lesson 5

Question 1

1.1 Explain the potential impact of the compensation system on employers

Answer 1

The compensation system it chooses can help retain and attract employees.

It can also have moral and philosophical implications.

Question 2

1.1 Explain the potential impact of the compensation system on employees

Answer 2

influences standard of living.

Question 3

1.1 Explain the potential impact of the compensation system on shareholders

Answer 3

Shareholders place importance on the bottom line.

Question 4

1.1 Explain the potential impact of the compensation system on wider society

Answer 4

compensation id often viewed from an equity perspective in wider society, focusing on questions of justice.

Question 5

1.2 Identify potential problems an organization can face if it fails to choose and appropriate compensation system (7)

Answer 5

• promote underproductive or counterproductive behavior
• low EE motivation
• poor performance
• high turnover
• creates organizational rigidity, inability to adapt to change
• poor customer service
• conflict between organizational units

Question 6

1.3 What are extrinsic rewards

Answer 6

Satisfy basic needs for survival and security, social needs and needs for recognition.

• financial returns
• general working conditions
• surpervisor.co-worker regard

Question 7

1.3 What are intrinsic rewards

Answer 7

Satisfy a higher level of needs such as:
- self development
- growth
- achievement
- self-esteem

Question 8

1.4 Differentiate between rewards and incentives

Answer 8

Reward - positive consequences of performing behaviors an organization desires - used to get EEs to perform at a higher level

Incentive - specific reward provided if a specific behavior is done - used to get EEs to do something that they normally wouldn’t rather than preforming at a higher level

Question 9

1.5 Define rewards system

Answer 9

Mix of intrinsic and extrinsic rewards an organization provides to employees and includes components like career advancement opportunities, work/life balance, an employee recognition program, a positive workplace culture and compensation

Question 10

1.5 Define compensation system (give 3 components)

Answer 10

Subset of the rewards system

1) Base pay
2) Performance pay
3) indirect pay (health, retirement)

Question 11

2.1 Identify the main goals of optimal reward and compensation systems (8)

Answer 11

1) Promoting achievement of organizational goals

2) For the system to fit within the strategy for achieving its goals and supporting its structure

3) Attracting and retaining qualified individuals who can perform the required task behaviors

4) Promoting desired employee behaviour

5) Being seen as equitable by all EEs

6) Complying with all relevant laws within the jurisdiction of operation

7) Achieving organizational goals at a cost that is within financial means

8) Achieving organizational goals in the most cost effective manner possible

Question 12

2.2 What are the 5 steps of developing an effective compensation system

Answer 12

1) Understanding the organization and the context in which it operates

2) Formulating the compensation strategy

3) Determining compensation values

4) Designing performance pay and indirect pay plans

5) Implementing, managing, evaluating and adapting the compensation system - includes communicating

Question 13

2.3 Explain the importance of ongoing evaluation and adaptation of a compensation system

Answer 13

Determines whether or not the system is accomplishing its objectives and if it is cost effective.

The evaluation can provide feedback on the nature of issues and inform the nature of changes needed.

Question 14

3.1 Explain the concepts of vertical and horizontal fit and their significance in rewards and compensation

Answer 14

Fit refers to the alignment of strategies at various levels in an organization.

Horizontal is alignment between strategies at the same level (HR strategies such as performance management and compensation are aligned with or support each other.

Vertical fit refers to alignment between an organization’s mission, vision and values with various supportive strategies

Question 15

3.2 Describe the dynamics that underpin a contingency approach to organizational design

Answer 15

The business strategy and organizational structure must fit with the environment the organization operates, the technology used, the size of the business and the characteristics of the people employed.

The success of a compensation system depends upon the fit.

Rewards and compensation sit inside of a larger set of structural variables which are interrelated and must fit with each other.

