What does aging data involve?
Increasing market survey data by a percentage representative of wage movement.
What is a long-term cash incentive plan?
A plan that provides cash payouts to employees based on multi-year performance goals.
p.9
Adding a Premium to Compensation
What factors determine the amount of the premium added to a job's market rate?
The scope of the responsibilities and the importance of those responsibilities to the organization.
p.9
Adding a Premium to Compensation
Can you provide an example of a position that might require adding a premium?
Director, Human Resources and Security.
What is the purpose of aging published data from multiple sources?
To make consistent market comparisons between surveys.
p.15
Modeling and Regression Analysis
What is the purpose of creating a regression line in STEP 2?
To provide a line of best fit of market pay levels for each grade based on benchmark jobs' internal grades.
What are other terms used for the practice of aging data?
Advancing or trending the data.
How should survey data be tailored?
It should be tailored into your own organization’s compensation philosophy.
p.16
Modeling and Regression Analysis
What is the purpose of the regression line in pay structure analysis?
To calculate the market pay level for each internal grade.
p.34
Communication Strategies for Compensation
What is a potential issue with communicating survey sources used for compensation?
Employees might question why one survey source was used over another.
p.35
Utilizing Survey Data
What should compensation professionals be cautious about when using web-based survey sources?
They should be wary of the motives behind the data and the credibility of the sources.
p.30
Communication Strategies for Compensation
What is the role of the messenger in compensation communication?
To deliver the message and handle questions afterward.
p.34
Communication Strategies for Compensation
What is required from upper management for effective communication of compensation methods?
Buy-in from upper management.
p.35
Utilizing Survey Data
What role do resellers play in survey data access?
Resellers provide convenience by selling access to various alternative sources, including newspapers and job postings.
What is the risk of combining aging factors into one?
It may not result in a significant difference when market rates increase at low percentages, but becomes significant at higher rates.
p.32
Communication Strategies for Compensation
Is it appropriate for organizations to inform employees of all pay decisions?
Practices vary greatly from organization to organization and from industry to industry.
p.29
Communication Strategies for Compensation
What role do managers typically play in communication campaigns?
They are the voice of the programs.
p.27
Communication Strategies for Compensation
What is a key expectation employees have regarding compensation communication?
That it is honest, thorough, understandable, and relevant.
p.27
Communication Strategies for Compensation
How does effective communication reinforce employees' decisions?
By reinforcing their decision to join and remain with the company.
p.22
Total Cash Compensation
What type of data is more helpful for understanding employer incentives?
Short-term incentive data.
p.22
Total Cash Compensation
How can total cash compensation data be analyzed?
In much the same way as base pay data to assess competitiveness versus market.
What does the aging factor approach assume?
That actual pay in the labor market increases annually by the budgeted amount.
p.15
Modeling and Regression Analysis
What two variables are used to create the regression line?
Market rate composite data and benchmark jobs' internal grades.
p.9
Adding a Premium to Compensation
What is an alternative to blending when market data is unavailable for a hybrid job?
Using the market rate of the job for which you have data and adding a 'premium'.
p.38
Communication Strategies for Compensation
Why is communication about pay often challenging?
Because employees may feel they are being compensated unfairly.
p.26
Total Cash Compensation
Why is total direct compensation data important?
It becomes increasingly important for higher-level positions, especially for executives.
p.37
Utilizing Survey Data
What variables can contribute to differences in salary figures?
Sources, industry, geographic location, and organization size.
p.18
Short-Term Variable Pay
What is short-term variable pay?
Rewards based on the attainment of short-term results within a 12-month period or less, including any form of variable payment tied to performance.
What are full-value vehicles in stock plans?
Employees are awarded stock at its full market value, often in portions over time.
p.13
Modeling and Regression Analysis
What is the output of a regression analysis?
A linear equation (y = a + bx) that defines a straight line of 'best fit' through the data.
p.31
Communication Strategies for Compensation
Who should present the rollout of new compensation programs?
The business owner, with support from the compensation team.
p.28
Communication Strategies for Compensation
What is one key purpose of communication from an employer's perspective?
To reinforce corporate philosophy, culture, and values.
p.28
Communication Strategies for Compensation
How does communication help in achieving compensation program goals?
By clearly conveying the objectives and benefits of the program.
p.28
Communication Strategies for Compensation
What is a benefit of streamlining administration in communication?
It helps reduce the time HR administrators spend answering employee questions.
p.17
Modeling and Regression Analysis
What can improved pay structure design achieve?
More clearly identified problems that cannot be resolved within the context of the pay structure.
p.28
Communication Strategies for Compensation
How does effective communication contribute to productivity?
