Organizational Rewards and Compensation Exam 1
Position Analysis Questionnaire (PAQ)
a job analysis tool, developed by Purdue University -The PAQ groups work information into seven basic factors and includes 194 items
incentive effect
degree to which pay influences individual and aggregate motivation
total compensation
includes all cash compensation: (base pay, merit pay, cost-of-living (COLA) adjustments, and short-term and long-term incentives) and benefits (income protection pensions, allowances, medical insurance, work/life balance programs are also part of the total compensation)
benefits
income protection pensions, allowances, medical insurance, work/life balance programs are also part of the total compensation -Some programs are legally required in the US - unemployment an Social Security Work/Life Balance includes: Time away from work, access to services to meet specific needs, and flexible work arrangements Allowances often grow out of whatever is in short supply EX: housing for rotational workers
task
is the smallest unit of analysis, a specific statement of what a person does. -Keep it simple, just the basic tasks (Don't use unnecessary words, double-barreled item/ multiple tasks, overly specific items, vague/ambiguous terms, abbreviations/acronyms) Perform What? + to Whom? or What? + to produce What? or Why? How? EX: answer the phone.
Job analysis
is the systematic method of discovering and describing differences and similarities among jobs -Two products result from job analysis (job description and job specification)
compensation strategy
lays out the organization's point of view on how it will determine pay and benefits for employees 4 key steps in total compensation strategy: 1. Assess total compensation implications 2. Map a total compensation strategy using the five elements of the pay model 3. Implement the strategy through the design and execution of the compensation system 4. Reassess, Realign & Close the Loop
who collects and provides the job analysis info?
-Analysis is best done by someone trained and thoroughly familiar with the organization and its jobs The decision on the source of the data hinges on ensuring consistent, accurate, useful, and acceptable data: -Principal sources are the jobholders and supervisors -Managers two levels above give a valuable strategic view of jobs -Sometimes, subordinates or other employees that interact with the job may be included
Step 2: map a total compensation strategy using five elements of the pay model
-Assign descriptors to each element and rate from high to low the level of importance of each descriptor -The profile on the strategy map reflects a company's "pay brand." -At Microsoft, total compensation is prominent -At SAS, total compensation supports a work / life balance -Decisions in the pay model work in concert and the totality of decisions form the compensation strategy
Cost-of-living adjustment (COLA)
-Changes in what other employers are paying for the same work -Changes in living costs -Changes in experience or skill
Manager compensation view
-Compensation is a major expense and must be managed -Major determinant of employee behavior and attitude -Labor costs can account for 50% of total costs
what information for a job analysis should be collected?
-Start by reviewing information already collected Job titles, major duties, task dimensions and work flow information may already exist It may no longer be accurate so verify existing information -Collect sufficient information to adequately identify, define, and describe a job -Categorize information by: -The job: job identification and job content -The employee: characteristics (skills/qualifications needed, internal and external relationships, and importance is rated for each job)
strategic choices
-Strategy: the fundamental direction(s) an organization chooses -A Strategic Perspective: focuses on compensation choices that help the organization gain and sustain competitive advantage.
