Organization Rewards and Compensation Exam 2
accountability
"job exists to achieve an end result"
know-how, problem solving, accountability
"jobholder requires knowledge and experience consistent with the scale and complexity of the result to be achieved"
problem solving, accountability
"to achieve this end results, job holders must address problems, create, analyze, and apply judgement"
job classification
-A series of classes covers the range of jobs -Class descriptions are the labels -Compare job descriptions to class descriptions to find the best fit -The label captures work detail yet is general enough to cover jobs -Describe classes further with titles of benchmark jobs
committee approach
-Carefully study factor & degree definitions -Individually rank factors in order of importance -Agree on a ranking -Individually distribute 100% among the factors -Reach agreement again
Skill-based structures
-These structures pay for all the certified skills of the individual, regardless of whether the work requires all or a few skills -The wage attaches to the person -In contrast, a job-based plan pays employees for the job, regardless of the skills they possess
committee or statistical approach
2 methods to determining factor weights
quoted price bourse
2 types of labor markets:
-Compensable factors -Factor degrees numerically scaled -Weights reflecting the relative importance of each factor
3 common factors with point method evaluation:
1. organizing and executing 2. analyzing and interpreting 3. adapting and coping 4. creating and conceptualizing 5. supporting and cooperating 6. enterprising and performing 7. interacting and presenting 8. leading and deciding
8 great competencies:
reliable
A _____ evaluation has evaluators producing the same results
1. the same occupation or skills 2. hiring employees within the same geographic area 3. the same products and services
A relevant labor market includes employers who compete in: (3)
examples of benchmark jobs
Accountant Marketing Manager IT Helpdesk Technician Administrative Assistant Top Operations Executive Engineer
Point Factor
Compares jobs on rating scales of specific factors
job ranking
Compares jobs using a single global factor that presumably combines all parts of the job
job classification
Defines categories of jobs and slots jobs into these classes
base pay
Designing pay grades and pay ranges is usually done with ___ ___ data, since this reflects the basic value of the work
1. skill 2. knowledge 3. self-concepts 4. traits 5. motives
Early conceptions of competencies focused on five areas:
skill-based plans
Employee involvement is almost built into ___ ____ ____
relative importance
Factor weights reflect the _____ _____ of each factor
•Differences in quality among applicants •Differences in productivity or value of quality variations •Differences in the mix of pay forms used by competitors
Grades and ranges offer flexibility for: (3)
1. what competitors it compares to 2. what pay forms are included
How a company compares to the market depends on: (2)
reliability
Improve ______ with trained evaluators familiar with the work
•Defining the skills •Arranging them into a hierarchy •Bundling them into skill blocks •And certifying whether a person actually possesses the skills
In skill-based, employees and managers are the source of information for: (4)
work, business
Job evaluation provides ______-related and ______-related order and logic
Reservation Wage Theory
Job seekers won't accept jobs if pay is below a certain wage, no matter how attractive other job aspects
external market
Job value may also include the job's value in the ______ _______
1. Internal consistency 2. Organizational alignment 3. Control labor costs 4. Fairness & equity 5. Job worth hierarchy 6. Market competitiveness
Key benefits of job content evaluations include:
market surveys
Many employers use _____ _____ to validate their own job evaluation results
product, labor
Microsoft and Google include both _____ market and _____ market competitors
regular
Most organizations adjust pay on a ______ basis
skill-based
Not all employers use grades and ranges. ____-_____ plans establish single flat rates for each skill level
business
Organizations are now emphasizing ______-related descriptions of behaviors
peer review, on-the-job demonstrations, tests
Organizations may use ______, ______, or ______ to certify that employees possess and apply skills
specialist (depth)
Pay is based on the knowledge of the individual, rather than on job content or output. A teacher is an example. Basic responsibilities do not vary on a daily basis
signaling theory
Pay policies signal the kinds of behavior the employer seeks. Pay decisions communicate the organization's expectations.
