Solution Manual For Strategic Compensation: Human Resource Management Approach, 10th Edition
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Strategic Compensation:
A Human Resource
Management Approach
Tenth Edition
Joseph J. Martocchio
Solution Manual
Lori Long
A Human Resource
Management Approach
Tenth Edition
Joseph J. Martocchio
Solution Manual
Lori Long
iii
Table of Contents
CHAPTER 1
Strategic Compensation: A Component of Human Resource Systems.........................1
I. Overview
II. Defining Strategic Compensation
III. Compensation as a Strategic Business Partner
IV. Strategic Compensation Decisions
V. Building Blocks and Structure of Strategic Compensation Systems
VI. Fitting the Compensation Function in an Organization’s Structure
VII. Stakeholders of the Compensation System
VIII. Developing Skills for your Career
IX. Key Terms
X. Discussion Questions and Suggested Answers
XI. Preparing for My Career: Compensation in Action
XII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XIII. Crunch the Numbers!: Questions and Suggested Student Responses
XIV. Working Together: Team Exercise with Suggested Student Responses
XV. Assisted-Graded Questions
XVI. Additional Case from the MyLab Management website; Instructor Notes and
Questions and Suggested Student Responses
CHAPTER 2
Contextual Influences on Compensation Practice ........................................................19
I. Overview
II. Interindustry Wage Differentials
III. Pay Differentials Based on Occupational Characteristics
IV. Geographic Pay Differentials
Table of Contents
CHAPTER 1
Strategic Compensation: A Component of Human Resource Systems.........................1
I. Overview
II. Defining Strategic Compensation
III. Compensation as a Strategic Business Partner
IV. Strategic Compensation Decisions
V. Building Blocks and Structure of Strategic Compensation Systems
VI. Fitting the Compensation Function in an Organization’s Structure
VII. Stakeholders of the Compensation System
VIII. Developing Skills for your Career
IX. Key Terms
X. Discussion Questions and Suggested Answers
XI. Preparing for My Career: Compensation in Action
XII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XIII. Crunch the Numbers!: Questions and Suggested Student Responses
XIV. Working Together: Team Exercise with Suggested Student Responses
XV. Assisted-Graded Questions
XVI. Additional Case from the MyLab Management website; Instructor Notes and
Questions and Suggested Student Responses
CHAPTER 2
Contextual Influences on Compensation Practice ........................................................19
I. Overview
II. Interindustry Wage Differentials
III. Pay Differentials Based on Occupational Characteristics
IV. Geographic Pay Differentials
iii
Table of Contents
CHAPTER 1
Strategic Compensation: A Component of Human Resource Systems.........................1
I. Overview
II. Defining Strategic Compensation
III. Compensation as a Strategic Business Partner
IV. Strategic Compensation Decisions
V. Building Blocks and Structure of Strategic Compensation Systems
VI. Fitting the Compensation Function in an Organization’s Structure
VII. Stakeholders of the Compensation System
VIII. Developing Skills for your Career
IX. Key Terms
X. Discussion Questions and Suggested Answers
XI. Preparing for My Career: Compensation in Action
XII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XIII. Crunch the Numbers!: Questions and Suggested Student Responses
XIV. Working Together: Team Exercise with Suggested Student Responses
XV. Assisted-Graded Questions
XVI. Additional Case from the MyLab Management website; Instructor Notes and
Questions and Suggested Student Responses
CHAPTER 2
Contextual Influences on Compensation Practice ........................................................19
I. Overview
II. Interindustry Wage Differentials
III. Pay Differentials Based on Occupational Characteristics
IV. Geographic Pay Differentials
Table of Contents
CHAPTER 1
Strategic Compensation: A Component of Human Resource Systems.........................1
I. Overview
II. Defining Strategic Compensation
III. Compensation as a Strategic Business Partner
IV. Strategic Compensation Decisions
V. Building Blocks and Structure of Strategic Compensation Systems
VI. Fitting the Compensation Function in an Organization’s Structure
VII. Stakeholders of the Compensation System
VIII. Developing Skills for your Career
IX. Key Terms
X. Discussion Questions and Suggested Answers
XI. Preparing for My Career: Compensation in Action
XII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XIII. Crunch the Numbers!: Questions and Suggested Student Responses
XIV. Working Together: Team Exercise with Suggested Student Responses
XV. Assisted-Graded Questions
XVI. Additional Case from the MyLab Management website; Instructor Notes and
Questions and Suggested Student Responses
CHAPTER 2
Contextual Influences on Compensation Practice ........................................................19
I. Overview
II. Interindustry Wage Differentials
III. Pay Differentials Based on Occupational Characteristics
IV. Geographic Pay Differentials
iv
V. Labor Unions
VI. Employment Laws That Influence Compensation Tactics
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested
Student Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise
XIII. Assisted-Graded Questions
XIV. Additional Case from the MyLab Management Website; Instructor Notes and
Questions and Suggested Student Responses
CHAPTER 3
Traditional Bases for Pay: Seniority and Merit ............................................................35
I. Seniority and Longevity Pay
II. Merit Pay
III. Performance Appraisal
IV. Strengthening the Pay-for-Performance Link
V. Possible Limitations of Merit Pay Programs
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers!: Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Case from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 4
Incentive Pay ....................................................................................................................52
I. Exploring Incentive Pay
II. Contrasting Incentive Pay with Traditional Pay
III. Individual Incentives
IV. Group Incentives
V. Company-Wide Incentives
VI. Designing Incentive Pay Programs
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
V. Labor Unions
VI. Employment Laws That Influence Compensation Tactics
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested
Student Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise
XIII. Assisted-Graded Questions
XIV. Additional Case from the MyLab Management Website; Instructor Notes and
Questions and Suggested Student Responses
CHAPTER 3
Traditional Bases for Pay: Seniority and Merit ............................................................35
I. Seniority and Longevity Pay
