Compensation Management

1. Scanlon plans

** looks at Labor Costs/Sales value of production (SVOP) -Emphasis on teamwork -Two-tiered cost savings suggestion system -Production-level committees -Screening committees -Rewards = Labor costs/SVOP -Smaller Scanlon ratios show that labor costs are lower relative to SVOP

Incentive pay

**ONE TIME PAYMENT** Compensation fluctuates according to: -A preestablished formula -Individual or group goals -Company earnings Adds to base pay Controls costs - NOT an entitlement Motivates employees

Longevity

*-Additional pay for employees at their pay grade max* -A form of seniority pay -Used for most government jobs -Designed to reduce turnover -General Schedule system = Longevity Pay used by federal employees

Merit Based pay

*Pay for performance, most commonly used pay system* -Pay increases based on performance -Reward excellent effort or results -Motivate future performance -Help retain valued employees -In 2013, average merit increase ranged between 2.5 and 2.8% -Merit pay increase variance about 4% yearly within company

Errors of central tendency

*central tendency - rate all employees as average*

Seniority Pay

*employees perceive that they are treated fairly - seen as objective* -Designed to award job tenure -Based on human capital theory -Set base pay with time-designated increases -Employees perceive that they are treated fairly - seen as being objective -Facilitates administration of pay -Avoids perception of favoritism -Poor fit with most competitive strategies

Profitability Threshold

*use a floor and ceiling structure for rewarding employees* sets both a minimum and maximum level of profits for incentive

Individual contributions

-Pay STRUCTURES: pay is determined by employees' credentials, job knowledge, and job performance -Pay GRADES: based on compensable factors and value -Pay RANGES: builds on grades, uses midpoints, minimums, and maximums

HIPPA contin.

1. Guarantees ready access to coverage under a subsequent employer's health plan, regardless of their health or claims experience 2. Sets limits on the length of time that health plans and health insurance issuers may impose preexisting conditions 3. Counts periods of continuous coverage under another form of comprehensive health coverage toward a preexisting condition limit 4. Protects the transfer, disclosure, and use of health care information

3 goals of compensation

1. Internal consistency - job itself ****** 2. Market competitiveness - considered what others being paid 3. rec. of indiv. contributions - merit, incentive, skill based.

1. Internal consistency

Achieved when the value of each job is clearly defined -Represents Job structure Hierarchy -Achieved using Job analysis Job evaluation

Seniority Pay - advantages/disadvantages

Advantages: -Employees become more valuable over time -Rationale based on the human capital theory2 Disadvantage: -Good employees may leave if not compensated fairly

child labor provision in FLSA

Age 14 and younger can't work Age 14 and 15 can work 3 hours on school nights 18 hours a week during school 40 hours a week when school is out Age 16 and 17 No hourly restrictions Can't work in hazardous conditions "Child labor provisions intend to protect children from being overworked, working in hazardous settings, and having their education jeopardized due to excessive work hours. "

ADEA

Age discrimination act -protextion for workers age 40+ in all employment decisions

3. Improshare plans

Based on productivity not labor savings = units produced - standard -Measure productivity physically rather than in terms of dollar savings -Incentive to finish products -Bonuses paid on a weekly basis based on a ratio of standard labor hours to actual labor hours -Includes a buy-back provision

Types of rater errors - differentiate (three questions from different major error types)

Bias errors Contract Erros Errors of central tendency Errors of leniency or strictness

Bias errors

Bias errors happen when rater evaluates employees based on a negative or positive opinion of the employee rather than on the employee's actual performance.

