Block Three

The ADA specifies that employees with disabilities must have

"equal access to whatever health insurance coverage the employer provides other employees."

Taft-Hartley Act

The 1947 act that outlawed unfair union labor practices.

which of the following make ESOPS attractive to organizations?

because they have tax and financing advantages and can serve as a takeover defense (under the assumption that employee owners will be "friendly" to management). ESOPs give employees the right to vote their securities (if registered on a national exchange) As such, some degree of participation in a select number of decisions is mandatory, but overall participation in decision making appears to vary significantly across organizations with ESOPs. Some studies suggest that the positive effects of ownership are larger in cases where employees have greater participation perhaps because the "employee-owner comes to psychologically experience his/her ownership in the organization.

contracts that generally do not result in a transfer of risk to the agent and, as such, do not require a wage differential are known as ____ based contracts

behavior

unlike key jobs, nonkey jobs

cannot be valued or compared through market surveys

which of the following statements about retirement benefits is true?

firms have started reducing retiree benefits

in general, employees typically receive more benefits in ____ companies

larger

A defined benefit plan guarantees ("defines") a specified retirement benefit

level to employees based typically on a combination of years of service and age as well as on the employee's earnings level (e.g., the three to five highest earnings years).

if a company needs educated knowledge workers but needs to tightly control costs, the company should look for countries with

low labor costs and skilled workers

for the modern corporation, ownership is nearly always separate from ____

management

the most crucial role in communicating pay decisions is played by

managers

outcome oriented contracts are more likley when outcomes are more

measurable

job structure

relative pay of jobs in an organization

why have some companies set up voluntary employee benefit association (VEBA) trusts?

to move retiree heath care obligations off their financial statements

profit sharing ,

A compensation plan in which payments are based on a measure of organization performance (profits) and do not become part of the employees' base salary.

Summary plan description (SPD)

A reporting requirement of the Employee Retirement Income Security Act (ERISA) that obligates employers to describe the plan's funding, eligibility requirements, risks, and so forth within 90 days after an employee has entered the plan.

So, repeat several times:

Always diversify, and don't put all your retirement eggs in one basket.

Sorting effect

For example, it is possible that an organization that links pay to performance may attract more high performers than an organization that does not link the two. There may be a similar effect with respect to job retention.19 This effect on workforce composition is sometimes referred to as aThe effect a pay plan has on the composition of the current workforce (the types of employees attracted and retained). .

bennefits and disadvantages of ESOPS? .

In Japan, most companies listed on Japanese stock markets have an ESOP, and these companies appear to have higher average productivity than non-ESOP companies.66 ESOPs raise a number of unique issues. On the negative side, they can carry significant risk for employees. An ESOP must, by law, invest at least 51% of assets in its company's stock, resulting in less diversification of investment risk (in some cases, no diversification). Consequently, when employees buy out companies in poor financial condition to save their jobs, or when the ESOP is used to fund pensions, employees risk serious financial difficulties if the company does poorly.67 This is not just a concern for employees, because, as agency theory suggests, employees may require higher pay to offset increased risks of this sort.

agents

In agency theory, a person (e.g., a manager) who is expected to act on behalf of a principal (e.g., an owner).

Merit bonus

Merit pay paid in the form of a bonus, instead of a salary increase.

arbitration Arbitration A procedure for resolving collective bargaining impasses by which an arbitrator chooses a solution to the dispute.

One reason for avoiding greater use of interest arbitration is a strong belief that the parties closest to the situation (unions and management, not an arbitrator) are in the best position to effectively resolve their conflicts.

Explain the importance of competitive labor market and product market forces in compensation decisions.

Product market comparisons that focus on labor costs are likely to deserve greater weight when (1) labor costs represent a large share of total costs, (2) product demand is elastic (it changes in response to product price changes), (3) the supply of labor is inelastic, and (4) employee skills are specific to the product market (and will remain so). In contrast, labor market comparisons may be more important when (1) attracting and retaining qualified employees is difficult and (2) the costs (administrative, disruption, and so on) of recruiting replacements are high.

Delayering

Reducing the number of job levels in the organization's job structure

Incentive effect .

The effect a pay plan has on the behaviors of current employees.

which of the following factors determine the size and frequency of pay increases on the merit increase grid?

The first factor is the individual's performance rating (better performers receive higher pay). The second factor is position in range (that is, an individual's compa-ratio).

marginal tax rate

The percentage of an additional dollar of earnings that goes to taxes.

pay structure

The relative pay of different jobs (job structure) and how much they are paid (pay level).