II. Merit Pay
III. Performance Appraisal
IV. Strengthening the Pay-for-Performance Link
V. Possible Limitations of Merit Pay Programs
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers!: Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Case from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 4
Incentive Pay ....................................................................................................................52
I. Exploring Incentive Pay
II. Contrasting Incentive Pay with Traditional Pay
III. Individual Incentives
IV. Group Incentives
V. Company-Wide Incentives
VI. Designing Incentive Pay Programs
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
v
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 5
Person-Focused Pay .........................................................................................................68
I. Defining Person-Focused Pay: Competency-Based, Pay-for-Knowledge, and
Skill-Based
II. Usage of Person-Focused Pay Programs
III. Reasons to Adopt Person-Focused Pay Programs
IV. Varieties of Person-Focused Pay Programs
V. Contrasting Person-Focused Pay with Job-Based Pay
VI. Advantages and Disadvantages of Person-Focused Pay Programs
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Working Together: Team Exercise
XII. Crunch the Numbers! Questions and Suggested Student Responses
XIII. Assisted-graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 6
Building Internally Consistent Compensation Systems ...............................................81
I. Internal Consistency
II. Job Analysis
III. Job Evaluation
IV. Job Evaluation Techniques
V. Internally Consistent Compensation Systems and Competitive Strategy
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Case from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 5
Person-Focused Pay .........................................................................................................68
I. Defining Person-Focused Pay: Competency-Based, Pay-for-Knowledge, and
Skill-Based
II. Usage of Person-Focused Pay Programs
III. Reasons to Adopt Person-Focused Pay Programs
IV. Varieties of Person-Focused Pay Programs
V. Contrasting Person-Focused Pay with Job-Based Pay
VI. Advantages and Disadvantages of Person-Focused Pay Programs
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Working Together: Team Exercise
XII. Crunch the Numbers! Questions and Suggested Student Responses
XIII. Assisted-graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 6
Building Internally Consistent Compensation Systems ...............................................81
I. Internal Consistency
II. Job Analysis
III. Job Evaluation
IV. Job Evaluation Techniques
V. Internally Consistent Compensation Systems and Competitive Strategy
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Case from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
vi
CHAPTER 7
Building Market-Competitive Compensation Systems ................................................98
I. Market-Competitive Pay Systems: The Basic Building Blocks
II. Compensation Surveys
III Integrating Internal Job Structures with External Market Pay Rates
IV. Compensation Policies and Strategic Mandates
V. Key Terms
VI. Discussion Questions and Suggested Answers
VII. Preparing for My Career: Compensation in Action
VIII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
IX. Crunch the Numbers! Questions and Suggested Student Responses
X. Working Together: Team Exercise with Suggested Student Responses
XI. Assisted-Graded Questions
XII. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 8
Building Pay Structures That Recognize Employee Contributions ..........................113
I. Constructing a Pay Structure
II. Designing Merit Pay Systems
III. Designing Sales Incentive Compensation Plans
IV. Designing Person-focused Programs
V. Pay Structure Variations
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 9
Discretionary Benefits ...................................................................................................132
I. Origins of Discretionary Benefits
II. Categories of Discretionary Benefits
III. Legislation Pertinent to Discretionary Benefits
IV. Designing and Planning the Benefits Program
V. The Benefits and Costs of Discretionary Benefits
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
CHAPTER 7
Building Market-Competitive Compensation Systems ................................................98
I. Market-Competitive Pay Systems: The Basic Building Blocks
II. Compensation Surveys
III Integrating Internal Job Structures with External Market Pay Rates
IV. Compensation Policies and Strategic Mandates
V. Key Terms
VI. Discussion Questions and Suggested Answers
VII. Preparing for My Career: Compensation in Action
VIII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
IX. Crunch the Numbers! Questions and Suggested Student Responses
X. Working Together: Team Exercise with Suggested Student Responses
XI. Assisted-Graded Questions
XII. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 8
Building Pay Structures That Recognize Employee Contributions ..........................113
I. Constructing a Pay Structure
II. Designing Merit Pay Systems
III. Designing Sales Incentive Compensation Plans
IV. Designing Person-focused Programs
V. Pay Structure Variations
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 9
Discretionary Benefits ...................................................................................................132
I. Origins of Discretionary Benefits
II. Categories of Discretionary Benefits
III. Legislation Pertinent to Discretionary Benefits
IV. Designing and Planning the Benefits Program
V. The Benefits and Costs of Discretionary Benefits
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. Preparing for My Career: Compensation in Action
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vii
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Cases from the MyLab Management Website; Instructor Notes,
Questions and Suggested Student Responses
CHAPTER 10
Legally Required Benefits .............................................................................................151
I. Origins of Legally Required Benefits
II. Categories of Legally Required Benefits
III. Health Insurance Program Design Alternatives
IV. Additional Health Care Legislation
V. The Benefits and Costs of Legally Required Benefits
VI. Key Terms
VII. Preparing for My Career: Compensation in Action
VIII. Discussion Questions and Suggested Answers
IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Cases from the MyLab Management Website; Instructor Notes, and
Suggested Student Responses
CHAPTER 11
Compensating Executives ..............................................................................................173
