Organization Rewards and Compensation Exam 2

accountability

"job exists to achieve an end result"

know-how, problem solving, accountability

"jobholder requires knowledge and experience consistent with the scale and complexity of the result to be achieved"

problem solving, accountability

"to achieve this end results, job holders must address problems, create, analyze, and apply judgement"

job classification

-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

committee approach

-Carefully study factor & degree definitions -Individually rank factors in order of importance -Agree on a ranking -Individually distribute 100% among the factors -Reach agreement again

Skill-based structures

-These structures pay for all the certified skills of the individual, regardless of whether the work requires all or a few skills -The wage attaches to the person -In contrast, a job-based plan pays employees for the job, regardless of the skills they possess

committee or statistical approach

2 methods to determining factor weights

quoted price bourse

2 types of labor markets:

-Compensable factors -Factor degrees numerically scaled -Weights reflecting the relative importance of each factor

3 common factors with point method evaluation:

1. organizing and executing 2. analyzing and interpreting 3. adapting and coping 4. creating and conceptualizing 5. supporting and cooperating 6. enterprising and performing 7. interacting and presenting 8. leading and deciding

8 great competencies:

reliable

A _____ evaluation has evaluators producing the same results

1. the same occupation or skills 2. hiring employees within the same geographic area 3. the same products and services

A relevant labor market includes employers who compete in: (3)

examples of benchmark jobs

Accountant Marketing Manager IT Helpdesk Technician Administrative Assistant Top Operations Executive Engineer

Point Factor

Compares jobs on rating scales of specific factors

job ranking

Compares jobs using a single global factor that presumably combines all parts of the job

job classification

Defines categories of jobs and slots jobs into these classes

base pay

Designing pay grades and pay ranges is usually done with ___ ___ data, since this reflects the basic value of the work

1. skill 2. knowledge 3. self-concepts 4. traits 5. motives

Early conceptions of competencies focused on five areas:

skill-based plans

Employee involvement is almost built into ___ ____ ____

relative importance

Factor weights reflect the _____ _____ of each factor

•Differences in quality among applicants •Differences in productivity or value of quality variations •Differences in the mix of pay forms used by competitors

Grades and ranges offer flexibility for: (3)

1. what competitors it compares to 2. what pay forms are included

How a company compares to the market depends on: (2)

reliability

Improve ______ with trained evaluators familiar with the work

•Defining the skills •Arranging them into a hierarchy •Bundling them into skill blocks •And certifying whether a person actually possesses the skills

In skill-based, employees and managers are the source of information for: (4)

work, business

Job evaluation provides ______-related and ______-related order and logic

Reservation Wage Theory

Job seekers won't accept jobs if pay is below a certain wage, no matter how attractive other job aspects

external market

Job value may also include the job's value in the ______ _______

1. Internal consistency 2. Organizational alignment 3. Control labor costs 4. Fairness & equity 5. Job worth hierarchy 6. Market competitiveness

Key benefits of job content evaluations include:

market surveys

Many employers use _____ _____ to validate their own job evaluation results

product, labor

Microsoft and Google include both _____ market and _____ market competitors

regular

Most organizations adjust pay on a ______ basis

skill-based

Not all employers use grades and ranges. ____-_____ plans establish single flat rates for each skill level

business

Organizations are now emphasizing ______-related descriptions of behaviors

peer review, on-the-job demonstrations, tests

Organizations may use ______, ______, or ______ to certify that employees possess and apply skills

specialist (depth)

Pay is based on the knowledge of the individual, rather than on job content or output. A teacher is an example. Basic responsibilities do not vary on a daily basis

signaling theory

Pay policies signal the kinds of behavior the employer seeks. Pay decisions communicate the organization's expectations.

criterion pay structure

Pay structure that committee/advisory team wish to duplicate with the point plan.....may be reflective of current benchmark job rates

compensation or HR professional

Primary contributor is a pay level designer is:

