Total Rewards

Pay Strategies

- Lag market competition - Match market competition - Lead market competition

Collective Bargaining, Employee Representation, and Government Mandates

Certain types and categories of employees in most parts of the world are protected from actions that impact their wages and employment conditions. Unions play a very strong role in many countries and sometimes include provisions for management as well as employees. Works councils (not to be confused with unions) also offer worker protections. Comply with requirements of third-party representation. Understand the implications for minimum wages, severance packages, and pensions. Adhere to related government regulations and mandates and industry-wide collective agreements.

Job Competencies

Clusters of highly interrelated attributes, including knowledge, skills, and abilities (KSAs), that give rise to the behaviors needed to perform a given job effectively. These competencies should be part of a competency model.

Differential Pay (or variable pay)

Depends on performance and is not added to the employee's base pay. This practice allows organizations to better control their labor costs and to tie performance and pay together. -Time-Based Differential Pay -Geographic Differential Pay -Hazard Pay

Which is the best example of direct compensation?

Direct compensation is cash compensation. It includes wages, commissions, and cash achievement awards. Indirect compensation includes benefit programs and items like a company car, disability insurance, and noncash rewards.

Observation

Direct observation of employees performing the tasks of a job, recording observations, and translating them into the necessary knowledge, skills, and abilities. Provides a realistic view of the daily tasks and activities performed in a job. Works best for short-cycle jobs in production.

Interview

Face-to-face interview in which the interviewer obtains the necessary information from the employee, peers, supervisors, and team/unit members about knowledge, skills, and abilities needed to perform the job. Interviewer uses pre-determined questions, with new ones added based on the response of the employee being interviewed. Good for professional jobs.

Family-Oriented Benefits

Flexible Work Hours Child Care Elder Care Domestic Partner Benefits

What job evaluation method assesses the responsibilities and requirements of each job and its relationship to other jobs in the organization?

Job-content-based The relative worth of different jobs is based on the assessment of their content, and they can then be compared to other jobs within the organization.

Job Specifications/Qualifications

Knowledge, skills, and abilities required for a person to have a reasonable chance of successfully performing the job.

Economic Factors

Many differences exist from country to country, in terms of the: -Influence of politics and power. -Distribution of wealth across a country's citizenry. -Unpredictability of events (i.e., sometimes rapid changes in rates of inflation, currency). -Unemployment or scarcity of talent. Recognize that unofficial sources of power in a community or region and official governmental personnel may have a large impact on what is considered acceptable. Contribute to the local area to support educational facilities, internal training, child care, or other local services. Make allowances for local inflation/deflation or currency fluctuations. Conduct a risk analysis of economic factors and their consequences. Create contingency plans to mitigate the risks associated with potential changes in economic factors.

Job Analysis Methods

Observation Interview Open-ended questionnaire Highly structured questionnaire Work diary or log

An organization has been forced to hire new employees at higher pay rates than usual due to a tight labor supply. Employees who have been with the organization for one to three years are earning the same or only slightly more than the new hires they have to train. What is the organization experiencing?

Pay compression, or salary compression, occurs when there is only a small difference in pay between employees regardless of their experience, skills, or seniority. Pay differentials may be narrowed over time in an organizational hierarchy.

Advantages of Broadbanding

Provides wider ranges than the spread of a traditional pay range; generally permits the movement of individuals between jobs without being overly limited by pay ranges *Reduces the number of job grades* (e.g., from possibly 30 or more to as few as five) Supports de-layering efforts; *reduces the number of reporting levels* within an organization Provides *more autonomy to line managers* in salary and promotion decisions *Enhances employee mobility* as employees can transfer without requiring a change in assigned pay range

Seniority Increase

Seniority—the time spent in an organization—is sometimes the basis for pay adjustments. Organizations may agree to one of these two conditions when seniority is used: -Employees may need to be employed for a certain period of time before they are eligible for pay increases. -Employees may receive pay increases automatically after a set time in the job.

Competency-Based Systems

Set pay at the level at which an employee can operate in defined competencies (e.g., directing or training others). This type of system is commonly found when rewarding professional groups of employees.

Total Rewards Strategic Objectives

Strategic Alignment, Cultural Alignment, Alignment with Workforce Objectives, Equity

Job Specifications

Written statement of the minimum qualifications necessary to perform a job.

Strategic Alignment

Compensation and benefits systems must support organizational missions and strategies. Therefore, the first consideration in developing a compensation and benefits system is to review the organization's mission and strategy. The compensation and benefits system should be an outgrowth of the strategic business plan and the HR strategy. Smaller and newer organizations may not formally define their strategies; in this case, the HR professional may consider other indicators, such as where the organization is in its life cycle—is it downsizing or expanding, acquiring or being acquired, profitable or unprofitable? Or does the organization promote from within (organic growth) or hire from the outside (inorganic growth)?

Remuneration Survey

Collect information on prevailing market compensation and benefits practices, including starting wage rates, base pay, pay ranges, other statutory and market cash payments (e.g., overtime pay and shift differentials), variable compensation (e.g., short- and long-term incentive plans), and time off (vacation and holiday practices).

Benchmarking

Comparing an organization's practices, processes, and products against the world's best.

Perquisites

Compensation provided on an individual basis in the form of goods or services. Examples of perquisites include automobiles and mobile devices.

When developing a pay structure, which data set should the HR practitioner use during the development process?

Compiled job analysis, job documentation, and job evaluation Once the job analysis, job documentation, and job evaluation are completed and other relevant information is collected, an organization uses all the data to develop its pay structure. Information gathered from surveys, local markets, and like institutions may assist with information gathering for benchmarking the position but only a part of the overall data collection for creating a pay structure. An organization should look at all positions, not just low- or high-paying positions. Job evaluation is only one aspect of developing a pay structure.

Market-Based Increases

Organizations may use market-based salary increases to be competitive in attracting new talent or to keep key employees. Market-based salary increases are usually added to base pay and may also be called equity increases.

Internal Equity

Occurs when employees feel that performance or job differences result in corresponding differences in rewards that are fair. In other words, employees think that they are being rewarded fairly according to the relative value of their jobs within an organization.

Single-Rate Pay or Flat-Rate Pay Systems

Each incumbent of a job has the same rate of pay, regardless of performance or seniority. Advantages -Works well for routine, simple jobs. -Implemented and administered simply. Disadvantages -Does not reflect individual performance, seniority, or skill differences.

Social security varies by country but generally refers to:

Social insurance, where people receive benefits or services in recognition of contributions to an insurance program. These services typically include provision for retirement pensions, disability insurance, survivor benefits, and unemployment insurance. Services provided by government or designated agencies responsible for social security provision. In different countries, this may include medical care; financial support during unemployment, sickness, or retirement; health and safety at work; aspects of social work; and even industrial relations. Basic security irrespective of participation in specific insurance programs where eligibility may otherwise be an issue. For instance, assistance may be given to new-arriving refugees for basic necessities such as food, clothing, housing, education, money, and medical care.

