Compensation Test 3 Chapter 8 Slides

(ex 8.18) Two parts of the total pay model have merged:

- Internally aligned structure (horizontal axis) - External competitive data (vertical axis)

grades and ranges offer flexibility to:

-Deal with pressures from external markets -Differences among firms regarding: -->Quality of individuals applying for work -->Productivity or value of these quality variations -->The mix of pay forms competitors use

organization data

-financial data and reporting relationships -turnover and revenues

entry to mid-level professional and managerial positions between __________ of the pay range

15-30%

office and production work fall between _______ of the pay range

5-15%

total compensation data

Base Pay, Total Cash, and Total Compensation

benchmark-job approach

Benchmark jobs have stable job content, are common, and include sizable numbers of employees

pay structure

Is anchored by the organization's external competitive position and reflected in its pay-policy line.

not all employers use grades and ranges

Skill-based plans establish a single flat rate for each skill level, regardless of performance or seniority

Promotion Increases Matter

The size of differentials between grades should support career movement through the structure. Overlap ought to be large enough to induce employees to seek promotions.

adjust pay structure

Validate job evaluation results, establish internal structures

Low-high approach

Wages of lowest- and highest-paid benchmark jobs used as anchors for skill-based structures.

balancing internal and external pressures is

a matter judgment

lead/lag

aging the market data to a point halfway through the plan year

issues with fuzzy markets

becomes difficult to compare market data

benchmark conversion/survey leveling

differences are quantified when job content does not sufficiently match survey jobs

Group jobs into grades

different but considered equal for pay purposes, all jobs within a single grade will have the same pay range, permit flexibility but are challenging to design

organizations may choose to

differentiate their pay strategy

when would an organization use low-high approach?

if they use skill-competency based structures or generic job descriptions, they may not have benchmarks to match with competitors, so market data must be converted to fit their skill or competency structure, which is best done by identifying the lowest and highest paying jobs

when would an organization use benchmark conversion?

in cases where content of jobs does not sufficiently match that of jobs in the salary survey, an effort cna be made to quantify the data

most important difference between ranges and bands

in the location of controls

relevant markets

must be defined to make decisions about pay level, mix, and structure, includes employees who compete in same occupation/skill, same geographic area, or same p/s

fuzzy markets

new organizations and unique jobs may fuse diverse factors making relevant markets "fuzzy", place more emphasis on external market data

how many employers should be involved

no firm rules, the BLS has publicly available data, online salary info is highly suspect; there are many surveys but few are validated

employment cost index

one of the 4 types of salary surveys published by the Dept. of Labor, allows a firm to compare changes in its average cost to an all industry or specific industry average

broad banding collapses salary grades into

only a few broad bands, each with a sizable range

job structure

orders jobs on the basis of internal factors (reflected in job evaluation or skill certification)

what info should be collected in survey

organization data and total comp data

Two aspects of pay structure

pay-policy line, and pay ranges.

figures 8.3 shows that...

qualifications interact with geography to define the scope of relevant markets

variation

quartiles and percentiles are a common measure

a pay range provides managers with the opportunity to:

recognize individual performance differences with pay, meet employees' expectations that their pay will increase over time, even in the same job, and encourage employees to remain with the organization

accuracy of match

some use benchmark conversion/survey leveling approach

study special situations

specific pay-related problems

measures of variation

standard deviation, quartiles and percentiles

translating external pay policy requires external info from

surveys

advantages and disadvantages of total comp

tells the total value competitors place on work, but all employees may not receive all forms and risks high fixed costs

neglecting external pay practices will affects....

the ability to attract and hire applicants who match needs

Adjust pay level - how much to pay

the overall movement of pay rates caused by competition for people in the market

to adjust the pay level relative to competitors

the overall movement of pay rates to employees pay on a regular basis

relevant labor markets include employers who compete in one or more areas

the same occupations or skills, employees within the same geographic area, or the same products and services

purposes of a survey

to adjust the pay level relative to competitors, to set the mix of pay forms relative to competitors, to establish or price a pay structure, to analyze pay-related problems. to estimate the labor costs of competitors

some organizations use market pricing

which emphasize external competitiveness and deemphasize internal alignment, sets pay structures almost exclusively on external market rates

top level management positions commonly have ranges _________ above and below the midpoint of the pay range

