BUS3-158 Final Exam

"How-to": Competency analysis

Clarify the plan objective What information to collect? 1. Personal characteristics 2. Visionary 3. Organization specific. Whom to involve? Competencies derive from executive leader's beliefs about the organization's strategic intent. Establish certification methods. Identify ways to demonstrate competencies. Resulting structure. Has relatively few levels and wide differentials for increased flexibility. Competencies and employee selection and training/development. Competencies relate to individual characteristics of personality, motivation, and ability. Failure to adequately screen employees puts additional pressure on training/development, and de-motivates employees seeking to acquire and demonstrate these competencies.

A benchmark job is ________________

Common to most if not all major employers Populated by large number of incumbents Allow for strong, confident matching Provides stable, reliable, robust data All Are Correct!

Explosive Interest in Long-term Incentive Plans

Long-term incentives(LTIs) focus on performance beyond one-year. Recent growth in LTI plans is spurred by a desire to motivate longer-term value creation. There is very little evidence that stock ownership leads to better corporate performance. Some evidence that stock ownership increases internal growth. As of June 2005, companies are required to report stock options as an expense. FAS 123 Legal

Specific Pay-for-Performance Plans: Short Term

Merit Pay A merit pay system links increases in base pay to how highly employees are rated on a performance evaluation. Employee achievements are rewarded every year the employee remains on the job. Individual Spot Awards About 35 percent of companies use them. 74 percent reported them effective. Usually awarded for exceptional performance. Larger companies use formal mechanisms while smaller companies may be more casual. Individual Incentive Plans Offer a promise of pay for some objective, pre-established level of performance. All plans use an established standard for comparing worker performance to determine magnitude of the incentive pay. Differences in plans occur over two dimensions: the method of rate determination, and the relationship between production and wages. The most frequently implemented is a straight piecework system. Two common plans set standards based on time per unit and tie incentives to level of output. Standard hours plan. Bedeaux plans. The Taylor plan has two piecework rates, and The Merrick system has three piecework rates. Three plans have variable incentives linked to a standard expressed as a time period per unit of production. The Halsey 50-50 method. The Rowan plans. The Gantt plans.

Bias in internal structures

No evidence that job evaluation is susceptible to gender bias. Wages criteria bias indirectly affects job evaluation. Recommendations: 1. Define compensable factors and scales. 2. Ensure factor weights are unbiased. 3. Apply the plan in a bias-free manner.

Person-Based Structures: Competencies

Observable behaviors. Early conceptions focused on: skills, knowledge, self-concepts, traits, and motives. Competencies are becoming a collection of observable behaviors that require no inference, assumption or interpretation. Directly links to the organization's strategy. Supports work flow. Is fair to the employees. Motivates behavior toward the organization's objectives.

Does Variable Pay Improve Performance results? The general evidence.

Pay-for-performance plans have a positive effect if they are designed well. The plans often have too small a payout for the work expected, unattainable (or too easy) goals, outdated or inaccurate metrics, or too many metrics.

The Role of Performance Appraisals in Compensation Decisions

Performance reviews are used in a wide variety of decision in organizations. One is to guide allocation of merit increases and bonus Performance ratings are influenced by: behaviors observed by raters, organization values, aka culture competition among departments, status differences between departments, and economic conditions aka affordability and market. Employees are often frustrated with the appraisal process. The biggest complaint from employees and managers is they are too subjective. There lurks the possibility of unfair treatment by supervisors.

The Perfect Structure

Provide sufficient ambiguity to afford flexibility. Generic = insufficient detail. Too detailed = rigid.

Stock Programs (Equity)

See Slides 26-28 on Chapter 14 ppt

What is a Pay-for-Performance Plan?

Signals a movement away from entitlement toward pay that varies with performance. The starting point of all plans is merit pay. Variable pay can be traced to two trends: increasing competition from foreign producers, and a fast-paced business environment requires workers adapt quickly to change.

It is always best for managers and employees to have regular discussions about performance and career develpment.

True

Many companies tie base pay increases (merit pay) and bonus payout to an employees performance rating.

True

P4P is an acronym for Pay for Performance.

True

Tying Pay to Subjectively Appraised Performance

"How do we get employees to view raises as a reward for performance?" Many companies view raises as a budgetary line item resulting in pay increase guidelines. General increases give equal increases to all employees, regardless of performance. Across-the-board increases are linked with cost-of-living and adjusts base pay for all employees. Seniority increases come close to tying pay to performance, progressive pre-set pay increases. Tying pay to performance requires three things: A definition of performance. A continuum showing levels from low to high. Awarded merit increase at each level. Merit increases, Bonus, Stock may be tied to: Competency: Customer Care. Performance- and Position-Based Guidelines. Designing merit and bonus guidelines. What should the poorest performer be paid as an increase or bonus? How much should average performers be paid as an increase or bonus? How much should top performers be paid? What should be the matrix differentials?

