Compensation Management Project

Study Guide

Compensation Management By

Adam Gifford

About The Author

Adam Gifford is a human resources professional with experience in the hospitality, retail, and manufacturing industries. He has extensive professional experience in operations management, government compliance, labor law, and employee training and development. Adam is an active member of the Society for Human Resources Management, the American Society for Training and Development, and the Academy of Management. He holds numerous degrees in the business field including a Bachelor of Science in Management Science from Lock Haven University, a Master of Human Resources Management from Keller Graduate School of Management, and a Master of Business Administration from Rollins College.

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07/08/2015

All terms mentioned in this text that are known to be trademarks or service marks have been appropriately capitalized. Use of a term in this text should not be regarded as affecting the validity of any trademark or service mark.

INSTRUCTIONS TO STUDENTS 1

LESSON ASSIGNMENTS 7

LESSON 1—INTRODUCTION AND DETERMINATION OF THE PAY STRUCTURE 9

EXAMINATION—LESSON 1 33

LESSON 2—DETERMINING PAY LEVEL AND INDIVIDUAL PAY 39

EXAMINATION—LESSON 2 63

LESSON 3—EMPLOYEE BENEFITS AND MANAGING THE PAY SYSTEM 69

EXAMINATION—LESSON 3 85

LESSON 4—MANAGING THE SYSTEM 91

EXAMINATION—LESSON 4 105

RESEARCH ASSIGNMENT 111

ANSWERS 115

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YOUR COURSE Welcome to Compensation Management! This course is based on the textbook Compensation, Ninth Edition, by George Milkovich and Jerry Newman. This study guide contains additional information that pertains to the topics in your lessons as well as highlights of important points from your textbook. Self-checks to measure your understanding of each lesson are included along with their answers.

The course material consists of a study guide, divided into six lessons. Each lesson is broken up into several assignments. Each assignment covers a specific topic or topics. The study material for your course consists of

1. The textbook, Compensation, Ninth Edition

2. This study guide, which contains

� Additional information that pertains to the topics in your lessons

� Self-checks to measure your understanding of each lesson, as well as the answers to the self-checks

� Lesson examinations to be submitted for grading

� A research assignment that you’ll develop after you complete your studies

OBJECTIVES When you complete this course, you’ll be able to

� Define compensation, list the different forms of pay, and describe the pay model

� Compare compensation strategies, list the steps in devel- oping a total compensation strategy, and determine sources of competitive advantage

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� Define internal alignment, determine what factors shape internal structure, and analyze the strategic choices involved in designing internal structure

� Discuss a job description based on the data collected

� List the major decisions that go into a job evaluation and evaluate the different methods used to create a job evaluation

� List the types of skill plans; create a skills analysis and a competency analysis

� Determine the factors that shape external competitive- ness, describe the competitive pay policy alternatives and describe the consequences of pay level and mix decisions

� Describe the purposes of a survey, how to design one, and create a market pay line using survey information

� Determine how performance pay can motivate employee behavior and design a pay-for-performance plan

� List the types of team incentive plans and long-term incentive plans

� Analyze the strategies for better understanding and measuring job performance, including common errors in appraising performance, and evaluate how pay can be tied to performance appraisals

� Describe the growth in employee benefits; describe the key issues in benefits planning, design, and administra- tion and list the main components of a benefit plan

� Identify the legally required benefits, retirement and sav- ings plan payment benefits, medical, and medical-related benefits

� Identify compensation strategies for supervisors, corpo- rate directors, executives, scientists, engineers, sales forces, and contingent workers

� Describe the impact of unions on wage determination and union attitudes toward alternative reward systems

Instructions to Students2

� Determine the reasons for variations in global pay sys- tems, compare the costs of pay systems in different countries, and describe the elements that determine expatriate pay

� Describe the laws that regulate pay in the workplace, define discrimination, and analyze the causes of pay dif- ferences in the workplace

� Determine methods of controlling salary levels, list the embedded controls that exist within a pay system, and effectively communicate changes in a pay system

YOUR TEXTBOOK Your textbook, Compensation, Ninth Edition, contains the bulk of the material upon which your examinations will be based, so it’s important that you read it carefully and com- pletely. Your textbook material is broken down into lessons.

The pages for each lesson are clearly indicated in this study guide. Note that the page numbers for Compensation, Ninth Edition, called out in this study guide correspond to the page numbers in the black circles at the top of each page in the textbook.

