Compensation Exam 2 - Fay
job family reengineering - Version of BB - Advantages
1) Speaks to needs of critical job families 2) Job family incumbents can determine appropriate breaks and levels 3) Isolates problems from rest of compensation system
Check Regression Model - Market Pricing
1) Statistical Significance number (R2) should exceed .90 >> (The number can be between 0 and 1 where 1 is 100% - since you will be paying people based on this, you want it to be as close to 1 as possible) 2) SE wage estimates should be acceptable 3) Residuals should be unpatterned
Gainsharing - Disadvantages
1) Suitable ONLY for groups of 500 or less 2) Best for Production - not other departments like marketing, sales etc. 3) Line of Sight Issue 4) Agreement on definitions and measures is critical 5) Requires participation, sharing of information 6) Windfalls (and typhoons)
Skill based pay (Person not Job based)
1) System that focuses on individual skill achievement 2) *Definition:* A base pay system that focuses on the achievement of specified skill sets or task mastery to set base pay levels (other than market movement adjustments to entire system)
Team measures
1) Team level -- outcomes -- team process, -- relations with other groups 2) Team member level -- team citizenship
Goalsharing Example
1) Time span between decision to make a product and getting it to market is 18 months 2) What is it worth to firm to get it to market in 15 months? 12 months? To establish what it would be worth>> Calculate differentials in: --- Cost of Capital tied up --- Labor Costs --- Overhead --- Opportunity Costs Share the differential with employees responsible for decreasing time to market
Other Bonuses - Disadvantages
1) Too many targets can be confusing 2) Subject to Gaming and/or Favoritism 3) Ineligible employees may resent lack of opportunity 4) May engender counterproductive competition
4 Potential Measurement Levels
1) Total organization 2) Organizational subunit 3) Workgroup or team 4) Individual. NOTE: Performance should be measured at the level it occurs, and rewards should be made at that level.
Lump Sum Bonuses - Process
1) Truncate the Pay Range at the Midpoint 2) Employees move t midpoint as they become fully job knowledgeable and meet performance standards 3) Employees above midpoint are Red-Circled (frozen) until midpoint catches up to their salary 4) Base Pay increases for employees at midpoint restricted to range movement adjustments
Flattened Organization - Version of BB - What causes firm to BB?
1) Typical conventional structure has 2-3 grades per layer of hierarchy. 2) If organization goes from 20 layers to 5, no longer need as many grades. 3) Still have wide range of salaries so grades must be wider. (Need wider grades because people aren't being promoted the way they used to be.)
Skill based pay - Disadvantages
1) Wage costs 2) Market correlates 3) Training costs 3) Skill obsolescence 4) Short run productivity costs 5) Employee resistance 6) Quality 7) Union opposition 8) "Lifetime employment for compensation managers"
Goalsharing --- Advantages
1) Works with non-production groups 2) Supports teams, Cross functional groups 3) Self-funding 4) Adds motivational impact of goal setting
Barriers to change in Rewards Practices
1) laws and regulations (company's can't have mass layoffs, need to give a 6 month warning beforehand) 2) unions and other employee associations 3) custom (employees worried about and adverse to change) 4) management hesitation 5) employee hesitation 6) lack of knowledge - what will work?
2 types of Need theories
1. Maslow's Hierarchy of Needs 2. herzberg's two-factor theory
The reengineering of work has led to a major change in the importance of
human resource specialists
Define job contribution - PMP
-business plan requirements -goal cascades: goals come from the top - top down -contribution to department or unit achievement -some contributions are generic
Credential Based Pay
1) Similar to skill base Pay 2) Focuses on acquisition of credential 3) Job remains the same but acquisition of credential signals greater capacity. ** Examples: Teachers, Actuaries
5. Determine merit increase budget (Approach 2) - MPP
1) Check critical job market increases 2) Apply similar increase to structure 3) Finance approves request, or provides alternative (lower) level based on ability to pay *NOTE*: Differs from approach 1 in focusing on actual market increases for critical jobs rather than general planned budget increases. *NOTE:* Not really used anymore
Lump Sum Bonuses - Definition
1) Closest to Merit Pay 2) Driven by Performance Rating 3) Base Pay should not exceed Market Rate 4) Performance Rewards are at risk >> must be re-earned annually 5) Should be a financial wash for the organization
5. Determine merit increase budget (Approach 1) - MPP
1) Compensation proposes increase based on budget increase surveys (how much to raise base pay across all jobs) - not individuals NOTE: Amount proposed may be based on Cost of Living and other financial measures 3) Finance approves request, or provides alternative (lower) level based on ability to pay (finance loves to cut budgets!)
Other Bonuses Process
1) Determine Organizational Need 2) Determine Time Frame to satisfy that need 3) Determine Measures and/or standards 4) Determine Bonus Structure 5) Communicate to Eligible Employees 6) Track Performance 7) Determine Payouts 8) Celebrate Successes
Issues in skill based pay programs
1) Plan simplicity 2) Job and skill requirement analysis 3) Transition time limits 3) Skill test hurdles 4) Recertification of skill sets 5) Performance management 6) Skill obsolescence 7) Change in needed skills mix 8) Progression paths 9 Training 10) Employee preference for task sets 11) Individual differences in abilities 12) Assignment of work.
