MAN 4330 Exam 3
Performance management
"is a control" mechanism for organizations, and for feedback have some system of control for responsibility
Legal
(Minimize exposure to EEO) JOB RELATED appraisal, Avoid vague/subjective performance criteria Implement a review and appeals process Respect employee privacy and confidentiality
Forecasting compensation Budgets: A process view
- Determine pay of present employees - Calculate total compensation for present employees (salary + benefit rider) -Estimate (forecast) present employee total compensation for the next year -Include forecasted pay adjustments and possible bonuses to occur during the year -Calculate total compensation costs for additional new positions! -Total all comp costs
The Trend in supervisory compensation
- Increased use of variable pay - More than half of all companies have a variable pay component for supervisors.
Do employees Value their Benefits??
- It is minimized because employees... Expect benefits as part of their total compensation Do not understand true value of benefits Often undervalue their benefits- can't list their benefits Often take benefits for granted?? Have preferences regarding types of benefits they want Key is Communication!!
Key Factors in Designing a Sales compensation plan:
- Nature of people who enter sales profession - Org Strategy - Market maturity -Competitor practices - Size of company -Econ environment -Products sold
Conflicts faced by Sales Staff:
- Often go for extended periods in field with little supervision
Performance Measures Sales force:
- Overall territory volume - Marketshare - # of product placements in retail stores -# of new accounts - Gross Profit - % of list price attainments -consistency of sales revenue - Expense control -Productivity per square foot - Bad debt generated by sales
Paid Time Off during Working Hours:
- Rest Periods - Lunch Periods -Travel -Work Prep Time Based on FLSA- Fair labor Standards Act
Pay Strategies
- Salaries of supervisors SHOULD exceed the highest paid employee -Pay supervisors for scheduled overtime
What is the Budgeting Process?
-All starts with Revenue Projections! Forecasts! - Effects available resources for all business activities- very difficult process but critical~ - UNDERSTAND YOUR CHALLENGES/Role of Assumptions- explains the reasoning to determine the budget
Determination of benefit levels:
-Average earnings at end of tenure -last generally the 3-5 years. -Average career earnings, or -Fixed dollar amount not depending on earnings
Components of an Executive Compensation Package:
-Base Salary -Short term (annual) incentives or bonuses (range from .5 to 20 times base salary Cash or equity (stock offerings) based components Performance measures (ROI, EPS, Profitability, Stock Value)
Home country based method
-Compensates expatriates as they would be in their home country -Most Appropriate for short term global assignments
Consumer Driven Plans: Flexible Spending Accounts (FSA)
-Coverage not provided by employer plan and paid for by the Employee! -Pretax amount is a benefit deduction from an employee pay used to reimburse them for medical expenses. -Forfeit unused contributions, IF YOU DON'T USE it, you Lose it!
Reward components of Professional employees:
-Dual Career ladder -Maturity curve pay plans -Performance based incentives (profit sharing, stock ownership) -Bonuses -Perks
Major Challenge in paying supervisors
-Equity - Provide incentives to attract nonexempt employees to accept challenges of being a supervisor
(Defined Benefit Plans) Employer provides a specific pension level defined in terms of:
-Fixed dollar amount or -Percentage of earnings amount that may vary with years of seniority Based on how long you've worked with organization, your earnings and salary Pension plan - usually tax exempt
The Alternative Sales Pay plans
-Guaranteed base salary -Guaranteed base salary + Commission -Guaranteed base salary+ Bonus -Guaranteed base salary +Commission +Bonus -Commission only
Goals of the PPACA
-Increase Accountability -Increase Access of Coverage -Extend protection to those already having coverage
Whose effected by Healthcare Reform
-Individuals and Families -Employers (50 or more employees) -Healthcare Providers & Insurance Companies
Ownership and Financial Markets: Who owns the companies?
-Is it individuals through stock ownership (U.S.) -Conglomerates (Korea) -Influential banks or system of banks (Germany) -National (State) Owned - Wholly Owned Foreign Enterprises (WOFE)
Pay Strategies:
-Key base salaries of supervisors to an amount exceeding highest paid employee (Salaries of supervisors should be Higher than the highest paid employee) - Pay supervisors for scheduled overtime
HIPAA Health insurance portability and accountability Act (1996)
-Lessens an employer's ability to deny coverage for a preexisting condition -Prohibits discrimination on the basis of health related status - Provides stringent privacy provisions
Miscellaneous Benefits
-Paid Time Off During Working Hours. -Payment for Time Not Worked. -Child & Elderly Care. (FMLA) -Work life Balance Programs. -Domestic Partner Benefits. -Legal Insurance. *All about cost!
