status 2. employment security 3. challenging work 4. learning opportunities

How do the following view compensation: 1. Society? 2. Stockholders? 3. Manager? 4. Employees? 5. People in other countries?

1. Society = Measure of justice 2. Stockholders = Executive pay - they believe that if the interest of the executives are in line with their interest, the company will perform better. View as a tool 3. Managers = Also view as a tool - measures success. Means of influencing employees and their behavior. Getting higher level of performance Employees = Return for the work they do. Entitlement. Reward 4. People in other countries = Viewed differently... China- historically entitlement, today indicator of how company is treating employees

Why is compensation important to society?

1. Some see pay as a measure of justice (ex: gender pay differentials, benefits given, etc.) 2. Higher compensation fuels the economy

Compensation should...

1. Support Business Strategy (innovator, cost cutter, customer) 2. Support HR Strategy ... P = f(A,M, O) ... performance equals function of ability, motivation and opportunity 3. Use the Pay Model to make pay decisions

What should pay structure do?

1. Support organization strategy 2. Support workflow 3. Motivate behavior (line of sight, does it pay off to get more training, move up to a new job, etc)

What are the major decisions in Job Analysis?

1. Why perform job analysis? 2. What information is needed? 3. How to collect information? 4. Who to involve? 5. How useful are the results?

What are the 3 ways pay structures can be defined?

1. the number of levels of work 2. pay differentials between the levels 3. criteria or bases used to determine those levels and differentials

What is a position?

A grouping of tasks performed by one person

Does research support best practices or best fit?

Best Fit

What is the best practice perspective?

Best practices that you should be doing no matter what organization you're at. Some believe that best practices exist and can be applied across the organization.

What is job evaluation?

Comparison of jobs within an organization

Internal Alignment

Comparisons among jobs or skill levels inside a single organization. Job and people skills are compared in terms of their relative contributions to the orgs business objs Internal alignment pertains to the pay rates both for employees doing equal work and for those doing dissimilar work Affects employees decisions to stay with organization, additional training, (fairness - comparison of pay), (compliance - race, gender, age = illegal)

What is strategic compensation?

Compensation choices that help organizations gain and sustain their competitive advantage.

What criteria are used to determine internal structures?

Content + Value Content = work performed in a job and how it gets done (tasks, knowledge, behaviors, etc.) Value = worth of the work

Incentive Effect

Degree to which pay influences individual and aggregate motivation among employees at any point in time

Which policy choices should be made together?

Employee contributions + external competitiveness

What things determine internal structure? Explain each.

External Factors: economic pressure, gov policies/laws/regulations, stakeholders, cultures and customers Org Factors: strategy, tech, human capital, HR policy, employee acceptance, cost implications

What is equity theory?

Fairness Compare their jobs to similar jobs in the org Compare to others in the org with dissimilar jobs Compare to others in different orgs Equity theory - suggest that what is equitable is going to be driven by all the above What options do employees have: Quit, Ask for a Raise, Reduce input (so the comparison doesn't seem as "off"), Support egalitarian or Hierarchical structure

What is a job?

Group of tasks performed by one person that makes up the total work assignment of that person (i.e. customer support specialist)

What is a job family?

Grouping of similar jobs with broadly similar content, i.e. marketing, engineering, office support, etc.

Hierarchical Vs Egalitarian Structure

Hierarchical: many levels, large differentials, person or job criteria, supports close fit, individual performers, fairness on performance, opportunities for promotion Pros: stars feel valued, fewer problems attracting them Cons: fosters a level of competition Egalitarian: fewer levels, small differentials, person or job criteria, supports loose fit, teams, fairness equal treatment, cooperation Pros: sending message that all employees are valued equally Cons: stars feel under paid, problems attracting external candidates

What is involved in a job based approach?

Job analysis and job descriptions

What are the 2 approaches to creating business and work related structure?

Job base and Person based

Which approach is more common job based or person based?

Job based

What is a job specification?

List of knowledge, skills, abilities, and other characteristics needed for an individual to have to perform the job

What is tournament theory? What does this theory predict and does research support these predictions?

People are going to work harder if there is a bigger cash prize up for grabs Good predictor of performance when individual - ex: sales job (fosters competition) Pans out when Individual performance management is important Hierarchical structure would be better (more supportive) Team work is more important - then Egalitarian is better

What is the difference between a job and a position?

People could have the same job but different positions. EX: Soderberg & Rawski have same job but different positions.

