This document contains Chapters 7 to 8 CHAPTER 7 Building Market-Competitive Compensation Systems Learning Objectives 1. Explain the concept of market-competitive compensation systems and summarize the four activities compensation professionals engage in to create these systems. 2. Discuss how compensation professionals integrate job structures with external market pay rates. 3. Present the basic concepts of two compensation policy types: pay mix and pay level. Outline I. Market-Competitive Pay Systems: The Basic Building Blocks A. Definition B. Market-Competitive Pay Systems II. Compensation Surveys A. Purposes B. Preliminary Considerations C. Using Published Compensation Survey Data D. Compensation Surveys: Strategic Considerations E. Compensation Survey Data III. Integrating Internal Job Structures with External Market Pay Rates IV. Compensation Policies and Strategy Mandates V. Discussion Questions and Suggested Answers VI. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses VII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses.
Quick Note: Throughout this chapter, students should bear in mind that it is important to remember the firm’s competitive strategy when making compensation recommendations. Two companies could have entirely different market-competitive pay systems, and have those both be ideal strategies for their respective firms.
Lecture Outline I. Market-Competitive Pay Systems: The Basic Building Blocks A. Definition 1. Market-competitive pay systems represent companies’ compensation policies that fit the imperatives of their competitive advantage 2. These systems play a significant role in attracting and retaining the most qualified employees 3. Should promote companies’ attainment of competitive strategies 4. Excess pay levels can: a. Represent an undue burden b. Undermine lowest-cost strategies c. Restrict a company’s ability to invest in other important strategy activities 5. Companies with differentiation strategies must strike a balance between: a. Offering attractive pay incentives to hire and retain good employees b. Providing sufficient resources for employees to excel B. Market-Competitive Pay Systems 1. Based on four activities a. Conducting strategic analyses b. Assessments of competitors’ pay practices with compensation surveys c. Integrating the internal job structure with external market pay rates d. Determining compensation policies 2. Conducting strategic analyses a. Entail an examination of a company’s external market factors like: i. Industry profile ii. Information about competitors iii. Long-term growth prospects b. Require an examination of a company’s internal factors like: i. Its financial condition ii. Its functional capabilities, such as marketing and human resources 3. Assessments of competitors’ pay practices with compensation surveys a. Involve the collection and analysis of competitors’ compensation data i. Wages and salary practices ii. Fringe compensation practices - a key element of market-competitive pay systems b. The surveys allow compensation professionals to obtain realistic views of competitors’ pay practices. 4. Integrating the internal job structure with external market pay rates with the external market pay rates identified through compensation survey a. Results in pay rates that reflect both the company’s and the external market’s valuation of jobs b. The integration is generally achieved by using regression analysis 5. Determining compensation policies a. The policies should fit with the company’s standing and competitive advantage b. The policies must strike a balance between managing costs and attracting and retaining the best qualified workers II. Compensation Surveys A. Purposes 1. Consulting or developing compensation surveys is the second step in assessing external competitiveness 2. These are tools used to gather data about competing companies’ compensation practices B. Preliminary Considerations 1. Main considerations a. What companies hope to gain from compensation surveys b. Which type of survey to use 2. What companies hope to gain from compensation surveys a. Competitors’ compensation practices b. Employee’s preferences for alternative forms of compensation due to economic changes 3. Competitors’ compensation practices a. Base pay b. Incentive award structures c. Both mix and level of discretionary benefits i. Mix refers to the percentage of employer compensation costs to provide compensation and benefits ii. Level refers to amounts actually or potentially paid to employees or beneficiaries d. Ability to make sound judgments about pay levels i. Sound decisions promote employers’ efforts to sustain competitive advantage ii. Poor decisions compromise competitive advantage 4. Which type of survey to use a. Custom developed surveys b. Published compensation data surveys 5. Custom Developed Surveys a. Preferable because the questions can be tailored specifically for each company b. Can provide the most useful and informative data c. Not always practical because of the specialized knowledge and skills needed to develop effective ones d. Not always effective because businesses are reluctant to give information directly to competitors e. The staffing and design costs can be prohibitive C. Using Published Compensation Survey Data 1. Two important considerations a. Survey focus: core or fringe compensation b. Sources of published survey data 2. Survey focus a. Base pay b. Employee benefits c. Both i. Historically companies competed for employees only on base pay because benefits were similar ii. Now, high costs of benefits have differentiated benefit offering from company to company
• Example: Discretionary Benefits As of 2012, companies spent an average $20,000 per employee annually for discretionary benefits Discretionary benefits account for as much as 30.8 percent of employers’ total payroll costs
3. Sources of published surveys a. Professional associations b. Industry associations c. Consulting firms d. Federal government 4. Associations, professional and industry a. Survey members about salaries, compile information in summary form, and disseminate the results to members b. Survey data from associations tends to be accurate because participants (association members) benefit from the results c. Membership fees often entitle members to survey information at no additional cost
Example: Existing Professional Compensation Surveys SIOP The Society for Industrial and Organizational Psychology (SIOP) periodically publishes salary data relevant for its members Members are primarily college and university faculty and practitioners who specialize in management-related fields (selection, training, performance appraisal, career development) Provides information based on: Gender Age Employment status Years since earning degree Geographic region according to metropolitan area Employers use results to determine market-competitiveness of their compensation packages World at Work 2009–2010 Total Salary Increase Budget Survey Collects comprehensive data annually Topics include • Salary structures • Promotions • Incentive practices