The team approach, job rotation, and flexibility expectations translate into higher skill and education requirements. Hourly workers at the Page 624plant must have a two-year technical degree, hold a skilled journeyman's card, or have had several years of experience in advanced manufacturing

There are no supervisors. Team leaders, rather than only observing, work alongside teams of six team members. The guiding principles are captured by what are called the "four As": "anyone can do anything anytime, anywhere." That is much different from the more typical idea of "if it's not in my job description, I don't have to do it, I won't do it, and if I did do it, I would probably get in trouble." The UAW was concerned at first with the "four As" approach because without narrow job descriptions, management has more discretion, and workers less discretion,

Merit pay

Traditional form of pay in which base pay is increased permanently. programs, annual base pay increases are usually linked to performance appraisal ratings

in a software company that caters to the federal government it would be most appropirate for which of the following poistions to be paid at the highest percentile

VP of software engineering

an administrative procedure used to measure internal job worth is called

a job evaluation

of the following examples, who is eligible to receive unemployment insurance?

a person who is looking for work, a person who is ready to work, a person who has worked for a specific amount of time at a job

the invidiviual in agency theory iwho is expected to act on the behalf of the person in control is known as the ___

agent

offering an on-site child care facility is

an expensive venture for an employer

most nonexempt employees are paid

an hourly rate

when used well, pay plans have

an incentive effect

who are craft unions?

carpenters unions and electrical workers unions (particular skill or occupation)

in a skill based pay structure, ___ tests must be developed to determine whether employees have acquired certain skills

certification

a single rate of pay for all employees within a certain job is common when a(n) ___ bargaining contract is in place

collective

In this sense, __________ not only has the potential to reduce economic losses caused by strikes but also may contribute to societal stability.

collective bargaining

ERISA guarantees

employees that when they become participants in a pension plan and work a specified minimum number of years, they earn a right to a pension upon retirement. These are referred to as vesting rights. Vested employees have the right to their pension at retirement age, regardless of whether they remain with the employer until that time.

Company pensions are designed to encourage

employees to work for a company for a long time

in the united states the amount of sick leave given to employees is often based on the

employees years of service

the type of pay comparison that focuses on what employees in other organizations are paid for similar jobs is called ____ equity.

external

true or false: market forces provide the most inefficient means of pricing and allocating people to jobs

false

First, external equity pay comparisons

focus on what employees in other organizations are paid for doing the same general job. Such comparisons are likely to influence the decisions of applicants to accept job offers as well as the attitudes and decisions of employees about whether to stay with an organization or take a job elsewhere

distributive bargaining

focuses on dividing a fixed economic "pie" between the two sides. A wage increase, for example, means that the union gets a larger share of the pie, management a smaller share. It is a win-lose situation.

A key drawback to outcome-oriented contracts is that they tend to ____ the agents risk

increase

What is a defined benefit plan?

it guarantees a specified retirement benefit level to employees based on their age, years of service and earings level

in its 1978 Manhart ruling, the Supreme Court declared

it illegal for employers to require women to contribute more to a defined benefit plan than men: Title VII protects individuals, and not all women outlive all men.

european automakers have located production facilities in the united states because ____ in the United States

labor costs are lower

pay policy line

mathematical expression that describes the relationship between a job's pay and its job evaluation points

under a profit sharing system, payments are

not part of the base salary

A second important competitive market challenge is labor market competition, which reflects the

number of workers available relative to the number of jobs available. Shortages and surpluses influence pay levels. For example, as we saw in the chapter-opening story, a shortage of workers will put upward pressure on wages and salaries, as organizations must pay to compete against other companies that hire similar employees. These labor market competitors typically include not only companies that have similar products but also those in different product markets that hire similar types of employees.

in order to make high performance more likely in the future, employers are well advised to

offer a monetary reward for high employee performance

skill-based pay

pay based on the skills employees acquire and are capable of using

a mathematical expression that describes the relationship between a jobs pay and its job evaluation points is called the

pay policy line

benchmarking against product market and labor market competitors is typically accomplished through the use of

pay surveys

Equity theory suggests that

people evaluate the fairness of their situations by comparing them with those of other people.1 Equity is not equality. Equal pay for two workers with unequal contributions (inputs in equity theory) would likely be perceived as unfair if this information is known, especially by the worker making the stronger contributions to the organization.

family-friendly policies help companies do which of the following?

promote loyalty of workers to company, demonstrate their concern for the wellbeing of their employees, balance work and family

most important issue in benefits management is the challenge of providing ____________________costs,

quality medical benefits while controlling

cognitive evaluation theory to

question this assumption, arguing that monetary rewards may increase extrinsic motivation but decrease intrinsic motivation.

the distance bewteen the maximum and minimum pay within a pay grades is known as

range spread

Three additional theories also help explain the effects of compensation

reinforcement, expectancy, and agency theories.

Most benefits fall into one of the following categories:

social insurance, private group insurance, retirement, pay for time not worked, and family-friendly policies

which U.S. employees do not recieve social security benefits?

state workers, railroad workers, federal workers

Who are industrial unions and that they are linked to a particular industry?

steelworkers and autoworkers, represent many different occupations

when a company uses a balanced scorecard, it takes a(n) ____ approach to balancing objectives

structured

an organization that effectively competes in the product market is able to sell its goods and services at a quanity price that will

that will bring a sufficient return on investment

typically expatirate pay and benefits are linked most closely to

the companys home country

checkoff provision

the employer, on behalf of the union, automatically deducts union dues from employees' paychecks.

