A1 - Comp. Mgmt: A Strat. Approach and Analytical Framework Flashcards
1
Q
Base wage, merit pay and incentives are (3) components of this
A
Cash Compensation
2
Q
Pay recieved directly as cash such as base and merit increases, cost-of-living adjmnts and indirectly as EEs benef., such as pensions and health care.
A
total compensation
3
Q
approach that assumes that there is a universal best way for total compensation
A
best practices
4
Q
improving perf, increasing quality, delighting custs, and stockholders, and controlling labor costs
A
efficiency
5
Q
conforming to various fed’l and state compensation laws and regs.
A
compliance
6
Q
psychological returns ppl believe they receive in the workplace
A
relational returns
7
Q
Environment in which a total compensation package emphasizing perf-based pay works well
A
virtuous circle model
8
Q
policy choice in a pay system that makes comparisons among jobs or skill levels inside a single org.
A
internal alignment
9
Q
procedures through which policy choices are set in motion
A
pay techniques
10
Q
Different perspectives of compensation
Society
A
- some ppl see it as a measure of justice
- earnings differentials b/w men and women
- benefits as part of total comp. pkg
- thoughts that pay increases may cause prices to increase
11
Q
Different perspectives of compensation
Stockholders
A
- view exec. pay as excessive if it isn’t related to perf. of the company
- some believe that using stk to pay EEs creates a sense of ownership that will improve perf. = increase stockholder wealth
- some believe that granting to much stk to EEs dilutes stockholder wealth
- specifically interested in executive pay
- aligned interests of execs. to those of shareholders = company perf will be higher
12
Q
Different perspectives of compensation
Managers
A
influences their success
-
major expense:
- competitive pressures force mgrs to consider the affordability of their comp. decisions
- labor costs can acct for more than 50% of total costs
-
influences EE behaviors and improve org. perf.
- affect EE willingness to be flexible, learn new skills, and suggest innovations
- could push EEs who are not satisfied to unionize or legal action against their ER based on how they are paid
13
Q
Different perspectives of compensation
Employees
A
- source of financial security
- vital role in a person’s econ. and social well-being
- see comp as a return in an exchg. b/w their ER and themselves
- entitlement for being an EE of the company
- a reward for a job well done
- influence EE motivation and behavior
- motivational intesity, direction and persistence of current EEs
14
Q
the degree to which pay influences indiv. and aggregate motivation among the EEs we have at any point in time
A
incentive effect
15
Q
- the effect that pay can have on the compostiion of the workforce
- different types of pay strats. may cause different types of ppl to apply to and stay w/ an org.
A
sorting effect
16
Q
EE belief that returns and/or rewards are due regardless of indiv. or company perf.
A
entitlement
17
Q
refers to all forms of financial returns and tangible services and benef. EEs receive as part of an employment relationship
A
compensation
18
Q
global views of “compensation”
A
- in English - something that counterbalances, offsets, or makes up for something else
- in China - in the past, treated as a necessity of life or entitlement; now, broader sense of returns (wages, benefs., training opps., etc…) as well as entitlement.
- in Japan - takes care of EEs’ financial needs
19
Q
Total Returns
A
- total comp - pay rec’d directly as cash such as base and merit incr’s, cost of living adjmnts, and indirectly as EE benefits
- relational returns - learning opps, status, opps to belong and challenging work, are psychological returns ppl believe they receive in the workplace
20
Q
parts of Cash Compensation
A
- base
- merit/cost-of-living
- short-term incentives
- long-term incentives
21
Q
- part of Cash Compensation
- cash comp. that ERs pays for the work perf’d.
- tends to reflect the value of the work or skills and generally ignores differences attributable to indiv. EEs
A
base wage
22
Q
- parts of Cash Compensation
- periodic adjmnts to base wage based on chgs in what other ERs are doing, chgs in overall labor mkt, or chgs in experience or skill
- same level for all EEs
-
increments to the base pay in reognition of past work behavior
- w/ or w/o formal perf. eval system
- size varies w/ perf.
A
cost-in-living adjmnt/merit pay
23
Q
- parts of Cash Compensation
- tie pay increases directly to perf. - offered as an inducement to encourage good perf.
