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Setting the Stage for Strategic Compensation and Bases for Pay

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    Setting the stage for strategic compensation and bases for pay Paulette Harris Professor Christopher Zapalski Compensation Management – BUS 409 July 24, 2011 1. Describe the three main goals of compensation departments. Compensation professionals promote effective compensation systems by meeting three important goals: 1. Internal consistency 2. Market competitiveness 3. Recognition of individual contributions. Internal Consistency – Internal consistent compensation systems clearly define the relative value of each job among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy.

    Companies rely on a simple, yet fundamental, principle for building internally consistent compensation systems: Employees in jobs that require greater qualifications, more responsibilities, and more complex job duties should be paid more than employees whose jobs requires lesser qualifications, fewer responsibilities, and less –complex job duties. Internally consistent job structures formally recognize differences in job characteristics, which therefore enable compensation managers to set pay accordingly. Market Competitiveness – Market-competitive pay systems play a significant role in attracting and retaining the most qualified employees.

    Compensation professionals build market competitive compensation systems based on the results of market surveys and compensation surveys. A Strategic analysis entails an examination of a company’s external market context and internal factors. Examples of external market context are the industry profile, information about competitors, and long-term growth prospects. Internal factors encompass the company’s financial condition and functional capabilities – for example, marketing and human resources Strategic analysis permit business professionals to see where they stand in the market based external and internal factors.

    Compensation surveys collect and then analyze competitors’ compensation data. Compensation surveys traditionally focused on competitors’ wage and salary practices. Now, employee benefits are also a target of surveys because benefits are a key elements of market-competitive pay systems. Compensation surveys are important because they enable compensation professionals to obtain realistic views of competitors’ pay practices. In the absence of compensation survey data, compensation professionals would have to use guess work to build market-competitive compensation systems.

    Recognizing Individual Contributions pay structures represent pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions. No two employees possess identical credentials or perform the same jobs equally well. Companies recognize these differences by paying individuals according to their credentials, knowledge, or job performance. When completed, pay structures should define the boundaries for recognizing employee contributions. Well-designed structures should promote the retention of valued employees.

    Pay grades and pay ranges are structural features of pay structure. Pay grade group jobs for pay policy application. Human resource professionals typically group jobs into pay grades based on similar compensable factors and value. These criteria are not precise. In fact, no single formula determines what is sufficiently similar in terms of content and value to warrant groping into a pay grade. Pay ranges build upon pay grades. Pay ranges include minimum, maximum, and midpoint pay rates. The minimum and maximum values denote the acceptable lower and upper bounds of pay for the jobs in particular pay grades.

    The midpoint pay value is the halfway mark between the minimum and maximum pay rates. (Chapter 1, P 21/22) 2. Describe the contextual influence that you believe will pose the greatest challenge and the contextual influence that will pose the least challenge to companies competitiveness and explain why. I think the market influence will post the greatest impact since our economy is not doing well. The other reason I say this is because major corporation or government organizations are not getting the support from the government or the fund that they use to get.

    This is affecting all small business since they cannot afford to compete with the bigger companies. The major corporation have been declaring or filing for bankruptcy since the stock market plummeted a few years ago. This is also a major reason why our employment rate has gone out the roof in recent years. It seems that the government is not trying to make things better since they are too busy trying to help other countries and also going out of the United States to purchase different supplies and oil.

    I feel that the labor unions will pose the least challenges since they do all the negotiations for the employees and tend to work with the companies within reason of course. The unions normally seek good benefit packages for their employees and also negotiate for their status in the companies but at the same time if the companies lets them know that they are willing to work with their demands then the unions will work with them even if they cannot get that big raise that employees look for or that big benefits package. (Chapter 2, P 47, 48, 49/50) 3.

    Describe when subjective performance evaluations might be better (or more feasible) then objective ratings. It is better when using the trait systems. Essentially, trait assessment focuses attention on employees rather than on job performance. The rating is inherently subjective, such as customer service representative or sales representative and is based on the evaluator’s judgment, intuition, and feelings, e. g. , attitude, cooperativeness, initiative, aggressiveness, flexibility, friendliness, and openness. Informal performance reviews depend primarily on subjective measures. Chapter 3, P 65/66) 4. Describe under what conditions profit sharing plans are not likely to motivate employees. There are two main disadvantages associated with profit sharing plans. The first one directly affects employees; the second affects companies. Profit sharing plans may undermine the economic security of employees, particularly if profit sharing represents a sizable portion of direct compensation. Because company profits vary from year to year, so do employees’ earnings. Thus employees will find it difficult to predict their earnings, which will affect their saving and buying behavior.

    If there is significant variability in earnings, a company’s excellent performers are likely to leave for employment with competitors. The turnover of excellent performers certainly represents a significant disadvantage to companies. Employers also find profit sharing programs to be problematic under certain conditions. Profit sharing plans may fail to motivate employees because they do not see a direct link between their efforts and corporate profits. Hourly employees in particular may have trouble seeing this connection because their efforts appear to be several steps removed from the company’s performance.

    For instance, an assembly line worker who installs interior trim (e. g. , carpeting and seats) to automobiles may not find any connection between his or her efforts and the level of company profits because interior trim represents just one of many steps in the production of automobiles. (Chapter 4, P 97) 5. Base on your knowledge of pay-for-knowledge pay concepts, describe three jobs for which this basis for pay is inappropriate and explain why. 1. Clerical job 2. Retail Store 3. Supervisory Pay-for-knowledge pay programs represent important innovations in the compensation field.

    Pay-for-knowledge pay systems imply that employees must move away from viewing pay as an entitlement. Instead, these systems treat compensation as a reward earned for acquiring and implementing job-relevant knowledge and skills. Advocates of pay-for-knowledge pay programs offer two key reasons that firms seeking competitive advantage should adopt this form of compensation: technological innovation and increased global competition. Based on this I believe that is the reason for the three jobs mentioned above basis for pay is inappropriate. (Chapter 5, P 106)

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