MNGMT 4220 Exam 2 Key Terms

pay satisfaction

A function of the discrepancy between employees' perceptions of how much pay they should receive and how much pay they do receive. If these perceptions are equal, an employee is said to experience pay satisfaction.

Point (factor) method

A job evaluation method that employs (1) compensable factors, (2) factor degrees numerically scaled, and (3) weights reflecting the relative importance of each factor. Once scaled degrees and weights are established for each factor, each job is measured against each compensable factor and a total score is calculated for each job. The total points assigned to a job determine the job's relative value and hence its location in the pay structure.

Alternation ranking

A job evaluation method that involves ordering the job description alternately at each extreme. All the jobs are considered. Agreement is reached on which is the most valuable and then the least valuable. Evaluators alternate between the next most valued and next least valued and so on until the jobs have been ordered.

Bureau of Labor Statistics (BLS)

A major source of publicly available pay data. It also calculates the consumer price index.

bourse market

A market that allows haggling over terms and conditions until an agreement is reached.

Consumer Price Index (CPI)

A measure of the changes in prices in a fixed market basket of goods and services purchased by a hypothetical average family. Not an absolute measure of living costs; rather, a measure of how fast costs are changing. Published by the Bureau of Labor Statistics, U.S. Department of Labor.

central tendency

A midpoint in a group of measures.

Interval scaling

A particular numerical point difference has the same meaning on all parts of a scale.

skill-based pay

A pay structure in which workers are paid for the skills they are certified to have obtained.

Criterion pay structure

A pay structure to be duplicated with a point plan.

National Metal Trades Association (NMTA) plan

A point factor job evaluation plan for production, maintenance, and service personnel.

National Electrical Manufacturers Association (NEMA) plan

A point factor job evaluation system that evolved into the National Position Evaluation Plan sponsored by NMTA associates.

benchmark (key) job

A prototypical job, or group of jobs, used as a reference point for making pay comparisons within or without the organization. Benchmark jobs have well-known and stable contents; their current pay rates are generally acceptable, and the pay differentials among them are relatively stable. A group of benchmark jobs, taken together, contains the entire range of compensable factors and is accepted in the external labor market for setting wages.

Paired comparison

A ranking job evaluation method that involves comparing all possible pairs of jobs under study.

Regression

A statistical technique for relating present-pay differentials to some criterion, that is, pay rates in the external market, rates for jobs held predominantly by men, or factor weights that duplicate present rates for all jobs in the organization.

skill analysis

A systematic process to identify and collect information about the skills required to perform work in an organization.

efficiency wage theory

A theory that explains why firms are rational in offering higher-than-necessary wages.

Ranking format

A type of performance appraisal format that requires that the rater compare employees against each other to determine the relative ordering of the group on some performance measure.

lead pay-level policy

A wage structure that is set to lead the market throughout the plan year. Its aim is to maximize a firm's ability to attract and retain quality employees and to minimize employee dissatisfaction with pay.

lag pay-level policy

A wage structure that is set to match market rates at the beginning of the plan year only. The rest of the plan year, internal rates will lag behind market rates. Its objective is to offset labor costs, but it may hinder a firm's ability to attract and retain quality employees.

Rent

Amount by which payment to a factor of production (capital or labor) exceeds the payment needed to keep it employed and/or its productivity. In the case of an employee (labor), economic rent would be compensation paid beyond what is necessary to retain the employee and/or beyond his/her marginal product.

Cost containment

An attempt made by organizations to contain benefit costs, such as imposing deductibles and coinsurance on health benefits or replacing defined benefit pension plans with defined contribution plans.

pay levels

An average of the array of rates paid by an employer.

shared choice

An external competitiveness policy that offers employees substantial choice among their pay forms.

competency

Basic knowledge and abilities employees must acquire or demonstrate in a competency-based plan in order to successfully perform the work, satisfy customers, and achieve business objectives.

skill blocks

Basic units of knowledge employees must master to perform the work, satisfy customers, and achieve business objectives.

broad banding

Collapsing a number of salary grades into a smaller number of broad grades with wide ranges.

Committee a priori judgment approach

Compensable factor importance weights are assigned by a committee based on a priori judgment.

Policy capturing

Compensable factor importance weights are inferred using statistical methods such as regression analysis.

competency-based structure

Compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. Typically used in managerial and professional work where what is accomplished may be difficult to identify.

Scaling

Determining the intervals on a measurement instrument.

Pay discrimination

Discrimination usually defined as including (1) access discrimination, which occurs when qualified women and minorities are denied access to particular jobs, promotions, or training opportunities; and (2) valuation discrimination, which takes place when minorities or women are paid less than white males for performing substantially equal work. Both types of discrimination are illegal under Title VII of the Civil Rights Act of 1964. Some argue that valuation discrimination can also occur when men and women hold entirely different jobs (in content or results) that are of comparable worth to the employer. Existing federal laws do not support the "equal pay for work of comparable worth" standard.

compensating differentials

Economic theory that attributes the variety of pay rates in the external labor market to differences in attractive as well as negative characteristics in jobs. Pay differences must overcome negative characteristics to attract employees.

Job evaluation committee

Group that may be charged with the responsibility of (1) selecting a job evaluation system, (2) carrying out or at least supervising the process of job evaluation, and (3) evaluating the success with which the job evaluation has been conducted. Its role may vary among organizations, but its members usually represent all important constituencies within the organization.

job content

Information that describes a job. May include responsibility assumed and/or the tasks performed.

Compensable factor

Job attributes that provide the basis for evaluating the relative worth of jobs inside an organization. A compensable factor must be work-related, business-related, and acceptable to the parties involved.

