Compensation management exam 2

Factors influencing turnover and retention

1. Pay based on individual performance(poor performers are more likely to leave then high) 2.If there are group based incentives there tends to be a higher turn over of high performers 3. Level of employee satisfaction with pay. Reasonable pay reduces turnover passive job seekers leave because of competition 4. Changing of base pay.

How do pay level mix decisions affect efficiency fairness and compliance?

Efficiency suggests that lead polices can work and lead to hiring better talent and resulting in a bigger bottom line. Fairness is knowing when employees are making comparisons internally and externally. Compliance is when laws dictate what policies you can implement and if you ignore these it can get expensive legally

Marginal revenue of labor

the additional revenue generated when the firm employs one additional person, with other production factors held constant

Why is it important to identify the purpose of a market survey?

To adjust pay level in repose to market rates paid by competitors. Set the mix of pay forms relative to that paid my market competitors. Establish or price a pay structure. Analyze pay related problems l. Estimate labor costs of product/service market competitors.

profit-sharing plan

a benefit whereby employees may share in the profits of the business

horn error

a bias that occurs when a negative characteristic of a person affects the evaluation of the person's other attributes

lump-sum bonuses

a bonus is received for meeting individual goals but no change is made to base salary

scalon plan

a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard

halo error

allowing the assessment of the employee on one dimension to spread to that employee's ratings on other dimensions

How do you use regression to determine what pay would be for benchmarks and non benchmark jobs?

Benchmarks a pay level can be chosen that is a function of what other organizations pay and why role the job plays in executing the strategy. Non bench mark the market line allows to estimate market partly for these

survey leveling/ benchmark conversion

Job content of an organization doesn't sufficiently match that of jobs in the salary survey an effort can be made to quantify the differences. The magnitude of differences can be applied to the survey of jobs.

How do you distinguish between job structure and pay structure?

Job structure is the order of jobs on the basis of internal factors and pay structure anchored by the external competitive position (market survey info)

What are some factors that should be considered when considering offshoring and outsourcing?

Labor costs and productivity, agency theory, customer reaction and how long will the cost advantage last?

What determines external competitiveness?

Labor market factors, product&service market factors,organizational factors

Employer size influences external competitiveness

Larger organizations tend to pay higher wages

Which jobs should be included?

Look at bench mark jobs. Ex: point method low high approach and figure out what your position is. When there is a job that doesn't fit look at what match's and what doesn't

organization strategy influence on external competitiveness

Low pay to pass on savings or higher wage to produce higher service

Combination plan

Mixing group and individual plans are self funding. Creating plans after profit target is hit.

Weighted mean

Number of employees times rate of base pay divided my number of employees

What are some different types of organizational data that you might collect when doing a wage/ salary survey?

Organizational data, financial data, reporting relationships, turnover data and total compensation data.

Across-the-board increase

Pay adjustments provided to all employees with the same rate regardless of rank

What are labor costs?

Pay level number of employees

Lead Pay Policy

Paying above market Pro: Attract and lead talent increase pay and increase production. Con: causes increase in prices for products, masking negative job aspects that will drive away.

Follow pay policy

Paying below market. Many start up companies do this. Pro: could use it for a type of compensation low pay but good insurance Con: attracting talent and retaining it

Meet pay policy

Paying with the market. Pro: won't be at a disadvantage when pricing products Con: no competitive advantage in labor market

Pros and cons for peers performance appraisals

Potential bias is really high here. See how your peers evaluate you and they are around all the time

Unusual shapes may reflect ....

Problems with job matches, widely discourse pay rates, employers with widely divergent pay policies

What are pros and cons of broad banding?

Pros they are flexible, gives managers freedom with guidelines. Con: could lead to inconstancy or illegal pay practices

How does Ranking fit in with respect to employee development, administration, personnel research, economic and validity criterion?

Ranking can force people into the wrong categories and what if it doesn't reflect reality ?

What employers should you collect market data from?

The employers you should collect market data from need to have same occupation and skills, geographic area and same industry.

Reservation Wage Theory

The idea that job seekers have a reservation wage level below which they will not accept a job, no matter how attractive the other job attributes

What is external competitiveness?

The pay relationships among organizations

Pros and cons for customers performance appraisals

They are reviewing the output so they see what goes on everyday

How are performance appraisals used to make compensation decisions?

They are used for promotions, they are used to establish goals and then revisit those goals.