- variable pay: does not increase the base wage - must be re-earned each pay period
- potential size will generally be known beforehand
- influences future behavior
- can be tied to perf of indiv., team, total business unit, or some combo of each
A
incentives
24
Q
long-term incentives
A
- intended to focus on EE efforts on multiyear results
- typically in form of stk ownership or options to buy stk at advantageous prices
25
parts of benefits in total comp.
income protection
* ***_some are legally required_*** in U.S. - SS
* ERs make up half the contribs. to SS
* used to compensate EEs who become diabled or unemployed
* ***_others: med. ins., retirement programs, life ins. savings plans_***
* protect EEs from financial risks inherent in daily life
26
parts of benefits in total comp.
work/life balance
* ***_help EEs better integrate their work and life responsibilities_***
* ***_time away from work_*** (vacations, jury duty)
* ***_access to services to meet specific needs_*** (drug counseling, financial planning, referrals for child/elder care)
* ***_flexible work arrangements_*** (telecomm., nontrad'l schedules, nonpaid time off)
* increasingly important today due to changing demographics (2-income families; single-parents)
27
parts of benefits in total comp.
allowances
* ***_often grow out of whatever is in short supply_***
* housing, transportation, food....
* usually in foreign countries
28
relational returns from work
* nonfinancial returns from work have substantial effect on EEs' behavior
* recognition and status, employment security, challenging work, and opps. to learn
* personal satisfaction from succesfully facing new challenges, teaming w/ great co-workers, receiving new uniforms...
29
Pay Model
* ***_Comp. Objs._***
* ***_policies that form the foundation of the comp. system_***
* ***_techniques that make up the comp. system_***
* plays a central role in formulating and implementing an org's pay strat.
30
Compensation Objs.
parts of the Pay Model
* ***_shape the design_*** of the pay system and serve as the ***_standard_*** against which the success of the pay system is eval'd
* ***_pay systems are designed to achieve specific objs:_***
* ***_efficiency_***
* ***_fairness_***
* ***_ethics_***
* ***_compliance w/ laws/regs._***
31
**Efficiency**
Comp. Objs for pay models
* ***_improving perf., increasing quality, delighting custs. and s/h's_***
* ***_controlling labor costs_***
32
***_Fairness_***
Comp. Objs for pay models
* fundamental obj.
* requires ***_fair treatment for all EEs by recognizing both EE contribs._*** (higher pay for greater perf., experience, or training) ***_and EE needs_*** (fair wage as well as fair procedures)
* *Procedural Fairness:* the process used to make pay decisions - the way that a pay decision is made may be equally as important to EEs as the results of the decision
33
***_Compliance_***
Comp. Objs for pay models
* ***_conforming to fed'l and state comp. laws/regs_***
* if laws chg, pay systems may need to chg too to ensure continued compliance
* if global, must comply w/ the laws of all the countries in which they operate
34
***_Ethics_***
Comp. Objs for pay models
* ***_the org. cares about how its results are achieved_***
* put org's ethics stmts into daily practice
* managing pay sometimes creates ethical dilemmas
35
Policy Choices (4)
***_Parts of Pay Models_***
1. ***_internal alignment_***
2. ***_external competitiveness_***
3. ***_EE contribs._***
4. ***_mgmt of the pay system_***
36
* ***_the pay relationships among jobs or skill levels inside a single org._***
* jobs and ppl's skills are compared in terms of their ***_relative contribs. to org's bus. objs._***
* focuses attention on EE and mgmt acceptance of those relationships.
* involves establishing ***_equal pay for jobs of equal worth_*** and acceptable pay differentials for jobs of unequal worth
***_internal alignment_***
37
* ***_the pay relationships among orgs_***
* ***_focuses attn. on the competitive positions reflected in these relationships_***
* "how much do you want to pay in comparison to what other ERs pay?"
external competitiveness
38
external competitiveness decisions
1. to ensure that the pay is ***_sufficient to attract and retain EEs_***
2. to ***_control labor costs_*** so that the org's prices of products or serv. can remain competitive in a global econ.
