Total Rewards and Compensation

Total Rewards and Certification Expectations

• PHR/CP Candidates: Expected to understand the practical administration of compensation and benefits and ensure compliance with various laws.

• SPHR/SCP Candidates: Involvement shifts toward strategy, including creating compensation programs, executive perks, and schemes for rewarding employees.

Compliance Flash Quiz and Labor Standards

• Pay Reduction: An employer may reduce a worker’s pay without advance notice, provided the pay does not fall below the federal minimum wage level.

• Child Labor Restrictions (15-year-olds):

  • School Day: Maximum of $3\,\text{hours}$.

  • School Week: Maximum of $18\,\text{hours}$.

  • Non-School Day: Maximum of $8\,\text{hours}$.

  • Non-School Week: Maximum of $40\,\text{hours}$.

  • Permitted Work Hours (School Year): Not before $7\,\text{am}$ or after $7\,\text{pm}$.

  • Permitted Work Hours (Summer/Non-School Months): Not before $7\,\text{am}$ or after $9\,\text{pm}$.

• Back Pay Liability:

  • Honest Error: $2\,\text{years}$.

  • Willful Violation (e.g., misclassification): $3\,\text{years}$.

Calculating Overtime Premiums for Nonexempt Workers

• Regulatory Oversight: The Department of Labor’s (DOL) Wage & Hour division mandates calculations. They do not penalize overpayment, only underpayment.

• Bonus Classifications:

  • Discretionary Bonuses: Gifts provided without pre-determined requirements or advance notice (e.g., Christmas bonuses, Spot Awards). These are excluded from overtime (OT) calculations.

  • Non-Discretionary Bonuses: Earned for meeting pre-determined requirements disclosed in advance. These MUST be included in OT calculations.

• Example 1: Jenny’s Gross Pay Calculation

  • Regular Rate: $9\,\text{dollars/hour}$.

  • Shift Differential (Non-discretionary): $1\,\text{dollar/hour}$.

  • Hours Worked: $44\,\text{hours}$.

  • Good Attendance Bonus (Non-discretionary): $88\,\text{dollars}$.

  • Step 1 (Base + Differential): $9 + 1 = 10\,\text{dollars/hour}$.

  • Step 2 (Straight-time earnings for all hours): $10\,\text{dollars/hour} \times 44\,\text{hours} = 440\,\text{dollars}$.

  • Step 3 (Total straight-time): $440 + 88 = 528\,\text{dollars}$.

  • Step 4 (Average hourly rate): $\frac{528}{44} = 12\,\text{dollars/hour}$.

  • Step 5 (Half-time rate): $\frac{12}{2} = 6\,\text{dollars/hour}$.

  • Step 6 (OT Premium): $6\,\text{dollars/hour} \times 4\,\text{OT hours} = 24\,\text{dollars}$.

  • Step 7 (Total Gross): $528 + 24 = 552\,\text{dollars}$.

• Example 2: Jay’s Gross Pay Calculation

  • Regular Rate: $12\,\text{dollars/hour}$.

  • Hours Worked: $45\,\text{hours}$.

  • Sales Bonus: $180\,\text{dollars}$.

  • Step 1: $12\,\text{dollars/hour} \times 45\,\text{hours} = 540\,\text{dollars}$.

  • Step 2: $540 + 180 = 720\,\text{dollars}$.

  • Step 3 (Average hourly rate): $\frac{720}{45} = 16\,\text{dollars/hour}$.

  • Step 4 (Half-time rate): $16 \times 0.5 = 8\,\text{dollars/hour}$.

  • Step 5 (OT Premium): $8 \times 5\,\text{OT hours} = 40\,\text{dollars}$.

  • Step 6 (Total Gross): $720 + 40 = 760\,\text{dollars}$.

Classifications and Exempt Duties Tests

• Classifications: DOL recognizes Salaried Exempt (no OT) and Hourly Non-Exempt (entitled to time-and-one-half for hours over 40 in a 7-consecutive-day workweek).

• Exempt Salary Thresholds:

  • Historically/General: $684\,\text{dollars/week}$ ($35,568\,\text{dollars/year}$).

  • Effective July 2024: $844\,\text{dollars/week}$ ($43,888\,\text{dollars/year}$).

  • Effective January 2025: $1,128\,\text{dollars/week}$ ($58,656\,\text{dollars/year}$).

• The 4 Exempt Duties Tests:

  1. Executive: Management of the enterprise or department; directs work of 2+ employees; authority to hire/fire.

  2. Administrative: Office work related to general business operations; involves discretion and independent judgment on significant matters. Focus is on managing processes, functions, or projects rather than people (e.g., HR Manager interpreting policy).

