Comp MGT exam 1

To be useful, compensable factors should be:

- Based on the strategy and values of the organization. - Based on the work performed. - Acceptable to the stakeholders affected by the resulting pay structure.

consequences of a narrow approach

- expensive and time-consuming (difficult to justify) - hard for jobs that are flexible and changing - however, detail may be needed to comply with ADA -more titles mean more promotion opportunities and chances to influence employee behavior -if jobs are different pay can differ

other valuable sources of job analytic data inlclude:

-Managers two levels above give a valuable strategic view of jobs - subordinates or other employees that interact with the job may be included. -SME's

outcomes of an egalitarian structure:

-Sends the message that all employees are valued equally -Related to greater performance when close collaboration and sharing knowledge are required

Steps in formulating a total compensation strategy:

1. Assess Total compensation implications 2. Map a total compensation strategy 3. Implement strategy 4. Reassess (and realign)

2 strategic choices in aligning pay structures:

1. How to specifically tailor the organization design and work flow to make the structure 2.How to distribute pay throughout the levels in the structure.

Products that result form Job analysis:

1. Job Description 2. Job specification

three aspects of the alignment of the pay strategy

1. align w/ business strategy 2. align internally w/n the overall HR system 3. align externally w/ economic and sociopolitical conditions

In compensation job analysis has 2 critical uses:

1. establishes similarities and differences in the work contents of the job 2. establishes an internally fair and aligned job structure

4 policy decisions:

1. internal alignment 2. external competitiveness 3. employee contributions 4. management of the pay systems

3 basic building blocks of the pay model

1. objectives 2. policies 3. techniques

pay structures are more likely to be perceived as fair if:

1. they are consistently applied to all employees 2. If Employees participated in the process 3. If appeal procedure are included 4. if the data used are accurate

8 steps in point-plan design:

1.Conduct job analysis . 2.Determine compensable factors. 3.Scale the factors. 4.Weight the factors according to importance. 5.Select criterion pay structure. 6.Communicate the plan and train users. 7.Apply to nonbenchmark jobs. 8.Develop online software support.

factors that directly affect performance(incentive effect)

1.Organizational design(support, resources, etc.) 2.Motivation 3.Ability Pay/comp: affects motivation so it affects performance indirectly

5 strategic compensation choices

1.objectives: how should compensation support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment? 2.internal alignment: how differently should the different types and levels of skills and work be paid within the organization? 3.external competitiveness: How should total compensation be positioned against competitors? 4.employee contributions: what should pay increases be based on? 5.management: how open and transparent should pay decisions be to all employees and who should be designing an managing the system?

HR systems will be most effective when employee ability is developed through selective hiring and training and development, when the compensation system motivates employees to act on their abilities, and when roles are designed to allow employees to be involved in designs and have an impact.

AMO theory

Performance (P) is a function (f) of three factors: ability (A), motivation (M), and opportunity (O). P= f( A, M, O)

AMO theory of performance

an individuals ability to engage in a specific behavior

Ability

job holders and managers must be satisfied with the initial data collected and the process to buy into the resulting job structure or the pay rates attached to that structure

Acceptability

the cash compensation an employer pays for work performed. •reflects the value of work or skills and ignores differences in individuals.

Base wage

captures all aspects of the work.(prototype) •Its contents are well known and relatively stable over time. •The job is common across employers. •A reasonable proportion of the work force holds this job.

Bench-mark jobs

income protection, work/life services, and allowances

Benefits

the belief that there are compensation practices that allow employers to gain preferential access to superior human resource talent and competencies, which in turn influence the strategies the organization adopts. the belief is also that these practices can be applied universally across all situations

Best-pay practices

payment tied directly to achievement of performance standards. They are directly tied to a profit index and employee costs, so they ride and fall with revenues.

Comission

What business Should we be in? - takes place at the top -porters 5 forces? - differentiation and cost leaderhsip?

Corporate level strategy

may be based on: •Changes in what other employers are paying for the same work. •Changes in living costs. •Changes in experience or skill.

Cost of Living Adjustments (COLAs)

pay differences among levels w/n an organization, such as the differences in pay btwn adjacent levels in a career path.

