mgmt 4330 compenstation exam 1

Describe how Compensation Strategies are mapped (Exhibit 2.7) along the previously mentioned dimensions. In particular, understand an organization's Pay Brand

(objectives, alignment, competitiveness, contributions, management): -A compensation strategy is formulated based on the five elements of the pay model. •Mapping is often used in marketing to clarify and communicate a product's identity. •Each company's profile on the strategy map reflects its main message or "pay brand." •Strategic maps provide a visual reference. -It is the totality of the decisions that forms the compensation strategy

Understand the different business strategies how managers must tailor compensation to align within them. In particular, understand the implications associated with Innovator, Cost Cutter, and Customer-Focused strategies.

-A current popular theory leads managers to align pay systems with the organization's business strategy. 1) Compensation that supports an INNOVATOR strategy places less emphasis on evaluating skills/jobs and emphasizes incentives. 2) The COST CUTTER focuses on efficiency and increased productivity, so their system details steps in a job and uses variable pay. 3) The CUSTOMER FOCUSED strategy stresses delighting customers and bases employee pay on how well they do this. -Most firms have aspects of cost and innovation. 4) Compensation strategies may not line up neatly with generic strategies. -To do better than competitors, a firm must consider its own unique way of adding value through matching its business strategy and pay strategy.

Have an understanding of different types of Compensation Objectives (Exhibit 1.7 on Pages 20-21).

-Efficiency: improving performance, increasing quality, delighting customers and stockholders, and controlling labor costs. -Fairness: (sometimes called equity) is a fundamental objective of pay systems both procedural and distributive. -Compliance: conforming to federal and state compensation laws and regulations. -Ethics: the organization cares about how its results are achieved

Be familiar with Hierarchal versus Egalitarian structures in terms of attributes which influence compensation? Exhibit 3.7 summarizes this well.

-Egalitarian structures have fewer levels and/or smaller differentials between adjacent levels and between the highest- and lowest-paid workers -.Hierarchical structures send the message that the differences in work content, individual skills, and contributions to the organization are valued. -Yet egalitarian structures are not problem-free. •Equal treatment can mean that the more knowledgeable and high-performing employees feel underpaid. •They may quit or refuse to do anything that is not specifically required of them. •Their change in behavior, if any, will lower overall performance.

List the Major Decisions involved in a Job Evaluation.

-Establish purpose of evaluation. -Decide whether to use single or multiple plans. -Choose among alternative approaches. -Obtain involvement of relevant stakeholders. -Evaluate plan's usefulness.

Understand the Role of Ethics in determining compensation, in addition to the implications of Ethical Dilemmas (Manipulating earnings, misusing data, option repricing)

-Ethics means the organization cares about how its results are achieved -Because it is so important, it is inevitable that managing pay sometimes creates ethical dilemmas. Manipulating results to ensure executive bonus payouts, misusing (or failing to understand) statistics used to measure competitors' pay rates, repricing or backdating stock options to manipulate (increase) their value, encouraging employees to invest a portion of their wages in company stock while executives are bailing out, offering just enough pay to get a new hire in the door while ignoring the relationship to co-workers' pay, and shaving the hours recorded in employees' time card—these are all-too-common examples of ethical lapses.

Describe the advantages and disadvantages of Layered and Delayered pay structures. (short-answer maybe)

-In the delayered structure, several levels of job titles are removed so all employees at all levels are responsible for a broader range of tasks with greater freedom to determine how best to accomplish those tasks. -as opposed to the layer structure employees are given more freedom and responsibility in the delayered structure

Describe how an Internal Labor Market influences compensation

-Internal labor markets refer to rules and procedures that: •Determine the pay for the different jobs within a single organization, •And allocate employees among the different jobs.

Discuss why Job Analyses are considered necessary, yet bureaucratic

-Many organizations today are using fewer employees to do a wider variety of tasks in order to increase productivity and reduce costs. Reducing the number of different jobs and cross-training employees can make work content more fluid and employees more flexible -In some organizations, analyzing work content is now conducted as part of work flow analysis. This analysis looks at how an organization does its work: activities pursued to accomplish specific objectives for specific customers

understated the implications of internally-aligned pay structures

-More hierarchical structures are related to greater performance when the work flow depends on individual contributors (e.g., consulting and law practices, surgical units, stockbrokers, even university researchers). -High performers quit less under more hierarchical systems when pay is based on performance rather than seniority and when people have knowledge of the structure. page -More egalitarian structures are related to greater performance when close collaboration and sharing of knowledge are required (e.g., firefighting and rescue squads, manufacturing teams, global software design teams). The competition fostered in the "winner-take-all" tournament hierarchies appears to have negative effects on performance when the work flow and organization design require teamwork. -The impact of any internal structure on organization performance is affected by the other dimensions of the pay model; pay levels (competitiveness), employee performance (contributions), and employee knowledge of the pay structure (management)

Understand how Internal Pay Structures are created

-No matter the approach, the process begins by looking at people at work. -The underlying purpose of each phase of the process remains the same for both job- and person-based structures.

understand how vicious circles influence compensation

-One study says it is not only how much you pay but also how you pay. •Think of pay as part of a circle. •Other studies support improved performance and the virtuous circle. •This leads to how circles can also gain downward momentum to become a vicious circle.

