PHR Unit 4 - Compensation

Creating a Skill-Based Pay Program:

1. The first step in creating a skill-based pay program is to identify the skills that deserve premium pay. 2. The organization then needs to develop assessment procedures to measure each of the skill levels. 3. Finally, training opportunities that focus on relevant job requirements and company objectives need to be provided to facilitate the learning process

Merit-Increase Guidelines: compa-ratio approach

Compa-ratio approach of calculating merit increase percentages adjusts the recommended pay increases for each person according to where that person is within the pay range. People at the top of their pay range receive smaller percentage increases than people at the bottom.

Assessment of Compensation Methods & Processes: Compensation impact analysis

Compare outcomes against the following six criteria to determine if the strategic objectives are being achieved. Data on this information is typically found through HR metrics or through surveys. 1. Legal 2. Adequate 3. Motivating 4. Equitable 5. Secure 6. Cost-benefit effective

Compensatory Time

Some employers give employees comp time off rather than paying cash for overtime hours. Comp time is permissible in the public sector but is not permissible in the private sector.

Wage Curve Based on 15 Key Jobs

The total points for each job are calculated by summing the points assigned for each factor. Once the total points and the average pay of the key jobs have been determined, the data can be plotted on a graph.

Unions and Pay for Performance:

Unions typically do not like pay for performance models, instead they prefer pay for seniority. Supreme Court Case Scofield et al v. National Labor Relations board illustrates this. Three highly productive workers were paid a piece rate. The Supreme court upheld the unions right to fine members who exceeded the piece work norm.

Merit-Increase Guidelines: Fixed Increase or Discretionary Increase

Merit pay consists of periodically evaluating the performance of all employees and giving commensurate pay increases.

SOX: Stock Options

-Requires that stock option grants be reported to regulators within 2 days of the date they are granted. -Requires employers to provide a 30 days notice of any blackout period when employees would be prevented from selling their stock.

Compensation of US CEO v manufacturing emplyeer

319:1

Justification for such large pay differentials in Executive Pay

Based upon the idea of Just Noticeable Difference which suggests that at higher income levels, a major larger value is required to make a difference

What are the implications of reporting executive stock options as an expense?

Beginning in 2006, the Financial Accounting Standards Board (FASB 123R) requires companies to report the fair value of their stock options as an expense on their financial statements. This expense is recognized as a noncash charge to earnings on the company's income statement. To determine the fair market value of stock options, companies are required to factor in specific variables, such as current stock price, expected volatility, expected dividends, expected term of the grant, and the risk-free rate of return at the time of the grant and exercise price.

Portal To Portal Act

Helped to define the rules behind when an employee is considered to be working

Strategic Alignment of Base Pay & Incentive Pay

In designing a compensation system, companies need to make a strategic decision regarding the best balance between base pay and incentive pay. The fine tuning process consists of adjusting base pay, individual incentives, group incentives, & profit sharing to provide:

Oppurtunty Wage

New employees under the age of 20 can be paid an opportunity wage of 4.25 per hour for the first 90 days of employment

What would be the consequences of a wage-level decision that pays wages that are significantly higher than the market rate?

Organizations able to pay high wages generally find it easy to recruit new employees and are able to demand a higher level of performance and competence from their new recruits. This strategy may result in higher levels of productivity and lower turnover. However, the organization may discover that it is paying more than it can afford, and in spite of higher productivity, the company may still go broke.

Wage Survey Methods

Personal Interviews- most costly but moist accurate method since trained person can probe and analyze answers Mailed questionnaires- cheap but not adaptable and hard to make valid comparisons Telephone inquires- typically used as a follow up to other methods

What factors should be considered in balancing base pay and incentive pay?

Security Equity Motivation

Factor Comparison Method and steps:

Similar to the point method but slightly more complex. As a result, it is not as popular. 1. Identify key (benchmark) jobs 2. Identify job factors 3. Rank jobs 4. Assign monetary amounts to each job on each factor 5. Compare unique jobs with key jobs

Job Pricing

The process of placing a dollar value on the worth of a job is referred to as job pricing. In pricing a job, most organizations assign a pay range rather than a specific fixed amount to allow for individual differences in performance. Similar jobs are grouped together into pay grades. Developing the pay ranges is part of the individual wage decision.

Ranking Method

The simplest method of developing a wage structure is to have the job-evaluation committee rank the jobs from highest to lowest in value.

Labor Markets

Three labor markets: -Blue collar & non-supervisory white collar workers -Professional employees -Supervisors & Executives

Wage Decisions

Wage-level decision Wage-structure decision Individual wage decision The development of a sound wage and salary system requires three basic decisions. Each decision answers a critical question regarding an organization's compensation program.

Gainsharing

a company-wide incentive program similar to profit-sharing, but the bonuses are based on improved productivity rather than a percent of the profit.

Variable pay as a percent of payroll

about 10% and has been increasing over the past two decades

Exchange rates

compensation specialists need to focus on the unofficial or real exchange rates because the official rates put out by the country could be artificially inflated.

Total Compensation/Rewards

consists of: base pay, incentives and benefits

Piece Rate Incentive Plans are ideal when?

employees work independently and their production can be easily measured.

Broadbanding

reduces the number of job classifications but increases the pay range. The advantage of broadbanding is that it allows for more jobs to fall in the same pay classification, which facilitates job rotation in work teams.

Piece Rate Incentives on Performance

research has shown that piece rate incentives have a greater influence on performance than any other variable. Increased productivity has been attributed to three factors: 1. motivational impact of financial incentives 2. changes in the design of the work 3. higher performance goals and performance feedback.

Purpose of carefully developed merit guidelines

to prevent having outstanding employees reach the tops of their labor grade too soon.

Goal Setting Theory

Evidence shows that goal setting has a very powerful effect on performance. Process of establishing goals typically occurs in one of three ways. Participative Goals: allows employees to join in the goal setting process Assigned Goals: Determined by management and assigned Do you est goals: allow employees to control their own goals, management asks employees to do their best without getting to involved.

Highly Compensated Employees & Business Owners

Highly Compensated are exempt from FLSA if: Perform office or non-manual work Earn $100,000 or more Paid on a salary or fee basis Customarily/regularly performs at least one of the duties of an exempt executive, administrative or professional employee Business owner are exempt from FLSA if: Employee owns 20% equity in business in which they are employed and are actively engaged in its management

Equity Theory

Cognitive theory of human behavior that has been used to explain motivation problems and levels of job satisfaction. Comes from the field of sociology and is based upon social comparison studies that examine the perceptions of individuals and whether they feel they are being treated fairly in comparison to others.

