MGMT 461 Reward Systems & Performance Management Final Exam

Market Rates

"Market rates" refers to the level of compensation an organization must provide to enable it to effectively compete against other organizations in attracting and retaining qualified employees.

Salary Survey

A benchmark report consisting of market pay data for a variety of jobs conducted either on a local or nationwide basis. Used to evaluate an organization's own current pay structures and as a future compensation planning tool.

Stock Options

A benefit in the form of an option given by a company to an employee to buy stock in the company at a discount or at a stated fixed price.

Social Security

A federal program under the Social Security Act which provides for retirement, disability and other related benefits for workers and their eligible dependents.

Perquisites AKA Perks

A form of incentives generally given to executive employees granting them certain privileges or special consideration, such as memberships in clubs, physical fitness programs, financial counseling, etc. They are often informal and not standard to all employees.

Job Family

A group of related jobs usually from entry level to intermediate level to senior level. A job family can include management levels related to the purpose and scope of the supervised positions.

Pay Compression

A situation occurring when only a small difference in pay exists between employees, regardless of their knowledge, skills, abilities or experience. Ex: new hires make more than incumbents because market rate has increased in the industry but not internally/it takes more to attract new hires. GINO'S ANSWER: If you shrink entire pay range so there can't be a difference. You have compressed that box. You would do this because of "economic concerns".

Unemployment Compensation (Insurance)

A statutory benefit. Unemployment insurance is designed to provide workers who have been laid off a weekly income during short periods of unemployment. The system is run and funded by state and federal taxes paid by employers.

Pay Structure

A structure of job grades and pay ranges established within an organization. May be expressed as job grades or job evaluation points (Def of salary structure from SHRM). VARIABLES ON GRAPH: X AXIX (PAY GRADE) & Y AXIS (WAGE RATES).

Market Based Compensation System

A total compensation philosophy based on current market value conditions for attracting desired talent that takes competition and supply/demand into consideration.

Performance-based pay

A variable pay strategy that pays employees based on their individual performance and contributions, rather than the value of the job they are performing.

Non-exempt

An employee who does not meet any one of the Fair Labor Standards Act exemption tests and is paid on an hourly basis and covered by wage and hour laws regarding hours worked, overtime pay, etc.

Compa-ratio

An employees compa-ratio is an employee's base salary over the mid-point. A temperature check for salaries compared to market. The employee's hire date, time in the current position and the employee's level are key in the analysis. Less than 1.0 indicates that the employee is paid under the mid-point. More than 1.0 indicates that the employee base pay is above the midpoint in the salary range.

Pensions

An employer benefit plan funded through insurance, a trust, general assets or other separately maintained funds designed to provide employees with a monthly income benefit upon retirement.

Pay Range

Associated with pay grades (A method used to group jobs together that have approximately the same relative internal worth and are paid at the same rate), the range sets the upper and lower compensation boundaries for jobs within that range.

Skill/Managerial Skill

Attributes that are usually acquired by having done the work in the past (PM 40).

Skills Based Compensation

Based compensation on an individual's education, experience, knowledge, skills or specialized training. Based on what they can do, not what they have done.

Receivables

Benefits owed to an employee that are, or are not, currently due. Example: 401k, social security, retirement packages.

Recognition Programs

Cash programs, visibility, input, baselines/measurement, plan promotion, feedback (Cabelly sl 39).

Compensable Factors

Characteristics of job that add value to the organization, for which the organization is willing to pay for: Skill, Responsibility, Effort, and Working Conditions (WC is not value adding).

Corporate Culture and it's type

Collective attitudes, beliefs, and codes of behavior that prevail among the staff, from top to bottom, of any business. The culture is generated by individuals and their relationships with each other, and by the basic goals, orientation and context of the business. Four Major Culture Types: Caring/Paternalistic - Friendly, like extended family, teamwork, loyalty: LOVE YOUR EMPLOYEES. Ex: Zappos Integrative/High Involvement: Creative, risk taking, entrepreneurial, innovative = OWN THE MARKET, WANT BEST PEOPLE. Ex: Apple Apathetic Low interest in ppl and org Formalized and structured, predictability, stability, and consistency. DONT CARE ABOUT EITHER, JUST COLLECTING PAY CHECK. Ex: call center Exacting/Demanding Goal and results oriented, competitive, focused on winning = DONT CARE ABOUT EMPLOYEES, CARE ABOUT ORG MORE. Ex: car salesman

Total Rewards (Compensation)

Combination of total pay, benefits, recognition, training/development/jobs. and work environments that the org proves to the individual in exchange for effective ongoing work (Cabelly sl 36).

