Total Rewards Midterm

Person-Focused Plans (1 of 5)

•Rewards employees for acquiring job-related knowledge, skills, and competencies•Three main types-Pay-for-knowledge-Skill-based pay-Competency-based pay •Pay-for-knowledge: reward managerial, service, or professional workers for successfully learning specific curricula•Skill-based: used mostly for employees who do physical work, increases these workers' pay as they master new skills •Reward employees for improving or acquiring new skills/knowledge•Horizontal (knowledge) skills: skills at the same level of responsibility or difficulty (similar skills/knowledge)-Ex: Clerical employees of a retail store trained to monitor the use of office supplies for reordering.▪Employee attendance records▪Schedule salesperson's work shifts▪Master the use of office supplies for reordering •Vertical (knowledge) skills: skills that are traditionally considered supervisory-Scheduling, coordinating, training, leading •Depth of skills: level of expertise or specialization an employee possesses-Ex: Compensation Specialists:▪Job evaluation▪Salary survey analysis▪Incentive (merit) pay system design Competencies•Refer to an individual's capability to orchestrate and apply combinations of knowledge and skills consistently over time to perform work successfully in the required work situations•Core competencies have taken on strategic importance

Company-Wide Incentive Plans

•Rewards employees when company exceeds minimum acceptable performance standards•Two types-Profit sharing plans-Employee stock options

Standard Occupational Classification System (SOC)

•SOC-Published by the Office of Management and Budget-Lists 23 major occupational groups-Relevant for making compensation decisions

Longevity Pay Characteristics

•Same principles as seniority pay•Longevity pay designed to:-Address pay of employees who reach maximum pay grade rates based on seniority-Rewards employees with periodic pay increases that do not become part of base pay•Used for most government employees•General Schedule system for federal employees

Point Method Steps

•Select benchmark jobs•Choose compensable factors•Define factor degrees•Determine weight of factors•Determine point value•Verify factor degrees and point values•Evaluate all jobs

Job Evaluation Process Steps

•Select technique•Choose committee•Train members to evaluate•Document plan•Communicate with employees•Set up appeals process

Seniority Pay

•Seniority and longevity pay systems reward employees-with periodic additions to base pay-according to employees' length of service in performing their jobs•According to human capital theory, employees become more valuable over time

Working Conditions

•Social context•Physical environment-Vary along dimensions-Based on level of noise and possible exposure to hazardous factors

Person-Focused Pay Program Models (1 of 4)

•Stairstep: The steps represent jobs from a particular job family that differ in terms of complexity. Stairstep Model (1 of 3)•Jobs from same job family•Jobs differ in complexity•Higher the step, greater the skills•Companies use separate models•Models designed to match jobs Person-Focused Pay Program Models (2 of 4)•Skill blocks Model: Applies to jobs within the same job family, but skills do not necessarily build on one another. Skill Blocks Model (1 of 3)•Applies to jobs in same job family•Employees expected to progress to increasingly complex jobs•Skills may not build on one another•Emphasizes horizontal and vertical skills Person-Focused Pay Program Models (3 of 4)•Job-point accrual model: encourages employees to develop skills and learn to perform jobs from different job families Job-Point Accrual Model•Applies to jobs from different job families•Creates organizational flexibility•Points are assigned to various skills•The higher the number of points, the higher the core compensation level Person-Focused Pay Program Models (4 of 4)•Cross-departmental model: promotes staffing flexibility by training employees in one department with critical skills they would need to perform effectively in other departments Cross-Departmental Model•Employees develop skills usable in other departments•Helps manage sporadic, short-term staffing shortages•Helps meet seasonal fluctuations-Ex: Holiday shopping rush.

Variation

•Standard deviation-Refer to the mean distance of each figure from the mean•Quartile-Percentile of figures below a point based on four groupings•Percentile-Percentage of figures below a point based on 100 groupings

Regression Analysis (1 of 2)

•Statistical procedure designed to find the best-fitting line between two variables•Formula:-,= predicted salary-X= job evaluation points-a= Y intercept (X = 0)-b = the slope

What Is Strategic Compensation?

•Strategic Compensation refers to the design and implementation of compensation systems to reinforce the objectives of both HR strategies and competitive business strategies.