Question 16

3.3 Identify structural variables in an organization that interface with and impact reward and compensation systems (5)

Answer 16

1) Job design

2) Coordination and departmentation - methods to coordinate the work of EEs

3) Decision making and leadership - Mechanisms through with decisions are made and managerial role

4) Communication and information

5) Control structure - methods to control EE behaviour and to ensure they are doing what they are supposed to

Question 17

3.4 Explain the role of managerial strategy in a strategic compensation framework (3 patterns & comments)

Answer 17

Three main patterns of structural variable have emerged:

• Classical
• Human relations
• high involvement

Each of there represents a particular combination of structural variables that has proven successful in the right circumstances.

The managerial strategy used strongly impacts the success of the compensation system

Question 18

3.5 Explain the factors that influence determination of the most appropriate managerial strategy for that organization (3)

Answer 18

1) interaction between goals and the general environment in which the organization operates determines the organizations domain

The domain defines the products or services that the organization will offer and the task environment.

2) The task environment is a specific slice of the general environment that is of particular relevance to the organization

3) Organizational goals “drive” the determination of other contextual variables (business strategy, technology, organization size and the nature of the workforce)

Question 19

3.5 List key elements of the task environment (3)

Answer 19

1) Customers or clients

2) competitors

3) Suppliers and regulatory agencies

Question 20

3.6 Explain how contextual variables affect reward and compensation decisions

Answer 20

The key point is that a change in any of these may trigger a need for a change in the rewards and compensation system.

An organization looking to change its managerial strategy usually needs to change its compensation system.

The systems are interconnected

Question 21

3.6 List contextual variables that affect rewards and compensation (4)

Answer 21

1) business strategy
2) new technology
3) Size of the organization
4) characteristics of the workforce

Question 22

4.1 In the context of managerial strategies define: Classical strategy

Answer 22

Assumes most employees inherently dislike work but can be induced to work in order to satisfy their economic needs,

This approach assumes that the only way to get employees to work is to create circumstances where satisfaction of their economic needs becomes threatened if they don’t behave like the organization wants

Question 23

4.1 In the context of managerial strategies define: human relations strategy

Answer 23

This approach assumes most employees inherently dislike work but can be induced to work in order to fulfill their social needs.

This strategy is similar to classical but it differs in the belief that people can be motivated by appealing to social needs - the organization is like family

Question 24

4.1 In the context of managerial strategies define: high involvement strategy

Answer 24

The high involvement strategy assumes that work can be intrinsically motivating if an organization is structured properly.

Employees are motivated by their needs for interesting work, challenge, autonomy, personal growth and professional development

Question 25

4.2 In the context of the classical managerial strategy discuss job design

Answer 25

Jobs are designed with only a few elements so that they can be closely supervised and EEs easily replaces.

Specific duties and work methods are defined by management based on the assumption that EEs cannot be trusted to perform effectively otherwise.

Question 26

4.2 In the context of the classical managerial strategy discuss Coordination and departmentation

Answer 26

Jobs are arranged in a strict hierarchical fashion because of the overriding need for accountability. Employees are organized by function.

Question 27

4.2 In the context of the classical managerial strategy discuss: Control systems

Answer 27

Control is exercised through close supervision and threat of punitive action for deviations from formal rules and policies.

It is also assumed supervisors will shirk duties if given the opportunity.

Question 28

4.2 In the context of the classical managerial strategy discuss: communication

Answer 28

Communication is low

Question 29

4.2 In the context of the classical managerial strategy discuss: decision making and leadership

Answer 29

Coordination decisions are made at a relatively high level in the organization

Question 30

4.2 In the context of the Human relations managerial strategy discuss: job design

Answer 30

similar to classical but management tries to arrange jobs to allow social interactions between employees.

Question 31

4.2 In the context of the Human relations managerial strategy discuss: employee coordination

Answer 31

Similar to classical - the leader plays a controlling by EE oriented role.