By improving employee engagement and clarity in roles.
p.36
Utilizing Survey Data
What caution should be taken regarding survey data aggregators?
They may not identify sources of their data and may have a vested interest in how or what information is reported.
p.32
Communication Strategies for Compensation
What is a common approach organizations take regarding communication of compensation philosophy?
Some organizations choose not to widely communicate it, while others adopt a more open approach.
What do most salary surveys include regarding salary increase movements?
They list salary increase movements in the executive summary or back pages, which tend to be very accurate.
p.14
Modeling and Regression Analysis
What is regression analysis used for in compensation?
To assess the need for adjustments to pay structures due to upward movement in the market.
p.35
Utilizing Survey Data
What key questions should be asked regarding the source of pay data on the internet?
Questions include the targeted audience, source of data, customer type, purpose of the data site, and who maintains the site.
How should aging be conducted over two calendar years?
Age one year first, then age the second year by compounding the increases.
p.27
Communication Strategies for Compensation
What should be clarified in compensation communication?
Expectations about compensation programs.
p.37
Utilizing Survey Data
What is a key factor in ensuring the relevance of survey sources?
They must represent the relevant labor market for the job in question.
p.27
Communication Strategies for Compensation
How can communication increase employee morale?
By improving the emotional environment and increasing job satisfaction.
p.21
Total Cash Compensation
What does base compensation data reflect?
What the market pays for base compensation, regardless of incentive eligibility.
p.11
Weighting Market Data
Why might some surveys receive greater weighting?
Based on judgments of quality.
p.22
Total Cash Compensation
What should compensation professionals consider when pricing jobs?
The dynamic between base pay and variable pay.
If a job is priced at 100,000, how long is it aged in the example provided?
24 months (from January to January, two years later).
p.36
Utilizing Survey Data
What should reputable surveys readily identify?
Key elements such as effective date of the data, term definitions, clarity of statistics, and position descriptions.
What type of questions does the exercise solution address?
Questions related to Aging Data.
How do long-term cash plans determine payouts?
Based on the attainment of one or more goals set by the organization.
p.34
Communication Strategies for Compensation
What is a major reason an organization might not communicate its pay philosophy?
If the organization targets the 25th percentile, it might not want to specifically communicate this information.
p.29
Communication Strategies for Compensation
What is the primary responsibility of managers and supervisors in organizations?
Communications with employees.
Are salary increase movements in surveys typically historical or projected?
They tend to be historical and not projected.
p.31
Communication Strategies for Compensation
What are some key components of specific pay-related messages?
Reason for the pay action, effective date, whether it's a one-time adjustment, and if it's a lump-sum or periodic action.
p.33
Communication Strategies for Compensation
Why is it important for an organization to communicate its compensation method?
To ensure the compensation program is perceived as fair and defensible.
p.22
Total Cash Compensation
What do organizations that do not provide variable pay often do to remain competitive?
They may pay higher base wages to compensate for the lack of variable pay.
What do long-term incentives cover?
Performance greater than one year.
p.11
Weighting Market Data
What factors contribute to the perceived quality of a survey?
The analysis provided, including scope and location.
p.19
Short-Term Variable Pay
What does it mean if awarded data is higher than target data?
Employees exceeded their targets for the survey period.
What is one benefit of long-term incentives for executives?
They afford 'holding power' over executives since they reward over a long term.
p.33
Communication Strategies for Compensation
How can employees benefit from understanding the compensation methodology?
They can understand why their jobs are priced as they are and what they need to do to advance in their careers.
p.13
Modeling and Regression Analysis
How does regression analysis assist in auditing compensation programs?
It ensures unbiased and objective application of pay for employees.
p.18
Short-Term Variable Pay
Are case-by-case bonuses typically included in salary survey data?
No, bonuses like retention, spot, or project completion bonuses are typically not included.
How do pay levels for executive-level employees compare to other employees?
They generally increase at a faster rate.
p.36
Utilizing Survey Data
What is a key characteristic of a good survey regarding sample size?
The survey must have large enough sample sizes for the jobs being assessed to ensure the information is valid.
What is essential for market pricing?
Knowing how to use the data collected.
p.16
Modeling and Regression Analysis
What should be compared to the regression line's market pay levels?
Current midpoints or current pay policy line.
What does blending job data involve?
Using the market rate for two or more jobs from a single survey to establish the market rate for a hybrid job.
What is a vesting period in the context of appreciation vehicles?
A period of time that must elapse before the employee can purchase (exercise) the stock.
p.12
Modeling and Regression Analysis
What is a model?