Understand how Organizational Work Design such as outsourcing and delayering influence pay

-Outsourcing is when positions or work is contracted with another company to provide services. Offshoring is more specific meaning positons are relocated abroad, not just overseas -Delayering simplifies the organizational hierarchy to remove levels in management. This results in more flexibility and faster decision making

incentive and sorting effect explained (how pay influences behaviors)

-Pay influences employee motivation and behavior in two ways. (incentive effect) 1) Pay can affect the motivational intensity, direction, and persistence of current employees. 2) Motivation, together with employee ability and work/organizational design, determines employee behaviors such as performance. -Pay can also have an indirect, but important, influence via a sorting effect on the composition of the workforce. 3) It is not only how much, but how an organization pays that can result in a sorting effect. -The question for organizations is simply this: Are you using the pay policy that will attract and retain the types of employees you want? 4) The pay model includes compensation policies and the objectives (efficiency, fairness, compliance) these are meant to influence.

Describe why organizations perform Job Analyses.

-Potential uses for job analysis have been suggested for every major human resource function. 1)Often the type of job analysis data needed varies by function. 2)An internal structure based on job-related information provides both managers and employees a work-related rationale for pay differences. -In compensation, job analysis has two critical uses. 3) It establishes similarities and differences in the work contents of the jobs. 4) It helps establish an internally fair and aligned job structure. -The key issue is to ensure that the data collected are useful and acceptable to the employees and managers involved.

Describe the advantages and disadvantages of Benchmarking. Understand how this interacts with a Competency-based Pay System.

-Recent examples of such "benchmarking" behavior include the rush to outsource jobs, to emphasize teams, to deemphasize individual contributions, and to shift to a competency-based pay system, often with little regard to whether any of these practices fit the organization or its employees and add value.

How do organizations differentiate their compensation strategies to achieve competitive advantage? Valuable, rare, non-imitable, non-subs, and adding value. (Please know this).

-Some believe that the only thing that really matters about a strategy is how it is different from everyone else's. 1) If the pay system is relatively simple for any competitor to copy, then how can it possibly be a source of competitive advantage? 2) The answer according to the advocates of the strategic approach, is in how the pay system is managed. -It is difficult to imitate the compensation strategy of another since each strategy is woven into the fabric of a company's overall HR strategy. 3) As the strategic perspective implies, it is the way programs fit together and fit the overall organization that is difficult to copy.

Finally, understand how strategies differ within the same organization with respect to different business units (retail, construction, and software), and job families (engineering, marketing, office and clerical, management). Remember that strategies can change over time depending on the external and internal environment. (IBM on Page 45)

-Sometimes different business units face different competitive conditions, adopt different business strategies, and fit different pay strategies. •The Korean company SK Holdings has much variety in its business units. •SK has different compensation strategies aligned to each of its very different businesses. -A simple "let the market decide our compensation" strategy does not work internationally. •In many nations, markets do not operate as in the U.S. or may not even exist. •Some emerging labor markets and highly regulated labor markets means less movement of people among companies. (This depends among its SBUs and job families. Sometimes, engineers require above market pay while clerical is matched) -When business strategies change, pay systems should also change. -For years, IBM placed strong emphasis on internal alignment. 1)Then IBM shifted its focus away from personal computers to "high-growth, high value segments of the IT industry." 2)The new business strategy meant a new compensation strategy. 3)They cut layers, redesigned jobs, increased incentive pay, all with an eye to keeping costs low. 4)So far, the strategy has not worked -Microsoft made more gradual changes in its business strategy and how it changed its compensation strategy to support those changes. 5) Its stock price performance far exceeded the broader market.

Describe the strategic choices made at different organizational levels which determine compensation. Exhibit 2.2

-Strategy refers to the fundamental directions that an organization chooses. -The takeaway from this slide is that management must align compensation with their strategy, throughout the company 1) corporate objectives, strategic plan , vision and values (what business should we be in?) 2) business unit strategies (how do we win, gain competitive advantage, in those businesses?) 3) hr strategies (how should hr help us win?) 4) strategic compensation decisions -social,competitive, an regulatory environment (how should total compensation help us win?) 5) compensation systems 6) employee attitudes and behaviors 7) competitive advantage

Understand how Best Practices differ from Best Fit (p. 58).

-The premise of any strategic perspective is that if managers align pay decisions with the organization's strategy and values, are responsive to employees and union relations, and are globally competitive, then the organization is more likely to achieve competitive advantage. The challenge is to design the "fit" with the environment, business strategy, and pay plan. The better the fit, the greater the competitive advantage. -But not everyone agrees. In contrast to the notion of strategic fit, some believe that (1) a set of best-pay practices exists and (2) these practices can be applied universally across situations. Rather than having a better fit between business strategy and compensation plans that yields better performance, they say that best practices result in better performance with almost any business strategy.

