CMS 2, Lesson 7

Market pricing as a pay strategy refers to which of the following? A. Annually adjusting base pay using the Consumer Price Index B. Relying on external market rates to set the internal pay structure C. The point where supply and demand labor curves cross D. Combining jobs into a broader market band E. Paying rates that reflect product market conditions

(7.0) B. Relying on external market rates to set the internal pay structure

All the following are purposes of a pay survey EXCEPT: A. Adjust pay level B. Determine if pay structure needs to be changed C. Estimate the labor cost of competitors D. Keep labor costs as low as possible within a given industry E. May give information on specific related pay problems

(7.0) D. Keep labor costs as low as possible within a given industry

Measures of central tendency in salary surveys include which of the following? I. Minimums, maximums and midpoints II. Percentiles and quartiles III. Means and medians

(7.0) III. Means and medians A measure of central tendency reduces a large amount of data input into a single number. Measures of central tendency include the mode, the mean, the weighted mean and the median.

What are the major decisions involved in setting externally competitive pay and designing the corresponding pay structures?

(7.1) 1. Specify the employer's competitive pay policy. 2. Define the purpose of the survey. 3. Select relevant market competitors. 4. Design the survey. 5. Interpret the survey results and construct the market line. 6. Construct a pay policy line that reflects external pay policy. 7. Balance competitiveness with internal alignment through the use of ranges, flat rates and/or bands

What are the three approaches that can be used to select jobs for inclusion in a survey?

(7.10) 1. Benchmark Conversion/Survey Leveling approach 2. Benchmark-Jobs approach 3. Low-High approach

If an employer is finding it hard to match survey jobs, it can apply its plan for creating internal alignment to the descriptions of survey jobs. What type of approach to job inclusion in a survey should be used in this case?

(7.10) Benchmark Conversion/Survey Leveling approach

What types of jobs have stable job content, are common across different employers and include sizable numbers of employees?

(7.10) Benchmark jobs

If the purpose of the survey is to price the entire pay structure, what type of approach to job inclusion in a survey should be used?

(7.10) Benchmark-Jobs approach

If an organization is using skill/competency-based pay structures or generic job descriptions, what type of approach to job inclusion in a survey should be used?

(7.10) Low-High approach

What three basic types of information are collected in a survey?

(7.11) Information about the following is collected during a survey: 1. Nature of the organization (e.g., size, structure, financial info) 2. Total compensation system (e.g., competitors' pay packages that include base pay, total cah and benefits) 3. Incumbent date (e.g., actual pay rates paid to employees for specific jobs)

What three forms of compensation make up a total compensation plan?

(7.12) 1. Base play plus bonuses 2. Stock options 3. Benefits

What type of compensation tells how competitors are valuing the work in similar jobs?

(7.12) Base pay

Does total cash include long-term incentives?

(7.12) No

What type of compensation tells how competitors are valuing work?

(7.12) Total cash

What type of compensation tells the cash pay for performance opportunity in the job?

(7.12) Total cash

What is total cash compensation?

(7.12) Total cash is the base pay plus bonuses.

What type of compensation tells the total value that competitors place on work?

(7.12) Total compensation

What is a common first step in verifying data?

(7.13) A common first step in verifying data is to check the accuracy of the job matches.

Describe the process of benchmark conversion/survey leveling.

(7.13) If the job is similar but not identical, some companies use benchmark conversion/survey leveling; that is, multiply the survey data by some factor that corresponds to the analysts' judgment of the differences between the company and survey job.

Describe the leveling process.

(7.13) The leveling process is used to weight the data according to the closeness of the match.

What do frequency distributions accomplish within a survey?

(7.14) Frequency distributions help visualize the information in the survey and may highlight nonconformities.

Is the "mode" of a calculation of substantial value?

(7.14) No

What are common measures of dispersion in salary survey analysis?

(7.14) Quartiles and percentiles

What is the most common statistical measure of variation?

