CMS 2 | Assignment 2

Internal Pay Structue

- Acceptability to the Employees Involved -- important factor influencing IPS. - EEs make multiple pay comparisons to assess the fairness of an internal pay structure - Two measures of fairness: 1. Procedural Justice -- how design and administration decisions are made and whether procedures are applied in a consistent manner 2. Distributive Justice -- whether the actual pay differences among employees are acceptable.

Internal Equity

- Often called internal alignment - refers to pay relationships among different jobs/skills/competencies within a single organization

Exchange Value

- is whatever wage the employer and employee agree on for a job

Use Value

- reflects the value of goods or services an employee produces in a job

Internal Pay Structure

- relationships among different jobs within the organization create this - should support the org strategy - should support the workflow - should motivate behavior toward org objectives

Explain what it means in terms of a strategic choice to design internal structures that are either closely tailored or loosely coupled.

1. Closely Tailored -- contains a high degree of specified detail in the tasks to be performed. This type of structure works well in businesses such as McDonald's and Walmart where jobs are well defined with detailed tasks or steps to follow. 2. Loosely Coupled -- more appropriate in businesses such as a 3M that require constant product innovation and short product-to-market cycle times and that encourage constant innovation and agility.

Explain four external factors that influence internal structures

1. Economic Pressures: - early theorists used supply of labor to explain structures - Most famous Marginal Productivity Theory - Unless EE can produce a value equal to the value received in wages, it will not be worthwhile for the ER to hire that worker 2. Government Policies, Laws, and Regulations: - In U.S. pay structures can't be discriminatory based off of gender, race, age, religion or national origin. "Equal pay for Equal Work." - Other laws regulate min wage and max wage 3. External Stakeholders: - Unions, stakeholders and political groups all have a stake in formulating internal pay structures. - Generally, unions seek small pay differences among jobs and seniority-based promotions - Both Unions and Stakeholders pay close attention to executive pay. - Research is beginning to show that Executive Pay has effects on EE behaviors, performance and consequently the org's performance 4. Cultures and Customs: - Mental programming for processing information that people share in common - Ideas of fair wages - Ideas of the 'Living Wage'

Explain three consequences of alignment

1. Efficiency of competitive advantage -- pay differentials in internal pay structures ought to be able to create and sustain a competitive advantage b/c they will lead to better organization performance. They provide incentives for EEs to remain with the organization and to increase their experience and training in order to advance to higher paying positions. 2. Fairness -- Thoughts are EEs attitudes about the 'fairness' of the pay structure influence their work behaviors. However, there is no agreement on whether an acceptable wage structure is one with sizable differentials among jobs or one with only small differentials 3. Compliance -- Structures must comply with all laws and regulations that apply to the organization

Compare and contrast the egalitarian and the hierarchical pay structures

1. Egalitarian -- Few levels of structure and smaller differentials between adjacent levels, and between the highest and lowest levels - Levels of responsibility and supervision are removed so that all employees at all levels become responsible for a broader range of tasks but also have greater freedom to determine how best to accomplish what is expected of them. 2. Hierarchical -- multiple levels typically include detailed descriptions of work done at that level and delineate tho is responsible for what. Consistent with the belief in the motivational effects of frequent promotions. Values the differences in work content, individual employee skills, responsibilities and contributions to the organization -- An important point concerning these two types of structure is that when choosing a structure, the decision normally is not between one and the other. Instead the differences are a matter of degree.

The criteria used to determine the number of levels and size of the pay differentials can be categorized as either: Job-Based Person-Based

1. Job-Based -- looks at what tasks are done, what behaviors are expected and what responsibilities are expected 2. Person-Based -- shift the focus on the skills, knowledge or competencies of the EE possesses, whether or not they are used on the particular job the employee is doing.