Chapter 1

Chapter 1

Chapter 4

Chapter 4

Deferred vs Current Profit Sharing Plans

Current: Award cash to employees typically on a quarterly or annual basis Deferred: *** for employee retirement *** place cash wards in trust accounts for employees

Discretionary VS required benefits exxamples

Discretionary: -Protection programs - provide family benefits, promote health, and guar against income loss caused by such catastrophic factors such as unemployment, disability, or serious illness. -Paid time off -Services - such enhancements as tuition reimbursement and day care assistance to employees/families. Required Benefits: -Promote worker safety/health -maintain family income -assist families in crisis -provide assistance (disability & unemployment)

Over time pay calculation

Do a minimum wage problem - overtime pay math problem"

COBRA - Consolidated Omnibus Budget Reconciliation Act of 1985

Employees may choose to continue health insurance (generally, up to 18 months) if their coverage otherwise ceases due to: -Termination -Layoff -Other change in employment status "-Can continue to get health insurance from the company -Pay for it themselves " -Companies with fewer than 20 workers -Church plans -US government plans

Equal vs Differential incentives payment approach - advantages/disadvantages

Equal incentive payments - reinforce team work & ***build cooperation unless they believe workers do more/less work*** Differential payments - based on contribution to goals and according to base pay

FLSA exempt positions

Executive & administrative Professionals (learned or creative) Computer positions Outside sales Most other jobs are nonexempt. Nonexempt jobs are subject to the FLSA overtime pay provision.

Bias erros continued

First-impression effect (obvi) Positive halo effect (good TRAIT overrules all traits) Negative halo effect (bad TRAIT overrules all traits) Similar-to-me effect (bias on same personality) Illegal discriminatory biases (unconscious unbia) (race, gender..)

Graduated first-dollar vs Fixed first-dollar plans

Fixed first-dollar-of profits 7% of corporate profits Graduated first-dollar-of profits **gradually increase the amount rewarded (note gradually is a relative term)*** 3% of the first $8 million of profits and 6% of the profits in excess of that level

disparate impact VS disparate treatment title VII

Impact: in United States labor law refers to practices in employment, housing, and other areas that adversely affect one group of people of a protected characteristic more than another, even though rules applied by employers or landlords are formally neutral. -Awarding pay increases to male and female workers based on seniority when females had less seniority (not intentional) Treatment: example: women getting paid less BECAUSE she's a woman -is one kind of unlawful discrimination in US labor law. In the United States, it means unequal behavior toward someone because of a protected characteristic (e.g. race or gender) under Title VII of the United States Civil Rights Act.

Incentive VS Merit VS Seniority pay systems

Incentive: Variable pay - rewards employees for partially or completely attainting a predetermined work objective. Compensation that fluctuates. (bonus-commission-profit sharing) merit: programs assume that employees compensation over time should be determined by differences in job performance. Rewards excellent effort or results, motivates future performance and helps employers retain valued employees. Usually based on performance of "last year" Seniority: pay systems reward employees with periodic additions to base pay according to employees length of service in performing their jobs Seniority pay, merit pay, and incentive pay enable companies to recognize the changing impact of employees over time, presumably, as they become more valuable.

Gain sharing continued 3 common forms of gain sharing : below

Incentives based on company performance in -Increased productivity -Increased customer satisfaction -Lower costs -Better safety records -Based on open leadership -Involves employee participation -Includes bonuses

Differentiate between individual, group/team & company incentive plans

Individual: quantity/quality of work, sales, attendance - helps pay to performance - retain best performers Group/team: collective performance, easier to measure in groups, two types-team based/small group or gain sharing (customer satisfaction, labor cost savings, reduction in accidents) Company:

define: stakeholders

Individuals or entities directly affected by compensation practices Employees rely on compensation professionals to: -Develop and implement systematic training programs -Inform them of training and pay links -Offer discretionary benefits that provide: Income protection Paid time off Services

What is compensation?

