CH-5 Person-Focused Pay – Strategic Compensation: A Human Resource Management Approach : Book Guide

This document contains Chapters 5 to 9 CHAPTER 5 Person-Focused Pay VIII. Discussion Questions and Suggested Answers “Person-focused pay plans are least preferable compared with individual incentive pay programs.” Indicate whether you agree or disagree with this statement. Detail your arguments to support your position. Individual incentive pay programs are indeed more preferable than pay-for-knowledge in the fact that they pay employees based upon performance and completion or obtainment of certain goals. Individual incentive plans promote an equitable distribution of compensation within companies, promote the relationship between pay and performance, and are compatible with the individualistic culture in the United States. However, pay-for-knowledge plans may be better used when a company is in a skill-based industry. Person-focused pay is becoming more prevalent in companies; however, person-focused pay programs are not always an appropriate basis for compensation. Discuss the conditions under which incentive pay is more appropriate than pay-for-knowledge pay programs. Be sure to include your justification. Pay incentive programs are more appropriate than pay-for-knowledge programs when the employees are more interested in the short term than the long term. When both pay-for-knowledge and incentive pay systems are in operation, employees may not want to learn new skills when the pay increase associated with learning a new skill is less than an incentive award employees could earn based on skills they already possess. Employees often place greater emphasis on maximizing rewards in the short term rather than preparing themselves to maximize the level of rewards over time, which can be facilitated through person-focused programs. For example, an assembly line worker chooses to focus on his or her work because he or she receives monetary incentives for meeting weekly production goals set by management rather than taking skills training in inventory control for which he or she will earn additional pay upon successful completion of the training. In the short term, this worker is earning a relatively large sum of money. Besides the fact that many employees are less inclined to earn money through the pay-for-knowledge programs, there is also the potential problem of an employee learning a new skill, but then defecting to a competitor and using such skills for the benefit of the rival company. Although safety contracts can be put in place to avoid such problems, they still occur. Name at least three jobs that have been influenced by such technological advances as robotics, word processing software, fax machines, and electronic mail. Describe the jobs prior to the technological advances and explain how these jobs have changed or will change because of the technological advances. For each job, list the new skills that you feel are relevant for person-focused pay programs. A good example of a job that has changed due to electronic mail, fax machines, and telephones is the mailman. Prior to such technological advances postmen would ride by and drop off mail on a regular basis. People depended upon the mailman in order to communicate over large distances. As technology advanced the mailman became less and less of an instrumental figure. In the future the mailman may become obsolete and we may simply depend on electricity and technology as our sources of correspondence and communication. Another good example of a job that has been influenced by technological advances is the secretary. Prior to the invention of the typewriter or computer people would record information using writing utensils and paper. But as technology advanced, the job of the secretary changed to include typing skills and experience with certain computing programs such as Microsoft Excel. Such technical knowledge and skill is relevant to the person-focused pay programs. The security guard occupation has greatly changed as a result of technology. Before advancements in surveillance technology, guards had to be posted at every entry way and exit of a given building for maximum security. But now, because of cameras, one or two guards are needed to oversee the entirety of a building. Prior to the camera, guards would have to patrol but now because of technological advancements, guards can sit and watch surveillance monitors so as to scan for potential criminal activity. Discuss your reaction to the following statement: “Companies should not provide training to employees because it is the responsibility of individuals to possess the necessary knowledge and skills prior to becoming employed.” Companies ought to provide training for new employees because it is their ethical and logical responsibility to train their own employees to meet or exceed company expectations. If employees are hired and not trained by the company then many problems may arise, such as variance in work efficiency or relevancy, as well as continuity or depth. However, in some situations it is not necessary for a company to train an employee, such as when hiring highly experienced employees that have worked for many years in the same field. As discussed in the chapter, person-focused pay programs are not suitable for all kinds of jobs. Based on your understanding of person-focused pay concepts, identify at least three jobs for which this basis for pay is inappropriate. Be sure to provide your rationale, given the information in the chapter. Person-focused pay programs are not suitable for jobs such as store cashier, docker, mover, and so on, because they are occupations that are better suited for incentive pay programs of working harder, not necessarily knowing more. IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses Case Name: Person-focused Pay at Mitron Computers Instructor Notes A well-designed person-focused pay system has the potential to increase employee commitment, enhance motivation and improve employee satisfaction because they promote skill variety and autonomy. In this case, there is no incentive for the Technicians to further their skill development, which creates problems when a limited number of Technicians are able to complete the more complex steps in the computer building process. A person-focused pay system would create an incentive for the Technicians to attend training to develop their skills. However, the system is in conflict with their current team incentives and this issue would need to be addressed. Suggested Student Responses: What are some advantages of a person-focused pay system at Mitron? Such a system could create an incentive to broaden the Technician’s skills and as a result, they will have more variety in their work, which could lead to higher levels of motivation and job satisfaction. Employees will also have more job security because of the flexibility of skills. Mitron also benefits from the flexibility that a better-trained staff provides. This will most likely solve the problem of delayed shipments. What are some disadvantages? The system could cause an increase in labor costs for Mitron. As more Technicians raise their pay rates, their labor costs will rise. The company’s training costs will also increase as more Technicians attend the training. The company must ensure that the increased efficiency and quality