Compensation

Salary/wage structure grade

(pay grades)-X-axis; uses JE points. Large # of pay grades coincides with narrow range, allowing more promotions

Purpose of compensation

Attract, retain & develop skills

Employee Benefits employers should include

Benefit package (5 factors) and benefit options (2 factors)

Brito case

Brito v Zia Co.- gov't contracting company used performance evaluations based on a rating format to lay off employees. Layoffs resulted in a disproportionate # of minorities being discharged. Failed to comply with testing guidelines issued by Affirmative Action; did not develop job-related criteria fr evaluating ee's work performance to determine promotion & discharges

Equity theory

Employees are motivated when perceived outputs (pay) are equal to perceived inputs(effort, work, behaviors).

2 Factors affecting employee prefernces Benefits Options

Equity: fairness historically & in relation to what others receive Personal needs: linked to age, sex, marital status, dependents (flexible benefits plan-cafeteria style)

Which theory is best for pay for performance plans?

Expectancy theory

Unemployment Insurance

Federal rate = 6.2% of the first $7000 by each worker, covers 97% of workers

What are conventional pay-level policies?

Lead, match, lag

Relevant Market -Selecting labor market -general

Managers look at both competitors (their products, location, size) and the jobs (skills & knowledge required) & importance to the organization's success

Social Security benefit categories

Old Age or Disability Dependents of retired or disabled workers Surviving family members of a deceased worker Lump Sum death payments

Relevant Market -Selecting labor market- competitors

Product market competitors receive greater weight

5 Causes of failure of team effectiveness

Teams are varied 'Level' problem Complexity Control Communication

Major laws covering compensation

Title VII-Civil Rights Act of 1964 ADEA -Age Discrimination in Employment Act ADA -Americans with Disabilities Act Lilly Ledbetter Fair Pay Act of 2009

Consequences of pay-level/pay-mix decisions -Compliance

Wage laws, pay forms are regulated (pensions, healthcare, etc), ER's need to be careful when sharing salary information

3 laws affecting employee benefits (legally required)

Workers Compensation, Social Security & Unemployment Insurance

Relevant Market -Selecting labor market -company

a company may be deemed a relevant market comparison based on its location & size even if it's not in the same product market.

What is the market policy line?

a pay policy line that reflects the organization's policy with respect to the external labor market

High overlap indicates?

a promotion may lead to a title change but not much change in pay; few opportunities for promotion.

Verdict on incentive pay

add-on variable to fixed base pay (commission, bonus, piece rates) measures or performance are objective;

Competitive Pay Policy Alternatives -general

competitive pay affects the company's ability to achieve compensation and performance objectivies

Consequences of pay-level/pay-mix decisions -Competitiveness of total compensation

contain: operating costs (control costs) increases in qualified applicant pool, quality & experience, increase probability of union free status; reduce voluntary turnover and pay related work stoppages

Social Security

contributions made by employees, employers & self-employed;

What are pay alternatives?

conventional pay-level policies pay-mix strategies

Relevant market - managers

managers must define the markets that are relevant for pay purposes, &establish the appropriate competitive position in those markets

Incentive pay plans

offer a promise of pay for some objective pre-established level of performance.

Range overlap

overlap indicates differences in the value of jobs in the adjoining grades. Less overlap is better.

Agency theory

pay directly motivates employee performance

Salary/wage structure range

range breadth (distance from top to bottom), maximum & minimum

Pay range opportunities

recognize individual differences with pay meet ees expectations what pay will increase over time encourage ees to remain with the organization

Benchmark jobs

stable job content, common across different employers and include sizable # of employees

Lead pay level policy

to lead competition, pay above market rate

Pay with competition/Match

to match competition, pay at market rate

Steps in Performance Evaluation Process

Set performance measure relative to company's strategic plan/bottom line involve employees at every stage train raters & employees in evaluation system ensure raters are motivated to rate accurately document ee performance analyze performance to determine cause of problems provide timely feedback

Major decisions ins designing pay structures

Specify pay level policy, define purpose of survey, select relevant market, design & conduct survey, interpret results & construct market line, combine internal/external market rates (grades & ranges)

Lilly Ledbetter Fair Pay Act of 2009

addressed the 180 day time period statute of limitations when a discriminatory paycheck is issued not when ER makes an adverse pay setting decision.

