Compensation Ch. 8

New organizations and jobs fuse diverse knowledge and experience, so "relevant" markets appear more...

"fuzzy"

What are the major decisions involved with setting externally competitive pay and designing corresponding pay structures?

-Specify the employer's competitive pay policy. -Define the purpose of the survey. -Select relevant market competitors. -Design the survey. -Interpret survey results and construct the market line. -Construct a pay policy line that reflects the external pay policy. -Balance competitiveness with internal alignment through the use of ranges, flat rates and, or bands

What are the possible purposes of a Survey?

1) To adjust the pay level in response to changing rates paid by competitors. 2) To set the mix of pay forms relative to that paid by competitors. 3) To establish or price a pay structure. 4) To analyze pay-related problems. 5) To estimate the labor costs of product, or service market competitors.

There are several ways to translate external competitiveness policy into practice:

Choice of measure Updating Policy line as percent of market line

Low- High Approach:

Convert market data to fit the skill or competency- based structure. Use the lowest and highest paid benchmark jobs as anchors

What are the two factors that merit increase grids use to guide pay increases in an organization?

Employee performance rating and position in the pay range

The Department of Labor regularly publishes the....

Employment Cost Index (one of four types of salary surveys)

What do unusual shapes of frequency distributions in a pay survey reflect? (Check all that apply.)

Greatly dispersed pay rates Companies with very different pay policies Issues with job matches

Updating:

If a company chooses a "match" policy, they will be lagging the market

What Information to Collect with surveys...

Information about the organization Information about the total compensation system Specific pay data on each incumbent in the jobs under study

Internal alignment perspective

Pay range reflects the variations in experience or performance that an organization wishes to acknowledge with pay.

Pay adjustments can also be based on...

Performance. Ability to pay. Terms specified in a contract.

Identify the statistical measures of variation that are commonly found in pay surveys.

Quartiles and percentiles

Identify the best solution to the differing pay structures for a job that arise out of differences between market structures and rates and job evaluation rankings.

Reanalyzing the job evaluation or market data for the job

Pay ranges allow managers to...

Recognize individual performance differences with pay. Meet employees' expectations that their pay will increase over time. Encourage employees to remain with the organization.

Base pay

The amount of cash each job and incumbent is worth

Lead

The organization ages the market data to a point at the end of the plan year and pays at this rate for the entire plan year.

Since employees these days are easily able to compare their salaries to others' using data from the Bureau of Labor Statistics or Salary.com, managers must _____.

be able to defend the salaries they pay

If the content of a company's jobs fails to sufficiently match that of jobs in a salary survey, an attempt can be made to quantify the dissimilarity through _____.

benchmark conversion

A pay structure made with which 2 components?

internal alignment and external competitiveness

Aging the market data to a point halfway through the plan year is called...

lead / lag

Instead of reconciling an internal and external pay structure, some employers directly use _____ to determine their internal pay structures and mimic competitors' structures.

market surveys

Many employers use ___________ _____________ to validate their own job evaluation results

market surveys

It is my opinion the market impacts _______________ and ___________________ the most.

salary / compensation

Central Tendency is a measure reducing a large amount of data into a...

single number.

Adjustments made by employers to workers' pay levels on a regular basis can be based on the overall movement of wage rates caused by _____.

the competition for labor in the market

According to supporters of broad banding, the principal benefit of this technique is _____.

the cross-fertilization of ideas within an organization

Distribution of rates around the central tendency is the ______________

variation

It is evident from practice that different pay surveys imply _____.

varying levels of pay

Choice of measure:

A company can use a specific percentile for base pay and another percentile for total compensation

The Bureau of Labor Statistics (BLS) is the major source of what?

Publicly Available Data The data are often not specific enough to be used alone

A relevant labor market includes employers who compete in:

The same occupations or skills Hiring employees within the same geographic area The same products and services

What are the areas in which employers belonging to a labor market must compete? (Check all that apply.)

The same services and products Employees situated in the same geographic area The same skills or occupations

benchmark job approach:

If the purpose of the survey is to price the entire structure, then select benchmark jobs to include the entire structure.

The most common statistical measure of variation is probably _____, which is rarely used in pay surveys.

standard deviation

A ______________ is the systematic process of collecting and making judgments about the compensation paid by other employers

survey

The overall Purpose of surveys =

to Study special situations

The goal of using a salary increase matrix is to keep adjusting employee pay so that it is _____.

appropriately positioned relative to the market

The first step in developing pay grades is to group different jobs considered substantially _________ for pay purposes

equal

Translating any external pay policy into practice requires information on the ______________ market.

external

A pure market pricing strategy carried to the extreme ignores _____ entirely.

internal alignment

The different functions or groups within bands are usually priced the same due to external market differences.

FALSE

Regression (the measurement of relationship between variables) generates a straight line that best fits the data by minimizing _______________ around the line.

variance

What are the differences among organizations that pay grades and pay ranges offer flexibility to deal with? (Check all that apply.)

