Compensation Management - Chp 1,2,3,4,5, and 6 + Jeoprady

Use value vs. exchange value

The usefulness of a commodity vs. the exchange equivalent by which the commodity is compared to other objects on the market.

Total Compensation

Transactional. Direct (cash, merit, incentives, cost of living adjustments) and Indirect (benefits, pensions, health insurance, etc.)

Competencies provide guidelines for behavior and keep people focused.

True

Point plans represent a significant change from ranking and classification methods in that they make explicit the criteria for evaluating jobs: compensable factors.

True

Research shows that the weights assigned to compensable factors can affect the resulting pay structure.

True

Scaled competency indicators are similar to degrees of compensable factors.

True

Skill-based pay plans can focus on both the depth and breadth of work

True

The final result of the job analysis-job description-job evaluation process is a hierarchy of work.

True

Validity measured in job evaluation

(1) the degree of agreement between rankings that resulted from the job evaluation with an agreed-upon ranking of benchmarks used as the criterion (2) by "hit rates"—the degree to which the job evaluation plan matches (hits) an agreed-upon pay structure for benchmark jobs.

Decision Making

(1) the risk and complexity (hence the availability of guidelines to assist in making the decisions), (2) the impact of the decisions, and (3) the time that must pass before the impact is evident. Milkovich, George. Compensation (p. 150). McGraw-Hill Higher Education. Kindle Edition.

Why perform job analysis?

- Establishes similarities and diferences in the work contents of the jobs -Establish an internally fair and aligned job struture. If jobs have equal content then in all likelihood the pay established for them will be equal and vice versa.

Purpose of the Skill-Based structure

- Supports the strategy and objectives The skills on which to base a structure need to be directly related to the organization's objectives and strategy. In practice, however, the "line of sight" between changes in the specific work skills (fundamental to advanced) required to operate the Balzers coaters and increased shareholder returns is difficult to make clear. In some cosmic sense, we know that these operating skills matter, but the link to the plant's performance is clearer than the link to corporate goals. - Supports work flow The link here is clearer. One of the main advantages of a skill-based plan is that it facilitates matching people to a changing work flow.6 Example:one national hotel chain moves many of its people to the hotel's front desk between 4 p.m. and 7 p.m., when the majority of guests check in. After 7 p.m., these same employees move to the food and beverage service area to match the demand for room service and dining room service. The hotel believes that by ensuring that guests will not have to wait long to check in or to eat, it can provide a high level of service with fewer staff. . - Is fair to employees? Employees like the potential of higher pay that comes with learning. And by encouraging employees to take charge of their own development, skill-based plans may give them more control over their work lives. However, favoritism and bias may play a role in determining who gets first crack at the training necessary to become certified at higher-paying skill levels.Additionally, the courts have not yet been asked to rule on the legality of having two people do the same task but for different (skill-based) pay. - Motivates behavior toward organization objectives Person-based plans have the potential to clarify new standards and behavioral expectations. The fluid work assignments that skill-based plans permit encourage employees to take responsibility for the complete work process and its results, with less direction from supervisors.

Disadvantages of Skill-Based

-Topping out -More expensive compared to market (potentially) -Jack of all trades might really be the master of none? The bottom line is that skill-based approaches may be only short-term initiatives for specific settings. Unfortunately, the longitudinal study of survival rates discussed above does not address the 40 percent of cases where skill-based pay did not survive beyond six years.

Pay Model Building Blocks

1) Compensation Objectives 2) The policies that form the foundation of the compensation system 3) The techniques that make up the compensation system

What does it mean to fit or tailor pay structure to be internally aligned

1) How specifically tailored to the organizations design and work flow to make the structure 2) How to distribute pay throughout the levels in the structure

pay procedures are more likely to be perceived as fair if:

1) If they are consistently applied to all employees 2) If employees participated in the process 3) If appeals procedures are included 4) If data used are accurate

Internal pay structure can be defined by

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

8 Steps in the design of a point plan

1. Conduct job analysis. Just as with ranking and classification, point plans begin with job analysis. Typically a representative sample of jobs, that is, benchmark jobs, is drawn for analysis. The content of these jobs is the basis for defining, scaling, and weighting the compensable factors. 2. Determine compensable factors. Compensable factors play a pivotal role in the point plan. These factors reflect how work adds value to the organization. They flow from the work itself and the strategic direction of the business. To select compensable factors, an organization asks itself, What is it about the work that adds value? To be useful, compensable factors should be ∙ Based on the strategy and values of the organization. If the business strategy involves providing innovative, high-quality products and services designed in collaboration with customers and suppliers, then jobs with greater responsibilities for product innovation and customer contacts should be valued higher. ∙ Based on the work performed. Employees and supervisors are experts in the work actually done in any organization. Hence, it is important to seek their answers to what should be valued in the work itself. Some form of documentation (i.e., job descriptions, job analysis, employee and/or supervisory focus groups) must support the choice of factors. ∙ Acceptable to the stakeholders affected by the resulting pay structure. 3. Scale the factors. Once the factors are determined, scales reflecting the different degrees (i.e., levels) within each factor are constructed. Each degree may also be anchored by the typical skills, tasks, and behaviors taken from the benchmark jobs that illustrate each factor degree. 4. Weight the factors according to importance. Factor weights reflect the relative importance of each factor to the overall value of the job. Different weights reflect differences in importance attached to each factor 5. Select criterion pay structure. The committee members recommend the criterion pay structure, that is, a pay structure they wish to duplicate with the point plan. The criterion structure may be the current rates paid for benchmark jobs, market rates for benchmark jobs, rates for jobs held predominantly by males (in an attempt to eliminate gender bias), or union-negotiated rates..Perhaps the clearest illustration can be found in municipalities. Rather than using market rates for firefighters, some unions have successfully negotiated a link between firefighters' pay and police rates. So the criterion structure for firefighters becomes some percentage of whatever wage structure is used for police. 6. Communicate the plan and train users. 7. Apply to nonbenchmark jobs. Recall that the compensable factors and weights were derived using a sample of benchmark jobs. The final step is to apply the plan to the remaining jobs. 8. Develop online software support.