they gain from the system would outweigh this increased cost. The system is also in conflict with the team-based incentive pay plan. The Technicians miss out on some team-based incentive pay when they leave work to attend the training. Holly would need to resolve the conflict before implementing the new system. What approach would you recommend for Holly to take in designing a person-focused pay system? The stair-step model is the most appropriate for Mitron. The components of the Technician’s jobs all fall within the same job family, they just differ in their complexity. Mitron could define specific Technician levels and the sets of skills that align with each level. The training courses would then align with the needed skill sets to move up to each higher level. MYLAB QUESTIONS 5-9. Compare and contrast the stair-step model and the skill blocks model. What kinds of skills are applicable in each model? A stair-step model actually resembles a flight of stairs. The steps represent jobs from a particular job family that differs in terms of complexity. Jobs that require more skills are more complex than jobs with fewer skills. For example, an Assembly Technician 1 job requires employees to possess two skills: line restocking and pallet breakdown. An Assembly Technician 3 job requires employees to possess six skills: line restocking, pallet breakdown, burr removal, line jockey, major assembly, and soldering. In terms of the stairs, higher steps represent jobs that require more skills than lower steps. Compensation specialists develop separate stair-step models for individual job families (e.g., clerks or accountants). Thus, a company may have more than one stair-step model, each corresponding to a particular job family such as accounting, finance, or clerical. The skill blocks model also applies to jobs from within the same job family. Just as in the stair-step model, employees progress to increasingly complex jobs; however, in a skill blocks program, skills do not necessarily build on each other. Thus, an employee may progress two or more steps, earning the pay that corresponds with each step. Although similar, the stair-step model and the skill blocks model differ in an important way. The stair-step model addresses the development of knowledge or skills depth. In particular, an employee could develop his skills depth as an assembly technician by taking separate curricula (for example, Knowledge block 1: basic financial accounting principles, intermediate financial accounting principles, and advanced financial accounting principles; and, Knowledge Block 2: basic marketing fundamentals and intermediate marketing fundamentals). With the successful completion of each curriculum, the employee will enhance the depth of his knowledge. 5-10. Compare and contrast person focused pay and job-based pay. Discuss the advantages of person-focused pay to employers. Companies institute job-based pay plans or person-focused pay plans based on very different fundamental principles and goals. Table 5-2 from the text (repeated below) lists the key differences between these two pay programs. Job-based pay compensates employees for jobs they currently perform. Human resource professionals establish a minimum and maximum acceptable amount of pay for each job. In the case of merit pay, managers evaluate employees based on how well they fulfilled their designated roles as specified by their job descriptions and periodic objectives. Managers then award a permanent merit addition to base pay, based on employee performance. TABLE 5-2 Person-Focused and Job-Based Pay: A Comparison
Feature Person-Focused Job-Based
Pay level determination Market basis for skill valuation Market basis for job valuation
Base pay Awarded on how much an employee knows or on skill level Awarded on the value of compensable factors
Base pay increases Awarded on an employee’s gain in knowledge or skills Awarded on attaining a job-defined goal
Job promotion Awarded on an employee’s skills base and proficiency on past work Awarded on exceeding job performance standards
Key advantage to employees Job variety and enrichment Perform work and receive pay for a defined job
Key advantage to employers Work scheduling flexibility Easy pay system administration
X. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses Case: Gain Sharing at CircleWorks Instructor Notes Gain sharing plans reward employees with an incentive payment that is passed on factors such as improved performance, productivity, lower costs or better safety. However, gain sharing plans must have a supportive leadership philosophy and an opportunity for employee involvement in order to be successful. If a supportive organizational culture does not exist, an alternative group incentive plan may be more appropriate such as team bonuses. Suggested Student Responses: What are some factors that will influence the success of a gain sharing plan in improving employee involvement and productivity? Gain sharing plans work in a cooperative organizational environment characterized by open communication, trust and employee participation. Employees must have the opportunity to provide input into production processes so that they can have an impact on productivity. In environments that require frequent changes in production methods or where production methods are rigid in nature, employees may not have enough opportunity to impact productivity to make a gain sharing plan effective. Further, open communication is needed so that employees feel encouraged to make suggestions. Do you think a gain sharing plan would be successful at CircleWorks? At this time it seems that the organizational culture at CircleWorks does not align with a gain-sharing plan. The management philosophy does not seem open to employee input and this would make a gain-sharing plan a challenge. Further, the nature of the production process appears to be very structured, relying upon engineers for changes in the production process. As a result, employees do not have the opportunity to provide input to impact productivity. In this case Sheila may want to recommend a team-based bonus that has a more simple structure to start with if CircleWorks is interested in introducing incentive pay. CHAPTER 6 Building Internally Consistent Compensation Systems VI. Discussion Questions and Suggested Answers Discuss the differences between job analysis and job evaluation. How do these practices help establish internally consistent job structures? Job analysis is a systematic process for gathering, documenting, and analyzing information in order to describe jobs. A job analysis describes content or job duties, worker requirements, and sometimes, the job context or working conditions. Job evaluation, on the other hand, is used to systematically recognize differences in the relative worth among a set of jobs and establish pay differentials accordingly. Whereas job analysis is almost purely descriptive, job evaluation partly reflects the values and priorities that management places on various positions. Based on job content and the firm’s priorities, managers establish pay differentials for virtually all positions within the company. These practices help establish internally consistent job structures by setting guidelines and expectations for both employees and employers alike. Conduct a job analysis of a person you know, and write a