Curso 4: Dirigir la compensación de los
human resource management, with a focus on
empleados
-COURSERA
SEMANA 1 – Pay determination
 >> Throughout the specialization, we present
Clase 0 – Prólogo
Video 1: RRHH para la especialización de
Manager de personas
 Welcome to our four course specialization in
Human Resource management, HR for People
Managers. I'm John Budd. >> And I'm Larry
Bourgerie. >> I'm Amy Falink. >> And I'm Alan
Benson. We're all faculty at the University of
Minnesota's Carlson School of Management's
Center for Human Resources and Labor
Studies. You may associate Minnesota with
cold winters, but in the field of human
resources people associate Minnesota with
thought, leadership and educational
excellence. >> The Center for Human
Resources and Labor Studies has been a
leading center of research and teaching in the
field of human resources, what we call HR, for
over 70 years. We have one of the very best
Masters Programs in the field, and we even
have our own library dedicated to providing
information on human resources, let's go
check it out. [MUSIC]
 >> Among us we have over 50 years of
teaching in the human resource field, and we
are very excited to be team teaching the
specialisation course Human Resource
Management, HR for People Managers. This
specialization provides a robust introduction
to the key principles, policies, and practices of
about HR and what that would mean as a
acquiring and onboarding talent, managing
employee performance and rewarding
employees. These are core areas that any
people manager needs to know, even if he or
she is not in a human resources field.
best practices and practical tips that are
informed by the best scholarship and practical
learnings in the field. When you complete the
specialization, you'll have a deeper
understanding of what works in the workplace
including a toolkit of best practices for hiring,
managing, and rewarding employees. We've
designed the specialization with different kind
of learners in mind. Maybe you're an
accidental supervisor, you've been promoted
to a manager position based on your job
performance as an engineer, an accountant, a
nurse or many other things. This means you
are now responsible for managing
subordinates, lacking HR and people
management training, you'll want to better
know how to manage your staff's job
performance. >> Maybe you are the HR person
by default, you don't have any formal HR
training but you're seen as a people person,
and therefore are asked to take on human
resources responsibilities, perhaps as a small
business grows. You want to gain confidence
in managing a small human resources function
and understand your key responsibilities and
options. >> Maybe you're a career explorer,
you have an interest in psychology or other
people oriented issues. Maybe someone has
told you you'd make a good HR person or that
you can make more money in HR than in
psychology, but you don't know what it means
to be an HR person, so you want to learn more
career. >> Or maybe you're a career refresher,
you've been in HR for a while, but you're
wondering whether your thinking is up to
date, you want to check out the current
thinking on HR issues from one of the top
universities in this field.
 >> No matter if you fit one of these profiles or
another one that we didn't describe, we know
that you will benefit greatly from
understanding what we call the people
manager value proposition. A value
proposition is simply a statement of benefits,
so the people manager value proposition
captures the benefits we will deliver to you
through this specialization. And it also
captures the benefits that you will bring to
your organization and to your career after
completing this specialization. >> The people
manager value proposition provides a guide to
the key HR related task of effective people
managers and HR professionals, and therefore
provides a roadmap for this specialization.
 Managers must know how to take
organizational objectives and determine what
people need to accomplish, and then
understand how to devise and implement a
strategy for leading and motivating employees
to fulfill those goals. But this doesn't occur in a
vacuum, it's influenced by organizational
values, external factors like the legal
environment, and maybe even labor unions.
 So it's this part of the people manager value
proposition that I'll cover in the first course. >>
Finding and hiring the right people is often
cited as the number one concern of businesses
today, it seems we are all competing for the
best and brightest workers. As you will see in
 our time together, in the second course, a
critical component of the people manager
value proposition is to hire talented people
who enable the organization to achieve its
strategic goals. At the outset of the course, we
will explore the importance of linking
recruitment goals with overall company
strategy, we then look at a number of options
to recruit and select employees, both
effectively, and legally.
 Throughout the course, we will examine
current issues in talent acquisition, such as
how companies are now leveraging social
media and hiring analytics to ensure better
quality hires. >> Once you have hired good
employees, the next step that successful
people managers take is to develop the full
potential of their employees. Performance
management is a process that helps managers
achieved the goal of getting the best from
their employees. In the performance
management course we'll discuss the skills,
and key processes you will need to develop
your employees to attain department and
organizational goals. These skills will include
setting clear expectations, providing positive
and corrective feedback, and delivering an
effective performance appraisal. >> Successful
people managers must also know how to
reward employees. You begin from the
question what kind of person must we attract,
retain and motivate in order to execute our
business strategy? We'll discuss how your
answer to that question can help you design
salary structures, benefits, short term
incentives and long term incentives that are
aligned to your business strategy. We'll also
help you evaluate benefits and ensure
compliance. Mastering the steps in the people
manager value proposition is critical to the
success of any people manager or HR
professional. There's a saying in HR, people
join organizations but they quit their
managers. >> We are here to help you be a
manager that employees want to join not quit.
>> We're excited to bring to you this
Minnesota expertise on human resources not
matter what your goals are or where you are
located. >> If you've only signed up for one
course that's great too, we hope this
introduction to the specialization gives you a
better appreciation for the full range of
material covered in these classes, and that
you're tempted to sign up for the entire
specialization. >> We can't wait to see you in
our courses.
Video 2: Acerca de Alan Benson, el instructor
 Welcome to Managing Employee
Compensation. So first, a little bit about me. My
name is Alan Benson and I'm an assistant
professor here at the University of Minnesota's
Carlson School of Management. A little bit about
my past. So I've been studying human resources
and compensation for a long time. I began that
as an undergraduate at Cornell University
School of Industrial and Labor Relations. I did
that when I was at Oxford University, studying
abroad, working in economics. And then lastly, I
did it when I got my PhD at the Massachusetts
Institute of Technology's Sloane School of
Management.
 Reproduce el video desde ::34 y sigue la
transcripción0:34
 So what do? So, companies come to me and
they say, we have this problem. We are having
trouble identifying the star performers who
we're losing to our competitors or, perhaps,
we're having trouble deciding whether we're
getting the most out of our incentive plans. So I
work with these companies, I analyze their
personnel data. And then I come up with ideas
of how they can improve, where they can focus
their efforts and their resources, and so on. And
then this goes on to inform the research that I
do and my teaching.
 So what kind of research have I done? So I've
done research on incentives, on compensation,
on bargaining, and I've done that in a wide
variety of settings. I've done it for police, for
firefighters, business-to-business salespeople,
manufacturing workers, retail and salespeople
and others. So after I do research with
companies, kind of the deal is that we help
them out with whatever issue they're coming
across. Then I go to conferences, lots and lots
and lots of conferences. And I publish my results
in academic journals, and sometimes
newspapers pick it up like the Wall Street
Journal, or the LA Times, or Washington Post, or
CBS News, or PBS, and some other places too.
So I don't have photos from all my conferences,
but I do have photos from my very first one.
 Here's a picture from my very first conference at
Izmir in Turkey. I was invited to this conference
when I was a senior as an undergraduate at
Cornell. And I was invited to speak about peak
level social dialog and negotiations over pay,
and other terms and conditions of employment.
 Reproduce el video desde :2:9 y sigue la
transcripción2:09
 And here you can see me as a panelist, and
here's a picture of me giving my presentation.
 After I graduated from MIT, I started doing my
teaching in compensation and benefits,
negotiations, and organizational economics for
 undergraduate students, Master's students,
MBAs, executives, and for PhD students.
 So here's a picture from my very first class. This
is Communicating with Data, when I was a PhD
candidate at MIT.
 When I'm not researching or teaching, you
could probably find me on the ultimate Frisbee
pitch.
 Here's a picture of me on my very first ultimate
team over in Pembroke College at Oxford. And
then since then I've been in a couple more
teams at MIT and, of course, here in the Twin
Cities. And when I'm not playing ultimate
Frisbee, my wife and I like to do lots of other
outdoor things, such as hiking in Alberta and
Lake Superior up here in northern Minnesota.
Or scrambling in California, or cross country
skiing here in Minneapolis,
 or sailing, also upstate in Minnesota.
 And lastly, I'd like to thank the wonderful
Coursera team here at the University of
Minnesota. In particular, Dean Peterson, our
wonderful cameraman. And also, Amie Norden,
who helped with all the logistics of getting these
videos up online. Thank you so much and I'll see
you in class.
Clase 1 – Estrategia de compensación
Video 1: Resumen del modelo de pago
 Welcome to the very first video or the very first
lesson of the very first module of our course on
managing employee compensation. In this
video, we're going to be talking about the
Overview of the Pay Model.
 So first of all, let's start with the People
Manager Value Proposition. So this begins with
the organizational objectives, needs and values.
If it's a for-profit organization, we might refer to
this as the business strategy, and our business
strategy will be very different if we're an
organization that might rely on operational
efficiency and low costs. Versus one such as
maybe a tech company that relies more on
developing new products and then bringing
those to market.
 And depending on our organization, this will
also depend on what it is that we need our
people to accomplish. Do we need to serve
underserved populations? As a non-profit with
that mission or our constituents as a
government organization. Or do we need our
people to again bring innovative products to the
market or contain costs? These are all different
potential organizational goals. And these are
going to define our HR strategy. That is how it is
that we achieve our goals through the employee
performance. And that's going to vary a lot. And
this is going to determine who it is that we want
to attract and retain. How it is that we manage
their performance. And also how we motivate
and reward them. The kind of person who
would excel at a mission-driven organization
could be very different from the kind of person
who would excel at an organization that is
relying on keeping costs low, versus one that's
trying to be very innovative. And we're going to
be focusing on this last part, that is how to
motivate and reward employees.
 And so what are the tools that we have at our
discretion? So we have lots of tools, and we're
going to focus on particularly the compensation
elements. So the first part is the Total Cash. We
include the total cash to mean both the base
cash or salary and also the short term
incentives. The first module focuses on paid
determination
 and then also on short term incentives. We
think of short term incentives as things such as
commissions or bonuses, or other short term
incentive rewards, where we try to link our key
performance indicators to those immediate
methods of compensation.
 Now going up from there, we also have Total
Direct Cash. Total direct cash includes base cash,
short term incentives, and long term incentives.
Those long term incentives tie the long term
performance of our organization to long term
rewards. Those are, examples of long term
incentives would be, for example, a stock
option.
 And then lastly we have Total Comp, or the Pay
Mix. Total comp includes the total value of all
the base cash, short term incentives, long term
incentives, and the benefits and perks.
 And the pay mix includes how we distribute the
resources between them.
 And benefits and perks, for example, include
things such as pension contributions, health
insurance and other benefits that the company
both elects to give and also those that are
required by law.
 Going up even further, we have the Employee
Value Proposition. These are all of the things
that makes an employee want to come to work
in the morning. This is what attracts them. This
is what motivates them. This is what retains
them. They include not just compensation, but
they also include all of the non-cash rewards, all
of the things that makes a job rewarding.
 We'll also go into the Strategic Messaging
Model. So this model maps how you'd think
about compensation and the mix of that
compensation and then the messaging around
that compensation. So you can get the person
that you want to attract, retain, and motivate.
 So let's start with money. So money, the first
element of our strategic messaging model,
includes just the simply the size of the
compensation package. So that includes, so for
example it includes whether you're allocating a
lot of resources to compensation. Perhaps
paying the 25th percentile of the market for
total compensation. Perhaps you're paying the
median or perhaps you're paying the 75th
percentile, that is you're trying to pay more than
75% of your competitors. The second
consideration is the Mix.
 So depending on who you want to attract, retain
and motivate, you might shift the allocation of
those compensation expenditures
 to the right element of the pay mix to get that
kind of person who you want. So for example,
we might choose a pay mix that prioritizes base
cash if we want someone to attract people who
are highly skilled. We might try to allocate a
larger portion of a pay mix to short term
incentives and try to beat the market on short
term incentives if we want to attract people
who are confident in their abilities, and we also
want to motivate them to do their job duties
well.
 We might have a pay mix that prioritizes long-
term incentives if we're trying to have an
organization that really focuses on the
alignment of an individual's activities to the
broader organization's goals. And that also
wants to have a pay mix that prioritizes
retention. Because tools such as stock options
are particularly valuable for employees who stay
around the organization for long enough for
those options to vest.
 Or you might have an organization that really
prioritizes the company culture and is more a
egalitarian when it comes to the pay mix but it
also has a relatively perhaps paternalistic view
of all of the things that the company offers to its
employees.
