MGT 421 exam

Compensation survey: weaknesses

-wide variation in pay rates across companies, making it difficult to build market-competitive pay systems -data is outdated because there is a lag between when the data were collected and when employers implement the compensation plan based on the survey data -professionals must use statistical analyses to integrate their internal job structures (based on job evaluation points; see Chapter 6) with the external market based on the survey data

graduated vesting

20% vesting after 2 years 20% additional vesting each additional year 100% after 6 years Plan can vest faster

medicaid

A federal and state assistance program that pays for health care services for people who cannot afford them. Medicare coverage to those not yet at retirement age bu unable to work (ex: disabled) Can be managed at the state level

• Job family

A group of individual jobs with similar characteristics

• Outlier

A value much greater or much less than the others in a data set

qualified plan requirement

Accrual rules The minimum rate at which plan participants accrue benefits Governed by IRS rules

• Understanding pension benefit calculation

Average of 3 best performance years

green circle pay rates

Below-minimum pay range

social security-retirement

Benefits are paid based on an equation Participating citizens get annual statements discussing their benefits at retirement using current rules Retiring at age 62 provides partialbenefits Retiring between age 65 and 67 provides full benefits Original goal was to pay benefits for 18-24 months Average social security monthly retirement benefit=$1,503 Maximum monthly benefit=$3011

social security-survivors

Benefits depend on multiple factors

• Broadbanding

Combining several salary grades or job classifications with narrow pay ranges into one band with a wider salary spread.

• Wellness programs: how do companies gauge success

Commonly strats with biometric screening and health assessment Employees who make particular improvements get discounts on insurance premium

• Professions' access to discretionary benefits

Companies try to spark job candidates' interest by communicating the positive features of the core compensation and employee benefits programs. Companies use compensation to compete for the very best candidates. Companies may offer such inducements as one-time signing bonuses to entice high-quality applicants.

qualified plan requirement

Coverage requirements Must be open to entire employee population

social security disability

Disability benefits Participant must have contributed for 40 quarters Eligibility depends on age, job, and nature of the disability

• Pay policies: market lead

Distinguishes a company from the competition by compensating employees more highly than most competitors. Denotes pay levels that place in the area above the market pay line

commission plus draw

Draw available as needed by EE Draw is taken against future commissions Recoverable or non-recoverable by EER High rish for EE

salary plus bonus

EE friendly salary, but an incentivized bonus EE shares in the risk Bonuses are usually a single payment

• ESOP plan

EER gives EE stock ownership in the company

LTD

Employee cannot perform their position for an extended period of time Payments generally begin 3-6 moths after the date of disability Income replacement typically between 50-66.6% of gross wages Employee can be terminated and still be on the comapnies plan generally ends when the disability is not impacting performance or when the EE if eligible for social security

workers compensation: reducing risk of claims

Employee must report incidents immediantly and should be drug tested at that time Employees who return to work, even in a light duty capacity, heal faster Keeping an employee out of work drives up the cost of the claim and tends to extend the disability

• Measures of dispersion

Employees' positions within the pay range are indexed by quartile ranking

• Premium

Employers pay insurance companies a negotiated amount, to establish and maintain insurance policies

• Social security overview and benefit ages

Enacted in 1935 for retirement insurance Response to the fall out from the great depression Survivors insurance added in 1939 Provides income for the married spouse of a deceased participant Goal is to keep the household somewhat whole Disability insurance added in 1965

qualified plan requirement

Evidence of nondiscrimination Must be open to entire employee population Ensures non-highly compensated employees have equal access to the plan as highly compensated employees

medicare part c

Expanded options for providers, similar to an employer buying a more comprehensive policy

• COBRA

Extends employer sponsored medical insurance if an employee becomes ineligible Different time intervals depending on reason for ineligibility

early retirement

Financial incentive offered to employees who retire early

salary only

Fixed base compensation Risk-free from EEs perspective Burdensome and risky from EER's perspective

commission only

Fixed commission EE gets 10% of all of their sales Graduated commission: EE gets 10% of first 100, then 30% for units sold over 100 Commission is for a set period Commission employees should not do any non sales duties

whole life insurance

Follows the insured throughout their life; there's no term Premiums are significantly higher, and adjust as the insured's age and health changes Not common in the meployment world

