MGMT 4133- Exam 1

Employees may see compensation as:

a return in an exchange, an entitlement for being an employee of the company, an incentive to take/stay in a job and invest in performing well, or as a reward for having done so.

Internal labor markets combine both external and organizational. Internal labor markets refer to the rules and procedures that:

determine the pay for the different jobs within a single organization, and allocate employees among those different jobs.

But what does it mean to fit or tailor the pay structure to be internally aligned? Two strategic choices are involved:

(1) how specifically tailored to the organization's sign and work flow to make the structure and (2) how to distribute pay throughout the levels in the structure

Efficiency

(1) improving performance, increasing quality, delighting customers and stockholders, and (2) controlling costs.

Three common bases for today's pay structure

(1) the content of the work, (2) the skills and knowledge required to perform it, and (3) its relative value for achieving the organization's 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.

Step 1: Assess Total Compensation Implications

- Business strategies and competitive dynamics - HR strategy - Culture/values - Social and Political context - Employee/ Union needs - Other HR systems What factors in its business environment have contributed to the company's success?

Source of competitive advantage

- Is it aligned? - Does it differentiate? - Does it add value?

Common characteristics of point methods:

1. Compensable factors based on: - the strategic direction of the business, and - how the work contributes to the objectives and strategy. 2. Factor degrees numerically scaled. 3. Weights reflect the relative importance of each factor

pay model

1. Compensation objectives 2. Policies that form the foundation of the compensation system 3. Techniques that make up the compensation system

Eight Steps in Designing a Point Plan

1. Conduct job analysis 2. Determine compensable factors 3. Scale the factors 4. Weight factors by importance 5. Select criterion pay structure 6. Communicate and train users 7. Apply to remaining jobs 8. Develop online support

How can the information be collected?

1. Conventional methods 2. Quantitative methods

Michael Porter's framework includes:

1. Cost leadership strategy 2. differentiator strategy

Miles and Snow's framework includes:

1. Defenders 2. Prospectors

What do the basic pay objectives include?

1. Efficiency 2. Fairness 3. Ethics 4. Compliance

HR systems will be most effective when:

1. Employee ability is developed through selective hiring and training 2. Compensations system motivates employees 3. Roles allow employees to be involve in decision making

Some major decisions in job evaluation:

1. Establish the purpose of evaluation 2. Decide whether to use single or multiple plans 3. Choose among alternative approaches 4. Obtain involvement of relevant stakeholders 5. Evaluate plan's usefulness

Compensation influences manager's success in two ways:

1. It is a major expense that must be managed 2. It is a major determinant of employees attitudes and behaviors

Compensation does not mean the same thing to everyone.

1. Society 2. Stakeholders 3. Managers 4. Employees

The Importance of Internal Alignment

1. Supports organization strategy 2. Supports work flow 3. Motivates behavior.

Pay can influence employee motivation and behavior in two ways

1. incentive effect 2. sorting effect

Job analysis has two critical uses:

1. it establishes similarities and differences in the work contents of the jobs, and 2. it helps establish an internally fair and aligned job structure

An internal pay structure can be defined by:

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

Forms of pay are categorized in two ways:

1. total compensation 2. relational returns

best practices assumptions

1.A set of best-pay practices exists. This are, Compensation practices that allow employers to gain preferential access to superior human resource talent and competencies (i.e., valued assets), which in turn influence the strategies the organization adopts. 2.Practices can be applied universally across all situations. 3.Best practices results in better performance with almost any business strategy.

position

A group of tasks

Employee preferences are also wide ranging.

A major challenge in the design of next generation pay systems is how to better satisfy individual needs and preferences.

Culture/values are reflected in the pay system

A pay system reflects the values that guide an employer's behavior and underlie its treatment of employees.

career path

A progression of jobs within an organization

benchmark (key) jobs

A prototypical job, or group of jobs, used as a reference point for making pay comparisons within or without the organization

flat rate

A single rate, rather than a range of rates, for all individuals performing a certain job. Ignores seniority and performance differences.

