Chapter 3 Flashcards
(97 cards)
1
Q
What are two critical questions for compensation management as a whole?
A
(1) How is pay determined for the wide variety of work performed in organizations?
(2) How do the pay differences affect employees’ attitudes and work behaviours?
2
Q
What are the common bases for pay structures?
A
(1) the content of the work,
(2) the skills and knowledge required to perform it, and
(3) its relative value for achieving the organization’s objectives.
3
Q
What is a pay structure?
A
> the array of pay rates for different work or skills within a single organization; the number of levels, the differentials in pay between the levels, and the criteria used to determine these differences determine the structure
4
Q
Organizations design their pay structures around what? What does that mean for the employee?
A
> around jobs and job levels; thus, in many organizations, an employee’s pay (and by implication their pay growth over time) depends on both the nature of the job and the job level (and thus the promotion rate).
5
Q
What is the first and second objective to pay policies?
A
> Setting objectives is our first pay policy issue in a strategic approach. Internal alignment (or internal equity), our second, addresses relationships inside the organization.
6
Q
What is internal alignment?
A
7
Q
What creates a pay structure?
A
> Deciding how much to pay the various levels of work/positions
8
Q
How does internal alignment support strategy?
A
> The organization’s strategy indicates how it plans to achieve its purpose. Internal job structures that are aligned to the strategy help to achieve it.
9
Q
What is workflow?
A
> Workflow refers to the process by which goods and services are created and delivered to the customer.
10
Q
Do pay structures support workflow?
A
> The pay structure should support the efficient flow of that work and the design of the organization
11
Q
Internal job and pay structures influence employees’ behaviour in what why / how?
A
> by providing pay increases for promotions, more challenging work, and greater responsibility as employees move up in the job structure.
12
Q
What should job structure do?
A
> The structure should make clear the relationships between each job and the organization’s objectives.
> The structure also needs to be fair to employees.
13
Q
What is the “line of sight”?
A
> The ability for an employee to see the linkage between what he or she does and the organization’s strategic goals is often called line of sight.
14
Q
An internal structure may be aligned with a business strategy, but what can affect or arise concern to fairness?
A
> owner’s internal structure might have been aligned with his or her business strategy, but employee dissatisfaction raises concerns about the structure’s fairness to employees.
15
Q
An internal pay structure is defined by what three criteria?
A
An internal pay structure is defined by:
(1) the number of levels of work,
(2) the pay differentials between the levels, and
(3) the criteria used to determine those levels and differentials.
16
Q
One feature of any pay structure is what?
A
> is its hierarchical nature - the number of levels and reporting relationships in an organization
17
Q
What are differentials?
A
> The pay differences between levels are referred to as differentials.
18
Q
What work is typically paid more?
A
> Work that requires more human capital (knowledge, skills, and/or abilities) or that is performed under less desirable working conditions, or whose results are more valued is usually paid more
19
Q
What two components are the most common bases for internal pay structures?
A
> Work that requires more human capital (knowledge, skills, and/or abilities) or that is performed under less desirable working conditions, or whose results are more valued is usually paid more
20
Q
What does content refer to?
A
> Content refers to the work performed in a job and how it gets done (tasks, behaviours, knowledge required, and so on).
21
Q
What does value refer to?
A
> Value refers to the worth of the work: its relative contribution to the organization’s objectives.
22
Q
A structure based on content typically ranks jobs on what basis?
A
> A structure based on content typically ranks jobs on the basis of skills required, complexity of tasks, problem solving, and/or responsibility.
23
Q
A structure based on the value of the work focuses on what?
A
> a structure based on the value of the work focuses on the relative contribution of the skills, tasks, and responsibilities of a job to achieving the organization’s goals.
24
Q
Although the resulting structures (Content/Value) may be the same, there are important differences - what are
A
> value may also include external market pressures (such as skills shortages or competitors’ pay levels)
> value may include rates that have been agreed upon through collective bargaining or even legislation (e.g., minimum wage)
25
What are two types of value to consider?
> Use value reflects the value of goods or services an employee produces in a job.
> Exchange value is whatever wage the employer and employee agree on for a job.