I. Contrasting Executive Pay with Pay for Nonexecutive Employees
II. Defining Executive Status
III. Executive Compensation Packages
IV. Principles and Processes for Setting Executive Compensation
V. Executive Compensation Disclosure Rules
VI. Executive Compensation: Are U.S. Executives Paid Too Much?
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
IX. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Cases from the MyLab Management Website; Instructor Notes,
Questions and Suggested Student Responses
CHAPTER 10
Legally Required Benefits .............................................................................................151
I. Origins of Legally Required Benefits
II. Categories of Legally Required Benefits
III. Health Insurance Program Design Alternatives
IV. Additional Health Care Legislation
V. The Benefits and Costs of Legally Required Benefits
VI. Key Terms
VII. Preparing for My Career: Compensation in Action
VIII. Discussion Questions and Suggested Answers
IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student
Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Working Together: Team Exercise with Suggested Student Responses
XII. Assisted-Graded Questions
XIII. Additional Cases from the MyLab Management Website; Instructor Notes, and
Suggested Student Responses
CHAPTER 11
Compensating Executives ..............................................................................................173
I. Contrasting Executive Pay with Pay for Nonexecutive Employees
II. Defining Executive Status
III. Executive Compensation Packages
IV. Principles and Processes for Setting Executive Compensation
V. Executive Compensation Disclosure Rules
VI. Executive Compensation: Are U.S. Executives Paid Too Much?
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
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viii
CHAPTER 12
Compensating the Flexible Work Force:
Contingent Employees and Flexible Work Schedules ................................................193
I. The Contingent Workforce
II. Pay and Employee Benefits for Contingent Workers
III. Flexible Work Schedules: Flextime, Compressed Work Weeks, and
Telecommuting
IV. Pay and Employee Benefits for Flexible Employees
V. Unions’ Reactions to Contingent and Flexible Workers
VI. Strategic Issues and Choices in Using Contingent and Flexible Workers
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 13
Compensating Expatriates ............................................................................................212
I. Competitive Advantage and How International Activities Fit In
II. Preliminary Considerations
III. Components of International Compensation Programs
IV. Incentive Compensation for U.S. Expatriates
V. Establishing Employee Benefits for U.S. Expatriates
VI. Balance Sheet Approach for U.S. Expatriates’ Compensation Packages
VII. Repatriation Pay Issues
VIII. Key Terms
IX. Discussion Questions and Suggested Answers
X. Preparing for My Career: Compensation in Action
XI. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XII. Crunch the Numbers! Questions and Suggested Student Responses
XIII. Working Together: Team Exercise with Suggested Student Responses
XIV. Assisted-Graded Questions
XV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 12
Compensating the Flexible Work Force:
Contingent Employees and Flexible Work Schedules ................................................193
I. The Contingent Workforce
II. Pay and Employee Benefits for Contingent Workers
III. Flexible Work Schedules: Flextime, Compressed Work Weeks, and
Telecommuting
IV. Pay and Employee Benefits for Flexible Employees
V. Unions’ Reactions to Contingent and Flexible Workers
VI. Strategic Issues and Choices in Using Contingent and Flexible Workers
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
CHAPTER 13
Compensating Expatriates ............................................................................................212
I. Competitive Advantage and How International Activities Fit In
II. Preliminary Considerations
III. Components of International Compensation Programs
IV. Incentive Compensation for U.S. Expatriates
V. Establishing Employee Benefits for U.S. Expatriates
VI. Balance Sheet Approach for U.S. Expatriates’ Compensation Packages
VII. Repatriation Pay Issues
VIII. Key Terms
IX. Discussion Questions and Suggested Answers
X. Preparing for My Career: Compensation in Action
XI. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XII. Crunch the Numbers! Questions and Suggested Student Responses
XIII. Working Together: Team Exercise with Suggested Student Responses
XIV. Assisted-Graded Questions
XV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
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ix
CHAPTER 14
Pay and Benefits Outside the United States ................................................................230
I. Introduction
II. Pertinent Concepts for Quantifying Economic Elements in the Discussion of Pay
and Benefits Outside the United States
III. North America
IV. South America
V. Europe
VI. Asia
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases: Instructor Notes, and Questions and Suggested Student
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
EPILOGUE
Challenges Facing Compensation Professionals .........................................................247
I. Overview
II. Possible Increase to the Federal Minimum Wage Rate
III. Trends in Performance Appraisal
IV. The Compensation-Productivity Gap
V. Gender Pay Gap
VI. Pay Transparency
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Assisted-Graded Questions
X. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
Sample Syllabus .............................................................................................................254
Building Strategic Compensation Systems .................................................................256
CHAPTER 14
Pay and Benefits Outside the United States ................................................................230
I. Introduction
II. Pertinent Concepts for Quantifying Economic Elements in the Discussion of Pay
and Benefits Outside the United States
III. North America
IV. South America
V. Europe
VI. Asia
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Preparing for My Career: Compensation in Action
X. End of Chapter Cases: Instructor Notes, and Questions and Suggested Student
XI. Crunch the Numbers! Questions and Suggested Student Responses
XII. Working Together: Team Exercise with Suggested Student Responses
XIII. Assisted-Graded Questions
XIV. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
EPILOGUE
Challenges Facing Compensation Professionals .........................................................247
I. Overview
II. Possible Increase to the Federal Minimum Wage Rate
III. Trends in Performance Appraisal
IV. The Compensation-Productivity Gap
V. Gender Pay Gap
VI. Pay Transparency
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. Assisted-Graded Questions
X. Additional Cases from the MyLab Management Website; Instructor Notes, and
Questions and Suggested Student Responses
Sample Syllabus .............................................................................................................254
Building Strategic Compensation Systems .................................................................256
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254
Sample Syllabus
Martocchio, Strategic Compensation: A Human Resource Management Approach, 10e
Suggested Grade Distribution
First team written report (based on
Strategic Analysis in Building Strategic
Compensation Systems (BSCS): 15% of course grade
Second team written report (based on
Internal Consistency part of casebook): 15% of course grade
Third team written report (based on
Market Competitiveness part of
the BSCS casebook): 15% of course grade
Team oral report (based on
Employee Contributions part of casebook): 15% of course grade
Compensation mid-term exam: 15% of course grade
Compensation final exam: 20% of course grade
Individual class participation: 5% of course grade
Compensation Team Project: Building Strategic Compensation Systems
This experiential project is designed to provide you an opportunity to integrate and apply
knowledge that you will learn in this course. Teams of 5 class members will be
established to complete this project that consists of four separate reports (one report for
team for each part of the project. The four reports and due dates are listed below:
Written Report 1: Strategic Analysis (Week 3)
Written Report 2: Internal Consistency (Week 7)
Written Report 3: Market Competitiveness (Week 12)
Team Oral Report: Employee Contributions (Week 15)
Each team will serve as compensation experts who have been hired by the firm to
develop an integrated compensation plan. An instructor’s grade will be assigned to each
report for each team. All team members will receive the same grade based on the
instructor’s evaluation.
