chapter 18

Employee reactions to pay secrecy versus pay openness depend on ________, with those more sensitive to whether pay is fair given inputs like performance most likely to respond favorably too pay openness

equity sensitive

Top-down budgeting begins with an ________________________. Once the total budget is determined, it is then allocated to each manager, who plans how to distribute it among subordinates.

estimate from top management of the pay increase budget for the entire organization

A comps-ratio greater than 1 means that, on average, the rates ____ the intended policy. -high seniority -high performance -low turnover -few new hires -low promotion rates

exceed

The cost of living, refers to the ______________________________________.The cost of living is more difficult to measure because employees' expenditures depend on many things: marital status, number of dependents and ages, personal preferences, location, and so on.

expenditure patterns of individuals for goods and services.

the "average market wage" becomes the "going market rate," and this market rate changes each year in response to a variety of factors in the _______ market.

external

usually broad bands are accompanied by _______ "reference rates" and "shadow ranges"t hat guide managers' decisions.

external market

______ planning is integral to managing compensation

financial

______ planning is integral to managing compensation.

financial

any decision to increase the average pay level is in part a function of the organization's ________ circumstances.

financial

the ____ component is typically paid regardless of business performance. in contrast, the ____ component of compensation, in theory, will rise and fall in line with business performance

fixed; variable

the result of the _____________ is a budget for the upcoming plan year for each organization's unit as well as estimated pay treatment for each employee.

forecasting cycle

Avoiding ______ communication is not synonymous with avoiding communcation

formal

most employers "_____" red circle rates until the ranges are shifted upward by market update adjustments so that the rate is back within the range again.

freeze

Price changes for goods and services in the product and service markets are measured by several ________, one of which is the consumer price index (CPI).

government indexes

Broad bands are intended to offer managers ______ compared to a grade-range design.

greater flexibility

__________ refer to instances where employees are paid below the min.

green circle rates

More typical, ways of controlling or reducing benefits costs have to do with efforts by companies in the area of ________.

health care

financially ______ employers may wish to maintain their competitive positions in the labor market or share financial success through bonuses and profit sharing.

healthy

____ is when following nations in programs/ techniques; benchmarks selectively. use pilot programs and test trials to guide

herding

Employers in companies with open pay policies tend to express ____ satisfaction with their pay and with the pay system

higher

The ______ the fixed benefits costs, the more viable is the option to add ______ rather than hiring another nurse.

higher; overtime

Rather than define employment as number of employees, _______ is often used.

hours of work

several factors influence the decision on how much to increase the average pay level for the next period:

how much the average level was increased this period, ability to pay, competitive market pressures, turnover effects, and cost of living

range ______ reflect the pay policy line of the employer in relations to _________

midpoint; external competition

Under the _________________, it is illegal if it interferes with "concerted action" by employees - Pay secrecy.

national labor relations act

By ____ hiring, the organizations avoids recruitment/selection costs. It also gains more ____ to reduce labor costs if demand for its health care services declines in the future.

not; flexibility

The four factors in the labor cost model _______, _____, ______, and ______ --- are not independent.

number of employees, hours worked, cash compensation, and benefits costs

research also shows that employees in companies with ___________ policies are as inaccurate in estimating pay differentials as those in companies in which pay secrecy prevails.

open pay communication

one of the major attacks on traditional compensation plans is that they often degenerate into bureaucratic nightmare that hinder the _________________.

organization's ability to respond to competitive pressures

the cost implications of actions such as ________, _______, or __________________ are critical for making sound decisions

updating the pay structure; increasing merit pay; instituting gain sharing

____________ is part of the strategy for many employers to seek to buffer themselves from getting into a position where layoffs are necessary

use of overtime

________ and ____ are processes used tot improve quality and ensure that value is added by each technique and at each stage in a process.

value chain analysis; six sigma

Another major tool used by organizations to control salary costs, in both good and bad times, is _____ pay.

variable

______ aspect allows companies to reduce labor costs whens times are tough an to share success with (and reward) employees when times are good .

variable

the essence of variable pay is that it must be ______ each period, in contrast to conventional merit pay increase or across the board increase that increase the base on which the following year's increase is calculated.

variable

If the pay system is not based on ______ or ______ logic, then the wisest course is probably to avoid formal communication until the system is put in order

work-related; business-relatetd

The __________ made highly skilled workers managers as well as workers.