 None of this means anything unless you're able
to really drive the message home on what this
pay mix means to your employees. You want to
say, this is our pay mix, this is how we try to
compensate employees, this is the philosophy.
For example, we are an organization that tries
to prioritize pay for performance, and you have
that messaging and then that's reflected in the
pay mix, it's reflected in the compensation
expenditures. And so our strategic messaging
model and throughout what we'll be doing in
this Coursera course, will be to talk about not
just the different elements of the pay mix and
kind of the technical nitty gritty about how to
implement those, but also try to talk about,
again, the money mix and the messaging. How
to tie those to who you want to attract to retain
and to motivate and how this fits into the
broader business strategy. Thanks, and I will see
you next time when we talk about examples of
how we align our pay strategy to our business
strategy.
Video 2: De una estrategia de pago a un pago
mixto
 Welcome. In this video, we're talking about
examples of pay strategy. So first of all, what are
the goals of our compensation plan? Once
again, our compensation plan needs to attract,
retain, and motivate the kind of person who we
need to successfully execute our business
strategy, and we also want to do it in a way
that's tax efficient. That is we're spending all of
this money on our compensation plan. We want
to make sure that we're allocating our pay mix
in such a way that we can get as much money to
our employees to boost that value proposition
and also to save money ourselves. We'll be
talking more about the second part tax
efficiency throughout the Coursera course. For
now, I want to talk about some different ways
that organizations have tried to attract, retain,
and motivate the person they need to execute
their business strategy. Remember, so our
methods for attracting, obtaining, and
motivating those workers are going to depend
on our strategic messaging model. We'll focus
on each of those in turn. So first of all, let's talk
about how companies compete on money. So
here's an example of Costco. Costco is an
American retailer. Their compensation strategy
relies on them being an employer of choice.
That is they want to pay a premium for workers
in order to get premium productivity. It's well
known that Costco tends to pay their workers
and have a compensation package, since it
greatly exceed their competitors, both in terms
of their base cash and also their benefits.
 But we shouldn't really think about this as
costing it as $1 increase in pay per hour as
directly mapping onto $1 in increased cost. That
is they also earn higher returns and if they have
a very productive and loyal workforce, they
have relatively less loss and leakage of their
inventory from their stores. And they also try to
get the most advantage of their premium pay
through a whole set of complementary
practices. So for example, the Costco because
they pay more than the market, get a lot of
applications and that let's them be very, very
selective in who they bring into the
organization. Once they've identified as
somebody who they think would be a great fit
for Costco, they then invest intensively on
training them. They are able to do this because
 when someone joins Costco, Costco since it pays
above the market has very, very high retention
rates. And so by training them, they know that
they can make those investments because
they're going to stick around for a long time.
 After that, they also have intensive cross
training across the different units, that is again,
they can afford to use cross training because
again they tend to stay. Then also they have to
use workteams in order so they can get a bigger
sense of the organization and of Costco. And
since they have people who are trained across
 the different tasks of running a retail store. And
because they are intensively selected and they
are intensively trained, they make relatively
good candidates for management. And Costco is
also famous for our promoting from within. And
then we also have Walmart, so interestingly
Costco competes directly in the same space as
Walmart. Walmart's business strategy relies on
cutting costs and operational efficiency. And for
them, this also translates into keeping
compensation costs low. And so their
complementary practices rely on operational
efficiency in all aspects of the business including
their selection. They need to be able to select,
identify workers cheaply to train them at
relatively low cost. And also to standardize work
practices so that changes in their work force are
minimally disruptive. Let's go on to competing
on pay mix. So if we look at Costco, Costco
again, pays much higher base pay rates than
their competitors. And they also have very
generous benefits and again this attracts is very
helpful for them to attract the kind of person
who they wanted to attract, entertain, and
motivate.
 But that's not how all organizations compete.
Another example is a company called SAS
Institute. SAS Institute tends to unlike other
software companies, they rely very little on
short term incentives and long term incentives,
and rather they focus on their benefits package
and base pay. They see these very generous
benefits as allowing their employees to focus
directly on their work. They're pioneers in
offering such benefits as on site daycare and a
reduced work week. And when the company's
founder was asked whether he sees this as
paternalistic, he sees us being really just being
good to the employees. So that their employees
can give their best to the company.
 Another example is competing on short term
incentives. Lincoln Electric is a manufacturing
company headquartered in Cleveland. And their
base pay is relatively similar to their
competitors, but interestingly their short term
incentives can typically constitute two-thirds of
their total compensation package. That is they
very intensively use piece rates and they also
have a bonus program that rewards people for
producing products of high quality, for being
highly reliable, for being innovative and so on.
 And so Lincoln Electric because their total pay
package tends to be more than their
competitors, they can also be very selective on
who they bring in. And likewise for those who
do stay, they attract some of the most
productive workers in their industry. And they
also are successful in motivating them and
retaining them as well.
 Early days in Microsoft, Microsoft used to try to
target the market median in terms of base pay
back when there were companies such as IBM
and Hewlett Packard and so on. And they're
competing for that talent and Microsoft was a
relatively young company. So they had a mix of
base pay, benefits, short term incentives, and
long term incentives. And the way that they
would model their pay would be to again match
the market on base pay, but then to try to be
very aggressive in their use of long term
incentives. And Microsoft was one of the early
tech firms that offered their employees very
aggressive long term incentives. Their intentions
for offering very generous long term incentives
was in part as a retention tool, that is individuals
who left the organization before their long term
incentives. Their stock options vested would be
foregoing that income, and also it's conveyed a
since of shared destiny for early Microsoft. And
so if we look at these organizations altogether
we should need to be reminded that these all
have different implications for their messaging.
 Now one of Microsoft's competitors for
software engineers could be Netflix.
 And so Netflix is an example of a company that
tends to pay very high base pay. One of Netflix's
informal mottos was that at an average
company the average employee gets an average
raise. But at Netflix the average employee gets a
very generous severance package. That is they
tend to pay far above their base pay to try and
attract and retain the very best workers. And
they're motivated just to keep their jobs.
Another way to put this is that we might think
about short term incentives as being a method
for attracting or obtaining and motivating the
very most productive workers. But in some
sense base pay can work the same way, that is
your incentive for staying at a company like
Netflix, is just the ability to continue to collect
that very high, very competitive base pay.
 Another thing that's interesting about Netflix's
compensation model is that they offer
employees a lot of flexibility. And how they
 allocate that very, very high base pay across the
different benefit structure and incentives.
 Interestingly at Netflix, Netflix allows it's
employees to purchase stock at a 50% discount.
And also their options invest immediately
 and so what's interesting about Netflix is that
Netflix is essentially allowing their employees to
exercise a lot of freedom or responsibility over
their paycheck. And likewise, freedom with
responsibility is one of Netflix's informal models,
that is Netflix as an organization that has to
adapt with the times, adapt with business
practices. It's had to reinvent itself from a mail
order DVD company to a company that offers
streaming video to now a company that also
develops content.
 And as these business needs changes, so do
their workforce. And just as part of the deal of
Netflix says that we have to have this flexibility.
We're also going to allow our employees to
have that same sort of flexibility in terms of the
way they're compensated.
 So once again, I'm messaging for all these
different companies varies. Costco tries to
communicate that we want to be an employer
of choice, we want to be the first company that
people to come to. Because we're an employer
that offers a very competitive total
compensation package. SAS is trying to message
its employees that they want relatively few
worries so you can focus on your work, and so
they have a compensation package that
concentrates on benefits. Lincoln Electric
communicates that it wants to have a star
culture, an organization where the very most
productive people would want to come to work.
Those people who would be attracted to Lincoln
Electric, because they can earn more on their
short term incentives at Lincoln Electric then
they can at Lincoln Electric's competitors.
 The message behind Microsoft is that we have a
shared destiny, and we're also going to use long
term incentives as a retention tool. And then
lastly, Netflix. Netflix is an organization that
needs to adapt. Also imparts that same freedom
with responsibility onto it's workers when they
choose the allocation of their compensation
practices
Clase 2 – Trabajos de punto de referencia
Video 1: Elaborar la descripción de un trabajo
 Welcome back. In these set of videos we're
talking about how to benchmark pay, starting
with producing a job description. So when we're
producing a job description, what we're talking
about is performing a job analysis. You should
think job analysis, making a job description.
Making a job description, performing a job
analysis. So you might be thinking, well, if a job
analysis is just producing a job description, why
don't they just call it job descriptioning? Well,
that just sounds ridiculous, right?
 So why write a job description? The first reason
is to benchmark pay. We need to figure out
what it is that we're trying to do or accomplish
with this job so that we can go off into the labor
market and find an accurate benchmark.
 The second reason why we want to write a job
description is for compliance purposes. You
might want to know, is this the kind of job
where we need to pay them a wage and give
them overtime? Or is this the kind of job where
we can just give them a salary?
 A third reason has to do with staffing, training,
and development.
 For our workforce planning needs, we might
want to know what kind of tasks that we need
this job to do. For training purposes, we might
need to know what kind of knowledge, skills,
and abilities we need to impart upon our
employees. And for developmental purposes,
we might need to know what are some of the
criteria that we'd use as part of our job
evaluation. A job description will give us all this
information.
 So what's in a job description?
 So let's start off with an example of a
compensation and benefits manager. So what
do you see here? The first thing that you should
see is, of course, the job title, the compensation
and benefits manager. The second thing that
the job description will have is the job summary.
In this case, a compensation and benefits
manager plans, directs, and coordinates an
employee's pay. You should think about a job
summary as kind of like the Thanksgiving
description of what it is that you do when your
aunt asks, so sweetie, what is it that you do in
your job? And then, of course, you give your job
summary and they give you your yes dear.
 The second part is the job tasks or the job
duties. This is essentially a description of the
different, itemized description of the different
things that you do in your job. For example, for
a compensation and benefits manager, one of
their primary job duties might be to perform a
job analysis, which, again, you should think is
producing a job description.
 They also will potentially set an organization's
pay structure, determine the competitive wage
rates, and develop modified compensation
plans, or select and manage the benefit
 vendors. Again, you should think about these
job tasks as the primary job duties of that
occupation or that job that you're trying to fill.
 And this is going to be also important for
compliance purposes, because depending on
those job duties, this can determine whether or
not you'd be allowed to, for example, pay this
job salary.
 Next, we go on to requirements. Requirements,
in the case of our compensation and benefits
manager, might be bachelor's degree in human
resources, management or related field. Or a
Coursera certificate of course, or commensurate
experience. You might also say our preferred
qualifications. A master's in human resources or
related field, sufficient amount of experience, or
a professional certification. Again, we want to
develop accurate descriptions of these job
requirements so that we can communicate to
potential job seekers what kind of requirements
or educational qualifications or experience they
need to apply for this job. It's also going to be
important for compliance purposes because
some of the requirements of the jobs might be
bonafide occupational qualifications, things that
this job actually really truly needs to do in order
to perform the job well. And also it could be
important, the educational requirements could
be important when we're determining whether
we can pay this job a salary.
 The next component that a typical job
description will have is the job context. This,
simply put, relates to what kind of environment
the job is located in. So, for example, for a
compensation and benefits manager, this might
be the corporation headquarters over in St.
Paul, our neighbors over in St. Paul, Minnesota.
 And lastly, one of the things that you'll typically
see in a job description are the knowledge,
skills, and abilities.
 In this case, a compensation and benefits
manager might be required to have knowledge
of the principles of compensation, knowledge of
laws and legal codes and statutes related to
compensation, skill in using productivity
software, such as Excel, or ability to
communicate effectively. We typically think
about knowledge as things that you can easily
train or teach people, things that you actually
know. Skills is essentially being know how, and
these different things that you're able to do.
And then lastly, ability is these things such as
physical strength or mathematical ability or
intuition. These things that are harder to teach.
 There's also some other things that a job
description might have. One thing that it might
have are reporting relationships. Who does this
job report to? How many people report to this
job? And another thing that this might have is
whether this job is exempt or not exempt under
the Fair Labor Standards Act. We'll talk about
this more when we get to our Coursera module
on compliance.
 Some job descriptions might also have a job
code for internal or reporting purposes and also
pay range. Probably, the most typical thing is to
say that pay is commensurate with skills and
experience, but it could also give a range of
different possibilities.
 So how do you write a job description?
 So typically, when you're writing a job
description, you might not be starting from
scratch. You might be in an organization, for
example, that is trying to write a job description
because operations are expanding, or because
it's been three years and you just want to make
sure the job description is up to date. Well in
this case, you might start from internal models.