criterion pay structure
Pay structure that committee/advisory team wish to duplicate with the point plan.....may be reflective of current benchmark job rates
compensation or HR professional
Primary contributor is a pay level designer is:
External Competitiveness
Refers to the pay relationships among organizations; the organization's pay relative to its competitors
higher
Reliability for job evaluation scores are _____ than those for job analysis ratings
person based structure
Shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee's particular job.
manufacturing
Skill-based pay is used mostly in:
chaos, control
Some balance between _____ and _____ is required
-High in need for power, need for control, and who have extroverted personalities -Failure to adequately screen employees may lead to de-motivated employees who seek competencies, but are ill-suited to do so
Some research suggests if employers want competent managers, they need to select or train and develop people who are
date, job, pay
Specific pay data on each incumbent in the jobs under study includes:
Employee Cost Index
The Department of Labor regularly publishes the _____ ____ ____, which is one of four types of salary surveys
marginal product
The amount each hire produces
-Are seeking jobs -Possess accurate information about all job openings -Have no barriers to mobility
The behavior model assumes potential employees:
flexibility
The best approach to pay structures depends on the situation but provides sufficient ambiguity to afford ______
flexible
The challenge is to ensure job evaluation plans are ______
Pay Policy Line
The intended pay policy for the organization, generated by adjusting the market line for the intended pay level strategy of the organization.
relative value
The job's _____ ______ is determined by the total points assigned to it
where marginal revenue is equal to the wage rate for that hire
The level of demand that maximizes profits is
pay-with-competition policy (match)
The most common competitive policy is
-Employers always seek to maximize profits -People are interchangeable -Pay rates reflect all costs associated with employment -Competitive markets give no advantage in paying non-market rate
Theories of labor markets begin with 4 basic assumptions:
1. choice of measure 2. updating 3. policy line as a percent of market line
There are several ways to translate external competitiveness policy into practice: (3)
person based structure
There is less uniformity in terms in the _____ _____ ______
generalist (breadth)
Those in a multi-skill system earn pay increases by acquiring new knowledge. More pay comes from certification of new skills. Responsibilities can change drastically over a short time
1. Occupation 2. Geography 3. Competitors
Three factors usually used to determine relevant labor markets:
market pricing
Under ______ ______ , the hierarch of an organization is established based on The external marketplace first and internal equity second
internal equity, external competitiveness
Under other jobs evaluations, the hierarch of an organization is established based on _____ _____ first and _____ _____ second
price-fixing
Use outside consulting firms as third-party protection against possible "_____-______" lawsuits
1. The degree of agreement between rankings in the evaluation with agreed-upon ranking of benchmarks used as the criterion 2. By hit rates
Validity of the job evaluation has been measured in 2 ways:
market pricing
Values of each job is determined through the analysis of the external marketplace as typically reported through salary surveys
scientists, engineers, managerial professions, executives (sometimes)
When the geographic scope is international, across several countries, the most likely jobs are only available for critical skills or short supply: (4)
production, office, clerical, technicians
When the geographic scope is local, meaning within a relatively small area such as a city, the most likely jobs are: (4)
scientists, engineers, managerial professions, executives
When the geographic scope is national, across the country, the most likely jobs are: (4)
technicians, managerial professions
When the geographic scope is within a particular area of the state or several states, the most likely jobs are: (2)
market pricing
While not an exact science, it is a sound & practical approach using credible and reliable survey results to add validity to the market pricing process
skill-based plans
____ ____ ____ have very specific information on every aspect of the production process
collective bargaining
____ ____ contracts establish single flat rates for each skill level
skill-based
____ ____ plans are suited for continuous-flow technologies where employees work in teams
job based
_____ _____ pays only as much as the work is worth
job structure
a hierarchy of work that translates an internal alignment policy into practice
benchmark job
a job whose contents are well known, relatively stable, and common across different employers, reasonable proportion of workforce is employed in this job
Bourse Market
a market that allows haggling over terms and conditions until an agreement is reached (EBAY)
Pay ranges
a set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade
efficiency wage theory
above-market wages will improve efficiency by attracting workers who will perform better and be less willing to leave
knowledge
accumulated information
-The overall movement of pay rates caused by competition for people in the market -Performance -Ability to pay -Terms specified in a contract
an organization's pay adjustments can be based on: (4)
compensable factors
are based on strategic direction and how the work contributes to these objectives and strategy.
