Compensation Test 2

1. What are the key components/considerations of the strategy of "leading the market in pay"?

-"LEAD" When? Lead/Lead or Lead/Lag What measure? Average or median -"MARKET" Competitors? For products or customers (OEM) Peers? Defined by revenue/shares outstanding Employees? Labor in specific geographic locations - "PAY" Measured how? Salary/Total Cash Guideline/Actual

Define the concept of market pricing and how it differs from internal job evaluation

- Market pricing is comparing how other companies are paying others and them comparing (industry average) -Internal job evaluation is based on how the company perceives

Contrast the concept of a 'competitive market' in the applications of competitors for products and competitors for talent

- Raise wages - Better benefits

Define "range overlap" and broad bands

- Range overlap gives the ability to promote candidates to keep their pay the same because there is an overlap with wages - Broad bands show salaries from low to high to see where an individual is getting paid compared to one another

what is a salary structure?

- compare the pay for jobs based on either external/internal focuses - group jobs together based on: target compensation - traditional grade structure function - global grade structure organizational level - banded grade structure

job evaluations dual purpose

- compare the value of different jobs within the organization - lay the framework for comparing the internal value of a job to the external value in the labor market - job evaluation results allow a pure market based pay structure to me modified to fit the organization priorities

key information to collect

- focus on the "essential elements" to ensure fairness requires that essential elements of a job- those cannot be reassigned to other workers- must be specified for jobs covered by the legislation essential functions- the fundamental job duties of the employment position the individual with a disability holds or desires reasonable accommodation is to be provided to employees to support performance of essential duties

best approach "it depends"

- identify the nature of jobs within the organization (common vs unique, easily described/compared) -factors to consider 1. resources available for surveys 2. external vs. internal focus 3. competitive environment for labor 4. need for documentation/defensible

traditional grade structure

- jobs are grouped by similar salaries into "grades" with a low end, high end, and midpoint principal: place similarly paid jobs in the same group

job description characteristics

- written record of the duties and responsibilities -identifies and describes scope/contents of a job - outlines essential functions and major duties - revised periodically (new hire. job redesign...) - distinct from job advertisements

What Types of jobs typically have more pay at risk through cash or equity incentive components and why?

-"Pay at risk is the portion of an employee's compensation that is variable, or "at risk" of not being paid out. This "at-risk pay" is typically performance-based and is in contrast to the fixed pay (salary) that the employee receives as a condition of employment." Example: sales, executives Performance based -dependent on the sales made

Define 'compa-ratio' and contrast that term to 'range penetration'

-*Compa ratio is employee salary as percent of range midpoint. 100 percent or 1.0 means salary = midpoint. Compa-ratio less than one means you are paid less than the range midpoint. -*Range penetration is (Salary - Range Min) ÷ (Range Max - Range Min) 50% penetration = midpoint. pay like a bottle...what portion of the bottle (salary range) is filled up (measured from the minimum)

The importance of goal setting, including the concepts of SMART goals and CASCADING goals

-Challenging performance goals influence greater intensity and duration in employee performance. -Goals serve as feedback standards to which employees can compare their performance. -Individuals are motivated to the extent that goal achievement is combined with receiving valued rewards. -If you meet your goals you get your bonus but if you don't then you don't get your bonus SMART S- specific M- measurable A- attainable R- realistic T- time-bound You can achieve them in a certain amount of time CASCADING the goals for each employee are linked to their job and share the fundamental purpose of the goals set for his or her manager CEO has goal send it down to VP who send it down to manager who sends it to employee

Describe why geography is the most important consideration in the use of survey data

-Different geographical areas have different wages in living -Someone who lives in California has a hire cost of living than someone in Idaho

Describe the difference between an internal and external focus for pay equity

-Internal: focused the driver for pay is internal equity -External: focused the driver for pay is market equity

Behaviors employers want and how compensation strategy can be used to encourage them, and the limits to compensation as a motivator

-Intrinsic vs. Extrinsic -Limitations to compensation as a motivator results in people wanting to do meaningful work that is personally rewarding to them such as working for an organization that has values that align with theirs despite not having the greatest compensation and benefits. EX: Her friend who works for Juul chose to work for them because of the high pay but they have to pay a higher rate because many people do not want to work for a company with such bad morals. Others would rather choose a company that offers things like time off for charity work and a lower pay for moral reasons. -Employers want productivity, job satisfaction, efficiency, quality -Pay them more for the quality of the shoes coming out of the line. Others want to incentive the time of how fast things get done. -Limitations: quality; only so much someone can do

job analysis procedures

-Job analysis usually collects information about specific tasks or behaviors position- a group of tasked performed by one person job- made up from identical positions job family- broadly similar jobs with different levels -traditionally salary structures are shrinking, but persists in many large organizations`

What are the key job valuation factors used under the traditional Hay System?

