Topic 6 - Integrated Reward Structures Flashcards
What is the goal of integrating internal rewards alignment with external rewards positioning?
To determine the connection between internal and external job valuations and create a balanced rewards strategy.
What does the process of internal rewards alignment establish?
A structure for internally valuing all jobs within an organization.
What does external rewards positioning focus on?
Gathering market reward information for specific benchmark jobs.
Why is balancing internal and external job valuations important?
It ensures the organization can develop a fair and competitive rewards strategy.
What is the purpose of integrating Internal Alignment and External Reward Positions?
To connect internal job evaluation points with external compensation rates for creating a balanced reward system.
What statistical technique is used to determine the relationship between Job Evaluation Points and Compensation?
Regression analysis.
What does the Value-Reward Line represent?
It is the line of best fit that connects internal job evaluation points with external market compensation levels.
What type of chart is used to plot Job Evaluation Points against Compensation?
A scatterplot.
What is the formula for the Value-Reward Line?
The formula is Y=mX+b, where Y is compensation, X is job evaluation points, m is the slope, and b is the Y-axis intercept.
What is the utility of the Integrated Value-Reward Line?
It allows for estimating market pay for jobs using job evaluation points, even without direct market compensation data.
Why might a single straight line not perfectly touch all points in a scatterplot?
Because the data points often have variability, and the line of best fit minimizes the distance to all points collectively.
How are compensable factors represented in the Value-Reward Line process?
As Job Evaluation Points derived from internal alignment methods.
What can regression analysis estimate in the context of the Value-Reward Line?
It estimates the mathematical formula for predicting compensation based on job evaluation points.
Why is the Value-Reward Line important for organizations?
It helps integrate internal job value structures with external market compensation data, enabling fair and competitive pay strategies.
What kind of analysis is best to use when finding out how much a job family should be paid?
Suppression analysis
Point factor analysis
Regression analysis
Job performance analysis
Regression analysis
When graphing the salaries in a value reward line, what type of graph would give the best picture of salaries?
Pie chart
Scatterplot
Bar graph
Line graph
Scatterplot
The regression analysis can also be called:
The line of great fit
The line of high fit
The line of fit
The line of best fit
The line of best fit
The value-reward line can best be explained by the mathematical equation:
y=sx+a
y=ax+m
y=ax+b
y=mx+b
y=mx+b
True or False. A regression analysis plots a line minimally distant for each point in the data.
True
What factors should an organization consider when designing a Reward-level Strategy?
The criticality of jobs to core strategy, challenges in attracting and retaining employees, competitor practices, and cost-control objectives.
What is a Reward-level Strategy?
It refers to the extent to which a company will pay above, at, or below the market average, often expressed as a percentage.
What are the strategic options for a Reward-level Strategy relative to competitors?
Lead the market, match the market, or lag the market.
Why might an organization choose a lead-the-market Reward-level Strategy?
To attract superior talent and gain a competitive advantage.
Why might an organization choose a lag-the-market Reward-level Strategy?
To maintain a lower cost structure than competitors.
What does the magnitude of a lead/lag strategy depend on?
The extent to which superior talent is a competitive advantage and the cost required to attract that talent.
What is a Job-specific Reward Level Strategy?
Establishing different Reward Level Strategies for different job families or hierarchical levels based on their strategic importance.
Provide an example of a Job-specific Reward Level Strategy.
Marketing jobs might be compensated at 7% above market, while administrative jobs might be compensated at 3% below market.
What is a Pay Form-specific Reward Strategy?
Varying pay-level strategies across different reward types, such as base pay, benefits, or variable pay.
Provide an example of a Pay Form-specific Reward Strategy.
Lagging the market by 5% on base pay but leading by 10% on employee benefits.
What is a Job and Pay Form-Specific Reward Strategy?
Customizing reward strategies by combining job-specific and pay form-specific approaches.
Provide an example of a Job and Pay Form-Specific Reward Strategy.