(7.14) Standard deviation

What term describes how far from the weighted mean each of the items in a frequency distribution is located?

(7.14) Standard deviation

Define the term "standard deviation."

(7.14) Standard deviation refers to how far from the weighted mean each of the items in a frequency distribution is located.

How are percentiles calculated?

(7.14) To calculate percentiles, the measures are ordered from lowest to highest, then converted to percentages.

What term describes the distribution of rates around a measure of central tendency?

(7.14) Variation

Define the term "variation."

(7.14) Variation is the distribution of rates around a measure of central tendency.

What arithmetic measure provides a fairly accurate picture of actual labor conditions, since it captures the size of supply and demand?

(7.14) Weighted mean

Can frequency distributions vary in shape?

(7.14) Yes

What is "aging" or "trending"?

(7.15) Aging or trending is the amount of data to update.

Define the term "market line."

(7.16) A market line links a company's benchmark jobs on the horizontal axis (internal structure) with the market rates paid by competitors (market survey), which are on the vertical axis.

What term describes a measurement that links a company's benchmark jobs on the horizontal axis (internal structure) with the market rates paid by competitors (market survey), which are on the vertical axis?

(7.16) Market line

What term describes a straight line that best fits the data by minimizing the variance around the line?

(7.16) Regression

Under what circumstance does a pay rate exist?

(7.17) A pay range exists whenever two or more rates are paid to employees in the same job.

Ranges permit managers to recognize many differences. What are three examples?

(7.17) Differences in: 1. Quality among individuals applying for work 2. Productivity or value of these quality variations 3. The mix of pay forms competitors use

What type of compensation plan establishes flat rates for each skill level regardless of performance or seniority?

(7.17) Skill-based plan

What does a pay range mean to an organization from an internal alignment perspective?

(7.17) The range reflects the differences in performance or experience the employer wishes to pay for a given level of work.

Where is the midpoint of a range?

(7.18) The midpoint for each range usually corresponds to the point where the pay policy line crosses the center of each grade.

Grades group job evaluation data on the (horizontal/vertical) axis.

(7.18) horizontal

Ranges group salary data on the (horizontal/vertical) axis.

(7.18) vertical

A __ percent rule of thumb is offered as the difference between employees and managers pay.

(7.19) 15

A managerial job would typically be at least __ pay range removed from the job it supervises.

(7.19) one

What are some major decisions in pay-level determination?

(7.2) 1. Specify the pay-level policy. 2. Define the purpose of the survey. 3. Select the relevant market. 4. Design and conduct the survey. 5. Interpret the survey and apply the results. 6. Design grades and ranges or bands.

Do(es) ranges, bands or broad banding emphasize flexibility within guidelines?

(7.20) Bands

Do(es) ranges, bands or broad banding give managers "freedom to manage pay"?

(7.20) Bands

Do(es) ranges, bands or broad banding go from 100 to 400 percent spreads in pay?

(7.20) Bands

Do(es) ranges, bands or broad banding have controls in total salary budget but few in the pay system?

(7.20) Bands

Do(es) ranges, bands or broad banding reference market rates and shadow ranges?

(7.20) Bands

Do(es) ranges, bands or broad banding support cross-functional experience and lateral progression?

(7.20) Bands

Do(es) ranges, bands or broad banding support global organizations?

(7.20) Bands

Do(es) ranges, bands or broad banding reference market rates but not shadow ranges?

(7.20) Broad banding

What does broad banding do?

(7.20) Broad banding collapses salary grades into only a few broad bands, each with a sizable range.

Is a range midpoint used in broad banding?

(7.20) No

Are ranges, bands or broad banding a relatively stable organization design?

(7.20) Ranges

Do(es) ranges, bands or broad banding give managers "freedom with guidelines"?

(7.20) Ranges

Do(es) ranges, bands or broad banding have controls designed into the system?

