Comp & Ben midterm 1

CHAPTER 1 — What is compensation and its two types?

Compensation = rewards for performing a job.

• Intrinsic = psychological satisfaction, pride, achievement.

• Extrinsic = monetary/nonmonetary rewards, including pay and benefits.

CHAPTER 1 — What is core compensation? Give examples.

Monetary rewards received by employees including:

• Base pay (hourly wages/annual salary)

• Pay adjustments

  • COLA: periodic pay increase based on inflation measured by the CPI

  • Seniority pay: Based on length of service

  • Merit pay: Permanent base pay increases based on performance

  • Incentive pay: pay for achieving work objectives

  • Skill-based pay: pay for mastering new skills

  • Pay-for-knowledge: Rewards employees for completing specified learning

CHAPTER 1 — What are the FOUR compensable factors?

• Skill = abilities/knowledge required

• Effort = physical or mental work

• Responsibility = accountability

• Working conditions = environment and risks

CHAPTER 1 — What are employee benefits and their two types?

Benefits supplement core compensation. INCLUDE:

• Legally required = mandated by applicable law.

• Discretionary = employer chooses to provide.

CHAPTER 1 — Name and explain three discretionary benefit categories.

• Protection programs = insurance/income protection.

• Paid time off = paid vacations/leave.

• Services = tuition reimbursement/daycare.

CHAPTER 1 — Why are legally required benefits provided?

To protect workers and families against risks such as illness, disability, unemployment, retirement-related income loss and workplace injury, as required by law.

CHAPTER 1 — Strategic vs tactical compensation: two differences and examples?

GOALS VS ACTIONS

• Strategic = long-term, company-wide direction (attract talent).

• Tactical = specific implementation (introduce a retention bonus).

CHAPTER 1 — Explain business strategy, HR strategy and strategic compensation.

• Business strategy = how resources are used to compete.

• HR strategy = people practices supporting business goals.

• Strategic compensation = pay systems reinforcing both HR and competitive business objectives

CHAPTER 1 — Compare lowest-cost and differentiation strategies.

• Lowest-cost = efficiency, predictable behavior, short-term focus, autonomy, output quantity.

• Differentiation = uniqueness, creativity, long-term focus, cooperation, independence and risk-taking.

CHAPTER 1 — Which HR practices support competitive business strategies?

• Recruitment/selection

• performance appraisal

• training/career development

• labor-management relations

• employment termination

• legal compliance

CHAPTER 1 — What are the THREE compensation system goals?

• Internal consistency = fair relative job values.

• Market competitiveness = attractive pay compared with other employers.

• Individual contributions = reward credentials, knowledge, and performance.

CHAPTER 1 — Job analysis vs job evaluation?

• Job analysis = identify duties, responsibilities and requirements.

• Job evaluation = determine a job's relative worth compared with other jobs.

CHAPTER 1 — How is market competitiveness achieved?

• Strategic analyses align pay with business objectives.

• Compensation surveys compare competitors' pay to help attract and retain employees.

CHAPTER 1 — Explain pay structure, pay grade and pay range.

• Pay structure = organization of pay.

• Pay grade = jobs grouped by value/compensable factors.

• Pay range = minimum, midpoint, and maximum pay.

CHAPTER 1 — Name five compensation stakeholders and their interests.

• Employees = fair rewards.

• Line managers = pay guidance.

• Executives = strategy/costs.

• Unions = employee representation

• Government = legal compliance.

CHAPTER 2 — What is human capital theory and how does it relate to seniority pay?

Employee knowledge/skills create productive value through experience, education and training. Seniority pay rewards service, assuming experience can increase value.

CHAPTER 2 — Seniority vs longevity pay?

• Seniority = scheduled base-pay increases for length of service.

• Longevity = rewards long-serving employees who have reached the maximum pay grade.

CHAPTER 2 — How is seniority pay structured?

Employees start at base pay and receive scheduled service-based raises until the grade maximum. Further increases may require promotion.

CHAPTER 2 — Advantages and limitations of seniority pay?

• Advantages = objective, predictable, easy to administer, less favoritism.

• Limitations = ignores performance and may not support competitive strategy.

CHAPTER 2 — What is merit pay and how is it different from incentives?

• Merit pay = permanent base-pay raise based on past performance.

• Incentive pay = variable reward linked to predetermined targets or results.

CHAPTER 2 — What are SEVEN elements of effective merit pay?

• Clear standards – Define expectations.