Schultz v. Wheaton Glass Case (1970)
-There were two job classifications for the same job (male and female) -The female job paid 10% less than the male job -The court ruled jobs need only be substantially equal, not identical -The actual work performed must be used to decide job equality
Step 4: Reassess, Realign & Close the Loop
-This step recognizes that compensation strategy must change to fit changing conditions -Periodic reassessment is needed to continuously learn, adapt, and improve
reliability of job analysis
-a measure of the consistency of results among various analysts, methods, sources of data, or over time -Using multiple raters and average ratings increases reliability -Outcome of a job analysis depends greatly on who conducts it -Research on employee and supervisor agreement on the reliability of job analysis information is mixed -To increase reliability is to understand and reduce differences
Step 1: Assess Total Compensation Implications
Business strategy and competitive dynamics - understand the business HR strategy - pay as a supporting player or a catalyst for change? Culture / Values - pay systems mirror image and reputation Social and political context affects compensation choices -Employee preferences are easily overlooked -The choice is good, up to a point -Employees do not always choose well -Unlimited choice is near impossible to design or manage and may conflict with IRS regulations -Union preferences: adapt pay strategies to the union-management relationship
Internal alignment
Comparison among job/skill levels in the organization --> Internal structure (EX: work analysis, descriptions, evaluations/certifications,
job content
Data involves the elemental tasks or units of work, with emphasis on the purpose of each task -There is also an emphasis on the objective of the task -Task data reveals the actual work performed and its purpose or outcome -tasks, activities, constraints on actions, performance criteria, critical incidents, conflicting demands, working conditions roles EX: checks information to ensure its accuracy
FLSA's exemptions
FLSA has strict criteria that, if met, allows certain jobs to be exempt from minimum-wage and overtime provisions Standards are given for certain jobs: -Executive -Administrative -Professional -Computer Employee -Outside Sales
Employee compensation view
Financial security A return in an exchange An entitlement An incentive or reward
compensation
In the U.S., compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship
Disparate Treatment
Intentionally applies diff standards for diff employees -Asking women but not men if they have plan to have children -Unequal treatment may prove an intention to discriminate -If a woman must have a higher performance to be promoted
job identification
Job titles, departments, the number of people who hold the job and whether it is exempt from the Fair Labor Standards Act
Society member compensation view
Measure of justice --> fair pay and benefits -In 2016, U.S. Bureau of Labor Statistics indicated that women earned 82% of what men earned, up from 62% in 1979
Boxall and Purcell's performance theory "AMO theory"
P= f (A, M, O) -Performance (P) is a function (f) of 3 factors: Ability (A): intellectual or physical ability Motivation (M): what motivates them Opportunity (O): how do you get opportunities -Compensation is key to attracting, retaining, and motivating employees with the abilities necessary to execute the business strategy
External competitiveness
Pay comparisons with competitors --> Pay structure -Employees must see their pay as competitive -Labor costs must be controlled Considered market-driven (EX: market definitions, surveys, policy lines)
Pay Discrimination and Dissimilar jobs
Pay diff for dissimilar jobs may reflect discrimination -The courts continue to uphold use of market data to justify pay diff for diff jobs (Spaulding v. University of Washington developed the argument in detail) A second approach to determining pay discrimination on dissimilar jobs hinges on finding a standard to compare the value of jobs -It must permit jobs with dissimilar content to be declared equal -It must permit pay diff for dissimilar jobs that are not comparable Job evaluation has become that standard -If an employer's own job evaluation study shows that jobs of dissimilar content are of equal value, isn't unequal pay proof of discrimination?
Disparate Impact
Practices having a differential effect are illegal -Unless work-related differences -Griggs v. Duke Power Co.: employees had to take test to receive a promotion and it contained questions that led to unproportionate outcomes (like where they're from) -->Questions must be directly related to job now Intent to discriminate is irrelevant -Employers must demonstrate a personnel decision is work-related
Title VII of the Civil Rights Act & Related Laws
Title VII prohibits discrimination on the basis of sex, race, color, religion, or national origin in any employment condition -Including hiring, firing, promotion, transfer, compensation, and training -The Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) prohibit discrimination Title VII cases typically focus on diff in pay, promotions, pay raises, and performance reviews The Lilly Ledbetter Fair Pay Act increased compliance challenges: -If a Discrimination pay act occurs, you can file a claim starting a new statute of limitations and a discriminatory paycheck is issued for each time
Stockholder compensation view
Using stock to pay employees may create a sense of ownership that will improve performance, in turn increasing stockholder wealth
Overtime and Hours of work factors
What times are covered? -Breaks are not required; though are paid by the employer (e.g., 5-20 min) -The Portal-to-Portal Act provides that time spent on activities before beginning the "principal activity" is not compensable What income is covered? -The Worker Economic Opportunity Act allows stock options and bonuses to be exempt from inclusion in overtime pay calculations Compensatory time off: -There is proposed legislation to allow trading overtime pay for time off Employee has scheduling flexibility and the employer saves money
how is job analysis info collected?