5. Consulting firms a. Some firms offer specialized (e.g., occupational, industry) data b. Data can be from recent surveys c. Data can be gathered and customized for each client i. More expensive ii. Higher quality d. Examples include: i. AON Consultants ii. Buck Consultants iii. Frederic W. Cook & Company iv. Hay Associates v. Pearl Meyer & Partners vi. Towers Watson vii. William M. Mercer 6. Federal government’s survey sources a. History of data collecting i. Bureau of Labor Statistics (BLS) began collecting data in the 1890s ii. Free to the public iii. Assess the effects of tariff legislation on wages and prices b. Currently, BLS surveys include: i. National Compensation Survey (wages and benefits) ii. Employment Cost Index (compensation cost trends) iii. Employer Costs for Employee Compensation (compensation cost trends) c. National Compensation Survey (NCS) provides measures of occupational wages; employment cost trends, benefit incidence, and detailed plan provisions. The data include: i. Average hourly wages for over 800 occupations in approximately 80 metropolitan and selected nonmetropolitan localities ii. Weekly and annual earnings and hours for full-time workers iii. Earnings by work level that permit wage comparisons across occupational groups iv. Data at three levels: localities, broad regions, and the nation v. Workers are shown as a total (all workers) and broken out by private industry, and state and local government vi. Wage data are shown by industry, occupational group, full-time and part-time status, union and nonunion status, establishment size, time and incentive status, and job level d. Employment cost trends are measured by two quarterly indexes i. Employment Cost Index (ECI) ii. Employer Cost for Employee Compensation (ECEC) e. ECI: i. Quarterly measure of changes in labor costs including wages and salaries, benefits, as well as changes in total compensation ii. A principal economic indicator used by the Federal Reserve Bank iii. Presents data as a total for all workers and separately for private industry, and state and local government employees iv. Reports compensation changes in industry, occupational group, union and nonunion status, region, and metropolitan and non-metropolitan status v. Provides seasonally adjusted and unadjusted data vi. Presents historical data on changes in labor costs vii. Uses fixed weights to control for shifts among occupations and industries viii. Was developed in mid 1970s, in response to the rapid acceleration of both wages and prices, benefits, and total compensation added in 1981 ix. Provides a more accurate measure of the actual changes in employers labor costs f. ECEC i. Is a survey that shows the employers’ average hourly cost for total compensation and its components ii. Shows compensation costs broken down by wages and salaries, total benefits costs, and separate benefits costs iii. Provides data in dollar amounts and as percentages of compensation iv. Breaks out data on civilian workers, state government employees, and local government employees into estimates for white-collar, blue-collar, and service groups v. Reports compensation costs by major occupation, industry, region, union and nonunion status, establishment size, and full- or part-time status g. Employee benefits covered by National Compensations Survey (NCS) i. Covers the incidence and detailed provisions of selected employee benefit plans ii. Data are presented as the percentage of employees who have access to or participate in certain benefits, or as average benefit provisions iii. Estimates are published by broad occupational groups, full- and part-time status, union and nonunion status, workers with average wages by selected percentiles, selected goods-producing and service-providing industries, establishments by selected employment sizes, and census divisions iv. Provides incidence and extensive provisions data for health insurance and retirement D. Compensation Surveys: Strategic Considerations 1. Two essential strategic considerations a. Defining the relevant labor market b. Choosing benchmark jobs 2. Defining the relevant labor market a. Relevant labor markets represent the fields of potentially qualified candidates for particular jobs b. Defined on the basis of: i. Occupational classification ii. Geography iii. Product or service market competitors c. Occupational classification refers to a group of two or more jobs that are based on similar work characteristics and responsibilities d. Information available in the BLS’s “Standard Occupational Classification Manual” from the BLS Website at http://www.bls.gov/ocsm/commain.html i. Classified by: Occupation Geographic scope Competitors ii. Classifications used singularly and in combination A company may use competitors and geographic scope to recruit product managers Many professional, technical, and management positions may recruit using all three e. Companies search a wider geographic area for candidates: i. For jobs that require specialized skills ii. When the supply of workers for less-skilled jobs is low f. Companies use competitors to define the relevant labor market when: i. Industry specific knowledge is key ii. Competition for market share is keen
• Example: Strategic Considerations Hospitals might search nation-wide for neurosurgeons because the skills needed are rare An insurance company restricts its search for clerical employees to the immediate area AT&T would prefer recruiting a competitor’s marketing manager than looking for one from an unrelated industry
3. Choosing benchmark jobs (more in Chapter 6) a. Used to: i. Conduct effective job evaluations ii. Conduct compensation surveys iii. Determine pay levels based on typical market pay b. Four characteristics i. The contents are well-known, relatively stable over time, and agreed upon by the employees involved ii. The jobs are common across a number of different employers iii. The jobs represent the entire range of jobs that are being evaluated within a company iv. The jobs are generally accepted in the labor market for the purposes of setting pay levels c. Necessary because matches between a company’s position to a position in a survey is not always possible since: i. Large companies may have hundreds of unique jobs ii. Companies adapt job duties and scope to fit their specific needs d. Rating scales are sometimes used to adapt a company’s compensation package for a job from the benchmark jobs mentioned in surveys e. Surveys now include data about pay rates i. United States ii. Foreign countries E. Compensation Survey Data 1. Three compensation survey data characteristics a. Contains immense amounts of information i. May be a wide variety of pay rates across companies, making it hard to build market-competitive pay systems ii. Statistics needed to describe large sets of data b. The data is generally outdated because of the lag time between data collection and use c. Statistical analysis should be used to integrate internal job structures (based on job evaluation points) with the external market (based on the survey data) (more in Chapter 6) 2. Data analysis 1. Begins with basic tabulation of survey data which: a. Helps organize the data b. Promotes decision makers’ familiarization with the data c. Reveals possible extreme observations (outliers) 3. Two properties that describe numerical data sets a. Central tendency b Variation 4. Central tendency a. Represents the fact that a set of data cluster (or center) around a central point b. Is the number that represents the typical numerical value in the data set c. Two central tendency measures i. Arithmetic mean ii. Median d. Mean is calculated by: i. Adding all the salaries together ii. Dividing the sum by the number of salaries added
Example: Salary Means • Accountants I, II, III • Accountant I—less than two years on the job • Accountant II—two to four years on the job • Accountant III—four to six years on the job • 7 Atlanta-based companies • 35 salaries totaling $1,337,500 • Mean is $38,214.29 ($1,337,500/35) • Represents the going market-rate
iii. One or more outliers can lead to a distorted representation of the typical value The mean underestimates the “true” typical value when there is one or more small values The mean overestimates the “true” typical value when there is more than one large value Underestimated mean salaries can set salaries too low to be competitive Overestimated mean salaries can become cost burdens to companies e. Median is determined by: i. Ranking the salaries in numerical order and finding the middle salary amount (when there is an odd number of salaries) ii. Ranking the salaries in numerical order, adding the middle two salaries, then dividing them by two