Four Activities of Market Competitive Pay Systems (1 of 2)

•Strategic analysis entails an examination of a company's external market context and internal factors-External market context: industry profile, information on competition, long-term prospects-Internal factors: financial condition, functional capabilities •Compensation surveys involve the collection and subsequent analysis of competitors' compensation data•Compensation professionals integrate the internal job structure with the external market pay rates identified through compensation surveys•Compensation professionals recommend pay policies that fit with their companies' standing and competitive strategies

Writing Job Descriptions

•Summarize a job's purpose and tasks, duties, and responsibilities•Should include:-Job title-Job summary-Job duties-Worker specifications

Contrast Errors

•Supervisor compares employees'performance to other employees not to explicit performance standards•What if the best employee is average

Errors of Central Tendency

•Supervisors rate all employees as average•Usually occurs when only extreme behaviors require documentation

Job Evaluation

•Systematically recognizes differences in the relative worth among a set of jobs•Helps to establish pay differentials accordingly•Job evaluation partly reflects the values and priorities that management places on various positions•Job analysis, in contrast, is almost purely descriptive

Reasons for Adopting Person-Focused Pay Programs

•Technological innovations•Increased global competition

Integrating the Internal Job Structure with External Market Pay Rates

•The goal is to set pay rates based on the matches between a company's jobs (job structure) and corresponding benchmark jobs.

Building Blocks and Structure of Strategic Compensation Systems (1 of 2)

•The main building blocks are extrinsic compensation and intrinsic compensation•Our focus is on extrinsic compensation:-Core compensation-Adjustments to core compensation-Legally required employee benefits-Discretionary employee benefits

Setting Pay Rates

Thus, this market policy line indicates the following market pay rates:

Advantages and Disadvantages of Profit-Sharing Plans

•Advantages-Enable employees to share in companies' profits-Allow companies greater financial flexibility•Disadvantages-Can undermine the economic security of employees-May fail to motivate employees if they do not see a direct link between their efforts and profits

Advantages and Disadvantages of Seniority Pay

•Advantages:-Employees perceive that they are treated fairly-Facilitates administration of pay-Avoids perception of favoritism•Disadvantages:-Poor fit with most competitive strategies-No incentives to improve-Growing costs

Alternative Pay Structure Configurations

•Alternative pay structure configurations to be explored in this book:-Merit plans-Sales compensation plans-Broadband structures-Two-tier wage structures-Executive compensation-Contingent worker compensation-Expatriate compensation-Compensation structures in countries other than the United States

Historical Overview

•As an outcome of labor and management negotiations, codified in collective bargaining agreements•Labor unions sought to ensure consistent treatment of employees, including-pay rates-pay increase amounts-frequency of pay increase awards•Political pressures in the public sector Longevity Pay Characteristics•Same principles as seniority pay•Longevity pay designed to:-Address pay of employees who reach maximum pay grade rates based on seniority-Rewards employees with periodic pay increases that do not become part of base pay•Used for most government employees•General Schedule system for federal employees

Piecework Plans

•Awards based on individual production versusobjective standards•Awards based on individual performance standards using objective and subjective criteria•Quantity and/or quality goals

Competitors' Pay Practices

•Base pay•Incentive awards structure•Mix and level of discretionary benefits•Promote efforts to sustain competitive advantage

Behaviorally Anchored Rating Scales (BARS)

•Based on 8-10 expected job behaviors•Employees rated on ability to perform each behavior•Ratings highly defensible in court•Encourages all raters to make evaluations in similar ways

Incentive Pay Considerations

•Based on individual or group performance•Acceptable level of risk•Replace or complement traditional pay•Performance criteria evaluated•Appropriate time horizon for goals

Elements of Effective Merit Pay Programs

•Based on objective and subjective indicators of job performance•Periodic performance reviews•Realistic and attainable standards•Pay increases reflect performance•Just-meaningful pay increases: amounts that employees will see as making a meaningful change in compensation for their performance

O*NET Content Model: Worker Requirements (Sample of Full List) (1 of 2)

•Basic skills-Content1.Reading comprehension2.Active listening3.Writing-Process1.Critical thinking2.Active learning3.Learning strategies •Cross-functional skills-Social skills1.Social perceptiveness2.Coordination3.Persuasion-Complex problem-solving skills1.Problem identification2.Information gathering3.Information organization

Major Types of Rating Errors

•Bias errors•Contrast errors•Errors of central tendency•Errors of leniency or strictness

Merit Pay Plans

•Award permanent pay increases for performance•Reward excellent effort or results•Motivate future performance•Help retain valued employees•In 2017, average merit increase was 3.0%•Highest performers earned 4.5%

Types of Individual Incentive Plans (2 of 2)

•Behavioral encouragement plans: employees receive payments for specific behavioral accomplishments•Referral plans: employees receive bonuses for recruitment of highly qualified employees•Spot bonuses: employees receive small monetary gifts for outstanding work or effort during a reasonably short time period•Signing bonuses: monetary awards given to promote recruitment and job offer acceptance

Behavioral Systems

•Critical-incident technique (CIT)•Behaviorally anchored rating scales (BARS)

Equal Employment Opportunity Commission (EEOC) (1 of 2)

•Distinguishes among the terms knowledge, skill,andability•Skill refers to an observable competence to perform a learned psychomotor act-Ex: Typing 50 words per minute.•Knowledge refers to a body of information applied directly to the performance of a function-Ex: Compensation professionals should know FLSA's overtime provisions. •Ability refers to a present competence to perform an observable behavior or a behavior that results in an observable product-Ex: To mediate a dispute between labor and management successfully.

