HR Strat Rewards Quiz 3

Published Surveys Sources

(1) Professional Associations (2) Industry Associations (3) Consulting Firms (4) Bureau of Labor Statistics (BLS) www.bls.gov

Job Evaluation Techniques: Qualitative Methods

KNOW THIS! -Jobs are evaluated, and compared, holistically on all compensable factors -Ranking may be done through: simple ranking, paired comparisons, or alternation ranking -Problems with qualitative methods -very subjective -not legally defensible -no objective way to determine "how much" differences exists between jobs -but, easier to design

Regression Analysis

Statistical procedure designed to find the best-fitting line (MARKET PAY LINE) between two variables -Formula: Y=a + bX Y= predicted salary X= Job evaluation points a=Y intercept (X=0) b=the slope

Contingent Pay

is pay and salary increases that are based on job performance. Also called (pay for performance or inventive pay) -merit-based pay rises -individual or team bonuses -commission-based pay -piece-rate pay -profit sharing plans -skill-based pay -gainsharing plans -employee stock ownership plans

Describe expectancy Theory and explain how it is relevant to designing effective contingent pay plans?

motivation = expectancy x instrumentality x valence there is a clear link between their efforts and resulting performance. Employees may have poor performance due to unclear goals, lack of skills, circumstances outside control, inadequate resources. -proposes that a person will decide to behave or act irreverently 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 -This theory emphasizes the needs for organizations to relate rewards directly to performance and to ensure that the rewards provided are those rewards deserved and wanted by the recipients

Benefits for scanlon plan

suggestions can improve productivity -suggestions can help decrease costs -reinforce teamwork -knowledge sharing -empowers employees -improves communication with managers and workers

Pay Structure

the organization's pay system that assigns different pay rates for jobs based on their "worth" 1) decide how many pay structure (exempt vs non-exempt), job families, geography 2) determine market pay line 3) define pay grades (pay grades group jobs based on comparable wages) -number of pay grades and grouping of jobs is variable -jobs are often grouped by similarity of compensable factors and value to firm -need to determine pay grade 'width' or point spread -pay grades apply to all pay structures within the firm (all pay structures will use the same set of pay grades) 4) calculate pay ranges -determine midpoint -determine range spread (lower level jobs are a lower percent) 5) evaluate results

Legal Considerations

(1) Equal Pay Act (pay, wages, comp to gender) must justify pay differences for comparable work (job summary) (2) Fair Labor Standards Act: determine exemption status for overtime provision (3) American with disabilities Act: determine essential job functions (cannot discriminate agaisnt Americans with disabilities Just having a college degree does not mean better pay legally of same job

Job Analysis Components

(1) Job Content (tasks and duties) (2) Worker and performance requirements (knowledge skills and abilities) (3) Job context (working conditions

Writing Job Descriptions

(1) Job title (2) Job Summary: overview of job purpose, including reporting relationships and working conditions (3) Job duties: list in order of importance (4) Worker Specifications: knowledge, skills, abilities, and efucational degree requirements

Pay-Level Policies

(1) Market Lead -pay levels above market pay lines -Best for Differentiation Strategies (2) Market Lag -Pay levels below market pay lines -Best for lowest-cost strategies (3) Market Match -Pay according to market pay line -Appropriate with Differentiation Strategy

BLS Surveys

(1) National Compensation Survey -For wages and benefits (2) Employment Cost Index -for compensation cost trends (3) Employer Costs for Employee Compensation -For compensation cost trends

Steps in Point Method

(1) Select benchmark job (2) choose and define compensable factors (3) define degree scores within each compensable factor provide examples of each level; these should be defined in terms of JOB REQUIREMENTS, not person's skills. (4) determine the weight of each compensable factor (5) determine point values for each factor (including points for each degree) (6) evaluate a job by allocating it a degree score on each factor (based on job description). Add up total point values across all factors to get total job value. (7) verify factor degree and point values for a random sample (8)evaluate all jobs in company (9) determine pay level based on points tools and market-based pay rate. (steps 2 and 3) Degree 1= job can be performed while sitting most of the time. very little, if any, lifting or standing is necessary Degree 2 = job requires moderate lifting, physical exertion, and/or frequent or prolonged standing. Or job requires person to maintain the same position for prolonged periods Degree 3 = job requires heavy lifting and physical exertion (steps 4 and 5) for job evaluation system physical effort = 20% (200 max points) communication skills =25% ...etc. Step 5 degree 1 = 50 points degree 2 = 100 points degree 3 = 200 points