Example: Finding the Median of an Even-Numbered Data Set • Data set salaries: $25,000 $28,000 $29,500 $33,000 • Two middle salaries: $28,000 and $29,500 • Median: $28,000 + $29,500/2 = $28,750
• iii. Does not distort the typical value because its calculation is independent of the magnitude of each value 5. Variation a. Represents the amount of spread or dispersion in a set of data b. Compensation professional use three measures of variation i. Standard deviation ii. Quartile iii. Percentile c. Standard deviation i. Refers to the mean distance of each salary from the mean How larger observations fluctuate above the mean, and How small observations fluctuate below the mean
Example: Central Tendency • Mean—$38,214.29 • Standard Deviation—$5,074.86 • Irwin Katz’s salary $27,500 which is below the typical average • Difference between mean salary and Katz’s salary $10,714.29 ($38,214.29 - $27,500) • Majority of salaries between $33,139,43 and $43,289.29 ($33,139.43 + / - $5, 074.86)
ii. Used as a reference point to judge whether employees’ compensation is below or above the market iii. Indicates the range for the majority of salaries, so it can be used to judge how a company’s salary range compares to the market d. Quartile i. Describe dispersion by indicating the percentage of figures that fall below certain points ii. Allows compensation professionals to describe the distribution of data based on four points Quartile 1 at 25% Quartile 2 at 50% Quartile 3 at 75% Quartile 4 at 100% e. Percentiles ii. Describe dispersion by indicating the percentage of figures that fall below certain points ii. Based on 100 points
Example: Quartile and Percentile Quartile • Quartile 1—$34,500 (25%) • Quartile 2—$36,000 (50%) • Quartile 3—$43,500 (75%) • Quartile 4—$55,000 (100%) Percentile • 10th Percentile—$33,000 • 9th Percentile—$45,000
f. When the distribution of data is skewed to the left (higher frequency of larger values) the mean will be less than the median g. When the distribution of data is skewed to the right (higher frequency of smaller values) the mean will be greater than the median
• Example: Mean & Median Company A’s production workers’ hourly wage mean $8.72 Company B’s production workers’ hourly wage mean $9.02 Wages $8.15 $8.39 $8.51 $8.60 $10.25 $10.72 / 6 Company A’s mean wage ($8.72) is higher than the median wage rate of Company B’s workers ($8.55)
6. Updating the survey data a. Necessary because of the lag-time between data collection and data use
Example: Need for Updating Salary Data • Pay needs to be determined for the January 1, 2010–December 31, 2010 pay period • Data was collected in October 2009 • Data represented pay in 2008 • Data will be 12 and 24 months old
• b. Factors that influence the update include: i. Economic forecasts ii. Changes in the costs of consumer goods and services Information available in the Consumer Price Index (CPI) CPI published monthly by the BLS in “The CPI Detailed Report” CPI also available on the Web at http://www.bls.gov iii. Employers generally award small permanent pay increases when the economic forecast is pessimistic due to The possibility of recession Higher unemployment levels iv. Changes in the cost of living tend to make survey data obsolete fairly quickly III. Integrating Internal Job Structures with External Market Pay Rates 1. To attract and retain the most qualified workers a. Use of job evaluation methods to establish internally consistent job structures b. Companies value jobs that possess higher degrees of compensable factors 2. To keep compensation policies in line with the company’s competitive strategy a. Paying well above or below the typical market rate for jobs can create a competitive disadvantage for companies b. Companies should set pay rates by using market pay rates as reference points 3. Regression analysis is used to establish pay rates 4. Regression analysis a. Uses market pay rates as reference points for determining internal pay structures b. Enables decision makers to predict the values of one variable from another c. Can’t just “eyeball” the salaries to identify market rates i. When companies pay different rates for the same jobs ii. When there are a large number of rates d. Finds the best fitting line (market pay line) between two variables i. Job evaluation points of benchmark jobs ii. Salary survey data for the benchmark jobs e. Equation i. Y = a + bX ii. Y = predicted salary iii. X = job evaluation points iv. a = the Y intercept: the Y value at which X = 0 v. b = the slope Represents the change in Y for every change in the job evaluation points Represents the dollar value of each job evaluation point
Example: Regression Analysis • Y = a + bX • Y = $32,315.66 + $12.21X • Job evaluation points: • Accountant I = 100 points • Accountant II = 500 points • Accountant III = 1000 points • Accountant I: Y = $32,315.66 + $12.21 (100) = $33,536.66 • Accountant II: Y = $32,315.66 + $12.21 (500) = $38,420.66 • Accountant III: Y = $32,315.66 + $12.21 (1000) = $44,525.66
• f. R2 i. Tells how well the variation of jobs based on job evaluation points explains the variation in market pay rates from the survey ii. Ranges from 0 to 1 iii. Represents the percentage variation in Y values that can be explained by the X values Y = market pay rates X = job evaluation points iv. Values R2 = 0 means that none of the variation in market pay rates can be explained by the company’s job structure R2 -= 1 means that all the variation in market pay rates can be explained by the company’s job structure R2 between 0 and .30 represents a small amount of variation R2 between .31 and .70 represents a medium amount of variation R2 above .71 represents a large amount of variation
• Example: R2 Values R2 ivalue = .71 The difference = .29 (1.0 - .71) .29 means that 29 percent of the variation in market pay rates cannot be explained by the company’s job structure
IV. Compensation Policies and Strategic Mandates 1. Companies can choose from three pay level policies a. Market lead b. Market lag c. Market match i. Most often, market lead policies are set to the 3rd quartile (the 75th percentile) ranking in the salary survey. Similarly, market match policies are set to the 2nd quartile (the 50th percentile or median) ranking, and market lag policies are set to the 1st quartile (the 25th percentile) ranking 2. Market lead policy: a. It distinguishes companies from the competition by compensating employees more highly than most competitors b. Leading the market denotes that pay levels are above the market pay line c. It is most appropriate for companies that pursue differentiation strategies d. How much above depends on two factors i. How much is sufficient to attract and retain the most qualified workers ii. How much funding should go to employee compensation as opposed to other activities that promote differentiation strategies like research and development 3. Market lag policy: a. It distinguishes companies from the competition b. Lagging the market indicates that pay levels fall below the market pay line c. It is most appropriate with lowest-cost strategies because companies realize cost savings by paying lower than the market pay line d. Short-term cost savings may, however, be offset by higher long-term costs e. Companies may experience difficulties in recruiting and retaining highly qualified employees f. Companies that adopt the policy need to balance cost savings with productivity and quality concerns 4. Market match policy: a. Most closely follows the typical market pay rates because companies pay according to the market pay line b. Most appropriate with a differentiation strategy when the company follows a market policy to fund expensive operating or capital needs that support the differentiation like research equipment and research laboratories 5. Pay policy levels in combination a. Market match and market