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strategic management of the HR > week nine - rewarding and compensating HR > Flashcards

week nine - rewarding and compensating HR Flashcards

1
Q

what are the financial compensation components

A
  • base compensation: fixed pay an employee receives regularly
  • pay incentives: variable pay programmes aimed at rewarding
  • benefits/indirect compensation: rewards aimed at providing security and better quality of life for employees
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2
Q

define job evaluation

A

assessment of the relative value or contribution of different jobs (not the individual employees) to an organisation, this is the basis for calculating base compensation (fixed pay)

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3
Q

what are the six steps of job evaluation

A

1) job analysis
2) write job descriptions
3) determine job specifications (specifications an employee must have to perform the job successfully)
4) rate worth of all jobs using a predetermined system (most common procedure: point-factor system)
5) create a job hierarchy
6) classify jobs by grade levels

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4
Q

total compensation system design

A

topic 9, slide 8-13

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5
Q

what are considered as financial compensation

A
  • fixed pay
  • variable pay
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6
Q

what are considered as non-financial compensation

A
  • performance and career management
  • quality of work environment
  • work and personal life balance
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7
Q

an effective compensation system should:

A
  • help the company achieve its strategic goals
  • be moulded to the unique characteristics of the company
  • consider the nine key features of (financial) compensation system design
  • consider the role of non-financial rewards to increase employee engagement
  • importance of employee involvement in the compensation system, especially regarding variable pay, indirect pay (benefits) and use of non-financial compensation
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8
Q

what are the nine key features of (financial compensation system design)

A

1) internal vs external vs individual equity
2) fixed vs variable pay
3) membership vs performance
4) job-based vs individual-based pay
5) egalitarian vs elitist pay systems
6) above vs below market pay
7) monetary vs nonmonetary rewards
8) open vs secret pay
9) centralised vs decentralised pay decisions

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9
Q

what is internal vs external vs individual equity

A
  • internal equity: fairness within a company (firm employees are compared)
  • external equity: fairness between different companies (different employers’ pay for the same labour compared)
  • individual equity: fairness of individual pay decisions
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10
Q

what is fixed vs variable pay

A
  • job evaluation is the most common source of fixed-pay decisions
  • performance appraisal is the most common source of variable pay decisions
  • layers: individual, team, business unit/plant, whole organisation
  • types: merit pay, piece rate, bonuses, awards, gainsharing, profit sharing, stock plans
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11
Q

types of pay-for-performance plans (fixed vs variable pay)

A
  • piece-rate system: employees are paid per unit produced or sold
  • merit pay: increase in base pay, based on periodic performance appraisal
  • bonus programmes (lump-sum payments): financial incentive given on a one time basis
  • awards: one time rewards given in a tangible prize
  • gainsharing: plantwide or business unit pay-for-performance plan in which a portion of the unit’s cost savings (efficiency increase) is returned to workers, usually as a financial bonus
  • profit sharing: corporate pay-for-performance plan that allocates a portion of declared profits to employees
  • employee stock ownership plans: corporate plan that rewards employees with company stock
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12
Q

what is membership vs performance

A
  • membership-based pay systems: emphasis on seniority (years of service), salary progression tied to moving up
  • performance-based pay systems: emphasis on performance in the current job, salary progression tied to contributions
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13
Q

what is job-based pay vs individual-based pay

A
  • job-based pay: employees are paid on the basis of current jobs, best when:
    1) jobs and technology are stable
    2) specific training is required
    3) turnover is low
  • individual-based pay: workers are paid for jobs they could do or talent/skills they have, best when:
    1) company is dynamic
    2) workforce is relatively educated
    3) teamwork is encouraged
    4) opportunities to learn new skills are available
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14
Q

what is egalitarian vs elitist pay systems

A
  • egalitarian pay system: most employees are part of the same pay system, which facilitates internal mobility, more common in competitive environments
  • elitist pay system: different compensation systems are established for employees or groups at different organisational levels, prevalent in older firms with limited competition
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15
Q

what is above market vs below market pay

A
  • above-market pay: emphasis on employee turnover and maximizing motivation.
  • below-market pay: emphasis on controlling labour costs
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16
Q

what are monetary vs non-monetary rewards

A
  • monetary rewards (tangible): direct financial compensation, e.g., base pay and most pay-for-performance plans. Emphasis on achievement & motivation
  • nonmonetary rewards (intangible): with financial value (e.g., company car, fitness centre, childcare) or non-financial (e.g., interesting work, good work atmosphere, work/personal life balance). Emphasis on motivation & engagement
17
Q

what is open vs secret pay

A
  • open: bad decisions cannot be hidden, forces managers to be fair and effective - good for egalitarian cultures
  • secret: fosters dissatisfaction with pay, may be appropriate for highly competitive climates
18
Q

what are centralised vs decentralised pay decisions

A
  • centralised pay decisions: tightly controlled by the HR department, with emphasis on internal equity
  • decentralised pay decisions: pay decisions are delegated down to unit managers, emphasis on external equity
19
Q

what is a job-based vs skill-based compensation plan

A
  • job-based compensation plans: traditional, widely used, key assumption = people paid to perform well-defined jobs
  • skill-based compensation plans: less common, key assumption = workers paid to how flexible and or capable they are at performing multiple tasks
20
Q

what is meant by ‘achieving internal equity: job evaluation

A

assessment of the relative value or contribution of different jobs to an organisation, providing the basis for calculating base compensation (fixed pay)

21
Q

what is meant by achieving external equity: market surveys

A

purpose: determine pay grade for each level, conducted by companies
1) identify benchmark (jobs that are similar)
2) establish a pay policy
(three options: lead pay market, leg behind, pay market rate)

22
Q

what is meant by ‘achieving individual equity: within pay-range positioning criteria’

A

assigning employees a pay rate within the range established for their job
- previous experience
- seniority
- performance appraisal

23
Q

what are the advantages and disadvantages of job-based compensation plans

A
  • advantages: rational, objective, systematic and easy to administer
  • disadvantages: inflexible, job descriptions are often too strict and general
24
Q

pros and cons of skill-based compensation plans

A
  • pros: more flexible, fewer supervisors needed, more employee control
  • cons: higher training costs
25
Q

what are the three skills within skill-based compensation plans

A

1) depth skills: specialising
2) breadth/horizontal skills: learning more jobs or tasks within a firm
3) vertical skills: self-management abilities

26
Q

what are the three key components of non-financial compensation

A

1) performance and career management
- performance appraisal
- regular feedback
2) quality of work environment
- physical safety
- employee involvement
- HR audits
- psychological aspects, i.e. task richness
3) work and personal life balance
- HR audit
- flexible work arrangements

strategic management of the HR (10 decks)

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