  3. Professional:

     • Learned: Requires a 4-year degree (e.g., law, teaching, medicine).

     • Creative: Artistic fields requiring invention/imagination (e.g., journalists, musicians).

     • Computer: Systems analysts, software engineers. Must be paid at least $684\,\text{dollars/week}$ or hourly at no less than $27.63\,\text{dollars/hour}$. This is the only category with an hourly basis test.

  4. Outside Sales: Paid 100% commission; no minimum wage; works away from primary place of business.

Compliance Considerations and Federal Laws

• Social Security: Covers five benefit areas: death, retirement, disability, survivorship, and Medicare/Medicaid.

• Equal Pay Act: Requires women and men doing the SAME job to be paid equally, except for seniority, performance, credentials, or cost-of-living differences.

• Civil Rights Act (Title VII): Covers employers with 15+ employees. Prohibits discrimination based on race, sex, religion, national origin, color, sexual orientation, and gender identity. Bostock v. Clayton Cty (2020) confirmed Title VII protects LGBTQ employees.

• ADEA: Prohibits age discrimination regarding health benefits for older workers.

• Wage Garnishment (Consumer Credit Protection Act): Applies to court-ordered alimony, child support, or tax garnishments.

• ERISA: If retirement benefits are offered, employers must fulfill promises. Includes the Pension Benefit Guarantee Corporation (PBGC) to protect retirees from underfunded pensions.

• Pregnancy Discrimination Act (PDA): Requires treating pregnancy like any other temporary medical issue.

• Americans with Disabilities Act (ADA): 15+ employees; requires reasonable accommodations (e.g., modified schedules) unless it causes undue hardship.

• COBRA: Applies to 20+ employees. Provides health coverage for 18 months (standard), 29 months (disabled), or 36 months (dependents).

• USERRA: 24 months of health care coverage for military members/dependents on leave.

• FMLA: 12 weeks unpaid leave for birth, adoption, or serious medical conditions. Requires 50 employees within a 75-mile radius.

• HIPAA: Prohibits using Personal Health Information (PHI) for employment decisions.

• Privacy Act: Protects personal information of government employees only.

• Lilly Ledbetter Act: Pay discrimination claims renew with each discriminatory paycheck (180-day rolling timeframe).

• Affordable Care Act (ACA):

  • Eliminates lifetime benefit limits.

  • Prohibits cancellations (rescissions) due to health issues.

  • Financial assistance for those with pre-existing conditions.

  • Covers preventative services.

  • Dependent coverage up to age 26.

Common Compensation Violations

• Misclassification: Categorizing non-exempt workers as exempt; the most common violation.

• Incorrect OT calculation: Failing to blend rates for workers with different hourly rates for different tasks.

• Averaging Hours: Calculating OT over a pay period instead of a 7-day workweek.

• Break Time: Breaks under 20 minutes must be paid; breaks over 30 minutes do not.

• On-Call Pay: "Engaged to wait" (restricted) must be paid. "Waiting to be engaged" (fewer restrictions) is only paid if called in.

• Others: Mandatory training, required travel during work hours, and unauthorized work ("suffer or permit to work") must be compensated.

• Compensatory Time: Historically only available to public sector (government) hourly employees.

Internal and External Equity Concepts

• External Equity: Stacking up against other organizations. Strategies include Match, Lead (highest payer), or Lag (lowest payer).

• Wage Surveys: Used for environmental scanning; compares benchmarked jobs (key positions) to area norms.

• Adam’s Equity Theory: Workers compare their treatment and pay to others in similar organizations/titles.

• Wage Compression: New workers hired at near or higher rates than tenured workers.

• Wage Expansion: Raising wages for current employees to fix wage compression.

• Red Circle Rate: Paid above pay grade. Green Circle Rate: Paid below pay grade.

• Compa-ratio:

  • Formula: $\text{CR} = \frac{\text{Rate of Pay}}{\text{Mid-point}}$

  • Interpretation: 1.0 is exactly on target (the "match"). 1.2 indicates an advanced/senior employee (e.g., Pat). 0.8 indicates a beginner or probationary employee (e.g., Aaron).

Compensation Strategy and the Business Life Cycle

• Start-up/Introduction: Little money; struggle to hire/low benefits.

• Growth: Profit starts; money available to attract and train.

• Maturity: Stability; funds for best/brightest and strategic benefit plans.

• Decline: Profits drop; layoffs; no training/raises except Cost of Living Adjustments (COLA).

• Rebirth: Revisiting start-up strategies.

• Demise: End of organization.

• Salary Operating Expense KPI: $\frac{\text{Total Salary Expenses}}{\text{Total Operating Expenses}}$.

Key Motivational Theories

• Content Theories (What motivates):

  • Maslow’s Hierarchy: Basic needs (physiological, safety) must be met before higher-level needs (self-actualization).

