Day 15- Guest Lecture- Compensation

Question 1

Compensation Management

Phase I

Answer 1

Job Analysis

• initial job analysis
• Identify and study jobs
• -Job descriptions
• -Job Standards

Understand what the performance standards are of the job

Question 2

Compensation Management

Phase II

Answer 2

Job Evaluation

• Determine relative worth or value of jobs
• Provides for internal equity
• Job evaluation methods
• –job ranking
• –job grading
• –points systems

Job size is involved in ALL compensation systems

Question 3

Compensation Management

Phase III

Answer 3

Salary Surveys

• Discover what other employers are paying for specific key jobs
• Provide for external equity
• Sources of data:
• -HRSDC
• -Consultants
• -Employer Associations
• -Professional Associations

Look at what other people are paying for the same jobs

Reliability issue: Cant always be sure if all the companies are completely comparing apples to apples

Points Systems are really useful to help create more accurate matches within the Survey Data.

Question 4

Compensation Management

Phase IV

Answer 4

Pricing Jobs

• Establishing the pay level for each job
• -Combines job evaluation rankings, survey wage rates, and other considerations
• -wage-trend line developed
• Creating compensation structure
• -Job classification

Determining exactly how much each job should be paid

Question 5

Job Evaluation

Answer 5

The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.

Establish some sense of internal equity
-logical and rational- to employees as well.

Question 6

Job Ranking System

Answer 6

Oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.

Disadvantages:

• Does not provide a precise measure of each jobs worth
• Final job rankings indicate the relative importance of jobs, not the extent of differences b/t jobs
• Method can used to consider only a reasonably small number of jobs. (Hard is amount of employees is in the hundreds)

Question 7

Job Classification or Grading System

Answer 7

A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades.

Successive grades require increasing amounts of job responsibility, skill, knowledge, ability, or other factors selected to compare jobs.

Note:
Establish grades
Jobs are then slotted into each grade
Better than ranking, b/c it helps show the difference b/t positions

Question 8

Point System

Answer 8

A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.

Permits jobs to be evaluated quantitatively on the basis of factors or elements—compensable factors—that constitute the job.

Note:

• Most precise, but most difficult to do and implement
• try to assign points to different aspects of the job
• usually determined through a committee
• 3 or 4 areas of the job that are usually rated.

Question 9

Hay Profile Method

Answer 9

Know-how:

• depth and range of technical know-how
• management breadth
• human relations skills

Problem Solving:

• thinking environment
• thinking challenge

Accountability:

• freedom to act
• nature of impact
• area of impact

These aspects create the total job size

Question 10

The Wage Curve

Answer 10

Wage Curve

-Curve in a scattergram representing the relationship b/t relative worth of jobs and wage rates

Question 11

Wage Curve:

Pay Grades

Answer 11

Groups of jobs within a particular class that are paid the same rate

Question 12

Wage Curve:

Rate Ranges

Answer 12

A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade

Question 13

Wage Curve:

Red & Green Circle

Answer 13

Payment rates above the maximum (red circle) or below the minimum (green circle) of the pay range

Red circle- happens when there are jobs that are very very unique on the market

Question 14

Types of Incentive Plans

Individual

Answer 14

Piecework
Bonuses
Commission
Nonmonetary Awards

Question 15

Types of Incentive Plans

Group

Answer 15

Team Results

Question 16

Types of Incentive Plans

Enterprise

Answer 16

Profit-Sharing
Employee Stock Ownership
Cost Reduction

Question 17

Piecework

Answer 17

Employees receive a certain rate for each unit produce (straight piecework)

Or a premium if production exceeds a set standard

Question 18

Piecework

Benefits

Answer 18

Direct relationship between compensation and productivity
Simple to compute
Labour costs predicted accurately

Question 19

Piecework

Problems

Answer 19

Rate busting
Quality may suffer
Difficult to establish/change benchmarks
Reduce cooperation

Question 20

Bonuses

Answer 20

Incentive payment that is supplemental to the base wage

May be determined based on cost reduction, quality improvement, or other performance criteria

Question 21

Bonuses

Benefits

Answer 21

Can be an effective motivator if large enough
Can be tied to performance
Given out at the end of the year once overall performance is known

Question 22

Bonuses

Problems

Answer 22

Can become expected
Employee may not understand how they are tied to performance
spot bonuses may improve upon this

Question 23

Commissions

Answer 23

Compensation plan based on percentage of sales

Can be combined with base pay

Question 24

Commissions

Benefits

Answer 24

Maximum incentive
Easy to compute and understand
Flexible
Good in highly aggressive industries

Question 25

Commissions | Problems

Answer 25

Stressing high priced products Customer service may suffer Employee earnings can fluctuate greatly

Question 26

Non-monetary Rewards

Answer 26

Let employees know that they are valued and appreciated | Can be tied to seniority

Question 27

Non-monetary Rewards | Benefits

Answer 27

Often less costly Non-taxable for employees Can be more effective than money as a motivator Can allow choice in rewards

Question 28

Non-monetary Rewards | Problems

Answer 28

Need to recognize generational differences | If they are not valued, they can become a joke

Question 29

Team or Group Incentives

Answer 29

All team members receive an incentive bonus payment when production or service standards are met or exceeded

Question 30

Team or Group Incentives | Benefits

Answer 30

Encourage teamwork and collaboration Desirable when individual performance difficult to measure Encourages employee involvement

Question 31

Team or Group Incentives

Answer 31

Free riders Individuals not sure how their efforts contribute to success (but better than profit-sharing) Payout formulas are usually complex

Question 32

Profit Sharing

Answer 32

Paying employees special current or deferred sums based on the profits of the enterprise

Question 33

Profit Sharing | Benefits

Answer 33

Create culture of ownership | Simple to understand

Question 34

Profit Sharing | Problems

Answer 34

Profits determined by factors outside of employees’ control | Immediate reinforcement is low (i.e., high temporal discounting)

Question 35

Employee Stock Ownership

Answer 35

Stock options, employee ownership

Question 36

Employee Stock Ownership | Benefits

Answer 36

Create culture of ownership Options reduce need for cash payouts, allowing company to invest money instead Employees can become rich through ESOPs

Question 37

Employee Stock Ownership | Problems

Answer 37

Stock price determined by factors outside of employees’ control Employee ownership can be risky Managers need to allow employee involvement in decision-making

Question 38

Cost Reduction

Answer 38

Employees receive a bonus based on reducing costs | Bonus is often tied to amount of cost reduction

Question 39

Cost Reduction | Benefits

Answer 39

Employees may have more control over cost reduction than profits Can help create cohesion and promote ownership mentality

Question 40

Cost Reduction | Problems

Answer 40

Still subject to free rider problems Employees may be less focussed on innovation Requires a high degree of employee investment—may reduce productivity

Question 41

Successful Incentive Plans

Answer 41

Standards relate to strategic objectives. Employees are encouraged to participate. Employees see a clear connection between the incentive payments they receive and their job performance. Standards are challenging but achievable. Payout formulas are simple and understandable. Fair and transparent. Constantly communicate the value of the program!