Pros and cons for subordinate performance appraisals

They have insight that no one else would have and there could be the struggle of being honest

Pros and cons for self performance appraisals

This is done for developmental purposes. Can be super bias

Percentiles

describe a score's position within the distribution, relative to all other scores.

severity error

error that occurs with raters who are unusually harsh in their ratings

work-life balance

involves balancing career demands with personal and family needs. Largest sections are base and benefits

Median

the middle score in a distribution; half the scores are above it and half are below it

Pay Forms

the various types of payments, or pay mix, that make up total compensation qualitative

Signaling

conceives things to people using different mediums of level, signals employees behavior and pay practice must be recognized for desired behavior

Alternation ranking

crosses off best and worst employees

Gannt Plan

Standard time for a task is purposefully set at a level requiring high effort to complete

BBops

Stock grants More recent Giving employees stock over time Builds performance and ownership culture

What is a quoted price market?

Stores labels each item, price in the job applications. Employers are the buyers and employees are the sellers. Then a total compensation deal is struck.

Key elements for gain sharing plans

Strength of reinforcement Productivity standards Sharing the gains Scope of the formula Ease of administration

Earnings at risk

Success sharing plan base pay is constant and risk sharing plan can reduce income if they have a bad year

Equity Theory

Suggests that employees compete their pay amount and amount of effort to others in the organization and externally.

Pros and cons for supervisors performance appraisals

Supervisors don't always see everything. Ability to make decisions faster.

What are pay levels? Quantitative or Qualitative Examples

The average array of rates paid by an employer. Quantitative Base pay, bonus, stock, number of employees

Quartile

A division of the total into four intervals, each one representing one-fourth of the total.

Rucker Plan

A gain-sharing plan similar to the Scanlon plan but that expresses labour costs as a percentage of value added. More flexible and broad

How supply and demand influence impact the number of people an organization employees.

Actions for employers and potential employees affect the supply and labor demand

Bonus market

Allows for haggling

Pay Mix Policy

Combination of core compensation and employee benefits components that make up an employee's total compensation package

Who should be involved in market survey process ?

Compensation managers, managers and employees that will be impacted

What is broad banding?

Consolidating 4 or 5 traditional grades into a single band with one maximum and minimum

Individual Spot Awards (pro and cons)

Flexibility in giving it People may not understand why someone is receiving it leading to perception and fairness issues

profit-sharing plan

Focuses on predetermined index of profit

Reinforcement Theory

For shaping behavior negative reinforcement is better to use

gain sharing plans

Groups of employees share in any savings realized through their efforts to reduce costs and increase productivity

How do you create a market line?

Have jobs on the horizontal axis and the pay amounts on the y axis. Then draw a line. Or internally aligned structure on horizontal axis and external competitive data on y axis

eligibility

How far down in the organization does this plan run ?

How do you reconcile difference between your job structure and pay structure ?

How important are some roles ?

standard deviation

How tightly are the clusters around the mean.

People's preferences influence external competitiveness

Influences competitive pay, important to understand what employees want for compensation.

What determines how a job seeker will respond to offers?

Reservation wage is when job seekers won't accept a job if the pay is below a certain wage. Human capital theory a theory that explains differences in wages as the result of differences in the individual characteristics of the workers

merit pay (pros and cons)

Retention slowly and steadily increases performance Expensive to employers

Halsey 50-50 method

Savings that are saved get split between the employer and the employee

How does Behaviorally anchored rating scales fit in with respect to employee development, administration, personnel research, economic and validity criterion?

Scale given but number is described in a statement. The numbers are explained in behavioral terms who should get a 6 or 7 will be straightforward. This communicates goals effectively, goals are going to be different for each person, depending on mob not so good, not complicated but the time spent could translate into a lot of money

Pro and con for 360 appraisals

Sees all aspects and bad because it takes a lot of time and could get expensive

Why do companies use pay ranges or grades?

To support promotions and to help motivate employees

Group Incentive Plans/Group Bonus

Typically done in a lump some bonus

Taylor differential piece-rate system

Varies as level of production. Above production you get X Below production you get X

What is the balance score card approach

Way to look at what contributes value in an organization.

Efficiency wage

attracts high quality applicants lowers turnover, increase worker effort, reduces shirking, reduces the need to supervise employees

Leniency error

occurs when ratings of all employees fall at the high end of the scale

Maslow's Hierarchy of Needs

physiological, safety, love/belonging, esteem, self-actualization. Needs to lean to drive behavior. Low pay.... lots of over time... then people will take the overtime because the pay is low.

Straight ranking

rater ranks employees on overall job performance from best to worst

Individual Incentives

reinforce performance of a single person with a reward that is significant to that person

Contrast error

tendency to rate people relative to others rather than against performance standards

Marginal product of labor

the additional output a firm produces as a result of hiring one more worker. With other production factors held constant.

Performance Driven

this type of organizational culture focuses on results and contributions and shows positive performance. Bonus and base are larger

Compensation differentials

work with negative characteristics that rejuvenate higher pay methods to attract and retain workers.

cost of living increase

a raise in pay given to workers to keep up with rising costs of daily life

risk sharing

a service the financial system provides that allows savers to spread and transfer risk

merit pay

a system of linking pay increases to ratings on performance appraisals

human capital theory

a theory that explains differences in wages as the result of differences in the individual characteristics of the workers

Goal Setting Theory

a theory that says that specific and difficult goals, with feedback, lead to higher performance.