PPACA Requirements
-Potential fines may result in Small employers limiting employment levels
TRENDS related to Cost Containment: Keeping something harmful under control, control or within limits
-Probationary periods -Benefit limitations -Copay -Administrative cost containment -Retaining strategic function internally -Significant movement to outsourcing -The Skinny Plan (cutting down the plan) - Promote preventative health programs (preventative tests) No smoking policies Physical & Nutritional programs Emotional & Stress Healthy food in cafeterias and vending machines
Play or pay mandates
-Provide minimum essential coverage for all full-time employers OR Pay Excise Tax for not offering minimum coverage, or having employees enroll in State Health Exchange, or Unaffordability
Keogh Plans
-Self employed, good for people who have their own company! -Profit sharing, money, or paired plan
Types of Coverage and Cost: Experience Rating:
-Single, Family Coverage & Group Coverage. -Serve as the basis for establishing premiums based on the claims (use) by the coverage of employees
Global issues affecting the Organization's HR Environment:
-Social Contracts that are regulatory (sets why pay is different) -Centralized v Decentralized Global Compensation ISSUES-which is the degree of Government involvement and pay rates -Wage flexibility -Managerial Autonomy ( not related to centralization) -Regulation of hours worked -Labor standards (prevent social dumping) - Tax structure (influences foreign assignments) -National Culture and Compensation System Design -Relevance of Hofstede's Research today -Labor costs, Productivity and purchasing power
Challenges of Sales staff are:
-Staying motivated -Continuing to make sales calls despite little supervision
Characteristics of Special Groups:
-Tend to be strategically important to a company - Positions tend to have conflict, that comes up bc different situations place incompatible demands on members of group
More Miscellaneous Benefits Pay for time Not worked:
-Vacations! -Holidays. -Sick Pay. -Personal holiday. -Funeral leave.
Internal Alignment
-Where a company is going -Refers to the pay relationships among different jobs/skills -Both smaller and larger pay differences among jobs inside an organization can affect results.
What are the benefits of Budgeting?
1. Control of your Expenses (Revenue Ratio) Expenses > Revenue = LOSSES 2. Coordinate Activities (Budget for ALL Departments and activities) Develop a budget for all major HR 3. Set some performance standards (Goal for Sales and Operational Budgets) 4. Evaluation Tool (Deviation Analysis +- Comparison to actual results to planned (budgeted) 5. Corrective & Remedial control (Take necessary action to prevent future over expenditures or under sales forecast)
Small employer date to establish an exchange is: Large employers is:
2014 2017
Defined Contribution Plans: Popular forms of these plans
401 (k) plan -EZ IRA (New, 2015) - Simplified employee Pension Plan (SEP~IRA) -Employee Stock Ownership Plan (ESOP) - Individual Retirement Accounts (IRAs) -Keogh Plan (Self-employed)
Reentry transition may result in culture shock
68% of expats do not know what their position will be when they return 54% return to lower level jobs 77% have less income when they return Over 50% leave the company within one year upon returning
Expatriate
A person who lives and is assigned to work outside their country for more than one year
Health Reimbursement Plan (HRA)
Allows employer contributions and the rollover of unused contributions
Protection Act 2006
Allows for Sale of Deferred stock contribution purchases People who get invested, first get paid
Components of Total Pay Packages (Key is keeping an employee whole)
Base Salary- annual salary, unadjusted Short & long term incentives Tax Equalization Allowances- payments for higher tax rates of other countries Benefits- continuation of, substitute for, home benefits **Allowances & FSPs- cost of living, housing, education, medical, security, and relocation payments
Perks
Based on unique needs of professional employees
Requirements to link pay to performance Define Performance:
Behaviors, Competencies, Traits
Employee Contribution (Global Pay comparisons)
Bonus, Performance and Tariff
2 common Budget Approaches
Bottom Up- determine the cost for each activity and sum them to determine Revenue needs Top down- begin with estimate (or available) revenue and allocate to the business activities
Agency Theory-
CEO's don't design and operate the firm at their own best interest (Just like a regular employee) They're only an agent of the organization
The Issues of Supervisory Pay:
Caught between demands of: -Upper management in terms of production and employees in terms of rewards, reinforcements and counseling
Host (Local) Country Nationals
Citizens of the foreign country where the parent employer operates (Ex- A Canadian citizen working for Toshiba in Toronto)
IVesting Option
