7 - Designing Pay Levels, Mix and Pay Structures Flashcards
The major decisions involved in setting externally competitive pay and designing the corresponding pay structures are:
(a) Specify the employer’s competitive pay ______.
(b) Define the ______ of the survey.
(c) Select relevant _________.
(d) _____ the survey.
(e) Interpret survey results and construct the ______.
(f) Construct a pay policy line that reflects _______ pay policy.
(g) Balance competitiveness with internal ______ through the use of ranges, at rates and/or bands
- policy
- purpose
- market competitors
- Design
- market line
- external
- alignment
A _______ is the systematic process of collecting and making judgments about the compensation paid by other employers.
survey
most firms conduct or participate in a survey for a number of reasons:
- (1) to adjust the pay level in response to ________ paid by competitors
- (2) to set the ____ of pay forms relative to that paid by competitors
- (3) to establish or _____ a pay structure
- (4) to analyze pay-related _______, or
- (5) to estimate the ________ of product/service market competitors.
- changing rates
- mix
- price
- problems
- labor costs
(a) Most organizations make adjustments to employees’ pay on a _______ basis. Such adjustments can be based on the overall upward movement of pay rates caused by the competition for people in the market. Or, adjustments may be based on performance, ability to pay, or terms specified in a contract. Monitoring the changes in rates paid by competitors is necessary to maintain or adjust how much a firm pays.
(b) The second type of adjustment is to the pay mix. Adjustments to the different forms of pay that competitors use (base, bonus, stock, bene ts) and the relative importance they place on each form occur ______ frequently than adjustments to overall pay level. The mix of forms and their relative importance make up the pay package. The mix organizations use is based on ________, such as government regulations, union demands and copying other organizations. Managers today recognize that total compensation involves many types of pay, and some pay forms may affect employee behavior more than others.
(c) The third form of adjustment has to do with the pay structure. Many employers use ________ to validate their own job evaluation results. The job structure that results from internal job evaluation may not match the pay structures found in the external market. Reconciling these two pay structures is a major issue. Informed judgment and accurate information are vital for making these judgments. As organizations move to more generic jobs that focus on the person’s skill as well as the job, the need for accurate market data increases.
regular
less
external pressures
market surveys
Information from specialized surveys may provide help on specific pay-related problems. Many special studies appraise the starting salary offers or current pay practices for targeted groups, such as patent attorneys, retail sales managers or software engineers. Managers must decide whether they are going to match or exceed their competitors or use other returns to lure or retain particular employees.
Some firms, particularly those in highly competitive businesses, use _______ data to benchmark against competitors’ product pricing and manufacturing practices. Industrywide labor cost estimates are reported in the Employment Cost Index, one of the four types of salary surveys published regularly by the Department of Labor on its website.
The Employment Cost Index measures ______ changes in employer costs for compensation. It allows a firm to compare changes in its average costs to an all-industry or specific-industry average. However, this comparison may have limited value because industry averages may not reflect relevant competitors.
salary survey
quarterly
Designing a survey requires answering the following questions:
(a) Who should be ______ in the survey design?
(b) How many _______ should be included?
(c) Which ____ should be included?
(d) What _____ should be collected?
involved
employers
jobs
information
In most organizations, the responsibility for managing the survey lies with the __________. But since compensation expenses have a powerful effect on profitability, including managers and employees on task forces makes sense. Outside consulting rms typically are used as third-party protection from possible price-fixing lawsuits. Courts interpret the Sherman Act to find survey participants guilty of _______ if the overall effect of the information exchange is to interfere with competitive prices and to artificially hold down wages.
(Hiring a third-party consultant instead of managing the survey internally buys legal protection but may trade off some control over the decisions that determine the quality and usefulness of the data. A consent decree prohibiting exchange of industry data eliminates the ability to make industry or product market comparisons. This might not be important in clerical jobs, but industry groups are important when making comparisons for wages for other skills/competencies and jobs.)
compensation manager
price fixing
In the United States, the Bureau of Labor Statistics, the major source of publicly available compensation data, is recognized as the main authority on compensation. The Bureau of Labor Statistics publishes extensive information on various occupations. Public sector employers seem to use the Bureau of Labor Statistics data more than do private sector employers. While some private firms may track the rate of change in Bureau of Labor Statistics data as a cross-check on other surveys, they find the data are not _______ enough to be used alone. The Internet makes a wealth of data available to everyone, and this easy access means that managers must be ready to explain differences in salaries between their workforce and their competitors’ workforce.
