chapter 3 - defining internal alignment

Question 1

internal alignment or internal equity

Answer 1

After setting compensation objectives, next step is to consider internal alignment
- Internal alignment/internal equity is the pay relationships among jobs within a single organization

Matthew’s parable details that “pay alignment” is an age-old issue and together with external competitiveness, will be your most challenging pay concern

Internal pay alignment addresses the relationships between:
1. Content of the work: difficult, easy, one job, multiple responsibilities, how it’s organized, etc. (do the vineyard workers work in teams, do some trim the vines while some tie, which is harder?) (Matthew’s Parable - page 74)
2. Skills and knowledge required to do the work
3. Relative value of the work within the organization

Question 2

Compensation strategy: internal alignment

Answer 2

1. Supports organization strategy
2. Supports workflow
   - Workflow: the process by which good/services are delivered to customers
   - Pay structures should support efficient flow of work & organizational design
3. Motivates behavior
   There should be a “line-of-sight” relationship between each job and the organization’s objectives; employees should “see” links between their work, the work of others, and the organization’s objectives
   To motivate, it must be and be perceived as fair to employees

Question 3

Pay structures defined by

Answer 3

Characteristics of Pay Structures:
- Basic building blocks of a compensation program
- Vary by organization
- Are hierarchical in nature

Pay Structures are defined by:
- # of levels of work & reporting relationships (it is hierarchical): varies by job & company
- Differentials: pay differences between the levels
- Criteria for determining those levels:
– Structures based on two criteria – work content and work value

• Content: ranks jobs based on how work gets done; skills required, complexity of tasks, knowledge required, responsibility
• Value: refers to the worth of work, relative contribution to organization

Question 4

steps to determine job worth

Answer 4

1. Job Analysis: systematic way to evaluate duties and responsibilities of a job to obtain information about the nature and level of the work performed (more on this in Chapter 4)
2. Job Documentation: written information about job content, typically a job description & job specification
3. Job Evaluation: process of determining the relative worth of jobs to create a job structure (multiple methods in Chapter 5)
4. Job Worth Hierarchy: result of job evaluation process; illustrates where each job fits relative to other jobs

The outcome of this process is a base pay structure: after job worth hierarchy built, a base pay structure is created and used as the framework for pay decisions

Question 5

What Shapes Internal Structures? External Factors: Economic pressures

Answer 5

Market: Supply and demand for labor + consumer tastes and demand for certain products and services mean there is variability and work forces need to be flexible and pay can be dynamic (electric cars)

Question 6

Different types of pay structures

Answer 6

Hierarchical versus egalitarian

Egalitarian structures: fewer levels and smaller differentials – send the message that all employees are valued equally (Ben & Jerry’s)

Hierarchical structures: multiple levels, detailed work descriptions - send the message that the organization values the differences in work content, individual skills, and contributions to the organization and typically have many levels with larger differentials between levels

Advantages: Fewer levels and smaller differentials between adjacent levels and between highest-and lowest-paid workers
Disadvantages: ‘Averagism’ brings to light that equal treatment can mean more knowledgeable (star) employees feel underpaid and barrier to hiring if not willing to pay market competitive pay.

Question 7

How do you judge the fairness of your pay?

Answer 7

Research suggests employees judge the fairness of their pay by multiple comparisons:

A. Comparison to the market: (see Equity Theory next slide)
- Comparing to jobs similar to their own (internal alignment)
- Comparing their job to others at the same employer (internal alignment)
- Comparing their jobs’ pay against external pay levels (external competitiveness)

B. How well employees accept their pay based on:
- Procedural justice refers to the process by which a decision is reached (in pay, how design & administration decisions made and consistency)
- Distributive justice refers to the fairness of decision/results (in pay, are pay differences acceptable)
- Pay procedures more likely to be perceived fair if:
– They are consistently applied to all employees
– Employees participated in process (less so for low paid jobs)
– Appeals procedures are included
– Data used are accurate