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Direct financial compensation
compensation received in the form of salary, wages, commissions, stock options or bonuses
indirect financial compensation
all the tangible and financially valued rewards that are not included in direct compensation including free meals, vacation time and health insurance
nonfinancial compensation
rewards and incentives given to employees that aren't financial in nature
base pay
reflects the size and scope of an employee's responsibilities
severance pay
give to employees upon termination of their employment
fixed pay
pays employees a set amount regardless of performance
variable pay
bases some or all of an employee's compensation on employee, team, or organizational
pay structure
the array of pay rates for different work or skills within a single organization
pay mix
the relative emphasis give to different compensation components
pay leader
organization with a compensation policy of giving employees greater rewards than competitors
pay follower
an organization that pays its front-line employees as little as possible
resource dependence theory
proposition that organizational decisions are influenced by both internal and external agents who control critical resources
wage differentials
differences in wage between various workers, groups of workers, or workers within a career field
labor market
all of the potential employees located within a geographic area from which the organization might be able to hire
cost of living allowances
clauses in union contacts that automatically increase wages base on the U.S. Bureau of Labor Statistics' cost of living index
market pricing
uses external sources of information about how others are compensating a certain position to assign value to a company's similar job
Compensation surveys
surveys of other organizations conducted to learn what they are paying for specific jobs or job classes
benchmark jobs
jobs that tend to exist across departments and across diverse organizations allowing them to be used as a basis for compensation comparisons
job evaluation
a systematic process that uses expert judgement to assess differences in value between jobs
ranking methos
subjectively compares jobs to each other based on their overall worth to the organization
job classification method
subjectively classifies jobs into an exiting hierarchy of grades and categories
point factor method
uses a set of compensable factors to determine a job's value. skill, resp, effort, working cond.
compensable factor
any characteristic used to provide a basis for judging a job's value
skills, responsibilities, effort, working conditions
Four categories of compensable factors
Hay Group Guide Chart - Profile Method
a point-factor system is used to produce both a profile and a point score for each position.
know how
problem solving
accountability
working conditions
Know-how, problem solving, accountability, working conditions
Hay Group Method based on four main factors
Position Analysis Questionnaire
a structured job evaluation questionnaire that is statistically analyzed to calculate pay rates based on how the labor market is valuing worker characteristics. a copyrighted, standardized, structured job analysis questionnaire. 6 sections covering 187 job elements.
job pricing
the generation of salary structures and pay levels for each job based on the job evaluation data
single rate system, pay grades and broadbanding
Three most common job pricing systems
pay grade (pay scale)
the range of possible pay for a group of jobs
broadbanding
using very wide pay grades to increase pay flexibility
internal equity
when employees perceive their pay to be fair relative to the pay of other jobs in the organization
employee equity
the perceived fairness of the relative pay between employees performing similar jobs for the same organization
external equity
when an organization's employees believe that their pay is fair when compared to what other employers pay their employees who perform similar jobs
comparable worth
if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them
wage rate compression
starting salaries for new hires exceed the salaries paid to experienced employees
golden parachute
lucrative benefits given to executives in the event the company is taken over
Cost-of-living adjustments
pay increases to account for a higher cost of living in one country versus another
Housing allowance
payments to subsidize or cover housing and related costs
hardship premiums
increased salary for living in an area with a lower quality of life, less safety, etc.