Opinions about the value of consultant surveys are numerous. Research is not. Many firms select one survey as their primary source and use others to cross-check or validate the results. For staffing decisions, employment test designers report the test’s performance against a set of standards. Issues of sample design and statistical inference are seldom considered. Some employers routinely combine the results of several surveys and weight each survey in this composite according to some person’s judgment of the quality of the data reported. No systematic study of differences in market definition, participating rms, types of data collected, quality of data, analysis performed and/or results is available.
specific
Different approaches can be used to select jobs for inclusion. They are:
(1) __________ Approach— jobs have stable job content, are common across different employers, and include sizable numbers of employees. If the purpose of the survey is to price the entire structure, then these jobs can be selected to include the entire job structure. T
(2) _______ Approach—If an organization is using skill/competency-based structures or generic job descriptions, it may not be able to match jobs with competitors who use a traditional job-based approach. Job-based market data may be converted to fit the skill or competency structure. The simplest approach is to identify the lowest and highest paid benchmark jobs for the relevant skills in the relevant market and to use the wages for these jobs as anchors for the skill-based structures. Work at various levels within the structure can then be slotted between anchors. The usefulness of this approach depends on how well the extreme benchmark jobs match the organization’s work and whether they really do tap the entire range of skills. Placing a pay system on two pieces of market data raises the stakes on the accuracy of those data.
(3) ____________________ Approach—If an employer is finding it hard to match survey jobs, it can apply its plan for creating internal alignment to the descriptions of survey jobs. The magnitude of difference between the job evaluation points for internal jobs and survey jobs provides a guideline for adjusting the market data. Again, this is based on judgment.
Benchmark-Jobs
Low-High
Benchmark Conversion/Survey Leveling
Three basic types of data typically are requested for surveys.
The first is information about the ______ of the organization. This includes size, structure and financial information. The collection process is changing with the increased gathering of “competitive intelligence.” Metrics of organizational performance such as turnover, recruiting and revenues are being collected from various sources including publicly available websites.
The second type of data is information about the __________ system. It is necessary to assess competitors’ complete pay packages, including base pay; total cash, which includes bonuses and pro t sharing; and total compensation, which includes total cash plus bene ts and perquisites.
The third type of information is the _______ data. This includes actual pay rates paid to employees in surveyed jobs, as well as personal data on _______.
nature
total compensation
incumbent / incumbents
_________ tells how competitors are valuing the work in similar jobs. It fails to include performance incentives and other forms, so it will not give a true picture if competitors offer low base pay but high incentives.
______ is the base plus bonus. It tells how competitors are valuing work. It also tells the cash pay for performance opportunity in the job. However, all employees may not receive incentives, so total cash may _____ the competitors’ pay. Plus, it does not include long- term incentives.
_________ includes base plus bonus, plus stock options, plus bene ts. It tells the total value that competitors place on this work. Again, all employees may not receive all the different types listed here. One needs to be careful and not set base equal to the competitors’ total compensation.
Base pay
Total cash
overstate
Total compensation
A common first step in verifying survey data is to check the _______ of the job matches. The _______ of the survey data also needs to be looked at. Data can be examined for patterns. Jobs can be matched for similarity with job descriptions. If the job is similar but not identical, some companies use benchmark conversion/survey leveling; that is, multiply the survey data by some factor that corresponds to the analysts’ judgment of the differences between the company and survey job. _________ is another example of the use of judgment in the survey analysis process. This process is used to weight the data according to the closeness of the match.
Perusal of the actual salary data gives the analyst an initial sense for the nature and quality of the data and helps identify any areas for additional consideration. Individual level data provide a wealth of information about speci c practices. Unfortunately, many surveys provide only summary information about speci c practices. Data like this present the analyst with many different anomalies. An anomaly may be de ned as an employer whose data are substantially out of line with those from others, age of the data, level of abstractness and other factors.
accuracy
quality
Leveling
__________ help visualize the information in the survey and may highlight nonconformities. They can vary in their shape. Unusual shapes may reflect _______ with job matches, widely dispersed pay rates or employers with widely divergent pay policies.
Frequency distributions
problems
3 methods of sttistical analysis for surveys
- Frequency distribution
- Central tendency
- Variation
A measure of central tendency reduces a large amount of data into a __________. The measure of central tendency, called the _____, is the single number that occurs most frequently. As a measure of central tendency, the mode is of limited value, in part because it will not always appear near the middle of the distribution, and in part because it is not very stable from sample to sample. However, the mode is the only appropriate measure of central tendency for nominal data. For example, if you have the numbers 2, 3, 3, 4, the mode is 3. The mode is 3 because it appears two times in this set of data. The median is the numerical center of a set of data, with exactly as many scores above the median point as below it. A median can also be visualized as the middle of all reported scores or rates. Medians dampen the affect of _____.
single number
mode
outliers