Clift -fully vested after 3 years of eligible service or Graduated- vested after 5 full years of service at 20%/year. -Most org's uses graduated option, and get 20% of what's in the plan
Strategic Objectives (Global Pay comparisons)
Commitment, Security (high/org- low/me) Employee Flexibility -transferable skill sets Innovativeness (high-low) Performance investment (long- short term) Strategic Value (high- low)
Reporting Requirements
Comparative Effectiveness Fees, Medical Loss Ratios, Benefit coverage Summary,W-2s, Medicare Tax Increase, Employer Notifications (The Exchange), IRS notices, etc
Employee Contribution Japan- Germany- U.S.-
Comparisons among individuals doing the same job for the same organization. Japan: Performance based- bonuses & promotions Germany: Tariff based bonuses, Smaller bonuses for Managers U.S: Bonuses, Pay increase~ defined performance
BONUSES ARE...
Completion of projects on or before deadlines: -Patents -Publications -Elections to professional societies Attainment of "professional" licenses
The Performance Management Process
Continuous process where employees and managers work together Establish Expectations Coaching and Development Feedback - (should be no surprises) Review- Performance Phraisal Review Rewards and Recognition
Insurance Policy
Contractual relationship stating the type and amount of coverage to be paid. It's a contract to provide certain rates and coverage
Contributory
Costs shared between employer and employee Copay, Contributory. Ex- Health Insurance/Copay
Culture (The social contract)
Countries change over time and with global influence it results in variability among organization policy within the same culture.
The Social Contract
Countries have different beliefs about the role of government, employees, unions and employers. Social contract change with Society
Employee
Demographics, KSA's, work expectations/attitudes -Some countries only work certain hours (ex- 48 hours)
What is part of the budgeting process?
Develop complete charts of accounts Research costs for each account Develop a written budget for each account Avoid straight line estimating Forecasts sales volume Relate to revenue and projected profits to HR requirements Project best case/worst case scenarios Project break-even budget point
(Taxes and Regulations) Cost of living and purchasing power
Difficult to assess across countries- however it is essential when transferring employees
MANAGERIAL AUTONOMY
Discretion (freedom) managers have to make strategic compensation decisions
Non qualified Plans
Does not meet ERISA's minimum standard provisions and do not receive favorable tax treatment
IParticipation (Eligibility)
Employees at least 21 years of age, and 1 year of service based on the 1,000 hour rule
Decentralized
Employees have a greater say in the workplace, and the government has less involvement and control
Centralized
Employees have less control or less say in the workplace, Gov't and unions have a strong influence
401 (k) Plan
Employer will match what you (employee) put. -Accounts provided by your company
EZ IRA (New, 2015)
Employers with 5 or more employees, with no current Retirement plan, No cost to the employer, makes participation and contribution easier for Employees
Administrative/ Evaluative
Ensures strategy consistent behavior pay, promotions, layoffs
Components of an Executive Compensation Package
Equity- related to long term bonus incentives (cost may range from zero to fair market value) Qualified Stockoption- value is not recognized until it is sold
Understand why raters make mistakes:
Errors in rating process Errors in observation (attention) Errors in recall and storage Errors in actual evaluation
The greater the Centralization the less discretion managers have in
Establishing compensation strategies - More governmental and social constraints
Social Comparisons
Executives should make that much more in relationship to lower level employees
Third Country Nationals
Expatriates who are citizens of neither the employer's parent country nor the foreign country where they are living and working (Ex-a Germany citizen working for Toshiba in Toronto)
Employer finances this obligation by:
Following an actuarially determined benefits formula and Making current payments that will give or yield the future pension benefit for a retiring employee
Health and medical Benefits
General Health Care and Healthcare Reform (PPACA) Health Care: Cost Control Strategies Short & Long Term Disability Dental Insurance Vision Care
COBRA Consolidated Omnibus Budget Reconciliation Act
Gives the opportunity for an employee to continue insurance coverage even if they leave the company due to no fault of their own (Up to 18 months at group rate)
Managerial Autonomy
Giving employees a great deal of freedom and freedom to make choices
Severance
Golden Parachutes Employee Contracts Noncompete Agreements
Health Savings Accounts (HSA)
Health Insurance + tax deductible savings account to pay for health care. A viable employee health care option for Small businesses that have a High Deductible Health Plan (with low out of pocket maximums).
