Setting the Stage for Strategic Compensation and Bases for Pay

Setting the Stage for Strategic Compensation and Bases for Pay By: Cynthia L. Chamberlain Bus 409 Compensation Management Strayer University – Professor K. Araujo Week of January 23, 2012 Describe 3 main goals of compensation departments. When considering the main goals of compensation departments, the three goals that come to the immediate forefront are internal consistency, market competitiveness, and the recognition of individual contributions. The first goal, internally consistent compensation systems, is of major importance because it is at this stage that each job within a company is defined in terms of relative value.

Pay structures are assigned to jobs based on the qualifications required to do the job, the job duties, and the job’s responsibilities. Using job analyses and job evaluations lead to internal consistency. According to Martocchio, job analyses will give descriptions of the duties or contents of the job, the requirements of the worker, and the working conditions or job context. (Martocchio, J. , 2011) By contrast, job evaluations focus on the differences within a job set and assigns pay differentials to reflect those differences or results.

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The second goal of compensation departments, market competitiveness, involves pay systems. Market competitiveness influences how a company can attract and retain the best qualified candidates and employees. If the company expects to derive high performances from its employees, then the employees must be motivated to perform at their optimum level. Competitive salaries and benefits is a good motivator. However, before a determination can be made on the salary range, market surveys must be conducted. By using a strategic analysis, companies are able to gauge where they rank in both internal and external factors.

Compensation surveys give an overall view of what other equitable companies are paying. The third and final goal is that of recognition of individual contributions. Companies enjoy success because of the efforts of their employees. In order to fairly recognize individual contributions, there has to be a well-defined pay structure in place. These pay structures will clearly explain differences in pay rates for jobs varying in worth. The structures also provide an avenue for employers to acknowledge that individuals should be paid based on their job performances, knowledge, and education/training.

The backbone of pay structures consist of pay grades and pay ranges. Pay grades are designed in order to group jobs so that pay policies may be applied. Pay ranges provide a scale for determining the boundaries of pay rates, giving a minimum, mid-point, and maximum range. Describe the contextual influence that you believe will pose the greatest challenge and the contextual influence that will pose the least challenge to companies’ competitiveness and explain why. The contextual influence that will pose the greatest challenge to companies’ competitiveness is market forces or influences.

As we know, companies want to hire and retain the best possible employees. Unfortunately, because of the differences in wages and benefits across varying industries, many companies will find themselves out of the market. These differences are referred to as compensation differentials or interindustry wages. Many factors play a part in compensation differentials. Martocchio indicates that some of those factors are the industry’s product market, the degree of capital intensity, the profitability of the industry, gender mix of the work force, and unionization. (Martocchio, J. 2011) Naturally, for companies working in a product market with little competition, the wages will be higher. This may be caused by several barriers to entry into that product market, such as governmental impediments or the need to purchase expensive equipment. Industries that are capital-intensive, i. e. , manufacturing or construction, will pay more than service industries. The companies in profitable industries tend to pay more because the KSAs of the employees have a direct impact on the productivity and success of the company. Unionization may also impact the market.

Industries that are highly unionized will pay higher wages. Another market factor posing a challenge is the practice of outsourcing. This allows the companies to pay much lower wages to employees in other countries, especially in the technology and financial industries. I believe the contextual influence posing the least challenge to companies’ competitiveness is labor unions. This is, in part, because of the National Labor Relations Act of 1935. Under the provisions of the NLRA, employers must enter into good-faith negotiations with their employees.

Employees join unions for the purpose of handling issues related to compensation and benefits. Therefore, if there is an issue regarding wages, the employer cannot refuse to enter into collective bargaining with the union representative. Describe when subjective performance evaluations might be better or more feasible than objective ratings. Subjective performance evaluations might be better or more feasible than objective ratings in some instances. For example, companies that are concerned with the quality of customer service interactions would find that using a trait system or comparison system more feasible.

Trait systems assume that all evaluators have the same perception of a given trait. These systems are subjective in nature, as they rate on personality factors such as communication skills or leadership ability, rather than job performance. When evaluating groups of employees who perform the same tasks, it would also be more feasible to use the subjective method of paired comparisons. Subjective evaluations may lead to several rater errors in the appraisal process. These errors may be bias or contrast errors, errors of central tendency, or errors of leniency or strictness.

Objective ratings tend to measure job performance data. Behavioral systems and goal-oriented systems are objective in nature, Objective evaluations can be expensive to conduct and hard to implement. The three main behavioral systems are critical incident techniques (CIT), behaviorally anchored rating scales (BARS), and the behavioral observation scale (BOS). When looking at an employees’ past performance, behavioral systems work best. Another example of objective ratings would be the use of goal-oriented systems or management–by-objectives.

Here, the focus is on pre-determined sets of goals Describe under what conditions profit sharing plans are not likely to motivate employee. By definition, profiting-sharing plans are incentive plans that allow employees to receive a share of a company’s annual profits. Current profit sharing plans provide cash to employees as part of their core compensation, while deferred plans deposit cash awards in a trust account for employees. (Martocchio, J. , 2011) These plans can add a boost to both productivity and the morale of the employees. They can also give a company more financial leeway.

If the profits are low, the company will not have to pay out much. However, there are circumstances that may cause employees to balk at these plans. One of the lead causes in lack of motivation to the employees would be that employees are unable to directly connect their work efforts with the profits of the company. An employees’ sense of security is in jeopardy when using profit-sharing plans. If the company’s bottom line varies, either up or down, this will impact the employees’ profits. Should the company continue to vacillate in their profits, there may be a turnover in employees who are hard workers and good performers.

Based on your knowledge of pay-for knowledge concepts, describe three jobs for which this basis for pay is inappropriate and explain why. Pay-for-knowledge plans are designed to reward service, managerial, or professional workers for learning a particular set of courses. There are several jobs where pay-for-knowledge would be inappropriate simply because not all jobs can be fairly measured by skills or knowledge. Martocchio references the job of a toll collector as falling into this category because the necessary skills are quite basic and the job is narrowly defined.

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