lead policies for professional and managerial talent because these employees contribute most directly to the competitive advantage of companies b. Market match and market lag policies for clerical, administrative, and unskilled employees because of the abundance of available workers and their less direct contributions to the attainment of competitive advantage 6. Pay policy mix a. Pay mix policies refer to the combination of core compensation and employee benefits components that make up an employee’s total compensation package b. Pay mix may policies may be expressed in dollars (or other currency as relevant) or as a percentage of total dollars allocated for an employee’s total compensation. The following is an example of a pay policy mix: c. This example indicates that base pay accounts for 57 percent of the money allocated to an employee’s total compensation. Let’s assume that the company spends $200,000 annually to fund a particular employee’s total compensation package. Of the total, an employee receives base pay in the amount of $114,000 (that is, $200,000 x 57 percent) 7. What is an appropriate pay mix? a. For policy purposes, it makes sense to consider guidelines for jobs within a particular structure (for example, managerial, administrative, or sales) because of the common job content and worker requirements of jobs within a particular structure. b. For example, in a technology company, a greater portion of bonus compensation might be allocated to engineers than to administrative staff. Engineers possess crucial skills relating to the company’s ability to find innovative applications of technology, and bonus incentives throughout the year may promote innovation initiatives. On the other hand, the administrative staff, though important to the company, may not play as important a role in determining the company’s profitability or objectives. c. Therefore, less of their total compensation would likely be devoted to bonus funds. Also, some job structures, such as sales, employees may receive the majority of their compensation in the form of bonuses. In order to motivate a sales force to continually exceed quarterly targets, quarterly bonuses equal to or exceeding their annual base salaries might be used. CHAPTER 8 Building Pay Structures That Recognize Employee Contributions Learning Objectives 1. Explain the concept of pay structures. 2. Specify and explain the five steps necessary to construct a pay structure. 3. Discuss at least two considerations in designing merit pay systems. 4. Explain at least two sales compensation plan design considerations. 5. Describe three main considerations of person-focused pay program design. 6. Present a summary of two pay structure variation practices. Outline I. Constructing a Pay Structure A. Overview B. Step 1: Deciding on the Number of Pay Structures C. Step 2: Determining a Market Pay Line D. Step 3: Defining Pay Grades E. Step 4: Calculating Pay Ranges for Each Pay Grade F. Step 5: Evaluate the Results II. Designing Merit Pay Systems A. Considerations B. Merit Increase Amounts C. Timing D. Recurring versus Nonrecurring Merit Pay Increases E. Present Level of Base Pay F. Rewarding Performance: The Merit Pay Grid G. Merit Pay Increase Budgets III. Designing Sales Incentive Compensation Plans A. Purposes of Sales Incentive Compensation Plans B. Alternative Sales Compensation Plans C. Sales Compensation Plans and Competitive Strategy D. Determining Fixed Pay and the Compensation Mix IV. Designing Person-focused Programs A. Overview B. Establishing Skill Blocks C. Transition Matters D. Training and Certification V. Pay Structure Variations A. Broadbanding B. Two-Tiered Pay Structures VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses VIII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses.
Big Picture: This chapter goes into great depth to explain pay structures, as well as the building blocks necessary to establish these pay structures. The entire purpose for compensation professionals to set up and administer pay structures as outlined in this chapter is to recognize and reward individual differences of employees in terms of their output on the job.
Lecture Outline I. Constructing a Pay Structure A. Overview 1. Pay structures represent a. Pay rate differences for jobs of unequal worth b. The framework for recognizing differences in employee contributions 2. Companies recognize these differences by paying individuals according to their: a. Credentials b. Knowledge c. Job performance 3. Strategically, pay structures help promote retention of valued employees 4. Many companies support pay-for-performance systems 5. Based on five steps a. Deciding on how many pay structures to construct b. Determining a market pay line c. Defining pay grades d. Calculating pay ranges for each pay grade e. Evaluating the results B. Step 1: Deciding on the Number of Pay Structures 1. Usually more than one a. Depending upon i. Market rates ii. Company’s job structure b. Common pay structures include i. Exempt and nonexempt structures ii. Pay structures based on job families iii. Pay structures based on geography 2. Exempt and nonexempt pay structures a. Most exempt jobs i. Are not subject to the overtime pay provisions in the Fair Labor Standards Act ii. Earn pay in the form of a salary iii. Are generally supervisory, managerial, or executive in nature b. Most nonexempt jobs i. Are subject to the overtime pay provisions in the Fair Labor Standards Act ii. Earn pay in the form of wages at hourly pay rates iii. Are generally nonsupervisory, and the duties tend to be narrowly defined 3. Pay structures based on job family a. Pay structures are defined on the basis of job family which show a distinct pattern in the market
• Example: Use of Job Family Distinction The Davis Bacon Act requires contractors and subcontractors, with federal contracts worth over $2,000, to pay wages at least equal to those prevailing in the area where the work is performed Applies only to laborers and mechanics, excluding clerical, professional, and managerial employees Limited latitude in setting pay
b. Distinct job families include: i. Executive ii. Managerial iii. Professional iv Technical v. Clerical vi. Craft 4. Pay structures based on geography a. The pay for similar positions that are within the same company, but are located in different parts of the country, can be paid differently b. Local influences, like cost-of-living, influence pay structures
• Example: Pay Structures Based on Geography In 2009, an employee making $100,000 in Huntsville, Alabama would need to make $164,000 in Boston, Massachusetts to maintain a comparable standard of living
C. Step 2: Determining a Market Pay Line 1. Market pay line is representative of typical market pay rates relative to a company’s job structure (refer to Chapter 7) 2. Pay levels that correspond with the market pay line are market-competitive pay rates 3. Pay rates that fall along the market pay line represent competitive pay rates on the company’s selection of a relevant labor market 4. These rates promote internal consistency because they increase with the value of jobs—based on job evaluation points D. Step 3: Defining Pay Grades 1. Pay grades group jobs for pay policy application based on similar compensable factors and value 2. There is no one formula for determining what is sufficiently similar in terms of content and value to warrant grouping into a pay grade 3. Job groupings are influenced by other factors such as management philosophy 4. Wider pay grades minimize hierarchy and social distance between employees 5. Narrower pay grades tend to promote hierarchy and social distance
Example: Pay Grade Widths • Set absolute job evaluation point spreads • Grade 1 jobs range from 1–200 job evaluation points • Grade 2 jobs range from 201–400 job evaluation points • Varying absolute job evaluation point spreads • Grade 1 (trainees) jobs range from 1–150 job evaluation points • Grade 2 (basic worker) jobs range from 151–400 job evaluation points • Grade 3 (advanced worker) jobs range from 401–1000 job evaluation points
