Unit 4: Total Rewards

IRS Regulations: Tax Withholding

-Health plans: Employer payment is non-taxable income but employee payment is after-tax income -Some wellness programs -Group life insurance -Educational assistance (up to $5,250) -Meals, employee discounts etc -Commuter benefit

Effectiveness of piece-rate incentives

-Significant productivity gains, stronger than any other factor -Challenges: new tech makes independent work hard to measure. Also, some jobs change too quickly to establish piece-rate. Also, restriction of outputs (aka soldiering) - when a group pressures members to keep output low and these group norms restrict productivity. Why? They think if they produce more than the standard will be retimed and increased. Address with solo work and OD training.

Sales Commission

-Straight Commission: No base pay, comp is % of total sales -Bonus Commission: Base pay + Bonus comp. Must meet sales quotas. Provides security and incentive to sell. -Salary plus commission: Most common. Base salary + % of total sales. Provides security and incentive. -Tiered Commission: Graduated percentages tied to higher levels of sales volume. -Variable Commission: Comp is different % for different types of sales (ex hard-to-sell products, new market etc). Commissions are taxable income so employers must withhold payroll and federal income taxes, as with other earnings.

Six Objectives of Comp

1. Be legal, 2. Be adequate, 3. Be motivating, 4. Be equitable, 5. Provide security and 6. Be cost-benefit effective

Nonfinancial rewards

AKA perquisites (perks). Generally not linked to performance.

Wage Compression

Caused by decreasing-rate and fixed-rate increases. Problem is that orgs are unable to promote employees to high-level positions because the financial incentives for accepting more responsibility and skills are too small to attract employees

Hourly vs. Salary

Changing from hourly to salary, generally, does not improve productivity. Absenteeism generally increases but eventually comes back down to acceptable levels.

Wage-Structure Decision

Determining how much each job should be paid relative to other jobs in the org. Depends on the job demands, not how well the job holder performs them (allowing for variety). Many orgs use a job evaluation committee: 5-7 individuals review job descriptions.

Walsh-Healy Act of 1936 (a.k.a. Public Contracts Act)

Extended Davis-Bacon Act to non-construction federal contractors. Sets basic labor standards and min wage and 1.5x overtime for all contracts over $10,000. Had safety rules but they were superseded by OSHA of 1970.

Standard Hour Plan

Form of incentive piece rates. AKA 100% premium plan. Workers are paid an hourly wage but the hour is measured in units produced rather than minutes. Standard amount = hour wage. Ex: 60 units/hour = standard. Producing 90 units = 1.5x pay.

Job Eval: Classification/Grading Method

Grades created with brief descriptions. Then, jobs classified in to grades. Ex: GS system in the government. Advantages: standardizes wages. Disadvantages: stability makes it unresponsive to factors like regional variance. Motivates to manipulate job descriptions.

Impact of interest rates on comp

Impacts interest on the cost of capital. Higher interest rates = higher capital costs, less investment in business (wages)

Step Increases: Individual Pay Levels

In some organizations, individual pay levels are based upon step increases. These step increases are based upon performance and length of service. Movement through the steps can be automatic-- advancing through 1 step each year or variable-- meaning the supervisory determines the movement.

Total Rewards

Monetary and non-monetary rewards provided by companies to attract, motivate, and retain employees

Money & Motivation Theories

Maslow's Need Hierarchy: 5 needs in order of importance (prepotency): 1. Physiological Needs, 2. Safety & Security, 3. Social Needs, 4. Ego & Self-esteem and 5. Self-Actualization McClelland's Theory of Learned Needs: Need for achievement (nAch). High need achievers are characterized by personal responsibility, moderate risk and a strong desire for feedback. Low-need achievers are more money-motivated. High-need achievers view money as feedback for success. Herzberg's Motivator-Hygiene Theory: Motivator factors contributing to satisfaction and productivity are related to the CONTENT of the job (recognition, achievement and responsibility) and hygiene factors contributing the dissatisfaction are related to the CONTEXT of the job (salary, supervision and company policies). Hygiene factors must be present for motivation to occur. Since money is a hygiene factor, it won't motivate but only cause dissatisfaction. So, set an equitable wage and focus on motivator factors. Self-Determination Theory: Examines the effects or extrinsic rewards, such as money, on intrinsic satisfaction. Showed extrinsic rewards diminished intrinsic motivation. Expectancy Theory: Decision-making theory that people eval the outcomes and probabilities associated with them. Motivation is determined by the outcomes people expect to occur as a result of their actions. Expectancy is the probability that effort will lead to performance. Says money can be a powerful motivator if the proper relationships between effort, performance and rewards are perceived. Equity Theory: Attitudes towards pay are influenced by how much pay people receive, what they had to do to earn it, and whether they feel it was fair related to how much work they did and how much others received. Note that this is tied to perception, not actual value of inputs. 6 methods of how individual attempt to reduce inequity: 1. Alter inputs (aka work less) 2. Alter outcomes (request raise) 3. Cognitively distort inputs or outcomes 4. Distort the inputs or outcomes of others 5. Change objects of comparison and 6. Leave the field. Goal-Setting Theory: People perform better when they are trying to achieve a goal. 3 types of goals: participative, assigned, and do-your-best goals (employees control own goals) Reinforcement Theory: Primary reinforcers are physical in nature (food, water, sex etc) and secondary are learned (friendship, social approval etc). Money is secondary. Behaviors is impacted by outcomes. So, offer money and behavior will change. Timing is important. Continuous reinforcement schedules are preferred bc they're stable. However, partial reinforcement schedules that provide comparable money on a variable ratio schedule produce higher levels or performance (ex: slot machines). Challenging to implement variable in industrial setting. OVERALL: Need theories of Maslow and McClelland suggest money is unimportant to motivate, Herzberg advises against using money to motivate but reinforcement theory and expectancy theory suggest that money can be a powerful motivator when pay is based on performance.