What is the purpose of salary surveys?

adjust pay level in response to competitor's changing rates set pay mix relative to competitors establish or price a pay structure analyze pay-related issues estimate the labor costs of product/service market competitors

What is 360 degree feedback

assess employee performance by supervisor, peers, subordinates, customers and self

Which jobs should be included in a salary survey?

benchmark jobs, high-low approach, benchmark conversion/survey leveling

Who should design a salary survey?

compensation managers, other managers, outside consulting firms

Workers Compensation

covers injuries & diseases that arise out of and while int he course of employment

Why conduct salary surveys?

determine rate competitors pay determine a how a company wants to position its total compensation relative to market (lead, match, lag)

Why is expectancy theory best for performance plans?

directly relates to fair exchange (pay based performance)

Consequences of pay level & pay mix decisions

efficiency, fairness, compliance & competitiveness of total compensation

Lead pay-level pros

maximize ability to attract/retain quality employees offsets less attractive job qualities industry can pass along high pay rates to consumers less vacancy, turnover, training time, absenteeism better ee's

Salary/wage structure midpoint

middle range, in between maximum & minimum

Salary/wage structure overlap

one pay grade overlaps the adjacent pay grade; allows ee in lower pay grade to be paid same as ee on a higher grade

Median

order all points from highest to lowest; middle is the median

Consequences of pay-level/pay-mix decisions -Fairness

pay satisfaction is related to pay level & EE's sense of fairness is related to how much others are paid

Verdict on pay performance

pay-for-performance is linked to employee satisfaction, turnover and productivity, not the only element that decides if an employees stay or leave

Gain -sharing plan

pays off for teams defined at the level of a strategic business unit

What are pay-mix strategies?

performance driven market match work/life balance security

ADA -Americans with Disabilities Act

prohibits discrimination based on disability

Differences among organizations -Pay grades/ranges

quality (skills, abilities, experience) among individuals productivity or value of quality variations (software engineer @MS v software engineer at Best Buy) mix of pay forms competitors use (more stock options & lower base)

Weighted mean

rate for each company is multiplied by the # of employees. Total of all rates is divided by total # of employees. Best measurement.

Components of a salary/wage structure

rate range, overlap, grade width & midpoints

PA-Ranking format~Alternation ranking

raters asked to indicate the best and worst employees

Steps in Performance Appraisal Proces

set subordinate at ease give a general overall impression of evaluation discuss each dimension separately develop action plans to correct problems close the interview on positive note

Lump sum bonus plans

substitute for merit pay, usually paid at end of year and less expensive in long run.

Group Incentive Plan

team performance is measured against a set standard to determine the magnitude of the incentive pay

Relevant Market - labor market

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

Lag pay policy level

to follow competition, pay below market rate

Valence perception

value the employees attach to the organization rewards offered for satisfactory job performance

What is the best way to measure data in an aggregating survey?

weighted mean

What kind of Performance Appraisals (PA) are there

Ranking format, Essay format, Management by Objectives (MBO), Standard Rating Scales & Behaviorally Anchored Rating Scales (BARS)

5 Factors of determining desirable employee Benefits Package

Relationship to Total Compensation Costs Costs Relative to Benefits Competitors offering Legal requirements Role of benefits in attraction, retention & motivating EE

Goal Setting theory

challenging performance goals influences greater intensity and duration in employee performance. Goals serve as feedback standards to which employees can compare their performance.

Team plan's effectiveness

company's report that they are generally not satisfied with the way their teams compensation systems work. Failures attributed to 5 causes.*

Shared choice-risk

employee might make 'wrong' choices because the company is offering too many choices which may lead to confusion, mistakes, and dissatisfaction

Product market competitors receive great weight when?

employee skills are specific to market labor costs are a la large share of total costs product demand is sensitive to price changes supply of labor is not responsive to changes in pay

Purpose of 360 feedback

employee understanding of self-awareness better communication and performance best used for developmental purposes not administrative

Expectancy perception

employee's assessment of their ability to perform required job tsks

Instrumentality perception

employee's beliefs that requisite job performance will be rewarded by the organization

PA-Ranking format~ Straight ranking

employees ranked relative to each other

Employer choice

employers compete based on their reputation as a company, the reputation and brand of company they project themselves

How do managers feel about pay plans?

employers less likely to offer performance based pay when job involves multitasking, quality control issues and teamwork because it's harder to measure all 3

Pay grades

enhances an organization's ability to move people among jobs with no differences in pay.

Intrinsic rewards

enjoyment of the task for its own sake

Exemptions for overtime status

executive, administrative, professional, creative professional, computer employee, outside sales, highly compensated ee, non-exempt

Pay range

exist whenever 2 or more rated are paid to employees in the same job.

Team Incentive Plans

focus on people working together (teams, dept., div.)

Relevant Market -general

focus on the fact organizations operate in many different labor markets, each with a unique supply & demand, contrary to belief that 'market determines wages".