tax equalization payments
increased salary to make up for higher taxes that reduce take-home pay and decrease employee's purchasing power
inflation adjustments
larger and/or more frequent raises to maintain employee's purchasing power in the face of inflation
Fair Labor Standards Act of 1938
a federal law that sets standards for minimum wages, overtime pay, and equal pay for men and women performing the same jobs
exempt employees
employees who meet one of the FLSA exemption tests, are paid on a fixed salary basis and are not entitled to overtime pay
non-exempt employees
employees who do not meet any of one of the FLSA exemption tests and are paid on an hourly basis and covered by wage and hour laws regarding minimum wage, overtime pay and hours worked
workers' compensation
a type of insurance that replaces wages and medical benefits for employees injured on the job in exchange for relinquishing the employee's right to sue the employer for negligence
fixed rewards
predetermined compensation (salary and benefits)
variable rewards (incentives)
"at risk" rewards which are linked to factors determined as valuable, including performance, skills, competence and contribution
- Recognize and reward high performers
- Increase the likelihood of achieving corporate goals
- Improve productivity
- Move away from an entitlement culture
Top four reasons organizations give for tying pay to performance ar
- Preference of individual employees
- Size of the rewards for high performance
- Method of motivating individual job performance
- Objectivity of the evaluation process that determines the rewards
Before designing an incentive pay plan to motivate performance, it is important to consider the
- Company performance
- Reduced merit increases
- Reductions in head count
- Reduced benefits
- Pay freezes
Most common way employers fund variable pay programs
reward differnentiation
differentiating rewards based on performance rather than giving all employees the same reward
short-term incentives
one-time variable rewards used to motivate short-term employee behavior and performance (typically one year or less). ie bonus or profit sharing. to motivate attendance, cust serv, safety, production quality and quantity
profit sharing
the distribution of organizational profits to all employees
stock options
the right of an employee to buy shares of the company's stock at a certain price (the exercise price) during some future period of time
long-term incentives
incentives that motivate behaviors and performance that support company value and long-term organizational health. ie stock options
vesting
the point at which employees can sell or transfer the stock option
pay for performance programs
rewards employees based on some specific measure of their performance
variable pay plans
pay for performance plans that put a small amount of base pay at risk, in exchange for the opportunity to earn additional pay if performance meets or exceeds a standard
spot awards
awards given immediately when a desired behavior is seen
extrinsic motivation
motivation that comes from outside the individual, including performance bonuses
intrinsic motivation
derived from an interest in or enjoyment from doing a task
skill-based pay
rewards for employees based on the range and depth of their knowledge and skills. effort and coop w/supervisor
limited ability, partial proficiency, full competence
limited ability
ability to perform simple tasks without direction
partial proficiency
ability to apply more advanced principles on the job
full competence
ability to analyze problems associated with the job
competency-based pay
skill-based pay for professional jobs
multi-crafting
employees gain proficiency in two or more trades
recognition awards
rewards for specific achievements like tenure with the organization, helping a coworker or attendence
compressed workweek
40 hour work week in less than five days
job sharing
two or more people split a single job
flextime
scheduling option that lets employees decide when to work within parameters
telecommuting
allows employees to work from home and link to the company's offices via computer.
gainsharing
a program in which the firm shares the value of productivity gains with employees
scanlon plans
gainsharing programs based on implementing employee suggestions for lowering the cost per unit produced
improshare
a gainsharing plan based on a mathematical formula that compares a performance baseline with actual productivity during a given period with the goal of reducing production time
employee stock ownership plans
tax-exempt, employer-established employee trusts that hold company stock for employees
errors of commission
an employee receives an undeserved reward
errors of omission
an employee who deserves a reward doesn't receive one
employee benefits
nonwage compensation or rewards given to employees (indirect compensation)
Social Security, Unemployment Insurance, Workers' Compensation, Family Medical Leave Act, COBRA
5 Mandatory Benefits
Social Security
provides retirement income to qualified workers and their spouses after working a certain number of hours
unemployment insurance
provides temporary income during periods of involuntary unemployment
workers' compensation insurance
pays for medical costs and sometimes time off if an employee suffers a job-related sickness or accident, and survivor benefits in the case of an employee's death in exchange for relinquishing the employee's right to sue the employer for negligence
Family and Medical Leave Act of 1993
requires most employers to provide employees up to 12 weeks of unpaid leave to care for family members
Consolidated Omnibus Budget Reconciliation Act
provides a continuation of group health coverage for employees and qualified beneficiaries that might otherwise be terminated when an employee experiences a qualifying event
Customary benefits
commonly provided benefits that are viewed as an entitlement by employees
insurance, retirement plans
Life Insurance
pays a beneficiary or beneficiaries a sum of money after the death of an insured individual
Disability insurance
supplements workers' compensation insurance to provide continued income in the event of an employee becoming disabled
health insurance
health care coverage for employees and their dependents
presenteeism
an employee physically comes to work but does not function at his or her full potential
defined benefit retirement plans
promise participants a monthly benefit at retirement
Employee Retirement Income Security Act of 1974
a federal law that protects employees' retirement benefits from mismanagemen
domestic partners
two people who are not married, but are in a same-sex or opposite-sex arrangement similar to marriage
flexible spending account
an employer-sponsored benefit that allows you to pay for eligible medical expenses on a pretax basis
total compensation statement
communicating total compensation in detail through a written summary of employee direct and indirect compensation
flexible benefits plans
give employees a set amount of credits or dollars to allocate among different benefits options provided by the employer
safety culture
the shared safety attitudes, beliefs and practices that shape employees' safety behavior
ergonomics
designing the work environment to reduce the physical and psychological demands placed on employees
cumulative trauma disorders
skeletal and muscle injuries that occu when the same muscles are used to preform tasks repetitively