Examples of Possible Measures that Could Define Success
1) Productivity 2) Cost reductions 3) Accident rates 4) Quality 5) Service 6) Downtime 7) Inventory usage Etc.
Market measures - Org Performance
1) Share of market 2) Growth These measures can be by a particular category vs. Overall.
Merit Pay - What is it and what is it used for?
1. A way to differentiate rewards based on individual contributions, or merit 2. Supports motivation of employees to exert effort to achieve desired goals
Developing a Performance Management Program
1. Define the contribution of each job in the context of the organizational strategy 2. Develop performance measures for each job 3. Establish a performance contract 4. Observation 5. Provide performance feedback 6. develop summary appraisal 7. use summary feedback as basis for next job performance period
Reengineered work - the New Work - What does the new work look like?
*Collaborative* -No supervisors, everything is done in teams
Reengineered work - the Old Work - What did the old work look like?
*Linear* *Hiearchy* -Employee H can't go to employee B and tell them to shape up, instead they had to go to the supervisor -very time consuming
7 Steps to Developing a Merit Pay Program (MPP)
1. Determine basis for individual pay differentiation 2. Develop performance measures for each job 3. Establish performance management program: performance definitions, standards, consequences of performing at various levels 4. Provide performance feedback 5. Determine merit increase budget 6. Develop merit matrix for use as guideline in allocating merit budget 7. Apply matrix to employees
According to Levine and O'Neill, one problem with forced distribution systems is:
Even employees getting high ratings consider them unfair
Individual Equity and Motivation
How will we get people to do what we want them to do? -need theories -process theories -reinforcement
Equity Theory - Implications for Compensation Practice
If believe this theory for motivation, management will define for people what their relevant equivalent is (relevant other), what the values are, and help the employee to understand what their outcomes are (pay, benefits, total pay) so they will feel they have equity compared to relevant others
2. Develop performance measures for each job - MPP
If performance pay - Through PMP process need to develop a process for measuring Performance including: 1) categories (what aspects of performance will be reviewed) 2) standards (what standards will the employee be held to) 3) weighting (what aspects of performance will be given more weight than others) 4) source of observation (who will provide details of performance 5) source of rating
Reinforcement/Behaviorism - Implications for Compensation Management
Implications for compensation: immediate feedback and variable schedule reinforcement. ** Give manager "walking around money" to give to people doing very well - works well if done properly
Develop performance measures - PMP
-*Categories*: outcomes and behaviors - like good vs bad professor exercise we did in class) - *Standards*: what would i expect? - be as objective as possible - *Weighting*: Example - which behavior is better - a prof with an accent isn't as bad as a prof who disrespects a student - *Time frame*
3 Types of Process Theories
-Equity -Expectancy -Goal-Setting
Possible areas Firms are seeking Sustainable Competitive advantage
-Finance -production -marketing -R&D -time -human capital (key sustainable advantage)
Process theories
-Focus on processes -Needs not specified -By understanding motivation process, organization can motivate employees to high levels of performance, provided rewards offered are of interest to employees
According to Risher, what is a primary weakness of early banding systems
It was too difficult to control and manage salaries within broadbands.
Assure performance feedback - PMP
Like reinforcement. There are 2 types of Performance Feedback: 1) *Positive*: get people to perform better, then tell them when they do better 2) *Corrective*: observe the behavior then tell them they need to perform better -*Timing of the feedback?* has to be immediate, variable schedule is best -*Content* great job, tell them what they did - feedback -*Affect:* "feeling" - speak with feeling, have emotion). *feedback is important reinforcer
According to Ledford, a critical need for success with a skill-based pay system is
Maintaining skill recertification programs
6 Characteristics of "Good" Performance Measures
Measures must be Practical: 1) Simple 2) Specific 3) Time related 4) Prioritized 5) Realistic 6) Accepted.
Is Maslow's Hierarchy a useful theory to explain what happens in corporations?
