compensation chapter 8

What is true regarding broad-bands or broad banding?

Foster cross-functional growth.

7. What is a market line?

Links a company's benchmark jobs on the horizontal axis (external structure) with market rates paid by competitors (market survey) on the vertical axis. It summarizes the distribution of going rates paid by competitors in the market.

Which types of labor would most likely be recruited only locally?

Office and clerical workers.

What measure of compensation may overstate competitors' pay?

The total cash compensation

A survey conducted in January, 2013 found the median pay effective January 1, 2013, for a clerk was $22,000 and the forecast rate of the wage increase in the market for 2013 of was 5% and another 5% for 2014. An employer choosing to follow a lead strategy of 4% above the market for the plan year, will need to

multiply salary by 105% and then by 109%.

A relevant labor mkt includes all employers who compete in one or more of these areas except

pay similar wages.

In the regression equation, y= a+bx, job evaluation points are

x

11. Companies typically use ____ pay survey(s) when setting pay levels.

3-5

Pay ranges for clerical and production jobs commonly range between

5-15

shows how competitors value work in similar jobs.

Base wage

the _____ publishes extensive information on various occupations in different geographic areas; it is a major source of publicly available compensation data

Bureau of Labor Statistics

Which jobs would most likely fall into a fuzzy market?

Director of future vision services.

Who should be involved in designing a compensation survey?

In most organizations, the responsibility for managing the survey lies with the compensation manager. But since compensation expenses have a powerful effect on profitability, including managers and employees on task forces makes sense. Outside consulting firms are typically used as third-party protection from possible "price-fixing" lawsuits.

What is often used to set pay ranges?

Quartiles and percentiles

Pay ranges-what are those?

Reflect the differences in performance or experience that an employer wishes to recognize with pay.

What statistical measure shows how similar or dissimilar the mkt rates are form each other?

Standard deviation

10. Explain the market pricing approach to compensation?

This approach sets pay structures almost exclusively on external market rates. Market pricers match a large percentage of their jobs with market data and collect as much market data as possible.

9. What is broad banding? What are some of its advantages?

This technique consolidates as many as four or five traditional grades into a single band with one minimum and one maximum because the band encompasses so many jobs of different values, a range midpoint is usually not used. Advantages: broad bands provide flexibility to define job responsibilities more broadly, they support redesigned, downsized, or boundary less organizations that have eliminated layer of managerial jobs, they foster cross-functional growth and development in these new organizations.

You work in a midsize organization and have just conducted a wage survey. Five midsize companies have provided wage data for a particular job. Here are the numbers: Company # of employees in job Mean($) 1 10 10 2 32 9 3 7 11 4 9 10 5 6 9 Which of the following statistics will be the most accurate reflection of the market rate?

Weighted mean

Because employers are raising employee pay at various times during the year, survey data must be updated using a process called

aging or trending

Survey data from one or a few employers that are significantly out of line with other employers are

anomalies

The first step in interpreting survey data is

check for the accuracy of job matches.

The primary responsibility for conducting a pay survey is the

compensation manager.

The second major decision in pay-level determination is

define purpose of survey.

The final major decision in pay-level determination is

design grades and ranges.

Pay survey collect total number of employees for the purpose of

estimating the organizations impact on the labor market.

Financial data in pay surveys are used to

group firm by size

Job structure is to ______ as pay structure is to pay-policy line.

job evaluation

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

lead/lag

An organization that has a match (pay) will pay it employees

more than the mkt rate for some months and less than mkt rate for the other months.

Describe some potential anomalies:

outliers, a large variation in base pay for a job at one company, and one company dominates the results.

The first step in setting competitive pay and designing a pay structure is

specify pay level policy.

Applying the job evaluation process to pay survey jobs to assess the degree of match between survey jobs and benchmark jobs is called

the benchmark conversion approach.

The answer to the question of how many firms to include in a pay survey is

there are no firm rules.

