Chapter 3 Defining Internal Alignment REVIEW QUESTIONS 1. Why is internal alignment an important compensation policy? What happens when a compensation policy is not internally aligned? Internal alignment recognizes the relative values of various jobs within an organization. It can affect employees’ decisions to pursue training, join, or remain with the organization. Internal consistency forms the basis of the pay structure by providing differentials for jobs of unequal worth. It recognizes differential value of jobs’ outcomes, qualifications to perform different jobs, and/or conditions under which jobs are performed. 2. Judging from your own experience, which factors shaped the internal pay structure at your most recent employer? Provide examples that support your choice. The factors that influence internal equity include: ( 1) societal norms or customs regarding fair wage differentials;( 2) economic factors, including a) productivity differences attributable to differences in the employee, the job, and the match between the employee qualification and job requirements, b) the abundance or shortage of skills and c) the value of the output of each job. (3) organizational factors including a) the organizational “culture” or “values”, b) congruence with career paths, c) union contract requirements, d) technology-dictated skills and e) human resource management policies; (4) employee acceptance- workers’ perceptions of what constitutes an equitable system. The second part of this question is designed to elicit classroom discussion. Students should be able to defend their choices. 3. Would Research in Motion, makers of the Blackberry, be better served by a tailored pay structure or a loosely coupled pay structure Explain your answer. Research in Motion would be better served by a loosely coupled structure. This is a pay structure for jobs that are flexible, adaptable and changing. The competitive environment this organization faces is turbulent and unpredictable. They need a more loosely coupled structure in order to facilitate constant change. 4 Explain the consequences of internal alignment for competitive advantage, fairness to employees and legal compliance. The first is that there are unique jobs that reflect organization idiosyncrasies. The second reason for paying attention to internal alignment is that some jobs are valued by a specific organization more or less than the rates for that job in the market. Internal pay structures imply future rewards. The size of the pay differential between the entry level and the highest level in the structure may induce employees to remain with the organization, increase their experience and training, co-operate with co-workers and seek greater responsibility. Employees’ attitudes toward the fairness of the pay structure affect their work behaviours. As with any pay decision, the design and management of internal pay structures must comply with the regulations of the countries in which the organization operates. EXPERIENTIAL EXERCISES 1. Look into any organization- your university/college, workplace, or the grocery store where you shop. Describe the flow of work. How is the job structure aligned with the organization’s business, the workflow, and the organization objectives? How do you think it influences employee behaviours? Internal alignment addresses the relationships inside the organization. The relationship among different jobs inside an organization makes up its internal structure. Internal alignment, often called internal equity refers to the pay relationships between the jobs/skills/competencies within a single organization. The relationships form a pay structure that can support the workflow, is fair to employees and direct their behaviour toward organization objectives. Pay structure refers to the array of pay rates for different work or skills within a single organization. The number of levels, differentials in pay between the levels, and the criteria used to determine those differences create the structure. The last part of the question will elicit classroom discussion. 2. Prepare a list of a least five Canadian laws at various levels of government that impact pay rates. Canadian laws include Pay Equity, Employment Equity, Employment Standards, Human Rights Legislation, Sexual Harassment, Harassment and Discrimination 3. Illustrate the internal labour market for faculty at your university/college, using Exhibit 3.5 as a guide. Exhibit 3.5 in "Compensation" typically outlines the structure of an internal labor market. The general illustration of an internal labor market for faculty at a university/college: 1. Entry Level Positions: Assistant Professor: Newly hired faculty members typically start at this level. They are responsible for teaching undergraduate or graduate courses, conducting research, and contributing to service activities within the department or university. Lecturer/Instructor: Some institutions may have non-tenure-track faculty positions at the entry level, focusing primarily on teaching responsibilities. 2. Mid-Level Positions: Associate Professor: Faculty members who have demonstrated significant contributions to teaching, research, and service may be promoted to this level. They typically have tenure or are on a tenure-track, meaning they have a permanent position unless there are extenuating circumstances. Senior Lecturer: Non-tenure-track faculty members who have gained substantial experience and expertise in teaching may be promoted to this level, with increased responsibilities and possibly longer-term contracts. 