Compensation Management

social security

about one half of US companies do not employ the cost cutting strategy, once a company has targeted the level of income it wants to provide employees in retirement, it makes sense to design a system that integrates private pension and social security to achieve that goal, any other strategy is not cost effective

insurance laws

all workers except a few agricultural and domestic workers are currently covered but covered workers must still meet eligibility requirements to receive benefits

advantage of a reduction in force RIF

also reduces benefits costs, something that a pay cut, furlough, or reduction in hours ordinarily does not achieve

turnover effect calculation

annual turnover multiplied by the planned average increase

claim processing

arises when an employee asserts that a specific event has occurred and demands that the employer fulfill a promise of payment, a claim processor must first determine whether the act has occurred, if it did occur the second step involves determining if the employee is eligible for the benefit.

top down budgeting

begins with an estimate from top management of the pay increase budget for the entire organization, once total budget is determined, it is allocated to each manager who plans how to distribute it among subordinates

stock appreciation rights

cash or stock award determined by increase in stock price during any time chosen in the option period, taxed as ordinary income does not require executive financing

salary plateaus arise

causes many scientists and engineers to make career changes such as moving into management or temporarily leaving business to update their technical knowledge

financing

in most states unemployment compensation paid out to eligible workers is financed exclusively by employers that pay federal and state unemployment insurance tax

cost containment prevalent practices

probationary periods, benefit limitations, and copay

cobra

provide current and former employees and their spouses and dependents with a temporary extension of group health insurance when coverage is lost due to qualifying event, all employers with 20 or more employees must comply and may charge individuals up to 102 percent of the premium for coverage which can extend up to 36 months

health maintenance organization

pulls together a group of providers willing to provide services at an agreed upon rate in exchange for the employer limiting employees to these providers for health services

green circle rates

refer to instances where employees are paid below the minimum

turnover effect

referred to as churn or slippage recognizes the fact that when people leave they typically are replaced by employees who earn a lower wage

third concept of cost of living

refers to the expenditure patterns of individuals for goods and services, cost of living is more difficult to measure because employees expenditures depend on many things: marital status, number of dependents and ages, personal preferences, location, and so on

vesting

refers to the length of time an employee must work for an employer before they are entitled to employer payments made into the pension plan

maturity curves

reflect the relationship between scientist/engineer compensation and years of experience in the labor market

second injury funds

relieve an employers liability when a pre employment injury combines with a work related injury to produce a disability greater than that caused by the latter alone

maintenance act 1973

required employers to offer alternative health coverage options to employees

for equity purposes

scientists and engineers tend to compare themselves with graduates who entered the labor market when they did

question of equity

second problem in designing the compensation package of scientists and engineers centers on the question of equity

price changes for goods and services in the product and service markets are measured by

several government indexes, one of which is the consumer price index

processes transactions

standardizes forms, performs some analysis, and creates reports at the click of the mouse

firm size

the best predictor of CEO compensation according to a recent article analyzing the results from over 100 executive pay studies

movement to outsourcing

the biggest cost containment strategy in recent years

planned pay level rise

the percentage increase in average pay for the unit that is planned to occur

dual career ladder

to deal with the plateau effect and also accommodate the different career motivations of mature scientists and engineers

Factors contributed to growth in benefits costs

wage and price controls, unions, employer impetus, cost effectiveness of benefits, and government impetus

red circle rates

when employees are paid above the range maximum

if the CEO is not underpaid and the company is doing poorly

a compensation consultant is hired, the result is that the consultant recommends a wage increase to avoid future turnover

surveying organizations

ask for information about salaries as a function of years since the incumbents last received a degree

long term incentives

assess performance over a period of longer than one year

components of an executive compensation package

base salary, short term incentives or bonuses, long term incentives, benefits, perquisites

portability

become an issue for employees moving to new organizations

workers compensation

covers injuries and diseases that arise out of and while in the course of employment

demand for labor

derived demand

communication portals

designed for employees or managers and explain compensation policies and practices, answer frequently asked questions and explain how these systems affect their pay

hippa

designed to lessen an employers ability to deny coverage for a preexisting condition and prohibit discrimination on the basis of health related status

flexible benefit plan

employees are permitted great flexibility in choosing the benefit options of greatest value to them, they are allotted a fixed amount of money and permitted to spend that amount in the purchase of benefit options

employee self service

employees can access their personal information, make choices about which health care coverage they prefer, allocate savings between growth or value investment funds, assess vacation schedules, or check out a list of child or elder care service providers

standard benefit package

employees have not been offered a choice among employee benefits

defined contribution plan

employers makes provisions for contributions to an account set up for each participating employee

probationary periods

excluding new employees from benefit coverage until some term of employment is competed

social comparisons

executive salaries bear a consistent relative relationship to compensation of lower level employees

work classifications

explaining in the new economy is a challenge, working through a temporary help agency usually means low pay in administrative or day labor positions

popular perks offered to executives

first-personal use of corporate aircraft last-housing allowance

executives ensure themselves high compensation

from the experience of a well known executive compensation consultant now turned critic who specialized for years in the design of executive compensation packages

the patient protection and affordable care act 2010

requires individuals to maintain minimal essential health insurance coverage or pay a penalty unless exempted for religious beliefs or financial hardship. employers must enroll new employees or face a levy

