Compensation--Final Exam

Rucker Plan

-Focused on the reduction of materials and supplies, as well as labor costs. - Different form of calculation

Preferred Provider Organization (PPO's)

-Negotiate a discount fee with a select # of physicians, hospitals, etc. -Increase in business -Wider choice in doctors than with HMO -Not required to use participating physicians

For Merit Pay to work...

1. Employees must be capable of performing at high levels, ability. 2. Employees must believe they can perform at high levels, expectancy. 3. Employees must believe that performance will result in more money, instrumentality. 4. Employees must value the money, valence. 5. Jobs must allow for performance variation. 6. Performance must be measurable. 7. The performance appraisal process must be viewed as fair and equitable.

Ways to distribute profit

1. Equally 2. Proportionally 3. Proportionally based on employees contribution

Main Origins of Employee Benefits & Reasons For Growth

1. Wage Controls 2. Unions 3. Employers 4. Cost Effectiveness 5. Governmental Influence

Veterans..

26 weeks for Veterans care Taking care of injured or ill veteran

Merrick Multiple Step Piece Rate

3 Rates are Paid 1. High production (above piece rate std) 2. Medium 83-100% of standard 3. Low less than 83% of standard

Individual Spot Award

A one-time award to an employee for stellar performance on something.

Standard Hour Plan

An incentive rate is based on completion of a task with in an expected time period. -Most common example is repair work - If task is completed in less than the allotted time, worker still receives the allotted time wage. -There is an incentive to be efficient and earn more money

Employers

Started benefits on their own

Relationship to total compensation costs

"Better use for this money?" "Could we achieve better results in the form of different compensations component?"

Improshare (Improved productivity through sharing)

- Aim is to produce more product with fewer labor hours - Make comparisons on the basis of hours actually worked compared to standard hours - Calculate productivity gains and distribute savings on weekly or monthly basis - Employee participation not a feature - Bonuses shared 50/50 with management and employees

Cost Containment

- Find ways to slow rising costs - Knowledgeable about different products - Can institute probationary periods before benefits kick in, have employees assume part of the costs of benefits and limit coverage of insurance.

Costs Relative to Benefits

- Looking at the current cost of a benefit and also forecasting what changes in cost will take place in the future. - Try to determine if the benefits of the benefit outweigh the costs

Role of benefits in attraction, retention, and satisfaction

- Only benefits that have equaled retention rates are retirement and medical insurance - Employees are becoming less satisfied with benefits

Important points about Individual Incentive Plans...

- Research shows individual incentive plans do increase output, often at the cost of quality. - Tend to be narrowly focused and may miss other important dimensions of performance. - Group Norm Problems - Make Employees competitive

Long-Term Incentive Plans

--> Typically involves the issuance of stock to employees. ESOP. --> The idea is to create the feeling of ownership --> It is hard for an employee to believe that their individual efforts will lead to changes in stock price --> Can contribute to the employees perception as to their worth to the company.

Under Improshare: Buyback Provision

-A maximum productivity improvement payout level is placed on productivity gains. -Bonus money that is generated above the maximum is placed in reserve -If productivity improves to the point where the max is repeatedly exceeded, the firm "buys back" the amount of productivity improvement over the max with a one-time payment to employees -The company is then permitted to adjust the standard so that a new ceiling can be set at a higher level of productivity

Merit Pay

-Attempt to reward employees for their past performance in their organization. (Past based reward) -Link increases in base pay to how employees are rated during performance appraisal -Link of pay to performance, motivates employees -Chiefly based on expectancy theory

Communication

-Benefit Handbook -Videos -Group Meetings -One-on-One counseling -Benefits statements --> Handle individual employee questions regarding the benefits program

401(k) Plans

-Defer current income into the future and shelter the money from taxes until it is withdrawn. -Choose how and if you invest

SS Retirement

-Earned 40 SS credits to be eligible for full benefits at retirement age. -Born in 1937 or earlier can retire @ age of 65 -Born after 1937 will have to work beyond 65 to retire with full benefits -If retire before eligible retirement time, will have a reduction in monthly retirement payment.

SS Disability Benefits

-Employee and dependents can start drawing monthly SS benefits after disability. (Dependents 50%) -If you receive workers' compensation or other public assistance the SS benefits paid may be reduced.

Lump-Sum Bonus

-Employees receive a year-end bonus based on their performance -Calculation of this bonus is often tied to performance appraisal -Lump-sum bonus do not get added into base pay

Workers Compensation

-Employees should assume costs of occupational injuries and accidents. -Required under state laws -Purchase through private vendors or through a state administered fund -Some states permit employers to insure themselves. -Premium rates are a function of claim experience -Motivation to keep claims to a minimum by stressing employee safety

Defined Contribution Plan

-Employer and/or employee contributes into an employee's retirement account. -Amount received based on how well the fund performs.

Traditional Insurance

-Employer negotiates rate -Employee/er pays monthly premium -Can select physician, etc, of their choice -After deductible is paid, coinsurance 80-20

Social Security Survivor Benefits--Worker Dies

-Family is eligible for monthly survivor benefits -Unmarried children receive a monthly payment until they reach 18 (or 19 if still in high school) -Surviving spouse is eligible for full benefits at full retirement age or at any age if caring for dependent child, under 16, who is eligible for benefits.