Best Practices versus the Best Fit

A better way to frame this is: What practices pay off best under what conditions? Best practices may not always work. A more useful question is: "What practices pay off best under what conditions?"

How would you decide whether to use job-based or person-based structures?

A job-based structure relies on the work content—tasks, behaviors, responsibilities. A person-based structure shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee's particular job.

Job specification

A list of the knowledge, skills, abilities, and other characteristics (KSAOs) that an individual must have to perform a particular job. The specifcation focuses on the person

Using Existing Standardized Plans or Adapting Factors from Existing Plans

Although a wide variety of factors are used in standard existing plans, the factors tend to fall into four generic groups: skills required, effort required, responsibility, and working conditions.

What does job analysis have to do with internal alignment?

An internal structure based on job-related information provides both managers and employees a work-related rationale for pay differences. Employees who understand this rationale can see where their work fits into the bigger picture and can direct their behavior toward organization objectives. Job analysis data also help managers defend their decisions when challenged.

Why bother with a pay structure?

An internally aligned pay structure, whether strategically loosely linked or tightly fitting, can be designed to (1) help determine pay for the wide variety of work in the organization, and (2) ensure that pay influences peoples' attitudes and work behaviors and directs them toward organization objectives.

Acceptability

Appeals process and employee attitude surveys.

Determining the Internal Competency-Based Structure

By now you should be able to draw the next exhibit (Exhibit 6.5) yourself. The top part shows the process of using competencies to address the need for internal alignment by creating a competency-based structure. All approaches to creating a structure begin by looking at the work performed in the organization. While skillbased and job-based systems hone in on information about specific tasks, competencies take the opposite approach. They try to abstract the underlying, broadly applicable knowledge, skills, and behaviors that form the foundation for success at any level or job in the organization. These are the core competencies. Core competencies are often linked to mission statements that express an organization's philosophy, values, business strategies, and plans.

Cost of Living Adjustment (COLA)

Changes in what other employers are paying for the same work, change in living costs, or changes in experience or skill

Internal Alignment

Comparisons among job or skill levels inside a single organization.

Compensable Factors

Compensable factors play a pivotal role in the point plan. These factors reflect how work adds value to the organization. They flow from the work itself and the strategic direction of the business. To select compensable factors, an organization asks itself, What is it about the work that adds value? To be useful, compensable factors should be ∙ Based on the strategy and values of the organization. If the business strategy involves providing innovative, high-quality products and services designed in collaboration with customers and suppliers, then jobs with greater responsibilities for product innovation and customer contacts should be valued higher. ∙ Based on the work performed. Employees and supervisors are experts in the work actually done in any organization. Hence, it is important to seek their answers to what should be valued in the work itself. Some form of documentation (i.e., job descriptions, job analysis, employee and/or supervisory focus groups) must support the choice of factors. ∙ Acceptable to the stakeholders affected by the resulting pay structure.

Content vs Value

Content refers to the work performed and how it gets done. A content based structure ranks jobs based on: •Skills required. •Complexity of tasks. •Problem solving. •And, or, responsibility. Value refers to the worth of the work. A value based structure focuses on the relative contribution of: •The skills, tasks, and responsibilities of a job to the organization's goals. External market value may be included.

How can the information be collected?

Conventional methods: Ask people who are doing the jobs to fill out a questionnaire or interview jobholders/supervisors. Advantage: Increases their understanding of the process Disadvantage: Only as good as the people involved. If parts are accidentally committed or not stressed enough they may be faulty. Quantitative Methods Quantitative job analysis (QJA): Complete a questionnaire online. Uses statistical analysis of the results.

Generic Strategy Framework

Cost Leadership Strategy: firms that cut costs Differentiation Strategy: Provide a unique and/or innovative product ornsevice at a premium price Defends: Those who operate in a stable market and compete on cost Prospectors: focused on innovation, new markets, and so forth

Incentive Effect

Degree to which pay influences individual and aggregate motivation

Point Methods

Each job's relative value, and hence its location in the pay structure, is determined by the total points assigned to it. based on the strategic direction of the business and how the work contributes to these objectives and strategy. The factors are scaled to reflect the degree to which they are present in each job and weighted to reflect their overall importance to the organization. Three common characteristics: -Compensable factors -Factors degrees numerically scaled -Weights reflecting the relative imporatnace of each factor

Cost Cutter

Efficency-focused strategy that stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed.

Who to Involve in Skill-based Structure?

Employee involvement is almost built into skill-based plans.

