Total Rewards
Total Rewards Strategy Process
Assessment, design, implementation, and evaluation
leveled salary data
If job on a survey is similar but not identical to one on the organizarion data can be weighted or leveled for a better match. eg: if an org benchmark position is at a supervisory level and it has less responsibility than the survey manager level benchmark the organization may adjust the surveyed wage by a percentage to accomodate the difference.
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
compensation philosophy
a short (but broad) statement documenting the organization's guiding principles and core values about employee compensation articulates the "why" behind employee pay.
Job Analysis
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. It results in a written statement of the tasks performed in the job and the necessary qualifications of the job incumbent—education level, experience, training, skills, and so forth
pay-for-performance program
allows an organization to evaluate the return on labor expenses
Pay grade
are used to group jobs that have approximately the same relative worth in an organization. All jobs within a particular ___ are paid the same rate or within the same pay range The purpose of ___ is to create a pay structure for the entire organization rather than having to set up a separate pay range for each job
Skill-based systems
base pay on the number of different skills an employee is qualified to perform. Employees increase their pay by acquiring new skills (production environment)
fiduciary duty (fiduciary obligation)
implies a legal obligation of one party (for example, the employer) to act in the best interest of another (for example, the employees)
assessment report
includes recommendations for the new total rewards system
Paid time off (PTO)
provides needed relief from the physical and mental demands of work Vacation or holiday leave Public, national, or bank holidays Maternity and paternity or parental leave Leave related to illness Other types of leave
Compensable factors
reflect how much the job adds value to the organization
Competency-based systems
set pay at the level at which an employee can operate in defined competencies (e.g., directing or training others) (rewarding professional groups of employees)
Perquisites (executive perks or fringe benefits)
special incidental payments, benefits, or privileges given to individual employees, over and above their regular rewards
Benefits
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 programs are designed to reward continued employment, promote loyalty, and enable employees to live healthier, less worrisome lives
straight piece-rate system
the employee receives a base wage rate and is awarded additional compensation for the amount of output produced
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 This type of system provides employees with a pay basis but then links the attainment of certain productivity goals or achievements directly to their pay
Time-Based Step-Rate Systems
the employee's pay rate is based on longevity in the job. Pay increases occur on a pre-determined schedule
Performance- or Merit-Based Systems
the individual employee's performance on the job is the basis for the amount and timing of pay increases
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.
job-content-based job evaluation
the relative worth and the 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
market-based job evaluation (market pricing)
the relative worth and the pay structure of different jobs are based on their market value or the going rate in the marketplace
Pay range
the upper and lower limits of compensation for employees whose jobs fit within that particular grade
indirect compensation (benefit and recognition programs)
typically includes noncash rewards
Domestic partners
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
Short-term disability
usually refers to absences of up to six months, often requiring a minimum waiting period
Long-term disability
usually starts where short-term disability ends. Sometimes it is treated the same as a permanent disability
job classification
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. Best suited to large organizations with many jobs and limited resources to commit to the evaluation process
Types of incentives
*** - Individual (to improve individual performance) - Group (when performance requires cooperation of the group) - Organization-wide
Types of Executive Compensation
- Annual salary (usually guaranteed) - Stock option plans (the option to purchase company stock) - Stock purchase plans (purchase shares at a discount) - Restricted stock grants - Phantom stock - Restricted stock units - Performance grants
Total Rewards System
- Compensation (direct) - Benefits (direct) - Location - Flexibility - Social interaction - Stability - Status/recognition - Work variety - Workload - Work importance - Authority/control/ autonomy - Advancement - Work conditions - Development opportunities - Personal growth
Family-Oriented Benefits
- Flexible Work Hours - Child care - Elder care - Domestic Partner Benefits -
Types of perquisites
- Free/discounted products or services - Mobile devices - Professional organizations/certifications - Training programs - Education fees Not as common - Housing - Company car and/or cash car allowances - Club memberships - Meal allowances
A job analysis generally gathers information about the following
- Job context—the purpose of the job, its work environment, its place in the organizational structure - Job content—the duties and responsibilities of people who hold the job - Job specifications/qualifications—KSAs required for a person to have a reasonable chance of successfully performing the job - Performance criteria—desired behaviors/results that will constitute performance in the job
Job Documentation
- Job description (Written description of a job and its essential functions and requirements) - Job specifications (Written statement of the minimum qualifications necessary to perform a job) - Job competencies (Clusters of highly interrelated attributes, including knowledge, skills, and abilities (KSAs), that give rise to the behaviors needed to perform a given job effectively)
Knowledge, Skills, and Abilities (KSAs)
- Knowledge—body of information necessary for task performance - Skills—level of proficiency needed for task performance - Abilities—capabilities necessary to perform the job
Pay Strategies
