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MGMT 412 Midterm

Terms in this set (78)

Total Compensation
Intrinsic compensation + Extrinsic compensation (base pay, incentives, and benefits)
Extrinsic Compensation
Base pay, incentives and benefits
Strategic Goals of Compensation
To change employee behavior (to contribute to business strategies and goals) by attracting, retaining and motivating employees
A Total Reward Strategy
Defines the desired features of how an organization rewards its people for doing the things to fulfill its misssion and achieve long term objectives
Total: everything that is associated with the rewards (intrinsic and extrinsic)
Rewards: things that people receive for doing something in their workplace that is meaningful and valuable to them
Strategy: a plan or conceptual framework that compels action (or creates competitive advantage)
A total Rewards Strategy includes...
A total rewards context, A total rewards philosophy, and a purpose for each rewards program
A total Rewards Context and Example
Part of a total rewards strategy; the organization's mission, core values, key success factors, and strategies.
Example: Google. Our employees, who have named themselves Googlers, are everything. Google is organized around the ability to attract and leverage the talent of exceptional technologists and business people.
A Total Rewards Philosophy and Example
Part of total rewards strategy; the connection between the mission, core values, strategy of the organization and rewards programs and practices
Example: whole foods market. Our compensation and benefit program reflect our philosophy of egalitarianism while the programs and individual pay levels will always reflect differences in job responsibilities, geography's and marketplace considerations
The Purpose of Each Reward Program and Example
Part of Total Rewards Strategy; once an organization has a total rewards philosophy, it can define and develop the purposes of each rewards program
Example: Intuit software. To recognize use base salary, incentive pay, spotlight recognition. To secure: 401(k). To be well: medical, vision, dental care. To be balanced: vacation and time off, parental leave.
Factors to Consider when Developing the right compensation Strategy
Mission, core values and business strategy of the organization; legal requirements; the development stage of the organization; what is important to the people who work for the organization
Be sure to consider: internal and external competitiveness!!
Development Stages of Organizations
Startup and emerging companies, growing companies, formalized and professionalized companies, diversifying and consolidating companies, revitalizing and renewing companies
Six professional training and technical skills that present the building blocks for growth in the HR compensation profession
Designing and administering base-pay and/or variable pay programs; designing and administering other total rewards programs; integrating compensation programs with business strategy; complying with legal and regulatory requirements; communicating compensation information
Major qualifications for a Top Compensation Professional
Strategic business understanding, analytical skills and attention to detail, communication and connection, adaptability and flexibility, passion and proactivity, continuous learning, development support system
Behavior is a function of what three things?
Ability, Motivation and Opportunity
We can control the ability with selection, recruitment and training
We can influence the motivation with performance management, compensation and culture
HR (compensation) Employee behaviors that Employers value
Attract good people, retain good employees, and to develop skills for current and future jobs
How to encourage people to model good behaviors
Figure out: what is important to people, how do we offer it through compensation, how does compensation help elicit desirable behaviors
Maslow's Need Hierarchy
Physiological needs, Safety needs, belonging/affiliation needs, self esteem needs, self actualization
Herzberg's Two-factor theory
Hygiene Factor: if you don't have something you will be upset, but having something doesn't make you happier
Motivator: something that makes you work harder
Expectancy Theory
What employees want and value and connecting performance to compensation
Equity Theory
We don't just care about our own input to output ratio, we also care about how others compare to ours
Reinforcement Theory
If you recognize good behavior, people are more likely to repeat that behavior
Goal Setting Theory
Set SMART and difficult goals
Agency Theory
CEO's are agents to the shareholders/owners, must be sure CEO is doing what they can do to increase the stock value in the market by giving them stock options (aligns shareholders and CEO's interests)
Incentive Effect
Pay can motivate people to perform better and perform in a way that contributes to business strategy and success
Sorting Effect
High ability individuals tend to be attracted to companies that will pay for performance, thus recognizing their greater contribution
Marshall and Gordon Case
PR firm trying to differentiate their self in a competitive industry, changing the compensation system to better align with the new goals of encouraging collaboration and teamwork while trying to keep employees happy; adding representation of exec's to their strategy with the EPP program
It is very difficult to get people to buy-in to a new compensation system
Other things that motivate professionals (other than money)
Promotions, relationships with clients, achievement, success, development, reputation, meaningful work
Pay Structure
Relative worth of all the jobs in the organization; internal fairness and external competitiveness
Job Based Pay Structure
Based on job evaluation; major decisions on job evaluation are single vs. multiple plans and alternative methods
Single vs. Multiple Plans
Part of Job based pay; current practice is to use separate plans for major domains of work; the number of plans hinges on how detailed an evaluation is required to make pay decisions and how much it will cost; often start with benchmark jobs if contents are well known and relatively stable over time an common across different employers or reasonable proportion of work force is employed in this job
Job Evaluation Methods
Ranking, classification, point method
Ranking Job Eval Method
Order the jobs from highest to lowest; two common ways of ranking (1) alternation ranking using which jobs are most/least valuable (1 and 10) and (2) paired ranking using a matrix to compare and see which is most frequently judged "most valuable"
Classification Job Eval Method
A series of classes covers the range of jobs; each class is described in such a way that the "label" captures sufficient work detail yet is general enough to cause little difficulty in slotting a job description into its appropriate class; compare a job description to the class description to decide which class is the best fit
A Point Method Job Eval
Use Job analysis, compensable factors (such as skill, effort, responsibility, working conditions), factor scale (1-5, must be able to distinguish among jobs and clarify what each number means), factor weight (how important that particular factor is relative to others)
Benchmark Jobs
Help achieve external competitiveness
No matter the basis of the structure, we need to...