External Competitiveness

Refers to the pay relationships among organizations; the organization's pay relative to its competitors

higher

Reliability for job evaluation scores are _____ than those for job analysis ratings

person based structure

Shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee's particular job.

manufacturing

Skill-based pay is used mostly in:

chaos, control

Some balance between _____ and _____ is required

-High in need for power, need for control, and who have extroverted personalities -Failure to adequately screen employees may lead to de-motivated employees who seek competencies, but are ill-suited to do so

Some research suggests if employers want competent managers, they need to select or train and develop people who are

date, job, pay

Specific pay data on each incumbent in the jobs under study includes:

Employee Cost Index

The Department of Labor regularly publishes the _____ ____ ____, which is one of four types of salary surveys

marginal product

The amount each hire produces

-Are seeking jobs -Possess accurate information about all job openings -Have no barriers to mobility

The behavior model assumes potential employees:

flexibility

The best approach to pay structures depends on the situation but provides sufficient ambiguity to afford ______

flexible

The challenge is to ensure job evaluation plans are ______

Pay Policy Line

The intended pay policy for the organization, generated by adjusting the market line for the intended pay level strategy of the organization.

relative value

The job's _____ ______ is determined by the total points assigned to it

where marginal revenue is equal to the wage rate for that hire

The level of demand that maximizes profits is

pay-with-competition policy (match)

The most common competitive policy is

-Employers always seek to maximize profits -People are interchangeable -Pay rates reflect all costs associated with employment -Competitive markets give no advantage in paying non-market rate

Theories of labor markets begin with 4 basic assumptions:

1. choice of measure 2. updating 3. policy line as a percent of market line

There are several ways to translate external competitiveness policy into practice: (3)

person based structure

There is less uniformity in terms in the _____ _____ ______

generalist (breadth)

Those in a multi-skill system earn pay increases by acquiring new knowledge. More pay comes from certification of new skills. Responsibilities can change drastically over a short time

1. Occupation 2. Geography 3. Competitors

Three factors usually used to determine relevant labor markets:

market pricing

Under ______ ______ , the hierarch of an organization is established based on The external marketplace first and internal equity second

internal equity, external competitiveness

Under other jobs evaluations, the hierarch of an organization is established based on _____ _____ first and _____ _____ second

price-fixing

Use outside consulting firms as third-party protection against possible "_____-______" lawsuits

1. The degree of agreement between rankings in the evaluation with agreed-upon ranking of benchmarks used as the criterion 2. By hit rates

Validity of the job evaluation has been measured in 2 ways:

market pricing

Values of each job is determined through the analysis of the external marketplace as typically reported through salary surveys

scientists, engineers, managerial professions, executives (sometimes)

When the geographic scope is international, across several countries, the most likely jobs are only available for critical skills or short supply: (4)

production, office, clerical, technicians

When the geographic scope is local, meaning within a relatively small area such as a city, the most likely jobs are: (4)

scientists, engineers, managerial professions, executives

When the geographic scope is national, across the country, the most likely jobs are: (4)

technicians, managerial professions

When the geographic scope is within a particular area of the state or several states, the most likely jobs are: (2)

market pricing

While not an exact science, it is a sound & practical approach using credible and reliable survey results to add validity to the market pricing process

skill-based plans

____ ____ ____ have very specific information on every aspect of the production process

collective bargaining

____ ____ contracts establish single flat rates for each skill level

skill-based

____ ____ plans are suited for continuous-flow technologies where employees work in teams

job based

_____ _____ pays only as much as the work is worth

job structure

a hierarchy of work that translates an internal alignment policy into practice

benchmark job

a job whose contents are well known, relatively stable, and common across different employers, reasonable proportion of workforce is employed in this job

Bourse Market

a market that allows haggling over terms and conditions until an agreement is reached (EBAY)

