Compensation Test 3 Chapter 8 Slides
(ex 8.18) Two parts of the total pay model have merged:
- Internally aligned structure (horizontal axis) - External competitive data (vertical axis)
grades and ranges offer flexibility to:
-Deal with pressures from external markets -Differences among firms regarding: -->Quality of individuals applying for work -->Productivity or value of these quality variations -->The mix of pay forms competitors use
organization data
-financial data and reporting relationships -turnover and revenues
entry to mid-level professional and managerial positions between __________ of the pay range
15-30%
office and production work fall between _______ of the pay range
5-15%
total compensation data
Base Pay, Total Cash, and Total Compensation
benchmark-job approach
Benchmark jobs have stable job content, are common, and include sizable numbers of employees
pay structure
Is anchored by the organization's external competitive position and reflected in its pay-policy line.
not all employers use grades and ranges
Skill-based plans establish a single flat rate for each skill level, regardless of performance or seniority
Promotion Increases Matter
The size of differentials between grades should support career movement through the structure. Overlap ought to be large enough to induce employees to seek promotions.
adjust pay structure
Validate job evaluation results, establish internal structures
Low-high approach
Wages of lowest- and highest-paid benchmark jobs used as anchors for skill-based structures.
balancing internal and external pressures is
a matter judgment
lead/lag
aging the market data to a point halfway through the plan year
issues with fuzzy markets
becomes difficult to compare market data
benchmark conversion/survey leveling
differences are quantified when job content does not sufficiently match survey jobs
Group jobs into grades
different but considered equal for pay purposes, all jobs within a single grade will have the same pay range, permit flexibility but are challenging to design
organizations may choose to
differentiate their pay strategy
when would an organization use low-high approach?
if they use skill-competency based structures or generic job descriptions, they may not have benchmarks to match with competitors, so market data must be converted to fit their skill or competency structure, which is best done by identifying the lowest and highest paying jobs
when would an organization use benchmark conversion?
in cases where content of jobs does not sufficiently match that of jobs in the salary survey, an effort cna be made to quantify the data
most important difference between ranges and bands
in the location of controls
relevant markets
must be defined to make decisions about pay level, mix, and structure, includes employees who compete in same occupation/skill, same geographic area, or same p/s
fuzzy markets
new organizations and unique jobs may fuse diverse factors making relevant markets "fuzzy", place more emphasis on external market data
how many employers should be involved
no firm rules, the BLS has publicly available data, online salary info is highly suspect; there are many surveys but few are validated
employment cost index
one of the 4 types of salary surveys published by the Dept. of Labor, allows a firm to compare changes in its average cost to an all industry or specific industry average
broad banding collapses salary grades into
only a few broad bands, each with a sizable range
job structure
orders jobs on the basis of internal factors (reflected in job evaluation or skill certification)
what info should be collected in survey
organization data and total comp data
Two aspects of pay structure
pay-policy line, and pay ranges.
figures 8.3 shows that...
qualifications interact with geography to define the scope of relevant markets
variation
quartiles and percentiles are a common measure
a pay range provides managers with the opportunity to:
recognize individual performance differences with pay, meet employees' expectations that their pay will increase over time, even in the same job, and encourage employees to remain with the organization
accuracy of match
some use benchmark conversion/survey leveling approach
study special situations
specific pay-related problems
measures of variation
standard deviation, quartiles and percentiles
translating external pay policy requires external info from
surveys
advantages and disadvantages of total comp
tells the total value competitors place on work, but all employees may not receive all forms and risks high fixed costs
neglecting external pay practices will affects....
