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 ________________.