Exam 3 Review Ch. 7 & 8

approaches to constructing mkt pay line

- Free hand approach n Making your own graph using free hand approach - not going to be a perfect line - residuals ? n Best estimate of market pay based on the jobs in our organization? n Don't forget about job evaluation points (points-based to calc pay) - Regression Analysis

grades

- Pay grades- similar job with JE points into one category -- Each grade has its own pay range n : group different jobs that are substantially equal for pay purposes into a grade. Grades enhance an organization's ability to move people laterally. Jobs can be grouped together based on similarities in points that they were given in the JE process.

ranges

- Pay ranges- Need a range (min and max) for each job - helps be able to increase pay without changing title and bring people into the org at different salaries for the same job - A pay range exists whenever two or more rates are paid to employees in the same job

Labor Supply

- Supply- total number of people who want to work in our organization o Need to know the barriers § How many total job seekers are out there with the relevant KSAs, are there barriers to moving into the org, are we limited in college graduates, are we in an area where people go to college then leave *job seekers

market pay mix

- mimics the pay mix that competitors are using. o Most common

performance pay

- primarily made up of stock options and incentives for performance. o Smaller proportion is base salary, more money is in bonus (short term investment) and stock (long term investment) options o Mostly in sales orgs

marginal product of labor

Additional output associated with employment of one additional human resources unit, with other production factors held constant

marginal revenue of labor

Additional revenue generated when firm employs one additional unit of human resources, with other production factors held constant

Purpose of salary survey

An employer conducts or participates in a survey for a number of reasons: - Adjust the pay level in response to changing rates paid by competitors • if you want to lead the mkt in pay, then you need to do salary surveys regularly • If you want a lag policy, then you need to do this to make sure you aren't lagging too far behind - Set the mix of pay forms relative to that paid by competitors - Establish or price a pay structure - Analyze pay-related problems - Estimate the labor costs of product/service market competitors

· Labor Demand (marginal product of labor, marginal revenue of labor)

Analysis of *labor demand* indicates how many employees will be hired by an employer - In the short run, an employer cannot change any factor of production except human resources - Demand- number of positions we need to fill in our organization o Difficult to project because we don't know what markets will do, what competitors will do, etc.

· Internal pay structures (ranges, grades, pay policy line, overlap)

Match- right in line with market pay line Leading line - above Lag line - below n range spread § Top-level management positions - 30 to 60% above and below midpoint § Midlevel professional and managerial positions - 15 to 30% above and below midpoint § Office and production positions - 5 to 15% above and below midpoint

outliers

Numbers that are much greater or much less than the other numbers in the set

· Pay mix policy alternatives (Performance, market, security, work-life)

Pay mix- how to structure total compensation for employees • Newer policies emphasize flexibility among: - Policies for different employee groups - Pay forms for individual employees - Elements of the employee relationship that company wishes to emphasize in its external competitiveness policy - relational (good mentoring programs, etc.)

Grades allow for job movement

Ranges allow for salary movement

pay policy line

a graphed line showing the mathematical relationship between job evaluation points and pay rate

anomalies

deviation or departure from the normal or common order, form, or rule

Competitive Pay Policies

match, lead, lag

constructing a market line

n A market line links a company's benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis. It summarizes the distribution of going rates paid by competitors in the market

· Interpreting survey results (outliers, anomalies), constructing a market line

n Verify data - Check accuracy of job matches - Check for anomalies - Check for outliers n Statistical Analysis - Frequency distribution - Measures of central tendency - measures of variation

overlap

needed for lateral movement in the organization - people can move from grade to grade laterally, cant have too much overlap where it makes people not want to move to the next grade

work-life pay mix

o Greatest compensation to benefits (flexible work arrangements, childcare, healthcare, tuition reimbursement) o Interested in making sure you are healthy both in and out of work so you can perform when needed o More in high tech and creativity based

security pay mix

o Retention policy - no bonuses no options, and standard benefits - not driving performance or short term, driving longevity o Government organization - want entire career to be in one place

Lead

pay above market value - Maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay

Lag

pay below market value - May hinder a firm's ability to attract potential employees...If pay level is lagged in return for promise of higher future returns

Match

pay matching market value - Attempts to ensure an organization's...Wage costs are approximately equal to those of its product competitors

Labor Demand

positions need to fill the number and types of employees the company needs to meet its current and future strategic objectives