Major Decision in Job Evaluation

Establish purpose of evaluation Decide on single versus multiple plans Choose among alternative methods Obtain involvement of relevant stakeholders Evaluate the usefulness of the results

A disadvantage of a skill-based plan is that people cannot be deployed in a way that matches the flow of work, thus causing bottlenecks as well as idle hands.

False

An advantage of the ranking method is that the basis for comparison is called out.

False

Each compensable factor degree should be equidistant from the adjacent degrees.

False

Recent research shows that the use of online job evaluation by independent managers is more reliable than traditional job evaluation committees.

False

The number of job evaluation plans required depends only upon the number of employees in the organization.

False

The primary reason for documenting the views of employees and supervisors on compensable factors is to meet requirements of the Equal Pay Act.

False

Transactional work is typically paid more than tacit work

False

Verify the description

Final step in the job analysis. Sit with jobholders and supervisors and discuss line by line.

Merit

Given as increments to base pay and are based on performance

Job

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

Job family

Grouping of related with broadly similar content;e.g., marketing, engineering, office support, technical

Objective Purposes

Guide the design of the pay system. They also serve as the standards for judging the success of the pay system.

Who collects the information for job analysis?

HR or Supervisors

Hierarchical versus Egalitarian and Layered

Hierarchical: Opposite of Tempus Egalitarian: Tempus

Number of Levels

Hierarchy.

Job Analysis (Acceptability)

If job holders and managers are dissatisfied with the initial data collected and the process, they are not likely to buy into the resulting job structure or the pay rates attached to that structure.

Competencies and Employee Selection and Training/Development

In the case of competencies, there is clear evidence that ability (broadly defined to include personality traits) is related to general competencies.

Variable Pay

Incentives are frequently referred as. because when performance decrease so does incentive pay

Long Term Incentives

Intended to focus employee efforts on long-term financial results. Typically in the form of stock ownership or options to buy stock at a fixed price

Appeals/Review Procedure

No matter what the technique, no job evaluation plan anticipates all situations. It is inevitable that some jobs will be incorrectly evaluated—or at least employees and managers may suspect that they were. Consequently, review procedures for handling such cases and helping to ensure procedural fairness are required.

Determining the Internal Skill-Based Structure

It begins with an analysis of skills, which is similar to the task statements in a job analysis. Related skills can be grouped into a skill block; skill blocks can be arranged by levels into a skill structure. To build the structure, a process is needed to describe, certify, and value the skills. Exhibit 6.3 also identifies the major skill analysis 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.

Job and Person based structure

Its hard to define a person job-related knowledge or competencies without referring to work content. So rather than a job or person bases structure, reality includes both job and person

What information should be collected during a job analysis?

Job Data Identification: Job titles, departments, number of people who hold the job, whether is exempt or not Content: the heart of the job analysis. Content involves the elemental tasks or units of work. Task data reveal the actual work performed and its purpose or outcome Employee Data Position Analysis Questionnaire (PAQ): groups work information into seven basic factors: information input, mental processes, work output, relationships with other persons, job context, other job characteristics, and general dimensions. Essential Elements: ADA requires that the essential elements of a job - those that cannot be reassigned to other workers - must be specified for the jobs covered by legislation. Reasonable accommodation must be made to enable an otherwise-qualified handicapped person to perform those elements. Essential functions refers to the fundamental job duties of the employment position the individual with a disability holds or desires.

Questions to better understand the pay model

Objectives: How should compensation support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment? Internal Alignment: How differently should the different types and levels of skills and work be paid within an organization External Competitiveness: How should total compensation be positioned agaisnt competitors? Management: How open and transparent should the pay decisions be to all employees?

Layered versus Delayered

Lots of titles versus a couple titles

Merit Bonus

Lump sum bonus based on performance rating

Employee Contributions

Mix of pay forms (base, incentives, stock, benefits)

Job Based and Person Based Structure Process

No matter the basis for the structure, a way is needed to (1) collect and summarize information about the work, (2) determine what about the work is of value to the organization, (3) quantify that value, and (4) translate that value into an internal structure.

Virtuous and Vicious Circles

One study reported that while pay levels differed among companies, they were not related to financial performance. •Conclusion: it is not only how much you pay but how you pay. Performance-based pay works best when there is shared success. •Shared success improves employee attitudes, behaviors, and performance when coupled with other "high performance" practices. •When organizational performance declines, performance-based pay plans do not pay off - with potentially negative effects. •Unless increased risks are offset by larger returns, the risk-return imbalance will reinforce declining employee attitudes and speed the downward spiral.

AMO Theory

P=f(A,M,O) A:Ability M:Motivation O:Opportunity In other words, the AMO logic is that HR systems will be most effective when employee ABILITY is developed through selective hiring and training and development, when the compensation system MOTIVATES employees to act on their abilities, and when roles are designed to allow employees to be involved in decisions and and have an impact. Money is not the only thing that leads to a successful employee.

Differentials

Pay differences among levels. Work that requires more knowledge/skills, preformed in worse conditions, or adds more value are usually paid more. It is used to motivate people to strive for promotions at higher paying levels

Equity Theory: Fairness

People compare the ratio of their own outcomes to inputs with that of others. comparing jobs similar to their own (internal equity) comparing their job to others at the same employer (internal equity) comparing their jobs pay against external pay levels (external equity) Comparison results depend on the accuracy of employee knowledge of other's jobs, internal structures, and external pay. Equity theory could support either egalitarian or hierarchical structures. Equity theory says people compare the ratio of their own outcomes to inputs with ratios of internals, externals and themselves in a past or future situation.

