The Compensation Model

Question 1

What are the building blocks of a pay model? (3)

Answer 1

(1) compensation objectives
(2) policies that form the foundation of the compensation system
(3) techniques that make up the compensation system

Question 2

What are the compensation objectives? (3)

Answer 2

(1) efficiency
(2) fairness
(3) compliance

Question 3

What is efficiency?

Answer 3

(1) achieving the company’s objectives

(2) controlling labour cost

Question 4

How to achieve the organisation’s objectives? (3)

Answer 4

(1) improving performance
(2) increasing quality
(3) delighting customers and stockholders

Question 5

What is fairness? (2)

Answer 5

(1) fundamental objective of pay system

(2) recognising both employee contributions and employee needs

Question 6

What is an example of recognising employee contributions?

Answer 6

Higher pay for better performance.

Question 7

What are examples of recognising employee needs?

Answer 7

(1) fair wage

(2) fair procedures

Question 8

What is compliance?

Answer 8

To comply with the country’s labour laws and regulations.

Question 9

How to comply with the country’s labour laws and regulations?

Answer 9

If laws change, pay systems may need to change too.

Question 10

A good pay system is one that is ____.

Answer 10

Compliant

Question 11

What happens in a bad pay system? (compliance)

Answer 11

People are not compliant to achieve their own personal gains.

Question 12

What are the policies?

Answer 12

(1) internal alignment
(2) external competitiveness
(3) employee contributions
(4) management of the pay system

Question 13

What is the purpose of having policies?

Answer 13

To achieve objectives.

Question 14

What is internal alignment?

Answer 14

It refers to pay relationships among different jobs or skills in the company.

Question 15

In internal alignment, how are the employees paid differently?

Answer 15

According to their relative contributions to the company’s objectives.

Question 16

What is external competitiveness? In other words, _____.

Answer 16

It refers to compensation relationships external to the organisation. Comparison with competitors.

Question 17

In external competitiveness, what are the different types of pay that competitors use?

Answer 17

(1) pay leaders
(2) market or going rate
(3) pay followers

Question 18

What is a pay leader?

Answer 18

Pay higher wages and salaries than competing firms.

Question 19

What is market or going rate?

Answer 19

Average pay that most employers provide for the same job in an industry.

Question 20

What is a pay follower?

Answer 20

Pay below the market rate while other benefits are included.

Question 21

Why do some competitors choose to be a pay follower? (2)

Answer 21

(1) poor financial conditions

(2) belief that they simply do not require highly capable employees

Question 22

What is the policy on employee contributions?

Answer 22

Relation emphasis placed on employee performance.

Question 23

Asides from performance, how else may employees be paid based on the employee contributions policy?

Answer 23

Based on their seniority/years with the company.

Question 24

What is the policy on the management of the pay system?

Answer 24

Ensuring that the right people get the right pay for achieving the right objectives in the right way.

Question 25

It is important to have a ____ management.

Answer 25

competent

Question 26

Why should there be a competent management? (2)

Answer 26

(1) everyone will be aligned with the same message

(2) everyone will believe that the pay system is ethical and fair

Question 27

What is the purpose of techniques?

Answer 27

To tie the four basic policies to the pay objectives.

Question 28

What are the techniques used for internal alignment? (3)

Answer 28

(1) job analysis
(2) job description
(3) job evaluation

Question 29

What are the techniques used for external competitiveness?

Answer 29

Salary surveys

Question 30

What are the techniques used for employee contributions? (2)

Answer 30

(1) performance-based pay increases

(2) seniority-based pay increases

Question 31

What are the techniques used for management of the pay system? (2)

Answer 31

(1) controlling costs

(2) communication to employees

Question 32

What is a strategic perspective towards total compensation?

Answer 32

Focuses on those compensation choices that help the organisation gain and sustain competitive advantage.

Question 33

How can the pay systems support the compensation business strategy?

Answer 33

By aligning with it.

Question 34

What are the different compensation business strategies?

Answer 34

(1) innovator
(2) cost cutter
(3) customer-focused

Question 35

What should happen when compensation business strategies change?

Answer 35

The pay systems should change too.

Question 36

Under cost cutter strategy, why focus on competitor’s labour costs?

Answer 36

To ensure that their own labour costs are lower than their competitor’s for a larger profit.

Question 37

Under cost cutter strategy, how can businesses emphasize on productivity?

Answer 37

Having a strong emphasis on performance based pay- the more productive, the higher the pay. Hence, people will be motivated to work to get a higher pay.

Question 38

What is the strategic guideline for objectives? (2)

Answer 38

How should compensation

(1) support the business strategy
(2) be adaptive to the cultural and regulatory pressures in a global environment

Question 39

What is the strategic guideline for internal alignment?

Answer 39

How differently should the different types and levels of skills and work be paid within the organisation?

Question 40

What is the strategic guideline for external alignment? (2)

Answer 40

(1) How should total compensation be positioned against competitors?
(2) What forms of compensation should be used?

Question 41

What is the strategic guideline for employee contributions? (2)

Answer 41

Should pay increases be based on individual and/or team performance, on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal needs, and/or on each business unit’s performance?

Question 42

What is the strategic guideline for management? (2)

Answer 42

(1) How open and transparent should the pay decisions be to all employees?
(2) Who should be involved in designing and managing the system?