Your textbook contains many features that make your study easy, including the following:

� The table of contents, which indicates the breakdown of topics

� The preface, which highlights the purpose and organization of the text

� The body of the text, which includes 18 chapters

� “Your Turn” features, which provide compensation management case studies

� A summary at the end of each chapter, which provides an overview of what you’ve just learned

Instructions to Students 3

� A glossary, which provides definitions of the key terms presented in the textbook

� A name index and a subject index, which you can use to easily find information in your textbook

A STUDY PLAN This study guide divides the material to be covered into six lessons. Each lesson is divided into multiple assignments to make your learning more manageable. Each assignment includes a reading from your textbook and a supplementary assignment in this study guide. Each assignment has self- check questions to check your understanding of what you’ve learned. Be sure to complete all of the work in each lesson before moving on to the next. You’ll find this easy to do if you follow the plan of study outlined below.

1. Read the instructions to each assignment in this study guide. The instructions will tell you the pages in your textbook that you’ll be reading. Note that the page num- bers for Compensation, Ninth Edition, called out in this

study guide correspond to the page numbers in the black circles at the top of each page in the textbook.

2. Read the assigned pages in this study guide.

3. Read the assigned textbook pages. Pay careful attention to what you’re reading.

4. When you’ve finished the assignment, complete the homework assignment and self-check. The self-checks are based on both your textbook and this study guide. You should complete the self-checks in the study guide. They’re for your use only—they aren’t graded. Don’t send your answers to the school.

Instructions to Students4

5. Once you’ve completed the exercises, turn to the answers provided at the back of this study guide. These exercises are designed to show how well you understand the mate- rial, so test yourself honestly. Make every effort to complete the questions before turning to the answers at the back of this study guide. If you find any weak areas in your knowledge, go back and review the relevant material until you understand it.

6. Follow this procedure for the next assignments, until you’ve completed the lesson.

7. When you’re confident that you understand all of the assigned material within a lesson, complete the lesson examination provided in this study guide. The examination is based on both your textbook and this study guide.

8. Complete the discussion board post for each lesson.

9. If you have any questions during your studies, e-mail your instructor for assistance.

Now review the description of lesson assignments provided in the outline that follows and begin your study of compensation management with the first assignment of Lesson 1. Enjoy your studies!

Instructions to Students 5

NOTES

Instructions to Students6

Note that the page numbers for Compensation, Ninth Edition, called out in this study guide correspond to the page numbers in the gray boxes at the top of each page in the textbook.

Lesson 1—Introduction and Determination of the Pay Structure For: Read in the Read in the study guide: textbook:

Assignment 1 Pages 9–12 Pages 1–32

Assignment 2 Pages 13–16 Pages 33–59

Assignment 3 Pages 17–20 Pages 60–88

Assignment 4 Pages 21–23 Pages 89–118

Assignment 5 Pages 24–27 Pages 119–151

Assignment 6 Pages 28–32 Pages 152–181

Examination 41289000 Material in Lesson 1

Lesson 2—Determining Pay Level and Individual Pay For: Read in the Read in the study guide: textbook:

Assignment 7 Pages 39–43 Pages 182–215

Assignment 8 Pages 44–47 Pages 216–256

Assignment 9 Pages 48–51 Pages 257–290

Assignment 10 Pages 52–55 Pages 291–333

Assignment 11 Pages 56–61 Pages 334–402

Examination 41289100 Material in Lesson 2

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Lesson 3—Employee Benefits and Managing the Pay System For: Read in the Read in the study guide: textbook:

Assignment 12 Pages 69–73 Pages 403–434

Assignment 13 Pages 74–77 Pages 435–467

Assignment 14 Pages 78–81 Pages 468–495

Assignment 15 Pages 81–84 Pages 496–511

Examination 41289200 Material in Lesson 3

Lesson 4—Managing the System For: Read in the Read in the study guide: textbook:

Assignment 16 Pages 91–95 Pages 512–547

Assignment 17 Pages 96–98 Pages 548–583

Assignment 18 Pages 99–103 Pages 584–612

Examination 41289300 Material in Lesson 4

Research Assignment 41200800

Lesson Assignments8

Note: To access and complete any of the examinations for this study

guide, click on the appropriate Take Exam icon on your student portal.

You should not have to enter the examination numbers. These numbers

are for reference only if you have reason to contact Student CARE.

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Introduction and Determination of the Pay Structure Lesson 1 includes six assignments that provide an introduction to compensation and an overview of pay structure. For each assignment, complete the assigned reading in this study guide and in your textbook, Compensation, Ninth Edition, by George Milkovich and Jerry Newman.

ASSIGNMENT 1: INTRODUCTION AND THE PAY MODEL Read this assignment. Then read pages 1–32 in your textbook.