erisa

requires that employees be eligible for pension plans beginning at age 21, employers may require 12 months of service as a precondition for participation, service requirement may be extended to 3 years if the pension plan offers full and immediate vesting

copay

requiring that employees pay a fixed or percentage amount for coverage

401k plan

savings plan in which employees are allowed to defer pretax income

affordable care act

signed into law in 2010 and its provisions as they affect employers came into full effect in 2018, aimed to expand health care coverage through both an individual mandate to purchase health insurance and an employer mandate to provide qualifying health insurance coverage or face financial penalties

compensation software

transforms data into useful information and guides decision making

benefits increase retention

two studies found that higher benefits reduced mobility, only two specific benefits curtailed employee turnover: pensions and medical coverage

executive benefits

typically receive higher benefits than most other exempt employees beyond the typical benefits, they receive additional life insurance, exclusions from deductibles for health related costs and supplementary pension income exceeding the maximum limits permissible under ERISA guidelines for pension plans

executive perquisites

"perks" life at the top has its rewards designed to satisfy unique needs and preferences paying for an executives death, cash allowances averaging 32000, personal cars and chauffeur, family birthday parties over $2 million

2 components of vesting

-any contributions made by the employee to a pension fund are immediately and irrevocably vested -must vest at least as quickly as one of the following formulas

advantages of flexible benefit programs

-employees choose packages that best satisfy their unique needs -flexible benefits help firms meet the changing needs of a changing workforce -increased involvement of employees and families improves understanding of benefits -flexible plans make introduction of new benefits less costly. any new option is added merely as one among a wide variety of elements from which to choose -cost containment organization sets dollar maximum employee chooses within that constraint

disadvantages of flexible benefit programs

-employees make bad choices and find themselves not covered for predictable emergencies -administrative burdens and expenses increase -adverse selection employees pick only benefits they will use the subsequent high benefit utilization increases its cost -flexible benefit plans are subject to nondiscrimination requirements in section 125 of the internal revenue code

2 formulas

-full vesting after 3 years -20 percent after 2 years and 20 percent each year after resulting in full vesting after 6 years

eligibility requirements to receive benefits

-must meet the state requirement for wages earned or time worked during an established period of time referred to as a base period, this is usually the first four out of the last five completed calendar quarters prior to the time that your claim is filed -you must determine to be unemployed through no fault of your own and meet other eligibility requirements of state law

2 characteristics of special groups

-tend to be strategically important to the company, if they dont succeed at their jobs success for the whole organization is in jeopardy -their positions tend to have built in conflict, conflict that arises because different factions place incompatible demands on members of the group

4 major objectives of unemployment insurance program

-to offset lost income during involuntary unemployment -to help unemployed workers find new jobs -to provide an incentive for employers to stabilize employment -to preserve investments in worker skills by providing income during short term layoffs

federal tax amount

0.6 percent of the first $7000 earned by each worker

decentralized

a management strategy of giving separate business units the responsibility of designing and administering their own systems

restrict employers ability to provide benefits for executives that are too far above those of other workers

cover a broad cross section of employees provide definitely determinable benefits meet specific vesting and nondiscrimination requirements

cobra 1984

employees who resign or are laid off through no fault of their own are eligible to continue receiving health coverage under employers plan at a cost borne by the employee

outside directors

harder to bring up to speed about a companys values and environment but are less prone to bias than internal directors

salespeople

heavily motivated by financial compensation, they rank pay significantly higher than five other forms of reward 78 percent ranked monkey as the number one motivator, with recognition and appreciation being ranked as the number two motivator

manager self service

helps managers pay their employees appropriately

factors that influence the decision of how much to increase the average pay level for the next period

how much the average level was increased this period, ability to pay, competitive market pressures, turnover effects, and cost of living

financial planning

integral to managing compensation

any decision to increase the average pay level

is in part a function of the organizations financial circumstances, financially healthy employers may wish to maintain their competitive positions in the labor market or share financial success through bonuses and profit sharing, financially troubled employees may not be able to maintain competitive market positions

derived demand

it depends on the demand for the companys product

benefit limitations

it is not uncommon to limit disability income payments to some maximum percentage of income and to limit medical/dental coverage for specific procedures to a certain fixed amount

centralized

locates the design and administration responsibility at corporate headquarters

experience rating

lower percentages are charged to employers who have terminated fewer employees

family medical leave act 1993

mandates 12 weeks of leave for all workers at companies that employ 50 or more people

duration

maximum number of weeks to collect was 26 weeks, in 2008 congress enacted the emergency unemployment compensation program and provided 53 weeks, in 2013 it returned to 26 weeks

CPI

measures changes in prices over time, changes indicate whether prices have increased more or less rapidly in an area since the base period, a higher score does not mean that it cost more to live there, just that prices have risen faster since the base year

old age, survivors, disability, health, and medicare

money to pay these benefits comes from the social security contributions made by employees, their employers, and self-employed people during working years

because of the volatile nature of both jobs and salaries

organizations rely very heavily on external market data in pricing scientist and engineer base pay which results in maturity curves

short term incentive plan

primarily designed to motivate better short term one year or less play a major role in executive compensation