Compensation- Exam 3
Employee expenditures depend on many things --> marital status, dependents, location, preferences
Cost of Living in labor markets
What influences how much the increase is in top-down budgeting?
Current Year's Rise Ability to Pay Competitive Market Pressures Turnover Effects Cost of Living
= 100 * avg pay yr end - avg pay yr beg / avg pay yr beg
Current Years Rise calculation
Requires that mechanics and laborers on public construction projects be paid the prevailing wage in an area
Davis Bacon Act 1931
Little government involvement; UK and US
Decentralized
Allegedly saying you have a policy that seems neutral, but when you put into play, it discriminates against certain people
Disparate Impact
You intentionally discriminate
Disparate Treatment
A horn error occurs when an employee is:
Downgraded across all performance dimensions because of poor performance on one dimension.
In recent years, some firms have tried to deal with the plateau effect and also accommodate the different career motivations of mature scientists and engineers through a(n) ___.
Dual-Career Ladder
Value of CEO should correspond to same measure of org. success
Economics Approach
Employees respond better to feedback that tells them what went wrong and how to improve.
Employee Development
Discriminatory to pay a woman less than a man if that woman is doing the same work; equal pay for equal work
Equal Pay Act 1963
Receive higher benefits that other non-exempt; the avg. value of benef. for low-paid employees must be 75% of avg value for high-paid
Executive Beneifts
Applies to federal contractors and subcontractors; mandates AA**; prohibits discrimination on the same basis as Title VII; enforced by OFCCP
Executive Order 11246
___ prohibits discrimination on the basis of race, color, religion, sex, or national origin.
Executive Order 11246
Employee temporarily working / living in a foreign country
Expatriate
Total pay system at HQ, then export for implementation at all locations globally
Exporter
Sets minimum wage, hours of work, OT premiums; prohibits child labor
Fair Labor Standards Act (FLSA) 1938
A recent article analyzing the results from over 100 executive pay studies shows that the best predictor of executive pay, by far, is ___.
Firm Size
Supports consistency across all global locations, but HQ and Operating units are networked to share this info; focus 1st on global strategy, then adapt to local conditions
Globalizer
Any wage below the minimum
Green Circle Rate
Pay differences for dissimilar jobs may reflect discrimination; Title VII pay case will not be bound by definitions of Equal Pay Act; Court did not give explanation of evidence of discrimination of dissimilar jobs
Gunther vs. City of WA
If you evaluate someone positively in one area, it clouds your judgement in other areas
Halo Error
Why hire PCNs or TCNs?
Helps emply develop international perspective Position may require proven domestic veteran Skills required for position may not be readily available in local labor pool
Reasons for having Compa - Ratio >1
High seniority Low turnover Excellent performance Few new hires Low promotion rates People flow issues Too lenient on performance ratings
Among peer raters, the most objective evaluations are given by:
High-performing workers
Help understand differences between national cultures
Hofstede's Cultural Dimensions
If you evaluate someone poorly in one area, it may skew your ratings / accuracy in other ways
Horn Error
A trend towards these, but recent decline; incentive stock options, non-qualified stock options, phantom stock plans, stock appreciation rights, restricted stock plans, perf. shared / unit plans
Long Term Incentive & Capital Appreciation Plans
Extent to which a culture programs its members to accept delayed gratification of their material, social, and emotional needs; LT=India, ST=US
Long-Term - Short-Term
The ___ component of executive compensation has grown the most since 2012.
Long-term incentives
What are advantages to bottom-up budgeting?
Lower level managers are more aware of some issues that execs are not You may come to a better solution, things may be filtered up to top execs Different perspectives are considered in B-up vs. T-down
Degree of discretion managers have to make total compensation a strategic tool
Manager's Autonomy
The degree of discretion managers have to make total compensation a strategic tool is referred to as ___.
Managerial Autonomy
Merit Pay -> Lump Sum Bonus -> Profit Sharing Top down and Bottom up ADV: Less painful vs. reducing headcount, offer more flexibility for the employer DISADV: still painful TIPS: Communication
Managing costs through controlling average cash compensation
Pension plan / Retirement plan ADV: can roll back when times are tough and reinstate in good times (less hard to swallow than reducing headcount) DISADV: manipulating contributions in realm of health insurance and retirement TIPS: Communication -- what doing, and why?
Managing costs through controlling benefits
Reasons for having a Compa - Ratio <1
New / recent hires Poor performance Employee being pulled out for promotion Could be issue with way managers eval performance
Bonuses paid in Japan are ___.
Not necessarily related to performance.
The agency that conducts reviews and seeks remedies where insufficient compliance to Executive Order 11246 is found is the ___.