Procedural vs. Distributive Justice

Procedural = process for which a decision is reached Distributive = fairness of the decision

What is pay structure?

Refers to the array of pay rates for different work or skills within a single organization. The number of levels, the differentials in pay between the levels, and the criteria used to determine those differences describe the structure

What is the Institutional Model suggest?

Suggests you copy others (Use best practices) Doesn't always work (or make sense for companies) Won't have competitive advantage or be able to sustain that advantage

Tailored vs. loosely coupled

Tailored - jobs are well defined, detailed tasks and steps to follow, to organization structure and workflow Example: Applebee's need to have standard service and product every single time Loosely coupled - rules aren't as defined Apple: encourage constant innovation, they don't want to stifle creativity and create situation where they have super defined jobs, outcomes and how you reach them are up to your discretion

Why is job analysis important in general and in compensation specifically?

There's no one right way to do job analysis work, all functions of HR are based on job analysis. If you don't know the fundamentals of a job, how do you know what to put in a posting/pay them/risks.... compensation = we need work related rationals for pay differences

What makes up Total Returns?

Total Returns = Total Compensation + Relational Returns

What makes up Total Compensation?

Total compensation = Cash compensation + Benefits

What is the best fit perspective?

Unique to the company, context, etc.

Why is compensation important to individuals?

You want to get paid, benefits, reputable companies

Job

a set of identical positions is a

Which theory predicts individual performance will be maximized when the pay differentials between job levels is large? a. Tournament b. Equity c.Marginal productivity d. Reinforcement theory

a. Tournament

A problem faced by some organizations using an egalitarian pay structure is _____. a. difficulty in external recruitment b. maintaining cooperation among employees c. perception of excessive CEO pay d. difficulty in team work

a. difficulty in external recruitment

A compensation system using market-based pay is most likely to be part of a _____ strategy. a. innovator b. cost-cutter c. global d. customer-focused

a. innovator

If several incumbents, supervisors and peers respond in similar ways to job analysis questionnaires, this suggests the results are _____. a. reliable b. valid c. convergent d. acceptable

a. reliable

Compensation

all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship

What is job structure?

an ordering of jobs based on their content or relative value

Which of the following is the correct order of the steps in formulating a total compensation strategy? a. Assess total compensation strategy, implement strategy, map a total compensation strategy, reassess b. Assess total compensation strategy, map a total compensation strategy, implement strategy, reassess c. Map a total compensation strategy, implement strategy, assess total compensation strategy, reassess d. Map a total compensation strategy, assess total compensation strategy, implement strategy, reassess

b. Assess total compensation strategy, map a total compensation strategy, implement strategy, reassess

According to the text, which of the following decisions should be made jointly? a. Internal alignment and Management. b. External competitiveness and Employee contribution c. Employee contribution and Internal alignment d. Management and External competitiveness

b. External competitiveness and Employee contribution

_____ refers to comparisons among jobs or skills inside a single organization. a. External competitiveness b. Internal alignment c. Pay structure d. Equitable contributions

b. Internal alignment

The job analysis method that uses information input, work output, job context, and relationships with other persons is _____. a. task inventories b. PAQ c. essential elements d. job tasks and elements inventory

b. PAQ

Which of the following is not part of the description of a pay structure? a. Pay differentials b. Performance pay c. Criteria determining pay differences d. Number of levels

b. Performance pay

Which of the following is an example of a relational return? a. Short-term incentives b. Recognition and status c. Work-life balance d. Income protection

b. Recognition and status

Hierarchical pay structures have all but which of the following characteristics? a. Supports a close fit with the organization b. Supports cooperation c. Many levels d. Is based upon the job or person

b. Supports cooperation

The degree to which pay influences individual and aggregate motivation among the employees at any point in time is referred to as: a. sorting effect. b. incentive effect. c. motivational effect. d. directional effect.

b. incentive effect.

Career growth, hierarchy and flexible design are examples of choices related to the _____ strategy choice of total compensation. a. objectives b. internal alignment c. external competitiveness d. employee contributions

b. internal alignment

The institutional model _____. a. is adopted by high performing, innovative organization b. refers to firms that copy innovative practices adopted by other organizations c. is another name for the bureaucratic model d. is a hybrid of the hierarchical and egalitarian model

b. refers to firms that copy innovative practices adopted by other organizations

"Does the analysis create an accurate perception of the work?" is a question answered by _____. a. reliability b. validity c. acceptability d. usefulness

b. validity

A pay structure based upon the relative contribution of skills, tasks and responsibilities to the organization's goals is called the _____ approach. a. content b. value c. job analysis d. job evaluation

b. value

When organization performance declines, a.) a virtuous circle may be created. b.) performance-based pay plans do not pay off. c.) managers will change the pay practices. d.) employees will work harder to improve performance.

b.) performance-based pay plans do not pay off.

