Functional Area 5: Total Rewards

perquisites (perks)

Compensation provided on an individual basis in the form of goods or services. Examples of perquisites include automobiles and mobile devices.

maturity curve

correlate pay with time spent in the professional field. They are most frequently used for teachers and research-focused scientists, engineers, and other technical personnel.

differential pay/ variable pay

depends on performance and is not added to the employee's base pay. This practice allows organizations to better control their labor costs and to tie performance and pay together.

performance criteria

desired behaviors/results that will constitute performance in the job

job evaluation/ valuation

determines the value and price of a job in order to place and compare it within an organization as well as attract and retain employees in a competitive environment. It is a key component of an organization's remuneration program.

single-rate pay/ flat-rate pay

each incumbent of a job has the same rate of pay, regardless of performance or seniority. The flat rate is often set to correspond to target market survey data relating to the job.

paired-comparison method

may be used in which each job is compared with every other job being evaluated. The job with the largest number of "greater than" rankings is the highest-ranked job, and so on. A matrix is u

job content

the duties and responsibilities of people who hold the job

differential piece-rate system

the employee receives one piece rate up to the standard and then a higher rate once the standard has been exceeded.

performance-based pay system/ merit pay/ pay-for-performance/ P4P

individual employee's performance on the job is the basis for the amount and timing of pay increases.

overtime pay (time-based)

In various countries the minimum amount to be paid for overtime is dictated by legislation.

base pay

Most employees receive some type of base pay, in one of two forms: An hourly wage (for each hour worked) A salary (the same amount no matter how many hours are worked)

Health-Care Expense per Employee (metric)

Percentage that measures the health-care expense per employee for a given fiscal year. total healthcare expenses/ total # of employees enrolled in a health-care plan

stock purchase plan

Stock purchase plans are broad-based plans available to most or all of a public company's employees. They are required to be broad-based if they are intended to qualify for favorable tax treatment.

productivity-based pay

pay is determined by the employee's output.

internal equity

occurs when employees feel that performance or job differences result in corresponding differences in rewards that are fair. In other words, employees think that they are being rewarded fairly according to the relative value of their jobs within an organization.

vesting

the process by which employees gain permanent claim to a portion or all of their benefit. Employees are always 100% vested in their own contributions; employer contributions usually vest over time

broadbanding

(salary bands) combines two or more salary grades to create larger ranges and give people wide latitude to move within their job without outgrowing the pay scale. Some organizations have found that when too many grades (with small midpoint differences between them) are established, the compensation system becomes overly complex and increasingly unmanageable.

work diary/ log (job analysis method)

Diary or anecdotal record maintained by the employee. Job information, including the frequency and timing of tasks, is recorded in the diary. Logs are usually kept over an extended period of time. They are analyzed, and patterns are identified and translated into duties and responsibilities.

implementation (development of total rewards strategy)

HR department implements the new rewards system and circulates materials that communicate the new strategy to employees. Training also commences so that department managers are able to effectively measure the achievement and employees understand what they need to accomplish to receive the rewards. (step 3)

time-based differential pay

Some employees receive time-based differential pay, or a different rate of pay based on when they work

indirect compensation

includes non-cash rewards.

pay structure (development steps)

1 Develop a market line for all jobs, comparing the job evaluation points or values with the market value for comparable jobs. 2 Use the market line to decide pay grades by grouping together the jobs with similar value to the organization. 3 Spread pay grades evenly over the points or values on the market line, attempting to place jobs in the middle of the pay grade. 4 Calculate the pay ranges for each grade. Assuming that the jobs are placed in the middle of the range (midpoint), set up a range spread that fits with the type of positions and the number of grades. Each pay range will have a minimum, midpoint, and maximum, with equal distance between each. 5 Calculate individual pay rates using a pay policy line that is set by the organization. For example, in a highly competitive marketplace, an employer may decide to hire employees at 105% of the pay structure, or 5% above the midpoint of each range. (The midpoint represents the market rate.)

challenges in global compensation

1. standardization vs. localization 2. Cultural differences necessitate understanding that the value of compensation and benefits programs is in "the eye of the beholder." A benefit highly valued in one country may be relatively meaningless in another. 3. At a broad level, the compensation and benefits required to attract and maintain talent are determined by the competitive demand for that talent 4. Collective Bargaining, Employee Representation, and Government Mandates 5. Economic Factors Many differences exist from country to country, in terms of the: Influence of politics and power. Distribution of wealth across a country's citizenry.

communication of total rewards strategy

A total rewards program can serve as a motivator when it is understood and accepted by employees. Telling employees about the true value of their rewards has become almost as important as designing the rewards. Four important reasons for communication are: Educating employees about the organization's total rewards practices. Achieving employees' buy-in and making them aware of the overall value. Supporting the organization's strategic objectives. Supporting the organization's goals for performance management.

