Compensation and Benefits Test 2

Rating formats

- Require raters to evaluate employees against a standard rather than against each other - Each performance standard is measured on a scale so variation falls along a continuum

Performance Research

- The definition of performance is expanding - Identify the best appraisal format - Recent focus is on the raters themselves - Identify how raters process information - Raters can be trained to increase accuracy

Deferred Compensation

-Employer cannot freely choose who will participate in the plan -must be qualified -must meet nondiscrimination tests that are intended to encourage companies to spread benefits coverage to all employees

Employee Stock Ownership Plan (ESOP)

-Employer makes a tax deductible contribution of stock shares or cash to a trust. -The trust allocates stock to employees based on earnings.

Merit bonuses

-Thought to be a substitute for merit pay. - Based on performance and received as an end-of-year bonus. Not built into base pay. - Can be less expensive than merit pay over the long run. - Employees are not fond of merit bonuses. • Giving merit bonuses for several years, a company is essentially freezing base pay.

Variation

-distribution of rates around a measure of central tendency -Standard deviation most common statistical measure -quartiles and percentiles are most common measures in pay survey analysis

Lag Pay-Level Policy

-paying below market rates may not attract employees unless coupled with higher future returns -the combination may: increase employee commitment, foster teamwork, which may increase productivity

Accuracy of match

-some use the benchmark anomalies -does any one company dominate? -do all employers show similar patterns? -outliers?

• Yes, perceived as more objective. • Candidates look for a 'fit.' - Materialistic - concerned about pay level. - Low self-esteem - want little pay for performance. - Risk takes - want pay based on performance. - Risk averse- want less performance-based pay. - Individualist - want pay based on individual performance. • A strong pay/performance link is attractive.

Do people join a firm because of pay?

• Poor performers leave when pay is based on individual performance. • Group incentive plans may lead to more turnover of better performers. • Dissatisfaction with pay may cause turnover. • Even the way an organization pays may impact turnover.

Do people stay in a firm (or leave) because of pay?

- Pay-for-performance plans have a positive effect if they are designed well. -The plans often have too small a payout for the work expected, • unattainable (or too easy) goals, • outdated or inaccurate metrics, or • too many metrics.

Does variable pay improve performance results?

Labor Demand Theories

Compensating Differentials Efficiency Wage Sorting & Signaling Job Competition

Spillover error

Continuing to downgrade an employee for performance errors in prior rating periods

- Strategy - structure - standards

Designing a Pay For Performance Plan include?

(1) Who should be involved in the survey design? (2) How many employers should be included? (3) Which jobs should be included? (4) What information should be collected?

Designing a survey requires answering the following questions:

Team/group incentives

• Awards determined based on team/group performance goals or objectives • Payout can be more frequent than annual and can also extend beyond the life of the team • Payout may be uniform for team/group members

Unemployment insurance: Coverage

• Covered workers must meet eligibility. -States require a 'base period.' -Unemployed through no fault of their own.

Unemployment insurance: Finance

• Financed by employers federal and state unemployment insurance tax. • Federal garners 6.2% of the first $7,000. • States impose a tax above that amount. - A company's experience rating may lower percentages.

Structure

• Is organization structure decentralized, allowing flexible variations on a general plan?

Standards

• The key rests on standards. • Concerns include objectives, measures, eligibility, and funding.

Strategy

• The plan must support corporate objectives. • Should link well with HR strategy/objectives. • How much increase makes a difference?

Workers compensation

•A form of no-fault insurance, covers injuries/diseases arising from employment. •Benefits given for: -medical care, temporary or permanent disability payments, survivor benefits, rehabilitation and training. •Costs vary over time. •States vary in the size of payout for claims. -Some states provide "second-injury funds. •Covered by state, not federal, laws.

paired comparison ranking

•Method simplifies ranking by comparing pairs of people •Each individual is compared separately with all other in the group

self-dertermination theory (SDT)

•Purports to integrated motivation theories under a broad umbrella •this approach believes that employees are motivated not only by monetary rewards (referred to as extrinsic motivation), but also by intrinsic motivation, which is enjoyment or satisfaction that comes from performing the work itself and produces a sense of autonomy. •intrinsic motivation produces the highest-quality motivation

Performance rating

•The things we enter into an employees permanent record •influenced by: -behaviors observed by raters -organization values -competition among departments -status differences between departments -economic conditions

Child labor

•Under 18 cannot work hazardous jobs •Under 16 cannot work in jobs involving interstate commerce, except for a parent. -Additional exceptions and limitations exist.

unemployment benefits

•Unemployment benefits are 'charged' against the most recent employer. -Raising their unemployment insurance rate. •Control these costs with a well-designed human resource planning system. -Reduce hasty hiring. -A benefit administrator should audit pre-layoff behavior and compliance with Ul requirements. •Government actions may help.