Established by the 1935 Social Security Act,

this program has four major objectives: (1) to offset lost income during involuntary unemployment, (2) to help unemployed workers find new jobs, (3) to provide an incentive for employers to stabilize employment, and (4) to preserve investments in worker skills by providing income during short-term layoffs (which allows workers to return to their employer rather than start over with another employer).

Unions are believed to decrease productivity in at least three ways: (1) The union pay advantage causes employers to use less labor and more capital per worker than they would otherwise, which reduces efficiency across society; (2) union contract provisions may limit permissible workloads, restrict the tasks that particular workers are allowed to perform, and require employers to use more employees for certain jobs than they otherwise would; and (3) strikes, slowdowns, and working-to-rule (slowing down production by following every workplace rule to an extreme) result in lost production

unions can have positive effects on productivity.90 Employees, whether members of a union or not, communicate to management regarding how good a job it is doing by either the "exit" or "voice" mechanisms. "Exit" refers to simply leaving the company to work for a better employer. "Voice" refers to communicating one's concerns to management without necessarily leaving the employer.

which of the following are pay-setting approaches that vary in the relative importance they give to external and internal comparisons?

using pay grades, using the pay policy line, and using market survey data

sorting effect,

which is how pay influences employee behaviors by how pay shapes the composition of the workforce

right-to-work laws

which make union shops, maintenance of membership, and agency shops illegal.

Workers' compensation benefits fall into four major categories

(1) disability income, (2) medical care, (3) death benefits, and (4) rehabilitative services.

Unemployed workers are eligible for benefits if they

(1) have a prior attachment to the workforce (often 52 weeks or four quarters of work at a minimum level of pay); (2) are available for work; (3) are actively seeking work (including registering at the local unemployment office); and (4) were not discharged for cause (such as willful misconduct), did not quit voluntarily, and are not out of work because of a labor dispute.

A number of recommendations have been made about the organization conditions that should be in place for gainsharing to succeed. Commonly mentioned factors include

(1) management commitment, (2) a need to change or a strong commitment to continuous improvement, (3) management's acceptance and encouragement of employee input, (4) high levels of cooperation and interaction, (5) employment security, (6) information sharing on productivity and costs, (7) goal setting, (8) commitment of all involved parties to the process of change and Page 525improvement, and (9) agreement on a performance standard and calculation that is understandable, seen as fair, and closely related to managerial objectives

The Pension Protection Act (PPA) of 2006 requires defined contribution plans holding publicly traded securities to provide employees with

(1) the opportunity to divest employer securities and (2) at least three investment options other than employer securities. The PPA also allows employers to enroll workers in their 401(k) plan automatically and to increase a worker's 401(k) contribution automatically to coincide with a raise or a work anniversary.

key jobs

(also known as benchmark jobs) have relatively stable content and—perhaps most important—are common to many organizations. Therefore, it is possible to obtain market pay survey data on them. Note, however, that to avoid too much of an administrative burden, organizations may not gather market pay data on all such jobs.

To ease employees' conflicts between work and nonwork, organizations may use family-friendly policies

(also known as policies that help balance work and family) such as family leave policies and child care.

Although disagreements between management and labor continue, it is better to resolve disputes through discussion_________ than by battling in the streets.

(collective bargaining)

Effective institutions for worker representation ________ were therefore seen as a way to make bargaining power more equal.

(like labor unions)

benchmarking

, a procedure in which an organization compares its own practices against those of the competition.

Unionized workers receive, on average, ______ higher wages, and this advantage is still estimated to be 10-15% when observable characteristics of union and nonunion workers are equated.

26%

what is the full retirement age for social security benefits to begin for workers born in 1960 or later?

67 years

once employees enter a company pension plan, the employer has ____ days to provide employees with a summary plan description, which proves detailed information about the plan

90

Gainsharing

A form of group compensation based on group or plant performance (rather than organization-wide profits) that does not become part of the employee's base salary.

Merit increase grid

A grid that combines an employee's performance rating with his or her position in a pay range to determine the size and frequency of his or her pay increases. indicates, the size and frequency of pay increases are determined by two factors. The first factor is the individual's performance rating (better performers receive higher pay). The second factor is position in range (that is, an individual's compa-ratio).

What components make up labor costs?

A major component is the average cost per employee. This is made up of both direct payments (such as wages, salaries, and bonuses) and indirect payments (such as health insurance, Social Security, and unemployment compensation). A second component of labor costs is the staffing level (number of employees). Not surprisingly, financially troubled organizations often seek to cut costs by focusing on one or both components. Staff reductions, hiring freezes, wage and salary freezes, and sharing benefits costs with employees are several ways of making the organization's labor costs more competitive in the product market.

Describe the major administrative tools used to manage employee compensation.

A market pay survey is the primary administrative tool organizations use in choosing a pay level.Job evaluation is the administrative tool organizations use to design job structures.

