Compensation Test 1

Five Steps to Construct Pay Structures

1. Decide on number of pay structures 2. Determine a market pay line 3. Defining pay grades 4. Calculating pay ranges for each pay grade 5. Evaluating the results

Older Workers Benefit Protection Act

1990 amendment to ADEA, placed additional restrictions on employer benefits practices. When employers require all employees to contribute to coverage benefits, older employees will pay more for healthcare and disability, life insurance. Older employee may not be required to pay more for the benefit as a condition of employment. Employer must provide three options: withdrawing, reducing, pay more to for the benefit in order to avoid otherwise justified reductions. Can reduce coverage of older workers only if costs are significantly greater than younger workers.

U.S. Department of Labor's Occupational Information Network (O*NET)

A database to describe jobs in the relatively new service sector of the economy and to accurately describe jobs that evolved as the result of technological advances.

Compensation Executive

A top level manager who reports directly to the corporation's CEO or to be the head of a major division.

Worker Characteristics

Abilities - enduring attributes of the individual that influence performance. Interests - describe preferences for work environments and outcomes Work Styles - personal characteristics that describe important interpersonal and works style requirements in jobs and occupations. Ex. Patagonia strives to hire employees whose interests and work styles are consistent with the company's mission and work culture.

Valid job analysis method

Accurately assesses each job's duties or content. Referring to content validity. Cannot demonstrate if job analysis are definitive. Best approach to producing valid job descriptions requires results among sources of job data and multiple methods converge.

Differentiation Strategy

Adopted to develop products or services that are unique from those of their competitors. Can take many forms, including design or brand image, technology, features, customer service, and price. Lead to competitive advantage through building brand loyalty among devoted consumers. Brand-loyal consumers are probably less sensitive to price increases, which enables companies to invest in R&D. Depends on employee creativity, risk taking. Ex. Apple

Compensation Budgets

Blueprints that describe the allocation of monetary resources to fund pay structures. Ex. 10% increase for next year's budget means it will be 10$ greater than the size of the current year's budget.

Pay Ranges

Build upon pay grades. Include minimum, maximum, and midpoint pay rates.

Market Match Policy

Closely follows the typical market pay rates because companies pay according to the market pay line. Pay rates fall along market pay line. Used with clerical, admin, and unskilled work

Compensation Surveys

Collect and then analyse competitors' compensation data. Traditionally focused on competitors' wage and salary practices. Employee benefits are a key element of market-competitive pay systems.

Communicating with Employees

Companies much formally communicate with employees throughout the job analysis and evaluation process to ensure understanding and acceptance.

Supply and Demand

Companies' demand for qualified individuals for particular jobs relative to supply often influences compensation. Pressures raise when demand for workers is greater than supply. Misconception is that high demand only applies to highly skilled jobs.

Job summary

Concisely summarizes the job with two to four descriptive statements. Usually indicates whether the job incumbent receives supervision and by whom.

Walk Healey Public Contracts Act of 1936

Covers contractors and manufactures who sell supplies, materials, and equipment to federal government. Applies to both construction and non construction activities. Covers all employees except office, supervisory, custodial, and maintenance who dont work in preparation for performance of contract

Determine a job analysis program

Decide between established or own system tailored to requirements. Most typical methods for collecting job analysis information are questionnaires, interviews, observations, and participation. Also consider admin costs

Job Content

Describes job duties and tasks as well as such pertinent factors as the skill and effort (compensable factors) needed to perform the job adequately/

Job Duties

Describes the major work activities and, if pertinent, supervisory responsibilities.

Line Employees

Directly involved in producing companies' goods or delivering their services. Ex. Assembler, production worker, salesperson

Market Lead Policy

Distinguishes a company from the competition by compensating employees more highly than most competitors. Leading the market denotes pay levels that are about the market pay line

Civil Rights Act of 1991

Employers must show that the challenged employment practice is a business necessity, shifted burden of proof to employers. Employers may now file suits claiming discrimination either when the system is implemented or whenever the system negatively affects them. Federal discrimination laws do not apply to US citizens working for US companies in foreign countries. Extends coverage to senate and political appointees.

Regression Analysis

Enable compensation professionals to establish pay rates for a set of jobs that are consistent with typical pay rates for jobs in the external market. Need job evaluation points and salary survey data. Must have accurate evaluations and price in the market pay context, not in isolation.