complete job description according to the principles described in this chapter. In class, be prepared to discuss the method you used for conducting the job analysis and some of the challenges you encountered. Sally Walker is a member of Geek Squads technical assistance team. The minimum qualification for this job is a high school education. She is required to work with accuracy and speed while on the job. Sally is a field technician, which means she receives calls from her department and then goes to the designated customer to subsequently fix the problem as cleanly and as efficiently as possible. Sally gets paid based on the number of hours she’s on call, and is evaluated according to the customer satisfaction level. This chapter provides rationale for conducting job analysis, and it indicates some of the limitations. Take a stand for or against the use of job analysis, and provide convincing arguments for your position. The general purpose of job analysis is to record the requirements of a job and the work performed. Job analysis is performed as a preliminary to subsequent actions, including organizational analysis, development of a job description, creation of performance appraisals, the selection and promotion of an employee, training needs assessment, and last but certainly not least, compensation. Job analysis does have its many limitations, but all in all it is a useful and highly productive way to accurately outline the expectations and requirements of a given job. Respond to the statement “Building an internally consistent job structure is burdensome to companies. Instead, it is best to simply define and evaluate the worth of jobs by surveying the market.” Internally consistent pay systems may reduce a company’s flexibility to respond to changes in competitors’ pay practices because job analysis leads to structured job descriptions and job structures. In addition, job evaluation establishes the relative worth of jobs within the company. Responding to the competition may require employees to engage in duties that extend beyond what’s written in their job descriptions whenever competitive pressures demand. In the process, the definitions of jobs become more fluid, which makes equity assessments more difficult. In this sense it may just be better to simply define and evaluate the worth of jobs by surveying the market. Do you consider job evaluation to be an art or a science? Please explain. Job evaluation is more of a science than an art, for the evaluation process consists of basic formulas and guidelines that are in essence quite rigid. In order to accurately evaluate a job, it is necessary to evaluate by the rules of job evaluation. For example, various job evaluation techniques require certain formulas and numbers. In order to determine point values for each compensable factor, for instance, one must use certain number parameters in order to get an accurate evaluation: “The maximum possible total points for skills equal 600 points (60% x 1,000 points).” VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses Case Name: Internal Consistency at Customers First Instructor Notes Many organizations that experience rapid growth set pay in response to the external market. Such a strategy can be useful in recruiting the right talent for a start-up organization. However, internal consistency of pay rates is often overlooked leading to more long-term concerns for an organization. Such inconsistency can cause feelings of inequity among employees and can lead to employee dissatisfaction and turnover. Further, if the inconsistencies fall along a particular protected class (i.e. those who feel they are paid less are in workgroups comprised mostly of females), a company could face some legal challenges. A formal job analysis and job evaluation process that establishes an internally consistent pay structure can alleviate these concerns. Suggested Student Responses: Do you think that job analysis and job evaluation will benefit Customers First? The potential pay inequities at Customers First are a concern. As noted, the employees have concerns about their pay and this could lead to potential turnover. Further, the inequities could cause some legal concerns if pay decisions have adverse impact against a protected class. The lack of pay structure also makes setting the pay of new hires time consuming. Job analysis and job evaluation leading to a pay structure would help ensure that there is internal consistency in pay rates. What is your opinion on Joan’s view on job analysis and job evaluation? The job analysis and job evaluation process can be time consuming for an organization. Further, a formal pay structure does create some bureaucracy within an organization and create some challenges when a company needs to respond quickly to changes in the market pay for certain jobs. Another concern is that the resulting pay structure may require some pay adjustments to certain employees. It is unlikely that the company would reduce pay but they might need to raise the pay of certain individuals, which could affect their labor costs. What do you recommend Customers First do? Why? While some of Joan’s concerns are legitimate, if the company is planning continued growth, a more formal pay structure would be helpful to avoid pay inequities and help support pay decisions at hire. While it would be time consuming to take on, after the initial job analysis and job evaluation process is completed, the resulting pay structure would ultimately benefit the company. MYLAB QUESTIONS 6-9. Why must a job analysis be reliable and valid? What can a compensation professional do to ensure that a job analysis is reliable and valid? Answer: A reliable job analysis is one that yields consistent results under similar conditions. A valid job analysis method accurately assesses each job's duties. Having a job analysis method that is both reliable and valid is essential to building an internally consistent compensation system. A poorly chosen method may lead to inadequate or excessive pay rates. Although there is no "best" approach to job analysis, compensation professionals who use more than one data collection method and collect data from more than one source can significantly improve the likelihood of reliability and validity. 