Module 1--The Role of Base Pay in Total Rewards Flashcards
What are the TWO Elements of Compensation?
Elements of Compensation
Compensation can be categorized into the following two elements:
■ FIXED PAY is nondiscretionary compensation that does not regularly vary according to performance or results achieved. Fixed pay is considered non-discretionary in nature, and it often includes a base wage or a base salary rate and an allowance for performing a particular job.
■ VARIABLE PAY is compensation that is contingent on discretion, performance or results achieved. It may be referred to as “pay at risk.” Much of the innovation in compensation occurs in the variable
pay element. oftentimes it’s expressed in terms of an incentive plan. Incentive plans are a form of short-term compensation and variable pay delivery.
What is the Business Strategy?
The business strategy really articulates how that corporate vision will be met. When you talk about all the dynamics present in business today, it goes without saying that people are an integral element of achieving almost any business-related strategy. That’s where the HR strategy comes in, because having a specific, defined approach for people programs is critical to success. It needs to answer how the company will attract, motivate, and retain the workforce.
What is the TOTAL REWARDS STRATEGY?
The Total Rewards strategy plays an important role in achieving that people strategy or the human resources strategy, and the Total Rewards strategy addresses specifically how compensation, benefits, and recognition objectives will be leveraged in order to support the HR strategy.
Why does the TOTAL REWARDS Design Process require Continous Evaluation?
The Total Rewards design process requires continuous evaluation, first to make sure that the programs are functioning as originally intended, and second to ensure that the programs are in line and remain in line with the business goals. It’s a core expectation of any Total Rewards design process that the programs will not be so intricately designed and complex that they cannot be easily modified or changed as business expectations require.
What does the TOTAL REWARDS Design reallly depend on a thorough understanding of the business overall?
Determining the proper Total Rewards design really depends on a thorough understanding of the business overall. And part of that is understanding the business life cycle. The business life cycle is not
necessarily time based. It’s an indication of where the business is in terms of operations and overall market.
If a org is at the START UP phase what might that mean?
A startup organization, for example, may not have the capital to invest in high base salaries, but instead may opt to align for short term incentive plans that align people’s efforts towards the goals at hand to drive growth in the first year or second year of the organization
What about at the growth phase?
A growth focused organization may emphasize longterm incentives over short term incentives.
What about a Mature Organization?
A mature organization may make a significant investment in base salaries and may have a lower investment in overall variable compensation compared to peers.
What about a declining business?
A declining business may have a different set of challenges. They may have a higher investment in base salaries, but they may find that that investment is not sustainable given the business results. So instead they may look to shift some of that investment to a longer term incentive that focus on those key performance indicators that are likely for sustainability within the business.
What are the COMMON OBJECTIVES of an Effective Compenation Program?
The most common objectives are to be INTERNALLY EQUITABLE and EXTERNALLY COMPETITIVE.
Each organization needs to prioritize these objectives and decide which are the most important. It is essential to design a program that not only meets the compensation objectives, but supports the organization’s business strategy. Some objectives may conflict with each other, depending on the compensation plan.
Affordability is also a consideration
What are the GUIDING PRINICIPLES in the DESIGN of all COMPENSATION PROGRAMS?
Internally Equitable
Externally Competitive
Affordability
Easily Understood
Legally Defensible
Efficient
Needs of the Future
Compensation Program
Need to be Appropriate for the Organization
What is BASE PAY?
Defining BASE PAY – BASE PAY is the fixed compensation paid to an employee for performing specific job responsibilities. It typically is paid as a salary, hourly or piece rate.
What is SALARY?
- Salary – compensation paid on a weekly, biweekly or monthly basis rather than by the hour.
Generally, these positions are not eligible for overtime pay.
What is HOURLY RATE?
- Hourly rate – compensation paid by the hour for a job being performed. An individual’s annual pay is dependent on the number of hours worked during the course of the year and the hourly rate of pay. Generally, positions paid on an hourly basis are paid for overtime.
What is PIECE RATE?
- Piece rate – Payment is based on an individual employee’s rate of production. A payment is received for each piece or unit of work produced. Piece rate payment can be either in place of or in addition to hourly payment. The organization must ensure the employee is earning at least minimum wage.
What are THE STEPS in the PROCESS of BUILDING a BASE PAY PROGRAM
Overview of Base Pay Structure Design
There are several steps in the process of building a base pay rogram. These steps provide the information needed to begin to develop a base pay structure.
■ Job analysis – provides key information about the nature and level of work performed
■ Job documentation – includes written information about job content or the functions of the job and associated knowledge, skills and abilities. job descriptions or any way, really, that captures the knowledge, skills and abilities of the job in a way that is able
to be referred to in the future.
■ JOB EVALUATION– collects data needed to create a job worth hierarchy using a market data or job content approach. the job evaluation really assigns a value to the job based on either the job content or the external market value of the position. And that job evaluation then informs the job worth hierarchy.
■ Job worth hierarchy – illustrates where each job fits, relative to other jobs. is just a simple ranking of where each role within the organization lands in relation to each other, where the jobs fit relative to other jobs in the organization
■ Base pay structure – After the job worth hierarchy is built, a base pay structure can be created and utilized as a framework for pay decisions.
What is JOB EVALUATION?
JOB EVALUATION is a systematic method and process for determining and comparing the relative value of one job to others. Job evaluation enables the creation of a job worth hierarchy within the organization.
What are the TWO BASIC APPROACHED TO JOB EVALUATION?