Seagate and Microsoft both use objective achievement to measure performance.

True

The majority of companies use a rating system to determine employee performance.

True

When establishing a Total Rewards strategy it is important to take into consideration the company culture, business/affordability, market competitor practices and legal aspects.

True

Person-Based Structures: Skills Plan

Types of skill plans can focus on depth and breadth in all phases of operations including marketing, manufacturing, finance, and human resources. The work involves teams, multi-skills, and flexibility. This link's pay to depth of KSAO's required to get a job done. Depth is known as the specialists. This is the process of knowing a lot about one thing. Responsibilities do not vary overtime. Breadth is known as the generalists or multi-skill. This is the process of knowing a little about a lot of things. Responsibilities vary overtime.

No wrong answer on this question, choose the answer that best fits your perspective. In my job I would prefer______________?

Average base pay, average bonus, high benefits

Strategies for Better Understanding and Measuring Job Performance

Efforts to improve the process: Define job performance - what exactly should be measured? Managers can be grouped into one of three categories - based on their focus. Either task performance, counterproductive performance, or both. Studies on specific factors focus on: Planning and organizing, training, coaching, developing subordinates, and technical proficiency. Strategy 1: Improve Appraisal Formats Two categories of evaluation formats are: ranking and rating. Ranking formats requires comparing employees against each other to determine the relative ordering of the group on some performance measure. Ratings formats. Require raters to evaluate employees against a standard rather than against each other. Each performance standard is measured on a scale so variation falls along a continuum. Descriptors anchoring the continuum provide the major difference in rating scales. Adjectives. Behaviors. Outcomes. Firms using MBO indicate positive improvements in performance. Managerial attitudes become more positive over time if the system is revised periodically. There are several common components experts feel are vital for success. In an essay format, supervisors answer open-ended questions describing employee performance. Strategy 2: Select the Right Raters 360-degree feedback has grown popular. Assesses performance from five points of view: Supervisor, peer, self, customer, and subordinate. Supervisors as raters. They have experience rating employees and know the job requirements, however, they are prone to leniency errors. Peers as raters. They have an undistorted perspective, however, they have no rating experience and are very lenient. Strategy 3: Understand How Raters Process Information Raters follow this process: Observes behavior. Encodes the behavior. Stores the information in memory. While actually evaluating, the rater reviews the performance dimensions and retrieves from memory stored observations/impressions. reconsiders and integrates with other information. Decides on the final ratings. Strategy 4: Training Raters to Rate More Accurately Generalizations about improving training: Lecturing is generally ineffective. Small groups are more effective. Longer training sessions, practice, and feedback improve accuracy. Combining performance-dimension and performance-standard training is effective. Greatest success comes from reducing halo errors and improving accuracy. Leniency errors are the most difficult to eliminate.

Equal Employment Opportunity and Performance Evaluation

Equal Employment Opportunity (EEO) and affirmative action influence HR decisions. Legal EEO forces organizations to document decisions to ensure they are firmly tied to performance or expected performance. Performance appraisals are subject to the same scrutiny as employment tests. Brito v. Zia CompanySpanish-surnamed employees were laid off. The court stated that the company had not demonstrated that the appraisal instrument was related to important elements of the jobs being evaluated and that the evaluations were based on subjective supervisory observations.

Executive Compensation - components, perqs, different from non-exec compensation

Executives typically receive higher benefits than other exempt employees. ERISA requires they not be too far above others, the plans must also: cover a cross-section of employees, provide definitely determinable benefits, and meet vesting and nondiscrimination requirements. Companies are being required to place a value on perquisites or "perks". Play a major role in motivating short-term performance, given to 90% of executives. Bonuses are smaller than in the past. Short-term payouts sometimes have dire long-term consequences. New financial measures to lessen subjectivity. New objectives measures of performance. Compensation committees are important in determining executive base pay. A common committee approach is setting compensation in the middle of best/worst major competitors. Higher compensation for those likely to be raided. Larger companies tend to pay higher. A board of directors provides strategic advice, usually 8 - 11 directors. Companies want outside directors, those perceived as less biased. There is considerable risk as stockholders may sue directors. In exchange for the risk, directors are well rewarded, typically $240,000 for 30-40 hours of work per month. Supervisors meet the demands of upper management and the needs of employees. Equity is the major compensation challenge. One compensation strategy puts base salary of supervisors at an amount exceeding the top-paid subordinate, usually 5 - 30%. Other methods are to pay supervisors for scheduled overtime or to use variable pay.