Job Performance

•What exactly should be measured when we evaluate employees? •The answer depends on such factors as job level, type of occupation, the way work is organized, and the strategic goals of the organization

Health Insurance Portability and Accountability Act (HIPAA)

•enacted in 1996 •designed to: -lessen denial for preexisting condition -prevent discrimination on the basis of health

Equal Pay Act of 1963

•forbids wage discrimination on the basis of gender if performing equal work in the same firm. •Jobs are considered equal if requiring - equal skill, effort, and responsibility,performed under the same conditions. • Pay differences legal if affirmative defense: - Seniority, merit or quality of performance, quality or quantity of production, or some factor other than sex.

Gain sharing plans

•pay offs for teams defined at the level of a strategic business unit •Use operating measures to gauge performance •Look at cost components of the income ledger, identifying areas where employees have an impact

Title VII of the Civil Rights Act of 1964

Prohibits discrimination on the basis of sex, race, color, religion, or national origin in any employment condition, including hiring, firing, promotion, transfer, compensation, and admission to training programs

• Observes behavior. • Encodes the behavior. • Stores the information in memory. • While actually evaluating, the rater - reviews the performance dimensions and retrieves from memory stored observations/impressions. - reconsiders and integrates with other information. • Decides on the final ratings.

Raters follow this process?

•function of state and local laws •cover employers exempt from federal laws •include requirements that go beyond federal law

Regulatory environment is also a ?

-the same occupation and skill -employees within the same geographic area -the same products and services

Relevant labor markets include employers who compete in one or more of the following areas?

Maintenance act 1973

Required employers to offer alternative health coverage (e.g.,health maintenance organizations) options to employees.

The patient protection and affordable care act 2010

Requires individuals to maintain minimal essential health insurance coverage or pay a penalty unless exempted for religious beliefs or financial hardship. Employers must enroll new employees or face a levy.

Reinforcement Theory

Rewards reinforce (i.e., motivate and sustain) performance. Rewards must follow directly after behaviors to be reinforcing. Behaviors that are not rewarded will be discontinued.

Behaviorally Anchored Rating Scale (BARS)

Seems to be the most common format using behaviors as descriptors

360-degree feedback

To lessen the impact of a single reviewer, and to increase participation in the process, a method known as (or multisource feedback) has grown more popular in recent years- and evidence suggests that it has value. Generally, this system is used in conjunction with supervisory reviews. The method assesses employee performance from five points of view: supervisor, peer, self, customer, and subordinate.

Lead Pay-Level Policy

-maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay -may also offset less attractive features of the work

Premium priced stock option

A stock option that has an exercise price about market value at the time of grant. This creates an incentive for employees to create value for the company, see the stock price rise, and thus be eligible to purchase the stock.

•success sharing •risk sharing -These plans shift part of the risk from the company to the employee -may result in decrease employee satisfaction and higher turnover

Earnings at Risk Plans

1. Employers always seek to maximize profits. 2. People are homogeneous and therefore interchangeable. 3. Pay rates reflect all costs associated with employment. 4. Markets faced by employers are competitive.

How labor markets work? Four basic assumptions:

task performance

How the employees perform the responsibilities of their jobs

Lilly Ledbetter Fair Pay Act of 2009

Increases compliance challenges

Expectancy

Is employees assessment of their ability to perform required job tasks

Instrumentality

Is employees beliefs that requisite job performance will be rewarded by the organization

Survey

Is the systematic process of collecting and making judgments about the compensation paid by other employers

Valence

Is the value employees attach to the organization rewards offered for satisfactory job performance

Performance vested stock option

One that vests only upon the attainment of a predetermined performance objective.

Counterproductive performance

The negative behaviors employees show

Recency error

The opposite of first impression error. Allowing performance, either good or bad, at the end of the review period to play too large a role in determining an employee's rating for the entire period.

severity error

The opposite of leniency error. Rating individuals consistently lower than is deserved.