Worker Specifications

•Education•Skills•Abilities•Knowledge•Other qualifications to perform job

Incentive Pay Assumptions

•Effective incentive pay systems are based on three assumptions:-Individual employees and work teams differ in how much they contribute to the company, both in what they do as well as in how well they do it-The company's overall performance depends to a large degree on the performance of individuals and groups within the company-To attract, retain, and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance

Scanlon Plan

•Emphasis on teamwork•Two-tiered cost savings suggestion system•Production-level committees•Screening committees•,•Smaller Scanlon ratios show that labor costs are lower relative to SVOP

Occupational Requirements

•Generalized work activities•Organizational context•Work context

Competitive Business Strategy Choices

•Lowest cost strategy: focus on being lowest cost producer/seller of goods or services•Differentiation strategy: focus on offering unique goods or services to the public

Disadvantages of Group Incentives

•May lead to higher employee turnover because of the free-rider effect•Members may feel uncomfortable with the fact that other members' performance influences their compensation level

Base Pay Adjustments (1 of 2)

•COLA's: COLA's represent periodic base pay increases that are founded on changes in prices as indexed by the consumer price index (CPI)•Seniority pay: seniority pay systems reward employees with periodic additions to base pay according to employees' length of service in performing their jobs•Merit pay: merit pay programs assume that employees'compensation over time should be determined, at least in part, by differences in job performance

Custom Developed Surveys

•Can be custom tailored•Quality can be monitored by employer•Usually not done in-house•External data not readily accessible•Can be expensive

Job Analysis Data Gathering Methods

•Questionnaires•Interviews•Observation•Participation

Reliable and Valid Job Analysis Methods

•Reliable Job Analysis Method: Yields consistent results under similar conditions.-For example, two independent analysts reach similar conclusions about the duties that constitutes a job•Valid Job Analysis Method: Accurately assesses each job's duties or content

Group Incentive Plans

•Reward employees for their collective performance•Two types:-Team based or small group-Gain sharing

Disadvantages of Person-Focused Pay Programs

•Can increase hourly labor costs•Can increase training costs•Can increase overhead costs•May not mesh well with existing incentive pay systems•Depend on well-designed training programs•Struggle to determine the monetary value of skill and knowledge sets

Advantages of Person-Focused Pay Programs to Employees

•Can provide job enrichment•Can provide job security •Leads to enhanced job performance•Leads to reduced staffing•Leads to greater flexibility

O*NET Content Model: Worker Characteristics (Sample of Full List) (1 of 2)Abilities

•Cognitive abilities-Verbal abilities1.Oral comprehension2.Written comprehension3.Oral expression4.Written expression•Idea generation and reasoning abilities1.Fluency of ideas2.Originality3.Problem sensitivity •Quantitative abilities1.Mathematical reasoning2.Number facility•Memory1.Memorization•Perceptual abilities1.Speed of closure2.Flexibility of closure3.Perceptual speed

Advantages of Group Incentives

•Companies can more easily develop performance measures for group incentive plans than for individual incentive plans•Greater group cohesion

Employee Stock Option Plans

•Companies grant employees right to purchase share of company-Company stock-Company stock shares-Stock options

Incentive Pay

•Compensation fluctuates according to:-A preestablished formula-Individual or group goals-Company earnings•Adds to base pay on a nonrecurring basis•Controls costs•Motivates employees through explicit goal setting

Fundamental Compensation System Design Elements

•Compensation professionals promote effective compensation systems by meeting three important goals:-Internal consistency-Market competitiveness-Recognition of employee contributions

Strategic Compensation Decisions

•Compensation professionals provide a strategic contribution when they can answer yes to 3 questions:-Does compensation strategy fit well with the objectives of company competitive business and HR strategies?-Does the choice and design of compensation practices fit well to support compensation strategy?-Does the implementation of compensation practices effectively direct employee behavior to enhance job performance that supports the choice of compensation practices?

What Is Compensation?