Pay ranges

a set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade

efficiency wage theory

above-market wages will improve efficiency by attracting workers who will perform better and be less willing to leave

knowledge

accumulated information

-The overall movement of pay rates caused by competition for people in the market -Performance -Ability to pay -Terms specified in a contract

an organization's pay adjustments can be based on: (4)

compensable factors

are based on strategic direction and how the work contributes to these objectives and strategy.

competencies

are becoming a collection of observable behaviors requiring no inference, assumption or interpretation

Competency indicators

are observable behaviors that indicate the level of competency within each set

skill-based plans

are readily accepted by employees and provide strong motivation to increase individual skills

self-concepts

attitudes, values, self-image

base pay+increases+benefits+allowances+perquisites

average pay level=

competency-based structure

begins by looking at the work performed in the organization

Shared Choice

begins with the lead, meet, or lag alternatives

principal administrative secretary, administrative secretary, word processor, clerk/messenger

benchmark jobs for administrative group:

vice president, supervisor

benchmark jobs for managerial group:

assembler 1 inspector 1, assembler 2, machinist 1 core maker

benchmark jobs for manufacturing group:

senior associate scientist, scientist, technician

benchmark jobs for technical group:

1. based on the strategy and values of the organization 2. based on the work performed 3. acceptable to stakeholders affected by the pay structure

compensable factors should be: (3)

internal alignment: work relationships within the organization -> core competencies -> competency set -> behavioral descriptors -> competency-based structures

competency-based structure phases: (5)

It fails to include performance incentives and other forms, so will not give true picture if competitors offer low base but high incentives

con of base pay compensation

all employees may not receive incentives, so it may overstate the competitors' pay. Plus, it does not include long-term incentives

con of total cash compensation

all employees may not receive all the forms. Be careful, don't set base equal to competitors' total compensation which risks high fixed costs

con of total compensation

broad bands

consolidates four or five traditional grades into a single band with a minimum and maximum. broader groupings of jobs give greater flexibility

mercer, US bureau of labor statistics, korn ferry, willis towers watson

consulting firms examples: (4)

Employer of choice

corresponds to the brand or image a company projects as an employer

Lag Pay-Level Policy

coupled with the promise of higher future returns, this may increase employee commitment and foster teamwork, increasing productivity

-Ensure the number of degrees is necessary to distinguish jobs -Use understandable terminology -Anchor definitions with benchmark job titles and work behaviors -Make it apparent how the degree applies to the job

criteria for scaling factors: (4)

the actions of employees

demand in labor market focuses on:

skills

demonstration of expertise

external competitiveness: pay relationships among organizations -> specify policy -> select market -> design survey -> draw policy lines -> merge internal/external pressures -> competitive pay levels, mix, and structures

determining externally competitive pay levels phases: (7)

1. job content 2. skills required 3. value to organization 4. organizational culture 5. external market

evaluation is based on: (5)

supports work flow

example of __ __ __: a major hotel chain moves many of its employees to the hotel's front desk between 4 p.m. - 7 p.m. when the majority of guests check in. After 7 p.m. these same employees shift to food and beverage service areas to match the demand for room service and dining room service

Skill, Responsibilities, Effort, Working Conditions

examples of compensable factors:

1. setting a pay level 2. determining a mix of pay forms relative to those of competitors

external competitiveness is expressed by: (2)

labor market factors product market factors organization factors

external competitiveness is made up of:

outliers

extreme values that don't appear to belong with the rest of the data

4-8

factor scales consist of ___-___ degrees

advisory committee

factor weights are determined by an ______ ______

job structure

final result of a job evaluation is a ___ ___

traits

general disposition to behave a certain way

regression

generates a straight line that best fits the data by minimizing variance around the line •As the number of jobs in the survey increases, the advantages of the straight line regression provides becomes clear

pay grades

groups of jobs within a particular class that are paid the same rate

competency-based structures

have relatively few levels and wide differentials for increased flexibility

1. verify data 2. accuracy of match and improving match 3. anomalies

how to interpret pay survey results: (3)