39
* ***_comparison among indivs. doing the same job for the same org._***
* directly affects EEs' attitudes and work behaviors
* what mix of types of pay systems should ERs use?
* perf.-based
* flat rate
* team incentives
EE Contribs.
40
* last building block in our model - ***_policy regarding admin. of the pay system_***
* ***_ensuring that the right ppl get the right pay for achieving the right objs. in the right way_***
management
41
***_Pay Techniques_***
Part of Pay Models
* ***_the procedures through which policy choices are set in motion_***
* ***_link the four basic policies to the pay objs._***
* there are variations
* ***_job analysis and job evals._*** are techniques used to estab. a pay structure to achieve internal consistency in the pay system
* ***_pay surveys_*** are used to estab. ext. competitiveness
* ***_incentive plans or perf.-based pay incr's_*** are used to distinguish EE contribs.
42
(3) questions that the ***_concept of caveat emptor_*** raises as it applies to comp. mgmt studies and research
* is the research useful?
* does the study separate correlation from causation?
* are there alt. explanations?
43
a common measure of association that indicates how changes in one variable are related to changes in another
correlation coefficient
44
making chgs in the way work is designed to include external cust. focus
reengineering
45
* ***_the fundamental direction of the org._***
* it guides the deployment of all resources, including comp.
* ***_defined through the tradeoffs it makes in choosing what (and what not) to do_***
***_strategy_***
46
Q's a mgr asks regarding strat. choice
* ***_what bus. should we be in?_***
* ***_how do we gain/sustain competitive adv. in this bus.?_***
* ***_how should total comp help this bus. gain and sustain competitive adv.?_***
47
Stated vs Unstated Strat
* written or stated strats
* unstated comp - emerge from the pays decisions that the orgs. have made
* ***_inferred_*** from comp. practices
48
focuses on those comp. choices that help the org. gain and sustain competitive adv.
strat. perspective
49
Business Strat
* tailor their pay systems to align w/ the org's bus. strat.
* greater alignment = the more effective the org.
50
(3) general business strats
* innovator
* cost cutter
* customer focused
51
* general business strats
* stress new products and short response time to mkt trends
* supporting comp. approach = places less emphasis on evaluating skills and jobs and more emphasis on incentives designed to encourage innovations
innovator
52
* general business strats
* stresses doing more w/ less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs s/b performed.
cost-cutter
53
* general business strats
* stresses delighting cust. and bases EE pay on how well they achieve this
customer-focused
54
other business strats
* **cost leadership strat**.: firms that cust costs
* **differentiation strat**.: those that seek to provide a unique and/or innovative prod. or service at a premium price
* **defenders**: those that operate in stable mkts and compete on cost
* **prospectors**: more focused on innovation, new mkts, etc...
55
"AMO theory"
Supporting HR Strategy
P = *f* (A,M,O)
## Footnote
P = performance
*f* = function of: A(ability), M(motivation), and O(opp.)
* HR systems will be more effective when:
* roles are designed to allow EEs to be involved in decisions and have an opp. to make an impact
* when EE ability is developed through selective hiring and T/D
* when the comp. system motivates EEs to act on their abilities and take adv. of the opp. to make a difference
56
Comp and Supporting HR Strat.
* key to attracting, retaining, and motivating EEs w/ the abilities necessary to execute the bus. strat and handle greater decision-making responsibilities
* key to motivating them to fully utilize those abilities
* higher pay levels and pay for perf. are often part of HPWS
* central to successful bus. strat.
* ultimately seek to decrease costs or increase revenues relative to competitors
* key stakeholders (EEs, s/h's, custs.) must be happy w/ their "deal" w/ the company
57
(5) strategic compensation choices (Pay Model)
1. **Objectives**: How should comp. support the bus. strat. and be adaptive to the cultural and regulatory pressures in a global environ.?
2. **Internal Alignment**: How differenetly should the different types and levels of skills and work be paid _w/in_ the org?
3. **External Competitiveness**: How should total comp. be positioned against competitors?
4. **EE Contribs**: Should pay increases be based on indiv. and/or team perf, on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal needs, and/or on each bus. unit's perf.?