A representation of part of reality.
p.33
Communication Strategies for Compensation
What challenge do organizations face regarding employee compensation communication?
Communicating that the compensation program is fair and defensible.
What does the lead or lag approach determine?
It determines the desired competitive pay level versus market and to what point in time to age the survey data.
What is a common restriction associated with full-value vehicles?
Employees typically receive the stock in portions as they remain with the organization over time (restricted stock).
p.33
Communication Strategies for Compensation
What is a benefit of having a policy of open communication regarding compensation?
It allows the methodology and survey sources to be understood by employees, minimizing fears of unfairness.
p.13
Modeling and Regression Analysis
What is one way regression analysis helps in estimating market rates?
By estimating changes in market rates for jobs based on scope data like number of employees or company revenue.
p.11
Weighting Market Data
How does sample size affect the weighting of market data?
A survey source with a higher number of companies or incumbents reported may warrant greater weighting.
What is the key difference being analyzed in the aging data exercise?
The difference between compounding percentage increases and simply combining them.
What should be considered when selecting an annual aging factor?
Different rates of compensation increases for various employee groups.
What sources can be used for determining the aging factor?
Published projected salary increase budget surveys and providers like WorldatWork.
p.10
Weighting Market Data
What is a market rate composite?
A composite created from multiple survey sources for the same job.
What is the challenge in a perfect market pricing world?
Finding a single job description that matches every job in an organization.
p.16
Modeling and Regression Analysis
How does regression analysis assist in adjusting pay ranges?
It helps determine how much, if any, to adjust pay ranges to reflect market pay levels.
p.31
Communication Strategies for Compensation
What should be done if an answer about compensation is not known?
The messenger should be honest and inform the employee that they will find out and follow up later.
p.27
Communication Strategies for Compensation
Why is timely information important in compensation communication?
It provides employees with the information they need when they need it.
p.20
Total Cash Compensation
How does the importance of variable pay change with job levels?
It becomes more important at higher pay levels.
p.38
Communication Strategies for Compensation
What is an important step after receiving employee feedback?
Follow up on the feedback.
p.18
Short-Term Variable Pay
What are common types of short-term variable pay?
Incentive plans, bonuses, and recognition programs.
How are stock awards typically reported in surveys?
As a monetary figure based on various valuation methodologies that capture the intended value delivered to the recipient.
p.13
Modeling and Regression Analysis
What is 'simple' regression?
A type of regression analysis that involves only two variables.
p.18
Short-Term Variable Pay
Which types of variable pay are most commonly reported in survey data?
Incentive plans like profit sharing and performance sharing.
p.11
Weighting Market Data
What determines the weighting of a survey based on job matches?
The strength of the job match; stronger matches receive more weighting.
What factors should market research be based on?
Job level, industry type, geographic location, and type of compensation.
p.36
Utilizing Survey Data
Why is it important to identify data collection techniques in a survey?
To ensure the survey was properly conducted and reported.
p.15
Modeling and Regression Analysis
What should be done if an organization has multiple pay structures?
A separate regression will need to be performed for each pay structure.
p.26
Total Cash Compensation
How is total direct compensation calculated?
Total cash compensation plus long-term incentives.
p.31
Communication Strategies for Compensation
Why is accurate information important in communicating compensation?
It affects every employee personally and influences their commitment and engagement with the organization.
p.32
Communication Strategies for Compensation
What can a written compensation philosophy help achieve?
It can effectively communicate broad pay-related information to employees without getting overly detailed.
p.29
Communication Strategies for Compensation
How do organizations reinforce the value of effective communication?
By linking manager rewards to effective communications.
Can the weightings in job blending be adjusted?
Yes, weightings can be adjusted to place higher emphasis on one job over the other, but must total 100%.
p.21
Total Cash Compensation
What does total cash compensation include?
Both base salary and incentive compensation.
p.31
Communication Strategies for Compensation
How can utilizing 'business owners' improve the rollout of compensation programs?
It enhances acceptance and adds credibility by involving employees from affected departments.
p.17
Modeling and Regression Analysis
What is the first step to take when encountering outliers?
Verify the data, including job matches in the survey sources.
p.12
Modeling and Regression Analysis
Give an example of a type of model.
Blueprints, architectural drawings, or mathematical equations.
p.18
Short-Term Variable Pay
How does performance sharing differ from profit sharing?
Performance sharing involves multiple measures beyond a single financial performance measure, including operational and customer satisfaction metrics.
p.17
Modeling and Regression Analysis
What is the goal when eliminating outliers in regression analysis?
