MGT427 Chapt. 8 Compensation

Total cash

(base, profit sharing, bonuses) measures reveal competitors' use of performance based cash systems

Benchmark job approach

- benchmark jobs have stable job content, are common across different employers, and include sizable numbers of employees - if the purpose of the survey is to price the entire structure, then benchmark jobs can be selected to include the entire job structure--all key functions and all levels

Three basic types of data are typically requested

1) info about the organization 2) info about the total compensation system and 3) specific pay data on each incumbent in the jobs under study

Banding takes two steps

1) set the number of bands 2) price the bands; reference market rates

Major decisions in pay level determination

1) specify the employers competitive pay policy 2) define the purpose of the survey 3) select relevant market competitors 4) design the survey 5) interpret survey results and construct the market line 6) construct a pay policy line that reflects external pay policy and 7) balance competitiveness with internal alignment through the use of ranges, flat rates and/or bands

Select relevant market competitors

1) the same occupation or skills 2) employees within the same geographic area 3) the same products and services

Survey

a systematic process of collecting and making judgments about the compensation paid by other employers

Lead/lag

aging the market data to a point halfway though the plan year

Competitive intelligence

companies seeks to examine (benchmark) practices, costs and so forth against competitors including compensation

Broad banding

consolidates as many as four or five traditional grades into a single band with one minimum and maximum - often combined with more traditional salary administration practices by using midpoints, "zones" or other control points within bands

Standard deviation

how tightly all the rates are cluster around the mean

Mode

most commonly occurring rate

Median

order all data points from highest to lowest, the one in the middle is the median

Policy line as percent of market line

would carry out a policy statement of "we lead the market by 10%"

Low-high approach

- if an organization is using skill competency based structure or generic job descriptions, market data must be converted to fit the skills or competency structure - - identity the lowest and highest paid benchmark jobs for the relevant skills in the relevant markert and to use the wages for these jobs as anchors for the skill based structures

Benchmark conversion/survey leveling

- in cases where 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 - if the organization uses job evaluation system can be applied to the survey jobs

Purpose of survey

- to adjust the pay level relative to competitors - to set the mix of pay forms relative to competitors - to establish or price a pay structure - to analyze pay-related problems - to estimate the labor costs of competitors

Designing a survey

1) who should be involved in the survey design? 2) how many employers should be included? 3) which jobs should be included? 4) what info should be collected?

Range midpoint

an employee with consistently high performance ratings should move above the market median and range midpoint, whereas an employee with consistently average performance should be near the range midpoint

Anomalies

an employer whose data are substantially out of line from data of others - does any one company dominate? - do all employers show similar patterns? - outliers?

Pay structure

anchored by the organization's external competitive position and reflected in its pay-policy line

Frequency distribution

help visualize info and may highlight anomalies

Weighted mean

if you have only companywide measures the rate for each company is multiplied by the number of employees in that company *total of all rates divided by total number of employers

Total compensation

includes total cash plus stock options and benefits, it reflects total overall value of the employee (performance, experience, skills etc.) plus the value of the work itself

Market pay line

links a company's benchmark jobs on horizontal axis (internal structure) with market rates paid by competitors (market survey) on vertical axis *it summarizes the distrubtion of going rates paid by competitors in the market

Consumer price index (CPI)

measures the rate of change in prices for goods and services in the product market, not wage changes in labor markets

Range has three salient features

midpoint, minimum and maximum

Perquisites

most comply used measures of compensation

Pay ranges

offers flexibility, it exists whenever two or more rates are paid to employees in the same job, it provides opportunity to - recognize individual performance differences with pay - meet employees' expectations that their pay will increase over time, even in the same job - encourage employees to remain with the organization *internal alignment perspective; the range reflects the differences in performance or experience that an employer wishes to recognize with pay external competitiveness perspective; the range is a control device

Pay grades

offers flexibility, it groups different jobs that are considered substantially equal for pay purposes into a grade, it enhances an organization's ability to move people among jobs with no change in pay *each grade will have its own pay range and all jobs within a single grade will have the same pay range

Quartiles and percentiles

order all data points from lowest to highest then convert to percentages

Job structure

orders jobs on the basis of internal factors (reflected in job evaluation or skill certification)

Section 1 of the Sherman Act

outlaws conspiracies in restraint of trade

Pay structure has two aspects

pay policy line, pay ranges

Central tendency

reduces a large amount of data into a single number

Market pricing

sets pay structures almost exclusively on external market rates, market pricers match a large percentage of their jobs with market data and collect as much market data as possible *objective is to base of the internal pay structure on external rates, breaking down the boundaries between the internal organization external market forces

Regression

statistical study of the relationship between variables

Mean

sum of all rates and divided by number of rates *if you have only company data, wage of largest employer given same weight as smallest employer

Base pay

the amount of cash the competitors decided on each job and incumbent is worth

Variation

the distribution of rates around a measure of central tendency

Bureau of Labor Statistics (BLS)

the major source of publicly available compensation (cash, bonus and benefits but not stock ownership) data, it has extensive info on various occupations--very broadly defined