Classification

Job evaluation method that involves slotting job descriptions into a series of classes or grades that cover the range of jobs and that serve as a standard against which the job descriptions are compared.

Factor weights

Measures that indicate the importance of each compensable factor in a job evaluation system. Weights can be derived through either a committee judgment or a statistical analysis.

Factor scales

Measures that reflect different degrees within each compensable factor. Most commonly five to seven degrees are defined. Each degree may be anchored by typical skills, tasks and behaviors, or key job titles.

Appeals processes

Mechanisms are created to handle pay disagreements. They provide a forum for employees and managers to voice their complaints and receive a hearing.

pay grade

One of the classes, levels, or groups into which jobs of the same or similar values are grouped for compensation purposes. All jobs in a pay grade have the same pay range—maximum, minimum, and midpoint.

pay-with-competition policy

Policy that tries to ensure that a firm's labor costs are approximately equal to those of its competitors. It seeks to avoid placing an employer at a disadvantage in pricing products or in maintaining a qualified workforce.

benchmark conversion

Process of matching survey jobs by applying the employer's plan to the external jobs and then comparing the worth of the external job with its internal "match."

Zones

Ranges of pay used as controls or guidelines within pay bands that can keep the system more structurally intact. Maximums, midpoints, and minimums provide guides to appropriate pay for certain levels of work. Without zones employees may float to the maximum pay, which for many jobs in the band is higher than market value.

job structure

Relationship among jobs inside an organization, based on work content and each job's relative contribution to achieving the organization's objectives.

pay mix (or pay forms)

Relative emphasis among compensation components such as base pay, merit, incentives, and benefits.

pay-policy line

Representation of the organization's pay-level policy relative to what competitors pay for similar jobs.

Market pricing

Setting pay structures almost exclusively through matching pay for a very large percentage of jobs with the rates paid in the external market.

topping out

Situation in which employees in a skill-based compensation plan attain the top pay rate in a job category by accumulating and/or becoming certified for the top-paid skill block(s).

quoted-price market

Stores that label each item's price or ads that list a job's opening starting wage are examples of quoted-price markets.

job-based structure

Structure that relies on work content—tasks, behaviors, responsibilities.

job-based systems

Systems that focus on jobs as the basic unit of analysis to determine the pay structure; hence, job analysis is required.

multiskill systems

Systems that link pay to the number of different jobs (breadth) an employee is certified to do, regardless of the specific job he or she is doing.

ability to pay

The ability of a firm to meet employee wage demands while remaining profitable; a frequent issue in contract negotiations with unions. A firm's ability to pay is constrained by its ability to compete in its product market.

hit rate

The ability of a job evaluation plan to replicate a predetermined, agreed-upon job structure.

marginal product of labor

The additional output associated with the employment of one additional human resource unit, with other factors held constant.

marginal revenue of labor

The additional revenue generated when the firm employs one additional unit of human resources, with other factors held constant.

utility theory

The analysis of utility, the dollar value created by increasing revenues and/or decreasing costs by changing one or more human resource practices. It has most typically been used to analyze the payoff to making more valid employee hiring/selection decisions.

pay structures

The array of pay rates for different jobs within a single organization; they focus attention on differential compensation paid for work of unequal worth.

base wage

The basic cash compensation that an employer pays for the work performed. Tends to reflect the value of the work itself and ignore differences in individual contributions.

competitive intelligence

The collection and analysis of information about external conditions and competitors that will enable an organization to be more competitive.

total compensation

The complete pay package for employees, including all forms of money, bonuses, benefits, services, and stock.

labor demand

The employment level organizations require. An increase in wage rates will reduce the demand for labor, other factors constant. Thus, the labor demand curve (the relationship between employment levels and wage rates) is downward-sloping.

perquisites (perks)

The extras bestowed on top management, such as private dining rooms, company cars, and first-class airfare.

external competitiveness

The pay relationships among organizations; focuses attention on the competitive positions reflected in these relationships.

shirking behavior

The propensity of employees to allow the marginal revenue product of their labor to be less than its marginal cost; to be lax.

pay ranges

The range of pay rates from minimum to maximum set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job.

ranges

The range of pay rates from minimum to maximum set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job.

relative value of jobs

The relative contribution of jobs to organizational goals, to their external market rates, or to some other agreed-upon rates.

range midpoint

The salary midway between the minimum and maximum rates of a salary range. The midpoint rate for each range is usually set to correspond to the pay-policy line and represents the rate paid for satisfactory performance on the job.

survey

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

employer of choice

The view that a firm's external wage competitiveness is just one facet of its overall human resource policy and that competitiveness is more properly judged on overall policies. Challenging work, great colleagues, or an organization's prestige must be factored into an overall consideration of attractiveness.

relevant markets

Those employers with which an organization competes for skills and products/services. Three factors commonly used to determine the relevant markets are the occupation or skills required, the geography (willingness to relocate and/or commute), and employers that compete in the product market.

market pay line

Using key/benchmark jobs, a market pay policy line can be constructed that shows external market pay survey data as a function of internal job evaluation points. In many cases, the market pay policy line is obtained by using regression analysis, which yields an equation of the form "market pay = intercept + slope × job evaluation points." By plugging the job evaluation points for any job (both benchmark and non-benchmark jobs) into the equation, the predicted pay for each job can be obtained.

job evaluation

a systematic procedure designed to aid in establishing pay differentials among jobs within a single company. It includes classification, comparison of the relative worth of jobs, blending internal and external market forces, measurement, negotiation, and judgment.

reservation wage

a theoretical minimum standard below which a job seeker will not accept an offer, no matter how attractive the other job attributes.

human capital

an economic theory proposing that the investment one is willing to make to enter an occupation is related to the returns one expects to earn over time in the form of compensation.