competencies
are becoming a collection of observable behaviors requiring no inference, assumption or interpretation
Competency indicators
are observable behaviors that indicate the level of competency within each set
skill-based plans
are readily accepted by employees and provide strong motivation to increase individual skills
self-concepts
attitudes, values, self-image
base pay+increases+benefits+allowances+perquisites
average pay level=
competency-based structure
begins by looking at the work performed in the organization
Shared Choice
begins with the lead, meet, or lag alternatives
principal administrative secretary, administrative secretary, word processor, clerk/messenger
benchmark jobs for administrative group:
vice president, supervisor
benchmark jobs for managerial group:
assembler 1 inspector 1, assembler 2, machinist 1 core maker
benchmark jobs for manufacturing group:
senior associate scientist, scientist, technician
benchmark jobs for technical group:
1. based on the strategy and values of the organization 2. based on the work performed 3. acceptable to stakeholders affected by the pay structure
compensable factors should be: (3)
internal alignment: work relationships within the organization -> core competencies -> competency set -> behavioral descriptors -> competency-based structures
competency-based structure phases: (5)
It fails to include performance incentives and other forms, so will not give true picture if competitors offer low base but high incentives
con of base pay compensation
all employees may not receive incentives, so it may overstate the competitors' pay. Plus, it does not include long-term incentives
con of total cash compensation
all employees may not receive all the forms. Be careful, don't set base equal to competitors' total compensation which risks high fixed costs
con of total compensation
broad bands
consolidates four or five traditional grades into a single band with a minimum and maximum. broader groupings of jobs give greater flexibility
mercer, US bureau of labor statistics, korn ferry, willis towers watson
consulting firms examples: (4)
Employer of choice
corresponds to the brand or image a company projects as an employer
Lag Pay-Level Policy
coupled with the promise of higher future returns, this may increase employee commitment and foster teamwork, increasing productivity
-Ensure the number of degrees is necessary to distinguish jobs -Use understandable terminology -Anchor definitions with benchmark job titles and work behaviors -Make it apparent how the degree applies to the job
criteria for scaling factors: (4)
the actions of employees
demand in labor market focuses on:
skills
demonstration of expertise
external competitiveness: pay relationships among organizations -> specify policy -> select market -> design survey -> draw policy lines -> merge internal/external pressures -> competitive pay levels, mix, and structures
determining externally competitive pay levels phases: (7)
1. job content 2. skills required 3. value to organization 4. organizational culture 5. external market
evaluation is based on: (5)
supports work flow
example of __ __ __: a major hotel chain moves many of its employees to the hotel's front desk between 4 p.m. - 7 p.m. when the majority of guests check in. After 7 p.m. these same employees shift to food and beverage service areas to match the demand for room service and dining room service
Skill, Responsibilities, Effort, Working Conditions
examples of compensable factors:
1. setting a pay level 2. determining a mix of pay forms relative to those of competitors
external competitiveness is expressed by: (2)
labor market factors product market factors organization factors
external competitiveness is made up of:
outliers
extreme values that don't appear to belong with the rest of the data
4-8
factor scales consist of ___-___ degrees
advisory committee
factor weights are determined by an ______ ______
job structure
final result of a job evaluation is a ___ ___
traits
general disposition to behave a certain way
regression
generates a straight line that best fits the data by minimizing variance around the line •As the number of jobs in the survey increases, the advantages of the straight line regression provides becomes clear
pay grades
groups of jobs within a particular class that are paid the same rate
competency-based structures
have relatively few levels and wide differentials for increased flexibility
1. verify data 2. accuracy of match and improving match 3. anomalies
how to interpret pay survey results: (3)
Benchmark-Job Approach, low-high approach, benchmark conversion/survey leveling
in designing a pay level, an organization can use several approaches: (3)
revenues, size of organization
information about the organization includes:
•Base pay, total cash, and total compensation are the most commonly used measures of compensation •Misinterpreting competitors' pay practices can lead to costly mispricing of pay levels and structures
information about total compensation system includes:
Pay Structure
internal alignment + external competitiveness =
skills, duties, and responsibilities
internal alignment based on content orders jobs by ___,___,___
work relationships within the organization -> job analysis -> job description -> job evaluation -> job structure
internal alignment phases:
survey data
is part of gathering competitive intelligence
pay level
is the average of the array of rates an employer pays
pay mix
is the various types of payments, or pay forms, that make up total compensation
input
job descriptions serve as an _____ for job evaluation
point factor
job evaluation that is expensive, complex, and difficult to explain but if done correctly it is easily defended in a court of law
job ranking
job evaluation that takes the least amount of time and money
Lack of good descriptions Differences among raters Influenced by: current pay, job incumbents' competence, prestige of jobs
job ranking cons
Simple Easy to explain Takes less time Costs less
job ranking pros
worth
job-based approach pays only as much as the work is ______
labor costs=number of employees x average pay level
labor costs equation
1. nature of demand 2. nature of supply
labor market factors:
-It may force the employer to increase wages of current employees too -It may mask negative job attributes that contribute to high turnover
lead pay-level policy cons
Skill-based structures
link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires relevant to work
External Competitiveness
looks at pay relationships among organizations
What is the objective of the plan? What information needs collected? What methods should be used to determine and certify competencies? Who is involved? How useful is the plan for pay purposes?
major competency decision questions for analysis: (5)
•What is the objective? •What info should be collected? •What methods should be used? •Who should be involved? •How useful are the results for pay purposes?
major skill decision questions for analysis: (5)
1. Use 3 or more salary surveys 2. Attempt to match 70% of job content 3. Attempt to match 50% or more of your benchmark jobs to the external marketplace 4. Obtain surveys with credible & relevant survey participants closely matching your business 5. Use surveys with filters such as: # of employees, location, industry, revenue, years of experience
market pricing guidelines
1. Collect 3 or more salary surveys to market price a business 2. Identify benchmark jobs and match to the external marketplace 3. Summarize market data & analysis for the benchmark jobs 4. Develop a salary structure based on market data for the benchmark jobs 5. Slot non-benchmark jobs into structure 6. Develop a compa-ratio report comparing employees' pay to the midpoints of the recommended salary structure with related costs 7. Obtain top management approval
market pricing steps: (7)
Lead Pay-Level Policy
maximizes the ability to attract and retain quality employees and minimizes employee pay dissatisfaction
market pricing
mimics competitor's pay structures
market pricing
most prevalent job evaluation:
consulting firms
offer a choice of ongoing surveys and offer clients access to survey databases
Internal Alignment
orders jobs by skills, duties, and responsibilities
job value
orders jobs on the basis of the relative contribution of the skills, duties, and responsibilities of each job to the organization's goals
1. industry, strategy, size 2. individual manager
organization factors:
•Industry and Technology •Employer Size •People's Preferences •Organization Strategy
organizational factors (4)
competitors
other employers in the same product or service and labor markets
promotions, skill
pay based structures increase pay through ______ or acquisition of ______
1. Control costs and increase revenues 2. Attract and retain employees
pay level and pay mix focus on two objectives:
security commitment
pay mix policy alternative consists of eighty percent of total compensation coming in the form of base wages and the remaining twenty percent in the form of benefits.
work-life balance
pay mix policy alternative consists of fifty percent of total compensation coming in the form of base pay and thirty percent in benefits. Bonuses make up ten percent and options the remaining ten percent.
performance driven
pay mix policy alternative is comprised of half of total compensation consisting of base pay and seventeen percent each for benefits and bonuses. The remaining sixteen percent is comprised of options.
market match
pay mix policy alternative is comprised of seventy percent of total compensation is base pay. Benefits make up twenty percent, bonuses six percent and options four percent.