"contract system"

____________ proposals is commonly done prior to recommending pay increases, especially for collective bargaining.

costing out wage

in the past, financial planning in compensation was only about ______.

costs

______ are then major potential advantage of outsourcing

costs savings

Three main factors to control in order to manage labor costs:

employment (e.g., number of workers and the hours they work), average cash compensation (e.g., wages, bonuses), and average benefit costs

If exit incentives cannot be effectively targeted and all employees are eligible, which employees do you think would be most likely to take the incentive and leave?

Probably the most employable and most able to find another good job --> undesirable sorting effect

financial planning also requires the understanding the ______ (or returns) gained from the allocation.

revenues

Compensation strategy influences effectiveness not only by its influence on (labor costs) but through its influence in helping increase _____ or ______ as well.

revenues; returns

Decentralization dilemmas:

-difficult to transfer employees from one business unit to another -pay system may support a subunit's objectives but run counter to the overall corporate objectives

Ways to reduce pay:

-reduce employment -reduce the rate of increase in average pay by controlling adjustments in base pay and/or variable pay -rasiing employees' copays and deductibles for benefits -firms decrease base wages (as well as variable pay)

A variety of methods exist for determining what percentage of the salary budget each manager should receive:

-uniform percentage -vary the percentage allocated to each manager based on pay-related issues such as turnover or performance

two reasons are usually given for communicating pay information:

1. considerable resources have been devoted to designing a fair and equitable system that is intended to attract and retain qualified people and motivate performance 2. employees misunderstand the pay system

controls on managers' pay decisions come from two different aspects of the compensation process:

1. controls that are inherent in the design of the techniques 2. the formal budgeting process

6-stage process of communication.

1. defining the objectives of the communication program 2. collection information from executives, managers, and employees to assess their current perceptions, attitudes and understanding of the subject 3. communication program that will convey the information needed to accomplish the original objectives 4 & 5. evaluate the success o the communication program

Bottom up process:

1. instruct managers in compensation policies and techniques 2. distribution forecasting instructions and worksheets 3. provide consultation to managers 4. check data and compile reports 5. analyze forecasts 6. review and revise forecasts and budgets with management 7. conduct feedback with management 8. monitor budgeted versus actual increases

Pay management issues:

1. managing labor costs 2. managing revenues 3. communication 4. designing the compensation department

Managing compensation ethically is increasingly complicated for several reasons:

1. pay really matters 2. fierce pressure to achieve results

Several potential problems with headcount reductions:

1. regulatory requirements make it difficult to make targeted cuts 2. workforce reductions, especially if not handled well, can harm employee relations 3. organization that make greater (involuntary) workforce reductions also experience greater voluntary turnover 4. RIFs, while reducing costs over time, are very costly in tangible terms up front due to increase in unemployment insurance tax rates, disruption of work processes and serving customers, and administrative costs of handling exits. 5. some companies have learned to run so "lean" and have controlled hiring so successfully, that there may be little room to cut headcount 6. where cuts can he made, if the cuts are too deep, and organization will be poorly positioned to generate revenue if business picks up again

Adjustments to average cash compensation level can be made:

1. top down 2. bottom up

For nonexempt employees in the United Sates, hours over___ per week are more expensive.

40

A program must give workers ___ years old and older ____ days to consider the offer and __ days to change their mind if they accept the offer. These and other provisions tend to make it difficult to single out high-wage and /or poor-performing workers

40; 21; 7

the _____________ often comes into play if organizations target reductions among higher paid employees (to maximize labor cost savings) because higher paid employees also tend to be older employees. In addition, the _____________, requires that exist incentive programs be structured in very specific ways.

Age Discrimination in Employment Act (ADEA)l Older Worker benefits protection act

The ____ is of public interest because changes in it trigger changes in labor contracts, social security payments, federal and military pensions, and food stamp eligibility.