Benchmark-Job Approach, low-high approach, benchmark conversion/survey leveling

in designing a pay level, an organization can use several approaches: (3)

revenues, size of organization

information about the organization includes:

•Base pay, total cash, and total compensation are the most commonly used measures of compensation •Misinterpreting competitors' pay practices can lead to costly mispricing of pay levels and structures

information about total compensation system includes:

Pay Structure

internal alignment + external competitiveness =

skills, duties, and responsibilities

internal alignment based on content orders jobs by ___,___,___

work relationships within the organization -> job analysis -> job description -> job evaluation -> job structure

internal alignment phases:

survey data

is part of gathering competitive intelligence

pay level

is the average of the array of rates an employer pays

pay mix

is the various types of payments, or pay forms, that make up total compensation

input

job descriptions serve as an _____ for job evaluation

point factor

job evaluation that is expensive, complex, and difficult to explain but if done correctly it is easily defended in a court of law

job ranking

job evaluation that takes the least amount of time and money

Lack of good descriptions Differences among raters Influenced by: current pay, job incumbents' competence, prestige of jobs

job ranking cons

Simple Easy to explain Takes less time Costs less

job ranking pros

worth

job-based approach pays only as much as the work is ______

labor costs=number of employees x average pay level

labor costs equation

1. nature of demand 2. nature of supply

labor market factors:

-It may force the employer to increase wages of current employees too -It may mask negative job attributes that contribute to high turnover

lead pay-level policy cons

Skill-based structures

link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires relevant to work

External Competitiveness

looks at pay relationships among organizations

What is the objective of the plan? What information needs collected? What methods should be used to determine and certify competencies? Who is involved? How useful is the plan for pay purposes?

major competency decision questions for analysis: (5)

•What is the objective? •What info should be collected? •What methods should be used? •Who should be involved? •How useful are the results for pay purposes?

major skill decision questions for analysis: (5)

1. Use 3 or more salary surveys 2. Attempt to match 70% of job content 3. Attempt to match 50% or more of your benchmark jobs to the external marketplace 4. Obtain surveys with credible & relevant survey participants closely matching your business 5. Use surveys with filters such as: # of employees, location, industry, revenue, years of experience

market pricing guidelines

1. Collect 3 or more salary surveys to market price a business 2. Identify benchmark jobs and match to the external marketplace 3. Summarize market data & analysis for the benchmark jobs 4. Develop a salary structure based on market data for the benchmark jobs 5. Slot non-benchmark jobs into structure 6. Develop a compa-ratio report comparing employees' pay to the midpoints of the recommended salary structure with related costs 7. Obtain top management approval

market pricing steps: (7)

Lead Pay-Level Policy

maximizes the ability to attract and retain quality employees and minimizes employee pay dissatisfaction

market pricing

mimics competitor's pay structures

market pricing

most prevalent job evaluation:

consulting firms

offer a choice of ongoing surveys and offer clients access to survey databases

Internal Alignment

orders jobs by skills, duties, and responsibilities

job value

orders jobs on the basis of the relative contribution of the skills, duties, and responsibilities of each job to the organization's goals

1. industry, strategy, size 2. individual manager

organization factors:

•Industry and Technology •Employer Size •People's Preferences •Organization Strategy

organizational factors (4)

competitors

other employers in the same product or service and labor markets

promotions, skill

pay based structures increase pay through ______ or acquisition of ______

1. Control costs and increase revenues 2. Attract and retain employees

pay level and pay mix focus on two objectives:

security commitment

pay mix policy alternative consists of eighty percent of total compensation coming in the form of base wages and the remaining twenty percent in the form of benefits.

work-life balance

pay mix policy alternative consists of fifty percent of total compensation coming in the form of base pay and thirty percent in benefits. Bonuses make up ten percent and options the remaining ten percent.

performance driven

pay mix policy alternative is comprised of half of total compensation consisting of base pay and seventeen percent each for benefits and bonuses. The remaining sixteen percent is comprised of options.

market match

pay mix policy alternative is comprised of seventy percent of total compensation is base pay. Benefits make up twenty percent, bonuses six percent and options four percent.