Position Analysis Questionnaire (PAQ)

A structured job analysis technique that classifies job information into seven basic factors: information input, mental processes, work output, relationships with other persons, job context, other job characteristics, and general dimensions. The PAQ analyzes jobs in terms of worker-oriented data.

Job description

A summary of the most important features of a job. It identifies the job and describes the general nature of the work, specific task responsibilities, outcomes, and the employee characteristics required to perform the job.

Job Analysis

A systematic method to discover and describe similarities and differences among jobs.

skill analysis

A systematic process to identify and collect information about the skills required to perform work in an organization) decisions: (1) What is the objective of the plan? (2) What information should be collected? (3) What methods should be used? (4) Who should be involved? (5) How useful are the results for pay purposes? These are exactly the same decisions as in job analysis.

Employee focus in a competency based structure?

Acquire competencies

Employee focus in a skill-based structure?

Acquire skills

compensation

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

What two ways of ranking are common?

Alternation ranking and paired comparison

Line-of-sight

An employee's ability to see how individual performance affects incentive payout. Employees on a straight piecework pay system have a clear line of sight - their pay is a direct function of the number of units they produce; employees covered by profit sharing have a fuzzier line of sight - their payouts are a function of many forces, only one of which is individual performance.

Motivation

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

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

supply chain analysis

As applied to work flow analysis, supply chain analysis looks at how an organization does its work: activities pursued to accomplish specific objectives for specific customers.

Mechanisms to translate into pay in a job-based structure?

Assign points that reflect criterion pay structure

Pay structure in a competency based structure?

Based on competency developed/market

Pay structure in a job-based structure?

Based on job performed/market

Pay structure in a skill-based structure?

Based on skills certified/market

competency

Basic knowledge and abilities employees must acquire or demonstrate in a competency-based plan in order to successfully perform the work, satisfy customers, and achieve business objectives.

Managers' focus in a competency based structure?

Be sure competencies add value provide competency-developing opportunities control costs via certifications and assignments

Support HR Strategy

Boxal and Purcell use of the AMO theory

How do we win (gain competitive advantage) in those businesses?

Business unit strategies

Disadvantages of Point method

Can become bureaucratic and rule-bound

Mechanisms to translate into pay in a competency based structure?

Certification and price competencies in external market

Mechanisms to translate into pay in a skill-based structure?

Certification and price skills in external market

Advantages in a job-based structure?

Clear expectations, sense of progress pay based on value of work performed

What is valued in a job-based structure?

Compensable factors

Advantages of Point Method

Compensable factors call out basis for comparisons. Compensable factors communicate what is valued

Competency-based system

Compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. Typically used in managerial and professional work where what is accomplished may be difficult to identify

Competency-based structure

Compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. Typically used in managerial and professional work where what is accomplished may be difficult to identify.

What is valued in a competency based structure?

Competencies

Procedures in a competency based structure?

Competency analysis, competency certification

Pay increases in a competency based structure?

Competency development

How to quantify the value in a competency based structure?

Competency levels

Social and political context is wide ranging

Context refers to a wide range of factors, including legal and regulatory requirements, cultural differences, changing workforce demographics, expectations, and the like. Because governments are major stakeholders in influence laws and regulations can also be part of a compensation strategy

Advantages in a competency based structure?

Continuous learning, flexibility lateral movement

Advantages in a skill-based structure?

Continuous learning, flexibility reduced work force

What business should we be in?

Corporate objectives, strategic plans, vision, and values

Disadvantages of classification

Descriptions may leave too much room for manipulation

Step 3: Implement strategy

Design a system to translate strategy into action Chose techniques to fit strategy

Job data: content

Elemental tasks or units of work, with emphasis on the purpose of each task. The heart of job analysis

Delayering

Eliminating some layers or job levels in the pay structure. May cut an entire level of work.

How you quantify the value in a job-based structure?