Pay Model

Policies, Techniques, Objectives

What is the critical advantage of quantitative approaches over conventional approaches to job analysis?

Potential subjectivity as well as the huge amount of time conventional approaches makes quantitative approaches have more of an advantage because it can reach more people and take less time

BALANCING CHAOS AND CONTROL

Prior to the widespread use of job evaluation, employers in the 1930s and 1940s did just that, and got irrational pay structures—the legacy of decentralized and uncoordinated wage-setting practices. Pay differences were a major source of unrest among workers. American Steel and Wire, for example, had more than 100,000 pay rates. Employment and wage records were rarely kept; only the foreman knew with any accuracy how many workers were employed in his department and the rates they received. Foremen were thus "free to manage," but they used wage information to vary the day rate for favored workers or assign them to jobs where piece rates were loose.

Relational Returns

Psychological (learning opportunities, status, challenging work, etc.)

Job Evaluation - Single versus Multiple Plans

Rarely do employers evaluate all jobs in the organization at one time. More typically, a related group of jobs, for example, manufacturing, technical, or administrative, will be the focus. To be sure that all relevant aspects of work are included in the evaluation, an organization may start with a sample of benchmark (key) jobs.

Comepensation

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

Judging job analysis

Reliability Validity Acceptability Currency Usefulness

Job Analysis (Reliability)

Reliability is a measure of consistency of results among various analysts, carious methods, various sources of data, or over time. Reliability is a necessary, but not sufficient, condition for validity.

Institutional Theory: Copy others and conform

Responding/conforming to normative pressures in their environment so as to gain legitimacy and to reduce risks basically copy other organizations Institutional theory predicts that very few firms are "first movers" but instead copy innovative practices from others.The potential drawback of such behavior is that what aligns with the strategy of one organization may not align with another. Also, it is not possible to outperform competitors simply by imitating their practices.

Competencies

Several perspectives. Are they a skill that can be learned and developed, or are they a trait that includes attitudes and motives? Do competencies focus on the minimum requirements that the organization needs to stay in business, or do they focus on outstanding performance? Are they characteristics of the organization or of the employee? Unfortunately, the answer to all of these questions is yes. A lack of consensus means that competencies can be a number of things; consequently, they stand in danger of becoming nothing.

Person-based structure

Shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee's particular job.

Customer-focused

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

Innovator

Stresses new products and short response time to market trends. a supporting compensation approach places less emphasis on evaluating skills and jobs and more emphasis on incentives designed to encourage innovation

Compensation Strategy

Supports organization strategy. •Organization strategy supports and maintains competitive advantage. Supports work flow. •Work flow is the process of delivering products to the customers. •Pay structure should support the efficient flow of work and organizational design. Motivates behavior. •Internal pay structures are part of a network of returns. •Design structures to engage employees in achieving objectives. •There should be a "line-of-sight" relationship between each job and the organization's objectives. Employees should "see" links between their work, the work of others, and the organization's objectives

Distinguish between task data and behavioral data.

Task data reveal the actual work performed and its purpose or outcome.

Who provides the information for job analysis?

The decision on the source of the data (jobholders, supervisors, and/or analysts) hinges on how to ensure consistent, accurate, useful, and acceptable data. Expertise about the work resides with the jobholders and the supervisors; hence, they are the principal sources. For key managerial/professional jobs, supervisors "two levels above" have also been suggested as valuable sources since they may have a more strategic view of how jobs fit in the overall organization. In other instances, subordinates and employees in other jobs that interface with the job under study are also involved. Milkovich, George. Compensation (p. 120). McGraw-Hill Higher Education. Kindle Edition.

THE FINAL RESULT: STRUCTURE

The final result of the job analysis-job description-job evaluation process is a structure, a hierarchy of work. Exhibit 5.15 shows four hypothetical job structures within a single organization. These structures were obtained via different approaches to evaluating work. The jobs are arrayed within four basic functions: managerial, technical, manufacturing, and administrative. The managerial and administrative structures were obtained via a point job evaluation plan; the technical and manufacturing structures, via two different person-based plans (Chapter 6). The manufacturing plan was negotiated with the union. The exhibit illustrates the results of evaluating work: structures that support a policy of internal alignment.

Hierarchical vs. Egalitarian

The impact of internal structures depends on the context in which they operate. •Hierarchical structures show greater performance when the work flow depends on individual contributors. •High performers quit less under hierarchical systems than those systems based on performance rather than seniority. •More egalitarian structures perform better when close collaboration and sharing of knowledge is required. •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

Why do many managers say that job analysis is a colossal waste of their time and the time of their employees? Are they right?

They don't understand the process and why it is important. It can also be tedious and time-consuming. No they are not right if they are used the right way.

Allowances

Things like apartments, transportation, etc.

"I Know I Speak for All of Us When I Say I Speak for All of Us"

This is consistent with other research that showed that a powerful member of a job evaluation committee could sway the results.26

Tournament Theory

This theory says all players play better when the prize differentials are larger. •Applying this to organization structures, the bigger the prize for getting to the next level of structure, the greater the motivation. Differentiation and dispersion in teams. •Team sports depend both on individual performance and team effort. •Teams with identical salaries outperformed those with big differentials. •Egalitarian structures had a sizeable effect on individual's performance. •When task interdependence and discretionary cooperative behavior is required - teams with differentiated salaries did better. •Larger differentials based on performance generated positive sorting effects.