When you complete this assignment, you’ll be able to

� Define compensation

� List the different forms of pay

� Describe the pay model

Everyone who has a job earns some form of compensation. Many people view their compensation as simply a paycheck that they receive weekly, biweekly, or even monthly. The reality is that the paycheck is the last step in a very long and detailed process that involves a tremendous amount of research as well as dozens of individual decisions throughout different levels of an organization.

Defining compensation is quite a bit more difficult than you might think, because there are many different views as to what “compensation” actually is. The reality is that there are different definitions of compensation based on which group is defining the term. For example, all of the following groups might define compensation differently:

� Society

� Stockholders (company owners)

� Managers

� Employees

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Your textbook combines these different views to come up with a single definition of compensation. Your textbook defines compensation as “All forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.” This definition of compensation is fairly broad. Each component of the definition can be broken down into smaller and more definable and measurable forms.

The different forms of compensation are as follows:

� Base pay. Cash that an employer pays for the work that’s performed by an employee. An example can be a flat hourly wage of $8 an hour for a retail sales person or a $50,000 a year salary for an accountant.

� Merit pay and cost-of-living adjustments. Cash that employees receive to adjust for increases in prices of goods and services or to adjust for changing wages in their industry or profession.

� Cash incentives. Cash provided to an employee based on his or her individual performance or the performance of his or her group, division, or organization. When the person, group, division, or organization is more productive or more profitable, then they receive cash in addition to their base pay.

� Long-term incentives. This is a benefit that employees’ will receive as an incentive for long-term employment with the organization or as an incentive for long-term, individual productivity. It usually takes the form of company ownership either through stock ownership or options to purchase stock at a below-market price.

� Income protection. A benefit that protects a person’s income in the event that they’re unable to work. Some income-protection programs are required by law, such as worker’s compensation for injured employees or unemployment insurance for employees who have been laid off due to a decrease in organizational output.

� Work/life balance. Benefits that enable employees to better manage their home life and their work life. Some examples include paid and unpaid time off from work, access to services at either a discounted rate or free of charge, and flexible work-hour arrangements.

Lesson 1 11

� Allowances. A benefit that gives employees access to some- thing that’s either expensive or in short supply. Examples include a company car or company-paid meals.

� Present value of earning streams. This includes the total amount of compensation that a person will receive over a period of time. It’s very common for organizations to start an employee at a very low rate of pay and give frequent and larger increases as the employee begins to prove that he or she can perform at the designated tasks. The present value of a future stream of income is often shown to employees to overcome their objections to a low starting salary.

� Relational returns. These are nonfinancial gains that a person receives from his or her work. Examples may include local fame, a feeling of belonging, challenging work, and the opportunity to learn.

Your textbook is organized around the concept known as the pay model. The pay model outlines how an organization designs, develops, and maintains a system of compensation. An illustration of the pay model is provided in Exhibit 1.5 on page 20 of your textbook. The three main parts of the pay model are as follows:

� Objectives. The objectives of a compensation system include efficiency, fairness, and compliance. These are the building blocks of any compensation system and drive any of the work that’s performed when designing, developing, and maintaining a compensation system.

� Techniques. These are the specific tasks that are used to design, develop, and maintain a compensation system.

� Policies. These are the guiding points that determine the foundation for all of the decisions based around an organization’s compensation model.

Homework Assignment 1

Complete the Review Questions on page 32 of your textbook. When

you’re done, check your answers with those at the back of the study

guide.

Note: These homework assignments are for your use only. While they

won’t be graded, they are required.

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Self-Check 1 At the end of each section of Compensation Management, you’ll be asked to pause and

check your understanding of what you’ve just read by completing a “Self-Check” exercise.

Answering these questions will help you review what you’ve studied so far. Please

complete Self-Check 1 now.

Select the one best answer for each of the following multiple-choice questions.

1. How would you describe the relationship between CEO pay and shareholder return at Verizon?

a. Stock fell and pay rose.

b. Stock rose and pay rose.

c. Stock fell and pay fell.

d. Stock rose and pay fell.

2. Which of the following is a policy of the pay model?

a. Performance c. Alignment

b. Quality d. Cost

3. Which of the following is considered a relational return in terms of total returns for work?

a. Base pay c. Employment security

b. Income protection d. Work/life balance

4. According to the pay model, management means ensuring that the right people get the right

_______ for achieving the right objectives in the right way.

a. benefits c. promotions

b. pay d. jobs

5. Which country has the highest compensation cost per worker?

a. Brazil c. Japan

b. South Korea d. Sweden

Check your answers with those at the back of the study guide.

Lesson 1 13

ASSIGNMENT 2: STRATEGY Read this assignment. Then read pages 33–59 in your textbook.

