Compensation Administration
McClelland's N-Achievement theory is one of the content theories of motivation. According to this theory, the desire to assume leadership is demonstrated by the need for (Ch. 8)
power
The sum of all the methods, including cash, equity, and benefits, that employers use to compensate employees is called
total reward program.
Extrinsic Rewards
Job factors that are expected by employees and therefore do not lead to satisfaction or motivation. (hygiene factors)
When an employer pays money to an employee in exchange for that employee's work efforts, it is called (End of Ch. 8)
direct compensation.
Hospitality operations find the Scanlon plan useful because it (Ch. 9)
directly rewards labor cost savings.
A restaurant manager rewards a high-performing server with an hourly raise. This is an example of
reinforcement theory.
A pension plan in which contributions are made at a fixed rate for each employee is called
a defined contribution plan.
Individual Incentive Programs
*Individual Incentive Programs are most useful if the work involved is not too interdependent or when individual improvement most benefits the organization. (Ex: sales representative) -May include individual tips There are six common types of individual incentive programs: 1. Piecework incentive programs: based on the theory of rewarding employees who exceed established minimums of productivity without regard to the amount of time worked. (based on the premise that if jobs involve simple, repetitive tasks, these incentive plans will motivate workers to produce maximum results & the company's performance will prosper as a result.) -Much more common in manufacturing industries & jobs that require repetitive, small-scale tasks. -Still used widely in hospitality and other service industries. (restaurant cooks' productivity, # of hotel rooms cleaned by housekeeping) -Increasingly, however, hospitality operations involve few repetitive units of production, and most performance goals are seen as a combination of individual & team efforts. 2. Standard hour incentive programs: based on the number of units completed per hour. Divides the hourly wage/ number of blank actions per hr to arrive at a benchmark for a standard hour program. (Ex: housekeeping # of clean rooms, casino dealers # of games dealt, etc.) Time is relevant unlike in Piecework programs. (per day would be a standard day program) 3. Commission programs: Employee receives a defined incentive reward determined by the amount of sales. (Ex: tipped employees, hotel sales reps, etc) -Provides a series of rewards for each goal attainment. (sales increase = incentive increase) -Graduated incentive programs provide sales agents with increased incentives for each level of productivity. -To produce the desired effect, a commission system must not sacrifice quality for quantity and must offer each worker an equal opportunity to earn commissions. 4. Bonus plans: based on a combination of compensation and incentive rewards. (all employees share in the achievement of organizational objectives OR linked to individual performance.) -Group bonuses are becoming more popular as a result of the growing use of teams in the workplace, but they can have a negative effect if one underperforming worker adversely affects the group's compensation. -Are typically rewarded when 5. Pay for knowledge (or pay for skills): based on the goals an employee reaches beyond those that are specifically required by the current job. 6. Merit pay systems: based on an evaluation of employee's performance over a predetermined length of time. -Piecework Programs: rewards for producing more than the established minimum. -Standard Hour Programs: number of units completed in one hour. -Commission Programs -Bonus Plans: certain goals are met. -Pay for knowledge: beyond your job. -Merit pay: Pay based on the quantity or quality of an employee's job performance over a predetermined period of time. (Increase in base wages for high performance.) Individual incentive programs require: •Effective and thoughtful administration. •Substantial documentation and calculation at the end of each reward period.