Marketing jobs match the market for base pay and lead by 5% on variable pay, while administrative jobs match base pay and lag by 3% on variable pay.
Why is customization in Reward Strategies important?
It helps align rewards with strategic objectives and differentiates the organization in the labor market.
What are potential fairness issues in Reward Strategies?
Differentiating pay for certain employee groups may create divisions and hurt collaboration or inclusiveness.
How can fairness issues in Reward Strategies be mitigated?
Differentiations should be defensible, strategically logical, and supported by evidence.
One way to define a job-specific reward level strategy could be:
Establishing different reward level strategies for different job families or hierarchical levels
Establishing one reward level strategy and making it equal in all job families
Establishing multiple reward level strategies that government agencies require the organization to implement
Establishing multiple reward level strategies that the market requires
Establishing different reward level strategies for different job families or hierarchical levels
Pay form-specific reward strategies are:
Varying pay level strategy across reward types
Single pay level strategy across reward types
Single pay level strategy across reward systems
Varying pay level strategy across reward systems
Varying pay level strategy across reward types
True or False. When choosing strategies, organizations should use logic and evidence about how job value and pay forms meet business objectives.
True
As a general rule, base pay strategies rarely lead the market by more than __%.
15%
10%
8%
22%
10%
Differentiations in pay should only be made when they are clearly ___________ and worth the potential tradeoffs.
Forgettable
Understandable
Defensible
Expensive
Defensible
What are Pay Grades in an organization?
Pay Grades are categories used to group similar jobs together for reward purposes, simplifying the management of compensation.
What is the basis for determining which jobs belong in the same Pay Grade?
Jobs are grouped based on their Job Evaluation points, which measure the internal value of jobs within the organization.
How does grouping jobs into Pay Grades simplify compensation management?
It reduces the number of job classifications and allows the organization to manage pay across fewer categories, making it easier to administer compensation.
How does a Pay Grade structure help in managing reward strategies?
It allows the organization to establish different reward strategies for different job groups, preventing an unmanageable number of individual reward strategies.
What is the first step in creating an integrated rewards structure?
The first step is grouping jobs into Pay Grades based on their Job Evaluation points.
Why is it easier to make lateral moves between jobs within the same Pay Grade?
Jobs within the same Pay Grade are treated similarly, simplifying employee movement across roles that have comparable compensation.
How many Pay Grades are typically used in organizations?
The number of Pay Grades can vary, but many organizations use a system with fewer grades to simplify the compensation structure.
How were traditional pay grade structures designed historically?
Historically, organizations used many grades with small pay ranges, which worked well in static work environments with linear career paths.
Why have organizations moved away from complex pay grade structures?
Changes in work environments, such as more dynamic roles and less predictable career paths, led to a shift toward simpler, more flexible pay structures.
What was the traditional work environment that suited complex pay grade structures?
The traditional work environment was static, with jobs that didn’t change much over time, and linear careers where employees stayed with one organization for their entire career.
What role do Pay Grades play in reward strategy?
Pay Grades allow organizations to implement differentiated reward strategies for different job groups, ensuring a more manageable and structured compensation system.
What is the benefit of grouping jobs into fewer Pay Grades?
It simplifies the compensation system, reduces complexity, and makes it easier to manage employee progression and compensation adjustments.
How do Pay Grades relate to the total compensation for jobs?
Jobs within the same Pay Grade generally have similar total compensation levels, though the specific amount can vary within the range for that grade.
How does a Pay Grade structure help organizations adapt to changing work environments?
It allows for more flexibility in managing compensation across diverse and evolving roles, in contrast to the rigid structures of the past.
Which of the following is not a historically used structured pay grade?
