Topic 5 - External Reward Positioning Flashcards
What is External Reward Positioning?
It refers to how an organization’s rewards compare to the rewards offered for comparable work in other organizations.
Why is matching external pay markets important for a Total Rewards System?
To attract and retain talented employees by aligning pay with what competing organizations offer in the labor market.
What is External Equity?
It refers to employee perceptions regarding the fairness of their work conditions and rewards compared to those of individuals outside the company.
On what theory is External Equity based?
It is based on Equity Theory, which suggests employees judge the fairness of their inputs (e.g., effort) relative to outputs (e.g., rewards).
How do employees evaluate external equity?
By comparing their own inputs and outputs to those of individuals working for other companies, such as colleagues, friends, or neighbors.
What are the two primary types of markets that impact organizational rewards?
Labor Markets and Product/Service Markets.
How do markets determine the price of goods and services?
Prices are determined by the independent decisions of multiple buyers and sellers, influenced by changes in supply and demand.
What happens in a labor-driven job market?
Job seekers have more negotiating power when the demand for a particular set of KSAs (knowledge, skills, and abilities) is high, and the supply is low.
In labor markets, who are the sellers, and who are the buyers?
Individuals are the sellers offering their time, knowledge, and skills, while organizations are the buyers seeking to acquire those skills in exchange for rewards.
What determines compensation levels in labor markets?
Compensation levels are influenced by the supply and demand for specific KSAs.
What happens when there is a large supply of prospective employees with a skill but low demand for it?
Compensation levels for that skill will be relatively low.
Why is it important to update reward systems regularly?
To ensure they are externally positioned and account for fluctuations in labor markets.
How does geography impact the definition of a labor market?
Jobs with higher-level responsibilities (e.g., VP of Operations) often have national or international labor markets, while lower-level jobs (e.g., factory workers) have more localized markets.
What is the first step in externally positioning a reward system?
Analyze and define the relevant labor market for each job or job family.
What are Product/Service Markets?
They are markets where organizations compete to produce goods or provide services for customers in exchange for money and loyalty.
Why are Product/Service Markets relevant to businesses?
Labor costs impact the price of goods or services, which affects customer demand and profits.
How do Product/Service Markets overlap with Labor Markets?
Employees with KSAs needed for an organization’s strategy are often also in demand by competitors in the same product or service market.
Can two firms be in the same product market but not the same labor market?
Yes, for example, two firms manufacturing computer monitors may share a product market but not a labor market due to geographical differences.
What drives the price an organization can offer for its goods or services?
Labor costs and customer demand play significant roles in driving the price.
What is a key factor for firms when designing pay systems?
Considering both labor markets and product/service markets to remain competitive.
_________________ are one way to establish the price for any good or service.
Governments
International trades
Markets
Stock markets
Markets
Markets are one way to establish the price for any good or service.
Labor markets are where ____________ are the sellers and ____________ are the buyers.
Individuals, governments
Governments, organizations
Individuals, organizations
Organizations, governments
Individuals, organizations
Where skills are scarce and the demand for those skills is high, the compensation levels will be relatively _______ as firms compete for the scarce skills.
High
Average
Slow
Low
High
True or False. Geography has a significant impact on how an organization should define its labor market.
True
Product and service markets are where organizations compete to ____________ through the production of products or the provision of services for customers in exchange for money and loyalty.
Create organizational completeness
Create value
Create a great culture
Create industry rivalries
Create value
What are Benchmark Competitors?
Specific companies that exemplify the labor and product/service markets in which an organization competes.
Is the list of Benchmark Competitors exhaustive?
No, it represents a selection of exemplars or representative samples of competitors.
Why is the selection of Benchmark Competitors important?
It creates the standard to which the organization’s rewards system is anchored.
A benchmark competitor is:
A selection of choices a company should make on how to create a strategy
A selection of primary organizations that exemplify the labor and product/service markets in which the organization competes
The ability to decide how to create a new project within your organization
None of the above
A selection of primary organizations that exemplify the labor and product/service markets in which the organization competes
True or False. Your list of benchmark competitors should be an exhaustive list.