Stakeholders: Executives

Ensure that design and implementation of pay and benefits practices comply with pertinent legislation. And to design pay and benefits systems that will attract and retain the best qualified employees

Strategic Analysis

Entails an examination of a company's external market context (industry profile, info on competitors, growth prospects) and internal factors (financial condition and functional capabilities).

Deciding on the number of pay structures

Exempt and nonexempt, job family (Davis-Bacon Act), geography

Equal Employment Opportunity Commission

Guidelines distinguish among the terms skill, ability, and knowledge. Skill refers to an observable competence to perform a learned psychomotor, like typing. Ability refers to a present competence to perform an observable behavior or a behavior that results in an observable product. Knowledge refers to a body of information applied directly to the performance of a function.

Choosing Benchmark Jobs

Key to conducting effective job evaluations. Play an important role in compensation surveys. 4 Characteristics: 1. contents are will known, relatively stable over time, agreed upon by employees involved. 2. jobs are common across a number of different employers 3. represent the entire range of jobs that are being evaluated within a company 4. jobs are generally accepted in the labor market for the purpose of setting pay levels. Important because one-to-one matches are not feasible in large companies and find a perfect fit

Training Employees to Conduct Job Evaluations

Know company objectives, practice using evaluation criteria before applying them to actual jobs. Use business rationale to ensure legal compliance

Relative Pay Differentials

LA employees are paid 20% more than national average. Lincoln employees paid 3% less than national average. Takes into account (controls for) others factors that can explain pay differences within a defined area. Presents a clearer picture of regional based pay differences. Presents clear picture because of interindustry pay differentials

Worker Specifications

Lists education, KSAs, and other qualifications individuals must possess to perform the job adequately.

Nonrecurring merit increases

Lump sum bonuses, lend themselves well to cost containment, favored in unions.

Core Compensation

Monetary compensation

Stakeholders: Employees

Must educate employees about training and training outcomes. Should not assume that employees will recognize. Must determine the most important objectives for their workforce

Employee Benefits

Nonmonetary rewards: protection programs (medical insurance), PTO (vacation), and services (day care assistance).

Salary-plus-bonus plans

Offer a set salary coupled with a bonus. Ex. Real Estate

Determine a market pay line

Pay levels that correspond with the market pay line are market-competitive pay rates. Promote internal consistency when pay rates increase with the value of jobs based on job evaluation.

Setting up the Appeals Process

Procedures that permit reviews on a case by case basis to provide a check on the process through reexamination. Processed through committees of compensation professionals and employees/supervisors, reflect varied perspectives.

Child Labor Provisions

Protect children from being overworked, working in potentially hazardous settings, and having their education jeopardized due to excessive work hours.

How Compensation fits into HR

Recruitment, Relocation, Retention.. pay incentives

Workforce Characteristics

Refer to variables that define and describe the general characteristics of occupations that may influence occupational requirements. Must operate within a broader social and economic structure. Labor market info and occupational outlook

Education

Refers to formal training.

Education

Refers to prior educational experience required to perform in a job.

Disparate Treatment

Represents intentional discrimination, occurring whenever employers intentionally treat some workers less favorably than others because of race, color, sex, national origin, or religion. Ex. Applying different standards to determine raises for blacks and whites

Person-focused pay or competency-based pay

Rewards employees for specifically learning new curricula.

Paycheck Fairness Act

Second key initiative. Strengthens the Equal Pay Act of 1963 by strengthening the remedies available to put sex-based pay discrimination on par with race-based pay discrimination. Employers required to justify unequal pay by showing that the pay disparity is not sex based, but, rather, job related.

Stakeholders: Line Managers

Should be advised to pay the same hourly rate or annual salary for men and women hired to perform the same job. Train how to pay and evaluate jobs properly

Age Discrimination Employment Act of 1967

To protect workers age 40 and older from illegal discrimination. Provides protection to baby boom generation, born between 1946 and 1964. Promote the employment of older worker based on ability rather than age. Cannot fail to hire or limit employees

Using Published Compensation Survey Data

Two important considerations: 1. Survey Focus - core compensation or employee benefits 2. Sources of published compensation surveys - using multiple surveys give more accurate picture

Knowledge, Skills, and Abilities

Typically, that are based on knowledge and skills, which are developed based on formal education or early job experience are highly valued as measured by pay levels.

Market-based evaluation

Use market data to determine differences in job worth. Companies use this because they wish to assign job pay rates that are neither too low nor to high relative to the market. Use compensation surveys

Paired Comparison

Useful if there are many jobs to rate, usually more than 20. Committee members generate every possible pair of jobs and then assign a point to the job with the highest value, the lowest value job does not receive a point.

