HRM 445 Exam 2 Ch. 5-8

Point Method Pros/Cons for this method

Common characteristics of point methods: • 1. Compensable factors based on: o the strategic direction of the business, and o how the work contributes to the objectives and strategy. • 2. Factor degrees numerically scaled. • 3. Weights reflect the relative importance of each factor. Pros: • Compensable factors call out basis for comparisons • Compensable factors communicate what is valued Cons: • Can become bureaucratic and rule-bound

Classification Pros/Cons of this method

Pros: • Can group a wide range of work together in one system Cons: • Descriptions may leave too much room for manipulation A series of classes covers the range of jobs. Job descriptions are compared to class descriptions to determine class level. Greater specificity of the class definition improves the reliability of the evaluation. It also limits the number of jobs easily classified. Jobs within each class are considered equal and will be paid equally.

Survey leveling

Which jobs to include? • Benchmark-Job Approach: o Benchmark jobs have stable job content, are common, and include sizable numbers of employees o 1 in 3 organizations are able to match over 80% of jobs to salary survey jobs, with the remaining organizations report less success in matching • Low-high approach: o Wages of lowest- and highest-paid benchmark jobs used as anchors for skill-based structures. • Benchmark conversion/survey leveling: o Differences are quantified when job content does not sufficiently match survey jobs. o In cases where the content (job description) of an organization's jobs does not sufficiently match that of jobs in the salary survey, an effort can be made to quantify the difference via benchmark conversion. o The magnitude of difference between job evaluation points for internal jobs and survey jobs provides an estimate of their relative value and thus guidance for adjusting the market data (again, a judgment)

What is job evaluation?

Def: 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 the 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. Is the process for establishing an internally aligned pay structure • It is aligned structure when: o Supports organizational strategy o Supports work flow o Is fair to employees o Motivates behavior toward organizational objectives Job evaluation is a process for determining RELATIVE VALUE Defining Job Evaluation: Content/Value/External Market Link • Content refers to what work is performed and how it gets done. • Perspectives differ on whether job evaluation is based on job content or job value. o Structure based on job content orders jobs by: skill, duties, and responsibilities. o Structure based on job value orders jobs: on the basis of the relative contribution of the skills, duties, and responsibilities.

Sorting and Signaling Theory Job Competition Theory

Labor Demand Theories o Sorting and Signaling Theory: Prediction: Pay policies signal to applicants the attributes that fit the organization. Applicants may signal their attributes by investments they have made in themselves So what? How much, but also how (pay mix and emphasis on performance) will influence attraction-selection-attrition and resulting work force composition Designing pay levels and mix as a strategy that signals to employees what is sought. Employer signals include pay level and mix (higher bonuses, benefit choices). Employee signals include better training, education, and work experience. o Job Competition Theory: Prediction: Job requirements may be fixed. Workers compete for jobs based on qualifications and not how low of a wage they will accept. Thus, wages are sticky downward So What? As hiring difficulties increase, employers should expect to spend more to (a) train new hires (b) increase compensation, or (c) search/recruit more

Compensating Differentials Theory

Labor Demand theory o Compensating Differentials Theory: Prediction: Work with negative characteristics requires higher pay to attract/retain workers So what? Job evaluation and compensable factors must capture these negative characteristics If a job has negative characteristics, then employers must offer higher wages. Such compensating differentials explains the presence of various pay rates in the market.

Ranking Pros/cons of this method

Orders job descriptions from highest to lowest based on a global definition of relative value or contribution to the organization's success Pros: • Simple, fast, and easy to understand and explain to employees; least expensive at least initially Cons: • Ranking criteria becomes subjective as evaluators must be knowledgeable on every job • Results are difficult to defend, and costly solutions may be required - can create problems/expensive solutions because it doesn't tell employees and managers what it is about their jobs that is important • Cumbersome as number of jobs increases. Basis for comparisons is not called out Alternation Ranking: • Orders job descriptions alternately at each extreme. • Evaluators agree on which jobs are the most and least valuable, then the next most and least valued, and so on, until all the jobs have been ordered Paired Comparison: • Uses a matrix to compare all possible pairs of jobs. • When all comparisons are completed, the job judged "more valuable" becomes the highest ranked job, and so on.