•Compensation represents the rewards employees receive for performing their jobs. These rewards are either:-Intrinsic: intrinsic compensation represents employees' critical psychological states that result from performing their jobs-Extrinsic: extrinsic compensation includes both monetary and nonmonetary rewards

Performance Appraisal Practices

•Conduct a job analysis•Incorporate results into ratings•Trains supervisors on use•Implement formal appeals and review of ratings processes

Profit-Sharing Plans

•Current profit-sharing plans-Award cash to employees typically on a quarterly or annual basis•Deferred profit-sharing plans-Place cash awards in trust accounts for employees

Job Analysis Process

•Determine job analysis program•Select and train analysts•Direct job analyst orientation•Conduct the study•Summarize results: write job descriptions

Employee Benefits

•Discretionary benefits•Legally required benefits

Compensable Factors

•Salient job characteristics used to establish relative pay rates

Quartile

•Dispersion by % below a set value-Quartile 4 = 100%-Quartile 3 = 75%-Quartile 2 = 50% (also, the median)-Quartile 1 = 25%

Job Evaluation Qualitative Approaches

•Simple ranking plans•Paired comparisons•Alternation ranking•Classification plans

Decline in Union Representation

•Since 1954 (highest union representation at 28.3%), the unionization rate has steadily declined-About 30 years ago, the rate was 20.1%-In 2017, union representation was at 10.7%

Universal Compensable Factors

•Skill•Effort•Responsibility•Working conditions

General Schedule (GS) (1 of 3)

•Divided into 15 classifications•Classifications based on skills, education, and experience levels•Employees eligible for 10 within-grade pay increases (WGI)•Waiting period within steps varies between 1 and 3 years, taking 18 years to progress from step 1 to step 10

U.S. Bureau of Labor Statistics Surveys

•The BLS publishes information on the wages, earnings, and benefits of workers:-Employment cost trends-National compensation data-Wages by area and occupation-Earnings by demographics-Earnings by industry-County wages-Employee benefits

Labor Unions

•The National Labor Relations Act of 1935 (NLRA) requires private-sector employers enter into good-faith negotiations with workers over the terms of employment.-Collective bargaining agreement describes term of employment-The National Labor Relations Board (NLRB) oversees enforcement of the NLRA.

Job Analysis Units (1 of 2)

•Element: the smallest step-Ex: Connecting a flash drive into a USB port.•Task: one or more elements-Ex: Keyboarding text into memo format.•Position: a collection of tasks-Ex: Clerk typist. •Job: a group of positions with similar tasks-Bob, John, and Jason are clerk typists•Job family: a group of two or more jobs with similar characteristics-Clerical job family: file clerk, clerk typist, administrative clerk•Occupation: a group of jobs-Office support occupation

Gain Sharing Plans

•Three common forms:-Scanlon plan-Rucker plan-Improshare

Rucker Plan

•Emphasizes employee involvement•Uses a value-added formula to measure productivity (value added/total employment costs)•Larger ratios show that value added is greater than total employment costs

Critical Incident Technique (CIT)

•Employees and supervisors identify and label job behaviors and results•Supervisors observe and record•Requires extensive documentation

Sources of Performance Appraisal Information

•Employee•Supervisor•Coworkers•Subordinates•Customers/clients

Legal Considerations

•Equal Pay Act-Must justify pay differences between men and women performing equal work•FLSA-Determine exemption status•ADA-Determine essential job functions

Rewards Allocation Methods

•Equal incentive payments•Differential payments based on contribution to goals•Differential payments according to base pay

Published Survey Sources (2 of 2)

•Examples of consulting firms:-Aon-Frederic W. Cook & Company-Korn Kerry-Hay Group-Pearl Meyer & Partners-Willis Towers Watson-William M. Mercer

Experience Requirements

•Experience and training-Related work experience-On-site training-On-the-job training•Licensing-Licenses and certificates-Formal education•Additional education and training•Organization and agency requirements-Legal-Employer-Union, guild, professional association

O*NET Categories

•Experience requirements•Occupational requirements•Occupation specific requirements•Worker requirements•Worker characteristics•Labor market characteristics

Limitations of Merit Pay Programs

•Failure to differentiate among performers•Poor performance measures•Supervisor biases•Poor communication•Using non merit factors•Undesirable competition•Little motivational value•Undesirable social structures•Mounting costs

Legally Required Benefits

•Federal legislation designed to:-Promote worker safety and health-Maintain family income-Assist families in crisis-Provide assistance in case of▪Disability▪Unemployment