6. Pay grade widths are either: a. Absolute job evaluation point spreads where pay grades are based on a set number of job evaluation points b. Percentage-based evaluation point spreads where the point spread increases as the jobs move up the pay structure in recognition of the broader range of skills that higher pay grades represent E. Step 4: Calculating Pay Ranges for Each Pay Grade 1. Pay ranges build upon pay grades a. Pay grades represent the horizontal dimension of pay structures (job evaluation points) b. Pay ranges represent the vertical dimension (pay rates) and are designated with the following pay rates i. Minimum - the lower bound of pay within a pay grade ii. Midpoint - generally represents the competitive market average or median (refer to Chapter 7) iii. Maximum - the upper bound of pay with a pay grade 2. Setting pay range midpoints a. Before minimums and maximums b. According to competitive pay policy c. If the company adopts a market lead policy, that company’s midpoint will be higher than the market average d. If the company adopts a market match policy, that company’s midpoint will be similar to the market average e. If the company adopts a market lag policy, that company’s midpoint will be lower than the market average 3. Setting pay range minimums and maximums a. According to the market averages b. By developing a range spread i. The difference between the minimum and maximum pay rates of a given pay grade ii. Expressed as a percentage of the difference between the minimum and maximum divided by the minimum
Example: Typical Pay Range • 20% to 25%—lower-level service; production and maintenance • 30% to 40%—clerical, technical, paraprofessional • 40% to 50%—high-level professional, administration, middle management • 50% and above—high-level managerial, executive
iii. Progressively higher range spreads for pay grades that contain more valuable jobs in terms of a company’s criteria iv. Smaller range spreads characterize pay grades that contain narrowly defined jobs that require simple skills with relatively low responsibility c. Higher-level jobs afford employees greater promotion opportunities than entry level jobs i. Employees tend to remain in higher pay grades longer ii. Specialized skills associated with higher pay grade jobs are considered valuable d. Minimum and maximum can be calculated after the range is determined e. This approach is typically applied when a company chooses to base the rates on budgetary constraints f. Adjacent pay ranges usually overlap with other pay ranges so that the highest rate paid to one is greater than the lowest rate of the successive pay grade i. Allows companies to promote employees to the next level without adding to their pay ii. Expressed as a percentage 4. Pay compression a. Minimum pay rate for a range is usually the lowest pay rate that the company will pay for jobs that fall within that particular pay grade i. In theory, newly hired employees often receive pay that is at or near the minimum ii. In practice, new employees often receive well above minimum pay rates, sometimes only slightly below or even higher than the pay of moderately paid employees b. Occurs whenever a company’s pay spread between new hires or less qualified employees and more qualified job incumbents is small i. When a company fails to raise pay range minimum and maximums
• Example: Pay Compression; Not Raising Minimums and Maximums TAX-IT, a small accounting firm The salary of newly hired CPAs increased 7 percent annually over the last five years Minimum and maximum pay levels for entry-level CPAs, over the last five years, did not increase due to low profits CPAs hired five years ago make less than recently hired CPAs
ii. When the qualified job applicant pool is small c. Can threaten a companies’ competitive advantage when it results in dysfunctional turnover (high performing employees voluntarily terminate their employment) d. Can be minimized by keeping the maximum level close to the market average for maximum pay 5. Green circle pay rates a. Are below-minimum pay range rates b. Are usually offered because applicants do not meet every minimum requirement in the job description 6. Red circle pay rates a. Are above maximum pay range rates b. Are given to retain highly-valued employees who have lucrative job offers elsewhere c. Are allowed for employees who are demoted to a position that has a pay grade maximum that is lower than the employee’s current salary d. May be offered to employees who exhibit exceptional job performance, but a promotion to a higher pay grade is not granted e. For exemplary performers, companies may provide lump sum pay awards that are not added to regular base pay F. Step 5: Evaluate the Results 1. To determine if there was any significant difference between the company’s internal values for jobs and the market’s value for the same jobs a. If the company’s valuation exceeds the market’s valuation, the company must decide whether its higher-than-market pay rates will undermine its attainment of competitive advantage b. If the company undervalues a position, it must determine if the discrepancy is limiting its ability to recruit quality employees 2. Compa-ratios a. Index the relative competitiveness of internal pay rates, based on pay range midpoints b. Provide invaluable information about the competitiveness of companies’ pay rates c. Are calculated by dividing the employee’s pay rate by the pay range midpoint d. A ratio of one means that the employee’s pay rate equals the pay range midpoint (which company’s with market match policies strive for) e. A ratio of less than one means the employee’s pay rate falls below the competitive pay rate for the job (which company’s with market lag policies strive for) f. A ratio of more than one means that the employee’s pay rate exceeds the competitive pay rate for the job (which company’s with market lead policies strive for) g. Can be used to index job groups that fall within a particular pay grade by averaging the pay rates for each job incumbent II. Designing Merit Pay Systems A. Considerations 1. Companies must insure that employees see definite links between pay and performance 2. Companies must avoid using ineffective performance appraisal methods and poor communication when discussing appraisals 3 Companies must: a. Determine fair merit increase amounts b. Decide when to award increases c. Decide on the most appropriate type of merit increase to award d. Settle on base pay levels relative to the base pay of functionally similar jobs B. Merit Increase Amounts 1. Should reflect prior job performance levels 2. Should motivate employees to perform their best 3. To be seen as meaningful, the amounts should account for increases in: a. Inflation b. Payroll deductions c. CPI (refer to Chapter 7) 4. The minimal amount seen as meaningful is referred to as “just-meaningful pay increases” (refer to Chapter 3) a. Research shows that boosting the merit increase amount will not necessarily improve productivity, since each additional dollar was associated with smaller increases in productivity b. The perception of a just-meaningful pay increase depends on an individual’s i. Cost of living ii. Attitude toward the job iii. Expectation of rewards from the job c. For employees who value pay in order to meet economic necessity, just-meaningful pay increases tend to depend upon the cost of living d. For employees who value pay as a form of recognition, the size of the pay raise (versus the cost of living) is viewed as a just-meaningful difference e. The increase will be seen as meaningful if the employee sees the size as substantive in a relative as well as absolute sense f. The equity theory