30-60%

what jobs should be included in survey

benchmarks

size of the range is based on judgment about how the ranges support:

career paths, promotions, and other organization systems

second decision

choosing a specific pay level policy, after choosing external competitiveness strategy

anomalies

does any one company dominate? do all employers show similar patterns? outliers?

use aging or trending updates to...

forecast rates for a future date

while statistical analysis is necessary to analyze survey data (including regression), a useful step is to look at ___________

frequency distribution

statistical analysis

frequency distribution, central tendency, variation

banding takes two steps

set the number of bands and price the bands (refer to market rates)

survey

the systematic process of collecting and making judgments about the compensation paid by other employers

de-emphasizing internal alignment may lead to...

unfair treatment among employees and inconsistency with structure

pay structure aligned with competitors

unique or difficult-to-imitate aspects of the pay structure are deemphasized, fairness is presumed to be reflected by market ratea

frequency distribution

unusual shapes may reflect problems

frequency distribution helps to...

visualize info and highlight outliers; shapes can vary, and unusual shapes may reflect problems with job matches, widely dispersed pay rates, or employers with widely dispersed pay policies

the objective of market pricing is to

base most of the internal pay structure on external rates and break down the boundaries between the internal organization and the external market forces

a pay range

exists whenever two or more rates are paid to employees in the same job

the pay policy line translates...

an organization's external competitive policy into practice; use of pay grades, ranges, and/or bands offers flexibility to deal with pressure from both external and internal pressure on pay decisions

adjust pay mix- what forms?

base, bonus, stock, and benefits (some affect behavior more than others)

ex 8.21 collapses salary grades into

broad bands with a sizable range that consolidate as many as 4 or 5 traditional grades into a single band with one min and one max

Flexibility and Control of Broad Banding

career moves within bands are more common, take advantage of flexibility without increasing labor costs or opening org up for illegal practices

estimate competitors labor costs

competitive intelligence, employment cost index (ECI) measures quarterly changes in employer costs for compensation

reconciling differences may entail a review of

job analysis, evaluation of the job, and market data

sherman act definition of employers

large: 6-10 small: 2-4

market line

links company's benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis, can be freehand or regression analysis

bureau of labor statistics

major source of publicly available compensation (cash, bonuses, benefits, not stock ownership) info in the U.S., also publishes extensive info on various occupations in different geographic areas

in order to adjust pay structures...

many use market surveys, but the job structure that results may not match competitors' pay structure

adjustments to pay levels are based on

market, performance, ability to pay, terms specified in the contract

measures of central tendency

mean, median, mode, weighted mean

central tendency

reduces a large amount of data into a single number

lawsuits have been filed alleging that the direct exchange of survey data violates...

section 1 of the sherman act that allows conspiracies in restraint of trade

differences may arise due to

shortage of a particular skill, driving up market rate

policy line as percent of market line

specify a percent above or below market line an employer intends to match, there are many options but practice must match policy to avoid confusion

major decisions in pay-level determination

specify pay-level policy, define purpose of survey, specify relevant market/competitors, design and conduct survey, interpret and apply result (market line), design grades and ranges or bands (balance with internal alignment)

translating an external pay policy into practice requires information on the external market

surveys provide the data for translating that policy into pay levels, pay mix, and structures

advantages and disadvantages of base pay

tells how competitors are valuing the work in similar jobs, but fails to include performance incentives and other forms so will not five true picture if competitors offer low base but high incentive

advantages and disadvantages of total cash

tells how competitors are valuing work and tells the cash pay for performance opportunity in the job, but all employees may not receive incentives so it may overstate the competitors' pay, plus does not include long term incentives

who should be involved in designing the survey

the compensation manager is responsible, and outside consulting firms protect against lawsuits

as the importance and complexity of the qualifications increase

the geographic limits also increase