To better align the midpoints to achieve competitive goals for the majority of benchmark jobs.
Why is geographic location important in market research?
It affects compensation levels and trends.
p.10
Weighting Market Data
What is the purpose of using multiple survey sources for the same job?
To determine the relative importance (or weight) of each survey.
What are the two aspects of survey data analysis?
It is both an art and a science.
What is a combination long-term incentive plan?
A plan that provides a combination of stock and cash awards.
p.30
Communication Strategies for Compensation
Who should deliver general compensation communications to all employees?
Executives or Human Resources.
p.37
Communication Strategies for Compensation
Why is it important to understand source information when discussing surveys with employees?
To ensure accurate communication and understanding of salary figures.
p.26
Total Cash Compensation
What components may constitute the majority of an executive's compensation package?
Short-term and long-term compensation.
p.16
Modeling and Regression Analysis
What question does regression analysis help answer regarding market pay practice?
How the market pay practice matches the organization's pay policy.
p.30
Communication Strategies for Compensation
What should the messenger be briefed on before delivering a compensation message?
The 'what', 'how', and 'why' behind the compensation communication.
p.17
Modeling and Regression Analysis
What are outliers in regression analysis?
Data points that are anomalies in comparison with other data points.
p.35
Utilizing Survey Data
What risk is associated with secondary parties in survey data usage?
Survey users and providers without proper authorization could be liable for copyright infringement.
p.20
Total Cash Compensation
For higher job levels, how does variable pay affect total cash compensation?
Variable pay becomes an increasingly larger proportion of total cash compensation.
p.22
Total Cash Compensation
What is an advantage of variable pay for employers?
It is not fixed pay and must be re-earned for every performance period.
p.19
Short-Term Variable Pay
What does it indicate if awarded data is equal to target data?
Employees reached their target goals for the survey period.
p.19
Short-Term Variable Pay
What does it mean if awarded data is lower than target data?
Results were lower than their targets for the survey period.
p.21
Total Cash Compensation
What additional information can some surveys provide?
Statistics for both incentive-eligible employees and all employees.
p.17
Modeling and Regression Analysis
How should unusual benchmark jobs be handled?
They may need to be addressed by a special pay policy.
How can company culture influence long-term incentive programs?
Organizations that wish to build a sense of teamwork and ownership may include most or all employees.
What types of compensation should be considered in market research?
Base pay and total cash compensation.
What is crucial for successfully interpreting survey data?
Understanding how the statistics are computed.
What is the primary objective of stock in long-term incentive plans?
To align the motivations of the employee with those of the shareholders.
p.20
Total Cash Compensation
What does total cash compensation include?
Base pay plus short-term variable pay.
What are appreciation vehicles in stock plans?
They provide the employee the opportunity to purchase shares at a fixed price, allowing profit if the stock price appreciates.
p.26
Total Cash Compensation
What happens to base pay in relation to total compensation for executives?
Base pay becomes a relatively small percentage of their compensation.
p.29
Communication Strategies for Compensation
What can happen if managers do not support communication programs?
Employees may receive different messages than intended, leading to dissatisfaction.
p.32
Communication Strategies for Compensation
How does organizational culture influence compensation communication?
Compensation communications should be consistent with the organization’s culture, which may promote open communication to attract and retain employees.
p.29
Communication Strategies for Compensation
Why is manager accountability important in communication?
It holds managers and supervisors responsible for the role they play in communications.
p.18
Short-Term Variable Pay
What types of rewards can short-term variable pay include?
Monetary or nonmonetary rewards, such as event tickets, merchandise, or travel.
p.17
Modeling and Regression Analysis
What should be considered if outliers still exist after verification?
It may be appropriate to eliminate these outliers and perform the regression analysis again.
p.28
Communication Strategies for Compensation
Why is compliance with legal requirements important in communication?
To ensure that the organization adheres to laws and regulations.
p.28
Communication Strategies for Compensation
What attitude change is aimed for through effective communication?
Moving away from an entitlement mentality.
p.26
Total Cash Compensation
What is total direct compensation?
The sum of total cash compensation (base pay plus short-term variable pay) plus the value of long-term incentives.
p.30
Communication Strategies for Compensation
Why is it important to keep upper management informed about compensation programs?
So they can support and deliver effective communications and messaging regarding the compensation philosophy and strategy.
p.35
Utilizing Survey Data
What challenge might compensation professionals face regarding survey sources?
They might need to defend the survey sources used and justify why one survey is better than another.
p.34
Communication Strategies for Compensation
What could happen if communication about compensation is not clear and concise?