i. Suggests that an employee must regard their ratio of merit increase to performance as similar to the ratio for other company employees ii. Largest merit pay increases awarded to best performing employees, smallest to the least productive iii. The difference between these merit increases should be approximately equal to the differences in performance g. Compensation budgets are blueprints that describe the allocation of monetary resources to fund pay structures i. Are indexed in percentage terms ii. The greater the increases, the greater the flexibility in developing innovative systems with substantial motivating potential C. Timing 1. Most increases given on an annual basis 2. Two main approaches a. Common review date/period b. Employee’s anniversary 3. Common review date/period a. All employees get reviewed at a predetermined time each year b. Best suited for small companies c. Reduces administrative burden 4. Employee’s anniversary a. Review on anniversary of hiring date b. Administratively burdensome because of varying dates D. Recurring versus Nonrecurring Merit Pay Increases 1. Recurring increases are permanently added to base pay 2. Nonrecurring increases: a. Are given as one-time lump sum bonuses b. Contain costs c. Are gaining favor with unions d. Strengthen pay-for-performance link e. Subsequent percentage increases are not based on higher base pay levels E. Present Level of Base Pay 1. Pay structures specify acceptable pay ranges for jobs within each pay grade a. Should fall within the minimum and maximum pay grade rates b. Should be consistent for new hires with similar qualifications 2. Should be within federal guidelines of a. Title VII, Civil Rights Act of 1964 b. Equal Pay Act of 1963 c. Age Discrimination in Employment Act of 1967 F. Rewarding Performance: The Merit Pay Grid 1. Amounts are determined by two main factors a. Performance ratings b. The position of employees’ present base pay rates within pay ranges
Example: Merit Pay Increases • Employee A and Employee B receive similar performance ratings • Employee A and Employee B each awarded a 5 percent merit pay increase • Employee A • Employee B • Hourly wage = $8.50 • Annual salary = $32,000 • 5% increase = $0.44 • 5% increase = $ 1,600 • New wage = $8.94 • New salary = $33,600
2. Employee performance ratings a. Overall performance ratings guide the pay raise decision b. Based on the principle of recognizing higher performance with greater rewards 3. Employees’ position within the pay range a. Salaries and hourly wages are indexed by quartile ranking b. The lower a person’s pay falls within its designated pay grade, the higher the percentage pay raise c. The higher a person’s pay falls within its designated pay grade, the lower the percentage pay raise d. Holding performance ratings constant, merit pay increase percentages are reduced as quartile ranks increase, to control employees’ progression through the pay ranges G. Merit Pay Increase Budgets 1. Budgets limit the merit pay increase percentages in each cell 2. Expressed as a percentage of the sum of employees’ current base pay 3. Varies according to performance level and position in the pay range 4. The sum of the individual pay increases must not exceed the allotted merit pay increase budget 5. Typical merit pay increase budget today ranges between 2 percent and 3 percent for the small proportion of the companies that have even awarded pay increases in the past few years 6. Steps to ensuring that merit pay increases do not exceed the limit a. Supervisors and managers determine how many employees fall within each performance category b. Determine the percentage of employees whose pay falls into each quartile c. Combine both sets of information (i and ii above) to determine the percentage of employees who fall into each cell d. Calculate the expected number of employees in each cell to provide an estimate of the employees’ performance distribution e. Use this formula: (Expected number of each cell) X (Desired pay increase for cell (%)) X (Current median pay level for quartile) f. Ensure the total amount is within budget
o Example: Merit Pay Increase Let’s assume that a company’s top financial officers and compensation professionals agree to a 5 percent merit pay increase budget. Let’s also assume that the sum of all employees’ current base pay is $10 million based on an employee population of 350. A 5 percent merit pay increase budget for this example equals $500,000 This equals 5 percent of the sum of all employees’ current base pay totaling $10,000,000 (5% $10,000,000) In other words, the company will distribute $500,000 to increase the current base pay of its employees
III. Designing Sales Incentive Compensation Plans A. Purposes of Sales Incentive Compensation Plans 1. Help businesses meet their objectives by aligning the financial self-interest of sales professionals with the company’s marketing objectives 2. Help companies achieve strategic objectives by linking sales professional’s compensation to fulfilling customer needs or other marketing objectives such as increasing market share 3. Derive their objectives from strategic marketing objectives which are derived from strategic marketing objectives
• Example: Sales Objectives Sales volume - indicates the amount of sales that should be achieved for a specified period New business - refers to making sales from customers who have not made previous purchases Retaining sales - simply targets a level of sales from existing customers Product mix - which rewards sales professionals for selling a pre-established mix of a company’s product goods or services Win-back sales - designed to motivate sales professionals to regain business from former clients
B. Alternative Sales Compensation Plans 1. Choosing the appropriate plan depends on the company’s competitive strategy 2. Five main alternatives a. Salary-only b. Salary-plus-bonus c. Salary-plus-commission d. Commission-plus-draw e. Commission-only 3. Salary-Only Plans a. Sales professionals receive fixed base compensation which does not vary with: i. Level of units sold ii. Increase in market share iii. Other indicators of sales performance b. Relatively risk-free compensation for employees c. Burdensome to employers d. Does not fit well with the directive to link pay with performance through at-risk pay e. Appropriate where i. Sales are of high-priced products and services, or technical products with long lead times for sales ii. Sales professionals are primarily responsible for generating demand whereas other employees actually close the sales iii. It is impossible to follow sales results for each sales professional since sales are accomplished through team efforts iv. Sales professionals are involved in training or other activities when they are not directly involved in making sales 4. Salary-plus-bonus plans a. Offer set base pay with an incentive bonus b. Give one-time bonuses, usually tied to meeting specific, exceptional goals 5. Salary-plus-commission plans a. A commission is a form of incentive compensation based upon a percentage of i. The products’ price ii. The services’ selling price b. These plans spread the risk of selling between the company and the sales professional i. The salary Enhances the company’s ability to attract quality employees Allows the employees to perform essential non-sales functions for the company ii. The commission serves as the employees’ share in the revenue gains they generated for the company 6. Commission-plus-draw plans a. Award sales professionals with: i. Incentives to excel (commissions) ii. Subsistence pay (draws) to cover basic living expenses b. The draws are just advances on the commissions the sales professional will earn in the future c. Two types of draws i. Recoverable draws act as company loans to employees that are carried forward indefinitely until the employee sells enough to repay ii. Non-recoverable draws act as salary because employees are not obligated to repay the loans if they do not sell enough Represent risks to companies because these expenses are not repaid if employees’ sales performances are lackluster Many companies stipulate a specified period of time that the sales quotas can go unmet before employees are terminated 7. Commission-only plans a. Sales professionals derive their entire income through commissions and therefore shoulder all the risk b. Three types i. Straight ii. Graduated iii. Multiple-tiered c. Straight commissions award sales professionals with a fixed percentage of the sales revenue
