Assignment 7

Question 1

What are the major decisions involved in setting externally competitive pay and designing the corresponding pay structures?

Answer 1

1) Specify the employer’s competitive pay policy
2) Define the purpose of the survey
3) Select the relevant market competitors
4) Design the survey
5) Interpret survey results and constuct the market line
6) Construct a pay policy line that reflects external pay policy
7) Balance competitivness with internal alignment through the use of ranges, flat rates and/or bands

Question 2

What are some major decisions in pay-level determination?

Answer 2

1) Specify pay-level policy
2) Define purpose of survey
3) Specify relevant market
4) Design and conduct survey
5) Interpret and apply results
6) Design grades and ranges or bands

Question 3

Definition of a survey

Answer 3

The systematic process of collecting and making judgements about the compensation paid by other employees.

Question 4

Why do firms conduct or participate in survey for a number of reasons:

Answer 4

1) To adjust the pay level in response to changing rates paid by competitors
2) To set the mix of pay forms relative to that paid by competitors
3) To establish or price a pay structure
4) To analyze pay-related problems
5) To estimate the labor costs of product/service market competitors

Question 5

What adjustments do organizations make in relation to their pay level?

Answer 5

Most organizations make adjustments to employee’s pay on a regular basis. These adjustments can be based on overall upward movement of pay rates, performance, ability to pay, or terms specififed in a contract.

Question 6

What adjustments do organizations make in relation to their pay mix?

Answer 6

Occur less frequently that adjusments to pay level. The mix of forms and their relative importance make up the pay package. The mix is based on external pressures, wuch as government regulations, union demands, and copying other organizations.

Question 7

What adjustments do organizations make in relation to pay structure?

Answer 7

Many employers use market surveys to validate their own job evaluation results.

Question 8

Specialized surveys

Answer 8

Specialized surveys may provide help on specific pay-related probelms. Many special surveys appraise the starting salary offers or current pay practices for targeted groups.

Question 9

What questions should be answered in designing a survey?

Answer 9

1) Who should be involved in the survey design?
2) How many employers should be included?
3) Which jobs should be included?
4) What information should be collected?

Question 10

Who should be involved in designing the survey?

Answer 10

In most organizations the responsibility for managing the survey lies with the compensation manager. But since compensation expenses have a powerful effect on profitability, inlcuding managers and employees on task forces makes sense.

Question 11

The Sherman Act

Answer 11

Courts interpret the Sherman Act to find survey participants guilty of price fixing if the overall effect of the information exchange is to interfere with competitive prices and to artificially hold down wages.

Question 12

Why would you hire a 3rd party to do your survey?

Answer 12

It buys legal protection but may trade off some control over the decisions that determine the quality and usefulness of the data.

Question 13

What does a consent decree do?

Answer 13

Prohibits the exchange of industry data elminates the ability to make industry or product market comparisons.

Question 14

Bureau of Labor Statistics

Answer 14

a major source of publicly available available compensation data. It is recognized as the main authority of compensation. Publishes extensive information on various occupations.

Question 15

When deciding on which jobs to inlcude in a survey:

Answer 15

A general guideline is to keep it as simple as possible. Select as few employers and jobs as necessary to accomplish the purpose. The more complex the survey, the less likely other employers are inclined to participate.

Question 16

Benchmarch jobs

Answer 16

Have stable job content, are common across different employers, and include sizable numbers of employees.

Question 17

Benchmark Jobs Approach

Answer 17

If the purpose of the survey is to price the entire structure, then benchmark jobs can be selected to include the entire job structure. This includes all key functions and all levels.

Question 18

Why use a Low-High Approach

Answer 18

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 data may be converted to fit the skill or competency structure.

Question 19

Low-High Approach

Answer 19

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 structure. Work at various levels can be slotted between anchors.

Question 20

Usefullness of Low-High Approach depends on

Answer 20

How well the extreme benchmark jobs match the organiztaion’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.

Question 21

Benchmark Conversion/Survey Leveling Approach

Answer 21

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 the difference between the job evaluation points for internal jobs and survey jobs provides a guideline for adjusting market data.

Question 22

3 Types of Information to collect in a survey:

Answer 22

1) Nature of the Organization
2) Information about the Total Compensation System
3) Incumbent Data

Question 23

Nature of the organization

Answer 23

The size, structure, and financial information of the organization

Question 24

Total Compensation System

Answer 24

This is necessary to collect in a survey to assess competitors; complete pay packages, inclduing base pay, total cash ( bonuses and profit sharing) and total compensation, which includes total cash + benefits and perquisities.

Question 25

Incumbent Data

Answer 25

This includes the actual pay rates paid to employees in surveyed jobs, as well as personal data on incumbents.

Question 26

Base pay ( advantages and disadvatages)

Answer 26

Base pay tells how competitors are valuing the work in similary 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.

Question 27

Total Cash (Advantages and Disadvantages)

Answer 27

Tells how competitors are valuing work. It also tells the cash pay for performance opportunity in the job. All employees may not receive incentives, so it may overstate the competitor’s pay. It also does not inlcude long term incentives.