1. pay policy line 2. pay ranges
pay structure has 2 aspects:
1. performance-driven 2. market match 3. work-life balance 4. security commitment
pay-mix alternatives
skill-based
plans that may give workers more control over their work life but favoritism and bias may be a problem
Complexity Time & expense
point factor cons
Stability Accuracy Many uses: job classes/grades, job pricing
point factor pros
1. Conduct job analysis 2. Determine compensable factors. 3. Scale the factors. 4. Weight the factors 5. Select criterion pay structure. 6. Communicate the plan and train users. 7. Apply to nonbenchmark jobs. 8. Develop online software support.
point factor steps
tells how competitors are valuing the work in similar jobs
pro of base pay compensation
tells how competitors are valuing work, also tells the cash pay for performance opportunity in the job
pro of total cash compensation
tells the total value competitors place on this work
pro of total compensation
benchmark conversion
process of matching survey jobs by applying the employer's plan to the external jobs and then comparing the worth of the external job with its internal "match"
1. degree of competition 2. level of product demand
product market factors:
•Provide flexibility to broadly define job responsibilities •Support organizations that have eliminated layers of managerial jobs •They foster cross-functional growth and development •Helps manage the reality of fewer promotions in flat organizations •The flexibility eases mergers and acquisitions
pros for broad banding: (5)
1. Help set pay for jobs where market pay survey data are unavailable by comparing the internal value 2. Match a job in a particular company to a comparable job of similar value in a market pay survey 3. Pay jobs based on which ones are most important to the company's strategy
purpose of job evaluation: (3)
1. supports the strategy and objectives 2. supports work flow 3. is fair to all employees 4. motivates behavior toward organization objectives
purpose of skill-based structures: (4)
1. supports the strategy 2. supports work flow 3. is fair to all employees 4. motivates behavior toward organization objectives
purpose of the competency-based structure: (5)
•High costs of redesigning a mix •Keep doing what you are doing •More likely, insufficient attention is paid to mix decisions •The mix used may have been based on external pressures
reasons changes in pay occur less often: (4)
motives
recurrent thoughts that drive behaviors
validity
refers to the degree to which the job evaluation assesses what is intended - the relative worth of jobs to the organization
job content
refers to what work is performed and how it gets done
factor weights
reflect the relative importance of each factor to the overall value of the job
diminishing marginal product
results when each new worker has a progressively smaller share of production factors available
occupation
skill or knowledge required
top-out
skill-based plans become increasingly expensive if all workers ________
internal alignment: work relationships within the organization -> skill analysis -> skill blocks -> skill certification -> skill based structure
skill-based structure phases: (5)
1. Establish purpose of evaluation 2. Decide whether to use single or multiple plan 3. Choose among alternative approaches 4. Obtain involvement of relevant stakeholders 5. Evaluate plan's usefulness
some major decisions in job evaluation: (5)
quoted price market
stores that label each item's price or ads that list a job's opening starting wage are examples of this (amazon) price is KNOWN
potential employees
supply in the labor market focuses on:
marginal product of labor
the additional output associated with the employment of one additional person, with other production factors held constant
marginal revenue of labor
the additional revenue generated from employing one additional person, with other production factors held constant
•Historical trends in the labor market •Prospects for the economy where the employer is operating •The manager's judgment •Various other factors
the amount to update in survey data is based on: (4)
hit rates
the degree to which the job evaluation plan matches (hits) an agreed-upon pay structure for benchmark jobs.