Collect and summarize information about work, determine what is of value to the organization, quantify that value, and translate that value into structure
Skill Based Pay Structure
Links pay to the depth and/or breadth of the skills, abilities, and knowledge that a person acquires that are relevant to the work; pay individuals all the skills for which they have certified regardless of whether the work they are doing requires all or just a few of these skills
Outcomes of Skill-Based Pay Plans
Generally well accepted by employees (connection between the plan, the work, and paycheck)
Expensive when majority of employees become certified at the highest pay level
Competency Based Pay Structure
Ties to abstract the underling, broadly applicable knowledge/skills and behaviors that form the foundation for success at any level or job in the organization; broader than skill based
Job and Person Based Procedures
To design and manage an internal pay structure that helps the organization succeed; criteria are reliability (different evaluators produce same results), validity (assesses the relative worth of jobs), and acceptability (employee attitude)
Gravity Payments
Setting a $70,000 minimum salary for all his employees because researchers had found that this is where we stop benefitting in happiness from higher salary
External Competitiveness
The supply and demand for labor are major determinants of an employer's pay level; product demand and degree of competition affect the organization's ability to pay; organizational factors influence pay level and mix too (industry, knowledge level, business strategy, size)
Three Factors that determine the relevant labor market
(1) Occupation: skill/knowledge required
(2) Geography: willingness to relocate, commute or become virtual employees
(3) Competitors: other employers in the same product/service and labor markets
Pay Level Decisions
Lead, Meet or follow
Pay Mix Decisions
Performance driven (incentive + stock ownership), Market match, Work/life balance, security
RX Capital Case
Lerner starting her own hedge fund organization with a focus on medical investments; her struggle with the decision whether or not to fire the poor performer and ruin her strong team environment; balancing internal fairness and external competitiveness
Pay for Performance
Also known as variable pay, incentive; cuts costs/increases productivity; linking performance and pay
Individual Pay for Performance
Merit pay, lump-sum bonus (awards), individual spot awards, individual incentive plans
Merit Pay and how to make it effective
Links increases in base pay to how highly employees rated on a performance evaluation
To be effective: performance ratings must be accurate, dollar amount must be enough to truly reward performance, the size of the merit increase differentiates across performance level
Lump Sum Bonus
An end-of-year bonus that does not pay into base pay; a substitute for merit pay; viewed as less of an entitlement than merit pay (employees must earn this increase every year)
Individual Spot Awards
Awarded for exceptional performance; may have a formal mechanism for this recognition and guidelines on the size of the award (more so for larger organizations)
Individual Incentive Plans
Offering a promise of pay for some objective, pre-established level of performance; less direct supervision is required, cost control and productivity increase but difficult to find good/objective individual measures, quantity vs quality, etc.
Team Level Pay for Performance
Normally reward all team members equally based on group outcomes; helps foster group cohesiveness but can also allow for free riding and intergroup competition
Organization Level Pay for Performance
Profit sharing (employee stock ownership plan); allows for financial flexibility and increased employee commitment; worry in risk recognition (stock is subject to many micro and macro factors)
Considerations when deciding between Individual, Team or organization level pay for performance
How is the work actually carried out?
Which level of performance measurements are most feasible and accurate?
Which way to organize the work will best serve the business goal?
What kind of behavior to promote?
