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
Q
parts of benefits in total comp.
income protection
A
-
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
Q
parts of benefits in total comp.
work/life balance
A
-
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
Q
parts of benefits in total comp.
allowances
A
-
often grow out of whatever is in short supply
- housing, transportation, food….
- usually in foreign countries
28
Q
relational returns from work
A
- 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
Q
Pay Model
A
- 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
Q
Compensation Objs.
parts of the Pay Model
A
- 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
Q
Efficiency
Comp. Objs for pay models
A
- improving perf., increasing quality, delighting custs. and s/h’s
- controlling labor costs
32
Q
Fairness
Comp. Objs for pay models
A
- 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
Q
Compliance
Comp. Objs for pay models
A
- 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
Q
Ethics
Comp. Objs for pay models
A
- the org. cares about how its results are achieved
- put org’s ethics stmts into daily practice
- managing pay sometimes creates ethical dilemmas
35
Q
Policy Choices (4)
Parts of Pay Models
A
- internal alignment
- external competitiveness
- EE contribs.
- mgmt of the pay system
36
Q
- 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
A
internal alignment
37
Q
- 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?”
A
external competitiveness
38
Q
external competitiveness decisions
A
- to ensure that the pay is sufficient to attract and retain EEs
- to control labor costs so that the org’s prices of products or serv. can remain competitive in a global econ.
39
Q
- 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
A
EE Contribs.
40
Q
- 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
A
management
41
Q
Pay Techniques
Part of Pay Models
A
-
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
Q
(3) questions that the concept of caveat emptor raises as it applies to comp. mgmt studies and research
A
- is the research useful?
- does the study separate correlation from causation?
- are there alt. explanations?
43
Q
a common measure of association that indicates how changes in one variable are related to changes in another
A
correlation coefficient
44
Q
making chgs in the way work is designed to include external cust. focus
A
reengineering
45
Q
- 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
A
strategy
46
Q
Q’s a mgr asks regarding strat. choice
A
- 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
Q
Stated vs Unstated Strat
A
- written or stated strats
- unstated comp - emerge from the pays decisions that the orgs. have made
- inferred from comp. practices
48
Q
focuses on those comp. choices that help the org. gain and sustain competitive adv.
A
strat. perspective
49
Q
Business Strat
A
- tailor their pay systems to align w/ the org’s bus. strat.
- greater alignment = the more effective the org.
50
Q
(3) general business strats
A
- innovator
- cost cutter
- customer focused
51
Q
- 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
A
innovator
52
Q
- 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.
A
cost-cutter
53
Q
- general business strats
- stresses delighting cust. and bases EE pay on how well they achieve this
A
customer-focused
54
Q
other business strats
A
- 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
Q
“AMO theory”
Supporting HR Strategy
A
P = f (A,M,O)
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
Q
Comp and Supporting HR Strat.
A
- 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
Q
(5) strategic compensation choices (Pay Model)
A
- Objectives: How should comp. support the bus. strat. and be adaptive to the cultural and regulatory pressures in a global environ.?
- Internal Alignment: How differenetly should the different types and levels of skills and work be paid w/in the org?
- External Competitiveness: How should total comp. be positioned against competitors?
- 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.?
- Mgmt: How open and transparent should the pay decisions be to all EEs? Who s/b involved w/ designing and managing the system?
58
Q
Developing a Total Comp. Strat: (4) Steps
A
- Assess Total Comp. Implications
- Map a Total Comp. Strat.
- Implement Strat.
- Reassess
59
Q
Developing a Total Comp. Strategy
Step 1: Assess Total Comp. Implications
(5) Factors that s/b considered during this assessment process
A
-
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
Q
Developing a Total Comp. Strategy
Step 2: Map a Total Comp. Strat.
A
- 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
Q
Developing a Total Comp. Strategy
Step 3: Implement
A
- through the design and exec. of the comp. system
- translates strat. into practice - and into ppl’s bank accts
62
Q
Developing a Total Comp. Strategy
Step 4: Reassess and Realign
A
- 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
Q
(3) tests to determine whether a pay strat. is a source of competitive adv.
A
- 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
- 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
- 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
Q
Best Practices vs. Best Fit
A
-
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
-
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
Q
Virtuous Circle Model
A
- 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
Q
Vicious Circle Model
A
- 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