Similarly, describe how Reliability, validity Acceptability, Usefulness, and Currency are utilized to judge the success of a Job Analysis.

-To be valid, acceptable, and useful, job information must be up to date. •Usefulness refers to the practicality of the information collected. Since work-related information is needed to determine pay. •And differences in work determine pay differences. •The real issue is how much detail is needed to make these pay decisions? -Acceptability is also important. •If workers are dissatisfied with the data and the process. •They are unlikely to accept the resulting job structure. •Or the pay rates attached to that structure.

What are Incentive and Sorting Effects?

-incentive effect: the degree to which pay influences individual and aggregate motivation among the employees we have at any point in time. -sorting effect: The effect that pay can have on the composition of the workforce. Different types of pay strategies may cause different types of people to apply to and stay with an organization.

Describe an Internal Alignment (Equity) compensation strategy and its implications for maintaining the necessary talent an organization needs to maintain competitive advantage

-often called internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization -The relationships inside the organization form a pay structure that should: •Support the organization strategy, support the work flow, and motivate behavior toward organization objectives.

What is the definition of Compensation?

-refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship. -How people are paid affects their behavior at work, which affects an organization's success. -

Describe the Dodd-Frank and consumer Protection acts, and their importance, and its specific components. (multiple-choice maybe)

-was signed into law in 2010. Among its provisions is "say on pay," which requires public companies to submit their executive compensation plan to a vote by shareholders. The vote is not binding. However, companies seem to be intent on designing compensation plans that do not result in negative votes. In addition, clawback provisions (designed to allow companies to reclaim compensation from executives in some situations) are available under Dodd-Frank and have also been adopted in stronger form by some companies.

What are the three characteristics of a Benchmark Job

1) Its contents are well known and relatively stable over time. 2) The job is common across a number of different employers. It is not unique to a particular employer. 3) A reasonable proportion of the workforce is employed in this job.

Describe the role of Society in determining compensation such as increases in productivity, standard of living and earnings.

1) Some people see pay as a measure of justice. -Male/female earning differentials. 2) Does pay matter, but only up to a certain point? -One study found paying more than $95,000 had severely diminishing returns on happiness, yet a steady rise in life evaluation. 3)Benefits given as a part of total compensation may also be seen as a reflection of societal equity or justice. -Private sector employers spend about 42 cents for benefits on top of every dollar paid for wages and salaries. 4)Job losses or gains in a country over time are partly a function of relative labor costs (and productivity) across countries. -Some consumers know that pay increases often lead to price increases.

What are the Four Steps with developing a Total Compensation Strategy? Know each component. (Short-answer maybe)

1)Assess Total Compensation Implications (business strategy, competitive dynamics, hr strategy, culture/values, social and political context, employee/union needs, other hr systems): -Think about any organization's past, present, and future. •What factors in its business environment have contributed to the company's success? •Which of these factors are likely to become more (or less) important as the company looks ahead? -This first step includes an understanding of the specific industry in which the organization operates and how the organization plans to compete. •Learn to gauge the underlying dynamics in the business (or build relationships with those who can). •Different compensation strategies must align with different business strategies. •Competitive dynamics can be assessed globally but managers must be knowledgeable about all competitive conditions, even locally. -HR strategy: -Pay can be a supporting player, as in the high-performance approach, or it can take the lead and be a catalyst for change. -A pay system reflects the values that guide an employer's behaviors and underlie its treatment of its employees. -Context refers to a wide range of factors and remember that governments are major stakeholders. -A major challenge is how to better satisfy individual needs—offering more choice is one approach, but may just cause confusion. -Pay strategies need to be adapted to the nature of the union-management relationship. 2) map a total compensation strategy (objectives, alignment, competitiveness, contributions, management): -A compensation strategy is formulated based on the five elements of the pay model. •Mapping is often used in marketing to clarify and communicate a product's identity. •Each company's profile on the strategy map reflects its main message or "pay brand." •Strategic maps provide a visual reference. -It is the totality of the decisions that forms the compensation strategy 3) implement (design system to translate strategy into action, choose techniques to fit strategy): -implement the strategy through the design and execution of the compensation system. -The compensation system translates strategy into practice 4) reassess (realign as conditions change, realign as strategy changes): -This step recognizes that the compensation strategy must change to fit changing conditions. -Thus, periodic reassessment is needed to continuously learn, adapt, and improve - assess against the objectives to be achieved. close loop

How many Factor Scales are usually necessary?

4-8

Understand the Fair Standards Labor Act (FLSA)

A federal law governing minimum wage, overtime pay, equal pay for men and women in the same types of jobs, child labor, and record-keeping requirements (base pay)

What is Alternating Ranking? How does differ from the Paired Comparison Method?

Alternation ranking: -orders job descriptions alternately at each extreme. Paired comparison: -uses a matrix to compare all possible pairs of jobs -When all comparisons have been completed, the job most frequently judged "more valuable" becomes the highest-ranked job, and so on.

