This Document Contains Chapters 7 to 9 CHAPTER 7 PERFORMANCE MANAGEMENT REVIEW AND DISCUSSION QUESTIONS (p. 196) 1. Describe the five steps in the performance appraisal process. (p. 173) The five steps are: • Defining performance expectations • Providing ongoing coaching and feedback • Performance Appraisal and Evaluation discussion • Determining performance standards and consequences • Conducting development and career opportunities discussions 2. Explain how to ensure that the performance appraisal process is carried out ethically and without violating human rights laws. (p. 193-194) In order to ensure that the performance appraisal process is carried out ethically and without violating human rights laws: • keep well documented performance records and performance appraisal feedback • let employees know where they stand and be straight with them • conduct a job analysis to ascertain characteristics required for successful job performance • incorporate these characteristics into a rating instrument tied to specific job behaviours • ensure definitive performance standards are provided to all • use clearly defined individual dimensions of job performance • use different kinds of ratings • train supervisors • ensure appraisers have regular contact with appraisees • use multiple appraisers • use formal appeal mechanisms and reviews • document all decisions • provide corrective guidance 3. Discuss the pros and cons of using different potential raters to appraise a person's performance. (p. 185-188) Immediate Supervisor Pros: The supervisor has easy access to the employee and knows the employee’s work. Cons: Supervisors are prone to rater errors. Peers Pros: Effective in predicting future management success, high correlation between peer and supervisor ratings, more opportunity to observe ratees, and to observe them at more revealing times than supervisors. Cons: Logrolling; all the peers simply get together to rate each other high. Rating Committees Pros: Using multiple raters can be advantageous. While there may be a discrepancy in the ratings made by individual supervisors, the composite ratings tend to be more reliable, fair, and valid. When there are variations in raters' ratings, they usually stem from the fact that raters often observe different facets of an employee's performance; the appraisal ought to reflect these differences. Cons: This method is very time-consuming. Self Pros: Employees value the opportunity to participate in performance appraisal more for the opportunity to be heard than for the opportunity to influence the end result. Cons: Employees usually rate themselves higher than they are rated by supervisors or peers. Appraisal by Employees (Subordinates) Pros: When conducted throughout the firm, the process helps top managers diagnose management styles, identify potential "people" problems, and take corrective action with individual managers as required. Such employee ratings are especially valuable when used for developmental rather than evaluative purposes. Managers who receive feedback from employees who identify themselves view the upward appraisal process more positively than do managers who receive anonymous feedback. Cons: Employees (not surprisingly) are more comfortable giving anonymous responses, and those who have to identify themselves tend to provide inflated ratings. 360-Degree Appraisal Pros: The 360-degree approach supports the activities of performance feedback, coaching, leadership development, succession planning, and rewards and recognition. This method is also more meaningful in today's reality of complex jobs, with matrix and team reporting relationships. A 360-degree appraisal can be perceived as a jury of peers, rather than the supervisor as a single judge, which enhances perceptions of fairness. Cons: significant investment of time required for it to function successfully. There are few data on the effectiveness of 360-degree feedback, and some organizations have abandoned it for appraisal purposes because of negative attitudes from employees and inflated ratings. 4. What are the four key actions in conducting a formal appraisal discussion? (p. 189190) The four key factors in conducting and appraisal interview are: be direct and specific; do not get personal; encourage the person to talk; and develop an action plan. 5. Explain how to handle a defensive employee in a formal appraisal discussion. (p. 191192) Important points to remember when faced with a defensive employee in a performance appraisal interview are: recognize defensive behaviour as normal; never attack a person’s defences; postpone action; and recognize human limitations. CRITICAL THINKING QUESTIONS (p. 196) 1. Assume you are presenting to an upper-year group of business students and one student asks the question, “Which performance appraisal system is the best?” How would you respond to that question? Most firms combine several appraisal techniques in order to offset disadvantages of single methods (see Table 7.3 p. 185). Ultimately no one single solution is best for all performance management systems. Determining factors include resource constraints (time , money, people) and organizational factors (budget, turnover, strategy). 2. How can the problem of inconsistency between managers who are rating workers be solved, or at least diminished? Make two or more suggestions. To eliminate or minimize rater inconsistency, there are many strategies that can be used. Rater training is one. Making raters aware of rating scale problems is essential, since understanding the problems can help to prevent them. Improving appraisal accuracy also requires reducing outside factors, such as union pressure and time constraints. Other recommendations to improve accuracy of ratings include: • Conducting a job analysis to ascertain characteristics required for successful job performance and using this information to create job performance standards. • Incorporating these characteristics into a rating instrument, preferably BARS. • Providing definitive performance standards to all raters and ratees. • Using clearly defined individual dimensions of job performance, rather than undefined global measures. • Avoiding abstract trait names (for example, “loyalty” or “honesty”) when using a graphic rating scale, unless they can be defined in terms of observable behaviours. • Employing subjective supervisory ratings (essays, for instance) as only one component of the overall appraisal process. • Training supervisors to use the rating instrument properly, providing instructions on how to apply performance appraisal standards, and ensuring that subjective standards are not subject to bias. • Ensuring that appraisers have regular contact with the employee being evaluated. • Having more than one appraiser conduct the appraisal, and conduct all such appraisals independently, whenever possible. This process can help to cancel out individual errors and biases. • Utilizing formal appeal mechanisms and a review of ratings by upper-level managers. • Documenting evaluations and reasons for any termination decision. • Providing corrective guidance to assist poor performers in improving their performance, where appropriate. 3. Given the difficulty with providing traditional performance standards for jobs that are quite flexible, what sort of “standards” could be developed for these flexible jobs? Traditional performance standards lean towards assessing a fixed set of activities on the job. Focusing on results or objectives (e.g. MBO) may work better for jobs where activities are changing over time. In addition to results, or where results are not appropriate, critical incidents could be used to develop more general performance standards. 4. Some HR professionals avoid using BARS given that it is so time-consuming to develop. How could the development steps be streamlined? Note: specific development steps appear are not in the fourth edition of the text. Instead, other ideas for making the development of BARS more efficient are to use slightly more generic BARS available from consultants and other assessment providers and modify to suit the organization and its specific jobs. HR professionals could also use their social networks to see if any of their contacts have BARS for benchmark jobs. Using pre-determined BARS for most jobs (with customization) and just creating original BARS for unique jobs could help to streamline the process. 