MAN 4330_Study Guide 1.pdf

COMPENSATION Study guide for exam 1 Compensation Compensation – monetary and nonmonetary rewards employees receive in exchange for work they do for organization Monetary rewards – rewards given to the employees of the organization in the form of money. Examples: Base pay, commissions, mer...

COMPENSATION Study guide for exam 1 Compensation Compensation – monetary and nonmonetary rewards employees receive in exchange for work they do for organization Monetary rewards – rewards given to the employees of the organization in the form of money. Examples: Base pay, commissions, merit pay, bonuses, profit sharing, etc. Non-monetary rewards – rewards that do not involve money. Examples: Healthcare benefits, life insurance, vehicle or vehicle allowance, vacation packages, promotion, recognition, praise, learning opportunities, challenging work, status, job security, work-life balance, etc. Incentive and Sorting Effects Performance = Ability X Motivation X Opportunity Compensation influences employee ability and motivation: Ability: The sorting effect is the effect that pay can have on the composition of the workforce. Motivation: The incentive effect is the degree to which pay influences individual and aggregate motivation. Compensation policies work through incentive and sorting effects to either achieve or not achieve company objectives. Efficiency and Motivational Approaches to Job Design Efficiency approach Focuses on maximizing employee productivity by specializing and simplifying jobs so that employees make fewer mistakes and maintain a high level of performance according to preset job procedures. Motivational approach Focuses on making jobs more interesting, challenging, and complex to encourage employees to want to work as effectively and efficiently as they can. Efficiency Approaches to Job Design Key goal is to maximize efficiency; emphasizes standardization/routinization of production processes Job Specialization The process by which division of labor occurs as different workers gain expertise in tasks. Job Simplification Removing decision-making authority from the employee and placing it with a supervisor. Efficiency Approaches to Job Design Scientific Management Division of labor Standardization/routinization of production process Time and motion study Efficiency Approaches to Job Design Advantages Able to carry out tasks efficiently and quickly. Reduces the amount of time that employees might spend thinking. Minimal errors. Lower the number and level of competencies required of new hires. Opens up a wider pool of job candidates, and jobs can be staffed more quickly. Employee training can be more focused. Labor costs are low. Disadvantages Lack complexity and variety and can lead to boredom, fatigue, and diminished job satisfaction. High turnover Hawthorne studies (human relations movement) Employees were more productive because… They were selected Being treated as special Having a sympathetic supervisor Employees are human beings Should incorporate psychological influences Motivational Approaches to Job Design Maximize an employee’s drive to work as hard as possible What makes a job fun? According to job characteristics model, employees are more motivated in their jobs when these five dimensions are present. Skill variety Task identity Task significance Autonomy Feedback Job Analysis Job analysis — systematically identifying tasks, duties and responsibilities expected to be performed in a job as well as competencies to be successful Job descriptions — written summaries of the specific tasks, responsibilities, and specifications (e.g., knowledge, skills, abilities, other qualifications) of a job Performing a Job Analysis Job Information - Observation: job analyst observes and documents activities performed while employee works (Based on actual work behavior. Difficult to see all the tasks) - Diary: employee keeps log of tasks and activities (Employees observe their job. Can be biased.) - Interview: job analyst conducts structured interviews of jobholder and supervisor (Uncover tasks that are not observable, May be inaccurate) - Questionnaire: standard questionnaire administered to large number of employees performing the job (Relatively cheap, Predetermined questions may miss unique aspects of the job) - O*Net (https://www.onetonline.org): Occupational Information Network (O*Net) is an online database created by the department of labor. It provides a comprehensive database of worker attributes and job characteristics (Free. But needs customization) - Combination External Competitiveness External competitiveness refers to the pay relationships among organizations – pay relative to competitors. Pay level is the average of the array of rates an employer pays. Pay mix is the various types of payments, or pay forms, that make up total compensation. $94,373 $72,159 External Competitiveness: Pay Mix Base pay: The cash compensation an employer pays for work performed. Annual salary (exempt from overtime pay) Hourly wage (eligible for overtime pay) Merit pay: Merit increases are given as performance-based increments to the base pay. Variable pay: Cash bonus that ties compensation to performance. Commission, profit sharing, gainsharing, stock ownership, stock options, etc. Benefit: A service or right provided by an employer in addition to cash compensation. Health insurance, vacation, work/life services, etc. Intrinsic Compensation Recognition Status Employment Security Challenging Work Learning Opportunities External Competitiveness: Pay Mix How Labor Markets Work Labor markets work with supply and demand of labor. Demand focuses on the actions of employers. Supply looks at potential employees. The market rate is where labor demand and labor supply cross. Pay-Level Policies To lead (Pay more than its competitors) To meet or match (Pay the same as its competitors) To follow competition, or lag (Pay less than its competitors) Lead Pay-Level Policy Efficiency wage theory suggests that employers might pay above-market wages 1. To attract high-quality workers 2. To induce higher effort (If they are fired, they will have to forfeit the wage premium) 3. To minimize turnover costs Efficiency wage is the wage above equilibrium that firms voluntarily pay to increase productivity and reduce turnover costs Maximizes the ability to attract and retain quality employees and minimizes employee pay dissatisfaction. Research links high wages to ease of attraction, reduced vacancy rates and training time, and better-quality employees. Lag Pay-Level Policy Labor costs = Pay level X Number of employees The higher the pay level relative to competitors, the greater the relative costs to provide similar products or services. Paying below market rates may hinder a firm’s ability to attract potential employees. If a lag pay-level policy is coupled with the promise of higher future returns, this may increase employee commitment and foster teamwork, increasing productivity. Sources of Wage Differentials Differences in knowledge, skills, abilities, and other qualifications. Industry’s product market and profitability Geographic regions Labor supply relative to employer demand for labor Unionization of the workforce Sample questions 1. A job description is best defined as ________. A) the description of the competencies that a jobholder must have to perform the job successfully. B) the study of the tasks, duties, and responsibilities of a job. C) the task statements that employees are expected to perform the job successfully. D) the written summary of the specific tasks, responsibilities, and specifications of a job. 2. A specific statement of what a worker does on a job is known as a(n) A) appraisal B) task C) position D) job structure Sample questions 3. The degree to which pay influences individual and aggregate motivation among employees is called a sorting effect. A) true B) false 4. Pay structure refers to the array of pay rates for different work or skills between competing companies. A) true B) false 5. Commissions are an example of incentives. A) true B) false