■ MARKET DATA approach
* Job descriptions are used to match survey data.
* Benchmark jobs are arranged into a hierarchy based on an analysis of market data.
– A benchmark job is used for making pay comparisons to develop or validate a job worth hierarchy.
– Benchmark jobs are internal jobs that can serve as market anchor points because they closely resemble jobs performed in other organizations or industries (at least 70% match of duties)
Very pop
** In the market data approach, you take a job description and you find a comparable external market match
within a salary survey that will lead you to conclude what the market rate or prevailing market wage for that job is. After you’ve
performed this for all the benchmark jobs within your organization, they can be arranged into a hierarchy that is ranked based
on the market value of each role.
- market based approach is very popular when the market
is tight and when current wage rates are required in order to attract talent.
– At least 50% of jobs in the organization should be benchmarked when using the marketbased job evaluation method.
* Jobs with no market data are slotted using job content to determine relative worth.
■ JOB CONTENT approach
* Relative internal value is determined between jobs based on the nature and level of work.
* Some jobs are priced as anchor points.
**The job content approach is similar to the market data approach. It does rank the jobs in the organization, but instead of relying on external market data, there’s a reliance on internal knowledge about the value of the jobs. This information comes from the job analysis process and it compares the relative nature of work being performed and the level of work being performed across all jobs within the organization. But the end result is the same, and that is a ranked valuation of all roles within the organization.
- job content approach may be leveraged by organizations that rely on more structure, value internal equity more, or are trying to focus more on pay equity overall within their workforce.
What is JOB WORTH HIERARCHY?
Job Worth Hierarchy
Once the job evaluation is completed, a job worth hierarchy can be established.
■ What is it?
* A job worth hierarchy indicates the perceived value of jobs in relationship to each other within an organization.
■ Why is it important?
* The job worth hierarchy helps to establish a relationship between various jobs, allowing groupings of similar jobs. By establishing a job worth hierarchy, compensation professionals can determine how various job can be classified within the organization.
* It can then be used to form the foundation of the base pay system.
■ Why is it used?
* A job worth hierarchy is used to determine and ensure internal and/or external equity among both positions and groups of positions. Job grades/pay structures are then based upon that
internal and/or external equity.
This is a simple ranking of perceived value of jobs within the organization.
It’s not a monetary value necessarily. It’s typically a value of how the roles compare to each other. A job worth hierarchy is
important because it determines which jobs in the organization can be compared to each other even when the nature of work
is not exactly the same. The job worth hierarchy establishes the whole foundation for the base pay system, so it’s very
important to get it correct.
Position Market Wage (Market-based) Hierarchy Point Factor (Job content-based) Hierarchy
POSITION MARKET WAGE POINT FACTOR
(Market-Based Heirarchy)
Director of Accounting 172,800 875
Director of Human Resources 171,600 866
Senior Manager of Advertising 138,500 764
Manager of Accounting 111,100 691
Senior Compensation Analyst 89,300 414
Senior Human Resources Analyst 88,500 410
Senior Financial Analyst 84,900 401
Financial Analyst 67,700 350
Supervisor, Accounts Payable 65,900 322
Accounts Payable Specialist 37,300 193
Human Resources Specialist 35,400 189
- Which of the following is one of the most common compensation program objectives?
A. Ensuring external competitiveness.
B. Paying at the median or 50th percentile.
C. Deferring compensation expenses.
D. Competitive base and highly leveraged incentives.
A. Ensuring external competitiveness.
- Which of the following best defines base pay?
A. Variable compensation paid on a weekly basis to an employee.
B. Fixed compensation paid to an employee for performing specific job responsibilities.
C. Total cash compensation paid for goal attainment.
D. Payment based on an individual’s rate of production.
B. Fixed compensation paid to an employee for performing specific job responsibilities.
- Which statement is most accurate regarding the market data approach to job evaluation?
A. Job descriptions are used to match survey data.
B. At least 20% of jobs should be benchmarked.
C. Internal job worth is more important than external job values.
D. Jobs with no market data cannot be priced.
A. Job descriptions are used to match survey data.
- What is a reason for establishing a job worth hierarchy?
A. To determine appropriate placement of anchor points during the job evaluation.
B. To prove that job grades are not needed in an organization.
C. To establish midpoint differentials for managers and subordinates.
D. To determine equity among both positions and groups of positions.
D. To determine equity among both positions and groups of positions.
Which of the following best defines base pay?
A. Variable compensation paid on a weekly basis to an employee.
B. Fixed compensation paid to an employee for performing specific job responsibilities.
C. Payment based on an individual’s rate of production.
D. Total cash compensation paid for goal attainment
B. Fixed compensation paid to an employee for performing specific job responsibilities.
Which of the following is one of the most common compensation program objectives?
A. Deferring compensation expenses.
B. Competitive base and highly leveraged incentives
C. Paying at the median or 50th percentile
D. Ensuring external competitiveness
D. Ensuring external competitiveness
What is a reason for establishing a job worth hierarchy?
A. To prove that job grades are not needed in an organization.
B. To establish midpoint differentials for managers and subordinates.
C. To determine equity among both positions and groups of positions.
D. To determine appropriate placement of anchor points during the job evaluation.
C. To determine equity among both positions and groups of positions.
Which statement is most accurate regarding the market data approach to job evaluation?
A. Internal job worth is more important than external job values.
B. Job descriptions are used to match survey data.
C. At least 20% of jobs should be benchmarked.
D. Jobs with no market data cannot be priced.
B. Job descriptions are used to match survey data.