Question 32

4.2 In the context of the Human relations managerial strategy discuss: decision making and leadership

Answer 32

Autocratic, senior manages make all important decision but do make a greater attempt to sell those decisions to provide EEs with the feeling that they have some decision making influence by asking opinions or permitting involvement in minor, inconsequential decisions.

Question 33

4.2 In the context of the Human relations managerial strategy discuss: Control

Answer 33

External but preferably exercised though a work group.

Invests in developing loyal employees and uses work group pressure to influence conformity.

If this fails the supervisor steps in but punishments are not uses as extensively for fear of upsetting social harmony.

Question 34

4.2 In the context of the Human relations managerial strategy discuss: Communication

Answer 34

Within informal work groups this is encouraged, management helps coordinate social communication.

The flow of work related communication tends to be low. Management still tries to restrict the flow of what it considers to be important information.

Question 35

4.2 In the context of the high involvement managerial strategy discuss: job design

Answer 35

It attempts to create jobs that are interesting and challenging and provide employees with considerable autonomy with planning and executing work activities.

Job based feedback is provided to EEs about their performance.

Question 36

4.2 In the context of the high involvement managerial strategy discuss: job design

Answer 36

It attempts to create jobs that are interesting and challenging and provide employees with considerable autonomy with planning and executing work activities.

Job based feedback is provided to EEs about their performance.

Jobs are broader and include more elements.

Joint EE/management planning and goal setting are often used.

Effort is made to combine thinking with doing.

Question 37

4.2 In the context of the high involvement managerial strategy discuss: Coordination of tasks

Answer 37

Often horizontal as well as vertical with horizontal being preferred.

Question 38

4.2 In the context of the high involvement managerial strategy discuss: control

Answer 38

The role of supervisor as facilitator is very different from other approaches.

Employees are assumed to be able to exercise self control and self motivation so the supervisor doesn’t need to exercise the control function.

Control is within the individual.

Question 39

4.2 In the context of the high involvement managerial strategy discuss: decision making

Answer 39

Because EEs are assumed to be self motivated and competent decisions can be made at the lowest possible level in the organization.

The leadership style is participative or democratic in nature.

Question 40

4.2 In the context of the high involvement managerial strategy discuss: communication

Answer 40

Full disclosure of information is recognized as being essential to good decision making

Question 41

4.3 In the context of the classical managerial strategy discuss the compensation system (3 points)

Answer 41

Simple - extrinsic economic rewards are related to individual output.

Pay is no higher than absolutely necessary to attract sufficient job applicants.

Centers around narrow job classifications and employees that are easy to train, replace, and supervise.

Question 42

4.3 In the context of the human relations managerial strategy discuss the compensation system (2 points)

Answer 42

mainly bases its compensation on extrinsic economic rewards that focus on loyalty to the organization - often unrelated to performance.

To encourage workforce stability seniority increases are often provided and there are liberal employee benefits, loyalty rewards and social rewards

Question 43

4.3 In the context of the high involvement managerial strategy discuss the compensation system (5 points)

Answer 43

Variety of intrinsic and extrinsic rewards.

EEs are expected to receive substantial intrinsic rewards directly from performing their jobs and participating in decision making.

Extrinsic rewards are geared towards fostering good performance rather than controlling substandard output and tend to focus on the work unit rather than individual.

Base pay tends to be salary augmented by profit sharing and gain sharing plans of various types as well as EE share ownership.

Pay is more person based than job based in order to promote skill acquisition and flexibility within the organization.

Question 44

4.4 Explain the nature of complementary and substitute interrelationships that can exist among the five structural variables

Answer 44

If structural variables are complementary they must occur together to be effective.

For example any retirement income arrangement that qualifies as a capital accumulation plan (allows mbrs to make investment decisions). members need communication, information and there must be good decision making and leadership.