-disparate treatment -disparate impact (most commonly litigated)

Two theories of discrimination behavior:

-benchmark job approach -low high approach -benchmark conversion/survey leveling

Which jobs to include?

central tendency error

avoiding extremes in ratings across employees

leniency error

consistently rating someone higher than is deserved

Alternation ranking

recognizes that raters are better at ranking people at extreme ends of distribution -best and worst performers are rated first

Pay level

refers to the average of the array of rates paid by an employer

Ranking formats

requires comparing employees against each other to determine the relative ordering of the group on some performance measure

Group Incentive Plans

team performance is measured against a set standard to determine incentive pay

Individual Incentive

variable pay tied directly to objective measure of individual performance such as sales, production volume, or production quality

Executive order 11246

•Prohibits discrimination on the basis of race, color, religion, sex, or national origin. •Requires government contractors to file affirmative action plans, with three parts. -Utilization analysis compares contractor's workforce to external workforce. -Goals and timetables to achieve affirmative action. -Action steps for achieving goals and timetables.

401(k) plan

•Savings plan where employees can defer pretax income. •Employers match at 50 cents on the dollar.

Flexible benefit plan

"Cafeteria style" Employed are permitted great flexibility in choosing the benefit options of greatest value to them

Weighted mean

($92,170) is calculated by adding the base wages for all 585 engineers in the survey and then dividing by 585. A weighted mean gives equal weight to each individual employee's wage. If have only companywide measures (rather than individual measures), the rate for each company is multiplied by the number of employees in that company. Total of all rates is divided by total number of employees. Gives equal weight to each individual's wage. Captures Size of supply and demand in market.

Retirement and savings plan payments

- 64% of workers have access to pension coverage, only 49% participate. - Employees rank pensions as important. -Two generic pension plans are: • defined benefit plans, and • defined contribution plans. - Many companies shifted to 401(k) plans. • Dollar contribution is known and controllable.

Individual Spot Awards

- About 35 percent of companies use them. - 74 percent reported them effective. - Usually awarded for exceptional performance - Larger companies use formal mechanisms while smaller companies may be more casual.

Some consequences of pay levels: Competitiveness of total compensation

- Contain operating expenses (labor costs) - Increase pool of qualified applicants - Increase quality and experience - Reduce voluntary turnover - Increase probability of union-free status - Reduce pay-related work stoppages

Market pay line

- Links a company's benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis. -summarizes the distribution of going rates paid by competitors in the market - Can be freehand or regression analysis

Standard hour plan

-Based on time per unit and tie incentives directly to level of output. -is a generic term for plans setting the incentive rate based on completion of a task in some expected time period. -are more practical than straight piecework plans for long-cycle operations and jobs that are nonrepetitive and require numerous skills for completion

Organizational data

-Financial data and reporting relationships -turnover and revenues

compensating differentials

-If a job has negative characteristics, then employers must offer higher wages -explain the presence of various pay rates in the market -it is hard to document, due to the difficulties in measuring and controlling all the factors that go into a net advantage calculation

Bureau of Labor Statistics (BLS)

-Is the major source of publicly available compensation (cash, bonus, and benefits but not stock ownership) data -publishes extensive information on various occupations.

Fuzzy markets

-New organizations and unique jobs may fuse diverse factors making relevant markets fuzzy -Place more emphasis on external market data

Merit pay

-System links increases in base pay to how highly employees are rated on a performance evaluation -employee achievements are rewarded every year the employee remains on the job

Sorting and signaling

-designing pay levels and mix as a strategy that signals to employees what is sought -employer signals include pay level and mix -employee signals include better training, education, and work experience

statistical analysis

-frequency distribution -central tendency -variation

frequency distribution

-helps visualize information and may highlight anomalies -unusual shapes may reflect problems

Cash balance plans

-hybrid -a cash account grows from annual employer and employer contributions

Human capital

-is based on the premise that higher earnings flow to those who improve their potential productivity by investing in themselves (through additional education, training, and experience) -most influential economic theory for explaining pay level differences -assumes that people are in fact paid at the value of their marginal product

Reservation wage

-job seekers will not accept jobs with pay below a certain wage, no matter how attractive other job aspects -may be above or below the market wage -seeks to explain differences in workers response to offers -likely exist for pay forms, particularly for health insurance