the ability to attract and hire applicants who match needs
Adjust pay level - how much to pay
the overall movement of pay rates caused by competition for people in the market
to adjust the pay level relative to competitors
the overall movement of pay rates to employees pay on a regular basis
relevant labor markets include employers who compete in one or more areas
the same occupations or skills, employees within the same geographic area, or the same products and services
purposes of a survey
to adjust the pay level relative to competitors, to set the mix of pay forms relative to competitors, to establish or price a pay structure, to analyze pay-related problems. to estimate the labor costs of competitors
some organizations use market pricing
which emphasize external competitiveness and deemphasize internal alignment, sets pay structures almost exclusively on external market rates
top level management positions commonly have ranges _________ above and below the midpoint of the pay range
30-60%
what jobs should be included in survey
benchmarks
size of the range is based on judgment about how the ranges support:
career paths, promotions, and other organization systems
second decision
choosing a specific pay level policy, after choosing external competitiveness strategy
anomalies
does any one company dominate? do all employers show similar patterns? outliers?
use aging or trending updates to...
forecast rates for a future date
while statistical analysis is necessary to analyze survey data (including regression), a useful step is to look at ___________
frequency distribution
statistical analysis
frequency distribution, central tendency, variation
banding takes two steps
set the number of bands and price the bands (refer to market rates)
survey
the systematic process of collecting and making judgments about the compensation paid by other employers
de-emphasizing internal alignment may lead to...
unfair treatment among employees and inconsistency with structure
pay structure aligned with competitors
unique or difficult-to-imitate aspects of the pay structure are deemphasized, fairness is presumed to be reflected by market ratea
frequency distribution
unusual shapes may reflect problems
frequency distribution helps to...
visualize info and highlight outliers; shapes can vary, and unusual shapes may reflect problems with job matches, widely dispersed pay rates, or employers with widely dispersed pay policies
the objective of market pricing is to
base most of the internal pay structure on external rates and break down the boundaries between the internal organization and the external market forces
a pay range
exists whenever two or more rates are paid to employees in the same job
the pay policy line translates...
an organization's external competitive policy into practice; use of pay grades, ranges, and/or bands offers flexibility to deal with pressure from both external and internal pressure on pay decisions
adjust pay mix- what forms?
base, bonus, stock, and benefits (some affect behavior more than others)
ex 8.21 collapses salary grades into
broad bands with a sizable range that consolidate as many as 4 or 5 traditional grades into a single band with one min and one max
Flexibility and Control of Broad Banding
career moves within bands are more common, take advantage of flexibility without increasing labor costs or opening org up for illegal practices
estimate competitors labor costs
competitive intelligence, employment cost index (ECI) measures quarterly changes in employer costs for compensation
reconciling differences may entail a review of
job analysis, evaluation of the job, and market data
sherman act definition of employers
large: 6-10 small: 2-4
market line
links company's benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis, can be freehand or regression analysis
bureau of labor statistics
major source of publicly available compensation (cash, bonuses, benefits, not stock ownership) info in the U.S., also publishes extensive info on various occupations in different geographic areas
in order to adjust pay structures...
many use market surveys, but the job structure that results may not match competitors' pay structure
adjustments to pay levels are based on
market, performance, ability to pay, terms specified in the contract
measures of central tendency
mean, median, mode, weighted mean
central tendency
reduces a large amount of data into a single number
lawsuits have been filed alleging that the direct exchange of survey data violates...
section 1 of the sherman act that allows conspiracies in restraint of trade
differences may arise due to
shortage of a particular skill, driving up market rate
policy line as percent of market line
specify a percent above or below market line an employer intends to match, there are many options but practice must match policy to avoid confusion
major decisions in pay-level determination
specify pay-level policy, define purpose of survey, specify relevant market/competitors, design and conduct survey, interpret and apply result (market line), design grades and ranges or bands (balance with internal alignment)
translating an external pay policy into practice requires information on the external market
surveys provide the data for translating that policy into pay levels, pay mix, and structures
advantages and disadvantages of base pay
tells how competitors are valuing the work in similar jobs, but fails to include performance incentives and other forms so will not five true picture if competitors offer low base but high incentive
advantages and disadvantages of total cash
tells how competitors are valuing work and tells the cash pay for performance opportunity in the job, but all employees may not receive incentives so it may overstate the competitors' pay, plus does not include long term incentives
who should be involved in designing the survey
the compensation manager is responsible, and outside consulting firms protect against lawsuits
as the importance and complexity of the qualifications increase
the geographic limits also increase