Total Company Compensation Expense

All costs associated with employment, including salaries, overtime, benefits, and bonuses salary + overtime + benefit + bonuses/ total costs

Defined contribution retirement plan

Amount of money that is to be regularly contributed to the fund is specified. No promises are made about the future value of the benefit. Employees will be entitled to 100% of their investment and the vested portion of the employer's contributions upon retirement. Requires individual accounts for each employee. Amount of the benefit at retirement will depend on the investment return. Employee bears the investment risk

maternity/ parental leave

At least some portion of maternity leave is paid in most countries. This leave is sometimes supplemented by a required period of unpaid time off. The individual may have the right to return to work on a part-time basis if desired. In addition to maternity leave, some countries offer paternity and parental leave. A distinction is sometimes made between these two terms; they can, however, have the same meaning. Parental leave is generally available to both mothers and fathers.

emergency shift pay (time-based)

Certain types of industries pay emergency-shift pay when employees work in response to an emergency

objectives of total rewards strategy

Compatible with the organization's mission and strategy. Compatible with the organizational culture. Appropriate for the workforce. Internally and externally equitable.

strategic alignment of total rewards strategy

Compensation and benefits systems must support organizational missions and strategies. Therefore, the first consideration in developing a compensation and benefits system is to review the organization's mission and strategy. The compensation and benefits system should be an outgrowth of the strategic business plan and the HR strategy. Smaller

lag market competition

Controls labor costs by setting pay rates below those of other organizations

elder care

Countless employees across the globe are in the "sandwich generation"—where they care for children, parents, and/or grandparents. Responsibilities associated with caring for elderly family members can result in reduced work performance, increased absenteeism, and more personal stress for the affected employees. As with provisions to care for sick children, organizations may allow employees to use some of their accumulated sick leave to care for parents or grandparents.

observation (job analysis method)

Direct observation of employees performing the tasks of a job, recording observations, and translating them into the necessary knowledge, skills, and abilities

public/ national/ bank holidays

Each country usually has paid public, national, or bank holidays, during which firms may be required to shut down. Typically, additional time is granted by employers, but this is more market practice. Certain holidays may be observed on a local basis or only by certain industries. Germany, for example, has several holidays that are observed nationwide as well as additional holidays that are observed only in certain areas of the country. Public holidays may be only customary. In many countries, in the weeks surrounding major holidays such as Christmas the amount of business that can be conducted is significantly decreased because employees often use vacation days to take extended time off.

direct communication (compensation/ benefits)

Either HR or the employee's manager must take the time to meet with individual employees in a confidential setting to communicate compensation and benefit issues such as job grade changes, raises, individual benefit issues, new policies or procedures that directly affect the employee, or policy infractions

other types of leave

Employers may be obligated to provide paid leave to trade union officials and representatives for participation in trade union duties, education-related union projects, or other trade union activities. Both union and nonunion employees may be granted leave to undergo relevant training. Workers who are getting married may receive paid days off. Parents may be given paid time off for the marriage of a child. In many countries with large Muslim populations, employees are given paid time off for prayer. Reasonable time off is often granted to employees to allow them to carry out specified public duties and activities (e.g., campaigning as an official candidate for an election, voting in an election, or jury duty).

executive compensation

Executive pay plans differ from employee plans in two ways. First, incentives usually account for a greater share of an executive's total direct compensation package (total annual cash compensation plus the annualized value of long-term incentives). Second, incentives are generally linked to the performance of the entire organization or the major units/businesses—typically to organizational profitability but possibly to nonfinancial measures, such as customer satisfaction, or nonfinancial strategic objectives, such as organizational restructuring or gaining market share.

geographic differential pay

Geographic differential pay is based on where an employee works. Organizations with facilities in different locations often need to tailor their compensation programs to the differences in local labor markets. For example, geographic differences may occur between different cities or regions within the U.S. and between the U.S. and other countries where the organization is located

assessment (development of total rewards strategy)

HR professionals evaluate the current compensation and benefits systems and the effectiveness of those systems in helping the organization reach its goals. Employees are typically surveyed on their opinions and beliefs regarding their pay, benefits, and opportunities for growth and development. Current policies and practices are examined. (step 1)

job documentation

Helps to set up evaluation criteria for job performance. Provides data for comparing pay with that of other organizations. Helps in assigning objective classifications or job titles to employees. Communicates expectations to both supervisors and employees. Improves an organization's ability to defend unwarranted charges of discrimination A job analysis usually results in the three deliverables: 1. Job description Written description of a job and its essential functions 2. Job specifications Written statement of the minimum qualifications necessary to perform a job. 3. Job competencies Clusters of highly interrelated attributes, including knowledge, skills, and abilities (KSAs)

travel pay (time-based)

