Compensation

Steps in Point Factor Approach

1. Choose compensable Factors using benchmark jobs, 2. Develop Factor Measures (Graphic, Anchored, or Variable Distance), 3. Determine Factor Weights, 4. Pilot Test the Job Evaluation System (use representative sample of jobs), 5. Measure Factors for all jobs.

Steps for Implementing Competency-based Pay

1. Define Skills/Competencies, 2. Establish level definitions, 3. Select Information Sources (Panel), 4. Establish Controls (Eligibility and Frequency), 5. Create Training Support, 6. Implement through pilot program.

Job Analysis Process

1. Identify Job being analyzed, 2. Observe and Interview Leadership, 3. Observe and Interview Incumbents, 4. Consolidate and Create a Job Description Draft, 5. Obtain Feedback and Revise.

Principles of Total Rewards

1. Logical Clarity, 2. Data Driven, 3. Dynamic Systems, 4. Communication

4 Implications of a Job Analysis

1. Provides a process for understanding how work is organized and serves as the basis for most reward systems. 2. Job Analysis will detail the KSAs for a job, 3. Defines the nature of the work which serves as an important determinant of FLSA status (exempt vs. non-exempt). 4. Provides an understanding of the nature of the work performance which is vital for determining the effectiveness of performance-based pay systems.

Evaluating Effectiveness of Rewards Strategy

1. Supports business strategy, 2. Reward Strategy Coherence, 3. Fits Organizational Culture

Job Characteristics Theory

5 core characteristics (skill variety, task identity, task significance, autonomy, and feedback) combine to result in high levels of satisfaction with the work itself.

Positive and Negative Location Externalities

A Positive Location Externality is a reward or benefit, not paid for by the organization, that the employee experiences by virtue of living at a particular location. A Negative Location Externality is a punishment or nuisance that an employee experiences by virtue of living in a particular location

Strategy Shift

A gradual shift towards being involved in businesses with a more value-driven purpose

Flexible Spending Account (FSA)

A pre-tax salary reduction cafeteria plan that uses employee funds to provide various types of health care benefits. Employee bear the full cost of the service (other than the administrative fee born by the organization). These funds do not roll over from year to year.

Job Analysis

A process of systematically analyzing positions that result in completed work for the organization.

Performance Appraisal

A process to obtain ratings of an employee's past performance.

Benchmark Competitors

A selection of primary organizations that exemplify the labor and product/service markets in which the organization competes. It creates the standard to which the rewards system is anchored

Pay Range

A set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade

Regression Analysis

A statistical technique for drawing that line, sometimes called the line of best fit. Regression draws the line by estimating which line would minimize how far the line was from each dot (or data point) between internal point value and external point value. Best way to find out how much a job family should be paid.

Merit Pay

A system of linking pay increases to ratings on performance appraisals. It refers to an annual increase in future compensation based on past performance

Health Savings Account (HSA)

A tax-free savings account—funded by employees, employer, or both—to spend on routine medical costs. Usually combined with a high-deductible policy to pay for catastrophic care. These funds roll over from year to year.

Portal-to-Portal Act

Act that defines what is included as hours worked and is therefore compensable and a factor in calculating overtime.

Advantages and Disadvantages of Multiple Reward Structures

Ad-Better captures the unique contributions and compensation trends associated with different job families. Disad-reinforces the functional silos and identifications that can impede organizational effectiveness.

Advantages of a Single Reward Structure or Hybrid

Ad-Cohesive, and simple to design and implement. Middle ground would be to have multiple structures, with several compensable factors that connect the multiple structures together.

Advantages of Bonus Pay

Ad-doesn't get added to base pay, more flexible than base pay (manager discretion, quick, ease of change), Lump sum (tournament theory)

Reward Surveys

Aggregations of reward information gathered from other market organizations. Critical in external positioning.

Indemnity plan (fee for service)

Allow employees to go to any physician and create costs for the organization only when health services are utilized.

Benefit for Pay Range Overlap

Allow for easier career management as employees are promoted up through their own function or take a lateral position in a different function.

Gain Sharing

Allows employees to share in cost savings or productivity gains realized by their efforts. The key is to compare current performance to historic norms and share the improvements

Internal Reward Alignment

Also called Internal Equity. The extent to which an organization's Total Rewards System aligns each employee's rewards with those received by others in the organization

Flexible Benefit Plans

Also known as cafeteria plans; type of benefit plan that allows employees to choose which benefits they want to purchase from a menu of benefits

External Equity

An employee's perceptions regarding the worth of their work conditions and rewards compared to the work conditions and rewards of individuals outside the company.