5. Do you agree with the use of forced distribution methods to rate employees? Why or why not? Students may present arguments both for and against forced rating. FOR: This method may be useful to decide on pay increases within a department. As such, the forced distribution method can be one important element in performance appraisal. Employees who are not performing well will be clear about their manager’s assessment of their work. They may decide to get another job, possibly saving the current employer the time and expense involved in terminating employees. In addition, it helps to identify the highest performers on which more company resources should be expended. AGAINST: In the broader organizational context, the forced rating method may not be useful. For example, can it be assumed that the top 15% in one unit is the same level or standard as the top 15% in another unit? By itself, in addition to demotivating people classified as below average, it may not provide adequate qualitative information for organizational decisions on development, transfer, and promotions. Furthermore, for unit managers, what is the point of developing all of the employees in your unit if you have to put 10% in the bottom category; as such, forced distribution may result in managers not dealing with performance problems in order to justify having subordinates in the bottom category. 6. How might a supervisor handle a situation in which negative appraisals in the past have caused an employee to undervalue his or her performance? From one appraisal to the next, the supervisor has a key function to provide the employee with a reasonable amount of time to improve performance. Perhaps more important, he or she should provide active support to facilitate improvement. In this connection, the supervisor could provide frequent constructive feedback and schedule periodic (monthly or quarterly, for example) conversations to review performance and agree on targets for the next period. Once the employee’s work has improved, the supervisor should clearly communicate this to the employee in order to clarify the employee’s perceptions of the value of his/her performance. It may be that the negative appraisals were related to political issues or personality differences with a former boss, which may have caused the employee to undervalue his/her work effort. A new supervisor may evaluate the employee’s work more positively and may need to provide extra positive reinforcement through ongoing verbal recognition of the employee’s good work in order for the employee to enhance his/her perceptions about the value of his/her work. 7. Discuss how employees might respond to the proposed implementation of electronic performance management systems, such as call monitoring, and so on. How might an organization deal with employees’ reactions? Employees might refuse to work under such conditions and quit or initiate a grievance. Good change management practices such as explaining the benefits to both the organization and employees, educating employees on how the system functions and uses to which the resulting data will be put are primary responses to employees concerns and should be put in place before the technology is implemented 8. How might a supervisor deal with an extremely defensive yet productive member of his or her team in the event of having to deliver the “improvement portion” of the employee’s performance appraisal? What techniques would the supervisor need to use to maximize the efficacy of the appraisal and reduce the defensibility of the employee? In order to deal with this situation, the supervisor should; • Recognize that defensive behaviour is normal • Never attack a person’s defences • Possibly postpone action • Recognize human limitations What this translates to is giving the person time to digest the information, sending them off with a written evaluation, and possibly setting up a follow-up meeting. In between meetings the person may have a better opportunity to reflect on their own performance (if this step was not included in the preparation for the initial meeting and consult with valued others. Hopefully they will come back with a more balanced perspective and some questions, which should be encouraged. For these types of people there often needs to be repeated stressing of their positive contributions, as they pay more attention to negative information. EXPERIENTIAL EXERCISES (page 197) 1. Working individually or in groups, develop a graphic rating scale for a retail sales associate and a fast-food restaurant manager. To answer this question, students must first identify the main duties and responsibilities of each of the jobs, and then establish an appropriate traits and behaviours related to different levels of each trait. Table 7.2 (p. 182) can help students to avoid the common pitfall of lack of clarity in performance standards in graphic rating scales. Appraisal criteria might include reliability, quality of work, amount of initiative, problem-solving skills, and significance of contribution to the firm, among numerous other things. Further criteria used for rating a fast food restaurant manager could include speed and accuracy of budget and accounting, management of employees, as well as customer-relations skills. 2. Working individually or in groups develop over a week, develop a set of critical incidents covering the classroom performance of one of your instructors. Categorize the critical incidents to identify themes within activities that are viewed positively and negatively. Expand on this identification by assessing how the one-week period may be affecting the results and what differences you would have expected had you selected a different week within the year to conduct the assessment. The critical incident method is described on p. 176-177 (see also Table 7.3, p. 185). Students should make sure they keep a log of both desirable and undesirable examples, and be as specific as possible in describing the behaviour of their instructor. There are some limitations to this exercise. Critical incidents recorded over a one-week period may reflect recent performance that is not representative (the recency effect). To be effective, examples of performance must be recorded over the entire appraisal period (typically one year). However, the exercise will provide students with an opportunity to observe and record examples of particularly effective and/or ineffective performance and to see how such information can provide concrete data on which to base an appraisal, specific examples to explain why performance is not meeting standards, and ways in which it can be improved. 3. Working in groups, using the NOC job description for cafeteria staff at a local university or college, develop a graphic rating scale with behavioural incidents for the job of a chef within the cafeteria. You may also want to consider your own experience when constructing your form. Once you have drafted your form, exchange forms with another student or group. Critique and suggest possible improvements to the forms. Then with your revised form in hand, develop statements of behavioural incidents for two of your rating scale items to address the following circumstances: • the employee has achieved outstanding results • the employee meets acceptable standards • the employee has performed very poorly in this aspect of the job Be prepared to share and critique statements developed by other students. Debrief the exercise as directed. The purpose of this exercise is to give the students practice in developing factual and specific performance feedback. It usually takes 55-60 minutes to complete including a large class debrief of some of the feedback statements. Debrief: Ask students to volunteer some of their feedback statements for large class critique. Make sure to get examples covering all three circumstances. If necessary, ask students how they would feel if they were a professor receiving the feedback as presented. Many times, the students err by making personal judgements about character and personality rather than focusing on behaviour. PART FOUR: TOTAL REWARDS CHAPTER 8 STRATEGIC PAY PLANS REVIEW AND DISCUSSION QUESTIONS (p. 228) 1. What are the five components of Total Rewards? (p. 199-200, Fig 8.1) Total employment rewards are defined as an integrated package of all rewards (monetary and non-monetary, extrinsic and intrinsic) gained by employees arising from their employment. The five components are: 1. Compensation – direct financial payment includes wages, salaries, incentives, commissions, and bonuses. 