3. Senior Level Positions: Professor: The highest rank for faculty members, professors are recognized for their outstanding contributions to teaching, research, and service. They often have tenure and play leadership roles within their departments or across the university. Distinguished Professor: Some universities have an additional rank for faculty members who have achieved exceptional distinction in their fields, often with national or international recognition. 4. Movement Within the Internal Labor Market: Promotion: Faculty members can advance through the ranks based on their performance, accomplishments, and contributions to the university community. Promotion criteria typically include teaching evaluations, research publications, grants secured, and service activities. Tenure Review: Tenure-track faculty undergo a rigorous review process to earn tenure, which provides them with job security and academic freedom. This process involves evaluation of teaching effectiveness, research productivity, and service contributions over a probationary period. Transfer or Rotation: Faculty may have opportunities to transfer to different departments or units within the university, allowing them to pursue interdisciplinary collaborations or explore new research areas. Retention: To retain talented faculty members, universities may offer competitive salary increases, research support, teaching load reductions, or other incentives. This internal labor market for faculty is designed to support career progression, recognize and reward excellence, and maintain a high level of academic quality within the institution. CASE: The Orchestra Summary of Case An actual salary structure for a regional orchestra permits discussion of reasons for the differences. Learning Outcome All organizations, no matter their size, have compensation issues. Decisions on internal consistency frequently are the most contentious. Questions 1. Describe the orchestra’s pay structure in terms of levels, differentials, and job- or person-based. Structure appears job-based. Job accounts for the differences among instruments, very hierarchical. Principal instruments get much more than others playing the same instrument. So a very elaborate system with lots of levels and differences. 2. Discuss what factors may explain the structure. Why does a member of Violins I receive more than the oboist and trombonist? Why does the principal trumpet earn more than the principal cellist, clarinetist but less than principal viola and flute players? What explains these differences? Does the relative supply versus the demand for violinist compare to the supply versus the demand for trombonists? Is it that violins play more notes? Because this chapter discusses a number of economic and psychological theories, it is useful to ask what each theory would predict, and compare those predictions to the actual salary structure. Students most commonly appeal to the “market” as the justification for salary differentials. So ask them, “is there a greater demand for violin players compared to their supply than the demand and supply of trombone players? The pay differences can be explained by strategic importance: the quality of the violins is deemed more important in the repertoire of most orchestras than the quality of the trombones. Another explanation for the differences may be the amount of work: violinists generally have more notes to play than the trombones. Students generally enjoy this discussion because most of them are familiar with the various musical instruments; have heard orchestras play (or may have played in them); yet probably never wondered about how the musicians were paid. This exercise will sensitize them to the reality of compensation decisions all around them. 3. How well do equity and tournament models apply? Tournament model - seems to apply in that going to the principal positions increases pay substantially. Greater differentials than moving from violin II to violin I. Size of differential increases at the top. However, the case could be made that these are all separate structures within instruments, i.e., no one is going to move from flute to principal cello. Equity model - the elaborate structure would seem to contradict Drucker’s depiction of the orchestra as the cooperative work unit for the future where all members are working in harmony toward a single goal. Chapter 4 Job Analysis REVIEW QUESTIONS 1. What are the two critical uses of job analysis for compensation decisions? Job analysis has two critical uses: (1) It establishes similarities and differences in the content of the jobs and (2) it helps establish an internally fair and aligned job structure. If jobs have equal content, then in all likelihood, the pay established for them will be equal. If, on the other hand, the job content differs, then those differences, along with the market rates paid by competitors, are part of the rationale for paying jobs differently. 