Bonus

Preferred because does not raise base pay levels year after year. Types of bonuses: -Signing bonus -Performance bonus -Project bonus -Referral bonus -Retention bonus -Year-end or holiday bonus

Job Pricing

The process of deciding how much each job should be paid by determining pay grade and range

Davis-Bacon Act of 1931 (Show me the prevailing wage bacon!)

This law requires the payment of the "prevailing wage" of the locality and 1.5 local rate of overtime to employees working under federal contracts. Prevented employers from importing cheap labor or auctioning jobs to lowest bidder.

Impact of inflation on comp

Typical US inflation 1-3% annual Wages structures are typically adjusted to be on par with inflation

Minimum Wage

a minimum price that an employer can pay a worker for an hour of labor If receive tips, $2.13/hour plus tips (as long as tips exceed min wage)

Workers Compensation

state programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors Administered by state. 3 Types: 1. Death 2. Medical Expenses 3. Wage Replacement (50-70% of worker's salary) Funding: 1. Private insurance company 2. Self-insured 3. State has exclusive fund and monopolistic insurer 4. State competes with private funds Costs determined by a company's experience rating - based on # of workers comp payments. To encourage safety. Businesses need to pay close attention to how jobs are classified re risk to avoid overpaying.

Range spread

usually 10-20% above/below midpoint (on the wage curve)

two-tier wage system

wage scale paying newer workers a lower wage than others already on the job. Pro: cuts labor cost (short term benefit) Con: Long term, creates feelings of inequity, longer-term employees are more expensive

Nonexempt Pay: Portal-to-Portal Act

-Normal travel to/from home is not working time -Travel as part of work activity must be counted as hours -Travel after work hours is not compensated if it's to free time or if in a company car -On-call time is compensated -Waiting time may be compensated -Training time during work hours and job related & mandatory -Meal periods are not work hours when more than 30 min. -Pre/post work if required is compensated

Labor Market

1. Blue-collar and non-supervisory white-collar workers Ratio for high to low between 1:2 and 1:3 2. Professional Employees Ratio is 1:4 or 1:5 3. supervisors and executives (4th: entrepreneurs, athletes, entertainers etc). Ratio is 1:10+

Processes to control pay decisions

1. Control through wage structure 2. Formal budgeting process (top down or bottom up)

Factors influencing pay

1. External factors 2. Org factors 3. Job factors 4. Individual factors See page 12

Employer Notices Required for FMLA Rights

1. General notice: must be posted in prominent area with procedure for following complaints. 2. Eligibility notice: Employer must notify employee within 5 days. 3. Rights and responsibility notice: Employer must provide written notice of obligations and explanation of FMLA leave 4. Designation notice: When employer has info to determine leave is for a FMLA-qualifying reason, employer must designate leave and provide written notice to employee within 5 business days. Employee should give employer notice "as soon as practicable" - ideally 30 days

Job Evaluation: Factor Comparison

1. Identify key (benchmark jobs) 2 Identify job factors 3. Rank jobs 4. Assign monetary amounts to each job on each factor 5. Compare unique jobs with key jobs Ex: pg 33

Highly compensated employee (HCE)

1. Owned more than 5% of the capital or profits in the employer's business for previous year 2. received compensation of more than $120,000 and was in top 20% of the business' employees when ranked by comp

Three wage decisions

1. Wage-level decision: How do our wages compare to similar roles in other orgs? 2. Wage-structure decision: How much money is paid for one job relative to other jobs within the same company? 3. Individual wage decision: How much does an employee make relative to other employees who perform similar work?