NO - doesn't explain motivations of real people in long term jobs
Goalsharing --- Disadvantages
NOTE: Very similar to Gainsharing Disadvantages! 1) Suitable ONLY for groups of 500 or less 2) Line of sight an issue 3) Agreement on definitions and measures critical 4) Requires participation, sharing information 5) Windfalls (and typhoons)
According to Lawler et al., what happens when stock option grants are tied to appraisal outcomes
Organizational performance goes up
Motivators (Motivating Factors)
Other factors, if lacking, do not demotivate, but can be used to motivate if present. They usually arise from intrinsic conditions of the job itself. -Equivalent to two highest levels of Maslow's hierarchy Examples include: - challenging work - recognition - responsibility - achievement
3. Establish performance management program - MPP
PMP will involve: 1) Communication 2) Consequences of various performance levels 3) Goal setting and commitment 4) Performance contracts
Expectancy Theory
People consider and make an effort on what they believe is likely to achieve their preferred reward set - They Consider: 1. The probable performance associates with different levels of effort 2. The probable rewards associated with different levels of performance 3. Their liking of different reward sets
Establish performance contract - PMP
Reach an agreement between management and the employee about Performance definitions, standards, and consequences of performing at various levels. -Communication: tell employees how you will measure their performance, what are your expectations) -Consequences of various performance levels: If i do really well, what do I get -Goal setting and commitment -Performance contracts
Profit Sharing - Definition
Some portion of profits is given to employees
Maslow and money
Two perspectives on role of money 1. satisfies only lower level needs (physical, safety, and maybe affiliation) 2. generalizes to all needs (won't have any meaning - money is irrelevant in motivating pople) *There are no implications for compensation practice because impossible to know where people are on the hierarchy because it is constantly changing (Fay does not approve of this theory).
According to Stoskopf et al., the most common salary structure used by companies today is
market based structures
According to Risher, what is a primary weakness of market pricing?
market pricing does not take strategic needs into account
According to Lawler et al., what happens when terminations are based on appraisal ratings:
nothing happens
According to Ledford et al., the overjustification effect suggests that:
rewarding people for an uninteresting activity leads them to attribute their behavior to the activity being interesting rather than to their desire to get the reward
According to Ledford et al., cognitive evaluation theory suggests:
that when recipients believe rewards are indicative of competence and self-control of results that intrinsic motivation in increased
According to Ledford, skill-based pay is determined primarily by:
the skills held by an incumbent
According to Levine and O'Neill, "efficiency wages" are:
wages that are above the market rate in order to motivate employees
The best source of observation is______, the best source of rating is
360 degrees; supervisors
Broad banding - 3 versions
A Structural approach There are three versions of why it is used: 1) Compression problems 2) Job family reengineering 3) Flattened organization
Demography
The demographics of the workforce has changed. For Example: 1) Aging of population 2) Increased diversity 3) More cosmopolitan 4) English as the language of business (learn a language) 5) Labor market participation 6) Work/life balance concerns
Summary feedback and planning - PMP
The summary appraisal can serve as the basis for the ensuing period's contract -where to maintain performance -where to improve -changes in contexts, requirements *linkage to rewards (we know that's all the employees are thinking about). Communication is key - everything needs to be clear
Reinforcement and Behaviorism
When a consequence of a behavior makes the behavior more likely to be repeated, we say the consequence is reinforcing, or a reinforcer. -Empirical approach - consequences valued not specified, process not specified *If a consequence that follows a behavior is reinforcing, you will continue to do that behavior.
Tthe contract - old version
*Implicit understanding between employee and employer* (employee gives >>> employer gives) 1) "fair" days work >>> "fair" days pay 2) sustained good work >>> continued employment 3) sustained good work >>> merit pay increases 4) extra hard work >>> advancement 5) Quality work >>> recognition and acknowledgment 6) loyalty >>> security *This was an understanding everyone had regardless of whether they were unionized or not
the contract - new version
*There is no longer any implied understanding - it is each employee and employer out for themselves.* (employee interest vs. employer interest) 1) focus on personal needs vs. focus on corporate goals 2) career/self development vs. corporate growth 3) legal protection vs. legal protection 4) self-reliance vs. self-reliance *employees leave when they feel like it, there is no loyalty to the company, instead it is loyalty to the self. *employers don't care about employees anymore
1. Determine basis for individual pay differentiation - MPP
*Two Bases for Differentiating Individual Pay:* 1) *Seniority* - you've been there for a while and it's assumed you have a lot of knowledge and skills (higher correlation) 2) *Performance* - high performance
Individual Equity and Merit Pay
- How do we pay individuals? - How do we recognizing individual contribution?
Need theories
-Focus on innate needs of humans -efforts will be made to satisfy these needs - by offering things that satisfy needs, organization can motivate employees to high levels of performance *If you do A, I'll give you B. You can choose to perform, but depending on your decision, I can fire you.