Lump-Sum Increases (LSIs)

Some organizations use a lump-sum increase (LSI), or performance bonus, method to reward employees. An LSI is a one-time payment of all or part of a yearly pay increase. An employee's base wage rate is typically not adjusted by this increase. The LSI approach is an advantage to the organization because other wages and benefits linked to the base rate, such as overtime, shift premium, sick pay, and life insurance, are not impacted.

Benefits

Tangible payments or services provided to broad groups of employees to cover issues such as retirement, private health coverage, sick pay/disability schemes, life insurance, and paid time off. Benefits programs are designed to reward continued employment, promote loyalty, and enable employees to live healthier, less worrisome lives.

Total Rewards Strategy Process

1. Assessment 2. Design 3. Implementation 4. Evaluation

Survey Data Analysis

Survey data must first be verified and may need to be aged, leveled, and/or factored for geography

Types of Executive Compensation

Annual salary This direct compensation is usually guaranteed, while other forms of executive compensation may be dependent on performance factors. Stock option plans Executives may be given the option to purchase company stock at a pre-determined price for a certain period of time, usually five to ten years. Stock purchase plans Broad-based plans often available to most or all of a public company's employees, this type of plan allows executives the opportunity to purchase shares at a discount or without paying brokerage fees. Restricted stock grants The recipient cannot sell the stock from a restricted stock grant until a certain time period has passed. Typically the employee must remain with the company during this time period. Phantom stock This consists of cash awards designed to mimic shares of stock, without actually conveying equity via the granting of shares. Restricted stock units Often used to defer compensation of key executives until after they have retired, this amounts to a promise of a certain amount of stock once specified restrictions have been fulfilled. Performance grants This stock-based compensation is tied to organizational performance.

Skill-Based Systems

Base pay on the number of different skills an employee is qualified to perform. Employees increase their pay by acquiring new skills, even if they do not use the skills in their current assignment. This type of system is most commonly used in a production environment.

Job Classification Advantages/Disadvantages

Best suited to large organizations with many jobs and limited resources to commit to the evaluation process. Advantages Understandable by employees. Classifications can change as duties and responsibilities change. Disadvantages No audit trail. Looks only at whole job. Ambiguous; overlapping grade descriptions. Only as good as the grade descriptions. Relies on judgment of evaluators.

Job Evaluation

(also called job valuation) Determines the value and price of a job in order to place and compare it within an organization as well as attract and retain employees in a competitive environment. It is a key component of an organization's remuneration program. Job evaluation supports the need for the total rewards strategy to further the organization's strategic objectives.

Four important reasons for communication are:

-Educating employees about the organization's total rewards practices. -Achieving employees' buy-in and making them aware of the overall value. -Supporting the organization's strategic objectives. -Supporting the organization's goals for performance management.

The final step in a benefits needs assessment is to compare the following:

-Organizational needs (including budget) -Employee needs -Existing set of benefits The HR professional performs a gap analysis to identify the set of benefits that best matches the needs of the organization and its employees

Activities in Compensation System Design

1. Job Analysis 2. Job Documentation 3. Job Evaluation 4. Pay Structure

Compensation Philosophy

A short (but broad) statement documenting the organization's guiding principles and core values about employee compensation.

How should an HR leader evaluate an organization's return on labor expenses?

A well-crafted and executed pay-for-performance program allows an organization to evaluate the return on labor expenses.

Performance Criteria

Desired behaviors/results that will constitute performance in the job

Organizations typically take one of two basic approaches toward employees:

Entitlement-oriented and Contibution-oriented

Geographic Differential Pay

Geographic differential pay is based on where an employee works. Organizations with facilities in different locations often need to tailor their compensation programs to the differences in local labor markets. Some reasons for differential pay by geographic region include the following. For labor costs. Employers change their base-pay structure to reflect different wage rates or factors that impact the cost of living in different geographic areas. To attract workers to certain locations. Employers pay more to employees who accept work in remote locations or in places where the climate or quality of living is a deterrent. An offshore oil platform is an example of a work location that may require the use of a differential to attract talent. For foreign countries. Employers offer a base-pay structure plus allowances to reflect factors that affect the economics of employees who work in foreign countries. These factors may include differences in culture, education, technology, climate, and taxes. Global compensation is quite complex. It is country- and region-specific, and it is also subject to numerous compliance issues.

Roles of Job Analysis in HR

HR planning, staffing, training, performance management, safety/health, rewards, employee relations, legal compliance

Internal Survey

Organizations that have available resources and expertise may choose to develop their own internal survey to allow for more control over the survey technique and data analysis. The advantage of an internal survey is having the ability to shape the design, administration, data analysis, and reporting as needed by the organization. The disadvantages include the following: -Competitors may not be willing to cooperate and to share their pay structures. -Matching the positions may be difficult.

Knowledge-Based System

Pay is based on the level of knowledge the employee has in a field. This approach is dominant for compensating learned professions such as scientists or teachers, although staff professionals may also be paid this way.

Highly structured questionnaire

Questionnaires structured in a manner that allows only specific responses, aimed at determining the frequency with which specific tasks are performed, their relative importance, and the skills required. Defines job with a relatively objective approach, which also enables analysis to be performed using computer models. Good when a large number of jobs must be analyzed and there are insufficient resources to do it.

Compensation

Refers to all other financial returns (beyond any tangible benefits payments or services), including salary and allowances.

Benefits Costs as a Percentage of Total Payroll Costs

Reflects the total costs of benefits divided by the total payroll costs for the organization. Pay and benefits together make up wage costs. Take-home pay is only a fraction of the total cost of total rewards. This metric identifies the proportion of benefits costs.

Compensation Ratio

Relationship of current salaries to the midpoints of the salary ranges Tracking individual salaries in comparison to the pay range midpoint allows managers to consider if employees are being paid appropriately on the basis of their skills, experience, and performance.

Taxation

Tax regulations differ widely from country to country. Some countries have no income tax, while others have income tax in excess of 50%. Some benefits that are taxable in one country are not taxable in the geographically adjacent country. There are complicated and ever-changing tax compliance requirements for nationals from one country working in another. Involve experts in local compensation and benefits laws and practices as well as country taxation, particularly for long-term assignees. Understand the taxation of cash and noncash compensation, benefits, and perquisites—what is taxed, at what rates and levels. Recognize that a benefit may be unacceptable, depending on how it is taxed.

Standardization versus Localization

Typically, strategies are standardized in keeping with the organization's overall compensation philosophy. Specific practices tend to be localized to fit country, regional, or local conditions. Have a long-term plan to support the organizational compensation philosophy, but consider local restrictions, tax regimes, and culture.

Pay Grades

Used to group jobs that have approximately the same relative worth in an organization. All jobs within a particular grade are paid the same rate or within the same pay range.