Administering and evaluating a plan

Fairness in the plan's administration. Availability of sufficient information. Adequate communication and employee involvement. A reliable evaluation is one where different evaluators produce the same results. Improve reliability by using evaluators familiar with the work and trained in job evaluation. Some organizations use group consensus. Reliabilities for job evaluation scores are higher than those for job analysis ratings. To reduce costs, managers now evaluate.

360 degree performance ratings ask for input from your friends and family in addition to your work associates

False

A S.M.A.R.T. goal is one that is vague and can not be achieved

False

According to Steve Treder from Western Management Group crowd sourced survey data like Glassdoor provides is a valid source of pay data.

False

Based on what we learned from the Total Rewards presentations it does not matter if your Total Rewards strategy supports the business objectives or culture of the company.

False

Ranking formats require raters to evaluate employees against a standard rather than against each other.

False

Ratings formats requires comparing employees against each other to determine the relative ordering of the group on some performance measure.

False

Team Incentive Plans: Types

Group incentive plans. Team performance is measured against a set standard to determine incentive pay. Gain-sharing plans. Pay offs for teams defined at the level of a strategic business unit. Five causes of failure: Team variety. The "level problem". Complexity. Control. Communications. Large group incentive plans. There are generally two types of plans: Gain-sharing plans - use operating measures to gauge performance. Profit sharing plans - use financial measures. look at cost components of the income ledger, identifying areas where employees have an impact. Scanlon plans lower labor costs without lowering the level of the firm's activity. Incentives derived as a function of the ratio between labor costs and sales value of production (SVOP). SVOP includes sales revenue and value of inventory. The Rucker plan is a ratio expressing the value of production for each dollar of total wage bill. Improshare (Improved Productivity through Sharing) is a gain-sharing plan that is easy to administer and communicate. Develops standard to identify expected hours required to produce an acceptable level of output. Savings are shared by firm and workers. All team incentive plans can be described by common features: The size of the group that participates in the plan. The standard against which performance is compared. The payout schedules.

A CEO wants to create an ownership culture. The stock is trading at $50 per share. Which approach is best?

Introduce a cash profit sharing program.

The 3 most important steps in every survey are

Job matching x3

Putting It All Together: The Performance Evaluation Process

Key elements in a good appraisal. Culture and strategy determine measure factors. Involve employees in all stage of the process. Raters should be trained and motivated. Raters should maintain a diary/record of performance Raters should conduct a pre-diagnosis. Self-rating Feedback must be timely.

Sales Compensation - total cash focus, mix of base vs incentive

Long-Term Incentives: Stock Options Terms: Strike Price = FMV Key Terms: Vesting, Term, Discount, Premium "In the money" versus "underwater" Considerations Employees make money based on the increase in price Estimating value of options: (Price today - Strike price)*# Who benefits from Option use? Primary purpose: Attraction, Motivation Terms Strike Price = $0 Vesting, Term, Shares vs Units "In the money" - never "underwater" Considerations Employees make money based on price at time of sale Estimating value of restricted stock is easy ...( # * $)•Who benefits from their use? Primary purpose: Retention, Motivation Alternative Plan Types Full-value vehicle. Appreciation vehicle. Long-term cash Competitive Total Value. Company competes with companies using all three forms of LTI. Companies choose to give targeted amount with any/all forms of equity

When speaking of stock options typically.......

Term is a longer period of time than the vesting period.

One more time: Internal Alignment

The purpose of job- and person-based procedures is to design and manage a pay structure that aids success. Role of Culture? Affordability? Legal? Market? Managers must ensure the structure remains aligned by reassessing work/skills/competencies when necessary. In reality, the distinction blurs and the focus is on what factors create value.

A balanced scorecard approach to performance management looks at what contributes value in an organization.

True

The role of a third party survey company like Western Management Group is_____________

Vet the participants Maintain data element definitions/rules Ensure jobs are correctly matched Collect, validate/edit the data Protect/ensure data integrity/confidentiality Produce data reports All of these

One company offers a canidate for employment 1,200 shares of stock options. Another company provides the same canidate an offer of 400 shares of restricted stock. Assume the salary and benefits are the same. Which offer is better?

We need more information to determine which offer is more valuable.

"How-to": Skill Analysis

What information to collect? Specific information on every aspect of the production process. Whom to involve? Employees and managers. Establish certification methods. Peer review, on-the-job demonstrations, or tests. Scheduled fixed review points and recertification.