When you complete this assignment, you’ll be able to

� Compare and contrast compensation strategies

� List the steps involved in developing a total compensation strategy

� Determine the sources of competitive advantage

Choosing a compensation strategy is far more important than most people think. An organization must choose a compensation strategy just as a baseball team chooses a pitching strategy and the military chooses an offensive strat- egy. If an organization doesn’t have a compensation strategy, it will have to make reactive compensation choices based on the ever-changing market environment rather than making proactive choices that keep it ahead of the changes.

Compensation strategy can take one of two forms. Organizations can have different compensation strategies within the same industry, and different departments can have different strategies within the same organization. The strategy selected depends on the organization’s goals as well as the goals of the individual department within the organization.

The primary compensation theory for most organizations is for the compensation strategy to support organizational strategy. This makes sense, because the organizational strategy is the guiding force behind all of the organization’s decisions. Therefore, the compensation decisions support the organizational strategy.

An organization developing a total compensation strategy should follow the following four steps: assessing compensation implications, mapping of the total compensation strategy, implementing the compensation strategy, and reassessing the compensation strategy.

1. Assess the total compensation implications. Look at the organization as a whole, analyzing the organization’s industry as well as its competition. The organization’s

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culture and values should guide the compensation decision-making process. Analyze the legal and regula- tory requirements for compensation in all states and countries in which the organization operates. Identify what employees want and need in a compensation package.

Contrary to popular belief, not every employee simply wants more money and less work. In some cases, it might make sense to integrate choices into a compensation system, allowing employees some say in what they get.

If the organization’s employees are represented by a union, the organization will need to work with union officials and union representatives when making com- pensation choices.

Finally, your compensation system must be a good fit for the people who are accountable for managing the system. This is most often the human resources department.

2. Map a total compensation strategy. After identifying the various factors influencing compensation, the organi- zation must develop the model and put it into a form that can be communicated to the entire organization. This process is called mapping. Mapping can be done through pictures, charts, text, or a combination of all three. A map allows the organization to present the compensation package in “solid form.”

3. Implement the strategy. Once the development and design work have been completed, the compensation strat- egy can be implemented. This can either be a quick process or a long and drawn-out one depending on the organiza- tion’s size and the complexity of the compensation package.

4. Reassess the strategy. This is probably the most important of the four steps as well as the one that’s most often forgotten. The organization and its industry will go through many changes as time passes. The compensation package also needs to change to meet the new demands of the organization and market. The compensation should consistently be reevaluated against the changes that are occurring to ensure that it’s still meeting its strategic requirements.

Lesson 1 15

A compensation strategy can be used as a tool for competitive advantage against other organizations within the industry. To determine of the organization’s compensation strategy is a source of competitive advantage, you need to ask three questions:

1. Is the compensation program aligned with the organiza- tion’s business strategy, the economic and sociopolitical conditions, and the internal human resources (HR) system?

2. Does the compensation program differentiate the organization from its competitors?

3. Does the compensation system add value by creating incentives for employees to be more productive?

If the answer to all three of these questions is “yes,” then the compensation package is a source of competitive advantage.

A tremendous amount of research has been done on compen- sation programs. As with most business topics, the research shows that there’s more than one “right” way to do things. Some of the research shows that there’s a single best way to do design, develop, and maintain a compensation package, regardless of the organization’s type and size and the industry in which it operates. In contrast, some of the research has shown that there’s not a single right way of doing things, and that a compensation program must fit the specific organization’s type, size, and larger industry.

Homework Assignment 2

Complete the Review Questions on page 59 of your textbook. When

you’re done, check your answers with those at the back of the study

guide.

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Self-Check 2 Select the one best answer for each of the following multiple-choice questions.

1. Based on the vicious circle, what happens after organizational performance decreases?

a. Organizational performance continues to decrease.

b. Organizational performance begins to increase again.

c. Pay for performance increases.

d. Pay for performance decreases.

2. Out of every four workers, how many claim to be satisfied with their compensation?

a. 1 c. 3

b. 2 d. 4

3. Which of the following is the third step in developing a total compensation strategy?

a. Assess the company culture.

b. Choose a technique to fit the strategy.

c. Map the objectives.

d. Realign the strategy as economic conditions change.

4. Which of the following is a source of competitive advantage?

a. Alignment c. Management involvement

b. Competitiveness d. Pay differentiation

5. A _______ focuses on those compensation choices that help the organization gain and sustain

competitive advantage.

a. pay model c. strategic perspective

b. business response d. compensation system

Check your answers with those at the back of the study guide.

Lesson 1 17

ASSIGNMENT 3: DEFINING THE INTERNAL ALIGNMENT Read this assignment. Then read pages 60–88 in your textbook.