Profit-Sharing Formulas

•Fixed first-dollar-of profits formula-Ex: 7% of corporate profits•Graduated first-dollar-of profits formula-Ex: 3% of the first $8 million of profits and 6% of the profits in excess of that level•Profitability threshold formula

Individual Incentive Pay Program Advantages

•Helps relate pay to performance•Promotes equitable distribution of compensation•Instills an ownership mentality•Compatible with America's individualistic culture

Elements of Core Compensation

•How Base Pay Is Adjusted over Time-Cost-of-living adjustments (COLA's)-Seniority pay-Merit pay-Incentive pay-Person-focused pay or competency-based pay: pay-for-knowledge, skill-based pay

Participants in Merit Pay Plans

•In 2017, approximately 65% of companies used merit pay plans•In 2010 and 2014, 65% and 72%, respectively•Most often adopted in the private for-profit sector

Base Pay Adjustments (2 of 2)

•Incentive pay: incentive pay (or variable pay) rewards employees for partially or completely attaining a predetermined work objective•Pay-for-knowledge plans: pay-for-knowledge plans reward managerial, service, or professional workers, for successfully learning specific curricula•Skill-based pay: skill-based pay is used mostly for employees who perform physical work and increases these workers'pay as they master new skills

Gain Sharing

•Incentives based on company performance in-Increased productivity-Increased customer satisfaction-Lower costs-Better safety records

Laws Pertinent to Compensation Practice (1 of 2)

•Income Continuity, Safety, and Work Hours-Fair Labor Standards Act of 1938-Portal-to-Portal Act of 1947-Equal Pay Act of 1963-Work Hours and Safety Standards Act of 1962-McNamara-O'Hara Service Contract Act of 1965 •Pay Discrimination-Equal Pay Act of 1963-Lilly Ledbetter Fair Pay Act (2009)-Civil Rights Act of 1964,-Bennett Amendment (1964) -Age Discrimination in Employment Act of 1967 (amended in 1978, 1986, and 1990)-Civil Rights Act of 1991•Accommodating Disabilities and Family Needs-Pregnancy Discrimination Act of 1978-Americans with Disabilities Act of 1990 (amended in 2008)-Family and Medical Leave Act of 1993•Prevailing Wage Laws-Davis-Bacon Act of 1931-Walsh-Healey Public Contracts Act of 1936

Updating Survey Data: Consumer Price Index (CPI)

•Indexes monthly price changes in consumer goods and services•Most commonly used method for tracking cost changes in United States•CPI published monthly by the U.S. Bureau of Labor Statistics (https://www.bls.gov/)

Incentive Pay Categories

•Individual: these plans reward employees whose work is performed independently•Group: these plans promote supportive, collaborative behavior among employees•Company-wide: these plans tie employee compensation to a company's performance over a short time frame

Leveling Instructions and Points (1 of 2)

After recording the level for each factor for a job, determine points associated with that level from the chart below. sum the points to determine overall work level. Points range by work level

Distribution Methods

Equal payments•Proportional payments based on annual base earnings

Stakeholders (1 of 6)

•Individuals or entities directly affected by compensation practices:-Employees-Line managers-Executives-Unions-U.S. Government •Employees rely oncompensation professionals to:-Develop and implement systematic training programs-Inform them of training and pay links-Offer discretionary benefits that provide:▪Income protection▪Paid time off▪Services•Line managersrely oncompensation professionals to:-Ensure knowledge of relevant laws to help them make sound compensation judgments-Advise for establishing pay differentials-Train them how to properly evaluate jobs•Executives rely oncompensation professionals to:-Develop and manage sound compensation systems-Insure the company's practices are:▪Legally consistent▪Sufficiently attractive to recruit and retain▪Cost effective•Unions rely oncompensation professionals to:-Abide by their collective bargaining agreements-Ensure they get their COLA adjustments and seniority pay•The U.S. government requires compensation professionals to:-Keep updated and comply with all employment legislation-Demonstrate that alleged discriminatory pay practices are not in fact discriminatory; or, are a business necessity

Internally Consistent Compensation Systems and Competitive Strategy

•Internally consistent pay systems may reduce a company's flexibility to respond to changes in competitors' pay practices•Narrowly defined jobs-Resultant bureaucracy

Tools for Building Job Structures

•Job analysis-A descriptive procedure-Identifies and defines job content•Job evaluation-Compensation systems set pay levels-Establish pay differentials

Sources of Data

•Job incumbents•Supervisors•Job analysts-Note: A review of O* Net, which falls within the scope of job analysis, follows as an appendix.

