Week 4

Question 1

Compensation Management

Answer 1

Compensation has large impact on employees attitudes and behaviors
- influences selection
- has consequences on turnover
- has motivational consequences

Question 2

Step 1 to determine base pay

Answer 2

Determine pay philosophy: “what is corporations belief about compensation?” (be consistent) and what is the strategy?
1. lead market
2. match market
3. lag behind (unconsciously through misjudgement or budget limits or consciously through attractive employer branding)
- bad effects of bad pay are greater than good effects of good pay (try to not underpay, as people reject on that basis alone > ultimatum game)

Question 3

Step 2 to determine base pay

Answer 3

conduct a job analysis
-recall: determine activities and responsibilities it includes, importance and conditions

Question 4

Step 3 to determine base pay

Answer 4

Group jobs into families
- have one pay grade system for each family
- group based on functions, geographics, divisions etc.

Question 5

Step 4 to determine base pay

Answer 5

rank positions using job evaluation method
rank order jobs (not people in them) on: compensable factors such as relative importance and relative worth and requirements to bring

Question 6

Step 5 to determine base pay

Answer 6

Conduct market research and benchmark against market data (comparable?)
- buy salary line form research organization
- read descriptions to reliably compare
employer reported data usually more reliable

Question 7

Step 6 and 7 to determine base pay

Answer 7

Create job grades and create salary range for each
- tenure and progression through hirarchy
- have different pay grades for families or same

Question 8

Step 8 to determine base pay

Answer 8

determine how to deal with salaries not in range
-provide increase to match minimum range or provide promotion
-pay grades will usually overlap (the more overlap the more cost efficient)
- less overlap means larger pay increase for internal promotions
- adjust through: perfromance bonuses, freezing pay, lowering base pay

Question 9

Pay incentives or Variable pay

Answer 9

is determined with performance evaluation
- can be based individually or on group base (more motivating when group is smaller)
- no variable pay is clearly better than other (can use combinations)

Question 10

Merit Pay

Answer 10

anual change in base pay, appraised by supervisor
- over time better performers are retained
- individual competition
- need good appraisal system and participation of management

Question 11

Incentive Pay

Answer 11

weekly bonus based on individual output
- clear connection to better performers
- individual competition
- maintain standards for bonuses
- controlled by management, easily measureable

Question 12

Profit sharing

Answer 12

(semi)anually bonus through company profits
- stronger motivation in smaller firms but motivates all
- fosters knowledge of business and costs are high (group based)
- fits participation style and can be applied to all work

Question 13

Ownership

Answer 13

equity changes when stock sold through company profits ( usually in smaller firms)
- can help lock employees (sense of ownership and cooperation with high cost)
- group participation and can be applied to all work

Question 14

Gain sharing

Answer 14

monthly/quarterly bonus through higher production of unit (group effort works mostly in smaller units)
- retains all workers, supports ciiperation and problem solving and efforts in maintaining acceptable standards for the firm
- participation style fits all types of work

Question 15

Skill- based

Answer 15

change in base pay when skill acquired
- encourages learning, attracts learn-oriented employees, fosters flexible organization and learning
- costs of training
- fits participation style for people with significant skill depth or breadth

Question 16

Indirect compensation/ benefits

Answer 16

non-monetary (service, accommodations)
- social insurance
- private group insurance
- retirement
- paid sabbaticals
- family friendly policies
> example: prevent burnout for university doctors at standford and thus promote gender equality

Question 17

Importance of pay

Answer 17

social desirability: respond in social desirable way
social norms: think money is less noble source of motivation
- fungible, symbol of social status, still one of the most important things although no one says it

Question 18

Reaction to pay unfairness

Answer 18

money is important when we can compare to: others, within organization, to our past selves
> Equity theory: reward/effort ratio must be equal to reward/effort ratio of others (insiders and outsiders)

Question 19

Equity

Answer 19

external: compared to other companies
internal: within company
individual: to co-workers with similar performance
- people adjust and increase/decrease input, effort and outcomes accordingly or even sabotage others