2. Benefits – indirect payments in the form of financial benefits such as employer-paid insurance and vacations. 3. Work/life programs – flexible scheduling, telecommuting, child-care programs, and so on. 4. Performance and recognitions – this category includes pay for performance and recognition programs. 5. Development and career opportunities – focuses on planning for the advancement and/or change in responsibilities to best suit individual skills, talents, and desires. Tuition assistance, professional development, sabbaticals, coaching and mentoring opportunities, succession planning, and apprenticeships are all examples of career-enhancing programs. 2. Describe what is meant by the term “benchmark job.” (p. 203) A benchmark job is a job commonly found in other organizations and/or a job that is critical to the firm's operations. Benchmark jobs are used to anchor the employer's pay scale. These jobs act as a reference point around which other jobs are arranged in order of relative worth. 3. Identify and briefly describe the three stages in establishing pay rates. (p. 203-212) The three steps are: 1. Determining the worth of jobs through job evaluation Job evaluation involves a systemic comparison to determine the relative worth of jobs within a firm, usually by focusing on benchmark jobs, which are critical to the firm or commonly found in other organizations. Relative worth can be established intuitively through ranking methods or by looking at levels of compensable factors, which are fundamental elements of a job. • Compensable factors – skill, effort, responsibility, and working conditions is most common set, alternative factors are know-how, problem solving, accountability, and working conditions, may need different factors for different departments, groups or units but use same set for comparing jobs within that dept./group/unit • Job evaluation committee – diverse group (including employees, HR staff, managers, and union representatives), ensure fair and comprehensive representation of each job • Classification method – also known as grading method, categories jobs into classes (different level similar jobs) or grades (similar level dissimilar jobs) based on grade/group description • Point method –identify compensable factors and sub-factors, determine factor weights and degrees, assess the degree of each factor present in the job, then calculate overall point value (See Table 8.1, p. 206) 2. Conducting a wage/salary survey A good wage/salary survey provides specific wage rates for comparable jobs; formal written questionnaire surveys are the most comprehensive. Information on what others are paying for the same or similar jobs can be obtained through any or a combination of: • Formal and informal surveys by the employer – phone survey, conversations at professional meetings, formal written surveys • Commercial, professional, and government salary surveys – e.g. Statistics Canada, Toronto Board of Trade, Towers Watson, Mercer, Certified General Accountants and Professional Engineers Ontario. • Salary survey interpretation and use – large organizations participate on average in 11 surveys and use 7 in setting own compensation practices, watch for upward bias 3. Combining the job evaluation and salary survey information to determine pay rates. The final stage is to assign pay rates to each pay grade, or job (if classes or grades not used), using a wage curve, which is a graphic description of the relationship between the value of the job (# points) and the average (market) wage paid for the job (see Fig. 8.2, p. 210). • Developing rate ranges – pay ranges reflect a series of steps or levels within a grade (see Table 8.3, p. 210), employees are placed somewhere in the range for their job based on experience and performance • Broad banding - reducing the number of salary grades and ranges to include a wider range of jobs and salary levels, increases flexibility and accommodates boundaryless jobs (see Fig. 8.3, p. 211) • Correcting out-of-line rates – current wages/salaries may be too high or too low, if low then raise, if high then red circle and freeze until other jobs catch up, transfer or promote individual, or freeze, try to transfer/promote, if unsuccessful then cut pay 4. What are the pros and cons of the following methods of job evaluation – ranking, classification, factor comparison, and point method? (p. 203-207). Note: The twelfth edition does not use the term “factor comparison” but the idea of comparing jobs based on factors using a qualitative approach is implied by the discussion of Compensable Factors in the text. A previously cited study which compared the approaches appears to have been removed for the twelfth edition. Ranking Pros: simplest job evaluation method; easy to explain; takes less time to accomplish than other methods. Cons: there is a tendency to rely too heavily on "guesstimates"; provides no yardstick for measuring the value of one job relative to another; the "whole job" approach to ranking, which is often used, cannot be used by employers covered by pay equity legislation. Instead, separate rankings must be completed for each of four compensable factors (skill, effort, responsibility, and working conditions), and judgment used to combine the results. Furthermore, jobs must be ranked across clusters or departments, not separately. Classification (or Grading) Evaluation Method Pros: most employers usually end up classifying jobs anyway, regardless of the job evaluation method that they use. They do this to avoid having to work with and price an unmanageable number of jobs; with the job classification method, all jobs are already grouped into several classes. Cons: It is difficult to write the class or grade descriptions, and considerable judgment is required in applying them. Factor Comparison Pros: Usually based on job descriptions and job specifications. Thus, it enables the determination of how much more of each compensable factor is required in one job versus all the others in a way that can be understood. Cons: Unless there is some sort of consistent organizational process, unit managers may identify different factors and apply inconsistent weights depending what they see as important. Is insufficient for demonstrating pay equity. Point Method Pros: Extends the factor comparison method by quantifying the differences between jobs. This method involves a quantitative technique that is easily explained to and used by employees, and provides a yardstick for measuring relative value differences between jobs. Cons: It can be difficult and time-consuming to use this method and to effectively train the job evaluation user group. Many organizations opt for a plan developed and marketed by a consulting firm. In fact, the availability of a number of ready-made plans probably accounts in part for their wide use. 5. Explain the term “competencies,” and explain the differences among core, functional, and behavioural competencies. (p. 212-213) Competencies are defined as individual knowledge, skills, and behaviours that are critical to successful individual or corporate performance. Core competencies describe knowledge and behaviours that employees throughout the organization must exhibit for the organization to succeed, such as “customer service orientation” for all hotel employees. Functional competencies are associated with a particular organizational function, such as “negotiation skills” for salespeople, or “safety orientation” for pilots. Behavioural competencies are expected behaviours such as “always walking a customer to the product they are looking for rather than pointing.” 6. Explain what is meant by the market-pricing approach in evaluating professional jobs. Traditional methods of job evaluation are rarely used for professional jobs since it is so difficult to identify compensable factors and degrees of factors that capture the value of professional work. Thus, most employers use a market-pricing approach. This involves pricing professional jobs in the marketplace to the best of their ability to establish the values for benchmark jobs. These benchmark jobs and the employer's other professional jobs are then slotted into a salary structure. Specifically, each professional discipline (like mechanical engineering or electrical engineering) usually ends up having four to six grade levels, each of which requires a fairly broad salary range. The market-pricing approach helps ensure that the employer remains competitive when bidding for professionals whose attainments vary widely and whose potential employers are found literally worldwide. 