Chapter 8.docx

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Human Resources and Organizational Behaviour
HROB 3010
Rhonda Gordon

Chapter 8 – Designing Pay Levels, Mix, and Pay Structures Major Decisions -Some major decisions in pay level determination: -determine pay level policy (specify employers external pay policy) -define purpose of survey (define purpose of compensation survey) -define relevant market (choose relevant market competitors to survey) -design and conduct survey -interpret and apply results (interpret survey results and construct market pay line) -design grades and ranges or bands (balance competitiveness with internal alignment through the use of ranges, flat rates, and/or bands) - Set Competitive Pay Compensation survey- the systematic process of collecting and making judgments about the compensation paid by other employees -provide data translating policy into pay levels, pay mix, and structures The Purpose of a Compensation Survey -employer conducts or participates in compensation survey because: 1. to adjust internal pay level in response to changing competitor pay rates 2. to set the internal mix of pay forms relative to those paid by competitors 3. to establish or ‘price’ the internal pay structure 4. to analyze pay-related problems 5. to estimate labour costs of product market competitors - Determining externally competitive pay levels and structures: Merge Competitve Set policy Define Conduct Draw policy internal and pay levels, market survey lines external mix, and pressures structures - Adjust Pay Level- How Much To Pay? -most firms make adjustments to employees pay on regular basis based on overall upward movement of pay rates caused by competition for people in the market or on performance, ability to pay, or terms specified in contract Adjust Pay Mix- What Forms? -adjustments to different forms of pay competitors use (base, bonuses, incentives, benefits) and relative importance they place on each form occur less frequently than adjustments to overall pay level -mix of forms and their relative importance makes up the ‘pay package’ -managers recognize total compensation involves many types of pay and some pay forms may affect employee behavior more than others Adjust Pay Structure? -many employers use market surveys to validate their own job evaluation results (ie. If market shows different pay rates then determined by organizations job evaluation) Study Special Situations -information from specialized surveys (focused on targeted groups) may help find out if market changes are occurring Estimate Competitors Labour Costs -increasingly, survey data is used as part of employers efforts to gather ‘competitive intelligence’ -employers may use salary survey data to benchmark against competitors product pricing and manufacturing practices Select Relevant Market Competitors -to make decisions about pay levels, mix and structures, a relevant labour market must be defined that includes employers who compete in one or more of the following areas: 1. the same occupation or skills required 2. the same geographic area 3. the same products and services -if skills are tied to particular industry (underwriters, actuaries, claims representative are tied to insurance) it can make sense to define the market on an industry basis -if skills are not limited to particular industry (clerical accounting, sales) considerations are less important -pay rates of competitors will affect costs of operations and financial condition (ability to pay) -problem when major competitors are based in countries with far lower pay rates (China) –creates complexities because legal regulations, tax policies, customs -if company possesses good international survey data, careful judgment is required Relevant labour markets by geographic and employee groups: Geographic Production Office and Technicians Scientists Managerial Executive Scope Clerical and Professional Engineers Local: within most likely Most likely Most likely relatively small areas (cities, metropolitan areas) Regional: Only if in Only if in Most likely Likely Most likely within a short supply short supply particular or critical or critical area or several provinces (wheat- producing region of western Canada) National: Most likely Most likely Most likely across the country International: Only if Only if Sometimes across critical skillscritical skills several or those in or those in countries very short very short supply supply Design the Compensation Survey -designing compensation survey requires answering following questions: 1. Who should be involved in survey design? -in most organizations, responsibility for managing survey lies with compensation manger -since compensation expenses has effect on profitability, including employees and managers makes sense -hiring third-party consultant instead of managing survey internally buys expertise but may trade off some control over the decision that determine the quality and usefulness of data 2. How many employers should be included? -no firm rules about how many employers to include in survey -large firms with lead policy may exchange data only with few top-paying competitors -small organization in an area dominated by two or three employers may decide to survey only smaller competitors 3. What jobs should be included? -select as few employers and jobs as necessary to accomplish the purpose -more complex the survey, the less likely other employers are inclined to participate -benchmark-job approach- benchmark jobs have stable job content and are common across different employers -if company’s purpose in conducting survey is to price the entire structure, then benchmark jobs can be selected -low-high approach-if an organization is using skill/competency-based structures or generic job descriptions, it may not be able to match jobs with competitors who use a traditional job-based approach -job-based market data must be converted to fit the skill or competency structured -simplest approach is to identify lowest and highest paid benchmark jobs for the relevant skills in the relevant market and to use the wages for these jobs as anchors for the skill based structures -work at various levels within the structure then can be slotted between anchors -benchmark conversion approach-alternative approach to job-matching difficulties is to apply the job evaluation plan used to create internal alignment to the descriptions of the survey jobs -magnitude of difference between job evaluation points for internal job and survey jobs provides guidance for adjusting the market data 4. What information should be collected? -three basic types of data are typically requested: 1. information about the natural of the organization – assesses similarities and differences between survey users -identification (company name, address, contact person) -financial performance (assets, sales, profits (after taxes), cash flow) -size (profit centers, product lines) -structure (total number of employees, organizational charts) 2. information about the total compensation system- all basic forms of pay need to be covered in a survey to assess similarities and differences in total pay packages and to accurately assess competitors practices -cash forms used (base pay, pay increase schedules, long- and short- term incentives, bonuses, cost of living adjustments, overtime, shift differentials) -non-cash forms used (composition of benefits and services, particularly the degree of coverage and contributions to medical and health insurance and pensions) 3. specific pay data on each incumbent in the jobs under study -date (date survey data in effect) -job (match generic job descriptions) -individual (number of employees supervised and reporting levels, years since degree, education, date of hire Advantages and Disadvantages of Measures of Compensation: Base Pay – amount of cash the Tells how competitors are Fails to include performance competitors decided each job is valuing the work in similar jobs incentives and other forms, so worth will not give true picture if
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