What are the different components of Cash Compensation, and how are they employed by management? Specifically, how do Incentives influence performance?

Base pay (cash comp): -Base wage is the cash compensation an employer pays for work performed. 1) It reflects value of work or skills and ignores employee differences. -Salary refers to pay given to those who are exempt from regulations of the Fair Labor Standards Act and exempt from overtime pay. 2) Nonexempts have their pay calculated on an hourly wage. 3) Some organizations believe an "all-salaried" workforce reinforces an organizational culture where all employees are part of the same team. 4) This does not negate the need to comply with the FLSA Merit Increases/Short-Term Incentives/COLAs (cash comp): -A cost of living adjustment (COLA) to base wages may be based on: •Changes in what other employers are paying for the same work. •Changes in living costs. •Changes in experience or skill. -Merit increases are given as increments to the base pay and are based on performance (Merit payments are based on an assessment of recent past performance) -Companies increasingly use merit bonuses. •These are based on performance rating but are paid in the form of a lump sum rather than becoming (a permanent) part of the base salary. incentives (cash comp): -Incentives also tie pay increases to performance but differ from merit adjustments in that they rely on an objective measure of performance. •They do not increase base wage and must be re-earned each period. •The potential size of incentive payment will be known beforehand. •Incentives explicitly try to influence future behavior. -Incentives can be tied to the performance of an individual employee, a team, or a business unit. •One-time payments, no increased labor cost (Frequently referred to as VARAIBLE PAY) long term incentives (cash comp): -Long-term incentives try to focus employee efforts on multiyear results. 1) Typically in the form of stock ownership or options to buy stock at a fixed price. -Stock options are often the largest component in an executive pay package. 2) Some companies extend stock ownership beyond the ranks of executives.

Understand how Compensable Factors are used in the job evaluation process. Provide an example of these types of factors (customer relations, accountability, productivity)

Compensable factors: -are those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives.

Understand the business strategy and its culture and the social and political contexts, employee, and union preferences. Please provide examples of each

Cultural and social: Context refers to a wide range of factors, including legal and regulatory requirements, cultural differences, changing workforce demographics, expectations, and the like. These also affect compensation choices. -EX: In the case of Whole Foods, its business is very people intensive. Consequently, Whole Foods managers may find that an increasingly diverse workforce and increasingly diverse forms of pay (child care, chemical dependency counseling, educational reimbursements, employee assistance programs) may add value and be difficult for competitors (other supermarkets) to imitate. political: Because governments are major stakeholders in determining compensation, lobbying to influence laws and regulations can also be part of a compensation strategy. -EX: In the United States, employers will not sit by while Congress considers taxing employee benefits. Similarly, the European Union's "social contract" is a matter of interest. And in China, every foreign company has undoubtedly discovered that building relationships with government officials is essential. So, from a strategic perspective, managers of compensation may try to shape the sociopolitical environment as well as be shaped by it employee preferences: The simple fact that employees differ is too easily overlooked in formulating a compensation strategy. Individual employees join the organization, make investment decisions, interact with customers, design new products, assemble components, and so on. Individual employees receive the pay. A major challenge in the page design of next-generation pay systems is how to better satisfy individual needs and preferences. Offering more choice is one approach. -EX: Older, highly paid workers may wish to defer taxes by putting their pay into retirement funds, while younger employees may have high cash needs to buy a house, support a family, or finance an education. Dual-career couples who have double family coverage may prefer to use more of their combined pay for child care, automobile insurance, financial counseling, or other benefits such as flexible schedules. Employees who have young children or dependent parents may desire dependent care coverage. Whole Foods, in fact, as described in its annual report each year, holds an employee vote every three years to determine the nature of their benefits program. union preferences: Pay strategies need to take into account the nature of the union-management relationship. Even though less than 7 percent of U.S. private sector workers are now in labor unions, union influence on pay decisions remains significant in key sectors (e.g., manufacturing, health care, education). Union preferences for different forms of pay (e.g., protecting retirement and health care plans) and their concern with job security affect pay strategy. -EX: Unions' interests can differ. In Denver, Colorado, a merit pay plan was developed collaboratively by the Denver Public Schools and the Denver Classroom Teachers Association, the local union affiliate. Teachers approved the agreement by a 59 percent to 41 percent vote, and Denver voters approved a $25 million property tax increase to pay for it. Conversely, many teachers in Springfield, Massachusetts, left for neighboring, higher-paying school districts in part because the district wanted to impose a merit pay plan.

What is Equity Theory? How do employees judge the perceive fairness of an organization's internal pay structure? Moreover, understand that Equity and Equality have different meanings in terms of pay.

Equity theory: -says people compare the ratio of their own outcomes to inputs with the outcome to input ratio of that of internals, externals, or themselves in a past or future situation. -This theory suggests that employees judge the equity (fairness) of their pay by making multiple comparisons. 1)Comparing to jobs similar to their own (internal equity). 2)Comparing their jobs to others at the same employer (internal equity). 3)Comparing their jobs' pay against external pay level (external equity). -The terms "equity" and "equality" are not interchangeable

Understand the rationale of having managers two levels above as a Job Analysis source.