Child Labor

18+ all jobs, unlimited time 16-18 non-hazardous jobs, unlimited time 14-15 outside of school hours in non-hazardous jobs, no more than 3 hours/school day 8 hours/nonschool day or 40 hours/wk. 12-13 non-hazarous farm jobs outside of school hours Under 12 non-hazard farm with parent consent. FLSA + GINA made big penalties for death or serious injury to minors

Patient Protection and Affordable Care Act (PPACA) of 2010 -OBAMACARE

2010 federal legislation designed for comprehensive health reform, with an intent to expand coverage, control health care costs, and improve the health care delivery system Major provisions: -State healthcare exchanges -Employer shared responsibility: Applicable large employers (50 or more FTE = averages 30 + hours/wk or 130 hrs/mt ) are required to offer affordable coverage or pay a fee. Penalty = # FTE for the year (minus up to 30) x $2,500 -Essential health benefits: Requires qualified plan under Health and Human Services -Preventative Care = 100% coverage -Contraception: Considered preventative -Insurance Coverage Mandates: Plans are prohibited from lifetime limits, -Low-value Plan Penalties: Employer health care coverage must have an actuarial value of at least 60% or else penalties are issued. -Young Adult Coverage: Dependent coverage required. Can remain until age 26, married or unmarried. -Affordable Coverage: If employee opts out of coverage bc it isn't affordable (which means 9.5% of household income), then employer will pay "B" penalty for every employee or uses exchange. To determine income: 1. W-2 2. hourly rate x 130 hours/month or 3. use fed poverty line -FSA: Contributions capped at $2,750 -Health Care Cooperatives: Established fed program to assist in establishing more but largely unsuccessful -Wellness Initiatives: Employers can reduce premiums with wellness incentive programs (up to 30%) -Breaks for Nursing Mothers -Excise Tax on "Cadillac Plans": 40% tax on amounts exceeding annual plan thresholds (to limit excessive plans for unions or execs) -State Reform Initiatives -Medical Loss Ratio: AKA the percent of premiums that are spent on health expenses vs overhead, salaries and profit. Required to be 80% for small employers and 85% for employers with 100+ employees. In order to limit insurance company profits. -Retiree Medicare Part D Tax: Employers can not use tax deduction for providing Medicare Part D coverage for retirees -Medicare Hospital Insurance Tax: Additional Medicare Tax of .9% for individuals with annual income >$250,000 for joint filers or $200,000 for single filers -W-2 Report Requirements: Cost of coverage should be included on each employee's W-2s for any employer who issued more than 250 W-2s in prior year. -Summary of Benefit Coverage (SBC): required form for each health insurance plan -Appeal Procedure -Whistle-Blower Protections:

Patient Protection and Affordable Care Act (PPACA)

2010 federal legislation designed for comprehensive health reform, with an intent to expand coverage, control health care costs, and improve the health care delivery system. Most significant law regulating health care. Employers with over 50 employees are required to provide affordable healthcare insurance for "essential health benefits" or pay a penalty.

Total Compensation

3 Parts: Base Pay, Incentives, Benefits

Benefit Cost Management

4 Methods for analyzing the costs of employee benefit plans: 1. Annual cost method: reports total annual cost figure for each benefit 2. Cost per employee per year 3. Percent of payroll: show cost of benefits relative to wages. Ranges 20-60% for most companies 4. Cents-per-hour: Cost of benefits per employee per hour. BLS reported average as: $11.48/hour in 2019

Employee Stock Ownership Plan (ESOP)

A compensation system that awards employees shares of company stock in addition to their regular compensation. Formed by creating a trust into which company makes tax-deductible contributions of cash or stock. Trust buys shares of stock which are allocated to employees. ESOPs are used as a financing tool (finance a buyout, avoid a hostile takeover etc). Some orgs are owned by their employees through an employee stock ownership trust (ESOT).

job evaluation

A process that determines the worth of each job in a company in order to eliminate pay inequities and create a pay structure that create appropriate pay ranges for jobs.

Severance Pay

A sum of money for which an employee is eligible upon termination In US, typically is 2-3 weeks of pay per year of service

Total Reward Statement

AKA Employee benefit statement Typically includes: Comp, health care benefits, insurance, vacation and leave, retirement, costs of employment, additional benefits (tuition reimbursement, childcare, EAP, fitness etc)

Comp/Wage Surveys

AKA: Pay survey, salary survey 3 ways to make surveys: government (BLS), professional orgs and individual companies 1. Govt: BLS through the NCS (National Compensation Survey) makes the largest. Available publicly online. Includes data on selected company practices, like vacations, holidays and benefits. 2. Private industry: Ex: SHRM, benefit of these surveys is that they have current data that can be analyzed by geography, experience etc. 3. DIY/Company-sponsored: Most frequently used. Conducted by a firm or group of firms (DIY). Must have: reciprocity, anonymity, low cow, timeliness. Careful not to avoid collusion or wage price fixing. How? Neutral 3rd party manages the exchange, relatively old info, info is aggregated (enough to hide identity) In using survey data: median is useful, mean is greatly impacted by outliers. Weighted average vs Unweighted Average: Weighted: Takes mean of all individual salaries for a job (ex: adds up each person) Unweighted: Takes mean of average salary for a job per group of orgs (does not "weigh" the size of the org) If data becomes out of date, it can be aged. Determines what % salaries have changed and multiply data by the aging factor.

Pregnancy Discrimination Act of 1978

Amendment to Title VII of Civil Rights Act. Treats discrimination based on pregnancy-related conditions as illegal sex discrimination, including "fetal protection policies." Affordable Care Act included coverage for lactation time.