Hourly employees receive travel pay for time spent traveling to work assignments, even if the travel time is outside of working hours

leveled-salary data/ weighted

If a job in a survey is similar but not identical to one in the organization, the data can be weighted or leveled for a better match. For example, if an organization's benchmark position is at a supervisory level and it has less responsibility than the survey's manager-level benchmark, the organization may adjust the surveyed wage downward by a percentage

paternity leave

In addition to maternity leave, some countries offer paternity and parental leave. A distinction is sometimes made between these two terms; they can, however, have the same meaning. Parental leave is generally available to both mothers and fathers.

on-call/ call back pay (time-based)

In some organizations employees earn pay when they are on call, even if they are not called in to work (on-call pay). Employees may also earn extra pay when they are called back for an extra shift in the same workday (call-back pay)

interview (job analysis method)

Interviewer uses pre-determined questions, with new ones added based supervisors, and team/unit members about knowledge, skills, and abilities needed to perform the job

KSA (3 elements in a job analysis)

Knowledge—body of information necessary for task performance Skills—level of proficiency needed for task performance Abilities—capabilities necessary to perform the job

geocentric (global orientation for global rewards)

Local compensation strategies are more likely to be consistent with global policies. A desire for too much global consistency can lead to the imposition of inappropriate policies at the local country level. The development of consistent and equitable remuneration policies among global managers will facilitate efficient and effective transfers.

polycentric (global orientation for global rewards)

Local cultural and legal compensation norms are more likely to be understood and implemented. Remuneration policies are likely to be consistent and integrated within each subsidiary. Incentives tend to maximize achievement of local rather than global objectives

unemployment insurance

Many jurisdictions collect premiums from employers—and sometimes employees—to be applied toward paying a percentage of an employee's salary in the case of the employee losing his or her job through no fault of the employee. The principle behind this benefit is to help workers who have been terminated to transition from one job to another equally suitable job.

lead market competition

Offers higher wages and/or better benefits in an attempt to attract and keep the best talent Rationalizes that higher-quality employees are more productive, which makes up for the higher salaries

match market competition

Offers wage rates and benefits packages similar to that of the competition; most common approach

retirement

One thing remains consistent across all organizations, from headquarters to the smallest subsidiary, regardless of location: At some point, employees will reach an age where they no longer desire or are able to work. Retirement plans allow current employees to make financial provisions for the future. Retirement plans differ widely by country. Many retirement programs are mandated by the government and paid for through employee and employer contributions. Supplemental government support is sometimes provided. Retirement and pension benefits may be provided through a wide variety of plans. The main goal is to provide retirement income to employees with some type of income payable periodically

external survey (compensation)

Organizations have different options available if they choose an external pay survey. Professional member groups such as the Society for Human Resource Management (SHRM), as well as consulting firms (such as Hays and Aon Hewitt), conduct surveys of wage/job data for a wide range of professions, industries, and geographical areas. External surveys may draw on extensive databases of incumbents and industry benchmarks and can provide real-time insights into total compensation levels, practices, and emerging trends.

flexible work hours

Organizations may offer flexible work schedules, compressed workweeks, and work-at-home arrangements to help employees balance work roles with family roles.

internal survey (compensation)

Organizations that have available resources and expertise may choose to develop their own internal survey to allow for more control over the survey technique and data analysis. The advantage of an internal survey is having the ability to shape the design, administration, data analysis, and reporting as needed by the organization. The disadvantages include the following: Competitors may not be willing to cooperate and to share their pay structures. Compensation System Design Developing a compensation system that is competitive and equitable requires an understanding of the positions in the organization.

incentives/ premiums

Payments in return for the achievement of specific, time-limited, targeted objectives. Often they are calculated as a percentage of base salary. Payment may be made in a lump sum or as ongoing payments over a specified period of time

vacation/ holiday leave

Periods for vacation or holiday leave are often legislated or dictated by collective bargaining or local statutory rules or laws. Even if not legally mandated, they are frequently embedded in culture and tradition. In some Western European countries, for instance, the majority of businesses virtually shut down in August when most people take their vacation.

defined benefit retirement plan

Promises specific benefit amount upon retirement. Vesting schedule is set up. (Vesting is the process by which employees gain permanent claim to a portion or all of their benefit. Employees are always 100% vested in their own contributions; employer contributions usually vest over time.) Provides benefits based on service and perhaps on salary. Amount of benefit is decided by a formula. Provides a pre-specified level of benefits. Employer bears the investment risk.

performance grant

Public companies can also benefit from linking stock-based compensation to organizational performance. If done properly, such an arrangement can qualify as performance-based compensation, which avoids the deduction limitations that can be imposed under some legislation. Such arrangements can also motivate recipients to achieve goals that are valuable to the organization and its shareholders.