Factor degree weights

Fairness

Fairness (procedural fairness) is the process used to make pay decisions. It suggests that the way a pay decision is made may be equally as important to employees as the results of the decision.

team incentive

Group incentive restricted 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.

job evaluation committee

Group that may be charged with the responsibility of (1) selecting a job evaluation system, (2) carrying out or at least supervising the process of job evaluation, and (3) evaluating the success with which the job evaluation has been conducted. Its role may vary among organizations, but its members usually represent all important constituencies within the organization.

Job family

Grouping of related jobs with broadly similar content; e.g., marketing, engineering

How should HR help us win?

HR strategies

marginal productivity

In contrast to Marxist "surplus value" theory, a theory that focuses on labor demand rather than 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.

Incentive

Inducement offered in advance to influence future performance (e.g., sales commissions)

Unstated strategies

Inferred from the pay decisions

Job content

Information that describes a job. May include responsibility assumed and/or the tasks performed

Reliability

Is a measure of the consistency of results among various analysts, various methods, various sources of data, or over time.

job evaluation

Is the process of systematically determining the relative worth of jobs to create a job structure for the organization. The evaluation is based on a combination of job content, skills required, value to the organization, organizational culture, and the external market. This potential to blend organizational forces and external market forces is both a strength and a challenge of job evaluation.

Quantitative Job Analysis (QJA)

Job analysis method that relies on scaled questionnaires and inventories that produce job-related data that are documentable, can be statistically analyzed, and may be more objective than other analyses.

Procedures in a job-based structure?

Job analysis, job evaluation

compensable factors

Job attributes that provide the basis for evaluating the relative worth of jobs inside an organization. A compensable factor must be work related, business-related, and acceptable to the parties involved.

Classification

Job evaluation method that involves slotting job descriptions into a series of classes or grades that cover the range of jobs and that serve as a standard against which the job descriptions are compared.

Job data: identification

Job titles, departments, number of people who hold the job, and whether it is exempt from the Fair Labor Standards Act

nonexempt jobs

Jobs subject to provisions of the Fair Labor Standards Act with respect to minimum wage and overtime. Exempt employees include most executives, administrators, professionals, and outside sales representatives.

Americans with Disabilities Act

Legislation passed in 1990 that requires that reasonable accommodations be provided to permit employees with disabilities to perform the essential elements of a job

Managers' focus in a job-based structure?

Link employees to work promotion and placement cost control via pay for job and budget increase

Factor Weight

Measures that indicate the importance of each compensable factor in a job evaluation system. Weights can be derived through either a committee judgement or a statistical analysis.

Factor scales

Measures that reflect different degrees within each compensable factor. Most commonly five to seven degrees are defined. Each degree may be anchored by typical skills, tasks and behaviors, or key job titles.

Conventional job analysis

Methods that typically involve an analyst using a questionnaire in conjunction with structured interviews of job incumbents and supervisors. The methods place considerable reliance on analysts' ability to understand the work performed and to accurately describe it.

Step 2: Map a Total Compensation Strategy

Objectives, Alignment, Competitiveness, Contributions, MGMT The compensation strategy is made up of the elements in the pay model: objectives, and the four policy choices of alignment, competitiveness, contributions, and management.

Salaries

Pay given to employees who are exempt from regulations of the Fair Labor Standards Act and hence do not receive overtime pay (e.g., managers and professionals). Exempt pay is calculated at an annual or monthly rate rather than hourly.

Union preferences differ by location

Pay strategies need to take into account the nature of the union-management relationships

variable pay

Pay tied to productivity or some measure that can vary with the firm's profitability

What is the most common job evaluation method used?

Point method

Limitations in a job-based structure?

Potential bureaucracy, potential inflexibility

Limitations in a skill-based structure?

Potential bureaucracy; requires cost controls

Limitations in a competency based structure?

Potentil bureaucracy, requires cost control

Pay increases in a job-based structure?

