HRM- Ch.11

1. Competency-Based Pay in Practice - these contain five elements:

1) a system where the employer defines specific required skills; 2) chooses a method for basing the person's pay on; 3) a training system for acquiring skills; 4) a competency testing system; and 5) a work design that allows employees to move among jobs.

The committee then performs the actual evaluation which consists of three main functions:

1) identifying 10 to 15 key benchmark jobs, 2) selecting compensable factors, and 3) evaluating the worth.

The Pay Gap- although the gap is narrowing a bit, women still earn only about______ as much as men. Education may reduce the wage gap.

77%

Equal Pay Act -

A 1963 amendment to the Fair Labor Standards Act designed to require equal pay for women doing the same work as men.

Compensable Factor -

A fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.

Grades -

A job classification system like the class system, although grades often contain dissimilar jobs, such as secretaries, mechanics, and firefighters. Grade descriptions are written based on compensable factors listed in classification systems.

Benchmark Job -

A job that is used to anchor the employer's pay scale and around which other jobs are arranged in order of relative worth.

Davis-Bacon Act (1931) -

A law passed in 1931 that sets wage rates for laborers employed by contractors working for the federal government.

Walsh-Healey Public Contract Act (1936) -

A law that requires minimum wage and working conditions for employees working on any government contract amounting to more than $10,000.

Job Classification (or job grading) -

A method for categorizing jobs into groups.

Pay (or wage) Grade -

A pay grade is comprised of jobs of approximately equal difficulty.

Market-Competitive Pay System -

A pay system in which the employer's actual pay rates are competitive with those in the relevant labor market.

Pay (or rate) Range -

A series of steps or levels within a pay grade, usually based upon years of service.

Salary Survey

A survey aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for specific jobs. Formal written questionnaire surveys are the most comprehensive, but telephone surveys and newspaper ads are also sources of information.

Job Evaluation -

A systematic comparison done in order to determine the worth of one job relative to another.

Employee Compensation -

All forms of pay or rewards going to employees and arising from their employment.

Broadbanding-

Consolidating salary grades and ranges into just a few levels or "bands," each of which contains a relatively wide range of jobs and salary levels.

Compa Ratio -

Equals an employee's pay rate divided by the pay range midpoint for his or her pay grade.

(T/F) union and labor relations laws don't not influence pay plan design.

F

Classes -

Grouping jobs based on a set of rules for each group or class, such as amount of independent judgment, skill, physical effort, and so forth, required. Classes usually contain similar jobs.

Indirect Financial Payments-

Pay in the form of financial benefits, such as insurance.

Direct Financial Payments -

Pay in the form of wages, salaries, incentives, commissions, and bonuses.

Market-Competitive Pay Plan -

Pay plan where pay rates are equitable both internally (based on each job's relative value) and externally (in other words when compared with what other employers are paying).

11-4:____________involves some special issues.

Pricing managerial and professional jobs

Wage Curve -

Shows the relationship between the value of the job and the average wage paid for this job.

( T/F) Employers need to be vigilant about employees who arrive early or leave late, lest the extra time spent on the employer's property obligate the employer to compensate the employee for that time.

T

(T/F) employee compensation refers to all forms of pay or rewards going to employees, which include direct financial payments and indirect payments.

T

Employee Retirement Income Security Act (ERISA) -

The 1974 law that provides government protection of pensions for all employees with company pension plans. It also regulates vesting rights (employees who leave before retirement may claim compensation from the pension plan).

Comparable Worth -

The concept by which women who are usually paid less than men, can claim that men in comparable rather than strictly equal jobs, are paid more.

Point Method -

The job evaluation method in which a number of compensable factors are identified and then the degree to which each of these factors is present on the job is determined.

Ranking Method -

The simplest method of job evaluation that involves ranking each job relative to all other jobs, usually based on overall difficulty.

Title VII of the 1964 Civil Rights Act-

This act makes it unlawful for employers to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin.

Fair Labor Standards Act (1938) -

This act provides for minimum wages, maximum hours, overtime pay, and child labor protection. The law has been amended many times and covers most employees.

Competency-Based Pay -

Where the company pays for the employee's range, depth, and types of skills and knowledge, rather than for the job title he or she holds.

Grade Definition -

Written descriptions of the level of, say, responsibility and knowledge required by jobs in each grade. Similar jobs can then be combined into grades or classes.

Using the Internet to Do Compensation Surveys -

a rapidly expanding array of Internet-based options makes it fairly easy for anyone to access published compensation survey information.

A. Compensating Executives -

basic compensation elements for top executives include: base pay, short-term incentives, long-term incentives, and executive benefits and perks. Shareholder activism has tightened the restrictions on what companies pay top executives.