Managed Care Plans
Health Maintenance Organization (HMO) -Preferred Provider Organization (PPO) -Point of Service Plan (POS) -Exclusive Provider Organization (EOS)
Strategic Reasons for offering benefits
Help Attract employees Help Retain employees Elevate the image of the org with employees and other organizations Increase Job Satisfaction
Simplified Employee Pension Plan (SEP- IRA)
Helps contribute to retirement (Simplified employee pension plan)
Types of Health Care Coverage
Hospitalization Surgical Physician Pharmacy (Prescription Drug Plans) HSPP
Power distance
How a culture deals with hierarchal power relationships
Uncertainty Avoidance
How cultures deal with the fact that the future is not perfectly predictable
Central Issue involving Merit Pay
How do we get employees to view raises as a reward for performance?
Incentive Stock options
ISO or employee stock purchase plan
Contingent Workers
Includes a person who works: Through a temporary employment or Professional Employment Organizations (PEO)
Hofstede's Cultural Dimensions and National Culture: Relevance? Are cultures changing or Evolving?
Individualism/collectivism Power distance Uncertainty Avoidance Masculinity-feminity Long term/short term orientation
Compensation: In a Global Context
Institutional Organizational Economic Employee
Disadvantages of an exchange:
Insurance Mandate~ fines for not providing the required amount of employee insurance (40,000$ +$2,000 for each employee >50. Reduced administrative cost may be minimized to applying
Institutional (In a global context)
Involves Social, Cultural and Political
What is an Exchange
It's an open marketplace that sells insurance and connects with individuals or employees wishing to purchase insurance. Does NOT sell their own products, but instead sell the products of health insurance companies
Disadvantages of working in Japan: Germany: U.S.
Japan -High cost with aging workforce, innovation going down, discourage young female EE's Germany-Not flexible Bureaucratic, High social/benefit costs, Non strategic U.S.- Less job Security, Skeptical employees, no rewards for long term commitment or projects
Advantages- Japan Germany U.S.
Japan- Commitment & Security- Person Flexibilty Germany -Commitment & Security No competition with pay U.S. -Performance- Competitor focus, Focus short term
Objectives:(Strategic Comparative Analysis) Japan: Germany: U.S.
Japan- Long term, life commitment, egalitarian with bonuses Germany- Long term, life commitment, egalitarian, control and tariff negotiations U.S.- Short/intermediate focus, Commitment, Performance- Market metrics, Flexible
Internal Alignment- Japan Germany- U.S.-
Japan- Person based, number of pay grades Germany-Work based jobs and experience, many pay grades, small difference U.S.- Work based( KSA) Few pay levels Larger pay differences
Utilizing an Exchange Advantages
Key Advantage: Increased Bargaining Power Spreads Risk: lowering premiums Access to an Exchange Navigator~ Info resource tool
Global Pay Comparisons Objectives:
Long- short term, Commitment, Egalitarian- Performance, Cost control (Bonus, performance, tariffs)
Voluntary
Major Medical Supplemental Insurance (long term care) Life insurance Dental Educational Reimbursement Retirement Vcation Holiday health fitness club expense Child care fin/legal service Relocation expense
Executive Perquisites
Major difference between US and foreign executives, especially Western Europe)
External Competitiveness (Global pay comparisons)
Makes up of: Age Market Tariff
Economic (In a Global context)
Markets, capital and taxes -Structured - can be headache
Severance
Matter of agreement between an employer and employee (Golden Parachute) Specifying that the employee will receive certain significant benefits if employment is terminated
Market or performance based
May or may not require investment by the executive Based on multi year Achievements
Qualified plans
Meets all 13 standard provisions and provides favorable tax benefits for employers and employees
Forecasting Revenue- Sales or budget Allocations
Minimum Budget- determines the minimum costs for each activity to meet perform. requirements Must do Budget- minimum revenue to survive
Labor Costs and productivity
Minimum wage for Labor is difficult to compare across countries
Non Qualified Plan
Much more flexibility! Employer does not receive a tax deduction until employee is required to declare it as income (FORM of compensation that gives an executive the right to purchase stock at a stipulated price)
PEO
Much more professional, and experienced! (Attorneys, CPA's, nurses) On an on call basis (or defined service contract) -Independent contractor On an on call basis (or defined service contract)
Qualified plan
Much more stringent! Greater taxes! More protection for employees
Insurance Premium
Negotiated amount paid by employers to the insurance company to maintain the policy
Small Employers: The creation of state based Exchanges
ON AVERAGE, Small businesses pay about 18% more than large firms for the same insurance policy Since small group insurance markets in most states are underwritten based on risk, employers less healthy employees or in occupations with high risks can find coverage to be very expensive! Even unaffordable!