Highly structured questionnaire (job analysis method)

Questionnaires structured in a manner that allows only specific responses, aimed at determining the frequency with which specific tasks are performed, their relative importance, and the skills required

Open-ended questionnaire (job analysis method)

Questionnaires to job incumbents, and sometimes to their managers, asking about the knowledge, skills, and abilities necessary to perform the job. The answers are then combined, and a composite statement of job requirements is published

benefits decisions by company

Questions to answer: 1. Which benefits are required by law? Laws require that employers provide certain benefits to their employees. These benefits must be included in your organization's total compensation package. 2. Which benefits enable an employer to compete for employees? 3. Which benefits are cost-effective to purchase and to administer? 4. Which benefits do employees prefer? 5. Which benefits provide creative choices?

compensation

Refers to all other financial returns (beyond any tangible benefits payments or services), including salary and allowances.

sick leave

Sick leave policies vary primarily in terms of the number of days allowed away from work, the amount of wages paid during that time, the entity that pays for these wages, and the waiting period required before being eligible for payment. The policies may be set by law, by collective bargaining, or by the employer, depending on the country.

voluntary communication

Simply meeting the mandated communication requirements probably will not satisfy employees' needs to understand their total rewards program. The organization needs an approach that outlines policies and procedures as well as an expectation that managers and HR will communicate directly with employees as needed and whenever possible.

social security

Social insurance, where people receive benefits or services in recognition of contributions to an insurance program. These services typically include provision for retirement pensions, disability insurance, survivor benefits, and unemployment insurance. Services provided by government or designated agencies responsible for social security provision. In different countries, this may include medical care; financial support during unemployment, sickness, or retirement; health and safety at work; aspects of social work; and even industrial relations.

required communication

Some communications are mandated by laws and statutory regulations. For example, regulations often impose a wide range of disclosure and reporting requirements on pension benefit plans and even may dictate what has to be included on an individual's pay slip. Due diligence is required so that organizations understand the requirements of applicable laws, regulations, instructions for any applicable forms, or other official guidance.

shift pay (time-based)

Some employees receive extra pay when they work less-desirable hours, such as a second or third shift. Shift pay may be a flat amount per hour or a percentage of the base pay.

premium pay (time-based)

Some employers pay premium pay (extra pay), or overtime at a higher rate, for working any of the following: Holidays or vacation days or weekends For the sixth or seventh day of straight time After eight hours in a day

entitlement-oriented approach to compensation system

Some organizations promote a caring, protective feeling and want employees to feel as if they are a part of the family. These organizations feel that employees are entitled to benefits such as health care, employee assistance, or disability insurance as a condition of employment. In general, as benefits increase, there is less emphasis on individual employee contributions and responsibility and more emphasis on the success of the organization as a whole.

benefits

Tangible payments or services provided to broad groups of employees to cover issues such as retirement, health care, sick pay/disability schemes, life insurance, and paid time off, in addition to those required by law.

Contribution-oriented approach to compensation system

The compensation programs are more performance-driven, putting emphasis on the performance and contributions of individual employees. These compensation systems emphasize performance-based pay, incentives, and shared responsibility for benefits. For example, the firm may require copayments for medical insurance

communication plan (compensation/ benefits)

The more complex the system and the more choices available, the greater the need for a communication plan. Plans are not standard; they will vary across organizations. Written plans may include a description of the organization's compensation strategy, policies, practices, and procedures plus other information.

healthcare benefits

There are significant differences between countries in the types of medical, disability, and life insurance coverage available and/or required for workers. The role of private organizational coverage varies depending on the national statutory coverage provided. Most countries have a statutory universal access/universal coverage health-care system in which health care is paid for through some sort of social insurance, funded by employers, employees, general taxation, or combinations of these. In some countries, employers offer employer-sponsored health insurance. It is rare, however, for employees not to be at least partially covered by some form of government-supported health care. Health-care laws and regulations are often interlocking. Compliance typically cuts across government requirements and labor relations

pay structure

There are two steps to developing a pay structure: grouping jobs into pay grades and setting pay ranges.

regiocentric (global orientation for global rewards)

There is greater potential for consistency of remuneration approaches within a region. The proximity of countries may lead to the perception that remuneration practices are more similar than they really are. Regional headquarters may suffer blind spots with respect to country differences, leading to ethnocentrism at the regional level.

involuntary termination

These occur typically when employers discharge particular employees for cause. The reasons may include poor performance, inability to manage subordinates, inability to work with management, and violations of employer policy.

voluntary termination

These occur when an employee resigns or retires. Voluntary resignation is when an employee decides to quit or leave

ethnocentric (global orientation for global rewards)

This leads to transfer of headquarters total compensation policies, with inadequate consideration of local legal and cultural differences.

child care

Whether single parents or dual-career couples, employees often experience difficulty in obtaining high-quality, affordable child care. Employers are addressing the child-care issue in various ways. Large organizations may provide on-site day-care facilities. When recruiting workers in tight labor markets, many organizations have found that having on-site child care is a competitive advantage. Other options for child-care assistance include: Establishing discounts at "near-site" day-care centers (which may be subsidized by the employer). Providing referral services to aid parents in locating child-care providers Developing after-school programs for older school-age children, often in conjunction with local public and private school systems. Arranging with hospitals to offer sick-child programs (partially paid for by the employer). Allowing parents to use accumulated sick leave to care for sick children.