Defined Contribution Retirement Plan

-Amount of money that is to be regularly contributed to the fund is specified. -No promises are made about the future value of the benefit. -Employees will be entitled to 100% of their investment and the vested portion of the employer's contributions upon retirement. -Requires individual accounts for each employee. -Amount of the benefit at retirement will depend on the investment return. -Employee bears the investment risk.

Compa-ratios above 100% (1.00) mean that wages exceed the midpoint. This is likely to occur when:

-An organization adopts a lead strategy with regard to pay. -Managers are not following salary increase policies. -Employees are long-tenured and/or high performers.

Compensation approaches include:

-Base-pay systems, which can be determined by rates, longevity, productivity, or other factors. -Pay adjustments, or salary increases. -Differential pay, which is added to base pay and may be affected by the type of work being performed or where and when the work is performed. -Incentive pay, which is added to base pay to motivate performance. -Methods suited for particular types of work.

Pay compression typically occurs when:

-Beginning salaries are raised due to increases in the minimum wage or inflation. Therefore, new hires can make the same as employees in the same job with more experience who began at a lower wage. -Labor market pay levels increase more rapidly than an employer's pay adjustments. An example would be hiring an inexperienced systems engineer at or close to what more-experienced systems engineers earn because of escalation in competitive hiring rates. If the inexperienced systems engineer is paid more than the experienced ones, pay compression occurs. -There is not enough difference between pay levels. This situation allows an employee making overtime to have a larger net pay than his/her supervisor even though the base pay of the employee is less than the supervisor's pay.

For an incentive pay plan to be successful, organizations need to have the following in place:

-Competitive base salaries -Fairly stable management presence and strategic direction -Good communication between management and employees -Reliable method for measuring the results linked to incentives -Commitment from the top down to communicate the plan and to provide ongoing training and coaching

Lag Market Competition

-Controls labor costs by setting pay rates below those of other organizations -May be used because of economic necessity -May enable an organization to offset other higher costs such as purchasing, distribution, or sales expenses -Typically will offer other benefits such as learning and development, attractive roles via career paths, etc.

Guidelines for Effective Use of Merit Pay

-Gain executive buy-in. Leadership (e.g., the board or senior executives) must support the overall philosophy and goals, how progress toward the goals will be monitored, and how much money can be allocated to incentivize the goals. -Align the merit pay system with organizational goals and culture. Goals and performance measures must relate to overall business goals and desired outcomes (instead of tasks). -Develop accurate performance appraisal systems that recognize proficiency. Proficiency at a job should dictate value and awards (not just longevity or tenure or other subjective measures). -Train supervisors in the mechanics of the performance appraisal system and in the art of giving feedback. -Tie meaningful rewards closely to performance. -Use a wide range of increases to differentiate between performance levels. -Implement accountability measures. Whether software is used to track performance milestones or management manually assesses them (or some combination of the two), performance evaluation is critical.

The correct strategy depends on:

-How the employees add value to the organization's success. -How competitive the market is for talent (supply versus demand). -The degree to which the organization can afford to pay for a particular strategy. -Where the organization wants to place itself as an employer of choice.

An effective compensation philosophy passes the following quality test:

-Is the overall program equitable? -Is the overall program defensible and perceived by -employees as fair? -Is the overall program fiscally sensitive? -Is the compensation philosophy legally compliant? -Can the organization effectively communicate the philosophy to employees and prospective candidates? -Are the programs the organization offers fair, competitive, and in line with the compensation philosophy and policies?

To counteract the effects of pay compression, organizations can:

-Match the market in pay rates for all employees, not just new hires. -Provide other benefits to employees affected by pay compression. -Continuously evaluate survey data and update pay ranges accordingly. -Provide incentive plans for managers. -Increase the amount of time off awarded. -Provide longevity bonuses. -Monitor salaries for inflation. -Install a more aggressive merit pay program.

Compa-ratios below 100% (expressed as a compa-ratio of less than 1.00) mean that employees are paid less than the midpoint. This may occur when an employee is:

-New to the job or organization. -A poor performer. -Working for an organization that adopts a lag strategy with regard to pay.

Most internal evaluation methods can be grouped into one of two categories:

-Nonquantitative methods strive to establish a relative order of jobs. -Quantitative methods try to establish how much more one job is worth than another job by using a scaling system.

Lead Market Competition

-Offers higher wages and/or better benefits in an attempt to attract and keep the best talent -Rationalizes that higher-quality employees are more productive, which makes up for the higher salaries

Match Market Competition

-Offers wage rates and benefits packages similar to that of the competition -Often referred to as being externally competitive -Most common approach

Defined Benefit Retirement Plan

-Promises specific benefit amount upon retirement. -Vesting schedule is set up. (Vesting is the process by which employees gain permanent claim to a portion or all of their benefit. Employees are always 100% vested in their own contributions; employer contributions usually vest over time.) -Provides benefits based on service and perhaps on salary. -Amount of benefit is decided by a formula. -Provides a pre-specified level of benefits. -Employer bears the investment risk.

While nonquantitative methods evaluate the whole job, quantitative methods evaluate the job using a variety of factors—often called compensable factors. Compensable factors reflect how much the job adds value to the organization. The compensable factors should:

-Reflect the actual work being done. -Be supported by documentation such as job descriptions. -Reinforce the organization's strategic plan and culture. -Be valued by all affected parties (stakeholders). -Be reviewed annually.

Activities in a Benefits Needs Assessment

-Review the organization's strategy -Review the organization's compensation philosophy -Analyze the demographics of the organization's workforce -Analyze the design and utilization data on all benefit plans

The factors most commonly used in point-factor evaluations include:

-Skills. -Responsibilities. -Effort and physical demands. -Working conditions. -Supervision of others.

Issues and Challenges in Global Compensation and Benefits

-Standardization versus Localization -Culture -Competitive Labor Market -Collective Bargaining, Employee Representation, and Government Mandates -Economic Factors -Taxation

Difficulties in Using Merit Pay

-The incentive value of the reward offered may be too small to motivate performance. -The link between performance and rewards may be weak. -Merit raises are permanent increases in payroll costs. -Union contracts limit pay for performance. -Managers may have limited personal control over organizational performance. -Managers may be reluctant to distinguish between performance levels. -Performance appraisal definitions and guidelines may lack precision. -People may think their own performance is above average. -Merit pay runs contrary to intrinsic motivation in the work itself.

The number of pay grades an organization has will depend on the following factors:

-The size of the organization (e.g., how many employees and positions in the organization) -The distance between the highest- and lowest-level jobs -How clearly the organization defines and differentiates jobs -The organizational policies regarding pay increases and promotions

A benefits needs assessment allows HR to build a business case for important recommendations such as:

-The type of benefits provided. -Who is covered under the plan (for example, employees, dependents, retirees). -What options employees have (for example, flexible spending accounts, cafeteria plans). -How the plan will be financed and whether employees will share in the costs. -Who should administer the plan (for example, the organization, an insurance carrier, a third-party administrator). -How the benefit plan will be communicated to all affected individuals.

