Chapter 8 Flashcards
What are the seven steps in determining externally competitive pay levels and structures?
- Specify the employer’s competitive pay policy 2. Define the purpose of the compensation survey 3. Select relevant market competitors 4. Design the survey 5. Interpret survey results and construct the market pay line 6. Construct a pay policy line that reflects external pay policy 7. Balance competitiveness with internal alignment through ranges and/or bands
What are the three options for an employer’s external competitive pay policy?
- Be a market leader (lead) * Adopt the average pay of competitors (match) * Pay below the average market rates (lag)
What is a compensation survey?
The systematic process of collecting and making judgments about the compensation paid by other employers.
What is one purpose of a compensation survey?
To adjust internal pay level in response to changing competitor pay rates.
What should an employer analyze to establish or ‘price’ the internal pay structure?
The job structure that results from internal job evaluation may not match the pay structures found in the external market.
What factors define a relevant labour market?
- The same occupation or skills required * Employees within the same geographic area * The same products and services
Who is usually responsible for managing the compensation survey design?
The compensation manager.
What are benchmark jobs?
Jobs that have stable job content, are common across different employers, and include sizable numbers of employees.
What are the three commonly used measures of compensation?
- Base pay * Total cash (base + bonus) * Total compensation (base + bonus + stock + benefits)
What is survey levelling?
Multiplying survey data by a numerical factor to adjust for differences between the company job and the survey job.
What is the market pay line?
A graph that links a company’s benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis.
What is a pay policy line?
The pay line representing an adjustment to the market pay line to reflect the company’s external competitive position in the market.
What is a pay grade?
A grouping of jobs considered substantially equal for pay purposes.
What are the three salient features of a pay range?
- Midpoint * Minimum * Maximum
What is the purpose of pay ranges?
To recognize individual performance differences with pay and meet employees’ expectations that their pay will increase over time.
What is broadbanding?
Collapsing several pay grades into a large band of jobs.
True or False: The size of the pay range is based solely on market pay rates.
False.
What is the importance of updating survey data?
Pay rates are constantly changing, making outdated survey data unreliable.
What does the standard deviation measure in salary surveys?
How tightly all the rates are clustered around the mean.
What is the optimal overlap between grades intended to achieve?
To induce employees to seek promotion to a higher grade.
What is the significance of the midpoint in a pay range?
It serves as a reference point for setting salaries within that range.
Fill in the blank: A _______ exists whenever two or more rates are paid to employees performing the same job.
pay range
What does the pay range reflect?
Differences in performance or experience the employer wishes to recognize with pay
How does the range act from an external competitiveness perspective?
As a control device, with the range maximum setting the ceiling on what the employer is willing to pay
What is Broadbanding?
Collapsing several pay grades into a large band of jobs
How many traditional grades can be consolidated in Broadbanding?
Typically, four or five traditional grades into a single band
What is usually not used in Broadbanding?
A range midpoint
List some advantages of Broadbanding.
- Flexibility to define job responsibilities more broadly
- Supports redesigned, downsized, or boundary-less organizations
- Fosters cross-functional growth and development
- Employees can move laterally across functions within a band
What is the most important difference between the grades and Broadbanding approaches?
The location of the controls
What does the grade approach have that Broadbanding does not?
Guidelines and controls designed right into the pay system
What limits managers using bands in Broadbanding?
A total salary budget
What are the two steps involved in Broadbanding?
- Set the number of bands
- Price the bands using reference market rates
What do reference rates represent in Broadbanding?
Pay rates from market data used in pricing broad bands
What is the principal payoff of Broadbanding?
Flexibility
What is a job structure based on?
Internal organizational factors
What anchors the pay structure?
The organization’s external competitive position, reflected in its pay policy lines
What is market pricing?
Setting pay structures by relying almost exclusively on rates paid by competitors in the external market
What is the objective of market pricing?
To base most, if not all, of the internal pay structure on external rates
What does pure market pricing omit?
Internal alignment completely
What is presumed by fairness in market pricing?
Reflected by market rates
What is a key consideration when balancing internal and external pressures?
Judgment made with an eye to the strategic perspectives and objectives established for the pay system