Skill (knowledge) blocks

sets of skills necessary to perform a specific job or group of similar jobs. 1. develop job descriptions 2. organize into job families 3. skills grouped into blocks

Salary-plus-commission plans

spread the risk of selling between the company and the sales professional

Steps in the Job Analysis Process

1. Determine a job analysis program 2. Select and train analysts 3. Direct job analyst orientation 4. Conduct the study: data collection methods and sources of data. 5. Summarize the results: writing job descriptions

The Job Evaluation Process

1. Determining single versus multiple evaluation techniques 2. Choosing the job evaluation committee 3. Training employees to conduct job evaluations 4. Documenting the job evaluation plan 5. Communicating with employees 6. Setting up the appeals process

Designing Sales Incentive Compensation Plans

1. Improve sales productivity 2. Improve sales coverage of current customers 3. Grow Sales Overall

Quartiles

Allow compensation professionals to describe the distribution of data.

Job Analysis

Almost purely a descriptive procedure; job evaluation reflects value judgments.

US Government

Apply expertise regarding pertinent legislation to design legally sound pay and benefits practices. Especially discriminatory pay practices

Strategy Formulation

Based on environmental scanning activities. Discerning threats and opportunities is the main focus of environmental scanning. Threat suggests a negative situation in which a loss is likely and over which an individual has relatively little control. Opportunity implies a positive situation in which a pain is likely and over which an individual has a fair amount of control. Ex. oil companies and McDonalds are facing threats

Competitive Advantage

Describes a company's success when the company acquires or develops capabilities that facilitate outperforming the competition. Ex. Walmart selling with price advantage Admin efficiency can indirectly contribute to success through cost control. HR contributes more directly to competitive advantage.

Basic Skills

Describes developed capacities that facilitate learning or the more rapid acquisition of knowledge.

Occupation-Specific Information Requirements

Detail a comprehensive set of elements that apply to a single occupation or a narrowly defined job family. Include occupational skills, knowledge, tasks, duties, machines, tools, and equipment.

Market Lag Policy

Distinguishes a company from the competition by compensating employees more highly than most competitors. Lagging the market indicates that pay levels fall below the market pay line. Used with clerical, admin, and unskilled work

Choosing the Job Evaluation Committee

Employees, supervisors, managers, union reps, etc. Review job descriptions and analyses then evaluate jobs. Provide checks-and-balances.

Pay Rate Differentials

Expressed in dollars as hourly or annual pay. Considered for geographic regions. Do not measure control for the influences of various variables.

National Labor Relations Act of 1935 (NLRA)

Federal government requires private-sector employers to enter into good-faith negotiations with works over the terms of employment. Workers join unions to influence employment related decisions, especially when they are dissatisfied with job security, wages, benefits, and supervisory practices. Purpose was to remove barriers to free commerce and restore equality of bargaining power between employees and employers. Covers most private sector workers.

Great Depression

First factor that led to the passage of income continuity, safety, and work hours legislation. The move from family business to large factories, and divisions of labor within factories.

Select and Train Analysts

Job analysts generally must be able to collect job-related information through various methods, relate to a wide variety of employees, analyze information, and write clearly and succinctly. HR coordinates, task force conducts. Training should include objectives, how info will be used, methodology overviews, and demos on info gathering. Must minimize ineffective analysis,

Job Evaluation

Key for casting internally consistent compensation systems as strategic tools. Used to establish pay differentials among employees within a company.

Lilly Ledbetter Fair Pay Act

Key initiative in closing pay gap between men and women. Pay discrimination charge must simply be filed within 180 days of a discriminatory paycheck, not within initial decision.

Internally Consistent Compensation and Competitive Strategy

Limitations that hamper agility for companies that strive to differentiate between competition. Internally consistent structure may reduce flexibility to respond to competitors. Job evaluation establishes relative worth and competition may require employees to engage in duties beyond their job descriptions, resultant bureaucracy when hierarchies are established.

Spillover Effect

Many nonunion companies offer higher compensation than they would if unions were nonexistent. Management of nonunion firms offer higher wages to reduce chance that employees would seek union representation.

Pay Level Policies

Market lead, lag, match

Employee's Anniversary Date

May review performance and aware merit increases. Different evaluation dates. Can be administratively burdensome

Real Compensation

Measures the purchasing power of a dollar

Minimum Wage

Original minimum wage was .25 an hour. Federal supersedes state. Students may be paid less with consent of Dept of Labor

Alternative Methods

Reliance on market pay rates, pay incentives, individual rates, collective bargaining.