When you complete this assignment you’ll be able to

� Define internal alignment

� Determine what factors shape internal structure

� Analyze the strategic choices involved in designing internal structure

It should come as no surprise that different people earn different compensation within the same organization. It’s often a very difficult task to determine these differences, but it’s still a very important step in creating a compensation program. Determining these differences is known as internal alignment. Your textbook defines internal alignment as the pay relationships among different jobs, skills, and competen- cies within a single organization. The end result of internal alignment is known as the pay structure. Your textbook defines pay structure as the array of pay rates for different work or skills within a single organization, as well as the number of levels and the differentials in pay between those levels, and the criteria used to determine the differences described in the structure. Each part of this definition is described in a bit more detail below.

1. Levels of pay. The term level is used to define the hierarchical structure of an organization. An example of this includes which employees are salaried managers and which are hourly employees.

2. Differentials in pay. Pay differentials include the actual variance in pay between different employees. An example of this would be that a salesperson earns $40,000 a year whereas a manufacturing employee earns $20,000 a year.

3. Criteria used. The criteria used relate to how the pay differentials will be determined. Basically, they involve what work is performed for each job, the skills needed to perform each job, and who will be performing each job.

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Internal pay structures differ in almost every organization due to the factors that influence these structures. The differ- ent factors that shape the organization’s internal structure are as follows:

� Economic pressures. Organizations are constantly affected by changes in the larger economy. These changes affect pay structures as well. One of the major economic changes that shape a pay structure is the supply and demand of labor for the organization and its industry.

� Government policies, laws, and regulations. A number of laws regulate pay structures in an attempt to maintain fairness. Violations of these laws can cost an organization hundreds of thousands of dollars, in addition to giving it a poor public image. Because these laws are constantly changing, the pay structure must constantly be adapted to meet these new requirements.

� External stakeholders. Groups outside of the organiza- tion may have a stake in how the organization’s pay structure is organized. These groups can include labor unions, politicians, and stockholders.

� Cultures and customs. The customs and cultures of the geographic area in which an organization operates can influence the pay structure. This is especially important to take into consideration when operating in a foreign country that may have a very different view on compen- sation than the home country.

� Organizational strategy. This has been mentioned before and will definitely be mentioned again. The organization’s strategy drives every decision that’s made within the organization, including decisions on pay structure.

� Human capital. This includes the abilities and skills required to perform certain jobs. The level of human capital will influence the pay structure based on the skill needed to perform each job.

� Organization work design. Work design determines which responsibilities each person and each position within an organization will have. The amount and level of responsibility for each person and each position will influence the pay structure.

Lesson 1 19

� Overall HR policies. Human resource policies will help to determine how the pay structure will look. Some of these policies can include how often a person can be promoted, where new hires will be recruited from, and how much training will be provided to each employee.

� Internal labor markets. The internal labor market is determined by the amount of pay available for different jobs within an organization and the number and avail- ability of employees for those jobs. Both of these factors are a major influence on the overall pay structure.

� Employee acceptance. For a pay structure to be effective it must be accepted by the employees. Employees who aren’t happy with the organizational pay structure will either be unproductive or seek employment elsewhere. Both of these decisions will obviously have a negative impact on the organization.

� Changes in the pay structure. Changes in the pay structure are caused by changes in the organization’s economic environment. Because the economic environ- ment is always changing, so will the organization’s pay structure.

In addition to the large number of factors listed here, the economic and psychological affects of the structure chosen must be considered. Three major theories are used to predict how employees will deal with different types of pay structures:

� Equity theory. According to this theory, employees will tend to judge the fairness of their organization’s pay structure by making comparisons to similar pay struc- tures. These comparisons will include comparisons to jobs similar to their own, comparisons to jobs within the organization that are different than their own, and comparisons to their job against pay levels at other organizations.

� Tournament theory. This theory says that employees will work harder and be more productive if there are larger pay differentials within their organization. The thought behind this theory is that if an employee will receive a large pay increase for a promotion then he or she will work harder for that promotion.

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� Institutional theory. According to this theory, there are a certain number of best practices for determining a pay structure and that an organization will get the best result if they just follow these practices.

Self-Check 3 Select the one best answer for each of the following multiple-choice questions.

1. When an organization gives large increases in pay for job promotions to create competition, is

an example of _______ theory.

a. egalitarian c. institutional model

b. equity model d. tournament

2. Which of the following refers to pay differences among job levels?

a. Values c. Differentials

b. Relative contribution d. Content

3. Pay structure refers to the array of _______ for different work or skills within a single

organization.

a. benefits c. people

b. pay rates d. promotions

4. Which type of structure relies on the work content?

a. Job-based structure c. External structure

b. Person-based structure d. Internal structure

5. The pay relationships among different jobs, skills, and competencies is referred to as

a. internal alignment. c. internal competitiveness.

b. external alignment. d. external competitiveness.