False
Why is the list of benchmark competitors important?
It creates the standard to which the company adds value to the industry
It creates the standard to which the rewards system fluctuates according to the market
It creates the standard to which the rewards system is anchored
It creates the standard to which the company adds value to the community
It creates the standard to which the rewards system is anchored
When creating a benchmark, a company should compare themselves to:
Similar organizations in the same industry
The government
International companies
All of the above
Similar organizations in the same industry
What is External Reward Positioning?
It refers to how an organization’s rewards compare to those offered for comparable work in other organizations.
Why is External Reward Positioning important?
It helps organizations attract and retain talented employees by aligning their rewards system with external markets.
What is Central Tendency?
A single number that best represents a group of numbers, such as a GPA or average pay for a job.
How is the Mean (or Average) calculated in compensation?
By adding up all salaries in a survey and dividing by the number of companies.
What is a limitation of the Mean?
It can be heavily influenced by outliers, making it less representative of the group.
How is the Median calculated, and why is it useful?
The median is the middle number when values are arranged in order. It addresses the outlier problem better than the mean.
What is a Weighted Mean?
A mean that accounts for the size of each group by giving more weight to larger groups in the calculation.
Why is Weighted Mean often more accurate in compensation analysis?
It reflects the true market pay by considering the number of employees in each organization.
What does Dispersion measure?
The spread or distance between data points in a group of numbers.
How is Range calculated in Dispersion?
By subtracting the lowest value from the highest value.
What is Standard Deviation?
The average distance of each data point from the mean, providing a more accurate measure of dispersion than range.
What do Percentages measure in compensation?
How one pay rate compares to another, such as how much more or less an organization pays relative to the market.
What is a Percentile?
The percentage of numbers in a distribution that are lower than a given number, indicating competitive positioning.
How is paying at the 75th Percentile interpreted?
It means the organization pays more than 75% of its market competitors.
Why are Percentiles useful in compensation analysis?
They consider both the mean and dispersion, providing a more complete competitive comparison.
The purpose of central tendency is to:
Find one single number that best represents another single number
Find one single number that best represents a whole group of numbers
Find a whole group of numbers to best represent one single number
Find a whole group of numbers to best represent another group of numbers
Find one single number that best represents a whole group of numbers
There are three basic ways an organization will pay. Which of the following is not part of this list?
Weighted Mean
Median
Mode
Mean
Mode
An outlier is:
Numbers that are similar to other numbers
The number that is the weighted mean of the distribution
The mode times the mean
Numbers that are far above or below most of the other numbers
Numbers that are far above or below most of the other numbers
The median is:
The middle number
The highest number
The last number
The first number
The middle number
The median is simply the middle number of a group of numbers when they are arranged from lowest to highest.
True or False. When calculating a salary, it is generally to the employee’s interest to use the mean versus the weighted average.
False
What are Reward Surveys?
Aggregations of reward information gathered from other market organizations to estimate the market rate of pay for a job.
Why are Reward Surveys critical?
They provide the foundation for external positioning of reward systems by offering market pay data.
What are Benchmark Jobs?
Representative jobs used to link an organization’s reward structures to external markets, ensuring coverage of job families, levels, and career points.
Why are unique or rare jobs unsuitable as Benchmark Jobs?
These jobs often lack sufficient market data and do not represent broader job families.
What is Market Survey Data?
Information on rewards practices of other organizations, used to establish a sound rewards system.
Name three sources of publicly available reward survey data.
Government, self-report, and popular press sources.
What is a key benefit of using Government compensation surveys?
They provide broad-level positioning for large labor markets.
What are the limitations of self-reported compensation data?
The accuracy and reliability of the data can be questionable due to potential biases of the respondents.
Why is self-reported compensation data still important?
It reflects sources employees often use to define market rates and their own reward expectations.
What challenges exist with compensation data from the popular press?