Sample Traits

•Judgment•Leadership•Dependability•Cooperation•Initiative•Creativity

Workforce Characteristics

•Labor market information•Occupational outlook

Some of the Causes for Decline in Union Representation

•Legislation prohibits unions from intimidating workers to become members•Legislation has lessened the role of unions•Globalization of business•Right-to-work laws prohibit requiring workers to join unions as a condition of employment•Challenge to public sector unionization

Errors of Leniency or Strictness

•Leniency errors → managers rate employees'performances more highly than they would rate them compared against objective criteria•Strictness error → supervisors rate employees' performance lower than they would rate them if compared against objective criteria

Pay for Performance Link

•Link appraisals to business goals•Analyze jobs•Establish effective appraisals•Empower employees•Differentiate among performers•Communicate expectations

Pay-Level Policies

•Market lead (75th percentile)-Levels above market pay lines-Best for differentiation strategies•Market match (50th percentile)-Pay according to market pay line-Appropriate with differentiation strategy•Market lag (25th percentile)-Levels below market pay lines-Best for lowest-cost strategies

Two Examples of Job Evaluation Techniques

•Market-based evaluation: uses market data to determine differences in job worth•Job-content evaluation: emphasizes company's internal value system by establishing a hierarchy of internal job worth; the point methodis a job-content evaluation system

Individual Incentive Pay Program Disadvantages

•May promote inflexibility•Measurement problems•May promote undesirable behaviors

Improshare

•Measure productivity physically rather than in terms of dollar savings•Incentive to finish products•Based on a labor hour ratio formula

Worker Requirements

•Minimum Knowledge, Skills, and Abilities (KSA's)-Education-Experience-Licenses-Permits-Special abilities-Ex: HR managers must have knowledge of recruitment, selection, training, compensation and benefits, labor relations and negotiations, human resource information systems, oral/written comprehension, active listening, critical thinking.

Usage of Person-Focused Pay (1 of 3)

•Most companies that use skilled-based pay plans employ between 150-2,000 employees•One study found that a skilled-based pay plan in a manufacturing setting:-Increased plant productivity by 58%-Lowered labor cost per part by16%-Generated favorable quality outcomes (82% scrap reduction rate) Usage of Person-Focused Pay (2 of 3)•Mostly found in continuous process settings, like manufacturing in which:-Assembly lines are used-One employee's job depends on the work of at least one other worker Usage of Person-Focused Pay (3 of 3)•Works well in manufacturing companies that organize work flow around high-performance work teams where employees are expected to perform managerial tasks like:-Work scheduling-Budgeting-Quality control

Gain Sharing Programs

•Most gain sharing programs have three components1.Leadership philosophy2.Employee involvement systems3.Bonuses

The Point Method

•Most popular job-content method•Uses quantitative methodology•Evaluates jobs by comparing compensable factors

Occupation-Specific Requirements

•Occupational skills•Occupational knowledge•Tasks•Duties•Machines•Tools•Equipment

Mean

•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

Pay Mix Policies

•Pay mix policies refer to the combination of core compensation and employee benefits components that make up an employee's total compensation package•Pay policy mix may be expressed in dollars (or other currency as relevant) or as a percentage of total dollars allocated for an employee's total compensation

Compensation Policies and Strategic Mandates

•Pay-level policies•Pay mix policies

Contrasting Person-Focused Pay with Job-Based Pay (1 of 3)

•Person-Focused Pay:-Compensates employees for flexibility-Compensated for potential contributions▪Based on skills and knowledge-Used for jobs not easily assessed▪For skills and knowledge •Job-Based Pay:-Compensates employees for current jobs-Pay limits set for each job-Evaluations based on job descriptions and objectives-Two main types:▪Merit pay▪Incentive pay

Limitations of Merit Pay Programs•Failure to differentiate among performers

•Poor performance measures•Supervisor biases•Poor communication•Using non merit factors•Undesirable competition•Little motivational value•Undesirable social structures•Mounting costs

Bias Errors•First-impression effect

•Positive halo effect•Negative halo effect•Similar-to-me effect•Illegal discriminatory biases

Published Survey Sources (1 of 2)

•Professional associations•Industry associations•Consulting firms•Federal government (U.S. Bureau of Labor Statistics)

Relevant Labor Market

•Qualified candidates based on:-Occupational classification-Geography-Market competitors-Product or service

Comparison Systems

•Rates and ranks performance•Pay raises based on ranking•Types-Forced distribution-Paired comparisons

Geographic Pay Differentials (1 of 2)