7. Explain what pay equity legislation is intended to accomplish, what action is required by the legislation in order to accomplish it, and how effective the legislation has been in accomplishing its objectives. (p. 202) The purpose of pay equity legislation is to redress systemic gender discrimination in compensation for work performed by employees in female-dominated job classes. Pay equity requires that equal wages be paid for jobs of equal value or “worth” to the employer, as determined by gender-neutral (that is, free of any bias based on gender) job evaluation techniques. To date, pay equity has been found to reduce the wage gap in Ontario to some extent. However, although legislation has narrowed the wage gap, it has not eliminated it, and there is still no explanation other than systemic discrimination for much of the 30 percent gap that still persists. In 2001, the federal government set up a task force to study its legislation and to propose changes to improve the effectiveness of the legislation in ensuring pay equity. The task force concluded in 2004 that the complaint-based model currently in place had not proved to be an effective means of achieving the goal of equal pay for work of equal value, and recommended that new pay equity legislation be enacted to require employers to develop a pay equity plan. No legislative changes have resulted to date. 8. Describe the three basic issues to be considered when awarding short-term management bonuses. (p. 219-220) The three basic issues to be considered when awarding short-term management bonuses are (1) eligibility, (2) fund size, and (3) how to determine individual awards. Eligibility can be decided by position, by salary level, or salary grade. Fund size is often either a straight percentage of the company’s total net income or net income exceeding a certain predetermined level, but there are no hard-and-fast rules. Individual awards can be discretionary, but typically a target bonus is set for each eligible position and adjustments are then made for greater or less than targeted performance. A decision must also be made as to whether the bonus will be based on individual performance, team performance, or some combination of these. 9. Explain how stock options work. What are some of the reasons that stock options have been criticized in recent years? (p. 221-223) A stock option is the right to purchase a specific number of shares of company stock at a specific price during a period of time. The option holder hopes to profit by exercising his or her option to buy the shares in the future but at today’s price. The assumption is that the price of the stock will go up. In Canada, only 75 percent of the gain on exercising the options is taxable. Thus, stock option plans are often seen as a cash windfall with no downside risk but unlimited upside potential. Stock options have been criticized in recent years as the motive for short-term managerial focus and questionable accounting practices. The issuance of an excessive amount of options can dilute share value for shareholders and create a distorted impression of the true value of a company. 10. When and why should a salesperson be paid a salary? A commission? Salary and commission combined? (p. 223-225) A salary plan works well when the main sales objective is prospecting (finding new clients) or when the salesperson is mostly involved in account servicing, such as developing and executing product training programs for a distributor’s sales force or participating in national and local trade shows. Jobs like these are often found in industries that sell technical products. A commission plan is appropriate when the firm wants to pay for results, and only for results. This generally occurs in situations in which sales costs are proportional to sales, not fixed, and there is a desire to focus on making a sale, rather than on prospecting and cultivating long-term customers. The straight commission plan provides salespeople with the greatest possible incentive, and there is a tendency to attract high-performing salespeople. Combination plans are appropriate when the firm wants to direct its salespeople's activities by detailing what services the salary component is being paid for, and use a commission component to provide a built-in incentive for superior performance. 11. Explain five reasons why incentive plans fail. Incentive plans may fail if: 1. Efforts and rewards are not directly related. 2. Employees lack the necessary tools, equipment, and training. 3. The plan is too difficult, such that employees can't understand it and/or calculate their rewards. 4. Instructions are ambiguous; communication is poor; the standards are viewed as unfair, are too high or low, or are not specific enough. 5. The standards have not been guaranteed, leading to employee distrust; no guaranteed hourly base rate has been established; workers' support has not been attained. 6. There is poor management. 7. Too much emphasis has been placed on financial rewards and not enough on other motivators, such as opportunities for achievement and psychological success; or emphasis has been placed on the wrong measures. CRITICAL THINKING QUESTIONS (p. 228) 1. It was recently reported in the news that the base pay for Canadian bank CEOs range in the millions of dollars, and the pay for the governor of the Bank of Canada is less than half of that of the lowest paid bank CEO. How do you account for this difference? Should anything be done about this? Why or why not? This information and related articles can be found online at several websites as this was widely reported in the newspapers. It lends itself to a discussion on why people who could make more money accept jobs that pay less, intrinsic versus extrinsic motivation. However, a major differentiator that would explain the gap is that the Canadian banks are for-profit organizations with shareholders who accept high CEO compensation. The Bank of Canada is a Crown Corporation owned 100% by the Ministry of Finance, with pay rates that are much more conservative and in line with public sector, not private sector, salaries. A “government” employee making millions of dollars would not be acceptable to Canadian taxpayers. 2. Do you agree with paying people for competencies and skills that are rarely required to use on the job? The answer to this question can be “Yes” or “No.” Reasons for agreeing to pay people for competencies can include: • Career development and succession planning – certain competencies that individuals have may only be used at a more senior level or in a lateral position. Therefore, it’s important to retain such skills to build a succession plan for future vacancies within the organization. It also provides potential career growth for individuals. If employees are not sure whether they will be able to afford further education or handle it on top of their current job, the potential to move to a more interesting and/or higher paid job once they have acquired further education and training may help them to make up their minds. • Attracting and retaining employees – employee will feel that their skills are being valued rather than being restricted on the job that they are holding. This can be used as a recruitment tool to attract skills people from the industry. • Having a diversely skilled workforce – job rotation can be made easily, and the organization becomes somewhat immune to sudden turnover because when people possess various competencies they can be easily moved to vacant jobs. Reasons for not agreeing to pay can include: • High costs – paying for skills that are not used can create higher levels of wage costs for the company. Having extra skills don’t guarantee that such skills will be utilized by the company in a future situation. • Skills and competencies change often. Therefore, a competency that is present today may not be required tomorrow, or additional competencies may be required of individuals. • Additional training costs have to be incurred if further training is required to develop additional competencies to perform required duties. 