Compensation/Benefits Administration Ch. 8, 9, 10, & 11

3 measures of compensation

1.) base pay (35% of TC) 2.) total cash 3.) total compensation

Who should be involved in a survey?

Compensation manager/managers & employees ---- Outside consulting firms to prevent "price fixing"

Expectancy Theory

Motivation = expectancy x instrumentality x valence

Pay grades & ranges

Offer flexibility flexibility to deal with pressure from external markets & differences among organizations: - differences in quality among individuals applying - differences in productivity or value of these quality variations - differences in the mix of pay forms competitors use

Quartiles & Percentiles

Order all data points from lowest to highest, then convert to percentages --- frequently used to set pay ranges or zones

Environmental Obstacle triangle influenced by:

Organizational design & development, HR planning

Distributive Justice

The amount of fairness given to employees refers to ______.

Equal Employment Opportunity (EEO)

a mandate that all firms make employment decisions that are "blind" to minority/gender status

Balanced scorecard approach

a way to look at what contributes value in an organization - corporate wide, overall performance measure typically incorporating financial results, process improvements, customer service, & innovation

Total Compensation

base + bonus + stock options + benefits Tells total value competitors place on this work --- All employees may not receive all forms. Don't set base equal to competitors' total compensation. Risks high fixed cost!

Merrick

An incentive system with three piecework rates is the _____ plan.

Motivation triangle influenced by:

performance management, compensation, & culture

Individual pay: Bedeaux plans

provides a variation of straight piecework & standard hour plans - instead of timing an entire task, it requires division of a task into simple actions & determination of the time required by an average skilled worker to complete each action

Performance metrics

quantitative measures of job performance

Individual pay: Straight piece work system

rate determination is based on units of production per time period, and wages vary directly as a function of production level --- easily understood, readily accepted

Ranking formats

require that the rater compare employees against each other to determine the relative ordering of a group on some performance measure

Wage component: COL increase

same as across-the-board increase, except magnitude based on change of living Risk: discretion of employer

Quoted price

the last price at which a

Range midpoint

the point where the pay-policy line crosses the center of the grade.

Individual pay: Gantt plan

the standard time for a task is purposely set at a level requiring high effort to complete - fail to complete task in standard time worker is guaranteed a pre-established wage, BUT if task is completed in standard time/less, earnings are pegged at 120% of the time saved

Designing a pay-for-performance plan: Compliance

the system should comply with existing laws, maintains & enhances firm's reputation

Wage component: merit pay

wage increase as function of some assessment of employee performance - adds on to base pay in subsequent years Risk: employers discretion & performance

Individual pay: Rowan plan

worker & employer share in savings like 50-50 method, but the worker's bonus increases as the time required to complete the task decreases

Verify survey data by:

check accuracy of job matches, anomalies, age of data, & the nature of organization

Wage component: gain sharing

differs from profit sharing because it is based on some cost index Risk: more controllable than profit sharing

Wage component: risk sharing plans

differs from success sharing in that employee not only shares success, but is penalized during poor performance years. Reward is typically higher though.

Herzberg's two factor theory

employees are motivated by 2 types of motivators: hygiene factors & satisfiers

Behavior =

f (Motivation, Ability, Environment)

Affirmative Action

firms with government contracts must take affirmative steps to hire women and minorities in proportion to their presence in the labor force

Performance ratings

goes on employee's permanent record - influenced by behavior, organization values, competition among departments, differences in status between departments, economic conditions

Wage component: base pay

guaranteed portion of an employee's wage package

Standard variation

how tightly all the rates are clustered around the mean --- small SD=tightly bunched at center, large SD=more spread out

Behaviorally Anchored Rating Scales (BARS)

most commonly used - by anchoring scales with concrete behaviors, firms hope to make evaluations less subjective

What are the four common errors in appraising performance?

1.) Criterion Contamination 2.) Errors in Observation 3.) Errors in storage or Recall 4.) Errors in Actual Evaluation

Four Questions That Must be Asked as Related to Performance Measurement and Compensation Strategy:

1.) How do we attract good employment prospects to join our company? 2.) How do we retain these good employees once they join? 3.) How do we get employees to develop skills for current & future jobs? 4.) How do we get employees to perform well while they are here?

List the seven steps in the major decisions involving setting external competitive pay and designing the corresponding pay structures in order.

1.) Specifying the employer's competitive pay policy 2.) Defining the purpose of the survey 3.) Selecting relevant market competitors 4.) Designing the survey 5.) Interpreting survey results and constructing the market line 6.) Constructing a pay policy line that reflects the external pay policy 7.) Balancing competitiveness with internal alignment through the use of ranges, flat rates, and/or bands

Relevant market competitors:

1.) The same occupations or skills 2.) Employees within the same geographic area 3.) The same products & services

Designing a survey requires answering the following questions:

1.) Who should be involved? 2.) How many employers should be included? 3.) Which jobs should be included? 4.) What information should be collected?