Benefits
Benefits are generally thought to be an: •Effective way to attract and retain personnel. •Motivate performance. •Increase job satisfaction. Benefits are so common in the U.S. that employees perceive many benefits as expected compensation, rather than as motivators. Managers should ask themselves the following questions when evaluating and establishing benefits programs: •What benefits am I required to offer? •What optional benefits can I offer? •How should I administer the benefits?• How can I contain the costs of benefits? The benefits offered by most companies fall into four general categories: 1. Mandatory benefits- Mandatory benefits are legislated by both the federal and state governments and include the following: •Social Security: Established to protect employees and their dependents by providing retirement income, disability income, healthcare coverage (Medicare), and survivor benefits. •Unemployment compensation insurance: Mandates that a former employee who is out of work and actively seeking work can receive up to 80 percent of his or her normal pay as long as that employee did not lose his or her job for reasons of misconduct. •Worker's compensation: Compensation for employees who become disabled or who die at work, regardless of who is at fault. benefits vary but typically include: Payment of medical and physical therapy bills at no cost to the employees. Compensation for wages lost due to temporary disability while recovering. Compensation for permanent disability that will affect the employee's potential future earnings. Vocational training for workers who are unable to return to their former jobs due to the injury. 2. Optional (or voluntary) benefits. 3. Pension and retirement benefits. 4. Miscellaneous (or fringe) benefits. *Mandatory Benefits- legislated by both federal & state governments -Social Security (50 years ago, 16 workers were supporting each beneficiary. Today, it is 3 workers.) -Unemployment Compensation Insurance (Up to 80% of pay) -Workers' Compensation (Claims can be reduced by training) *Voluntary Benefits- Employees have started to expect them. Voluntary benefits offered by organizations include: •Group life insurance coverage: Usually based on the annual earnings of the employees, although most plans provide employees the opportunity to purchase additional coverage. •Group health insurance: Rapidly rising costs of medical services make this the most costly benefit that companies offer to their workers. •Alternative health programs: HMOs, PPOs, and self-insurance have become popular because of the high costs of medical coverage. *Retirement Benefits - Pension and retirement benefits. -Can be Contributory (both employer & employee contributes) OR Noncontributory (employer contributes only) The principal reason many companies offer pension and retirement benefits is to develop a stable and reliable work force. Employees use two principal types of pension and retirement plans: 1. Contributory retirement plans, in which both the employer and employee contribute to the employee's retirement account. 2. Non-contributory retirement plans, in which only the employer contributes to the employee's retirement account. -Defined Contribution ('Profit-sharing plan' wherein fixed rate contributions are made) Defined contribution plans, also known as "money purchase" and "profit sharing" plans, require an account to be created for each employee, into which fixed rate contributions are made. Under defined benefit plans, retirement benefits depend on the length of service and average earnings of employees during their employment. The Employee Retirement Income Security Act of 1974 (ERISA) established reporting requirements, fiduciary responsibilities, and guidelines for participation, vesting, and funding for retirement and pension plans. -Defined Benefit Plans (Depend on length of service and earnings) -Individual Retirement Accounts (no employer contribution) -Salary Reduction Plans (401 (K) Plans) With union plans, employers agree to pay the union to provide the benefits. Salary reduction plans, such as 401(k) plans, allow employees to make tax-deferred contributions to retirement accounts in company profit-sharing plans.
Content Theories of Motivation
Economic Man Theory: is based upon the idea that money is the only important goal for which people work. • The theory states that people simply work in exchange for paychecks and that every employee is motivated primarily by the money they are paid. Maslow's Hierarchy of Needs Theory: Maslow's Hierarchy of Needs Theory contends that individuals have five basic needs, to which it assigns a hierarchy of importance: Pyramid top: 1. Self-Fulfillment- {Self-actualization: the desire to fulfill one's own potential}. Seeking to realize one's full potential, increase knowledge or skills, be creative, or simply "be the best I can be." (Employee development opportunities and long-term promotion plans can help to satisfy these needs.) 2. Ego/ Esteem Needs- self-esteem, accomplishment, achievement, competence, maturity, independence, and self-respect. (Might be satisfied by recognition, titles, praise, status symbols, responsibility, promotions, and appreciation.) 3. Social Needs- The need for companionship, love, and belonging. (In organizations, such needs may be met through formal and informal work groups, teamwork, company-sponsored activities, and a positive, inclusive work environment.) 4. Safety & Security Needs- need to protect oneself from danger, harm, threat, injury, loss, or deprivation. (employee's need for job security, seniority, safe working conditions, health insurance, retirement plans, severance pay.) *Can be strongly influenced by unions because many union contracts ensure job security that is greater than what most non-union workers have! 5. Physiological Needs-basic & essential needs for living; biological needs- heat, light, food, clothing, and housing; needs measured by CPI. (at bottom). Alderfer's ERG Theory: agrees with Maslow that individuals have basic needs that can be arranged in order of priority, that there are basic distinctions among those needs, and that those needs have to be prioritized. The three categories are: 1. Pyramid Top: Growth- These needs are satisfied when an individual makes creative or productive contributions. 