Developing a Pay Structure

1. Develop a market line for all jobs, comparing the job evaluation points or values with the market value for comparable jobs. 2. Use the market line to decide pay grades by grouping together the jobs with similar value to the organization. 3. Spread pay grades evenly over the points or values on the market line, attempting to place jobs in the middle of the pay grade. 4. Calculate the pay ranges for each grade. Assuming that the jobs are placed in the middle of the range (midpoint), set up a range spread that fits with the type of positions and the number of grades. Each pay range will have a minimum, midpoint, and maximum, with equal distance between the minimum and maximum. 5. Calculate individual pay rates using a pay policy line that is set by the organization. For example, in a highly competitive marketplace, an employer may decide to hire employees at 105% of the pay structure, or 5% above the midpoint of each range. (The midpoint represents the market rate.)

Point-Factor System

A form of quantitative evaluation. It is the most commonly used method of job evaluation. The compensable factors chosen for the evaluation must reflect the nature of the job being evaluated. For example, hazards and working environment would be pertinent factors in a manufacturing setting but not as relevant in most office jobs.

Which is a disadvantage of a time-based pay system?

A major disadvantage of a time-based pay system is that it does not reflect performance differences, except for unsatisfactory performance, and it can raise average pay levels over time even if performance is below average.

Which is the best method for an HR compensation manager to use to evaluate the jobs and salary ranges of the organization's key positions compared to those of its competitors?

A market-based job evaluation assesses the relative worth and pay structure of different jobs based on their market value or the going rate in the marketplace.

Total Rewards Strategy

A plan or method implemented by an organization that provides monetary, benefits-in-kind, and developmental rewards to employees who achieve specific business goals.

Job analysis

A systematic study of jobs to determine what activities (tasks) and responsibilities they include, the personal qualifications necessary for performance of the jobs, and the conditions under which the work is performed. It results in a written statement of the tasks performed in the job and the necessary qualifications of the job incumbent—education level, experience, training, skills, and so forth.

New leadership is in place at a large retailer, resulting in a business unit undergoing a detailed review of its support of the organizational strategy. It has been identified that the benefit offerings are not reflective of the organization's total rewards philosophy and that many benefits overlap, creating inefficiencies. Which action should be taken first by HR take to remedy the situation?

A utilization review is an audit of benefits use and charges to identify which benefits are used and to make certain that costs are appropriate.

Total Organization Compensation Expense

All costs associated with employment, including salaries, overtime, benefits, and bonuses Tracking total compensation as a percentage of total costs helps an organization manage the costs associated with human capital, including evaluating the use of fixed versus variable compensation.

During a workforce planning session, HR identifies that within 5 years, 25% of the workforce will be nearing retirement age. The organization wants to ensure that there is steady recruitment of a new generation. Which activity during the benefits needs assessment is most relevant to the recruitment strategy?

Analyzing the utilization data on all benefit plans could result in changes to the benefit mix based on the demographics and possible elimination of underutilized or high-cost plans for the aging workforce. Reviewing the competitor's strategy or the organization's management culture is not part of the benefit needs assessment activity. It is assumed that the workforce demographics have already been analyzed to identify the population nearing retirement age.

Competitive Labor Market

At a broad level, the compensation and benefits required to attract and maintain talent are determined by the competitive demand for that talent. However, the nature of the competition for talent may vary across countries and regions, depending on factors such as: -Type of talent sought. -Geographic scope of talent market. -Industries in which talent is found. -Mix of remuneration components. -Current economic, market, and employment conditions. Lead, lag, or match the rates of pay in the marketplace based on the skills needed, the demand for required talent, and the best way to compensate those types of workers. Offer appropriate combinations of pay and benefits that will appeal to current or prospective employees. Employ people with similar skills when industry-specific expertise is in short supply or competition is high; retrain or coach the hires on the job; develop and mentor talent.

Point-factor method

Best suited to organizations desiring a systematic procedure for evaluating each job. Best suited to organizations with time and resources to develop a custom evaluation system. Has better chance of success when jobs are not greatly affected by inflation/market conditions. Advantages Produces reasonably objective and defensible results. Provides documentation and an audit trail. Yields suitable results if used consistently. Disadvantages Complex and time-consuming. Difficult to explain to employees. Requires thorough job documentation, including job descriptions and job analyses. Relies on some degree of judgment by evaluators.

Job Ranking Advantages/Disadvantages

Best suited to small organizations where a hierarchical ordering of jobs will suffice and resources are lacking for a complex job evaluation system. Advantages Simplest method. Quickest method. Inexpensive. Disadvantages Not appropriate for evaluating a large number of positions. Puts jobs into a hierarchy but does not determine the relative value of one job as compared to another. Does not measure differences between jobs. Not as reliable as other methods because of its subjectivity. Relies on judgment of evaluators.

Before designing and implementing a reward system, what organizational factors should the HR manager review?

By supporting the organizational mission and strategy, the reward system allows for synergy in organizational efforts, resources, and outcomes. Organizational culture and environment can change; therefore, building a reward system based on those may create frequent system changes. Both the location and industry and the organizational structure and hierarchy may lead to certain groups of employees being excluded from the reward system.

Which is an organizational benefit of using differential pay?

By using differential pay, organizations are able to incent employees to perform less desirable work (shift work, hazardous area, being on-call or standby, frequent or regular travel) or in less desirable locations or locations that have a higher cost of living. The differential pay is provided separate from the employee's base pay to allow for organizational flexibility, resulting in the ability to better control fixed labor costs.

Culture

Cultural differences necessitate understanding that the value of compensation and benefits programs is in "the eye of the beholder." A benefit highly valued in one country may be relatively meaningless in another. Differences are often rooted in deep-seated beliefs, attitudes, and values. Avoid headquarters biases or replication of headquarters-country policies and procedures (e.g., paying sales commissions in risk-averse cultures or reward and recognition programs that reward individual contributions in cultures that place greater emphasis on team/group contributions or prefer private recognition). Involve local contacts to understand customary compensation and benefits practices.

Red-Circle Rates

Describe situations where employees' pay is above the range maximum. Here are some examples of when red-circle rates may occur: -When long-term employees reach the maximum rate in their range or when promotion opportunities are rare -When employees are bumped down to a lower-level job, rather than getting laid off, but their salary is not reduced (Sometimes a red-circle rate is frozen until the pay structure is increased enough so that the rate falls within the range.) -When a manager is paid at the top of the job range but there are no openings at the next job range (In this case, bonuses are sometimes used to increase the manager's take-home pay.)

Pay Compression

Describes situations where there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority.