Shifting Strategic Alliances
-Project oriented work -outsourcing -others' employees on your site -your employees on others' sites -requires managing others' employees and them managing yours
New cultural targets
-Rejection of the entitlement culture -Quest for a performance culture (get rid of entitlement culture and shift to performance culture - merit pay)
Changed workforce demographics
-older (older people working in company's, not retiring and you can't fire them because there are laws that protect them) -More diverse (gender, race, culture) -Different family structures (diff attitudes about $$$) -Changed expectations
Maslow's Hierarchy of Needs
-people are motivated by the drive to satisfy specified needs -these needs form a hierarchy -as a lower level need becomes satisfied (~80%), attention turns to the next level *at the bottom of the pyramid is physiological needs (about 80% - food, water, sex), -> safety security (roof over head, staying warm, not worried about someone trying to kill you), -> social/affiliation, -> esteem/ recognition, -> self actualization (at the top of pyramid)
4. Provide performance feedback - MPP
-positive -corrective -timing -content -affect *same as in performance management
Equity Theory Formula
0s/Is = 0o/Io Outcomes = 0 Inputs = I s = self o = relevant Others
2 Types of Profit Sharing
1) *As Funding Mechanism* (e.g. for retirement) - has little incentive value 2) *Cash Payout* - may have incentive value - share of organizational success
3 types of Reinforcement Schedules
1) *Continuous schedule* - every time the behavior is performed, I get the consequence. Very good for getting people to learn 2) *Constant ratio* - every Xth time - feedback is continuous but it only occurs every Xth (4th, etc) time. Problem is people learn and will only produce the behavior the Xth time. 3) *Variable ratio* - on average, every Xth time - constantly keeps you motivated, even when the consequence stops, the behavior continues. Is addictive (like slot machines)
2 Approaches to Skill Based Pay
1) *Horizontal*: employee masters skill sets of equivalent difficulty, responsibility. Similar to cross training, job enlargement 2) *Vertical*: employee masters skill sets of increasing difficulty responsibility. Similar to job enrichment. NOTE: 2 approaches may be combined - See Example in Chart in Slides
Small Group Incentives - 2 Approaches
1) *Incentive Pool Based on Team Output or Balanced Scorecard Approach* 2) *Pool Allocated to Individuals* -- In Equal Amounts -- In proportion to salary -- Based on individual Performance Measures -- Based on "Team Citizenship" -- By vote of team members -- Some combination of the above
Flattened Organization - Version of BB - Advantages
1) Allows more precise handling of base wages 2) Changes of market rates for one job or job family have no impact on other jobs in band 3) Reduces advantages of gaming job evaluation results
Other Bonuses - Advantages
1) Allows motivation for targeted needs 2) Flexible - Can use to fine-tune performance 3) Provides Immediacy and excitement to rewards 4) Self-Funded - Pays out only when organization needs are met
Gainsharing -- Definition
1) Any incentive program designed to share productivity increases with employees 2) Focus is on costs - 2 types are: ----Scanlon Plan ----Rucker Plan 3) Focus on Standard Hours ----Improshare
Other Bonuses - Definition
1) Any short term incentive program triggered by individual accomplishments 2) Usually targeted towards specific organizational goals -f or example: a) accident prevention b) Quality c) Attendance d) Customer Satisfaction e) Time Improvement
Why the Turmoil in rewards practice?
1) Base pay systems don't seem to be effective anymore (not very motivating) 2) Merit pay systems neither reward nor motivate performance 3) Widespread entitlement culture 4) Neither base pay nor merit pay systems reflect a changed world or a changed organization
Flattened organization - Version of BB - Procedures to Create BB
1) Collapse current structure into new structure with desired number of grades and resulting range width 2. Midpoints make no sense in broad band since jobs in band have too wide a range of market rates 3. Management to individual replaces management to midpoint 4. Only time individual's base wage changes is when there is a market change for job or when role changes
Compression Problems - Version of BB - Solution to Issues
1) Collapse of structure to 5 to 10 grades >> creates BB 2) Probable outcome of this solution - Major Problem >> similar but worse salary compression in 3-5 years Moral: Compensation technology is no substitute for good management
Competency Based Pay
1) Competency models being developed in many organizations. 2) Typical Competencies include: a) leadership b) innovation c) interpersonal skills d) communication. 3) The competencies look very much like traits - that is they are: a) hard to measure b) harder to change. 4) NOTE: Courts have frowned on trait criteria in staffing and performance management because of lack of demonstrable relationship to job.
Building a skill based pay system:
1) Consider department or process where flexibility of work assignment is desired 2) Catalog all discrete tasks or task sets in unit 3) Rank order tasks or task sets in terms of complexity similarity of skills required proximity in unit or process 4) Bundle tasks or task sets (typically 3 or 4 are bundled) 5) Set entry wage, differential for each bundle acquired 6) Provide training opportunities for skill acquisition and certification
Job Family Reengineering - Version of BB - Solution to issues
1) Create Salary band for job family based on benchmarked entry and master level jobs 2) Intermediate levels of the Band are based on equal percentage increase differences 3) Incumbent moves through band as mastery demonstrated.