OFCCP
Agreements for early retirement
Older Workers Benefits Protection Act (OWBPA)
When someone does/says something negative, it stays on your mind much longer than positive things they say/do
Over Weighting Negative Information
Compares all employees against each other; who is a better performer?
Paired Comparison Ranking
Which of the following types of rankings would be least preferred by managers of more than 10-15 employees?
Paired-Comparison Ranking
Citizens of employers home country, living, and working in another country
Parent Country National (PCN)
Wage changes made to price policy line / market pay line
Pay Surveys (labor market changes) in labor markets
Explaining what perf. dimensions are and how you differentiate between them
Perf. Dimension Training
Educating trainees on what a 1 is. What good is.
Perf. Standard Training
What types of training work best?
Performance Dimension Performance Standard
A(n) ___ awards cash or stock if specific goals are achieved.
Performance Share Plan
Can the success of the employees and org. development programs be traced to impacts on employee performance?
Personnel Research Criterion
How can top-down budgeting be done?
Planned pay level rise-- % increase in average pay for the unit
What time counts when determining hours worked?
Portal - to - Portal OSHA regulates # of breaks in 8-hour shift On-call employees if on company premise
Extent to which less powerful members of an org. accept and expect that power is distributed unequally (Mexico)
Power Distance
Pregnancy must be covered to same extent that other medical medical conditions are covered as a result of sex in Title VII; look at limitations, not why they are done
Pregnancy Discrimination Act 1978
Minimum wage that must be paid for work done on government projects / purchases
Prevailing Wage
Set pay for work done to produce goods contracted by the federal government; prevents contractors from using their size to drive down wages; leads to distortion of government wages
Prevailing Wage Law
Nonqualified stock options require ___.
Purchase of stock at a stipulated price, not conforming with the Internal Revenue Code.
Positively biased towards attractive people; racial, implicit, and sex biases in professions that are dominated by a race or sex
Race, Sex, Appearance Bias
Offer flexibility in terms of differentiating people based on experience and merit
Range minimum and maximums
Make people who are evaluating perf. identify errors that are present in performance appraisals and work around them
Rater-Error Training
When managers forget to collect data during a review period, so they choose to use the most recent behaviors
Recency Error
Any wage about the maximum
Red Circle Rate
Which of the following is a reason for unions opposing gain-sharing plans?
Reduced need for jobs due to increased productivity.
What have they been most successful in improving in Rater Training?
Reducing halo errors and improving accuracy
The Davis-Bacon Act ___.
Requires that mechanics and laborers on public construction projects be paid the prevailing wage in an area.
Elements of Expatriate Compensation
Salary, housing, taxes, allowances
What are equal pay affirmative defenses?
Seniority, merit / quality of performance, quality / quantity of production, some factor other than sex
McNamara Ohara- focused on prime contracts to pay service employees; pay the prevailing wage in certain areas to service workers
Service Contract Act (SCA) 1965
Rating someone consistently lower than is deserved; giving everyone a 1
Severity Error
Motivates ST perf, not LT; tied to subjective judgement calls; increased among companies over the decade
Short Term (annual) Incentives / Bonuses
People have a bias for individuals who are like them
Similarity / Clone
Executive compensations bear a consistent relative relationship to subordinates
Social Comparisons
Performance from previous review period impacts your judgement / ratings in the current review period
Spillover Effect
When federal minimum wage is different in federal and state, who wins?
State wins, federal is just a price floor
Taking employees and ranking them in order
Straight Ranking
Which alternative reward system do unions prefer?
System that links pay to performance because it's objective; gainsharing; equal payouts to members
When taxes are deducted from employees' earnings up to the same amount of taxes they would pay had they remained in their home country, it is known as ___.
Tax Equalization
Uncertainty avoidance is ___.
The extent to which a culture programs its members to feel either uncomfortable or comfortable in unstructured situations.
In a(n) ___ pay plan, a contract is negotiated which specifies that employees hired after a given target date will receive lower wages than their higher-seniority peers working on the same or similar jobs.
Two-Tier
Corporate ownership and access to capital is much less concentrated in ___ than other countries.
US
A culture programs its members to feel uncomfortable / comfortable in unstructured situations
Uncertainty Avoidance
KayLeaf Inc. wants to set up a unit in China. To facilitate this, it sends its manager to China to gather information. Which of the following is most likely to be a suggestion from its manager?
Use a hierarchical pay structure as there is high power distance in China.
Used to analyze the payoff to making more valid hiring / selection decisions; make a competitive advantage
Utility Analysis
Decisions based on performance ratings could be made with increased confidence; eliminating rating errors
Validity Criterion
Extends prevailing wage concept to manufacturers / suppliers of goods for government contracts
Walsh - Healey Public Contracts Act 1936
The ADEA ___.