Linear careers
Upward mobility
Individualistic environment
Static
Upward mobility
When jobs are static:
Jobs move freely
Jobs don’t change much over time
Jobs are quick to change over time
Jobs are easier to get
Jobs don’t change much over time
In an individualistic environment:
Work is done dependently by single employees reporting to a single supervisor
Work is done independently by multiple employees reporting to a single supervisor
Work is done independently by single employees reporting to a single supervisor
Work is done dependently by multiple employees reporting to a single supervisor
Work is done independently by single employees reporting to a single supervisor
Linear careers are where:
Employees can expect to move in and out of different jobs throughout their career
Employees begin their career floating and then settle into a single organization
Employees spend the first part of their career in one organization and then float to other organizations
Employees can expect to spend the duration of their careers with a single organization
Employees can expect to spend the duration of their careers with a single organization
True or False. Over the past two decades, organizations have tried to understand how many pay bands they should have.
True
What is Broadbanding in compensation management?
Broadbanding is the use of a few broad bands or grades to organize jobs for pay purposes, replacing complex, detailed pay structures.
How does Broadbanding benefit organizations?
Broadbanding allows for greater flexibility, enabling employees to modify their roles, join multiple teams, and make lateral career changes without compensation barriers.
How does Broadbanding align with changes in the nature of work?
It supports dynamic, role-based jobs, encourages collaboration, and accommodates networked careers where employees frequently change roles and industries.
What are the key changes in the work environment that led to Broadbanding?
The shift from static, individualistic, and linear careers to dynamic, collaborative, and networked careers necessitated a more flexible compensation system.
How does Broadbanding affect career progression?
It facilitates career changes and role flexibility, allowing employees to move between jobs and functions within the organization without facing compensation-related obstacles.
What is the primary advantage of a Broadbanding approach?
Broadbanding creates a more integrated organization by removing compensation incentives that keep employees in one job, encouraging them to move and adapt to changing organizational needs.
How does Broadbanding simplify the compensation system?
It consolidates multiple pay grades into broader bands, reducing the complexity of the pay structure and removing barriers to job movement.
What might a Broadbanding structure look like in practice?
For example, an organization might consolidate seven pay grades into three broader bands, making it easier for employees to transition between jobs without facing significant pay barriers.
A dynamic-based role would describe which of the following situations?
The work employees do changes on a regular basis
Employees aren’t as expected to become more dynamic in the workplace
Employees are expected to become more dynamic in the workplace
The work employees do does not change on a regular basis
The work employees do changes on a regular basis
A collaborative environment is:
where individuals work by themselves to be creative, solve problems, and produce results
where teams of employees work in concert to be creative, solve problems, and produce results
where teams of employees work together, but tend to not be creative, solve problems, or produce results
where individuals work by themselves, but struggle to be creative, solve problems, and produce results
where teams of employees work in concert to be creative, solve problems, and produce results
A networked career is:
where employees change jobs frequently, sometimes changing functions and industries
where employees stay in a static job, moving up in their career with one company
where employees change jobs frequently because they are not satisfied with their career
none of the above
where employees change jobs frequently, sometimes changing functions and industries
What is an advantage to broadbanding?
Allows for stronger relationships
Allows for greater flexibility
Allows for more productive work results
Allows for a better training guide in an orgranization
Allows for greater flexibility
What is a Pay Range?
A Pay Range represents the span of compensation rates available to an employee working at a job in a particular pay grade or band.
How does a Pay Range work?
A Pay Range defines the minimum and maximum compensation within each pay grade or band, for example, $20,000 to $35,000 for Grade 1.
What is the Principle of Inclusiveness in Pay Ranges?
It states that a pay range must be large enough to capture the pay range of all jobs in that grade or band, considering current and future compensation.
What does the Principle of Overlap mean for Pay Ranges?
The Principle of Overlap allows for overlap between pay ranges of successive pay grades or bands, so employees can earn more in a lower grade than others in a higher grade based on experience and performance.
How does the Principle of Overlap benefit employees?
It facilitates career movement by allowing employees to be promoted or move laterally without major changes in their compensation.
What is the Principle of Control in Pay Ranges?