2. Describe the major decisions involved in job analysis. Decisions include: a. defining the purpose for collecting job information, such as: a) enhancing productivity through job design and specification of skills required to perform the job, b) ensuring consistent treatment of employees across work units, c) establishing a job structure for compensation purposes. b. What information to collect, which will vary with purpose of analysis, and may affect results. c. What methods should be used? a) the conventional method involves an analyst using a questionnaire in conjunction with structured interviews of job incumbents and supervisor; b) quantitative job analysis involves inventories, or questionnaires, in which possible work tasks or worker attributes are listed. Each task may be scaled (assessed) in terms of time spent, importance, and/or learning time required. d. To what extent should the various parties be involved? An analyst, a supervisor, or a jobholder usually collects data. Jobholders and/or supervisors typically provide it; sometimes employees above and below the level of the job being analyzed are included. e. How useful are the results? Results are judged in terms of its reliability, validity, acceptability, and costs. 3. Distinguish between task and behavioural data. Task data emphasizes the actual work done in a job and the outcome or purpose of the task. Data that focuses on employees looks at the behaviours that occur in each job. 4. How should discrepancies between job analysis information provided by employees and supervisors be resolved? The job analyst needs to collect more data. Enough data are required to ensure consistent, accurate, and acceptable results. In general, the more unusual the job, the more sources of data will be required. Discussing discrepancies with everyone, then asking both employees and supervisors to sign off on the proposed analysis helps ensure agreement, or at least understanding, of the results. EXPERIENTIAL EXERCISES Points to consider when answering questions 1 and 2. Are all important aspects of the jobs readily observable? If not, how else can adequate information be gathered? Were there problems getting complete information? Once the students started writing the description, did they think of additional information they wished they had collected? Consider making copies of all the descriptions so the class can determine the variety of results. Also, the class as a group can then critique the results (with students’ names removed) This would develop their ability to think critically about job analysis results. CASE: The Customer Service Agent Read the following article on a day in the work life of Bill Ryan. Then write a job description for the job of customer service agent. Use the exhibits in this chapter to guide you in deciding what information in the story is relevant for job analysis. 1. Does the day diary include sufficient information? 2. Identify the specific information in the article that you would find useful. 3. What additional information do you require? How would the information help you? Discussion You need to consider the following information for job analysis: Job Identification which includes the title, department in which job is located and the number of people who hold the job Job Summary which includes a summary of the main duties and responsibilities. Job Content includes tasks and activities effort (mental and physical), constraints on actions, performance criteria, critical incidents, conflicting demands, working conditions, roles (e.g. negotiator, monitor, leader), responsibility and skill, internal/external relationships Pick a teammate (or the instructor will assign one) and exchange job descriptions with your team-mate. 1. How similar/different are the two descriptions? You and your teammate started with exactly the same information. What might explain any differences? 2. What process would you go through to understand and minimize the differences? 3. What are some of the relational returns of the job? Discussion Differences could be interpretation of the article, identifying the key duties and responsibilities, perhaps not enough details in specific areas. Chapter 5 Job-Based Structures and Job Evaluation REVIEW QUESTIONS 1. How does job evaluation translate internal alignment policies (loosely coupled versus tight fitting) into practice? What does (a) organizational strategy, (b) flow of work, (c) fairness, and (d) motivating employee behaviours toward organizational objectives have to do with job evaluation? Organizational Strategy- The job evaluation aligns with the organization’s strategy by including what it is about work that adds value that contributes to pursuing the organization’s objectives. Flow of Work- The job evaluation process supports work flow by integrating each job pay with its relative contributions to the organization and setting pay for new, unique or changing jobs. Fair to employees- Job evaluation can reduce disputes and grievances over pay differences among jobs by establishing a workable, agreed-upon structure that reduces the role that chance, favouritism and bias may play in setting pay. Motivating employee behaviours toward organization objectives- Job evaluation calls out to employees what it is about their work that the organization values; what supports the organization’s strategy and its success. It can also help employees adapt to organization changes by improving their understanding of what is valued and why that may change. 