Marginal product of labor

is the additional output associated with the employment of one additional person, with other production factors held constant. Diminishing marginal productivity means • each additional employee has a progressively smaller share of production factors work with. • Factors of production examples - e.g., office space, number of computers, telephone lines and hours of clerical support. o Until these factors change, each new hire produces less than the previous hire. o The amount each hire produces is the marginal product.

Marginal revenue of labor

is the additional revenue generated when the firm employs one additional person, with other production factors held constant. Managers using the marginal revenue product model must do two things. • 1. Determine the pay level set by market forces, and • 2. Determine the marginal revenue generated by each new hire. The model provides an analytical framework, but it oversimplifies. Therefore, the employer will continue to hire until the marginal revenue generated by the last hire is equal to the costs associated with employing that person. Need to make sure that the employee hired adds more revenue to the company than the cost of hiring that person

What is Job Analysis?

is the systematic process of collecting information that identifies similarities and differences in the work The process begins with job analysis The information on the job is collected

Pay forms

o A PAY-WITH-COMPETITION policy tries to: match wage costs to product competitors, and attract applicants equal to the labor market competitors. This is the most common policy is to match rates paid by competitors o LEAD PAY-LEVEL Policy Maximizes the ability to attract and retain quality employees, and • minimize dissatisfaction with pay. • It may offset less attractive job features. Linked to reduced turnover, quit rates and absenteeism. Negative effects include the need to increase current employees' wages and it may mask negative job attributes. o LAG PAY-LEVEL Policy Paying below market rates may not attract employees unless coupled with higher future returns [e.g., stock ownership in a high-tech start-up firm]. The combination may: • increase employee commitment, and • foster teamwork, • which may increase productivity.

Market Pay line

o A market line links a company's benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis. It summarizes the distribution of going rates paid by competitors in the market o Can be freehand or regression analysis. o For nonbenchmark jobs, the market pay lines are especially useful o After the survey data are all collected, the next step is to analyze the results and use statistics to construct a market pay line.

How many compensable factors are appropriate? why skill is an important compensable factor

o A remaining issue is how many factors should be included in the plan. Overlapping factor definitions provide the "illusion of validity". • The belief that factors capture divergent aspects of a job. • Then you may double count the value of a factor Another challenge is called "small numbers". • If even one job has a certain characteristic, it is used in the entire work domain. o Ex: unpleasant working conditions if only one job has it and it is applied to everyone then it is not a good factor o Research results Skills explain 90% or more of variance Three factors account for 98 - 99% of variance

Determining differentials

o Adjusting the Pay Structure Reconciling differences. • May entail a review of: o Job analysis. o Evaluation of the job. o Market data. • Differences may arise due to shortage of a particular skill, driving up market rate.

Broad banding

o Broad banding collapses salary grades into only a few broad bands, each with a sizable range. [it requires manages to have some discipline; cannot max out so can cause problems for people that stay there for a long time] o It consolidates as many as 4 or 5 traditional grades into a single band with one minimum and one maximum o Because the band encompasses so many jobs of differing values, a range midpoint is usually not used o Banding takes two steps: (1) set the number of bands, and (2) price the bands (reference market rates). o Flexibility and Control. Career moves within bands are more common than between bands. Take advantage of the flexibility without increasing labor costs or opening the organization up for illegal practices. o Emphasis on flexibility within guidelines o Global organizations o Cross-functional experience and lateral progression o Reference market rates, shadow ranges o Controls in budget, few in system o Give managers "freedom to manage" pay o 100-400 % spread