What job descriptions do you already have?
 A second step would be to use external models,
like from a website, such as the Bureau of Labor
Statistics, or professional associations or trade
associations. That'll tell you what a typical job
description would look like.
 Then lastly, you would check with the
incumbent job holders and with management.
Take these documents and you would say, you
conduct an interview and you would say, which
components of this job description look similar
to what you do, which parts don't look similar?
Can you think of any job duties that you perform
that are very important to your job, but aren't
reflected in these documents? Now again, if
you're revising one of these documents, you
might start from your internal model. But if
you're starting fresh, you might start perhaps
from one of the external models, and then
check that with your job holders, and then
generate your internal document.
 So what laws should you consider? First of all, if
your paying this job a salary as opposed to wage
and overtime, or if you have job requirements
that might effect women, minorities, or other
protected groups, then you don't want to miss
our compliance video, which is also included as
part of our HRN specialization.
Video 2: Paga estándar
 In this video we're talking about how to
benchmark pay.
 So first of all, what is benchmarking pay?
Benchmarking pay is the process of matching
our jobs to our external benchmark jobs for the
purposes of determining pay. You're probably
already used to benchmarking lots of other
 things. This is essentially the essence of
comparison shopping. So for example, let's say
that you're interested in buying a three
bedroom, three bathroom house. So what
would you do? Well, you want to find external
benchmarks that look very similar to that house
that you're trying to buy. You might find some
houses that are one bedroom one bathroom
houses. You might find some houses that are
five bedroom five bathroom houses. But as you
know, neither of these are very good
benchmarks. They don't look similar to the
house that you're trying to buy. Rather the
house that you are most interested in as using
as benchmarks would be those three bedroom,
three bathroom houses that look most similar to
the one that you want to buy. And this is
essentially the essence of benchmarking. We
want to find those same jobs based on our job
descriptions in the external market that looks
similar to the ones that we have at our
organization.
 So how do you benchmark pay? Well, the first
step is to start off with your job description.
Kind of like the house that we're trying to buy.
 The second step is matching our external
benchmarks. This is our process of going off into
the market and figuring out what are some of
the comparable job descriptions out there and
how much do those houses cost? How much did
they recently sell for? Or in the case of the labor
market, for example, we're looking for an
administrative assistance, we go off into the
labor market, find a similar job description, and
figure out how much administrative assistants
are being paid. Step three is to make
adjustments. Typically when your benchmarking
something, whether its a house or a job, you're
not going to find the perfect benchmark. And so
we're going to talk about the different methods
that we can use for adjusting our benchmarks to
our particular situation. So the first step is to
start off with our job description. Once again,
the job description is going to tell us what jobs
we're looking for, all right. So this is kind of like
if you are in a scavenger hunt, this is the list of
things that you're looking for. And where are
you going to search for it? Well, there's a lot of
different resources. One of the government
websites such as the Bureau of Labor Statistics.
The Bureau of Labor Statistics goes through a lot
of effort to administer surveys all over the
country for all sorts of jobs in all sorts of
industries. And they generate information
regarding the pay and forecasted future pay of
different jobs. Another option is to go through
different websites such as jobstar.org,
salary.com or glassdoor.com. These websites
also compile information about what people are
paid in the labor market. Another source of data
are trade association surveys. Trade association
surveys will typically cover their different
members. Their members would submit data on
how they pay their workers. The trade
association will compile these and disseminate
this information back to their members.
 So let's take a look at what one example looks
like. This is an example of Compensation and
Benefits Managers from the Bureau of Labor
Statistics. As you can see, the Bureau of Labor
Statistics will tell you, give you a summary of the
job, the description of what they do, the work
environment, how you become one, the pay,
the job outlook, some of the occupations, and
more information.
 This information can be used in the basis of
creating a job description and also for
benchmarking pay.
 So let's say that you've chosen your source of
data, whether it's a government website such as
the BLS, or trade association data or some
external resource. Then you will have some list
of jobs, and from that list of jobs, you have to
decide which one of those appear to make the
best benchmark. To do that, we don't
necessarily want to use their job titles. We'll
want to actually compare based on the
individual description, the job summary, the job
tasks, the requirements, the context, the KSAs,
which one of those descriptions look most
similar to the job we want to benchmark? It's
kind of like for the house, this is the house that
has the same number of bedrooms and
bathrooms, the same square footage, and the
same neighborhood and so on.
 And so if we're going to our benchmark here,
we might have a list of jobs such as general
managers, HR generalists, and bookkeeping
clerks. Might say well the general managers do a
lot of duties, have a lot of job duties, that aren't
consistent with what our compensation benefits
managers do.
 Likewise, there's a lot of things that are
compensation benefit managers do, that our
general managers do not do. For bookkeeping
clerks, it might look like not only do our
compensation benefits managers perform
different tasks, but they also have certain
requirements. Our job, for example, might
require more education than the typical
bookkeeping clerk. And so from this
information, it looks like our job description is
most similar to our benchmark job description
for HR Generalist.
 But, of course, this is all relative, you might be
looking at a different resource, and you might
have a different list of potentially
 benchmarkable jobs. So, for example, you might
have another resource that has HR Generalists,
Compensation Specialists, and Payroll Clerks.
Well, in this case, if you're looking at the job
description between them, you might find the
most similarities among the Compensation
Specialists. So let's go back to the example of
the Bureau of Labor Statistics. The Bureau of
Labor Statistics has hundreds of different
occupations with these different benchmarks.
And again, as I mentioned, one of the things
that they'll have is compensation data. Let's
zoom in on the job summery there. As you can
see in 2012, it says the median pay for this job
was 95,250 per year. That means that half of
compensation benefits managers were making
more than that number, half of them were
making less than that number. So what do we
want to do with that information? We want to
take that $95,250 and we can put it in our
spreadsheet. So we have our job title that we're
benchmarking against, Compensation and
Benefits Managers. We have the source of that
data, and we have the median pay. And since
the Bureau of Labor Statistics isn't the only
resource that we want to use, we can also do
the same thing with many other resources. We
might have a local survey with of HR managers
that will tell us they make about $90,000 a year.
We'll have benefit managers from Salary.com, it
says that they make, $95,491 per year.
Professional Association data, there's
Salary.com data for other jobs, and so on.
 This isn't to say that all survey data is created
equally. Remember, we want benchmarks that
are matched very well in job duties. That match
very well in geographies, and other kind of ways
that our data can be comparable. So that being
said, we might like the Bureau of Labor Statistics
data a lot, because this is talking about
compensation benefits manager specifically.
You might also put a little bit of extra weight on,
for example, a local survey, because it's specific
to our geography, or the Salary.com data
because we like their job description.
 And so now that we have the weights, we want
to calculated a weighted mean. So to calculate
the weighted mean in this case, 94,000 dollars
per year, what we would do is we would take
the median pay, we would multiply that by the
weights that we chose, and we would add those
all up together. So for example if we took the
median paid times the weight, we'll generate
this third column here. We'll add those all up
together and we get $658,000 and $1 and then
we'll add up the weight, and we'll get 7. We'll
take that $658,000 and divide it by 7. And that
will give us $94,000. That's our weighted mean.
That's our mean where we put extra emphasis,
we give an extra bump to the benchmarks that
we thought were best.
 So what do you do with that number? What do
you do with that weighted mean? Well, that's
our benchmark number. What would we do for
matching the market? That means that our job's
middle pay should be the middle of our
benchmark's pay. So what does that look like?
 So eventually this is going to be used to create
our salary structure. So, for example, for
administrative salaries, we'll have compensation
benefits managers, and the midpoint of our
compensation managers should be the same as
the midpoint for our benchmark data. So that's
where it is, $94,000.
 From there, we're also going to want a range.
 So for example, if we want to have some
flexibility, you might say that the most that we'll
pay our compensation benefits managers is 20%
above our benchmark. That'll bring us to
$112,800. We also need to have a minimum,
and so we might also take our benchmark and
subtract 20% to give us kind of our entry-level
compensation for our compensation benefits
managers. In that case, that's a benchmark
minus 20% will be $75,200. So here we
essentially our basic building block for building a
salary structure. We'll have our benchmark
data, which will give us $94,000, plus or minus,
are some value to give us our pay range.
 So, what if you can't find a good benchmark.
Well, that's why it will be important to
understand surveys in greater details in how the
labor market works, so we can figure out how to
adjust our pay. All right, see you next time.
Video 3: Encuestas y mercado laboral
 All right, in this video we're talking about
surveys and labor markets. So first of all what's
a compensation survey? A compensation survey
is a survey designed to show how comparable
employers pay for comparable jobs.
 So what is that mean? Or what would a day
ideal survey look? With ideal survey it would
have comparable benchmarks. That means that
they would have the same industry and the
same geography and the same jobs. That's
because, even if you're trying to for example
pay a compensation of benefits manager, a
certain to try benchmark their pay, their pay
might be different in finance versus
construction, versus small stores, or they might
be different in big cities versus small cities.
 The ideals at survey would also have the right
information. They'll be matched in the
percentiles that you're interested in. So for
example, if you're interested in paying the
market median, a computational survey what
 the median worker has paid. If you're interested
in paying more than 75% of your competitors,
then the ideal survey would also tell you what
the 75th percentile of the market pay is. Also,
the ideal survey would also give you the whole
pay mix. They won't just tell you what your
competitors are paying in terms of base pay. But
that'll also tell you what your competitors are
targeting in terms of their short term incentives,
their long term incentives with the stock options
and their benefits.
 Also the ideal survey would comply with
antitrust laws and the ideal survey probably
doesn't exist. And if you want a survey that has
the same industry, the same geography, the
same jobs and has all this information, that's
probably going to be pretty hard to come by. So
let's double down on antitrust laws, those are
pretty important.
 So first of all the first when we're administering
a salary survey I might be concerned that we
would be colluding with other employers. And
this is the basis of the Sherman Antitrust Act,
but employers also need to know how they
need to pay their workers in order to be
competitive. And so the Department of Justice
and the Federal Trade Commission's created
these Antitrust Safety Zone guidelines. The first
element for that guideline is to have a third
party do that, such as an academic or a trade
association.
 A second element is to make sure the data are
at least three months old. That way you're not
updating your information or your
compensation based on benchmarks in real
time. Third you want to make sure there's
enough data and that it's aggregated. That way
you're not able to directly match your pay on
any one benchmark employer, that could lead
to allegations following a wage leader which
also could potentially put you at risk of violating
the Sherman Antitrust act. Next let's look to
labor markets. A labor market is a market in
which firms demand labor and workers supply
labor. And why learn about labor markets? Well,
first of all in the grand scheme of things labor
markets are what determine pay. There's a
second really important reason, too, in that we
can't always find perfect benchmarks for our
jobs. And so understanding how labor markets
work will help us understand when we'll need to
adjust our pay upward or downward based on
our benchmarks so we can come up with better
approximations.
 So what do labor markets look like? Well, first of
all, a labor market will map wage on the y axis
and the quantity of labor, how many people are
on those jobs, on the x axis.
 The first thing the labor market, of course, will
have is the supply of labor. The supply of labor is
upward sloping because to attract more workers
into that job, you're going to have to pay them
more. You're only going to get so many
philosophers if you don't pay them very much.
There's also a downward sloping demand for
labor. The intuition behind that is that as
demand for labor, as you get more people who
are entering those jobs, employers are willing to
pay less and less for each additional person to
do those jobs. You only need so many shoe
shines or philosophers or academics in the
world. Now here's one of the keys to
understanding labor markets, you don't actually
see labor supply and labor demand directly. All
we do is we know the world that we live in, we
observe the intersection of labor supply and
labor demand. What do we mean we observe
the intersection of labor supply and labor
demand? Well, if we're learning labor market
we can actually count the number people it is
who hold those jobs in our labor market. We
can count how many philosophers there are in
our labor market. We also know how can give a
rough idea of how much they're paid. As we can
enumerate them, we can count them, that's our
quantity. And we can tell how much they're
paid. But of course, if we've been out into the
labor market, we know that not all people in
those jobs are going to be paid equally. They're
going to follow some distribution. And that
distribution is what we'll get from administering
our salary survey. We'll get a survey, and there'll
be a lot of people who are paid they're near
each other in the middle, although there are a
few outliers, either high, people who are paid
less.
 And so you might ask, why is that a distribution?
Why aren't all people who are in that job paid
the exact same wage? Well, that's because
workers aren't commodities are those workers
not all lawyers look exactly like every other
lawyer, not every doctor looks likes every other
doctor. They have different specialties,different
geographies or cost of living. And all these
things
 are taken to account when we looking at
anyone labor market bench marking survey.
