Compensation & Benefits ( Chapter 18); Management: Making it Work

Budgeting

A part of the organization's planning process; helps to ensure that future financial expenditures are coordinated and controlled. It involves forecasting the total expenditures required by the pay system during the next period as well as the amount of pay increases. Bottom up and top down are the two typical approaches to the process

Geographic Differentials

Local conditions that employees in a specific geographic area encounter, such as labor shortages and differences in housing costs

Range Minimums

The minimum values to be paid for a job grade, representing the minimum value the organization places on the work. Often rates below the minimum are used for trainees

Range Maximums

The minimum values to be paid for a job grade, representing the top value the organization places on the output of the work

Compa-Ratios

An index that helps assess how managers actually pay employees in relation to the midpoint of the pay range established for jobs. It estimates how well actual practices correspond to intended policy. Calculated as average rates actually paid divided by range midpoint

Turnover Effect ( Churn)

The downward pressure on average wage that results from the replacement of high-wage-earning employees with workers earning a lower wage

Cost of Living Increases

Same as across-the-board increases, except magnitude based on change in cost of living (e.g., as measured by the consumer price index)

Merit Increase Guidelines

Specifications that tie pay increases to performance. They may take one of two forms: The simplest version specifies pay increases permissible for levels of performance. More complex guidelines tie pay not only to performance but also to position in the pay range

Planned Pay-level Rise

The percentage increase in average pay that is planned to occur after considering such factors as anticipated rates of change in market data, changes in cost of living, the employer's ability to pay, and the efforts of turnover and promotions. This index may be used in top-down budgeting to control compensation costs