Employment Cost Index (ECI)

-measures quarterly changes in employer costs for compensation -Is a source of publicly available labor cost data -allows a firm to compare changes in its average costs to an all industry or specific industry average

External Competitiveness

-the pay relationships among organizations - the organization's pay relative to its competitors -expressed in practice by (1) setting a pay level that is above, below, or equal to that of competitors and (2) determining the pay mix relative to those competitors

Labor supply theories

1) Reservation Wage 2) Human Capital -these theories focus on understanding employee behavior: the supply side of the model

Level one: Low risk/reward

1. Time-based restricted stock 2. Performance-accelerated restricted stock: 3. Stock purchase plan

Level two: medium risk/reward

4. Time-vested stock option 5. Performance-vested restricted stock 6. Performance-accelerated stock option

Level three: high risk/reward

7. Premium-priced stock option 8. Indexed stock option 9. Performance-vested stock option

Merit Bonused (Lump Sum Bonus)

As with merit pay, granted for individual performance. Does not add into base pay, but is distributed as a one-time bonus

Stock ownership or option

Award of stock shares or options

•working in covered employment, and •earning a specified amount per quarter

Benefits under social security, workers must qualify for these benefits by?

• Include strategies for ensuring external competitiveness and adequacy of benefits. • Know what your competitors offer. • There is no magic formula for defining adequacy. - The answer may be a relationship between benefit adequacy and cost effectiveness. - Are employee benefits cost justified?

Decide the role of benefits and integrate them into the overall compensation package:

-adjectives -behaviors -outcomes

Descriptors anchoring the continuum provide the major difference in rating scales which are?

• The biggest complaint from employees and managers is they are too subjective. • There lurks the possibility of unfair treatment by supervisors.

Employees are often frustrated with the appraisal process because?

subordinate as rater

Employees want anonymous submissions, leaders should use feedback to modify their behavior

defined benefit plan

Employer provides a pension in either • fixed dollar, or • a percentage of earnings, seniority. Financed by following a formula, making investments now that yield the future pension benefit. Benefit amount takes average earnings of last 3 - 5 years, and • pays about half, or • 30 - 80% adjusted for seniority. Biggest complaint from CFOs center on funding.

• Performance does actually play an important role, perhaps the major role, in ratings. • Technically proficient employees tend to receive higher ratings. • Performance-irrelevant factors influence ratings, and cause errors in the evaluation. - Criterion contamination happens in all companies.

Errors in the rating process?

Goal Setting Theory

Focuses the on the third element of motivation which is desired behavior -Challenging and specific performance goals generate the most employee effort. -Goals serve as feedback standards to which employees can evaluate their performance. -Employees must be motivated to choose and persevere in (be committed to) pursuing performance goals.

•No firm rules on how many to include •Publicly available data - Bureau of Labor Statistics (BLS) •Online salary information - highly suspect •Many surveys but few are validated

How many employees?

• Noncontributory (employer pays total costs). • Contributory (costs are shared with employee). • Employee financed.

How should benefits be financed?

•Tax law and ERISA are relevant. •Two general criteria: - How much control the firm exercises. - The type and permanence of the relationship.

How to classify a worker a employee or independent contractor?

Employee Retirement Income Security Act of 1974

If an employer decides to provide a pension (it is not mandated), specific rules must be followed. Plan must vest (employee has right to both personal and company contributions into pension) after five years' employment. Pension Benefit Guaranty Corporation, as set up by this law, provides worker some financial coverage when a company and its pension plan go bankrupt.

Pension protected act of 2006

It's purpose was to protect employees retirement income as well as transfer some responsibility for retirement savings from the employer to the employee. A key provision of the law allows employees in publicly traded companies the freedom to sell off any employer stock purchased through deferrals or aftertax contributions. We expect this provision will motivate employees toward investing in defined contribution plans and reduce some of the burden on employers. The law also aims at employers who fail to set aside enough reserves to cover current and future pension obligations by defining plans less than 70 percent funded as "at risk' plans.

• rulings, • regulations, • inspections, and • investigations.

Laws are enforced by agencies through?

•task performance •Counterproductive performance •or both

Managers can be grouped into 3 categories which are?

Family and Medical Leave Act of 1993

Mandates 12 weeks of leave for all workers at companies that employ 50 or more people.

