Total Rewards

Point-factor system

Job evaluation method that looks at compensable factors (such as skills and working conditions) that reflect how much a job adds value to the organization; points are assigned to each factor and then added to come up with an overall point value for the job.

Person-based pay

Pay systems in which employee characteristics, rather than the job, determine pay.

Performance-based pay

Situation where an individual's performance on the job is the basis for the amount and timing of pay increases; also called merit pay or pay for performance.

Red-circle rates

Situations in which employees' pay is above the range maximum.

Time-based step-rate pay

System in which pay is based on longevity in the job and pay increases occur on a pre-determined schedule.

A competency-based pay approach works best in an environment that fosters which of the following?

Acquiring knowledge and skill that enhances employee performance and satisfaction Rationale: Competency-based pay fosters acquisition of knowledge and skills.

Total rewards

Direct and indirect remuneration approaches that employers use to attract, recognize, and retain workers.

Job analysis

Process of systematically studying a job in order to identify the activities/tasks and responsibilities it includes, the personal qualifications necessary to perform it, and the conditions under which it is performed.

Compensation philosophy

Short but broad statement documenting an organization's guiding principles and core values about employee compensation.

External equity

Situation in which an organization's compensation levels and benefits are similar to those of other organizations that are in the same labor market and compete for the same employees.

Pay for performance (P4P, PfP)

Situation where an individual's performance on the job is the basis for the amount and timing of pay increases; also called merit pay or performance-based pay.

Merit pay

Situation where an individual's performance on the job is the basis for the amount and timing of pay increases; also called performance-based pay or pay for performance.

A compensation and benefits specialist conducted a salary data survey last year but did not have time to benchmark the results to the organization's pay structure. What action should the specialist take at this point in time?

Age the data to make it current Rationale: When data is aged, older wage survey data is changed to reflect the movement of salaries in the market since the survey was conducted. If the data is aged, it is still usable.

When developing a pay structure, which data set should the HR practitioner use during the development process?

Compiled job analysis, job documentation, and job evaluation Rationale: Once the job analysis, job documentation, and job evaluation are completed and other relevant information is collected, an organization uses all the data to develop its pay structure. Information gathered from surveys, local markets, and like institutions may assist with information gathering for benchmarking the position but only a part of the overall data collection for creating a pay structure. An organization should look at all positions, not just low- or high-paying positions. Job evaluation is only one aspect of developing a pay structure.

An HR manager discovers a discrepancy between the organization's current compensation policy and the laws of the location the organization operates in. Which is the best first step the HR manager should take to address this?

Determine which regulation most benefits the employee. Rationale: The general rule is to follow the regulation that most benefits the employee. This needs to happen as a first step in order to be able to analyze the impact to the organization and provide an effective recommendation to the CEO and other organizational leaders (demonstrating the Consultation competency).

Remuneration surveys

Instruments that collect information on prevailing market compensation and benefits practices (including starting wage rates, base pay, pay ranges, statutory and market cash payments, variable compensation, and paid time off).

Job classification

Job evaluation method in which descriptions are written for each class of jobs; individual jobs are then put into the grade that best matches their class description.

Paired-comparison method

Job evaluation method in which each job is compared with every other job being evaluated; the job with the largest number of "greater than" rankings is the highest-ranked job, etc.

Job-content-based job evaluation

Job evaluation method in which the relative worth and pay structure of different jobs are based on an assessment of their content and their relationship to other jobs within the organization.

An hourly employee is at the maximum level of a pay range. There are no job openings in the next pay range. Which is the best approach to reward the employee for exceptional performance without adjusting the base wage rate?

Performance bonus Rationale: The performance bonus approach is an advantage to the organization because other wages and benefits linked to the base rate, such as overtime, shift premium, sick pay, and life insurance, are not impacted.

Total rewards strategy

Plan or method implemented by an organization that provides monetary, benefits-in-kind, and developmental rewards to employees who achieve specific business goals.

Domestic partners

Unmarried couples, of the same or opposite sex, who live together and seek economic and noneconomic benefits comparable to those granted to their married counterparts.

Pay grades

Used to group jobs that have approximately the same relative internal or external worth and are paid at the same rate or within the same pay range.

When creating a benefits program, which key legal factor does the HR benefits leader need to keep in mind?

What government-regulated programs are provided Rationale: The benefits leader needs to understand what is normally provided to employees, what government-regulated programs are provided, and what employees expect.

Benefits

Mandatory or voluntary payments or services provided to employees, typically covering retirement, health care, sick pay/disability, life insurance, and paid time off.

Lump-sum increase (LSI)

One-time payment made to an employee; also called performance bonus.

Single-rate pay

Provides each incumbent of a job with the same rate of pay, regardless of performance or seniority; also known as flat-rate pay.

Flat-rate pay

Provides each incumbent of a job with the same rate of pay, regardless of performance or seniority; also known as single-rate pay.

Green-circle rates

Situations in which an employee's pay is below the minimum of the range.