2. Why are there different approaches to job evaluation? Think of several employers in your area (hospital, Wal-Mart, manufacturing plant, bank, university/college) What approach would you expect each of them to use? Why? Different employers wish to emphasize different aspects of work; consequently, a wide variety of job evaluation approaches exist. Some wish to be more formalistic, legalistic, and use very detailed plan. For example, many nurses are unionized and also face constant review from patients and their families. For both of these reasons, hospitals tend to spell out quite specifically who is responsible for what. In the current economy, retailers have high turnover because they employ relatively unskilled labour and pay low wages. It likely is a first job for employees. So job duties need to be spelled out. A college/university would require innovative employees willing to do what it takes to accomplish a changing job, so may be better served with a more generic job evaluation process. However, colleges and universities employ a wide variety of skills, so would likely have multiple plans. 3. What are the advantages and disadvantages of using more than one job evaluation plan in any single organization? Advantages of multiple plans include: a higher likelihood of covering all significant aspects of work among various job families, items can be specific enough to pinpoint job differences and similarities, and they are easy to verify as work-related. Disadvantages of multiple plans include: the need to identify appropriate factors for each job family, difficulty meshing the results of separate plans together and having a risk of undervaluing/overvaluing some job families in comparison to others. 4. Why bother with job evaluation? Why not simply market price? How can job evaluation link internal consistency and external market pressures? With job evaluation, the systematic evaluation of job descriptions reflects the job structure. This structure and the underlying relationships among jobs are the basis of internal consistency. Internal consistency may suffer with market pricing because the focus is on remaining externally competitive. EXPERIENTIAL EXERCISES 1. Consider your university or college. Develop compensable factors for your institution to evaluate jobs. Would you use one job evaluation plan or multiple plans? Should the school’s educational mission be reflected in your factors? Or are generic factors okay? Discuss. Ask your professor to help you identify the actual factors used (this likely will involve contacting the Human Resources Department compensation staff) Colleges need high-quality professors who can tune the material to the nature of the students. So they need technical competence- knowledge/skills- in their chosen fields, plus the ability to interact constructively with students. The faculty is the key group of employees. They need adequate support from administrative functions, strong leadership to set direction for the school and ensure its financial viability. But the teaching faculty will determine if the school’s education mission is achieved. Generic factors: because knowledge is so important, it will probably swamp any other factors in determining pay. Some may want a system that can accommodate a wide variety of types of knowledge as well as levels of knowledge. Teaching effectiveness has become a more widely discussed issue. Thus, at most schools, knowledge would not be the only compensable factor. However, it is doubtful whether any schools actually base pay on teaching effectiveness. 2. You are the manager of ten people in a large organization. All become suspicious and upset when they receive a memo from the HR department saying their jobs are going to be evaluated. What would you say to try to reassure them? First, find out from the Human Resources department what forums are available for employee participation, and what are the anticipated uses of the job evaluation information. Second, get a commitment that one’s pay will be reduced as a result of the evaluation, not that jobs will be eliminated on this basis. Pass this information on to employees, as well as general information as to what exactly job evaluation is as well as its usefulness. CASE: Job Evaluation at Whole Foods Discussion Design phase of the job evaluation plan: 1. Teams should compare and contrast the types of plans used, e.g. classification, ranking, point system. 2. Teams should offer their rationales for the plans they select. 3. Teams using point factor plans can discuss their rationale for selecting specific factors and weights and the process (how) they went about selecting and weigh factors. 4. Teams using classification can describe how they went about constructing the classes. 5. A key issue is whether teams with different plans (and/or factors) generated different results, i.e. do different methods and evaluators yield different results on same job descriptions? Administration phase of the job evaluation plan: 1. Student teams can compare the hierarchy of jobs. (A-H generated by their evaluation process). Not surprisingly, results are typically most similar at the extremes high and low ends of the hierarchy with differences in the middle. 2. Students can discuss if different teams with different methods generated similar or different results. Here again the research (see text) on this issue can be discussed. 3. Implications about the importance of selecting a method that fits the situation, evaluator training and appeals process can be discussed. 4. Job titles can be misleading. Ensure the job title is consistent with the duties and responsibilities in the job description. Chapter 6 Person-Based Pay Structures REVIEW QUESTIONS 1. What are the similarities in the logic underlying job-based and person-based plans? Both these pay plans help determine pay for the wide variety of work in organizations and ensures that pay influences peoples’ attitudes and work behaviours and directs them toward organization objectives. 