Exempt Employees

Major categories of employees who may be exempt from both minimum wage and OT pay are: Executive employees Administrative employees Professional employees Computer employees Outside salespersons

Wage Surveys

Major tool for making wage-level decisions Collect info on compensation, by job, from other organizations Typically include specific geographic areas, industries and organization size

Purpose of Establishing the Wage Level

The wage-level decision concerns the issue of pay adequacy: how much does one company pay relative to other companies with similar jobs? A sound wage-level policy is expected to achieve three objectives. -To attract an adequate supply of labor. -To keep present employees reasonably satisfied with their compensation. -To avoid costly turnover. Companies can choose to match the market, lag or lead. Across the board wage increases likely do not increase productivity.

Point Assignments for Four Compensable Factors

The weights assigned to the factors will reflect the values of management and society. The most heavily weighted factors tend to be responsibility, knowledge, education, experience, complexity of duties, and supervisory responsibilities.

Compensation Maxim

ethical principle: employees should be compensated primarily according to the requirements of the job, how well they perform and secondarily the labor market (supply and demand) and the organizations ability to pay.

Methods of Job Evaluation:

- Job ranking - Classification - Point method - Factor comparison Ranking and classification are considered non-quantitative methods because they do not produce a precise numerical score for each of the jobs being evaluated. The factor comparison and point methods are quantitative methods that evaluate the content of jobs on a factor-by-factor basis and produce a precise numerical score for each job.

Expectancy Theory - Victor Vroom

A cognitive model of motivation based upon the conscience thought processes of individuals as they evaluate the situation, It is also a decision making theory that explains how individuals decide what to do by evaluating the outcomes and probabilities associated with them. Explains the relationship between: Effort Performance Rewards Determinants of Effort: The basic idea of expectancy theory is that motivation is determined by the outcomes people expect to occur as a result of their actions. **SEE DIAGRAM The amount of effort and individual is willing to exert depends on: 1. the perceived relationship effort and performance (expectancy) 2. The perceived relationship between performance an outcomes (instrumentality) 3. The value of the outcomes (valence) Basic idea is that people are motivated to expert effort if by doing so they can perform well and attain desired outcomes. It is important to remember, that expectency theory is based upon an individuals perceptions.

Walsh-Healey Act (Public Contracts Act)

Extended the Davis-Bacon Act to non-construction federal contractors Sets basic labor standards and minimum-wage rates for all work done under a federal contract exceeding $10,000. The minimum-wage standards are established by the secretary of labor rather than local prevailing rates. The act requires that overtime be paid at the rate of one-and-one-half times the base rate for work exceeding 40 hours per week.

Copeland Act & Anti-Kickback Law What are the provisions of the Copeland Act and the Anti-Kickback Law?

The Copeland Act was passed during the Great Depression to prohibit the unfair treatment of employees who needed jobs so desperately that employers could take advantage of them. The Anti-Kickback Law was passed as an amendment to the Copeland Act. The Copeland Act authorizes the secretary of labor to make reasonable regulations concerning the deductions that a federal contractor can make from employees' wages. Contractors have to demonstrate that their payroll deductions are proper, and they have to file weekly statements showing the wages actually paid and the deductions made. The Anti-Kickback Law was passed in 1948 as an amendment to the Copeland Act, making it illegal for a federal contractor to threaten or otherwise induce employees to give part of their rightful compensation to the contractor.

Job Evaluation

The systematic approach of determining the relative worth or value of each job in an organization. The purpose of job evaluation is to eliminate internal inequities and create a wage structure that identifies appropriate pay ranges for different jobs. It creates an internal job-worth hierarchy. The relative worth of each job is established by identifying factors that define "worth" and by comparing the requirements of each job with these factors. (aka 'compensable factors'.) Jobs can be evaluated by a committee, by HR, in conjunction with a consultant, or some combination. (These materials consider this internal job evaluation; market pricing is also a form of job evaluation - external evaluation.)

Pay Grades Constructed Along the Wage Curve

When a wage structure is developed, jobs are grouped into pay grades according to the points associated with them, and a range of pay is assigned to each pay grade.

Research on the effects of Goals: Four major goal setting attributes:

1. Goal Specificity 2. goal difficulty 3. goal acceptance 4. goal commitment Goals are best achieved when they are specific and defined, difficult but not unreasonable, when workers feel a sense of ownership in their goals and when workers are dedicated to achieving these goals. Goal setting is particularly effective when it is combined with feedback and incentives

Economic Factors Affect Compensation

1. Inflation: depending on the inflation, compensation systems need to be revised annually, quarterly, monthly, or even weekly. 2. Interest rates: High interest rates tend to reduce employment because of low economic activity. 3. Industry competition: as competition increases, organizations offer fewer rewards. 4. Foreign competition 5. Economic growth: Compensation is tied to productivity. Real increases in wages are tied to productivity as opposed to inflation. 6. Demographic trends: excess supply tends to depress wages, and a shortage tends to increase wages

What are compa-ratios and how can they be used?

A compa-ratio is a number that is calculated by dividing a person's wage rate by the midpoint of the pay range for that grade and multiplying it by 100. This number provides a standardized index for assessing how much people should be paid relative to the job they hold. People should have higher compa-ratios if they are higher performers or if they have more seniority. Comparisons between the compa-ratios of men versus women can test for evidence of gender discrimination. The compa-rations should be about the same unless one group has substantially more seniority or higher performance. Likewise, the average compa-ratio of one race should not be substantially different than the average compa-ratios of other races unless there are differences in seniority or performance.

Fair Labor Standards Act (Wage & Hour Law)

This is the most important law regulating compensation practices. The Fair Labor Standards Act of 1938 is commonly referred to as the Wage and Hour Law or FLSA. It sets minimum wage standards, overtime pay standards, child labor restrictions, and related recordkeeping requirements. FLSA is administered by the Wage and Hour Division of the U. S. Department of Labor.

Executive Exemption

To qualify for the Executive Exemption, ALL of the following must be met: Compensation on a salary basis at a rate not less than $455/wk Primary duty is managing the enterprise or a recognized department or sub-division of the enterprise Must direct the work of 2+ FT employees or equivalent Authority to hire and fire

Pay secrecy v openness

one survey indicates that employee engagement is 40% higher when people know how their pay is determined, the know how to maximize their pay and they believe it is related to their performance. Whether pay should be open or secret depends on three factors -privacy- private system is best -satisfaction- varies from company to company -productivity- open system is best

Classification Method: Advantages and disadvantages

Advan: Standardizes wages for similar job and maintains pay differentials between jobs within an extremely large organization. Disadvan: It stability makes it unresponsive to such factors as regional wage differences and labor market variances.

What are the advantages and disadvantages of the ranking method?

