Chapter 10
internal factors
-compensation strategy of organization -worth of job -employee's relative worth -employer's ability to pay
compensation assessment
1, Help the company detect potential compensation problems 2, Make compensation decisions more transparent with organization objectives 3, improve the alignment of compensation decisions
3 traditional method of comparison (job evaluation)
1. Rank the value of jobs from highest to lowest 2. Classify jobs so they can be benchmarked internally and externally. 3. Award points to each job based on it link to organizational objectives.
Overtime wage rate
1.5 times the base rate must be paid for all hours worked over 40 during given week, include incentive payments or bonuses
pay policies reflecting (Compensation Strategy)
1> internal wage relationship among jobs and skills @ influence pay rates are the organization's compensation strategy, the worth of job, job requirement, ability to pay 2> external competition or employer pay position relative to what competitors are paying 3>policy of rewarding employee performance 4> administrative decisions concerning elements of pay system such as overtime
broadbanding encourages and eliminate
1>encourages lateral skill building while addressing the need to pay employees performing multiple jobs with different skill while addressing pay employees 2>Eliminate the obsession with grades and encourage employee to move to jobs in which they can develop in their career.
escalator clause
clause in labor agreement that provide for quarterly cost of living adjustments in wages, basing the adjustments on changes in the consumer price index. comon adjustment are 1 percent per hour 0.3 or 0.4 point change
Broadbanding
collapses many traditional salary grades into a few wide salary bands
pay rate compression
compression of pay between new and experienced employees caused by the higher starting salaries of new employees; also the differential between hourly workers and their managers
external factors
conditions of the labor market, area pay rates, cost of living, collective bargaining, legal requirements
Compensation Scorecard
displays the results for all the measures that a company uses to monitor and compare compensation among internal departments or units
Rate Ranges
divided into a series of steps that permit employees to receive increase up to maximum rate for the range on the basis of merit or seniority or a combination of the two.
compensation
employees are the most important component for success.
Direct Compensation
encompasses employee wages and salaries, incentives, bonuses, and commissions.
pay grades
groups of jobs within a particular class that are paid the same rate
Value linkage
high performance lead to monetary rewards that are valued. pay for performance leads to a feeling of pay satisfaction and reinforce high level of effort
Clarify Expectations
if you intend to reward contributors who go and beyond their objectives. outstanding performance vs just on time done.
compensation scorecard benefit
improves transparency of how people are rewarded and makes managers responsible for how they spend company money. Completed once a year by HR.
point manual
in effect. a handbook that contains a description of the compensable factors and the degrees to which these factors may exist within the jobs.
nonfinancial compensation
includes employee recognition programs, rewarding jobs, organizational support, work environment, and flexible work hours to accommodate personal needs
indirect compensation - benefits
indirect compensation comprise the many benefit supplied by employers (Benefit).
external factors
influence pay rates includes labor market condition, area pay rates, cost of living, collective bargaining if the employer is unionized, and legal requirement.
The bureau of Labor statistic
is the major publisher of wage and salary data
compensation consultants
larger company use_______. 86% of large companies use a compensation consultants to help them with their compensation strategy and pay mix.
compensation should be
managed strategically to ensure that costs are kept down while employee motivation and performance are kept up. Achieving such balance is no easy task.
Secrecy
misperceptions by employee concerning the equity of their pay and its relationship to performance can be created by ------about the pay that other received.
Job ranking system disadvantage
not very precise measure of each job worth, can only be used on small number of jobs, and only indicates the relative importance of the job, not the differences in the degree between jobs.
Develop compensation strategy
organizational objective are first analyze. What does the company want to be known for? what are growth projection? what are its core competencies? Then figure what type of behaviors and skills will be awarded.
motivating employees
pay constitutes a quantitative measure of an employee relative worth. For most employees, pay has a direct bearing not only on fairness, but also on the status and recognition they may be achieve both on and off job.
strategic pay
pay equal or inequality can have dramatic effects on their motivation for both work behaviors and productivity. Practices internally and externally equitable.
Red-circle rates
payment rates above the maximum of the pay range
individual equity
people compare themselves to others in their organization with the same job
internal equity
people compare themselves to peers in different jobs in the same organization
External Equity
people in similar jobs compare themselves to what others are making in different organizations
drive collaboration, not competition
provided bonus or pay rises based on combination of individual level and group level OKR
point system advantage
provides more refined basis for making judgements than either the ranking or classification system and thereby can produce results that are more valid and less easy to manipulate.
pay for performance
refer to a wide range of compensation options including merit-based pay, bonuses, salary commissions, job and pay banding , team/group incentives, and various gainsharing programs.
labor market conditions
reflect the forces of supply and demand for qualified labor within an area. These forces help influence the pay rates required to recruit or retain competent employees.