Gainsharing -- 10 Requirements
1) Culture Favors Participative Management 2) Cooperation, knowledge sharing and teamwork are strongly held values 3) Good organizational Performance measures are available 4) Organizational performance measures are understandable 5) Employee's performance is critical to cost of production 6) Reward unit is single establishment of 500 or les 7) Organization has good cost accounting and IT systems 8) Product/Service markets are relatively stable 9) Increased sales is possible 10) Culture is compatible with Gainsharing
Internal contexts: organizational impacts
1) Reengineered work 2) Search for sustainable competitive advantage 3) Restructuring 4) Shifting strategic alliances 5) New cultural targets 6) Changed workforce demographics 7) New implicit contract 8) Barriers to change in Rewards Practices
Market Pricing - Procedure
1) Determine job attributes 2) Score every job on each attribute 3) Obtain market data for every job where possible 4) Regress market wages on job attribute scores 5) Model will be of form (estimated wage) 6) Check regression model 7) Build standard graded structure based on model OR use model in place of structure as pricing mechanism 8) Use actual market prices for which have data and model estimates for jobs for which there is no data OR use model estimates to price all jobs (most firms use market rate) 9. Use standard ranges or build ranges in variation in market rates
Organizational Performance - Possible Measures
1) Financial measures 2) Market measures 3) EVA - Economic Value Added 4) Balanced scorecard
Skill based pay - Advantages
1) Flexibility of employee assignment 2) Understanding of entire operation 3) Better communication 4) Better teamwork 5) Supports continuous learning 6) Supports employee involvement 7) May improve job satisfaction and retention
Skill Based Pay - Critical Aspects
1) Focus on individual rather than jobs. 2) Focus on skill assessment and certification 3) Seniority de-emphasized 4) Growth and training opportunities emphasized.
Gainsharing - Advantages
1) Focuses on Production 2) Supports Teaming, Participation 3) Acceptable to Unions 4) Self Funding
Small group Incentives - Issues (Disadvantages)
1) Free Riders 2) Line of Sight 3) Unhealthy Competition 4) Feelings of Inequity 5) Performance Measures ---- Team ---- Individual
External contexts - What ways has the World Changed?
1) Global economy 2) Technology 3) Demography 4) Culture 5) Competition
Global economy
1) Goods and services move across borders 2) Most complex products have global components (computers, cars - pieces that make up a car are manufactured all over the place and then assembled in the US) 3) Complex services may have origins in many other countries - information, finance (the person reading your mRI might be in India) 4) Global brands
Flattened Organization - Version of BB - Disadvantages
1) Greater administrative oversight needed 2) Employees may perceive inequitable treatment 3) Market rates more critical 4) Employees may try to game change in roles. ** Very complicated Process and Maintenance
Measurement systems are needed to:
1) Guide rewards program development 2) Specify goals and objectives 3) Guide employee efforts 4) Guide program evaluation
Competency Based Pay - How it works?
1) If competencies lead to demonstrable behaviors or outcomes, then base pay is based on those behaviors and outcomes. 2) Pay programs based on competency achievement are being tried but should be approached with caution.
Culture
1) Increasingly "wired" 2) Increasingly global (brands, stars, concerns) 3) Short attention span 4) Diversity retained in cultural foundations
Market Pricing
1) Job evaluation is expensive and time consuming 2) When job evaluation results conflict with market rates, market rates win 3) More market rates are available 4) Statistical procedures allow for better estimation to fill in the gaps (use regression analysis)
New Approaches to rewards practice - Why are they growing in use?
1) Key external (globalization) and internal contexts will continue to change 2) Reward programs must accommodate these changes
6 types of Short Term Incentives
1) Lump Sum Bonuses 2) Other Bonuses 3) Gain Sharing 4) Goal Sharing 5) Small Group Incentives 6) Profit Sharing
Market pricing advantages
1) Maintains competitiveness for every job 2) Lessens compensation bureaucracy >>(Don't have to perform a)job evaluation and b) structure design and maintenance) 3) Reduces compensation administration costs 4) More efficient use of payroll dollars (i.e. if firm pays above market rate, waste $$, If pay below it, Firm gets people of lower quality).