Advantages of job-ranking method: **It is the simplest of all the evaluation methods and it requires little time or paperwork. Disadvantages of job-ranking method: **The differentials between the ranks are assumed to be equal when they usually are not. (usually very little difference in jobs in the middle of the ranking, but big difference exist between jobs at the top). **Evaluating each job as a whole is not conducive to a careful analysis and cannot provide an accurate measurement of worth. **Difficult to use in organizations with large numbers of jobs.

Exempt Employees: Salary

Exempt employee receives a predetermined amount of compensation each pay period Must be paid full salary for any week in which the employee performs any work regardless of the number of days/hours actually worked Predetermined amount cannot be reduced due to variations in quality or quantity of work Deductions are permitted if for: FMLA, military leave, personal days, PTO deductions, jury duty, safety rule infractions, disciplinary actions, initial or last work week Exempt employees cannot be treated as hourly employees without losing their exempt status May give exempt employees extra compensation (bonus), even on an hourly basis, without jeopardizing the salary status

FLSA Exemptions

FLSA provides for certain employees, called exempt employees, to be excluded from both its overtime and minimum wage requirements. They must meet certain salary and job duties tests. Nonexempt employees are those who are covered by the minimum wage and overtime pay provisions of the FLSA. Nonexempt workers are generally those who are paid on an hourly basis, such as blue collar workers, maintenance workers, construction workers, technicians, laborers, and semiskilled workers. NOTE: The job duties, not the method of pay, determine whether a job is exempt or nonexempt

FLSA Child Labor Restrictions

FLSA was the first federal law restricting child labor that was not ruled unconstitutional. **18 years of age and older: may perform any job, whether hazardous or not, for unlimited hours. **16-18 years old: may perform any nonhazardous job for unlimited hours, not allowed to work in hazardous occupations. **14-15 years old: may work outside school hours in various nonmanufacturing, nonmining, nonhazardous jobs for no more than three hours on a school day, eight hours on a nonschool day, or 40 hours in a nonschool week. Work may not begin before 7 am nor end after 7 pm, except from June 1 though Labor Day, when evening hours are extended to 9 pm. **12-13 years old: may work on farm jobs outside of school hours in nonhazardous jobs. **Under age 12: may perform nonhazardous jobs on farms with parent's written consent outside school hours. **Youth of any age may be employed by their parents at any time and in any job on a farm owned or operated by their parents.

Davis-Bacon Act (Prevailing Wage Law)

First federal law that tried to protect the amount of pay received by employees. Requires organizations holding federal contracts to pay laborers and mechanics the prevailing wages of the locality in which the work is performed. Overtime must be paid at one-and-one half times the local rate. This act covers work on the construction or repair of federal buildings for which the contract involves more than $2000.

Wage Surveys What four conditions must be met for do-it-yourself wage surveys to be useful?

For these do-it-yourself wage surveys to be useful, four conditions must be met: 1. Reciprocity: Organizations conducting surveys must be willing to share their wage information in exchange for the information they collect from others. 2. Anonymity: The information should be reported in a way that does not identify the wages of individual organizations. 3. Low cost: The method used to collect and analyze the data must be efficient and inexpensive. 4. Timeliness: The information must be current, especially in times of high inflation.

What conditions make a group incentive system superior to an individual incentive system

Group incentive systems are preferred when individuals are required to work together, when group productivity can be determined more easily than individual productivity, when a high level of cooperation is required, when the groups are cohesive and when the groups are small. Advantages: -creates greater cooperation -reduces the need for direct supervision -individuals are more likely to adapt to problems and solve them themselves

As a result of the complexity of calculating and reporting the fair market value of stock options, many companies have:

Moved away from stock options to Restricted stock grants. Unlike SO's that must now be expensed over the vesting period based in their estimated fair market value, restricted shared have an absolute value when they are granted that is more easily accounted for over the life of the vesting period. Restricted Stock Grants come in two forms: 1. time based shares: executive must remain with company for a specified period of time, usually three years. 2. performance based shares: executive must remain with company for a specified period of time and must reach certain performance targets.

Classification/Grading Method

Originally developed by the US government as a result of the 1923 Federal Classification Act 1. Process specifies a number of job grades beforehand and broad job descriptions are written of the type of jobs to be placed in each grade 2. Next each job is evaluated by comparing its description with the descriptions for the grades and it is then placed into the appropriate grades 3. The job grades range from high to low and each grade has a verbal description with examples of the kinds of jobs that fit into it. This method can be hard to develop since extensive knowledge required about the dimensions of the job and the relative worth of the dimensions

Profit Sharing, Gainsharing, Stock Ownership Plans

Pay based on the performance of the entire organization. In addition to paying people according to their individual or group performance, pay also can be based on the performance of the entire organization. The most common company wide incentive systems include profit sharing plans, gainsharing plans, and stock ownership plans.

Incentive Compensation

Plays a strategic role in increasing organizational effectiveness One of the most popular recommendations of rejuvenating productivity is to offer financial incentives that are directly tied to productivity, know as pay-for-performance plans. Most pay-for-performance plans are either individual, group, or company-wide incentive plans or some combination of all three.

Equal Pay Act, 1963

The Equal Pay Act prohibits employers from paying members of one sex less than members of the opposite sex for performing equal work. Jobs are considered equal if they require equal skill, effort, and responsibility and if they are performed under similar working conditions. "Equal pay," however, does not mean the same as "comparable worth." Although two jobs may require similar levels of skill, effort, and responsibility, and have comparable worth to the organization, they do not have to be paid equally if they are different jobs or in different job categories.

Permissible Wage Differences

The Equal Pay Act provides four exceptions to the employer's obligations to pay male and female employees the same wages:​ ​A bona fide seniority system A merit pay system​ Quantity or quality of production​ Any factor other than gender, such as differentials between regular and temporary employees or geographic differences. The equal pay act prohibits employers from reducing wages from either sex to comply with the law.

FLSA Required Record Keeping

The FLSA requires employers to keep records of wages, hours, and other related items. The records do not have to be kept in any particular form and time clocks need not be used. Personal information.​ Hour and day when workweek begins.​ Total hours worked each workday and each workweek.​ Total daily or weekly straight-time earnings.​ Regular hourly pay rate for any week when overtime is worked.​ Total overtime pay for the workweek.​ Deductions from or additions to wages.​ Total wages paid each pay period.​ Date of payment and pay period covered

Individual Company Wage Surveys: Avoiding Collusion/ price fixing

US DOJ has published the following Anti Trust Safety Zone Guidelines on how employers can exchange salary data: 1. compensation surveys must be managed by a third party. HR professionals cannot conduct formal or informal salary surveys on their own 2. Data must be more than three months old. 3. All data must be derived from at least three entities

Major Factors Influencing Pay (four main categories)

external factors, job factors organizational factors, and individual factors. Changes in the labor supply and demand and unemployment are the MOST important external factors in influencing pay. An organizational variable that is often overlooked is contributions to the company. The number of job factors that determine pay is almost limitless Skill factors include both mental and physical skills

2006 SEC issued new rules that?

forced executive compensation disclosure in an attempt to create greater openness and stop some of the outlandish pay practices that shocked investors. The rule requires corporate proxy statements to provide information regarding the total compensation and the value of various benefits for the following executives: 1. The principle executive officer 2. the principle financial officer 3. the three other highest paid executives 4. the directors The primary disclosure item is the summary compensation table which displays in one location the total rewards for the top executives.