How to go about determining compensable factors

o Compensable Factors: are those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives Are based on the strategic direction of the business and how the work contributes to these objectives and strategy Factors are scaled to reflect the degree to which they are present in each job and weighted to reflect their overall importance to the organization • Points are then attached to each FACTOR WEIGHT o Compensable factors should be: Based on the strategy and values of the organization (cost cutter, innovator); the factors should align/reinforce the organization's culture/values based on the work itself/performed [what is it about the work that adds value?], and acceptable to the stakeholders affected by the resulting pay structure. o Adapting factors from existing plans is possible. Example: Hay Group Guide Chart - Profile Method. • The Hay Group Factors are: o Know-How The amount of "managerial" capacity (plan/organize, etc.) o Problem Solving o Accountability o Working Conditions (where appropriate/required by law)

How are competencies derived

o Competencies are derived from executive leadership's beliefs about the organization and its strategic intent o Competencies are becoming "a collection of observable behaviors (not a single behavior) that require no inference, assumption or interpretation. o Early conceptions of competencies focused on: Skills (demonstration of expertise), Knowledge (accumulated information), self-concepts (attitudes, values, self-image), Traits (general disposition to behave in a certain way), and motives (recurrent thoughts that drive behaviors) o What information to collect? Personal characteristics - personal integrity, maturity of judgment, flexibility, and respect for others Visionary - There are the highest-level competencies (possessing a global perspective, taking organization into new directions) Organization specific - tied to the organization (leadership, customer orientation, functional expertise, and developing others) o Competencies stem from each organization's mission statement or its strategy to achieve competitive advantage, you might conclude that the core competencies would be unique for each company, but they are not o The Top 8 Competencies widely used are: 1. Leading and deciding 2. Supporting and cooperating 3. Interacting and presenting 4. Analyzing and interpreting 5. Creating and conceptualizing 6. Organizing and executing 7. Adapting and coping 8. Enterprising and performing

Publicly available website data and its accuracy

o Design the Survey: Who should be involved? • The compensation manager is responsible for the survey. • Outside consulting firms protect against lawsuits. How many employers? • No firm rules on how many to include. • Publicly available data - Bureau of Labor Statistics (BLS). o The BLS does not say where it got its information • Online salary information - highly suspect. • Many surveys but few are validated. • [not super accurate because it is outdated but still can be helpful; it also groups many jobs under one title so not specific]

Efficiency Wage Theory

o Efficiency Wage Theory: Prediction: Above market wage/pay level will improve efficiency by attracting higher ability workers and discouraging shirking due to risk of losing high wage job. A high wage policy may substitute for intense monitoring So what? The payoff to a higher wage depends on the employee selection system's ability to validly identify the best workers. An efficiency wage policy may require the use of fewer supervisors - Attracts higher-quality applicants - Lowers turnover - Increases worker effort - Reduces "shirking" ("screwing around"; thus efficiency wage predicts that high effort will be most likely and shirking less likely to the degree that the wage premium is high and the unemployment rate is high) - Reduces the need for supervision According to efficiency-wage theory, high wages may increase efficiency and actually lower labor. The underlying assumption is that pay level determines effort. This theory does attract more qualified applicants, but it also attracts unqualified applicants (so above-market wage does not guarantee more productive workforce) Ability to pay employees Rent is a return (profits) received from activities

4 Pay Mix alternatives

o Employers may vary policy for: different occupational families, different forms of pay, or different business units. o Pay-mix strategies may be: Performance Driven • Incentives and stock ownership make up a greater percent of total compensation • Base 50%, Benefits 17%, Options 16%, Bonus 17% Market Match • Simply mimics the pay mix competitors are paying • Base 70%, Benefits 20%, Bonus 6%, Options 4% Work/Life Balance • Base 50%, Benefits 30%, Bonus 10%, Options 10% Security (commitment) Ex: government workers • Base 80%, Benefits 20%