3.What are some of the potential reasons that gender-based pay discrimination is so hard to eradicate? The main reason that gender-based pay discrimination is hard to eradicate is the difficulty in completely identifying all of the factors that lead to gender-based pay discrimination. Women have different patterns of employment than men. They tend to work part-time more often, even in professional occupations (physicians, lawyers, accountants), have longer breaks in employment, and are often concentrated in female-dominated occupations (e.g. daycare workers). When examining the reasons why women who have the same occupation and same pattern of employment as men there are two factors 1) discrimination by employers in setting salaries for female-dominated jobs and initial salary offers and raises for women (based on stereotypical beliefs), and 2) women not asking for as much as men. Both of these factors work against women over time as merit raises are compounding so after 5 – 10 years the difference can be substantial. 4 A major consulting firm recently launched a new "project managers” incentive plan. Basically, senior managers in the company were told to award $ 50000 raises (not bonuses) to about 40 percent of the project managers in their team based on how good of a job they did in managing people on their projects, meeting deadlines, and the number of projects each project manager was responsible for that year. There were no additional criteria provided, given the wide variance in projects and teams that the consulting firm secures in a given year. What are the potential advantages and pitfalls of such an incentive program? What areas of support or concern do you think project managers might have with the incentives? What areas of support or concern do you think senior managers might have with the incentives? The advantages of such a plan are that it will focus the project managers’ attention on strategic activities (leading a team, meeting deadlines) and it will explicitly recognize differences in scope of responsibility (# of projects). Therefore it should be perceived as fair. The disadvantages of such as plan are that omitted criteria, such as client satisfaction, are also strategically important and may receive less attention. In addition, although meeting deadlines is objective, managing people on their projects is a lot more subjective unless specific validated measures are developed and implemented across the board. Some project managers may also lean towards making their team happy or rushing projects through and let up on other standards (e.g. quality of work, learning requirements, and so on). Project managers should support the plan because it focuses on key elements of their job and has a compounding effect on their salary, but may be concerned about lack of specifics in terms of measuring some of the elements. They may also be concerned about the weights given to # of projects as this is outside of their control One project manager might have just a single very complex project whereas someone else has many minor projects. Senior managers will support performance-based incentives that are aligned with strategic objectives, but would probably prefer to have a bonus rather than a merit pay (raise), because it does not inflate base salary. Project managers have to earn a bonus each and every year, but once they have a fairly high salary a raise is much less motivating. Senior managers may also be concerned that the incentives are just based on team results and are not connected to organizational results. They would probably prefer a scheme where the majority of the incentive is on team results but the rest is based on organizational results. In addition, they have to have a valid way to identify the top 40% of their project managers so that the plan is acceptable to those who do not receive a bonus. The senior managers may prefer to have a scheme where top managers get the most, but there is a sliding scale for those who achieved most of their objectives, and then nothing for those who were poor performers. Under the planned scheme, 60% of their project managers will get nothing. 5. Is it ethical for companies to offer incentive bonuses only to top managers? Why or why not? What are the pros and cons of making such bonuses available to all employees who meet performance criteria? The question of ethics revolves around whether harm is done to a larger number people in comparison to the benefit that is gained by a few. It could be argued that there is no harm done to employees who are not eligible to participate in incentive plans, as long as they receive a fair base salary for their work. However, the opposite argument is that the performance of top managers is largely due to the work of employees in all of the levels below them, so they are harmed if the reward is not equitably distributed (someone else has been given all the credit for their work). Offering incentives to all employees is complex and time-consuming to develop, requires extensive communication, and can easily become expensive if not linked to challenging and strategic goals. Incentive plans should be self-funding in most years. Giving top managers bonuses in the hundreds of thousands of dollars or even millions while lower level employees get only a token gift or no bonus at all can negatively impact employee morale, employee engagement, and lead to higher rates of turnover. 6.Do you think it is a good idea to award employees merit raises? Why or why not? If not, what approach would you take to incentive compensation? Merit pay or a merit raise is any salary increase that is awarded to an employee based on his or her individual performance. It is different from a bonus in that it represents a continuing increment, whereas the bonus represents a one-time payment. If not controlled, the compounding effect of merit pay can rapidly inflate the organization’s compensation budget within a few years, which may not be affordable. Merit pay is appropriate in situations where; employees' individual efforts can be fairly and accurately evaluated or measured; there is a valid performance appraisal system in place; and supervisors have been properly training in performance appraisal techniques. In such cases, a merit pay plan can and does improve performance. However, merit pay can backfire if: (1) The validity of the performance appraisal system is in question. Since appraisals are viewed as unfair, so too will the merit pay that is based on them. (2) Supervisors often give most employees about the same raise, either because of a reluctance to alienate some employees, or a desire to give everyone a raise that will at least help them stay even with the cost of living. (3) Every employee thinks he or she is an above-average performer; being paid a below average merit increase can thus be demoralizing. Another merit pay option is to award lump-sum merit pay based on both individual and organizational performance. The company's performance, measured by rate of return or sales divided by payroll costs, for example, is weighted equally with the employee's performance, as measured by his or her performance appraisal. Thus, an outstanding performer would still receive a lump-sum award even if the organization's performance were marginal. However, employees with unacceptable performance would receive no lump-sum awards even in a year in which the organization's performance was outstanding. The advantage of this approach is that it forces employees to focus on organizational goals like profitability and improved productivity. The drawback is that it can reduce the motivational value of the reward by reducing the impact of the employee's own performance on the reward. 