Classification Method: GS System

originally developed by the federal government and is the most commonly known. contains 15 grades, GS1-15 plus 5 executive level grades. Each grades has 10 steps providing for pay increases within each grade plus a locality/pay adjustment . Many state and local governments use this method.

Participation in bonus plans is typically based upon.

**salary level, salary grade, or organizational level. The issue with this is that bonuses should be based upon individual performance and at higher levels, bonuses lose their incentive properties

Dodd Frank Consumer Protection Act 2010: Executive Compensation

- Executives must return ill gotten bonuses. This so called clawback clause applies to all of the executive officers. Companies are allowed to recover incentive based pay distributing during the the years prior to any financial restatements if the bonus would not have been paid under restated financials. -to slow outrageous executive growth pay, Dodd Frank requires companies to submit their executive compensation plans to non binding share holder votes at least once every three years - also pressures board of directors to act more responsibly by making it easier for shareholders to nominate new members.

Pay Adjustments for Economic decline

- Pay Cuts- least ideal but a viable option - Two tier wage system ** first created in the 1980s. Certain new hires receive substantially lower wage than established employees. The main purpose was to make companies more competitive by reducing labor costs. This worked, however, it creates feelings of inequity for both new employees and current employees.

Types of Wage Surveys

-Surveys conducted by government agencies- ***The BLS conducts most extensive survey. Every third year BLS also publishes data on selected company practices such as vacation, holidays and, employee benefits. -private industry ****** Common ones are: American Management Association, Administrative Management society, SHRM, and others. Wage surveys are also reports by various journals such as Forbes or Business Week. Finally, wage surveys can also be collected from prominent wage survey companies such as: Aon Hewitt, Culpepper, Haygroup, Towers Watson ,etc. -Company Sponsored Surveys/individual companies *** Most frequently used type of survey

In fine tuning a compensation system, several issues need to be considered

1. The ability to measure individual performance 2. The extent to which workers can controls the rate of production 3. The degree of interdependence and cooperation required 4. The size of the work group and the organization 5. The organizations ability to produce a profit and obtain accurate and timely measures of performance

Exempt Employees: Pay deductions

If a company makes deductions from an employees predetermined pay, that employee is not paid on a salary. The predetermined amoint cannot be reduced because of variations in an employee quality or quantity of work. Exempt employees do not need to be paid for time they choose not to work (i.e vacation, time off, sickness). But if they choose to work and their is no work for them to perform, they must be paid. An employer may give exempt employees compensation over and above their salary even if it is paid hourly without jeopardizing the employees exempt status.

Efforts to Reduce Inequity

Inequity can exist when people are either overpaid or underpaid. Both conditions of inequity motivate individuals to establish a more equitable exchange Comparison Processes: Individuals evaluate their inputs to the job relative the outputs they receive. However, this evaluation is based upon a relative comparison rather than a comparison against a fixed standard. Employees compare what they received for their inputs compared to what they believe others do for theirs. Consequences of Inequity: *When equity exists, people are satisfied. *When a perceived condition of over reward exists, people feel guilty. *When a perceived condition of under reward exists, employees feel angry and dissatisfied.

Two Pay Ranges

Most pay grades have pay ranges that are ten to 20 percent above and below the midpoint of each grade, called the range spread.

Money & Motivation Theories

Need Theory Self-determination Theory Expectancy Theory Equity Theory Goal Setting Theory

Skill x Performance Pay Matrix Hourly Rates of Pay

Skilled based pay and pay for knowledge programs can also be tied to performance.

Point Method

The compensable factors of key jobs are used to develop the wage curve. Points are assigned to each factor, and the total points are associated with a specific pay level. The point method is the most frequently used job evaluation method because it is not very difficult to administer after it has been established and the decisions are defensible.

Individual Pay Rate Determination

The relative pay of individuals who perform similar jobs in the same company. The individual wage decision influences feelings of job satisfaction and pay equity. Performance: Performance differences are clearly the most reasonable and well-accepted justification for paying differential amounts. Experience: A common justification for giving some employees more money is that they have more experience. Experience is often tied to performance. Seniority: Pay differentials based on seniority or length of service are found in many compensation systems. Often defended as legitimate even when no relationship exist between seniority and performance, Potential: Occasionally, organizations pay higher than average wages to individuals who demonstrate outstanding potential.

US inflation rate over the past several years

ranged from 3-8%

Pay Decisions Pay decisions are controlled by two basic processes.

1. The design of the wage structure 2. The formal budgeting process

Employee Stock Ownership Plans

An ESOP is formed by creating a trust, into which a company makes tax deductible contributions of cash or stock. The proceeds are used to buy shares of the company's stock which are allocated to individual employee accounts. Employees who have an ownership interest in a firm are expected to be more concerned about the efficiency and profitability of the firm than employees who do not share in the ownership. However this logic is not very sound. Primary Benefit is that it helps employees prepare for the future by developing a personal investment program. The primary disadvantage is that the employees pension is too closely tied to the success of the company.

The Standard Hour Plan

Another form of piece rate incentive. Sometimes called the 100 percent premium plan. Workers are paid an hourly wage, but the hour is measured in units produced rather than in minutes. If workers perform the standard amount each hour, they receive the hourly wage, but if they produce above standard, they receive proportionately more money.

Other Employees

Blue collar workers (manual laborers) FLSA exemption doesn't apply to them They must be paid OT and at least minimum wage Minimum standards FLSA provides minimum standards that may be exceeded, but not waived or reduced by union agreements Non-Employees FLSA doesn't apply to contractors FLSA doesn't apply to trainees and volunteers

Budgeting

Budgeting helps to ensure that future financial expenditures are coordinated & controlled The formal budgeting process is a vital part of the pay system. Budgeting helps to ensure that future financial expenditures are coordinated and controlled. Two basic approaches to generating compensation budgets are: Bottom-up approach-Requires supervisors to forecast the pay increases they will recommend for each of their subordinates during the coming plan year. Top-down approach-Estimating the pay increase budget for an entire organization and then allocating an amount to each manager or supervisor.