Differentials

fairness in the amount of reward distributed to employees

Distributive justice

have fewer levels, and/or smaller differentials btwn adjacent levels and btwn the highest and lowest paid workers

Egalitarian pay structure

says people compare the ratio of their own outcomes to inputs with ratios of internals, externals and themselves in a past or future situation. •Comparing to jobs similar to their own (internal equity). •Comparing their jobs to others at the same employer (internal equity). •Comparing their jobs' pay against external pay levels (external equity).

Equity Theory

A single rate, rather than a range of rates, for all individuals performing, a certain job, Ignores seniority and performance differences

Flat rate

the various types of pay, which may be received directly in the form of cash, or indirectly through series and benefits. This excludes other forms of rewards or returns an employee may receive such as promotions, recognition for outstanding work behavior, etc.

Forms of compensation

have multiple levels, detailed work descriptions, and outline who is responsible for what, can also be compared to layered structures

Hierarchical pay structure

the degree to which pay influences individual and aggregate motivation among employees at any point in time (the effect of pay upon performance)

Incentive effect

Sees firms as responding/conforming to normative pressures in their environments so as to gain legitimacy and to reduce risk. As such, it predicts that very few firms re first movers and copy innovative practices after innovators have learned hot to make the practices work

Institutional theory

the systematic method of discovering and describing differences and similarities among jobs.

Job Analysis

the list of tasks, duties, and responsibilities that make up a job - observable actions.

Job Description

Criteria for evaluating job in job evaluation

Job content Skills required Value to the organization Organizational culture External market

what must be the focus of job analysis?

Job content is the heart of job analysis Data involves the elemental tasks or units of work, with emphasis on the purpose of each task There is an emphasis on the objective of the task Task data reveals the actual work [performed and its purpose or outcome

is the process of systematically determining the relative worth of jobs to create a job structure for the organization.

Job evaluation

relationship between job evaluation and internal consistency

Job evaluation helps establish an aligned pay structure which: -Supports organization strategy -Fits the workflow -Is fair to employees -Motivates their behavior toward organization objectives

the structure that relies on the work content- tasks, behaviors, and responsibilities.

Job-based structure

compensable factor examples:

Know-how Problem solving Accountability Decision making

a theory that focuses on labor demand rather than labor supply and argues that employers will pay a wage to a unit of labor that equals that unit's use (not exchange) value. That is work is compensated in proportion to its contribution to the organization's production objectives

Marginal productivity

also based on performance rating but are paid in one lump sum rather than a permanent change to base pay.

Merit bonuses

are given as performance-based increments to the base pay. (base salary is PERMANANTLEY changed)

Merit increases

an individuals willingness to engage in some behavior. Primarily concerned with (1) what energizes human behavior, (2) what directs or channels such behavior (3)how is this behavior maintained or sustained

Motivation

relative emphasis among compensation components such as base pay, merit, incentives, and benefits

Pay mix (pay forms)

refers to the array of pay rates for different work or skills within a single organization. 1. the number of levels of work 2. the differentials between the levels 3. the criteria or bases used to determine the levels

Pay structure

job evaluation method that employs (1) compensable factors (2) Factor degrees are numerically scaled (3)weights reflecting the relative importance of each factor. once scaled degrees and weights are established for each factor each job is measured against the factors and a total score is calculated for each job. The total points determine a jobs relative value and its location in the pay structure

Point (factor) method

concept concerned with the process used to make and implement decisions about pay. It suggests that the way pay decisions are made implemented may be as important to employees as the results of the decisions

Procedural justice

job analysis method that relies on scaled questionnaires and inventories that produce job-related data that are documentable, can be statistically analyzed, and be more objective than other analyses,

Quantitative Job Analysis

simply orders the job descriptions from highest to lowest based on relative value or contribution to success. (two ways, alternation and paired comparison)

Ranking method og job eval

a measure of the consistency of results among various analysts, methods, sources of data, or over time. •A necessary, but not sufficient, condition for validity.

Reliability

What factors are important for determining the usefulness of job analysis

Reliability, validity, acceptability, and Currency

Outcomes of Hierarchical structure:

Sends the message that the organization values the differences in work content, individual skills, and contribution to the organization Related to greater performance when the work flow depends on individual contributors

the effect that pay can have on the composition of the workforce. Different types of pay strategies may cause different types of people to apply and stay w/n an org

Sorting effect

a focus on those compensation choices that help the org gain and sustain competitive advantage

Strategic perspective

the fundamental direction of the organization. IT guides the deployment of all resources, including compensation

Strategy

group incentive, restrictive to team members, with payout usually based on improvements in productivity, customer satisfaction, financial performance, or quality of goods and services directly attributable to the team.

