4 - Compensation Management

Question 1

compensation management

Answer 1

• large impact on employee attitudes + behaviors
• powerful tool for aligning employee’s interest w/ those of the organization

Question 2

types of compensation management

Answer 2

base pay
variable pay
indirect compensations/benefits

Question 3

how organizations determine base pay

Answer 3

1. determine pay philosophy
2. conduct job analysis
3. group into job families
4. rank jobs through job evaluation
5. conduct market research
6. create job grades
7. create salary for each grade
8. determine how to deal w/ salaries not in range
9. review + update pay

Question 4

8. dealing w/ salaries not in range

Answer 4

below min rate:
- provide pay increase to at least the min

above the max rate:
- facilitate promotion into next pay grade
- adjust fixed pay to performance bonus
- restrict further salary increases by freezing pay
- lowering employee’s base pay

Question 5

impact of overlap in pay grades

Answer 5

the more overlap the more cost-effective it will be for career progression
- less overlap will require larger pay increase for internal promotions

Question 6

determining pay philosophy

Answer 6

lead the market
match the market
lag behind the market

• careful, bad is greater than good - Prospect Theory

Question 7

variable pay

Answer 7

individual measures:
- merit pay
- incentive pay
- skill-based pay

group measures:
- profit sharing
- ownership
- gain sharing

Question 8

benefits programs

Answer 8

social insurance
private group insurance
retirement
pay for time not worked
family-friendly policies

Question 9

Stanford medical university case: consequence of flexible benefits program

Answer 9

• used by junior faculty members (70%)
• women get the support they need to further career progression
• reduced turnover to 0
• unintended morale booster: increased support b/w faculty + residents

Question 9

Stanford medical university case: consequence of flexible benefits program

Answer 9

• used by junior faculty members (70%)
• women get the support they need to further career progression
• reduced turnover to 0
• unintended morale booster: increased support b/w faculty + residents

Question 10

equity theory

Answer 10

explains what is perceived as a fair exchange

reward/effort ratio must be equal to reward/effort ratio of others

• others = inside + outside organization