6-10. After completing the job analysis, your boss has asked you to conduct a job evaluation of the various positions in the company. Detail the steps you would take in accomplishing this task. Answer: The first step is to determine whether a single job evaluation technique is sufficiently broad to assess a diverse set of jobs. It is not reasonable to expect that a single job evaluation technique, based on a single set of compensable factors, can adequately assess diverse sets of jobs. The second step is to choose the job evaluation committee. This committee will review job descriptions and analyses and evaluate jobs. The size of the organization may warrant the use of more than one committee. Choosing a consensus of employees will help to minimize the biases of individual job evaluators. The third step is to train employees to conduct job evaluations. Employees who have an understanding of the process will have a vested interest in finding valid results. The fourth step is to document the job evaluation plan. For the employer, this step will specify job- and business-related criteria against which jobs are evaluated. For employees, this step allows them to understand how their jobs were evaluated and the outcome of the process. The fifth step is to communicate the process to the employees. This will increase the understanding of the process as well as give employees the opportunity to respond to what they believe are either unsatisfactory procedures or outcomes of the job evaluation procedures. Finally, a company should set up an appeals process that will provide a check on the system. VIII. Additional Case from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses. Case Name: Shifting Incentives at TechEx Repair Instructor Notes Companies should design pay systems to direct employees to behave in a way that benefits the company. In this case, the technicians’ inability to perform multiple types of repairs affects the company’s overall productivity. While the current bonus system encourages hard work, if some technicians are idle while work is waiting, the company is not reaching optimum productivity levels. In order for a pay-for-knowledge program to be effective, it must be carefully designed and the company must be willing and able to put the right resources in place to provide the necessary training and support. Suggested Student Responses: What are advantages of shifting to a pay-for-knowledge program at TechEx Repair? Employees may find their jobs more satisfying as they will expand the type of work they do. Performing different types of repairs will lead to task variety for the technicians. The company benefits by having a better-trained workforce that is more flexible in work assignments. As a result, the employees will also benefit as well as they will have more security in their jobs and in their pay. What are advantages of keeping the company’s current bonus plan? A pay-for-knowledge program can increase overall training and labor costs, without the immediate tie to productivity that the current bonus plan likely provides. Employees will most likely favor the current bonus plan because they see the immediate benefits of the plan. Finally, the current bonus plan allows employees to be successful without the additional cost and effort of training. If the right resources are not in place to support training when a pay-for-knowledge program is initiated, employees may become frustrated. What do you think TechEx should do? TechEx Repair should consider implementing a pay-for-knowledge program to incentivize technicians to acquire a broader range of repair skills. By doing so, technicians will be able to perform multiple types of repairs, which will improve overall productivity and efficiency. However, it's crucial that TechEx carefully designs this program and provides the necessary training and support to ensure its effectiveness. This might include investing in comprehensive training programs, providing ongoing support and resources, and adjusting the bonus system to reward technicians for expanding their skill sets. Additionally, TechEx should monitor the program closely to assess its impact and make any necessary adjustments along the way. CHAPTER 7 Building Market-Competitive Compensation Systems V. Discussion Questions and Suggested Answers You are a compensation analyst for Worry-Not Insurance Company, which is located in Hartford, Connecticut. Define the relevant labor market for insurance claims adjusters and for data entry clerks. Describe the rationale for your definitions. Relevant labor markets represent the fields of potentially qualified candidates for particular jobs. Companies collect compensation survey data from the appropriate relevant labor markets. Relevant labor markets are defined on the basis of occupational classification, geography, and product or service market competitors. The relevant labor market for claims adjusters might be the entire state of Connecticut and other insurance companies employing adjusters. The relevant labor market for data entry clerks might be just the city of Hartford and any company employing data entry clerks. Can companies easily develop compensation systems that are both internally consistent and market competitive? What are some of the challenges to this goal? Although not easy, companies do try to develop compensation systems that are both internally consistent and market competitive. Compensation professionals integrate the internal job structure with the external market pay rates identified through compensation surveys. The valuation of jobs that results from this integration considers both the company’s and the external market’s perspective. Most often, compensation professionals rely on regression analysis, a statistical method to achieve this integration. Compensation professionals also recommend pay policies that fit with their companies’ competitive strategies. Compensation professionals must strike a balance between managing costs and attracting and retaining the best-qualified employees. Which do you believe is most important for a company’s competitive advantage: internal consistency or market competitiveness? Explain your answer. Market competitiveness, for it is important to meet the growing demands of the market and stay ahead of the competition in order to make the most profit for the company. Refer to the regression equation presented earlier in this chapter. When b = 0, the market pay line is parallel to the x-axis. Provide your interpretation. When b = 0 the market line is indeed parallel to the x-axis, only when the slope is greater or less than 0 is the line not parallel to the x axis. Refer to Table 7-2. Cross out salaries 26 through 35. Calculate the mean and median or his reduced data set. Mean: 41,973.6842. Median: 43,500. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses Case Name: Nutriment’s New Hires Instructor Notes Nutriment is pursuing a differentiation strategy in order to create product that is not offered by their competitors. In order to successfully attract the right staff to ensure Nutriment has a competitive advantage, the company must ensure that their pay structure is competitive in the local market while also managing costs. Nutriment has different job categories that may require different pay strategies. The administrative positions only require Nutriment to match the compensation of their competitors. However, the scientists will be more difficult to attract. As such, it is likely that they will need to take a pay lead strategy for their scientist. Nutriment may also have some concerns with internal consistency of compensation as the market will likely drive them to offer the scientists pay that is significantly more than that of the administrative staff members. Suggested Student Responses: What are some strategic considerations in establishing a pay structure at Nutriment? In considering a pay structure that is competitive in the market place, Nutriment should consider their industry, competitors and other external market factors. They must also consider their financial resources. Nutriment’s business strategy is a differentiation strategy as they are looking to develop a unique product. As such, recruiting and retaining talented staff members, particularly the scientists, will be essential in order for the business to succeed. They currently have an edge in the market place because of their scientific discoveries; however, it is a competitive