-what's important to a person -offering it in exchange for some -desired behavior

Motivation involves three elements:

Merit pay

Permanent wage/salary increase granted to employee as function of some (typically primarily subjective) assessment of individual employee performance.

central tendency

Reduces a large amount of data into a single number Ex. Mean, weighted mean

Performance accelerated restricted stock

Restricted stock granted only after attainment of specified performance objectives.

OSHA (Occupational Safety and Health Administration)

Specifies breaks in an 8 hour workday

Ranking and Rating

Strategy 1: Improving appraisal formats Two categories of evaluation formats are?

Essay Format

Supervisors answer open-ended questions describing employee performance

• Team variety. - Can't use same plane for every team • The "level problem". • Complexity. •Control- Uncontrollable events may prevent achievement of goal - Hurricane •Communications. - Management does not communicate plan clearly

Team incentive plans: five causes of failure?

E-Compensation

The International Society for Performance Improvement has web information on performance journals, strategies for improving performance, and conferences covering the latest research on performance improvement techniques. Go to the society's website, www.ispi.org.

Pay mix

The various types of payments, or pay forms, that make up total compensation.

Peers as raters

They have an undistorted perspective, however, they have no rating experience and are very lenient

Self as rater

They have complete knowledge of performance, yet they are the most lenient. Used for development rather than administration.

Supervisor as rater

They have experience rating employees and know the job requirements, however, they are prone to leniency errors.

performance- vested restricted stock

This is a grant of stock to employees upon attainment of defined performance objective(s).

Time-vested stock option

This is what most stock options are -the right to purchase stock at a specified price for a fixed time period.

Legislative Branch - congress Executive branch - president Judicial branch - courts

Three branches of u.s. federal government are?

Survey data

Used as part of employers broader efforts to gather competitive intelligence

-workers compensation -social security -unemployment compensation -FMLA -COBRA -HIPAA

What are the legally required benefits?

• Specify pay-level policy • Define purpose of survey • Specify relevant market • Design and conduct survey • Interpret and apply result • Design grades and ranges or bands

What are the major decisions in setting externally competitive pay and designing the corresponding pay structures?

-organizational data -total compensation dat

What information to collect?

- Signals a movement away from entitlement toward pay that varies with performance. -The starting point of all plans is merit pay. -Variable pay can be traced

What is a Pay For Performance Plan?

-to adjust the pay level relative to competitors -to set the mix of pay forms relative to competitors -to establish or price a pay structure -to analyze pay related problems -to estimate the labor costs of competitors

What is the purpose of a survey?

Employee development criteria- feedback impacts performance Administrative criterion- ease of use Personnel research criterion- does it validate employment test Cost criterion- is it expensive/time consuming? Validity criterion- does it improve accuracy?

What makes for a good appraisal format?

Labor market factors -nature of demand -nature of supply Product market factors -degree of competition -level of product demand Organizational factors -industry, strategy, size -individual manager

What shapes external competitiveness?

-the compensation manager is responsible for the survey -outside consulting firms protect against "price fixing" lawsuits

Who should be involved?

• A standard benefit package offers no choice. • The other extreme is "cafeteria-style", or flexible benefit plans. • Most companies are offering some choices. • Flexible plans may increase employee recognition of benefit value. • The biggest trend is to offer market-based, or consumer-driven, health care.

Will employees have a choice of benefits?

Success sharing plans

a generic term for variable pay plans that tie pay to measures of group/organization performance. Distinguished from risk-sharing plans because employees share in any success - any performance above standard - but are not penalized for performance below standard.

Risk sharing plans

a generic term for variable pay plans that tie pay to measures of group/organization performance. Distinguished from success-sharing plans in that failure to achieve baseline performance results in lower (total) direct pay. However, upside reward opportunity may be higher than in success-sharing plans in good years.

Halo error

an appraiser giving favorable ratings to all job duties based on impressive performance in just one job function

Risk sharing

base pay is reduced relative to the level offered in a success-sharing plan

Total Compensation data

base pay, total cash and total compensation

flexible compensation

based on the idea that only the individual employee knows what package of rewards would best suit personal needs

The portal to portal act

declares time spent on activities before beginning the principle activity is not compensable

Agency Theory

depicts employees as agents who enter an exchange with principals - the owners or their designated managers -Pay directs and motivates employee performance. -Employees prefer static wages (e.g.,a salary) to performance-based pay. -If performance can be accurately monitored, payments should be based upon satisfactory completion of work duties. -If performance cannot be monitored, pay should be aligned with achieving organizational objectives.