26
Describe in an example the difference btween use value and exchange value:
> Jobs such as software engineer might have the same use value but different exchange values if, for example, one job is located in Bangalore and the other in Toronto.
27
A job-based structure looks at:
> work content—tasks, behaviours, responsibilities.
28
A person-based structure shifts the focus to what?
> the employee: the skills, knowledge, or competencies the employee possesses, and whether or not they are used on the particular job the employee is doing
29
In reality, do most organizations pick one structure style over an other?
> In the real workplace, it is hard to describe a job without reference to the jobholder’s knowledge and skills.
> Conversely, it is hard to define a person’s job-related knowledge or competencies without referring to work content.
> So rather than a job- or person-based structure, the reality includes both job and person.
30
What are external factors that shape internal structures?
> economic pressures
> government policies
> laws
> regulations
> stakeholders
> cultures and customs
31
What organization factors shape internal structures?
> strategy
> technology
> human capital
> HR policy
> Employee acceptance
> Cost implications
32
What factors are to be considered within an internal structure?
> levels
> differentials
> criteria
33
Who was an early advocate of letting economic market forces influence pay structures?
> Adam Smith
34
What values did Smith ascribe to HR? How did the industrial revolution affect these values?
> Smith ascribed to human resources both an exchange value and a use value.
> Exchange value is whatever wage the employer and the employee agree on.
> Use value reflects the value of the goods or services labour produces.
> Marginal productivity theory, a countering theory put forth in the last half of the 19th century, says that employers do in fact pay use value
35
What is marginal productivity theory?
> Marginal productivity theory, a countering theory put forth in the last half of the 19th century, says that employers do in fact pay use value
> Marginal productivity theory, a countering theory put forth in the last half of the 19th century, says that employers do in fact pay use value
36
What do pay differences look like under the marginal productivity theory?
> Pay differences among the job levels reflect differences in use value associated with different jobs.
> One job is paid more or less than another because of differences in relative productivity of the job and/or differences in how much a consumer values the output.
= Hence, differences in productivity provide a rationale for the internal pay structure.
37
Does supply and demand affect internal structures?
> In addition to supply of and demand for labour, supply and demand for products and services also affect internal structures.
> Rapid, often turbulent changes, either in competitors’ products and/or services (as in the rise of online shopping) or in customers’ tastes (as in the popularity of fuel-efficient or green vehicles), mean organizations must redesign workflow and employees must continuously learn new skills.
> Unpredictable external conditions require pay structures that support agile organizations and flexible people.
38
In Canada, human rights legislation forbids pay systems that do what?
> forbids pay systems that discriminate on the basis of gender, race, religion, sexual orientation, national origin, and many other grounds.
> An internal structure may contain any number of levels, with differentials of any sizes, as long as the criteria for setting them do not include gender, race, religion, or national origin.
39
1) Pay-related legislation attempts to regulate what?
2) In respect to legislation, The most obvious place to affect an internal structure is where? Is there any other spots?
> attempts to regulate economic forces to achieve social welfare objectives. Most countries have various legal standards regulating pay structures. Whatever they are, organizations operating within these countries must abide by them.
> is at the minimums (minimum wage legislation) and maximums (special reporting requirements for executive pay)
> But legislation also aims at the differentials.
40
What other groups have stake in establishing pay structures? What group is most obvious?
> Unions, stockholders, and even political groups have a stake in establishing internal pay structures.
> Unions are the most obvious case.
41
What do unions seek in pay structures?
> Most unions seek smaller pay differences among jobs as well as seniority-based promotions to promote solidarity among members.
> Unions also seek to ensure that the interests of their members are well represented in decisions about structures.
42
What pay structures do stockholders pay attention to?
> Stockholders also pay attention to executive pay.
> The link (or lack thereof) between executive pay and organization performance has come under increasing public scrutiny as western economies have faced ongoing economic problems in recent years.
> Boards of directors have been pressured to reduce executive pay when strategic outcomes are not being achieved, and particularly when profits have not materialized.
43
1) What are the two different definitions of culture?
2) What does this have to do with pay structures?
> Culture is the shared norms and values that a group of people have in common.