Promotion

Disadvantages of ranking

Ranking criteria becomes subjective as evaluators must be knowledgeable on every job. Results are difficult to defend and costly solutions may be required.

Step 4: Reassess

Realign as conditions change Realign as strategy changes

Offshoring

Refers to the movement of jobs to locations beyond a country's borders.

external competitiveness

Refers to the pay comparisons with competitors. Pay is "market driven"

Employee focus in a job-based structure?

Seek promotions to earn more pay

market pricing

Setting pay structures almost exclusively through matching pay for a very large percentage of jobs with the rates paid in the external market.

Pay increases in a skill-based structure?

Skill acquisition

Procedures in a skill-based structure?

Skill analysis, skill certification

What is valued in a skill-based structure?

Skill blocks

How to quantify the value in a skill-based structure?

Skill levels

Task

Smallest unit of analysis, a specific statement of what a person does; e.g., answer the telephone

How should total compensation help us win?

Social, competitive, and regulatory environment --> Strategic compensation decisions

Society

Some people see pay as a measure of justice

Stockholders

Someone who owns a piece of the company

Key steps in formulating a total compensation strategy

Step 1: Assess Total Compensation Implications Step 2: Map a Total Compensation Strategy Step 3: Implement strategy Step 4: Reassess

customer-focused business strategy

Stresses delighting customers and bases employee pay on how well they do this

multiskill system

Systems that link pay to the number of different jobs (breadth) an employee is certified to do, regardless of the specific job he or she is doing.

Validity

The accuracy of the results obtained; the extent to which a test measures or predicts what it is supposed to

Compensation is...

The by-product of supply and demand in the labor market

total compensation

The complete pay package for employees, including all forms of money, bonuses, benefits, services, and stock. Pay received directly as cash and indirectly as benefits

Compensation Objectives

The desired results of the pay system.

Surplus value

The difference between labor's use and exchange value. According to Marx, under capitalism wages are based on labor's exchange value - which is lower than its use value- and thus provide only a subsistence wage

Strategy

The fundamental directions an organization chooses. It guides the deployment of all resources including compensation. An organization defines its strategy through the tradeoffs it makes in choosing what (and what not) to do.

job specification

The knowledge, skills, and abilities (KSAs) an individual needs to perform a job satisfactorily.

relational returns

The nonquantifiable returns employees get from employment, such as social satisfaction, friendship, feeling of belonging, or accomplishment. They are psychological

tournament theory

The notion that larger differences in pay are more motivating than smaller differences. Like prize awards in a golf tournament, pay increases should get successively greater as one moves up the job hierarchy. Differences between the top job and the second-highest job should be the largest. All players will play better in the first tournament, where the prize differentials are larger

Outsourcing

The practice of hiring outside vendors to perform functions that do not directly contribute to business objectives and in which the organization does not have a comparative advantage.

Relative value

The relative contribution of jobs to organizational goals, to their external market rates, or to some other agreed-upon rates

What does an employee value proposition represents?

The total value an employee receives from their employer

value

The worth of the work; its relative contribution to the organization objectives

Managers' focus in a skill-based structure?

Utilize skills efficiently provide training control via cost training, certification, and work assignments

What are the most common bases for determining internal pay structures?

Work content and its value

Stated Strategies

Written compensation strategies

points method

a job evaluation method that employs (1) compensable factors, (2) factor degrees numerically scaled, and (3) weights reflecting the relative importance of each factor

interval scaling

a particular numerical point difference has the same meaning on all parts of a scale

criterion pay structure

a pay structure to be duplicated with a point plan

opportunity

a set of circumstances that makes it possible to do something

job description

a summary of the most important features of a job; it identifies the job and describes the general nature of the work, specific task responsibilities, outcomes, and the employee characteristics required to perform the job

just wage doctrine

a theory of job value that posits a "just" or equitable wage for any occupation based on that occupation's place in the larger social hierarchy. According to this doctrine, pay structures should be designed on the basis of societal norms, customs, and tradition, not on the basis of economic and market forces

