Compensation Exam II
taylor differential piece rate system
1 rate goes into place when an employee exceeds the time and the second rate is establish for below standard work
describe how supply and demand influence impact the number of people an org employs
ability of the organization to change what it charges for its products or services. if prices cannot be changed without decreasing sales, then the ability of the employer to set a higher pay level is constrained
weighted mean
add means together and divide by # of means
marginal product of labor
additional output associated with the employment of one additional person, with other production factors held constant
marginal revenue of labor
additional revenue generated when the firm employs one additional person, with other production factors held constant
standard rating scales
adjective anchors ED Average A Average PR Average E Good V Average
behaviorally anchored rating scales
anchoring with concrete behaviors...exceeds expectations etc. ED Good A Good PR Good E Average V Good inter rater reliability
halo error
appraiser giving favorable ratings to all job duties based on impressive performance in just one job function
pay forms
are the various types of payments, or pay mix, that make up total compensation
supervisors raters
assign what work are to perform so they are knowledgeable about the job. prior experience in rating employees. more reliable. prone to halo and leniency errors
mean
average
create bands
average bands out
pay level
average of the array of rates paid by an employer (base + bonuses + benefits + value of stock holding)/number of employees)
central tendency error
avoiding extremes in ratings across the employees
risk sharing
base pay is reduced by some amount
aging or trending survey data?
because employers are raising employee pay at various times during the year, survey data must be updated using a process
which jobs should you include in survey
benchmark job approach
work/life
benefits are a huge piece of the pie. balanced oriented benefits to work/life
what are some different types of compensation data you might collect when doing a wage survey?
benefits vs. wage
pro/cons to broad banding
bigger band means wider range for employees
performance driven
bonus is bigger than any other pie, contingent pay dont just automatically get the pay you have to meet a performance threshold
validity criterion
by far the most research has been done on eliminating errors and improving accuracy
goal setting theory
challenging performance goals influence greater intensity and duration in employee performance. line of sight is important performance targets should be communicated in terms of specifics feed back is important performance based pay should be contingent upon goal achievement
subordinate raters
chance to both see strengths and weaknesses. attaining candid reviews and also in counseling the ratee on how to deal with the feedback
gain sharing
company is getting gains and they are going to share with the individuals in that group
who would an employer ever pay more than the market determined rate
compensating differentials -negative work characteristics require higher wage efficiency wage - pay for good employees signaling - signal behaviors employer wants
who should be involved in a market survey process?
compensation manager and managers that will be impacted. employees that will be impacted. outside help maybe
what is an employer of choice/shared choice policy
compete on their overall reputation of their work. personality characteristics because of their work. some degree of choice to employees about their benefits - good thing until a point
why would you market price
competitive with the market
self raters
complete knowledge about ratee's performance. more lenient and possibly more unreliable than rating from other sources
leniency error
consistently rating someone higher than is deserved
spillover error
continuing to downgrade an employee for performance errors in prior rating periods
describe how industry and technology, employer size, people's preferences, and organization strategy influence external competitiveness
depending on the industry is how much and how much the element is used determines the price
how do pay level and pay mix decision affect efficiency, fairness, and compliance
depends on how the employee views their work and if they are getting compensated for their work efficiently, fairly, and depending on that whether or not they'll do their job in time
how do you set pay mix
depends on the work the employees are doing and what your company is looking for
scanlon plan
designed to lower labor costs without lowering the level of a firms activity. incentives are dervved as a function between labor costs/sales of production(SVOP) SVOP includes revenue and value of goods in inventory
first impression error
developing a negative or positive opinion of an employee early in the review period and allowing that to negatively or positively influence all later perceptions of performance
pay grade?
different jobs but considered equal for pay purposes all jobs within a single grade will have the same pay grade
how would you go about identifying an anomaly or outleir in your survey results?
does any one company dominate? doe all employees show similar patterns if not where.
cost criterion
does the evaluation form initially require a long time to be developed? expensive to use?
personnel research criterion
does the instrument lend itself well to validating employment results?
employee development criterion
does the method communicate the goals and objectives of the org
why do companies use pay grades and ranges
easier
success sharing plans
employee base pay is constant
herbergs two factor theory
employees are motivated by two types of motivators: hygiene factors and satisfiers pay level is important must meet minimum security plans will induce minimum. success sharing plans will be motivating other conditions in working relationship influence the effectiveness of performance based pay
equity theory
employees are motivated when perceived outputs are equal to perceived inputs performance measures must be clearly defined payouts do not match expectations, employees will act negatively fairness and consistency employees evaluate their pay effort balance in comparison to others
performance dimension training
exposes supervisors to the performance dimensions to be used in rating (quality of work, job knowledge) thus making sure everyone is on the same page when thinking about a specific performance dimension
rucker plan
expresses the value of production required for each dollar of total wage bill labor costs/value added
pay for performance - equity/fairness
fair to employees both on employer and employee side
performance plans
feature corporate performance objectives for a time three years in the future. driven by financial earnings or return measures, and they pay out for meeting or exceeding specific goals
profit sharing
focuses on a predetermined index of profitability and company should specify the funding formula. company shares profits with employees
profit sharing
focuses on predetermined index of profitability and company should specify the funding formula
group incentive plan or group bonus
gain sharing, profit sharing, earning at risk like a lump sum but based on team performance
similarity error/clone error
giving better ratings to individuals who are like the rater in behavior and or personality
employee stock ownership plans?