Exporter
One size fits all- "Headquarters knows best" -Corporate pay system is implemented worldwide - Not effective in diverse cultures - It adjusts for regulatory issues - It has minimum recognition of cultural issues - Exporters design a total pay system at headquarters and "export" it worldwide
Individual Retirement Accounts (IRASs)
Own investment, a savings account with a big tax break, ideal way to sock cash away for retirement. It's just the basket in which you keep stocks, bonds, mutual funds and other assets
Employee Retirement Income Security Act, 1974 (ERISA)
PROTECTS the assets of millions of Americans so that the funds placed will be there when they retire
Healthcare Reform
Patient Protection and Affordable Care Act (PPACA), Effective Jan 1, 2014
Culture
Pay is different among countries due to their national values/beliefs. Does Not mean that Organizations within the same culture will have the same pay or policy and practices
Host country Based method-
Pay level and rates for expatriates are based on the host country pay rates Most appropriate for long term global assignments
PBGC
Pension Benefit Guaranty Corporation -guarantee vested benefits
Internal Alignment (Global pay comparisons)
Person-work, Small- Large Pay differences, pay level (there's many to few) -Supervisors there are many levels of responsibilities
Nondiscrimination Rules
Prevents favoring benefits provided highly paid employees (excluding the top 10%) relative to lower paid employees. What you provide one employee have to apply to all employees!
As a Pay For Performance Tool
Promotion should be accompanied by a salary increase (at least) of 8 to 12% (if not closer to 15%)
Sorbanes Oxley Act
Protects employee, stockholder, stakeholder and community
Hofstede's National Culture study
Provides a starting point to understand Country influence on pay systems- but it is Just a STARTING POINT
Relative Advantages of different pension alternatives Defined Benefit Plan
Provides an explicit benefit which is easily communicated. Company absorbs risk associated with changes in inflation and interest rates which affect cost. More favorable to Long service employees. Employer costs unknown.
Exchange
Provides greater volume, and competitive pricing and offers insurance packages categorized as bronze, silver, gold or platinum. Based on the percentage of their health costs that the indiv must pay. (90, 90, 70 and 60 percent)
Categories of Assessment Formats
Ranking - Rater compares employees against each other Rating- rater evaluates employees on some absolute standard MBO/MBR- Rater evaluates performance on measures relative to mutually agreed upon results
3 Key topics Affecting Employers
Reporting Requirements Play or Pay Mandates Fulltime Equivalents
Defined Contribution Plans
Require specific contributions by employer -Final benefit received by employees is unknown (Dependent on investment success of plan manager)
Non qualified plan
Restricted stock options, stock appreciation rights (SAR), Stock grants, restricted stock units, etc
Retirement
SERPS
Employee stock ownership plan (ESOP)
Shared stock, company has to be stable and have stable stocks
Characteristics of promotional pay increases
Size of increment is approximately double a national merit increase Represent a reward to employees for commitment and exemplary performance
EU's common labor standards are to avoid....
Social Dumping uses Cheaper labor than what is available
Mandatory Benefits
Social Security Unemployment Insurance Worker's Compensation Employee Retirement Income Security Act (ERISA) Family Medical Leave Act (FMLA)
Fulltime Equivalents
Standard period is 3 to 12 months, full-time employee 30+ hours. On going or new. Variable Employee- limited duration 30+ hours/week. Seasonal Employee- 120 days or fewer, with 50 FTEs
Small employer exchanges may be established at the
State level and not be PPACA COMPLIANT.