 Also employers can pay two people who look
like differently as well. This can speak also to the
organizational strategy. So for example, an
organization might choose to pay their workers
more than the median worker and their bench
mark data, so that way they can be more
selective in who they bring in and they can also
have higher retention.
 And so kind of the big idea here is that when
we're talking about doing a survey, we're talking
 about taking a little piece or a little sample from
this broader labor market. We're trying to figure
out what the wage is in this competitive labor
market. And so next up we're going to
determine what it is that determines labor
supply and labor demand and how this could
inform how we make adjustments based on our
survey data. Thanks.
Video 4: Población activa y demanda laboral
 Next up, we're talking about labor supply and
labor demand. So first of all, again, what do your
labor markets look like?
 Let's take a tangible example, oil field workers in
North Dakota. So once again this is a labor
market, we have a supply of labor, those oil field
workers. You have a demand for labor that is all
the different oil and gas companies that are
hiring them, and indeed we could count how
many oil field workers there are in this labor
market. We could also say something about the
different wages they are making.
 What happened after 2009? Well, in about
2010, there was a technological innovation
called fracking, which made the oil field workers
a lot more productive, that is oil and gas prices
are very high and every oil field worker was able
to produce a lot more of it. So, what happened?
Well, that's an example of something that would
drive up demand. You had all of these
employers, all of these drillers who were
scrambling to use new technology to produce a
lot of oil very cheaply. And as those employers
are scrambling over those workers, that
prompted an increase in wages. That's that price
going up. And it also attracted people to start
working more. They were working overtime,
and they were coming in to switching their jobs
and to becoming oil field workers, and so on.
 And so then what happened? Well, as you know
about this time about in 2010, there's also the
recession the rest of the country. And so one of
the things that was happening was more
workers were being attracted to the oil field of
North Dakota. Then what happened?
 Well, that's something that shifted the supply
outward. Supply shift outward, that would put
some downward pressure on wages. Of course
in practice, wages didn't go down very much
yet, because demand was shifting up even faster
than labor supply could keep up. But as more
people are becoming trained in these skills,
become oil field workers, and as people were
moving to North Dakota, that was shifting labor
supply as well. And this had that effect of also
boosting the quantity of labor in the labor
market. But then what happened? Well, then at
the beginning of 2015, all prices started to fall,
and as oil prices started to fall, demand for their
labor also shift it back down. So, while as the
initial demand boost was based on high prices
and then technology that made them highly
productive, the following demand was driven a
lot by lower prices. And as prices for oil went
down, employers didn't demand as much of
their labor, and so as employers supplanted lots
of their labor, that shifted the demand curve left
and downward.
 And so what did that mean? That meant that
there was less overtime, they weren't willing to
pay as much for those workers. So that means
the price of their labor went down. It also
means that they were reducing those hours, it's
less. Equivalent of the quantity going down.
 And so, in other words, when we think about
demand side factors, demand side factors are
those factors that drive the productivity, and
the price of their labor. We think about supply
side factors, those are things such as how
attractive the job is. Or there's migration to the
job and how expensive is to acquire those skills.
 So as a practical matter, how do we adjust for
supply side factors? Well, for talking about a
workforce that is more educated that probably
means we'll need to pay more for those
workers. That's because to you to get a work
force that's relatively educated compared to
your bench mark, that's expensive for those
workers to acquire more education and more
experience and so on. It would require greater
pay to attract those kinds of workers.
 Another thing is compensating differentials if
your job or the job that you have in your
organization is less appealing for other reasons,
maybe it's a job that requires a lot of frequent
relocation for work, or a lot of business travel or
is perhaps relatively dangerous then you'll also
have to pay more than your bench marks. So
the typical examples are more hazardous,
relocation, our less attractive work
environment. So that's some of the supply side
factors that we might need to look out for when
we're looking at our job. We're looking at our
benchmark jobs. And, for any differences, we
have to adjust what our benchmark rate is
based on those differences between our job and
our benchmark job.
 The demand side factors. Price and productivity
are going up in our industry as they were in oil
and gas drilling. Then we'll have to probably pay
more than the power benchmarks. Also, if you
need a worker who is more productive than a
typical worker in your benchmark you could
probably expect you'll need to pay more.
 Another piece of practical advice. Again, we
were talking about benchmarking. We wanted
to try to benchmark so we could get the closest
 comparables that we possibly can. That's why
we're benchmarking based on our job duties
and our job descriptions as opposed to just
simply the titles. As the titles won't give us a
very good description or won't give us a very
good idea. The kind of job we're trying to match
compared to the actual lists of the things that
person would be doing. And the better that we
can actually match our job to those external
benchmark jobs, the less we'll have to worry
about adjusting for all of these differences
between our description and the description of
our benchmark jobs.
 And so the Bureau of Labor Statistics and many
other websites can also help us forecast wage
growth based on supply and demand factors.
And they'll also be very helpful in adjusting for
things like education. We can see, for example,
how much a Compensation Benefits Manager
who has a master's degree or make more than
just a bachelor's degree or less.
 So thank you so much.
examen
1. job duties
2. job analysis
3. when some external job matches best on job
title and other external job matches best on job
description, then it’s better to benchmark on job
titles rather that job description
4. sin experiencia uno gana menos de la media de
pago
5. administrar las encuestas uno mismo
6. labor supply wil increase
7. NO labor supply shift left
labor demand will shift right
Clase 3 – Construir una estructura de pago
Video 1: Terminología de la estructura de
salario
 Welcome back, in this lesson we are going to be
discussing salary structures starting off with the
discussion and an overview of our basic salary
structure terminology. So first of all, what is a
salary structure? The salary structure is a
hierarchical set of jobs and their associated pay
ranges. And so, what does these actually look
like? So let's say that we're benchmarking an
Engineer, then we're going to be looking up into
the labor market. And perhaps getting data from
a salary survey, and then we'll have our
benchmark pay rate for that Engineer. But then,
of course, not all Engineers in our organization
are going to be making the exact same pay rate.
So instead of what we might have is our
Benchmark grade or our midpoint, be
determined by our salary survey and then we're
going to add and subtract the 20% to determine
our range. And so, that is just an example for
one grade but if we had a full structure, it would
look something more like this. So what do we
see here? So the first thing that we'll see is of
course our different job titles. So for example, at
the lower end of our structure, we'll have our
Junior Engineers, followed by our perhaps just
our Engineers. And then, our Senior Engineers
and then there could be lead engineers or
principal engineers or so on.
 The other things we'll see are grades so these
are, again, the hierarchical ordering of the
different jobs in our hierarchy.
 We also have our salary midpoints so we want
this to be roughly the midpoints for where most
people would be earning for these different
grades, and those would be tied to our external
benchmarks. And then, lastly, we have our
ranges. We have both the minimum salary that
you might make as a junior engineer, and also
the most that you might make as a junior
engineer. And to get a higher pay, you would
have to be promoted into the next grade. And
so, let's look at this from the employee's
perspective. So suppose that you've just
graduated from college, you have your
engineering degree and you come out and you
join this organization. Well, where are you going
to start? And actually you're going to start at the
bottom. So you might start off at the minimum
for a junior engineer. The organization might
have some flexibility to start you at a higher
level, if you negotiate that. But if you come into
the organization you might typically start off at
the minimum.
 And so, let's say that you join the organization
and of course you do your job very well, well
then you might get raises. And as you gain
tenure and get raises over time, then you might
be considered a good candidate for a
promotion.
 And so, there you go. So now you are a full
engineer. And then, after doing your job well,
once again you get raises, but after a certain
point, you can't go any higher. You've reached
the cap of an engineer's salary. And at this point
you can't get anymore raises by doing your job
well or by having longer ten year rather the way
that you and a raise is by getting another
promotion to a senior engineer.
 And so, in our next video we'll be talking about
how we exactly set these grades. How we set
those benchmarks and how we set those
ranges. Thanks. See you soon.
Video 2: Estructura de salario y puntos de
referencia internos
 Welcome back. Today, we're talking about
salary structures and internal benchmarks. And
so in our previous video, we looked at this world
in which you can actually observe all of the
different benchmarks for all of the different
grades that you have, but that's kind of an ideal
circumstance. Often times, we won't be able to
observe the benchmarks for all of our different
grades. So for example, we might be able to
adequately benchmark an engineer and a senior
engineer, but we won't be able to adequately
benchmark also the lead engineer and the
principle engineer and so on. And so what are
you supposed to do? Well, so let's take an
example where we are able to benchmark two
of these jobs in our hierarchy, but we're not
able to benchmark those middle engineers. And
we're going to see what we're supposed to do.
So the first thing that we're going to do is we're
going to establish control rates. That is, for
those jobs that we actually are able to
benchmark, we're going to essentially calibrate
 our whole organizational hierarchy, in our pay
hierarchy.
 And from these control rates, we're going to fit
a pay policy line. That is, we're going to take the
data that we have available, and we're going to
fit a line, and then we're going to fill in the gaps
using that pay policy line. And that pay policy
line is essentially a method for mapping our pay
grades and our job grades to median pays.
 So let's take an example from a slightly bigger
pay structure. So suppose we have seven
different levels. And here we're just going to put
our midpoints for our salary structure. So
suppose that we're able to find good
benchmarks for levels 1, 2, 4, and 7. But we
don't have very good benchmarks for 3, 5, and
6. So again, our first step is to establish our
control rates, which are going to be the rates for
those jobs that we can benchmark. And then
we're going to fit our pay policy line. And so one
method for doing this is called regression.
 Regression is just simply a method for fitting a
best fit line through our available data. So we're
going to use regression to fit a line through
those jobs that we can actually benchmark.
 And then we're going to fill in the midpoints
from that regression line. And this is an example
of what it might look like. So those predicted
values from that regression would establish the
midpoints for the structure for the specific
grades, and then we can add and subtract
maybe ten or 15% from those different grades
to establish our full structure.
 Another method is simply to use the midpoints.
So for using midpoints, all we're doing is we're
taking the jobs that we can benchmark, we're
fitting lines between them, and then we're filling
in the gaps from there.
 So let's give a rehash. So the first step is going to
be to pick the jobs that we're going to
benchmark. Typically these are going to the jobs
for which we can easily go off and we can find
good survey data to find out what the medium
pay is for those jobs. They're typically going to
be the largest grades or the most standard
grades within our organizational hierarchy. The
next step we're going to do is we're going to
benchmark pay at our control rates. That is,
we're going to figure out what the medians are
given those surveys.
 The third type is going to be we're going to fit
our pay policy line through regression or some
other method. And then fourth, we're going to
set pay for our non-benchmarked jobs using
that pay policy line.
 And then lastly, we're going to determine our
ranges based on whatever our firm policies are.
 And so all together, these five steps are how
you'd create a structure from those jobs that
you are able to benchmark.
 So let's look at the big picture. So in our
previous lesson we also talked about how pay
was determined by labor markets. And so if the
pay is set by labor markets, well, how can it be
set by a structure? But really these two are very
complementary. So for example, let's say that
we looked at a labor market, and we graphed
both the pay for senior engineers and also the
pay for junior engineers. And remember, we
said that pay is set at the intersection of labor
supply and labor demand. And then we said,
when we're doing a survey, all we're really doing
is kind of taking a little sample from the
intersection of labor supply and labor demand
to determine what people are usually paid in
the labor market. And that's essentially what
we're doing here. So we're saying that for our
junior engineers, we're saying that our survey
data, if we're just taking a sample from the labor
supply and labor demand of junior engineers,
this can map onto our structure. And then
likewise, when we do the same thing for our
senior engineers,
 then we're also just taking a sample of labor
supply and labor demand from that senior
engineering labor market and then putting it
onto our structure as well. What does that
mean? Well, that means that a lot of the same
rules that apply to labor supply and labor
demand also apply when we're talking about
our structures. So for example, let's ask this
question, why is it that senior engineers have
higher pay? Well, of course they're higher up on
the job hierarchy. But another way to look at it
are from the labor supply perspective and the
labor demand perspective. From the
perspective of labor supply, it's expensive for
engineers to acquire greater skills and
experience. Those skills that might make a
programmer or an engineer, or what have you,
more productive are relatively scarce, and
they're expensive to attain.
 On the demand side, employers are also willing
to pay more for those skills. Just because a skill
is expensive to obtain or it's rare doesn't per se
make it more highly paid. But rather it's that
they're both scarce, and also that employers are
willing to pay a lot to get it, that makes those
jobs pay more.