For which of the following types of HR decisions would the least detailed job information be required? a. Legal Compliance b. Career paths c. Compensation d. Staffing

c. Compensation

Which of the following are given as increments to the base pay in recognition of past work behavior? a. Base pay b. Cost-of-living adjustments c. Merit pay d. Incentives

c. Merit pay

Most job structures are best described as a. job-based. b. person-based. c. both person- and job-based. d. competency based.

c. both person- and job-based.

Typical data collected for job analysis would include all but which of the following? a. job performance criteria b. relationships with subordinates c. incumbent performance level d. conflicting work demands

c. incumbent performance level

The modern concept of a "living wage" is most similar to _____. a. marginal productivity wage b. exchange value c. just wage doctrine d. bourse

c. just wage doctrine

When employees can see the relationships between their work, the work of others and the organization's objectives, this is called a. procedural justice. c. line-of-sight. b. goal congruence. d. path-goal-congruence.

c. line-of-sight.

Organizations in a turbulent and unpredictable environment requiring flexibility in jobs and work processes are likely to be more successful with a(n) _____ internal pay structure. a. egalitarian b. bureaucratic c. loosely coupled d. closely tailored

c. loosely coupled

Conventional job analysis methods are being replaced by quantitative methods for all but which of the following reasons? Conventional methods are _____. a. open to bias and favoritism b. often subjective c. not well-suited to small organizations d. require more time

c. not well-suited to small organizations

Employee Contributions

comparisons among individuals doing the same job for the same organization Performance based pay THIS SHOULD BE MADE JOINTLY WITH EXTERNAL COMPETITIVENESS

The choice to communicate and make open an organization's pay system to employees is an example of which strategic choice? a. Internal alignment b. External competitiveness c. Employee contributions d. Management

d. Management

One of the best ways to increase employee acceptance for job analysis is to a. reduce costs. b. meet Fair Labor Standards Act requirements. c. increase reliability. d. increase the involvement of employees.

d. increase the involvement of employees.

What is line of sight?

employees should be able to see the links between their work, work of others, for the organizational objectives

Management (policy)

ensuring that the right people get the right pay for achieving the right objectives in the right way. Answers the "So What" question. Does the decision help the organization achieve its objectives?

External Competitiveness

pay comparisons with competitors. how much and what forms -- (1) ensure that pay is sufficient to attract and retain employees and employees feel wage is competitive to other orgs (2) control labor costs so that orgs prices of products/services stay competitive THIS SHOULD BE MADE JOINTLY WITH EMPLOYEE CONTRIBUTIONS

What is workflow?

refers to the process by which goods and services are delivered to the customer

What is use value?

reflects the value of good or services an employee producces in a job

What is involved in person based approach?

skills and competencies

What is a task?

smallest unit of analysis, a specific statement of what a person does (i.e. answer phones). Similar tasks can be grouped into a task dimension.

What is job description?

summary reports that identify, define and describe the job as it is actually performed (outcome of job analysis process)

"Essential elements" refers to

tasks that cannot be reassigned to other workers

Sorting Effect

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 to and stay with an organization. Ex: higher pay levels attract higher quality candidates

What is strategy?

the fundamental direction an organization chooses -- way of winning. How are we going to compete? How are we going to get to the vision we set for ourselves?

What are pay differentials?

the pay differences among levels ... can be big or small.. Intention is to motivate people to strive for promotion to a higher paying level

What is job analysis?

the systematic process of collecting information that identifies similarities and differences in the work

what is exchange value?

whatever wage the employer and employee agree on for a job.

The first major decision in job analysis is

why perform job analysis

What are the differences between job based and person based internal structure?

•Job based - rely on the work content - tasks, behaviors, responsibilities are present in this job, that determines pecking order of jobs. Paying them for what they are actually doing. They will get paid this amount because they are in this category. •Person based - focus on the employees - the skills, knowledge, competencies are needed to be able to do this work ... what skills or competencies do these people have? Compensated at a higher level if you have more skills