Check your answers with those at the back of the study guide.

Homework Assignment 3

Complete the Review Questions on page 88 of your textbook. When

you’re done, check your answers with those at the back of the study

guide.

Lesson 1 21

ASSIGNMENT 4: JOB ANALYSIS Read this assignment. Then read pages 89–118 in your textbook.

When you complete this assignment, you’ll be able to

� Determine the information that needs to be collected

� Define the methods that are used to collect data

� Create a job description based on the data collected

Different jobs have different tasks that are required to com- plete the work. Job analysis is the systematic method of discovering and describing the differences and similarities among the jobs within an organization. This is an important step in designing a pay structure, because pay is most often based on the work that’s performed. The end result of a job analysis is the determination of a job structure.

To perform a job analysis, you’ll need to collect a great deal of information about the types of jobs in your organization and what specific work is actually performed for each job. A job analysis requires the following information:

� Job identification. The job’s identity as defined by titles, departments, number of employees, and exemptions from federal laws.

� Job content. The specific tasks that are to be performed and the objectives to be completed for each job.

� Employee data. Employee behaviors that will result in certain outcomes, such as employee characteristics, internal relationships, and external relationships.

� Level of analysis. The level of the job within the organi- zational hierarchy.

Obviously, job analysis requires a great deal of information. Two main methods of data collection can be used during the data collection phase: the conventional method and the quantitative method.

� Conventional method. Entails collecting information from the employees who do the work through observations of the work or interviews with employees about the job.

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� Quantitative method. Entails collecting information from the employees who do the work through question- naires that ask specific questions about the work they perform.

Once all of the information has been collected, a job description is written. The textbook defines a job description as a summary and documentation of the job information. The job description is then used to make any number of HR decisions. In addition to the job information, many job descriptions also include methods for measuring whether the work was performed at an acceptable level.

An important step of job analysis is evaluating the quality of your work. This is an important step, because it allows you to determine if all of the work you put into the project was worth your time and effort. Consider the following when assessing the job analysis:

� Reliability. Have you received the same results over time when using the same research methods? If your job analy- sis isn’t reliable, you’ll need to rethink your research methods.

� Validity. Have you accurately recorded the tasks for each job? If your results lack validity, then you need to find a way to collect more accurate data.

� Acceptability. Do employees within the organization agree with the descriptions of their jobs? If these descrip- tions don’t have acceptability, then you need to discuss where the differences in information have occurred with the employees.

� Usefulness. Will the information enable you to make compensation-related decisions? If you the information isn’t useful, then you need to question why this project was even taken on in the first place.

Homework Assignment 4

Complete the Review Questions on page 118 of your textbook. When

you’re done, check your answers with those at the back of the study

guide.

Lesson 1 23

Self-Check 4 Select the one best answer for each of the following multiple-choice questions.

1. Which of the following refers to the practicality of the information collected in a job analysis?

a. Reliability c. Acceptability

b. Validity d. Usefulness

2. Which law requires that the essential elements of a job be specified?

a. The Americans with Disabilities Act c. The Equal Pay Act

b. The Fair Labor Standards Act d. The Civil Rights Act

3. Which of the following would be included in the job identification task?

a. Specific job tasks to be completed

b. Behaviors that will result in outcomes

c. Job titles

d. External relationships

4. A job description has a section that lists the qualifications required for the job. What are

these requirements called?

a. Work specifications c. Work requirements

b. Job requirements d. Job specifications

5. Job analysis is the systematic process of collecting information to determine which of the

following?

a. Pay discrepancies

b. Similarities and differences among jobs

c. Skill requirements

d. Performance measurements

Check your answers with those at the back of the study guide.

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ASSIGNMENT 5: EVALUATING WORK Read this assignment. Then read pages 119–151 in your textbook.

When you complete this assignment, you’ll be able to

� Define job evaluation

� List the major decisions that go into a job evaluation

� Evaluate the different methods used to create a job evaluation

Once you’ve completed your job analysis, you must determine the values for the different jobs within your organization. Basically, you need to determine how much money each job is worth. This process is known as job evaluation. Job evalu- ation is defined as the process of systematically determining the relative worth of jobs to create a job structure for the organization. This can be a difficult process, because there’s a tremendous amount of information that goes into determining the value of every job within an organization.