Example: Straight Commissions • The commission is 10% • Salesperson receives • $10 on $100 of sales • $55 on $550 of sales
d. Graduated commissions award sales professionals with an increased percentage of the sales price as the volume increases
Example: Graduated Commissions • 5% commission per unit for sales up to 100 units • 8% commission per unit for sales of 101–500 units • 12% commission per unit for sales in excess of 501 units
e. Multiple-tiered commissions i. Award sales professionals with higher percentages of the sales made in a given period ii. Earned if the sales level exceeds a predetermined level
Example: Multiple-Tiered Commissions • 8% commissions per unit for sales up to 1000 units • 12% commissions per unit for sales exceeding 1000 units
f. Are appropriate when: i. The sales professional has substantial influence over the sales ii. Low to moderate training or expertise is required iii. The sales cycle—the time between identifying the prospect and closing the sale—is short iv. There are realistic sales goals and individual performance standards g. Drawbacks i. Salespeople shoulder all the risk Earn no money, if no sales Can earn a lot if sales are good ii. Can cause competitive behaviors between employees iii. Can undermine employees’ intrinsic motivation to sell May lose their genuine interest for the challenge and enjoyment that selling brings May “go through the motions” of selling and disregard quality and customer satisfaction C. Sales Compensation Plans and Competitive Strategy 1. Sales plans with salary components are most appropriate for differentiation strategies because: a. These plans do not require employees to focus solely on attaining sales volume goals or other volume indicators (market share) b. Sales professionals can provide clients with more presales and servicing support 2. Commission-oriented sales compensation plans are best suited for lowest cost strategies because: a. Compensation expenditures vary with sales revenue b. Servicing clients’ post- sales needs are generally handled by lower compensated employees
Example: Sales Follow-up Service • Real estate business • Sales agents get compensated depending on • Number of sales • Selling price of each sell • Real estate assistants • Generally receive low pay • Assist clients after the sale, answering inquiries, and so on
D. Determining Fixed Pay and the Compensation Mix 1. Depends mainly on three factors: a. Influence of the sales professional on the buying decision b. Competitive pay standards within the industry c. Amount of non-sales activities required 2. Influence of the sales professional on the buying decision a. The more influence sales professionals have on the “buying decisions”, the more the compensation mix will feature incentive pay i. Some are mere order-takers, so they get little incentive pay ii. Some serve as consultants, so their pay mix contains more incentive pay
Example: Salespersons’ Control over Buying Decision • Sears and Best Buy - large department stores • Sales clerks have little control over merchandise for sale • Store’s merchandise buyers purchase lines of clothing • Product displays and promotional efforts are determined by store management
b. In some industries, it is the sales professional’s technical expertise, more than sales skills that influences the “buying decision” 3. Competitive pay standards within the industry a. The compensation mix must be competitive with market standards to attract and retain quality sales professionals, the mix includes: i. Industry norms ii. Selling situations b. Commission pay weighs heavily in highly competitive retail industries like: i. Furniture sales ii. Home electronics iii. Auto sales c. Salary represents a significant compensation component in such high entry-barrier industries as pharmaceuticals i. One barrier is FDA regulations on testing ii. Salary appropriate because new drugs face little risk of new competition 4. Amount of non-sales activities required a. The more non-sales duties sales professionals are required to perform the more their compensation packages should include a fixed pay component b. The more influence the sales professional’s technical/product knowledge or customer service activity has on the buying decision the more their compensation packages should include a fixed pay component IV. Designing Person-focused Programs A. Overview 1. Person-focused programs refer to both knowledge and skills 2. Reward employees for acquisition of job-related knowledge and/or skills 3. A fundamental issue is whether investments in training provide measurable pay-offs to companies
• Example: Training Investment Pay-offs American Society for Training and Development research study, involving approximately 2500 companies, investigated the issue Evidence indicated that training investments related positively to: Future total stockholder returns Gross profit margins Income per employee
B. Establishing Skill Blocks 1. “Skills” and “knowledge” used interchangeably, since both are components of performance improvement efforts 2. These “blocks” are sets of skills necessary to perform a specific job, or group of jobs 3. The number of blocks varies according to the variety of jobs within a company generally from two to several 4. Development should be based on three considerations: a. Job descriptions need to be developed that: i. Identify the major skills needed ii. Include the available training programs that will allow employees to acquire horizontal and vertical skills iii. Identify accurate performance measure that will be used b. Individual jobs should be organized into job families or groups i. To identify common skills that are unique to the grouping ii. To identify the tasks necessary to perform the jobs c. The skills should be grouped into blocks i. No hard, fast rules for determining blocks ii. General guideline is that the blocks should relate to specific job tasks and duties C. Transition Matters 1. Concerns moving from job-based pay exclusively to including person-focused knowledge plans 2. Major issues a. Skills assessment b. Aligning pay with the knowledge structure c. Access to training 3. Skills assessment a. Centers on who should assess: i. Whether employees possess skills at levels that justify a pay raise ii. On what basis assessments should be made iii. When assessments should be conducted b. Gaining trust is critical, since employees may view new systems as threats to job security c. Input should come from: i. Peers ii. Self-assessment iii. Experts (e.g., supervisors) d. Performance measures i. Should reflect employees’ proficiency of skills used ii. Should be complemented by self-assessment iii. Using both is likely to increase an employee’s understanding of the system e. Performance should be assessed frequently to: i. Keep employees informed of how well they are doing under the new system ii. Reinforce the key aim of pay-for-knowledge—to encourage employees to learn more 4. Aligning pay with the knowledge structure a. Upon implementation, the employees’ core compensation must reflect their knowledge or skills the company incorporates into its person-focused structure b. If an employee’s actual earnings is more than the person-focused system indicates as being