Job Analysis (Currency)

To be valid, acceptable, and useful (see below), job information must be up to date.

Transactional vs Tacit work

Transactional - Routine work Tacit - More complex work

Validity refers to the degree to which an evaluation assesses the relative worth of jobs to an organization.

True

Ranking format

Two ways of ranking are common: alternation ranking and paired comparison. Alternation ranking orders job descriptions alternately at each extreme. Evaluators reach agreement on which jobs are the most and least valuable (i.e., which is a 10, which is a 1), then the next most and least valued (i.e., which is a 9, which is a 2), and so on, until all the jobs have been ordered. The paired-comparison method uses a matrix to compare all possible pairs of jobs.

Use and Exchange Value

Use value reflects the value of goods or services an employee produces in a job. •Similar job content in two different companies may be valued differently based on how it contributes to organization objectives. Exchange value is whatever wage the employer and employee agree on for a job. •The same work content in the same company may have different exchange values based on different geographies. The difference between exchange value and use value may surface when one firm acquires another.

Job Analysis (Usefulness)

Usefulness refers to the practicality of the information collected. For pay purposes, job analysis provides work-related information to help determine how much to pay for a job—it helps determine whether the job is similar to or different from other jobs. If job analysis does this in a reliable, valid, and acceptable way and can be used to make pay decisions, then it is useful

Do perspectives differ on whether job evaluation is based on job content or job value?

Yes

What discrepancies exists for job analysis?

What if the supervisor and employee present different views of the job? Best way to mitgate this: get more data by holding more meetings and talking to more people.

Major decisions in job analysis

Why perform job analysis what information is needed how to collect information who to involve how useful are the results

Compensable factors

based on the strategic direction of the business and how the work contributes to these objectives and strategy. The factors are scaled to reflect the degree to which they are present in each job and weighted to reflect their overall importance to the organization. Example: Technical ability, etc.

Strategic Perspective

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

Difference between incentives and merit

incentives are tied to objective performance measures (eg sales) where as merit relies on subjective measures. There is also some subjectivity in the size of the pay increase awarded for particular rating Incentives do not increase the base wage and so must be re earned each pay period The potential size of incentive payment will generally be known beforhand. While merit pay and incentives tey to influence performance, incentives explicitly try to influence future behavkrit whereas merit recognizes (rewards) past behavior, which is hope to influence future behavior

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

Exchange value

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

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

Competency indicators

observable behaviors that indicate the level of competency within each set. 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. Exhibit 6.7 shows five levels of competency indicators for the competency impact and influence. These behavioral anchors make the competency more concrete. The levels range from "uses direct persuasion" at level 1 to "uses experts or other third parties to influence" at level 5.

Internal Alignment

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

External Competitiveness

pay comparisons with competitors 1) ensure that the pay as competitive in comparison to what other organizations are offering for similar work, they may be more likely to leave 2) to control labor costs so that organizations prices of products or services can remain competitive in a global economy

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 levels, and the criteria used to determine those differences describe the structure

Strategy

refers to the fundamental directions that the organization chooses

Offshoring

refers to the movement of jobs to locations beyond a country's borders. High susceptible jobs: not only those that require little education and training, such as data entry keyers and telemarketers, but also computer programmers and tax prepares.

Work Flow

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

value

refers to the worth of the work: its relative contribution to the organization objectives. Typically ranks jobs on skills required, complexity of tasks, problem solving, and/or responsibility

Content

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

Use Value

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

Sorting Effect

the effect a pay plan has on the composition of the current workforce (the types of employees attracted and retained) How an organization pays can result in sorting effects.

Job Analysis

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

Competency sets

translate each core competency into action. For the core competency of business awareness, for example, competency sets might be related to organizational understanding, cost management, third-party relationships, and ability to identify business opportunities.

Job Analysis (Validity)

validity examines the convergence of results among sources of data and methods. If several job incumbents, supervisors, and peers respond in similar ways to questionnaires, then it is more likely that the information is valid. However, a sign-off on the results does not guarantee the information's validity.33 It may mean only that all involved were sick to death of the process and wanted to get rid of the analyst so they could get back to work.

Describe the major decisions involved in job analysis.

• Why perform job analysis? • What information is needed? • How to collect information? • Who to involve? • How useful are the results?

What shapes Internal Structures?

1. External Factors -Economic pressure -Gov policies, laws, regulations, etc -Stakeholders -Cultures and customs 2. Organization Factors -Strategy -technology -human capital -HR policy -employee acceptance -cost implications

Four Policy Choices

1. Internal alignment 2. External competitiveness 3. Employee contributions 4. Management

Three tests to determine whether a pay strategy is a source of advtange

1. Is it aligned? Does it align with business strategy, economic and socioplotical conditions, and align internally within the HR system. 2. Does it differentiate? Simplying copying and imitating others wont cut it because it has to be woven through the HR processes. 3. Does it add value? ROI- Return on investment

Defining Competencies

Early conceptions: 1. Skills (demonstration of expertise) 2. Knowledge (accumulated information) 3. Self-concepts (attitudes, values, self-image) 4. Traits (general disposition to behave in a certain way) 5. Motives (recurrent thoughts that drive behaviors) As experience with competencies has grown, organizations seem to be moving away from the vagueness of self-concepts, traits, and motives. Instead, they are placing greater emphasis on business-related descriptions of behaviors "that excellent performers exhibit much more consistently than average performers." Competencies are becoming "a collection of observable behaviors (not a single behavior) that require no inference, assumption or interpretation."21

Consequences of Structures

Efficiency. •Aligned structure leads to better organization performance. •Internal pay structures imply future returns. •The levels and titles may be rewarding beyond the pay. Fairness. •One group argues unfair differentials leads to employee dissatisfaction. •Others argue small differentials increase cooperation and commitment. Compliance. •As with any pay decision, internal pay structures must comply with the regulations of the country in which the organization operates.