Five major decisions must be made when completing the job evaluation:

1. Establish the purpose. The pay structure must be aligned with the organization’s strategy. The purpose of the job evaluation is to support the organizational strategy, to support the flow of work, to create fairness among employees, and to motivate productive behavior that supports the organization’s goals.

2. Determine whether to use a single pay plan or multiple pay plans. You must decide if you’re going to develop a single pay plan for the entire organization or if you’re going to develop multiple pay plans that fit the variety of work that’s performed in the organization. Each option has pros and cons, so there’s no single “right” choice.

Lesson 1 25

3. Choose among alternative methods. A number of tools can be used to evaluate jobs, including ranking, classification, and point methods. Each of these will be discussed in more detail later in this lesson.

4. Obtain involvement of relevant stakeholders. The results of the job evaluation will impact every person within the organization. It’s a good idea to involve people throughout the organization in this process.

5. Evaluate the usefulness of the results. Just because the job evaluation has been completed and implemented doesn’t mean that the work is done. The pay levels must be reevaluated from time to time to ensure that they still meet the organization’s objectives. Job evaluations will change as the economic environment of the organization changes.

The three methods for performing a job evaluation are as follows:

� Ranking. This method involves ordering each job in the organization from highest to lowest pay based on widely accepted definitions of each job. This is the easiest and quickest method of evaluation, but the results can be less effective because the method focuses more on a universal definition of a job than on the importance of the job within the organization.

� Classification. This method involves defining a set number of classes of work and then assigning each job to a specific class. There can be as many or as few classes as is necessary based on the organization’s structure. This method allows for a bit more customization of job evalua- tion within the organization with only a bit more expertise and time required than the ranking method.

� Point method. This method involves assigning points to compensable factors. A compensable factor is defined as those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives.

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The design of a point plan requires six steps:

1. Conduct a job analysis. This task is completed for any job evaluation, as discussed in previous assignments.

2. Determine the compensable factors. This is the key part of the entire job evaluation. Compensable factors should be based on organizational strategy, be based on work performance, and be acceptable to the individuals who hold a stake in the ultimate evaluation.

3. Scale the factors. Once the compensable factors have been determined, they must be broken down into sub- groups based on the degree of skill required for each factor.

4. Weigh the factors according to importance. After the factors have been scaled, assign each of them a weight based on their overall value to the job.

5. Communicate the plan and train users. Once all of the job evaluations have been completed, the information must be communicated to the organization. This commu- nication should include the method that was used to evaluate the jobs as well as the evaluation for each job.

6. Apply the evaluation to nonbenchmarked jobs. The job evaluation is generally completed by the HR department or by an outside organization. Once the evaluation is finished, you can go back and apply the evaluation to jobs that weren’t included in the initial evaluation or to new jobs that have been created within your organization.

Homework Assignment 5

Complete the Review Questions on page 151 of your textbook. When

you’re done, check your answers with those at the back of the study

guide.

Lesson 1 27

Self-Check 5 Select the one best answer for each of the following multiple-choice questions.

1. Which of the following is the final step in designing a point plan?

a. Scale the factors.

b. Develop online software support.

c. Communicate the plan and train the users.

d. Apply to nonbenchmark jobs.

2. Which of the following is the most commonly used job evaluation approach in the United

States?

a. Ranking c. Classification

b. Alternation ranking d. The point method

3. Which of the following is a characteristic of a benchmark job?

a. Its contents are well known and relatively stable over time.

b. The job is unique to the employer.

c. Only a few people are employed in the job.

d. The job is at the high end of the pay scale.

4. Which of the following are the characteristics in the work that the organization values and that

help it pursue its strategy and achieve its objectives?

a. Pay factors c. Compensable factors

b. Promotional factors d. Strategic factors

5. Job evaluation is the process of systematically determining the relative worth of jobs to create

a _______ for the organization.

a. job structure c. pay line

b. job hierarchy d. pay scale

Check your answers with those at the back of the study guide.

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ASSIGNMENT 6: PERSON-BASED STRUCTURES Read this assignment. Then read pages 152–181 in your textbook.

When you complete this assignment, you’ll be able to

� List the types of skill plans

� Create a skills analysis

� Create a competency analysis

In the previous assignment you learned about job evaluation based on specific jobs. That method focuses on specific jobs within the organization regardless of who is performing the work. This assignment focuses more on the people who perform the work rather than on the actual work itself.

Some pay plans compensate people based on the skills that they possess rather than on the actual work performed. Such plans are known as skill-based structures. A skill-based structure is defined as a pay structure that links pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work.