> A more academic definition of culture is "the mental programming for processing information that people share in common."
> Such shared mindsets within a society may form a judgment of what size of pay differential is fair.
44
Historians describe how in 14th-century Western Europe, the church endorsed a “just wage” doctrine. what was that?
> The doctrine was an effort to end the economic and social chaos resulting from the death of one-third of the population from the plague.
> The resulting shortage of workers that resulted from the devastation gave ordinary people power to demand higher wages, much to the dismay of church and state.
45
Whats an example of cultural effect on pay structures?
> Pay equity is a Canadian example in which advocates have been changing societal judgments about what constitutes a fair wage. These judgments change in response to pressure.
46
What is the basic belief of a strategic perspective in regards to pay systems
> The basic belief of a strategic perspective is that pay structures not aligned with the organization strategy may become obstacles to the organization’s success.
47
Technology used in producing goods and services influences what in an organization?
> Technology used in producing goods and services influences the organizational design, the work to be performed, and the skills/knowledge required to perform the work.
> differences in technology contribute to the different structures
48
The design of organizations is undergoing profound changes. What does this mean?
> A lot of people who work in organizations are not employees of those organizations.
> outsourcing has been a major change - Pay for these people is based on the internal structure of their own employer, rather than of the workplace at which they are currently located.
> Another major work design change is delayering. Delayering can reduce unnecessary work that does not contribute to strategic objectives. It can also add work to other jobs, enlarging them. Through the use of self-managed work teams in production work, entire levels of supervisory jobs are removed and the responsibility for decisions is delegated to the teams.
49
What is human capital?
> Human capital—the education, experience, knowledge, abilities, and skills that people possess—is a major influence on internal structures
50
The stronger the link between these skills and experience and an organization’s strategic objective
> the more pay these skills will command.
51
What other policies affect pay structures?
> The organization’s other human resources policies also influence pay structures.
52
How do most organizations assign their pay structures based off of their HR policy
> Most organizations tie money to promotions to induce employees to apply for higher-level positions.
> If an organization has more levels, it can offer more promotions, but there may be smaller pay differentials between levels.
> The belief is that more frequent promotions (even without significant pay increases) offer a sense of career progress to employees
53
An example of HR policy is:
> is Internal labour markets Internal labour markets combine both external and organizational factors.
> Internal labour markets refer to the rules and procedures that
(1) determine the pay for the different jobs within a single organization and
(2) allocate employees among those different jobs.
> Because the employer competes in the external market for people to fill these entry jobs, their pay is linked to the external market. It must be high enough to attract a qualified pool of applicants.
> External factors are dominant influences on pay for entry jobs, but the differences for non-entry jobs tend to reflect the organization’s internal factors.
54
Employees judge the fairness of their pay through what? As a result, what is an important factor to consider?
> Employees judge the fairness of their pay through comparisons with the compensation paid others for work related in some fashion to their own.
> Accordingly, an important factor influencing the internal pay structure is its acceptability to the employees involved
55
Employees make multiple pay comparisons to assess the fairness of an internal pay structure. What are some of those comparisons?
> They compare their pay to that for other jobs in the same internal job structure and to the pay for their job in the external market at competing employers.
56
What are the two different types of fairness for pay systems?
> Two aspects of fairness are important: the procedures for determining the pay structure, called procedural justice, and the results of those procedures—the pay structure itself—called distributive justice.
57
What is procedural justice?
> Procedural justice refers to the process by which a decision is reached.
58
What is distributive fairness?
> Distributive justice refers to the fairness of the decision outcome.
59
Researchers report that employees’ perceptions of procedural fairness significantly influence what?
> significantly influence their acceptance of the results.
60
Employees are more willing to accept lower pay if they believe what?
> willing to accept lower pay if they believe that the way the decision was made was fair.
61
The research also suggests that pay procedures are more likely to be perceived as fair if:
(1) they are consistently applied to all employees,
(2) employees participate in the process,
(3) appeals procedures are included, and (
(4) the data used are accurate.
62
Applied to internal structures, procedural justice addresses what?
> procedural justice addresses how design and administration decisions are made and whether procedures are applied in a consistent manner.