Each part of the case builds uniquely on your answers to prior parts of the case.
Each report should be written as recommendations to top management. A good approach
to developing the report is to identify and discuss decisions that must be made to meet the
objectives. Each decision should be supported with rationale that is logical and based on
the content presented within your texts. Identify plausible alternatives to your decisions,
and discuss possible problems that may be encountered.
Sample Syllabus
Martocchio, Strategic Compensation: A Human Resource Management Approach, 10e
Suggested Grade Distribution
First team written report (based on
Strategic Analysis in Building Strategic
Compensation Systems (BSCS): 15% of course grade
Second team written report (based on
Internal Consistency part of casebook): 15% of course grade
Third team written report (based on
Market Competitiveness part of
the BSCS casebook): 15% of course grade
Team oral report (based on
Employee Contributions part of casebook): 15% of course grade
Compensation mid-term exam: 15% of course grade
Compensation final exam: 20% of course grade
Individual class participation: 5% of course grade
Compensation Team Project: Building Strategic Compensation Systems
This experiential project is designed to provide you an opportunity to integrate and apply
knowledge that you will learn in this course. Teams of 5 class members will be
established to complete this project that consists of four separate reports (one report for
team for each part of the project. The four reports and due dates are listed below:
Written Report 1: Strategic Analysis (Week 3)
Written Report 2: Internal Consistency (Week 7)
Written Report 3: Market Competitiveness (Week 12)
Team Oral Report: Employee Contributions (Week 15)
Each team will serve as compensation experts who have been hired by the firm to
develop an integrated compensation plan. An instructor’s grade will be assigned to each
report for each team. All team members will receive the same grade based on the
instructor’s evaluation.
Each part of the case builds uniquely on your answers to prior parts of the case.
Each report should be written as recommendations to top management. A good approach
to developing the report is to identify and discuss decisions that must be made to meet the
objectives. Each decision should be supported with rationale that is logical and based on
the content presented within your texts. Identify plausible alternatives to your decisions,
and discuss possible problems that may be encountered.
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255
Each written report should be summarized in a one to three-page executive
summary at the front. This executive summary should contain the major objectives of the
report and the corresponding major findings. Also, the body of the report should follow
the outline included at the beginning of each part of the BSCS casebook.
Suggested Course Schedule 1
Week Reading Assignment
1
Chapter 1: Strategic Compensation A Component of Human Resource Systems
(corresponds to the topic of the Strategic Analysis in the BSCS casebook)
2 Chapter 2: Contextual Influences on Compensation Practice
3 Team Written Report (Strategic
Analysis) is due.
Chapter 6: Building Internally Consistent Compensation Systems (corresponds to
the topic of Section 1 in the BSCS casebook)
4
Chapter 3: Traditional Bases for Pay: Seniority and Merit
&
Chapter 4: Incentive Pay
5
Chapter 4: Incentive Pay (continued)
&
Chapter 5: Person-Focused Pay
6 Chapter 9: Discretionary Benefits
7 Team Written Report (Internal
Consistency) is due.
Chapter 10: Legally Required Benefits
8
Mid-Term Exam (Chapters 1-6; 9-
10)
9 Chapter 7: Building Market-Competitive Compensation Systems
10 Chapter 11: Compensating Executives
11
Chapter 12: Compensating the Flexible Workforce: Contingent Employees and
Flexible Work Schedules
12 Team Written Report (Market
Competitiveness) is due.
Chapter 8: Building Structures that Recognize Employee Contributions
(corresponds to the topic of Employee Contributions in the BSCS casebook)
13 Chapter 13: Compensating Expatriates
14 Chapter 14: Pay and Benefits Outside the United States
15 Team Written Report (Employee
Contributions) is due. Chapter 15: Challenges Facing Compensation Professionals
16 Final Exam (Chapters 7-8 and 11-15)
1 This course schedule is based on the use of the BSCS case. For course schedules that do not include the BSCS case,
the material can be presented in the order in which it appears in the book.
Each written report should be summarized in a one to three-page executive
summary at the front. This executive summary should contain the major objectives of the
report and the corresponding major findings. Also, the body of the report should follow
the outline included at the beginning of each part of the BSCS casebook.
Suggested Course Schedule 1
Week Reading Assignment
1
Chapter 1: Strategic Compensation A Component of Human Resource Systems
(corresponds to the topic of the Strategic Analysis in the BSCS casebook)
2 Chapter 2: Contextual Influences on Compensation Practice
3 Team Written Report (Strategic
Analysis) is due.