For key managerial/professional jobs, supervisors "two levels above" have also been suggested as valuable sources since they may have a more strategic view of how jobs fit in the overall organization. In other instances, subordinates and employees in other jobs that interface with the job under study are also involved.

Be able to describe how different strategies within the same industry affect compensation. For example, how does the compensating philosophy and culture of SAS, different from Microsoft?

Google, Microsoft, and SAS all compete for software engineers and marketing skills but they focus on different components of compensation •Microsoft scaled back its stock awards, replacing that with cash - in order to retain top talent. •SAS Institute emphasizes work/life programs over cash compensation and provides limited bonuses and no stock awards.

Understand the different strategies with Google, Nucor Steel, and Merrill Lynch concerning their compensation objectives, internal alignment, external competitiveness, employee contributions, and management.

Google, Nucor, and Merrill Lynch are all innovators in their industry. •All three formulate their pay strategy to support their business strategy. •All emphasize outstanding employee performance and commitment. However, there are major differences. •Google positions itself as a start-up but offers generous stock options and benefits that go beyond the norm. •Nucor Steel emphasizes high productivity, quality and low cost with bonuses that raise wages above average, and no layoffs. •Merrill Lynch relies heavily on human capital and pays to attract, motivate, and retain the best talent.

What is a Job Analysis, a Job Description, and a Job Specification? Understand their conceptual definitions and how they differ from each other in terms of pay.

Job analysis: is the systematic method needed to discover and describe the differences and similarities among jobs - results in two products Job description: the list of tasks, duties, and responsibilities that make up a job - observable actions. (focuses on job) job specification: is the knowledge, skills, abilities, and other characteristics necessary for an individual to perform the job. (focuses on person)

Describe the Classification method of job evaluation

Job evaluation method that involves slotting job descriptions into a series of classes or grades that cover the range of jobs and that serve as a standard against which the job descriptions are compared.

What is a Job Evaluation? Describe its importance to determining pay

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 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. -Those using job evaluation to make pay decisions see it as a process to help gain acceptance of pay differences among jobs.

What is a Job Family? Be prepared to provide an example.

Job family: A grouping of related jobs with broadly similar content EX: marketing, engineering, office support

Be familiar with the dimensions of the Hay Group method for job evaluations

Know-how: -the sum total of all knowledge and skill, however acquired, required to do the job competently. -Know-how typically has three dimensions: -Practical, technical, and specialized knowledge and skill (includes depth and breadth) -Planning, organizing, coordinating, and integrating knowledge -Communicating and influencing skills Problem solving: -measuring the nature and complexity of the issues and challenges that the job has to face. -Problem solving typically has two dimensions: -Environment—the availability of guidance for the thinking in terms of policies, procedures, guidelines, and instructions, along with the degree of definition around the problems -Challenge—the inherent complexity of the issues and the thought process required Accountability: -the measured impact that the job is designed to have on the success of the enterprise. -Accountability typically has two dimensions: -Freedom to act—the delegated authority vested in the job to act, approve, or make decisions -Impact—the magnitude and nature of the impact that the job has on the organization's ability to achieve its mandate

What is a line-of-sight? Why is this important toward motivating employee behavior?

Line of sight: -The structure ought to make clear the relationship between each job and the organization's objectives -The challenge is to design structures that will engage employees to help achieve organization objectives

Understand who should be involved in the Job Evaluation

Managers and employees with a stake in the results should be involved in the process of designing the internal structure

Be familiar with the components of an Internal Pay Structure (Number of levels, differential, content and value, and exchange value, and job and person-based structures). (Short-answer maybe)

Number of levels: -One feature of any pay structure is its hierarchical nature: the number of levels and reporting relationships. -Some are more hierarchical, with multiple levels; others are compressed, with few levels differenetial: -The pay differences among levels are referred to as differentials. •In most organizations, pay varies among employees. •One intention of differentials is to motivate people to strive for promotion to a higher-paying level. content and value criteria: -Content refers to the work performed in a job and how it gets done. -Value refers to the worth of the work -Use value reflects the value of goods or services an employee produces in a job. -Similar job content in two different companies may be valued differently based on how it contributes to organization objectives exchange value: -is whatever wage the employer and employee agree on for a job. •The same work content in the same company may have different exchange values based on different geographies. job based structure: -relies on the work content. person-based structure: -shifts the focus to the employee. -Reality includes both job and person.

List the occupations are susceptible to Offshoring and Automation. Describe why.