Relevant Labor Market

Represent the fields of potentially qualified candidates for particular jobs. Defined on the basis of occupational classification, geography, and product or service market competitors

Compensation Plans

Represent the selection and implementation of pay level and pay mix policies over a specified time period, usually one year.

Job Analysis

Systematic process for gathering, documenting, and analyzing information in order to describe jobs. Job analyses describe content or job duties, worker requirements, and sometimes the job context or working conditions.

Nominal Compensation

The face value of a dollar. Failure to adjust pay rates could lead to a situation where real compensation falls below nominal compensation.

FairPay Rules

Workers earning less than $23,660 per year are guaranteed overtime protection.

Common Review Date or Common Review Period

all employees' performances are evaluated on the same date or during the same period. Best suited for smaller companies, reduce admin burden

Base Pay

money, employees receive for performing their jobs. Recurring, either hourly pay or wage/salary. Hourly - pay for each hour worked Salary - earned regardless of actual hours worked.

5 Reasons for Decline of Unionization

1. Legislation has outlawed unions' use of intimidation 2. Title VII of Civil Rights act instituted protections of disadvantaged groups, lessening role of unions 3. Globalization, unions resist giving management too much discretion over employee assignments, offshoring 4. Right to Work Laws - prohibit management and unions from entering into agreements requiring union membership 5. Public or government sector eliminating unions.

Two others factors that led to the passage of income continuity, safety, and work hours legislation

1. Main US economic activities prior to 20th century were agriculture and small family businesses that were organized along craft lines. 3. Factory system created divisions of labor characterized by differences in skills and responsibilities. Factory workers received very low wages and worked in unsafe conditions.

Occupation

A group of jobs, found at more than one company, in which a common set of tasks are performed or are related in terms of similar objectives, methodologies, materials, products, worker actions, or worker characteristics. Office Support occupation - compensation analyst, training and development specialist, recruiter, and benefits counselor. Variation in pay between occupations can be explained by complexity of knowledge, skills, and abilities as well as supply and demand. Within occupational pay differences are also based on KSAs

The Point Method

A job-content valuation technique that uses quantitative methodology. Assign numerical values to compensable factors and are summed as an indicator of the overall value for the job. 1. Select benchmark jobs 2. Choose compensable factors based on benchmark jobs 3. Define factor degrees 4. Determine the weight of each factor 5. Determine point values for each compensable factor 6. Verify factor degrees and point values 7. Evaluate all jobs Use regression analysis to balance internal and market considerations

Collective Bargaining Agreement

A written document that describes the terms of employment approved by management and employees during negotiations. It codifies the terms and conditions of employment regarding rates of pay and pay adjustments, hours of work, or other working conditions of employees.

Fair Labor Standards Act of 1938 (FLSA)

Addresses major abuses that intensified during the Great Depression and the transition from agricultural to industrial enterprises. Include minimum wage, overtime pay, and child labor provisions.

Family and Medical Leave Act of 1993

Aimed to provide employees with job protection in cases of family or medical emergency. The basic thrust of the act is guaranteed leave and a key element is the right of the employee to return.

Pregnancy Discrimination Act of 1978

Amendment to Title VII of Civil Rights Act of 1964. Prohibits disparate impact discrimination against pregnant women for all employment practices. Treat like other causes of disability.

Bennett Amendment

Amendment to Title VII. Allows female employees to charge employers with Title VII violations regarding pay only when the employer has violated the Equal Pay Act of 1963.

Evaluate the Results

Analyze significant differences between the company's internal values for jobs and the market's values for the same jobs.

Civil Rights Act of 1964

Applies to all employment related decisions (retirement, selection, performance, appraisal, compensation, and termination) . Title VII cannot fail to hire any individual bc of their race, color, region, sex, or national origin. Cannot deprive based on this.

Human Capital

As defined by economists, refers to the collective skills, knowledge, and abilities that employees can apply to create value for their employers. Companies purchase the use of human capital by paying employees an hourly wage or salary and providing benefits such as paid vacation and health insurance. Leveraged through merit pay programs, incentive pay, etc.

Pay Structures

Assign different pay rates for jobs of unequal worth and provide the framework for recognizing differences in individual employee contributions. No two employees perform the same. Should define boundaries for recognizing employee contributions.

