Chapter 3 Flashcards
What are two critical questions for compensation management as a whole?
(1) How is pay determined for the wide variety of work performed in organizations?
(2) How do the pay differences affect employees’ attitudes and work behaviours?
What are the common bases for pay structures?
(1) the content of the work,
(2) the skills and knowledge required to perform it, and
(3) its relative value for achieving the organization’s objectives.
What is a pay structure?
> the array of pay rates for different work or skills within a single organization; the number of levels, the differentials in pay between the levels, and the criteria used to determine these differences determine the structure
Organizations design their pay structures around what? What does that mean for the employee?
> around jobs and job levels; thus, in many organizations, an employee’s pay (and by implication their pay growth over time) depends on both the nature of the job and the job level (and thus the promotion rate).
What is the first and second objective to pay policies?
> Setting objectives is our first pay policy issue in a strategic approach. Internal alignment (or internal equity), our second, addresses relationships inside the organization.
What is internal alignment?
What creates a pay structure?
> Deciding how much to pay the various levels of work/positions
How does internal alignment support strategy?
> The organization’s strategy indicates how it plans to achieve its purpose. Internal job structures that are aligned to the strategy help to achieve it.
What is workflow?
> Workflow refers to the process by which goods and services are created and delivered to the customer.
Do pay structures support workflow?
> The pay structure should support the efficient flow of that work and the design of the organization
Internal job and pay structures influence employees’ behaviour in what why / how?
> by providing pay increases for promotions, more challenging work, and greater responsibility as employees move up in the job structure.
What should job structure do?
> The structure should make clear the relationships between each job and the organization’s objectives.
> The structure also needs to be fair to employees.
What is the “line of sight”?
> The ability for an employee to see the linkage between what he or she does and the organization’s strategic goals is often called line of sight.
An internal structure may be aligned with a business strategy, but what can affect or arise concern to fairness?
> owner’s internal structure might have been aligned with his or her business strategy, but employee dissatisfaction raises concerns about the structure’s fairness to employees.
An internal pay structure is defined by what three criteria?
An internal pay structure is defined by:
(1) the number of levels of work,
(2) the pay differentials between the levels, and
(3) the criteria used to determine those levels and differentials.
One feature of any pay structure is what?
> is its hierarchical nature - the number of levels and reporting relationships in an organization
What are differentials?
> The pay differences between levels are referred to as differentials.
What work is typically paid more?
> Work that requires more human capital (knowledge, skills, and/or abilities) or that is performed under less desirable working conditions, or whose results are more valued is usually paid more
What two components are the most common bases for internal pay structures?
> Work that requires more human capital (knowledge, skills, and/or abilities) or that is performed under less desirable working conditions, or whose results are more valued is usually paid more
What does content refer to?
> Content refers to the work performed in a job and how it gets done (tasks, behaviours, knowledge required, and so on).
What does value refer to?
> Value refers to the worth of the work: its relative contribution to the organization’s objectives.
A structure based on content typically ranks jobs on what basis?
> A structure based on content typically ranks jobs on the basis of skills required, complexity of tasks, problem solving, and/or responsibility.
A structure based on the value of the work focuses on what?
> a structure based on the value of the work focuses on the relative contribution of the skills, tasks, and responsibilities of a job to achieving the organization’s goals.
Although the resulting structures (Content/Value) may be the same, there are important differences - what are
> value may also include external market pressures (such as skills shortages or competitors’ pay levels)
> value may include rates that have been agreed upon through collective bargaining or even legislation (e.g., minimum wage)
What are two types of value to consider?
> Use value reflects the value of goods or services an employee produces in a job.
> Exchange value is whatever wage the employer and employee agree on for a job.
Describe in an example the difference btween use value and exchange value:
> Jobs such as software engineer might have the same use value but different exchange values if, for example, one job is located in Bangalore and the other in Toronto.
A job-based structure looks at:
> work content—tasks, behaviours, responsibilities.
A person-based structure shifts the focus to what?
> the employee: the skills, knowledge, or competencies the employee possesses, and whether or not they are used on the particular job the employee is doing
In reality, do most organizations pick one structure style over an other?
> In the real workplace, it is hard to describe a job without reference to the jobholder’s knowledge and skills.
> Conversely, it is hard to define a person’s job-related knowledge or competencies without referring to work content.
> So rather than a job- or person-based structure, the reality includes both job and person.
What are external factors that shape internal structures?
> economic pressures
government policies
laws
regulations
stakeholders
cultures and customs
What organization factors shape internal structures?
> strategy
technology
human capital
HR policy
Employee acceptance
Cost implications
What factors are to be considered within an internal structure?
> levels
differentials
criteria
Who was an early advocate of letting economic market forces influence pay structures?
> Adam Smith
What values did Smith ascribe to HR? How did the industrial revolution affect these values?
> Smith ascribed to human resources both an exchange value and a use value.
> Exchange value is whatever wage the employer and the employee agree on.
> Use value reflects the value of the goods or services labour produces.
> Marginal productivity theory, a countering theory put forth in the last half of the 19th century, says that employers do in fact pay use value
What is marginal productivity theory?
> Marginal productivity theory, a countering theory put forth in the last half of the 19th century, says that employers do in fact pay use value
> Marginal productivity theory, a countering theory put forth in the last half of the 19th century, says that employers do in fact pay use value
What do pay differences look like under the marginal productivity theory?
> Pay differences among the job levels reflect differences in use value associated with different jobs.
> One job is paid more or less than another because of differences in relative productivity of the job and/or differences in how much a consumer values the output.
= Hence, differences in productivity provide a rationale for the internal pay structure.
Does supply and demand affect internal structures?
> In addition to supply of and demand for labour, supply and demand for products and services also affect internal structures.
> Rapid, often turbulent changes, either in competitors’ products and/or services (as in the rise of online shopping) or in customers’ tastes (as in the popularity of fuel-efficient or green vehicles), mean organizations must redesign workflow and employees must continuously learn new skills.
> Unpredictable external conditions require pay structures that support agile organizations and flexible people.
In Canada, human rights legislation forbids pay systems that do what?
> forbids pay systems that discriminate on the basis of gender, race, religion, sexual orientation, national origin, and many other grounds.
> An internal structure may contain any number of levels, with differentials of any sizes, as long as the criteria for setting them do not include gender, race, religion, or national origin.