-Know-How Scope,Depth,Human Relations Skills -Problem Solving Environment, Challenge - Accountability Freedom to Act,Scope,Impact

Define the terms 'lead', 'lag' and 'meet' as they pertain to setting target salaries for jobs relative to the market line.

-Lead- Is to be above the industry average (Labor Market) in terms of wage costs *Companies usually "lead" markets with essential Job functions -Lag- Wages paid to employees usually below the industry average (Labor Market) *High turnover and employee dissatisfaction - Meet- Wages that are the approximate price for the industry (Labor Market) *doesn't provide a competitive advantage for organization -*Can be mixed Lag-Lead // Lead-Lag .. etc.

Define the different motivation theories, especially MASLOW and HERTZBERG, but with familiarity to equity, reinforcement and goal setting

-Maslow'sHierarchy of Needs: § A motivational theory in psychology proposed by Abraham Maslow in his 1943 paper "A Theory of Human Motivation" in Psychological Review. In the form of a five tier pyramid. -Step 1 Physiological Needs: Includes the need for air , water, food , and sex -Step 2 Security Needs: Includes the need for safety, order, and freedom from fear or threat -Step 3 Affiliation Ne hi eds: Belongingness and love (or social need)- It includes the need for love, affection, feelings of belonging, and human contact -Step 4: Esteem Needs: Includes the need for self-respect, self-esteem, achievement, and respect from others - Step 5: Self-Actualization -Includes the need to grow, to feel fulfilled, to realize one's potential

What are the key advantages of slotting a job into a structure?

-Not needing a lot of market data and it is fast and easy to explain to employees -When there are no comparisons in the market

Describe "quartiles" as a tool for visualizing pay position in a salary range and how to compute the rate of pay associated with each. Define 'interquartile range' as it applies to both a salary grade range and the use of actual market data.

-Quartiles tells us the order all data points from lowest to highest, then convert to percentages.They are currently used in salary surveys and it is used to set pay ranges and zones. - "Recall from the chapter introduction that someone's policy was "to be in the 75th.This means that 75 percent of all pay rates are at or below that point and 25 percent are above . Quartiles (25th and 75th percentiles) are often used toset pay ranges. More on pay ranges later." (this however doesn't explain how we compute quartiles) Interquartile range · also called the midspread or middle 50%, or technically H-spread, is a measure of statistical dispersion, being equal to the difference between 75th and 25th percentiles, or between upper and lower quartiles,[1][2] IQR = Q3 − Q1. In other words, the IQR is the first quartile subtracted from the third quartile; these quartiles can be clearly seen on a box plot on the data. ----wikipedia · That being said, this can be used to compare to other company's pay mix to their employees belonging in the same type of job in terms of median/range

Define a salary structure, and the purpose of a range minimum, midpoint and maximum.

-Salary Structure: Compare the pay for jobs based on either an internal or external focus. Internally focused - the driver for pay is internal equity Externally focused - the driver for pay is market equity -Group jobs together, based on: Targeted compensation - "traditional" grade structure Function - "Global" grade structure Organizational level - "branded" graded structure

Define salary range width and salary grade rise or progression

-Salary range width represents the minimum, midpoint, and maximum rates that a business is willing to pay employees performing a job. -Salary grade rise is range spread as percent of the range minimum.

Define the market line, including why the market price for a job doesn't stay the same over time

-The pay level that the company sets its pay at compared to the market pay, the midpoint of the pay structure is set to judge the going market rate -Jobs don't stay the same because duties are added or subtracted

market pricing: hurdles

-available data for the job -using competitors pay decision as yours -geographic applications

market pricing

-connects company jobs to a labor market -market pricing supports external valuation of jobs that are benchmarks -jobs that are not benchmarks are ranked or slotted against benchmark jobs to establish their salary value

what is a benchmark job

-contents are well-known and relatively stable over time -job is common across several different employers -sizable portion of workforce performs these functions

Define pay mix. What types of jobs typically have more pay at risk through cash or equity incentive components and why?

-different forms of pay competitors use (base, bonus, stock, benefits) and the relative importance they place on each form occur less frequently than adjustments to overall pay level. -"Relative emphasis among compensation components such as base pay, merit, incentives, and benefits"

compensation survey options

-do it yourself -get data online -use third party vendor

measuring competitiveness

-important to attract,retain, motivate employees -what you do with market data is up to you! -get a survey, but make sure you know: 1. purpose of survey 2.participation of relevant competitors 3. design of the survey 4.interpretation of survey results

defining relevant labor markets

-jobs -competitors -geography

how do you know pay is fair?