Cash balance plan

A retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee's salary; the account earns interest at a predetermined rate. . This type of retirement plan consists of individual accounts, as in a 401(k) plan. But in contrast to a 401(k), all the contributions come from the employer. Usually, the employer contributes a percentage of the employee's salary, say, 4% or 5%. The money in the cash balance plan earns interest according to a predetermined rate, such as the rate paid on U.S. Treasury bills. Employers guarantee this rate as in a defined benefit plan. This arrangement helps employers plan their contributions and helps employees predict their retirement benefits. If employees change jobs, they generally can roll over the balance into an individual retirement account.

efficiency wage theory

A theory stating that wages influence worker productivity

most national unions are composed of multiple local units, and most are affiliated with the ___________and Congress of Industrial Organizations (AFL-CIO).

American Federation of Labor

job evaluation

An administrative procedure for measuring the relative internal worth of the organization's jobs.A job evaluation system is composed of compensable factors and a weighting scheme based on the importance of each compensable factor to the organization.

Stock options

An employee ownership plan that gives employees the opportunity to buy the company's stock at a previously fixed price.

Employee stock ownership plans (ESOPs) ,

An employee ownership plan that provides employers certain tax and financial advantages when stock is granted to employees.

Examples of protected activities include

Union organizing Joining a union, whether it is recognized by the employer or not Going out on strike to secure better working conditions Refraining from activity on behalf of the union

In general, process issues, including _________are important in administering merit pay and pay-for-performance

communication, expectation setting, and credibility/fairness,

an index that measures the correspondance between actual pay and a companys intended pay policy is called the

compa-ratio

The NLRB's two major functions are to

conduct and certify representation elections and prevent unfair labor practices. In both realms, it does not initiate action. Rather, it responds to requests for action. The NLRB's role in representation elections is discussed in the next section. Here we discuss unfair labor practices.

The shop steward represents employees in

contract grievances.

what are the main kinds of medical expenses that company health care plans help cover

costs of going to the hospital, costs of surgery, costs of visiting the doctor

The National Education Association, which is not affiliated with the AFL-CIO, is the largest union, with almost 3 million members. An important characteristic of a union is whether it is a ____________.

craft or industrial union

which of the following aspects of an organization do executives typically influence susbtantially?

culture, tone, performance

what factors influence country differences in labor costs?

currency exchange rates

the appropriate amount of differentiation in perfromance and pay will depnd on

depend on the level of interdependence and cooperation desired in a particular context.

unlike merit pay, individual incentives are rarely based on

subjective ratings

Range Spread

the distance between the minimum and maximum amounts in a pay gradeThe disadvantage of using grades is that some jobs will be underpaid and others overpaid.

which of the follwing statements about the affordable care act (ACA) is true?

the future of the ACA is unclear

one indicator of a countrys productivity is

the gross domestic product (GDP) per person

The local of an industrial-based union may correspond to a single large facility or to a number of small facilities. In a craft-oriented union,____________.

the local may cover a city or a region

in recent years, stock options have been made increasingly available

to people futher down in organizations

compensable factor

to the organization. Simply stated, compensable factors are the characteristics of jobs that an organization values and chooses to pay for. These characteristics may include job complexity, working conditions, required education, required experience, and responsibility.

the ratio of top executive pay to that of an average worker is often described as creating a(an)

trust gap

Pay plans are

typically used to energize, direct, sustain, or control the behavior of current employees.

closed shop

under which a person must be a union member (and thus pay dues) before being hired. A closed shop is, however, illegal under the NLRA.

Rate Ranges

different employees in the same job may have different pay rates permits a company to recognize differences in employee performance, seniority, training, and so forth in setting individual pay

Richard Walton and Robert McKersie suggested that labor-management negotiations could be broken down into four subprocesses:

distributive bargaining, integrative bargaining, attitudinal structuring, and intraorganizational bargaining

what are the charcteristics of the point-factor system for evaluating jobs?

each evaluation score is typically weighted to account for its relative importance, the system yields evaluation scores for each compensable factor of a job, the resulting score for a job serves as guide in determining resulting pay levels.

the concept that wages affect worker productivity is called the ____ theory

efficiency wage

a defined contribution plan puts the responsibility for wise investing squarely on the shoulders of the

employee

the theory that focuses on the rewards employees believe they will receive if they have particular incentives is ___ theory

expectancy

the unemployment insurance program is financed primarily through ___.

federal and state taxes on employers

what factors have contributed to the enormous expansion of employee benefits?

federal government legislation passed during the great depression, the marginal tax rate, controls of wages and prices implemented during world war two

mediation

is the least formal but most widely used of the procedures (in both the public and private sectors). One survey found it was used by nearly 40% of all large private-sector bargaining units.61 A mediator has no formal authority but, rather, acts as a facilitator and go-between in negotiations.

what does the U.S supreme courts 1978 manhart ruling state?

it is illegal to foce women to contribute more to a defiend benefits plan

according to w. Edward Deming, rating indivdual performance is an unfair practice because ____.

it is unfair to rate individual performance because "apparent differences between people arise almost entirely from the system that they work in, not from the people themselves.

one reason that many organizations use merit pay is

its ability to define and reward broad ranges of performance dimensions

The survival and security of a union depends on

its ability to ensure a regular flow of new members and member dues to support the services it provides.

the most widely used metric for defining pay structures is by

jobs and associated responsibilities

Nonkey Jobs

jobs that are unique to organizations and that cannot be directly valued or compared through the use of market surveys

Equal employment opportunity (EEO) regulation (such as Title VII of the Civil Rights Act) prohibits

sex- and race-based differences in employment outcomes such as pay, unless justified by business necessity (like pay differences stemming from differences in job performance)

which of the following statements about labor market competition is true?

shortages and surplueses influence pay levels

What are the advantages of a qualified plan?