Tips on appraising performance interviews

1.) do not control the interview - make it two way, ask open ended questions 2.) stress behaviors & results rather than personal traits 3.) show interest & concerns 4.) allow the subordinate to finish a sentence or thought - be receptive to their ideas & suggestions

Training raters

1.) rater-error training: the goal is to reduce psychometric errors 2.) performance-deminsion training: exposes supervisors to the performance dimensions to be used in rating - making sure everyone is on the same page 3.) performance - standard training: provides raters with a standard of comparison or frame of reference for making appraisals

Designing merit guidelines:

1.) what should the poorest performer be paid as an increase? 2.) How much should they be paid as an increase? 3.) How much should be top performers be paid? 4.) Matrixes can differ in the size of the differential between different levels of performance - larger jump between levels = stronger commitment to recognizing performance with higher pay increases (larger differentials cost more)

External market

Any external pay policy put into practice requires information from ________ _________.

Alternation

In _____ ranking, raters look at a list of employees, decide who the best employee is, and cross that person's name off the list. From the remaining names, the manager decides who the worst employee is and crosses that name off the list—and so forth.

BARS

_____ is the best appraisal format across the five criteria for evaluating rating formats.

Surveys

________ provide the data needed to put the policy into pay levels, pay mix, & structures.

Bourse market

a market allows haggling over terms and conditions until an agreement is reached

Central tendency

a midpoint in a group of measures

Frequency distribution:

a representation, either in a graphical or tabular format, that displays the number of observations within a given interval. The intervals must be mutually exclusive and exhaustive, and the interval size depends on the data being analyzed and the goals of the analyst. Frequency distributions are typically used within a statistical context.

Total cash:

base, profit sharing, & bonuses --- tells how competitors are valuing work; also tells the cash pay for performance opportunity in the job BUT all employees may not receive incentives, so it may overstate competitors' pay; plus it does not include long-term incentives

Flexible compensation:

based on the idea that only the individual employee knows what package of rewards would best suit personal needs.

Pay grades

builds flexibility into the pay structure by grouping different jobs that are considered substantially equal for pay proposes into a grade. Ability to move people among jobs with no change in pay. - its a challenge to design the grades

Equity theory

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

Criterion deficiency

fails to include all of the dimensions relevant to job performance

Subordinate as rater

gives supervisors the chance to see their strengths and weaknesses

Wage component: lump-sum bonuses

granted for individual performance, but does not add to base pay; one-time bonus Risk: employers discretion & performance + not added to base pay

Pay Structure

most employers use market surveys to validate their job evaluation results, BUT a job structure that that results from an internal job evaluation may not match competitors pay structures in the external market. (external market usually used for generic jobs)

Fuzzy markets

new organizations & jobs that fuse together diverse knowledge experience --- unique jobs & structures face the double bind of finding it hard to get comparable market data at the same time they are placing more emphasis on external market data.

Standard rating scale

one or more performance standards being developed & defined for the appraiser & each performance standard having a measurement scale indicating varying levels of performance on that dimension - appraiser rates the appraisee by checking the point on the scale that best describes him/her

Employment Cost Index (ECI)

one source of publicly available labor cost data - measures quarterly changes in employer costs for compensation

Reverse incentive plans

penalty for poor performance rather than reward for good

Maslow's need hierarchy

people are motivated by inner needs

Risk sharing plan

reduces pay by some amount relative to the level that would be offered.

Rating formats

require raters to evaluate employees on some absolute standard rather than relative to other employees & each performance standard is measured on a scale whereby appraisers can check the point that best represents the employee's performance - based on continuum from good to bad

Variable pay plans

seem to have a positive impact on performance if designed well

Quoted price market

stores that label each item's price or ads that list a job's opening starting wage are examples of quoted price markets.

Customer as rater

the drive for quality means more companies are seeing the importance in customers

Subjective appraised performance

typically relates to intangible employee qualities and is based on subjective feedback from the manager as opposed to objective, measurable feedback.

Peers as raters

usually have an undistorted perspective of typical performance, but may have little or no experience in rating & could create group tension - but could create pressure to better perform

Wage component: success-sharing plans

variable pay add-on tied to group performance, not individual performance Risk: measured by group performance

Wage component: across-the-board increase

wage increase granted to all employees regardless of performance - typically an add on Risk: discretion of employer

Price Fixing

when the overall effect of the information exchange is to interfere with competitive prices & artificially hold down wages --- Identifying participants' data by company name is considered price fixing

List 6 of the suggestions for an effective performance appraisal.

- Raters should attempt a performance diagnosis to determine in advance if performance problems arise because of motivation, skill deficiency, or external environmental constraints. - Raters should maintain a diary of employee performance, both as documentation and to jog the memory. - Raters need to be motivated to rate accurately. One way to achieve this is to ensure that managers are rated on how well they utilize and develop human resources. - Employees need to be involved in every stage of developing performance dimensions and building scales to measure how well they perform on these dimensions. - A sound basis is required for establishing the performance appraisal dimensions and the scales associated with each dimension. - Raters have to be trained in use of the appraisal system and that all employees understand howthe system operates and what it will be used for.