-market position analysis (compares salaries with other firms) -cost of labor studies (if you hire more senior levels, your company is paying more) -measures of success are determined by internal metrics- there is no one right answer

banded grade structure

-structure focused on organizational level, not salary -salary ranges are exceptionally broad to encompass the market compensation all jobs within a category

Describe the factors that typically come into play when employees are deciding to leave or remain in their jobs

1. Lack of Trust 2. No Autonomy 3. Not being Appreciated or Recognized 4. No opportunity for growth and development 5. Bad Manager/Poor Management (MAIN REASON WHY EMPLOYEES LEAVE) 6. Work Life Balance a. Burnout b. Overstressed/ Overworked 7. Compensation . Especially in the Valley because the Market is High 8. Uninspiring work environment/Company Culture What Makes an Employee Stay: 1. Company Culture 2. Job Progression 3. Autonomy 4. Salary 5. Development Opportunities 6. Work Life Balance 7. Job Value/Recognition

Describe the concepts and application of "aging data" (i.e., use of older survey data to estimate today's market value of a job.

Concept: Aging data or pay data are usually updated (in a process often called aging or trending) to forecast the competitive rates for the future date when the pay decisions will be implemented. The amount to update is based on several factors which include: historical trends in the labor market, prospects for the economy in which the employer operates, and the manager's judgment, among others. Some recommend using the Consumer Price Index

Define the concept of diluted and undiluted bonus and applications for each

Diluted bonus: based on company-performance, and it bonus if offered to more employees, then the more the bonus is divided, so each person gets a smaller portion, or it would worth less. Undiluted bonus: is not divided among all the employees, and employees get a fixed amount based on individual performance and company performance. Define the market line, including why the market price for a job doesn't stay the same over time Market line: summarizes the distribution of going rate paid by competitors in the market. Links company benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis. The market price for a job doesn't stay the same over time because the pay is competitive and can fluctuate depending on how the value of the jobs change.

job data: content

Elemental tasks or units of work, with emphasis on the purpose of each task

Range penetration

Employee salary compared to the full range for the job (salary-range min) / (range max-range min)

Define Job Evaluation

Is the process of systematically determining the relative worth of jobs to create a job structure for the organization. The evaluation is based on a combination of job content, skills required, value to an organization, organizational culture, and the external market. This potential to blend organizational forces and external market forces is both a strength and a challenge of job evaluation.

Describe key differences between job ranking/slotting and point factor job evaluation

Job ranking: Ranking simply orders the job descriptions from highest to lowest based on a global definition of relative value or contribution to an organization's success Slotting: A slotting job evaluation system utilizes an existing ranking of jobs. New or revised jobs are evaluated by assessing them in relation to other jobs within the existing job hierarchy. If the job grade or class already exists, jobs are placed within a grade or class based on the jobs already placed in that grade/class. Point factor job evaluation: Points method- have three common characteristics: -Factor degrees numerically scaled and - Weights reflecting the relative importance of each factor. -Each job relative valued and hence its location in the pay structure is determined by the total points assigned to it. Points plans are the most commonly used job evaluation approach in the United States and Europe. They represent a significant change from ranking and classification methods in that they explicit the criteria for evaluating jobs: Compensable factors.

job data: identification

Job titles, departments, number of people who hold the job

Describe the critical inputs used as part of the evaluation process.

Key inputs: Job Content, Value to the firm, and external market links Content: refers to what work is performed and how it gets done Content and Value -A structure based on content orders jobs based on the skills, duties, and responsibilities associated with the jobs -A structure based on job value orders jobs based on the relative contribution of the skills, duties, and responsibilities of each job to the organization's goals Linking content with the external market -Aspects of job content take on value based on their relationship to market wages Aspect not related to the external labor market may be excluded in the job evaluation

Describe the problems associated with online surveys and do-it-yourself surveys

Online surveys may not always be accurate, current, lacking a timely manner, unable to be tested properly. Do it yourself surveys raise the issue of antitrust (biases, competition, preventing or controlling a monopoly)

compa-ratio

Pay rate divided by the midpoint of the pay range.

employee data

Position Analysis Questionnaire (PAQ); McFry Nine Step Program

judging job analysis

Reliability Validity Acceptability Currency Usefulness

Describe how using a salary structure allows for paying similarly valued jobs comparably and the benefits a structure provides