If structural variables are substitutes the presence of one negates the other - for example profit sharing or gain sharing systems serve as substitutes for managerial control

Question 45

4.5 Explain the role of organizational culture in guiding EE behavior under the classical managerial system

Answer 45

Depend more on the formal structure to get EE behaviour that they want and so focus very little on organizational culture

Question 46

4.5 Explain the role of organizational culture in guiding EE behavior under the human relations managerial system

Answer 46

Use both formal structure and culture to shape EE behaviour

Question 47

4.5 Explain the role of organizational culture in guiding EE behavior under the high involvement managerial system

Answer 47

The need to stay flexible can result in very little formal structure because strong organizational culture is a substitute for structure

Question 48

4.5 Define organizational culture

Answer 48

A set of values, guiding beliefs, understandings and ways of thinking that are shared by members of an organization

Question 49

5.1 What are the two key issues in an environment in which an organization operates that are most important

Answer 49

1) Whether it is stable or unstable - in unstable environments customer needs, technology and competitors change quickly. Organizations have little control over the level of stability in the task environment

2) Whether it is simple or complex - If complex the organization may have many distinct product or service domains. Technology is complex and there are many factors that can influence success.

Question 50

5.1 Explain how the environment in which an organization operates influences the managerial strategy

Answer 50

Because of their rigidity classical and human relations organizations have great difficulty operating in dynamic unstable environments.

If a task environment is complex but stable a classical or human relations approach can work.

Generally a high involvement approach is needed where environments are highly unstable, dynamic or complex.

Question 51

5.2 Explain the Miles and Snow defender typology of business strategy and its implications for managerial strategy

Answer 51

Focuses on dominating a narrow product or service market segment and excelling in it based on a combination of product quality and price.

A defender organization may not always be the low cost leader but it will try to provide the best quality/price tradeoff to offer value to consumers.

The key word for this strategy is consistency.

Usually use classical approach as this works well for manufacturing or the human relations approach for service enterprises with extensive customer contact.

Question 52

5.3 Explain the Miles and Snow prospector typology of business strategy and its implications for managerial strategy

Answer 52

Focusses on identifying and exploiting new opportunities quickly.

Tend to move on to new products or services as competitors enter the market since competitors don’t have to include the cost of failed products in their pricing structures.

The key word for this strategy is speed.

The high involvement managerial approach is the most appropriate for the prospector business strategy.

Question 53

5.4 Explain the Miles and Snow analyzer typology of business strategy and its implications for the managerial strategy

Answer 53

Focusses on exploiting new opportunities at a relatively early stage while maintaining a base of traditional products or services.

The key word for this strategy is balance.

Typically not the first to enter a market but do so early. They are less efficient in production than defenders but get products to market before them.

Often a hybrid organizational structure is required. One side that promotes speed and flexibility for the new product and another for maintaining existing products.

Operate best with a high involvement approach for new product development and a classical approach for established products.

It is difficult to practice to divergent management strategies in the same organization so often a compromised human relation strategy ends up being employed across the board. This can be successful provided the environment is not too dynamic.

Question 54

5.5 Explain Porter’s low cost and focused low cost typologies of business strategy and their implications for the managerial strategy

Answer 54

Low cost business strategy focuses on providing low cost products/services to a wide range of customers.

A focused low cost strategy focuses on providing low cost products to a narrow range of customers.

The classical managerial strategy is best here

Question 55

5.6 Explain Porter’s differentiator and focused differentiator typologies of business strategy and their implications for managerial strategy

Answer 55

A differentiator business strategy and focused differentiator strategy focus on providing unique products for a broad or narrow range of customers respectively.

Because innovation is key they seem best suited to the high involvement strategy

Question 56

5.7 Explain how the size of an organization influences the type of managerial strategy

Answer 56

Because of the need to coordinate and control large numbers of people, large organizations generally use classical or human relations strategies.

In general it is easier to implement high involvement in small-medium size organizations.

Some large organizations have resolved this problem by segmenting the organization into a series of relatively small units then practicing high involvement in these units.

Question 57

5.8 Explain how the nature of an organization’s workforce influence the type of managerial strategy it chooses.