market place for talent. Should Jack suggest a pay policy to lead, lag or match the market? Explain your recommendation. Jack should suggest two different strategies for Nutriment. For the administrative staff, a match strategy is appropriate. Because it is not necessary to pay higher salaries in order to attract the administrative staff, pursuing a match strategy can offer some cost savings. However, the company should most likely take a lead strategy in order to create a compensation package that is attractive to scientists. There are few qualified scientists available and their skills are in demand. MYLAB QUESTIONS 7-8. Explain the role of compensation surveys. Why is it important to update survey data? Answer: Compensation professionals assess competitors' pay practices with compensation surveys. Compensation surveys are important because instead of guessing, compensation professionals can gather realistic views of competitors' wage and salary practices. This information is crucial to build competitive compensation systems. When companies establish pay structures, they are anticipating the future costs to the company. Compensation professionals typically use historical survey data to build said structures. Unfortunately, this data may not accurately reflect the changes that may occur in the economy and the fortunes of the company. So, companies update survey data to correct for any lags that may occur. 7-9. Explain market pay line. How is it used in the context of pay level policies such as market lead, market lag, and market match? Answer: Paying well below or well above the typical market rate for jobs can create a competitive disadvantage for companies. Regression analysis helps to establish pay rates for a set of jobs that are consistent with the typical pay rates of the external market. Regression analysis finds the best-fitting line between two variables and the best fitting line is referred to as market pay line. The typical market pay rate is represented by market pay line. Market lead policies refer to the pay levels that fall above the market pay line, whereas market lag policies refer to the pay levels that fall below the market line. Market match policy follows the market pay line. VII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses Case Name: Analyzing Jobs at Custom Carpet Cleaning Instructor Notes Many smaller companies must manage their staff with limited human resource management expertise. In this case, the company is making an effort to create written job descriptions, which will be useful in developing an internally consistent compensation system that is competitive in the market. However, it is unlikely that the process here will result in a valid and reliable job analysis. Developing job descriptions that are not thorough or entirely accurate will not effectively support the development of a compensation system. Many managers in small companies rely upon the Internet for information. In this case, it might be a good investment for the company to utilize an outside consultant or find an opportunity for formal training for the Office Manager in order to conduct an effective job analysis. Suggested Student Responses: 7-10. Do you think Bob’s approach to job analysis will be effective in creating useful job descriptions? While Bob has established a good starting point, overall the process will not provide him with full information. He is only collecting information from one employee at each location. Further, his questionnaire lacks detail. This process will only provide him with a limited view of the jobs within the company. What can be done to improve this job analysis process? Bob should expand his data collection in several ways. First, he could create a more detailed questionnaire that could be distributed to more than one employee in each location. Because it is a small company, he could realistically collect information from all employees. Further, he may want to supplement the questionnaires through an additional data collection technique such as observation or follow-up interviews with employees. He should also collect information from another source such as the supervisors or possibly customers. CHAPTER 8 Building Pay Structures That Recognize Employee Contributions VI. Discussion Questions and Suggested Answers Respond to the following statement: “Pay grades limit a company’s ability to achieve competitive advantage.” Do you agree? Provide rationale for your position. Pay grades group jobs for pay policy application. Human resource (HR) professionals typically group jobs into pay grades based on similar compensable factors and value. Wider pay grades minimize hierarchy and social distance between employees. Narrower pay grades, however, tend to promote hierarchy and social distance. Pay grades can be seen as a limitation to a company’s competitive advantage for it forces employees into specific categories. However, if a particular employee wants to improve him- or herself and get paid more, he or she can strive to learn the skills of those who are of a higher pay grade. Therefore, pay grades improve a company’s advantage because they promotes competition in and around the job setting. Two employees perform the same job, and each received exemplary performance ratings. Is it fair to give one employee a smaller percentage merit because his pay falls within the third quartile but give a larger percentage merit increase to the other because his pay falls within the first quartile? Please explain your answer. If company policy is to pay a market competitive wage and to trend toward that pay level than it is fair to accelerate base pay for a lower paid employee and slow base pay growth for a higher paid employee even if both have the same performance level. Describe some ethical dilemmas sales professionals may encounter. How can sales compensation programs be modified to minimize ethical dilemmas? Sales professionals may encounter ethical dilemmas with certain salary compensation plans. For instance, if a company enacts a salary-only plan then employees may not be as driven to perform well on the job or make the most sales. Under salary-plus-commission plans, commission-plus-draw plans, and commission-only plans, the market can get quite competitive and sales professionals may encounter ethical dilemmas such as “stealing” another employee’s sale. Sales compensation programs can be modified in several ways in order to minimize ethical dilemmas. Although having the drive to succeed and competition to achieve the biggest sales is imperative, it is equally important to have employees that can rely on the company in times of need. A combination of both salary plans and commission plans would minimize ethical dilemmas, such as having a base pay but also giving decent bonuses for sales. React to the statement: “Merit pay grids have the potential to undermine employee motivation.” Please discuss your views. Merit pay grids do in fact have the potential to undermine employee motivation primarily in the case of employees in top quartiles in the range. Having a low pay increase opportunity can cause lack of motivation. Merit pay grids can also act as a deterrent to achieve more because the pay grid scale is skewed. However, the basic nature of merit pay is to promote working hard and drive employees to perform better. In most cases merit pay grids are great for increasing the motivation of employees. Compression represents a serious dysfunction of pay structures. Discuss some of the major ramifications of compression. Also, discuss how companies can minimize or avoid these ramifications. Compression does indeed represent a serious dysfunction of pay structures. Dysfunctions such as reducing the number of skilled and experienced employees who wish to be hired at the starting salary is much lower than that of someone who has worked for a long time at the company. Another problem is the motivation of long standing employees whose pay levels are matched or even exceeded by newer employees. These ramifications can be avoided if companies make accommodations and are more flexible with their payment structures. Incorporating aspects of more than one pay structure variation may prove quite beneficial and at the same time minimize serious dysfunctions within a given pay structure. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses Case Name: A New Sales Representative Instructor Notes This new position is the first outside sales position for UFS and John must carefully design a compensation package to motivate the Sales Representative to focus his or her efforts on the appropriate activities. John wants to expand his business and sees two distinct opportunities to do so. Expanding the business through adding new customers is one approach, and John also sees an opportunity to expand the business through further development of relationships with current customers. Both of these activities will take a great deal of time without promise of immediate sales and the compensation structure should recognize that requirement. However, as a small business, the company must closely monitor their salary budget and therefore, connecting at least part of the salary to actual sales will help ensure that the Sales Representative generates the revenue necessary to support his or her position. Suggested Student Responses: What are the sales objectives for the new Sales Representative? The sales objectives for the new Sales Representative include opening new accounts and growing sales with current accounts. What role will the compensation design play in motivating the new Sales Representative? It is important that the compensation structure motivates the new Sales Representative to spend her or his time on activities that will help the organization achieve its’ goals. John wants to expand the business through growing transactions with current customers and securing sales agreements with new customers. What kind of sales incentive plan do you recommend? Why? Because this position requires providing customer service to current customers, a compensation structure that includes a base pay is important. Further, to provide incentives to grow the customer base, part of the compensation should include sales-based incentive pay. Students could provide a wide range of creative designs that contain a base pay plus incentive pay structure. MYLAB QUESTIONS 8-9. Compare and contrast merit pay systems and sales compensation. Answer: Employees earn permanent merit increases based on their performance. In sales incentive compensation plans, salespeople's compensation relies on incentives. The key in this compensation program is to align salespeople's financial interest with the company's marketing objectives. In merit based pay system, an employee's reward is generally based on someone else's subjective evaluation of the employee's past performance. However, in sales compensation programs, employees receive rewards when they meet pre-established levels of performance. Moreover, salespeople's compensation is variable to the extent that it is composed of incentives. In merit pay systems, employees earn base pay for their job that is increased periodically with permanent pay raises or one-time bonuses. 8-10. Briefly discuss designing job-based pay system (i.e. merit pay, sales incentive pay) and person-focused programs. What considerations arise when making a transition from using a job-based pay system to using pay-for-knowledge? Answer: There are three matters that compensation and HR professionals need to consider when making this transition. A first consideration is skills assessment. This consists of three parts: 1) who should assess whether employees possess skills at levels that justify a pay raise, 2) on what basis the assessments should be made, and 3) when the assessments should be conducted. A second consideration is aligning pay with the knowledge structure. Core compensation must reflect the knowledge or skills the company incorporates into its pay-for-knowledge structure. If employees are underpaid, pay adjustments must be made as quickly as possible. A third consideration is employees' access to training. Companies must ensure that employees have equal access to the needed training for acquiring higher-level skills. VIII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses Instructor Notes Market-competitive pay systems play a significant role in attracting and retaining talented staff. When setting a pay policy, companies have the option of lagging behind the competition, matching the competition, or taking the lead and paying employees more than competitors. This decision depends on the competitive strategy of the company, the type of positions the company seeks to fill and the relevant qualified labor market, and the financial resources available. Most companies pursue more than one pay policy for different types of positions within a company. Suggested Student Responses: Should Docutrend use the same pay policy for all of its open positions? Docutrend should not necessarily adopt the same pay policy for all of its open positions. It is clear that the labor market is more competitive for the software designers and will likely require a different approach. Carrie must carefully examine the relevant labor market for the different positions the company will be filling. Further, some of the positions will not have as direct of impact on the success of the company. For example, the administrative support staff may not require as competitive of pay as the software designers. Docutrend must set pay at a competitive level, while still focusing on cost containment. What pay policy would you recommend? Why? Docutrend may want to consider establishing a lead policy for paying the software designers. Because the company’s competitive strategy is a differentiation strategy, Docutrend needs to recruit talented software designers to ensure that that their software provides the unique solution to their client’s needs that Docutrend expects. As the company is competing against several other companies for the designers, and Docutrend is not well known, a generous pay structure may be necessary to attract the needed designers. Depending on the talent available in the area, they may also want to pursue a lead strategy for other professional positions such as the sales and marketing professionals. This positions will likely be key in implementing the company’s business strategy. A match strategy is the best approach for the other positions such as the administrative staff. Pursuing the match strategy will allow them to remain competitive in the market place while containing some labor costs. CHAPTER 9 Discretionary Benefits IV. Discussion Questions and Suggested