Pay Mix

- adjustments to the different forms of pay competitors use (base, bonus, stock, benefits) - the relative importance they place on each form occur less frequently than adjustments to overall pay level -changes occur less frequently than changes in the pay level (high costs)

What are the key elements in designing a gainsharing plan?

-Strength of reinforcement -Productivity standards -Sharing the gains split between management and workers -Scope of the formula -Perceived fairness of the formula -Ease of administration -Production variability

Individual pay: Taylor plan

2 piecework rates: 1.) when worker exceeds the published standard for a given time period - rate is set higher than regular wage incentive level 2.) rate is established for production below standard - rate is lower than the regular wage

Individual pay: Merrick plan

3 piecework rates: 1.) high - production exceeding 100% of standard 2.) medium - production between 83-100% of standard 3.) low - less than 83% of standard

What is a survey? List the four of the five main reasons an employer would conduct or participate in a survey.

A survey is the systematic process of collecting and making judgments about the compensation paid by other employers.  (1) To adjust the pay level in response to changing rates paid by competitors (2) To set the mix of pay forms relative to that paid by competitors (3) To establish or price a pay structure (4) To analyze pay-related problems (5) To estimate the labor costs of product/service market

Designing a pay-for-performance plan: Equity/Fairness

Distributive justice key element: communication

Evaluating performance appraisal formats

Five dimensions: 1.) Employee development criterion - needs to communicate goals and objectives of organization, employee developmental needs have to be identified & be attended to with good feedback 2.) Administrative criterion - have to be easily used for admin decisions, typically this is a numerical rating of performance 3.) Personnel research criterion - must validate employment tests & applicants predicted to perform well must be monitored through performance evaluation 4.) Cost criterion - if it takes a long time to develop, time-consuming, or expensive; they increase the format cost 5.) Validity criterion - reducing error & improving accuracy

What are the 4 main organization factors that help define competitiveness?

Industry and Technology Employer Size People's Preferences Organization Strategy

Ability triangle influenced by:

Selection, recruitment, & training

Strategy, Structure, & Standards

What are 3 general areas of concern for efficiency?

Variation

The distribution of rates around a measure of central tendency.

Appraisals are too subjective

The major complaint of both managers and employees regarding the appraisal process is that:

Straight Piecework

The most frequently used incentive system is the:

Pay ranges

The range of pay rates from min-max set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job --- pay ranges exist when 2 or more rates are paid to employees in the same job. Hence, managers: 1.) recognize individual performance differences with pay 2.) meet employees' expectations that their pay will increase over time 3.) encourage employees to remain with the organization

Designing a pay-for-performance plan: Efficiency

Three components: 1.) Strategy - the plan needs to support corporate objectives, HR objectives, & how much of an increase in pay will make a difference? (usually at least 10%) 2.) Structure - it should different operating units in an organization to create flexible variations on a general PFP Plan. 3.) Standards - Objectives (specific yet flexible), Measures (do employees know what will be used to determine performance), Eligibility (how far down in the organization will the plan run), Funding (fund by extra revenue?)

Market pay line:

Using key/benchmark jobs, the line can be constructed showing external market pay survey data as a function of internal job evaluation points. Regression analysis: market pay = intercept + slope x job evaluation points ---then the job's predicted pay can be obtained

weighted mean

add base wages for all 585 engineers in the survey and then dividing by 585. It gives the weight to each individual employee's wage.

Mean

add each company's base wage and divide by the number of companies

Wage component: profit sharing

add-on based on group performance tied to exceeding some financial goal Risk: little control

Pay Level

adjustments based on movement of competition rates in market, performance, ability to pay, or terms specified in a contract.

Criterion contamination in ratings

allowing non-performance factor to affect performance scores

Management by Objectives (MBO)

an employee planning, development, & appraisal procedure in which a supervisor & a subordinate, or group of subordinates, jointly identify & establish common performance goals. Employee performance on the absolute standards is evaluated at the end of the specified period.

Broad banding

consolidates as many as four or five traditional grades into a single band with one minimum and one maximum. - A range midpoint is usually not used - Provides flexibility to define job responsibilities more broadly -Support redesigned, downsized, or or boundary less organizations that have eliminated layers of managerial jobs -Foster cross-functional growth & development in new organizations -Employees can move laterally across functions to gain experience -Managers can move among worldwide assignments -Not a lot of levels to argue over

Agency Theory

depicts employees as agents who enter an exchange with principals, the owners or their designated managers.

Supervisors as raters

knowledgable about the job & dimensions to be rated, prior experience in rating

360 degree feedback

method that assesses employee performance from 5 points of view to increase participation in the process: - supervisor - peer - self - customer - subordinate This method is flexible & attractive to employees

Individual pay: Standard hour plans

setting the incentive rate based on completion of task in some expected time period

Individual pay: Hasley 50-50 method

shared split between worker & employer of any savings in direct cost

Wage component: Individual incentive

sometimes this variable pay is added to fixed base pay; ties increments in compensation directly to extra individual production Risk: dependent on # of of units of performance to determine pay

Competitive intelligence

to better understand how competitors achieve their market share & price their products/services