_______ competitors' use of performance-based pay.

total cash measures

4. Explain the low-high approach in selecting jobs for inclusion in a compensation survey.

. If an organization is using skill-competency-based structures or generic job descriptions, it may not have benchmark jobs to match with jobs at competitors that use a traditional job-based approach. Market data must be converted to fit the skill or competency structure. The simplest way to do this is to identify the lowest - and highest-paid benchmark jobs for the relevant skills in the relevant market and to use the wages for these jobs as anchors for the skill-based structures. Work at various levels within the structure can then be slotted between the anchors. For example, if the entry market rate for operator A is $12 per hour and the rate for a team leader is $42 per hour, then the rate for operator B can be somewhere between $12 and $42 per hour. The usefulness of this approach depends on how well the extreme benchmark jobs match the organization's work and whether they do tap the entire range of skills.

What is true regarding the Employment Cost Index (ECI)?

It allows comparison of labor costs to all-industry averages.

the _____strategy emphasizes external competitiveness and deemphasizes internal alignment

The market pricing pay

For organizations using a skill-competency based pay system or generic job descriptions, the best approach for pricing jobs is

benchmark conversion

the ____ minimizes distortion of the central tendency caused by outliers.

median

36. Size of pay differentials between grades should

support career movement through the pay structure

2. How is a relevant labor market defined?

A relevant labor market must be defined that includes employers who compete in one or more of the following areas: 1. The same occupations or skills 2. Employees within the same geographic area 3. The same products and services.

1. What is a survey? What purpose does it serve in terms of compensation?

Translating any external pay policy into practice requires information on the external market. Surveys provide the data for translating that policy into pay levels, pay mix, and structures. As such, a survey is the systematic process of collecting and making judgments about the compensation paid by other employers. An employer conducts or participates in a survey for several reasons: (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, or (5) to estimate the labor costs of product/service market competitors.

A market pay line

links a company's benchmark jobs with mkt rates paid by competitors.

6. Explain the difference between standard deviation and quartiles and percentiles

. Standard deviation is probably the most common statistical measure of variation, although its use in salary surveys is rare. Shows how tightly all the rates are clustered around the mean. Quartiles and percentiles are more common measures in salary survey analysis. It orders all data points from lowest to highest, then convert to percentages.

8. Explain the concept of pay ranges.

Pay ranges exists whenever two or more rates are paid to employees in the same job. Ranges provide managers the opportunity to recognize individual performance difference with pay, meet employees' expectations that their pay will increase over time, even in the same job, and encourage employees to remain with the organization. From an internal alignment perspective, the range reflects the differences in performance or experience that an employer wishes to recognize with pay. From an external competitiveness perspective, the range is a control device; a range maximum sets the lid on what the employer is willing to pay for the work, the range minimum sets the floor

1A company using a skill-based pay system prices the job of lead assembler at between $10 to $22 per hour. Survey data showed the job assembler averaged $10 per hour and the job of assembly supervisor at $22 per hour. The company was using the _____ method of job matching

low high

The process of multiplying survey data by some factor judged to reflect the difference between a survey benchmark job and a company job is called

survey leveling

Three commonly used measures of compensation are base pay, total cash, and total compensation describe each of the item on detail.

Base pay: The amount of cash the competitors decided each job and incumbent is worth. A company might use this information for its initial observations of how good the data appear to fit a range of jobs. Adv.: Tells how competitors are valuing the work in similar jobs. Disadv.: fails to include performance incentives and other forms, so will not give true picture if competitors offer low vase but high incentives. Total cash: Base plus bonus, total cash measure reveal competitors use of performance-based cash payments. Adv.: Tells how competitors are valuing work; also, tells the cash pay for performance opportunity in the job. Disadv.: all employees may not receive incentives, so it may overstate the competitors' pay; plus, it does not include long-term incentives. Total compensation: This includes total cash( base +bonus) plus stock options and benefits. Total compensation reflects the total overall value of the employee (performance, experience, skills, etc.) plus the value of the work itself. Adv.: tells the total value competitors place on this work. Disadv.: all employees many not receive all the forms. Be careful: don't set base equal to competitors' total compensation. Risks high fixed costs.

Paying jobs of different functions different rates within a pay band is called

reference rates.