Was amended in 1990 to include the Older Workers Benefit Protection Act.
An Indian citizen working for a Japanese company in India is a ___.
Local Country National
Citizen of foreign country where parent employer operates
Local Country National (LCN)
Pay systems are consistent with local conditions
Localizer
What pay counts in calculation of OT?
1.5 * pay; stock options / bonuses are NOT included; more employers are interested in variable pay
When someone says something that rubs you the wrong way, you have a human tendency to lean towards that bias
1st Impression Error
Research indicates that the presence of a union adds about ___ to employee benefits.
30 to 40 %
Unions add ___ to employee benefits.
30-40%
Today, top executive pay is more than ___ times the pay of the average worker.
300
The differential between supervisors' base pay and their highest paid subordinate is typically ___ percent.
5 to 30
Which of the following involves periodic adjustments based typically on changes in the consumer price index?
A COLA Clause
Denial of jobs, promotions, or training opportunities to qualified women or minorities are examples of ___.
Access Discrimination
What special treatment do special groups like Execs receive?
Add-on Packages Comp. components entirely unique to the org.
Comparisons among individuals for personnel action require some common denominator
Administrative Criterion
Can not discriminate against those over the age of 40; amended to include OWBPA
Age Discrimination in Employment Act (ADEA) 1967
Compensation should ensure that execs have the best interests of stockholders during decision making
Agency Theory
Ranking employees first, last, second, second to last, etc..
Alternation Ranking
Those who have/had/are regarded as having a disability; qualified to do work w/ or w/o reasonable accommodation; evaluation of disability in UNcorrected state**
Americans with Disabilities Act 1990
Subordinate ratings ___.
Are likely to be inflated if they are not anonymous.
___ is movement through the wage ranges where seniority is specified as the basis of the movement.
Automatic Progression
When you get a string of horrible people, and finally get a moderate employee, you have a tendency to rate them higher
Contrast Error
Time consuming to create or fill out.
Cost Criterion
Based on the premise that employees on oversea assignments should have the same spending power; the home country is the same for all payments being made
Balance Sheet Approach
Depends on firm size; chosen to be somewhere in the middle of competitors
Base Salary
All of the following are categories of rater training EXCEPT ___ training.
Behavior Modeling
Going to lower level mgrs to dictate what the pay increase should be for the following year
Bottom - Up Budgeting
Offer more flexibility; broad pay ranges coupled with reference / shadow rates; budget passed down to manager (control)
Broad Bands
Fence riders; everyone gets a 3
Central Tendency Error
Bargaining takes place at national level; works councils, codetermination; Northern/Western Europe
Centralized
What types of rules are placed on child labor?
Certain types of work can not be allowed for certain ages; certain hours per school day, per school week, different during the summer
= annual turnover * planned avg. increase
Churn / Slippage calculation
During the performance review of her employees, Sarah gives higher rating to employees from her hometown, OK, as she believes that people from OK are hard working and trustworthy. Which of the following rating errors is Sarah exhibiting?
Clone Error
Requires that in companies with 500-2000 employees, 1/3 of supervisory board has to be employee representatives
Codetermination
___ has produced more comparable-worth pay increases than any other approach.
Collective Bargaining
Degree to which individuals are supposed to look after themselves or remain integrated into groups; group-based incentives (Japan/Korea)
Collectivism
Employee in a range being paid below midpoint; less than intended policy
Compa - Ratio <1
Employee in a range being paid more than midpoint / policy
Compa - Ratio >1
= avg rate actually paid / range midpoint
Compa - Ratio calculation
Index; range midpoint reflects pay policy line
Compa - Ratios
Trading OT pay for time off
Compensatory Time Off
Changes in goods / services in particular markets
Consumer Price Index in labor markets
Which of the following is a negative outcome of the management by objectives method?
Increase in performance pressure and stress.
Which of the following is a reason for unions favoring gain-sharing plans?
Increased involvement with job activities
The biggest trend in supervisory pay centers on ___.
Increased use of variable pay.
___ determine the going rate (union rate) in a particular area
Independent Contractors
Which of the following actions is most likely to be favored by unions?
Introducing lump-sum awards
Which of the following is the most likely reason for most unions to insist on group-based performance measures with equal payouts to members?
It cuts down on strife and internal quarrels.
Which of the following statements is true of leniency errors?
It is the error of consistently rating someone higher than is deserved.
Which of the following is NOT a provision of the Fair Labor Standards Act of 1938?
It requires that employers provide 15 weeks of medical leave to employees.
Which of the following statements is true of the localization approach to expatriate compensation?
It ties salary to the host country's salary scales.
How have jobs of comparable worth been used to prove discrimination?
