Chapter 18: Management: Making it Work
Turnover effect
the downward pressure on average wage that results from the replacement of high-wage-earning employees with workers earning a lower wage Calculated as: Annual turnover x planned average increase aka Churn or Slippage
The Compensation Communication Cycle
1) Define objectives of the employee communication program 2) Collect information and identify the facts 3) Choose communication tools and media 4 & 5) Conduct the communication sessions with employees 6) Evaluate the success of the communication program
Compensation forecasting and budgeting cycle
1) Instruct managers in compensation policies and techniques 2) Distribute forecasting instructions and worksheets 3) Provide consultation to managers 4) Check data and compile reports 5) Analyze forecasts 6) Review and revise forecasts and budgets with management 7) Conduct feedback with management 8) Monitor budgeted versus actual increases
Decentralized
A management strategy of giving separate business units the responsibility of designing and administering their own systems
Centralized
A management strategy that locates the design and administration responsibility at corporate headquarters
Budgeting process
A part of the organization's planning process; helps to ensure that future financial expenditures are coordinated and controlled. It involves forecasting the total expenditures required by the pay system during the next period as well as the amount of the pay increases. Bottom up and top down are the two typical approaches to the process
Transactional activities
Activities that are not unique to an organization and those that can be done cheaper (and perhaps also better) by an outside provider
Compa-ratios
An index that helps assess how managers actually pay employees in relation to the midpoint of the pay range established for jobs. It estimates how well actual practices correspond to intended policy. Compa-ratio = average rate actually paid/range midpoint
Bottom-up budgeting
Begins with managers' pay increase recommendations for the upcoming plan year
Geographic differentials
Local conditions that employees in a specific geographic area encounter, such as labor shortages and differences in housing costs
4 factors in the labor cost model
Number of employees Hours worked Cash compensation Benefit costs
Problems associated with headcount reductions
Owing to increases in unemployment insurance taxes, workforce reductions are costly in tangible terms up front. Workforce reductions, if not handled well, can be detrimental to employee relations. Organizations with greater workforce reductions experience greater voluntary turnover. Regulatory requirements make it difficult to make targeted cuts.
Green circle rates
Pay rate that is below the minimum rate for a job or pay range for a grade
Red circle rates
Pay rates that are above the maximum rate for a job or pay range/pay grade
Cost of living increases
Same as across-the-board increase, except magnitude based on change in cost of living (e.g., as measured by the consumer price index [CPI]
Churn (slippage)
See turnover effect
Core employees
Workers with whom a long-term, full-time work relationship is anticipated
Merit Increase Guidelines
Specifications that tie pay increases to performance. They take one of two forms: Simplest specifies pay increases permissible for different levels of performance More complex guidelines tie pay not only to performance but also to position in a pay range
Range maximums
The maximum values to be paid for a job grade, representing the top value the organization places on the output of the work
Range minimums
The minimum values to be paid for a job grade, representing the minimum value the organization places on the work. Often, rates below the minimum are used for trainees
Planned pay-level rise
The percentage increase in average pay for the unit that is planned to occur A top-down budget strategy that involves centralized decision-making by top managers who determine the overall percentage increase in average pay for the plan year.