Question 28

Total Compensation ( Advantages and Disadvantages)

Answer 28

Includes baes plus bonus, plus stock options, plus benefits. It tells the total value that competitors place on this work. All employees may not receive all the different types listed. Need to be careful and not set base equal to the competitor’s total compensation.

Question 29

Verifying data

Answer 29

Check the accuracy of the job matches. The quality of the survey also needs to be looked at. Data can be examined for patterns. Jobs can be matched for similarity with job descriptions.

Question 30

If the job is similar, but not identical

Answer 30

some companies use benchmark conversion/survey leveling; that is, mutiply the survey data by some factor that corresponds to the analyst’s judgement of the differences between the company and survey job.

Question 31

Anomaly in surveys

Answer 31

May be defined as an employer whose data are substantially out of line with that from others, age of data, level of abstractness and other factors.

Question 32

Frequency Distribution

Answer 32

Helps visulaize the information in the survey and may highlight nonconfomities. Frequency distributions can vary in their shape. Unusual shapes may reflect problems with job matches, widely dispersed pay rates or employers with widely devergent pay policies.

Question 33

Measures of Central Tendency

Answer 33

Reduces a large amount of data into a single number. The measure of central tendency, called the mode, is the single number that occurs the most frequently. The mode will not always appear near the middle of the distribution, because it is not stable from sample to sample.

Question 34

Median

Answer 34

the numerical center of a data set , with exactly as many scores above the median as below it. It can also be visualized as the middle of all reported scores or rates. Medians damped the affects of outliers.

Question 35

Outliers

Answer 35

are scores or numbers that are greatly exaggerated from how the tendency of a set of data might be.

Question 36

Mean

Answer 36

Another measure of central tendency. The arithmetic average of the scores within the data set. When only company averages are reported in the survey, the use of the mean may not accurately reflect actual labor market condtions, since the base wage of the largest employer is given the same weight as that of the smallest employer.

Question 37

Weighted Mean

Answer 37

Gives equal weight to each individual employee’s wage. A fairly accurate picture of actual labor conditions, since it captures the size of supply and demand.

Question 38

Variation

Answer 38

the distribution of rates around a measure of central tendency. Standard deviation is the most common statiscal measure of variation, although its use in salary surveys is very rare.

Question 39

Quartiles and Percentiles

Answer 39

Most common measure of dispersion in salary survey analysis. a 75th percentile means that 75% of all pay rates are at or below that point. To calculate percentiles, the measures are ordered from lowest to highest, then converted to percentages.

Question 40

Aging or Trending

Answer 40

because organization’s are constantly changing their pay rates, it is safe to assume that a survey’s data is outdated prior to receving the results. Companies chose to age or trend that data. It is based on historical trends in the labor market, prospects for the economy in which the employer operates and the manger’s judgement, among others.

Question 41

Market Line

Answer 41

Links a company’s benchmark jobs on the horizontal axis ( internal sturcture) with the market rates paid by competitors ( market survey), which are on the vertical access. Can be drawn freehand or a regression analysis can be used.

Question 42

Regression Analysis

Answer 42

Generates a straight line that best fits the data by minimizing the variance around the line.

Question 43

Ranges permit managers to recongnize many differneces including:

Answer 43

1. Differences in quality among individuals applying for work
2. Differences in the productivity or value of these quality variations
3. Differences in the mix of pay forms competitors use

Question 44

Pay range

Answer 44

exhists whenever two or more rates are paid to employees in the same job.

Question 45

Pay ranges provide managers the opportunity to

Answer 45

1. Recognize individual differnces with pay
2. Meet employees’ expectations that their pay may increase over time, even while holding the same job
3. Encourage employee committment to remain with the organization

Question 46

From an internal alignment prospective ranges reflect:

Answer 46

the differences in performance or experience the employer wishes to pay for a given level of work.

Question 47

From an external competiviness perspective pay ranges act

Answer 47

as a control device

Question 48

A range has 3 salient features

Answer 48

1) A Midpoint
2) A Minimum
3) A Maximum

Question 49

The midpoint for each range usually corresponds

Answer 49

to the point where the pay policy line crosses the center of each grade.

Question 50

Broad Banding

Answer 50

collapses salary grades into only a few broad bands, each with a sizable range. Consolidates as many as four or five traditional grades into a single broad band with one minimum and one maximum.

Question 51

Shadow ranges or zones

Answer 51

are designed to keep all jobs from floating to the maximum pay.

Question 52

Ranges support:

Answer 52

1. Some flexibility within controls
2. Relatively stable organizational design
3. Recognition via titles or career progression
4. Midpoint controls, comparatives
5. Gives managers “freedom with guidelines”
6. To 150% range-speed

Question 53

Bands support:

Answer 53

1. Emphasis on flexibility within guidelines
2. Global organizations
3. Cross-functional experience and lateral progression
4. Reference market rates and shadow ranges
5. Controls in total salary budget, few in the pay system
6. Gives managers the “freedom to pay”
7. They go from 100%-400% spreads in pay

Question 54

Broad banding takes 2 steps

Answer 54

1) Set the number of bands- usually established at the major breaks, or differences in work or skill/comptency. The challenge is how much to pay people who are in the same band but in different funcitons performing different works
2) Price the bands- reference market rates. Different market rates may be identifed within each band for each job family.