-Conventional methods are questionnaires, interviews, and observation -Employee involvement increases their understanding of the process, however, the results are only as good as the people involved Quantitative methods move the questionnaire online for a quantitative job analysis (QJA) - statistical analysis is possible -Jobholders assess each item as to its importance to their job -Questions are grouped around five factors and subcategorized (Knowledge, Accountability, Reasoning, Communication, Working conditions) -Results help prepare a job profile based on compensable factors -They can be tailored to the needs of the organization
Step 3: Implement the strategy through design/ execution of the compensation system
-Design strategy to translate strategy into action -Choose techniques to fit strategy
Compensation objectives (the pay model)
-Efficiency: performance, quality, customer and stockholder, and cost -Fairness -Compliance -Ethics
Management of the policies
-Ensuring the right people get the right pay for achieving objectives in the right way --> Evaluation -Not a reference to how management is structured or how management is perceived by employees (good/bad) -Need to consider "what is the impact of this policy, technique, or decision?" (EX: cost, communication, change)
Employee contributions
-External competitiveness and employee contribution must be made jointly --> Pay for performance -Directly affect employees' attitudes and work behaviors (EX: seniority-based, incentives, merit guidelines)
FLSA's Overtime and Hours of work
-FLSA requires time-and -a-half for over 40 hours per week (not over 8 hours a day) -State laws sometimes go beyond FLSA -Some employees are exempt and must make at least $35,568 annually -Increased from $455/wk ($23,660 annually) Jan 1 2020
Fair Labor Standards Act of 1938 (FLSA)
-FLSA's major provisions 1. Minimum wage 2. Hours of work, including overtime 3. Recordkeeping 4. Child labor -FLSA requires that records be kept of employees, their hours worked, and their pay -Employers have paid billions of dollars resulting from FLSA lawsuits and enforcement activity by the DOL Wage and Hour Division -Minimum-wage legislation is intended to provide an income floor for workers in society's least productive jobs -2.2 million workers are estimated to be paid at minimum wage
merit increases vs. merit bonuses
-Merit increases are performance-based and raise pay over time -Merit bonuses are performance-based given as a 1 lump sum rather than a permanent change in salary
The Pay model
-Policies that form the foundation of the compensation system (internal alignment, competitiveness, contributions, management) -Techniques that tie the policies to the objectives -Compensation objectives from policy techniques
Government's usual interests in compensation:
-Procedures for determining pay are fair (pay discrimination) -Safety nets for unemployed and disadvantaged are sufficient -Employees are protected from exploitation
why perform a job analysis
-Provides a work-related rationale for pay differences because it is based on job related information -Employees who understand the rationale can see where their work fits into the bigger picture -It can direct their behavior toward organization objectives. -In compensation, job analysis has two critical uses: 1. It establishes similarities/ diff in the work content of the jobs 2. It helps establish an internally fair and aligned job structure -The key issue: to ensure the data is useful and acceptable.
incentives
-also tie pay increases to performance but differ from merit adjustments: -Use objective measures of performance that are tied to the performance of an individual, a business unit or combination of individual, team, and unit -Do not increase base wage and must be re-earned -Is known beforehand - such as commission Try to influence future behavior, whereas merit rewards past behavior Incentives are a one-time payment, therefore, frequently referred to as variable pay Incentives may be short (year or less) or long-term (2-5 years) -Long-term incentives are in the form of stock ownership or options; tied to overall company performance or overall company objectives that must be met
validity/acceptability of job analysis
-examines the agreement of results among sources and methods -If several job holders, supervisors, and peers respond in similar ways, the information is likely valid -If job holders and managers are dissatisfied with the process, they will likely not buy into the resulting job structure or pay rates -Analysts collecting info through interviews and observation are not always accepted due to the potential for bias -Quantitative approaches may not be accepted if they collect too much information for too many purposes
currency and usefulness of job analysis
-refers to the practicality of the information collected Job analysis provides info to help determine how much to pay for a job and whether the job is similar or different from other jobs If done in a reliable, valid, acceptable way, job analysis can be used to make pay decisions and is therefore useful -To be valid, acceptable, and useful, job information must be up to date (Out-of-date job information only hinders not only pay practices and decision-making, but also hiring, training, and development) -Develop a systematic protocol for evaluating when job information needs updated
prevailing wage laws
-set pay for work done to produce goods and services contracted by the federal government -Prevents contractors from using their size to drive down wages -If someone is coming to do work for you, you pay the same wage as others in the area are making; the "prevailing wage"
Three tests for sources of competitive strategy
1. Is it aligned? -Is it aligned with the business strategy? With external conditions? Internally with the overall HR system? 2. Does it differentiate? -How is the pay system managed? -Each strategy is woven into the company's overall HR strategy 3. Does it add value? -Calculate the return on (pay) investments (ROI)
Job-Based Approach: Most Common
Provides the underlying information and identifies the content of the job, leading ultimately to an internal structure -Used for job descriptions, job evaluation, and job structure Major decisions in designing a job analysis: -Why are we performing job analysis? -What information do we need? -How should we collect it? -Who should be involved? -How useful are the results?