Basically, it receives more favorable tax treatment than a nonqualified plan. In the case of a qualified retirement plan, for example, these tax advantages include (1) an immediate tax deduction for employers for their contributions to retirement funds, (2) no tax liability for the employee at the time of the employer deduction, and (3) tax-free investment returns (from stocks, bonds, money markets, or the like) on the retirement funds. Non discrimiinatin rules discourage owners or top managers from adopting plans that benefit them exclusively

Group Incentives and Team Awards.

Competition between individuals may be reduced, but it may be replaced by competition between groups or teams. Also, consistent with our earlier discussion of pay effects on workforce composition, any plan that does not adequately recognize differences in individual performance risks demotivating top performers or losing them. Finally, as with any incentive plan, a standard-setting process must be developed that is seen as fair by employees, and these standards must not exclude important dimensions such as quality.

REINFORCEMENT THEORY

E. L. Thorndike's law of effect states that a response followed by a reward is more likely to recur in the future. The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely.

Which of the following statements about retirement benefits is true?

Earlier we discussed the old-age insurance part of Social Security, a legally required source of retirement income.

Are You Excluded from the NLRA's Coverage?

Employed as a supervisor Employed by a parent or spouse Employed as an independent contractor Employed in the domestic service of any person or family in a home Employed as agricultural laborers Employed by an employer subject to the Railway Labor Act Employed by a federal, state, or local government Employed by any other person who is not an employer as defined in the NLRA

In any situation where rewards are distributed, employees appear to assess fairness along two dimensions: distributive (based on how much they receive) and procedural (what process was used to decide how much)

Examples of Procedural Justice in Merit Pay Decisions Employees' Belief That in Evaluating Their Performance, Their Supervisor... Was honest and ethical and tried to be fair Considered your input Used consistent standards Provided feedback Took the time to become familiar with your role and performance, including factors beyond your control After a merit pay decision was made, was receptive to discussion of how the decision was made (and/or an appeal) and working together to develop an action plan going forward

exempt

Executive, professional, administrative, outside sales, and certain "computer employees" occupations are exempt from FLSA coverage Employees who are not covered by the Fair Labor Standards Act. Exempt employees are not eligible for overtime pay. from FLSA coverage.

differences between intrinsic and extrinsic motivation

Extrinsic motivation depends on rewards (such as pay and benefits) controlled by an external source, whereas intrinsic motivation depends on rewards that flow naturally from work itself (like performing interesting work)

Two major age-related issues have received attention under the Age Discrimination in Employment Act (ADEA) and later amendments such as the Older Workers Benefit Protection Act (OWBPA).

First, employers must take care not to discriminate against workers over age 40 in the provision of pay or benefits. As one example, employers cannot generally cease accrual (stop the growth) of retirement benefits at some age (like 65) as a way of pressuring older employees to retire.91 Second, early retirement incentive programs need to meet the following standards to avoid legal liability: (1) The employee is not coerced to accept the incentive and retire, (2) accurate information is provided regarding options, and (3) the employee is given adequate time (is not pressured) to make a decision.

ALthough sometimes confused with profit sharing plans, gainsharing differs in two key respects.

First, instead of using an organization-level performance measure (profits), the programs measure group or plant performance, which is likely to be seen as more controllable by employees. Second, payouts are distributed more frequently and not deferred. In a sense, gainsharing programs represent an effort to combine the best features of organization-oriented plans like profit sharing and individual-oriented plans like merit pay and individual incentives. Like profit sharing, gainsharing encourages pursuit of broader goals than individual-oriented plans do. But, unlike profit sharing, gainsharing can motivate employees much as individual plans do because of the more controllable nature of the performance measure and the frequency of payouts. Studies indicate that gainsharing improves performance

which of the following are potential reasons invidual incentives are relatively rare?

First, most jobs (like those of many managers and professionals) have, strictly speaking, no physical output measure second they may result in employees doing only what they are getting paid for and little or nothign else

Like merit pay, individual incentives reward individual performance, but with two important differences.

First, payments are not rolled into base pay. They must be continuously earned and re-earned. Second, performance is usually measured as physical output (such as number of water faucets produced) rather than by subjective ratings. Individual incentives have the potential to significantly increase performance. Locke and his colleagues found that monetary incentives increased production output by a median of 30%—more than any other motivational device studied.

Agency costs can arise from two factors.