Compensation Surveys used to

(1) assess competitors compensation practices (mix and level): Base pay, incentives and rewards, benefits (2) Integrate internal job structures (job evaluation points) with external market pay rates (3) Implement company's compensation policies and strategies Two options: Custom-design or use published survey

Steps in Conducting Job Analysis

(1) determine job analysis program (2) select and train analysts (3) Orient job analysts on existing information (4) Conduct the study: collect new data on jobs (questionnaires, interviews, observation, participant diaries from job incumbents supervisors of job incumbents, job analysts HR experts). (5) Summarize the results: write the job descriptions

Job Evaluation

(1) process for recognizing differences in the relative worth of jobs and establishing pay rates accordingly. (2) Value is based on 2 criteria -compensable factors (ways you describe jobs you want to compensate people for) -value to corporation's competitive strategy (value to corp. "really went to incorporate customer service"

Universal Compensable Factors

(1) skills (2) Effort (physical or mental) (3) Respnsbilitiy (managerial vs financial) (4) Working conditions

Market-Competitive Pay Systems

(1) the comparisons between the pay (and benefits) of one company and the companies with which it competes. (2) ensures 'external equity" in pay (3) Plays a key role in recruitment and retention of high-performing, quality, employees (4) Is the result of an evaluation of compensation surveys.

A Rewards System includes tangible and intangible rewards that

- are appropriate for each person's job responsibilities, experience, and rank. -are market competitive -recognize outstanding performers -encourage employees to engage in desirable behaviors and produce specific results that are aligned with organizational goals

Customer Designed Surveys

-Can be customer tailored to specific needs of firm -Quality can be monitored by employer -Can be done "in-house" if expertise resides in HR staff. But, -Competitors may not fully 'cooperate' with data collection -Can be expensive, especially if hiring a consulting company to do custom survey (in firms with no in-house expertise)

Measures of Central Tendency

-Central points of data set -Statistical analyses to "make sense" of data - Arithmetic mean (mean, average) -Sum of salaries divided by number of salaries -Represents typical market salaries Median (midpoint) -Middle value of sequential numerical data

Reasons for Broadbanding

-Consolidates pay grades and ranges -flattens corporate hierarchies -emphasizes teamwork -broadens job duties and responsibilities -promotes quicker decision making -More latitude in pay rate decisions Downsides: overall payroll costs tend to increase and employees perceive fewer promotions

Issues with Pay Ranges

-Green circle rates -below minimum -Red circle rates -above max -Pay compression -when pay spread is small, newly hired employees' pay make equal (if not higher) than more tenured employees. -caused by failure to raise pay range limits and scarcity of qualified applicants -creates great sense of inequity

Regression also includes an "R^2"

-R-square answers the question: how well does our internal job structure (job evaluation points) explain variations in market pay rates? -R^2 Ranges from 0.0 - 1.0 0.0= 0% due to job structure 0.0 - .30 = Small Variation 0.31 - .70= Average Variation 0.71 - .99 = Large Variation 1.0 = All variation explained by job structure The higher the variation the better!

Statistical Analysis to Integrate Market data with Internal Job Structure

-Regression Analysis is utilized to determine the market pay line. -X is the job evaluation points for benchmark jobs determined by internal job structure (determined in Task B of project) -Y is the market salaries (means or medians) based on survey data for benchmark jobs. Y^(hat)=A (constant) + B(slope)X1 + E

Measures of Variation

-Statistical analyses to "make sense" of data -the amount of spread or dispersion in a data set (dispersion around central point SD= Sqroot of ((x1^2 + x2^2 + x3^2....)/(N-1)) Standard Deviation: refers to the mean distance of each data point from the mean Quartile: % of figures below a point, based on 4 grouping. Help determine the range of salaries. Dispersion by % below a set value -Quartile 1= 25% of salaries are less than top salary in Q1 -Quartile 2= 50% are less than Q2 top salary -Quartile 3= 75% are less than Q3 top salary -Quartile 4=100% Percentile: $ of figures below a point. Just like quartile but broken in percentages and more than 4 groups

Benchmark Jobs

-Used for: Job Evaluations, Compensation Surveys -Established, well-known, stable -Common across employers -Entire range of jobs -Accepted for setting pay rates