reporting pay (time-based)

With reporting pay, employees are paid for reporting to work as scheduled even if upon arrival no work is available.

cost-of-living adjustment (COLA)

a pay adjustment given to all eligible employees without regard to organizational profitability, employee productivity, or other performance factors. The purpose of a cost-of-living increase is to protect the employees' purchasing power against rising inflation. These increases are typically an equal hourly increase or a percentage of the employee's current pay. COLA payments are sometimes paid as a lump sum, either quarterly or at some other specified time.

total rewards strategy

a plan or method implemented by an organization that provides monetary, benefits-in-kind, and developmental rewards to employees who achieve specific business goals. The strategy combines compensation and benefits with personal growth opportunities inside a supportive work environment. A robust total rewards strategy can help an organization maintain a balance between providing market-competitive wages to attract and retain top talent and adhering to the overhead budget.

stock-option plan (executive)

a right to purchase shares of a company's stock at a pre-determined price, which is referred to as the exercise price. Executives are given the right to purchase stock for a certain period of time—usually five to ten years. Participants usually gain vesting rights to exercise a pre-determined percentage of the total stock option allocation each year. The vesting of options over time creates an incentive for the employee to remain with the organization to build its value

design (development of total rewards strategy)

a senior management team (made up of HR and department representatives) identifies and analyzes various reward strategies to determine what would apply best in their workplace. Decisions are made about what will be rewarded and what rewards will be offered to employees for those achievements. (step 2)

dual-career ladder

allow professionals to earn as much in senior technical positions as they would on a management track.

green-circle rate

an employee's pay is below the minimum of the range (green light= go/ increase salary soon) Green-circle rates can happen when an organization: Promotes an employee or "tries out" an employee who does not possess all the requisite KSAs for a job. Reviews and updates its pay ranges, increasing minimums as a result. Generally, employees in this situation should be given pay raises to get them into the range as soon as they meet the minimum requirements for the position.

compa-ratios

are an indicator as to how actual wages match, lead, or lag the target market. compa-ratio formula: pay rate/ midpoint Compa-ratios below 100% (expressed as a compa-ratio of less than 1.00) mean that employees are paid less than the midpoint. This may occur when an employee is: New to the job or organization. A poor performer. Working for an organization that adopts a lag strategy with regard to pay. Compa-ratios above 100% (1.00) mean that wages exceed the midpoint. This is likely to occur when: An organization adopts a lead strategy with regard to pay. Managers are not following salary increase policies. Employees are long-tenured and/or high performers.

benefits

are tangible payments or services provided to broad groups of employees to cover issues such as retirement, private health coverage, sick pay/disability schemes, life insurance, and paid time off. Benefits programs are designed to reward continued employment, promote loyalty, and enable employees to live healthier, less worrisome lives.

domestic partner benefits

are unmarried couples, of the same or opposite sex, who live together and seek economic and noneconomic benefits comparable to those granted to their married counterparts. Countries and regions across the globe interpret domestic partnership status quite differently. For example, recognition of a domestic partnership in many countries may be limited to same-sex couples. Benefits awarded reflect statutory regulations and cultural norms. Although specific domestic partner benefits vary, common offerings include: Health, dental, and vision insurance. Sick and bereavement leave. Accident and life insurance. Death benefits and pension. Parental leave (as a co-parent). Domestic partner benefits are not universal. Specific benefits may be mandated by statutory regulations. An organization's policies may follow the legal rule or they may be more generous in benefit provisions

pay grades

are used to group jobs that have approximately the same relative worth in an organization. All jobs within a particular grade are paid the same rate or within the same pay range. The purpose of pay grades is to create a pay structure for the entire organization rather than having to set up a separate pay range for each job.

phantom stock

arrangements are generally used when a company does not view ownership of real equity as desirable (for economic or tax reasons) but seeks to create incentives that encourage participants to see their interests as aligned with those of the company's owners

skills-based system

base pay on the number of different skills an employee is qualified to perform. Employees increase their pay by acquiring new skills, even if they do not use the skills in their current assignment. This type of system is most commonly used in a production environment.

remuneration survey

collect information on prevailing market compensation and benefits practices, including starting wage rates, base pay, pay ranges, other statutory and market cash payments (e.g., overtime pay and shift differentials), variable compensation (e.g., short- and long-term incentive plans), and time off (vacation and holiday practices).

pay compression/ salary compression

describes situations where there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority. Pay compression typically occurs when: Beginning salaries are raised due to increases in the minimum wage or inflation. Therefore, new hires can make the same as employees in the same job with more experience who began at a lower wage. Labor market pay levels increase more rapidly than an employer's pay adjustments. An example would be hiring an inexperienced systems engineer at or close to what more-experienced systems engineers earn because of escalation in competitive hiring rates

restricted stock grant

does not require an employee or executive to purchase the stock. It is essentially a transfer or gift of stock with forfeiture provisions that result in a possible loss of the shares if certain requirements are not met. A holder of restricted stock can vote the shares at stockholder meetings and has all the other rights of a stockholder under applicable corporate law.