Merit Pay

Assumes that employees' compensation over time should be determined, at least in part, by differences in job performance as judged by supervisors or managers. Employees earn permanent increases to base pay according to their performance. Rewards excellent effort or results, motivates future performance, and helps employers retain valued employees.

Commission plus draw plans

Award sales professionals with subsistence pay or draws (money to cover basic living expenses_ yet provide with strong incentive to excel. Draw is subsistence pay Recoverable draws - act as loans Nonrecoverable draws act as salary

Green Circle Rates

Below minimum pay range rates. Should be brought within the normal pay range asap. Regularly review pay relative to comparable jobs.

Internally Consistent Compensation Systems

Clearly define the relative value each job among all jobs within a company. Ordered set of jobs represents the job structure of hierarchy. Employees in jobs that require greater qualifications, more responsibilities, and more complex job duties should be paid more than employees whose jobs require lesser qualifications, responsibilities, and complex job duties.

Internally Consistent Compensation Systems

Clearly define the relative value of each job among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy. More complicated jobs should be paid more.

In-House or Outsourcing Training

Consider expertise, timeliness, size of employee population, sensitivity or proprietary nature of subject matter, certification, recertification

Portal-to-Portal Act of 1947

Defines the term hours worked that appears in FLSA. Example, time spent by state correctional officers caring for police dogs at home is compensable, but not transporting dogs between home and facilities. Need to be the principal activity in which the employee is employed to perform.

Job Content Evaluation

Emphasize the company's internal value system by establishing a hierarchy of internal job worth based on each job's function in company strategy. Must balance external market considerations with internal consistency objectives. Most companies rely on market based and job content evaluation

Overtime Provisions

Employers pay workers at a rate at least equal to time and one-half for all hours worked in excess of 40 hours within a period of 7 consecutive days. Does not apply to executive, administrative, learned professional, creative professional, computer workers, and outside sales employees (EXEMPT). Most other jobs are NONEXPEMPT

Davis-Bacon Act of 1931

Establishes employment standards for construction contractors holding federal government contracts valued at more than $2,000. Highway building, dredging, demolition, cleaning, painting, decorating. Applies to laborers and mechanics Contractors must pay wages at least equal to the prevailing wages in the local area as determined by US Secretary of Labor.

Discretionary Benefits

Evident in late 1800s when large companies such as American Express offered pension plans to employees. Benefits resulted from government legislation. Fall into three broad categories - 1. protection programs 2. paid time off 3. services

Determining Single vs. Multiple Job Evaluation Techniques

Ex. "Can we use the same compensable factors to evaluate a forklift operator's job and the plan manager's job?". If yes, then single job evaluation. If not, more than one approach.

Experience Requirements

Experience and training - describes specific preparation required for entry into a job plus pas work experience contributing to qualifications for an occupation. Licensing - describes licenses, certificates, or registrations that are used to identify levels of skill that are required for entry and advancement in an occupation.

Cost Leadership or Lowest Cost Strategy

Focuses on gaining competitive advantage by being the lowest-cost producer of a product or service within the marketplace, while selling the product or service at a price advantage relative to the industry average. Require aggressive construction of efficient-scale facilities and vigorous pursuit of cost minimization in areas such as operations, marketing. Reduce cost per employee HR. Ex. Ryanair

Occupational Requirements

Generalized work activities - information describes general types of job behaviors occurring on multiple jobs. Organizational context - information indicates the characteristics of the organization that influence how people do their work. Work context - information describes physical and social factors that influence the nature of work.

Workers' Compensation

Granted income sustained on the job. Promoted well being of economy.

Pay Grades

Group jobs for pay policy application. Based on similar compensable factors and value. Not precise

Legally required benefits

Historically provided a form of social insurance. Prompted largely by the rapid growth of industrialization in the US. Stabilize the well-being of dependent family members of injured or unemployed individuals.

Building Blocks for Compensation Professionals

Include basic building blocks and structural design elements. Building blocks - Core compensation, adjustments to core compensation, legally required employee benefits, discretionary employee benefits. Structural elements - Internally consistent job structures, market competitive pay structures, and structures that recognize employee contributions.

Worker Requirements

Includes basic skills, cross-functional skills, knowledge, education.

Extrinsic Compensation

Includes both monetary and non-monetary rewards.

Compa-Ratios

Index the relative competitiveness of internal pay rates based on pay range midpoints. Employee's Pay Rate/Pay Range Midpoint 1 - pay rate = pay range midpoint < 1 - pay rate falls below competitive pay rate > 1 - pay rate exceeds the competitive pay rate for each job. Index competitiveness or calculate for all jobs that comprise a pay grade.