Intrinsic = psychological Extrinsic compensation = monetary and non monetary rewards

Errors of leniency or strictness

Leniency: *rate all employees too high* Leniency errors -> managers rate employees' performances more highly than they would rate them using objective criteria (facts) Causes employees to believe they are going to receive larger pay raises than they deserve Strictness: *rate all employees too low* Strictness error -> supervisors rate employees' performance lower than they would rate them using objective criteria

Line employees

Line managers rely on compensation professionals to: -Ensure knowledge of relevant laws to help them make sound compensation judgments -Advise for establishing pay differentials -Train them how to properly evaluate jobs

HIPPA (Health Insurance Portability and Accountability Act of 1996)

Makes it easier to move between health insurance plans when changing jobs provides data privacy and security provisions for safeguarding medical information. Strengths patient's privacy rights

Elements of adjustments to core compensation

Merit pay incentive pay seniority pay people focussed pay vs skill based

Fair labor standards Act

Minimum wage 7.25 nation wide / 8.25 Illinois equal pay child labor - under age 14 generally not legal

Monetary Rewards VS Non-Monetary Rewards examples

Monetary: (core compensation) -Base pay = [ hourly wage & annual salary ] Nonmonetary: (employee benefits) Daycare vacation health care

Elements of merit pay

Most commonly used pay system Based on objective and subjective indicators of job performance Periodic performance reviews Pay increases reflect performance & rater's view of performance (favoritism ?) Works well if job aspects carefully selected, correctly rated & well communicated

PPACA - Patient Protection and affordable care act of 2006

Primary Goals: - Reduce the number of uninsured in U.S. - Help more children get health care - End lifetime & most annual limits on care - Allow young adults (under age 26) to stay on parent's insurance plan - Give patients access to free preventive care obamacare

americans with disabilities act

Prohibits discrimination of employees with disabilities Reasonable accommodations such as: `Making existing facilities -readily accessible -Job restructuring -Modifying work schedules Defines "qualified individuals with disabilities" Enforced by EEOC -Cant discriminate workers that are otherwise qualified

civil rights act 64

Promotes equal employment opportunities for minorities (treatment/impact)

Piecework plans

REWARS FOR EACH ITEM PRODUCED Types of individual incentive plans (these plans reward employees whose work is performed independently ): reward workers for every item produced over a designated production standard Piece-rate pay gives a payment for each item produced - it is therefore the easiest way for a business to ensure that employees are paid for the amount of work they do. Piece-rate pay is also sometimes referred to as a "payment by results system"

ERISA- Employee Retirement Income Security Act of 1974

Regulates the implementation of various employee benefits programs, including: -Medical, life & disability insurance & Pensions -Regarding plan's: disclosure & reporting, funding, fiduciary responsibilities & vesting "You can deduct this as a business expense - best part of it "

company

Rewards employees when company meets performance standards Two types Profit sharing plans Employee stock options measures: Company profits Cost attainment Market share Sales revenue

Civil rights act of 1991

Shifts burden of PROOF of disparate impact to employers Filing of discrimination claims changed U.S. citizens working overseas may file suit against U.S. businesses for discriminatory employment practices -Proof from the employer that it was appropriate -Guilty until proven not guilty

Base pay - compensable factors

Skill effort responsibility and working condition

Davis-Bacon Act

Standards for contractors with federal contracts - must pay employees at least the prevailing local wage Applies to on-site laborers and mechanics Must offer comparable benefits -Contractors do business with federal government

Contract Errors

Supervisor compares employees' performances to other employees not performance standards. Contract errors take place when rater compares the employee to other employees rather than to specific performance standards. This is an error because the employee is required to perform only at minimally acceptable standards.

Gain Sharing plans

TYPE OF GROUP INCENTIVE SYSTEM Most gain sharing programs have three components 1. Leadership philosophy 2. Employee involvement systems 3. Bonuses

various Performance Appraisals/merit pay systems -differentiate (several questions on the test in this topic)

Trait systems Comparison System Behavioral system Goal oriented system

Cobra continued

Up to 18 months for individuals and their spouses and dependents May extend for up to 36 months for spouses and dependents facing a loss of employer-provided coverage because of an employee's: -Death -Divorce -Legal separation -Other (termination, retirement, layoff)

define: Total compensation strategies (in general)

Uses compensation to support HR and corporate strategies

2. Rucker plans

Value added/Labor Costs -Emphasizes employee involvement -Uses a value-added formula (value added/total employment costs) Value of sales price Value of materials used Total labor costs -Larger ratios show that the value added is greater than the total employment costs