Social Security

-Funds are provided by individual contributions and matching contributions from organizations -The Federal Insurance Contribution Act (FICA) imposes the tax -Current employer contribution, 7.65% to match the individuals contribution of, 7.65% of the first $118,500 wages. -Of the 7.65%, 1.45% goes to Medicare and this is taxed to all income made, no income cap.

Straight Piecework (most common)

-Hourly rate guaranteed for producing the expected minimum. -Any units over the standard receive a certain amount per unit.

Employee Retirement and Income Security Act (ERISA)

-If a pension plan is offered, an employee who is 21 years old works more than half time, and has one year of service must be eligible. -If immediate vesting of all contributions, can require 3 years of service and a minimum age of 21 to participate.

Unemployment Compensation

-Insurance program for individuals who become unemployed through no fault of their own. -The Federal Gov't establishes the basic ground rules -Each state administers its own programs

Medicare Benefits

-Made up of a hospital component and a voluntary medical component -If have reached legal retirement age, whether working or retired, are eligible for hospital coverage if eligible for monthly SS payments -Hospital components covers hospital care, skilled nursing care, home health service care, and hospice care. -Voluntary supplementary medical insurance covers 80% of medical service after a deductible -Financed by monthly premiums paid jointly by the federal government and by those who enroll.

HMO (Health Maintenance Organization)

-Participants must only use the doctors, hospitals designated in the plan -Offer guaranteed health care service on demand in exchange for a prepayment -Loss of Freedom -Permitted to see other physicians after a referral from an HMO physician -Paying for it, unless an emergency, is on your own.

Scanlon Plan

-Relies on elaborate suggestion system (reduce labor costs) - Departmental committee of workers and managers review cost-saving suggestions and act on those below a certain $ cost - Suggestions with a cost above a certain minimum are forwarded for review to a higher level worker committee - Suggestions are either implemented, postponed, or rejected, with reasons communicated to the respective employees

Government Influence

-Require workers comp (state) - Unemployment insurance (fed) & social security (fed) ---> Several Benefits-related laws --------> FMLA, etc.

Salary Reduction Plan

-Specific types of defined contribution plans. -Employee and/or employer contributes some portion of current earnings to the plan.

Gannt Plan

-Time standard is set at a level that requires high levels of performance - Standard wage is paid to those who cannot reach this point - Completing the job in the standard time or less receives 120% of the time saved

Health Insurance

-Were generally contributory plans-employees usually paid all or part of the premium -Increasingly, plans become noncontributory: the employer paid the entire cost of the plan -Currently, employers are asking employees to help pay for the increasing expense of these plans.

Administering the Benefit Plan

1. Communication 2. Claims Processing 3. Cost Containment

Advantages of Group/Team Incentive Plans

1. Easier to develop performance measures for group incentives than for individual incentives. 2. Leads to greater cohesion 3. Improvements in efficiency/profitability 4. Identifies cooperation as important to the org. 5. May increase participation of employees in Decision Making process

Disadvantages of Group/Team Incentive Plans

1. Employees may not perceive the link between their efforts and the rewards. 2. Sometimes plans are difficult for employees to understand. 3. Free-rider problem may lead to dissatisfaction and turnover. 4. Lower income stability for employees

Problems with Merit Pay...

1. If linkages in model are weak, the pay won't motivate. 2. Heavily dependent on accurate performance appraisal. 3. Size of the monetary award often doesn't have enough valence to motivate. 4. Differences in reward levels may be so small as to cause potential high performers to be non-motivated. 5. If pay secrecy exists, may overestimate the pay of others. 6. Rewards past performance instead of being goal oriented. 7. Raises become part of base-pay (an annuity)

Three Kinds of Workers Comp Claims

1. Injury claim -->Disability as a result of being on the job 2. Occupational Disease Claim --> Disability that comes from working in an industry 3. Death Claim

Four Kinds of Benefits

1. Medical Benefits 2. Disability Income 3. Death Benefits (Burial allowances and survivors' benefits) 4. Rehabilitative Services

Employer Issues with Benefits

1. Relationship to total compensation costs 2. Costs relative to benefits 3. Competitors Benefits 4. Role of benefits in attraction, retention, and satisfaction 5. Legal Requirements

FMLA (Always Unpaid)

12 weeks of unpaid leave for: Child, own condition, close family member (spouse, child, parent) If spouse is called to duty (deployed) Adoption and birth

Salary with Commission

A base salary is paid and then either a commission based on all sales or commission based on sales above a specified level.

Taylor Differential Piece Rate

A lower piece-rate is paid for units produced up to the expected minimum and then a larger piece-rate is paid for units produced above the expected.