Job Evaluation (jobs are similar enough to be paid the same) AFSCME vs. State of WA (women getting paid 20% less, state took no actions based on the results)
How is a determination made under Equal Pay Act about whether work is equal?
Jobs must be substantially equal, not identical Actual work performed must be used to decide whether jobs are substantially equal
= (# employees + hours) * (avg. cost comp + avg. benef)
Labor Cost calculation
When compared to the impact of unions during periods of strong economies, the impact of unions during periods of higher unemployment is ___.
Larger
Telling raters that sometimes the work environment and system affect job performance more than the individual employee's behavior:
Leads to higher ratings
Everyone gets a 5 because you have a hard time telling people difficult things
Leniency Error
Which type of error is most difficult to eliminate?
Leniency Error
Under the ___, employers can be liable for current pay differences that are a result of discrimination that occurred many years earlier.
Lilly Ledbetter Fair Pay Act
Employers can be liable for pay differences that are a result of discrimination that occurred many years earlier; discrimination against Lilly ith pay made as much as 19 years prior-- paycheck written starts a new 100 days
Lilly Ledbetter Fair Pay Act 2009
Pay legislation in some U.S. cities that requires wages well above the federal minimum wage; often only applies to government employees
Living Wage
Inc/Decrs. costs to manage hours ADV: not paying benef for additional emply, avoiding other selection costs, less work for mngmt DISADV: burnout, risk of turnover TIPS: Careful consideration in administrative decisions
Managing costs through hours
Reducing headcount ADV: reduces benef costs, letting go of bad performers DISADV: not dealing with root cause, experience greater voluntary turnover, costly TIPS: Careful consideration in how process is managed
Managing costs through number of employees
Which of the following statements about evolution and change in the traditional German model is true?
Many of the changes in Germany are the result of global competitive pressures and technological changes.
Distribution of different roles between the genders
Masculinity - Femininity
Important cost control
Maximum
Controls on pay ranges to limit manager control
Minimum
Income floor for workers in society's least productive jobs, by legislation
Minimum Wage
Annual bonuses often play a major role in executive compensation and are primarily designed to ___.
Motivate better short-term performance
Applies to professionals; provisions that apply to prevailing wage and dictations that apply to work environment
National Foundation for the Arts & Humanities Act 1965
Alternatives to balanced scorecard?
Negotiation, localization, modified balance sheet, decrease allowances, lump sum/cafeteria plan, using more LCNs
___ sets salaries according to the home-country system and simply offers employees lump sums of money to offset differences in standards of living.
The Cafeteria Approach
Which of the following includes a provision that requires public companies to set policies to allow executive compensation to be taken back if it was based on inaccurate financial statements that did not comply with accounting standards?
The Dodd-Frank Wall Street Reform and Consumer Protection Act
Susan works in a sterile laboratory that requires her to scrub and put on protective clothing. Which of the following acts determines whether she should be paid for this time?
The Portal-to-Portal Act
MaxTrain Corp. recognizes that its competitor GlasWell Corp., which is unionized, offers higher wages and benefits. To avoid unionization demands from its workers, MaxTrain decides to offer the same wages and benefits to its employees as GlasWell. Which of the following phenomena is exemplified in this case?
The Spillover Effect
___ is an example of a country with a highly decentralized approach to pay setting with higher wage flexibility.
The United States of America
Executives, supervisors, and sales staff often receive special compensation treatment because ___.
These jobs face conflicting demands.
Why hire LCNs?
They know local conditions Relationships with local customers and suppliers Co. saves on relocation and other expenses Avoids concerns about emply. adapting to local culture
Not citizen of employers parent country, nor citizen of foreign country in which they are working
Third Country National (TCN)
How do critics / press say you should reign in exec comp?
Through tally sheet or government regulation
Private employers do not discriminate on the basis of protected classes; does NOT mandate AA
Title VII of Civil Rights Act 1964
How do you use market data to prove discrimination?
To justify pay differences for different jobs; it's an okay reason for pay to differ; could tell something / provide evidence
Intention behind OT provision in FLSA?
To share additional work by making the hiring of additional workers a less costly option than scheduling of OT
Begins with execs, fed down to lower-level mgrs, and they manage how the money is dolled out to employees
Top - Down Budgeting
How can you implement Bottom Up?
Train managers Provide consultation to managers Distribute forecasting instructions and worksheets Check data and compile reports Monitor budgeted vs. actual increases Conduct Feedback with management
Which of the following statements is true regarding rater training?
Training to reduce halo errors and improve accuracy has been most successful.
Income from most stock plans need not be included in calculation of OT pay
Worker Economic Opportunity Act 2000
Formed by employees in any bus. unit having 5+ emply; operates separately from trade union & collective bargaining process; can NOT call a strike
Works Councils