7. Recognition can take many forms. Prepare a list of some forms of recognition that would be particularly motivational for Generation Y employees, and explain why you have chosen them. Rewards that work for Generation Y include relationship enhancers such as electronic communications equipment, home entertainment items, and dining experiences; personalized rewards where they can choose colours and accessories; and charitable rewards such as time off to volunteer for non-profit organizations and charitable donations made in their names. The reasons for choosing this type of recognition is because Generation Y employees are masters of technology and are more comfortable with authority and independence. EXPERIENTIAL EXERCISES (page 229) 1. Working individually or in groups, conduct salary surveys for the positions of entry level accountant and entry-level chemical engineer. What sources did you use, and what conclusions did you reach? If you were the HR manager for a local engineering firm, what would you recommend that each job be paid? Answers to this exercise will vary depending on the survey sources chosen. The chapter identifies the various methods used when conducting wage/salary surveys, and will provide students with helpful hints as to where they can locate survey data. Excellent sources of information for these particular jobs include the Certified General Accountants Association and professional engineering associations such as Professional Engineers Ontario. Whatever the source of the survey, the data must be carefully assessed for accuracy before they are used to make compensation decisions. Problems can arise when: the organization’s job descriptions only partially match the descriptions contained in the survey; the survey data were collected several months prior to the time of use; the participants in the survey do not represent the appropriate labour market for the jobs being matched; and so on. HR staff members should involve employees who have engineering designations or are more familiar with engineering positions to accurately compare the jobs they have with the ones represented in the salary surveys. After conducting salary surveys for entry-level accountant and entry-level chemical engineer positions, utilizing both primary and secondary sources, several conclusions and recommendations can be drawn: 1. Sources Used: • Primary Sources: Conducted interviews or surveys with local engineering firms and accounting firms to gather firsthand salary data specific to the region. • Secondary Sources: Utilized online salary databases, industry reports, and government statistics to supplement and validate the primary data collected. 2. Conclusions: • Entry-Level Accountant: Based on the survey data, entry-level accountant salaries in the local market range from $45,000 to $55,000 per year. Factors such as education level, relevant experience, and industry specialization may influence salary variations. • Entry-Level Chemical Engineer: Survey results indicate that entry-level chemical engineer salaries in the area typically fall between $60,000 and $70,000 annually. Additional factors such as specific technical skills, industry demand, and geographic location may impact salary levels. 3. Recommendations: • As the HR manager for a local engineering firm, it is recommended to offer competitive salaries for both entry-level accountant and entry-level chemical engineer positions to attract and retain top talent. • For the entry-level accountant position, considering the local market data and industry standards, a salary range of $48,000 to $55,000 per year may be appropriate, with potential adjustments based on individual qualifications and experience. • For the entry-level chemical engineer role, given the specialized nature of the field and the demand for skilled professionals, offering a salary range of $62,000 to $70,000 annually would align with market trends and ensure competitiveness in recruiting efforts. 4. Additional Considerations: • Beyond base salaries, consider offering competitive benefits packages, including health insurance, retirement plans, and professional development opportunities, to enhance the overall compensation package and attract top talent. • Regularly review and adjust salary ranges based on evolving market conditions, industry trends, and internal equity considerations to remain competitive and retain key employees. By conducting thorough salary surveys and leveraging both primary and secondary data sources, HR managers can make informed decisions regarding salary structures and compensation strategies to attract, retain, and motivate talent within their organizations. 2. You have been asked by the owner of your medium-sized import and export company (200+ people) to develop a way to standardize pay ranges for different jobs in the company. He says he is tired of employees complaining about the pay they get compared to others and is concerned that if he does nothing someone will complain about inequitable pay practices. Outline the steps you will follow to do this. Make sure to give a rationale for the type of job evaluation system you propose as well as for the method you suggest to obtain comparable salary data. The jobs he is most concerned about are • sales representative • shipping and receiving manager • multilingual contract negotiator • accounts receivable clerk • shipping clerk. The purpose of this exercise is to give students the opportunity to think about and experience developing a standardized pay system for a smaller organization as well as consider which type of job evaluation might be best suited to this situation. You could start with a simplistic ranking and “gut feel” approach in class then cover the point method and have them use the point method for these jobs as homework to be taken up in the next class or as a graded group exercise. Alternate exercises: this exercise can be done individually, in pairs or small groups. Debrief and ensure that students have thought through all of the ramification of the choices they have made. 3. You are the HR manager in a large construction firm headquartered in Edmonton. Most of your administrative staff members are also in Edmonton. You have regional and local site offices across the country. Draft a memo to employees about your company’s new pay for knowledge and skills policy. Make sure to document at least one fully complete section on how this policy will be administered. Your professor may give you some ideas on what might be considered or you may create your own circumstances under which pay for knowledge and skills will be applied. Their pay for knowledge/skills policy memo should explain why the organization is offering pay for knowledge/skills, expectations around using knowledge/skills (not just acquiring credentials/certificates), relationship to and fit with other compensation policies (e.g. pay for performance), who is eligible, what types of knowledge/skill are eligible, how the program will be administered, and how they can get more information (intranet, brochure, FAQ on HR webpage). 4.Working individually or in groups, develop an incentive plan for each of the following positions: web designer, hotel manager, and used-car salesperson. What factors had to be taken into consideration? Plans should identify specific behaviours and results that are strategically important for each position. Incentives for the web designer should focus on responsiveness, timeliness, and a relevant measure of the quality of the work (functionality and appearance). Incentives for the hotel manager should relate to sales, cost-control and customer satisfaction as well as employee capabilities. Sales-based incentives are the obvious choice for the used car salesperson, but some measure of customer satisfaction, repeat business, customer referral would ensure that a high pressure approach is not being used or that inappropriate claims about the vehicle are not being made. 5. Employee recognition plans are growing in popularity. There has been some debate in research literature suggesting that once incentives are provided, that they are viewed as entitlements by employees and therefore become non-removable. Assume you are working for your local university or college in the HR department. Due to financial restraints it has been suggested that the university eliminate a $ 5000 gift certificate award offered to professors who publish in specific top-tier journals (which cost the university $225,000 last year alone). Interview two professors in your university or college to understand their position on the incentive. Based on the information provided in this chapter and your interviews, draft a memo to faculty assuming you were forced to adopt the cut and effectively communicate the change. Professors’ comments may include perceptions that the university is “cheap” and is exploiting its faculty members. Other faculty members may not be as bothered because the publication in a top tier journal is the more valued reward, the gift certificate is “icing on the cake”. They would publish with or without the gift certificate. In all cases, faculty members would probably like to know how the $ 225 000 will be reallocated with their preference probably being in terms of other research support (e.g. labs, research assistants, course relief) or into the classroom. Professors without tenure may decide to start a job search if the removal of this incentive is