relational returns
Recognition and status, employment security, learning opportunities, challenging work Non-financial returns from work affect employees' behavior -Includes recognition and status, employment security, challenging work, and opportunities to learn -Personal satisfaction from facing new challenges, teaming with great co-workers, and receiving new uniforms -Such factors are part of the total return, broader than total compensation (both are part of total returns)
Definition of skill, effort, responsibility, working conditions
Skill: experience, training, education, and ability as measured by the performance requirements of a particular job Effort (mental or physical): the degree, not type, expended on the job Responsibility: degree of accountability required of the job Working conditions: the physical surroundings and hazards of the job
Aspects that inflate pay rate
Supplies needed Complexity required Turnover Return on investment Sometimes unions could be advocating
Equal Pay Act of 1963 (EPA)
part of FLSA, forbids wage discrimination on the basis of gender for equal work -Jobs are equal if they require equal skill, effort, and responsibility and are performed under similar working conditions Differences in pay are legal if differences are based on any of four criteria, called an affirmative defense -Seniority -Merit/quality of performance -Quality or quantity of production -Some factors other than sex (Shift differentials, Temporary assignments, Bona fide training programs, Diff based on ability/training/experience, Other reasons of "business necessity.", "Reverse" discrimination when adjusting women's pay)
Living wage
provides a minimum wage based on the cost of living in an area -It may only cover city employees or those who do business with the city -It may only cover base wages, but may require health insurance, vacations, sick pay, job security, and incentives to unionize -Maryland was the first to adopt this ordinance, in 2009 -A Los Angeles law covers contractors and subcontractors with city agreements -Increasingly popular - supported by churches and unions Due to narrow tailoring, their real intention may be to reduce any cost savings from outsourcing and high minimum wages -->Reduced outsourcing means more local jobs
American Disabilities Act (ADA)
requires the essential elements of a job be specified -Essential elements are those that cannot be reassigned to other workers -If an applicant can perform the essential elements, the applicant can perform the job -Reasonable accommodations must be made to enable qualified persons to perform those elements -The law does not make allowances for special pay rates or special benefits
base pay (wage)
the cash compensation an employer pays for the work performed -Reflects the value of work/skills and ignores differences in individuals -In the US, salary refers to annual or monthly pay for employees exempt from overtime pay -Non-exempt employees are paid hourly wages
sorting effect
the effect pay can have on the composition of the workforce Do people apply or stay with a company?
job specification
the list of knowledge, skills, abilities, and other characteristics necessary to perform the job well -Summarizes the characteristics of someone able to do the job well -qualifications, experience, training, skills, responsibilities, emotional characteristics, sensory demands
job description
the list of tasks, duties, and responsibilities that make up a job - observable actions; summary of the job itself -Includes job title, job location, job summary, reporting to, working conditions, job duties, machines to be used, hazards useful to refer to generic job descriptions that can be tailored to a specific organization -Managerial or professional job descriptions often have detailed info on the job, its scope, and accountability -->They capture the relationship between the job, the person performing it, and the organization's objectives -The final step in the job analysis is to verify the accuracy of the resulting job description