To create a skill-based structure, you must first perform a skill analysis. A skill analysis is a systematic process of iden- tifying and collecting information about the skills required to perform work in an organization. Five decisions must be made when performing a skill analysis:

1. Determine the plan’s objective. As with all pay plans, you must ensure that the objectives of the plan reflect the organization’s objectives.

2. Determine the information to be collected. Determine which specific information about a person will be collected and used to determine pay. A frequently used method is to compile information about the specific training that an employee has received. This can include training acquired outside of work (such as a college degree), training acquired at work (such as specific machine-operation training), or a combination of both.

Lesson 1 29

3. Determine the methods to certify skills. Just because an employee receives training doesn’t necessarily mean that he or she has acquired any new skills. You must develop a method to determine whether an employee has actually acquired new skills. This can be done through any number of methods, including peer reviews, skills testing, demonstrations, or interviews. This should be a continuous process, because skills can be lost over time if they aren’t practiced. Just because an employee learned a skill 10 years ago doesn’t mean that he or she has that skill today.

4. Determine who should be involved. It’s imperative that employees be involved in the entire process. Both employees and managers should be consulted when determining which skills are necessary in meeting the organization’s overall objectives.

5. Determine the usefulness of the results for pay purposes. Determine if the work that you put into developing a skill- based structure has been worth the time and resources required. This is an ongoing process, so the structure should always be evaluated for effectiveness as the organization changes.

Some pay plans compensate people based their competencies rather than on the skills that they have. These are known as competency-based structures. A competency-based structure is a pay structure that focuses on the broadly applicable knowledge, skills, and behaviors that form the foundation for success at any level or job within the organization.

The following are the three basic steps in creating a competency- based structure:

1. Determine the core competencies. The core competencies are those competencies that best reflect the knowledge, skills, and behaviors that form the foundation for success at any level or job within the organization. These are the competencies that will be measured.

2. Create competency sets. A competency set assigns a specific action or actions to a competency. These are what will be used to actually measure the competencies.

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3. Determine competency indicators. A competency indi- cator is an observable behavior that indicates the level of competency within each competency set. This is the tool that will be used to measure each person’s competencies.

Five basic decisions must be made when performing a competency analysis. These decisions look a lot like the decisions that must be made when developing a skill-based plan. The five decisions are

1. Determine the plan’s objective. As with all pay plans, you need to ensure that the plan’s objectives reflect the organization’s objectives.

2. Determine the information to be collected. Determine which specific information about a person will be collected and used to determine pay. The concept of a competency can be a bit difficult to pinpoint, but you can generally define it by focusing on five areas:

a. Skills—demonstration of expertise

b. Knowledge—accumulated information

c. Self-concepts—attitudes, values, self-image

d. Traits—general disposition to behave in a certain way

e. Motives—recurrent thoughts that drive behavior

3. Determine the methods to certify competencies. This is probably the most difficult part of developing a competency-based plan, because competencies aren’t as objectively measured as skills.

4. Determine who should be involved. It’s imperative that employees be involved in the entire process. Both employees and managers should be consulted when determining which competencies are necessary in meeting the organization’s objectives.

5. Determine the usefulness of the results for pay pur- poses. Determine if the work that you put into developing a competency-based structure has been worth the time and resources. This is an ongoing process, so the structure should always be evaluated for effectiveness as the organization changes.

Lesson 1 31

When you finish your textbook reading, complete Self-Check 6 and Homework Assignment 6. After you’ve completed the exer- cises and have reviewed the assignments in this lesson, take the examination for Lesson 1 and submit it to the school for grad- ing. Don’t move on to the next lesson until you’ve completed the examination for Lesson 1.

Homework Assignment 6

Complete the Review Questions on page 181 of your textbook. When

you’re done, check your answers with those at the back of the study

guide.

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Self-Check 6 Select the one best answer for each of the following multiple-choice questions.

1. Which of the following is the degree to which the evaluation assesses the relative worth of

jobs to the organization?

a. Reliability c. Acceptability

b. Validity d. Usefulness

2. Which of the following are the observable behaviors that show the level of competency within

a competency set?

a. Competency benchmarks c. Competency markers

b. Competencies measures d. Competency indicators

3. Which of the following links pay to the depth or breadth of the skills, abilities, and knowledge

a person acquires that are relevant to the work?

a. Skill analysis c. Skill inventory

b. Skill-based structure d. Skill survey

4. In which of the following conceptions of competency would “values” be considered?

a. Skills c. Self-concept

b. Knowledge d. Traits

5. Which of the following is the systematic process of identifying and collecting information about

the skills required to perform the work in an organization?

a. Skill analysis c. Skill inventory

b. Skill-based structure d. Skill survey

Check your answers with those at the back of the study guide.

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