David McClellands Learned Needs Theory

Examined the needs for achievement, affiliation and power, and described how they were acquired, their behavioral characteristics, and their effects on society. -Found that needs for achievement was important for economic activity and entrepreneurial success. He concluded that the need for achievement is apparently learned at an early age. -He argued that economic development and national prosperity were closely related to the needs for achievement and recommended management development programs and foreign aid programs that focused on achievement rather than on providing training or financial aid.

Skill & Knowledge Based Pay

Reward employees for their ability to perform an array of related tasks or skills rather than for the actual work performed. Skilled based pay and pay for knowledge programs must be designed to fit the requirements of the job and the company's overall compensation program. Different models have been used in the design of these programs: **stair-step model- employees complete each step in sequential order and receive more compensation **building blocks model- various skills can be obtained in any order. **job-point accrual model- skills can be obtained in any order, but points are assigned to certain skills to encourage the development of those skills.

Adjustments for Inflation What are the consequences of adjusting the wage curve?

Some administrative problems may arise when the wage structure has to be adjusted due to inflation or internal changes within the organization, such as job redesign. Two methods are used to adjust the wage curve: **fixed-rate- increase (so many cents per hour). Typically tied to CPI. Labor agreements that contain a cost of living adjustment (COLA) typically provide a fixed rate increases triggered by changes in the CPI. **percentage increase (rate is increased by a specific percent)

Administrative Exemption

To qualify for the Administrative Exemption, ALL of the following must be met: Compensation on a salary or fee basis not less than $455/wk Primary duty is the performance of office or non-manual work directly related to management of the employer Primary duty includes exercise of discretion and independent judgment in significant matters

How does an increase or decrease in unemployment rates influence a company's compensation system?

When unemployment levels rise, jobs become more scarce and potential employees are more willing to accept whatever jobs they can find. Consequently, high unemployment levels allow companies to offer lower levels of compensation and fewer employee benefits. The opposite occurs when unemployment levels decline and companies begin to compete with each other for potential applicants.

The Halsey Premium Plan

Workers receive a guaranteed hourly wage plus a percentage (33 percent was recommended) of the wage for any time saved. The actual production standards are determined by past performance rather than by time-and-motion studies. Example: If a worker is paid $12.00 per hour and the task usually requires eight hours, the worker receives an additional $4.00 per hour for each hour saved under eight hours. A worker who completes an eight-hour task in seven hours receives a $4.00 premium.

Professional Exemption

Can be either a "learned professional" or a "creative professional" "Learned Professional" Compensation on a salary basis not less than $455/wk Primary duty work requiring advanced knowledge which requires consistent exercise of discretion and judgment Advanced knowledge in a field of science/learning Acquired by a prolonged course of instruction "Creative Professional" Compensation on a salary basis not less than $455/wk Primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor

Exempt Employees: Fee Basis

Employee is paid an agreed upon sum for a single job, regardless of the time needed to complete Unique job rather than series of same jobs To determine if it meets the minimum salary requirement, consider time worked and if payment was at least $455/wk if employee worked 40 hours

Guide Chart-Profile Method (Hay Method)

The Hay Guide Chart-Profile Method is a job evaluation system that is basically a factor comparison system, although it is also very similar to the point method since it uses points. This method uses three compensable factors: Know-how Problem solving Accountability Each compensable factor has different degree levels and points are assigned to these levels. After the points for each job have been determined, assigned to a labor grade with a corresponding pay range. Since the compensable factors are so broad and general, this method can easily be used across many industries.

Wage-Structure Decision

The Wage Structure decision is the amount paid to one job within the organization relative to other jobs within the organization. It is often referred to as internal equity, or placement of jobs in grades. The major objective of the wage-structure decision is to provide equal pay for jobs of equal worth and an acceptable set of pay differentials for jobs of unequal worth. This is based on the job, not the person in the job or how well they perform. The wage structure must allow for individual variances based on performance, experience, and seniority.

Executive Compensation

The compensation of executives is much larger than that of other employees. It also tends to be determined by a different set of factors and includes both monetary and non-monetary rewards. Sales are clearly the best predictor of a CEO's salary Evidence suggests that CEO salaries are closely tied to revenue but not profitability. Other studies have shown that corporate performance is not related to either salaries or salaries plus bonuses.

Localizing

The process of converting an expats international remuneration package to one that is essentially identical to normal full time employees at that location.

What conditions are necessary for these individual incentive plans to operate effectively: piecework, merit pay increase, commission sales, and the standard hour plan?

**For piecework and the standard hour plans to be effective, individuals must be able to control their own rates of performance, their jobs must be independent, and their productivity must be measurable. **Commission sales largely require the same conditions: the sales representatives must be able to work independently and to identify specifically which sales they were responsible for without creating a lot of disagreement about who gets credit for which sales. **Merit pay increases are typically used to reward individual effort when the performance of individuals cannot be measured precisely, but a supervisor is able to subjectively evaluate the performance of individuals and decide which ones are better performers. For merit pay systems to function effectively, supervisors need to observe and evaluate performance accurately and the company needs to offer reasonable pay increases to warrant the effort.

Major Types of Gainsharing Plans

**Scanlon Plan (Joseph Scanlon): Combination of gain-sharing plan and employee suggestion system. Increases efficiency and productivity, it is also advocated as a means of reducing union management conflict. Most companies have 20-25% increase in productivity after plan is implemented. Probably work best in small companies. **Rucker Plans (Allen Rucker): Similar to a Scanlon plan but is based upon a more sophisticated analysis of of value added in the production process. As productivity increases, compensation increases and is shared between labor and management. **Improshare: Similar to other two plans, but improshare plans are tied directly to measures of productivity rather than the dollar value of the product. Improvements in productivity are shared with employees. This plan has the advantage of being able to be used in a variety of situations where a physical product is not produced.

Differential Pay

**overtime **shift pay **hazard pay **on-call pay- employees who are on-call must receive their regular pay if they are restricted from moving about and not free to plan their own activities. **call-back pay **geographic differentials **weekend and holiday pay In addition to their base pay, employees often receive additional compensation for factors that make work more difficult or unpleasant. The wage differentials are considered an important and essential part of making compensation fair.

Key International Comp Concepts

-International compensation systems are more similar than they are different -Wage levels and benefits differ dramatically between companies, but individual wage decisions are almost universally determined by performance and seniority. -Importance of seniority is much higher in Asian countries. -Many Asian countries have significant difference in wages between men and women and those who are employed at small companies. Reducing this is not much a of a priority for these countries. -Compensation for European CEO's has increased dramatically. -In Asian countries individual incentives are rare due to the on collective accomplishments -It is very common in China to give year end bonuses based upon company performance. -In China all employees are covered by written employment contracts and employers are obligated to participate in China's social insurance scheme. -Employee benefits vary dramatically from country to country and even within a country. - Benefits and perks are a much larger part of the comp package in Europe than the US. -employee stock ownership is not as common outside the US but is increasing. - In China the average factory worker only make 3-5% of us factory worker.