Basic Objectives of the Pay Model

Efficiency: 1) improving performance, increasing quality, delighting customers and stockholders, and 2) controlling labor costs Fairness (sometimes called equity):is a fundamental objective of pay systems. means to ensure fair treatment and recognize person and family well being. Calls for fair treatment for all employees by recognizing both employee contributions ( higher pay for greater performance, experience,etc) and employee needs (fair wage as well as fair procedures) Ethics: The organization cares about the results achieved Compliance with laws and regulations

What is the advantage and disadvantage of employee involvement in compensation?

Employees may have bias that because they do the job it holds more value. Employees know the job best because they do that job daily.

Line of Sight

Employees should be able to "see" the links between their work, the work of others, and the organization's objectives.

Management

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

Types of Skill Plans

Skill plans can focus on depth (specialists in corporate law, finance, or welding and hydraulic maintenance) and/or breadth (generalists with knowledge in all phases of operations including marketing, manufacturing, finance, and human resources).

Outcomes of Skill-Based Pay Plans: Guidance from Research and Experience

Skill-based plans are generally well accepted by employees because it is easy to see the connection between the plan, the work, and the size of the paycheck. Consequently, the plans provide strong motivation for individuals to increase their skills and this can result in major improvements in productivity and quality.

Skilled-based structures

Skill-based structures link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work. In structures based on skill, individuals are paid for all the skills for which they have been certified, regardless of whether the work they are doing requires all or just a few of those particular skills. The wage attaches to the person. In contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess. Milkovich, George. Compensation (p. 173). McGraw-Hill Higher Education. Kindle Edition.

Tasks

Smallest unit of analysis, a specific statement of what a person does; e.g., answers the telephone. Similar tasks can be grouped into a task dimension; e.g. responsible for ensuring that accurate information is provided to the customer

Job-based vs Skill-based vs Competency-Based

So where does all this come out? What is the best approach to pay structures, and how will we know it when we see it? The answer is, it depends. The best approach may be to provide sufficient ambiguity (loosely linked internal alignment) to afford flexibility to adapt to changing conditions. Too generic an approach may not provide sufficient detail to make a clear link between pay, work, and results; too detailed an approach may become rigid. Bases for pay that are too vaguely defined will have no credibility with employees, will fail to signal what is really important for success, and may lead to suspicions of favoritism and bias.

Skill Based Pay Advantage

The majority of applications of skill-based pay have been in manufacturing, where the work often involves teams, multiskills, and flexibility. An advantage of a skill-based plan is that people can be deployed in a way that better matches the flow of work, thus avoiding bottlenecks as well as idle hands.3

A job structure based upon job value orders jobs on the basis of the relative contribution of the skills, duties, and responsibilities of each job to the organization's goals

True

A potential disadvantage of skill-based pay is that labor costs can be a source of competitive disadvantage.

True

A representative sample of benchmark jobs will include the entire domain of work being evaluated and capture the diversity of the work within that domain.

True

Advocates of competencies say that by focusing on optimum performance, rather than average performance, competencies can help employees maintain their marketability.

True

As experience with competencies has grown, organizations are placing greater emphasis on business-related descriptions of behaviors

True

By encouraging employees to take charge of their own development, skill-based plans may give them more control over their work lives.

True

Compensable factors are aspects of work that add value to the organization.

True

If an evaluation system is valid, it must also be reliable

True

In virtually all the studies on job evaluation, job-based evaluation is treated as a measurement device.

True

One of the criteria for scaling compensable factors is to ensure that the number of degrees used is necessary to distinguish among jobs.

True

One way of evaluating a managerial job's multinational responsibilities would be to rate the percent of time spent on multinational issues.

True

Paired-comparison and alternate-ranking methods may be more reliable than simple ranking.

True

Person-based plans have the potential to clarify new standards and behavioral expectations.

True

Skill-based plans are generally well accepted by employees because it is easy to see the connection between the plan, the work, and the size of the paycheck.

True

The main appeal of competencies is the direct link to the organization's strategy.

True

Job Description

list of tasks, duties, and responsibilities that make up a job. The description focuses on the job

Supply chain analysis

looks at how an organization does it work: activities pursed to accomplish specific objectives for specific customers (both internal and external)

Reliability vs. Validity

reliability (consistency) and validity (accuracy)

Job-based structure

relies on the work content - tasks, behaviors, responsibilities

Content

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

Purpose of the Competency-Based Structure

Directly links to the organization's strategy. The main appeal of competencies is the direct link to the organization's strategy. The process of identifying competencies starts with the company leadership deciding what will spell success for the company. It resembles identifying compensable factors as part of job evaluation. Supports work flow. As you can judge from reading the previous exhibits, competencies are chosen to ensure that all the critical needs of the organization are met. Is fair to the employees. Advocates of competencies say they can empower employees to take charge of their own development. By focusing on optimum performance rather than average performance, competencies can help employees maintain their marketability.However, critics of competencies worry that the field is going back to the middle of the last century, when basing pay on personal characteristics was standard practice.Basing pay on race or gender seems appalling today, yet it was standard practice at one time. Basing pay on someone's judgment of another person's integrity raises a similar flag. Trying to justify pay differences based on inferred personal competencies creates risks that need to be managed. Motivates behavior toward the organization's objectives. Competencies in effect provide guidelines for behavior and keep people focused. They can also provide a common basis for communicating and working together. This latter possibility has become increasingly important as organizations go global, and as employees with widely differing viewpoints and experiences fill leadership positions in these global organizations.