Pay for time not worked

An employee benefit that covers a wide array of different types of employee absences from work: Paid holidays, Paid vacations, Paid Personal Leave, Union Activities, Reporting Time (if employee reports to work but there isn't work and gets sent home), Sabbatical Leave, Paid caregiver leave, Paid parental leave, Paid funeral leave, Jury duty, Military leave (under USERRA)

Deferred compensation

Any agreement which comp earned one calendar year is paid in a later calendar year

Merit Pay

Awards pay increases in proportion to performance contributions. Methods: -Discretionary increase - give managers a range, based on performance level -Compa-ratio approach - People are top of pay range receive smaller %s than people lower. Intention is to keep wage amounts within the pay range. Key to merit plan: Effective system to accurately assess performance

Impact of demographics and labor supply on wages

Bigger labor supply = higher wages, less supply = lower wages Birthrates: 1. Decline during great depression 30.1 to 18.7 2. Baby boom 1945-1964 increase to 25 3. after baby boom birthrate dropped below 15. Overall decline in birthrate = labor shortage Participation Rates: % of people in a specific age category participating in the labor force. Trends: Decrease in males, especially older males. Increase in female rates, especially 25-54 Immigration: Increase in immigration numbers since 70s for legal and illegal Education: More ed = higher wagers and lower unemployment and vice versa Unemployment:

Exempt Employees (FLSA)

Bona fide executive, administrative, professional, computer and outside sales employees. AKA "white collar jobs." Executive exemption: employee compensated on a salary basis, primary duty must be managing the enterprise, direct the work of at least 2+ full-time people, authority to hire or fire other employees. Also, if individual owns at least 20% of a business and actively engaged in mgmt. Administrative: Salary, office/non-manual work related to business op, exercise discretion and independent judgement with respect to matters of significance Professional Exemption: learned or creative professional, salaried, work requires advanced knowledge, academic training is prereq, discretion and judgement Salary or fee basis: Employee receives predetermined comp each pay period (regardless of days worked). Deductions are permissible if: Absence full day, intermittent FMLA, first or last week, etc. Admin, professional and computer employees may be paid on a fee basis rather than salary. Paid sum for a single job, regardless of time worked. Must meet minimum wage (if worked 40 hours/week) If pay is docked for time not worked, generally roles can lose exempt status (BC it proves the role is hourly) BUT there are exceptions (107)

Executive Bonus Plans

Bonuses for CEOs are typically 120-160 of base salary when other upper level managers are 50-80 % of salary. Low level are 14-40% of salary. Bonus is determined by formula, not performance level. Some use 3-5 year company performance to use long-term growth (which rewarding short-term) Golden parachutes: change-in-control benefit when leave (retire, move on, fail or resign). Included in negotiation at hiring.

Copeland "Anti-Kickback" Act of 1934 (Can't COPE with kickbacks or bullying in this LAND)

Copeland Act: to prohibit unfair treatment of employees (passed during Great Depression). Authorized the secretary of labor to make reasonable regulations concerning the deductions that a fed contractor can make from employees' wages. Anti-Kickback law, passed in 1948, made it illegal for a fed contractor to threaten or induce employees to give part of their rightful comp to the contractor.

Unemployment Compensation

Created by 2 titles of the Social Security Act of 1935. Applies to employee employed more than 20 weeks or who pay wages of more than $1500 or more in any quarter. Employers pay a payroll tax of 6.2% on the first $7,000 of annual wages per employee. Employer pays. Amount depending on experience rating, determined by how many are collecting.

Stock Option

Deferred compensation strategy. Rights to buy a certain number of shares of stock at a specified price over a certain time (usually 10 years) Inexpensive benefit for company bc doesn't cost a business cash. Can dilute stock, however, so future impact of stock options should be reported on a company's reports, as required by FAS123. Seen as motivating and align executives' interests with those of the shareholders. Way to transfer a LOT of wealth. Tax laws have changed over the years. In 1993, laws shifted to reduce exec wages and companies restructured, used ISO practices like: backdating, repricing, reloading, spring-loading, bullet-dodging SOX (Sarbanes-Oxley Act 2002) has provisions to prevent backdating

Family and Medical Leave Act (FMLA) of 1993

Eligible employees who to 12 weeks of unpaid leave each year for specified family or medical reasons. Employee must have worked for at least 12 months and for a min of 1,250 hours over the 12 months immediately prior to the leave date. All employers who employ 50 or more employees in a 75-mile radius. For: New baby, new child via foster or adoption, care of seriously ill spouse/child/parent (not parent-in-law), employee serious health condition, spouse/child/parent of someone about to be on active duty for any "qualifying exigency," care of injured family member in service (up to 26 weeks in a year). Timing is determined by employer - calendar year, hire date, rolling etc. Employer may require documentation from health care provider and must allow 15 calendar days to obtain. DOL has a form employers can use. Managing intermittent FMLA is biggest challenge for HR. FMLA can run concurrently with others leaves: workers comp, disability, pregnancy, as long as state laws allow it and employer states in writing. FMLA is enforced by the Wage and Hour Division of the US Department of Labor. During FMLA leave, benefits continue and employee is guaranteed position or similar position upon return. In some circumstances, employer can collect premiums if employee does not return to work. FMLA does NOT prevent employers from offering paid leave. FMLA does not place restrictions on secondary employment during leave (such as nights or weekends with another employer)