2. Relatedness- Satisfied by meaningful social and interpersonal relationships. 3. Existence- These needs are satisfied by such factors as food, air, water, pay, and working conditions. (at bottom). *ERG theory adds a frustration-regression model. Herzberg's Two-Factor Theory / Herzberg's Motivation-Hygiene Theory: Herzberg's Two-Tier Theory states that employees have two distinct types of needs: 1. Hygiene factors are those factors that are expected by employees, and therefore cannot lead to satisfaction. (These are also known as extrinsic rewards.) 2. Motivators are those factors that can lead to satisfaction. (These are also known as intrinsic rewards.) Hygiene factors ( Maintenance Factors/ Dissatisfiers)- workplace factors like pay, relationships w/ peers & management, work-life balance, status, and security. Are compensation, supervision, working conditions, and company policy. These alone, can not lead employees to feel satisfied because they are expected. (without these workers are dissatisfied/ unhappy.) Motivators (Satisfiers)- Unexpected factors, are bonuses, recognition, responsibility, achievement, advancement, and work itself. (with these workers are satisfied but without them, there is dissatisfaction or no satisfaction.) McClelland's N-Achievement Theory: This theory contends that people have some kind of combination of three needs: 1. Need for achievement. People with a high need for achievement are usually good managers. 2. Need for power. People with a high need for power are usually seen as good leaders. 3. Need for affiliation. People with a high need for affiliation usually tend to do well in jobs that require high levels of social interaction. -Achievement (risk taking; problem solvers) -Power (Great desire for power) -Affiliation (desire for close, friendly relations) 3 types of managers: 1. Institutional Managers- have greater needs for power than for affiliation and tend to exhibit high levels of self-control. 2. Personal-power Managers- have a greater need for power than for affiliation but are open to social interaction and sharing power. 3. Affiliation Managers- tend to have a greater need for affiliation than for power and are more open to interpersonal relationships. *Research has shown that personal-power managers and institution managers typically are more productive because of their greater need for power and a greater desire to lead and control others,
A dishwasher in a small restaurant can typically run five loads through the machine each hour. The restaurant manager offers dishwashers double wages for each hour in which they run eight loads of dishes or more through the machine. Two months after the incentive program starts, the manager notes that no one has earned the incentive and employee productivity remains the same. Which is likely the incentive program's most serious problem?
Employees may think the goal is not attainable.
A hotel employee feels a sense of unfairness because she believes that employees in similar positions in other hotels are rewarded more for their work. Which motivation theory does this reflect?
Equity
Internal Equity
Equity in comparison to other employees within the organization. Internal equity relates to pay variations within a particular company.
A restaurant manager is identifying key jobs as anchors and comparing other with those anchors. Which job evaluation method is the manager using?
Factor comparison
Key Jobs
Fundamentally critical jobs used in the factor comparison method to anchor the scale of each job's value.
Hotel A pays its guestroom attendants $4.25 per room cleaned, and guestroom attendants typically clean two rooms an hour. Hotel B, a competitor, offers guestroom attendants benefits that are comparable to those at Hotel A. Managers at Hotel A want to make sure they are matching Hotel B's reward plan so that they don't lose any employees. Under which circumstance might Hotel A have to alter its program?
Guestroom attendants at Hotel B clean two rooms and hour and get $9.50 an hour.
A restaurant manager has been evaluating one of his server's performance over a three-month period and is going to reward him with a raise. Which incentive program is being used?
Merit Pay
Which type of insurance allows employees to deduct their share of the premiums from pre-tax wages?
POP
Banquet employees are expected to produce 350 plates for an event. The employees actually produce 380 plates. Which incentive program rewards the employees for exceeding expectations?
Piecework
Job Worth
The value of a particular job to desired business outcomes.
Which federal agency conducts wage and hour audits to check a company's compliance with the Fair Labor Standards Act?
The Department of Labor
Pay Range
The range between the highest and lowest rates of pay for each job in an organization. (mean salaries and wages, median salaries and wages, modal (most common) salaries and wages, pay percentiles and pay distributions)
Intrinsic Rewards
Unexpected factors in compensation that can lead to job satisfaction and motivation. (motivator factors)
A server at a restaurant slips in the kitchen and injures his back. He will be out of work for several weeks while he recovers. Which benefit does he qualify for?
Worker's compensation
A resort group is looking to attract new managers across multiple facilities. They decide to offer new managers an opportunity to "buy in" to the company at a very favorable price. This incentive is
an employee stock ownership plan.