(7.20) Ranges

Do(es) ranges, bands or broad banding support a 150 percent range-spread?

(7.20) Ranges

Do(es) ranges, bands or broad banding support midpoint controls and comparatives?

(7.20) Ranges

Do(es) ranges, bands or broad banding support recognition via titles or career progression?

(7.20) Ranges

Do(es) ranges, bands or broad banding support some flexibility within controls?

(7.20) Ranges

How many bands are usually used in broad banding for pay purposes?

(7.20) Three to eight

Broad banding consolidates as many as __ or __ traditional grades into a single broad band with one minimum and one maximum.

(7.20) four or five

What is the problem with using two bases: one external and one internal?

(7.21) The problem with using two bases, that is, internal and external, to create a structure is that they are likely to result in two different structures.

A pay structure is anchored by the organization's (external/internal) position.

(7.21) external

Some organizations in the United States are adopting pay strategies that emphasize internal alignment and deemphasize external competitiveness.

(7.22) False. Some organizations in the United States are adopting pay strategies that emphasize external competitiveness and deemphasize internal alignment.

What do market pricers do?

(7.22) Market pricers match a large percentage of their jobs with market data and collect as much market data as possible.

What term describes a pay strategy that emphasize external competitiveness and deemphasize internal alignment?

(7.22) Market pricing

What is market pricing?

(7.22) Market pricing is a pay strategy that emphasize external competitiveness and deemphasize internal alignment.

Pure market pricing (i.e., matching all forms of pay for each job) deemphasizes (external/internal) alignment completely.

(7.22) internal

The objective of ______ is to base most if not all of the internal pay structure on external rates paid by competitors, breaking down the boundaries between the internal organization and external market forces.

(7.22) market pricing

Define the term "survey."

(7.3) A survey is the systematic process of collecting and marking judgments about the compensation paid by other employers.

What term describes the systematic process of collecting and marking judgments about the compensation paid by other employers?

(7.3) Survey

What three pressures affect adjustments to pay mix?

(7.5) 1. Desire to copy other organizations 2. External pressures (e.g., government regulations) 3. Union demands

True or False: The job structure that results from internal job evaluation often matches the pay structures found in the external market.

(7.5) False. The job structure that results from internal job evaluation MAY NOT match the pay structures found in the external market.

Do most organizations adjust employees' pay on a regular or ad hoc basis?

(7.5) Most organizations make adjustments to employees' pay on a regular basis.

Are pay level or pay mix adjusted more often?

(7.5) Pay levels are adjusted more often than pay mix.

For what two reasons are specialized survey administered?

(7.6) 1. Many surveys appraise the starting salary offers for targeted groups, so that organizations can determine whether they are going to match or exceed their competitors. 2. Some surveys' data is used to benchmark against competitors product pricing, manufacturing practices and/or labor costs.

What four questions should be asked when designing a survey?

(7.7) 1. Who should be involved in the survey design? 2. How many employers should be included? 3. Which jobs should be included? 4. What information should be collected?

In most organizations, who is primarily responsible for managing the survey lies?

(7.8) Compensation manager

What "law" prohibits exchange of industry data and eliminates the ability to make industry or product market comparisons when a third-party consultant is hired to manage a survey?

(7.8) Consent decree

What entity is the major source of publicly available compensation data and is recognized as the main authority on compensation?

(7.9) Bureau of Labor Statistics

Is there much research regarding consultant surveys?

(7.9) No

Are studies of differences in market definition, participating firms, types of data collected, quality of data, analysis performed and/or results available?

(7.9) No systematic study of such differences exist.

Who uses the Bureau of Labor Statistics data the most: public sector or private sector employers?

(7.9) Public sector

How many employers should be included in a survey?

(7.9) There are no firm rules on how many employers to include in a survey; however, large firms may include six to 10 employers, while small firms may include two or three employers.

Are there many opinions about the value of consultant surveys?

(7.9) Yes