Chapter 11, Strategic pay plans

Question 1

Explain the strategic importance of total rewards

Answer 1

Total rewards are essential for businesses by combining all aspects of rewards to find the best mix that matches business goals, provides value to employees, and fits within budget limits. This would include aligning rewards with the organization’s strategic objectives. Moreover, legal factors, union influences, and fairness in compensation are all crucial considerations.

Question 2

Describe four basic considerations an organization needs to make when determining compensation decisions

Answer 2

Basic Considerations in Determining Pay Rates:
- Legal considerations in compensation
- Union influences (may have to negotiate)
- Compensation Policies (have one - What does it require)
- Equity (Equity theory - internal and external and procedural)

Question 3

Explain in detail each of the three stages of establishing pay rates

Answer 3

Job Evaluation: to ensure internal equity by comparing jobs based on skill, effort, responsibility, and working conditions. Jobs of similar value are grouped into pay grades.

Conducting wage/salary surveys: to ensure external equity by collecting data on market wages for similar positions in other organizations. This helps determine how the organization’s pay rates compare to the external market.

Combining job evaluation and salary survey results: to determine pay rates. This ensures alignment with both internal job worth and external market conditions.

Question 4

Discuss competency-based pay

Answer 4

Competency-based pay is a compensation system where an employee’s salary is determined by their demonstrated skills, knowledge, and abilities relevant to their job.

Question 5

Describe the compensation elements for special positions: executive, managers, and professionals.

Answer 5

Executives, managers, and professionals are almost always paid based on their performance as well as on the basis of static job demands, like working conditions. Not so much what they do, but what they bring and what they accomplish.

For Executives and Managers:
- Salary
- Benefits
- Short-term incentives (stocks and options)
- Long-term incentives (car, plane, membership, golf memberships)

For Professional Employees:
- Creativity
- problem solving
- economic impact to organization
- market pricing approach

Question 6

Explain the concept of equity in pay and how an organization can address feelings of inequity

Answer 6

Equity in pay means ensuring fairness in how employees are compensated relative to their contributions. To address feelings of inequity, organizations can focus on four key considerations:
- external equity: fairness compared to industry standards
- internal equity: fairness within the organization
- individual equity: fairness based on individual performance
- procedural equity: fairness in the compensation process

Question 7

Define pay equity and explain its importance today.

Answer 7

Pay equity refers to the principle of ensuring that employees receive equal pay for work of equal value, regardless of gender, race, ethnicity, or other characteristics unrelated to job performance. It aims to eliminate wage disparities and promote fairness and