Internal equity

Extent to which employees perceive that monetary and other rewards are distributed equitably, based on effort, skill and/or relevant outcomes.

Incentive

Factor that motivates performance of a desired behavior or discourages performance of an undesired behavior.

During a workforce planning session, HR identifies that within 5 years, 25% of the workforce will be nearing retirement age. The organization wants to ensure that there is steady recruitment of a new generation. Which activity during the benefits needs assessment is most relevant to the recruitment strategy?

Analyze the utilization data on all benefit plans. Rationale: Analyzing the utilization data on all benefit plans could result in changes to the benefit mix based on the demographics and possible elimination of underutilized or high-cost plans for the aging workforce. Reviewing the competitor's strategy or the organization's management culture is not part of the benefit needs assessment activity. It is assumed that the workforce demographics have already been analyzed to identify the population nearing retirement age.

Which is the best example of direct compensation?

Cash achievement award Rationale: Direct compensation is cash compensation. It includes wages, commissions, and cash achievement awards. Indirect compensation includes benefit programs and items like a company car, disability insurance, and noncash rewards.

HR is in the process of recruiting a senior-level position for a global organization. Which benefit might distinguish the organization from the competition?

Club membership Rationale: Perquisites are special incidental payments, benefits, or privileges given to individuals over and above their regular rewards. Often awarded to senior-level positions, "perks" may extend to furnished housing, luxury transportation, and membership in exclusive clubs. Social security and unemployment will vary by country but not by organizations within the same country. Termination payments will vary by country and may not be at the sole discretion of the employer where unions are in place.

Broadbanding

Combining several salary grades or job classifications with narrow pay ranges into one band with a wider salary spread.

When conducting a benefits needs assessment, what is the next step HR should take after analyzing the design and utilization data for all benefit plans?

Compare organizational needs, employee needs, and current benefit offerings. Rationale: A gap analysis compares organizational needs, employee needs, and the existing set of benefits to identify the benefits that best match the needs of the organization and its employees.

Perquisites

Compensation provided on an individual basis in the form of goods or services.

New leadership is in place at a large retailer, resulting in a business unit undergoing a detailed review of its support of the organizational strategy. It has been identified that the benefit offerings are not reflective of the organization's total rewards philosophy and that many benefits overlap, creating inefficiencies. Which action should be taken first by HR to remedy the situation?

Conducting a utilization review of all benefits Rationale: A utilization review is an audit of benefits use and charges to identify which benefits are used and to make certain that costs are appropriate.

What form of equity is an HR function assuring when it conducts annual surveys of compensation practices in its labor markets?

External Rationale: External equity refers to employees' perceptions that they are being fairly compensated in terms of what employers in the same labor market would offer. Internal equity relates to perceptions of fair compensation in terms of the work for the employer. Strategic and cultural alignment are objectives for compensation systems. A strategic analysis could point to a lack of alignment in compensation by department and/or position. A cultural analysis of a compensation system would examine the alignment of the system with the culture's values.

Which is the most important factor an HR leader should use when planning pay increases?

Financial implication Rationale: HR should consider the potential financial implications of recommendations and actions. Financial analyses and HR decisions are always intertwined. While HR systems, employee support, and HR workload are all viable factors, they are not the most important and are not part of the decision making. They are factors to consider for implementing and communicating the increases.

To better meet the growing need for new parents to balance work with family, which program should HR include as part of the organization's employee benefits?

Flexible work schedules Rationale: Flexible work schedules help employees balance work roles with family roles. Increasing vacation time selectively will create problems with engagement and compliance. Unlimited paid leave is not equitable to the organization. Employee assistance programs can provide advice possibly but not relief for the basic problem here, the competition of work and life demands.

Incentive pay

Form of direct compensation where employers pay for performance beyond normal expectations to motivate higher performance.

Which is an organizational benefit of using differential pay?

It can incent employees to perform less desirable work or work in undesirable locations. Rationale: By using differential pay, organizations are able to incent employees to perform less desirable work (shift work, hazardous area, being on-call or standby, frequent or regular travel) or in less desirable locations or locations that have a higher cost of living. The differential pay is provided separate from the employee's base pay to allow for organizational flexibility, resulting in the ability to better control fixed labor costs.

How does communicating the guiding principles behind employee pay support an effective compensation philosophy?

It creates a framework for transparency. Rationale: A compensation philosophy creates a framework for consistency and transparency. Communicating the guiding principles behind employee pay plays a key role in being transparent. A compensation philosophy will guide how an organization pays employees, but it will not guarantee how much an employee will be paid. Compensation philosophies are typically created in collaboration with leadership. Compensation philosophies take local conditions into consideration as part of the review for competitiveness.

Market-based job evaluation

Job evaluation method in which the relative worth and pay structure of different jobs are based on their market value or the going rate in the marketplace.

Job ranking

Job evaluation method that involves establishing a hierarchy of jobs from lowest to highest based on each job's overall value to the organization.