Answers Many compensation professionals are faced with making choices about which discretionary benefits to drop because funds are limited and the costs of these benefits continually increase. Assume you make such choices. Rank order discretionary benefits, starting with the ones you would most likely drop to the ones you would least likely drop. Sure, here's a suggested ranking of discretionary benefits from most likely to least likely to drop: 1. Educational assistance programs 2. Employee assistance programs 3. Health club memberships 4. Flexible work arrangements 5. Childcare assistance 6. Financial counseling services 7. Elder care assistance 8. Long-term care insurance 9. Adoption assistance This ranking is based on the assumption that educational assistance programs and employee assistance programs are considered more essential for employee well-being and job satisfaction compared to the other benefits listed. Discuss your views about whether discretionary employee benefits should be an entitlement or something earned based on performance. Discretionary employee benefits should be something based on performance because then the work setting is a place of competition, with employees being constantly driven to out- perform others so as to best support the company. Competition among workers stimulates a strong environment of growing potential and opportunities. However, sometimes competitive environments are not best for some people. Such environments may cause loss of production or potential loss of new ideas as employees are forced to look elsewhere for employment in order to meet their needs. Assume that you are an HRM professional whose responsibility is to develop a brochure for the purpose of conveying the value of your company’s benefits program in a manner that will encourage recruits to join the company. Develop a brochure (of no more than two pages) that meets this objective. Conduct research (in such journals as Benefits Quarterly) on companies’ benefits practices as a basis for developing your brochure. Front Page: [Company Logo] Welcome to [Company Name]! Your Partner in Success Unlock Your Future with [Company Name] At [Company Name], we understand that our employees are our greatest asset. That's why we are committed to offering a comprehensive benefits program designed to support your well-being and help you achieve your full potential. Inside Page: Join Our Team and Enjoy the Following Benefits: 1. Competitive Compensation: • At [Company Name], we offer competitive salaries and performance-based bonuses to recognize and reward your hard work and dedication. 2. Comprehensive Health Coverage: • Enjoy peace of mind with our comprehensive health insurance plans, including medical, dental, and vision coverage for you and your family. 3. Retirement Savings: • Plan for your future with our 401(k) retirement savings plan, including company matching contributions. 4. Work-Life Balance: • Achieve the perfect balance between your professional and personal life with our flexible work arrangements, including telecommuting options and generous paid time off. 5. Career Development: • Grow your career with us through our professional development programs, tuition reimbursement, and opportunities for advancement. 6. Employee Assistance Program (EAP): • Access confidential counseling, financial advice, and support services to help you manage life's challenges. 7. Wellness Programs: • Stay healthy and fit with our wellness programs, including gym membership discounts, health screenings, and fitness challenges. 8. Family-Friendly Benefits: • Take advantage of our family-friendly benefits, such as childcare assistance, adoption assistance, and parental leave. Back Page: Why Choose [Company Name]? • Join a company that values its employees and invests in their success. • Enjoy a supportive work environment that promotes diversity, inclusion, and work-life balance. • Be part of a team that is passionate about making a difference and achieving excellence in everything we do. Ready to Take the Next Step? Join the [Company Name] family and unlock your full potential! Visit our website at [companywebsite.com] to learn more and apply today. [Contact Information] [Company Logo] [Company Name] Address: [Company Address] Phone: [Company Phone Number] Email: [Company Email] This brochure is designed to highlight the value of the company's benefits program and encourage potential recruits to join the company. It emphasizes competitive compensation, comprehensive health coverage, work-life balance, career development opportunities, and other employee perks. Your instructor will assign you an industry. Conduct some research in order to identify the prevalent employee benefits practices for that industry. What factors (e.g., technology, competition, and government regulation) might influence the present practices? How will these practices change? Industry: Technology Prevalent Employee Benefits Practices: 1. Competitive Compensation Packages: • Technology companies typically offer competitive salaries and bonuses to attract top talent. Stock options and equity grants are also common, allowing employees to share in the company's success. 2. Comprehensive Health Benefits: • Tech companies often provide extensive health insurance coverage, including medical, dental, and vision plans. Some companies offer onsite health clinics and wellness programs to promote employee well-being. 3. Retirement Savings Plans: • 401(k) plans with employer matching contributions are standard in the tech industry. Some companies also offer additional retirement benefits such as employee stock purchase plans (ESPPs) or profit-sharing. 4. Flexible Work Arrangements: • Many tech companies offer flexible work arrangements, including remote work options, flexible hours, and unlimited paid time off (PTO). This flexibility helps employees maintain work-life balance and enhances job satisfaction. 5. Professional Development Opportunities: • Tech companies invest in employee training and development programs to help employees enhance their skills and advance their careers. This may include tuition reimbursement, onsite training sessions, and opportunities for career growth. Factors Influencing Employee Benefits Practices: 1. Technology Advancements: • The rapid pace of technological advancements may require continuous upskilling of employees. Companies may need to invest more in training and development programs to keep their workforce up-to-date. 2. Competition for Talent: • The technology industry is highly competitive, with companies vying for top talent. To attract and retain skilled employees, companies must offer attractive compensation packages and comprehensive benefits. 3. Government Regulation: • Changes in healthcare legislation and other government regulations may impact employee benefits practices. For example, compliance with the Affordable Care Act (ACA) may require companies to adjust their health insurance offerings. Expected Changes in Employee Benefits Practices: 1. Increased Focus on Mental Health and Well-being: • As awareness of mental health issues grows, tech companies may enhance their employee assistance programs (EAPs) to provide better support for mental health and well-being. 