Among forms of retirement benefits, Section 401(k) plans are examples of
salary reduction plans.
A restaurant is paying its long-time servers more than a recently hired server. This is an example of
seniority-based pay.
The most widely employed method of conducting job evaluations are:
• Ranking method- The ranking method usually uses a team of managers—or an evaluation committee that may include employees—to rank jobs. -ranks job descriptions from hardest to easiest, most skilled to least skilled, and most important to least important. *Best used when fewer than 30 jobs are being ranked *Can be improved by paired-comparison method- each job is compared by job criteria with every other job. • Classification method- ("Job Grading")The classification method, compares each job to a predetermined grade or class. *US Gov / state govs use this approach *Also accounts for length of service within each grade. • Point method-The point method is probably the most widely used method of job evaluation. The method assigns a point total to each job on the basis of several clearly defined criteria. Jobs are then placed in job grades according to their point totals. The point method involves three basic steps: 1. Determining compensable factors. -job analysis of all jobs within company 2. Weighting the relative importance of each compensable factor. (25% most important, others below) 3. Creating degrees within each compensable factor. • Factor comparison method-The factor comparison method entails identifying key jobs, which are generally those that the evaluation committee considers extremely important to the success of the organization. • Skill-based pay- A pay system that assumes a company can afford to pay more to people who can do more.
External Equity
"Market Pay / Prevailing Wage" Equity in comparison to employees outside the organization. External equity relates to pay variations among similar properties in a particular market. • An advantage of external equity is that the market determines the pay, so the job holder is paid as much as the market is willing to pay for that job. • Disadvantages of external equity are the fact that different organizational cultures might view pay needs differently and it is sometimes difficult to find out how much competitors pay.
Compensation
*An effective Compensation Program consists of both cash and non-cash rewards- salaries and wages as well as other types of benefits. -Wages & salaries represent only part of the total compensation most employees receive. -Not randomly chosen and few are legally required. *They are deliberately selected and combined to support the company's compensation philosophy, attract & retain workers, motivate and reward job performance in line with company objectives, and provide a positive overall rate of return on the company's investments in human resources!
Group Incentive Programs
*Group incentive programs are most useful when cooperation and coordination are the program's goals or if teamwork is key to achieving the organizational goal. (Ex: housekeeping in a hotel) *Group programs have become increasingly popular in recent years as more hospitality companies implement teamwork systems. -May include tips (amount in guest's control)- many restaurants pool/ share their tips with other employees Theoretically, group incentives either increase profits or reduce costs by encouraging employees to work efficiently to attain an organization's goals. The most common types of group incentives are characterized as gainsharing programs. Three types of gainsharing programs are the most common: 1. Cost-saving plans, also known as cash-reducing plans because they increase profit be reducing the amount of cash required to operate a business. 2. Profit-sharing plans, which reflect the principle that if employees can improve profits by reducing costs or streamlining productivity, they should share in that profit. 3. An employee stock ownership plan (ESOP), which establish a stock account for each employee in the company. The company distributes either cash or stock into employee accounts based on contributions to the company. -Gain-sharing Programs Cost Savings Plans -Scanlon Plan ~Labor Costs Vs Sales Values of Production -Rucker Plan ~ Labor Costs/ Production Costs -Improshare~ Improved Productivity Profit Sharing Plans -Cash Plans -Deferred Plans Combination Plans Employee Stock Ownership Plans Merchandise: •Has a longer-lasting effect than money. •Constantly reminds employees of the incentive for the reward. •Can be a source of pride for an employee—a tangible symbol of success. Money: •Allows an employee to purchase whatever goods or services are needed or desired. •May be particularly attractive to employees who have difficulty making ends meet on a regular basis. The disadvantages of group incentive plans are: •Even when employee performance exceeds expectations, employees will still suffer when the company has a bad year. •Unless properly managed, group incentive plans can unfairly reward employees who perform at levels lower than the group as a whole. Many experts think that individual incentive plans produce better results than group incentive plans, and claim that: •Group incentive plans blur the connection between pay and the individual efforts of each group member. •Group incentives can cause resentment.