•Relative pay differentialsare often expressed as the percentage difference between a specific location and the national average-The relative pay differential for Los Angeles is 20% higher than the national average-The relative pay differential for Lincoln, Nebraska is 3 percent less than the national average •Pay rate differentialsare expressed in dollars as annual or hourly pay differences for occupations based on particular geographic regions and the nation overall•Cost-of-living differencesbetween geographic locations influence pay-Oftentimes, average housing prices signal cost-of-living differences (e.g., $464,000 in Boston; $214,000 in Fargo, North Dakota)

Worker Requirements and Characteristics

•Requirements-Basic skills-Cross-functional skills-Knowledge-Education•Characteristics-Abilities-Interests-Work styles

Incentive Pay Measures

Individual Incentive PlansQuantity of work outputQuality of work outputMonthly salesWork safety recordWork attendanceGroup Incentive PlansCustomer satisfactionLabor cost savings (through gain sharing plans)Materials cost savingsServices cost savings (e.g., utilities) Company-wide Incentive PlansOperational Measures:Customer satisfactionOperational efficiencyService/qualitySafety/occupational injuryFinancial Measures:RevenueEarnings per company stock shareOperating incomeRevenue growthNote: Measures such as safety records and customer satisfaction can be measured on an individual, group, or company-wide basis according to a company's objectives. •Piecework plans: reward workers for every item produced over a designated production standard•Management incentive plans: award bonuses to managers when they meet or exceed objectives based on sales, profit, production, or other measures for their division

Critical Incidents Performance Appraisal Rating Form Example (1 of 2)

Instructions: For each description of work behavior below, circle the number that best describes how frequently the employee engages in that behavior.1.The employee removes manure and unconsumed food from the animal enclosures.a. Never b. Almost never c. Sometimes d. Fairly often e. Very often2.The employee haphazardly measures the feed items when placing them in the animal enclosures.a. Never b. Almost never c. Sometimes d. Fairly often e. Very often 3.The incumbent leaves refuse dropped by visitors on and around the public walkways.a. Never b. Almost never c. Sometimes d. Fairly often e. Very often4.The incumbent skillfully identifies instances of abnormal behavior among the animals, which represent signs of illness.a. Never b. Almost never c. Sometimes d. Fairly often e. Very often

Behaviorally Anchored Rating Scale Example

Instructions: On the scale below, from 7 to 1, circle the number that best describes how frequently the employee engages in that behavior.7 The employee could be expected to clean the animal enclosures thoroughly and remove refuse from the public walkways as often as needed.|6|5 The employee could be expected to clean the animal enclosures thoroughly and remove refuse from the public walkways twice daily.|4|3 The employee could be expected to clean the animal enclosures and remove refuse from the public walkways in a haphazard fashion twice daily.|2|1 The employee could be expected rarely to clean the animal enclosures or remove refuse from the public walkways.

Job Analysis

Job analyses describe:•Job content: actual activities-Greeting clients▪Saying "Hello"▪Asking the client's name▪Offering beverages, etc.•Worker requirements: minimum qualifications and KSA's•Working Conditions: social context or physical environment

R2

R Squared•Explains variation in market pay rates via job structure•Ranges from 0.0 to 1.0-0.0 = 0% variation in pay rates due to job structure-0.0-.30 = small variation-.31-.70 = average variation-.71-.99 = large variation-1.0 = 100% variation

Goal-Oriented System•Management-by-objectives (MBO)-

Supervisors and employees set objectives-Highly effective technique-Rated on how well objectives are met-Mainly for professionals and managers

Forced Distribution Performance Appraisal Rating Example (1 of 2)

Table 3.5 AForced Distribution Performance Appraisal Rating FormInstructions: You are required to rate the performance for the previous 3 months of the 15 workers employed as animal keepers to conform with the following performance distribution:•15 percent of the animal keepers will be rated as having exhibited poor performance.•20 percent of the animal keepers will be rated as having exhibited below-average performance.•35 percent of the animal keepers will be rated as having exhibited average performance.•20 percent of the animal keepers will be rated as having exhibited above-average performance.•10 percent of the animal keepers will be rated as having exhibited superior performance. Table 3.5 [continued]Use the following guidelines for rating performance. On the basis of the five duties listed in the job description for animal keeper, the employee's performance is characterized as:•Poor if the incumbent performs only one of the duties well.•Below averageif the incumbent performs only two of the duties well.•Average if the incumbent performs only three of the duties well.•Above averageif the incumbent performs only four of the duties well.•Superior if the incumbent performs all five of the duties well.

Undesirable Social StructureTable 3.9

The Impact of Equal Pay Raise Percentage Amounts for Distinct SalariesAt the end of 2019, Anne Brown earned $50,000 per year as a systems analyst and John Williams earned $35,000 per year as an administrative assistant. Each received a 5 percent pay increase every year until the year 2023.