• STD

Generally company paid Income replacement typically between 50%-66.6% of gross wages Always 66.6% Employees can buy more than that Often have pre-determined timeframes versus relying on medical certification Often a one week elimination period First week of your short term disability Does not matter why you are out Pregancy, Car accident No benefits in this week Starting week two is when the benefits start

Compa-ratio calculation for an employee

Less than 1=EE being paid below market average Exactly 1=EE being paid exactly market average More than 1=EE being paid above market average

EAP (Employee Assistance Program)

May include various benefits Typically 3-4 counseling sessions per year Smoking cessation, weight management, etc Senior care advising Legal assistance

• Median

Middle number

• Term life insurance

Most common form of life insurance Like all life insurance, it pays a benefit upon the death of the insured Written only for a specific term (ex: 10 years)

Qualified plan requirement

Participation requirements Must be 21 years old or older Must have worked for 1 year

medicare part d

Prescription drug coverage

• Unemployment including frequency of payment

Provides minimal income for unemployed workers who: Are actively seeing employment, defined as a specific number of applications per week Benefits recipients are paid weekly Applications can usually be to any employer

• FLSA

Sets a minimum wage, maximum number of hours and bans child labor

• Workers' compensation

State compulsory disability law Employer is responsible fo the cost of treating occupational injuries and illness regardless of fault No fault assumes no gross negligence Very difficult for employer to prove Reason for drug test immediately after occupational injury Employer must provide a percentage of wages to employees (Arizona is 66.7%) for any time missed Employer factors in this expense as a cost of doing business

• Accrual rates

The minimum rate at which plan participants accrue benefits Governed by IRS rules

• Cliff vesting

Vesting occurs all at one within 3 years of plan participation

qualified plan requirement

Vesting rules Cliff vesting Vesting occurs all at once within 3 years of plan participation Gradated vesting 20% vesting after 2 years 20% additional vesting each additional year 100% after 6 years Plan can vest faster

• Pay compression

When jobs from different grades are paid almost identically Can include a subordinate being paid as much as or more than the leader

• Copay

a fixed fee you pay for specific medical services

• Mail order prescription program

a healthcare professional sends the prescription to a mail-order pharmacy, which generally works through your insurance company and its pharmacybenefit manager (PBM). Your prescription is filled by the mail-order pharmacy, run through insurance, and the medication is mailed directly to you

• Compensation plan

a system of policies and procedures for calculating the wages and salaries in an organization

recoverable draws

act as company loans to employees that are carried forward indefinitely until employees sell enough to repay their draws

nonrecoverable draws

act as salary because employees are not obligated to repay the loans if they do not sell enough.

• Full retirement

age when you are entitled to 100 percent of your Social Security benefits, which are determined by your lifetime earnings.

• Understanding the significance of quartiles

allow compensation professionals to describe the distribution of data—in this case, annual base pay amount—based on four groupings. The first quartile is $34,500. In other words, 25 percent of the salary figures are less than or equal to $34,500.

• Graduated vesting with pension plans

allows workers to become 20 percent vested after 2 years and to vest at a rate of 20 percent each year thereafter until they are 100 percent vested after 6 years of service

• Deductible

amount an insured must pay for services before health insurance benefits become active.

Out-of-pocket maximum

amounts are often beyond the financial means of most individuals. Thus, most plans specify the maximum amount the insured must pay per calendar year or plan year

Annuities

are a series of payments for the life of the participant and beneficiary. Annuity contracts are usually purchased from insurance companies, which make payments according to the contract.

403(b) plan

are defined contribution plans that apply to employees of public educational institutions (e.g., state colleges and universities) and private tax-exempt organizations (e.g., charitable organizations, state-supported hospitals).

457(b)

are defined contribution plans that apply to state government workers.

• Benchmark jobs

are positions found outside the company that provide reference points against which the values of jobs within the company are judged.