Job Structure

An hierarchically structure using job functions to arrange jobs for rewards purposes

Team based Bonuses

An incentive may be provided for leadership, problem-solving, support, and other behaviors that are needed for the team to accomplish its work.

Spot Awards

An incentive that companies use to encourage their employees to work toward specific outcomes. Given on a daily or weekly basis. Uses Reinforcement Theory

Managed Care Plans

An umbrella term for all healthcare plans that provide healthcare in return for preset monthly payments and coordinated care through a defined network of primary care physicians and hospitals. PPO, EPO, POS

Employment Based Reward

Benefits, provided because of membership in the organization only.

Total Rewards

Cash, Benefits and Intangibles

3 Primary challenges to a Global Rewards Strategy

Centralization, National Culture, Reward Equivalence

Job Analysis Process Considerations

Choosing Participants, Achieving Buy-In (include people from all levels), Job Content (not job performance)

Merit Pay Matrix

Created by putting different levels of performance along one axis and an employee's position in their pay grade in the other

Health Maintenance Organization (HMO)

Creates a more restricted network than the PPO and creates pre-paid services contracts with those health services providers. There is a set per-employee fee that is paid regardless of the service utilization.

Rewards Process Strategies

Design Strategy-Transparency, Data, Broad Input; Communication Strategy-a plan for creating, sharing, and receiving information; Role and Control Strategy-Centralized (HR decisions) vs Decentralized (Immediate supervisor has a say); Global Rewards Strategy.

Factor Weighting

Determining the relative value of the compensable factors for a given reward plan. Determined by an organization's strategy, organization's culture, and local labor markets

Point Factor Approach

Developed by using benchmark jobs (type, content, and level). Allocates points to jobs based upon the job's value to the organization. The process involves defining valuable elements of jobs, specifying their importance, and measuring the extent to which each job has that element.

Dispersion

Dispersion is the distance between data points. Range (Difference between the top and bottom, also influenced by outliers), Standard Deviation (the average distance of each point from the mean). The central tendency becomes less accurate as the range increases.

Types of Reward System Fairness

Distributive, Procedural, Interactional

Piece Rate Pay

Employee's pay is based on the number of units that the employee produces. Uses tournament theory (large reward for high production)

Benefits of broadbanding

Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization Encourages competency development Emphasizes career development

Job-Specific Reward Level Strategy

Establishing different Reward Level Strategies for different job families or hierarchical levels

3 Perceptions of the Expectancy Theory of Motivation

Expectancy Perception "Can I perform at the level required for the reward"? Instrumentality Perception asks, "If I perform, will I receive the reward"? Valence Perception asks, "Do I value the reward"?

Market Survey Sources

Government, Self-Report, Popular Press, Subscription Survey Data, Custom Survey Data

Job Description Elements

Identification (Job Title, Job Family, Reference ID), Job Content (Tasks, Duties, Responsibilities-about job), Job Specifications (KSAs-about person), Relationships (Supervisors, Peers, Customers), Tools (Technology, Information)

Variable Pay

Include performance-based rewards such as bonuses and commissions, as well as longer-term equity rewards such as stock options.

Cash Compensation

Includes hourly wages, salaries, and bonuses. Refers to the direct monetary pay given to an employee in exchange for their contributions to the organization.

Reasons for Performance Based Pay

Increase Motivation, Focus Organizational actions (more flexible and adaptable), Risk and Uncertainty, and Control Costs

Non employees (FLSA)

Independent Contractors, Trainees, Volunteers

Performance Management System

Involves creating performance plans, providing support and resources, appraising performance, and providing feedback and coaching.

Benefits and Disadvantage to Individual-Based Pay

It allows the organization to build its capacity. It creates a culture of learning in which employees see themselves as capable of changing work roles and provides them a better understanding of the work of their coworkers. Finally, capability-based pay builds a more flexible workforce. Disadvantage-labor costs rise

Distinctions of a Individual Bonus

It is a monetary reward given to a single employee based upon that employee's performance and bonuses do not accumulate into base pay.

3 Primary approaches to establish Internal Alignment with Job Structure

Job Classification Approach, Job Comparison Approach, Point Factor Approach

3 Approaches to Internal Reward Alignment

Job-Based Approach, Individual-Based Approach, Performance-Based Approach

Benchmark jobs

Jobs found in many organizations that can be used for the purposes of comparison

2 primary types of markets that impact on organizational rewards

Labor Markets and Product/Service Markets.

Paid-time-off (PTO) bank

Large bank of time comprising all of an employee's paid time off (i.e., vacation, sick leave, and holidays) that the employee can use as he or she sees fit.