• Performance measures – Objective and subjective.

• Regular reviews – Evaluate periodically.

• Pay link – Better performance = higher pay.

• Sufficient funds – Afford the raises.

• COLA first – Adjust for inflation.

• Meaningful raises – Large enough to motivate.

CHAPTER 2 — What are SEVEN limitations of merit pay?

• Poor differentiation – Similar raises for all.

• Weak measures – Inaccurate evaluations.

• Supervisor bias – Unfair ratings.

• Poor communication – Unclear pay decisions.

• Non-merit factors – Pay influenced by favoritism or tenure.

• Harmful competition – Reduces teamwork.

• Small raises – Not motivating.

CHAPTER 3 — Define incentive pay and explain TWO reasons companies use it.

Incentive pay are variable rewards based on performance objectives. Used to:

• motivate desired results

• control compensation costs by linking rewards to performance.

CHAPTER 3 — What THREE assumptions support incentive pay?

• Different contributions – Employees and teams contribute differently.

• Performance matters – Company success depends on individual and group performance.

• Rewards motivate – Performance-based rewards attract, retain, and motivate employees.

CHAPTER 3 — Traditional pay vs incentive pay?

• Traditional = regular wages/salary and periodic increases.

• Incentive = variable pay tied to achieving predetermined performance objectives.

CHAPTER 3 — What are THREE categories of incentive pay?

1. Individual = personal performance.

2. Group = team/unit results.

3. Company-wide = overall organizational performance.

CHAPTER 3 — Define individual incentives and give FOUR examples.

• Piecework – Rewards units produced.

• Management incentives – Bonuses for meeting targets.

• Behavior encouragement – Rewards specific behaviors.

• Referral plans – Bonuses for recruiting qualified employees.

CHAPTER 3 — What performance measures can individual incentives use?

Production quantity, product quality, monthly sales, safety records and attendance.

CHAPTER 3 — Advantages and disadvantages of individual incentives?

• Advantages = direct performance-pay link, motivation, retention.

• Disadvantages = unrealistic standards, measurement problems, inflexibility, undesirable behavior, outside factors.

CHAPTER 3 — Define group incentives and give TWO examples.

Group incentives reward collective results. Examples:

• Team-based incentives – Bonuses for achieving team goals.

• Gain sharing – Bonuses for improving productivity or reducing costs.

CHAPTER 3 — Explain THREE team types and group performance measures.

Team Types:

1. Work teams – Perform regular daily tasks.

2. Project teams – Complete a specific project.

3. Parallel teams – Solve problems or suggest improvements alongside regular work.

Group Performance Measures:

• Customer satisfaction

• Cost savings

• Workplace safety

CHAPTER 3 — Define gain sharing and its THREE components.

Gain-sharing rewards unit productivity/cost improvements.

Components:

• Cooperative culture

• Employee involvement in improvements

• Performance-based bonuses.

CHAPTER 3 — Compare Scanlon, Rucker and Improshare.

• Scanlon – Measures labor costs compared to production value. Lower ratio = better.

• Rucker – Measures value added compared to employment costs. Higher ratio = better.

• Improshare – Measures time saved in production. More time saved = better.

CHAPTER 3 — Scanlon and Rucker formulas: which direction is better?

• Scanlon = labor costs ÷ SVOP, LOWER better.

• Rucker = value added ÷ total employment costs, HIGHER better.

CHAPTER 3 — Advantages and disadvantages of group incentives?

• Advantages = cooperation, cohesion, shared goals, easier group measures.

• Disadvantages = free riders, unequal effort and high performers depending on coworkers.

CHAPTER 3 — Define company-wide incentives and give examples.

company-wide incentives: rewards based on overall company results, such as profit, costs, market share or sales.

Examples = profit sharing and employee stock options.

CHAPTER 3 — Current vs deferred profit sharing and distribution methods?

• Current = cash paid now/periodically.

• Deferred = held in trust until later.

• Distribution = equal amounts, salary-based or individual contribution-based.

CHAPTER 3 — Profit sharing: fixed vs graduated formulas and pros/cons?

Fixed pool = total profit × one rate. Graduated = sum of profit tiers × their rates. Pros = shared success/flexibility. Cons = uncertain rewards/weak individual link.

CHAPTER 3 — Stock options: exercise price, vesting and gain calculation?

Exercise price = fixed purchase price. Vesting = waiting period. Gain = (market price − exercise price) × shares, if positive.