Factor Comparison

Compares specific factors of the job. Ex: Apple price vs. Banana price.

Point Factor

Compares specific job factors. Breaks job into factors, weighs factors, assigns standards to the weights, rates the job. Widely used, archaic, not fit for service or engineering industry, but good for manufacturing industry.

Factor Comparison

Compares specific job factors. Complex and Costly. Don't use it.

Compensation

Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

At risk pay AKA variable pay

Compensation that is contingent on discretion, performance or results, that does not include base pay. It is pay based on performance rather than time spent on the job or the value of the job. The most common type of variable pay is sales commission. *You're at risk of losing your pay if you don't meet performance requirements. Other at risk pay forms include: Profit Sharing, gain sharing, group incentive, recognition awards.

COLA

Cost of Living Adjustment. An annual adjustment in wages to offset a change in purchasing power, as measured by the Consumer Price Index. The Consumer Price Index is used rather than the Producer Price Index because the purpose is to offset inflation as experienced by the consumer, not the producer. SHORT ANSWER: A change in buying power according to a shift in the consumer price index. In terms of compensation you will be paid more.

Salary

Derived from the Latin word "salarium", which means "salt money". Employee's average tenure is three years. The average 34 year old has worked for 9 corporations.

Equity Theory

Employees will compare their own efforts to other employees' efforts and decide if the reward was worth the effort. Ex: PJ spent an hour on an essay and got an A, Yahara spent 8 hours on an essay and got a C. Yahara will compare her efforts to the grade received to determine if grading was fair. YOU ARE TRYING TO EXPLAN SYSTEM: DETERMINE IF SYSTEM IS FAIR THROUGH THE COMPARISON.

Fringe Benefits

Employment benefits granted to employees in addition to their current base salary or wages (i.e., cash, merchandise, services, health insurance, pension plans, holidays, paid vacations, etc.).

New Pay

Focus on key organizational goals (cascade), excellence, Constant communication (no secrecy), customize the plan for the circumstances, recognize/encourage desired innovation, goals, behaviors (discourage all else). Constant experimentation. PAYING PERSON FOR THE JOB.

Cost Sharing

For insurance. If insurance costs a company $3,000, company can offer cost sharing to pick up $X or X% of the bill and employee pays the rest. EMPLOYER AND EMPLOYEE PICK UP TABS TOGETHER.

Responsibility/Accountability

Found in the job description. Clusters of tasks based on their degree of relatedness. Is a broad area of the job for which the employee is responsible for producing results (PM 108).

Merit Pay

Given as an addition to base pay based on past performance as a long term incentive. Ex: stock incentives (PM 11).

Ranking/Paired Comparison

Good for small firms. Create a Matrix with each job, go through and compare two jobs at a time then rank based on who was chosen more often. Ex: comparing whole Apple to whole Banana.

Bonuses and Plans

Gratuity given as gift, or compensation earned as reward upon achieving a goal or milestone. Used as short term motivation, does not affect base pay (PM 11). Read more: http://www.businessdictionary.com/definition/bonus.html#ixzz3UR7scoDP.

Pay the Job

How much will job benefit my company? The more valuable the job, the higher the pay. Includes seniority and merit pay.

Pay the Person

How valuable is this person to the company? The higher their value, the higher pay they will receive.

Job Evaluation

Identifies the relative worth of the job to the organizations (NOT performance appraisal). Systematic way to compare jobs (Cabelly sl 8).