person-based pay

employee characteristics, rather than how the job is performed determine pay. In such systems, two employees may perform similar tasks, but the person with superior knowledge or skill mastery receives more pay.

red-circle rate

employee pay rates above the range maximum; don't increase salary any more (red light= stop) Here are some examples of when red-circle rates may occur: When long-term employees reach the maximum rate in their range or when promotion opportunities are rare When employees are bumped down to a lower-level job, rather than getting laid off, but their salary is not reduced (Sometimes a red-circle rate is frozen until the pay structure is increased enough so that the rate falls within the range.) When a manager is paid at the top of the job range but there are no openings at the next job range (In this case, bonuses are sometimes used to increase the manager's take-home pay).

combination step-rate and performance structure

employees receive increases on a step-rate basis up to the job rate. Above the job rate, increases to higher steps are granted only for above-standard performance. This system requires adequate resources to develop

total rewards

encompasses direct and indirect remuneration approaches that employers use to attract, recognize, and retain workers. Stated another way, total rewards refers to all forms of financial rewards that employees receive from their employers.

quantitative methods (internal evaluation)

evaluate specific factors on a scale and provide a score that indicates how valuable one job is compared to another try to establish how much more one job is worth than another job by using a scaling system.

wage/ hour law compliance

every country in the world has wage and hour laws in place that regulate how an organization must pay employees. To be compliant, employers need to understand the terms and conditions of wage and hour laws and how they apply to various classifications of workers—wherever operations are located. Basic wage and hour terms and conditions and key considerations include the following: Minimum wage and increases How are minimum wages set (e.g., hourly or monthly)? If any collective bargaining agreements are in force, do they impose different minimums or minimum wage increases? Overtime pay and holiday pay What are the requirements for computing pay for legal overtime and locally worked holiday time (e.g., time-and-a-half, less than time-and-a-half, double-time, or quadruple-time for overtime and holiday work)? If there are no statutory requirements for overtime and holiday pay, do collective bargaining agreements impose any? Who is entitled to overtime (e.g., only hourly employees or managers as well)? Equal pay What provisions are there to ensure that individuals doing the same work receive the same compensation? Exemption What is the definition of "exempt" work under local law? Are there any special exemptions? Cap on hours worked Is there a flat cap on hours worked (e.g., weekly flat caps or hours of overtime per year)? Are there nominal caps that serve merely as reference points (e.g., a 40-hour "standard" week but with "reasonable additional hours" allowed)?

general pay increase

given to all employees (or sometimes a class of employees such as office or production workers) based on local competitive market requirements. This type of increase is awarded regardless of employee performance.

fiduciary responsibility

implies a legal obligation of one party (for example, the employer) to act in the best interest of another (for example, the employees). The obligated party is typically referred to as a "fiduciary" (e.g., an individual or party entrusted with the care of money or property). Legal systems may have broad or narrow views of this responsibility.

benchmarking data (compensation)

initiatives range from informal networking and knowledge sharing to evaluate organizational pay strategies (e.g., lead, lag, or match) to formal engagements with private firms that provide current survey data sometimes in conjunction with consulting services for a fee. There are several organizations around the world offering custom compensation and benefits benchmarking and consulting. The data provides insights about competitive compensation and benefits program policy elements (such as pay strategy, compensation philosophy, incentives, and so Custom benchmarking consulting then helps organizations to identify gaps in policies and procedures compared to competitors and best practices. Other potential benefits of compensation and benefits benchmarking and consulting include: Access to pay data. Knowledge of local and regional laws and cultural practices. Assessment of current market position. Improved understanding of current market practices as well as key market trends and innovative ideas. Better alignment of compensation and benefits strategies with organizational business objectives. Identification of improvements and cost savings.

workers' comp.

insurance against work-related accidents or illnesses is called workers' compensation. This wording can be a bit misleading because the benefit is more of an insurance policy against accidents than a form of compensation for work; only a person who has an approved work-related accident would be eligible to collect this benefit

wellness program (healthcare)

intended to promote and support the health, safety, and well-being of employees. There are many types of wellness programs, along with just as many incentives to entice employees to participate in them. Some examples of wellness programs include programs to help employees stop smoking, diabetes management programs, weight loss programs, and preventive health screenings.

compensation system

involves 4 steps: job analysis, job documentation, job evaluation and pay structure

external equity

involves comparing an organization's compensation levels and benefits to those of other organizations that are in the same labor market and that compete for the same employees. External pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar jobs in other organizations.

job ranking

involves establishing a hierarchy of jobs from lowest to highest based on each job's overall value to the organization. Ranking evaluates the whole job, rather than parts of it, and compares one job to another.