Rowan

Similar to Halsey plan works bonus is going to increase as the rate of the work increases

success-sharing plans

a generic category of pay add-on which is tied to some measure of group performance, not individual performance

Improshare plan

a group-based incentive plan based on the number of hours a firm expects to take to reach a certain level of output.

What is a pay range?

2 or more rates paid to employees on the same job

Describe how product demand and degree of competition influence external competitiveness

?

How does Management by objectives fit in with respect to employee development, administration, personnel research, economic and validity criterion?

Aligns with company goals, unit goals, individual goals. Could forget what has be done over a period of time, validity of selection tool not costly

Standard Hour Plan

An incentive plan that sets rates based on the completion of a job in a predetermined standard time

Objectives-

Are they flexible

Agency Theory

Assumes that both parties seek the most favorable exchange possible. Their goal is to maximize goals

Mean

Average

Base pay

Basic compensation that an employee receives, usually as a wage or salary

long term incentive plans

Bbops and esops

Why would an employer ever pay more then the market determined rate?

Compensation differentials work with negative characteristics that rejuvenate higher pay methods to attract and retain workers. Efficiency wage attracts high quality applicants lowers turnover, increase worker effort, reduces shirking, reduces the need to supervise employees. Signaling conceive things to people using different mediums of level, signals employees behavior and pay practice must be recognized for desired behavior

Pay level and mix decisions focus on what two objectives?

Control costs and attract /retain/motivate employees

Lump sum bonus (pro and cons)

Cost is lower to the employer This is not dependable

Agency Theory

Devote resources to systems that monitor worker effort or output

Measures-

Do employees know what measures will be used to assess whether performance is sufficiently good to merit a payout.

How do you identify an anomaly or outliers in survey results. How could it be an outlier.

Does any one company dominate? Do all employers show similar patterns? If there are outliers maybe eliminate it.

Why is strategy important for designing a pay structure?

Does it support corporate objectives ? The strategy should look at how much of an increase is going to make a difference.

Herzberg's Two-Factor Theory

Drive the breadth or depth of compensation

Expectancy Theory

Drives home the line of sight.

ESOPs (Employee Stock Ownership Plans)

Effects are long term Normally do not make for good incentive Employees can be linked by the success or failure of the the company

basic assumptions of the labor market

Employees always seek max profit. People are homogeneous therefore interchangeable, pay rates reflect costs associated with employment, the market faced by employees are competitive therefore no advantage for single employees to pay above market rate

How does standards influence a pay for performance plan?

Employers need to be concerned about objectives specific but flexible. Their behavior will influence expectancy theory.

central tendency error

Error that occurs when an appraiser rates all employees within a narrow range, regardless of differences in actual performance.

Merrick Multiple Piece Rate System

Exceeds 100% of standard 83%-100% of standard Less than 83%

Security

Involves only base pay being the largest and benefits. People who don't like risk like this

Why is structure important for designing a pay plan?

Is the structure of the organization sufficiently decentralized to allow different operating units to create flexible variations in general pay for performance plans

What is market pricing and why would you market price?

It sets an exclusive pay structure on market data and it cuts down on time. It can make sense if your looking to save time and differentiate yourself but you run the risk of the difference being too big.

Influencing employees to perform better

Line of sight needs to be clear if pay is going to influence behavior. Well designed plan links pay to behaviors of employees and the incentive plan depends on individual performance

Performance plans

Look at least years into the future Driven by financial earnings or returns Connected with financial returns of the company

What is aging or trending survey data?

Looking at when the data was collected and why has changed since the data was collected.

market match policy

Looks at what competitors are doing and follow it. Base and benefits are larger but smaller then work life balance

How do you create a band?

Set the number of bands and then price the bands for this reference the market rates

Influencing employees to develop

Skill based pay

Employer of choice and shared choice

Some companies try to compete on the fact that where they work is great employers see employees as customers

How do you create a pay policy line ?

Specifying percent above or below the market line and then draw a new line at this higher or lower level

How many employers should you collect data from?

There is no set amount of data just make sure it's quality and understand the criticisms of the data.

Industry and technology influence external competitiveness

There tend to pay higher. The way they compete is there advantage

How does Standard rating scales fit in with respect to employee development, administration, personnel research, economic and validity criterion?

When adjectives are used as anchors.

Funding

Will you find the program out of the extra revenue generated above and beyond some preset?

How do you establish a pay range?

X axis has job evaluation data salary data on y axis. Percentiles can be used middle range could be that the employee is fully competent and the minimum could be when they start

Straight Peicework Plan

You get x amount after producing x amount this is a constant function