5. **Mgmt**: How open and transparent should the pay decisions be to all EEs? Who s/b involved w/ designing and managing the system?
58
Developing a Total Comp. Strat: (4) Steps
1. Assess Total Comp. Implications
2. Map a Total Comp. Strat.
3. Implement Strat.
4. Reassess
59
Developing a Total Comp. Strategy
Step 1: Assess Total Comp. Implications
**(5) Factors that s/b considered during this assessment process**
* ***_Bus. Strat and Competitive Dynamics - Understand the Business_***
* ***_understand of the specific industry in which the org. ops., and how the org. plans to compete in the industry_***
* aligning different comp. stats. w/ different bus. strats
* HR Strat - pay as a supporting player or catalyst for chg?
* comp. is embedded in the total HR approach no matter the HR strat.
* ***_Culture/Values_***
* ***_pay system should reflect the values that guide an ER's behavior and underlie its treatment of EEs_***
* mirrors the ER's image and reputation
* ***_Social and Political Context_***
* ***_legal requirements, cultural differences, chg'g workforce demographics, expectations_***
* mgrs of comp. ***_may try to shape_*** the sociopolitical environ. as well as be shaped by it
* ***_EE Preferences_***
* how to better satisfy indiv. needs/preferences in this chg'g environ.
* ***_Union Needs_***
* preferences for different forms of pay and their concern w/ job security affect pay strat.
* Other HR Systems
* choice is good? Yes/No/Maybe?
* all of the above
60
Developing a Total Comp. Strategy
Step 2: Map a Total Comp. Strat.
* ***_a strat. map offers a picture of a company's comp. strat._***
* clarify the message that the company is trying to deliver w/ its comp. system
* provide visual reference
* useful in analyzing a comp. strat. that can be more clearly understood by EEs and mgrs.
61
Developing a Total Comp. Strategy
Step 3: Implement
* ***_through the design and exec. of the comp. system_***
* translates strat. into practice - and into ppl's bank accts
62
Developing a Total Comp. Strategy
Step 4: Reassess and Realign
* closes the loop
* ***_recognizes that the comp. strat. must chg to fit chg'g conditions_***
* ***_period reassessment_*** is needed to learn, adapt, and improve
* results from using pay system need to be assessed against the objs. that you are trying to achieve
63
(3) tests to determine whether a pay strat. is a source of competitive adv.
1. Is it **aligned**? (easiest of the tests)
* align w/ bus. strat
* align externally w/ the economic and sociopolitical conditions
* align internally w/in the overall HR system
2. Does it **differentiate**?
* not just copying the single approach
* implies that it is the way programs fit together and fit the overall org. that is hard to copy
3. Does it **add value**? (most difficult)
* costs are easy to measure
* hard to measure value created as a result of those costs.
* possible to align and differentiate and still fail to add value
64
Best Practices vs. Best Fit
1. ***_Best 'Fit': presumes that one size doesn't fit all_***
* strat. perspective - if mgrs align pay decision w/ the org's strat. and values, are responsive to EEs and union relations, and are globally competitive, then the org. is more likely to achieve competitive adv.
* ***_design the "fit" w/ the environ., bus. strat, and pay plan_***
2. ***_Best 'Practice': assumes that there exists a universal best way_***
* set of best pay-practices exists - comp. practices that allow ERs to gain preferential access to superior HR talent and competencies which in turn influence the strats. the org. adopts
* ***_practices are applied universally across situations_***
* results in better perf. w/ almost any bus. strat.
* gives access to superior EEs
65
Virtuous Circle Model
* describes the environ. in which a total comp pkg emphasizing perf-based pay works well
* works in orgs that are successful and therefore are better able to offer incentives that in turn reinforce EEs' high perf.
* higher perf. in turn influences improved org. perf.
66
Vicious Circle Model
* environ. in which a total comp pkg relying on stronger perf-based pay doesn't work
* it fails in orgs. that are performing poorly and therefore are not able to pay bonuses and their stk options are declining
* EEs' perf. diminishes and this in turn exacerbates the orgs' perf.
* experts do not know what comp strat can be used to shift an org. caught here into a virtuous circle