Reliability and accuracy concerns, but it still shapes employee perceptions of pay.
What is Subscription Survey Data?
Compensation data purchased from third-party firms that specialize in conducting pay surveys.
What is an advantage of Subscription Survey Data?
It is collected in a standardized way and often tailored to specific industries.
What is Custom Survey Data?
Compensation data designed and conducted by an organization to meet specific needs, such as benchmark jobs or compensation forms.
What is a disadvantage of Custom Survey Data?
It is time-consuming, expensive, and may result in limited sample sizes.
Why do organizations integrate multiple sources of pay surveys?
No single source provides all necessary data, and combining sources increases reliability.
What is a key challenge in integrating pay survey data?
Ensuring equivalence in pay forms, such as total compensation, variable pay, or benefits, across surveys.
What is involved in Matching Benchmark Jobs across surveys?
Comparing job descriptions, not just titles, to ensure equivalence.
What is Data Aging?
Adjusting market reward data to account for labor market changes and inflation since the data collection date.
Why is the effective date of survey data important?
It determines the time period for which the data can be used without aging adjustments.
How is Data Aging calculated with inflation?
Multiply the original reward information by inflation rates (e.g., Consumer Price Index) for each year since the effective date.
Reward surveys are:
Perks and other valuable factors
Paid time off
Aggregations of reward information gathered from other market organizations
Aggregations of the lump sum of employees’ yearly salaries
Aggregations of reward information gathered from other market organizations
Which of the following are ways for organizations to gain salary data?
Public data
Government data
Self-reported data
All of the above
All of the above
Which of the following is not a primary concern when integrating data from multiple rewards systems?
Data aging
Self-reported information and third-party websites can be fabricated
The matching of benchmark jobs in the survey to benchmark jobs within your organization
Market surveys often use different metrics for measuring reward types and compensation levels
Self-reported information and third-party websites can be fabricated
Total compensation can be calculated as:
Total Compensation = Salary + Benefits
Total Compensation = Salary + Variable
Total Compensation = Salary + Variable + Benefits
Total Compensation = Salary + Benefits + Perks
Total Compensation = Salary + Variable + Benefits
According to the text, what is one way that a compensation manager can effectively age data?
Calculate the time value of money
Calculate for inflation
There is no effective way
None of the above
Calculate for inflation
What is the Bad Data Challenge in market analysis?
It refers to the difficulty of ensuring the quality and accuracy of data obtained from various sources, which may not fully represent the market.
How can organizations address the Bad Data Challenge?
By using multiple data sources, having corrective mechanisms, and establishing adequate pay ranges.
What is the Job Matching Challenge?
The difficulty in accurately determining which organizational jobs match benchmark jobs in wage surveys.
How can the Job Matching Challenge be mitigated?
By carefully selecting benchmark jobs, using sources with detailed descriptions, and checking for outliers in job evaluation and market data.
What is the Ethical Challenge in external reward positioning?
The potential for unethical practices, such as using informal pay data to artificially lower rates or engaging in price fixing.
How can organizations address the Ethical Challenge?
By establishing clear and transparent systems for market rate setting and job matching to minimize bias and ethical concerns.
Why is it important to use multiple data sources in market analysis?
To reduce errors and improve the reliability of reward systems by compensating for the limitations of any single source.
What is the role of pay ranges in market analysis?
Pay ranges provide flexibility for managers to adapt to market realities while addressing data quality concerns.
What can outliers in job evaluation or market data indicate?
They may suggest a mismatched job or errors in the data that need further investigation.
Why is transparency important in establishing market rates?
It helps prevent unethical practices and ensures fairness and credibility in the reward system.
A reward survey is:
A survey designed to understand employees’ desire for rewards
A survey published by the AMA to employers to understand rewards offered
Aggregations of reward information gathered from other market organizations
A survey published by the government to employers to understand rewards offered
Aggregations of reward information gathered from other market organizations
The foundation of external reward positioning is found in reward surveys.
Through the use of __________________, an organization is going to create a link between its reward structures and the external markets.
