Example Of Compensation 2 Essay

1. External Competitiveness: It is the measure of the pay rate that the organization pays to its employees against what the competitor offers to pay. A compensation policy’s most important characteristic is to strike a balance between the internal equity and external competitiveness. External competitiveness is shaped by features such as Labor market factors such as nature of demand and nature of supply, Product market factors such as degree of competition and level of product demand and organizational factors such as industry and managerial factors.
2. Pay Policy Alternatives: Pay with competition, Lead Policy, Lag Policy, Share Choice, Flexible policy and Employer’s choice are some pay policy alternatives. To lead, to follow and to match competition is the guiding objective of a pay policy. Pay policies need to be designed to achieve certain pay objectives. The policy that could effectively control the costs and provide maximum satisfaction to the employees while retaining them qualifies for a good pay policy.
3. Marginal Product of Labor: It is additional output associated with the employment of one additional person while other production factors being constant. At times it becomes important for the managers to present the skills and competencies of labor terms of value. This is when the marginal product of labor comes into picture. However, the marginal product is never directly measurable.
4. Reservation Wage: It refers to the minimum level of wage below which any enticing job offer is not accepted by the labor. A reservation wage may be either higher or lower than the market wage. Reservation wage ensures the protection of labor from being exploited by the employer. It is generally perceived that whichever job offer first meets the reservation wage of a labor, he picks up that particular job. Also, it is a commonly believed notion by many economists that no other compensation is lucrative enough for a labor to accept an offer below the reservation wage.
5. Off shoring and Outsourcing: Off shoring implies the physical shift of a certain business process from one country to another while outsourcing means the transfer of business function to other sub contractors. While off shoring essentially requires the work to be done in another country, outsourcing requires the transfer of work to a contractor who may or may not be located in another country. Off shoring is generally critiqued for the job transfers and geo political factors that are included while outsourcing is critiqued for excessive dependence on the third parties and extremely skewed interests of the third parties associated.
6. Survey leveling and aging: During a survey process, if the job being surveyed about is similar and not identical to the company’s job for which the survey is carried out, then survey leveling is resorted to by the company in order to come to some similar terms. This is done by multiplying the survey data by a leveling factor that is deemed to bring the survey results to an equal base. A leveling factor is introduced by the analyst in accordance with the analyst’s understanding of the difference between the company job and the survey job. Such factor is used to bring both the survey job and company job to common terms. The process of updating the pay data using a process to forecast the competitive rates for the future date when the decisions regarding the pay shall be implemented is called aging.
7. CPI: Consumer price index is the measure of changes in prices of a fixed market group of goods and services. A rise in consumer price index sometimes makes the company’s to give a pay hike to the workers. Basing pay on the CPI will result in compensating the workers for the inflation rather than their competence. It is published by the Bureau of Labor Statistics, United States Department of Labor.
8. Grade mid point: All the jobs in the pay grade consist three levels, i.e. maximum, minimum and mid point. Mid point is that level where the pay is neither maximum nor minimum. It is that target level of pay meant for fully satisfactory and competent performers. This area reflects desirable salary levels for senior level employees also.
9. Grade overlap: The degree of overlap is determined by the differences in midpoints among the ranges and the range spread. On the basis of the calculation of the overlaps, promotions and increments are determined.
10. When an employee approaches a manager with salary data from the internet, the manager should be fully equipped with things like, salary survey reports, factor survey reports so that the manager is in a better position to justify the employee’s current salary.
11. Compensating differentials: the higher salaries that are offered to the employee to make up for any negative factors in the employment are known are compensating differentials. It is difficult to determine the exact compensating differential due to the vague nature of factors causing the needs for the payment of such differentials.
12. Employer of choice: It implies that apart from providing a competitive pay rate, the employees should also be rewarded with challenging work, friendly colleagues and a brand name to work with so that the organization is considered to be employee’s employer of choice.
13. Signaling theory: signaling theory assumes that employees deliberately design such pay levels and mix as a part of the strategy so that signals are issued to both prospective and current employees regarding the kinds of behaviors that are sought by the employers. It predicts the pay policy that has the potential to motivate a certain behavior from the employees that is most desirable to the employer.
14. Issues with skill based pay: Skill based pay creates huge concerns for cost control and also leads to bureaucracy. Moreover the skill based pay system is futile for the organizations where the jobs are not skill based.
15. Competency: It is the basic knowledge and skills of the employees to be exhibited in a competency based plan to perform the job in such a manner that they satisfy the customers and also achieve the objectives of the business. Some competencies that an executive should possess are, technical understanding, systems oriented, business skills, influencing personality, leadership attitude etc.