Performance-Based Incentive Programs (Ch. 9)
*Most employers recognize a direct link between performance and incentives. *Both Equity Theory and Expectancy Theory suggest-pay-for-performance systems encourage motivation and productivity. *Advantages of Performance-Based Incentive Programs: -Retain Quality Employees- results from long-term effect incentive programs have on personnel. (attain their goal of having a staff of only high-performing employees, reducing turnover.) -Increase Productivity- employees have a reason to work harder and produce either more or better goods and services. -Reduce Labor Costs- managers can negate some of the effects of rising salaries and wages by establishing a relationship between organizational success and pay. (paid more when times are good, less when times are bad.) -Increase employee focus on organizational objectives.(employees work toward common goals) *Managers encounter barriers to implementing reward-for-performance systems: •Rewards that are set too low will not produce an incentive and may be detrimental by creating employee dissatisfaction and resentment, resulting in low performance. •The link between rewards and performance is not clearly established because the measures for success are not clearly defined or outlined. (This can lead to employee mistrust of the company, failure of the company to achieve organizational goals, and employees perceiving inequity between how much they value their contribution to the company and how much the company values this same contribution.) •Supervisors either resist performance appraisals or improperly administer such evaluations-resulting in feelings of unfairness among employees. •Labor unions capitalize on the potential unfairness for performance-based rewards. (When rewards are not administered correctly, a union can easily convince workers that such programs undermine the value of seniority, cost-of-living raise programs, and internal equity offered by the union. When this occurs, employees perceive a greater value in restricting the discretion of managers to influence awards) •The design and administration of reward-for-performance systems require careful attention to detail. (Some companies are unable or unwilling to devote the attention that such programs require. Employees know when this is the case and have less regard for their managers' abilities. The success of a reward-for-performance system depends heavily on the quality and accuracy of the measurement of performance.)
Cost of Living
A term used to refer to the present real dollar value of essential goods and services.
What is cost of living?
A term used to refer to the present real dollar value of essential goods and services.
Effective Incentive Programs
-Are directed towards attaining clear, specific goals. -Are fair and easy to measure (objective). -Goals must be attainable. (employees must have some expectations of success) -Room for improvement in productivity or performance(Advancement should be part of the program.) -Rewards must be substantial enough to encourage effort. (Rewards must be desirable) -Increases in productivity and performance should be tied to other non-monetary rewards such as opportunities for advancement. -Direct link between rewards and output.(not time invested, linked to productivity and quality) -Rewards should be timely. (administered quickly to reinforce the reason for the reward)
Motivating Employees
-Motivating : is stimulating employees to work as the company desires. -Compensation programs must motivate individual employees to work well, consistent with the company's business plan. -Not all compensation plans work to motivate employees equally. Compensation programs must motivate individual employees to work. However, they rarely succeed when they base motivation solely on monetary rewards.
Process Theories of Motivation
-Process Theories focus more attention on the employees' perceptions than on their realities. Do not disprove content theories but rather provide managers additional insight into how to influence employee motivation. *Expectancy Theory ( Victor Vroom): Motivation is related to an individual's perception of three factors: Expectancy- The probability that effort will lead to performance. Instrumentality- The probability that performance will lead to certain undesired/ desired outcomes. Valence- The strength of an individual's preference for a particular outcome/ value attached to each outcome. Desired outcome has motivational force, undesired outcome weakens or destroys motivation. *Equity Theory (J. Stacey Adams): This theory contends that people compare their ratio of outcomes Vs Inputs to other people's ratios. -Relates to whether an employee believes he or she is being fairly treated in comparison to a coworker perceived as being in a similar position. It is based on the assumption that all employees ask two questions about their work: 1. "What do I receive in return for what I give?" 2. "What do others receive in return for what they give?" -Note that it is an employee's perception of whether equity exists or not. When inequity is perceived by employees, the equity theory predicts employees might: • Work less hard because they believe they are under-compensated compared to others. • Work harder because they believe they are overcompensated compared