Work Diary or Log

Diary or anecdotal record maintained by the employee. Job information, including the frequency and timing of tasks, is recorded in the diary. Logs are usually kept over an extended period of time. They are analyzed, and patterns are identified and translated into duties and responsibilities. Provides an enormous amount of data. Method can be applicable to task- or process-oriented jobs (e.g., administration, call center operators, shipping and receiving, warehouse).

Total Rewards Strategy Process: Assessment

During assessment, one or more HR professionals evaluate the current compensation and benefits systems and the effectiveness of those systems in helping the organization reach its goals. Employees are typically surveyed on their opinions and beliefs regarding their pay, benefits, and opportunities for growth and development. Current policies and practices are examined. The most important outcome of the assessment phase is the assessment report, which includes recommendations for the new total rewards system. An assessment report should include plausible solutions to questions such as: -Who should be eligible for the rewards? -What kinds of behaviors or values are to be rewarded (within the organization's reward and recognition system)? -What type of total rewards will work best? -How will the organization fund the new system?

Total Rewards Strategy Process: Design

During the design phase, a senior management team made up of HR and department representatives identifies and analyzes various reward strategies to determine what would apply best in their workplace. Decisions are made about what will be rewarded and what rewards will be offered to employees for those achievements. Pay rewards for achievement of goals are not the only consideration. HR strategists identify additional benefits (e.g., flexible work schedule, additional time off) or personal development opportunities (e.g., training, promotions) to reward employees who meet the established organizational goals and objectives.

Total Rewards Strategy Process: Implementation

During this phase, the HR department implements the new rewards system and circulates materials that communicate the new strategy to employees. Training also commences so that department managers are able to effectively measure the achievement and employees understand what they need to accomplish to receive the rewards. Implementation efforts need to support the long-term needs of the organization to ensure a sustainable business model.

Person-Based Pay Systems

Employee characteristics, rather than how the job is performed, determine pay. In such systems, two employees may perform similar tasks, but the person with superior knowledge or skill mastery receives more pay. Types -Knowledge Based System -Skill Based System -Competency Based System Advantages -Works best where skill/knowledge levels are well defined and development of employees is valued. -Encourages a flexible and better-trained workforce. -May reduce need for specialists. -Allows for work teams that are highly interdependent. Disadvantages -Can be costly in terms of both administration and training. -May result in higher pay rates. -Skills/knowledge must be effectively used to provide the organization with an offset to the higher pay rates. -May be more difficult to institute cost controls.

Total Rewards

Encompasses all the direct and indirect remuneration approaches that employers use to attract, recognize, and retain workers. Stated another way, total rewards refers to all forms of financial rewards that employees receive from their employers. Direct compensation (pay systems) primarily involves cash-based rewards, while indirect compensation (benefit and recognition programs) typically includes noncash rewards.

What form of equity is an HR function assuring when it conducts annual surveys of compensation practices in its labor markets?

External equity refers to employees' perceptions that they are being fairly compensated in terms of what employers in the same labor market would offer. Internal equity relates to perceptions of fair compensation in terms of the work for the employer. Strategic and cultural alignment are objectives for compensation systems. A strategic analysis could point to a lack of alignment in compensation by department and/or position. A cultural analysis of a compensation system would examine the alignment of the system with the culture's values.

External Survey

External surveys may draw on extensive databases of incumbents and industry benchmarks and can provide real-time insights into total compensation levels, practices, and emerging trends. If an organization uses externally published data, it must be sure that it knows how the data was generated and when. Depending on the type of external survey, the organization may have limited participation and input.

To better meet the growing need for new parents to balance work with family, which program should HR include as part of the organization's employee benefits?

Flexible work schedules help employees balance work roles with family roles. Increasing vacation time selectively will create problems with engagement and compliance. Unlimited paid leave is not equitable to the organization. Employee assistance programs can provide advice possibly but not relief for the basic problem here, the competition of work and life demands.

Pay Range

For each pay grade, an organization creates a pay range that sets the upper and lower limits of compensation for employees whose jobs fit within that particular grade.

General Pay Increase

Given to all employees (or sometimes a class of employees such as office or production workers) based on local competitive market requirements. This type of increase is awarded regardless of employee performance. The pay increase is not linked to the cost of living and will depend on the employer's ability to pay for compensation increases.

Group Incentive Pay

Group incentives are used when measuring individual performance is difficult or when performance requires cooperation of the group. In gainsharing plans, an organization shares a portion of the gains from a successful group effort. For example, past production records may be used to set up base productivity standards. Any gains above that standard are shared 50/50 by the organization and its employees. Team bonuses can also be used and are based on achieving group goals and objectives.

Which is the most important factor an HR leader should use when planning pay increases?

HR should consider the potential financial implications of recommendations and actions. Financial analyses and HR decisions are always intertwined. While HR systems, employee support, and HR workload are all viable factors, they are not the most important and are not part of the decision making. They are factors to consider for implementing and communicating the increases.

In organizations that vary range spread by level, typical range spreads are:

Hourly positions—40%. Salaried positions—50%. Executive positions—60%.

Total Rewards Strategy Process: Evaluation

How do you know if the organization's total rewards strategy is effective? The answer to this question lies in how well the system achieves its goals—cost-effectiveness, affordability, compliance with laws and statutory regulations, compatibility with mission and strategy, match with the organizational culture, appropriateness for the workforce, and equity.

If a job in a survey is similar but not identical to one in the organization, the data can be

If a job in a survey is similar but not identical to one in the organization, the data can be weighted or leveled for a better match. For example, if an organization's benchmark position is at a supervisory level and it has less responsibility than the survey's manager-level benchmark, the organization may adjust the surveyed wage downward by a percentage.

Paired-Comparison Method

If there are many jobs to evaluate, a paired-comparison method may be used in which each job is compared with every other job being evaluated. The job with the largest number of "greater than" rankings is the highest-ranked job, and so on. A matrix is used to compare all possible pairs of jobs. Nonquantitative method

Compensation for Internationally Assigned Employees

In addition to base pay, the following types of compensation may be used when paying employees on international assignments: -Foreign service premium -Cost-of-living, housing, and travel allowances -Educational allowance for children -Relocation allowance -Tax differential payments -Spousal assistance

Fiduciary Responsibility

In administering retirement plans, organizations must be aware of the concept of fiduciary responsibility. A fiduciary duty (or fiduciary obligation) implies a legal obligation of one party (for example, the employer) to act in the best interest of another (for example, the employees). The obligated party is typically referred to as a "fiduciary" (e.g., an individual or party entrusted with the care of money or property). Legal systems may have broad or narrow views of this responsibility.

An organization finds that, without consciously meaning to, it is rewarding behaviors that violate its values. As it returns to the beginning of the total rewards strategy process, what factor should the organization be sure to include in its assessment of its total rewards needs?