2. Expanded Remote Work Options: • The COVID-19 pandemic has accelerated the adoption of remote work in the tech industry. Even after the pandemic, many companies are likely to continue offering remote work options, providing employees with greater flexibility. 3. Enhanced Diversity and Inclusion Initiatives: • Tech companies are likely to invest more in diversity and inclusion initiatives to create more inclusive work environments. This may include initiatives to address gender and racial disparities, as well as unconscious bias training for employees. 4. Focus on Financial Wellness: • With rising concerns about financial security, tech companies may introduce new benefits focused on financial wellness, such as student loan assistance, financial planning services, and access to low-cost investment options. In summary, the prevalent employee benefits practices in the technology industry include competitive compensation, comprehensive health benefits, flexible work arrangements, and professional development opportunities. Factors such as technology advancements, competition for talent, and government regulation influence these practices. Looking ahead, we can expect to see increased focus on mental health and well-being, expanded remote work options, enhanced diversity and inclusion initiatives, and a greater focus on financial wellness in the tech industry. V. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses Case Name: Time-off at Superior Software Services Instructor Notes Many employers believe restrictive sick day policies may increase unscheduled absences. Superior’s time-off policy seems to create such a concern. Because the company is deadline driven, pre-scheduled absences would help supervisors better schedule work to meet those deadlines. While not all time off can be scheduled ahead, decreasing unscheduled absences could help avoid missed deadlines. A PTO bank could ultimately give employees more flexibility in scheduling their time-off needs. Suggested Student Responses: Do you think changing Superior’s time-off policies will decrease unscheduled time-off? Unscheduled absences seem to occur at Superior because of the structure of the time-off benefits. Employees plan their vacation time at the beginning of the year and most likely do not want to sacrifice vacation time to take care of personal business. The sick day policy encourages employees to call off from work with short notice. The PTO option would provide employees more flexibility to schedule time off in advance when needed. Beyond reducing occurrences of unscheduled time-off, are there any other benefits to offering PTO? PTO saves some administrative time because the employer does not have to keep track of different types of leave, or reasons for the leave. Employees often prefer PTO banks because they don’t have to provide their employer a reason to take time off, which gives them more freedom in scheduling time off. Are there any disadvantages to changing to PTO? As the PTO policy is much different from the current policy, Superior would have to invest time and effort in guiding employees and supervisors on the new policy. Further, some employees may choose to use all of their PTO for more short-term time-off needs instead of scheduling vacations at the beginning of the year. This preference might make some work planning efforts a challenge for supervisors. MYLAB QUESTIONS 9-8. What are the components of discretionary benefits? Provide two examples for each component of discretionary benefits. Answer: There are three types of discretionary benefits: 1) protection, 2) paid time off, 3) services. Protection: One example can be income protection programs such as disability insurance, life insurance, or retirement programs. Another protection program example is health protection programs. Paid time off: These policies compensate employees when they are not performing their work duties. Examples: holidays, sick leave. Services: There are a variety of services that companies provide such as wellness programs (smoking cessation, stress management) and family assistance programs (flexible scheduling, day care). 9-9. What kind of discretionary benefits would help companies to have better control over absenteeism? Answer: Integrated paid time off policies combine holiday, vacation, sick leave, and personal leave policies into a single paid time off policy. This allows employees to schedule time off without justifying the reasons. Family assistance programs can also be helpful in controlling employee absence. Flexible scheduling and leave allow employees to take time off during work hours so that they can take care of relatives or emergency situations. Flexible scheduling practices such as compressed work weeks and flextime help employees to balance the demands of work and family. VI. Additional Cases from the MyManagementLab Website; Instructor Notes, Questions and Suggested Student Responses Case Name: Boosting Sales or Boosting Commissions? Instructor Notes A commission pay plan is a common compensation approach for sales representatives because it recognizes the individual contributions of each sales representative. Further, if a company is pursuing a low-cost competitive strategy, a commission pay plan supports the strategy by only paying employees for activities that directly contribute to the bottom line success of the company. However, designing a commission pay plan is not as simple as just determining a percentage of sales to pay in commission. There are many factors that impact the effectiveness of a commission pay plan. In this case, while a commission pay plan makes sense, the design of the plan could lead to some unethical behavior on behalf of the sales representatives. While avoiding ethical issues can be addressed through other strategies such as effective hiring practices, it should also be a consideration when designing the commission pay plan structure. Suggested Student Responses: What are some potential problems with Aspect’s compensation structure for sales representatives? Because the compensation is structured as commission only plan, there is no incentive for the sales representatives to work with a customer after the sale. In fact, doing so likely takes time away from activities that could lead to other sales. Further, the higher commission paid on add-on products and services may lead to some sales representatives aggressively selling extra services that are not needed. While these practices do support sales productivity, they do not provide incentives for the sales representatives to act in the best interest of the customers. What changes do you recommend? Aspect may want to consider offering some base salary to help encourage the sales representatives to provide service to recent customers. This could ultimately help the sales representatives because it will encourage them to spend some time working with recent customers who could become referral sources for future sales. Further, Aspect may want to make the commission for selling add-on services the same as the basic plan so there is not an incentive to unnecessarily sell features. As an alternative to provide additional incentives to the sales representatives, Aspect could consider a graduated commission pay plan so that the sales representatives received a higher commission rate for selling more units overall. Solution Manual for Strategic Compensation: A Human Resource Management Approach Joseph J. Martocchio 9780133457100, 9780135192146