CPI

________________ "non-retaliation for disclosure of comepskaion information" prohibits federal contractors or subcontractors from "discharging or discriminating in any other way against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant" -- modifies existing executive order 11246 with the aim of making it more effective

Executive order 13665

______ cash compensation includes average salary (fixed payments) level plus variable compensation payments such as bonuses, gain sharing, stock plans, and/or profit sharing.

average

Advocates want to develop compensation managers' ___________________.

analytical literacy

______ is when initial data strongly affect decisions/beliefs; first data matters, e.g., market data swamps job-evaluation results. previous bonus sets expectation for future bonus

anchoring/framing

_______________ and _____ often have favorable short-run effects on stock prices as investors anticipate improved cash flow and lower costs. However, in the longer term, adverse effects such as ___________, ________, and _____, often translate into lower financial gains than anticipated.

announcements of layoffs; plant closings; loss of trained employees; unrealized productivity; lowered morale

using information about competitors' _____ helps improve understanding of labor cost.

average

A compa-ratio of less than 1 means that, on average, employee in a range are paid _____ the midpoint. That is, mangers are paying less than the intended policy. -new or recent hires -poor performers -promotions

below

the turnover effect will also reduce ____ costs linked to base pay, such as pensions.

benefit

A major advantage of a reduction in force (RIF) is that it also reduces ______ costs, something that a pay cut, furloughs, or reduction in hours ordinarily does not achieve.

benefits

Too ____ of a corporate group risks becoming out of touch with specific business unit needs.

big

the ____ the change, the ____ the sorting effects and the more likely that there will be a difficult period of adjustment as part of the change.

bigger; bigger

_____, in which individual employees' pay for the plan year is forecasted and summed to create an organization-wide salary budget.

bottom up

Under broad bands, the manger has flexibility in pay decisions, as long as th total pay comes in under the ______.

budget

Pushing responsibilities (and expenses) close to the unites, managers, and employees affected by them may help ensure that decisions are ______-related.

business

although there is little research to support _________, employees undoubtedly compare their pay increases to changes in their living costs.

cost of living increases

Band may be more about ________ than pay decisions. Rather the control is in the salary budgets given to mangers.

career management

A _____ compensation strategy and function is more likely tot be found in a smaller and/or single line of business organization. This one size fit all approach is more likely to make sense when the entire company mostly competes in a single product market .

centralized

______ strategy, which locates the design and administration responsibility at corporate headquarters.

centralized

pay is a power single of _____; changing people's pay capture their _____.

change; attention

CPI measures _________. Changes in the CPI indicate whether prices have increased more or less rapidly in an area since the base period.

changes in prices over time

Some evidence indicates that _______ to process and employees relations during workforce reductions can help ______.

close attention; financial results

the _______ tends to focus on explaining practices, details, and the way pay is determined.

communication approach

____________, designed for employees or managers, explain compensation policies and practices, answer frequently asked questions, and explain how these systems affect their pay.

communication portals

in a university setting, found that making pay information on other employees in the university system more explicitly available resulted in more pay ____ by employees. and lower satisfaction and greater search intentions among employees paid below the median for their department and occupation

comparisons

Organizations with different business strategies often have correspondingly different _______ strategies.

compensation

Strategic changes in the business strategy means the ______ strategy must be realigned as well.

compensation

Analysis requires a shift in how compensation is viewed (decisions are based on analysis of the return on this investment):

compensation becomes an investment as well as an expense (so what)

the ______ takes on the role of advisor to operating management's use of the bottom-up system.

compensation manager

The greatest pay system design the world is useless without ______________________.

competent management

Merit increase grids help ensure that different mangers grant _____ increases to employees with similar performance ratings and in the same position in their ranges. Additionally, grids help control costs.

consistent

________ is a limited fun of money that each manager has to allocate to subordinates.

constraint

once salary budgets are allocated to each subunit manager, they become a _________.

constraint

Rather than expand or contract the core workforce, many employers achieve flexibility and control labor costs by expanding or contracting the _______ workforce.

contingent

_______, who employment agreements Amy cover only short, specific time periods. They can be employees, but can also be independent contractors/vendors or may be employed by staffing services firms/vendors

contingent workers

_______, with whom a long-term relationship is desired

core employees

The answers to these and related problems of decentralization can be found in developing a set of ____________ that all must meet.