point-factor system

is a form of quantitative evaluation. It is the most commonly used method of job evaluation. The compensable factors chosen for the evaluation must reflect the nature of the job being evaluated. The factors most commonly used in point-factor evaluations include: Skills. Responsibilities. Effort and physical demands. Working conditions. Supervision of others

employee-assistance program (healthcare)

is a health-care offering that has spread around the world. EAP services are intended to help identify and resolve employee concerns related to personal matters or work-related issues that, in some instances, can affect health or performance in the workplace. EAP resources typically provide employees with confidential expert advice and support 24 hours a day, seven days a wee

compensation philosophy

is a short (but broad) statement developed by HR documenting the organization's guiding principles and core values about employee compensation. A compensation philosophy articulates the "why" behind employee pay. A compensation philosophy developed before a strategy guides the design and complexity of compensation programs.

job analysis

is a systematic study of jobs to determine what activities (tasks) and responsibilities they include, the personal qualifications necessary for performance of the jobs, and the conditions under which the work is performed.

job specifications (specs)/ qualifications

knowledge, skills, and abilities required for a person to have a reasonable chance of successfully performing the job

restricted stock unit (RSU)

like a phantom stock arrangement in that the grantee does not receive actual equity ownership. Instead, the grantee is given a promise of a certain amount of stock after restrictions have been fulfilled (e.g., a vesting period, a company going public or being acquired). The RSU has value to the grantee even if the stock's price falls.

lump-sum increase (LSI)/ performance bonus

method to reward employees. An LSI is a one-time payment of all or part of a yearly pay increase. An employee's base wage rate is typically not adjusted by this increase. The LSI approach is an advantage to the organization because other wages and benefits linked to the base rate, such as overtime, shift premium, sick pay, and life insurance, are not impacted.

compensation ratio

metric that measures the relationship of current salaries to the midpoints of the salary ranges employee's pay rate/ pay range midpoint

aged-salary data

movement in market rates is used to adjust outdated data. For example, assume that pay movement or pay increases are averaging 3% a year. If we use a salary data point from a source with an effective date of one year ago, we would increase that number by 3% to account for the movement of salaries through time.

job classification

non-quantitative method writes descriptions for each class of jobs. Individual jobs are then put into the grade that best matches their class description, based on the judgment of the evaluator.

knowledge-based system (pay)

pay is based on the level of knowledge the employee has in a field. This approach is dominant for compensating learned professions such as scientists or teachers, although staff professionals may also be paid this way.

life insurance

payable on the death of the employee, is usually provided by social security in most countries. In some countries, the government mandates that life insurance must be provided by the employers. This required insurance often involves very small lump sum amounts, sufficient to cover burial but not sufficient for the beneficiary to live on. In almost all countries, the overwhelming majority of employers provide life insurance, payable to a beneficiary upon the death of the employee, as a voluntary company-provided benefit.

direct compensation

primarily involves cash-based rewards

paid-time off (PTO)

provides needed relief from the physical and mental demands of work. It contributes to a worker's ability to be productive and to sustain the stress of a job. The program structure may also reward long-term employees for their seniority and service. Laws may require employers to provide specific types of leave. The amount of time granted to employees to be away from their jobs can vary significantly across countries, often reflecting the degree to which country nationals value personal time and family life over work. For the purpose of this discussion, paid time off is described in terms of the following categories: Vacation or holiday leave Public, national, or bank holidays Maternity and paternity or parental leave Leave related to illness Other types of leave

pay equity

relates to the fairness of compensation and benefits paid to employees. Equity issues can be internal or external. An organization cannot effectively recruit new employees or retain existing ones without internal and external equity.

competency-based system

set pay at the level at which an employee can operate in defined competencies (e.g., directing or training others). This type of system is commonly found when rewarding professional groups of employees.

pay range

sets the upper and lower limits of compensation for employees whose jobs fit within that particular grade. It is best to have overlap between pay ranges so that an experienced person in a lower-grade job may be paid more than an inexperienced person in a higher-grade job. A maximum, a minimum, and a midpoint for a pay range are set on the basis of market data from pay surveys. The midpoint is often considered the market rate paid to an experienced, fully performing employee. In organizations that vary range spread by level, typical range spreads are: Nonexempt positions (e.g., production and administrative employees)—40%. Exempt positions—50%. Executive positions—60%.

perquisites (perqs)

special incidental payments, benefits, or privileges given to individual employees, over and above their regular rewards. When awarded to senior-level job positions, perquisites may also be called executive perks or fringe benefits. There are many perquisites that organizations may offer employees. Some of the more common ones are noted below. Free/discounted products or services. Employees may be eligible for free products and services or discounts. Mobile devices. A cell phone, smartphone, or laptop may be provided for business needs. Professional organizations/certifications. Employee membership in professional associations and fees for professional certifications may be paid. Training programs. Employer payment for training programs may be available to many levels of employees. Education fees, housing, company car, club membership...