• 401(k)

are qualified retirement plans named after the section of the IRC that created them. These plans permit employees to defer part of their compensation to the trust of a qualified defined contribution plan. Only private sector or tax-exempt employers are eligible to sponsor this plan.

Traditional 401(k) plans

are retirement plans named after the section of the IRC that created them. Following the previous description of defined contribution plans, this plan enable employees and employers to defer part of employee compensation to an employee's account. Only private sector employers are eligible to sponsor this plan

• Self-funded

are similar to commercial insurance plans with one key difference: Companies typically draw from their own assets to fund claims

HMO (Health Maintenance Organization)

are sometimes described as providing "prepaid medical services" because fixed periodic enrollment fees cover HMO members for all medically necessary services, as long as the services are delivered or approved by the HMO. HMOs represent an alternative to commercial and self-funded insurance plans.

mean

average

• Pay policies: market match

closely follows the typical market pay rates because companies pay according to the market pay line. Thus, pay rates fall along the market pay line

POS (Point of Service Plan)

combines features of fee-for-service systems and health maintenance organizations. Employees pay a nominal copayment for each visit to a designated network of physicians; alternatively, they may receive treatment from providers outside the network, but they pay more for this choice.

qualified plan requirement

contribution and benefits limits distributions cannot be made until a "distributable event" occurs

• Health insurance

covers the costs of a variety of services that promote sound physical and mental health, including physical examinations, diagnostic testing, surgery, hospitalization, psychotherapy, dental treatments, and corrective prescription lenses for vision deficiencies.

• Skill block

distinct, major units of learning for which an employee earns additional compensation

• Pay policies: market lag

distinguishes a company from the competition, but by compensating employees less than most competitors. Lagging the market indicates that pay levels fall below the market pay line

Roth 401(k) plans

employee contributions are taxed at the individual's income tax rate. Second, upon retirement, employee withdrawals are not taxed. Becoming an increasingly popular offering to help employees manage the uncertainty of possible changes in future income tax rates.

• FSA

employee funded employees forfeit what was unused at the end of the year to bee used on ancillary expenses

defined contribution

employees have the option to make regular contributions to separate accounts in their names, based on a formula contained in the plan document. Formulas typically call for employers to contribute a given percentage of compensation annually with these funds automatically deducted from pay in equal amounts. Employers invest these funds on behalf of the employee, choosing from a variety of investment vehicles such as company stocks, diversified stock market funds, or federal government bond funds. 401(k), 403(b), 457(b) 403(b) 401(k) for non profits 457(b)

HRA

employer funded allow for carry over between plan years to be used on deductibles

• Compensation survey: strengths

enable compensation professionals to obtain realistic views of competitors' pay practices.

• Strategic analysis

entails an examination of a company's external market context and internal factors. Examples of external market factors include industry profile, information about competitors, and long-term growth prospects. Internal factors encompass financial condition and functional capabilities

• Qualified plans

entitle employers and employees to substantial tax benefits. Employers and employees specifically do not pay tax on their contributions within dollar limits that differ for defined benefit and defined contribution plans. In addition, the investment earnings of the trust in which plan assets are held are generally exempt from tax. Finally, participants or beneficiaries generally do not pay taxes on the value of retirement benefits until they receive distributions.

absolute job evaluation point spreads

grades are based on a set number of job evaluation points for each grade. For example, a compensation professional establishes pay grades equal to 200 points each. Grade 1 includes jobs that range from 1 to 200 job evaluation points, Grade 2 contains jobs that range from 201 to 400 points, and so on.

• Pay grade

group jobs for pay policy application. Human resource (HR) professionals typically group jobs into pay grades based on similar compensable factors and value

• Defined benefit

guarantee retirement benefits specified in the plan document. This benefit is usually expressed in terms of a monthly sum equal to a percentage of a participant's preretirement pay multiplied by the number of years he or she has worked for the employer.

medigap

health insurance plans that help pay expenses not covered by Medicare Voluntary coverage that pays for services not covered by part A and B

• Red circle pay rates

higher pay rates help retain valued employees who have lucrative job offers from competitors.