Merit Pay

-The most popular pay for performance method -Can be treated as an addition to base pay or a one time individual bonus that do not change base pay. The most important requirement for an effective program is measuring performance against clearly defined objectives.

Compensation laws and regulations have primarily focuses on five aspects of comensation

-retirement income -minimum wage standards -equity -pay deductions -benefit continuation

Developing Point Method Steps

1. Identify key jobs. **12-20 2. Identify job factors used to determine pay levels. **These Factors are called compensate factors because their activity relates to a certain amount of pay. Many point systems have 10 or more factors, but studies show that responsibility, experience, skill requirement (education/training) are the most correlated with the overall results of an evaluation. 3. Weight the factors according to their contribution to the overall worth of the job. **Most heavily weighted factors tend to be responsibility, knowledge, education, experience, complexity of duties, and supervisory responsibility. 4. Divide each job into degrees that range from high to low and assign points to each degree. ** The number of points assigned to each should correspond with the weighting of the factor. 5 Reach a consensus about degree assignments. 6. Develop a wage curve using key jobs. **Generally a straight line. The average pay for the jobs can be obtained from payroll records, however, it is usually compared with wage survey data to confirm its equity. ***After the wage curve has been drawn, the total points are usually divided into labor grades and a range of pay is assigned to each. Most points systems typically have 15-20 labor grades. ****Once the wage structure has been established using the key jobs, the appropriate level of pay can be determined for other jobs. This also allows unique jobs to be evaluated objectively.

Needs And Motivation Theories: Financial Incentives

1. Maslow's Hierarchy of needs- money is not an effective motivator 2. McClelland's Needs Theory: Money is not very strong motivator 3. Herbergs Hygiene Motivator Theory: Because pay is a hygiene factor it is best to set it an forget about it, it only serves to distract employees and keep their minds focused on money 4. Equity Theory: An individual judges his or her own employment exchange and then compares it to the exchanges that others obtain. 5. Reinforcement Theory: Behavior is influenced by it consequences. If an employees i offered money, they will perform the task as long as the reward is great enough. Predicts that performance will improve as financial incentive become larger, when rewards are directly tied to performance and when rewards are given directly after the task is completed. Partial reinforcement schedules produce better results than continuous schedules. 6. Expectancy theory: Money is a powerful motivator if the proper relationship between performance, effort, and rewards are perceived. THIS IS THE MOST USEFUL THEORY FOR PREDICTING THE EFFECTS OF INCENTIVE PAY ON PERFORMANCE.

Demographic Trends The labor market is primarily influenced by five demographic forces:

1. birthrates: Likely to see labor shortages in the future based upon current trends 2. participation rates: over the past 50 years have had a greater impact on the size of the labor market than changes in birthrates 3. immigration: more immigrants brings more people into the labor pool and thus suppresses wages. 4. education: employment levels reveal that people with more education tend to have higher labor force participation rates, lower unemployment levels, and higher earnings. **College Grads: 88% participation 2.7% unemployment **High School Dropouts: 65% participation 12% unemployment College grads earn twice as much as HS dropouts and grad degrees 3x. 5. unemployment: creates a labor surplus and thus jobs become lower paid and easier to fill.

What are the advantages and disadvantages of "cash" profit-sharing plans and "deferred" profit-sharing plans

A major advantage of a "cash" profit-sharing plan is that it provides greater motivation because employees immediately see that their efforts have created greater compensation. Most popular with small companies A "deferred" profit-sharing plan has the advantage of not being taxed immediately, which means that a larger amount of money is invested and will be taxed at a later time when the money is withdrawn. Furthermore, a deferred profit-sharing plan has the advantage of helping employees develop retirement programs. More popular with large companies.

Self Determination Theory

A motivation theory that examines the effects of extrinsic rewards on intrinsic satisfaction. Research has shown that the controlling nature of extrinsic rewards can destroy intrinsic satisfaction. The idea is that when people are paid to do something they feel a loss of personal control. This theory does not argue that incentive pay will not work, just that they will work for all of the wrong reasons. In the work setting, managers should not worry bout destroying intrinsic satisfaction by giving employees extrinsic reward because people expect to be paid and they appreciate feedback.

Stock Options

A stock option is the right to buy a company's stock at a certain price over a certain period of time, usually ten years. Option typically do not vest until 10 years after they are granted. During periods of rising stock prices some executives can double their income with stock options. They are viewed as and inexpensive benefit because they don't cost the business cash or cause an change to earnings.

Expatriate Pay and Allowances When managers of multinational companies are assigned to work abroad, they normally draw additional compensation in the form of special expatriate allowances. What are these special allowances?

A typical compensation package includes base salary, premiums for foreign service and hardship, and allowances for cost of living, housing, storage, and taxes. Most companies pay at least an extra $10,000 a year for accepting the foreign post, plus another $10,000 if the assignment is considered hazardous or a hardship. Because living quarters overseas are often more expensive, most companies pay housing differentials that can range up to $100,000 for a family of four in Tokyo. Other differentials may include more than $20,000 for goods and services, $5,000 or more for a car, $10,000 or more for travel to bring executives and their families back home each year, and several thousand to pay the expatriates increased tax liability.

How much is a the second highest executive paid in comparison to a CEO

About 71% The third highest receives about 55-60&

American Jobs Creation Act 2004

Added section 409a to the IR code. Section 409A applies to all forms of non-qualified deferred compensation and primarily impacts when the decision to defer income must be made and when the distributions from the money can be taken out. Requires all employees who elect to defer comp to have made the decision before the end of the preceding calendar year. Thus decision to defer compensation are made before the money is earned.

What are red circle rates? What alternative methods does a company have for handling red circle rates?

After developing a wage curve using key jobs, it is not unusual to find that some of the remaining jobs are paid significantly more than they should be. Red circle rates refer to jobs that are paid higher than the wage curve indicates the job should be paid. In some organizations, significantly underpaid jobs are also referred to as red circle rates; however, most organizations refer to these underpaid jobs as blue circle or green circle rates. A company has several alternatives for handling overpaid jobs: **First, the wage level could be immediately reduced to bring it back within the appropriate pay range. **Second, Rather than making an immediate cut, a gentler approach is to reduce the pay by small increments over time. **The third approach is to hold the rate constant until inflation and other cost-of-living increases have raised the rest of the wage curve. This approach is the most common and explains where the label "red circle" was derived. **A fourth approach is to redesign the job and, in essence, move the job to a higher labor grade. An organization may use any of these approaches or possibly a combination of them.