Consumer Price Index CPI

-Used to adjust survey data due to lag between data collection and time survey data is being used. -Indexes monthly price changes in goods and services -Data collected from: (1) Urband U.S.A. (2) 4 Regions (3) 4 Population class Sizes (4) 27 Local Metropolitan Areas Published for 2 groups -all urban consumers -Urban wage and clerical earners

Questions to Consider for Compensation Surveys

-Who is the relevant labor market? Labor markets can be defined by: -occupational classification -Geography -Market Competitors Which benchmark jobs should be included? For professors at the U of I, College of Business, what is the relevant -occupational classification? Professionals with PHD -Geographic Labor Market? Midwest, US, International -Labor Market Competitors? Big 10 Schools, University For Admin Assistants at the U of I, College of Business, what is relevant -Occupational classification? Administration -Geographic Labor Market? Iowa City, Coralville area -Labor Market Competitors? Pearson, ACT

compensation surveys are used to

-assess competitors' compensation practices (mix and level) base pay, incentives and rewards, benefits -integrate internal job structures -implement company's compensation policies and strategies

Survey Data Characteristics

-compensation surveys contain a lot of data -salaries, benefits ($value) for thousands of jobs -Data is always outdated due to lag time (use CPI to make adjustments) -Statistical analysis needed to (1) make sense of the data (2) integrate internal job structures with external market

Internal consistency in pay systems

-create a job structure that -compares the value of a job against other jobs -recognize differences in job char. by paying higher wages for jobs valued more highly -base the job structure on two processes -Job analysis: identifies and defines job content -Job Evaluation: evaluates the monetary value of a job's content vis-a-vis the market pay rate.

Selecting a CP plans: issues to consider

-culture or structure of organization -traditional (piece rate, sales commissions, group incentives) top-down decision making vertical communication jobs that are clearly defined -involvement (profit sharing, skill-based pay, team-based bonuses) -shared decision making -lateral communication -loosely defined roles Design Considerations -define and measure performance first and then allocate rewards -only use rewards that are available -make sure all employees are eligible -rewards should include both financial and non-financial -rewards should be visible, contingent, timely and reversible

Compa-Ratios

-index of the competitiveness of internal pay rates based on midpoints -divide employee's pay rate by pay range midpoint (can be done for each employee, or for the average employees in pay grade) -compa-ratio meanings 1= market match rate <1 = market lag rate (underpaid) >1 = market lead over rate (overpaid) Compa ratio= current pay rate/midpoint of pay grade to calculate employee's proposed raise percentage increase (proposed pay-current pay)-current pay

Common problems with contingent pay plans

-insignificant rewards (no valence) - poor performance management system (expectancy and instrumentality problems) -managers not accountable for performance evaluations

Alternatives to job evaluation

-market pay rates solely determines pay -pay incentives (commission) -Individual rates negotiated by employee -Collective bargaining determines salaries

Outliers Affect on Mean Scores

-outliers can distort values -understated means occur with extremely small outliers -may set salaries too low -overstated means occur with extremely large outliers -may set salaries too high -outliers should be removed from salary data before computing means

What does it mean for pay to be "contingent"? What are the different types of contingent pay plans?

-pay and salary increases that are based on job performance. (also called pay for performance/incentive pay) -Forces organizations to clearly define effective performance, determine which behaviors/results are most important Merit-based pay raises (degree), Individual or team bonuses (results), Commission-based pay, Piece-rate pay (paying people for piece they product), Profit sharing plans (gainsharing, scanlon), Skill-based pay (experience), Gainsharing plans, Employee stock ownership plans

Reasons for introducing contingent pay

-performance management is more effective when financial rewards are tied to results -force organizations to -clearly define effective performance -determine which behaviors/results are most important -contingent pay plans help to recruit and retain top performers

Possible problems associated with contingent pay plans

-poor performance management systems -managers not accountable for developing employee's performance goals -insignificant rewards (no valence) -may reward counterproductive behavior (don't pay just on sales) -disproportionately large rewards for executives

Useful sources for finding information to write job descriptions

-standard occupational classifcation system -O*Net content model lists six categories of job and work information for 1000s of jobs

Market-Competitve Pay Systems

-the comparisons between the pay and benefits of one company and the companies with which it competes. -ensures "external equity" in pay -plays a key role in recruitment and retention of high-performing, quality, employees -is the result of an evaluation of compensation surveys