corporate wide principles or guidelines

_____ and _____ malfeasance were also part of the decentralized decisions making in the early 1900s.

corruption; financial

________ refers to a management strategy of giving separate business units the responsibility of designing and administering their own systems

decentralized

the demand for labor is a ______ demand, meaning that it depends on the demand for the company's _____.

derived; product

some argue that providing such _____ data and recommendations to operating managers makes the process _____.

detailed; biased

Exit incentives, if provided, further _________ costs.

drive up

To help avoid history repeating itself and to redeem HR VP from the image of unindexed coconspirators, the compensation system should be managed to achieve the objectives in the pay model:

efficiency, fairness, and compliance

the effects on all pay objectives -- _______ and _____ -- also need to be considered before taking any action.

efficiency; fairness

_________, by which employees can access their personal information, make choices about which health care coverage they prefer, allocate savings between growth or value investment funds, access vacation schedules, or check out a list of child or elder care services providers.

employee self-service

Whether pay is a leading catalyst for change or a follower of change, compensation managers must learn how to _________ and ____________. Not only must they know the strategic and technical aspects of compensation, they also must know how to bargain, resolve disputes, empower employees, and develop teams.

implement and manage change

Pay's _____ effects can help redirect and reenergize employee efforts

incentive

Tying budgets or payments to the CPI is called _____.

indexing

Employee's understand of pay system is shaped ______ through the paychecks they receive and ____ via formal communication about their pay, their performance, and the markets in which the organization competes.

indirectly; directly

Comma-Ratios may be calculated for:

individual employees, for each range, for organization units, or for functions

If you decide to use the CPI rather than labor market salary surveys to determine the merit budget, you basically are paying for ______ rather than performance or market changes.

inflation

The inherent financial ______ built into variable plans may adversely affect employees' finical well-being, especially for lower-paid workers.

insecurity

Employees are constantly getting _____ or _____ messages through he pay treatment they receive

intended; unintended

major potential disadvantages for outsourcing includes:

less responsiveness to unique employee manger problems, less control over decisions that are often critical to all employees, and information lease to rivals and competitors -- delivery may be different

Treating compensation as an investment and employees as human capital risks __________________________. The fairness objective must not get lost in the search for ROI.

losing sight of them as people

_________ helps managers pay their employees appropriately.

manager self-service

the bottom up approach places responsibility for pay management on the _____ by requiring them to plan the pay treatment for each of their employees.

managers

Permnitting managers to be free tot pay employees as they judge best rests on the premise:

managers will use pay to achieve the organization's objectives -- efficiency, fairness, and compliance with regulations - rather than their own objectives

Too ______ in the business units risks reinvesting the wheel, duplication.redundancy of expertise, and higher costs.

many staff

the ___________ includes consumer attitude survey s about the product, snappy advertising about the pay policies, and elaborate websites expounding policies and rationale. The objective is to manage expectations and attitudes about pay

marketing approach

the range _____ is an important cost control. Ideally, it represents the highest value the organization places on the output of the work. Range max represents the max worth to an organization of work performed in a particular job

maximum

Typically, _____________ are used to help managers make these allocation decisions.

merit increase guidelines

_______ hires often command a pay premium and, to the degree that their higher pay is known to other employees, _______ pressures may, in some cases, result in higher pay for current employees as a means to preserve current norms regarding relative pay.

outside; internal equity

______ is a viable alternative as organizations struggle with active that do not directly contribute to objectives.

outsourcing

employees tend to ____ the pay of those in lower-level jobs and to ________ then pay of those in higher-level jobs. they assume that the pay structure is more compressed than it actually is. If differentials are underestimated, their motivational value is diminished, because they underestimate the payoff to high performance.

overestimate; underestimate

______ hours require higher wages but the incremental ______ costs is substantially lower than the incurred in hiring an additional regular nurse.

overtime; benefits

______ is when people "discover" patterns in random events. they believe correlation means causations; higher pay may not mean higher performance; higher performance may not mean higher pay.

pattern recognition

Pay changes can play two roles in any restructuring:

pay can be a leading catalyst for change or a follower of change

Evidence to suggest that the goodwill engendered by the act of being open about pay may also affect perceptions of _________.