Social Security

Employer pays FICA taxes in payroll (7.65% matching fund) Four basic types of insurance benefits provided by the Social Security Act: 1. Old Age or Disability Benefits: Normal retirement age is currently 66 (set to rise to 67) although it is possible to retire at age 62 with a 13% reduction of benefits. Disability = severe physical or mental condition that prevents him or her from working and expected to last at least 12 months. Amount determined by work credits or their average earnings. Max benefit at full retirement is $3,011. 2. Benefits for dependents of retired, disabled or deceased workers. 3. Lump-sum death benefits: $255 to worker's survivors 4. Medicare: Healthcare for 65+. Payroll tax, now 2.35% plus 3.8% on investment gains. Medicare Notes: Part A: In-hospital care. All people 65+ qualify. Part B: Outservice care: People 65+ must pay monthly premium Part D: Assist with cost of prescriptions

Communicating Benefit Programs

Employers are required to have a summary plan description (SPD) which typically contains: 1. Plan's eligibility requirements 2. Summary of the benefits provided 3. The procedures for claiming benefits and appealing claim denials 4. Circumstances that could result in a loss of benefits 5. Participants' rights under ERISA Employers are encouraged to include a "reservation of rights" clause in their plans and SPDs, which indicates that the company reserves the right to modify or terminate the plan at its discretion. Such clauses should also be included in pension plans. If employees do not elect a benefit plan, they should sign and acknowledgement to document.

Fair Labor Standards Act of 1938 (AKA Wage and Hour Law, FLSA)

Established minimum living standards for workers engaged in interstate commerce, including provision of a federal minimum wage, overtime pay, child labor restrictions, and related recordkeeping requirements. FLSA is administered by the Wage and Hour Division of the US Dept of Labor. DOL has authority to leverage significant fines and penalties against employers = big legal liability risk. Does not regulate: -Vacation, holiday, severance or sick pay -Meal or rest periods -Weekend or holiday premium -Pay raises or benefits -Discharge or final wages

Independent Contractors

Exempt from FLSA provisions. BUT must be truly independent. IRS uses 3 criteria: behavioral control, financial control, the type of relationship 6 factors: 1. nature and degree of control 2. permanency of worker's relationship 3. amount of worker's investment in facilities, equipment or helpers 4. amount of skill, initiative, judgement, or foresight required for the worker's services 5. worker's opportunities for profit or loss 6. extent of integration into business Employers are not required to: -withhold income taxes -pay matching SS taxes -include them i pensions and benefit plans -pay unemployment or workers' comp taxes

Expatriate Allowances

Extra pay for expat employees. Includes: Foreign service premium (incentive), hardship allowance, hazard/danger pay, COLA, relocation, travel, etc... Also, short assignments - "expat-lite" can be offered for not additional financial benefits Common practice now is to "localize" expats, meaning compensate like a local. Can occur gradually or start out as a local hire.

Wage Curve

Formed using regression line (of best fit) for key jobs. When wage curve needs adjustment, due to inflation or changes within the org, there are 2 methods: 1. across-the-board increase (aka fixed-rate-increase). Many orgs have a fixed-rate-increase tied to the consumer price index (CPI). Many labor agreements have a COLA (cost of living adjustment) for changes in the CPI. 2. percentage increase whereby the rate for each job is increased by a specific percent. So, higher wage jobs receive a larger cents-per-hour increase than lower wage jobs. In some instances, decreasing-rate increase would increase lower wage jobs more and higher wage jobs less, like with an increase in minimum wage or collective bargaining pressures.

Gainsharing

Group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each gain to employees Plans: -Scanlon Plan: To improve efficiency. Originally an instrument for unionized company to reduce conflict. Ex: work efficiency and all save in the cost-labor savings. Key is suggestion system so that creative ideas can cut costs. -Rucker Plans: Developed by Allen Rucker, Rucker Share-of-Production Plan. Similar to Scanlon but with a more sophisticated accounting anaylsis of "value added" (instead of just revenue like Scanlon). Higher productivitity = high value added = higher comp -Improshare: Similar to Scanlon/Rucker but are tied directly to measures of productivity, no dollar value of product. (Name: IMproved PROductivity through SHARING)

Profit Sharing

Incentive pay in which payments are a percentage of the organization's profits and do not become part of the employees' base salary. Major types: -Cash plans: quarterly or annual payment (popular for small orgs) -Deferred plans: Worker's share is held until later, usually retirement. (popular for big orgs bc of tax advantages. All deferred profit-sharing plans, called "qualified" plans, must be approved by the IRS.

Halsey Premium Plan

Incentive plan. Workers receive a guaranteed hourly wage plus a percentage (33% is recommended) of the wage for any time saved. Actual production standards are determined by past performance rather than by time-and-motion studies.