Offshoring: -refers to the movement of jobs to locations beyond a country's borders EX: telephone operator, computer operator and pharmacy tech because they are high manual, low skill jobs, little education and training Automation: -a term for technology applications where human input is minimized. EX: telemarketers, cashiers, book keeping bc social interactions are not important

Understand the circumstances where a power member of a Job Evaluation Committee could influence the Job Evaluation process

One study found that more powerful departments in a university were more successful in using the appeals process to change the pay or the classification of a job than were weaker departments. This is consistent with other research that showed that a powerful member of a job evaluation committee could sway the results. Consequently, procedures should be judged for their susceptibility to political influences. "It is the decision-making process, rather than the instrument itself, that seems to have the greatest influence on pay outcomes," writes one researcher.

What is a Position Analysis Questionnaire (PAQ)? Have an understanding of its different factors, and common interactions associated with a PAQ.

PAQ: -which groups work information into seven basic factors: information input, mental processes, work output, relationships with other persons, job context, other job characteristics, and general dimensions. -Similarities and differences among jobs are described in terms of these seven factors, rather than in terms of specific aspects unique to each job. The communication behavior in this exhibit is part of the relationships-with-other-persons factor.

Understand Distributive Justice and Procedural Justice, their similarities, differences, and their importance when setting compensation.

Procedural justice: refers to the process by which a decision is reached: the right to an attorney, the right to an impartial judge, and the right to receive a copy of the arresting officer's statement. Distributive justice: refers to the fairness of the decision: guilty. Researchers report that employees' perceptions of procedural fairness significantly influence their acceptance of the results; employees and managers are more willing to accept low pay if they believe that the way this result was obtained was fair. -procedural justice addresses how design and administration decisions are made and whether procedures are applied in a consistent manner. Distributive justice addresses whether the actual pay differences among employees are acceptable. We return to distributive justice later in this chapter when we discuss equity theory.

What is Reliability? What is Validity? Describe why Reliability is necessary for achieving Validity.

Reliability: -measures consistency of results among analysts, methods, and sources, or over time. Validility: -examines the convergence of results among sources of data and methods

How do Stockholders influence compensation? That is, be familiar with the different components of CEO compensation listed on Exhibit 1.3.

Shareholders influence executive compensation decisions through shareholder proposals and the election of directors in proxy votes. CEO compensation components: -salary -bonus -stock grants -stock option awards =total annual compensation

Describe how a Job Structure supports the organization's strategy and work flows, being fair to employees, and motivate behavior. (Please know this)

Supports organization strategy: -Job evaluation aligns with the organization's strategy by including what it is about work that adds value—that contributes to pursuing the organization's strategy and achieving its objectives. Job evaluation helps answer, How does this job add value? Supports work flow: -Job evaluation supports work flow in two ways. It integrates each job's pay with its relative contributions to the organization, and it helps set pay for new, unique, or changing jobs. Is fair to employees: -Job evaluation can reduce disputes and grievances over pay differences among jobs by establishing a workable, agreed-upon structure that reduces the role of chance, favoritism, and bias in setting pay. Motivates behavior toward organization objectives: -Job evaluation clarifies for employees what it is about their work that the organization values, how their jobs support the organization's strategy and its success. It can also help employees adapt to organization changes by improving their understanding of what is valued in their new assignments and why that value may have changed. Thus, job evaluation helps create the network of rewards (promotions, challenging work) that motivates employees.

Describe an advantage of conventional questionnaires and interviews.

The advantage of conventional questionnaires and interviews is that the involvement of employees increases their understanding of the process. However, the results are only as good as the people involved. If important aspects of a job are omitted, or if the jobholders themselves either do not realize or are unable to express the importance of certain aspects, the resulting job descriptions will be faulty

List and describe the different Forms of Pay. Exhibit 1.5 summarizes this well.

Total returns 1) total compenstation -benefits (income protection, work/life balance, allowances) -cash compensation (base, merit/cost of living, short term incentives, long term incentives) 2) relational returns (recognition and status, employment security, challenging work, learning opportunituies)

Describe how a Generic Description may increase flexibility for compensation managers

Using broad, generic descriptions that cover a large number of related tasks closer to the job-family level is one way to increase flexibility.

Describe how a Work Flow is typically organized, as well its importance to an organization and its compensation strategy.

Work flow: refers to the process by which goods and services are delivered to the customer -An organization's strategy needs to support important aspects that go into maintaining its competitive advantage

Understand the role of Customers, Managers, and Employees in determining compensation such as ESG issues, labor costs, and employee turnover, and how organizations respond to these factors in setting compensation.

customers: 1) Compensation is often the largest single operating cost. -For companies whose business strategy depends on low product/service costs, may focus on low compensation costs 2)Compensation also comes into play for customers who want to purchase from a company that acts with responsibility. -Customers may base their buying decisions on how they believe the company treats their employees or those in their supply chain. managers: 1) First, compensation is a major expense that needs managing. -Competitive pressures force managers to consider the affordability of compensation decisions. -Labor costs as a percent of total costs vary among individual firms. 2) Second, a manager can use pay to influence employee behaviors and to improve the organization's performance. -High pay, if it brings high returns, is one strategy. -Pay affects the quality of work, attitude toward customers, and willingness to be flexible, learn new skills, or suggest innovations. -Pay also may drive employees to unions or even legal action. employees: 1) Employees may view compensation as: -A return in an exchange between their employer and themselves. -As an entitlement for being an employee of the company. -As an incentive to take/stay in a job and invest in performing well. -Or as a reward for having done so. 2)The importance of pay is apparent in many ways. -Wages and benefits are a major focus of labor unions' efforts. -There is a legal framework governing pay: minimum wage, living wage, overtime pay, and nondiscrimination regulations. -Points to the central importance of pay to employees in the employment relationship.

