Compensation Exam 2: Chapter 8

Pay ranges provide managers with the chance to:

1) Recognize individual performance differences with pay; 2) Meet employees' expectations that their pay will increase over time; 3) Encourage employees to remain with organization.

The process of updating includes:

Aging the market data to a point halfway through the plan year is called lead/lag

The relevant labor market includes employers who compete:

For the same occupations or skills. For employees in the same geographical area. With same products and services.

Adjust pay structure?

Validate job evaluation results.

When interpreting the results of the survey-

Verify the data: accuracy of match and identifying anomalies. Outliers? Similar patterns among employers?

Who should be involved in designing the survey?

-Compensation manager, managers, employees -Outside consulting firms

What information should be collected in the survey?

-Org data such as: financial data and reporting relationships, turnover and revenues. -Total compensation data, such as: base pay, total cash, total comp.

What are the 2 methods for determining which jobs to include in the survey?

1) Benchmark-job approach 2) Low-high approach

2 approaches to constructing a market pay line:

1) Free hand 2) Regression analysis

What is broad banding?

Broad banding consolidates salary grades into a few broad bands, each with: -a sizeable range -one min and one max -range midpoint often not used

What is competitive intelligence?

Employers use survey data as part of an effort to gather competitive intelligence and use it to their advantage.

How many employers should be included in the survey?

No firm rules. The Bureau of Labor Stats provides publicly available data. Word-of-Mouse provides online salary information. There are many surveys, but few that are validated.

Describe pay ranges.

Pay ranges exist whenever 2+ rates are paid to employees in the same job.

Pay grades must establish:

Range midpoints, minimums and maximums. The size of the range should be based on how ranges support career paths, promotions, and other org systems.

The central tendency:

Reduces a large amount of data into a single number

When using policy line as percent of market line-

Specify a percent above or below market line an employer intends to match.

Market line

Summarizes the distribution of going rates paid by competitors in the market

What is a variation?

The distribution of rates around a measure of central tendency is called variation.

What is a survey?

The process of collecting and making judgments about the compensation paid by other employers. It can provide data for translating policy into pay levels, pay mix, and structures.

Employment Cost Index:

This index measures quarterly changes in employer costs for compensation.

When considering the frequency distribution...

Unusual shapes may reflect: -Problems with job matches -Widely dispersed pay rates -Employers w/widely divergent pay policies

2 parts of the total pay model have merged:

-Internally aligned structure (horizontal axis) -External competitive data (vertical axis)

Fuzzy Markets

-Organizations with unique jobs and structures find it hard to get comparable market data. -Place more emphasis on external market data.

Describe pay grades.

-Pay grades enhance an org's ability to move people among jobs with no change in pay. -Grades have their own pay range. -Jobs within a single grade will have the same pay range.

2 aspects of pay structure:

-Pay-policy line -Pay ranges

Adjusting the pay mix- what forms to use?

Base wage, bonus, stocks, and benefits can all be apart of the pay mix.

Adjusting the pay level- how much?

Based on overall movement of pay rates caused by competition in the market.