Surveys
Benchmark jobs
Exit interview
Interviews
Benchmark jobs
Benchmark jobs are jobs that are representative of the type, content, and level of jobs in the organization.
True or False. Geography has a significant impact on how an organization should define its labor market.
True
Thus, the first step in externally positioning your reward system is to analyze and define the relevant labor market for each job or job family.
In choosing benchmark jobs, organizations should be careful to ensure adequate representation for all of the following, except:
Organizational levels
Different job families
Government mandates
Career points
Government mandates
In choosing benchmark jobs, organizations should be careful to ensure adequate representation for different job families, organizational levels, and career points.
Which of the following is not a readily available way of obtaining reward information:
Government
Self-report
Competitors compensation plan
Popular press
Competitors compensation plan
In the United States, the _________conducts a National Compensation Survey to measure broad reward practices and levels.
Society of Human Resources Management
American Management Associates
Bureau of Animal Rights
Bureau of Labor Statistics
Bureau of Labor Statistics
This information is most useful for considering the broad-level positioning of an organization in relation to broadly-defined labor markets.
True or False. Markets are one way to establish the price for any good or service.
True
Based upon changes in the supply for the good/service and the demand for that good/service, the price for it will change.
True or False. State, county, or city governments conduct some form of compensation survey. These sources would have great utility for smaller, local labor markets. This data is very specific and provides data on most benchmark jobs.
False
Due to the lack of precision in benchmark jobs, this data is rarely specific enough to provide data on most benchmark jobs.
Self-reported information is important because:
It provides an additional source of data that can help make your overall reward estimates more reliable
Data sources often are the exact sources that employees use to define market rates and their own reward expectations
Both A & B
None of the above
Both A & B
It is useful for organizations to be aware of these sources and how their reported reward information compares to those used by the organization to set pay levels.
True or False. Organizations would be wise to recognize that employee choices are often driven more by what they perceive reality to be than what reality actually is.
True
This suggests that an awareness of, and explanation for, popular press sources will prove beneficial for the design and implementation of a reward system.
One advantage of using subscription information from a third party is:
Relative
Price
Accuracy
Industry specific
Industry specific
Many of these surveys are industry specific, providing compensation data that is quite tailored to the common norms and practices of that industry.
A drawback to designing your own survey is:
Industry specific
Time
Accuracy
Price
Time
It may also be difficult to get the sample size that you need to be sure of having generalizable results.
Which of the following is not a primary concern when integrating data from multiple rewards surveys?
Pay forms
Matching benchmark jobs
Understanding government mandates
Aging the data
Understanding government mandates
The three primary concerns when integrating data from multiple rewards surveys are pay forms, matching benchmark jobs, and aging the data.
True or False. Many forms of employee benefits and intangible rewards are difficult to quantify.
True
Many forms of employee benefits and intangible rewards are difficult to quantify and information on them may not be included in the standard rewards surveys, which can further complicate the matching process.
Data aging refers to:
The adjustment of market reward information to take into account how inflation has likely changed the market rates since the data were collected
The adjustment of market reward information from 10 years ago
The adjustment of market reward information to guess the rewards for 3 years from a certain starting point
None of the above
The adjustment of market reward information to take into account how inflation has likely changed the market rates since the data were collected
Central tendency is:
A group of numbers to represent one number
A single number that best represents a group of numbers
Both A and B
None of the above
A single number that best represents a group of numbers
The mean is also known as the:
Mode
Median
Average
Metrics
Average
The mean can be heavily influenced by:
Outliers
Organizational cultures
Median
Market trends
Outliers
The mean can be heavily influenced by outliers, or numbers that are far above or below most of the other numbers.
The median is the:
Highest number
Middle number
Lowest number
Average number
Middle number
Dispersion represents:
The gap between industries
The gap between lower and higher level employees
The gap between two data points
The gap between the highest and lowest data point
The gap between two data points
There are two basic ways to measure dispersion: range and standard deviation.