Describe the components that shape an organization's Internal Pay Structure. Understand how External (Economic, government), Organization (Strategy, human capital, work design, HR policies), and Internal factors (Tailored, hierarchal) involved.

external factors: -economic pressures -government policies, laws, regulations, stakeholders -cultures and customs organizational factors: -strategy -technology -human capital -hr policy -employee acceptance -cost implications economic pressures: -Adam Smith advocated for letting market forces influence pay structures. -Marx said employers unfairly pocketed the surplus value created by the difference between use and exchange value. -Marginal productivity says that employers do pay use value. -In addition to supply and demand for labor, supply and demand for products and services also affect internal pay structures government policies, laws, regulations: -The Equal Pay Act and the Civil Rights Act require "equal pay for equal work." 1) An internal structure may contain any number of levels, with differentials of any size. 2) As long as the criteria for setting them are not gender, race, religion, or national origin. Much pay-related legislation attempts to regulate economic forces to achieve social welfare objectives. 3) The most obvious are minimum-wage laws and special reporting requirements for executive pay. But legislation also aims at differentials. 4) A contemporary U.S. example is the "living wage." strategy: -The belief is that pay structures that are not aligned with the organization strategy may become obstacles to the organization's success. However, aligned structures today may become an obstacle tomorrow. So aligned, yet adaptable, may be required. human capital: -Human capital—education, experience, knowledge, abilities, and skills required to perform the work—is a major influence on internal structures. -The greater the value added by the skills and experience, the more pay those skills will command work design: -The design of organizations is undergoing profound changes. -A lot of people who work in organizations are not employees of these organizations. -These employees may be supplied by outsourcing specialists. (Outsourcing is when positions or work is contracted with another company to provide services. Offshoring is more specific meaning positons are relocated abroad, not just oversea) -Another major work design change is delayering (Delayering simplifies the organizational hierarchy to remove levels in management. This results in more flexibility and faster decision making) -Delayering can cut unnecessary, noncontributing work and enlarge other jobs. HR policies: -The organization's other H R policies influence internal pay structures. 1) Most organizations tie money to promotions to induce employees to apply for higher-level positions. 2) If an organization has more levels, it can offer more promotions, but there may be smaller pay differences between levels. 3) The belief is that more frequent promotions (even without significant pay increases) offer a sense of "career progress" to employees

What is Fairness (Equity)? Describe the different types (Distributive, Procedural)

fairness (equity): -is a fundamental objective of pay systems -The fairness objective calls for fair treatment for all employees by recognizing both employee contributions (e.g., higher pay for greater performance, experience, or training) and employee needs (e.g., a fair wage as well as fair procedures). Distributive: -It suggests that the way a pay decision is made may be equally as important to employees as the results of the decision Procedural: -the process used to make pay decisions

Understand the different types of benefits such as Income Protection, Work/Life balance, and Allowances. (Multiple-choice maybe)

income protection (benefits): -Benefits, including income protection, work/life services, and allowances, are also part of total compensation. •Some income protection programs are legally required in the U.S., such as disability insurance or unemployment insurance. •Employers also make half the contributions to Social Security. -Medical insurance, retirement programs, life insurance, and savings plans are common benefits. •They help protect employees from financial risks inherent in daily life. •Often companies can provide these protections to employees more cheaply than employees can obtain them for themselves. •Employers have sought to reduce benefit costs by shifting costs to employees. Work/Life Balance and Allowances (benefits): -Programs that help employees integrate their work and life responsibilities include: •Time away from work. •Access to services to meet specific needs (Flexible work arrangements) -Responding to the changing workforce demographics, many employers are giving a higher priority to these benefits - reinforced by the pandemic. -Allowances often grow out of whatever is in short supply. •In Vietnam and China, housing and transportation allowances are frequently part of the pay package. In many European countries, managers assume a car will be provided

Describe Internal Alignment, External Competitiveness, Employee Contributions, and Management in determining compensation

internal alignment: -refers to comparisons among jobs or skill levels inside a single organization. -Pay relationships within the organization affect all the pay objectives - caps can manage differences in total cash compensation external competitiveness: -refers to pay comparisons with competitors. -Decisions here allow employee recruitment and retention and control labor costs to remain competitive. employee contributions: -(or nature of pay mix) directly affects employees' attitudes and work behaviors. -Can include a flat rate pay or team incentives, but ideally should be decided in conjunction with external competitiveness decisions management: -ensuring that the right people get the right pay for achieving the right objectives in the right way.