Executive Compensation

Includes monetary and non-monetary rewards (like company car, reserved parking, travel upgrades etc). Evidence suggests that CEO salaries are closely related to revenue but not profitability. Second and third highest execs typically are paid relatively consistent ratios of the CEO. 2nd around 71% of CEO and 3rd 55-60% Large variation can be explained by "Just Noticeable Difference (JND)" - idea that difference needs to be big enough to be noticeable or significant.

Impact of competition on comp

Increase in competitiveness = orgs offer fewer rewards to employees. In competitive industries, only highly successful firms can offer high wages etc. Includes domestic and foreign competition.

Individual Pay Rate Determination (Individual Wage Decision)

Influences feelings of job satisfaction and pay equity. Factors: -Performance: Typically unpopular with unions -Experience/Education -Seniority: Ex: teachers. Note: no relationship exists between seniority and performance. -Potential:

Hay Guide Chart-Profile Method

Job eval system that is a factor comparison system but uses points. Has 3 compensable factors: know-how, problem solving and accountability. Creates matrix for each factor.

Record Keeping

Keep following info: -Personal info -hour and day when workweek begins -total hours worked -total daily or weekly straight-time earnings -regular hourly pay rate for any week when overtime is worked -total overtime pay for workweek -deductions from or additions to wages -total wages paid each pay period -date of payment and pay period covered Can round to nearest quarter hour but can't be unfavorable over time to employee Deductions by employer can not lower rate below min wage

Wage-level Decision

Larger orgs tend to pay more than smaller orgs (1,000+ employees = 30% more) Orgs that bargain with unions tent to have higher wages, including a great portion of comp as benefits.

HIPAA (Health Insurance Portability and Accountability Act) of 1996

Law to provide greater portability in health care coverage and avoid job lock: issue when people can't change employers because of preexisting health conditions. HIPAA Major Provisions: 1. Limits exclusions for preexisting conditions. 2. Break in coverage for longer than 63 days, employee could be subject to preexisting condition exclusion for the first 12 months of new employment. 3. Preexisting condition exclusions cannot apply to pregnancies, newborn or adopted children, -Privacy provisions: strict and costly

Equal Pay Act of 1963

Legislation that requires employers to pay men and women equal pay for equal work. Can not use wage history as justification. 4 Exceptions: 1. Seniority system 2. Merit pay system using performance measures 3. System that measures quantity/quality of production 4. Differentials, such as geo or reg/temp etc

Alignment/Balance of base pay and incentive pay

Major concerns: security (base pay) and motivation and equity (incentive) Depends on strategic direction of business. Stable, bureaucratic = base pay + merit. Flexible, innovative = variety of financial incentives. In fine-tuning a comp system, consider: -Ability to measure individual performance accurately, objectively, and conveniently and timely -Extent of which workers can control the rate of production -Degree of interdependence and cooperation required within the work group -Size of the work group (too large can reduce motivation) -Org's ability to produce a profit

Director Pay

Many execs receive additional comp for serving on a board of directors for their own corp or outside corp. Median board comp (retainer + per meeting fee) is $145,000 to $260,000 depending on industry and comp size. Board members also generally get liability insurance coverage and other potential benefits: life insurance, travel insurance, group health or dental. Stock purchase plans.

Job Eval: Point Method

Most frequently used, easy to administer and decisions are defensible. Analyze job description and allocate points for specific factors. Total points determines pay range. Steps: 1. Identify key jobs - aka benchmark jobs, are jobs that are equitably paid, stable and well-defined (not necessarily the most important). The wage structure is based on these key jobs. 2. Identify job factors: aka compensable factors. Ex: responsibility, physical demands, skills, supervisory resp etc 3. Weigh the factors according tot heir contributions to their overall worth of the job. 4. Divide each job factor into degrees high to low and assign points to each degree 5. Reach a consensus about degree assignments 6. Develop a wage curve using key jobs. Wage curve is a straight line (linear curve) since the higher-level degrees are heavily weighted. Note: Experience, responsibility and skill requirements (ed/training) tent to be the most significant factors determining pay

Restricted Stock Grants

Moving from stock options. Have an absolute value when granted and can be accounted for over the life of the vesting period. Time-based shares and performance-based shares

Pay-for-performance

OVERALL: Need theories of Maslow and McClelland suggest money is unimportant to motivate, Herzberg advises against using money to motivate but reinforcement theory and expectancy theory suggest that money can be a powerful motivator when pay is based on performance. Pay to increase productivity. Generally boost morale and productivity. Programs can be individual, group or company-wide or combo of all three.