More questions concerning the compensation program could arise.
p.32
Communication Strategies for Compensation
What pay practices might organizations choose to communicate openly?
Where the organization positions its pay relative to the market, surveys used in market pricing, grades, and pay ranges.
p.11
Weighting Market Data
What should be reviewed when deciding if weighting market data is appropriate?
Compensation philosophy and strategy, quality of surveys, quality of job match, and sample size.
Give an example of a hybrid job.
Director, Human Resources and Security.
p.20
Total Cash Compensation
What percentage of total cash compensation does variable pay typically represent for lower-level jobs?
A small percentage, and sometimes lower-level employees do not participate in variable pay plans.
p.19
Short-Term Variable Pay
What does 'target' incentive data indicate?
What organizations would pay if incentive plans pay out at target levels.
p.33
Communication Strategies for Compensation
Why do employees scrutinize pay decisions more carefully now?
Because they have access to online data, trade publications, and information from friends at other organizations.
p.12
Modeling and Regression Analysis
What relationships can models help us understand?
Relationships between data sets.
p.18
Short-Term Variable Pay
What is profit sharing?
Plans that include a predetermined formula for allocating a share of the profits among participants.
How has eligibility for long-term incentives changed over time?
It is now common for middle management and key individual contributors to participate.
p.21
Total Cash Compensation
What is the purpose of total cash compensation data?
To provide an overall view of what the market pays for the job, including all employees.
p.36
Utilizing Survey Data
Why should survey participants and sample sources always be identified?
Because source information is crucial for assessing and recommending compensation program changes.
p.38
Communication Strategies for Compensation
What is one tip for effective communication with employees?
Convey a consistent message.
p.30
Communication Strategies for Compensation
Who is best suited to communicate compensation details at the individual employee level?
An immediate supervisor or manager.
p.37
Communication Strategies for Compensation
What should be considered about the source when discussing salary information from another organization?
Their pay philosophy, position within the range, primary duties, and education/experience levels.
p.11
Weighting Market Data
How should surveys within your industry be weighted according to compensation philosophy?
They should be more heavily weighted if your competitive labor market is defined as industry-specific.
How is the market rate derived for a hybrid job?
By blending the data for the relevant jobs, such as HR and Security directors.
p.12
Modeling and Regression Analysis
How can a model assist in compensation practices?
By helping to answer how the market pay practice matches the pay policy.
p.21
Total Cash Compensation
What does incentive compensation data indicate?
What the market pays for employees who received an incentive payment.
p.17
Modeling and Regression Analysis
How can a single extreme outlier affect regression analysis?
It can dramatically alter the equation for the line of best fit.
p.22
Total Cash Compensation
What can total cash compensation data provide?
A good indicator of the prevailing levels of compensation regardless of the mix between base and variable pay.
p.28
Communication Strategies for Compensation
How can communication increase an employer's ability to respond to employees?
By enhancing understanding of employees' needs and expectations.
p.28
Communication Strategies for Compensation
What is one way communication can build employee trust?
By increasing appreciation and a sense of fairness.
p.36
Utilizing Survey Data
What type of data should be reported in a good survey?
Aggregate (summarized) data.
p.38
Communication Strategies for Compensation
How should communication align within an organization?
It should align with the corporate mission, vision, strategic business plans, and organizational objectives.
p.20
Total Cash Compensation
How is total cash compensation calculated?
Base pay + short-term variable pay = total cash compensation.
p.14
Modeling and Regression Analysis
What is the first step in using regression to determine pay structure competitiveness?
Collect market rate composite data for benchmark jobs.
p.13
Modeling and Regression Analysis
What is regression analysis?
A statistical technique that measures the relationship between two variables.
p.21
Total Cash Compensation
Why might mean base salary plus mean incentive data not equal total cash compensation?
Because total cash compensation includes all employees, regardless of incentive eligibility.
p.22
Total Cash Compensation
How do organizations that provide variable pay typically structure their compensation?
They may pay less in base pay and compensate with a higher pay-at-risk component.
What drives the variable payment amounts of long-term incentives?
Individual performance as well as overall business performance.
p.13
Modeling and Regression Analysis
How can regression analysis be used in compensation?
To create or update pay structures using market data and job worth hierarchy information.
p.21
Total Cash Compensation
How does including only incentive-eligible employees affect average statistics?
It prevents skewing downward due to non-participating employees.
p.19
Short-Term Variable Pay
How can target data be useful in incentive plan design?
It helps determine where other employers are setting incentive targets for similar jobs.
Which industries may provide larger long-term incentives?
Industries like high tech.
What are the types of job levels to consider in market research?
Hourly, salaried, and executive.