In this case, HR needs to ask leadership what behavior they are willing to accept from individuals who are contributing to the organization's strategic success. This will affect the total rewards system's design and implementation. This is not an issue of willingness to invest money but of commitment to the priority of stated values. Competitive factors may be influencing employees' behaviors, but rewarding that behavior through compensation systems goes back to the basic question of whether leaders are willing to sacrifice revenue for the organization's values. The code of conduct defines desired behaviors but may be ineffective in changing behavior if the rewards system is not aligned with the code.

External Equity

Involves comparing an organization's compensation levels and benefits to those of other organizations that are in the same labor market and that compete for the same employees. External pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar jobs in other organizations.

Job Ranking

Involves establishing a hierarchy of jobs from lowest to highest based on each job's overall value to the organization. Ranking evaluates the whole job, rather than parts of it, and compares one job to another. Nonquantitative method

Evaluating Total Rewards Strategy

Is the system strategy in compliance? -How easy is it for the organization to meet legal requirements? -Does the system protect employee privacy and the organization's proprietary data? -Does the system support the organization's diversity/inclusion goals? Is the system strategy compatible with the organization's mission and strategy? -Does it meet the organization's goals, mission, and objectives? -How well does the system enable the organization to attract/retain employees? -Does it motivate employees to superior performance? Does the system strategy fit the culture? Is it appropriate for the workforce? -If the organization is entitlement-oriented, does the system provide compensation and benefits focused on employee security? If the organization is contribution-oriented, do the compensation and benefits programs recognize individual effort and achievement? -Does the system offer total rewards that meet employees' lifestyle needs? -If the organization's operations cross borders, does the system fit the national and/or local culture? Is the system strategy internally equitable? -How appropriate is the compensation mix? Fixed vs. variable? Cash vs. benefits? Retirement vs. health/welfare benefits? -How well do employees understand the system? -Do employees perceive the system to be fair and adequate? -Looking at performance appraisal data, how well does the system encourage and reward superior performance? -What is the organization's turnover rate? Is the system strategy externally competitive? -How does the compensation and benefits package compare with those of competitors in scope and costs? -Is the organization lagging, matching, or leading others in the marketplace? -Is the system enabling the organization to attract and retain qualified employees? -How wisely is the organization investing in its employees? Is each dollar spent generating a return on investment in terms of productivity and profitability?

Three key elements in a job analysis are commonly abbreviated as KSAs:

Knowledge—body of information necessary for task performance Skills—level of proficiency needed for task performance Abilities—capabilities necessary to perform the job

Which component of a total rewards system should an organization consider as an indirect benefit to employees?

Life insurance is considered an indirect benefit. Salaries, commissions, and bonuses are part of an employee's compensation and are considered direct benefits.

Organization-Wide Incentive

Many organizations use organization-wide incentive plans to reward overall results. -Profit sharing and stock ownership are the most common organization-wide incentive plans. -Another example is a bonus program that is tied to organizational goals. For example, a goal may be to gain repeat business from 10% of hotel customers. Employees receive a flat monetary amount and a percentage of base pay; the methods are typically dependent on the position within the organization.

Compensation for Outside Directors

Members of boards of directors are compensated in a variety of ways: -Base pay or retainer -Fees, usually for attending meetings, chairing a committee, or other services -Benefits such as liability and life insurance -Perquisites similar to those offered to executives -Nonqualified stock options/grant plans -Nonqualified deferred compensation programs

When salary data is aged,

Movement in market rates is used to adjust outdated data. For example, assume that pay movement or pay increases are averaging 3% a year. If we use a salary data point from a source with an effective date of one year ago, we would increase that number by 3% to account for the movement of salaries through time.

Cultural Alignment

National and organizational cultures influence how people perceive the value of the various rewards available in the compensation system. For example, the culture may be performance-driven (and pay for performance is a well-established norm) or it may be entitlement-oriented (with longevity of service rewarded). In some cultures people are more willing to accept risk in their compensation while in others people are quite risk-averse. In addition, the level of uncertainty avoidance in a culture may determine the amount of fixed versus variable pay that people will accept.

Nonquantitative methods are often referred to as:

Nonquantitative methods are often referred to as whole-job methods, as they evaluate the entire job and sequence jobs in hierarchical order based on their value to the organization (without a numeric value being assigned to each job). The sequence will indicate that one job is more important than another job, but it will not specify how much more.

Cost-of-Living Adjustment (COLA)

Pay adjustment given to all eligible employees without regard to organizational profitability, employee productivity, or other performance factors. The purpose of a cost-of-living increase is to protect the employees' purchasing power against rising inflation. These increases are typically an equal hourly increase or a percentage of the employee's current pay. COLA payments are sometimes paid as a lump sum, either quarterly or at some other specified time.

An organization implements changes to its pay structure, resulting in new hires now being started at the same wage as workers who have been on the job for two years. What type of pay variation will most likely be created?

Pay compression, or salary compression, describes situations where there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority. Pay compression can occur if the labor market, inflation, or some other reason causes market pay increases to rise faster than the employer's pay adjustments

Pay Equity

Pay equity relates to the fairness of compensation and benefits paid to employees. Equity issues can be internal or external. An organization cannot effectively recruit new employees or retain existing ones without internal and external equity. Employees need to see a basic fairness between what they bring to the organization in the way of education, experience, certifications, performance, and other skills or efforts and how the organization rewards them.

Productivity-Based Pay System

Pay is determined by the employee's output Useful if: - output can be measured - relationship between EE effort and output exists - job is standardized & workflow is regular - Quality < quantity - costs are known Advantages -Works best where emphasis is on quantity of work and outputs are accurately measured. -Encourages high level of employee productivity. -Ties pay to the volume of the work performed. Disadvantages -May sacrifice quality of work without careful supervision. -May lead to inflexibility in the workforce because employees may want to stay with the job for which they are paid the most.

Incentives or premiums

Payments in return for the achievement of specific, time-limited, targeted objectives. Often they are calculated as a percentage of base salary. Payment may be made in a lump sum or as ongoing payments over a specified period of time.

Health-Care Expense per Employee

Percentage that measures the health-care expense per employee for a given fiscal year. Total health-care expenses include employee- and company-paid premiums, stop-loss insurance, and administrative fees. This measurement can show the per capita cost of the benefit (e.g., the average per person).

HR is in the process of recruiting a senior-level position for a global organization. Which benefit might distinguish the organization from the competition?

Perquisites are special incidental payments, benefits, or privileges given to individuals over and above their regular rewards. Often awarded to senior-level positions, "perks" may extend to furnished housing, luxury transportation, and membership in exclusive clubs. Social security and unemployment will vary by country but not by organizations within the same country. Termination payments will vary by country and may not be at the sole discretion of the employer where unions are in place.

Quantitative Job Evaluation Methods

Quantitative job evaluation methods evaluate specific factors on a scale and provide a score that indicates how valuable one job is compared to another.