Chapter 6: Building Internally Consistent Compensation Systems (corresponds to
the topic of Section 1 in the BSCS casebook)
4
Chapter 3: Traditional Bases for Pay: Seniority and Merit
&
Chapter 4: Incentive Pay
5
Chapter 4: Incentive Pay (continued)
&
Chapter 5: Person-Focused Pay
6 Chapter 9: Discretionary Benefits
7 Team Written Report (Internal
Consistency) is due.
Chapter 10: Legally Required Benefits
8
Mid-Term Exam (Chapters 1-6; 9-
10)
9 Chapter 7: Building Market-Competitive Compensation Systems
10 Chapter 11: Compensating Executives
11
Chapter 12: Compensating the Flexible Workforce: Contingent Employees and
Flexible Work Schedules
12 Team Written Report (Market
Competitiveness) is due.
Chapter 8: Building Structures that Recognize Employee Contributions
(corresponds to the topic of Employee Contributions in the BSCS casebook)
13 Chapter 13: Compensating Expatriates
14 Chapter 14: Pay and Benefits Outside the United States
15 Team Written Report (Employee
Contributions) is due. Chapter 15: Challenges Facing Compensation Professionals
16 Final Exam (Chapters 7-8 and 11-15)
1 This course schedule is based on the use of the BSCS case. For course schedules that do not include the BSCS case,
the material can be presented in the order in which it appears in the book.
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256
Building Strategic Compensation Systems
Greetings! Thank you for adopting the Building Strategic Compensation Systems case in
your course. Your students will benefit tremendously from your decision to provide them
with an experiential learning opportunity.
As you know, students will have the student edition of this case, and software (a
Microsoft Excel application) accompanies the case to facilitate analyses of compensation
data. Our goal in this instructor’s manual is to help you provide a positive learning
experience for your students. The instructor’s manual includes all of the material that the
student edition contains plus we provide you with useful tips throughout this manual for
working with students.
A detailed summary of the case project follows in the next section. In a nutshell, Building
Strategic Compensation Systems will allow students to work in small compensation
consulting teams charged with the responsibility for developing a compensation plan for
a company named E-Sonic. The project is divided into four sections, which correspond to
fundamental goals of compensation practitioners as described in chapters in the Strategic
Compensation: A Human Resource Management Approach (10th edition) textbook
published by Pearson Education, Inc. (ISBN: 9780135192146):
Strategic Analysis: Chapters 1 (and Appendix 1 contained at the end of this manual)
Section 1: Chapter 6
Section 2: Chapter 7
Section 3: Chapters 3 through 5 and 8
The strategic analysis and sections may each be completed in two to three weeks, fitting
well with semester-long courses. Instructors whose courses include a variety of additional
activities or span only seven to ten weeks may have students complete only three of the
four sections in either configuration (Strategic Analysis and Sections 1 and 2, or Sections
1 through 3). The instructor may have student groups prepare written reports or give oral
presentations to the class. Report outlines are included in the instructor’s and student’s
casebook versions.
Of course, we welcome your feedback about this case and will be happy to answer
instructor questions directly. Feel free to contact author Professor Joe Martocchio at the
University of Illinois (martocch@illinois.edu or 217-244-4098).
Sincerely,
David Barcelona
Joe Martocchio
Building Strategic Compensation Systems
Greetings! Thank you for adopting the Building Strategic Compensation Systems case in
your course. Your students will benefit tremendously from your decision to provide them
with an experiential learning opportunity.
As you know, students will have the student edition of this case, and software (a
Microsoft Excel application) accompanies the case to facilitate analyses of compensation
data. Our goal in this instructor’s manual is to help you provide a positive learning
experience for your students. The instructor’s manual includes all of the material that the
student edition contains plus we provide you with useful tips throughout this manual for
working with students.
A detailed summary of the case project follows in the next section. In a nutshell, Building
Strategic Compensation Systems will allow students to work in small compensation
consulting teams charged with the responsibility for developing a compensation plan for
a company named E-Sonic. The project is divided into four sections, which correspond to
fundamental goals of compensation practitioners as described in chapters in the Strategic
Compensation: A Human Resource Management Approach (10th edition) textbook
published by Pearson Education, Inc. (ISBN: 9780135192146):
Strategic Analysis: Chapters 1 (and Appendix 1 contained at the end of this manual)
Section 1: Chapter 6
Section 2: Chapter 7
Section 3: Chapters 3 through 5 and 8
The strategic analysis and sections may each be completed in two to three weeks, fitting
well with semester-long courses. Instructors whose courses include a variety of additional
activities or span only seven to ten weeks may have students complete only three of the
four sections in either configuration (Strategic Analysis and Sections 1 and 2, or Sections
1 through 3). The instructor may have student groups prepare written reports or give oral
presentations to the class. Report outlines are included in the instructor’s and student’s
casebook versions.
Of course, we welcome your feedback about this case and will be happy to answer
instructor questions directly. Feel free to contact author Professor Joe Martocchio at the
University of Illinois (martocch@illinois.edu or 217-244-4098).
Sincerely,
David Barcelona
Joe Martocchio
Loading page 12...
257
About the Authors
David Barcelona is a 2005 Graduate of the University of Illinois’ Master’s Program in
Human Resources and Industrial Relations. He previously served as a consultant for a
renowned executive compensation consulting firm.
Joseph J. Martocchio is Professor of Human Resources and of Psychology at the
University of Illinois at Urbana Champaign. He has taught compensation and benefits for
more than 20 years.