to others. • Convince others to work hard to restore equity. • Convince others to work less hard to restore equity. • Reassess their perception of equity. • Compare themselves to different others. Personal Outcomes/Personal Inputs Vs. Others' outcomes/ Others' Inputs *Goal Setting Theory (Edwin A. Locke): This theory states that setting specific goals motivates better performance. -The following factors are needed to increase performance: 1) Ability- Although a difficult or challenging goal could result in better performance, before setting the goal, the manager should consider the ability of the individual employee who will aim for that goal. 2) Goal Commitment- Employees commit to a goal when they accept it. That is, the more accurately a person understands a goal and its purpose, the more likely it is they will attempt to achieve it. 3) Feedback- To promote performance, managers should provide feedback, which will help employees understand whether they are achieving the goal and how they can improve their likelihood of achieving the goal. Skinner's Reinforcement Theory (B.F. Skinner): is based on the assumption that people are conditioned to respond to stimuli. This theory leads to four possible managerial actions in response to employee behavior: 1. Positive Reinforcement - A manager can encourage repetition of a desired behavior by rewarding that behavior. If a manager fails to reinforce it, an employee may not exhibit that behavior again. 2. Negative Reinforcement (Avoidance)- A manager can encourage desired behavior by removing a punishment or unpleasant stimulus (such as criticism of an employee's performance) when the desired behavior finally occurs. 3. Extinction (Ignoring)- A manager can ignore a behavior to discourage it. 4. Punishment- A manager can punish an employee's undesired behavior to discourage the employee from performing that way again. Behavior> Consequences>Future Behavior
Compensation Philosophy
A company's compensation philosophy articulates where the company wants its pay policies to be in the marketplace and how the company will attract, reward, retain, and motivate employees. *Total Reward Program: The sum of all the methods, including cash, equity, and benefits, that employers use to compensate employees. -Elements are monetary & nonmonetary compensation. • Monetary compensation refers to the pay the employee receives. • Nonmonetary compensation includes other benefits, incentives, and intangible social and cultural aspects of the workplace. Monetary compensation is commonly divided into: • Direct compensation (AKA immediate compensation)-involves an employer's payment of money to an employee- either in the present or at some future date- in exchange for his or her productive work. *includes base wages & salaries, overtime, merit pay, bonuses, piece rates, shift differentials, etc. • Indirect compensation (AKA deferred compensation) includes money paid for various protection plans, paid time off, health savings plans, retirement savings plans, and various other services and benefits. *Money earned in one period that is not paid until a later period. (Ex: Executive compensation plan that encourages retention by granting bonuses for a given year but paying them only if the executive is still with the company a given number of years later.) *Some retirement pension plans are forms of deferred compensation. *Protection plans include medical insurance, life insurance, disability insurance, Social Security, unemployment insurance, and worker's compensation insurance. *Paid time off includes vacation, holidays, sick leave, jury duty, etc. *Perks might include company cars, travel allowances, and discounts on company products and services. *in general, indirect compensation is given as a condition of employment rather than in direct exchange for productive work. *Although some elements of compensation are easy to categorize, the complexity of today's compensation options occasionally produces forms of compensation that defy easy or definitive categorization. *Direct compensation in the hospitality industry has historically been significantly lower than in similar jobs and businesses. Some companies are not financially stable to pay higher wages, others believe they can attract satisfactory workers with lower wages, and others attempt to balance lower direct compensation with greater indirect compensation. *A plan that provides overall compensation that is lower than market competitors should naturally be expected to result in overall work productivity that is also lower than market competitors.
Seniority-based pay
A pay system based on the length of time the worker has been employed.
Team-based pay
A pay system based on the outcome produced by a team.
Pay Grades
Categories of pay rates for particular jobs in an organization.
A booking agent for a banquet company receives a percentage of the sales she brings to the company. Which incentive program is being used?
Commission
What idea promotes the scenario that job classification, rather than the work that goes into the job—for example, servers and dishwashers—should determine pay?
Comparable Worth
Piece Rate
Compensation method based on the employee's completion of measurable job units.
What is the best overall indicator of the real value, or purchasing power, of wages or salaries?