Raleigh & Rosse Case
A US Luxury Goods retailer struggling with figuring out what compensation systems would work best for them; inappropriate and inadequate control can lead to dysfunctional behavior and illegal behaviors; differentiated their selves with their supreme customer service which led to the question of how far is too far; ownership culture
Performance Management
A continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning performance with the strategic goals of the organization
Characteristics of the Ideal Performance Management System
Strategic congruence, reliability, validity, acceptability and fairness
Defining Performance
Performance is about behavior (what employees do); evaluative (negative, neutral or positive) and is multidimensional (many different aspects)
Because not all behaviors are observable or measurable, using measures of results
Three Approaches to Measuring Performance
(1) Behavior approach
(2) Results approach
(3) Trait Approach (although not commonly used)
Behavior Approach and when to use
An observable behavior is an indicator of competency (KSA critical in determining achievement); uses anchors that are clearly differentiated to evaluate employees
Use when: there are outside influences that are out of your control that influence performance
Anchors for different Checklist types
For Frequency: 5 or 7 point scales
For Amount: 5 or 7 point scales
For Evaluation: terrible, bad, mediocre, etc.
For Agreement: slightly, a little, moderately, etc.
Results Approach and When to Use
Key responsibilities and relative importance, objectives (must be agreed upon, specific/clear, challenging, achievable, timely, understood) and performance standards (must be specific/clear, measurable, meaningful and achievable)
Use when: results are measurable and there is low interdependence between people
Vitality Health Case
A company that struggled to maintain top performers because of a lack of differentiation between employees compensation; they attempted to revise their program to force managers to rank employees but this only caused other problems
Components of Appraisal Forms
Basic employee info, accountabilities/objectives and standards, competencies and behavioral indicators, major achievements and contributions, developmental achievements, developmental needs/plans/goals, stakeholder input, employee comments, signature
Desirable features of Appraisal Forms
Simplicity, relevancy, descriptiveness, adaptability, comprehensiveness, definitional clarity, communication, time orientation
Six formal meetings between subordinates and the supervisor
System inauguration, self appraisal, classical performance review, merit/salary review, development plan, objective setting
Sources of Performance Appraisal
Supervisors, peers, subordinates, self, customers
For Disagreement across performance appraisal sources
Appoint a third party to see if al the ratings accurately reflect your performance and decide who's evaluation is most important and give each rating source a weight to get an overall score
Rater Motivation
The process of performance evaluation can be filled with emotional overtones and hidden agendas
Can be subject to: halo effect, central tendency, leniency error, harshness error, primacy effect, recency effect
Supervisors may be motivated to provide inflated ratings to...
Encourage employees and avoid confrontation with employees
Supervisors may be motivated to provide deflated ratings to...
Fit the budget, abuse power, or send a message to the employee that he/she should consider leaving
Primacy Effet
Remembering the first one to do something
Recency Effect
Remember the most recent actions best so it over/under estimates ones perspective
Ways to Prevent Rating Distortion
Providing incentives so that raters will be convinced that more to gain by accurate ratings than inaccurate ratings; demonstrate the advantages of a well-implemented performance management system; have accountability
Is a key part of a managers job so be sure to provide them with the tools to make accurate ratings and feedback (e.g. training)
Southfield Packaging
Belby and Sanders meeting for Belby's performance review; Sanders doesn't think Belby is qualified for a promotion but never even tries to communicate to Belby where he needs to improve or really any information about Belby's performance
Performance Appraisal Goals
For the organization: In regards to evaluation of the system, seek info on what to base rewards/make personnel decisions; In regards to development seek to grow individuals through counseling, coaching and career planning
For the Employee: In regards to evaluation, seek important rewards and maintenance of self image; In regards to Development seek valid performance feedback to improve
Four Performance Appraisal Methods
(1) Tell and Sell: to communicate evaluation accurately and gain subordinate's acceptance of the evaluation
(2) Tell and listen: to communicate evaluation to subordinate and let them respond
(3) Problem Solving: to help subordinate discover their own performance deficiencies and jointly develop a plan for improvement
(4) Mixed model: uncouple evaluation and development appraisals
Guidelines to Evaluate an appraisal interview
(1) Beginning: manager creates open/acceptant climate, agreement on purpose/process of interview, both parties prepared
(2) During: supervisor should try to understand employee, broad and general questions, feedback should be clear/specific, learn about subordinates feelings/values, should end with mutual agreement and understanding
(3) Outcomes: motivate subordinate, build better relationship, clear understanding of current performance, fair assessment, what actions to take moving forward
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