Issues of fairness is skill-based pay

o Favoritism and bias may play a role in determining who gets first crack at the training necessary to become certified at higher-paying skill levels o Employees complain that they are forced to pick up the slack for those who are out for training o The legality of having 2 people do the same task but for different (skill-based) pay o The design of the certification process is crucial in this perception of fairness

What are benchmark jobs and how they are used

o Firms may start with a sample of benchmark (key) jobs. Characteristics include: 1. Its contents are well known and relatively stable. 2. The job is common across employers, not unique to one employer. 3. A reasonable proportion of the work force is employed in this job. o A representative sample of benchmark jobs will include the entire domain of work being evaluated (administrative, manufacturing, technical etc.) and capture the diversity of the work within that domain Diversity in the work can be thought of in terms of depth (vertically) and breadth (horizontally) • Depth of work in most organizations probably ranges from strategic leadership jobs (CEO, general directors) to the filing and mail distribution tasks in entry-level office work • Breath of work depends on the nature of business; relatively similar work can be found in specialty consulting firms

Importance of job matching

o Interpret Survey Results and Construct a Market line Verify data for accuracy and anomalies. • Accuracy of match: o Some use the benchmark conversion/survey leveling approach - the approach is to multiply the survey data by some factor that the analyst judges to be the difference between the company job and the survey job - one way to execute this process is to conduct a job evaluation of the organization's benchmark job and the corresponding survey job and then determine their relative values o [it takes thinking to match the correct jobs] • Anomalies: o An employer whose data are substantially out of line from data of others o Learning more about anomalies can inform you about why the difference in pay is part of their strategy and you may be able to see valuable insight o Does any one company dominate? o Do all employers show similar patterns? o Outlwiers? What difference does it make if certain companies are dropped?

Relevant labor markets

o Managers define relevant markets by: Occupation [skills], geography, and competitors. o Data from product market competitors receives more weight when: employee skills are specific to product market, labor costs are a large share of total costs, product demand is responsive to price change, labor supply is unresponsive to pay changes. o Globalization of Relevant Labor Markets - Consider these factors when deciding job location: Assure labor savings are not neutralized by lower productivity Devote resources to monitor output Consider customers' reactions How long will the labor cost advantage last? o Some jobs lend themselves to offshoring

Types of plans (single, multiple...) and what type of organizations use different types

o Many employers design different evaluation plans for different types of work. We could have made 2 structures for the orchestra Ex: can have multiple plans due to production jobs may vary in terms of manipulative skills, knowledge of statistical quality control, and working conditions o A single universal plan may not be acceptable to employees or useful to managers if the work covered is highly diverse o Firms may start with a sample of benchmark (key) jobs.

Mean / weighted mean / median / quartiles and how they are used in salary surveys

o Mean: Sum all rates and divide by number of rates (can be affected by outliers) Commonly understood. If using only company data, will not accurately reflect actual labor market conditions It is calculated by adding each company's base wage and dividing by the number of companies Not very accurate since the base wage of the largest employer is given the same weight as that of the smallest employer o Weighted mean: The rate for each company is multiplied by the number of employees. Total of all rates is divided by total number of employees Gives equal weight to each individual employee's wage. Captures size of supply and demand in the market Calculated by adding the base wages for all 585 engineers in the survey and then dividing by 585. o Median: Order all data points from highest to lowest, the one in the middle is the median Minimizes distortion caused by outliers o Quartiles: Order all data points from lowest to highest, then convert to percentages Common in salary surveys; frequently used to set pay ranges or zones If a company wants to be in the 75th percentile, then 75 percent of all pay rates are at or below that point, and 25 percent are above.