Instructor’s Manual
Project Summary
Effective compensation systems achieve three key goals. They provide a firm internal
consistency, market competitiveness, and a means for recognizing individual
achievement. An internally consistent compensation system clearly defines the relative
value of each job among all jobs within a company, providing an objective justification
for their differences in pay. Market competitive pay systems allow firms to attract and
retain the best employees by setting pay levels consistent with a firm’s competitive
strategies. Finally, a compensation system that recognizes individual achievement can
boost both employee morale and firm performance by effectively rewarding key
contributors. This simulation provides students a framework for developing a
compensation system, which achieves these goals through three distinct, sequential
sections.
The development of a strategic analysis guides all decisions made regarding students’
compensation systems throughout the project. The strategic analysis reveals firm-specific
challenges, objectives, and initiatives that allow students to effectively align the goals of
a compensation system with that of their company strategy.
Section I introduces students to the specification of internally consistent job structures.
Through writing job descriptions, the development of job structures, and both the
development and implementation of a point evaluation method to objectively quantify job
differences, students build the framework for internal equity.
About the Authors
David Barcelona is a 2005 Graduate of the University of Illinois’ Master’s Program in
Human Resources and Industrial Relations. He previously served as a consultant for a
renowned executive compensation consulting firm.
Joseph J. Martocchio is Professor of Human Resources and of Psychology at the
University of Illinois at Urbana Champaign. He has taught compensation and benefits for
more than 20 years.
Instructor’s Manual
Project Summary
Effective compensation systems achieve three key goals. They provide a firm internal
consistency, market competitiveness, and a means for recognizing individual
achievement. An internally consistent compensation system clearly defines the relative
value of each job among all jobs within a company, providing an objective justification
for their differences in pay. Market competitive pay systems allow firms to attract and
retain the best employees by setting pay levels consistent with a firm’s competitive
strategies. Finally, a compensation system that recognizes individual achievement can
boost both employee morale and firm performance by effectively rewarding key
contributors. This simulation provides students a framework for developing a
compensation system, which achieves these goals through three distinct, sequential
sections.
The development of a strategic analysis guides all decisions made regarding students’
compensation systems throughout the project. The strategic analysis reveals firm-specific
challenges, objectives, and initiatives that allow students to effectively align the goals of
a compensation system with that of their company strategy.
Section I introduces students to the specification of internally consistent job structures.
Through writing job descriptions, the development of job structures, and both the
development and implementation of a point evaluation method to objectively quantify job
differences, students build the framework for internal equity.
Loading page 13...
258
Section II shifts students’ focus outside of their firm to understand its relationship with
the external marketplace. Market survey data is utilized to compare pay rates of positions
inside the firm with those in the marketplace to establish the foundations of market-
competitive pay. The analysis of market data also leads students to the determination of
appropriate pay-policy mixes for each of their job structures.
Finally, in Section III, students recognize the contributions of individual employees
through the creation of a merit-pay system and put their plan into action by paying
employees within their firm. Hypothetical pay discrepancies are introduced to each
student group for resolution within the parameters of their designed compensation
system. They are tasked with many of the difficult decisions that compensation
professionals face on a daily basis.
The following pages provide an outline to guide you and your students through this
simulation. From the Strategic Analysis to Section III, each step in the process is outlined
and explained. In addition, learning objectives are highlighted along with the rationale
behind student exercises.
INTRODUCTION PROVIDED TO STUDENTS
Introduction
This simulation teaches fundamentals of compensation system design through a semester-
long exercise. Acting as a recently hired compensation consulting team, your student
group will assist the bourgeoning online music firm, E-Sonic, to develop an internally
consistent and market competitive compensation system which recognizes the
achievements of individual contributors. The following introduction offers a background
and history of your new client in addition to a description of E-Sonic business objectives
and a project outline. The authors of this casebook wish you well in your studies and
hope that you find the simulation both educational and enjoyable.
Company Background
Sonic Records is a market leading recording studio and production house. Sonic Records,
having experienced tremendous success in the recording and music distribution industry
over the past 30 years, realized that the rules of the game were changing. No longer would
music be distributed solely through traditional channels. Consumers desired instant delivery
of music online and expected a selection of thousands of artists’ work at their fingertips.
A recent study of U.S. music listeners found that 87% of the U.S. population listens to
music, spending more than 4 hours each day tuning into their favorite tunes. The demand
for access to instant music access is widespread. According to the data, 85% of
Americans listen to music online in a typical week, up nearly 15% from last year.
Additionally, online listening trends are having a significant impact on our on-demand
listening habits. While Americans streamed more than 145 billion on-demand tracks
across audio and video platforms in 2014, they streamed 120 billion in the first half of
2015. Music listening is also becoming more mobile as 52% use their smartphones to
listen to music in a typical week, a 9% increase over last year.
Section II shifts students’ focus outside of their firm to understand its relationship with
the external marketplace. Market survey data is utilized to compare pay rates of positions
inside the firm with those in the marketplace to establish the foundations of market-
competitive pay. The analysis of market data also leads students to the determination of
appropriate pay-policy mixes for each of their job structures.
Finally, in Section III, students recognize the contributions of individual employees
through the creation of a merit-pay system and put their plan into action by paying
employees within their firm. Hypothetical pay discrepancies are introduced to each
student group for resolution within the parameters of their designed compensation
system. They are tasked with many of the difficult decisions that compensation
professionals face on a daily basis.
The following pages provide an outline to guide you and your students through this
simulation. From the Strategic Analysis to Section III, each step in the process is outlined
and explained. In addition, learning objectives are highlighted along with the rationale
behind student exercises.