Cost Containment

Implementing preventative policies that reduce future costs. Ex: implementing wellness plans to reduce likelihood of major health problems allows a company to offer insurance policies with less coverage = lower costs. WANT TO DO SOMETHING NOW TO CONTAIN COST LATER.

Grossing Up

Include tax on top of bonus so it comes out to what you wanted. Ex. You want someone to get exactly $10,000, so you pay then $13,000. Thus, you are grossing up.

Pay Secrecy

Increases the tendency for employees to perceive the compensation system as unfair whether it is or not. A potential impact of perceived unfairness is that an employee performing at a high level may reduce his performance to that of lower performers who he believes to be receiving the same pay. Pay in the public sector is open (by law) pay in the private sector is confidential.

Effort/Mental Demands

Individual Equity Theory:Amount of you work you put in your job and you are comparing the mental efforts with another person in the job.

Equity (Individual, Internal, External)

Individual: compare employee outcome/input ratio to other output/input ratios. Internal (relative worth of job within organization, job evaluations): When an organizations looks at its own job and how it pays for these jobs given the job's relative importance amidst the organization's values and business models. Generally verified by job evaluations. Internal equity can be looked at in a variety of ways: from an informal look by using the whole job method to a formal look by using a point-factor method. External (market forces, supply/demand, conduct salary surveys): comparing your employee pay against similar positions in the market. Typically, market pay for lower-level employees is the immediate area. as positions get more senior with skills more difficult to find, then the labor market can extend over several states to a global search. External Equity is generally verified with salary surveys.

Classification

Job Evaluation: Good for large firms. Ex: Government, GS system. GS 45 is the same job in Virginia as it is in Texas (with COLA considerations). Ex: Apple vs. FDA standards. COMPARE WHOLE JOB TO STANDARDS.

Job Description

Job related information only. Outlines the specific job duties, basic requirements, including job title and responsibilities of a position. Crucial in salary decisions: position's market value (Koss 53).

Benchmark (or key) Job

Jobs that are fairly common outside the organization and are easy to compare to similar jobs in most salary surveys. examples: accountant, receptionist, engineering tech.

Competencies

KSAs that employees must possess in order to successfully perform job functions that are essential to business operations.

Compensation Committees

Made up of a leader, member, facilitator, and content expert. Come together to design compensation systems of a company and set appropriate and supportable pay programs.

National Labor Relations Act (NLRA)

Makes it illegal for employers to limit employees from discussing compensation among one another.

Lies and Statistics

Mean, median, mode can be manipulated.

Exempt

Not covered by FLSA. What makes exempt= the responsibilities of the job. The worker is finished when the job is done; required to be there until the job is done. Can be paid hourly or salary. *if employee is paid more than $455 a week on a salary basis = exempt.

Working Conditions

One of the four job factors outlined in job evaluation. Also part of rewards package. Ex: telecommuting options, relaxed dress code, social functions, remove time clocks (Cabelly sl 41)

Traditional Pay

Pay jobs, instead of people: look to job evaluations for pay range (hourly, yearly) or individual salary determinants: seniority, COLA, Merit/Performance, Bonuses, some group plans, secrecy/managerial discretion (Cabelly sl 10). SENIORITY, MERIT PAY, JOB EVALS, and COLA.

Variable Pay AKA At Risk Pay

Pay that is not guaranteed unless goals are met.

Job Specification

Person-related information only: KSAs, Education, Experience, Certifications (Cabelly sl 8).

Americans with Disabilities Act

Requires covered employers to provide reasonable accommodations for applicants and employees with disabilities and prohibits discrimination on the basis of disability in all aspects of employment. Disability means- He or she has a physical or mental impairment that substantially limits one or more of his/her major life activities; He or she has a record of such an impairment; or he or she is regarded as having such an impairment.

Quartiles

Salary ranges broken up into 4 equal parts that define the minimum and maximum salary ranges. Ex: 0-25k, 25k-50k, 50k-75k, 75k-100k. Red circle/green circle: On a graph... Red circle: Pay more than the wage average of the job, harder to justify wage increase Green circle: Pay less than the wage average of the job, easier to justify wage increase.