Certification

o One-time certification vs. recertification How often to recertify and consequences of failing to recertify • Ex: Language may not have to be recertificated but if someone is not using their skills then they can forget it It is a cost saving mechanism o Organizations use peer review, on-the-job demonstrations, or tests to certify that employees possess skills and are able to apply them o Sitting in the classroom does not guarantee that the course/information is learned o Recertification helps ensure skills are kept fresh, and removal of certification (and accompanying pay) when a particular skill is deemed obsolete o Ex: in Tokyo Ome facility, where Toshiba manufactures laptops, all team members are required to recertify their skills every 24 months Those who fail have the opportunity to retrain and attempt to recertify before their pay rate is reduced

Steps in the job evaluation process

o Organization --> Job Analysis --> Job Descriptions --> Job Evaluation --> Job Structure Job Descriptions - summarize the information and serve as input for the evaluation o Some of the major decisions in the job evaluation process: 1. Establish purpose of evaluation 2. Decide whether to use single or multiple plans 3. Choose among alternative approaches 4. Obtain involvement of relevant stakeholders 5. Evaluate plan's usefulness

Pay Level and its relationship to labor costs

o Pay Level: the average of the array of rates paid by an employer: (base + bonuses + benefits + value of stock holdings) number of employees The higher the pay level, the higher the labor costs Labor costs = (pay level) times (number of employees) o External competitiveness is expressed in practice by (1) setting a pay level that is above, below, or equal to that of competitors (2) determining the pay mix relative to those of competitors • Pay mix refers to the various types of payments, or pay forms, that make up total compensation Pay level and pay mix objectives are: • (1) control costs & increase revenue o Not all organizations pay the same rate o The pay strategy should translate into revenues exceeding the cost of the strategy • (2) attract and retain employees o There is no "going rate" in the labor market for a specific job o A single company may differ pay levels for different job families. o How a company compares to the market depends on: what competitors it compares to, and what pay forms are included.

Segmented labor

o People flow to the work: Segmented supply results in employees working the same job side by side on the same shift, but earning significantly different pay and/or benefits and having different relationships with the company and the other employees. o Work Flows to the People - On-site, Off-site, Offshore: reality is complex and theories abstract; segmented sources of labor means that determining pay levels and pay mix increasingly requires understanding market conditions in different, even worldwide, locations; managers also need to know the jobs required to do the work, tasks/knowledge/behaviors (job analysis) so they can send the correct task to the different locations o Multiple sources of employees o From multiple locations o With multiple employment relationships o Example: Sources of Nurses Different types: • regular full time, o 100% hourly wage, receives benefits, no fee paid to agency • pool (on call, part time), o 132% hourly wage, no benefits, no fee paid to agency • registry, o 150% hourly wage, yes benefits and yes pay fee to agency • travelers o 150% hourly wage, yes benefits, yes pay fee to agency

Different pay policies and their relationship with worker productivity

o Policies: Pay above market (lead) - does not guarantee increase worker productivity Pay with market (match) -does not guarantee increase worker productivity Pay below market (lag) - does not guarantee increase worker productivity Hybrid policy - does increase worker productivity Employer of choice - does not guarantee increase worker productivity o Employer of Choice Corresponds to the brand the company projects as an employer. o Shared Choice Begins with traditional options of lead, meet, or lag. Offers employees choices in the pay mix. o Risks include employees making the "wrong" choices and offering too many choices causes confusion, mistakes, and dissatisfaction.

Challenges/problems in using person-based systems

o Problems with Skill-based Pay: One-time certification vs. recertification • How often to recertify and consequences of failing to recertify Employees who can't/won't learn Costs associated as employees increase skills and pay • Redesign jobs, cut staffing, or...? Salary compression with supervisors "Maxing out"- need to constitute gainsharing Increase labor costs [so it is better to use this system when labor costs are low or a small share of total costs such as paper and forest products, chemicals, and food processing Constant updating with technology May only be a short-term initiative for specific settings