part of a pattern of financial retrenchments. The memo should be clear in terms of explaining what will happen, when it will happen, and why it is happening. The memo should mention that a sample of faculty members were consulted before the decision (without saying how small a sample), but should offer a channel for faculty members to continue to express their thoughts on incentives. CHAPTER 9 EMPLOYEE BENEFITS AND SERVICES REVIEW AND DISCUSSION QUESTIONS (p. 255) 1. Explain two main approaches to reducing workers’ compensation claims. (p. 237) The two main approaches to reducing workers' compensation claims include: a) reducing accident- or illness-causing conditions by instituting effective safety and health programs, and complying with government safety standards; and b) instituting rehabilitation programs for injured or ill employees, since workers' compensation costs increase the longer an employee is unable to return to work. These include physical therapy programs and career counselling to guide such employees into new and less strenuous or stressful jobs to reintegrate recipients back into the workforce. Workers are required to cooperate with return-to-work initiatives such as modified work. 2. Explain what companies are doing to reduce health-benefit costs. (p. 240) Employers are having employees pay more through higher premiums, increased deductibles, reduced coinsurance, decreased limits for some coverage, and limiting spousal and other extended health care benefits. 3. Explain the difference between sick leave plans and short-term disability plans. (p. 242) Short-term disability plans (also known as salary continuation plans) provide a continuation of all or part of an employee's earnings when the employee is absent from work due to non-work related illness or injury. These plans often provide full pay for some period of time (often two or three weeks) and then gradually reduce the percentage of earnings paid as the period of absence lengthens. The benefits cease when the employee returns to work or when the employee qualifies for long-term disability. Such plans are sometimes provided through an insurance company. Sick leave plans operate quite differently from short-term disability plans. Most sick leave policies grant full pay for a specified number of permissible sick days – usually up to about 12 per year (often accumulated at the rate of one day per month of service). Newfoundland, the Yukon, Quebec, and the federal jurisdiction require sick leave (unpaid) as a minimum standard. The problem is that while many employees use their sick days only when they are legitimately sick, others simply utilize their sick leave as extensions to their vacations, whether they are sick or not. Also, seriously ill or injured employees get no pay once their sick days are used up. 4. Explain the difference between a defined benefit and a defined contribution pension plan. (p. 244) Changes from defined benefit to defined contribution are primarily done to reduce the long term company liability for pensions. The risk is transferred to the employee. 5. Why are long-term disability claims increasing so rapidly in Canada? (p. 243) The number of long-term disability claims in Canada is rising sharply primarily because the workforce is aging and psychological disabilities are becoming very common. An average disability claim can cost up to $78 000 per injury, including production delays, product and material damage due to inexperienced replacement staff, clerical and administrative time, and loss of expertise, on top of the actual benefits payments. Therefore, disability management programs with a goal of returning workers safely back to work are becoming a priority in many organizations. 6. Outline the kinds of services provided by EAPs. (p. 249-250) An employee assistance plan (EAP) is a formal employer program that provides employees with counselling and/or treatment programs for problems such as mental health issues, marital/family problems, work/career stress, legal problems, and substance abuse. They also assist employees who have suffered a workplace trauma – ranging from harassment to physical assault. 7. Explain the pros and cons of flexible benefits from both an employer and employee perspective. (p. 252 – 253) Flex benefit plan benefit the employer by them only paying their portion for coverage that employees actually want and use. Employees have benefits that suit them and their lifestyles. Cons are that the employers have more administration to deal with because nothing is standard and employees have be knowledgeable about picking their benefits to ensure they end up with the coverage they need. Sometime they might have to any more that their benefits credits to get what they want. 8. Answer or complete the following questions from the information in this chapter. • What are the seven government-mandated or legislated benefits? Employment Insurance (EI), Canada/Quebec Pension Plan (C/QPP), Workers’ Compensation, Vacations and Holidays. Leaves of Absence, Pay on Termination of Employment, Paid Breaks • A _________ is the amount the employee must pay on a yearly basis before supplementary health-care benefits begin. Deductible • _________ includes such things as newsletters, fitness centres, and nutrition counselling. Health Promotion • Generation ___________ wants their benefits information online. Gen Y • The difference between a group pension plan and a group registered retirement savings plan is _____________. Taxation as well as Funding for a pension plan is done by the employer, employer/employee contribution and for group registered retirement savings plan is by the employee only. • _________ rights mean that the employee with the required length of service has a nonforfeitable right to the money contributed to the pension plan by the employer. Vesting • Tuition reimbursement is an example of a(n) ________________. Educational subsidy • The preferred way to communicate initial flexible benefits plan information to employees is _________. Face-to-face CRITICAL THINKING QUESTIONS (p. 256) 1. You are applying for a job as a manager and are at the point of negotiating salary and benefits. What questions would you ask your prospective employer concerning benefits? Describe the benefits package you would try to negotiate for yourself. In addition to asking questions regarding the types of benefits offered by the firm, other than those required by law, the employee would ask for details regarding coinsurance amounts, deductibles, and maximum payouts. The employee would also inquire about the type of pension plan offered, as well the issues of vesting and portability. The employee would request a copy of the benefits handbook, so that s/he could read through it at his or her convenience, and indicate that they would call if they had any specific questions. The benefits package that the employee would try to negotiate would include any life, health, disability, or pension benefits not provided as part of the regular package; generous vacation entitlement (such as five weeks after one year of service); a golden parachute clause; a comprehensive educational subsidy/educational leave program; and some perks such as an expense account, company car, company credit card, a reserved parking spot, a spacious office with windows and a view, a private secretary, and a physical fitness club membership. The employee would also try to arrange for an annual bonus and profit sharing. 2. What are pension "vesting" and "portability”? Why do you think these are (or are not) important to a recent university or college graduate? In most jurisdictions, pension legislation requires that employer contributions be vested once the employee has completed two years of service. Plans may vest more quickly than required by law. This issue should be extremely important to a recent university or college graduate, given the fact that employees today are highly mobile. If the employee terminates employment before being vested, he or she will only be entitled to a refund of his or her own contributions, plus interest (unless the employer decides to be more generous). Once an employee is vested, all contributions are "locked-in” and employees must wait until retirement to receive a pension from the plan. Portability refers to a provision that employees who change jobs can transfer the lump-sum value of the pension they have earned to a locked-in RRSP or their new employer's pension plan. Given the reality that movement from one firm to another is often required in order to broaden skills and obtain advancement opportunities, plus the fact that most employees today have a number of different careers over their lifetime, portability should also be of concern to recent college and university graduates. Vesting and portability are both critical in ensuring adequate retirement income. Without them, an individual who makes several changes of employer over the course of his or her working life may end up with an inadequate pension, unless he or she does some exceptional planning and wise investing in registered retirement savings plans. 