63
Applied to internal pay structures, Distributive justice addresses what?
> Distributive justice addresses whether the actual pay differences among employees are acceptable.
64
Pay structures change in response to:
> Pay structures change in response to changing external pressures such as skill shortages.
65
Explain that change and congeal process with respect to cultural considerations. Also provide an example of this process.
> Over time, distorted pay differences become accepted as equitable and customary; efforts to change them are resisted.
> Thus, pay structures established for organizational and economic reasons at an earlier time may be maintained for cultural or other political reasons.
> It may take another economic jolt to overcome the cultural resistance.
> Then, new norms for employee acceptance are formed around the new structure. This “change and congeal” process does not yet support the continuous change occurring in today’s economy - New norms for employee acceptance will probably need to include recognition that people must get used to constant change, even in internal pay relationships.
> The pay for airport security screeners relative to other airport jobs illustrates the "change and congeal" process.
66
Internally aligned pay structures support what?
> support the way the work gets done, fit the organization’s business strategy, and are fair to employees.
67
But what does it mean to fit or tailor the pay structure to be internally aligned? Two strategic choices are involved:
(1) how much to tailor the structure to organization design and workflow and
(2) how to distribute pay throughout the levels in the structure.
68
A low-cost, customer-focused business strategy such as that followed by Walmart or McDonald’s may be supported by what kind of strcuture?
> a closely tailored structure
> Jobs are well defined, with detailed tasks or steps to follow (similar pay structures)
> The customer representative and the food preparation jobs are very well defined to eliminate variability in how they are performed.
> Differences in pay among jobs are relatively small.
69
What does a company like 3M - where the competitive environment this organization faces is turbulent and unpredictable and requires several teams developing several products at the same time (more work) - need in terms of pay strategy?
> they need a more flexible pay structure, often called a loosely coupled structure.
70
What is a loosely coupled structure?
71
What is a closely tailored structure?
72
What are egalitarian structures like?
> Egalitarian structures have fewer levels and smaller differentials between adjacent levels and between the highest- and the lowest-paid workers.
73
What are the elements of hierarchical pay structure?
Levels - Many
Differentials - Large
Criteria - Person or Job
Supports - Close Fit
Work organization - individual performers
Fairness - Performance
Behaviours - Opportunities for promotion
74
What are the elements of egalitarian pay structure?
Levels - fewer
Differentials - Small
Criteria - Person or Job
Supports - loose fit
Work organization - teams
Fairness - equal treatment
Behaviours - cooperation
75
Structures can also be said to vary from what?
> Structures can also be said to vary from layered to delayered.
76
What can said about hierarchical structures?
> Hierarchical structures are consistent with a belief in the motivational effects of frequent promotion.
> Hierarchies value the differences in individual employee skills, responsibilities, and contributions to the organization
77
What are drawbacks to the egalitarian approach?
> There are drawbacks to this approach. Equal treatment can result in more knowledgeable and high-performing employees (the stars) going unrecognized and under-rewarded, which may cause them to leave the organization.
78
Before managers recommend which pay structure is best for their organizations, we hope they will look not only at the factors in their organization, but also to what?
> but also look to theory and research for guidance.
> Both psychologists and economists have something to tell us about the effects of various structures.
79
employees judge the fairness or equity of their pay by doing what?
> by comparing it to that for other jobs at their own employer (internal equity) and to that for jobs at other employers (external equity).
80
It is important to be clear that the terms equity and equal are not what?
> are not interchangeable.
81
Outcomes such as pay can be unequal across employees, but pay can nevertheless be perceived as equitable or fair, if what?
> those perceived as making larger performance contributions are the ones receiving higher pay
82
What does equity theory state?
> Equity theory says that people compare the ratio of their own outcomes (e.g., pay, status) to inputs (e.g., effort, ability, performance) with the outcome to input ratio of other workers
83
What do Economists focus on?
> Economists have focused more directly on the motivational effects of structures, as opposed to people's perceptions of structures.
84
According to tournament theory, all players play better in tournaments in which what occurs? How would this work in an actual work scenario?