How the product market/org. size affects compensation

o Product Market Factors and Ability to Pay: Product market conditions determine what an organization can afford to pay. Two key product market factors are: • 1. Product demand - caps maximum pay level. o If an employer pays above the maximum, it must either pass on to consumers the higher pay level through price increases or hold prices fixed and allocate a greater share of total revenues to cover labor costs • 2. Degree of competition - highly competitive markets are less able to raise prices. o Manufactures/automobiles/generic drugs are less able to raise prices without loss of revenue vs. Lamborghini or new cancer treatment are able to set whatever price they choose Other factors include the productivity of labor, the technology employed, and the level of production relative to capacity. Price elasticity! o Organization Factors Industry and technology. • Labor intense industries pay lower than technology intense industries. • New technology influences pay level. Employer size. • Large firms pay more than small firms. People's preferences. • Difficult to measure. o Organization strategy. Low-wage, no-services strategy. [Ex: Nike and Reebok - outsource manufacturing of their products to lower labor cost countries] Low-wage, high-services strategy. [Ex: Marriott offer child care and transportation crises] High-wage, high services strategy. [Ex: Medtronic's "fully present at work"] • May differ within a single organization. Higher wages must bring something in return

Labor Supply Theories

o These theories focus on understanding employee behavior: the supply side of the model. o Reservation Wage Theory: Prediction: Job seekers won't accept jobs if pay is below a certain wage, no matter how attractive other job aspects So What? Pay level will affect ability to recruit. Pay must meet some minimum level o Human Capital Theory: Prediction: General and specific skills require an investment in human capital. Firms will invest in firm-specific skills, but not general skills. Workers must pay for investment in general skills So what? Skill/ability requires investment by workers and firms. There must be a sufficient return (pay level) on investment for the investment to take place. Workers, for example, must see a payoff to training

Purpose of skill/competency blocks

o Purpose of the Skill-Based Structure: Supports the Strategy and Objectives • "line of sight" - be able to see the link between work skills and performance (easier to see, then the link to corporate goals) Supports the Work Flow • This link is clearer; facilitates matching people to a changing work flow • Ex: move hotel employees to front desk when lots of people are checking in then move them to food services when its dinner time etc. Is Fair to Employees Directs their behavior toward organization objectives o Skill Plans Link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work. Structures based on skill pay individuals for all the skills, for which they have been certified, regardless of whether the work they are doing requires all or just a few of those particular skills. The wage attaches to the person. In contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess. o Types of Skill Plans Specialist: Depth • Pay is based on knowledge of the person doing the job, rather than on job content or output. • Basic responsibilities do not vary on a day-to-day basis. Generalist/Multiskill Based: Breath • Earn pay increases by acquiring new knowledge. • Certification rather than job assignments. • Assigned to jobs based on certification and work flow. • Responsibilities can change over a short time.

Relevant labor markets and how it affects recruitment (who is national)

o 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. o Fuzzy markets. New organizations and unique jobs may fuse diverse factors making relevant markets fuzzy. Place more emphasis on external market data. o Geographical Area: Local: Within relatively small areas such as cities or Metropolitan Statistical Areas Regional: Within a particular area of the state or several states (oil-producing region of southwestern U.S.) National: across the country International: across several countries *As the importance and complexity of the qualifications increase, the geographic limits also increase. o Competition tends to be national or international for managerial and professional skills but local or regional for clerical and production skills

Skill analysis

o Skill analysis is a systematic process of identifying and collecting information about skills required to perform work in an organization. o What information to collect? Specific information on every aspect of the production process. o Whom to involve? Employees and managers. o Establish certification methods. Peer review, on-the-job demonstrations, or tests. Scheduled fixed review points and recertification

Appropriate for what type of pay structures

o Skill-based pay have been in manufacturing, where the work often involves teams, multiskills, and flexibility o An advantage is less bottlenecks as people are better matched to the work flow. o As well as avoiding idle hands

Market pricing

o Some organizations use market pricing which emphasize external competitiveness and deemphasize internal alignment. • Sets pay structures almost exclusively on external market rates. The objective 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. o Business strategy. 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 rates. Organizations may choose to differentiate their pay strategy. Balancing internal and external pressures is a matter of judgment.