Understand how Job Content and exchange Value are related to Internal Alignment.

job content: -information that describes a job. May include responsibility assumed and/or the tasks performed. -Internal alignment based on content orders jobs on the basis of the skills required for the jobs and the duties and responsibilities associated with the jobs

Describe the Content in a Job Analysis.

job identification: -job title -department -number of people who hold job job content: -tasks -activities -constraints or actions -performance criteria employee characteristics: -skils internal relationships: -boss -peers -superiors external relationships: -suppliers -customers

Provide an example how each component of the Pay Model will align with strategy. Think again of Objectives, Internal Alignment, External Competitiveness, Employee Contributions, and Management.

objectives: -How should compensation support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment? EX: (Whole Foods objectives: Increase shareholder value through profits and growth; go to extraordinary lengths to satisfy and delight customers; seek and engage employees who are going to help the company make money—every new hire must win a two-thirds vote from team members before being given a permanent position.) Internal Alignment: -How differently should the different types and levels of skills and work be paid within the organization? EX:(Whole Foods: Store operations are organized around eight to ten self-managed teams; these teams make the types of decisions [e.g., what products to order and stock] that are often reserved for managers. external competitiveness: -How should total compensation be positioned against competitors? (Whole Foods: Offer a unique deal compared to competitors.) What forms of compensation should be used? EX:(Whole Foods: Provide health insurance for all employees working at least 20 hours/week and 20 hours of paid time a year to do volunteer work.) Employee Contributions: -Should pay increases be based on individual and/or team performance, on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal needs (housing, transportation, health services), and/or on each business unit's performance? EX:(Whole Foods: A shared fate—every four weeks the performance of each team is measured in terms of revenue per hour worked, which directly affects what they get paid) Management: -How open and transparent should the pay decisions be to all employees? Who should be involved in designing and managing the system? EX:("You Decide"—employees recently voted to pick their health insurance rather than having one imposed by leadership.)

Describe how Policy capturing is different from the Committee a Priori Approach

policy capturing: -Compensable factor importance weights are inferred using statistical methods such as regression analysis. Committee a Priori Approach: -Compensable factor importance weights are assigned by a committee based on a priori judgment.

What is the most common way to collect job information for purposes of a Job Analysis?

questionaire

Understand the advantages and disadvantages of the different Job Evaluation Methods

ranking: -advantages: Fast, simple, easy to explain. -disadvantages: Cumbersome as number of jobs increases. Basis for comparisons is not called out. classification: -advantages: Can group a wide range of work together in one system -disadvantages: Descriptions may leave too much room for manipulation. point: -advantages: Compensable factors call out basis for comparisons, Compensable factors communicate what is valued. -disadvantages: Can become bureaucratic and rule-bound.

What is a Pay Structure? (Conceptual definition)

refers to the array of pay rates for different work or skills within a single organization. The number of levels, the differentials in pay between the levels, and the criteria used to determine those differences describe the structure

What is Surplus Value and Marginal Productivity? (Multiple-choice maybe)

surplus value: The difference between labor's use and exchange values. According to Marx, under capitalism wages are based on labor's exchange value—which is lower than its use value—and thus provide only a subsistence wage marginal productivity: In contrast to Marxist "surplus value" theory, a theory that focuses on labor demand rather than supply and argues that employers will pay a wage to a unit of labor that equals that unit's use (not exchange) value. That is, work is compensated in proportion to its contribution to the organization's production objectives.

Describe how tailored versus loosely coupled businesses strategies differ in terms of pay. Provide an example of a company which utilizes each type. (McDonalds, Google)

tailored: -A low-cost, customer-focused business strategy may be supported by a closely tailored structure. •Jobs are well defined with detailed tasks or steps to follow. •Their pay structures are, too. •McDonald's or Walmart are good examples loosely: -In contrast, 3M's business strategy requires constant product innovation and short product-design-to-market cycle times. •The competitive environment is turbulent and unpredictable. •No steps at all are laid out. •Engineers may work on several teams developing several products at the same time. •The pay structure is more loosely linked to the organization in order to provide flexibility.

Describe how Tournament Theory may motivate employees in some scenarios (individualistic, performance-oriented culture) while an Egalitarian pay structure (community-oriented culture) may work best.

tournament theory: -all players in sports play better when the prize differentials are larger. -Applying this to organization structures, the bigger the prize for getting to the next level of the structure, the greater the motivational impact. •One study reported that giving larger raises with a promotion increases effort and reduces absenteeism. •Others found that performance improves with larger differentials at the top levels of the structure. •The "winner-take-all" idea springs from these studies. -All the research that supports hierarchical structures and tournament theory is on situations where individual performance matters most. -Remember that equal and equitable mean different things. 1) Equal pay may actually be seen as inequitable, especially by stronger performers. Mostly because they successfully attracted and retained the most talented players. 2) Larger differentials based on performance generated positive sorting effects. 3) Equal pay may actually be seen as inequitable, especially by stronger performers. -More egalitarian structures are related to greater performance when close collaboration and sharing of knowledge are required.