Fair Labor Standards Act (FLSA)

Sets out various labor regulations regarding interstate commerce employment, including minimum wages (federal mini wage = $7.25), requirements for overtime pay (1.5 times), pay equality for women and men in the same job, limitations on child labor and recordkeeping requirements.

Incentive Systems

Short term- 1 year or less; involves a situation where there are cash awards based on performance; the at-risk (variable pay) nature provides motivation to meet the goals. Example: bonuses, recognition, gifts. Long term- often based on business unit, department, or corporate numbers. These types of incentives are predominantly paid in stock for publicly-traded companies, and private companies use awards that mimic stock. Example: stock options, 401k, sabbaticals. Individual- based on meeting work-related performance standards in terms of quality, productivity, customer satisfaction, safety, or attendance, for example. These are most appropriate when performance can be measured objectively and employees have control over the outcomes. Example: merit pay based on performance( not skills) or performance-based pay. Group- are most effective when all group members have some impact on goals. You can choose the best implementation: rewards can be equal for each member or can be differentiated. However, be sure you can measure and substantiate performance if you're going to differentiate. Going this route requires a thorough understanding of team dynamics. Ex: Merit pay based on skills, not performance. Organizational- Organizational incentive plans are rewards based on performance of the entire organization. Ex: profit sharing, gainsharing, or bonus pools based on performance.

Pay Inversion

Situations in which the starting salaries for new recruits to an organization increase faster than those for existing employees. It typically happens in areas where the demand for suitably qualified professionals exceeds the supply of such professionals in the market.

What are the three most common/traditional individual salary determinations?

Skills, Merit, Seniority

Worker's Compensation

State laws enacted to provide workers with protection and income replacement benefits due to an illness or injury suffered on the job. Employers must carry appropriate workers' compensation insurance, as required by state law, or have a sufficient source of funding for claims incurred.

Seniority

Status determined by the length of time an employee has worked for a specific employer, department or position within the organization.

Overtime

The FLSA requires overtime to be paid at 1.5 times the regular hourly rate for all hours worked in excess of 40 hours during a seven-day work week.

Validity

The degree to which a test or other assessment instrument used during the selection process measures the skills, knowledge and abilities or other related job qualifications. MAKING SURE THAT THE TEST U ARE USING IS MEASURING WHAT U ARE LOOKING FOR.

Pay Satisfaction

The difference between what the employees believe they should be paid versus what they are actually paid. If these perceptions are equal, then an employee has pay satisfaction. HOW HAPPY SOMEONE IS WITH THE PAY.

Midpoint (Pay Value)

The halfway point between the range minimum and maximum rates. An organization in a competitive market meets the market by paying midpoint.

Broadbanding

The most commonly used pay structure To collapse job classes into few categories, usually about five. Each of the broader categories is called a band. Provides more flexibility in rewarding people. Not good because ev. janitor and asst manager in same pay range; it is going to drive salary down and its not fair because you will have both skill level jobs in the same pay range.

Essential Functions

The primary job functions or tasks that an individual must be able to perform with or without a reasonable accommodation.

Job Analysis

The process of determining key components of a particular job, including activities, tasks, products, services and processes. Fundamental prerequisite of any PM system. Can be done using observations, questionnaires, or interviews (PM 40). Includes Job Descriptions, Specifications and Evaluations (Cabelly sl 7).

Benefits

Tradition benefits include insurance, retirement and time not worked (PTO). Advanced benefits include child/elder care, wellness, counseling. Legally required benefits: SS, Worker's comp, unemployment comp, breaks, FMLA, Others? Why do we offer? Everyone doe it and it attracts/retains/rewards employees.

Lump Sum

Usually method for Merit pay. Receive incentive in one chunk.

Wage Rates

Wage is monetary compensation (or remuneration) paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done.

Team Based Pay

When we pay the team! (eHow.com): Team-based pay is a system of compensation in which managers at a company reward members of a project or a department team with bonus compensation or pay increases based on their performance or the successful completion of goals. Unlike individual reward schemes, such as commission-based pay, team-based pay rewards the output of the team as a whole and divides the rewards equally among team members.