Chapter 9

Indirect financial compensation (employee benefits)

All financial awards that are not included in direct financial compensation.

Clawback policy

Allows the company to recover compensation if subsequent review indicates that payments were not calculated accurately or performance goals were not met.

Fair Labor Standards Act Summer 2016 changes

As a result, if any employees earn over $913/wk ($47,476/yr), you do not have to pay overtime. Anything under, overtime still needs to be paid. These jobs are exempt. Anything over the new threshold, employee is exempt from being paid overtime. Huge ramifications for small/nonprofit organizations.

Human capital

As defined by economists, refers to sets of collective skills, knowledge, and ability that employees can apply to create economic value for their employees.

Market match policies

Average pay that most employers provide for a similar job in a particular area or industry.

Management incentive plans

Bonuses to managers who meet or exceed objectives based on sales, profit, production, or other measures for their division, department, or unit.

General Schedule (GS)

Classification of federal government jobs into 15 classifications (GS-1 through GS-15), based on such factors as skill, education, and experience levels. In addition, jobs that require high levels of specialized education (e.g., a physicist), significantly influence public policy (e.g., law judges), or require executive decision making are classified in three additional categories: Senior Level (SL), Scientific & Professional (SP) positions, and the Senior Executive Service (SES).

Incentive pay

Compensation, other than base wages or salaries, that fluctuates according to employees' attainment of some standard (e.g., a pre-established formula, individual or group goals, or company earnings).

Walsh-Healy Act of 1936

Covers contractors and manufacturers who sell supplies, materials, and equipment to the federal government. Applies to both construction and nonconstruction activities. Minimum amount is $10,000, and requires one and a half times the regular pay rate for hours more than 8 per day or 40 per week.

Company stock shares

Equity segments of equal value, which increase with the number of stock shares held.

Fair Labor Standards Act of 1938, Amended

Established minimum labor standards on a national basis and eliminated low wages and long working hours. Wage and Hour Division of the US Dept of Labor (DOL) administers this act.

Point method

Job evaluation method in which the raters assign numerical values to specific job factors, such as knowledge required, and the sum of these values provides a quantitative assessment of a job's relative worth.

Job evaluation ranking method

Job evaluation method in which the raters examine the description of each job being evaluated and arrange the jobs in order according to their value to the company.

Interindustry wage or compensation differentials

Pattern of pay and benefits associated with characteristics of industries.

Performance based pay

Pay governed by how well one performs the job.

Merit pay

Pay increase added to employees' base pay based on their level of performance.

Employee stock option plan (ESOP)

Plan in which a firm contributes stock shares to a trust, which then allocates the stock to participating employee accounts according to employee earnings.

Gain sharing

Plans designed to bind employees to the firm's productivity and provide an incentive payment based on improved company performance.

Compensation policy

Policies that provide general guidelines for making compensation decisions.

Labor market

Potential employees located within the geographic area from which employees are recruited.

Spot bonus

Relatively small monetary gifts provided to employees for outstanding work or effort during a reasonably short period of time.

Nonfinancial compensation

Satisfaction that a person receives from the job itself or from psychological and/or physical environment in which the person works.

Nominal hourly compensation

The face value of a dollar.

Base pay

The monetary compensation employees earn on a regular basis for performing their jobs. Hourly pay and salary are the main forms of base pay.

Employee stock plans

The right to purchase shares of company stock.

Company stock

The total equity or worth of the company.

Compensation

Total of all rewards provided employees in return for their services.

Compensation survey

A means of obtaining data regarding what other firms are paying for specific jobs or job classes within a given labor market.

Human capital theory

A theory premised on the idea that employees' knowledge and skills generate productive capital known as human capital. Employees can develop knowledge and skills from formal education or on-the-job experiences.

Two-tier wage system

A wage structure where newly hired workers are paid less than current employees for performing the same or similar jobs.

Deferred compensation

An agreement between an employee and a company to render payments to an employee at a future date.

Vesting

An employee's acquired nonforfeitable rights to pension benefits.

Job structure

An ordered set of similar jobs based on worth.

Pay mix compensation policies

Combination of direct (core compensation) and indirect financial compensation (employee benefits) components that make up an employee's total compensation package.

Stock compensation plans

Companywide incentive plans that grant employees the right to purchase shares of company stock.

Person-focused pay

Compensation for developing the flexibility, knowledge, and skills to perform a number of jobs effectively.

