HRM Quiz 9

QUIZ #9: ESSAY TEST
1. Delineate the main decision areas and concepts in employee compensation management.
Compensation administer a great impact on employee attitudes and behavior and it can
be used as a power tool to align employees’ interest with those of organization. Main decision
areas to consider is the pay structure which refers to a consideration of pay level and job
structure. Pay level is defined as average pay of jobs in an organization. Job structure indicates
the relative pay of jobs in an organization.
Both pay level and job structure are characteristics of organizations and reflect decisions
about jobs rather than about individual employees. Standardizing the treatment of similar
employees can help greatly to make compensation administration and decision-making more
manageable and more equitable
2. Briefly describe the major administrative tools used to manage employee compensation.
Organizations must consider two important competitive market challenges in deciding
WHAT to pay its employees: (1) Product Market Competition, (2) Labor Market Competition
Product market competition is the ability of an organization sell their goods and services at a
quantity and price that will bring a sufficient return on their investment.
Labor market competition exhibits the number of workers available relative to the number of
jobs available. Shortages and surpluses influence pay levels.
3. Explain the importance of competitive labor market and product market forces in
compensation decisions
In the case of attracting and retaining employees are difficult and the cost of recruiting
are high, competitive labor market is the most significance approach since it reflects the number
of workers available relative to the number of jobs available. Shortages and surpluses influence
pay levels. While, on the various cases such as labor cost represent a large share total costs,
product demand is elastic while supply labor is inelastic and employee skills a re specific to the
product market, product market forces is considered the most important since it is able to sell
their goods and services at a quantity and price that will bring a sufficient return on their
investment. Organizations compete on multiple dimensions (quality, service, and so on), and
price is one of the most important dimensions. An important influence on price is the cost of
production
4. Discuss the significance of process issues such as communication in compensation
management.
Communicating the need and then timing it in such a way as to derive maximum
advantage are essential to the communication process. Of course, there are many firms that do
not entertain any sort of negotiation and there are firms that put up pretense of negotiation
when in reality, they do not budge at all. In these cases, it is better to adopt a wait and watch
policy and make your move once they get into the details of your compensation. A successful
communication hinges on the willingness of both the parties to hear each other and an ability to
arrive at a common denominator in a spirit of accommodation. Hence, do not be overtly rigid
and at the same time do not give in to the employer totally.
5. Discuss the new developments in the design of pay structures.

It is important to note that both internal and external comparisons must be considered
in making compensation decisions. However, because the pay structures suggested by internal
and external comparisons do not necessarily converge, employers must carefully balance them.
Studies suggest that employers may differ significantly in the degree to which 116 they place
priority on internal- or external-comparison data in developing pay structures.
6. Explain the reasons for the controversy over executive pay?

1. The top jobs are getting bigger - the CEO of Facebook is doing a job that didn’t exist 10 years
ago. Many top jobs have grown immeasurably over the past few years. The jobs at the
bottom of the career ladder are broadly the same.
2. Few people have the skills required - there are very few people with the talent and mindset
required to run our biggest companies. Executives have more responsibilities and operate in
roles that require exceptional time commitment and potential reputational risk.
3. We need to be competitive - market rates for executives are largely set at an international
level. The UK needs to be attractive in the face of large executive packages elsewhere to
compete and secure talent.
4. It’s mostly performance-related - the most significant factor behind the rise in executive pay
is the increased use of performance incentives. In the past variable bonuses may have made
up 20-30% of the executive package, today it’s more like 90% (Judge Business School).
5. We need our companies to be the best they can be – this means being run by our most
talented people. There’s a lot at stake. Long-term performance of the FTSE100 directly
affects the welfare of the whole country through the value of pensions, savings and
insurance assets (Hedley May).
6. An increasing gap can mislead - the size of the gap between executives and workers is
uncomfortable. But ironically the recent upturn in employment levels will only increase this
gap. It further increases the proportion of people in roles earning below the Living Wage
which in turn decreases the average wage.

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QUIZ #9: ESSAY TEST

5. Discuss the new developments in the design of pay structures.

6. Explain the reasons for the controversy over executive pay?

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