Scaling and weighing in job evaluation how many degrees should be in the scales

o Step 3 Job Evaluation Methods: Point Method: Scale the factors. Most factor scales are 4 to 8 degrees, if equidistant, called interval scaling. Many evaluators use extra, undefined degrees such as plus and minus around a scale number Suggested criteria for scaling factors: • 1. ensure the number of degrees is necessary to distinguish among jobs, • 2. use understandable terminology, • 3. anchor degree definitions with benchmark job titles and/or work behaviors, and • 4. make it apparent how the degree applies to the job o Step 4: Weight the factors according to importance. Weights are often determined through an advisory committee. The weight must equal 100% Ex: so you can divide the 100% by putting 40% in skills, 30% in effort, 20% in responsibility, and 10% in working conditions

Pay surveys

o Survey: is the systematic process of collecting and making judgments about the compensation paid by other employers 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. o Purpose of a Survey: (1) To adjust the pay level relative to competitors (2) To set the mix of pay forms relative to competitors (3) To establish or price a pay structure (4) To analyze pay-related problems (5) To estimate the labor costs of competitors Adjust pay level - how much to pay? • The overall movement of pay rates caused by competition for people in the market. Or based on performance, ability to pay Adjust pay mix - what forms? • Base, bonus, stock, and benefits. • Changes to the pay mix occur less frequently than adjustments to overall pay levels Adjust pay structure. • Validate job evaluation results. • Establish internal structures. Study special situations. • Specific pay-related problems. Estimate competitors labor costs. • Competitive intelligence. • Employment Cost Index (ECI) o measures quarterly changes in employer costs for compensation.

How competencies are viewed

o There are several perspectives on what competencies are and what they are supposed to accomplish o A lack of consensus means that competencies can be a number of things; consequently, they stand in danger of becoming nothing o Core competencies are often linked to the mission statement. o Competency sets translate each core competency into action. o Competency indicators are the observable behaviors that indicate competency. o Early conceptions focused on: skills, knowledge, self-concepts, traits, and motives. o Competencies are becoming a collection of observable behaviors that require no inference, assumption or interpretation.

Match of skill-based pay plans and business strategy

o Well accepted by employees. Provide strong motivation for individuals to increase their skills. o Become increasingly expensive. o A plan's success is determined by how well it aligns with the organization's strategy. o May fit better in a firm with low labor costs. o Design of certification process crucial in perception of fairness o "Jack-of-all-trades"? Or master of none?

Information in a pay survey

o What information to collect? Organization data includes: • financial data and reporting relationships, • turnover and revenues. Total compensation data includes: • base pay [tells how competitors are valuing the work in similar jobs; however it fails to include performance incentives so will not give true picture if competitors offer low base but high incentives] • total cash [shows how competitors are valuing work, but not all employees receive the same incentives, it can overstate the pay], and • total compensation [tells total value competitors place on work, however not everyone receives the same form so be careful, may risk high fixed costs]. The three basic types of data that is typically requested: • (1) information about the organization • (2) information about total compensation system • (3) specific pay data on each incumbent in the jobs under study

Labor demand theories

o Why would an employer pay more than what theory states is the market-determined rate? These theories address this issue 1. Compensating Differentials Theory 2. Efficiency Wage Theory 3. Sorting and Signaling Theory Job Competition Theory

Pay ranges

o exists whenever two or more rates are paid to employees in the same job. o provides managers with the opportunity to: (1) recognize individual performance differences with pay. (2) meet employees' expectations that their pay will increase over time, even in the same job, and (3) encourage employees to remain with the organization. o From an internal alignment perspective, the range reflects the differences in performance or experience that an employer wishes to recognize with pay o From an external competitiveness perspective, the range is a control device o The range maximum sets the lid on what the employer is willing to pay for that work and the range minimum sets the floor o The size of the range is based on some judgment about how the ranges support career paths, promotions, and other organizations systems Top management positions have ranges from 30-60% Midlevel professional and managerial positions between 15- 30% Office and production work 5 to 15% [larger ranges reflect the greater opportunity for individual discretion and performance variations]