AMO Theory

ability, motivation, opportunity

tailored

adapted by organizations with a low-cost, customer focused strategy, has well designed jobs with detailed steps or tasks, and very small pay differentials among jobs

Cost containment

an attempt made by organizations to contain benefit costs, such as imposing deductibles and coinsurance on health benefits or replacing defined benefit pension plans with defined contribution plans

Managing compensation means...

answering the "So What" question

core competencies

are often linked to the mission statement that express an organization's philosophy, values, business strategies, and plans.

compensable factors

are those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives

skill block

basic units of knowledge employees must master to perform the work, satisfy customers, and achieve business objectives

advantages of classification

can group a wide range of work together in one system

base pay

cash that an employer pays in return for the work performed. A function of the skill and education an employee possesses.

In what results a change in the business strategies?

changes in pay systems

Employee Contributions

comparisons among individuals doing the same job for the same organization

Prospectors

compete in innovative/new markets

compliance

conforming to federal and state compensation laws and regulations

incentive effect

degree to which pay influences individual and aggregate motivation

Scaling

determining the intervals on a measurement instrument

pay discrimination

discrimination usually defined as including (1) access discrimination, which occurs when qualified women and minorities are denied access to particular jobs, promotions, or training opportunities; and (2) valuation discrimination, which takes place when minorities or women are paid less than white males for performing substantially equal work. Both types of discrimination are illegal under Title VII of the Civil Rights Act of 1964. Some argue that valuation discrimination can also occur when men and women hold entirely different jobs (in content or results) that are of comparable worth to the employer. Existing federal laws do not support the "equal pay for work of comparable worth" standard.

competency based

early conceptions focused on: skills, knowledge, self-conceptions, traits, and motives

sorting effect

effect that pay can have on the composition of the workforce

cost cutter

efficiency focused strategy stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed (focus on efficiency)

Importance of internal alignment

efficiency, fairness, compliance

Entitlement

employee belief that returns and/or rewards are due regardless of individual or company performance

What shapes internal structures?

external factors, organization factors, internal structure

Advantages of ranking

fast, simple, easy to explain

differentiator strategy

focuses on providing a unique and/or innovative product/service at premium prices

cost leadership strategy

focuses on reducing expenses and, in turn, lowers product prices while targeting a broad array of market segments

Strategic Perspective

focuses on those compensation choices that help the organization gain and sustain competitive advantage

Job

identical positions. Group of tasks performed by one person that make up the total work assignment of that person. e.g: customer support representative

Defenders

in stable markets competing on costs

Linking executive pay to company performance...

increases stockholders' returns

merit increases

increments to base pay based on performance

Ability

individual's capability to engage in a specific behavior

ability

individual's capability to engage in specific behavior

entry jobs

jobs that are filled from the external labor market and whose pay tends to reflect external economic factors rather than an organization's culture and traditions

cost of living adjustment

made to base pay on the basis of changes in what others are paying, living costs, or experience/skill

pay techniques

mechanisms or technologies of compensation management, such as job analysis, job descriptions, market surveys, job evaluation, and the like, that tie the four basic pay policies to the pay objectives

paired comparison

method uses a matrix to compare all possible pairs of jobs; when all comparisons have been completed, the job most frequently judged "more valuable" becomes the highest-ranked job and so on

benchmark (key) jobs characteristics

o Its contents are well known and relatively stable. o The job is common across employers, not unique to one employer. o A reasonable proportion of the work force is employed in this job.

An organization is likely to achieve competitive advantage if the pay system:

o reflects the company's strategies and values, o is responsive to employees' and unions' needs, and o is globally competitive.

Competency indicators

observable behaviors that indicate competency. These indicators may be used for staffing and evaluation as well as for pay purposes. The competency indicators anchor the degree of a competency required at each level of complexity of the work.