First-impression error

developing a negative or positive opinion of an employee early in the review period and allowing that to negatively or positively influence all later perceptions of performance

benchmark conversion/survey leveling

differences are quantified when job content does not sufficiently match survey jobs

Success sharing

employee pay is constant, variable pay adds on during successful years

Straight ranking

employees are ranked relative to each other

Consolidated Omnibus Budget Reconciliation Act (COBRA) 1984

employees who resign or are laid off through no fault of their own are eligible to continue receiving health coverage under employer's plan at a cost borne by the employee -applies if 20 or more employees

The worker economic opportunity act

exempts stock options and bonuses from overtime pay calculations

long-term incentives

focus on performance beyond one year

Adjust pay level

how much to pay? The overall movement of pay rates caused by competition for people in the market.

Marginal product of labor

is the additional output associated with the employment of one additional person, with other production factors held constant. -ex: office space, number of computers, Tempe phone lines and hours of clerical support -until these factors change, each new hire produces less than the previous hire -the amount of each hire produces is the________

Claims processing

is when an employee asserts an event has occurred and demands the employer pay. • A claims processor determines if the event occurred. • If so, determines eligible benefits. • If not denied, calculate payment level. • Ensure coordination of benefits.

job competition

job requirements may be relatively fixed. Thus, workers may compete for jobs based on their qualifications, not based on how low of a wage they are willing to accept. Thus, wages are sticky downward.

Stock purchase plan

opportunity to buy shares of company stock either at prices below market price or with favorable financing

Across-the-board increase

permanent base wage/salary increase granted to all employees, regardless of performance. Size related to some subjective assessment of employer ability to pay.

Cost of living increase

same as across-the-board increase, except magnitude based on change in cost of living (as measured by the consumer price index CPI)

Study special situations

specific pay-related problems

Benchmark-Job Approach

stable job content, are common, and include sizable numbers of employees

Customer as rater

surveys and mystery shoppers rate performance

Marginal revenue labor

the additional revenue generated when the firm employs one additional person, with other production factors held constant -employers seek to maximize profit -the employer will hire until the _________equals the cost associated with the most recent hire

defined contribution plan

the employer sets up an investment account for each participating employee. When the employee retires, the pension is based on • their contributions, • employer contributions, and • any gains (or losses) in stock investments.

Base pay

the guaranteed portion of an employee's wage package

Adjust pay mix

what forms? Base, bonus, stock, and benefits.

Standard rating scale

when adjectives are used as anchors

Employee Benefits

• Are that part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments. • e.g., life insurance, pension, workers' compensation,vacation. •Employee benefits can no longer realistically be called "fringe benefits"

Balanced Scorecard

• Awards that combine financial and operating measures for organization, business unit, and/or individual performance • Award pool based on achieving performance targets

Productivity/gain sharing

• Awards that share economic benefits of improved productivity, quality, or other measurable results • Focus on group, plant, department, or division results • Designed to capitalize on untapped knowledge of employees

Estimate competitors' labor costs

•Competitive intelligence. •Employment Cost Index (ECI)

Social Security

•Nearly every American worker is covered •Money for benefits comes from -employees, employers, and self-employed. • Money currently collected pay current beneficiaries. -Retiree's numbers rise, with no corresponding increase in contributors.

Performance review

•used for wide variety of decisions in organizations •is to guide the allocation of merit increases

organization strategy

- Low-wage, no-services strategy. - Low-wage, high-services strategy. - High-wage, high services strategy. - May differ within a single organization. - Higher wages must bring something in return

Efficiency wage

-Above market wage/pay level will improve efficiency by attracting higher ability workers and discouraging shirking due to risk of losing high wage job. A high wage policy may substitute for intense monitoring.

-The size of the group that participates in the plan. -The standard against which performance is compared. -The payout schedule.

All team incentive plans can be described by common features ?

Time based restricted stock

An award of shares that actually are received only after the completion of a predefined service period. Employees who terminate employment before the resfriction lapses must return their shares to the company.

Indexed stock option

An option whose exercise price depends on what peer companies' experiences are with stock prices. If industry stock prices are generally rising, it would be difficult to attribute any similar rise in specific improvements beyond general industry improvement.