- Lag market competition - Match market competition - Lead market competition
internal evaluation methods categories
- Nonquantitative methods strive to establish a relative order of jobs. (job ranking, job classification) 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) - Quantitative methods try to establish how much more one job is worth than another job by using a scaling system. evaluate specific factors on a scale and provide a score that indicates how valuable one job is compared to another evaluate the job using a variety of factors—often called compensable factors
Job Analysis Methods
- Observation - Interview - Open-ended questionnaire - Highly structured questionnaire - Work diary or log
Total Rewards Strategic Objectives
- Strategy alignment - Cultural Alignment - Alignment with Workforce Preferences - Equity
Types of differential (variable) pay
- Time-Based: Shift pay. Some employees receive extra pay when they work less-desirable hours, such as a second or third shift Emergency-shift pay. Certain types of industries pay emergency-shift pay when employees work in response to an emergency Premium pay. Some employers pay premium pay (extra pay), or overtime at a higher rate, for working holidays, consecutive days, longer hours On-call or call-back pay. In some organizations employees earn pay when they are on call, even if they are not called in to work (on-call pay) Reporting pay. With reporting pay, employees are paid for reporting to work as scheduled even if upon arrival no work is available Travel pay. Hourly employees receive travel pay for time spent traveling to work assignments, even if the travel time is outside of working hours Overtime pay. In various countries the minimum amount to be paid for overtime is dictated by legislation - Geographic Differential Pay For labor costs. Employers change their base-pay structure to reflect different wage rates or factors that impact the cost of living in different geographic areas To attract workers to certain locations. Employers pay more to employees who accept work in remote locations or in places where the climate or quality of living is a deterrent For foreign countries. Employers offer a base-pay structure plus allowances to reflect factors that affect the economics of employees who work in foreign countries
Total Rewards Communication Tools
- Type of information (required and voluntary) - Communication plans - Direct communication - Individualized total compensation statements - Self-service technologies - Consistent key messages
Direct sales compensation plans
- straight salary (least used) - straight commission (the salesperson's entire compensation is based on commission) - salary plus commission and/or bonus (most used)
Developing a Pay Structure
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 the minimum and maximum. 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.)
Steps in Designing a Compensation System
1. Job Analysis 2. Job Documentation 3. Job Evaluation 4. Pay Structure
benefits needs assessment
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 5. Compare: Organizational needs (including budget), Employee needs, 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
two steps to developing a pay structure
1. grouping jobs into pay grades 2. setting pay ranges
Executive pay plans vs employee plans
1. 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). 2. incentives are generally linked to the performance of the entire organization or the major units/businesses
Unemployment Insurance
A source of income for workers who have lost their jobs through no fault of their own
Total Organization Compensation Expense
All costs associated with employment, including salaries, overtime, benefits, and bonuses Salaries + Overtimes + Benefits + Bonuses / Total operating costs
benchmarking
Comparing an organization's practices, processes, and products against the world's best.
Evaluation
Determining how well the system achieves its goals—cost-effectiveness, affordability, compliance with laws and statutory regulations, compatibility with mission and strategy, match with the organizational culture, appropriateness for the workforce, and equity using standard metrics such as cost of benefits, total payroll as a percentage of total organizational costs, and time-to-fill data for open positions. Organizations can also look at retention and voluntary turnover rates when exiting employees have indicated a rewards-oriented reason for leaving during an exit interview
Assessment
During ___, one or more HR professionals evaluate the current compensation and benefits systems and the effectiveness of those systems in helping the organization reach its goals
Design
During the ___ phase, 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
Implementation
During this phase, the HR department implements the new rewards system and circulates materials that communicate the new strategy to employees
Severance Packages
Employees who are terminated for some reason other than the cause are often given this package which includes - 1 salary continuation for specified period of time. (eg one week for each year of completed service) 2 Outplacement services as assessment, testing, job search, interview, skill training and resume prepation. 3 Retraining to become qualified for new jobs in other industries. 4 Continuation of benefits for a specified period of time.
Total rewards input-process-output
Inputs (HR's goals for recruitment, engagement, and retention) Process (align these inputs with the requirements of the organization's strategy, the nature of the organization's culture, the realities of the labor market, and the necessities of legal compliance) Output (the total rewards strategy—how the organization will use its compensation tools to create and sustain a productive workforce and advance the organization's strategy)
Internal survey
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
Incentives (premiums)
Payments in return for the achievement of specific, time-limited, targeted objectives
Health-Care Expense per Employee
Percentage that measures the health-care expense per employee for a given fiscal year. Total health-care expenses include employee- and company-paid premiums, stop-loss insurance, and administrative fees. total healthcare expenses/ # of employees enrolled
Red-Circle/Green-Circle Rates
Red-circle rates are employee pay rates above the range maximum. Green-circle rates are the opposite of red-circle rates—an employee's pay is below the minimum of the range.