Job family reengineering - Version of BB - Disadvantages
1) Major design and administrative efforts required 2) Other employees may perceive inequitable treatment 3) Some clear benchmark rates required
Restructuring
1) Making organizations flatter (cutting out managers needed). They are different structures, less layers. 2) More decentralized 3) Teams and other groups 4) Mergers and acquisitions 5) Spin-offs and tracking stock units 6) The virtual organization
Financial Measures - Org Performance
1) Managerial or financial accounting 2) Shareholder value 3) Indexed measures
Market pricing disadvantages
1) Market levels may not reflect organizational value added 2) Difficult to explain to employees 3) Getting market data may be difficult, especially with restructured work 4) Requires added competencies of rewards staff
Ways of Restructuring Base Pay - as a result of Change in External and Internal Factors
1) Market pricing 2) Broad banding 3) Skill based pay 4) Competency based pay
7. Apply matrix to employees - MPP
1) May provide variation in increase percentage for each cell 2) May provide variation in time to next increase across cells
Profit Sharing - Issues
1) Measurement 2) Non-employee sources of profit 3) Line of Sight 4) Allocation Determination 4) Willingness to open books for employees to know
Thirteenth Month Bonus - Definition
1) Not Common in U.S. - Common in Asia and elsewhere 2) Not a "Real" Bonus because --- Everyone Gets it --- Everyone Expects it 3) This is just a different way of dividing up base pay - a cash flow device 4) Variable Bonuses (e.g. 14th, 15th month) may be equivalent to profit sharing
Individual Measures
1) Outcomes 2) Behaviors 3) Potential 4) Competencies
Team Characteristics - examples
1) Permanent or Temporary Project or Assignment 2) Full time or part time assignment 3) Within function or cross functional 4) Specific team roles or ambiguous changing roles 5) Within hierarchy or across hierarchy 6) Within Organization or Cross Organizational 7) Outcome Driven or Process Driven 8) Leaderless/Autonomous or with Leader 9) Same Location or Different Location
N. Levine-O'Neill - Abandoning pay-for-performance myths in favor of evidence This article discusses some of the major misperceptions about performance-based pay that managers act on and get in trouble for so doing. Questions to keep in mind when reading this article:
1. What are the disadvantages of forced distribution systems? Can generate a perceived lack of "due process" and demotivate top talent, leading to exits Leaders might be driven to retain or even recruit underperformers so that they can protect their "stars", diminishing the potential of the policy to promote high performance Limited high performance ratings may not even be assigned to the highest performers 2. What are "career rewards?" What theory underlies their use? Lies under tournament theory Career rewards - future pay, driven by career progression, strongly motivates employees 3. Is seniority-based pay always bad? When might it be useful? No, pay should increase with tenure if "bonding" of the employee to the organization generates value for the organization. Firm-specific human capital - is learned on the job and is valued on for as long as a person stays with an organization. 4. What are the possible downsides of using incentives to drive performance? Traditional incentive awards can extinguish intrinsic motivation, diminish performance, crush creativity, and crowd out good behavior. They can also encourage unethical behavior and foster short term thinking. Also the attraction and retention of of poor performers, moral hazard (potential for employees to shirk their responsibilities), may diminish ethical, altruistic or simple intrinsic motivations that employees already have for pursuing organizational objectives, in signaling a lack of trust, undermining employee autonomy, or in creating confusion or stress. 5. What is an "efficiency" wage? How would it motivate? Efficiency wage is base pay in excess of market rate, for the sake of increased productivity or efficiency. Base pay levels above market rates can motivate employees if partnered with potential for job displacement for employees who aren't performing. (Employees who leave are forced to work elsewhere at market rates or to endure a spell of unemployment.)
O. Risher - Second-generation banded systems Banding, or broad-banding, has been one of the major substitutes for traditional salary structures. While recognizing its flaws, Risher is a proponent of modified or second generation banded salary systems. Questions to keep in mind when reading this article:
1. What are the flaws Risher sees in traditional salary systems? The basic problem with the traditional model was the focus on relative internal job values. It was a different era with different problems (not world war II anymore). Some viewed unions as an ongoing threat, and employees stayed with the same employer for years, often for their entire careers.The use of wage and salary surveys was new and limited initially to executive- and management-level jobs. The goal was to maintain satisfactory employee relations. Employers invested heavily in salary systems that focused on "equitable" pay relationships. overlap between grades and job levels is inevitable. 2. Where did early banded systems go astray? Market pricing is compatible with traditional salary ranges and bands The problems that surfaced with banded systems highlight what can unfold when salaries get out of line with planned market pay levels. The initial banded systems did not provide appropriate controls. 3. What are the weaknesses of market pricing? In the typical corporation, market analyses are completed in that proverbial "backroom" and seen only by HR specialists. Problems with the market data or with decisions based on the data may never be disclosed. However, the use or misuse of market data is the least of the problems.It would be readily apparent to anyone with statistical training that market analyses do not satisfy normal quality standards. Salary surveys should be used with caution. Different surveys produce different market values for the same job. The data in too many surveys are far from "valid" measures of market rates. Surveys based on the mass mailing of questionnaires result in a haphazard mix of participating employers, and the quality control steps are minimal. Market pricing often is based simplistically on job titles and benchmark jobs described in a couple of sentences. The analysts responsible for job matching sometimes have no direct knowledge of the jobs. 4. How does the second-generation banding system help manage salaries? New models for banded salary systems give employers better control than is possible under a traditional system. Two new models now are used: (1) Employers have created separate banded structures for broad occupations, using market data specific to the job families, or (2) They have a single set of bands but define job- specific "ranges" within the bands based survey data. Both approaches are also more responsive to market dynamics than is possible with a traditional system.
L. Lawler, Benson & McDermott - Performance Management and Reward Systems This study looks at the relationship between performance management systems and reward systems in modern organizations, and how that linkage affects the usefulness of both. Questions to keep in mind when reading this article:
1. What good and less good things happen when salary increases are tied to appraisal outcomes? good: motivate people, support strategic talent management and help implement business strategies and change efforts identifying talent, providing useful feedback, meeting the needs of individuals who are appraised and so on. less good: focusing attention on environmental and social performance negative correlation 2. What happens when bonuses are tied to appraisal outcomes? The stronger the relationship between performance appraisal results and bonuses is, the better the performance of all kinds. 3. What happens when stock and stock option grants are tied to appraisal outcomes? not as strong as salary or bonuses but still clear relationship 4. What happens when terminations are based on appraisal ratings? The results clearly do not support having an automatic termination feature tied to the results of the performance appraisal process. This practice does not appear to be one that has a positive impact in most companies.