What job evaluation method assesses the responsibilities and requirements of each job and its relationship to other jobs in the organization?

Job-content-based Rationale: The relative worth of different jobs is based on the assessment of their content, and they can then be compared to other jobs within the organization.

Which component of a total rewards system should an organization consider as an indirect benefit to employees?

Life insurance Rationale: Life insurance is considered an indirect benefit. Salaries, commissions, and bonuses are part of an employee's compensation and are considered direct benefits.

Which is the best method for an HR compensation manager to use to evaluate the jobs and salary ranges of the organization's key positions compared to those of its competitors?

Market-based evaluation to establish the worth of positions Rationale: A market-based job evaluation assesses the relative worth and pay structure of different jobs based on their market value or the going rate in the marketplace.

Before designing and implementing a reward system, what organizational factors should the HR manager review?

Mission and strategy Rationale: By supporting the organizational mission and strategy, the reward system allows for synergy in organizational efforts, resources, and outcomes. Organizational culture and environment can change; therefore, building a reward system based on those may create frequent system changes. Both the location and industry and the organizational structure and hierarchy may lead to certain groups of employees being excluded from the reward system.

After an acquisition, the HR director at the acquiring company is tasked with aligning the total rewards systems of both organizations. Which should the HR director review first?

Mission and strategy Rationale: The mission and strategy must be reviewed first because, in order to be successful, the total rewards system must be an extension of the strategic business plan and mission. Company payroll costs, organizational culture, and current benefit providers should be reviewed after the organization's mission and strategy, not before.

Pay compression

Occurs when there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority; also known as salary compression.

Performance bonus

One-time payment made to an employee; also called a lump-sum increase (LSI).

General pay increase

Pay increase given to employees based on local competitive market requirements; awarded regardless of employee performance.

In addition to salary, health benefits, and welfare benefits, which item should be included in an individualized total compensation statement?

Paid time off Rationale: Paid time off should be included in the compensation statement; a dollar figure for it can be calculated based on salary. There is no consistent or tangible way to calculate the value of a flexible work schedule or an alternative work location. Employee discount programs (gym, movie theaters, streaming services, etc.) are based on the volume of participants; therefore, determining an accurate dollar value would be difficult.

An exit interview assessment finds that the primary reason employees leave is for better total rewards offered at other organizations. Which is the best action HR should take to gather information on competitive total rewards packages to potentially offer its employees?

Participate in an external remuneration survey to assess the competitiveness of the organization's current offerings. Rationale: Using an external remuneration survey to collect information draws on extensive databases of incumbents and industry benchmarks. These benchmarks can be used to assess competitiveness.

Cost-of-living adjustment (COLA)

Pay adjustment given to eligible employees regardless of performance or organizational profitability; usually linked to inflation.

Productivity-based pay

Pay based on the quantity of work and outputs that can be accurately measured.

An organization has been forced to hire new employees at higher pay rates than usual due to a tight labor supply. Employees who have been with the organization for one to three years are earning the same or only slightly more than the new hires they have to train. What is the organization experiencing?

Pay compression Rationale: Pay compression, or salary compression, occurs when there is only a small difference in pay between employees regardless of their experience, skills, or seniority. Pay differentials may be narrowed over time in an organizational hierarchy.

Compa-ratio

Pay rate divided by the midpoint of the pay range.

Premiums

Payments in return for the achievement of specific, time-limited, targeted objectives.

Job evaluation

Process of determining a job's value and price for the purpose of attracting and retaining employees by comparing the job against other jobs within the organization or against similar jobs in competing organizations.

Which type of survey should an HR professional use to collect information on base pay, incentive plans, and benefits?

Remuneration Rationale: Remuneration surveys, the global terminology for compensation and benefit surveys, are used to collect information on prevailing market compensation and benefit practices. This type of survey allows an organization to check its remuneration structures against global and local trends.

Pay ranges

Set the upper and lower bounds of possible compensation for individuals whose jobs fall within a pay grade.

A differential piece-rate pay system works best in which type of environment?

When a link between the attainment of goals or achievement and the level of desired pay is needed Rationale: With differential piece-rate systems, the employee receives one piece rate up to the standard and then a higher rate once the standard has been exceeded. This type of system provides employees with a pay basis but then links the attainment of certain productivity goals or achievements directly to their pay. For example, a salesperson may receive a certain base pay but will earn more if he or she meets a sales quota. Another example is a manufacturing employee who earns a premium over her base rate of pay by exceeding the daily productivity goal.

Under which circumstances should a market-based job evaluation be used?

When an organization is positioning against its compensation philosophy Rationale: The market-based approach is common due to its simplicity, as it looks at external data to form the basis for market pricing. The organization uses job descriptions to compare jobs to like positions in the external marketplace. Pay data is collected from published sources, and the value of the position in the competitive market is determined. Positioning pay against the organization's compensation philsophy allows an understanding of whether the pay program achieves the basic objectives of the compensation philosophy. It also allows for a better understanding of internal equity.