Market Competitiveness

Why do we do this? -get a sense if we are paying right Compensation policies that fit with business objectives Vital in attracting and retaining employees Are based on: Strategic analyses Compensation surveys

parallel teams (task forces) (apart of teams for group/team plans)

Work at the same time under multiple manager-employee arrangements include employees assigned to work on a specific task in addition to normal work duties

Behavorial anchored rating scales (BARS) slide 3-16

are designed to bring the benefits of both qualitative and quantitative data to the employee appraisal process. BARS compare an individual's performance against specific examples of behaviour that are anchored to numerical ratings. highly defensible

chapter 2

chapter 2

chapter 3

chapter 3

Compensation surveys

collect and analyze competitors compensation data wage and salary practices

examples of who are organizational stakeholders: (bullets)

employees Line Managers - manage production/sales Executives Unions US Government

referral plan

employees receive bonuses for recruitment of highly qualified employees

Strategic analysis

entails an examination of a companies external market context and internal factors

differentiation strategy

focus on offering unique goods or services to the public Effective when jobs: Require highly creative behaviors Have a long-term focus Demand cooperation and independence Involve risk-taking Ex: P&G differentiates Eukanuba from Iams (Brand image and price premiums) In differentiation strategy the main emphasis is generally not on increasing employee productivity. Employees usually have jobs that require highly creative behaviors, a relatively long-term focus, cooperation and independence, and greater degree of risk taking. For example, P&G differentiates Eukanuba from Iams by brand image and price premiums. Iams is considered a super-premium product line. Eukanuba is considered an ultra-premium line that contains more chicken and vital nutrients that promote shiny and healthy coats. P&G charges premium prices for this line, which allows it to invest more in research and product development.

Exec Order 11478

gives federal employees protection similar to Title VII, ADA & ADEA prohibited discrimination in the competitive service of the federal civilian workforce on certain grounds.

Source of performance appraisal info 360 performance appraisal

includes: bosses, employees, customers, etc. -Uses more than one appraisal source -Reduces recruiting and hiring costs -Appropriate for work team evaluations 360-degree performance appraisals use more than one appraisal source. It helps companies to reduce the costs of recruiting and hiring. It is more appropriate for work team evaluations since employees can rate each other.

Easier to measure performance of a group rather than an

individual

Competitive strategy choices: Low cost VS differentiation

low cost: focus on being lowest cost producer/seller of goods or services Effective when jobs: Include predictable behaviors Have a short-term focus Require autonomous activity Focus on quantity of output Lowest-cost strategy is generally used for jobs that include repetitive and predictable behaviors, have a short-term focus, require autonomous or individual activity, and focus on quantity of output. Ryanair can be given as an example of this type of strategy. Ryanair pursues lowest cost by reducing operating costs. By using only one type of aircraft, they minimize aircraft training and maintenance costs. Seating cost and labor costs are minimized because seats do not recline and seat-back pockets are stowed under the seat. Their aircraft includes only one toilet to make room for additional seats. Moreover, baggage handling costs are reduced because passengers are required to carry their luggage.

Goal oriented system

management by objective rated on how well objectives are met

Spillover effect

non-union companies mirror unionized compensation practices -Managers will give in to the nonunion workers who are practicing what the unions are doing! Keep the union out - managers will do whatever they want.

Trait Systems

rates employees characteristics centers on attributes such as helpfulness, dependability and punctuality

Management incentive plans

reward for attaining goals

Pay for knowledge

rewards managerial, service, or professional workers for successfully learning specific curricula.

job evaluations

systematically to recognize differences in the relative worth among a set of jobs and to establish pay differentials accordingly. job itself be paid, worth, value of it range of pay --> not exact amount job analysis- job specifications/discription

Skill based pay

used mostly for employees who perform physical work, increases these workers' pay as they master new skills.

Welfare practices

were generous endeavors undertaken by some employers, motivated in part to minimize employees' desire for union representation, to promote good management and to enhance worker productivity. Examples: libraries, paid schooling, paid living, recreational areas, home purchases/improvements. Google