pay equity

________, ensure that mangers are at least aware of this information and that pay increases for any one period are part of a continuing message to individual employees, not some ad-hoc response to short-term changes.

pay histories

Changes in wages in labor markets are measured through ______. These changes are incorporated into the system through market adjustments in the budget and updates of the policy line and range structure.

pay surveys

Compensation decisions influence organization's _____ by influencing costs and/or revenues

performance

________ is when there is reluctance to accept evidence that contradicts existing beliefs; changing existing beliefs requires actively engaging employees in pay system design and combination

persistence of belief

the budget does not lock in the manger to the exact pay changes recommended for each employee, rather, it represents a ____, and _____ due to unforeseen changes such as performance improvements and unanticipated promotions are common

plan; deviations

________, is simply the percentage increase in average pay for the unit that is planned to occur.

planned pay-level

__________ standardizes forms, performs some analysis, and creates reports at the click of the mouse.

processes transactions.

_______- based pay increases are often substantial, meaning that cost control efforts must monitor both rates of promotion and the salary increase that is given with promotions.

promotion

Returns are grouped into four types:

recruiting and retaining top talent, reducing turnover of top performers, revenues enhancement, and productivity gains

when employees are paid above the range max, these rates are called _____.

red circle rates

Rather than cutting headcount, it can _________, which helps avoid employee relations problems as well as the monetary costs of reducing headcount.

reduce hours worked

an organisation may spend a lot of money ____ headcount and then spend _____ more a shorter time later to hire new employees to handle increased product demand.

reduce; hire

If the red circle rates become common through an organization, the the design of the ranges and the evaluation of the jobs should be ______

reexamined

to the degree that headcount reductions can be targeted based on performance, it can also be an opportunity for an organization to _________________________. Under such a scenario, stronger performers are unaffected and the organization has an opportunity to maintain good employee relations with this important group

reshape its workforce in a way that creates positive sorting effects

_____ might be the productivity increases expected from a new gain-sharing or profit -sharing plan, or the expected value added by boosting merit increases to the top performers.

returns

trade offs also occur over ________________, __________________, and ______________.

short-versus long-term incentives, over pay increases contingent on performance versus seniority, and over cash compensation compared to benefits

a final issue rated to pay design and administration is the ______ and _____ required in compensation managers

skills; competencies

One aspect of the ________ is that high performers will tend to move from organizations that do not adequately compensate them for the high value they create to organizations that do.

sorting effect

A laboratory study found some evidence that more open pay not only had psotie incentive effect on performance, but also that there were positive ______ of the type just suggested.

sorting effects

one of the most common approaches to reducing benefits costs recently has ben for employers to ________ to 401 k retirement plans.

suspend matching

it is important to distinguish among three related concepts:

the cost of living, changes in prices in the product and service markets, and changes in wages in labor markets

Range min are just that:

the min value placed on the work. Often rates below them are used for trainees. Pay below min may also occur if outstanding employees receive a number of rapid promotions and pay increases have not kept up.

________, in which top management determines the amount of money to be spend on pay and allocates it "down" to each subunit for the plan year

top down

creating a compensation budget requires ____, such as how much of an increase should be allocated according to employee contributions versus across the board increases versus company performance.

trade-offs

_________ which are not unique to the organization and might be done cheaper by an outside provider.

transactional activity

________ or _______ activités are less likely to be outsourced

transformational; strategic

financially _____ employers may not be able to maintain competitive market positions

troubled

sometimes referred to as "churn" or "slippage" the ________ recognizes the fact that when people leave (through layoffs, quitting, retiring), they typically are replaced by employees who earn a ____ wage.

turnover effect; lower

Many people refer to the CPI as a "cost-of-living" index, and many employers choose, as a matter of pay policy or in response to ________, to tie wages to it. However, CPI does not necessarily reflect an individual employee's cost of living.

union pressures

_____ consistency argue that increasing living costs justify increasing pay

unions

At the min, the most important inflation to be communicated is the ___-realted and ____ - related rationales on which pay systems are based. some employees may not agree with these rationales or results, but at least it will be clear that pay is determined by something other than the whims of their supervisors.

work; business