Purpose of salary grades and ranges

grades and ranges offer flexibility to deal with pressures from external markets and differences among organizations

Kohn's view on incentive pay

harms productivity; rewarding a person for performing a task reduces interest in the task. Extrinsic rewards reduces intrinsic rewards

Lead pay-level cons

higher wages may force ER to increase wages for current ee's, may mask negative job aspects that cause turnover later

Lag pay-level cons

hinder a firm's ability to attract employees

Lag pay-level pros

if coupled with a promise of higher future returns (stocks), this combination could increase ee commitment & teamwork which would increase productivity

High-Low approach

if no benchmark job to match competitors, identify the lowest and highest paid benchmark jobs for relevant skills in the relevant market & use these wages as anchors. Non-benchmark jobs will be between these 2 factors)

Shared choice

includes the traditional options of lead, meet, or lag, then adds the options offering employees choice in the pay mix

Surveys -Information to be collected

info on organization, total comp. system, specific pay data on incumbents in jobs being studied, base salaries, increase %age or amounts, merit increases, salary ranges, starting salary, incentives/bonuses, allowance & benefits, working hours, educational requirements, geographic location, source of hire (internal/external), working conditions

Benchmark/Conversion Leveling

magnitude of the difference between job evaluation points for internal jobs and for survey jobs, serves as guidance

PA-EEO issues

mandates all firms make employment decisions 'blind' to minority/gender status Affirmative Action - gov't contracts must take affirmative steps to hire women and minorities document decisions to ensure PA's are tied to performance affects HR & legal practices subject to same scrutiny as employment tests courts stress 6 issues for setting up PA systems

Least risk approach (pay level/mix efficiency)

match competition in both pay level & pay mix lead policy for skills that are critical to org's success lag policy for jobs easy to fill

Major employee benefits

medical, dental, vacation, holidays, sick pay, LTD, life insurance, pension/retirement plan

Verdict on merit pay

merit pay increases performance by 18/20% when tied to performance

Pay-for-performance plans

merit pay is a reward that recognizes outstanding past performance. Lump sum payments or increments of base pay

Match pay-level cons

might not provide a competitive advantage against competitors

What are the measurements of central tendency?

mode, median, mean, weighted mean

Extrinsic rewards

money

Match pay-level pros

most common policy because failure to match competitor's rates could cause dissatisfaction in current ee's voids placing ER at disadvantage in pricing products

Mode

most commonly occurring rate

Expectancy theory

motivation is the product of 3 perceptions -expectancy, instrumentality & valence

How many employers should you compare?

no firm rule, large firms with a lead policy may only exchange data with a few top paying competitors

3 factors used to determine relevant markets

occupation or skills/knowledge required geography or willingness to relocate or commute other employers compete in the product/service labor market

Sorting Effect

people who don't want to have their pay tied to performance don't work for companies where pay-for-performance is implemented

Team Plan Standards

performance based on productivity improvements, customer satisfaction measures, financial performance, or quality of goods/services

PA- MBO (management by objectives)

planning & appraisal tool. Organizations objectives are identified from the strategic plan of the company. Objectives support organization goals

Pay-for -Performance

plans that vary with some measure of individual or organizational performance, such as merit pay, lump-sum bonus plans, skill-based pay, incentive plans, variable pay plans, risk sharing & success sharing

What are merit pay plans

programs designed t pay different amounts depending on the level of performance.

ADEA -Age Discrimination in Employment Act

prohibits discrimination base on age; (OWBOA -Older Workers Benefit Protection Act) rules on separation agreements with older workers

Title VII-Civil Rights Act of 1964

prohibits discrimination on the basis of sex, race, color, religion and national origin.

Why are salary grades/ranges important?

promotion increases matter size of differentials between grades should support career movement overlap must be large enough to encourage promotions

PA-Ranking Format

raters compare employees against each other

PA-Ranking format-Paired comparison ranking

raters make ranking judgments about a discrete pairs of people

Reinforcement theory

rewards reinforce (motivate & sustain) performance; rewards must follow after behaviors to be reinforcing. Behaviors not rewarded will be discontinued.

Differences between Individual vs Team Plans

set standards are compared on group performance rather than individually to determine incentive pay or level of performance

Compensation can reinforce what behaviors?

should attract employees & make them want to perform in way that lead to better organization performace

Consequences of pay-level/pay-mix decisions -Efficiency

stated pay level policies don't reflect actual pay level (overstated) effects of pay level being sufficient to offset costs or pay level variation makes a difference to ee is unknown no research to suggest which pay mix alternative should be used wrong level pay could cause less competitive edge Least risk approach

Mean

sum of all rated divided by # of rates

PA-Essay Format

supervisors describe employee performance in an essay format answering open ended questions

PA-BARS (behaviorally anchored rating scales)

variants on standard rating scales in which the various scale levels are anchored with behavioral descriptions directly applicable to jobs being evaluated

What is a pay policy line?

way to translate pay-level policy into practice by simply specifying a percent above or below the regression line (market line) that an employer intends to match and then draw a new line at this higher (or lower) level.