Performance accelerated stock option

An option with a vesting schedule that can be shortened if specific performance criteria are met.

• Does it comply with hundreds of arcane sections of the tax code? • There are so many rules and regulations, develop a checklist and perform regular audits.

Are the benefits legally defensible?

Equity theory

Argues that people are highly concerned about equity, or fairness, of the exchange process Employees are motivated when perceived outputs (i.e., pay) are equal to perceived inputs (e.g., effort, work behaviors).

Expectancy Theory

Argues that people behave as if they cognitively evaluate what behaviors are possible in relation to the value of rewards offered in exchange

Cash profit sharing

Award based on organizational profitability, shares a percentage of profits

Motivation- performance management, compensations, and culture Ability- selection, recruitment, and Training Environment- organizational design/development, and HR planing

Behavior=

Discrimination legislation (Age Discrimination in Employment Act, Civil Rights Act, Pregnancy Disability Act, various state laws)

Benefits must be administered in a manner that does not discriminate against protected groups (on basis of race, color, religion, sex, national origin, age, pregnancy).

• old age or disability benefits, • benefits for dependents, • benefits for surviving family members, and • lump-sum death payments.

Benefits under social security fall into four categories?

Types of variable pay plans

Cash profit sharing stock ownership or options balance scorecard Productivity/ gain sharing team/group incentives

• Probationary periods. • Benefit limitations. • Copay. • Administrative cost containment. • Deny service. • Outsourcing is a common cost containment strategy. - Hiring vendors to administer the benefit program.

Common cost containment opportunities?

• altering their practices • defending their practices before the courts • lobbying for legislative change

Companies respond to legislation?

Fair Labor Standards Act of 1938

Created time-and-a-half overtime pay. Benefits linked to pay (e.g., social security) increase correspondingly with those overtime hours. Covers all employees of companies engaged in interstate commerce or in the production of goods for interstate commerce.

• Social Security, unemployment and workers compensation taxes on wages and salaries. • Unless the worker is an independent contractor.

Employees must pay?

Tax Reforms 1982, 1986

Permit individual retirement accounts (IRAs) for eligible employees. Established 401(k) programs, a matched- contribution saving plan (employer matches part or all of employee contribution) that frequently serves as part of a retirement package.

Straight Piecework Plan

The most frequent implemented incentive system. Rate determination is based on units of production per time period, and wages vary directly as a function of production level. The major advantages of this type of system are that it is easily understood by workers and, perhaps consequently, is more readily accepted than some of the other incentive systems.

Horn error

The opposite of a halo error. Downgrading an employee across all performance dimensions exclusively because of poor performance on one dimension.

Second Injury Fund

These funds relieve an employer's liability when a pre-employment injury combines with a work-related injury to produce a disability greater than that caused by the latter alone.

Age Discrimination in Employment Act (ADEA) Americans with disabilities act (ADA)

These laws also prohibit discrimination based on age and disability, respectively

(1) to offset lost income during involuntary unemployment, (2) to help unemployed workers find new jobs, (3) to provide an incentive for employers to stabilize employment, and (4) to preserve investments in worker skills by providing income during short-term layoffs (which allows workers to return to their employer rather than start over with another employer).

Unemployment insurance has 4 objectives which are?

Management by Objectives (MBO)

Uses outcomes as the standard of performance -indicate positive improvements in performance

Adjust pay structure

Validate job evaluation results. Establish internal structures.

• increasing competition from foreign producers, and • a fast-paced business environment requires workers adapt quickly to change.

Variable pay can be traced to two trends:

Gainsharing

Variable pay plan where payout depends not on company level performance such as profitability, but rather on performance at some sub- unit such as a plant/facility. Also, performance is often defined more broadly than just financial terms. Performance examples include labor cost/revenue, safety, cost of scrap, cost of utilities, customer (including patient) satisfaction.

Profit sharing

Variable pay plan where payout depends on company profitability. (Can also be used at lower levels such as the division. Size of payouts to individuals can be modified based on other measures such as individual performance.) This can be considered a DC pension plan if the distribution of profits are delayed until retirement.

Low-high approach

Wages of lowest- and highest-paid benchmark jobs used as anchors for skill-based structures.

Clone error

giving better ratings to individuals who are like the rater in behavior and/or personality