non-quantitative methods (internal evaluation)

strive to establish a relative order of jobs often referred to as whole-job methods, as they evaluate the entire job and sequence jobs in hierarchical order based on their value to the organization (without a numeric value being assigned to each job). The sequence will indicate that one job is more important than another job, but it will not specify how much more.

compensation for termination (severance package)

support is required for terminated employees, even when they have been terminated for cause. To the extent the employer bears the burden of the cost of this support, as they often do to at least some degree, this can be very expensive. It can be even more expensive if support requirements are ignored, because fines and penalties for noncompliance can be costly. HR professionals must be knowledgeable of the laws that apply in the organization's home country and all countries, regions, or localities in which the organization operates. They must also understand the regulations of multiple governmental agencies.

disability benefits

takes on different meanings in different countries. In general, it refers to payments made to employees who are physically unable to perform their jobs because of illness or injury. Sometimes it covers only incapacitation due to job-related injuries or illnesses; other times it also covers causes outside the workplace

evaluation (development of total rewards strategy)

the effectiveness of a total rewards plan must be measured and the results communicated to organizational decision makers.

straight piece-rate system

the employee receives a base wage rate and is awarded additional compensation for the amount of output produced.

time-based step-rate pay

the employee's pay rate is based on longevity in the job. Pay increases occur on a pre-determined schedule.

straight-salary plan (direct sales)

the least used compensation package for direct salespeople. However, they are appropriate under these circumstances: The sales staff spends a significant amount of time servicing customers rather than securing sales (for example, training, trade shows, or handling customer inquiries). Measuring sales performance is difficult. The nature of the sales process makes it impossible to separate one individual's efforts from those of the support people who also help secure the sale. There is a long sales cycle.

salary + commission (direct sales)

the most widely used approach to compensating sales personnel, for these reasons: Salespeople are thought to be motivated by financial gain. Salary-plus-commission systems allow organizations to directly reward those behaviors that best support their organizational strategy. Such systems are adaptable and allow organizations to readjust the plan to fit current conditions. Competitors usually use salary-plus-commission/bonus sales strategies.

automatic step-rate pay structure

the pay scale is usually divided into a number of steps that are 3% to 7% apart. At set time periods, each employee with the required seniority receives a one-step increase. A step-rate system with variability-based performance considerations is similar to the automatic system, but the size or timing of increases may vary if performance is substantially above or below standard.

benefits needs assessment

the purpose is to decide on a benefits package that will match the overall organizational strategies, support the organization's mission and vision, and meet employee needs. The final step in a benefits needs assessment is to compare the following: 1. Organizational needs (including budget) 2. Employee needs 3. Existing set of benefits The HR professional performs a gap analysis to identify the set of benefits that best matches the needs of the organization and its employees. Steps: 1. Review the organization's strategy. 2. Review the organization's compensation philosophy. 3. Analyze the demographics of the organization's workforce. 4. Analyze the design and utilization data on all benefit plans

job context

the purpose of the job, its work environment, its place in the organizational structure

job-content-based job evaluation

the relative worth and pay structure of different jobs are based on an assessment of their content (e.g., responsibilities and requirements) and their relationship to other jobs within the organization. More simplistic internal job evaluation approaches address how jobs are broken down into and assessed by their different elements or factors (decision-making relationships).

market-based job evaluation/ market pricing

the relative worth and pay structure of different jobs are based on their market value or the going rate in the marketplace. For this reason, the method is sometimes simply referred to as "market pricing."

straight commission (direct sales)

the salesperson's entire compensation is based on commission. Straight commission plans are appropriate when: The organization's objectives are to motivate sales volume (even if that means less service). Holding down the cost of sales is important. Competitors also compensate through commission-only systems.

Benefits Costs as a Percentage of Total Payroll Costs (metric)

total benefits costs/ total payroll costs

incentive pay

used to motivate employees to perform at a higher level by paying for performance that exceeds base-pay expectations. Incentive compensation programs stem from the theory that rewards drive behavior. Incentive plans must be tailored to fit each organization. Incentive compensation must be linked to and support those aspects of the business that drive financial success as well as be legally compliant. Generally, incentives can be developed at any of these levels: Individual Group Organization-wide

payment (severance)

vary in terms of how they are made. Most often, they are made in the form of an annuity, paid monthly until death. In other countries, an amount may be paid in a single lump sum. In actuality, the particular formulas for payment of retirement vary and are often complicated. They may be affected by the nature of the government funding strategies or variations that depend on such factors as age, level in the organization, and family characteristics.

seniority increase in pay

which is the time spent in an organization, is sometimes the basis for pay adjustments. Organizations may agree to one of these two conditions when seniority is used: Employees may need to be employed for a certain period of time before they are eligible for pay increases. Employees may receive pay increases automatically after a set time in the job.