P. Ledford - Factors affecting the long-term success of skill based pay Ledford was an early proponent of skill-based pay. Questions to keep in mind when reading this article:
1. What is skill-based pay? How does it differ from traditional pay systems? SBP rewards employees for the sets of skills they acquire, rather than for the job they are performing at a point in time. SBP differs from traditional job-based pay in: skills usually are certified or evaluated formally and rewards follow certification that the employee has acquired compensable skills, not merely changes in position or job (SBP). In job-based systems, employees' pay may change continually as job assignments change, whether or not the employee ever demonstrates competence in those assignments. Advancement opportunities are usually broader in SBP than job-based . 2. What are the characteristics of successful skill-based pay systems? Orientation toward skill breadth, use of more skills units or blocks, employee involvement in the design and administration of the plan, supervisor support and use in manufacturing (the prospects for survival).
K. Ledford-Gerhart-Fang - Negative effects of extrinsic rewards on intrinsic motivation: More smoke than fire
A number of researchers have argued that extrinsic rewards (bonuses, etc.) lessen extrinsic motivation (e.g., the internal drive to excel. This article discusses the case for and against this argument.. Questions to keep in mind when reading this article: 1. How does cognitive evaluation theory explain why extrinsic motivators may undermine intrinsic motivation? psychological needs for autonomy and competence underlie intrinsic motivation. Extrinsic rewards affect intrinsic motivation depending on how recipients interpret them. If recipients believe that the rewards provide positive information about their own competence and self- control over results, intrinsic motivation will increase. If recipients interpret the results as indicating external control, decreasing their feelings of self-control and competence, intrinsic motivation decreases. 2. What is the overjustification effect? attribution theory,cpeople make retrospective attributions about their own behavior based on what they did and the social context in which their behavior occurred. The theory suggests that rewarding people for an interesting activity leads them to attribute their behavior to the extrinsic reward rather than to their intrinsic interest in the activity. Thus, intrinsic motivation is lower than if there were no extrinsic reward. 3. Does research support the notion that extrinsic rewards undermine motivation? Motivation Crowding Theory assumes that extrinsic rewards "crowd out" intrinsic motivation if individuals perceive the rewards to be controlling. However, rewards "crowd in" intrinsic motivation if individuals perceive the rewards as supportive, which bolsters self-esteem and feelings of self-determination.
Short Term Incentives - Definitioin
An alternative (or in addition) to merit pay Use of a variety of one-time, at risk, payments to motivate employees to higher specified performance levels.
Small Group Incentive - Definition
Any incentive aimed at increasing the performance of a small group or team It must take group or team characteristics into account.
Goalsharing - Definition
Any incentive where the organization shares the benefits of reaching a stretch goal with the group responsible for the achievement.
6. Develop merit matrix for use as guideline in allocating merit budget - MPP
Create a matrix document that reflects 2 things: 1) Performance 2) Current Position comp ratio (Actual ratio of salaries over midpoint for all the salaries). --This approach keeps managers from giving way the store. -- Employees will move up really quickly when on the bottom but on top there is slow advancement. (So those at the low end of the pay range will get larger increases as compared to those at the top of the pay range - even though their performance has been rated the same).
Increased competition
For the supply and demand of: -goods -services -information -finance -time and attention -labor
Scanlon Plan - Gainsharing Formula
HR Payroll Costs -------------------- Net Sales or Production Value
Redefining Performance - Why is it needed?
If rewards systems are to: a) focus attention on the business plan b) be used to motivate individuals and groups to achieve high levels of performance c) to reinforce high performance related to the business plan Performance measures that reflect the business plan and its achievement need to be available.
Expectancy Theory - Implications for Compensation Management
Implications for compensation: - Managers need to tell you what to expect so that you can figure out probabilities. - Managers should communicate to employees what kind of effort it takes to get to each different performance level and then ensure that pay is linked to achievement of that level of performance.
Goal Setting Theory - Implications for Compensation Management
Implications for compensation: You want people to set stretch goals, but by definition, people won't meet stretch goals. However, they perform better when they work towards stretch goals and should be rewarded.
Job family reengineering - Version of BB - What causes firm to BB?
Issue that results in BB - Common in Professional Jobs 1) Work process reengineering results in job family which has few correlates in market, difficult in fitting into traditional job evaluation process. 2) Jobs in family include clear entry level, master levels with market correlates
Compression problems - Version of BB - What causes the Firm to BB?
Issues that result in BB? 1) Traditional salary structure with 15 or more grades exists. 2) Strong degree of salary compression because: a) Many employees with long time in grade b) Improper design, use of job evaluation c) Improper design, use of merit matrix d) Lack of management fortitude.