Competency-based pay

Compensation plan that rewards employees for the capabilities they attain.

Profit sharing

Compensation plans that result in the distribution of a predetermined percentage of the firm's profits to employees.

Broadbanding

Compensation technique that collapses many pay grades (salary grades) into a few wide bands to improve organizational effectiveness.

Current US pay gap

Current pay gap in the US between executive compensation and average worker's salary is almost 354 : 1.

Pay level compensation policies

Determine whether the company will be a pay leader (market lead), a pay follower (market lag), or assume an average position (market match) in the labor market.

Job-based pay

Employee compensation for jobs employees currently perform.

Exempt employees

Employees categorized as executive, administrative, professional, or outside salespersons, and not required to be paid at an overtime rate for work beyond the completion of standard work hours.

Nonexempt employees

Employees not categorized as executive, administrative, professional, or outside salespersons, and required to receive overtime pay for work beyond the completion of standard work hours.

Cost-of-living adjustment (COLA)

Escalator clause in a labor agreement that automatically increases wages as the U.S. Bureau of Labor Statistics' cost-of-living index rises.

Wage curve

Fitting of plotted points to create a smooth progression between pay grades (also known as the pay curve)

Scanlon plan

Gain sharing plan that provides a financial reward to employees for savings in labor costs resulting from their suggestions.

Pay grade

Grouping of similar jobs to simplify pricing jobs.

Piecework

Incentive pay plan in which employees are paid for each unit they produce.

Stock option plan

Incentive plan in which employees can buy a specified amount of stock in their company in the future at or below the current market price.

Referral plans

Individual incentive pay plans for rewarding the referral of new customers or recruiting successful job applicants.

Behavioral encouragement plans

Individual incentive pay plans that reward employees for specific such behavioral accomplishments as good attendance.

Classification method

Job evaluation method in which classes or grades are defined to describe a group of jobs.

Factor comparison method

Job evaluation method that assumes there are five universal factors consisting of mental requirements, skills, physical requirements, responsibilities, and working conditions; the evaluator makes decisions on these factors independently.

Equal Pay Act

Law preventing gender discrimination in the workplace.

Seniority

Length of time an employee has been associated with the company, division, department, or job.

Davis-Bacon Act of 1931

Mandates a prevailing wage for all federally financed or assisted construction projects exceeding $2,000.00. Prevailing wage is the typical hourly wage paid to more than 50 percent of all laborers and mechanics employed in the local area.

Real hourly compensation

Measure of the purchasing power of a dollar.

Equal Pay Act of 1963

Men and women should receive equal pay for performing equal work.

Pay range

Minimum and maximum pay rate with enough variance between the two to allow for a significant pay difference.

Spillover effect

Nonunion companies' offer of similar compensation unionized companies with the goal of reducing the likelihood that nonunion workforces will seek union representation.

Hourly pay

One type of base pay. Employees earn hourly pay for each hour worked.

Salary

One type of base pay. Employees earn salaries for performing their jobs, regardless of the actual numbers of hours worked. Companies generally measure salary on an annual basis.

Merit bonus

One-time annual financial award, based on the productivity that is not added to base pay.

Market lag policies

Pay policy that distinguishes companies from the competition by compensating employees less than most competitors. Lagging the market indicates that market levels fall below the market pay line.

Market lead policies

Pay policy that distinguishes companies from the competition by compensating employees more highly than most competitors. Leading the market denotes market levels above the market pay line.

Seniority pay

Pay program in which pay increases are based on length of service.

Pay structures

Pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions.

Direct financial compensation (core compensation)

Pay that a person receives in the form of wages, salary, commissions, and bonuses.

Golden parachute contract

Perquisite that protects executives in the event that another company acquires their firm or the executive is forced to leave the firm for other reasons.

Job evaluation

Process that determines the relative value of one job in relation to another.

Say on pay

Provision that gives shareholders in all but the smallest companies an advisory vote on executive pay.

Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

Provisions relating to executive compensation and corporate governance that impact the executives, directors, and shareholders of publicly traded companies.

Salary compression

Situation that occurs when less experienced employees are paid as much as or more than employees who have been with the organization a long time due to a gradual increase in starting salaries and limited salary adjustments for long-term employees.

Perquisites (perks)

Special benefits provided by a firm to a small group of key executives and designed to give the executives something extra.

Skill-based pay

System that compensates employees for their job-related skills and knowledge, not for their job titles.