Carmine Faul HRMG 5920 Compensation Chapter 3

Spring II 2012 Make Up for missed class on March 28, 2012

1. Why is internal alignment an important policy in a strategic perspective of compensation? Internal alignment, often called internal equity, addresses relationships inside of an organization. It refers to the pay relationships among different jobs, skills or competencies within a single organization. The value of these relationships in an aligned organization is that it is that they tend to support the organization strategy, support the workflow, and motivate behavior toward organization objectives. Furthermore, an organization that is internally aligned and has the capability to adapt to changes will have the greatest change of success. 2. Discuss the factors that influence internal pay structures. Based on your own experience, which ones do you think are the most important? Why? Internal pay structures are defined by the number of levels of work, the pay differentials between each level and the criteria used to determine those levels and differentials. Factors that affect internal pay structures can be categorized as either external or organization factors. External factors include: Economic pressures Government policies, laws and regulations Stakeholders Cultures and customs

Organization factors include: Technology Human capital HR policy Employee acceptance

Carmine Faul HRMG 5920 Compensation

Spring II 2012 Make Up for missed class on March 28, 2012

Economic pressures include the supply and demand of labor, products and services. If the demand for a widgets goes down, there will need to be less of those widgets in inventory, therefore there is no need to make that product any more until the demand is increased. As a result there is no need to pay someone to make those items if they are not in demand and will not sell. Government has involvement in the form of the Civil Right Act, the Equal Pay Act, minimum wages, as well as maximums (which require special reporting requirements for executive pay). The latter, which is of most importance to the Stakeholders, especially the stockholders, who want to make money. The annual salary of a CEO in which a stockholder has corporate investment is of extreme importance. If a company is not showing a profit, yet its Chief Executive Officer (CEO) is making $100 million a year, the stockholders would revolt in masses and withdraw from a company, potentially liquidating holdings which could devalue the company stock and ultimately cause bankruptcy. Cultures and customs also influence the internal pay structure. As the example in our textbook mentioned, in Japan experience was valued heavily in shaping their internal pay structures. As people began to live longer, the practice en-force started to become expensive and many companies shifted older employees to lower-paying business units, emphasizing performance and downplaying seniority. This I might add would be perceived as age discrimination in the United States. Technology plays a big part in the internal pay structure of an organization. As process improvement evolves and more automation is utilized there will be less of a demand for certain skill sets and processes, especially in the manufacturing industry. Without the need for certain skills and process people may be removed from the organization by the process of rightsizing or delayering. Human capital in an organization involves the education, experience, knowledge, abilities and skills required to perform the work. The greater the value added by the skills, the more compensation those skills will command. The overall HR policy of the organization affects the internal pay structure, the biggest contributing factor being the number of echelons within the organization. The more steps that are available internally, will dictate the number of promotions which may be offered, but the smaller the increase in pay. Employee acceptance is base on the perceived notion by the employees that they are being treated fairly. Employees utilize the Equity Theory, which is that they judge the fairness of their pay through comparisons of similar employees both
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Carmine Faul HRMG 5920 Compensation

Spring II 2012 Make Up for missed class on March 28, 2012

internal to their organization as well as those working at competing organizations externally. I feel that all of the factors, both external and internal in nature to be important towards influencing internal pay structures, However, I feel that economic pressures and technology are the most prominent influences. During my 28 years working within the Department of Defense I have seen how the economy has affected the way we do business. With each passing year as the defense budget is cut I have seen entire bases closed, positions dissolved and projects scrubbed. All of these actions resulted in people losing their jobs, military and civilian pay freezes and decreases in promotion. The increase in technology (I feel is overall a good thing) but unfortunately it has automated many jobs and processes which were previously conducted by humans, hence making their positions obsolete and reducing the layers in some pay structures. 3. Internal structures are part of the incentives offered in organizations. Look into any organization: your college, workplace, or the grocery store where you shop. Describe the flow of work. How is the job structure aligned with the organizations business, the work flow, and its objectives? How do you believe it influences employee behaviors? I work as an intelligence analyst for the Department of The Army. For all practical purposes I am a civilian. However, there is certain training and events in which I have to attend due to the Army association. The unit that I work for is very structured; there are the Intelligence Analysts, the Quality Control Analysts and one Production Supervisor. The job is structured egalitarian in nature, the analyst work in teams (based by geography), we are all compensated at a very similar rate, we are very efficient and we aligned with the mission on the Army. As a result of the almost feeling of equality, we collaborate and share our findings and work together in a cooperative nature. We all get along and there is no sign of employee dissatisfaction, attrition is non-existent. 4. What is the just-wage doctrine? Can you think of any present-day applications? The just-wage doctrine was endorsed by the Christian church during the 14thcentury and was an effort to stabilize the economy by ending the economic and social

Carmine Faul HRMG 5920 Compensation

Spring II 2012 Make Up for missed class on March 28, 2012

chaos resulting from the loss of workers in which succumbed to the plague. It allowed workers to command higher wages as a result of the workforce shortage. As for present day applications, the only thing that comes to mind is that there is a national shortage of petroleum engineers. They are all getting older, retiring and passing away. For a few decades more emphasis has been placed on other disciplines of engineering; computer, electrical, mechanical, etc. Granted, these people are highly educated; however as a result of the shortage created, these new graduates are able to counter employment offers successfully, pretty much name their pay. 5. A typical structure within colleges is instructor, assistant professor, associate professor, full professor. Is this egalitarian or hierarchical? What added information would you need to decide? What behaviors by the faculty do you believe the structure influences? Is it aligned? Difficult to copy? Does it add value? It is hard to determine whether the college is based on a hierarchical or egalitarian structure. You would first need to know the differentials between the different positions (layers), and you would also need to know if the positions are delayered or compressed. The structure in which the college utilizes will influence faculty behaviors. For example in an Egalitarian structure there are less layers, therefore the perception is that there are less distance between the CEO and the lowest person in the organization. Therefore there is more equality present within the college and the assumption that more equal treatment will improve employee satisfaction, support cooperation and therefore positively affect a workers performance. However there is also a potentially detrimental effect of an egalitarian structure. Equal treatment can also mean that the more knowledgeable and experienced faculty members feel underpaid. They sense inequity and may decrease their performance to match that of their peers.