Topic 6

What is the best way to calculate the Compa-Ratio?

Organizations use pay grades and ranges to monitor how well pay rates are conforming to the pay plan. The Compa-ratio is frequently used to measure this conformity. The Compa-ratio is calculated by dividing the average pay for the pay grade by the midpoint of that range. For example, if the organization has an average pay of $50,000 in a pay grade and the midpoint of that pay grade is $75,000 then the Compa-ratio is .66 suggesting that the organization is paying less than planned.

Explain why Shadow Ranges exist?

Within broadband systems some organizations want to have a little more guidance on compensation levels. This can be done through a system of smaller ranges within the pay ranges. These Shadow Ranges exist within the range of the broad band and are applied to specific job families to provide guidance on appropriate compensation levels.

What does the Priciple of Inclusiveness Mean?

a pay range needs to be large enough to capture the pay range of all jobs in that grade or band. When establishing these ranges, it is important to consider not only the current compensation but also the future compensation of jobs when rates rise due to inflation or market shifts. It is wise, therefore, to leave a buffer zone around the current pay rates to ensure that the range is adequate.

regression analysis (AKA line of best fit)

a statistical technique used to draw the line of best fit

What graphical form can a company's Reward Level Stategy be displayed?

called the reward strategy line

What do Green Circle Rates refer to?

employee being paid too little...or below range

What do Red Circle Rates refer to?

employee being paid too much...or above range

What is the purpose of Network Careers?

employees change jobs frequently, sometimes changing functions and industries to bring unique perspectives and competencies to their new roles

Define Broadbanding and state what it involves?

entails the use of a few broad bands (or grades) to organize work for pay purposes instead of many complicated pay grades The advantages of a broadbanding approach are multiple. First, it allows for much greater flexibility. It allows employees to modify their role in the organization, to join and exit from multiple organizational teams, and manage lateral changes in their careers without facing compensation-related obstacles. It creates a more integrated organization because the reward system doesn't give employees the incentive to stay in their job and function but instead allows for employees to change their jobs and careers to better meet the new and changing demands faced by the organization

What kind of analysis is best to use when finding out how much a job family should be paid?

job performance analysis

As a general rule, base pay strategies rarely lead the market by more than how much?

no more than 10%

Define Reward-Level Strategy

refers to the extent to which a company will pay above, at, or below the market average. It is typically expressed as a percentage above or percentage below the market (lag, meet, lead)

How is the Principle of Control used?

states that the size of pay ranges should be kept sufficiently small to enable an organization to control labor costs In general, smaller ranges will result in more employees reaching the top of their pay grade sooner. By reaching the top, their pay becomes more constrained, and therefore compensation costs stay controlled. On the other side, however, the organization must ensure that the degree of control this affords does not result from the pay range being too small to compensate high performing employees at a fair and market equitable rate.

What does the Principle of Parity Suggest?

suggests that, in general, the more grades that are used the smaller the ranges will be. Conversely, as fewer grades (or broadbanding) are used, the ranges will necessarily have to increase. Thus, there is a degree of correspondence between pay grade size and range size.

What is the Collective Environment (AKA collaborative environment)?

teams of employees work in concert to be creative, solve problems, and produce results

Define Dynamic Role- Based

the work employees do changes on a regular basis, and organizations need a compensation system that facilitates those changes instead of impeding them

How is the Principle of Overlap used in pay grades or bands?

there should be overlap in the pay ranges for successive pay grades or bands. Said another way, it is possible that an employee in pay grade three could be paid more than an employee in pay grade four. This is a likely scenario because there are employees of varying work experience and performance working in each pay grade (or band). A high performing employee that has been with the organization for 10 years in grade three may be paid higher than an inexperienced employee just hired into grade four. Overlapping grades allow for such scenarios to exist, and each employee may still be compensated according to their worth.

What are Pay form-specific reward strategies?

varying pay-level strategies across reward types. For example, one organization may choose to lag the market by 5% on base pay, but lead the market by 10% on employee benefits. Another organization may match the market on base pay and benefits, but lead the market by 8% on variable pay. By using pay form-specific strategies, organizations can create more customized reward systems that are more likely to differentiate them from their competition in the labor market