 In the next step, we're going to be discussing
how to establish criteria for raises and
promotions from our salary structures. All right,
see you soon.

Video 3: Criterios para aumentos salariales y
ascensos
 >> All right. So now we've talked about all the
terminology for a salary structure, our
midpoints, our control points, our grades, our
ranges. Now, I want to talk about how we
actually determine what those should be. That
is, what are the criteria for our raises and
promotions within the organization?
 First of all, we have to remember that the pay
structure isn't everything. The pay structure
determines base cash. Base cash is only one of
four elements of the payment, along with short
term incentive, long term incentive and our
benefits and perks. And even then, our paymex
is only one part of the full employee value
proposition. Also included in the book,
employee value proposition, isn't just their pay,
their total comp, but it's also all of the noncash
awards and all of the other things that makes
people come and excited to work for the
organization every morning.
 So, before you design, you have to know our
three Ms. And remember, these are our money,
our mix and our messaging. The salary structure
communicates how employees progress in the
organization. And this is important because the
salary structure, even though it determines just
base pay and base pay is only one element of
the paymix, it's of course a very big part of the
pay mix and it's the main way the organization
gets to communicate this is the thing that we
value. This is how you progress with the
organization. This is how you get promoted. This
is how you get raises.
 And so, first of all, so let's talk about our
different raise criteria. And let's go back to our
new engineer who's just out of college and just
joined our organization, is that they come at the
bottom of the Junior Engineer's pay structure.
 And, of course, they're going to come and
they're going to be interested in what it is that
they need to do to get raises and ultimately
promoted.
 And so, that's going to be determined by
whatever the organization's policy regarding
raises are.
 So, one method is to tie the raises based on a
tenure schedule. So, for example, what we have
here is when you come into the organization,
you might earn a wage of $10 per hour. And
then, as you stay with your organization, then
eventually he'll get raises up to a rate of $15.50
per hour, if you stay as a junior engineer.
 And so, what does this communicate to our
employees? This communicates that we value
tenure, that we value loyalty, and we value
being in the organization for a long time. And
it's those people who are in the organization for
a long time who are going to get to the top of
their wage schedules. But this isn't the only
method that we can use for determining raises.
Here's another method. So, let's say that we
wanted to tie raises to our performance ratings.
And so, this is an example of a method of
communicating to employees that we also value
both your tenure, because that let's you climb in
the organization, but we also value your score
on these different ratings. And so, here's an
example of a raise schedule.
 So, here we'll notice that the people who get
the largest raises are those who are relatively
low within the ranges, so they have a lot to
climb and they also have the highest
performance ratings. And so, those employees
who have outstanding performance ratings but
are also relatively low within that range are
going to get raises of 5 or 6%. In contrast,
there's going to be some people who don't get
any raises in this context.
 So, one group of people who won't get raises
are those who are above the maximum salary
range. So, they don't have anywhere to climb.
And so, regardless of whether they have an
outstanding performance rating or an
acceptable performance rating, they're not
going to be eligible for a raise. The other people
who aren't going to be eligible for a raise are
those who get performance ratings of below
expectations or unacceptable. And, again, it
doesn't matter where they are on the salary
schedule, whether they're relatively low or
relatively high, those who have low
performance ratings under this kind of a policy
would not get a raise. And so, let's look at our
promotion criteria. So, again, with our raises be
communicate the different things you have to
do in an organization to succeed and to do well
and to get a raise. Let's look at the things we
need to do to get promoted into a higher grade,
and therefore, as we go from being at the top of
our old range to the bottom of our next range,
we'll also be eligible for larger raises as well.
 So, there's a few different ways that we can
rank-order our jobs. So, one method is through
the jobs, which is where the grades are
 determined by the tasks that employees
perform.
 Another is determined the skills, such as the
skill, their certifications, their licensures or the
job requirements.
 And the last one is the competency-based
ranking which are determined by demonstrated
behavioral competencies. And each of these
communicates something different about what
it is that we value whether it's the jobs that you
perform, the skills or the licensures or the
certifications that you have, or the behavioral
competencies, such as the ability to lead people.
 And so, let's look at an example of a skill-based
structure. So, here we have a structure from a
public school district in the United States. And
what you'll notice here is that you have, its rank
ordered by years of service. And so, the longer
you are within your particular grade, then the
more pay you'll get. And the grades themselves
are determined by your highest degree of
educational attainment and, additionally, how
many extra credit hours you have.
 For example, let's say that you had somebody
who had a Bachelor's degree with no extra
credit hours and they're just entering our school
district. And this would be someone who would
be paid a salary of $34,048 per year. And as they
grow in tenure in the organization, they can, if
they don't get any additional educational
attainment, they can make up to $38,787 per
year. Now, at this point, after eight years of
service, they wouldn't be eligible for future
increases. Rather, to get additional pay, they
would also have to do additional coursework.
So, let's say that they did 15 credit hours of
additional coursework. Then, this person, if
they'd entered in at zero years of service, would
be making about $900 more when they entered
and would also be eligible for a higher cap. And,
indeed, the people who'd be making the most in
this kind of a structure will be those who are in
the highest grade which would be those with
either a Master's with a lot of extra coursework
or a pHD and who also have a lot of experience,
16 years or more of experience. These people
would be making a salary of $64,174 per year.
And so, again, kind of the big picture is that we
want to establish our raise and our promotion
criteria to communicate what it is that our
organization values. So, thanks and I'll see you in
next class.
Video 4: Banda ancha
 Welcome back. In this video, we're talking about
broadbanding.
 So what is broadbanding? Broadbanding is the
process of consolidating many grades into fewer
bands with wider ranges. And so, this process is
a process that can take away some of the
structure and the frequency of promotions. But
also gives us kind of a maximum amount of
flexibility to because those ranges are very wide.
 So more advantages. So first of all, the
advantages include more pay flexibility because
those ranges can be still made very wide. More
lateral job flexibility, because there's no need to
worry about how grades snap on to each other
if you switch from one job family to another job
family. And also, they allow for a various
specialization in terms of your career ladders
because we have more of that lateral job
flexibility career advancement. So what are
some of the disadvantages? So one
disadvantage is rare promotions because you're
collapsing the grades. And also, some loss of
structure because again those grades were
essentially putting some bounds on the
minimums and the maximums of the ranges.
And so, what I want to talk about today in
particular is a process of implementing broad
band which are becoming increasingly popular
in companies. In a way that gets all five, that is
achieves pay flexibility, job flexibility, allows for
a specialization within your career ladders, but
also allows more frequent promotions and also
a stronger structure. Now, let's return to our
engineers. So here, again, at our organization,
people enter the organization as a junior
engineer and then maybe after three years if
they do their job very well, they could get
promoted to become an associate engineer.
And then, after perhaps, another three years of
doing their job well, they could become
promoted to become a senior engineer. And
we're going to try to, again, accomplish all those
things that we want to accomplish. We want
them to enter as a junior engineer still but we
want to provide them more frequent small
promotions that way we can use promotions as
an incentive and use promotions at a motivating
tool providers since that one is career
advancing.
 And then, also, we want people to specialize
into either technical or managerial tracks. That
way some of our excellent star engineers can
continue to excel in using their talents and
perceived on their technical track. And others
who perhaps are very good in terms of soft skills
and managerial skills and people skills, might be
able to instead choose a managerial track where
they're actually leading projects as opposed to
job duties that are more specific and germane
into those technical engineers. And we're going
to try to accomplish all of those. And so, just to
revisit what our structure looks like, again
people are entering into our organization as
 junior engineers. They might spend three years
there. After another three years they may get
promoted to become an associate engineer and
lastly to a senior engineer.
 And then, now what do we want to do? So let's
say we're revising this process and now instead
of entering just as a junior engineer, we're going
to break that down into a very narrow grade,
and so first of all we come in as an A1 junior
engineer. And then, instead of after waiting
three years for a promotion, again, we want
people to be promoted more frequently and so
after one year you might be eligible to be
promoted to an A2. Now, once again, you're still
a junior engineer. They might be referred to as a
Junior Engineer 2 instead of a Junior Engineer 1,
for example. And then, after another year,
you're eligible for another small promotion up
into A3. And then, at this point, now that you've
spent three years, you've achieved kind of what
we wanted to achieve in terms of more frequent
promotions. Now, we also want to give some
people the flexibility to either specialize in terms
of a technical track or managerial track. And so,
now there's going to have to be a choice of
whether they get promoted to from A3 to A4 or
from A3 into B4 and B4 is going to represent a
separate hierarchy, a separate career ladder for
those who are interested in pursuing a
managerial track. So let's say that you enter the
organization as an A1 then you proceed to A2
and A3. And you decide that you would prefer
to have your career advanced in technical
direction. And so, then you might become
promoted to A4. So now you're an Associate
Engineer.
 And then, you're can be promoted to A5. Then,
another year promote to A6, and then you'd be
eligible for the next big promotion, from maybe
Associate Engineer 3, which has the job code of multiple career ladders and we've also
A6 to a Senior Engineer 1, which has a job code preserved that sense of structure that's so
of A7. So now you're up to A7 and then again important to our sense of internal equity and
you're eligible for promotions up to A8 and A9 fairness.
and so on.  So once again, those are the broadbands and
 So that could be one person, another person thanks again for listening.
might say, I've spent my three years at a Junior
Engineer and I enjoyed the technical side but I'd
prefer to spend my time doing more of the
people and the project management job duties.
And so, instead of taking a promotion to A4 you
accept a promotion into again a job that we'll
call it B4 which is precisely along the managerial
track.
 And so, you come in as B4, B5, B6 until you
become eligible for a promotion, again to a big
promotion to the senior job levels, B7, B8, B9.
 So now what we've done is we've again allowed
for more frequent promotions and we've also
allowed for some flexibility in terms of
specialization. And what we're going to do, the
intuition behind broadbanding is we're going to
still preserve that flexibility in terms of pay by
grouping in all of the levels four through six into
associates. All the levels A7 through A9 and B7
through B9, into its own larger band.
 Let's see what this looks like in terms of our pay
structure.
 create some more flexibility in case someone
decides they want to transfer from being an
associate engineer to an associate project
leader or vice versa. So you still have that
flexibility as well and so this is an example of
broadbanding where you've accomplished our
goals. We've had more frequent promotions,
we've had some flexibility. In terms of the job
transitions and lateral transitions. You can
change the ranges to make the pay more
flexible, as well. And also we've allowed for
SEMANA 2 – Pagar por desempeño
Clase 1 – Aumentos y ascensos
Video 1: Pagos relacionados a las evaluaciones
de desempleo
 Welcome back. In this video, we're talking
about tying pay to performance evaluations. So
what are our options for tying pay to
performance evaluations?
 There's going to be a lot of options because
performance evaluations can be tied to any
element of the pay mix.
 So again, the pay mix includes our cash, base
cash, our short term incentives, our long term
incentives and out benefits and perquisites.
 But remember except for tying our performance
evaluations to our base pay we're talking about
tying them to raises.
 If we're tying our performance evaluations to
short term incentives, we're usually talking
about tying them to bonuses, we're tying them
to long term incentives, we're tying them to
option grants.
 And if we're tying them prerequisites, we're
tying them to things like maybe reserved
parking or perhaps a nicer larger office.
 Or if we're tying performance evaluations to
non cash awards, we might be talking about
employee reward program or perhaps better job
assignments.
 And so we're going to have a lot of different
options again for tying performance evaluations
to the different ways that we can pay people.
 But let's start off with tying our performance
evaluations to base cash. Well one method
again is to tie our performance evaluations to
our base cash through raises. So for example, as
we talked about criteria for raise and
promotions what we can do is we can make it so
we get a larger raise when we have a higher
performance evaluation and also when we're
lower in our pay range for that grade.
 And so typically when we're talking about tying
pay to raises we're talking about tying
evaluations to those different evaluations
specifically that assess current productive skills.
That is we're thinking about tying our
performance evaluations to different measures
that try to capture the things that makes
employees continuously valuable as opposed
to having done a particular contributions in the
past or having high future potential.
 And again, those raises are reflected with
moving up within our pay grades.
 The other method is to tie our performance
evaluations to things like short term incentives.
When we tie evaluations of things a short term
incentive we're usually talking about rewarding
people for their prior accomplishments.
 So one method is the simply a tie fixed bonus to
the different performance evaluations. So for
example, if our employees ratings for
outstanding they might get a $2,000 bonus, and
a smaller bonuses for lower performance
ratings.