Consumer price index
Motivation Theories
Content Theories (All people are motivated by common needs. Content Theories identify and categorize needs), Process Theories (Explain how employees can be motivated)
Current Issues in Compensation
Current issues in compensation include: • Tips- Tips received from customers make up most of the employment compensation for some employees, particularly in food and beverage service. • Some employers allow all employees to keep their own tips, which is believed to motivate better individual job performance. • Other employers require employees to pool their tips and split them evenly among themselves, which results in greater pay equity. • Pay secrecy-The decision of whether to keep pay rates secret involves the following issues: • Does the company make its pay grades and the pay ranges within those grade known to employees? • If the company prefers pay secrecy, does it attempt to prevent or forbid employees from discussing their pay with other employees? • Wage compression and expansion. • Comparable worth. • Wage and hour audits. 1. Pay Secrecy: - 18% of US companies maintain open pay information systems. -Most private US enterprises forbid or discourage employees from discussing their pay. -In USA, such policies (forbidding pay discussion) are legally questionable (National Labor Relations Board). The National Labor Relations Board has repeatedly found policies that forbid or discourage employees from discussing their pay to be unfair labor practices in violation of employees' rights under the National Labor Relations Act. The advantages to pay secrecy policies are: • It can enhance organizational control and reduce conflict. • Pay differentials can cause jealousy; hiding them may prevent damage to company morale. • People can more easily be rewarded for the full range of their outputs. • It maximizes the organization's ability to correct historical pay inequities. • It encourages teamwork and reduces the "superstar" effect. • It increases loyalty to the organization. The disadvantages of pay secrecy policies are: • Employees will make judgments about fairness of pay policies without information, creating resentment. • Judgments about fairness will be based on general impression of the organization's fairness. • Secrecy breeds distrust. Openness signals integrity; secrecy signals that the organization does not trust its employees. • Pay secrecy could affect the labor market because it might prevent employees from moving and it may make it harder to recruit new ones. 2. Wage Compression- pay inequality based on levels of demand that result in higher pay for new employees than for current employees and is primarily caused by competition with other companies for new hires. (Pay inequities based on levels of demand that result in higher pay for new employees than for current employees.) and Wage Expansion-a condition that occurs when employers raise the pay rate of current employees to keep salaries in line with the higher wages of new hires caused by wage compression. 3. Comparable Worth: The concept of pay for men and women performing jobs that require essentially the same skills or contribute the same value to business operations. -Deals with the issue of pay in similar jobs. Many people confuse comparable worth with equal pay. The Equal Pay Act prohibits pay discrimination in the same job, while comparable worth deals with the issue of pay in similar jobs. Comparable worth advocates cite the fact that pay is based on job classification rather than on the work that goes into a job. All pay policies and procedures must comply with the provisions of the Fair Labor Standards Act. Policies and procedures that are inconsistent with the act can result in fines for a company and back pay for employees. Managers can prepare for wage and hour audits by learning and reviewing the issues that such investigations are likely to cover.
Establishing Pay Structures
Each hospitality organization must decide how to position its pay policies in comparison to other companies in the market. Most companies position themselves in one of three ways: Competitive Pay Policies- Pay leader- Pay more than the market average to attract better employees. Pay follower-Pay below market average to reduce labor costs and increase profits. Meet the competitors-Pay the prevailing wage in the market to meet competition. Each hospitality company must also determine the number of pay grades it will use. Performance pay must be high enough to effectively reward performance and there must be observed differences in pay between people who make higher and lower contributions to the organization. Pay Grades (range of pay scales for jobs) Seniority provides a good reason for establishing a range of pay within the pay grades, particularly in union environments. Seniority-based pay is also useful in non-union working environments, especially for employees at the low end of the pay scale. Merit pay policies are intended to create effective reward systems that motivate employees to give their best effort at all times. Two-Tier Wage System (seniority)- A pay system that establishes two distinct pay structures for employees- one system for employees with seniority and another for new employees. Two-tier wage structures provide a higher pay structure for existing employees and a lower one for employees hired beyond a specific date. Skills-based pay assumes that a company can afford to pay more to people who can do more. Knowledge-based pay is a variation of a skills-based pay system in which pay is tied to knowledge rather than to skills. On Call Pay Pay scales can be determined by: • Broadbanding, which eliminates all but a few comprehensive salary and job classifications. • Careerbanding, which uses market surveys to determine scales.
Compensable Factors
Elements common to each job on which compensation is based. Those factors that a company values and for which it chooses to pay. -education -experience -skills -effort -analysis & problem-solving -autonomy -responsibility -interactions w/ others -working conditions , etc.
What is a characteristic of effective incentive programs?
Goals must be clear, specific, and understood by employees.