Scientific Management: Piece Rate productivity increase %

As a rule of thumb, studies have shown a 25% increase of normal days work.

Major Types of Profit Sharing Plans

Cash Plans- paid at end of a period (year end/ quarter) Differed Plans: Paid at a later date and is tax free until it is withdrawn. Combination of Both plans

Strategic Objectives of Compensation

Compensation has a strong influence on job satisfaction, productivity, labor turnover, and other organizational processes.

What are the implications of the trend toward hiring more contingent workers? How will the growth in the contingent workforce influence compensation and benefits practices?

Contingent workers appear to be less expensive than regular employees. Part-time employees do not receive as much per hour as regular employees, nor do they usually receive benefits. These conditions are often perceived as unfair and there have been calls for improving the pay of contingent workers and including them in a company's benefit plan. These calls have been based on moral considerations of fundamental fairness and legal considerations that have called for legislative protection. While employers have been criticized for not providing benefits for contingent workers, and appeals have been made for Congress to correct this supposed injustice, it should be noted that many contingent workers participate in a benefits plan as a family member. They do not need to be covered by another benefits plan. Furthermore, many contingent workers are quite content to receive lower pay in exchange for the flexibility they enjoy as a part-time worker.

Overtime Calculations with Bonus

EE earns $10/hr for 48-hour week, receives $24 weekly production bonus & gets 8 hours of overtime pay based on rate that includes bonus. EE really earns $10.50/hr ($10/hr base pay plus $24 bonus divided by 48 hours required to earn it or 50¢/hr) & an overtime rate of $15.75. The EE's earnings for that week would be: Regular time 40 x 10.50 = $420.00 Overtime 8 x 15.75 = 126.00 Weekly earnings $546.00

Overtime Provisions

Employees receive one-and-one-half times the regular rate of pay for all hours worked in excess of 40 during a given week. "regular rate of pay" includes all performance related compensation, such as bonuses and commissions​ Hours worked includes all hours the employer "suffered" the employee to work​ If employees receives a straight hourly wage, overtime calculations are quite simple. The calculations are much more complex when overtime involves bonus payments, time off in return for overtime work, and work done on a salary or piece-rate basis. The regular workweek consists of seven consecutive periods of 24-hour days. An employer may choose any day and hour to begin the workweek. Each workweek stands alone for purposes of calculating overtime pay. The regular rate of pay includes the basic hourly rate of pay plus any non-discretionary bonuses, shift differentials, production bonuses, and commissions earned.

Overtime Calculations - Paid on Piece Rate

Hourly rate of pay for those paid on a piece rate basis is calculated by dividing money they earned by number of hours they spent earning it. Example: worker works 50 hrs & produces 100 pieces at rate of $4/piece would have an hourly rate of pay of $8 (100 pieces times $4 per piece equals $400, divided by 50 hrs equals $8/hr). This worker's earnings for that week would be: Regular time 40 hours x $8.00 = $320.00 Overtime 10 hours x $12.00 = 120.00 Weekly earnings $440.00

What methods do individuals use to reduce inequity?

How individuals attempt to reduce inequity: People may alter their inputs. People may alter their outcomes. People may cognitively distort their inputs or outcomes. People may distort the inputs or outcomes of others. People may change objects of comparison. People may leave the field.

Step Increases: Individual Pay Levels

In some organizations, individual pay levels are based upon step increases. These step increases are based upon performance and length of service. Movement through the steps can be automatic-- advancing through 1 step each year or variable-- meaning the supervisory determines the movement.

In developing a wage curve, why is it so important for the key jobs to be equitably paid jobs?

Key jobs are, by definition, jobs that are considered equitably paid. The reason why they must be equitably paid is because they are used as the benchmark jobs for developing the wage curve. The pay rates for all of the remaining jobs in the organization will be determined by the wage curve, developed from these key jobs. If the key jobs are not equitably paid, then the rest of the wage curve will be distorted.

Cost Management To determine a firm's labor costs:

Labor Costs = Employment X (Average Cash Compensation + Average Benefit Cost) Three variables combine to determine a firm's labor costs: 1. The number of employees. 2. The average cash compensation 3. The average benefit cost

Losing exempt status

Making improper deductions to an employees pay is one way to lose exempt status. They can also lose their exempt status in times of furlough if their salaries are reduced proportionally to their hours worked. Intermittent FMLA leave can be deducted from an employees pay and is the ONLY legitimate reason for making less than a full days deduction. Isolated or improper deductions may not result in the loss of exemption status if: 1. employer has clearly communicated the policy prohibiting improper deductions 2. employer reimburses employees for any improper deductions 3. makes a good faith commitment to comply in the future.

Abraham Maslow's Hierarchy of Needs Theory

Most popular needs theory. Maslow believed that everyone possessed a common set of five universal needs that were ordered in hierarchy of importance with lowest level basic needs through the highest order needs called PREPOTENCY. Once lower level needs are satisfied, higher level needs can be satisfied. 1. Psychological Needs: Needs that must be satisfied in order to survive. Ex. food and water. 2. Safety and Security needs: a desire for security stability, protection freedom from fear and anxiety. 3. Social Needs: needs for love, friendship etc. 4. Ego and esteem: the desire for self respect and self esteems and the esteem of others. 5. Self Actualization: The need for self development and the process of becoming all a person can become.

Factors Influencing the Wage Level

Most significant factors influencing wage levels: Organizational Size- large pays more than small (firms with 1k+ pay about 30% more and spend twice as much on benefits) Unionization- unionized company tend to pay more than non-union (50% higher compensation costs for union worker) plus more benefit costs (39% to 29%) Productivity (Ability to Pay)- as productivity and the ability to pay increases, it is reasonable to assume that the wage level will too.

Wage Compression

Occasionally, organizations raise the bottom end of the wage curve faster than the top end because of special situations. Two situations cause wage compression: *Fixed rate increases *decreasing rate increase: typically the result of raises in the minimum wage and collective bargaining pressure to provide higher wages for low level jobs. The problem caused by wage compression is that eventually organizations are unable to promote employees to high level positions because the financial incentives for accepting more responsibility are to small.

What is "restriction of output," and why does it occur?

Restriction of output, sometimes called soldiering, gold bricking, or rate restriction, refers to a situation in which a group establishes an arbitrarily low level of performance as a group norm. Individuals within the group police each other's behavior and provide negative sanctions and peer group pressure on individuals who exceed the group standard. Restriction of output often occurs when a vocal minority of low-performing group members are able to establish a group norm restricting productivity levels. Another reason for restricting output is because work groups fear that if they begin to exceed their standard, management will re-time the job and thereafter require them to work faster to earn the same amount of money. Since group norms of rate restriction were established by the group, changing them usually requires a discussion by the group and a consensus decision. Supervisors can avoid restriction of output by confronting groups with data showing what they have produced in the past, what they could have produced, and what higher performance levels would mean both to the group and to each individual in terms of financial rewards and the success of the organization.

