MGT 470 Compensation Exam 2
Three pay-level policies
(1) To lead (2) To meet or match (3) To follow competition, lag - newer policies emphasize flexibility - many employers go beyond a single choice
which of the following is a disadvantage of the ranking method of job evaluation?
it fails to tell employees about their jobs
Supply slides
looks at the potential employees: their qualifications and the pay they are willing to accept in exchange for their services
Market match (pay mix alternative)
mimics the market average pay mix
In the context of job evaluation methods, which of the following is a common way of ranking?
paired comparison
self-serving bias
people interpret facts and resolve ambiguities in ways that favor their own self-interests
develop grades (single v different grades)
- organizational job evaluation results - each grade will have its own pay range, and all the jobs within a single grade will have the same pay range - jobs in different grades should be dissimilar in terms of their relative value and importance
Product market factor: product demand
- sets max pay level - if organization pays above max, it must either: a: pass on higher costs to customers (price) b: allocate a great share of total revenue to cover labor cost (low margin)
market pay line definition
- summarizes the distribution of going rates paid by competitors in market - a line on a gragh that links a company's benchmark job evaluation points on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis
Expectancy Theory: Valence
- values employees attach to the organization rewards, received for job performance - avoiding the outcome, indifferent to the outcome, welcomes the outcome, etc. - "It's important to get an A in this course to me because..."
In cases where the content of an organizations jobs does not sufficiently match that of the jobs in the salary survey, an effort can be made to quantify the difference via
Benchmark conversion
According to efficiency wage theory, employee motivation at work is driven largely by their sense of fairness
False
Overlap (high v low) (implications)
HIGH DEGREE - small differences in value of jobs in adjacent grades - moving grades: title change, but not much change in pay LOW DEGREE - large differences in value of jobs in adjacent grades - Promotion: title change and larger pay increase
Work/Life balance (WLB) (pay mix alternative)
Increases employees WLB
Security (pay mix alternative)
Increases employees perceived security and psychological safety
Performance-driven (pay mix alternative)
Increases the link between employee performance and pay level
Compensable factors
Job attributes that provide the basis for evaluating the relative worth of jobs inside an organization. A compensable factor must be work-related, business-related, and acceptable to the parties involved.
in the context of internal alignment, which of the following is the correct sequence?
Job description > job evaluation > job structure
If Company A raises its pay rate by one dollar per hour to hire additional workers and competitors immediately match the increase, what will be the most likely result?
The labor costs for Company A will increase, but it will be unable to hire additional workers.
An employer offering lower base pay with high bonuses is a likely signal that it is seeking risk taking employees.
True
When constructing a market lay line, the internally aligned structure is shown on the horizontal (x) axis
True
Pay range
a range of pay rates from min to max established for pay grade or class
Job Description
a summary of the most important features of a job. It identifies the job and describes the general nature of the work, specific task responsibilities, outcomes, and the employee characteristics required to perform the job.
Efficiency wage theory
a theory that explains why firms are rational in offering higher-than-necessary wages 1. attract higher quality applicants 2. lower turnover 3. increase worker effort 4. reduce shirking behavior 5. reduce the need to supervise employees
The point in time at which an outcome is assessed
assessment of whether pay was fair might have been different before the WNT won the 2015 world cup and 2019 world cup
Interactional justice
being treated with dignity and respect "whether the interaction between employees and their employer is conducted with openness and respect"
Pay grades
classes or groups into which jobs of the same or similar values are groups for compensation purposes
benchmark conversion
content of an organizations job does not sufficiently match that of the jobs in the salary survey, this effort can be made to quantify the difference
philosophical differences
differences in their focuses and values-which one is more important
Distributive Justice
fairness of outcomes "whether an employees compensation is proportional to that employees contribution"
Demand
is the sum of all employers' hiring preferences for business graduates at various pay level
Market pay rate determination
is where the lines for labor demand and labor supply cross
Expectancy Theory
suggests motivation is the product of three perceptions: - expectancy - instrumentality - valence
Relationship between pay level and labor cost
the higher the pay level, the higher the labor costs
Job Analysis
the systematic process of collecting information related to the nature of a specific job. It provides the knowledge needed to define jobs and conduct job evaluation.
Signaling theory
theory that employers are willing to pay more for people with certificates, diplomas, degrees, and other indicators of superior ability
paired comparison and alternate ranking methods may be more reliable, than simple ranking
true
Benchmark Job Characteristics
well-known and stable contents; their current pay rates are generally acceptable, and the pay differentials among them are relatively stable. Contains the entire range of compensable factors and is accepted in the external labor market for setting wages.