Conflicts faced by TOP Management:
Stockholders want healthy returns on investment Gov't wants compliance with laws Must decide between strategies - Maximizing Short term gains versus Focusing on long term results (sustainability) Creates the greatest liability for BOD's Continuous Social and media attacks on the level of Executive Compensation Package
Organizational (In a Global context)
Strategic, Managerial Autonomy, Technology -What can you do as a company? -Autonomy- how much discretion do you have involving pay policy?
Who are Special Groups?
Supervisors, Professional employees, Sales Staff, Contingent Workers, Corporate directors, Top Management Executives
Why Managers do not like Performance Assessments?
TIME CONSUMING SUBJECTIVITY (in PA criteria measures) Performance Expectations may not be known by or may be vague to employees Supervisors are not rewarded for their PA efforts Perception is that there is a minimum relationship between performance and rewards
Balance Scorecard
That emphasizes multiple measures to assess and improve employee performance Specify a continuum describing different levels from low to high performance measure (Graphic rating scales) Decide how much of a merit increase is given for different levels of performance Performance based Guidelines Performance rating pay increase (Adjustment) Matrix
Employee financed
The Employee pays the total cost for some benefits. Employee pays all of it!
(Financing Benefit Plans) Alternatives: Non-contributory
The Employer pays the total costs, we don't contribute anything! Employer pays. Ex- School, tuition reimbursement
Labor costs and productivity
The Keys are demand, productivity as it relates to job knowledge and requirements (Quality of available labor) and performance expectations
Masculinty-feminity
The division of roles between the sexes with a society
Non Compete Agreements
The employee must receive something of value in exchange for the promise to refrain from competition
Cost of living and purchasing power
The key is to keep employees WHOLE- When transferred, they maintain the same quality of life and purchasing power
What are Employee Benefits
The part of the total Compensation package, other than pay for time worked, that's provided to employees in whole or in part by employer payments. - life insurance, pension retirement, worker's comp, vacation/holidays
Compensating Employees in a Global Context: Headquarters- Based pay method
The pay levels and rates are established by Corporate and are the same for all locations, domestic and global. Easiest to administer but has potential of equity issues
Externally Competitiveness Japan- Germany- U.S.
The pay relationships among organizations; focuses attention on the competitive positions reflected in these relationships. Paying higher than the average paid by competitors can affect results. Japan- Match, maturity based Germany- Match, tariff based U.S. -Market, Variable and performance Pay
Global HR Strategy Perspectives Localizer-
Think Global, Act locally Pay system varies based on a Country's culture and values- Key is to be a good corporate citizen locally (nationally) ex- MCD's uses a different recipe for burgers in every country
Globalizer-
Think and Act GLOBALLY AND LOCALLY - Collaboration between Corporate and local operations - Based on sharing information and ideas while recognizing local differences
Long term incentives and capital appreciation plans
Threshold- minimum level- have to achieve that) Target- where the company should be at Max- tremendous stock, High- def win
Developmental
Training, career development, HR research
Defined Contribution Plan
Unknown benefit level is difficult to communicate Employees assume these risks: Dependent on investment success of plan manager More favorable to short term employees Employer costs known up front: 401k, ESOP's, IRAs, Keogh
What is MEA?
Used to identify the issues such as economic activity, competitive activity, market expectations/demands, pricing tech development
Economic Approach
Value of CEO should correspond to some measure of organizational success
Regulation
Wage flexibility due to degree of centralization but also hours of work/week -EU working time directive limits workweek to 48 hours. Work councils may have members on Board.
Home balance sheet approach
What employee has: Relocation bonus Taxes Housing Goods and services Reserve Employee needs additional money to keep the employee whole ($1,500, $1,000, $700.00)
Long term/short term orientation
When a culture focuses on long term benefit or short term outcomes
Individualism/Collectivism
When people act as an individual rather than as members of a group
Ownership and Financial Markets
Who possesses ownership of companies and sources of business financing varies among countries
The Home balance sheet approach
Whole idea is to keep the employee whole, and be comparable in where they're going
Typical Salary Arrangements
Workers in first 2 categories often earn less than workers in traditional arrangements Independent contractors often have a higher pay rate