giving stock as a reward - effect are long term
rater error training
goal is to reduce psychometric errors (leniency, severity, central tendency, halo) by familiarizing raters with their existence
base pay
guaranteed portion of an employee's wage package
bourse market
haggling over a price
merrick multiple piece rate system
high - exceed 100% standard medium - exceed 83%-100% low - anything below 83%
how do you use regression to determine what pay would be benchmark and nonbenchmark jobs according to market survey data?
horizontal - internally aligned vertical - externally aligned
administrative criterion
how easily can evaluation results be used for administrative decisions concerning wage increases, promotions, demotions, terminations, and transfers?
standard deviation
how far away from the market
what are some examples of organizational data that you might collect when doing a wage survey?
how many employees, how big of a company they are, how their industry is doing, benefits vs. wage
does market pricing make sense?
in some sense but its not unique but fairness is presumed to be reflected
customer raters
increased interest is ratings from customers
how many employees should you collect data from?
isnt really an answer
job vs. pay structure
job - orders jobs on the basis of internal factors pay - anchored by external competitive position
straight ranking
just that...employees ranked relative to one another
why is it important to identify the purpose of a market survey?
know what you are going to adjust your pay level, pay mix, pay structure.
which type of error is the most difficult to eliminate
leniency
what type of training work best
longer training programs to reduce halo errors and improve accuracy
meet strategies
match with competition, no competitive advantage to attracting talent
lead strategies
maximizes the change that true talent is acquired by high wages 1. minimizes dissatisfaction with pay 2. advantages - high wages, less vacancy rates, reduce training time, reduced turnover and absentee rates 3. disadvantages - may force employer to increase wages of current employees too, higher turnover
median
middle of data
market match
mimics pay mix of competitors
expectancy theory
motivation is the product of three perceptions: expectancy, instrumentality, and valence. larger incentive payments are better line of sight is critical employee assessments of their own are important
lump sum bonus
not built into base pay and less of an entitlement. Done know if you will get or not less expensive and employees don't like it because it is not guaranteed
recency error
opposite of first impression error. allowing performance either good or bad, at end of the review period to play too large a role in determining an employee's rating for the entire period
broad based option plans
stock grants. gives employees shares of stock over a designated time period.
horn error
opposite of halo error. downgrading an employee across all performance dimensions exclusively because of poor performance on one dimension
severity error
opposite of leniency error. rating individuals consistently lower than is deserved.
quartiles/perentiles
orders all data points from lowest to highest then convert in to percentiles
standard hour plan
paid per hour less competitive work
straight piecework plan
paid per piece you complete
agency theory
pay directs and motivates employee performance performance based pay is optimal compensation choice performance targets should be tied to org goals use of performance based pay will require higher total pay oppurtunity
labor costs
pay level * number of employees
how is a market line different than a pay policy line
pay policy is the line that protrays an organization's respect to the market line
merit pay
pay will increase by 2% each year based on performance reviews and it is built into base pay.
follow strategies
paying below market rates - can lag on base pay but lead on benefits - how long can you survive on a promise -disadvantage - hinder company's way to get new talent
maslow hierarchy of needs
people are motivated by inner needs - most basic to higher order. performance based pay may be domotivating incentive pay is motivting
what have they been most successful in improving in rater training
performance dimension training and performance standard training combined
how are performance appraisals used to make compensation decisions?
performance metrics to help with compensation decisions regarding bonuses, raises ect
pay for performance - efficiency
strategy - support corporate objectives Structure - org structure sufficiently decentralized to allow different operating units to create flexible variations Standards- objectives, measures, eligibility, funding
gain sharing plans
strength of reinforcement productivity standards sharing the gains scope of the formula perceived fairness of the formula ease of administration production variability
key elements of gain sharing
strength of reinforcement productivity standards sharing the gains scope of the formula perceived fairness of the formula ease of administration production variability
earning at risk plans
success sharing pan - employee base pay is constant but if you do well then you get more risk sharing plan - base pay is reduced by some amount
essay
supervisors answer open ended questions describing employee performance ED Unknown A Poor PR Poor E Average V Unknown
how do you go about creating a pay policy line?
take the regression equation and put your organization's numbers in
halsey 50-50 method
tasks less in standard time buyt if you complete faster than they will give you a 50% gain of what company saved. uses time studies
significance of the brito vs. zia company case
their performance evaluations which were used for layoffs resulted in a disproportionate number of minorities being discharged
pay range?