The Principle of Control suggests that pay ranges should be kept small to control labor costs, while still ensuring fair compensation for high performers.
What are Shadow Ranges?
Shadow Ranges are smaller ranges within broadband systems, applied to specific job families to provide more guidance on appropriate compensation levels.
What is the Compa-ratio?
The Compa-ratio is a measure of how well pay rates conform to the pay plan, calculated by dividing the average pay by the midpoint of the pay grade range.
How is the Compa-ratio interpreted?
A Compa-ratio below 1 suggests the organization is paying less than planned, while a ratio above 1 suggests the pay is above the planned amount.
What is the Principle of Parity in Pay Ranges?
The Principle of Parity states that the more grades used, the smaller the ranges will be. Fewer grades (broadbanding) means the ranges will be larger.
How does the number of grades affect Pay Ranges?
With more grades, the ranges are typically smaller, whereas fewer grades result in broader ranges, as seen in broadbanding.
What is a common approach for determining Pay Ranges?
Organizations often work with compensation consultants to establish fair and functional pay ranges based on data, experience, and market trends.
The Principle of Parity suggests:
The more grades that are used, the larger the ranges will be
The more grades that are used, the smaller the ranges will be
The fewer grades that are used, the larger the ranges will be
The fewer grades that are used, the smaller the ranges will be
The more grades that are used, the smaller the ranges will be
How do you calculate the Compa-ratio?
By dividing the average pay for the pay grade by the midpoint of that range
By dividing the midpoint of the range by the pay grade
By subtracting the average pay from the midpoint of the pay grade
By multiplying the average pay for the pay grade by the midpoint of that range
By dividing the average pay for the pay grade by the midpoint of that range
The Principle of Control states:
The size of pay ranges should be kept sufficiently small to enable an organization to control fixed costs
The size of pay ranges should be kept sufficiently large to enable an organization to control fixed costs
The size of pay ranges should be kept sufficiently small to enable an organization to control labor costs
The size of pay ranges should be kept fairly large to enable an organization to control labor costs
The size of pay ranges should be kept sufficiently small to enable an organization to control labor costs
The Principle of Overlap states:
There should not be a gap between pay ranges for successive pay grades or bands
There should be overlap in the pay ranges for successive pay grades or bands
There should be a gap between pay ranges for successive pay grades or bands
There should not be an overlap in the pay ranges for successive pay grades or bands
There should be overlap in the pay ranges for successive pay grades or bands
The Principle of Inclusiveness states:
That a pay range does not need to be large enough to capture the pay range of all jobs in that grade or band
That a gap needs to be large enough to capture the pay range of all jobs in that grade or band
That a pay range needs to be large enough to capture the pay range of all jobs in that grade or band
That a gap does not need to be large enough to capture the pay range of all jobs in that grade or band
That a pay range needs to be large enough to capture the pay range of all jobs in that grade or band
What are Green Circle Rates?
Green Circle Rates refer to employees whose pay is below the range established for their pay grade.
What are Red Circle Rates?
Red Circle Rates refer to employees whose pay is above the range established for their pay grade.
How can pay disparities (Green Circle and Red Circle Rates) be addressed?
Pay disparities can be addressed by adjusting the employee’s pay immediately or gradually, depending on the situation, such as high performance or budget constraints.
Why might gradual pay adjustments be necessary for Red Circle Rate employees?
Gradual adjustments may be necessary to avoid negative reactions from employees with pay above the range, especially if their higher pay is due to performance or historic pay practices.