Compensation
Refers to all other financial returns (beyond any tangible benefits payments or services), including salary and allowances
Benefits Costs as a Percentage of Total Payroll Costs
Reflects the total costs of benefits divided by the total payroll costs for the organization. Total benefit costs/total payroll costs
Compensation Ratio
Relationship of current salaries to the midpoints of the salary ranges Employee's pay rate/Pay range midpoint
Annual Increase/Decrease in Health-Care Benefit Costs (Previous Years and Projected)
Represents the expected increase/decrease in the organization's health-care expense for a given fiscal year; a comparison of the current health-care expense per employee metric to previous years and projected.
Entitlement-oriented
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
factor for geography
Some salary surveys do not provide data for a specific geographic area. Since wage rates typically will vary by location, an organization should factor for geography any national salary survey data for the local or regional recruiting area to approximate local wage rates
Survey data analysis
Survey data must first be verified and may need to be aged, leveled, and/or factored for geography (location)
Benefis
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. Internal and external training and development that employees receive is also considered a ___
Contributions-oriented
The compensation programs of other organizations 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
Involuntary (or nonvoluntary) terminations
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, violations of employer policy, to reduce or adjust the workforce in response to downturns in business, reorganizing or restructuring, mergers and acquisitions, and so forth
Voluntary terminations
These occur when an employee resigns or retires; is when an employee decides to quit or leave.
compa-ratios
When pay ranges are based on the target market rate, ___ are an indicator as to how actual wages match, lead, or lag the target market = pay rate / mid point ___ below 100% (expressed as a compa-ratio of less than 1.00) mean that employees are paid less than the midpoint.
aged salary data
When salary data is aged, movement in market rates is used to adjust outdated date.eg: pay inrease are 3% a year and if we used salary data point source with an effective date year ago we would increase numbers by 3% to account for the movement of salaries through time.
lump-sum increase (LSI) - (performance bonus)
a one-time payment of all or part of a yearly pay increase
cost-of-living adjustment (COLA)
a pay adjustment given to all eligible employees without regard to organizational profitability, employee productivity, or other performance factors
External survey
____ 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
point-factor system
a form of quantitative evaluation. It is the most commonly used method of job evaluation it is the most systematic and analytical method and it includes documentation of the process *** Provides documentation and an audit trail (benefit)
employee assistance program (EAP)
a health-care offering that is 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 covers concerns such as education and tuition, financial information, legal information, retirement planning, identity theft advice, medical and travel advice, child and elder health and well-being advice, and counseling resources and referrals
Remuneration surveys
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).
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. Surveys indicate that ___ reduces the number of job grades within an organization. This approach can be used to support de-layering efforts, which reduce the number of reporting levels within an organization 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 successfully implemented in large, hierarchical organizations that have attempted to flatten their structure and remove levels of management
sales compensation plan
compensation plan to to motivate sales professionals to achieve specific objectives that directly translate to the organization's bottom line
Differential (variable) pay
depends on performance and is not added to the employee's base pay
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
Job Evaluation (job 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 supports the need for the total rewards strategy to further the organization's strategic objectives
Single- or Flat-Rate Systems
each incumbent of a job has the same rate of pay, regardless of performance or seniority.
paired-comparison method
each job is compared with every other job being evaluated
Person-Based Systems
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
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.
Total rewards
encompasses all the direct and indirect remuneration approaches that employers use to attract, recognize, and retain workers. refers to all forms of financial rewards that employees receive from their employers
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
Workers' compensation (employers' liability insurance)
insurance against work-related accidents or illnesses 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
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. ___ 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. ___ evaluates the whole job, rather than parts of it, and compares one job to another fairly quick, inexpensive, and easily explainable method of job evaluation Best suited to small organizations where a hierarchical ordering of jobs will suffice and resources are lacking for a complex job evaluation system.
Wellness programs
is intended to promote and support the health, safety, and well-being of employees include programs to help employees stop smoking, diabetes management programs, weight loss programs, and preventive health screenings. An employer may offer employees premium discounts, cash rewards, gym memberships, and other incentives to participate
Incentive pay
is used to motivate employees to perform at a higher level by paying for performance that exceeds base-pay expectations
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 also helps to ensure legal compliance with fair pay regulations and prevent employee lawsuits for alleged pay discrimination
knowledge-based system,
pay is based on the level of knowledge the employee has in a field (compensating learned professions such as scientists or teachers)
Productivity-Based Systems
pay is determined by the employee's output. Examples include the straight piece-rate and differential piece-rate systems, both of which are most frequently used in manufacturing environments
Life insurance
payable on the death of the employee, is usually provided by social security often involves very small lump-sum amounts, sufficient to cover burial but not sufficient for the beneficiary to live on
Nonqualified deferred compensation plans
plans that allow organizations to provide additional benefits to a select group of key executives, which motivates them to stay with the organization
Direct compensation (pay systems)
primarily involves cash-based rewards