Job Title

Indicate the name of each job within a company's structure

Cross Functional Skills

Indicates developed capacities that facilitate performance of activities that occur across jobs.

Compensation Surveys

Involve the collection and subsequent analysis of competitors' compensation data such as wage and salary practices and employee benefits. Integrate the internal job structure with the external market pay rates through surveys Recommend pay policies that fit with their companies' standing and competitive strategies. Balance between managing cost and recruiting best employees.

O*NET Content Model

Lists six categories of job and worker information. Job info contains the components that relate to the actual work activities of a job. Worker characteristics, worker requirements, experience requirements, occupational requirements, workforce characteristics, occupation-specific information

Compensation Specialist

May be an HR exec, manager, or non manager who is typically concerned with only one area of compensation practice

Compensation Generalist

May be an executive, performs tasks in a variety of HR related areas. Involved in several or all compensation functions (building job structures, market competitive pay systems, and merit pay structures)

Conduct the Study: Data Collection Methods and Sources of Data

Most common methods are questionnaires and observation. Questionnaires direct incumbents' and supervisors' descriptions of the incumbents' work through a series of questions and statements. Record perceptions. Most common sources of job analysis data are job incumbents, supervisors, and job analysts. Including as many job incumbents and supervisors as possible will provide a truer assessment. Analysts write descriptions

Consumer Price Index

Most commonly used method for tracking cost changes, or consumer inflation, throughout the united states. Does not permit for comparison between locations, only allows for a comparison of cost of living differences over time within a single location. Updates influenced by supply relative demand of labor (pressures to raise starting pay when demand for qualified workers in particular jobs is greater than supply)

Job Analysis Techniques

Most companies generally choose to use established job analysis techniques often outweigh the benefits. Choosing one plan over another depends on applicability and cost.

Skill-based pay

Mostly for employees who perform physical work, increases these workers' pay as they master new skills. Reward employees for the range, depth, and types of skills or knowledge they are capable of applying productively to their jobs. Different from merit pay which rewards based on job performance.

Direct Job Analyst Orientation

Must analyze the context in which employees perform their work to better understand influencing factors. Should obtain and review internal info like org charts, listings of job titles, classifications of each position to be analyzed, incumbent names, pay, handbooks, etc. Also use the standard occupational classification system

Pay Compression

Occurs whenever a company's pay spread between newly hired or less qualified employees, and more qualified job incumbents is small. Results in company's failure to raise pay range min and max, hinders ability to recruit. Scarcity of qualified candidates for particular jobs. Supply fulls behind demand, wages rise, bidding process. Can threaten competitive advantage, increase turnover. To avoid problems, set competitive max rates but not exceed.

Simple Ranking Plans

Orders all jobs from lowest to highest according to a single criterion. Ex. Job complexity or the centrality of the job to the company's competitive strategy. Considers each job in its entirety.

Alternation Ranking

Orders jobs by extremes. Committee members judge the relative value of jobs according to a single criterion (job complexity). Determine which job is the most valuable and which job is the least valuable and continues until all jobs have been evaluated. Limitations: rely on subjective data, doesn't use analyses or descriptions, no objective scales to indicate job differences. No standards for compensation

Occupational Safety and Health Act of 1970

Passed to ensure safe healthful working conditions for working men and women by authorizing enforcement of the standards under the act.

Red Circle Rates

Pay certain employees greater than the maximum rates for pay ranges. Helps retain valued employees, particularly when promotion is not granted.

Defining Pay Grades

Pay grades group jobs for pay policy application. Based on similar compensable factors and value. Wider pay grades minimize hierarchy and social distance between employees. Narrower pay grades tend to promote hierarchy and social distance. Absolute job evaluation point spreads - grades based on a set number of job evaluation points for each grade. increase as move up pay structure.

Calculate Pay Ranges for Each Pay Grade

Pay ranges represent the vertical dimension. Include the midpoint, minimum, and maximum pay rates. Midpoint is the halfway mark between the range minimum and maximum. Generally match values along the market pay line

Market-Competitive Pay Systems

Play a significant role in attracting and retaining the most qualified employees. Built based on the results of compensation employees.

Americans with Disabilities Act of 1990

Prohibits discrimination against individuals with mental or physical disabilities within and outside employment settings, including public services and transportation, public accommodations, and employment. Applies to all employers with 15 or more employees.