In establishing strategic pay plans, managers first need to understand some__________.

basic factors in determining pay rates

A. Board Oversight of Executive Pay -

boards are clamping down on executive pay. Since 2005, the Financial Accounting Standards Board (FASB) has required that companies recognize, as an expense, the fair value of the stock options they grant.

Broadbanding Pros and Cons -

broadbanding injects greater flexibility into employee assignments, and it allows an employee to move up or down along the pay scale without changing pay ranges. Broadbanding can, however, eliminate a sense of permanence in a set of job responsibilities. This is particularly difficult for new employees.

11-3:We said the process of _________ plan while ensuring external, internal, and procedural equity consist of 16 steps.

creating a market-competitive pay

job evaluation is a judgmental process and

demands close cooperation among supervisors, HR specialists, employees, and union representatives.

11-6: Research shows that if _______is the aim, it makes sense to emphasize total rewards, not just financial rewards.

employee engagement

A. Compensating Professional Employees -

employers must first ensure that the person is actually a "professional" under the law. The Fair Labor Standards Act "provides a professional has to earn at least $455 per week, and the person's main duties must "be the performance of work requiring advanced knowledge" and "the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction."

A. Compensable Factors -

factors that jobs have in common can be used to establish how the jobs compare to one another. The fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.

Indirect payments include

financial benefits like employer-paid insurance and vacations.

A. Improving Performance through HRIS: Payroll Administration is one of the_____ functions most employers to ____________, and for good reason.

first , computerize or outsource

External equity refers to

how pay compares with rates in other organizations. Internal equity refers to employees viewing their pay as equitable given other pay rates in the organization.

The main steps of a job eval include

identifying the need for the job evaluation, getting cooperation, and then choosing an evaluation committee.

Job Evaluation Methods -

is a formal and systematic comparision of jobs to determine the work of one job relative to another.

Point Method -

it involves identifying several compensable factors for the jobs, as well as the degree to which each factor is present in each job. Assume there are five degrees of the compensable factor "responsibility" a job could contain. Further, assume you assign a different number of points to each degree of each compensable factor. Once the evaluation committee determines the degree to which each compensable factor (like "responsibility" and "effort") is present in the job, the committee can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job.

11-2:Employers use two basic approaches to setting pay rates: market-based approaches and _______.

job evaluation methods

The basic principle of job evaluation is this:

jobs that require greater qualifications, more responsibilities, and more complex job duties should receive more pay than jobs with lesser requirements.

Administering the payroll system - keeping track of each employee's worker status, wage rate, dependents, benefits, overtime, tax status, and so on; computing each paycheck; and then directing the actual printing of checks or direct deposits is a time-consuming task,

keeping track of each employee's worker status, wage rate, dependents, benefits, overtime, tax status, and so on; computing each paycheck; and then directing the actual printing of checks or direct deposits is a time-consuming task,

Commercial, Professional, and Government Salary Surveys -

many employers use surveys published by consulting firms, professional associations, or government agencies. The Bureau of Labor Statistics (BLS) annually conducts area wage surveys, industry wage surveys, and professional, administrative, technical, and clerical (PATC) surveys for the National Compensation Survey.

Establish Rate Ranges -

most employers develop vertical pay (rate) ranges for each horizontal pay grade. These pay ranges may appear as vertical boxes within each grade, showing minimum, maximum, and midpoint pay rates for that pay grade. You may depict the pay ranges as steps or levels, with specific corresponding pay rates for each step within each pay grade.

Compare and Adjust Current and Market Wage Rates for Jobs -

next, combine both the current/internal and market/external wage curves on one graph. The market wage curve might be higher than our current wage curve or below our current wage curve. Based on comparing the current/internal wage curve and market/external wage curve, the company must decide whether to adjust the current pay rates for our jobs, and if so how.

B. Define Each Factor's Degrees -

next, define each of several degrees for each factor so that raters may judge the amount or degree of a factor existing in a job. The number of degrees usually does not exceed five or six, and the actual number depends mostly on judgment.

There are several steps in Ranking the job ranking method:

obtain job information, select and group jobs, select compensable factors, rank jobs, combine ratings, compare current pay with what others are paying based on salary survey, and assign a new pay scale.

O. Address Remaining Jobs -

once the job evaluation of the benchmark jobs is complete, the remaining jobs must be added either through a formal process (like the one described for benchmark jobs) or informally, where the company feels they fit.

A. What Determines Executive Pay? -

one study concluded that three main factors account for about two-thirds of executive compensation variance: job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the ability to pay (total profit and rate of return) and the executive's human capital (educational level, field of study, work experience).

the employer's compensation strategy will manifest itself in

pay policies. A range of issues such as seniority, high or low performance can be used.

The Sarbanes-Oxley Act makes executives _______ for lapses in corporate financial oversight.

personally liable

I. Draw the Current (Internal) Wage Curve -

plotting each job's points and wage rate produces a scatter plot. A wage curve can be drawn through these plots to show how point values relate to current wage rates.