Red-circled jobs

Over or underpaid. Underpaid should be raised immediately. Overpaid: 1. reduce wages immediately 2. reduce wage incrementally over time 3. hold salary constant until inflation and cost-of-living increases the rest of the curve or 4. redesign the job, adding more responsibility, 5. promote employee to higher-paid position

Employee Retirement Income Security Act (ERISA), 1974

PENSIONS! Federal law that increased the responsibility of pension plan trustees to protect retirees, established certain rights related to vesting and portability, and created the Pension Benefit Guarantee Corporation - PBGC (which backs up plans if they are insufficiently funded). -All employees with 2 years of service are eligible -Vesting: 2 models, cliff (100% after 3 years) or graded (20% after 2 years and additional 20% per year until 100%) -portability (not required under ERISA, option that employees like) -Funding: funded plans, so money must be saved. Not pay-as-you-go. Pension plans can be contributory (employer + employee) or non-contributory (employer only). Funding can either be insured (insurance company purchases an annuity) or trusteed (fund managed by trustee or bank who invests it) -Fiduciary Responsibilities: ERISA established the "prudent man" rule, that decisions of the administer need to be prudent. Fiduciaries are responsible for negligent acts. Individuals can not sue over poor performance of a plan (per Mass Mutual Life Insurance Co vs Russell) but they can sue if fiduciaries do not follow the investment instructions (LaRue v DeWolff, Boberg & Associates). -Reporting: ERISA requires extension reports to employees and Sec of Labor -Tests (to ensure nondiscriminatory): 1. Minimum coverage test - Ratio Percentage test (non-highly comp employees NHCE must by at least 70% of highly comp employee HCE) or Average Benefit Test every 3 years, 2. Actual Deferral Percentage (ADP) test completed annually to determine is HCE contribute disproportionately than NHCE etc...

Compensatory time off

Paid time off from work that is substituted for overtime pay when extra hours are worked, and is only available to public employees (not private sector).

Compa-ratio

Pay rate divided by the midpoint of the pay range. Ex: $9 (pay) / $8 (midpoint) x 100 = 112.5 Pay range of +/- 20 would have comp-ratios between 80-120.

Pensions

Pension: Deferred payment for past services rendered Defined benefit plan: traditional company-provided benefit plan. Depends on salary and tenure. Usually 50-70% of salary. No separate acct per person. Defined contribution plan: Requires a separate acct per person and money is put by employee and employer in to account. Most popular: IRAs, 401(k)s, 403(b)s, and Savings Incentive Match Plans for Employees (SIMPLE). Growing in popularity as opposed for DB plans. Hybrid option = Cash Balance Plan. Individual acct, employer funded, portable between jobs, employee decides how to invest, insured by the Pension Benefit Guaranty Corporation. Challenge = age discrimination, since these plans favor young employees with opp to invest.

Nonqualified Deferred Compensation

Plans which postpone when executives receive income and pay taxes on it. Employers typically limit participation in these plans to highly compensated executives. Restrictions by American Jobs Creation Act 2004. Employees must elect to defer comp before comp is earned (exception is performance-based comp) Money can be distributed: 1. separation 2. disability 3. death 4. specific time under plan when comp is deferred 5. change in company ownership or control or 6. unforeseeable emergency "rabbi" trusts are restricted

Skill and Knowledge Based Pay

Programs reward employees for ability to perform and array of related tasks and skills rather than for the actual work performed. Jobs are grouped by skill or knowledge. Skill-based pay and pay-for-knowledge programs significantly improve work-force flexibility and the capacity to respond in changing demands and schedules. Motivates employees to learn new skills. Models to design programs: 1. Stair step model: Assumes that the requisite knowledge and skills can be arranged hierarchically. Employees begin on step 1 and receive higher pay with more skill. 2. Building blocks model: Assumes that the various skills and knowledge and discrete and can be acquired in an other. NON-LINEAR 3. Job-point Accrual Model: Similar to building blocks. Typically used when there are many diff skills or ideas employees may acquire and not all equally valuable. Point values are assigned to skills/knowledge. Employees accumulate points. Step 1 to establish a program: identify the skills that deserve premium pay. 2. Develop assessment procedures to measure each of the skill levels. 3. Training opps Can also be tied to performance in a matrix (ex pg 74)

Individual Savings Plans

Qualified Plans: Deferred accounts that are approved by the IRS and enjoy special tax considerations -401(k) -Roth IRA: taxed at time of savings, not withdraw -403(b): for tax-exempt orgs -IRA: Allows workers to set aside income up to an indexed limit ($6,000 for under 50, $7,000 for over 50) -Simplified Employee Pension (SEP): Allows employers to set aside money in retirement accounts for themselves and their employees. Employer contributes equally to all employees and annual contribution amounts are flexible. Lower start-up costs. Up to 25% of employee pay or indexed limit ($57,000) -Keogh (H.R. 10): For self-employed individuals to place the lesser of 25% of income or $57,000 into a tax sheltered retirement fund. Big admin burden to create and administer. -SIMPLE (Savings Incentive Match Plan for Employees): Allows employees and employers to contribute to traditional IRAs set up for employees. Ideal as a start-up retirement savings plan for small employers who don't sponsor a retirement plan. Employees save a payroll reduction up to $13,500 annually and employers may match up to 3% of pay or a 2% contribution on behalf of all employees. -DB/k plans: Combines traditional defined benefit plans with 401(k) plans are available to employers with fewer than 500 employees. All plans MUST meet minimum distribution requirements no later than April 1 of the year after the year participant retires or turns 70.5, whichever is later. LOTS of fees with plans: asset-based feeds, per-participant fees, transaction-based fees or behavior-based fees. ERISA and DOL monitor these.