Solutions to Pay inversion and Pay Compression

Merit Pay Budget and COLA

Weighted Mean

Multiplying each company salary by the number of accountants in that company and adding them up and then dividing by the total number of accountants. Best for employees.

Law of Unintended Consequences

Not all of the consequences of a reward system change are foreseeable. While a reward system may do a good job of motivating one type of behavior, it is also possible that there are less desirable behaviors, that it might also motivate. Related to expectancy theory.

Central Tendency

One single number that best represents a whole group of numbers. In compensation, you need a single number that best represents how many people are paid, or how many organizations pay.

Product and Service Market

Organizations compete to create value through the production of goods or the provision of services for customers in exchange for money and loyalty

Compensatory Time

Paid time off granted to an employee for working extra hours. Special exemptions are allowed for public-sector employees.

Types of Paid Leave

Pay for time not worked. Incl. Vacation, Holiday, Sick, Personal

3 primary concerns when integrating data from multiple rewards surveys

Pay forms (different metrics), Matching benchmark jobs, aging the data (ex. inflation-consumer price index), bad data (not accurate)

Total Rewards Strategy

Pay forms, Plans, Policies, and Practices that enables long-term organizational performance.

Types of work relationships

Peer, Supervisory, Customer

Defined Benefit Plan

Pension plan that guarantees a specified level of retirement income

Tournament Theory

People are highly motivated to receive extremely valuable rewards, even when the probability of receiving the reward is quite small. When Valence is very high, then expectancy and instrumentality matter less.

Types of Proportions

Percentages (how large (or small) one number is in relation to another, they do not take into account the dispersion) and Percentiles (Percentiles have the advantage of telling you how you compare to the mean and the dispersion simultaneously)

Justice and Equity Theory

Perception of what is fair in the workplace. Distributive Justice (based on comparisons between the ratio of employees' inputs and rewards to the ratio of inputs and rewards of others), Procedural Justice (focuses on the process by which the reward distribution was determined, give voice, explanation, and corrective procedure), Interactional Justice (perceptions of the extent to which the employee was treated with due respect)

Outcomes of Total Rewards

Performance sustainability (Individual , Team, and Organizational), Attraction and Retention, Satisfaction and Fairness, Cost and Efficiency, Legal Compliance

Exclusive Provider Organization (EPO)

Plan in which participants must use providers in the network of coverage or no payment will be made.

Broadbanding

Practice of using fewer pay grades with much broader ranges than in traditional compensation systems.

3 principles for Pay Ranges

Principle of Inclusiveness (range needs to include all jobs in the band or range), Principle of Overlap (overlap of ranges for successive pay grades), Principle of Control (ranges should be kept small enough for organization to control labor costs)

External Rewards Positioning

Refers to how an organization's Rewards compare to the Rewards offered for comparable work in other organizations

Performance Assessment

Refers to the process of defining and measuring performance of individuals, teams, units, and organizations.

Reinforcement Theory of Motivation

Reinforcement Principle (when positive consequences (rewards) follow a behavior, that behavior becomes is more likely seen in the future), Timing Principle (the smaller the time gap between the behavior and the reward, the greater impact on behavior), Variability Principle (new behaviors are most quickly acquired when reward received every time a behavior is exhibited (low variability), but they are more likely to persist in an acquired behavior even after rewards have stopped when the behavior was not rewarded every time)

Job Comparison Approach

Relative hierarchy based upon a job's value compared to other jobs. The resulting points are an indicator of the relative value of each job in the organization.

Short-Term Disability Insurance

Replace a portion of that employee's salary. Usually 3 weeks.

Defined Contribution Plan

Retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account

Stock Options

Rights to buy a certain number of shares of stock at a specified price

Exempt employees must meet:

Salary level (minimum 864/week), Salary basis (no reduction of amount based on hours worked), Primary Duties

Point of Service (POS)

Similar to the PPO with the exception that the plan specifies a medical services point of contact for employees. This person serves as a gatekeeper for the medical services.

Green Circle Rates

Situations in which an employee's pay is below the minimum of the range.

Red Circle Rates

Situations in which employees' pay is above the range maximum.