 Another method which is popular for budgetary
reasons, is to instead allocate points or claims
on a bonus pool based on ones performance
evaluation.
 So let's look at an example of how that works:
o Say that we have a bonus pool and we have
these three different employees. One
employee has 2,00 points, one employee
who has slightly worse performance has
1,000 points and then a third employee has
slightly worse performance gets 500 points.
So what we're going to do is we're going to
distribute that bonus pool that we budgeted
for this purpose. To these three employees
on the basis of their accumulated points.
o So let's go through an example of our doing
of calculations. So let's say that Susan gets
1,000 points and her division as a whole is
allocated $200,000 bonus pool. Maybe that
was because her division had $200,000 in
cost savings, for example. So let's also
suppose that employees in her division, if
you added all of their points together, you
would get 100,000 points. So then you would
take that $200,000 in that bonus pool
divided it by the total number of outstanding
points. And you figure that each point is
worth about $2 of that bonus pool.
o And so therefore Susan, who was awarded
1,000 points based on her contributions and
based on her performance evaluation, those
1,000 points to be worth a total of $2,000
from that bonus pool. So an advantage of a
bonus pool is that it helps budgeting because
in this case the firm knew that they were
going to allocate $200,000 to that bonus
pool. And it also can create cooperation
among employees so they can improve the
size of that divisions bonus.
o So for example, if that division was tying that
bonus pool to something like cost savings,
then they can encourage employees to get
together to try to figure out ways to make
more money therefore, maximizing the size
of that bonus pool.
o One of the disadvantages of a bonus pool is
it can also create competition. That's
because the more points my colleagues
have, the larger number of outstanding
points in our total. That means that each one
 of my points will be worth a little bit less as it
becomes diluted.
o Another disadvantage is that it can also be
bureaucratic to administer. And it also
potentially could be misaligned to business
objectives and that's why we want to make
sure that our bonus pool is aligned to our
business objectives enough the way that we
distribute points awards employees for their
contributions to meeting those objectives.
 So next, let's get to tying performance
evaluations to long term incentives. So as we're
tying performance evaluations to base cash to
reward employees for their accumulation of
productive abilities. When we're tying it to short
term incentives, we're tying to prior
accomplishments. We're usually using
performance evaluations and giving long term
incentives like stock options to pay them for
their future potential within the organization.
And so one example of how these could work is
that for employees who have outstanding
performance ratings or perhaps have a rates
have outstanding future potential for their work
within the firm. We'll give them larger option
grants than we would to those who perhaps
have ratings for less potential within the firm.
 And remember, the reason why we might do
this is because long term incentives such as
stock option are especially valuable to workers
who plan to stay. And on of the pejorative terms
for short stock options is golden handcuffs
(esposas). That's because if you leave the
organization too early, then you're forgoing
(privarse, renunciar) any of the options which
have invested. And if this terminology sounds
familiar to you, you can always just look ahead
and look at our video on stock options.
 There's also non monetary awards. And so these  Next up, we're talking about should pay even be
would be things like parking spaces or a rewards based on these performance evaluations at all.
program or a recognition or so on. And this will Thanks, I'll see you next time.
be something that we will talk about in the last
lesson of the course. And so just as an example, Video 2: ¿El pago debería de depender en las
we can take an example of Microsoft. So evaluaciones de desempleo?
Microsoft again is an organization that again  Welcome back. In this video, we're going to be
requires very highly skilled employees and asking the question, should pay even depend on
programmers, and so on. And they're also very performance evaluations?
known for their system of performance
 That is, should our pay be determined by
evaluation. The way that Microsoft employees
something that looks like this? That is, imagine
are evaluated, they're rated on both they're
you have a meeting with your boss, and the
current skills, and those performance ratings
boss comes in and says, I think that you were
contribute to their raises and to their
very reliable, you did very high quality work, but
promotions. Then they're also rated on their
you didn't generate as much new business and
future potential to the organization and the
you didn't exhibit as much leadership as we
more highly you're rated on your future
would have wanted. Then, in that case, can we
potential to work within Microsoft, the more
really have a conversation that'll be both
you'll be given stock options. Which again are
developmental but at the same tie those
going to particularly valuable for employees
different elements to the way we pay
who do end up staying at Microsoft to realize
employees? And that's a big question.
that potential.
 That's because performance evaluations really
 And then Microsoft also gives bonuses in
have two main purposes. One is kind of the big
proportion to one's short term wins over the
bucket of developmental purposes. That is, we
prior year. And again, these are a way of
want the boss to be engaged with employees, to
motivating employees who seemingly had some
have a learning conversation with them,
contribution to the organization in the most
regarding how they can do better in the future,
recent past.
how they can better align their efforts and their
 And so just to give an overview again, we objectives to the goals of the organization. And
usually think about salary as good evaluations so it really serves a very important
lead to raises and we usually tie those to parts developmental purpose, certainly for the
of the prior evaluations that measure current employees and for the organization as a whole.
skills. Short term incentives, they're tied to
 But of course, the second purpose of these
bonuses and we're usually rewarding prior
performance evaluations is that we're
accomplishments. And then when promise
potentially also tying them to raises and
evaluations are trying to measure future
bonuses, to option grants, and so on, so all
potential then we might give them something
these different pay elements. But even for
like an option grant.
organizations that say we don't tie evaluations
to pay, it often times will still be tied to things
 like promotions, which so implicitly make those
evaluations about pay.
 Also, when we're seeing if people are eligible for
potentially job changes or lateral transfers
within an organization, or when we need to
perhaps engage in layoffs, or we might be
terminating employees, then we might be
referring to those performance evaluations to
try to establish some criteria for who gets laid
off or who gets terminated or who gets
promoted or so on.
 And we think about those as generally being in
this bigger bucket of judgment purposes. And
the problem is that when a performance
evaluation becomes about judgment, becomes
about or tied to things like raises or promotions
or terminations or so on, it's really hard to also
use that same conversation for development as
well.
 That is, we think about the purposes of
development and judgment to be in conflict
with each other. And indeed, when we think
about, again, a developmental conversation,
developmental performance evaluation would
require the manager to be very candid about
their suggestions and the employee to be very
receptive to have the right kind of learning
conversation.
 But on the other hand, if those scores are being
tied to things like pay or promotion or
terminations, then it leads the managers to
want to be evasive.
 They don't want to give employees bad ratings
that could potentially affect their pay or their
career. And likewise, employees are going to
want to be defensive as well. And that's going to
make these purposes of having a candid, open
developmental conversation very difficult to
balance with the more judgmental purposes,
like pay, that we might also want to include
when we are using performance evaluations.
 Another challenge is also different evaluation
biases. We're all human, and when we're trying
to rate employees, we kind of bring all of those
behavioral biases and baggage with us.
 And so the first two I want to discuss are the
halo and the horn bias.
 The halo bias is our bias to look at somebody
who's great in one dimension, and to allow that
to bleed over into other dimensions. So for
example, Bob is great with people and so I think
he's pretty good with numbers, even though
these things could be completely uncorrelated.
 The horn bias is kind of the halo bias's cousin. So
for example, Bob is terrible with numbers, and
so I let that bleed over to my bad evaluation of
his people skills as well.
 And we are able see in the laboratory and when
we do research with firms that people actually
do allow the halo and the horn bias to affect
their evaluations.
 The second set of biases I want to talk about
have to do with timing. So the primacy bias and
the recency bias. The primacy bias kind of goes
back to this idea, first impressions matter a lot.
That is, when someone does something well
initially in our first interaction with them, we
tend to look at all of our future interactions in a
favorable light. The recency see bias is the flip
side. We tend to remember the last thing that
happened. I think if, for example, a job
interview went well, then probably the most
important moment is that very first interaction,
where you have that primacy bias, that first
impression. Maybe the second most important
moment is that very last impression, the very
last thing that happened within that
conversation. And if you have those two, then
you have both the primacy and the recency bias
working for you. And the same thing can be said
in performance evaluations as well.
 Our most recent interactions, perhaps that are
done very close to the actual performance
evaluation themselves, are going to be very
salient in the rater's mind. And also the very first
interaction with that person could be very
salient in that person's mind and could color all
their future evaluations.
 And the last set of biases I want to discuss are
the spillover and the anchoring bias.
 The spillover bias has to do with the bias that
we have that our ratings from previous years or
previous evaluations can spill over into our
current evaluations. So for example, if I rated
somebody as a five out of five in the prior year,
then that five of five rating, I might allow it to
spill over into my current evaluation as well.
 And very closely related to that is the anchoring
bias. The anchoring bias means that when we
have some sort of number in our head, we tend
to anchor from that number and then only make
small adjustment as we see appropriate, as
opposed to rethinking those items
independently. And the anchoring bias cause is
prior to the root of that spillover bias, where we
only adjust from a prior year's or a prior
measurement period's evaluations. And it's also
related, of course, to the halo and the horn bias.
Whereas we think and we get anchored on
those very high, very low ratings, but then we
only make small adjustments from there.
 Another concern about performance
evaluations are the so-called evaluations death
spiral, and this can be especially salient when
we're tying performance evaluations to pay.
vinculación de evaluación de desempeño con el
pago
 So the first step is ratings inflation. So there are
several cases about companies that try to
implement performance evaluations and tie
them to pay, and managers, in an effort to avoid
conflict, would try to rate their employees as
highly as possible. That way they avoid conflict
and they maintain a good working relationship
with their subordinates. But after this ratings
inflation, ratings start to lose their meaning.
That is, everyone comes to see the highest
ratings as an entitlement.
 And when the organization is trying to tap the
very top performers for something like a
promotion, then it becomes very hard to tell,
because everybody has a very high rating.
 And so the second step is that those ratings
start to lose meaning.
 And then third, because everybody thinks that
they're getting this message that they're doing
their job well, the purpose of development also
declines.
 And so in kind of the final stage is that as
performance declines because the development
declines, pay rises more quickly than is
sustainable, because ratings inflation is causing
people to become eligible for very large pay
increases.
 And so how are we going to combat these
biases and this death spiral? That's going to be
the subject of our next video, when we talk
about designing effective performance
evaluations.
Video 3: Diseñar evaluaciones de desempeño l
 Welcome back. In this video we're talking about
designing performance evaluations.
 So designing performance evaluations to do
what? First of all, we want to design evaluations
that can develop employees, get accurate data
that can be used for things like compensation,
promotions, and so on, and also develop
evaluations that avoid conflicts and avoid bias.
And how are we going to do that?
 The two main steps are going to be good
benchmarks and good communications.
 And the first thing we're going to look at are
benchmarking inputs. When we're talking about
benchmarking inputs, we're talking about
benchmarking employee behaviors.
 And so for here we're going to introduce a new
term. This is a behaviorally-anchored rating
scale, or BARS for short. So BARS is a scale that
maps behaviors onto a specific performance
rating scale.
 So let's see how that works. So let's take an
example of a BARS for customer service. So here
you'll notice that there are five different scores,
a rating of 5, 4, 3, 2, or 1. And each of those
scores are tied, or they're anchored, to a very
specific set of behaviors. That is, to get a rating
of 5 on customer service, this is a person who
must discover, probe, and solve problems that
customers don't even know about. And to get a
score of 1, you would have to have little attempt
to understand customer problems.
 And so what are we doing here? By tying each
score to something that seems like something
more of an observable, objective behavior,
we're trying to make it so it's more easy for a
manager to justify a score that corresponds to a
certain behavior. And also something that could
be more objective and more comparable across
perhaps different managers who might have
different biases or might have different
tendencies to rate people differently. That is,
regardless of where you are in the organization
or who's doing the ratings, you should expect
that someone who's getting a 5 is also someone
who solves problems that their customers might
not even know about.
 So when do we actually use these behaviorally-
anchored rating scales? We're typically talking
about evaluating performance based on these
behavioral inputs. If we know what employees
should do to be successful, we can actually
measure what it is that employees do and that
usually involves jobs where employees have
more supervision.
 That is, to actually implement BARS, we'd have
to have a manager who's actually in a position
to observe how that employee interacts with
their customers. Are they able to engage in kind
of a problem-solving conversation? Do they
make efforts to learn about their customers'
problems or so on?
 And so some of these behaviors might be very
difficult to actually measure based on their
outputs, because different clients could defer,
they might not collect data on the outputs, even
though you can observe what the behaviors
those employees are doing, or so on.