First, principals and agents may have different goals (goal incongruence). Second, principals may have less than perfect information about the degree to which the agent is pursuing and achieving the principal's goals (information asymmetry).

Programs for Recognizing Employee Contributions

First, programs differ depending on whether payouts become part of base pay (merit pay, skill-based pay), are a fixed cost, or are variable. Second, some programs (merit pay and merit bonuses) measure performance using primarily subjective measures, whereas others (e.g., incentive pay) rely on more objective performance measures. Third, performance can be measured at the individual level (e.g., merit pay) or at the unit (gainsharing) or organization level (profit sharing, ownership).

merit pay programs have the following characteristics.

First, they identify individual differences in performance, which are assumed to reflect differences in ability or motivation. By implication, system constraints on performance are not seen as significant. Second, the majority of information on individual performance is collected from the immediate supervisor. Peer and subordinate ratings are rare, and where they exist, they tend to receive less weight than supervisory ratings.33 Third, there is a policy of linking pay increases to performance appraisal results.34 Fourth, the feedback under such systems tends to occur infrequently, often once per year at the formal performance review session. Fifth, the flow of feedback tends to be largely unidirectional, from supervisor to subordinate.

Which of the following are potential reasons that employees may react negatively to profit sharing plans not paying out during buisness downturns?

First, they may not feel they are to blame because they have been performing their jobs well. the amount of at risk pay may be a large portion of the overall compensation plan for an employee earning relatively low levels of pay

which of the following can be combined to contribute to improvement over an array of performance dimensions?

However, a particular mix of merit pay, gainsharing, and profit sharing could contribute to acceptable performance on all these performance dimensions.

Principals

In agency theory, a person (e.g., the owner) who seeks to direct another person's behavior.

organizations must compete effectively in the product market.

In other words, they must be able to sell their goods and services at a quantity and price that will bring a sufficient return on their investment. Organizations compete on multiple dimensions (quality, service, and so on), and price is one of the most important dimensions. An important influence on price is the cost of production.

Sample Performance Dimensions

Knows Job Takes Initiative Exercises Good Judgment Inspires and Develops Others Demonstrates Interpersonal and Teaming Skills Produces Results

bennefits of profit sharing

Profit sharing has two potential advantages. First, it may encourage employees to think more like owners, taking a broad view of what needs to be done to make the organization more effective. Thus, the sort of narrow self-interest encouraged by individual incentive plans (and perhaps also by merit pay) is presumably less of an issue. Instead, increased cooperation and citizenship are expected. Second, because payments do not become part of base pay, but instead are variable pay, labor costs are automatically reduced during difficult economic times, and wealth is shared during good times. Consequently, organizations may not need to rely on layoffs as much to reduce costs during tough times

Which type of contract should an organization use? It depends partly on the following factors:

Risk aversion. Risk aversion among agents makes outcome-oriented contracts less likely. Outcome uncertainty. Profit is an example of an outcome. Agents are less willing to have their pay linked to profits to the extent that there is a risk of low profits. They would therefore prefer a behavior-oriented contract. Job programmability. As jobs become less programmable (less routine), outcome-oriented contracts become more likely because monitoring becomes more difficult. Measurable job outcomes. When outcomes are more measurable, outcome-oriented contracts are more likely. Ability to pay. Outcome-oriented contracts contribute to higher compensation costs because of the risk premium. Tradition. A tradition or custom of using (or not using) outcome-oriented contracts will make such contracts more (or less) likely.

List the main decision areas and concepts in employee compensation management.

Salary level decisions can be broken into two areas: pay structure and individual pay.Both pay level and job structure are characteristics of organizations and reflect decisions about jobs rather than about individual employees.

which of the following charactersitics concerning pay for performance programs may help increase the probablity that the program has the intended effects and decrease the probablity of unintended consequences and problems?

Such balancing of objectives, combined with careful alignment with the organization and human resource strategy, may help increase the probability that a pay-for-performance program has its intended effects and reduce the probability of unintended consequences and problems.

T or F: when employee payments entirely subsidize disability coverage, no federal tax is paid on the money paid out to the employee

TRUE Federal income taxation of disability benefits depends on the funding method. Where employee contributions completely fund the plan, there is no federal tax. Benefits based on employer contributions are taxed.

Employee Retirement Income Security Act (ERISA)

The 1974 act that increased the fiduciary responsibilities of pension plan trustees, established vesting rights and portability provisions, and established the Pension Benefit Guaranty Corporation (PBGC).PBGC does not guarantee health care benefits.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

The 1985 act that requires employers to permit employees to extend their health insurance coverage at group rates for up to 36 months following a qualifying event, such as a layoff.such as termination (except for gross misconduct), a reduction in hours that leads to the loss of health insurance, death, and other events.

Pension Benefit Guaranty Corporation (PBGC)

The agency that guarantees to pay employees a basic retirement benefit in the event that financial difficulties force a company to terminate or reduce employee pension benefits.

expectancy theory

The theory that says motivation is a function of valence, instrumentality, and expectancy.also focuses on the link between rewards and behaviors, it emphasizes expected (rather than experienced) rewards. In other words, it focuses on the effects of incentives.