Small Business Job Protection Act (SBJPA) of 1996

Raised minimum wage and made changes to pension plans. Opportunity wage: $4.25 for employees under 20 yr old for first 90 days (but may not displace another worker).

Job Evaluation Methods

Ranking and classification are "non-quantitative methods" - AKA "whole-job evaluation" Point method and Factor comparison are "qualitative methods"

Job Eval: Job-ranking Method

Ranks jobs from highest to lowest value. Simple and fast. Disadvantages: differentials between jobs are not equal, not careful analysis to eval job as a whole, difficult in orgs with a lot of jobs

Legal Compliance of Benefits Programs

Regulated by ERISA of 1974. Conflict of issue: standard or inherent. Standard conflicts occur when the plan is self-funded, company appoints plan administrator etc... Inherent conflict is when administrator is both the insurer and the administrator bc there is conflict between discretion to pay claims and the need to remain financially sound.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Required employers of 20 or more employees to extend health insurance group benefits to termed employees, employees with reduced hours and to employees' spouse and dependent children. Entitled to 18 months of continued coverage for term or hour reduction. Upon enrollment in healthcare plan, employer has 90 days to provide employee with notification of COBRA coverage (and SPD). Employer charges employee 102% of the cost of coverage. Employers have 14 days to notify and employees have 60 days to elect.

Wage Garnishment (1968)

Restricts the amount of an employee's disposable earnings that can be deducted to pay a garnishment (civil judgement brought against an individual for failure to pay debt). Limit: in one week no more than 25% of disposable weekly earnings or 30x FLSA min wage (whichever is less). Fed welfare reform law requires employers to assist gov't in tracking down child support for garnishments. But employers can't discriminate.

Executive Comp Legislation & Control - SEC & Dodd-Frank

SEC requires reports on CEO, CFO, top other 3 execs, the directors. Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) requires executives to return ill-gotten bonuses. Dodd-Frank also requires companies to submit their executive comp plans to shareholder vote at least once every 3 years. Also allows for more access to board seats.

Salary Compression and Inversion

Salary Compression: When gap between new hires and experienced employees becomes increasingly smaller. Usually results from labor shortages, so starting salary is higher. Salary Inversion: When new hires are given higher salaries than more experienced employees in the same job. Strategies to prevent: 1. promote employees from within rather than hire from outside org 2. control pay by enforcing strict HR hiring policies and restricting budgets (so managers can't choose higher-cost candidates) 3. Limit how high within a pay range new hires can be paid etc...

Health Care Benefit Plans

See page 154 HMO HSA PPO FSA POS: A point-of-service plan (POS) is a type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But like a PPO, patients may go outside of the provider network for health care services.

Comparable-Worth Controversy

The issue of whether organizations should be required to establish a common set of criteria for evaluating the worth of jobs and to provide equal pay for jobs of comparable worth. Ex: nurse/teacher vs doctor/professor

Medical Insurance

Type of insurance that pays for medical & surgical expenses incurred by the insured. Most pay 50-90% of reasonable healthcare costs and insured pays rest. Companies can choose to be fully-insured (contract with insurance companies) or self-insured (directly responsible for paying medical claims and plan administered by 3rd party administrator). Most large companies with 1000+ employees choose to self-insure. Allows for greater flexibility in design. But, due to possible conflict of interest, any challenge of denial of reimbursement should be reviewed by an independent review organization (IRO).

Expatriate Tax

US expats must pay US income tax.

Differential Pay

Wage differentials exist to make work fair. Examples: -Overtime: Fair Labor Standards Act (FSLA) requires 1.5x pay for hours worked over 40 a week. Some employers/states have additional: 2x for over 10 hrs, 1.5 for over 8 hrs per day etc. -Shift Pay: Usually for nights or swing shifts -Hazard Pay: For additional risk -On-call Pay: If employee is on call and restricted in their activity to move about and not free to plan their own activities, they should receive their normal hourly wage. If they are free, however, employers often pay a premium but not required by FSLA -Call-back Pay: For employees called back to work -Geo Differentials: COLA adjustment -Weekend and Holiday Pay

Dependent Care

When the business provides care for children, elderly parents, or other dependents of the employee. Estimated 23-30% of workforce has some elder care responsibility. Options for childcare: on-site, childcare subsidies or FSA, day-care information, flexible scheduling.

Piece Rate Incentives

Workers are paid a fixed amount for each item produced. Founded by Frederick W Taylor, the founder of scientific management. Straight Piecework: Oldest and most common incentive-wage plan, and it is used in over half of all incentive-wage plans. Most pay a guaranteed base rate at least minimum wage. Differential piece-rate plan: Pays a lower rates to workers who produce less than standard and higher rate to those who exceed the standard.

Impact of productivity on wages

higher national productivity = higher wages

Adjustments for economic declines

hiring freezes, defer pay increases, furlough workers, require execs to take unpaid leave, pay cuts, two-tier wage systems

Sick Leave / Personal Time

paid time away from work due to illness Exec order by Obama requires certain fed contractors to provide employees with up to 7 days of paid sick leave annually. Employees accrue one hours for every 30 hours worked. Personal time is a solution: used for sick or time off