Classification

Picture a bookcase with many shelves. Each shelf is labeled with a paragraph describing the kinds of books on that shelf and, perhaps, one or two representative titles. This same approach describes the classification method of job evaluation. A series of classes covers the range of jobs. Class descriptions are the labels. A job description is compared to the class descriptions to decide which class is the best fit for that job. Each class is described in such a way that the "label" captures sufficient work detail yet is general enough to cause little difficulty in slotting a job description onto its appropriate "shelf" or class. The classes may be described further by including titles of benchmark jobs that fall into each class. In practice, with a classification method the job descriptions not only are compared to the class descriptions and benchmark jobs but also can be compared to each other to be sure that jobs within each class are more similar to each other than to jobs in adjacent classes. The end result is a job structure made up of a series of classes with a number of jobs in each. All these comparisons are used to ensure that this structure is based on the organization strategy and work flow, is fair, and focuses behaviors on desired results. The jobs within each class are considered to be equal (similar) work and will be paid equally. Jobs in different classes should be dissimilar and may have different pay rates. Essentially, these are like tiers in a job. IT Support Specialist, 1. IT Support Specialist, 2. Etc. What defines the differences? Where are the natural breaks? Etc.

ONE MORE TIME: INTERNAL ALIGNMENT REFLECTED IN STRUCTURES (PERSON-BASED OR JOB-BASED)

The purpose of job- and person-based procedures is really very simple—to design and manage an internal pay structure that helps the organization succeed.

Distributive Justice

perceived fairness of the amount and allocation of rewards among individuals

Procedural Justice

perceived fairness of the process used to determine the distribution of rewards

Developing a Total Compensation Strategy

1. Assess Total Comepensation Implicstions. What factors have contributed to employee success? Which of these factors are likely to become more (or less) important as a company looks ahead? (Looks at, culture/value, social/political context, employee/union needs, etc) 2. Map a Total Compenesation Strategy Objectives, Alignment, Competitiveness, Contributions,Management 3. Implement Strategy Design system to translate strategy into actions. Choose techniques to fit strategy 4. Reassess Realign as conditions change. Realign as strategy changes

"HOW-TO": COMPETENCY ANALYSIS

1. Clarify the objective of the plan A number of schemes for classifying competencies have been proposed. One of them uses three groups: -Personal Characteristics: Employees are expected to come in the door with these characteristics and then develop and demonstrate them in increasingly complex and abigious job situations. For example: personal integrity, maturity of judgement, flexibility, etc. -Visionary: Highest-level competencies. They might be expressed as possessing a global perspective, taking the initiative in moving the organization in new directions, and able to articulate the implications for the organization of trends in the marketplace, in world events, in the local community. -Organization Specific: Between the above two groups are the competencies that are tied specifically to the particular organization and to the particular function where they are being applied. They generally include leadership, customer orientation, functional expertise (e.g., able to leap tall buildings and explain the difference between competencies and compensable factors), and developing others—whatever reflects the company values, culture, and strategic intent. Example: At 3M, for example, competencies were developed internally for its global executives.28 Behavioral anchors are used to rate an executive on each of these competencies. There are three competency areas: Fundamental (ethics and integrity, intellectual capability), Essential (customer orientation, developing people, inspiring others, business health and results), and Visionary (global perspective, vision and strategy, nurturing innovation, building alliances, organizational agility). Executives' ratings on these competencies are used to assess and develop executives worldwide. Because 3M relies heavily on promotion from within, competency ratings help develop executive talent for succession planning. Again, the link to development is clear; the link to pay is less clear. 2. Whom to involve? Leadership 3.. Establish Certification Methods 4.Resulting structures

Job evaluation plans that are bias-free:

1. Define the compensable factors and scales to include the content of jobs held predominantly by women. For example, working conditions may include the noise and stress of office machines and the repetitive movements associated with the use of computers. 2. Ensure that factor weights are not consistently biased against jobs held predominantly by women. Are factors usually associated with these jobs always given less weight? 3. Apply the plan in as bias-free a manner as feasible. Ensure that the job descriptions are bias-free, exclude incumbent names from the job evaluation process, and train diverse evaluators.

Benchmark (key jobs)

A benchmark job has the following characteristics: ∙Its contents are well known and relatively stable over time. ∙ The job is common across a number of different employers. It is not unique to a particular employer. ∙ A reasonable proportion of the workforce is employed in this job. ----------------------- A representative sample of benchmark jobs will include the entire domain of work being evaluated—administrative, manufacturing, technical, and so on—and capture the diversity of the work within that domain. Diversity in the work can be thought of in terms of depth (vertically) and breadth (horizontally). The depth of work in most organizations probably ranges from strategic leadership jobs (CEOs, general directors) to the filing and mail distribution tasks in entry-level office jobs. Horizontally, the breadth of work depends on the nature of business.