T OR F : organizations that use profit sharing plans may not have to rely on layoffs as much to reduce costs during economic downturns.

True

which of the following statements about employer-sponsored insurance plans is true?

Two major types of plans are medical insurance and disability insurance

Fair Labor Standards Act (FLSA)

U.S act that establishes minimum wage, overtime pay, youth employment, and record-keeping standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments.

paid well in relative terms

York Yankee shortstop Alex Rodriguez signed years ago. It stated that during the the first several years of his contract, his base compensation had to be at least $2 million higher than any other shortstop in major league baseball. A second provision permitted Rodriguez to void seasons in the latter years of his contract unless his base compensation was at least $1 million higher than any position player in major league baseball. Otherwise, Rodriguez would be free to leave his current team. These provisions that pegged Rodriguez's pay to other players' pay provide a compelling example of the importance of being paid well in relative terms.

which factors can influence a company ability to adhere to EEO pay regulations?

a shifting labor market inequity in copensation based on gender and race chancing demographics of the workplace

Compa-ratio

an index of the correspondence between actual and intended pay actual average pay for grade/ pay midpoint for grade

Unlike defined benefit plans, defined contribution plans do not promise a specific benefit level for employees upon retirement. Rather,

an individual account is set up for each employee with a guaranteed size of contribution. The advantage of such plans for employers is that they shift investment risk to employees and present fewer administrative challenges because there is no need to calculate payments based on age and service and no need to make payments to the PBGC.

Financial Accounting Statement (FAS) 106, issued by the Financial Accounting Standards Board, became effective in 1993. This rule requires that

any benefits (excluding pensions) provided after retirement (the major one being health care) can no longer be funded on a pay-as-you-go basis. Rather, they must be paid on an accrual basis, and companies must enter these future cost obligations on their financial statements.

some scholars using cognitive evaluation theory believe which of the following regarding extrinsic and intrinsic motivation?

arguing that monetary rewards may increase extrinsic motivation but decrease intrinsic motivation.

The AFL-CIO is not a labor union but rather an association that seeks to advance the shared interests of its member unions at the national level, much

as the Chamber of Commerce and the National Association of Manufacturers do for their member employers.

Finally, even if a union wins the right to represent employees, its ability to successfully negotiate a contract with the employer is not guaranteed. Indeed, refusal to

bargain by the employer is the unfair labor practice most frequently filed (over half of all charges) against employers.

A major goal of labor unions is

bargaining effectiveness, because with it comes the power and influence to make the employees' voices heard and to effect changes in the workplace

in developing a pay structure, pay survey data and job evaluation data are available for

benchmark jobs

Approximately 90% of all U.S. workers are covered

by state workers' compensation laws, although again there are differences among states, with coverage ranging from 70% to more than 95%.

which of the following are provisions of the fair labor standards act (FLSA) as they relate to employee pay?

calls for time and a half pay for hours exceeding 40 hours a week, provides for a training wage, and sets a minimum wage for jobs

who makes all of the payments into a cash balance plan?

employer

how are workers compensation benefits typically funded?

employers purchase coverage from insurance companies

by paying higher labor costs than its competitors, a company can achieve which of the following?

encourage desired employee behaviors draw better workers to produce higher quality products than competitors retain valued employees

the concept that suggest people evaluate the fairness of their situations by comparing them with others is called

equity theory

Among the most important provisions of the Social Security Act of 1935 was the

establishment of old-age insurance and unemployment insurance. The act was later amended to add survivor's insurance (1939), disability insurance (1956), hospital insurance (Medicare Part A, 1965), and supplementary medical insurance (Medicare Part B, 1965) for the elderly. Together these provisions constitute the federal Old Age, Survivors, Disability, and Health Insurance (OASDHI) program.

which type of program considers group or plant pefromance to determine incentive payouts, unlike profit sharing plans that use organization-level indicators?

gainsharing

integrative bargaining

has a win-win focus; it seeks solutions beneficial to both sides. So if management needs to reduce labor costs, it could reach an agreement with the union to avoid layoffs in return for the union agreeing to changes in work rules that might enhance productivity.

according to research, intrinsic motivation is ____ when extrinsic incentives are available

higher

most full-time employees have medical insurance, especially in larger workplaces. Three basic types of medical expenses are typically covered:

hospital expenses, surgical expenses, and physicians' visits. Other benefits that employers may offer include dental care, vision care, birthing centers, and prescription drug programs.

when designing either managerial or non managerial compensation, the central issue is determining____

how agency costs can be minimized

the strength of the relationship between performance and pay is known as ____ and must be considered when designing pay for performance plans

incentive intensity

one important advantage of skill-based pay is the potential for

increased worker flexibility

when organizations link pay to an employees performance, they are likely to attract candidates who are ____

individualistic

what happens when a principal has imperfect information concerning the degree to which the agent is pursuing and achieving the principals goals?