Equity Theory
People seek equity and will do what is necessary to achieve it. -person compares Outcome/Input ratio with that of "relevant other" -if ratio similar - equity is felt -if self ratio higher than other ratio? - increase input -if self ratio lower than other ratio? - decrease input -calls for a fair balance to be struck between an employee's inputs (hard work, skill level, tolerance, enthusiasm, etc) and an employee's outputs (salary, benefits, intangibles such as recognition,etc). -finding this fair balance serves to ensure a strong and productive relationship is achieved with the employee, with the overall result being contented, motivated employees. *Is supported by research
Develop summary appraisal - PMP
Rewards systems need: -single number for merit pay -multiple criteria for other rewards programs (like incentive pay): -productivity (specific performance) -team citizenship (team based pay if you're on a team) -number of days absent
Implications of Herzberg's theory for Compensation Practice?
Salary and bonuses will not be sufficient to motivate workers. Have to look to satisfy basic Hygiene needs and then look to motivate by improving conditions of work to improve intrinsic satisfaction
Reinforcement Schedules - What are they? What is most critical timing for reinforcement?
Schedules of reinforcement for how to motivate. Immediacy is important (if i steal a cookie from the cookie jar, I need to be punished immediately after the behavior when the behavior is fresh in my memory, not 2 hours later. The further away punishment is from the event, the less likely i'll associate the punishment with the behavior.)
Sources of Observation - PMP
Sources of observation: 1) *Self* : you know how you're doing, you know the problems/obstacles you face 2) *Peer*: usually, you're yourself around your peers as opposed to when you're around your boss, so it's pretty effective and accurate and less forgiving 3) *Supervisor*: reasonably good observers BUT don't observe all the time AND you behave differently around them 4) *Vendor/Buyer* like when I respond to an airline survey about my experience, you only do it if you had a WONDERFUL or HORRIBLE experience, nothing in the middle 5) *360 degrees (combination of all of these)* *Usual Source of rating in Most PMP systems:* usually the manager who rates and puts the stuff together and decides who gets a raise or not, who gets fired or not, etc.
5. Determine merit increase budget (Approach 3) - MPP
Strategy is based on idea that company wants people to be payed market rate (on average) - so will be competitive in the market. 1) Base increase on: -- strategy -- market movement -- position in market *NOTE* Most commonly used approach now!
Windfalls (and typhoons)
Term used when through a gain or goal sharing plan - Through no effort (or fault) of their own the companies profits improve dramatically (e.g. competitor leaves or enters the market) and the employees would technically be entitled to money they did not truly contribute to earning or if a loss - was not their fault for the loss.
Technology
The Enabler - creating the ability for so many changes, like: 1) Information technologies (allows us to do what we couldn't do before) 2) Communications (meetings with virtual teams) 3) Process and logistics (mass specialization - like Dell computer) 4) Automation and robotics 5) Biotechnology and genetics (giant salmon) 6) No boundaries
How does Expectancy theory explain how individuals all with different goals can be motivated
The theory suggests that although individuals may have different sets of goals, they can be motivated if they believe that: 1) There is a positive correlation between efforts and performance, 2) Favorable performance will result in a desirable reward, 3) The reward will satisfy an important need, 4) The desire to satisfy the need is strong enough to make the effort worthwhile. *NOTE*: An individual will decide to behave or act in a certain way because they are motivated to select a specific behavior over other behaviors due to what they expect the result of that selected behavior will be. The motivation of the behavior selection is determined by the desirability of the outcome. However, at the core of the theory is the cognitive process of how an individual processes the different motivational elements.
Typical Hygiene factors
These are factors that are necessary but not sufficient to motivate workers - they do not give positive satisfaction, but workers will be dissatisfied if they are absent. They are extrinsic to the work itself. They may include: -Company policy and administration -Supervision -Relationships with supervisors, peers, subordinates -Work conditions -Salary -Personal Life -Status -Security
Herzberg's Two Factory Theory
This theory states that there are two types of factors that impact motivation - 1) Hygiene factors and 2) Motivating factors 1) *Hygiene Factors* - These are some things that if you don't have them, you're subsequently demotivated. Essentially, hygiene factors are needed to ensure an employee is not dissatisfied. - They are similar to the lowest levels of Maslow' hiearchy *Note* Once a reasonable level of the factor is added, however, the addition of more does not motivate any longer. 2) *Motivation factors* are needed to motivate an employee to higher performance.
Balanced Scorecard - Org Performance measure
When financial market and other hard measures don't tell the whole performance story. Human capital customer and other soft measures are needed to get a true picture of organizational performance. This is a way to gather all that "Soft" information together to measure performance
Goal Setting Theory
When people set goals, they perform better Goals should be: high, specific, and accepted. NOTE: Doesn't predict goal achievement, ONLY performance
Talking with an employee about the consequences for a level of performance is characteristic of
expectancy theory
If you believed in Maslow's Hierarchy of Needs, you would
realize you weren't really cut out to be a compensation manager