To be Federally Qualified for Unemployment Compensation

A. Must establish a minimum earned income or minimum days worked requirement for benefit eligibility. B. Eligibility requires registration of the unemployed individual with the state unemployment office C. A willingness on the part of the individual to accept comparable employment D. The state must establish an appeal procedure -Organizations pay state unemployment tax premiums on the basis of experience -Employers have a motive to maintain stable employment -States pay into a central unemployment tax fund administered by the Federal Government -Can collect for 26 weeks (or more under certain conditions)

Deductible

Amount of $$ paid out of pocket before insurance kicks in

Omnibus Budget Reconciliation Act (OBRA)

An employee can continue to participate and accrue additional benefits after the established retirement age.

Halsley 50-50 Plan

An expected time is set Any savings resulting from completing the task in less than that time are split with the employer in a 50-50 basis.

Current Profit Sharing

Awards cash to employees, typically on a quarterly or annual basis.----> Taxable

Addition to an employee's base pay

Base pay is set at a competitive level Profit sharing is like a bonus

Pay at Risk

Base pay is set below competitive levels Good years you make more Bad years you make less

Bedeaux Plan

Breaks down the job into smaller tasks and determines the time required to complete these tasks by an average worker. Receives more money by being efficient and saving time

Holiday Pay

Christmas, New Years Day, Memorial Day, July 4th, Labor Day, Thanksgiving, etc. --> May require worker to work day before and/or after the holiday to receive holiday pay.

Gainsharing Plans

Cost-reduction incentives that are designed so that employees share in cost savings caused by group efforts. Employees have more control over these costs than they do revenue. (Input Costs)

Proportional Payments based on an employee's contribution to profits

Difficult to isolate each employee's contribution to profits

Claims Processing

Done internally by an HR employee or outsourced or provided by insurance company

Wage Controls

During WWII and the Korean War The War Labor Board (WLB) chose to exclude benefits from wage controls. Benefits made up a very small % of pay Employers and unions representing workers came up with some benefits to compensate for lack of pay increase

Straight Commission

Earn a percentage of the dollar value of what they sold.

Social Security Credits

Earned, up to a maximum of 4 quarters per year, each time a worker receives a specified dollar amount in wages.

Legal requirements

Employee Issues: Equity, perceiving being treated fairly. External: compare to friends Internal: not getting any benefits from something

Indirect Pay

Employee benefits are 42% of Payroll Costs have gone up Little research that indicates that benefits help attract retain, and motivate employees Employees view benefits as an entitlement unrelated to their performance or the company's performance Employees often don't realize the magnitude of benefits cost

Cafeteria Style Plan

Employees are given a fixed amount of $$ to allocate and can select benefits from several offerings to better suit their individual needs.

Defined Benefit Plan

Entitled to defined benefit level at retirement Example: 2.2% of final salary * years of service What you get out of the plan

Copayment

Flat fee for visit to Doctor

Profitability Threshold Formula

Fund profit sharing pools only if profits exceed a predetermined minimum level --> Establishes minimum return to shareholder --> Maximum level as well

What are Pay for Performance Plans based on?

Individual, group/team, or organizational performance

Vacation Pay

Key Issue: Development of policy regarding employee requests for a specific vacation weeks. --> Should consider the rights of senior employees, the efficient operation of the unit and the morale of junior employees.

Planning and Designing a Benefit Program

Main Objective: Figure out what the role of benefits will be in our total compensation package. External Equality is a concern Should conduct benefits survey Typically, will try to match benefits to competitors

Cost Effectiveness

Most benefits are not taxable --> Avoids payment of income tax Many group based benefits can be obtained more cheaply by an organization

Indirect Costs associated with time not worked

OT for someone else.

Individual Incentive Plans

Offer a promise of pay for some objective, pre-established level of performance. -Commission -Piece-rate

Profit Sharing Plans

Pay a portion of company profits to employees separate from base pay, merit, etc.

Coinsurance

Percent, Insurance says 85% and you pay 15%

Deferred Profit Sharing

Place cash awards in an account. --> Retirement Income --> Not taxed until withdrawn

Retirement and Savings Plans

Provide income to individuals throughout their retirement

Equal Payment

Reflects the belief that equal shares promote cooperation among employees

Team/Group/Organization Pay for Performance Plans

Reward employees for their collective performance rather than for each individual employee's performance. 1. Gainsharing 2. Profit Sharing

Proportional Payments based on an employees annual salary

The higher the salary the greater worth the company assigns to a job Presumably, higher-paying jobs indicate the greatest potential to influence a company's competitive position. For any given job, pay will differ according to performance or seniority, thus higher performers and those with more seniority will receive more pay.

Direct Costs associated with time not worked

The hourly costs that are incurred plus the cost of other benefits

Rowan Plan

The more time the worker saves the higher his/her share of the savings. Example: Standard is 5 hours; complete in 4 hours receives 40%; complete in 3 hours 50%.

Graduated first-dollar-of-profits formula

Try to motivate employees to strive for bigger profit targets by sharing even more of the incremental gain with employees.

Unions

Unions continued to successfully bargain for improvements in benefits for their workers.

Fixed First-Dollar-of-profits formula

Uses a specific percentage of either pre-or-post tax annual profits. --> Sometimes the percentage is contingent upon the successful attainment of a company goal

Payment for time not worked

Vacation Pay Holiday Pay