1. pay policy line 2. pay ranges

pay structure has 2 aspects:

1. performance-driven 2. market match 3. work-life balance 4. security commitment

pay-mix alternatives

skill-based

plans that may give workers more control over their work life but favoritism and bias may be a problem

Complexity Time & expense

point factor cons

Stability Accuracy Many uses: job classes/grades, job pricing

point factor pros

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

point factor steps

tells how competitors are valuing the work in similar jobs

pro of base pay compensation

tells how competitors are valuing work, also tells the cash pay for performance opportunity in the job

pro of total cash compensation

tells the total value competitors place on this work

pro of total compensation

benchmark conversion

process of matching survey jobs by applying the employer's plan to the external jobs and then comparing the worth of the external job with its internal "match"

1. degree of competition 2. level of product demand

product market factors:

•Provide flexibility to broadly define job responsibilities •Support organizations that have eliminated layers of managerial jobs •They foster cross-functional growth and development •Helps manage the reality of fewer promotions in flat organizations •The flexibility eases mergers and acquisitions

pros for broad banding: (5)

1. Help set pay for jobs where market pay survey data are unavailable by comparing the internal value 2. Match a job in a particular company to a comparable job of similar value in a market pay survey 3. Pay jobs based on which ones are most important to the company's strategy

purpose of job evaluation: (3)

1. supports the strategy and objectives 2. supports work flow 3. is fair to all employees 4. motivates behavior toward organization objectives

purpose of skill-based structures: (4)

1. supports the strategy 2. supports work flow 3. is fair to all employees 4. motivates behavior toward organization objectives

purpose of the competency-based structure: (5)

•High costs of redesigning a mix •Keep doing what you are doing •More likely, insufficient attention is paid to mix decisions •The mix used may have been based on external pressures

reasons changes in pay occur less often: (4)

motives

recurrent thoughts that drive behaviors

validity

refers to the degree to which the job evaluation assesses what is intended - the relative worth of jobs to the organization

job content

refers to what work is performed and how it gets done

factor weights

reflect the relative importance of each factor to the overall value of the job

diminishing marginal product

results when each new worker has a progressively smaller share of production factors available

occupation

skill or knowledge required

top-out

skill-based plans become increasingly expensive if all workers ________

internal alignment: work relationships within the organization -> skill analysis -> skill blocks -> skill certification -> skill based structure

skill-based structure phases: (5)

1. Establish purpose of evaluation 2. Decide whether to use single or multiple plan 3. Choose among alternative approaches 4. Obtain involvement of relevant stakeholders 5. Evaluate plan's usefulness

some major decisions in job evaluation: (5)

quoted price market

stores that label each item's price or ads that list a job's opening starting wage are examples of this (amazon) price is KNOWN

potential employees

supply in the labor market focuses on:

marginal product of labor

the additional output associated with the employment of one additional person, with other production factors held constant

marginal revenue of labor

the additional revenue generated from employing one additional person, with other production factors held constant

•Historical trends in the labor market •Prospects for the economy where the employer is operating •The manager's judgment •Various other factors

the amount to update in survey data is based on: (4)

hit rates

the degree to which the job evaluation plan matches (hits) an agreed-upon pay structure for benchmark jobs.

marginal revenue

the money generated by sale of the marginal product, the additional output from one additional person

competitive intelligence

the process of gathering information about the competitive environment, including competitors' plans, activities, and products, to improve a company's ability to succeed

job evaluation

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

To adjust the pay level in response to changing rates paid by competitors To set the MIX of pay forms relative to that paid by competitors To establish or price a pay structure To analyze pay-related problems

the purpose of a survey: (4)

core competencies

the underlying knowledge, skills, and behaviors that form success at any level or job

human capital theory

the value of an individual's skills and abilities is a function of the time and expense required to acquire them

relevant markets

those employers with which an organization competes for skills and products/services

