Module 2 Compensation Flashcards
What are the two primary elements of compensation?
Fixed and variable pay
To ensure compliance, what is the safest course on which to base pay decisions?
Job-related factors
Which job evaluation method involves collecting competitors’ data to identify the prevailing rate for a job?
Market pricing
Which statement is most accurate regarding pay grades?
A. Pay grades rarely overlap.
B. Pay grades should not allow for career progression.
C. Pay grades distinguish between skill or responsibility.
C. Pay grades distinguish between skill or responsibility.
Payment that is typically based on an individual employee’s rate of production is referred to as which type of base pay?
Piece rate
Which of the following best describes a primary category of variable pay?
A. Salary
B. Commissions
C. Competency-based pay
D. Pay for performance
B. Commissions
Most common types of compensation
Hourly wages
Salaries
Bonuses
What is comp that is contingent on discretion, performance, or results achieved (aka pay at risk)
Variable pay
Factors influencing compensation (5)
- Compensation philosophy & strategy
- HR strategy
- Competitive environment
- Financial resources
- Regulatory & other reqs
Types of pay-related laws (3)
- Minimum wage & overtime
- Pay equity
- Anti-competitive price fixing
Facets of base pay
Definition can vary by country
Monthly equivalent salaries vary by country
Bottom-line fixed pay practices need to be based on market practice & competitive strategy for each country
Frequency of review, allowances, & government mandates are factors that affect ________
Base pay
Types of base pay (3)
- Salary
- Hourly wages
- Piece rate
Base pay structure design (4)
Job analysis > job documentation > job evaluation > job hierarchy > base pay structure
What is the systematic, formal study of duties & responsibilities that comprise job content & provides key information about nature & level of work performed. Must occur before jobs can be documented.
Job analysis
What is written information about job content, functions of the job, and KSAs.
Job documentation, its common form is the job description.
What is the structured process to determine the value of an org’s jobs relative to each other
Job evaluation
What is the grouping or categorization of jobs relative to other jobs (e.g. pay grades or job ladders)
Job worth hierarchy, sometimes referred to as job architecture
Created using established hierarchy and utilized as a framework for pay decisions
Base pay structure
Purpose of job analysis (4)
- Create job documentation
- Determine where job fits in ladder or family
- Support recruitment, training, performance mgmt, & other HR processes
- Provide a basis for legal & regulatory compliance
Three types of job documentation
- Job profiles
- Job descriptions (most common)
- Job ladders
Types of content-based job evaluation approaches
- Nonquantitative (ranking, classification)
2. Quantitative methods (point factor, job component)
Aka whole-job method, views job globally in terms of its importance to the company. Simplest form is ranking. Classification method also compares jobs on whole-job methods, sometimes called “job slotting” (ex: Professional 1, 2, 3, or Manager 1 & 2).
Nonquantitative content-based job evaluation
Aka factor methods, examines the importance of jobs in terms of compensable factors using statistical analysis. Corresponding points for that level are then awarded to the job & combined to derive a total score. Very uncommon & rarely used.
Quantitative content-based job evaluation
A standard job used to make pay comparisons, easily defined & found in other orgs
Benchmark job
Why collect market data
Analyze pay competitiveness, identify pay trends, identify competitive pay practices
Market-based job evaluation approach
Market pricing technique - collection & interpretation of external market data & identification of the prevailing rate for a job
Helps to establish relationship between jobs by grouping similar jobs as established in the job evaluation process.
Used to determine & ensure internal &/or external equity among positions or groups of positions. Job grades/pay structures are then based on that internal &/or external equity.
Job hierarchy
Job hierarchy approaches
Job content approach (internal)
Market-based approach (external)
Base pay structure
Management tool that reflects the collection & organization or internal & external comp data to support job values. Consists of a series of pay ranges that represent jobs of similar internal &/or external worth.
Components of base pay structure
Number of pay grades/bands
Pay range
Midpoint-to-midpoint differential
Number of pay structures/bands may be affected by (3)
Diversity of jobs in the org Functional area (nursing, engineering, marketing) Job level (admin, professional, technical, executive, etc.)
Midpoint-to-midpoint differential
Difference in rates paid at midpoint of two adjacent grades. 10-15% differentials are common.
Most common base pay adjustments (6)
- Merit increase
- COLA
- Equity adjustments
- General increase
- Skill-based
- Lump-sum payment
Types of differential pay
Shift differential
Weekend or holiday differential
Geographic differential
Variable pay
Rewards accomplishments & results for org, group, or individual results
Not guaranteed
Most common types of short-term variable pay plans (3)
Bonuses
Incentives
Commissions
Short-term = 1 year or less
Bonus plans
More discretionary than incentives
Typically not based on specific metrics or formulas
May be individual, team, or org performance-based
Other common types of bonus plans
Hiring
Referral
Retention (stay bonus)
Incentive plans
STI plan in which criteria determined in advance, based on performance measures, weighted between individual/team/org performance, payouts typically % of targeted award w/ targets based on job or level
Commission plans
STI plan for sales employees. Cash payments, % of sales, typically large portion of total pay, & are considered part of sales compensation, a specialized area of comp design
Long-term incentive plans (definition & types of plans)
LTI plans = greater than 1 year, typically 3-5
Equity-based - company stock, value is based on stock performance, actual awards may be in the form of stock or cash
Cash-based - not based on stock or equity
Types of equity incentives
Stock options
Restricted stock
Performance units
Short description/1-2 paragraph summary of job, often found in salary survey descriptions
Job profile
Provides info on multiple levels within the same job family. May include general summary of the family & then specific level descriptors within the family, e.g. entry, intermediate, senior.
Job ladder
Describes job itself & includes duties & responsibilities, level of work to be performed, working conditions, where job fits in hierarchy, job specifications - EE characteristics required for competent performance
Job description
When building a base pay structure, what % of jobs should be benchmarked
At least 50%
Data may be used for benchmarking purposes if what % of the job content is similar
70%