Green Circle Rates refer to:
Employees whose pay is above the range and who get positive performance reviews
Employees whose pay is below the range and who get poor performance reviews
Employees whose pay is below the range for their job
Employees whose pay is above the range for their job
Employees whose pay is below the range for their job
Red Circle Rates refer to:
Employees whose pay is below the range and who get negative feedback on the performance review
Employees whose pay is above the range and who get positive feedback on the performance review
Employees whose pay is below the range for their job
Employees whose pay is above the range for their job
Employees whose pay is above the range for their job
Managers should remember that the process of __________ is important and also consider any legal ramifications of the historic pay disparity.
compensation
change
static
none of the above
change
Green circle rates refer to:
Employees whose pay is below market range
Employees whose pay is above market range
Employees whose pay is at market range
None of the above
Employees whose pay is below market range
Red circle rates refer to:
Employees whose pay is at market range
Employees whose pay is below market range
None of the above
Employees whose pay is above market range
Employees whose pay is above market range
True or False. There is not a degree of correspondence between pay grade size and range size.
False
The Principle of Parity suggests that, in general, the more grades that are used the smaller the ranges will be.
______________________exist within the range of the broad band and are applied to specific job families to provide guidance on appropriate compensation levels.
Shadow entrances
Shadow ranges
Shadow pillars
Shadow exits
Shadow ranges
Organizations use pay grades and ranges to monitor how well pay rates are conforming to the pay plan. _____________ is frequently used to measure this conformity.
Compa-stats
Compa-ratio
Statistical analysis
None of the above
Compa-ratio
The Compa-ratio is calculated by dividing the average pay for the pay grade by the midpoint of that range.
True or False. With the principle of overlap, it is impossible that an employee in pay grade three could be paid more than an employee in pay grade four.
False
A high performing employee that has been with the organization for 10 years in grade three may be paid higher than an inexperienced employee just hired into grade four.
Overlapping grades allow for ___________ career management as employees are promoted up through their own function or take a lateral position in a different function.
Similar
Difficult
Robust
Easier
Easier
The larger, overlapping ranges make it ______likely that employees can make such moves without having to dramatically raise or lower their pay.
More
Less
Somewhat
None of the above
More
True or False. It is wise to leave a buffer zone around the current pay rates to ensure that the range is adequate.
True
When jobs were grouped into________________, it was for the purpose of treating them the same for compensation purposes.
Grades and threads
Grades and bands
Bands and threads
Bands and threats
Grades and bands
For compensation levels a ___________________ needs to be established.
Floor
Ceiling
Both A & B
None of the above
Both A & B
True or False. By using pay form-specific strategies, organizations can create more customized reward systems that are more likely to differentiate them from their competition in the labor market.
True
In a dynamic-role based job:
Compensation plans need to facilitate change
Compensation plans need to be evaluated
Compensation plans do not need to facilitate change
Compensation plans are able to stay static
Compensation plans need to facilitate change
Broadbanding allows organizations to:
Use a few broad bands to organize work for pay purposes
Use many broad bands to organize work for pay purposes
Both A and B
None of the above
Use a few broad bands to organize work for pay purposes
This new work environment has steered organizations away from complicated double-digit grade structures to more loosely organized “banded” structures.
Broadbanding allows employees to do all of the following except:
Manage lateral changes in their career
Join and exit multiple organizational teams
Modify their role in the organization
Be promotable within a given time period
Be promotable within a given time period
The purpose of grades is to:
Allow jobs creating a different amount of value for the organization to be treated in the same way.
Allow jobs creating the same amount of value for the organization to be treated in the same way
Allow jobs creating the same amount of value for the organization to be treated in a different way
None of the above
Allow jobs creating the same amount of value for the organization to be treated in the same way
True or False. Using pay grades is useful because it allows the organization to establish different pay strategies for different pay grades.
True
Without any grade structure, a job-based pay strategy could involve ___________ of different reward strategies in one organization.
Zero
Thousands
Tens
Hundreds
Hundreds
True or False. Pay grades are useful as they allow organizations to simplify reward systems because similar jobs can all be treated in the same way.
True
A pay-form specific rewards strategy is:
Varying pay level strategy among the organization
Varying pay level strategy across reward types
Varying pay level strategy within job functions
Varying pay level strategy within job families
Varying pay level strategy across reward types