Team incentive

groups work information into seven basic factors and includes 194 items.

The position analysis Questionnaire (PAQ)

the complete package for employees, including all forms of money, bonuses, benefits, services, and stock.

Total compensatoin

the notion that larger differences in pay are more motivating than smaller differences.Like prize awards in a golf tournament, pay increases should be successively greater as one moves up the job hierarchy. Differences between the top job and the second-highest job should be the largest "players play better when the prize differentials are larger"

Tournament theory

Class descriptions can be troublesome and may be too vague. T or F?

True

Compensation is often a company's largest controllable expense. T or F?

True

Compensation policies work through incentive and sorting effects to either achieve or not achieve company objectives T or F?

True

Pay objectives guide the design of the pay system and serve as the standards for judging success of the pay system. T or F?

True

The greater the alignment between a business strategy and the compensation system, the more effective the organization. T or F?

True

The key issue in job analysis is to ensure the data is useful and acceptable. T or f?

True

The number of job evaluation plans hinges on how detailed it needs to be to make pay decisions, and how much it will cost. T or F?

True

Your objectives will often drive your policies and techniques bc they are the foundation of the pay system T or F?

True

an internal structure based on job-related information provides both managers and employees a work-related rationale for pay differences. T or F?

True

point plans are the most commonly used job evaluation approach in the U.S. and Europe T or F?

True

increase reliability by:

Use multiple raters and average ratings using correlation

-Value -Rare(only you or a few other competitors have it or can do it) -Perfectly Inimitable - Organization

VRIO framework

the accuracy of the results obtained: that is, the extent to which any measuring device measures what it purports to measure

Validity

the worth of the work; it relative contribution to organization objectives.

Value

an employees ability to see how individual performance affects incentive payout

`"line-of-sight"

an individuals capability to engage in a specific behavior

ability

often grow out of whatever is in short supply. •Housing and transportation allowances are frequent in China.

allowances

How do we gain and sustain competitive advantage in this business? -rbv model of firm -VRIO framework

business unit level/ competitive strategy

•A series of classes covers the range of jobs. •Class descriptions are the labels. •Compare job descriptions to class descriptions to find the best fit. •The label captures work detail yet is general enough to cover jobs. •Describe classes further with titles of benchmark jobs.

classification method of job evaluation

Job attributes that provide the basis for evaluating the relative worth of jobs in an organization must be work-related, business-related, and acceptable to the parties involved. These factors reflect how work adds value to the organization

compensable factor

refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

compensation

compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. typically used in managerial or professional work where what is accomplished may be difficult to identify.

competency-based pay system

the comparison of the compensation offered by one employer relative to that paid by its competitors.

competitive position

as a pay objective conforming to federal and state compensation laws and regs

compliance

the work performed in a job and how it gets done

content

methods that typically involve an analyst using a questionnaire in conjunction with structured interviews of job incumbents and supervisors. Places significant reliance on analyst's ability to understand the work performance and accurately describe it

conventional job analysis

the informal rules, rituals, and value systems that influence how people behave

culture

to be valid, acceptable, and useful, job information must be up to date

currency

eliminating some layers of job levels in the pay structure

delayering

comparisons among individuals doing the same job for the same organization.

employee contributions

employee belief that returns and/or rewards are due regardless of individual or company performance.

entitlement

the price of labor (the wage) determined in a competitive market: in other words, labors worth(price) is whatever the buyer and seller agree upon

exchange value

the pay relationships among organizations; focus attention on the competitive positions reflected in these relationships •Employees must perceive their pay as competitive or they may leave. •Controlling labor costs keeps the company's products competitive. •Look at pay/wage surveys in similar industries

external competitiveness/ external equity

Performance=

f( a X M X e)

How should total compensation help this business gain and sustain a competitive advantage?

functional level strategy

inducement offered in advance to influence future performance (ex: sales commissions)

incentive

the pay relationships among jobs or skill levels w/n an organization; focuses attention on employee and management acceptance of those relationships. It involves establishing equal pay for jobs of equal worth and acceptable pay differentials for jobs of unequal worth

internal alignment/internal equity

A pay structure must meet what criteria if it is to be a source of competitive advantage:

it must be aligned(easiest test to pass), differentiated, and add value(most difficult)