Open-Ended Questionnaire

Questionnaires to job incumbents, and sometimes to their managers, asking about the knowledge, skills, and abilities necessary to perform the job. The answers are then combined, and a composite statement of job requirements is published. Produces reasonable job requirements because input is solicited from both employees and managers.

Disadvantages of Broadbanding

Reduces the value of ranges as parameters for governing pay rates Affords less control for the organization in salary and promotion decisions Creates overly broad salary ranges; affords less control of salary costs as there is no mechanism to tie the salary growth of individual employees to the skills necessary for advancement to the next higher-level position Makes it hard to justify salary differentials if two employees are in the same broadband doing similar work; can lead to the perception of pay inequity and increase the potential for pay discrimination charges Reduces the opportunity for promotion and accompanying job title and base salary changes; fewer salary ranges lessens promotions to another range, which can lead to retention issues Risks divergence from market pay practices; paying too little relative to competitors could mean higher employee turnover and paying too much could mean higher product or service costs

Which type of survey should an HR professional use to collect information on base pay, incentive plans, and benefits?

Remuneration surveys, the global terminology for compensation and benefit surveys, are used to collect information on prevailing market compensation and benefit practices. This type of survey allows an organization to check its remuneration structures against global and local trends.

Annual Increase/Decrease in Health-Care Benefit Costs (Previous Years and Projected)

Represents the expected increase/decrease in the organization's health-care expense for a given fiscal year; a comparison of the current health-care expense per employee metric to previous years and projected. This measurement alerts an organization to the increasing costs of health-care benefits and helps the organization assess if actions must be taken to control benefits costs (e.g., changing/reducing benefits, sharing the costs with employees).

Time-Based Differential Pay

Shift pay. Some employees receive extra pay when they work less-desirable hours, such as a second or third shift. Shift pay may be a flat amount per hour or a percentage of the base pay. Emergency-shift pay. Certain types of industries pay emergency-shift pay when employees work in response to an emergency. Premium pay. Some employers pay premium pay (extra pay), or overtime at a higher rate, for working any of the following: Holidays or vacation days or weekends For the sixth or seventh day of straight time After eight hours in a day On-call or call-back pay. In some organizations employees earn pay when they are on call, even if they are not called in to work (on-call pay). Employees may also earn extra pay when they are called back for an extra shift in the same workday (call-back pay). Reporting pay. With reporting pay, employees are paid for reporting to work as scheduled even if upon arrival no work is available. Travel pay. Hourly employees receive travel pay for time spent traveling to work assignments, even if the travel time is outside of working hours. Overtime pay. In various countries the minimum amount to be paid for overtime is dictated by legislation.

Green-Circle Rates

Situations in which an employee's pay is below the minimum of the range. Green-circle rates can happen when an organization: -Promotes an employee or "tries out" an employee who does not possess all the requisite KSAs for a job. -Reviews and updates its pay ranges, increasing minimums as a result.

Broadbanding

Some organizations have found that when too many grades (with small midpoint differences between them) are established, the compensation system becomes overly complex and increasingly unmanageable. Broadbanding (salary bands) combines two or more salary grades to create larger ranges and give people wide latitude to move within their job without outgrowing the pay scale.

Entitlement-oriented

Some organizations promote a caring, protective feeling and want employees to feel as if they are a part of the family. These organizations feel that employees are entitled to benefits such as health care, employee assistance, or disability insurance as a condition of employment. In general, as benefits increase, there is less emphasis on individual employee contributions and responsibility and more emphasis on the success of the organization as a whole.

Perquisites

Special incidental payments, benefits, or privileges given to individual employees, over and above their regular rewards. When awarded to senior-level job positions, perquisites may also be called executive perks or fringe benefits. Free/discounted products or services. Employees may be eligible for free products and services or discounts. Mobile devices. A cell phone, smartphone, or laptop may be provided for business needs. Professional organizations/certifications. Fees for employee membership in professional associations or professional certifications may be paid. Training programs. Employer payment for training programs may be available to many levels of employees. Education fees. Tuition assistance may be provided to employees. An employer may pay all or part of an employee's cost to attend college or university or technical school classes, allowing employees to continue to expand their knowledge and skills while working. Housing. Accommodations or related allowances are awarded to certain employees; these may be company-owned or company-leased. Allowances may be a fixed monetary amount or a percentage of basic salary. The specifics often depend on employee level. Furnishings may be provided. Company car and/or cash car allowances. Organizations may provide cars for specific employees to use, or they may offer a car allowance in lieu of a car. In addition to the cost of the car, organizations often finance car maintenance, taxes, and insurance. Fuel costs are typically reimbursed for business purposes (except for senior executives, for which all fuel costs are typically reimbursed). Club memberships. Entrance fees as well as annual subscriptions for social or sports club memberships may be paid by the employer. Meal allowances. Lunch vouchers, meal tickets, meal subsidies, or subsidized/ free lunches in the company restaurant/canteen may be granted to employees.

Guidelines for Selecting and Using Global Remuneration Surveys

Survey organization Is the external organization reputable? With published surveys, the sources of the data and other information (including job definitions used in the survey and the "as of" date of the data) should be known to ascertain the relevance, accuracy, sufficiency, and currency of data. Survey job coverage Are the jobs surveyed pertinent to the organization's needs? Survey job definitions Are the jobs well defined to enable accurate matches of the organization's jobs to the jobs in the survey? Labor market coverage Should the data be local, regional, national, or international? Should the data reflect all market segments or be sector-, industry-, or technology-specific? The organization must determine the desired scope of data. Survey content Does the survey report provide all of the HR information needed? Does it include relevant competitors in primary and secondary markets? Survey methods and standards Do the methods and standards used by the survey administrator yield the degree of confidence the user needs? The key to quality is when a user can identify a useful, high-quality survey—reputable source, desired scope, good survey job coverage, cogent definitions, excellent data collection and analysis, and other high standards for data. Need to adjust the data Are there good ways to adjust data in a survey report to a more recent point in time (e.g., "aging," which is discussed below)?

Benefits

Tangible payments or services provided to broad groups of employees to cover issues such as retirement, health care, sick pay/disability schemes, life insurance, and paid time off, in addition to those required by law. Internal and external training and development that employees receive is also considered a benefit.

When creating a benefits program, which key legal factor does the HR benefits leader need to keep in mind?

The benefits leader needs to understand what is normally provided to employees, what government-regulated programs are provided, and what employees expect.

Contribution-oriented

The compensation programs of other organizations are more performance-driven, putting emphasis on the performance and contributions of individual employees. These compensation systems emphasize performance-based pay, incentives, and shared responsibility for benefits. For example, the firm may require copayments for medical insurance.

Which is an advantage of using the point-factor method in job evaluation?

The correct answer is the most distinguishable feature of the point-factor method; it is the most systematic and analytical method and it includes documentation of the process. Other job evaluation methods do not have this.

