Management and Organizational Studies 3342A/B Chapter Notes - Chapter 8: Cash Flow, Highly Suspect, Symposium On Theory Of Computing

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Chapter 8 – Designing Pay Levels, Mix, and Pay Structures
Major decisions
oSpecify the employer’s external pay policy
oDefine the purpose of the compensation survey
oChoose relevant market competitors to survey
oDesign the survey
oInterpret survey results and construct the market pay line
oConstruct an internal pay policy line that reflects external pay
policy
oBalance competitiveness with internal alignment through the
use of ranges, flat rates, and bands
Set competitive pay policy – first decision
oCompensation survey – the systematic process of collecting and
making judgements about the compensation paid by other
employees
oEmployers decide based on whether they want to lead, meet, or
lag behind the avg market pay rates
oCompensation surveys provide the data for translating that
policy into pay levels, pay mix, and structures
The purpose of a compensation survey
oAdjust internal pay level in response to changing competitor pay
rates
oSet the internal mix of pay forms relative to those paid by
competitors
oEstablish or “price” the internal pay structure
oAnalyze pay-related problems
oEstimate the labour costs of product market competitors
oAdjust pay level – how much to pay? Adjustments may be based
on the overall upward movement of pay rates caused by
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competition for people or on performance, ability to pay, or
terms specified in contract
oAdjust pay mix – what forms? Occur less frequently than
adjustments to overall pay level – some pay form may affect
employee behaviours more than others – collecting this info is
important
oAdjust pay structure? Use market surveys to validate their own
job evaluation results – job structures found in the internal job
evaluation may not match the pay structures found in the
external market – some companies just go straight to surveys to
establish internal structures “market pricing”
Generic work descriptions that focus on the person more
than the job need accurate market data
oStudy special situations – can shed light on specific pay-related
problems
oEstimate competitor’s labour costs – surveys help gather
competitive intelligence
Select relevant market competitors
oThe same occupation or skills required
oThe same geographic area
oThe same products and services
oAs the important and complexity of qualifications increase, the
geographic limits increase as well
oFrom the perspective of cost control and ability pay, including
competitors in the product market is crucial – becomes a
problem when major competitors are places in countries with far
lower pay rates
oCareful judgement of international survey data is required when
making pay decisions
oFuzzy markets – unique talent is required for unique jobs – new
jobs fuse together diverse knowledge and experience so
“relevant” markets appear as “fuzzy” markets
Design the compensation survey
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oWho should be involved in the survey design?
Responsibility usually lies with the compensation
manager – hiring a 3rd party consultant can bring
expertise but might cause the org to lose control over the
decisions of the survey
o How many employers should be included? – no set rule
Publicly available data – Statistics Canada
Word-of-Mouse – a click of the mouse makes enormous
amounts of data available and so managers must be able
to defend the salaries they pay compared to what’s on
the internet – a lot of the data online is highly suspect
Where are the standards? – issues of sample design and
statistical inference are seldom considered and standards
do not exists for market surveys and analysis
oWhich jobs should be included? – keep things as simple as
possible
Benchmark jobs approach – stable job content and are
common across different employers
Low-high approach – identify the 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
Benchmark conversion approach – apply job evaluation
plan used to create internal alignment to the descriptions
of survey jobs – difference between the two provides
guidance for adjustment of pay
oWhat info should be collected?
Info about the nature of the org – assess the similarities
and difference between survey users
Info about the total compensation system – assess
similarities and differences in total pay packages – can’t
assess all forms of pay and usually focus on base pay,
total cash, and total compensation
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