A. Comparable Worth -

refers to the requirement to pay men and women equal wages for jobs that are dissimilar but of comparable value (for instance measured in points) to the employer.

Fair Labor Standards Act (FLSA)

regulates the minimum wage and requires that overtime be paid at a rate of one and one half times the normal rate of pay for hours worked over 40 in a workweek. Employees are categorized as exempt from the act or non-exempt from its provisions.

11-5:We addressed five important _________.

special topics in compensation

Most computerized job eval systems have two main components:

structured questionnaires and statistical models. These elements allow the computer program to price jobs more or less automatically by assigning points.

A. Select Compensable Factors

the choice of compensable factors depends on tradition (as noted, the Equal Pay Act of 1963 uses four compensable factors − skill, effort, responsibility, and working conditions) and on strategic and practical considerations. The employer should carefully define each factor to ensure that the evaluation committee members apply the factors with consistency.

Evaluate the Jobs -

the committee determines the degree to which each compensable factor is present in each job. Knowing the skill, effort, responsibility, and conditions degrees for each job, and knowing the number of points we previously assigned to each degree of each compensable factor, we can now determine how many skill, effort, responsibility, and conditions points each benchmark job should contain. Finally, we can then add up these degree points to get a total point value for each benchmark job.

Developing Pay Grades -

the committee will probably group similar jobs into grades for pay purposes, instead of having to deal with hundreds of pay rates. A pay (or wage) grade is comprised of jobs of approximately equal difficulty or importance as determined by job evaluation.

1. What Is Competency-Based Pay? -

the company pays for the employee's range, depth, and types of skills and knowledge, rather than for the job title he or she holds. With more companies organizing around teams, you want to encourage employees to get and to use the skills required to rotate among jobs.

Draw the Market (External) Wage Curve -

the current (internal) wage curve does not reveal whether our pay rates are too high, or too low, or just right, relative to what other firms are paying. For this, we need to draw a market or external wage curve. The market/external wage curve compares our jobs' points with market pay rates for these jobs.

Equity and Its Impact on Pay Rates - .

the equity theory of motivation postulates that people are motivated to maintain a balance between what they perceive as their contributions and their rewards.

A. Determine for Each Factor Its Factor Degrees' Points -

the evaluation committee must be able to determine the number of points each job contains. To do this, the committee must be able to examine each job and (from the degree definitions) determine what degree of each compensable factor that job has. The committee then needs to know how many points each degree of each compensable factor is worth. To do this, we must first assign points to each degree of each compensable factor.

Individual equity refers to

the fairness of an individual's pay as compared with what his/her coworkers are earning for the same or very similar jobs in the company.

the compensation plan should first advance

the firm's strategic aims - management should produce an aligned reward strategy.

B. Review Job Descriptions and Job Specifications -

the heart of job evaluation involves determining the amount or degree to which the job contains the selected compensable factors such as skill, effort, responsibility, and working conditions. Those conducting the job evaluation will frequently do so by reviewing each job's job description and job specification.

procedural equity refers to

the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.

The National Labor Relations Act of 1935 (Wagner Act) granted employees

the right to unionize and to bargain collectively. Also the Wagner Act was created by the National Labor Relations Board (NLRB) to oversee employer practices and ensure that employees receive their rights.

Ranking -

the simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like "job difficulty."

Correcting Out-of-Line Rates -

the wage rate for a job may fall well off the wage line or well outside the rate range for its grade. Which means that, the average pay for the job is currently too high or too low, relative to other jobs in the firm. If the point falls well below the line, a pay raise for the job may be required. If the point falls well above the wage line, a pay cut or freeze may be required.

A. Choose Benchmark Jobs -

these are representative of the entire range of jobs the organization needs to evaluate.

A. Assign Weights to Compensable Factors -

this determines the relative amount of each compensable factor the job contains. Assume there is a total of 100 percentage points for each job that needs to be allocated among those compensable factors selected.

Job Classification -

this is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. Also known as job grading.

A. Broadbanding -

this method involves collapsing salary grades and ranges into just a few wide levels or bands.

Total Rewards Programs -

total rewards encompass the traditional financial compensation components. However, they also include personal and professional growth opportunities and a motivating work environment.

A. Computerized Job Evaluations -

using quantitative job evaluation methods such as the point method can be time-consuming. Computer-aided job evaluation streamlines this process.

A. Convert Percentages to Points for Each Factor -

using the provided formula, percentages weights assigned to each compensable factor are converted to point values for each factor.

J. Conduct a Market Analysis: Salary Surveys -

virtually all employers conduct at least an informal telephone, newspaper, or Internet salary survey to price benchmark jobs and benefits.

Direct financial payments include

wages, salaries, incentives, commissions, and bonuses.