Identical positions make up a

job

Broadly similar jobs combine into a

job family

principal sources of job analytic data

job holders and supervisors

means ensuring the right people get the right pay for achieving the right objectives in the right way.

management

Employees Perspective of Compensation

may view pay as financial security, a return in an exchange, an entitlement, an incentive, or a reward. the y can view it on the surface level or as symbolic

describes who a firm is and this is what they value

mission statement

an individual's willingness to engage in some behavior. Primarily concerned with (1) what energizes human behavior, (2) what directs or channels such behavior, and (3) how this behavior is maintained or sustained

motivation

the practice of hiring outside vendors to perform functions that do not directly contribute to business objectives in which the organization does not have a comparative advantage

outsourcing

what an organization seeks to achieve through its compensation strategy. Basic objectives are efficiency, fairness, ethics, and compliance laws and regulations

pay objectives

mechanisms or technologies of compensation management, such as job analysis, job descriptions, market surveys, job evaluation, and the like, that tie the 4 basic pay policies to the pay objectives

pay techniques

shifts the focus to the employee - the skills, knowledge, or competencies the employee possesses.

person-based structure

A group of tasks performed by one person makes up a

position

the process used to make pay decisions

procedural justice

Resource-based view of the firm

proposes that a company's resources and competencies can produce a sustained competitive advantage

•If ranking criteria is poorly defined, evaluations become only opinions. •Evaluators must be knowledgeable about every single job under study. •Results are difficult to defend and costly solutions may be required.

ranking drawbacks

paying someone more than the value they create for the org

red circle job

consequences of job approach

reducing the number of titles may reduce opportunities to reinforce employee behavior, increases flexibility because more tasks will be defined under one title. less transfers means lower bureaucratic burden

the nonquantifiable returns employees get from employment, such as social satisfaction, friendship, feeling of belonging, or accomplishment, recognition and status, learning opportunities and challenging work. (psychological)

relational returns

the relative contribution of jobs to organizational goals, to their external market rates, or to some other agreed-upon rates

relative value of jobs

pay is given to employees who are exempt from the FLSA and do not receive overtime pay. Calculated at an annual or monthly rate

salary

determining the intervals on measurement instrument

scaling

reveals the actual work performed and its purpose or outcome.

task data

Base wage plus cash bonus, does not include benefits or stock options

total cash

a present-value perspective which considers future bonuses, merit increases, and promotions

total earnings opportunities

incentives can be short-term or long term(stock ownership options) T or F?

true

the value or price ascribed to the use or consumption of labor in the production of goods and services

use value

pay tied to productivity or some measure that can vary with a firm's profitability. (example: incentive)

variable pay

pay given to employees who are covered by overtime and reporting provisions of the FLSA. Pay for workers who are nonexempt is usually calculated by an hourly rate

wage

is the process of delivering products to the customers.

work flow

Time away from work, access to services to meet specific needs, and flexible work arrangements

work/life services

manager perspective of compensation

•Compensation is a major expense that must be managed. •It is also a major determinant of employee attitudes and behaviors.

problems with egalitarian structures:

•Equal treatment means high-performers feel underpaid. •They may quit or change their behavior.

major decisions in the job evaluation process include

•Establishing the purposes . •Deciding on single versus multiple plans. •Choosing among alternative methods. •Obtaining involvement of relevant stakeholders. •Evaluating the usefulness of the results.(does it allow you to differentiate btwn jobs?)

how do incentive programs differ from merit adjustments:

•Incentive programs use objective measures of performance. •Incentives do not increase base wage and must be re-earned. •Incentive payment is known beforehand - such as a commission. •Incentives try to influence future behavior and merit rewards past behavior - a matter of timing.

a content base structure ranks jobs based on:

•Skills required. •Complexity of tasks. •Problem solving . •And, or, responsibility.

shareholder perspective of compensation:

•Some stockholders say using stock to pay employees creates a sense of ownership while others say it dilutes shareholder wealth. •Stockholders have an interest in linking executive pay to performance.

Internal pay relationships form a pay structure that should:

•Support the organization strategy. •Support the work flow. •And motivate behavior toward organization objectives.

value based structure focuses on the relative contribution of:

•The skills, tasks, and responsibilities of a job to the organization's goals.

What questions should be asked when conducting 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?

compensation from society's perspective:

•see pay (and benefits in general) as a measure of justice, such as pay inequalities between men and women. (job gains and losses in a country is aprtly a function of labor costs)