INTRODUCTION PROVIDED TO STUDENTS
Introduction
This simulation teaches fundamentals of compensation system design through a semester-
long exercise. Acting as a recently hired compensation consulting team, your student
group will assist the bourgeoning online music firm, E-Sonic, to develop an internally
consistent and market competitive compensation system which recognizes the
achievements of individual contributors. The following introduction offers a background
and history of your new client in addition to a description of E-Sonic business objectives
and a project outline. The authors of this casebook wish you well in your studies and
hope that you find the simulation both educational and enjoyable.
Company Background
Sonic Records is a market leading recording studio and production house. Sonic Records,
having experienced tremendous success in the recording and music distribution industry
over the past 30 years, realized that the rules of the game were changing. No longer would
music be distributed solely through traditional channels. Consumers desired instant delivery
of music online and expected a selection of thousands of artists’ work at their fingertips.
A recent study of U.S. music listeners found that 87% of the U.S. population listens to
music, spending more than 4 hours each day tuning into their favorite tunes. The demand
for access to instant music access is widespread. According to the data, 85% of
Americans listen to music online in a typical week, up nearly 15% from last year.
Additionally, online listening trends are having a significant impact on our on-demand
listening habits. While Americans streamed more than 145 billion on-demand tracks
across audio and video platforms in 2014, they streamed 120 billion in the first half of
2015. Music listening is also becoming more mobile as 52% use their smartphones to
listen to music in a typical week, a 9% increase over last year.
Loading page 14...
259
The online music streaming market has seen rapid growth in the United States in
subscription services; yet, there are many challenges that must be overcome to be
successful. Success relies on many factors such as enforcing the rights of intellectual
property. When consumers obtain digital music through online file sharing networks or
burning CDs, it ultimately harms companies and the industry. In addition to this threat, a
few competitors have already gained a foothold in this market space. These companies
make up 70% of the market share in their industry and possess major strengths including
their portfolios of millions of songs from some of the biggest labels in music, the ability
to allow consumers to download songs onto their phones, and the affordable prices they
offer for their services.
Despite these challenges, opportunities exist for new entrants. The rise in technological
advances such as the smartphone has led to a greater demand in online music, indicating
potential growth. In addition, aside from the demand for online music in the United
States, the UK, Japan, and Germany have the world’s largest recorded music markets.
The digital music industry’s expansion into international markets affords customers
greater options and gives entrepreneurial companies the opportunity to reach out to a
larger consumer market.
In response, Sonic Records formed a subsidiary company named E-Sonic. E-Sonic would
be responsible for creating an online music store capable of competing with established
players in the industry. Key executives from Sonic Records were chosen to lead the new
company. E-Sonic’s mission was to create the world’s leading music distribution entity;
ensuring Sonic Records’ prominence in the industry’s future.
Firm Objectives
E-Sonic is responsible for delivering quality online music. The music distribution
strategy has transformed in the last 30 years from the delivery of a tangible product of
records to a nontangible product of instant music downloads and streaming. E-Sonic falls
within the national industry classification representing integrated record production and
distribution.
Backed financially by Sonic Records, a recording industry mogul, E-Sonic possesses the
resources and reputation necessary to build a world-class company. The market
recognized this. Just last month, E-Sonic conducted a small, but very successful IPO.
Although E-Sonic had yet to even launch their online music store, the reputation of its
parent company, Sonic Records, bolstered demand for the new issue. E-Sonic founders
decided the firm should retain ownership of the majority of the shares, which could later
be used as incentives for employees crucial to the organization’s long-term success.
E-Sonic’s key business objective, as dictated by its parent company Sonic Records, was
to develop the world’s leading online distribution portal. Initially, E-Sonic’s success
would be measured by its ability to capture market share from competitors. These firms
recognized the changing industry trends early and secured over 70% of annual download
market share. E-Sonic needed to target these current customers while attracting
newcomers to the world of online music.
The online music streaming market has seen rapid growth in the United States in
subscription services; yet, there are many challenges that must be overcome to be
successful. Success relies on many factors such as enforcing the rights of intellectual
property. When consumers obtain digital music through online file sharing networks or
burning CDs, it ultimately harms companies and the industry. In addition to this threat, a
few competitors have already gained a foothold in this market space. These companies
make up 70% of the market share in their industry and possess major strengths including
their portfolios of millions of songs from some of the biggest labels in music, the ability
to allow consumers to download songs onto their phones, and the affordable prices they
offer for their services.
Despite these challenges, opportunities exist for new entrants. The rise in technological
advances such as the smartphone has led to a greater demand in online music, indicating
potential growth. In addition, aside from the demand for online music in the United
States, the UK, Japan, and Germany have the world’s largest recorded music markets.
The digital music industry’s expansion into international markets affords customers
greater options and gives entrepreneurial companies the opportunity to reach out to a
larger consumer market.
In response, Sonic Records formed a subsidiary company named E-Sonic. E-Sonic would
be responsible for creating an online music store capable of competing with established
players in the industry. Key executives from Sonic Records were chosen to lead the new
company. E-Sonic’s mission was to create the world’s leading music distribution entity;
ensuring Sonic Records’ prominence in the industry’s future.
Firm Objectives
E-Sonic is responsible for delivering quality online music. The music distribution
strategy has transformed in the last 30 years from the delivery of a tangible product of
records to a nontangible product of instant music downloads and streaming. E-Sonic falls
within the national industry classification representing integrated record production and
distribution.
Backed financially by Sonic Records, a recording industry mogul, E-Sonic possesses the
resources and reputation necessary to build a world-class company. The market
recognized this. Just last month, E-Sonic conducted a small, but very successful IPO.
