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Compensation

In: Business and Management

Submitted By samarabtin
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Part 1 (Short Response)
1- How do differing perspective (society, managers and employee) affect the views of compensation?

• Societal perspective: compensation is viewed as a measure of justice as well as a cause of increased taxes and price increases.
• Managers: view compensation as a major expense and a means to influence employee behaviour.
• Employees: view compensation as a return in an exchange with their employer, an entitlement, or a reward.

2- Explain the difference between base pay and performance pay.

• Base pay: Base pay-wage or salary is the monetary compensation an employee receives for the work performed. For example, the base wage for machine operators may be $18 an hour but some individual operators might receive more because of their experience.

• Incentives (or variable pay): Incentives tie pay increases directly to performance. It differs from merit increases. Incentives do not increase the base wage, and must be earned each pay period. The potential size of the incentive payment generally will be known beforehand.

3- What are the three tests used to determine whether a pay strategy is a source of competitive advantage? Are these tests difficult to pass? Can compensation be a source of competitive advantage?

• Equity Theory: Fairness
Equity theory focuses on how employees compare their work, qualifications, and pay to those of others.

• Tournament Theory: Motivation and Performance
Tournament theory suggests that the greater the differences between salaries in the pay structure, the harder employees will work.
• Institutional Theory: Copy others
Institutional theory suggests that organizations copy the best practices of the others.

4- Why is internal alignment an important compensation policy?

• Internal alignment is important policy because of the amount of compensation, with many companies seeking to find the most qualified applicants, pay and benefits can make an important difference. It will add value for the employees.

5- Explain the difference between egalitarian versus hierarchical pay structure.

• Egalitarian structures have fewer level and smaller differentials between adjacent levels and between the highest- and the lowest- paid workers. Hierarchical structures (have more levels) are consistent with a belief in the motivational effects of frequent promotions. Hierarchies value the differences in individual employee skill, responsibilities and contributions to the organization.

6- Describe the major decisions involved in a job analysis.

• Job analysis refers to any systematic gathering, documenting, and analyzing of information about the content of work performed by people in organizations, the worker attributes related to work performance, or the context, both psychological and physical, in which the work is performed.
Job analysis: does not refer to just one methodology but rather to a range of techniques
• is formal, structured process carried out under a set of guidelines established in advance
• breaks down a job in different parts, rather than looking at the job as a whole

7- What are the differences between a job and a task?

• Job: Group of task performed by one person that makes up the total work assignment of that person for example customer representative.

• Task: Smallest unit of analysis, a specific statement of what a person does e.g. answer the phone.

Case scenario assignment 1

Executive Summary
We specialize in the development and implementation of specialized logistical software for the transportation industry. Our company decided to expand to London, Ontario this will be the company’s first foray into the Canadian market.
This report provides an explanation about Internal equity (Internal alignment) and External equity (External competitiveness), the reasons and importance why it should be included in the compensation strategy, as well as a recommendation of the major processes to implement in order to achieve both internal and external equity in the Canadian operations.
To be successful as a company in a new market we should make sure to develop the right compensation strategy that will help to create trust, respect and loyalty.
First we should look at the internal equity (internal alignment) which is the relationship between the jobs within a single organization. It is important to get a solid understanding of the types of jobs your employees are going to do and the skills and experiences they will need for the job as well as what they will bring to the company in the new market. Evaluate the knowledge, skills and ability required of each job. Create a system for jobs that are similar, this will help to avoid giving different job titles that has the same job. Be fair and make sure that your system evaluates each employee’s role and contribution by the same criteria. Then you will be able to set these groups with similar responsibilities into a common pay grade.

Secondly, we should look at the external equity (external competitiveness) which refers to the relationship of one organization’s pay structure and comparing it to its competitors. It means setting a pay level that is above, below or equal to one’s competitors and considering the mix of pay forms relative to those of competitors. By conducting an external job analysis it will help you to know where salaries stand compared to other companies. Be sure that jobs reviewed in your external market analysis align as closely as possible – experience, education, certifications, job location. The goal should be to pay what is necessary to attract, retain and motivate a sufficient number of qualified employees.

Recommendation
To ensure both internal and external equity will be implemented successfully, you must establish an effective compensation strategy. To be able to do this these processes has to be conducted:
• Job analysis
• Job evaluation
• Job pricing

References
• Milkovich, Newman, Gerhard, Cole, Yap. 2013. Compensation
• Belcourt, Bohlander, Snell. 2011. Managi

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