appropriate, managers must develop a reasonable course of action for that employee to acquire the skills or knowledge c. If employees are underpaid (over qualified), the company must provide pay adjustments quickly, depending on: i. The number of employees involved ii. The extent to which they are underpaid 5. Access to training a. Person-focused systems make training necessary rather than optional for employees motivated towards self-improvement b. Employees must have equal access to training i. To meet the intended aim of person-focused programs ii. To reward employees for enhancing their skills iii. To address legal imperatives c. Restricting access to training can lead to violation of (refer to Chapter 3) i. Title VII, Civil Rights Act of 1964 ii. Age Discrimination in Employment Act of 1967 d. Employees must be formally informed of the options and rewards D. Training and Certification 1. Companies have adopted a continuously learning philosophy, because of: a. Intense domestic and global competition b. Rapid technological advancement c. Educational deficits of new hires 2. Effective, on-going training should allow employees to: a. Increase their: i. Knowledge/skills ii. Pay b. Apply their learning to assist/coach other employees 3. Should be based on accurate job descriptions 4. Training can be in-house or outsourced depending on: a. Four main criteria i. Expertise ii. Timeliness iii. Number of employees needing training iv. Proprietary nature of subject matter b. Expertise of trainers i. Specialized training topics require greater expertise ii. Employees turn to in-house trainers to draw on existing expertise iii. Training will be outsourced to fill a direct need or to train in-house trainers c. Timeliness i. Training will be outsourced if there is not enough time to develop and deliver it in-house ii. Training will be outsourced if there is high turnover and new employees must learn product/service-specific procedures quickly
• Example: Outsourced Training PeopleSoft, a business applications software development company Trains clients on how to use the systems they install Companies include • Exxon-Mobil • Wal-Mart • General Motors • AT&T • Ford • Citigroup • IBM • Verizon Because of turnover, client companies need training-on-demand from PeopleSoft Training available through DVDs and the internet
d. Size of the employee population to be trained i. Large numbers make in-house more cost effective, resulting in economy of scale ii. High turnover may require constant training e. Sensitivity or proprietary nature of the subject matter i. Defined as training used to gain a competitive advantage or training that gives access to propriety, product, or strategic knowledge ii. The more sensitive the subject matter, the more likely the training will be in-house 5. Certification and recertification a. Certification ensures that employees possess minimal levels of skills proficiency b. If employees do not have an acceptable degree of skill, then the company wastes any skill-based compensation expenditure c. Certification methods may include: i. Work samples ii. Oral questioning iii. Written tests d. Recertification involves retraining or retesting employees to ensure employees have retained minimal skills proficiency i. Employees must demonstrate mastery or risk losing increased pay rates or certification ii. Is necessary to maintain workforce flexibility e. Recertification process is typically i. Handled by retesting employees ii. Retraining employees iii. Requiring employees to perform tasks, using learned skills
Example: Certification and Recertification • Society for Human Resource Management offers two types of professional certification • Professional in Human Resources • Senior Professional in Human Resources • To acquire certification, individuals must: • Have two years of work experience in exempt jobs • Pass a comprehensive examination of knowledge in the HR domain • For recertification, individuals must accumulate continuing education credits. Credits are earned through a variety of activities: • Course/conference attendance • Membership in professional organizations • Leadership with the association • Teaching • Speaking • Writing • Projects completed on the job
V. Pay Structure Variations A. Broadbanding 1. Chosen by companies to consolidate existing pay grades and ranges into fewer, wider pay grades 2. Represents the increasing organizational trend toward flatter, less hierarchical corporate structures that emphasize teamwork over individual contributions alone
Example: Implementing Broadbanding • Federal agencies that broadbanded in the 1980s • Navy • General Accounting Office • CIA • Private company • General Electric Corporation’s plastic business
3. Uses only a few, large salary ranges spanning levels within the organization 4. Provides employees, in a single broadband, equal pay potential 5. Expands employees’ job duties and responsibilities 6. When applied to managerial staff, it eliminates management layers and promotes quicker decision making 7. Some broadbands are set according to job families a. Clerical b. Technical c. Administrative 8. Some broadbands are set according to functional areas, across job families:
Example: Human Resources • Broadbanding can consolidate the following specialists • Training • Compensation • Recruitment • Performance appraisal • Should encourage employees to expand their knowledge and skills
9. Shifts greater responsibility to supervisors and managers for administering each employee’s compensation 10. Gives supervisors greater latitude in setting employees’ pay based on the tasks and duties they perform 11. Combining broadbanding with other pay programs may contribute to greater savings in labor costs 12. A single hybrid approach can offer simplicity and a clearer link between employee behaviors and rewards 11. Limitations of broadbanding a. Changes how compensation dollars are allocated, but not how much b. Broadbanding can increase compensation expenses, because managers have greater latitude in assigning pay to their employees c. Necessitates a trade-off between the flexibility to reward employees for their unique contributions and a perception among employees that fewer promotional opportunities are available d. Makes employees and employers rethink the idea of promotions as a positive step through the job hierarchy C. Two-Tiered Pay Structures 1. Reward new hires less than established employees on either a temporary or permanent basis a. Temporary two-tier systems allow employees to progress from lower entry-level rates to higher rates b. Permanent two-tier systems reinforce the pay-rate distinction by retaining separate pay scales c. Lower-paying scales apply to newly hired employees, whereas current employees enjoy higher-paying scales d. Maximum rates to which newly hired employees can progress are always lower than more senior employees’ pay scales 2. Most prevalent in unionized companies a. Seen as a trade-off of lower compensation for more job security b. Seen as a cost control measure
Example: Two-tiered • At Ford Motor Company, a two-tiered wage structure will compensate new hires substantially less than other employees, including an hourly base rate that is $10 below the previous one
3. Enable companies to reward long-service employees, while keeping costs down by paying lower rates to new hires who do not have established performance records 4. Limitations a. The lower pay scale for new hires may restrict a company’s ability to recruit and retain quality employees b. Lower tier employees may resent pay differential and not extend themselves beyond their job descriptions c. Can cause lower employee morale d. Can lead to excessive turnover Instructor Manual for Strategic Compensation: A Human Resource Management Approach Joseph J. Martocchio 9780133457100, 9780135192146
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