  • Herzberg’s Two-Factor Theory: Hygiene factors (pay, safety) can only demotivate if poorly handled. Motivator factors (achievement, recognition) provide long-term motivation. Pay has only short-term motivational effect.

• Process Theories (How motivation occurs):

  • Vroom’s Expectancy Theory: Basis for performance management. Effort is determined by the expectation of appropriate reward.

  • Goal Setting Theory (MBO): Employees participate in setting specific, challenging goals for which they are rewarded.

Job Architecture and Evaluation

• Job Analysis: The first step; identifies duties and requirements to create a Job Description.

• Job Design: Next step; structures tasks for performance and satisfaction.

  • Job Enlargement: More work (quantity).

  • Job Enrichment: Developing the worker (quality).

• Job Evaluation Methods:

  • Nonquantitative: Job Ranking (most common), Paired Comparison, Job Classification.

  • Quantitative: Point Method (tallies factors like skill/effort; most common on exams), Factor Comparison (uses dollars; most complex; used least), Hay Profile (for executives), Market-based pricing.

Direct and Indirect Compensation Systems

• Direct Compensation: Base pay, Merit pay (permanent increase), Piece rate (per units produced), Skill/Competency-based (favors multi-skill systems for bench strength), Broadbanding (consolidating grades into wide bands with 100%+ difference between min and max).

• Gainsharing: Variable pay tied to productivity (not profit). Variants include Scanlon (pre-established cost savings), Rucker, and Improshare.

• Profit Sharing: Based on overall organizational profit participation.

• Indirect Compensation:

  • Workers’ Comp: Pays $66.67\,\%$ of pay for injuries. First 7 days not covered unless out 21+ days.

  • Defined Benefit (DB): Pension; employee knows the payout amount.

  • Defined Contribution (DC): 401(k), IRA; returns are unknown; employee owns their contributions 100%.

  • Vesting (DB employer contribution): Cliff (5 years for 100%) or Graded (20% after 3 years, then 20% annually until 100% at 7 years).

  • Vesting (DC employer contribution): Graded reaches 100% after 6 years.

Healthcare Benefit Types

• HMO: Gateway physician controls costs; focus on prevention.

• PPO: Freedom to choose network providers; no referrals needed.

• EPO: Benefits only provided within network.

• POS: Hybrid; requires PCP but allows non-network care at high cost.

• HDHP/HSA: Low premiums with very high deductibles; tax-advantaged savings for medical costs.

• Cafeteria Plan (Section 125): Buy benefits with pre-tax dollars.

Executive and Expatriate Compensation

• Totalization Agreements: Prevent double taxation on Social Security for expatriates.

• Balance Sheet Approach: Ensures home purchasing power is maintained overseas.

• Executive Perks:

  • Golden Handshake: Serverance/early retirement incentive.

  • Golden Parachute: Payment if dismissed due to merger/takeover; used to thwart hostile takeovers.

  • Golden Handcuffs: Retention stock options that vest over time.

  • Golden Life Jacket: Offered to keep executives during acquisitions.

Questions & Discussion

• Case Scenario: Magma Wealth Investment Group (400 independent agents/13 office staff). Assistant requested Monday/Friday off for treatment under ADA. Access denied, assistant quit.

  • Q: Which statement is accurate?

  • A: The company did not violate ADA rights. Rationale: FMLA didn't apply (fewer than 50 employees). ADA claim of "undue hardship" was likely but the scenario didn't provide enough evidence for A to be the best answer, making D the most accurate statement relative to the provided facts.

• Performance-Based Pay Design:

  • Q: Most important design element?

  • A: Valid metrics of performance. Without objective markers, the system fails and feels unfair.

• Benefits Needs Assessment:

  • Q: Next step after analyzing design and utilization data?

  • A: Compare organizational needs, employee needs, and current benefit offerings (Gap Analysis).

Measures of Central Tendency: Practical Application

• Q: What is the mid-point of Grade 3 if Min is $14$ and Max is $20$?

• A: $\text{Range} = 20 - 14 = 6$. Half is $3$. $14 + 3 = 17$.

• Q: What is the Min of Grade 5 if Mid-point is $3.50$ less than Max ($25$)?

• A: Max is $25$. Mid-point is $21.50$. Since mid-point is center, Min is also $3.50$ less than Mid-point: $18$.

• Q: What is the range of Grade 7 if Min is $22$ and Max is $30$?

• A: $30 - 22 = 8$.

• Q: What is the Max of Grade 9 if Min is $26$ and Mid-point is $30.50$?

• A: Distance from Min to Mid is $4.50$. Distance to Max is also $4.50$. $30.50 + 4.50 = 35$.