2. What is the difference between specialist skill plans and generalist skill plans? Specialist skill plans base pay on depth of knowledge such as school teachers. Generalist skill plans base pay on the range of knowledge specific to a group of related jobs. Responsibilities assigned to an employee can change drastically over a short period of time, whereas specialists increase their knowledge over a longer period of time. 3. Why is there not more variation in core competencies between organizations? What does differ? All approaches to creating a structure begin by looking at the work performed in the organization. Although skill-and-job-based systems home in on information about specific tasks, competencies take the opposite approach. They look at the organization and try to abstract the underlying, broadly applicable knowledge, skills and behaviours that form the foundation for successful work performance at any level or job in the organization. These are the core competencies. Core competencies are often linked to mission statements that express an organization’s philosophy, values, business strategies and plans. 4. If you were managing employee compensation, how would you recommend that your company evaluate the usefulness of its job evaluation or person-based plans? The system’s usefulness should be judged in terms of its objectives: a) Reliability- different evaluators get similar results when using the same system b) Validity- does the method achieve the desired results, e.g. a high percent of correct decisions acceptable to employees, and consistent with results of other plans? c) Costs- these include design and administration and labour costs resulting from any pay structure changes. d) Gender bias- how do we evaluate jobs held predominantly by women, and are there any unintended negative consequences for women employees that result? Are we potentially undervaluing such jobs? Experiential Exercises 1. Skills analysis and skill certification plans for payroll administrators will vary. 2. As per the mission statement of a sample organization, definitions should align with the textbook. Competencies are underlying, broadly applicable knowledge, skills, and behaviours that form the foundation for successful work performance. Competency-based pay structure links pay to work-related competencies. Core competencies are competencies required for successful work performance in any job in the organization. Competency sets are specific components of a competency. Competency indicators are observable behaviours that indicate the level of competency within each competency set. 3. See www.payequity.gov.on.ca to start the discussion on pay equity. For the last 30 years, few inroads have been made in pay equity and women still make approximately $0.70 to $1.00 made by men. CASE: Targeting Teachers Pay Questions: 1. Although the stepped salary schedule has many features of a knowledge-based pay system, not everyone agrees. Is this a knowledge-based pay system? How might you change it to make it more like the person-based plans discussed in this chapter? What features would you add/drop? It is partly a knowledge based system. The level of education and knowledge provide the basis for the steps are tied into seniority. To make it more like the person based plans, one needs to identify the different skill blocks, appropriate certificates and identifying the core competencies. 2. In the pay scale in the exhibit, notice that the column differentials increase with years of experience; for instance, the difference between Group III and Group IV at one year of experience is $2750, whereas the difference at year 10 is $4384. What message do these increasing differentials send to teachers? What pay theories address this issue? How would these differentials affect teacher behaviours? How would they affect school district costs? The higher up you go in the salary range, the less increase you receive. The justification for this would be you are already being paid according to sonority (the number of years worked). It could be demotivating for the teachers if the increase is not substantial. A teachers union will argue for salaries to advance based on experience and or educational achievement. School districts often argue for salary advances to be based on performance based pay or merit reviews. 3. Calculate the size of the pay differential for increased seniority versus increased education. What behaviours do you believe these differentials will motivate; in other words, what pays more, growing older or taking courses? Pay should be based on both seniority and on levels of education. Teachers will be motivated to upgrade their education as part of their career development if they see a reward in the end. 4. Pay for performance for teachers is a hot topic in many school districts. How might the salary schedule be made compatible with a performance-based pay approach? Evaluate your ideas after you have completed Part III of this book, which discusses employee contributions. Seniority should not be the only criteria for teachers moving from one step to another on the salary schedule. Performance based pay should be introduced. This involves reviewing performance, completing a performance appraisal evaluation and communicating performance measures with your supervisor. Solution Manual for Compensation George T. Milkovich, Jerry M. Newman, Barry Gerhart, Cole, Margaret Yap 9780071051569, 9781259086878, 9780078029493
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