two or more rates are paid to employees in same job allows managers to recognize individual performance differences with pay need max, min, midpoint
360s
using all or parts of different raters
how do you reconcile differences between job and pay structure
using both to make your market line with regression making your pay line combining the two
bedeaux plan
variation of straight piecework and standard hour plan
management by objectives
planning and appraisal tool. org objectives are identified from strategic plan. each successively lower level in the org hierarchy is charged with identifying work objectives that will support attainment of org goals. did they do that goal? ED Excellent A Poor PR Poor E Poor V Excellent
unusual shape in a frequency distribution may indicate...
problem with matches, widely dispersed pay rates, employers with widely divergent pay policies
describe survey leveling or benchmark conversation. how would you do it?
process of multiplying survey data by some factor judged to reflect the difference between a survey benchmark job and a company job
describe how product demand and degree of competition influence external competitiveness
product demand and degree of competition
performance standard training/frame of reference training
provides raters with a standard of comparison or frame of reference for making appraisals.
alternation ranking
recognizes that raters are better at rating people at extreme ends of distribution. best employee and then worst employees out of remaining employees
External Competitiveness
refers to the pay relationships among organizations - relative to their competitors
how do you create a market line - methods
regression
ranking
requires rater compare employees against each other to determine the relative ordering of group on some performance measure ED Poor A Poor PR Average E Good V Average
across the board increases
wage increase granted to all employees, regardless of performance. size related to some subjective assessment of employer about ability to pay. add on to base pay in subsequent years
what is the balanced scorecard approach?
way to look at what contributes value in an org
what employers should you collect market data from?
who compete for same occupation or skills, in same geographic area, same products and services
what determines how a job seeker will respond to offers
reservation wage = job seekers will not accept jobs with pay below a certain wage, no matter how attractive other job aspects human capital = value of an individual's skills and abilities is a function of time and expense required to acquire them
broad banding
wide salary bands and more encompassing.
pay for performance - compliance
with laws
peers raters
work more closely with others, distorted perspective of typically performance. little or no experience in conducting appraisals. group tension
reinforcement theory
rewards reinforce performance timing of payout is important
cost of living increases
same as across the board except magnitude based on change in cost of living - measured by the CPI
market pricing
sets pay structure almost exclusively on external market rates, competitive rates for jobs for which external market data are available are calculated, and remaining jobs are blended into pay hierarchy.
determine what jobs fit into a grade?
similar characteristics, or importance of duties
paired ranking
simplifies the ranking process by forcing raters to make ranking judgments about discrete pairs of people
quoted price market
specific item that is label a specific price
rowan plan
workers bonus increases as the time to complete the task decreases
combination plan? self funding plan?
specify that payouts only occur after the company reaches a certain profit target. Then variable payouts for individuals, teams, and company performance are triggered.
improshare
standard hour plan but four group=actual hours worked/total std hours develops standard to identify expected hours required to produce an acceptable level of output savings are shared by firms and workers easy to administer and to communicate
gnatt plan
standard time for a task is purposely set at a level requiring high effort to complete. if they do manage to complete it then employee gets 120% of time saved for a bonus
how do you establish a pay range?
%age below and above
advantages/disadvantages to group team incentive plans
+ do see that they increase performance, easier to develop performance measures for, send message that cooperation is important - line of sight, lose more of star employees
pay level and mix decisions focus on what two objectives
1. control costs and increase revenues 2. attract and retain employees
what are the six issues stressed by courts when it comes to setting up a performance appraisal system
1. disposed to appraisal systems that give specific written instruction 2. org tend to be able to support their case better when appraisal system incorporates clear criteria for evaluating performance 3. presence of adequately developed job descriptions provides a rational foundation for personnel decisions 4. approve of appraisals that require supervisors to provide feedback about appraisal results the the employees affected 5. like evaluation systems that incorporate a review of any performance rating by a higher level superior 6. suggest that the key to fair appraisal depend on consistent treatment across raters
four basic assumptions of labor markets
1. employers maximize products 2. people are homogeneous and therefore interchangeable 3. pay rates reflect all costs associated with employment 4. markets faced by employers are competitive, no advantage for a single employer to pay above or below the market
what determines external competitiveness
1. labor market factors 2. product & service market factors 3. organization factors
describe the best practices for the performance evaluation process
1. sound basis for establishing the performance appraisal dimensions and scales 2. involve employees in every step 3. make sure raters are trained in use of the appraisal system 4. make sure raters are motivated to rate accurately 5. raters should maintain diary of employee performance, both as documentation and a to job memor
can pay influence turnover? skill development? performance?
YES depends on employee
what are some factors that should be considered when considering offshoring and outsourcing
offshoring = different company outsourcing = having a different company make a part you need look at - labor costs agency theory, customer reactions, does it pay out
security approaches
only two things - benefits and base, no contingent pay. they get everything no matter what. promote creativity and risk taking
individual incentives
objective, pre-established level of performance and dimensions are which plans vary. leads to some payout
how can the relevant labor markets be determined
occupation geography competitors