Equal Pay Act of 1963

Prohibits sex discrimination in pay for employees performing equal work. Based on principle that men and women should receive equal pay for performing equal work. Enforced my EEOC. Pertains explicitly to jobs of equal worth. Skill, effort, responsibility, and working conditions (compensable factors). Ex. Coaching girls is a different job from coaching boys, similar not the same conditions. Can be different bc of a merit, seniority, or production amount

Protection Programs

Provide family benefits, promote health, and guard against income loss caused by such catastrophic factors as unemployment, disability, or serious illness. Legally required. Social Security Act, FMLA, PPACA

Services

Provide such enhancements as tuition reimbursement and day care assistance to employees and their families

Social Security Act of 1935 (Title IX)

Provided temporary income to workers who became unemployed through no fault of their own.

Paid time off

Provides employees with pay for time when they are not working (vacation)

Knowledge

Refers to organized sets of principles and facts applying to general domains

Capital Intensity

Refers to the extent to which companies' operations are based on the use of large-scale equipment. Explains pay differentials between industries. Amount of average pay varies with the degree of capital intensity.

Capital

Refers to the factors that enable companies to generate income, higher company stock prices, economic value, strong positive brand identity, and reputation. Variety of capital that companies use to create value, including financial capital and cash equipment (state-of-the-art robotics used in manufacturing)

Intrinsic Compensation

Reflects employee's psychological mind-sets that result from performing their jobs. Ex. the feeling from the belief that one's work matters in the lives of others.

Market-Competitive Pay Systems

Represent companies' compensation policies that fit the imperatives of competitive advantage. Play a significant role in attracting and retaining qualified employees. Four activities: strategic analysis, using compensation surveys, integrating internal job structure, determining compensation policies

Worker Requirements

Represent minimum qualifications and the knowledge, skills, and abilities that people must have to perform a particular job. Requirements usually include: education; experience; licenses; permits; and specific abilities and skills such as typing, drafting, or editing.

Pay Structures

Represent pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions. Pay according to credentials, knowledge, or job performance.

Cost-of-Living Adjustments (COLAs)

Represent periodic base pay increases that are founded on changes in prices as recorded by the Consumer Price Index. 2 - 3 % annually. Enable workers to maintain their purchasing power and standard of living by adjusting base pay for inflation. Common for Unions.

Interindustry Wage Differentials

Represent the pattern of pay and benefits associated with characteristics of industries. Can be attributed to factors such as industry's production market, degree of capital intensity, the profitability of the industry, and unionization of the workforce. Companies that operate in product markets where there is relatively little competition from other companies tend to pay higher wages bc they exhibit substantial profits.

Market Pay Line

Representative of typical market pay rates, expressed as a mean or median. Pay levels that correspond with the market pay line are market competitive pay rates.

Central Tendency

Represents the fact that a set of data clusters or centers around a central point. Measures are arithmetic mean and median

Disparate Impact

Represents unintentional discrimination. It occurs whenever an employer applies an employment practice to all employees, but the practice leads to unequal treatment of protected employee groups.

Stakeholders: Unions

Responsible for administering the pay and benefits specifies in collective bargaining agreements to ensure COLAs and seniority pay

Seniority Pay

Reward employees with periodic additions to base pay according to employees' length of service in performing their jobs. Assumes employees become more valuable with time.

Pay-for-knowledge

Reward managerial, service, or professional workers for successfully learning specific curricula. Reward employees for the range, depth, and types of skills or knowledge they are capable of applying productively to their jobs..

Two-tier pay structures

Reward newly hired employees less than established employees. Opportunity to progress from lower entry level pay rate to higher rates enjoyed by more senior employees. More prevalent in Unions.

Incentive/Variable Pay

Rewards employees for partially or completely attaining a predetermined work objective. Defined as compensation (other than base wage or salary) that fluctuates according to employees' attainment of some standard based on pre-established formula, individual or group goals, or company earnings.

Salary-Only Plans

Sales of high price products with long lead time Sales reps are primarily responsible for generating demand, not closing sales Impossible to follow results for each salesperson Training periods

Compensable Factors

Salient job characteristics by which companies consider skill, effort, responsibility, and working conditions, which were derived from the Equal Pay Act. Help managers determine whether dissimilar jobs are equal

Merit Increase Amounts

Should reflect prior job performance levels and motivate employees to do their best. just meaningful pay increases refers to the min increase to make a meaningful change. Boosting merit increase amount will not necessarily improve the productivity bc of diminishing marginal returns Perceptions of just-meaningful differences depends on cost of living. Employee must see increase as substantive in relative sense as well as absolute sense

Universal Compensable Factors

Skill, effort, responsibility, and working conditions. Bc virtually every job contains them. Factors must be job related and reflect actual work being done. Factors should further a company's strategies.