Variations in the mix of pay forms competitors use Variations in quality among job applicants Variations in the value of quality differences

In the context of salary grades, one of the advantages of broad banding is that it _____.

eases mergers and acquisitions

Unlike the pay structure of an organization, the job structure _____.

orders the organization's jobs according to internal factors

Grades allow people to move among jobs with no...

pay change

Different jobs in an organization that are considered substantially equal for pay purposes are grouped into a _____ to build flexibility into the organization's pay structure

pay grade

Optimal overlap between grades ought to be large enough to induce employees to seek.....

promotion

Consulting firms offer a choice of ongoing __________ and offer clients access to survey databases

surveys

Companies use outside consulting firms as third party protection against possible _________ ___________ lawsuits

"price fixing"

Which of the following summarizes the distribution of going rates paid by competitors in a labor market?

A market line

A range has three features:

A midpoint where the pay- policy line crosses the center of the grade Minimum Maximum

What are the salient features of a pay range?

A midpoint, a minimum, and a maximum

External competitiveness perspective

Pay range reflects the variations in experience or performance that an organization wishes to acknowledge with pay.

Banding in Two Steps:

Set the number of bands Price the bands (reference market rates)

Lag

The organization selects a "match" policy but then updates survey data to the start of the plan year/end of the current year and maintains this rate throughout the plan year.

How do frequency distributions aid an analyst during the statistical analysis of a pay survey?

They aid in visualizing information.

Benchmark Conversion / Survey Leveling:

When jobs do not match survey jobs, quantify the difference using benchmark conversion. If an organization uses job evaluation, then apply that system to the survey jobs.

a technique that collapses salary grades into only a few broad bands, each with a sizable range

broad banding

When collecting organizational data for a salary survey, financial data are typically used to _____.

categorize firms by size, expressed in terms of revenues or sales

What does this Index allow for?

comparisons. They may have limited value if they do not reflect relevant competitors

Base pay, total cash, and total compensation are the most commonly used measures of...

compensation

In most companies, the person responsible for managing a pay survey is the _____.

compensation manager

Pay adjustments can be based on the overall movement of pay rates caused by ______________ for people in the market

competition

A market line summarizes the distribution of _________ _________ paid by competitors in the market

going rates

Ranges set upper and lower pay limits for all jobs in each....

grade

Adjustments to the different forms of pay occur...

less frequently

A band in broad banding encompasses many positions of varying values, so a _____ is usually not used.

range midpoint

Professional associations usually also collect and publish ________ _______ and the information may be more objective and reliable

salary data

Setting pay for benchmark jobs is easy with a good ___________ match

survey

Broad banding encourages employees to seek growth by moving...

cross-functionally

With regression, As the number of jobs in the survey ________________, the advantages of the straight line regression provides becomes __________.

increases / clear

A pay-policy line always specifies a percent above the market line so that an organization can match its competitors.

FALSE

Broad banding leaves an organization vulnerable to charges of _____.

inconsistency and favoritism

Price fixing happens if survey participants interfere with competitive prices and artificially hold down _________.

wages

In an organization that uses a pure market pricing strategy, the pay structure is completely determined by _____.

competitors' pay decisions

In managerial jobs, larger pay ranges reflect _____.

greater scope for performance variations and individual discretions

For non-benchmark jobs, the market _________ __________ are useful

pay lines

One of the methods used to translate pay policy determined through a pay survey into practice is to _____

specify a percent below or above the market line that an organization intends to match

The pay structure has two aspects:

The pay-policy line Pay ranges.

Identify a disadvantage of pay grades.

They are quite challenging to design

Designing a survey requires answering the following questions...

Who should be involved in the survey design? How many employers should be included? Which jobs should be included? What information should be collected?

A low-high approach to selecting jobs for inclusion in surveys is used to determine the pay level when an organization _____.

has skill-competency-based structures

The size of the range is a _____________ about how the range supports career paths, promotions, and other systems

judgment

Calculate a __________ by adding each company's base wage and dividing by the number of companies.

mean

The pay data for a salary survey are usually updated through a process called trending or aging to predict the _____.

competitive rates for the future date when the pay decisions will be implemented

Companies seek benchmark practices, costs, and compensation to better understand....

competitor's achievements

Designing pay grades and pay ranges is usually done with ________ pay data, since this reflects the basic value of the work

base

If evaluations place two jobs at the same rate of pay, yet the market shows different pay rates, some will recheck the evaluation process

True The resulting job structure may not match competitors' pay structures

The easiest way to convert market data to fit a skill or competency structure is to use _____ as anchors for the competency-based structures.

the wages for the lowest- and highest-paid benchmark jobs for the relevant skills in the market

Survey data is part of gathering ______________ intelligence

competitive

Why are market data weighed more heavily than internal job evaluation data when reconciling differences in pay structures?