Expectancy Theory of Motivation
reflects a person's intensity or desire to achieve a goal and a belief in the likelihood of achieving that goal
the pay for performance standard
researcher found that nearly half of high performing organization come from motivating and rewarding their top talent
Evaluation-job benefit
such a job valuation system can prove effective not only in designing employee compensation, but in determining whether a job can be contracted to a local or offshore company.
compensable factors
the point system permits jobs to be evaluated quantitatively on the basis of factors or elements commonly
compensatory time
when employees are given time off in return for overtime work. Granted at 1.5 times
hourly work
work performed in most private, public, and not for profit organizations has traditionally been compensated based on ____________
Area Pay Rates
A formal pay structure should provide rates that are in line with those being paid by other employers for comparable jobs within the area.
work valuation
A job evaluation system that seeks to measure a job's worth through its value to the organization. work should be valued relative to the business goals of the organization rather than by an internally applied point factor job evaluation.
hay profile method
A job evaluation technique using three factors - knowledge, mental activity, and accountability - to evaluate executive and managerial positions
pay transparency
A policy of disclosing pay-related information. This includes information about the pay system as well as individual pay received.
Pay Secrecy
A policy that restricts employees from discussing their pay and limits the amount of information about pay that can be made public.
point system
A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it
pay for performance standard
A standard by which managers tie compensation to employee effort and performance
wage and salary survey
A survey of the wages paid to employees of other employers in the surveying organization's relevant labor market local, regional or national
balance aspirational with operational
OKR system originally came from Intel and represents a simple way of linking compensation to performance. (Set up organization objective and Set up a Key result) some OKR can be big stretch goals while others can be simply operational. Determine ratio and increase ppl performance base on their work.
Minimum wage rate
Prescribe by federal law has been raided many times from an original figure of 0.25 to 7.25
wage curve
Relationships of relative of worth of job and pay rates
Employee's Relative Worth
Rewarding individual employee performance. Employee tend to be rewarded more for merely being present than for being productive on a job.
Strategic Compensation
The compensation of employees in ways that enhance motivation and growth, while at the same time aligning their efforts with the objectives of the organization. Tool to secure competitive advantages.
Compensation Strategy
The set of rewards that organizations provide to staff in exchange for their performance of various organizational tasks and jobs.
job ranking system
The simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.
job evaluation
The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.
Expectancy Theory
The theory that motivation will be high when workers believe that high levels of effort lead to high performance and high performance leads to the attainment of desired outcomes.
Linking compensation to Organizational Objectives
Value Added Compensation --- Evaluating the individual components of the compensation program (pay and benefit) to see if they advance the needs of employees and the goals of the organization. How does this compensation benefit the organization? Does the benefit offset the administrative cost?
real wages
Wage increases larger than rises in the consumer price index, that is, the real earning power of wages
Expectancy linkage
(High effort to High Performance) Employee's perception of the probability that effort will lead to a high level of performance
pay equity
An employee's perception that compensation received is equal to the value of the work performed
Nonexempt employees
Employees covered by the overtime provisions of the Fair Labor Standards Act. Must pay one and half times their regular work in excess of 40 hours.
Exempt employees
Employees not covered by the overtime provisions of the Fair Labor Standards Act. Department of labor consider employees as exempt when they their primary duty includes, The exercise of discretion and independent judgement. Manager, Supervisors, and employees.
Worth of a Job
Establishing the internal wage relationship among jobs and skill levels
collective bargaining
Negotiations between representatives of labor unions and management to determine pay and acceptable working conditions.
Employer's Ability-to-Pay
Having the resources and profits to pay employees.
expectancy theory tool
Help determine your compensation strategy
consider additional performances
Hitting your objectives demonstrated hard work, but they do not cover everything that should be rewarded.
Piecework
Work paid according to the number of units produced
Secrecy can be
__________generate distrust in the compensation system, reduce employee motivation, and inhibit organizational effectiveness.
Consumer Price Index
a measure of the average change in prices over time in a fixed market basket of goods and services.
The national Compensation program
a statically valid and comprehensive compensation program of wage, salary, and benefit information.
job classification system
a system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades
compensation
away to increase employee loyalty and to declare the likelihood that employees will be hired away by competitors.
consumer price index (CPI)
because of inflation, compensation rates have to be adjusted upward periodically to help employees maintain their purchasing power. Employers make these changes with the help of the ________________.