3. You are the HR consultant to a small business with about 40 employees. At the present time they offer only the legal minimum number of days for vacation and paid holidays, and legally mandated benefits. Develop a list of other benefits you believe should be offered, along with your reasons for suggesting them. Before making specific recommendations, the employees should be surveyed regarding their preferences in order to ensure additional benefits will aid in building employee commitment and enhancing retention. Cost issues would also have to be taken into consideration. Since most employees today find time off with pay to be a particularly attractive benefit, and since family-friendly benefits and health promotion are becoming more and more important, recommendations would likely include granting additional vacation, a few extra paid holidays, providing a nutritious food service (such as having a coffee truck visit twice per day, or installing some vending machines with healthy snacks), and granting some sick days/personal leave days. Life insurance and accidental death and dismemberment insurance should also be considered, since these are extremely inexpensive yet highly valued benefits, as well as a supplementary health-care plan. If offered on a cost-shared basis, such a plan could be quite affordable. An educational subsidy plan, designed to encourage employees to upgrade their skills and qualifications, should also be considered since such plans benefit both employees and the employer. 4. If you were designing a retirement benefits for a mid-sized organization that had not previously offered one, what type of plan would you recommend to them and why? The defined contribution plan would be the recommended plan. This plan only specifies what contribution the employer will make to a retirement fund set up for the employee. It does not define the eventual benefits amount, only the periodic contribution to the plan. Most organizations have adopted defined contribution plans because the company is not tied to providing a specified amount. Therefore, the financial burden on the company is less if a defined contribution is adopted. There is a risk towards the employee in a defined contribution plan because if the company faces serious financial difficulties or goes bankrupt, the employee will not receive further contributions from the employer. 5. What questions might an employee who currently has no benefits or a minimal coverage standard benefits plan have about flexible benefits? How can an organization address these questions and concerns? List suggested topics for a new flexible benefits plan communication plan and include at least suggestions about the appropriate media to be used. Employees may not have a detailed understanding of the individual benefits and not feel confident picking coverage. They will want to know what they have to pay and what level of coverage they will get. Organizations can run training workshops, provide FAQ information in written and electronic forms, and provide help lines for benefits questions. The benefits communication plan should include: • Initial announcement – in town hall format and provide written or CD handout material and concurrent website availability • Provide FAQ’s online and in print depending on the workforce demographics • Help line to answer employee specific questions • Posters and flyers to build awareness of different benefits • Provide sample choices that meet some of the demographic profiles in the company. • Tax information about the implications of making certain choices – on line and in hand out materials, reinforced in any one-on-one conversations that are held. EXPERIENTIAL EXERCISES (p. 378) 1. Working individually or in groups, compile a list of the perks available to the following individuals: the head of your local public utilities commission; the president of your college or university; the president of a large company in your area. Do they all have certain perks in common? What do you think accounts for any differences? It may be difficult to directly obtain this information as perquisites tend to be closely guarded secrets, unless highly visible (e.g. preferred parking, company car), coming under the heading of confidential details of employment contracts. Students may have to ask around and walk around to put a picture together. Perquisites (perks, for short) listed may include: management loans (which typically enable senior officers to use their stock options); salary guarantees (also known as golden parachutes) to protect executives even if their firms are the targets of acquisitions or mergers; financial counselling (to handle top executives' investment programs); relocation benefits, which may include subsidized mortgages, purchase of the executive's current house, and payment for the actual move; a cell phone; outplacement assistance; a company car; a chauffeured limousine; a security system; use of the company plane and/or yacht; executive dining room privileges; legal services; tax assistance; a liberal expense account; club membership(s); season tickets; credit card(s); subsidized children's education; a physical fitness program; a concierge service; supplemental life insurance; and a reserved parking spot. Reserved parking, an expense account, a personal or leased automobile, and supplementary life insurance are fairly common perks. Differences in the perks offered are likely due to the nature of the business and the preferences of the incumbents, as well as the organization’s ability to provide and fund these types of benefits. Large private-sector firms generally offer much more generous perquisites than do public-sector and quasi public-sector organizations, which are wholly or partially government funded. 2. Working individually or in groups, contact your provincial workers' compensation board (or equivalent regulatory body in your province/territory) and compile a list of their suggestions for reducing workers' compensation costs. What seem to be the main recommendations? Relevant information is available from WCB websites as well as the website for the Canadian Centre for Occupational Health and Safety. The Board respondent is likely to explain that a renewed focus on accident prevention is the best way to manage workers' compensation costs over the long term. Minimizing the number of workers' compensation claims is an important goal for all employers. While the Workers' Compensation Board (Workplace Safety and Insurance Board in Ontario) pays the claims, the premiums for most employers depend on the number and amount of claims that are paid. Minimizing such claims is thus important. Two practical approaches are likely to be recommended: (1) reducing accident- or illness-causing conditions in an organization's facilities by instituting effective safety and health programs; employee education, training, and/or financial incentives; and complying with government safety standards. (2) instituting rehabilitation programs for injured or ill employees, since workers' compensation costs increase the longer an employee is unable to return to work. These include physical therapy programs and career counselling to guide such employees into new and less strenuous or stressful jobs to reintegrate recipients back into the workforce. Workers are required to cooperate with return-to-work initiatives such as modified work. Boards generally provide resources and guidelines to assist employers in accommodating employees who have been collecting benefits and are now ready to return to work, but are unable to perform their pre-injury or pre-illness job. Solution Manual for Management of Human Resources: The Essentials Nina D. Cole, Gary Dessler, Nita Chhinzer 9780132114905, 9780133807332, 9780134305066
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