Although E-Sonic had yet to even launch their online music store, the reputation of its
parent company, Sonic Records, bolstered demand for the new issue. E-Sonic founders
decided the firm should retain ownership of the majority of the shares, which could later
be used as incentives for employees crucial to the organization’s long-term success.
E-Sonic’s key business objective, as dictated by its parent company Sonic Records, was
to develop the world’s leading online distribution portal. Initially, E-Sonic’s success
would be measured by its ability to capture market share from competitors. These firms
recognized the changing industry trends early and secured over 70% of annual download
market share. E-Sonic needed to target these current customers while attracting
newcomers to the world of online music.
Loading page 15...
260
Although the idea of offering digital music to millions of customers might initially seem
complex, the formula for success in the industry has proven relatively simple. Superior
marketing, a robust selection of artists, and a user-friendly Web interface helped current
firms establish their market leadership.
E-Sonic executives, with decades of experience in the recording industry, held
established relationships with all of the major record labels and most of the smaller ones,
affording them an advantage in music offerings. However, as recording industry
executives, E-Sonic’s management had little experience in software development.
Further, although marketing expertise was important for success in the traditional music
industry, company management had no experience with online marketing or marketing
initiatives tailored to their new, tech-savvy, customer base. Located in Los Angeles, E-
Sonic hoped to recruit the best and brightest of the music and software development
industries. Further, they hoped to create a performance-based culture where employees
felt rewarded for their contributions.
Realizing the challenging task ahead of them, E-Sonic executives had the foresight to
recognize that despite their years of experience in the traditional recording business;
outside consultants might offer them salient insights. Their new venture would require
hiring employees in all business disciplines, especially those with the marketing and
technical skills necessary to help establish E-Sonic as the world’s preeminent online
music source. In addition, E-Sonic management understood well the importance of
establishing a sound compensation system right from the firm’s inception. They knew
that an internally equitable and market competitive compensation strategy could help E-
Sonic achieve their business objectives, but they had no expertise in this area. In
response, the E-Sonic’s management team has hired you as their compensation consulting
staff. Congratulations and good luck with your new client!
Project Outline
As E-Sonic compensation consultants, your project work will be divided into three
distinct sections preceded by an optional strategic analysis. Effective compensation
systems achieve three key goals. Each section of the simulation addresses one of these
objectives. First, effective compensation systems provide a firm internal consistency. An
internally consistent compensation system clearly defines the relative value of each job
among all jobs in the company, allowing a firm to objectively and legally justify
differences in pay. In Section I, your consulting team will lay the foundation for an
internally consistent compensation system by creating job descriptions and job structures,
building a point evaluation method for comparing jobs, and assigning relative values to a
sample of E-Sonic positions. The second goal of a successful compensation system
includes establishing market-competitive pay rates for an organization. In Section II, your
team will determine appropriate pay-policy mixes, conduct a market pay survey, and
create pay grades and ranges; allowing E-Sonic to effectively compete for talent in the
labor-market. Finally, in performance-based pay cultures, successful compensation
systems recognize the contributions of individuals. In Section III, your compensation
team will determine appropriate methods for recognizing the achievements of individual
Although the idea of offering digital music to millions of customers might initially seem
complex, the formula for success in the industry has proven relatively simple. Superior
marketing, a robust selection of artists, and a user-friendly Web interface helped current
firms establish their market leadership.
E-Sonic executives, with decades of experience in the recording industry, held
established relationships with all of the major record labels and most of the smaller ones,
affording them an advantage in music offerings. However, as recording industry
executives, E-Sonic’s management had little experience in software development.
Further, although marketing expertise was important for success in the traditional music
industry, company management had no experience with online marketing or marketing
initiatives tailored to their new, tech-savvy, customer base. Located in Los Angeles, E-
Sonic hoped to recruit the best and brightest of the music and software development
industries. Further, they hoped to create a performance-based culture where employees
felt rewarded for their contributions.
Realizing the challenging task ahead of them, E-Sonic executives had the foresight to
recognize that despite their years of experience in the traditional recording business;
outside consultants might offer them salient insights. Their new venture would require
hiring employees in all business disciplines, especially those with the marketing and
technical skills necessary to help establish E-Sonic as the world’s preeminent online
music source. In addition, E-Sonic management understood well the importance of
establishing a sound compensation system right from the firm’s inception. They knew
that an internally equitable and market competitive compensation strategy could help E-
Sonic achieve their business objectives, but they had no expertise in this area. In
response, the E-Sonic’s management team has hired you as their compensation consulting
staff. Congratulations and good luck with your new client!
Project Outline
As E-Sonic compensation consultants, your project work will be divided into three
distinct sections preceded by an optional strategic analysis. Effective compensation
systems achieve three key goals. Each section of the simulation addresses one of these
objectives. First, effective compensation systems provide a firm internal consistency. An
internally consistent compensation system clearly defines the relative value of each job
among all jobs in the company, allowing a firm to objectively and legally justify
differences in pay. In Section I, your consulting team will lay the foundation for an
internally consistent compensation system by creating job descriptions and job structures,
building a point evaluation method for comparing jobs, and assigning relative values to a
sample of E-Sonic positions. The second goal of a successful compensation system
includes establishing market-competitive pay rates for an organization. In Section II, your
team will determine appropriate pay-policy mixes, conduct a market pay survey, and
create pay grades and ranges; allowing E-Sonic to effectively compete for talent in the
labor-market. Finally, in performance-based pay cultures, successful compensation
systems recognize the contributions of individuals. In Section III, your compensation
team will determine appropriate methods for recognizing the achievements of individual
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