3 Types of Capability-based Pay

Skills-based (number of skills), Competency-based (configurations of knowledge, skills and traits), and Seniority-based (Most common, Experience)

Shadow Ranges

Smaller ranges within the pay ranges that are applied to specific job families to provide guidance on appropriate compensation levels

Purpose Principle

States that employees derive intangible rewards from an organization's value-consistent Purpose

Pay as Meaning Principle

States that the rewards employees receive from organizations have informational value in addition to their economic value

Types of Structured Pay Grades

Static, Linear, Individualistic

3 Types of Measurement of Competency based criteria

Strategic (the definition of criteria are all conceptually and empirically connected to employee, unit, and organizational outcomes), Reliable (an employee's level of skill, competency, or experience can be assessed consistently across employees and raters), Transparent (the criteria and system should be easily understood and the processes for implementing the system should also be well documented and followed)

Components of Purpose Principle

Strategic Shift, Transformational Leadership, Person-Organization Fit

Principle of Parity

Suggests that, in general, the more grades that are used the smaller the ranges will be.

Intangible Rewards

Supportive work environment, challenging work, autonomy, work relationships, work location

Intrinsic Motivation Theory

The "natural" rewards we enjoy when we take part in activities or tasks we like

Mean

The average is calculated by adding up the digits in a column and then dividing by the number of digits. It is strongly affected by outliers.

Face Validity

The extent to which the system produces relative job values that appear to be accurate and credible.

Compensable Factors

The job elements that are used to determine appropriate compensation for a job. It is connected to the Critical Success Factors.

Median

The middle number of a group of numbers when they are arranged from lowest to highest

Job Evaluation

The process by which the value of each job in an organization is established

Job Design

The process of systematically constructing jobs to make them functional, efficient, and motivational.

Organizational Culture

The shared beliefs, values, norms, and assumptions of the organization. In weak organizational cultures more individuality is shown with the organization's rules being more weakly applied.

Job-value Structure

The structure of jobs internally positioned according to their relative value. It answers the question of what the jobs are, how they are related, and the relative importance of each.

Critical Success Factors

Those capabilities, activities, customer perceptions, and market positions that allow an organization to outcompete its rivals.

Rating Scales

Tools used to measure compensable factors. Graphic Rating scale, Anchored Rating Scale, Variable Distance Scale

Job Analysis Methods

Traditional Interviews (most common), Panel Interviews (Multiple Incumbents), Questionnaires (Generic or Custom), Job Databases (ONET, or Bureau of Labor Statistics OOH), Observation (Unobtrusive or Interactive)

Total Rewards Content Strategy

Type, level, and combination of rewards offered to employees. Should be connected to the strategies of the firm.

Anchored Rating Scale

Use examples and/or definitions for each point value on the scale

Compa-Ratio (CR)

Used to monitor conformity of pay rates to pay plans. The ratio of average pay to midpoint of pay range. If average equals midpoint, CR is 1. If CR is greater than 1, average pay is above midpoint. IF CR is less than 1, average pay is below midpoint.

Variable Distance Scale

Uses different point distances between each level in the scale. This approach allows an organization to measure compensable factors that takes into account the "natural breaks" in the factor being measured.

Job Classification Approach

Uses logical categories and descriptions to organize the jobs. Only affective for small companies. Ex. Managers, cashiers, stockers.

Pay Form Specific Reward Strategies

Varying pay-level strategies across reward types. For example, one organization may choose to lag the market by 5% on base pay, but lead the market by 10% on employee benefits.

Reward-level Strategy

What level of each reward will be offered. Absolute level-can be defined. Relative level-lead, lag, or match. Hybrid-can lead in some and match other reward types.

Reward Forms Strategies

What types of rewards are offered. Ex. Cash, Benefits, Intangibles.

Capability-Based Pay

When a reward system explicitly attempts to vary rewards based upon the capabilities of the employee. Includes skill-based, competency-based, and seniority-based pay.

Job Performance Model

When job performance is caused more by factors outside of the employees' control, levels of employee engagement and motivation are likely to have a smaller impact on subsequent performance

Value-Reward Line

When regression is used to estimate the line summarizing the relationship between Job Evaluation Points and a compensation metric

Labor-driven Job Market

When the demand for a particular set of KSAs (knowledge, skills, and abilities) is high and the supply of these KSAs is low.

Preferred Provider Organization (PPO)

a health care plan that contracts with health care professionals to provide services at a reduced fee and gives patients financial incentives to use network providers

Competitive Strategies

cost leadership, differentiation, niche focused, hybrid

Exempt Employees (FLSA)

executive employees, administrative employees professional employees, computer employees outside salespersons

Maslow's Hierarchy of Needs

physiological, safety, love/belonging, esteem, self-actualization. Higher-level needs are not important and are not manifest until lower-level needs are satisfied.

Pay Grades

sets of jobs having similar worth or content, grouped together to establish rewards. Jobs are declared "similar" on the basis of their Job Evaluation points

Profit Sharing

the distribution to employees of a percentage of the company's profits. Higher earners get more. (Expectancy Theory-problem with lower earners)