 And so again, if we can observe those behaviors,
then we might be thinking about benchmarking
on inputs, that is, using something like a
behaviorally-anchored rating scale.
 Next we'll talk about benchmarking on outputs.
When we're talking about benchmarking on
outputs, we're not talking about trying to
measure what it is that employees are doing or
their behaviors. We're talking about measuring
what it is that employees actually contribute,
what it is that they produce, what they output.
 And one of the methods for this is a
management by objective, and so that's a
 method for benchmarking employees' ratings to
their achievement of prespecified goals.
 And when we're talking about management by
objectives, an example could be, again, a 5-
point rating scale. So here, to get a rating of 4,
the objective would be to meet 100% of the
new business target. And to get the highest
ratings, you'd actually have to beat your target
objective.
 And at lower levels of meeting that new
business target, you would get a lower level.
And so how is this different from a behaviorally-
anchored rating scale? Well, you'll notice that,
again, you're not measuring their behaviors, not
measuring what it is they try to do or their effort
or whatever they're trying to do to get new
business. You're only measuring whether an
employee actually achieves this outcome or this
objective. And so typically we're talking about
measuring based on outputs, or using a
technique such as management by objectives, if
we know what employees should accomplish to
be successful, not what behaviors they should
use in order to be successful.
 We're also typically going to benchmark on
outputs and use techniques such as MBOs when
we can measure what employees accomplished.
That is, for example, if we're talking about an
airline flight attendant, then it might be very
easy to see that an employee's behaving
courteously, but we might not be actually
measuring outputs such as customer
satisfaction. And in that case, we'd want to use
something like BARS as opposed to
management by objective (cuando se observan
los comportamientos, pero no el resultado
final).
 But if we're talking about a job such as
salespeople who would have a lot of autonomy,
whose outcomes would be very easy to
measure even if we aren't necessarily directly
supervising them. Well, in this case, since we
can measure those outputs, we might be more
likely to use a technique such as management
by objective.
 And so how do we design our MBOs? Well, we
can typically use the acronym SMART to help us
design them. That is, management by
objectives, those objectives should be specific,
measurable, attainable, realistic, and time-
bound. So for example, when we said that to get
the score of a 4 on our MBO, we had to
generate $10 million in new business, that $10
million is a specific number, $10 million. It's also
measurable. Presumably we can measure how
much new business they bring in. We want it to
be attainable and realistic. That is, it's not too
much of a stretch goal. Hopefully it won't be
impossible for an employee to generate $10
million in your business. And then also you want
it to be time-bound. That is, that employee has
perhaps one fiscal year, beginning January 1st
and ending at the end of that same year, to
actually obtain that $10 million in new business,
and so it's time-bound.
 And we don't necessarily think of BARS or MBOs
is being one or the other, or all or nothing.
Typically we'll have multiple ratings. Some of
them will be behaviorally-anchored and some of
them will more closely resemble measure by
objectives. And so for example, it might try to
measure things like customer service or
teamwork or leadership or reliability as
behaviors that we can observe and that we
might tie to the behaviorally-anchored rating
scales. And then separately we also might have
a separate set of objectives for them to pursue
such as new business, business retention, and
quality measures that we'll have data for, these
output data for. And then, so we'll have a
separate section of our performance
evaluations for those where the outputs are
easily measured even if the inputs that we know
correspond to good outputs are not measuring.
 The second set of best practices I want to
discuss are regular communication.
 And specifically, we want to specify to an
employee the desired behaviors and objectives
in advance of when they're actually measured.
We also want to meet with our employees
regularly and to explain scores. Kind of the
golden rule of performance evaluations is that
they should not be a surprise when the formal
performance evaluation comes in. That is, if the
manager is communicating expectations and
communicating what behaviors or what
objectives correspond to what scores, then it's
taking some of the subjectivity out of those
ratings and therefore making them more
expectable and more predictable to employees.
And that also helps the manager have more of a
learning conversation, a more developmental
conversation, while still having these
evaluations be used for judgmental purposes as
well.
 So for example, a manager could say something
like, I see that you scored a 2 out of 5 on this
dimension. Let's work together to see if we can
figure out ways to bring that score up in the
future.
 So in summary, tying performance evaluations
to pay and to promotions and to terminations
and so on, can harm the developmental purpose
of those performance evaluations.
 We also know from a lot of experience that
raters will often try to avoid conflict by giving
very high evaluations.
 And we can reduce bias and conflict by trying to
benchmark our performance measures and
communicating them in advance of the formal
evaluation themselves.
Clase 2 – Incentivo a corto plazo
Video 1: ¿Incentivar o no incentivar? (¿Cuáles
son los incentivos a corto plazo?)
 Welcome back. In this lesson, we're talking
about Short Term Incentives and in this video,
we're talking about what are Short Term
Incentives.
 So, Short Term Incentives include bonuses,
commissions, piece rates and other incentives
that are targeted on rewarding and incentivizing
specific key performance indicators.
 And what is a Key Performance Indicator? Well,
a Key Performance Indicator, is the performance
measure that can be used to determine our
Short Term Incentives.
 So one way to think about it are our KPIs, our
Key Performance Indicators our inputs. And our
outputs are those Short Term Incentives such as
the commissions, or bonuses, or so on.
 And remember Short Term Incentives are just
going to be one element in the pay mix.
 And again the main purpose of Short Term
Incentives are to motivate workers to work
towards those KPI.
 So Key Performance Indicators could be
measured in many different ways. So, in the
typical line 2, either the objectives of the
individual, the group, or the organization.
 They include things such as profits, so for
example, for a salesperson, the profits of the
margins that associate in the products that they
sell.
 Or, revenue, the amount of revenue that
salesperson might bring in.
 Units such as the number of units sold, satisfied
customers. So scores on customer satisfaction
survey, that might be administered to that
salesperson's customers. Or good evaluations
from either from the bosses or from peers or
from customers and so on. And once again,
those key performance indicators or inputs.
 And a lot of the outputs are those short term
incentives.
 So based on those profits or the revenues or the
units sold or those evaluations we'll be
awarding non-discretionary bonuses such as
those commissions that sales person might be
entitled to.
 The discretionary bonuses (pago extra que la
empresa acuerda pagar) as the boss might say,
you know, your contributions to the
organization were really great, so we would be
giving you these discretionary bonuses on top of
your other compensation. But then also your
commissions, and your other incentives as well.
 So we're talking about Short Term Incentives.
We're talking about both performance
measures, those KPIs (indicadores claves de
desempeño), and also rewards that could be
distributed on the individual-level, the team-
level, the-division level, or the firm-level. So for
example, for an individual-level KPI might
include a salesperson's personal sales numbers.
 Or it could be based on the team's sales
numbers of the division or the firm. And also the
reward can be distributed specifically to that
individual for that own individual's sales. Or it
could be to the entire team with each share
going to the members of that team, or divisional
or firm level there as well.
 And so what, so whether we use team
incentives, or individual incentives or
tournament or rank based incentives, will
depend a lot again our money, our mix and our
messaging.
 And so when we have an individual incentive,
that means that I paid for my own personal
measured performance. And in that case, if my
teams performance goes up well that doesn't
really effect me and so I might not try to help
my teammates per say I may not try to help my
peers because I'm not being paid for that but at
the same time I won't really care if it goes up or
down either.
 In contrast, if you have a team based incentive,
for example, we have for example a
manufacturing plant where there are four of us
who are working at a work station or one
working it, then you might be paid based on the
performance of my entire team. And in that
case if my team does well then my pay goes up
as well too. And in that case I might be more
likely to help my teammates do better.
 kind of the opposite of a team-based pay is a
rank or tournament based incentive. That's
where I'm paid for my relative rank. So for
example, there's in a famous example of the
sales team might have the very top salesperson
might get a very fabulous vacation or a new car
or a fabulous reward. The second placed person
might get a much smaller award. And those who
are relatively poor sales people may not get any
short term incentives or might get terminate in.
And so and this ranked tournament based
incentives, if my teammates do well and that
means my pay goes down because my rank
among my team looks worse.
 And so we have to think about based on these
individual team base or rank base incentives
 what you know again based on what happens to
my pay base and how they do is going to affect
how I'm going to allocate my effort as well.
 So again under individual base incentive I don't
really care what my peers are up to.
 And also the risk that is being born (si se tiene
talento) for things that outside of my control is
relatively moderate. So what will I do? Well I will
pretty much keep to myself.
 Under a team based incentive plan, I'll want my
team mates to succeed, because the better they
do, the more I'll be paid as well.
 One of the disadvantages to this is that if there's
some factor that's affecting my teammate's
performance, that's outside of my control and
outside of my teammate's control, for example
business seasonality. Then this is going to affect
all of our pay to a very high degree. This can
magnify the effect of those things outside of our
control affecting our pay.
 And so what will I do? Well some of the things
that the organization wants us to do is to
cooperate, which we'll do. And we'll also try to
teach our team mates our best practices.
 But of course one of the disadvantages to these
team based incentives is that I'm baring more
risk and then also have an incentive to free ride.
That is I'll want to sit back and let my team
mates work really hard and because my
teammates are working hard I'm going to be
paid a lot because my team is doing well, but at
the same time I'm exerting less effort.
 And then lastly there's the ranked based and
tournament incentives. While in this case
actually my peers to do poorly. Because if I'm
only being paid for being number one, then the
worse they look, the better I look in comparison.
 One of the nice thing, about these tournament
based incentives, is that, I'm bearing relatively
little risk, for things that are outside of my, or
my teammates, or my colleagues control.
 So for example, if I'm a phone salesperson and
my product was doing okay until a competitor
came out with another phone. Well then that's
not only going to affect my sales, but it's also
going to make it harder for the other people in
my organization to sell the phones as well. And
so even if my sales look relatively low, by virtue
of being the number one salesperson in a bad
year, you know that I was doing my job
relatively well. And so what will I do? Well under
a rank based or tournament incentive, you
would really compete with your peers. It's kind
of the opposite of the team-based incentive
where you try to teach them best practices.
 Under our rank based incentives you'd
potentially want to sabotage their work or you
certainly wouldn't want to share your best
practices. You'd pretty much want to keep it to
yourself.
 And so again when we're using Short Term
Incentives we want to think about our money,
our mix and our messaging.
 If we're using Short Term Incentives, we want to
explain why it is that we're using an individual-
based incentive or group-based incentives or
tournament-based incentive, and where does
that communicate for our value and for the
culture as of our firm?
 So designing incentives. If we want teamwork,
again don't use tournament incentives. You
want competitiveness. Once again, don't use
team incentives.
 So next step we're going to ask, should I use
incentives? And we'll be asking questions like,
given my job, would this job be a good
candidate for Short Term Incentives? Thanks,
and I'll see see you next time.
Video 2: ¿Los trabajos debería utilizar
incentivos a corto plazo?
 Before we ask this question, we should point
out that in most jobs, short-term incentives are
not a big part of total compensation. Rather, if
we're looking at the pay mix as a whole, most
people are getting the majority of their pay
through base pay, not through short-term
incentives. And so let's look at some examples.
 If you think about nurses, or we think about
perhaps office workers, salaried office workers,
these are jobs where most people aren't getting
the majority of their pay through short-term
incentives.
 But on the other hand, short-term incentives
are prominent pieces of total compensation
package in some other jobs.
 So for example, in a factory, a worker might be
paid a piece rate that is a certain commission for
every unit that they produce.
 Or in agricultural work, people might be paid
per basket or bushel of produce that they pick.
 And in some jobs, we might see incentives, but
their use is relatively controversial, such as for
teachers.
 And so what makes these jobs that use short-
term incentives different from jobs that don't?
Or in other words, what is it that seems to make
a job a good candidate for short-term
incentives? And what is it that makes a job
seemingly a bad candidate for short-term
incentives?
 And to answer those questions, we want to look
at kind of the typical problems of short-term
incentives. That is, these are the typical reasons
why a job might not actually be paid with using
 short-term incentives, and instead might be
paid more in terms of a base salary.
 So the first problem is the alignment problem.
So what's the alignment problem? The
alignment problem is that the performance
measures aren't very well aligned to what it is
that we want to get out of our workers. And so
kind of our lesson is, don't pay for A while
expecting B. So we might see this in examples
like gaming, gaming an incentive plan.
 There is a famous example from a company
called Lincoln Electric. And in that company,
they used to pay typists by the keystroke. What
the found were that some of the most
productive typists were just spamming one key
on their keyboard over their lunch break.
Actually, this wasn't a very productive activity.