Compensable Factors

Skill, effort, responsibility, working conditions. Influence pay level. Used to determine whether jobs are equal per the Equal Pay Act of 1963.

Transition Matters

Skills Assessments Aligning pay with the knowledge structure Access to Training

Human Resource Strategies

Specify the use of multiple HR practices to reinforce competitive business strategy. Consistent with competitive strategy

Human Capital Theory

States that employees' knowledge and skills (human capital) add value. Employees can develop such knowledge and skills from formal education and training, including on the job experience. Over time, employees presumably refine existing skills or acquire new ones that enable them to work more productively.

Commission

Straight - based on a fixed percentage of sales price of product Graduated - increase percentage pay rates for higher sales volume Multiple Tiered - earn higher rate of commission for sales made in period if sales level exceeds predetermined level

Equity Theory

Suggests that an employee must regard his or her own ratio of merit increase pay to performance as similar to ratio for other comparably performing people in the company.

Summarize the Results: Writing Job Descriptions

Summarize a job's purpose and list its tasks, duties, and responsibilities, as well as the KSAs necessary to perform the job at a minimum level. Explain what, how, and why a employee performs the job. Contains job title, job summary, job duties, and worker specifications.

Staff Employees

Support the line functions. Ex. HR and accounting

Pay Mix Policies

The combination of core compensation and employee benefits components that make up an employee's total compensation package. May be expressed in dollars or as a percentage of total dollars.Consider guidelines for particular structure. Ex. more bonuses for engineer than admin, but admin is important to company. One size fits all is inappropriate, most use more than one pay policy.

Range Spread

The difference between the maximum and minimum pay rates of a given pay grade. Expressed as a percentage of the difference b/w the minimum and maximum divided by the minimum. Between 20%-80%. 10-15 hourly 45-65 salaried 45-85 executive. Adjacent pay ranges usually overlap with other pay ranges so that the highest rate paid in one range is above the lowest rate of the successive pay grade. Allows companies to promote employees without adding pay.

Standard Deviation

The mean distance of each salary figure from the mean.

Competitive Business Strategy

The planned use of company resources - financial capital, equipment capital, and human capital - to promote and sustain competitive advantage. Ex. Exxon Mobil Corporation strives to be the world's premier petroleum and petrochemical company by achieving superior financial and operating results while simultaneously adhering to high ethical standards.

Working Conditions

The social context or physical environment where work will be performed. Ex. Social Context.. hotel workers, handling chemicals

Broadbanding

Used to consolidate existing pay grades and ranges into fewer, wider pay grades and broader pay ranges. Represents the organization trend toward flatter, less hierarchical corporate structures that emphasize teamwork over individual contributions alone.Uses only a few large salary ranges to span levels within the organization previously covered by several pay grades. Employees holding jobs in a single broadband now have equal pay potential and broadened duties and responsibilities. Sometimes used for distinct employee groups like upper management, or job families like technical, or functional like HR specialists. Shifts greater responsibility to supervisors. Cannot cure all compensation dysfunction, trade-off between flexibility and promotional opportunities

Classification Plans

Used to place jobs into categories based on compensable factors. Public sector organizations use classification systems most (federal governments)

Job Evaluation

Used to recognize differences in the relative worth among a set of jobs and to establish pay differentials accordingly. Partly reflects the values and priorities that management places on various positions.

Documenting the Job Evaluation Plan

Useful for legal and training purposes. From an employer's perspective, a well-documented evaluation plan clearly specifics criteria.

Preliminary Considerations for Compensation Surveys

What companies hope to gain - usually learn about competitors, and employee preferences, pay mix/pay levels Custom development or use of existing survey - companies choose not to develop and implement their own surveys bc employees lack qualification, rival companies are reluctant to surrender info, costly

Strategic Compensation

Within the context of competitive business strategy and HR strategy. Refers to the design and implementation of compensation systems to reinforce the objectives of both HR strategies and competitive business strategies. Compensation and benefits executives work with HR execs and CFO.

Reliable job analysis method

Yields consistent results under similar conditions. Two analysts reach same conclusion.