Interindustry Wage Differentials (1 of 3)

•The pattern of pay and benefits associated with characteristics of industries•Factors leading to interindustry wage differentials-Industry's product market: Where there is little competition (e.g., mining, utilities), there is greater flexibility for providing higher wages-Capital intensity: The extent to which companies' operations are based on the use of large-scale equipment, and capital intensity is associated with higher wages •Factors leading to interindustry wage differentials:-Industry profitability: Presumably, employee higher levels of knowledge, skills and abilities contribute to company profitability, which, in turn, is associated with higher wages-Unionization of the workforce: More highly unionized industries pay more highly, in part, because the collective bargaining process gives labor greater leverage for negotiating higher wages and benefits Table 2.1 Average Weekly Earnings by Industry Group, Select Years 2009-2017Industry2009 ($)2011 ($)2013 ($)2015 ($)2017 ($)aUtilities1,3661,3851,4741,5301,649Mining1,1801,2761,2761,3651,492Construction9119881,0101,0491,149Manufacturing8859699761,0221,161Retail trade478506516 541572Leisure and hospitality329338348 372410a2017 figures are for DecemberSource: U.S. Bureau of Labor Statistics. Employment, Hours, and Earnings. December 2017 http://www.bls.gov. Accessed January 8, 2018.

Labor Union Influence on Pay

•The spillover effect suggests that non union employers tend to pay higher than they might otherwise pay in order to avoid unionization

Survey Data Characteristics

•They contain a lot of data•Outdated data due to lag time•Statistical analysis needed to integrate internal job structures with external market

Compensation Cost Trends

•This program publishes quarterly statistics that measure:-Changes in labor costs over time▪Employment Cost Index-Levels of costs per hour▪Employer Costs for Employee Compensation

Discretionary Benefits

•Three broad categories-Protection programs: provide family benefits, promote health, and guard against income loss caused by such catastrophic factors as unemployment, disability, or serious illness-Paid time-off: provides employees with pay for time when they are not working-Services: provides such enhancements as tuition reimbursement and day care assistance to employees and their families

Contrasting Incentive Pay with Traditional Pay

•Traditional pay generally includes an annual salary or hourly wage-Increased periodically on a seniority or merit basis with permanent increase to base pay•Incentive pay generally-Increases base pay on goal attainment with pay increase nonrecurring-Companies use incentive pay to reward individual employees, teams of employees, or whole companies based on their performance

Performance Appraisal Plans (1 of 2)

•Trait systems: Ask raters to evaluate each employee's traits or characteristics•Comparison systems: Evaluate a given employee's performance against the performance of other employees Performance Appraisal Plans (2 of 2)•Behavioral systems: Rate employees on the extent to which they display successful job performance behaviors•Goal-oriented systems: Used mainly for managerial and professional employees and typically evaluate employees'progress toward strategic planning objectives

Summarizing Survey Data

•Two descriptive properties-Central tendency▪Represents the fact that a set of data center around a central point-Variation▪Represents the amount of spread or dispersion in a data set

Compensation Surveys

•Two essential strategic considerations are:-Defining the relevant labor market-Choosing benchmark jobs

Preliminary Considerations

•Two preliminary considerations before investing time and money into compensation surveys:-What companies hope to gain from compensation surveys-Custom development versus use of an existing compensation survey

Central Tendency

•Two types of measures-Arithmetic mean (mean, average)▪Sum of salaries/number of salaries▪Represents typical market salaries-Median (midpoint)▪Middle value of sequential numerical data

Job Leveling

•Typically, there are differences between a company's jobs and benchmark jobs•Corrections for these differences are based on subjective judgment•The process for making these corrections is referred to as job leveling•Point level factor refers to one job leveling process

Benchmark Jobs

•Used for:-Job evaluations-Compensation surveys 4 Characteristics of benchmark jobs:-Contents are established, well-known, stable-Common across employers-Entire range of jobs-Accepted for setting pay rates

360 Degree Performance Appraisal

•Uses more than one appraisal source•Reduces common appraisal errors•Results in a more comprehensive and fair view of performance

National Compensation Survey

•Wages by area and occupation•Earnings by demographics•Earnings by industry•County wages (quarterly census of employment and wages)•Employee benefits

Types of Teams

•Work (process) teams: refer to organizational units that perform the work of the organization on an ongoing basis-Ex: Customer service teams, assembly teams on production lines.•Project teams: consist of a group of people assigned to complete a one-time project-Ex: Engineers working on the construction of a bridge.•Parallel teams (task forces): include employees assigned to work on a specific task in addition to normal work duties