• Medicare part A

hospital insurance

• Compa-ratio including how it's calculated for an employee

is a comparison Measure where an EE is paid relative to his/her midpoint EEs new in position should never be paid more than the midpoint for their position Assuming paygrade is well-managed, compa-ratio of 1=market rate for the position

• Preexisting condition

is a mental or physical disability for which medical advice, diagnosis, care, or treatment was received during a designated period preceding the beginning of disability insurance coverage.

Medicare Part B

medical insurance

PPO (Preferred Provider Organization)

one of a select group of health care providers that provides health care services to a given population at a higher level of reimbursement than under commercial insurance plans.

• Sabbatical

paid time off for such professional activities as a research project or curriculum development. These practices are common in college and university settings and apply most often to faculty members.

• Profit sharing

pay a portion of company profits to employees, separate from base pay, cost-of-living adjustments, or permanent merit pay increases. Two basic kinds of profit sharing plans are used widely today

salary plus commission

person receives base salary plus commission based on dollar amount of their sales

• Concept/purpose of legally required benefits

provided a form of social insurance aimed to stabilize the well-being of dependent family members of injured or unemployed individuals. Furthermore, early social insurance programs were designed to enable retirees to maintain subsistence income levels

fee-for-service

provides protection for three types of medical expenses: hospital expenses, surgical expenses, and physician's charges.

• Lump sum distributions

refer to single payments of benefits. In defined contribution plans, lump sum distributions equal the sum of the vested amount of all employee and vested employer contributions and interest on this sum.

• Consumer-driven health care

refers to an employer-sponsored program that shifts a greater amount of the responsibility to employees for selecting health care providers.

• Job leveling

refers to corrections that companies can make for differences between their jobs and external benchmark jobs. These corrections are based on subjective judgment rather than on objective criteria.

• Volunteerism

refers to giving of one's time to support a meaningful cause. More and more companies are providing employees with paid time off to contribute to causes of their choice.

• Eliminating condition

refers to the minimum amount of time an employee must wait after becoming disabled before disability insurance payments begin. Exclude insignificant illnesses or injuries that limit a person's ability to work for just a few days.

• Coinsurance

refers to the percentage of covered expenses paid by the insured

indemnity plans

refers to traditional health insurance plans in which the insurance company agrees to pay a designated percentage of the costs for health insurance procedures and the insured (i.e., recipient of the insurance benefit) agrees to pay a designated percentage.

• Pay range

represent the vertical dimension (pay rates). Include midpoint, minimum, and maximum pay rates. The minimum and maximum values denote the acceptable lower and upper bounds of pay for the jobs within pay grades

• CPI

represents the average of the price changes for the representative sample of goods and services within each of the following areas: Urban United States Four geographic regions (sometimes called census regions): Northeast, Midwest, South, and West Three population-size classes: large metropolitan areas, small metropolitan areas, and nonmetropolitan urban places Selected region-size classes—regions cross-classified by population size (for example, large metropolitan areas in the Northeast) Selected metropolitan areas (e.g., St. Louis, MO-IL)

• Davis-Bacon Act

requires contractors and subcontractors working on federal government construction projects to pay "prevailing wages" to their employees

• Two-tier pay system

reward newly hired employees less than established employees Lower-paying scales apply to newly hired employees, and current employees enjoy higher-paying scales. Although pay progresses within each scale, the maximum rates to which newly hired employees can progress are always lower than more senior employees' pay scales.

• Market line

shows the relationship between job value as determined by job evaluation points and job value as determined pay survey rates.

• Pre eligibility

spans from the initial date of hire to the time of eligibility for coverage in a disability insurance program

variance

standard deviation squared

Compensation survey: how they're formulated

starts with two important considerations: -Survey focus: core compensation or employee benefits -Sources of published compensation surveys

range

the difference between the highest and lowest scores in a distribution

standard deviation

the square root of the variance

• Outplacement assistance

variety of career and personal programs designed to develop employees' job-hunting skills and strategies and to boost employees' self-confidence