1. To lead 2. To meet or match 3. To follow competition, or lag

three pay-level policies:

competency sets

translate each core competency into action

pay-with-competition policy (match)

tries to equal wage costs to those of its competitors. Its ability to attract applicants will be approximately equal to its labor market competitors

1. job ranking 2. job classification 3. point factor 4. market pricing

types of job evaluations

1. job ranking 2. job classification

types of qualitative job evals

1. point factor 2. market pricing

types of quantitative job evals

specialist (depth), generalist (breadth)

types of skill based plans:

mental, physical

under the compensable factor "effort"

fiscal, supervisory

under the compensable factor "responsibilities"

experience, education, ability

under the compensable factor "skill"

location, hazards, extreme environment

under the compensable factor "working conditions"

group consensus

use _____ _____ to increase reliability

Hay group method

uses three universal comprehensible elements to measure the relative size of jobs: accountability, problem solving, and know-how

1. information about the organization 2. information about the total compensation system 3. specific pay data on each incumbent in the jobs under study

what information to collect for pay levels: (3)

market rate

where labor demand and labor supply cross

geography

willingness to relocate, commute, or become a virtual employee

compensating differentials

work with negative characteristics requires higher pay to attract/retain workers

choice of measure

•A company can use a specific percentile for base pay and another percentile for total compensation

central tendency

•A measure reducing a large amount of data into a single number

increase

•As importance and complexity of qualifications increase, the geographic limits ______

market pricing

•Creates a job-worth hierarchy based on the 'going rate' for benchmark jobs in the external marketplace relevant to the business •All other (non-benchmark jobs) are slotted into the hierarchy

variation

•Distribution of rates around the central tendency is the variation

compensable factors

•Factors are scaled to reflect the degree to which they are present •Weighted to reflect their importance to the organization •Attached to each factor weight

market pay

•For non-benchmark jobs, the _____ ______ lines are useful

frequency distribution

•Help visualize information and may highlight anomalies, or outliers

updating

•If a company chooses a "match" policy, they will be lagging the market •Aging the market data to a point halfway through the plan year is called lead / lag

Price Fixing Lawsuit

•Lawsuits allege the direct exchange of survey data violates Section 1 of the Sherman Act outlawing conspiracies in restraint of trade •Price fixing happens if survey participants interfere with competitive prices and artificially hold down wages •Identifying participants' data by company name is considered price fixing

market line

•Links benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis •It summarizes the distribution of going rates paid by competitors in the market

alternation ranking

•List of job titles are provided with equal number of blanks •Job title with highest rank is recorded at top and then lowest at bottom. Continue process

straight ranking

•Ordering info on job titles and/or short briefs •Useful to have actual job description for reference

paired comparison

•Raters compare all possible pairs of jobs •Compare each pair of jobs at least once •Job title with highest ranking is 'marked' each time it is selected •After all comparisons are made, rank in order of highest to lowest number of 'marks'

policy line as percent of market line

•Specify a percent above or below the regression line an employer intends to match and draw a new line at this level •This pay-policy line carries a message

Low-high approach

•Use the lowest- and highest-paid benchmark jobs as anchors

benchmark conversion/survey leveling

•When jobs do not match survey jobs, quantify the difference using benchmark conversion •If an organization uses job evaluation, then apply that system to the survey jobs

weighted mean

•adding base wages for all employees and dividing by the number of employees

mean

•adding each company's base wage and dividing by the number of companies

Benchmark-Job Approach

•use if the purpose of the survey is to price the entire structure, then select benchmark jobs to include the entire structure •The degree of match is assessed by various means