Time based step rate pay system

The employee's pay rate is based on longevity in the job. Pay increases occur on a predetermined schedule. - Automatic: pay scale is divided into % steps - Step rate w/ variability based performance: size and timing of increase varies with performance - Combination: step increases occur up to a point and then are based on performance Advantages -Best suited to routine jobs where the qualifications of job incumbents increase with time. -Enables an organization to reward long-term employment. Disadvantages -Generally does not reflect the varying rates at which incumbents become proficient. -Does not reflect performance differences, except for unsatisfactory performance. -Can raise average pay levels over time even if performance is below average.

An HR manager discovers a discrepancy between the organization's current compensation policy and the laws of the location the organization operates in. Which is the best first step the HR manager should take to address this?

The general rule is to follow the regulation that most benefits the employee. This needs to happen as a first step in order to be able to analyze the impact to the organization and provide an effective recommendation to the CEO and other organizational leaders (demonstrating the Consultation competency).

Performance-Based Pay System

The individual employee's performance on the job is the basis for the amount and timing of pay increases. A performance-based pay system is commonly called merit pay or pay for performance (P4P or PfP). Advantages -Works best where individual performance is valued and accurately measured against specific goals, objectives, and metrics. -Rewards and encourages superior performance. Disadvantages -Requires well-documented performance appraisal systems on which managers have been thoroughly trained. -Can be manipulated by supervisors to benefit certain employees over others. -Bias or subjectivity in performance appraisals may lead to employee discrimination claims.

Direct Sales Compensation

The main purpose of a sales compensation plan is to motivate sales professionals to achieve specific objectives that directly translate to the organization's bottom line. Most organizations compensate their direct sales force in one of three ways: straight salary, straight commission, or salary plus commission and/or bonus.

After an acquisition, the HR director at the acquiring company is tasked with aligning the total rewards systems of both organizations. Which should the HR director review first?

The mission and strategy must be reviewed first because, in order to be successful, the total rewards system must be an extension of the strategic business plan and mission. Company payroll costs, organizational culture, and current benefit providers should be reviewed after the organization's mission and strategy, not before.

An hourly employee is at the maximum level of a pay range. There are no job openings in the next pay range. Which is the best approach to reward the employee for exceptional performance without adjusting the base wage rate?

The performance bonus approach is an advantage to the organization because other wages and benefits linked to the base rate, such as overtime, shift premium, sick pay, and life insurance, are not impacted.

Individual Incentive Pay

The purpose of individual incentive plans is to improve individual performance. -The piece-rate system is the most basic individual incentive system. Workers who produce more earn more. -A commission is another example of an individual incentive. A commission is generally a percentage of sales. -Another type of incentive is noncash reward programs. Gifts, awards, trips, prizes, and other forms of merit awards are used to recognize individuals for their performance, special contributions, or length of service.

Job Context

The purpose of the job, its work environment, its place in the organizational structure

Job-content-based job evaluation

The relative worth and the pay structure of different jobs are based on an assessment of their content (e.g., responsibilities and requirements) and their relationship to other jobs within the organization. More simplistic internal job evaluation approaches address how jobs are broken down into and assessed by their different elements or factors (decision-making relationships).

Market-Based Job Evaluation

The relative worth and the pay structure of different jobs are based on their market value or the going rate in the marketplace. For this reason, the method is sometimes simply referred to as "market pricing." Job content or internal job relationships may also be taken into account, but these are typically secondary considerations.

Alignment with Workforce Preferences

The rewards program must consider the type of workforce. An organization with entry-level or unskilled workers will probably have a very different rewards package than an organization with experienced, highly educated professionals. One way to keep in touch with the employees' preferences is by conducting surveys to check their attitudes and current and long-term needs. Analyzing the workforce and its characteristics will help the organization understand those needs.

Job Content

The tasks and procedures necessary for carrying out a particular job

Job Classification

This method writes descriptions for each class of jobs. Individual jobs are then put into the grade that best matches their class description, based on the judgment of the evaluator. There are a few disadvantages to this nonquantitative method: -Because this process is subjective, where there is a wide variety of jobs and job descriptions, jobs could easily fall within more than one grade level. -This method relies on job titles and duties and assumes that the jobs are similar among organizations. Nonquantitative method

The job evaluation method used also influences the pay grades:

To be successful, there must be enough grades to distinguish jobs by relative worth but not so many grades that the lines between grades become insignificant.

Alignment with Global Staffing

Total compensation practices should support the hiring, retention, and motivation of an engaged and productive workforce, but this may be accomplished in different ways, according to the organization's global orientation.

Incentive Pay

Used to motivate employees to perform at a higher level by paying for performance that exceeds base-pay expectations. Incentive compensation programs stem from the theory that rewards drive behavior. Generally, incentives can be developed at any of these levels: -Individual -Group -Organization-wide It is important that an incentive program be related to aspects of the job that an employee can influence. For example, a customer help line has no impact on increasing manufacturing production on the line, so customer service employees should not be compensated for an increase in production. However, they can increase customer satisfaction, which can be an appropriate incentive goal (e.g., higher, more-favorable customer satisfaction results). Additionally, employees must believe that the goals are achievable.

An exit interview assessment finds that the primary reason employees leave is for better total rewards offered at other organizations. Which is the best action HR should take to gather information on competitive total rewards packages to potentially offer its employees?

Using an external remuneration survey to collect information draws on extensive databases of incumbents and industry benchmarks. These benchmarks can be used to assess competitiveness.

Influencing Factors in a Global Environment

When an organization's operations cross borders, compensation and benefits must recognize and accommodate legal, cultural, and financial differences. Many forces influence global remuneration—labor market dynamics; regulatory, political, and cultural differences; taxation; legal and reporting structures in different geographies; and the role that mobility will play in future workforce strategy and deployment. Driven by such operational and country specifics, strategies for compensation and benefits delivery are often capped by market practices.

Compa-ratio

When pay ranges are based on the target market rate, compa-ratios are an indicator as to how actual wages match, lead, or lag the target market. Pay rate divided by the midpoint of the pay range.

Salary Range Spread

Widths by position. Range spreads should be based on the organizational goals for compensation. Generally, the wider the salary ranges, the more opportunity there is for employees to move up in salary without having to change jobs. An organization may use a broader salary range spread, such as 50% or 60%, when there are employees with a lot of longevity or the organization wants to encourage employees to stay in their positions for a long time. Wider ranges may also be preferable for higher-level positions, where the expectation is that employees will have more longevity (or the organization wants to encourage longevity). Lower-level jobs normally have a smaller range between minimum and maximum salaries, such as a 40% range spread. Entry-level employees usually have more opportunity for promotion and tend to remain at entry level for only a short time.

Job Description

Written description of a job and its essential functions and requirements, including tasks, knowledge, skills, abilities, responsibilities, and reporting structure.