Characteristics of Benchmark Jobs

-the contents are well known, relatively stable over time, and agree upon by the employees involved -the jobs are common across a number of different employers -the jobs represent the entire range of jobs that are being evaluated within a company -the jobs are generally accepted in the labor market for the purposes of setting pay levels

Gainsharing Plans

-typically a "plant-wide" incentive system -rejects the premise that money is the primary motivator of improved performance -research shows that gainsharing plans improve employee cooperation and plant productivity -scanlon plan is the most popular

Tangible and Intangible Rewards

1) Tangible: Cash compensation: base pay, seniority-based pay raises, contingent pay Benefits: insurance and retirement protection, pay for time not worked, work/life services 2) Intangible -recognition: public, private, status -trust and respect -challenges -freedom or autonomy -good relationships

coaching and feedback

1) when giving feedback to employees, remember to stay focused on their performance/behaviors (do not criticize them in terms of their traits) 2) Help employees solve problems themselves; do not tell them how to solve it (ask them questions to help identify problems and solutions) 3) Remember to give positive feedback too

Pay Structure Variations

Broadbanding: consolidate a number of existing pay grades into a single pay grade (wider points and salary ranges) Grade A Grade B Grade C Grade D Grade E Band A Band B Two-tier Pay Structures: pay range for newly hired employees is lower than pay range for more tenured employees within same pay grade. -designed to control payroll costs -mainly in unionized companies -may hinder recruiting -can lower employees' morale paid hourly plus cost of living adjustment and by a certain hire date

What would be recommended compensable factors to comply with the Equal Pay Act?

Equal Pay Act: Must justify pay difference for comparable work including pay, wages, comp. to gender. Just having a college degree does not mean better pay legally if same job. Job summary is compared Fair Labor Standards Act: Determine exemption status for overtime provision. American with Disabilities Act: Determine essential job functions (cannot discriminate against Americans with disabilities. Skill, Effort (physical or mental), Responsibility (managerial vs financial), and working conditions are all universal compensable factors

Designing Merit Pay systems

Factors to consider: -merit increase amount must be a "just-meaningful pay increase" -Timing - common review date or anniversary date -Recurring vs. non-recurring pay increase -Present level of pay within pay grade affects new proposed pay. Increase amount: -should reflect prior job performance levels -needs to be meaningful -is influenced by the cost-of-living increase -is typically indexed as a % of current compensation budget

How do job analysis and job evaluation differ? What role does each play in creating a compensation system?

Job Evaluation: is the process for recognizing differences in the relative worth of jobs and establishing pay rates accordingly. -Evaluates the monetary value of a job's content vis-a-vis the market pay rate. Job analysis: job content (tasks and duties), Worker and performance requirements (KSAs), Job context (working conditions) steps: 1) determine job analysis program 2) select and train analysts 3) orient job analysts on existing information 4) Conduct the study: collect new data on jobs 5) Summarize the results: Write the job descriptions -Identifies and deines job content

CP Plans to enhance strategic directions

KNOW THIS! 1) Employee development -skills based pay 2) Customer Service -competency based pay -gainsharing 3) Overall Profit -executive pay -profit or stock sharing 4) Productivity -Individual -piece rate -sales commission -Group -gainsharing -group incentives 5) Teamwork -team sales commissions -gainsharing -competency based pay

Job Evaluation Techniques: Quasi-Quantitative Method

KNOW THIS! Classification Plans -based on compensable factors -compensable factors determine "classes" -pay rates vary within classes depending on ratings on other compensable factors and incumbent's seniority -federal government's plan is most well-known. -goal is to match own company's job positions to the Fed Gov't classification system to determine wage structure.

Job Evaluation Techniques: Quantitative Method

KNOW THIS! Point Method -most widely used. -Based on compensable factors -each factor is broken down into degrees -each factor is given a weight (possible pts) -each factor is assigned a value based on the degree and weight -total job "worth" is based on sum of all of factor values -Process initially done with benchmark jobs.

expectancy theory

motivation = expectancy x instrumentality x valence there is a clear link between their efforts and resulting performance. Employees may have poor performance due to unclear goals, lack of skills, circumstances outside control, inadequate resources. -proposes that a person will decide to behave or act irreverently 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 -This theory emphasizes the needs for organizations to relate rewards directly to performance and to ensure that the rewards provided are those rewards deserved and wanted by the recipients

performance management systems are more effective when

performance ratings linked to salary raise, bonuses, stock options, termination of lowest performers no effect for forced distribution systems