 The second problem is the measurement
problem. That is, you can't measure what it is
that we want to measure. And the lesson here is
that you shouldn't pay short-term incentives for
things you can't easily measure. And kind of the
example from Lincoln Electric, again, would be,
we want those keystrokes to be high quality.
But at the same time, we can't really measure
easily what it is that makes a keystroke high
quality.
 The third problem is the metering problem, and
that is that you can't define success. Perhaps
this is a job that you haven't had before in the
past. And so you can't tell the difference
between a good output and a poor output. In
other words, we find it hard, difficult to
benchmark these jobs and to find success. Kind
of our lesson here is that we want to benchmark
low short-term incentives, or low target
incentives for low performance, and high short-
term incentives for high performance. And to do
that, of course, we need to be able to define
what low performance is. And we need to be
able to define what high performance is.
 A fourth problem is the control problem. So
what's the control problem? Well, that's where
your success depends on factors that are
outside of your control. And our big lesson here
is, don't use incentives for measures that
workers can't control. Workers tend to be more
risk averse than their firms. And so when you're
paying them incentives for things t hat are
outside of their control, you're pushing more
risk on those workers. And it's also potentially
very demotivating to get a cut in pay because of
things that you never really had control over.
 And so if you're able to solve these problems,
then that job that you're looking at might be a
good candidate for a pay mix that is heavily
weighted toward short-term incentives.
 And so let's try to look at some more examples.
 So the first example I want to get back to are
paying teachers for the test scores of their
students. So here, the alignment problem could
be that we want teachers to teach both
technical skills and also soft skills like creativity
and cooperativeness, and so on. And that goes
along with our measurement problem which is,
technical skills are easy to measure. We can
give, for example, a test at the end of the year
to see, to gauge students' learning on those
technical skills. But it would be very hard to
administer a test that actually measures the
students' creativity or their ability to cooperate
with others.
 And so since it's difficult to measure those other
things that we also want teachers to be
imparting to their students, we end up having
an alignment problem when we design these
tests. And that leads to things such as teachers
teaching to the test, as opposed to teaching
both the skills that are on the test and also
those other things, those values that we want
teachers to be imparting to their students.
 We also have metering control problems as
well. So for example, when we're giving an
exam, we may not know what scores are grade
appropriate. So for example, if we have a new
exam, and it's being rolled out to perhaps a very
small population, then we might not know
whether those scores are good scores or poor
scores, because we don't have any experience
using that particular exam.
 It also could be difficult to meter an exam
because of the control problem. That is, the
teachers don't have control over what students
know when they enter their class. So for
example, if the students have their teacher and
 they have their teacher for a full year and at the
end of the year only 60% were reading at grade
level, it could look bad. But if I told you that
before, when the students had come into that
person's class, 0% of them were reading at
grade level. Well in that case, even though 60%
reading at grade level isn't what the teacher
wanted, it's still a very big improvement. And so
by that measure, according to the metering
problem, well, maybe the teacher actually did
do a good job by helping some of those students
catch up.
 But then you also had the control problem,
where the teacher never really had control over
the quality of the students when they came into
that class.
 Let's take another example from factory piece
rates. So in a factory, if you're paying a piece
rate, that is, a dollar value for every unit that
they produce, then quality might suffer. That's
because you're paying for quantity, but you're
expecting both quantity and also quality. And so
if we look at the measurement problem, we're
saying that we can't, and so kind of related is
the measurement problem. We may not be able
to keep track of the numbers that workers
produce. And it might also be very difficult to
measure the quality of the items that they
produce as well. That's why, to solve the
measurement problem, we also might have to
have some sort of a way of using serial numbers
or something to track the quality of the items as
they come down the assembly line. That way we
can solve that alignment problem. Now we get
to metering control. Our metering problem
might be that for a specific task, we can't define
good performance. So let's say that a worker
perhaps gets a new piece of technology a new
piece of equipment, and we find out that there's
a 2% defect rate on the items that they're
producing. Now is that a good performance?
Well, we don't necessarily know, because we
don't have experience with that item. We don't
have experience with that new piece of capital.
It could be the case that that 2% defect rate is
very high or very low. But we just don't know,
because we don't have good data on that yet.
Also, we have the question of control. Again, the
control problem here would be that employees
don't necessarily have control over the
workmanship of their inputs. So for example, if
we're paying workers for the quantity that they
produce and also for the quality of the items
that they produce, it could be challenging.
Because perhaps the materials, perhaps the
steel that they're getting is defective or of low
quality. Or if they are assembling cars, it could
be that the suppliers are giving them poor
engines to put into their cars, and that's leading
a lot of these cars to be returned to the
manufacturer. And again, these are for things
that are outside of the worker's control,
because they're only getting those poor inputs
from somewhere else.
 And so kind of the big idea here is, again, short-
term incentives are only one element of the pay
mix. And is also, we can include multiple
different short-term incentives as part of our
whole short-term incentive package. So for
example, a piece rate where we're just paying
workers per unit they produce might have
quality concerns, as workers allocate their effort
more toward quantity of production. And so one
thing we can do is, we can incorporate piece
rates into a plan that also includes bonuses for
quality.
 Another big idea is that if we're introducing an
incentive, we also want to give workers the
ability to fix their own problems. So for
example, in some cases,
 there could be a problem that seems to be
outside of a worker's control. But after the
incentive is introduced, it's discovered that
worker could have at least some ways of
actually managing some of that risk. So for
example, there's a famous example of a
company called Safelite Auto Glass. When they
introduced an incentive to their workers for
installing and repairing auto glass, they found
that there are some things that seemed to be
outside of the worker's control. So for example,
whether the customer was actually present
after they called in the representative from
Safelite Auto Glass.
 But after the introduction of the incentive, some
of the most savvy workers began to phone
ahead to make sure that the customer was
ready to have their car serviced. And so this is
just an example of how when introducing
incentives, you want to enable workers to fix
problems as they arise themselves. And again,
this is, in itself, a very productive, potentially
very productive activity.
Video 3: Diseñar incentivos
 Welcome back. In this video, we're talking about
designing short term incentives. First of all
remember, when we're designing these short
term incentives we're talking about taking key
performance indicators and mapping those onto
pay. So here we're going to put our key
performance indicators which can include
profits, revenues, units produced, units sold,
evaluation scores or so on. And we're going to
map that onto a graph with our key
performance indicators on our x axis and our
pay on our y axis.
 And just to start off, imagine that your pay does
not depend on your performance. Well in this
case we can represent this through a flat line,
that is regardless of what your performance is
on those key performance indicators, he'll be
earning the same flat pay rate.
 So let's look at how we can kind of twist the
rules here. So the first thing we can do is
implement a pure piece rate. So here, as our key
performance indicators go up, so too our pay
does as well. And it goes up at the same rate,
that's why there's a straight line.
 So another thing that we can do is have some
combination of a bit guaranteed rate or a flat
rate for lower levels of performance. And then
also have a piecerate region that is after you've
reached a certain performance level, then you
start to become eligible for a piecerate. One
common thing that you'll see in organizations is
that they'll have a guaranteed pay rate for the
same amount of time. But after the employee
gains experience or after the organization has
 had some experience implementing that
piecerate then they'll phase out the guaranteed
rate by reducing it.
 That way they have a guaranteed pay rate that
becomes lower than it had before, but also the
piecerate kicks in sooner. That way the people
who are performing at the higher levels of
performance would still be eligible for the same
pay rates that they were before.
 So I have a guaranteed pay rate region. Well one
way we begin to think about this is thinking
about the purposes of a base pay as providing
insurance to workers. Remember workers tend
to more risk overs than their employers. And
that means that workers for a given level of
expected pay would tend to want to avoid the
risk of things that are for example outside of
their control. And so we can think about the
base pay as serving an insurance purpose,
where as the piece rate region serves as an
incentive purpose, so those are piece rates.
Another method that we can use is to give
bonuses. Bonuses, in contrast with piece rates
or commissions, or other forms of incentives are
discreet jumps. So for example, let's say that
you meet a quota then for meeting that quota
he might get a big bump in pay. That pay
corresponds to one's bonus, we can use it in
combination. So for example, let's say that we
reach our quota, say that we are a factory flow
and you have produced 100 units in 1 day. Then
by producing 100 units in 1 day, we might be
instantly be eligible for a bonus. And then also,
we'll start earning a piecerates for every item
that we produce in addition to those 100 units
that we produced.
 Some incentive plans also feature ceilings. So
you'll have some sort of a piecerate region at
which the worker earns a given rate for units
they produce. And also they'll also have a ceiling
meaning that their pay can't rise above a certain
level. So firms sometimes use ceilings to protect
the firm against very large payouts typically for
things that are outside of their control. But one
of the potential disadvantages to using a ceiling
Is that it does not encourage employees after
they've reach that level. They typically don't
only want to see ceilings are used in situations
where the firm thinks of that extremely high
level of performance. But only be a result of
things that were outside of the employee's
control, then we also have accelerators. So
accelerators are represented by a set of lines
that are increasing in their slope. And the
reason why we use accelerators is essentially to
provide insurance at those lower accelerators or
those lower multipliers for those lower levels of
performance. But then we want to scale up and
increase the rate at which we're paying those
picerates, are paying those incentives as the
performance increases. And we call that an
accelerated region.
 So let's look at an example from strawberry
pickers.
 So the first thing we'll want to do for our
strawberry pickers is to benchmark their short
term incentives.
 And so suppose that for our strawberry pickers
we're paying them a base rate of $60 per day.
And then we also want to pay them a short term
incentive. And so how are we going to do that?
Well first of all, again this goes back to the
metering problem, we want to define low
performance, respectable performance, and
high performance.
 So here our target short term incentives for
those low performing workers might be some
number below 20 boxes. If they produce fewer
than 20 boxes in one day, they might not be
eligible for any short-term incentives. But for
someone who meets the quota, who has
medium performance, who picks 30 boxes in
one day, they get their base pay and the also
may be eligible for an incentive of $20. And for
the people who are the highest performers who
pick the most boxes in one day, they might be
eligible for say $50 bonus. So we want to define
what low performance, medium performance
and high performance and the dollar values that
are associated with those. And so now a
question for you. So what is the target incentive
or the target pay mix in this setting?
 So here what we would do is we would figure
out what is their base pay, $60 per day. Was the
target in short term incentives for medium
percentages thus $20 per day. And so the pay
mix at target, it would be $60 base and $20 in
short term incentives. Or in other words, a 75,
25 pay mix where that 75, 25 is the ratio
between base pay and short term incentives at
the target performance.
 And so how would we represent this? Well, we
could represent this in terms of a commission
schedule or an incentive schedule. So once
again, we have our base rate at $60 per day.
Our incentive, our piece rate will be set by that
schedule below. And we'll define our quota to
be 30 boxes per day.
 And so here what we did was we took our target
incentives, and at those different levels of
performance and we just put a straight line
between them. And so that would mean that
between 0 boxes and 20 boxes, we're
communicating that we pay a short term
incentive of $0 per box. And then we want those
additional 10 boxes to be worth a total of $20 or
in other words, $2 per box. So our second rate
 tier will have our, we'll be paying $2 per box.
And then for an additional 10 boxes after that Video 2: Stock options = ¿Opciones sobre
we'll want to scale that up. So our target acciones?
incentive will be 50, a total of $50 and so that 
mean, that implies that we're paying an 
additional $30 on top of those boxes and the 
other was $3 per box. We might further 
accelerate our incentives, pay $4 per box on the 
next 10 boxes, then after that, you might say 
that the ceiling at 50 boxes picked which we saw

paying piece rate. And so this is what that
incentive plan would look like on our graph. And
so here we can say that between 0 and 20 boxes Video 2: Ejemplos de incentivos a largo plazo
picked, there is a flat base pay that's paid out 
but there's no short term incentives. And then 
between 20 and 50 boxes picked, that's an 
accelerated region. That is we're paying $2 per 
box on the first 10 boxes, then $3 per box on 
the next 10, and then $4 on the 10 after that. 
And then after a few boxes are picked we're no
longer paying a short term incentive, and so
then we've reach the ceiling. So we reach the
pay floor, then we have an accelerated region
and then lastly we have a ceiling.
 And remember all of these design
considerations assumes that the jobs that we're
looking at are good candidates for a short term
incentive. Thanks, and I'll see you next time.

Clase 3 – Incentivos a largo plazo

Video 1: Variedades en incentivos a largo plazo

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incorporación
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Video 2: Desarrollando a los empleados

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Video 3: Dirección del desempeño y el nuevo

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