Broad banding
when businesses set a wider-than-normal salary band, or pay range, for a job level (fewer, broader pay ranges)
The pay-mix policy alternative in which the percentage of benefits is likely to be the highest is known as a
work/life balance policy
Pay with competition (match)
"most common" - firm's labor costs are equal to those of its competitors - avoid labor market disadvantages but may not have competitive advantage
What is the value that appears the most often in a set of data values
Mode
Pay mix
Relative emphasis among compensation components such as base pay, merit, incentives, and benefits.
Two ranking methods
alternative ranking & paired comparison
Narrow Framing
people often apply principles of equity theory to only a subset of the dimensions of a compensation arrangement. stepping back to consider the "full picture" would lead to the opposite conclusion
procedural justice
perceived fairness of the process used to determine the distribution of rewards "whether the policies that determine compensation apply impartially to all employees"
Job Evaluation
process of systematically determining the relative worth of jobs to create a job structure for the organization
Fairness inconsistencies
psychological sources of inconsistencies in fairness perceptions, Categories: philosophical differences, the point in time at which an outcome is assessed, narrow framing, self-serving motives
range spread and how to calculate it
(max pay/ min pay) -1 "the size of range"
Equity Theory (Pay Equity)
** pay differences perceived to be unfair can negatively affect behaviors and attitudes** - people compare the ratio of their own outcomes (rewards) to inputs (job value, individual contribution) to those of others to determine whether rewards are distributed fairly - perceived equity results if ratios are very similar
Lag Pay-Level Policy
- A wage structure that is set to lag behind market rates - objective is to offset labor costs - may hinder firm's ability to attract and retain quality emplpoyees - other workplace quality can complement the drawbacks
Four pay-mix policies
- Performance-driven - Market match - Work/Life balance - Security
Lead Pay-Level Policy
- a wage structure that is set to lead the market throughout the plan year - can have competitive advantage - negative effects include: labor cost (may force employer to increase wages of current employees to avoid internal misalignment
Expectancy Theory: Expectancy
- assessment of their ability to perform required job tasks - effort/ability --> performance - "If I study hard, I will get a good mark at the test"
Shared pay policy
- begins with traditional alternatives of lead, meet, or lag - then adds, offering employees choices in the pay mix - "employee as customer" - Netflix: > performance evaluation > then each employee chooses pay mix (cash v stock options)
Expectancy Theory: Instrumentality
- beliefs that higher job performance will be rewarded by the organization - performance --> pay - "If I get a good mark at this test, I will get an A in the course"
How product market factors influence pay decisions in general
- determine what the organization can afford to pay Two key product market factors 1. Product demand (product market sets max pay level) 2. Degree of competition (competitive market- less able to raise prices w/o loss of revenue
Three factors to determine the relevant labor market
- emplooyees within the same geographic area - same products or services - same occupations or skills
Two objectives of pay-level and pay-mix decisions
1.control costs and increased revenues 2. attract and retain employees
Career moves w/in v between bands after broad banding
?
Point Method
A job evaluation method that employs (1) compensable factors, (2) factor degrees numerically scaled, and (3) weights reflecting the relative importance of each factor. Once scaled degrees and weights are established for each factor, each job is measured against each compensable factor and a total score is calculated for each job. The total points assigned to a job determine the job's relative value and hence its location in the pay structure.
Alternative ranking
A job evaluation method that involves ordering the job description alternately at each extreme. All the jobs are considered. Agreement is reached on which is the most valuable and then the least valuable. Evaluators alternate between the next most valued and next least valued and so on until the jobs have been ordered.
Benchmark Jobs
A prototypical job, or group of jobs, used as a reference point for making pay comparisons within or without the organization.
Paired comparison
A ranking job evaluation method that involves comparing all possible pairs of jobs under study.
Rich nichols, who was the legal counsel for the WNT, noted that WNT had to perform well, while the men were "paid just got showing up." What does determine mr. Nichols fairness perception?
Distributive justice
Pay level
An average of the array of rates paid by an employer.
which of the following is a job evaluation method that can group a wide range of work together in one system but leave too much room for manipulation?
Classification
Marie hired on with a tech company offering the usual benefits but paying below market rates. She took the job because the company was promising generous stock options and hefty yearly bonuses if goals are met. Plus, they are paying her to relocate to Hawaii! Marie's new employer is using a
Lag pay level policy
Factor weights
Measures that indicate the importance of each compensable factor in a job evaluation system. Weights can be derived through either a committee judgment or a statistical analysis.
Ranking
Orders job descriptions from highest to lowest based on a global definition of relative value or contribution to the organization's success.
Rich nichols, who was the legal counsel for the WNT, argued that the WNT had to play some on their matches on lower quality artificial turf, which is much harder that grass , whereas the MNT always played on grass. What does determine Mr. nichols fairness perception ?
Procedural justice
Which of the following is an example of the demand side of labor?
The pay level offered by an employer
organizational justice
The perception of fairness in workplace practices.Three categories are distributive, procedural, and interactional justice
Classification
The process of grouping things based on their similarities