Job Analysis Summary

Encouraging employee behaviors that help achieve an organization's objectives, and fostering a sense of fairness among employees, are two hallmarks of a useful internal pay structure. One of the first strategic pay decisions is how much to align a pay structure internally compared to aligning it to external market forces. Do not be misled. The issue is not achieving internal alignment versus alignment with external market forces. Rather, the strategic decision focuses on sustaining the optimal balance of internally aligned and externally responsive pay structures that helps the organization achieve its mission. Both are required. This part of the book focuses on one of the first decisions managers face in designing pay systems: how much to emphasize pay structures that are internally aligned with the work performed, the organization's structure, and its strategies. Whatever the choice, the decision needs to support (and be supported by) the organization's overall human resource strategy. Next, managers must decide whether job and/or individual employee characteristics will be the basic unit of analysis supporting the pay structure. This is followed by deciding what data will be collected, what method(s) will be used to collect the information, and who should be involved in the process. A key test of an effective and fair pay structure is acceptance of results by managers and employees. The best way to ensure acceptance of job analysis results is to involve employees as well as supervisors in the process. At the minimum, all employees should be informed of the purpose and progress of the activity. If almost everyone agrees about the importance of job analysis, does that mean everyone does it? Of course not. Unfortunately, job analysis can be tedious and time-consuming. Often the job is given to newly hired compensation analysts, ostensibly to help them learn the organization, but perhaps there's also a hint of "rites of passage" in such assignments. Alternatives to job-based structures such as skill-based or competency-based systems are being experimented with in many firms. The premise is that basing structures on these other criteria will encourage employees to become more flexible, and thus fewer workers will be required for the same level of output. This may be the argument, but as experience increases with the alternatives, managers are discovering that they can be as time consuming and bureaucratic as job analysis. Bear in mind, job content remains the conventional criterion for structures.

Since business strategies may change often, compensable factors should rarely be added or deleted.

False

Skill-based plans become increasingly economical as the majority of employees become certified at the highest pay levels.

False

Judgement Call

In the face of all the difficulties, time, expense, and dissatisfaction, why on earth would you as a manager bother with job analysis? Because work-related information is needed to determine pay, and differences in work determine pay differences. There is no satisfactory substitute that can ensure the resulting pay structure will be work-related or will provide reliable, accurate data for making and explaining pay decisions. If work information is required, then the real issue should be, How much detail is needed to make these pay decisions? The answer is, Enough to help set individual employees' pay, encourage continuous learning, increase the experience and skill of the work force, and minimize the risk of pay-related grievances. Omitting this detail and contributing to an incorrect and costly decision by uninformed managers can lead to unhappy employees who drive away customers with their poor service, file lawsuits, or complain about management's inability to justify their decisions. The response to inadequate analysis ought not to be to dump the analysis; rather, the response should be to obtain a more useful analysis.

Job analysis has been considered the cornerstone of human resource management. Precisely how does it support managers making pay decisions?

Job analysis helps in making pay decisions by providing accurate and reliable information about the various job positions in the organization. It highlights the similarities and differences in the content of the job and provide the rationale and basis of differences in pay structure of different positions. Thus, by highlighting the differences in terms of skill requirements, responsibility, authority and decision making authority associated with various jobs and other peculiar characteristic of each job position, Job analysis helps in the development of a fair pay structure, which is well accepted and understood the organizational employees. Job analysis determines the level of compensation which is needed to motivate and retain the employee to a particular job position. In other words, it makes it sure that the employee is being remunerated fairly as per the requirements of the position.

Linking Content with the External Market

Some see job evaluation as a process for linking job content and internal value with external market rates.Aspects of job content (e.g., skills required and customer contacts) take on value based on their relationship to market wages. Because higher skill levels or willingness to work more closely with customers usually commands higher wages in the labor market, then skill level and nature of customer contacts become useful criteria for establishing differences among jobs. If some aspect of job content, such as stressful working conditions, is not related to wages paid in the external labor market, then that aspect may be excluded in the job evaluation. In this perspective, the value of job content is based on what it can command in the external market; it has no intrinsic value.1 But not everyone agrees. Job evaluation, as we will see, is an important tool for organizations that wish to differentiate themselves from competitors if, for example, their particular strategy relies more heavily on certain jobs or skills than is the case in other organizations (i.e., in the market).

Job Evaluation - Establishing a purpose

Supports organization strategy: Job evaluation aligns with the organization's strategy by including what it is about work that adds value—that contributes to pursuing the organization's strategy and achieving its objectives. Job evaluation helps answer "How does this job add value?" Supports work flow: Job evaluation supports work flow in two ways. It integrates each job's pay with its relative contributions to the organization, and it helps set pay for new, unique, or changing jobs. Is fair to employees: Job evaluation can reduce disputes and grievances over pay differences among jobs by establishing a workable, agreed-upon structure that reduces the role of chance, favoritism, and bias in setting pay. Motivates behavior toward organization objectives: Job evaluation clarifies for employees what it is about their work that the organization values, how their jobs support the organization's strategy and its success. It can also help employees adapt to organization changes by improving their understanding of what is valued in their new assignments and why that value may have changed. Thus, job evaluation helps create the network of rewards (promotions, challenging work) that motivates employees.