What can be done to avoid restriction of output?

Supervisors can avoid restriction of output by confronting groups with data showing what they have produced in the past, what they could have produced, and what higher performance levels would mean both to the group and to each individual in terms of financial rewards and the success of the organization. FW Taylor suggested having employees work individually, another solution is better selection of employees. Group discussions and team building sessions have also be proposed to change the group norm.

What is the comparable worth controversy? What has been the position of the courts in dealing with this issue?

The comparable worth controversy centers on whether an organization should be required to establish universal criteria for assessing the value or worth of all jobs. Some jobs, particularly those that have traditionally been considered female jobs, are typically paid significantly less than they would receive if common criteria were used to evaluate their worth. This controversy would be eliminated if, for example, a point method of job evaluation were systematically used throughout an organization to determine the pay of every job. Several comparable worth cases have gone before the courts. While the courts have recognized the theory of comparable worth and in some situations required companies (such as Westinghouse) to raise the wage levels of specific jobs predominantly held by females, the courts have not been willing to require employers to unilaterally adopt common criteria for all jobs within a given company. T he courts have been unwilling to get involved in the specific job-by-job compensation decisions within a company and are willing to allow both internal wage structure and external labor market forces to interact in the determination of pay for each job.

What are the major limitations of information gained from wage surveys?

The major limitation in using data gained from a wage survey is that it is difficult to equate job descriptions and employee benefits. Job titles do not adequately control for different job requirements; therefore, it is possible that the market data may seriously misrepresent how much a particular job should be paid. Wage surveys also fail to account for the length of tenure of the employees although they typically report the average length of service along with the average number of hours per week the people worked.

Direct & Indirect Effects of a Minimum Wage Increase When the minimum wage rate is increased, there are direct and indirect effects on the wage structure. What are these effects?

The purpose of minimum wage standards are to ensure a living wage for all laborers and to reduce poverty. The laws are intended to help low-income families, females, and minority workers. Minimum wage rates are highly inflationary. When the minimum wage rate is increased, there are direct and indirect effects on the wage structure. The direct effect of a minimum wage increase refers to the increase in wages for jobs at the bottom of the wage curve that have been below the minimum wage. The indirect effect of a minimum wage increase refers to the changes in the remainder of the wage curve to maintain appropriate wage differentials for jobs that deserve higher pay.

What are the objectives of a compensation system? What happens if all of these objectives are not considered simultaneously?

The six basic objectives are that the compensation system must be legal, adequate, motivating, equitable, cost-benefit effective, and provide adequate security. If these objectives are not considered simultaneously, distortions will appear in the design of a compensation system. For example, paying a high base salary to all employees may provide a high degree of security, but it would not be motivating or cost-benefit effective.

Computer Employee Exemption

To qualify for the Computer Employee Exemption, ALL of the following must be met: Compensation on a salary basis not less then $455/wk or on an hourly basis of $27.63/hr Computer systems analyst, computer programmer, software engineer Primary duty consists of application of systems analysis techniques and procedures; Design, develop, document, analyze, create, test/modify computer systems or programs

CEO Bonus Percentage?

Typically between 120-160% of base Little research evidence supports the effectiveness of executive bonuses.

Board of Directors Pay

Typically contains a annual retainer fee plus a separate fee for each meeting attended. Median compensation is 134,000 to 250,000.

A Comparison of Straight Piecework & F.W. Taylor's Differential Piece-Rate Plan

Under a piece-rate incentive system workers are paid a fixed amount for each item produced. Two types of piece-rate plans are: **Straight piecework- Oldest and most common plan **Differential piece-rate FW Taylor Straight piecework plans: paid a fixed rate per piece regardless of how little a worker produced. Most straight piecework plans have a guaranteed base rate that is at least as high as the minimum-wage rate. Differential piece-rate plan: pays a lower rate to workers who produce less than the standard amount and a higher rate to workers who exceed the standard. This plan significantly rewards productive workers since they are not only paid for producing more pieces but their rate of pay is higher for each piece (normally 20 percent higher than the lower rate).

Outside Sales Exemption

Weekly salary requirements do not apply Must meet both tests Primary duty of making sales or obtaining orders or contracts for services for payment by the customer Customarily and regularly engaged away from the employers place of business

In fine tuning an incentive system, what problems would occur if excessive weight were placed on individual incentives? on group incentives? on profit sharing? on base salary?

When individuals are paid on an individual incentive basis, no serious problems should occur provided they have total control over the amount of effort they expend, they can control their own levels of productivity, and their performances can be accurately measured. However, as the relationships between effort and performance and between performance and rewards become less direct, significant problems will occur. For example, if employees are evaluated subjectively by a supervisor, the relationships between employees and supervisors will become defensive and strained and supervisors will feel uncomfortable knowing that the evaluation means so much financially to each subordinate. When a work group is working together cohesively, their jobs are interdependent, and they are working toward a common, measurable output, it is appropriate to pay group incentives. However, if the group becomes extremely large and the members of the group lose the ability to control the group's rate of productivity, then heavy emphasis on group incentives creates excessive antagonism and tension within the group. Emphasis on profit sharing is appropriate, again, only if the individuals can feel that their efforts are significantly related to the profitability of the organization. If a heavy emphasis is placed on base salary with little or no provision for incentive pay, employees may lose their motivation to work hard. When individuals receive strictly a base salary, there is no financial incentive to perform better. If incentives are too large, problems of inequity will develop, including increased turnover due to lack of security, dissatisfaction caused by inaccurate evaluation, and dysfunctional competition between workers.

Hourly v salary

paying a salary to everyone instead of hourly wages has produced good results. It seems to improve employer, employee relations and to reduce class consciousness. However, changing from hourly to salary does typically not improve productivity and absenteeism generally rises.

Frederick Herzberg Motivator-Hygiene Theory

suggests that the motivator variable contributing to satisfaction and productivity are completely separate from the hygiene factors that determine levels of dissatisfaction. Motivators= factors that are related to the content of the job. Recognition, achievement and responsibility. Hygienes= factors that are related to the context of the job. Salary supervision and company policies. If hygiene factors are not present, employees will experience job dissatisfaction. If they are present, there will be no dissatisfaction, but increasing them further will not lead to satisfaction. Likewise, if the motivators are present, employees will feel satisfied and motivated but their absence will not create dissatisfaction. Herzergs claim that hygiene factors should not be used to motivate employees has been highly controversial. research has failed to support his claim of two separate factors.