Salary structure allows for ways to compare the pay for jobs based on either an internal or external focus Group jobs together based on: -Targeted compensation- Traditional grade structure -Function -Global grade structure (Global Approaches) -Organizational level - banded grade structure

performance based pay

Situation where an individual's performance on the job is the basis for the amount and timing of pay increases; also called merit pay or pay for performance. looks at person

Describe the cost implications of leading the market and the risks associated with lagging the market - not only in target compensation, but in actual paid rates, too

The cost implications with leading the market include it being expensive, which may lead to cost/profitability issues. The risks associated with lagging the market is that it risks higher turnover and employee relations costs, unless the employees understand the rationale, feelings of being underpaid may decrease employee commitment, hurt teamwork and job satisfaction, and impact worker productivity, customer satisfaction, and quality.

job analysis

The systematic process of gathering and interpreting information about the essential duties, tasks, and responsibilities of a job.

market based pay

a compensation approach that determines how much to pay employees by assessing how much they could make working for other organizations

internal job study process

analysis -> description ->evaluation ->structure

measuring competitiveness 2

attraction, retention, engagement (subjective) valid market data, job match relevance, defensible (objective)

spontaneous applications

attraction, retention, motivation

design applications

bade pay, pay program new countries, building pay for performance

skill- based pay

based on how many skills an employee has or how many jobs he/she can do

step 1:

conduct a job analysis -plan points begin with job analysis -a representative sample of jobs -benchmark jobs- is drawn for analysis - content of these jobs is the basis for defining,scaling, weighting compensable factors

why we need a structure

consistency simplicity cost transparency

step 2

determine compensable factors compensable factors reflect how work adds value to the organization

salary ranges

each grade/level ranges based on local market and strategy. Number of ranges depends on similarity of skills sets across job families, variations in market pay, and the desired level of market granularity required

point factor method

evaluating jobs based on points earned by reviewing several different aspects of the role -conduct job analysis -determine compensable factors -scale the factors -weight the factors according to importance -communicate the plan, train users, prepare manual -apply to non-benchmark jobs

descriptions summarize data

goal: document job duties and qualifications in a manner useful for HR decisions, such as job evaluation key considerations: knowledge, skills, and abilities required to adequately perform the tasks managerial and professional JD require information on the job and accountability

who collects the information?

job analysis is usually performed by human resources generalists, compensation analysts, or supervisors key considerations: someone thoroughly with the organization and its jobs a person trained in how to do the analysis

the hay system factors

know how problem solving accountability

Job-based pay structure

look at what people are doing and the expected outcomes -understanding smiliarities/differences in the work content in various jobs -helps establish internally fair and aligned job structure key issue: ensuring that the data collected are useful and acceptable to employees/managers

global grade structures

overarching global grade framework defining the core number of grades and methodologies. local grade structure within global framework for market differences

who provides the information?

principal sources: jobholders and supervisors employees know what they are doing, supervisors know what should be done other resources: managers (know the job exists) subordinates and employees in the job of study (they know interactions)

job evaluation

process used to systematically determine the relative worth of jobs and create a job structure for the organization. Evaluation is based on a combination of job content, skills required, value of the firm, organization culture and the external market

ranking

puts job in order from highest to lowest value based on a global definition of relative contribution to the organization's success alternative and paired comparison

external competitiveness

refers to pay relationships among organizations-pay relative to other firms- usually competitors

step 3:

scale the factors construct scales reflecting different degrees within each factor -limit to number of meaningful distinctions -use understandable technology -anchor degree definitions with benchmark job titles -make it apparent how the degrees apply to job

final result

structure -outcomes (ordered list of jobs based on their value, hierarchy of work, structure supporting policy of internal alignment) - information provided by hierarchy (which job is least values? relative difference between job value) -results put into action based on approach

global job architecture

survey descriptions and levels provide basis for a consistent global job architecture: one comprehensive, global job table

externally equity focus

ties job valuation with market data -all benchmark jobs are compared to the external market based on competitive survey data reflecting the company's business and labor competitors -a "market rate" is set for each job (tied to reward philosophy)

Define the term 'benchmark' and how the data from a survey of benchmark jobs can be used to establish pay ranges for other jobs

using internal job descriptions to match to established salary survey jobs in order to identify the external market rate for each benchmark position. Same job categories like engineers.

step 4

weight the factors -different weights reflect differences in importance attached to each factor

internal equity focuses

whole job ranking: market compensation levels set for a series of benchmark positions and then jobs are compared, among benchmark jobs. (usually limited market data) point factor systems: each job is assigned a number of points, based on a range of factors including experience, span of control, reporting relationship, education req. (usually jobs with limited competition)