Internal Alignment

often called internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization

Structure based on JOB VALUE orders jobs:

on the basis of the relative contribution of the skills, duties, and responsibilities.

incentives

one-time payment which differs from merit adjustments

alternation ranking

orders job descriptions alternately at each extreme; agreement is reached among evaluators on which jobs are the most and least valuable

merit/performance bonuses

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

HR strategy

pay as a supporting player or catalyst for change?Pay strategy is also influenced by how it fits with other HR systems the organization. Whatever the overall HR strategy, a decision about the prominence of pay in that HR strategy is required. Whatever the role, compensation is embedded in the total HR approach

Differentials

pay differences among levels

nonexempt (hourly)

pay for workers who are covered by overtime and reporting provisions of FLSA. Calculated on an hourly basis.

Wage

pay given to employees who are covered by overtime and reporting provisions of the Fair labor Standards Act. Nonexempts usually have their pay calculated at an hourly rate rather than a monthly or annual rate.

exempt (salary)

pay given to employees who are exempt from regulations of the FLSA. Calculated at an annual or monthly rate.

commission

payment tied directly to achievement of performance standards. Commissions are directly tied to a profit index (sales, production level) and employee costs; thus, they rise and fall in line with revenues.

What are two sources of fairness?

procedural and distributive justice

Work flow

process by which goods and services are delivered to the customer

relational return

recognition and status, employment security, challenging work, and learning opportunities

internal alignment

refers to comparisons among jobs or skill levels inside a single organization

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.

Distributed Justice

refers to the fairness of the decision

Procedural justice

refers to the process by which a decision was reached. Research suggests pay procedures are more likely to be perceived as fair if: • They are consistently applied, • Employees participated in the process, • Appeals procedures are included, and • The data used are accurate.

Content

refers to what work is performed and how it gets done.

loosely coupled

requires constant innovation and pay structures are more loosely linked to the organization to provide flexibility

Task data

reveals the actual work performed and its purpose or outcome

Management

right people get the right pay for achieving the right objectives in the right way

marginal productivity

says that employers pay use value

person-based structure

shifts the focus to the employee. - The skills, knowledge, or competencies the employee possesses and if they are used in the job.

skill based

shows up in industries like manufacturing, where the work involves: teams, multi skills, and flexibility; and advantage is less bottlenecks as people are better matched to the work flow

ranking method

simply orders the job descriptions from highest to lowest based on a global definition of relative value or contribution to the organization's success

topping out

situation in which employees in a skill-based compensation plan attain the top pay rate in a job category by accumulating and/or becoming certified for the top-paid skill block(s)

Structures based on JOB CONTENT orders jobs by:

skill, duties, and responsibilities.

A structure based on content typically ranks jobs based on...

skills required, complexity of tasks, problem solving, and/or responsibility.

innovator

stresses new products and short response time to market trends (increase product complexity and shorten product life cycle)

job-based structure

structure that relies on work content- tasks, behaviors, responsibilities

Job description

tasks, duties, and responsibilities that make up a job

Competitive position

the comparison of the compensation offered by one employer relative to that paid by its competitors

Culture

the informal rules, rituals, and value systems that influence how people behave

human capital

the knowledge and skills a worker gains through education and experience. The greater the added value, the higher the pay

Culture

the mental programming for processing information that people share in common

Ethics

the organization cares about how its results are achieved.

A structure based on value focuses on...

the relative contribution of the skills, tasks, and responsibilities.

Use value

the value of goods/services an employee produces in a job

use value

the value of goods/services an employee produces in a job

exchange value

the wage agreed upon by the employer and employee

Competency sets

translate each core competency into action

Ranking

type of performance appraisal format that requires that the rater compare employees against each other to determine the relative ordering of the group on some performance measure.

Business strategy and competitive dynamics

understand the business.

Content

work performed performed in a job and how it gets done (tasks, behaviors, knowledge required, etc.)

Specialist: Depth

• Pay is based on knowledge of the person doing the job, rather than on job content or output. • Basic responsibilities do not vary on a day-to-day basis.