Market data are usually perceived as more objective.

Broad banding consolidates four or five traditional grades into a single band with a __________ and _____________

minimum / maximum

In the context of salary grades, identify the advantages of broad banding. (Check all that apply.)

It fosters cross-functional growth and development in downsized or boundary-less organizations. It supports organizations that have eliminated levels of managerial positions. It allows job responsibilities to be defined more broadly and flexibly than when using ranges.

What is the significance of the Employment Cost Index (ECI) that measures quarterly changes in employer costs?

It permits a firm to compare changes in its average costs to an all-industry or specific-industry average

Broad Banning Advantages over traditional approaches:

Provide flexibility to broadly define job responsibilities. Support organizations that have eliminated layers of managerial jobs. They foster cross functional growth and development. Helps manage the reality of fewer promotions in flat organizations. The flexibility eases mergers and acquisitions

Analyses for designing pay grades and pay ranges focus on the basic value of the work in consideration rather than the performance levels of employees.

TRUE

There is no research to show how much of a pay-grade differential is required to induce employees to seek promotion into a higher grade

TRUE

Total cash

The amount of cash each job and incumbent is worth plus bonus

Total compensation

The amount of cash each job and incumbent is worth plus bonus, stock options, and benefits

How do market pricers approach nonbenchmark jobs?

They blend them into the pay structure created by external market rates

When are survey participants declared guilty of price fixing? (Check all that apply.)

When they cause wages to be held down artificially When they cause interference with competitive prices

Unlike grades-and-ranges approaches to designing pay structures, broad-banding approaches have controls in the form of _____.

a total salary budget that limits managers

Market pricing is a pay strategy emphasizing external competitiveness and deemphasizing...

internal alignment (without ignoring it)

In the context of surveys for determining pay levels, why do surveys of upper-level and executive positions in an organization include reporting relationships and financial data?

Because the organization's financial performance is directly related to compensation for these positions

_____ is used to estimate the relative value of job evaluation points for survey jobs and internal jobs in order to provide guidance for adjusting market data.

Benchmark conversion

Grades and ranges offer flexibility for:

Differences in quality among applicants. Differences in productivity or value of quality variations. Differences in the mix of pay forms used by competitors

Identify a drawback of using the Bureau of Labor Statistics as a source in a pay survey.

Its data are usually not specific enough to be used alone.

Lawsuits allege the direct exchange of survey data violates Section 1 of the __________ Act outlawing conspiracies in restraint of trade.

Sherman

Policy line as percent of market line:

Specify a percent above or below the regression line an employer intends to match and draw a new line at this level. This pay-policy line carries a message

___________________ provide the data for translating that policy into pay levels, pay mix, and structures

Surveys

A market line links benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis.

TRUE

It is unclear why changes to pay form occur less often

True Perhaps the high costs of redesigning a mix creates a barrier. More likely, insufficient attention is paid to mix decisions. The mix used may have been based on external pressures

Frequency Distribution helps visualize information and may highlight...

anomalies, or outliers Shapes can vary but unusual shapes may reflect problems.

If a company job is similar, but not identical, some use the...

benchmark conversion / survey leveling approach.

If a pay survey's purpose is to price a company's entire pay structure, then _____ can be chosen to include the entire job structure, with all its important functions and all its levels.

benchmark jobs

Companies examine their own practices and costs in the area of compensation against their competitors in order to _____.

better comprehend how their competitors achieve their market share

The best way to answer questions on anomalies while analyzing pay survey data is to _____.

do an analysis of them alone

Some pay forms may affect ______________ _______________ more than others.

employee behavior

Unlike job evaluations, market surveys lack _____.

high standards of reliability and validity

While verifying pay survey data, in most cases, the match between the survey job and an organization's job is _____.

imperfect

One of the drawbacks of the salary data available on the Web is that much of the data _____.

is of uncertain quality

Changes to the pay mix of an organization occur less frequently than changes to the pay level probably because of the _____.

lack of attention given to pay mix decisions

Larger ranges in ______________ jobs reflect the greater opportunity for performance variations in the work.

managerial

When verifying data, A common first step is to check the accuracy of the job _____________.

matches Then check for anomalies, age of data, and nature of the organizations.

When a company's job _____, a pay level can be selected that is a function of the pay of other companies as well as the role played by the job in executing the strategy of its own company.

matches a survey job well

An issue encountered while adjusting an organization's pay structure is that the job structure that emerges from internal job evaluation _____.

may not match the pay structures of competitors

"Market pricing" ______________ competitor's pay structures

mimics

All the jobs within a single grade will have the same...

pay range

A pay range exists whenever two or more _______ are paid to employees in the same job

rates

Most organizations adjust pay on a ____________ basis.

regular

High grade overlap and low midpoint differentials indicate....

small differences in the value of jobs in adjoining grades

Calculate a ___________ ___________ by adding base wages for all employees and dividing by the number of employees.

weighted mean