information asymmetry

Workers' compensation laws cover job-related

injuries and death

with the pay setting approach that uses the pay policy line to derive pay rates for both key and nonkey jobs, the pay of all the jobs is linked directly to the number of job evaluation point, which _____.

introduces a greater degree of internal consistency

Comparable worth (or pay equity)

is a public policy that advocates remedies for any undervaluation of women's jobs

pay level

is defined here as the average pay (including wages, salaries, and bonuses) of jobs in an organization. (

associate union membership

is not linked to an employee's workplace and does not provide representation in collective bargaining. Instead the union provides other services, such as discounts on health and life insurance or credit cards.43 In return, the union receives membership dues and a broader base of support for its activities. Associate membership may be attractive to employees who wish to join a union but cannot because their workplace is not organized by a union.

agency shop

is similar to a union shop but does not require union membership, only that dues be paid.

fact finder

most commonly used in the public sector, typically reports on the reasons for the dispute, the views and arguments of both sides, and (in some cases) a recommended settlement, which the parties are free to decline. That these recommendations are made public may give rise to public pressure for a settlement. Even if a fact finder's settlement is not accepted, the hope is that he or she will identify or frame issues in such a way as to facilitate an agreement. Sometimes, for the simple reason that fact finding takes time, the parties reach a settlement during the interim.

when any change in existing pay practices is set to take place, the intimate involvement of line managers is

necessary

Because many public-sector employees do

not have the right to strike, alternatives are particularly important in that arena. In the private sector, alternatives may be used to avoid a strike or to help settle an ongoing dispute and end a strike.

A qualified benefits plan must

offer benefits to a variety of employees not just senior level ones

to reduce labor costs, some companies are sending jobs overseas, a concept called

offshoring

benefits of cash balance plan pertains to who?

older employees with many years of service, and cash balance plans are most generous to young employees who will have many years ahead in which to earn interest

in agency theory, a business principal is typically a(n) ___

owner

placing jobs in broader bands of classification gives managers the opportunity to

reward high performers with merit increases

another term for comparable worth is

pay equity

Labor unions can provide

protection for workers and also help negotiate higher wages to give workers a better standard of living.

in communicating pay cuts to employees, which of the following strategies are effective?

providing detailed reasons why the pay cuts are necessary demonstrating significant remorse for implementing the pay cuts

An important responsibility of the AFL-CIO is to represent labor's interests in

public policy issues such as civil rights, economic policy, safety, and occupational health.

attitudinal structuring

refers to the relationship and trust between labor and management negotiators. Where the relationship is poor, it may be difficult for the two sides to engage in integrative bargaining because each side hesitates to trust the other side to carry out its part of the deal. For example, the union may be reluctant to agree to productivity-enhancing work-rule changes to enhance job security if, in the past, it has made similar concessions but believes that management did not stick to its assurance of greater job security. Thus the long-term rela

intraorganizational bargaining

reminds us that labor-management negotiations involve more than just two parties. Within management, and to an even greater extent within the union, different factions can have conflicting objectives. High-seniority workers, who are least likely to be laid off, may be more willing to accept a contract that has layoffs (especially if it also offers a significant pay increase for those whose jobs are not at risk). Less senior workers would likely feel very differently. Thus negotiators and union leaders must simultaneously satisfy both the management side and their own internal constituencies.

union shop

requires a person to join the union within a certain amount of time (30 days) after beginning employment.

Since 1993 the Family and Medical Leave Act

requires organizations with 50 or more employees within a 75-mile radius to provide as much as 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill child, spouse, or parent; or for an employee's own serious illness.Employees with less than one year of service or who work less than 25 hours per week or who are among the 10% highest paid are not covered.

maintenance of membership

rules do not require union membership but do require that employees who choose to join must remain members for a certain period of time (such as the length of the contract).

in what type of plan are monetary bonuses paid to employees if the ratio of labor costs to the sales value of production is kept below a certain standard?

scanlon

corporate campaigns

seek to bring public, financial, or political pressure on employers during the organizing (and negotiating) process. the Building and Construction Trades Department of the AFL-CIO successfully lobbied Congress to eliminate $100 million in tax breaks for a Toyota truck plant in Kentucky until Toyota agreed to use union construction workers and pay union wages.

Second, internal equity pay comparisons focus on

what employees within the same organization are paid. Employees make comparisons with lower-level jobs, jobs at the same level (but perhaps in different skill areas or product divisions), and jobs at higher levels. These comparisons may influence general attitudes of employees; their willingness to transfer to other jobs within the organization; their willingness to accept promotions; their inclination to cooperate across jobs, functional areas, or product groups; and their commitment to the organization. The organization's choice of job structure influences its employees' internal comparisons and their consequences

National Labor Relations Act (NLRA) in 1935,

which sought to provide an environment conducive to collective bargaining and has since regulated labor and management activities and interactions.

The balanced scorecard,

which we discuss later in this chapter, is an example of a structured approach to balancing objectives.

Unilateral control by management sacrifices ___________

workers' rights.