Describe the guidance that research is providing in managing internal pay structures

1. More hierarchical structures = greater performance when the workflow depend more on individual contributors 2. High performers quit less under hierarchical system when pay is based on performance rather than seniority and when ppl have knowledge of the structure 3. More egalitarian structures are related to greater performance when close collaboration and sharing of knowledge is required. The competition fostered in the "winner take all" hierarchies appears to have a negative impact on performance when the workflow and org design require teamwork. 4. The impact of any internal structure on organization performance is affected by the other dimensions of the pay model - pay levels (competitiveness) - employee performance (contributions) - employee knowledge of the pay structure (management)

Briefly describe four organization factors that shape internal structures of organizations.

1. Organization Strategy -- Structures that aren't aligned with the organization strategy may become obstacles to the organization's success. However, aligned today could be a problem tomorrow. So, aligned, yet adaptable. 2. Organization Human Capital -- A major influence on internal structures is human capital. These are things such as education, experience, knowledge, abilities and skills that people possess. The stronger those skills and experience are linked with an organization's strategic objective, the more pay they will command. 3. Organization Work Design -- Technology is another critical organization factor influencing the design of pay structures. The technology used to produce goods and services influences an organization's design, work to be performed and skills and knowledge required to perform the work. 4. Overall HR Policies -- An organization's other human resources policies also influence internal pay structures. The amount of pay to tie to a promotion, the nature of promotions and pay differences must be consistent with what the organization is trying to accomplish.

Briefly explain each of the following attributes of an internally aligned pay structure: 1. Supports organization strategy 2. Supports workflow 3. Motivates behavior

1. Supports Organization Strategy -- example Lockheed martin decided 6 levels of engineering strategy would be needed. 2. Supports Workflow -- refers to the process by which goods and services are created and delivered to the customer. 3. Motivates Behavior -- influence EE behavior. direct people's efforts toward organization objectives.

how is an internal pay structure defined?

1. the number of levels of work 2. the pay differentials between the levels 3. the criteria or bases used to determine those levels and differentials One of the features of any pay structure is it's hierarchical structure -- the pay difference between those levels is the differentials. Those are built in to motivate people for promotions Work Content and it's value are the most common bases for determining internal structures. Content refers to the worth of the work or the relative contribution to the organization objectives.

what does research indicate about: A. Equity Theory B. Tournament theory as they relate to pay structures

A. Equity Theory -- The theory suggests that employees judge equity (fairness) on the basis of comparisons 1. Between the work requirements and pay for their own job with the work requirements and pay for others jobs in the organization 2. Their jobs' pay against external pay levels. These comparisons made by employees demand that organizations not only design a compensation system that supports its objectives but that the organization is able to explain to employees on a regular and ongoing basis the rationale for the compensation system choices B. Tournament Theory -- According to this theory, structures with greater differentials at the top have a more positive effect on performance than those with smaller differentials for people at all levels in the structure. - The main thing affected by individuals' performance is whether or not they get promoted to the next level. Pay has little motivational effect on people already in a job. Instead, pay for a higher position motivates those at lower levels in the organization to come to work and do their best in order to stay in contention for promotion. - The tournament theory has limited applications. Research shows that the tournament theory ( a hierarchical pay structure) works best in situations where individual performance matters most and where the demand for cooperation among a small group of individuals is relatively low.

Discuss the debate over whether the concept of internal labor markets is still useful.

An internal labor market refers to the rules and procedures that determine the pay for different jobs within a single organization and allocate employees among those different jobs - For instance, if an organization only recruits externally for entry level jobs, external market factors only dominate the pay of specific entry level jobs since the pay of non-entry jobs is influenced primarily by internal factors such as the organization's strategy, technology, human capital required and other HR systems. - Some argue that the model of an internal labor market is no longer useful, that today's external market also dominates pay decisions of non-entry level jobs for many organizations

What is the institutional theory as it relates to pay structures?

Institutional theory (copying others) says that practices of other firms influence an org's pay structure decisions, and this extends itself to internal pay structures that may be adopted to mimic "best practices." - It's common for managers to bring back " the answer" from the latest conference. Surveys that benchmark the practices of the best companies facilitate others copying those practices. Recent examples of such behaviors include the rush to outsource jobs, to emphasize teams, to de-emphasize individual contributions and to shift to a competency-based pay system.

Pay Structure

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