Miscellaneous Benefits
Other insurance programs include: •Indemnity plans: Allow patients to visit the doctor or specialist of their choice. •Medical savings accounts: Used to pay for routine medical care. •Cafeteria plans: Include both premium-only plans and flexible spending accounts. Other plans include educational benefits, employee assistance program, child and dependent care programs, cafeteria and flexible benefits plans, pay for time not worked, paid leave bank, and flexible work schedules. Educational benefits Employee Assistance Programs (EAPs) Cafeteria & Flexible Benefit Plans: Three types of benefit plans come under the general heading of cafeteria and flexible benefits: •Core spending account plans: Provide a series of core benefits to every employee. •Module spending account plans: Offer a choice of preestablished "packages" of benefits to every employee. •Flexible spending account plans: Provide a given amount of money that a company will spend on benefits for employees and allow each employee to decide which benefits are the best for them. Paid leave bank ( lumping vacation; personal and sick leave.) Pay for time not worked (Sick Leave; holiday pay; Sabbaticals) Long-term care policies Flexible work schedules Maximum work hours Child and dependent care
A hotel establishes an account for its general manager to which the company makes contributions based on the general manager's contribution to profits. Which incentive program is being used?
Profit-sharing plan
The manager of a hotel is rating all of the jobs in the hotel. Which job evaluation method is the manager using?
Ranking
MAJOR INFLUENCES ON COMPENSATION PLANS
Some influences relate to the economic conditions in the company or community, whereas others relate to internal or external labor market conditions. Other factors that affect compensation include employee perceptions of pay, union contracts, and government influences. Even employee satisfaction and motivation can influence a company's compensation practices. The major influences on compensation plans are: Cost of living refers to the real dollar value of ordinary necessities such as food, housing, transportation, and clothing. (Consumer Price Index)- The consumer price index (CPI) is computed by comparing the retail price of goods and services at a fixed time with the prices at subsequent or prior times and is generally the best overall indicator of the real value of wages or salaries. -US issued monthly by Bureau of Labor Statistics -As the CPI goes up, the purchasing power of money goes down. Increase = inflation -Wages in certain companies adjust automatically to CPI changes to guarantee fixed purchasing power, called COLA for cost of living adjustment. The cost of living in different regions is also a factor in compensation. • Labor market influences- Supply (workers) and Demand (company conditions). The labor market is influenced by the various number of available workers and by such factors as: • Employment levels. • Occupation. • Local/regional economic conditions. Compensation rates vary according to: • Worker availability. (high unemployment rates vs low) • Internal conditions of the company. (company profitability, adjustment to CPI, etc.) • Union influences-Unions emphasize on seniority. Unions typically raise overall compensation rates, at least in the short run. (both direct & indirect) Unions influence compensation rates through their emphasis on seniority. -Non-union companies typically reward individual employees; union contracts generally call for the same pay for all employees who perform the same job. In the short run, unions typically raise overall compensation rates. However, it is unclear whether compensation rates are always higher in union companies over the long run. (subject to periodic negotiation) -Compensation in union properties depends as much on the skills of the union negotiation team as it does the performance of the employees themselves or the actual value of the work. Whether unionized or not, hotels in markets in which unions are present generally have higher compensation rates. • Government influences- laws that mandate minimum wage, wage rates, overtime pay, child labor restrictions, etc. Since the early 1930s, the U.S. federal and state governments have played a large role in how private enterprises compensate their employees. Laws that mandate minimum wage rates, overtime pay, leaves of absence, retirement benefits, equal employment opportunity, and other aspects all greatly affect the rate at which companies compensate their employees. -Not all employees in an organization are protected by all of these laws. Employees who work for companies that are not involved in interstate commerce, who are engaged in seasonal industries, or who are classified as executives, administrators, professionals, or outside salespeople are known as exempt employees because they are exempt from minimum wage and overtime provisions.
A hotel wants to manage employee absenteeism by offering one overall "time off plan." This is known as
a paid leave bank.
The Herzberg's two-factor theory
contends that some work factors influence satisfaction while others are expected by employees.
A mandated benefit that requires employers to purchase insurance for benefits paid by the state government to individuals who are out of work is called
unemployment compensation insurance.
Pay inequalities based on levels of demand that result in higher pay for new employees without similar salary increases for current employees is called
wage compression.
To attract new employees, a restaurant need to increase the wages for servers. To be fair, it increases the wages of all current servers to match that of the new hires. This is known as
wage expansion.
