MGT427 Chapt. 8 Compensation
Total cash
(base, profit sharing, bonuses) measures reveal competitors' use of performance based cash systems
Benchmark job approach
- benchmark jobs have stable job content, are common across different employers, and include sizable numbers of employees - if the purpose of the survey is to price the entire structure, then benchmark jobs can be selected to include the entire job structure--all key functions and all levels
Three basic types of data are typically requested
1) info about the organization 2) info about the total compensation system and 3) specific pay data on each incumbent in the jobs under study
Banding takes two steps
1) set the number of bands 2) price the bands; reference market rates
Major decisions in pay level determination
1) specify the employers competitive pay policy 2) define the purpose of the survey 3) select relevant market competitors 4) design the survey 5) interpret survey results and construct the market line 6) construct a pay policy line that reflects external pay policy and 7) balance competitiveness with internal alignment through the use of ranges, flat rates and/or bands
Select relevant market competitors
1) the same occupation or skills 2) employees within the same geographic area 3) the same products and services
Survey
a systematic process of collecting and making judgments about the compensation paid by other employers
Lead/lag
aging the market data to a point halfway though the plan year
Competitive intelligence
companies seeks to examine (benchmark) practices, costs and so forth against competitors including compensation
Broad banding
consolidates as many as four or five traditional grades into a single band with one minimum and maximum - often combined with more traditional salary administration practices by using midpoints, "zones" or other control points within bands
Standard deviation
how tightly all the rates are cluster around the mean
Mode
most commonly occurring rate
Median
order all data points from highest to lowest, the one in the middle is the median
Policy line as percent of market line
would carry out a policy statement of "we lead the market by 10%"
Low-high approach
- if an organization is using skill competency based structure or generic job descriptions, market data must be converted to fit the skills or competency structure - - identity the lowest and highest paid benchmark jobs for the relevant skills in the relevant markert and to use the wages for these jobs as anchors for the skill based structures
Benchmark conversion/survey leveling
- in cases where content (job description) of an organization's jobs does not sufficiently match that of jobs in the salary survey, an effort can be made to quantify the difference via benchmark conversion - if the organization uses job evaluation system can be applied to the survey jobs
Purpose of survey
- to adjust the pay level relative to competitors - to set the mix of pay forms relative to competitors - to establish or price a pay structure - to analyze pay-related problems - to estimate the labor costs of competitors
Designing a survey
1) who should be involved in the survey design? 2) how many employers should be included? 3) which jobs should be included? 4) what info should be collected?
Range midpoint
an employee with consistently high performance ratings should move above the market median and range midpoint, whereas an employee with consistently average performance should be near the range midpoint
Anomalies
an employer whose data are substantially out of line from data of others - does any one company dominate? - do all employers show similar patterns? - outliers?
Pay structure
anchored by the organization's external competitive position and reflected in its pay-policy line
Frequency distribution
help visualize info and may highlight anomalies
Weighted mean
if you have only companywide measures the rate for each company is multiplied by the number of employees in that company *total of all rates divided by total number of employers
Total compensation
includes total cash plus stock options and benefits, it reflects total overall value of the employee (performance, experience, skills etc.) plus the value of the work itself
Market pay line
links a company's benchmark jobs on horizontal axis (internal structure) with market rates paid by competitors (market survey) on vertical axis *it summarizes the distrubtion of going rates paid by competitors in the market
Consumer price index (CPI)
measures the rate of change in prices for goods and services in the product market, not wage changes in labor markets
Range has three salient features
midpoint, minimum and maximum
Perquisites
most comply used measures of compensation
Pay ranges
offers flexibility, it exists whenever two or more rates are paid to employees in the same job, it provides opportunity to - recognize individual performance differences with pay - meet employees' expectations that their pay will increase over time, even in the same job - encourage employees to remain with the organization *internal alignment perspective; the range reflects the differences in performance or experience that an employer wishes to recognize with pay external competitiveness perspective; the range is a control device
Pay grades
offers flexibility, it groups different jobs that are considered substantially equal for pay purposes into a grade, it enhances an organization's ability to move people among jobs with no change in pay *each grade will have its own pay range and all jobs within a single grade will have the same pay range
Quartiles and percentiles
order all data points from lowest to highest then convert to percentages
Job structure
orders jobs on the basis of internal factors (reflected in job evaluation or skill certification)
Section 1 of the Sherman Act
outlaws conspiracies in restraint of trade
Pay structure has two aspects
pay policy line, pay ranges
Central tendency
reduces a large amount of data into a single number
Market pricing
sets pay structures almost exclusively on external market rates, market pricers match a large percentage of their jobs with market data and collect as much market data as possible *objective is to base of the internal pay structure on external rates, breaking down the boundaries between the internal organization external market forces
Regression
statistical study of the relationship between variables
Mean
sum of all rates and divided by number of rates *if you have only company data, wage of largest employer given same weight as smallest employer
Base pay
the amount of cash the competitors decided on each job and incumbent is worth
Variation
the distribution of rates around a measure of central tendency
Bureau of Labor Statistics (BLS)
the major source of publicly available compensation (cash, bonus and benefits but not stock ownership) data, it has extensive info on various occupations--very broadly defined