marginal revenue
the money generated by sale of the marginal product, the additional output from one additional person
competitive intelligence
the process of gathering information about the competitive environment, including competitors' plans, activities, and products, to improve a company's ability to succeed
job evaluation
the process of systematically determining the relative worth of jobs to create a job structure for the organization
To adjust the pay level in response to changing rates paid by competitors To set the MIX of pay forms relative to that paid by competitors To establish or price a pay structure To analyze pay-related problems
the purpose of a survey: (4)
core competencies
the underlying knowledge, skills, and behaviors that form success at any level or job
human capital theory
the value of an individual's skills and abilities is a function of the time and expense required to acquire them
relevant markets
those employers with which an organization competes for skills and products/services
1. To lead 2. To meet or match 3. To follow competition, or lag
three pay-level policies:
competency sets
translate each core competency into action
pay-with-competition policy (match)
tries to equal wage costs to those of its competitors. Its ability to attract applicants will be approximately equal to its labor market competitors
1. job ranking 2. job classification 3. point factor 4. market pricing
types of job evaluations
1. job ranking 2. job classification
types of qualitative job evals
1. point factor 2. market pricing
types of quantitative job evals
specialist (depth), generalist (breadth)
types of skill based plans:
mental, physical
under the compensable factor "effort"
fiscal, supervisory
under the compensable factor "responsibilities"
experience, education, ability
under the compensable factor "skill"
location, hazards, extreme environment
under the compensable factor "working conditions"
group consensus
use _____ _____ to increase reliability
Hay group method
uses three universal comprehensible elements to measure the relative size of jobs: accountability, problem solving, and know-how
1. information about the organization 2. information about the total compensation system 3. specific pay data on each incumbent in the jobs under study
what information to collect for pay levels: (3)
market rate
where labor demand and labor supply cross
geography
willingness to relocate, commute, or become a virtual employee
compensating differentials
work with negative characteristics requires higher pay to attract/retain workers
choice of measure
•A company can use a specific percentile for base pay and another percentile for total compensation
central tendency
•A measure reducing a large amount of data into a single number
increase
•As importance and complexity of qualifications increase, the geographic limits ______
market pricing
•Creates a job-worth hierarchy based on the 'going rate' for benchmark jobs in the external marketplace relevant to the business •All other (non-benchmark jobs) are slotted into the hierarchy
variation
•Distribution of rates around the central tendency is the variation
compensable factors
•Factors are scaled to reflect the degree to which they are present •Weighted to reflect their importance to the organization •Attached to each factor weight
market pay
•For non-benchmark jobs, the _____ ______ lines are useful
frequency distribution
•Help visualize information and may highlight anomalies, or outliers
updating
•If a company chooses a "match" policy, they will be lagging the market •Aging the market data to a point halfway through the plan year is called lead / lag
Price Fixing Lawsuit
•Lawsuits allege the direct exchange of survey data violates Section 1 of the Sherman Act outlawing conspiracies in restraint of trade •Price fixing happens if survey participants interfere with competitive prices and artificially hold down wages •Identifying participants' data by company name is considered price fixing
market line
•Links 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
alternation ranking
•List of job titles are provided with equal number of blanks •Job title with highest rank is recorded at top and then lowest at bottom. Continue process
straight ranking
•Ordering info on job titles and/or short briefs •Useful to have actual job description for reference
paired comparison
•Raters compare all possible pairs of jobs •Compare each pair of jobs at least once •Job title with highest ranking is 'marked' each time it is selected •After all comparisons are made, rank in order of highest to lowest number of 'marks'
policy line as percent of market line
•Specify a percent above or below the regression line an employer intends to match and draw a new line at this level •This pay-policy line carries a message
Low-high approach
•Use the lowest- and highest-paid benchmark jobs as anchors
benchmark conversion/survey leveling
•When jobs do not match survey jobs, quantify the difference using benchmark conversion •If an organization uses job evaluation, then apply that system to the survey jobs
weighted mean
•adding base wages for all employees and dividing by the number of employees
mean
•adding each company's base wage and dividing by the number of companies
Benchmark-Job Approach
•use if the purpose of the survey is to price the entire structure, then select benchmark jobs to include the entire structure •The degree of match is assessed by various means