> According to tournament theory, all players play better in tournaments in which the prize differentials are sizable
> Applying these results to organizations, the greater the differential between an employee’s present salary and his or her boss’s salary, the harder the employee (and everyone else) will work.
> Within limits, the bigger the prize for getting to the next level of the structure, the greater the motivational impact of the structure.
85
But most work is not a round of golf, nor does it lead to the company presidency. Virtually all the research that supports hierarchical structures and tournament theory takes place in situations in which matters the most?
> in which individual performance matters most (e.g., auto racing, bowling, golf tournaments) or, at best, in which the demand for cooperation among a small group of individuals is relatively low (e.g., professors, stockbrokers).
86
What pay structures worked best in sport teams? Did it affect individual performance?
> Using eight years of data on major-league baseball, one study found that teams with egalitarian structures (practically identical player salaries with small differentials) did better than those with hierarchical structures (very large differentials between players).
> A mediocre player improved more on a team with an egalitarian structure than on a team with a hierarchical structure. (But - It may also be that the egalitarian pay structure reflects a more flexible, supportive organizational culture in which mediocre players are given the training and support they need.)
87
Internal pay structures are sometimes adopted because they have become what?
> because they have become so-called best practices.
88
Recent examples of such "benchmarking" include:
> “benchmarking” behaviour include outsourcing, emphasizing teams, deemphasizing individual performance, and shifting to competency-based pay systems without regard to whether these practices fit the organization or its employees and whether they add value.
89
Institutional theory predicts what?
> Institutional theory predicts that very few firms are “first movers.” Instead, they copy innovative practices after innovators have learned how to make the practices work.
90
What is a downside to institutional theory?
> The potential drawback of such behaviour is that what aligns with the strategy of one organization may not align with another organizations' strategy.
> It is quite unlikely to outperform one’s competitors by simply imitating their practices
> However, for an organization that is performing worse than its competitors, learning from other organizations, which may involve some imitation, may be quite useful in achieving competitive parity and may represent a significant improvement for that organization.
91
Some consequences of an internally aligned pay structure are:
> undertake training
> increase experience
> reduce turnover
> facilitate career progression
> facilitate performance
> reduce pay-related grievances
> reduce pay-related work stoppages
92
The impact of internal structures depend on the context in which they operate. For example:
1) More hierarchical structures are related to greater performance when the workflow depends more on individual contributors (e.g., consulting and law practices, surgical units, stockbrokers, even university researchers).
2) More hierarchical structures are related to greater performance when the workflow depends more on individual contributors (e.g., consulting and law practices, surgical units, stockbrokers, even university researchers).
3) More egalitarian structures are related to greater performance when close collaboration and sharing of knowledge are required (e.g., firefighting and rescue squads, manufacturing teams, global software design teams). The competition fostered in “winner take all” tournament hierarchies appears to have negative effects on performance when the workflow and organization design require teamwork.
4) The impact of any internal structure on organization performance is affected by the other dimensions of the pay model: pay levels (competitiveness), employee performance (contributions), and employee knowledge of the pay structure (management)
93
Research has shown that an internally aligned pay structure can offer what an organization?
> Research has shown that an internally aligned pay structure can offer an organization efficiency, fairness and compliance—the strategic objectives of the pay model!
94
Research shows that an aligned pay structure can lead to:
> can lead to better organization performance
95
How do internal pay structures lead to better organizational performances?
> If the structure does not motivate employees to help achieve the organization’s objectives, then it is a candidate for redesign.
> Internal pay structures imply future returns - The size of the pay differential between the entry level and the highest level in the structure may induce employees to remain with the organization, increase their experience and training, cooperate with co-workers, and seek greater responsibility.
96
What are the two debates in respect to fairness?
> One group argues that if fair (i.e., sizable) differentials between jobs are not paid, individuals may harbour ill will toward the employer, resist change, change employment if possible, become depressed, or “lack that zest and enthusiasm which makes for high efficiency and personal satisfaction in work.”
> Others, including labour unions, argue for only small differentials within pay level and for similar work, in the belief that more egalitarian structures support team cooperation, high commitment to the organization, and improved performance.
97
As with any pay decision, internal pay structures must comply with:
> must comply with the regulations of the countries in which the organization operates.
