Compensation Final Exam
Compensating (Expatriates) Employees in Global Classifications
1. Base Salary- Annual Salary 2. Short & Long Term Incentives 3. Tax Equalization Allowances- payments for higher tax rates of other countries 4. Benefits- continuation of, or substitute for, home benefits. 5. Allowances & FSPs- cost-of-living, housing, education, medical, security, & relocation payments.
Nature of Performance Appraisal
1. Control mechanism and for feedback 2. Allows employee progress to be assessed 3. Ensures strategy-consistent behavior 4. Reinforces values of Organization 5. Ensures alignment of individual performance and behavior to: Organization Culture, Work systems
Performance Management Process
1. Establish expectations 2. Coaching and Development 3. Feedback 4. Review 5. Rewards & Recognition
Factors Related to Inaccurate Assessments
1. Guilt 2. Embarrassment about giving praise 3. Taking things for granted (If I don't say anything is wrong then things must be okay) 4. Not noticing (Not be award of an employee's actual performance or knowing the performance expectations) 5. Dislike of confrontations 6. Spending too little time on preparation of assessment
Defined Benefits Plan
1. Provides an explicit benefit which is easily communicated 2. Company absorbs risk associated with changes in inflation and interest rates which affect cost 3. More favorable to long service employees 4. Employer cost unknown
Defined Contribution Plan
1. Unknown benefit level is difficult to communicate 2. Employees assume these risks 3. More favorable to short-term employees 4. Employer cost known up front
Understanding Why Raters Make Mistakes
1.Errors in rating process 2.Errors in observation (attention) 3.Errors in storage and recall 4.Errors in actual observation
Components of an Executive Compensation Package
Base Salary Short-Term Incentives or Bonuses Long-Term Incentives and Capital appreciation plans Equity Executive Perquisites Retirement Severance
Compensation Packages
Base Salary vs. Perks: Issue of Taxation Currency Fluctuation Labor Regulations Cultural Influences
Two common methods use by entrepreneurs
Bottom-Up, Top-Down
Performance Management
Continuous process where employees and managers work together
Developing Budgets
Control of Expense-Revenue Ratio (Expense >Revenues = Losses) Coordinate Activities (Budget for ALL Department & activities) Set Performance Standards (Goal for Sales & Operational Budgets) Evaluation Tool (Deviation Anaylsis, +/- Comparison to Actual Results to Planned (Budgeted(] Corrective Control ( Take necessary action to prevent future over expenditures or under sales forecast)
Requirements to Link Pay to Performance
Define performance: Behaviors, Competencies, Traits Specify a continuum describing different levels from low to high on performance measures Decide how much of a merit increase is given for different levels of performance Performance-based Guidelines Performance Rating Salary Increase Matrix
Process for forecasting of a business
Determine pay of present employees Calculate total compensation for present employees (salary + benefit rider costs) Estimate present employee total compensation for the next year Calculate total compensation costs for additional new positions Total all compensation costs for existing and any new positions
Minimum Budget
Determine the minimum cost budget for each activity to meet performance requirements
Budgeting Process
Develop complete chart of accounts Research cost for each account Develop a budget book Avoid straight line estimating Forecast sales volume Relate to sales and HR requirements Project best case/worst case scenarios Project break-even budget
ERISA: Non-Qualified
Do not meet any one of the minimum standard provisions and are not available for favorable tax treatment
Levels of Global Perspectives
Domestic Global, International, Multinational
3 Perspectives of Global Decision-Making
Ethnocentric Polycentric Reglocentric Geocentric
Social Comparisons
Executive salaries bear a consistent relative relationship to pay of lower-level employees
Global Employee Status Classifications
Expatriate(PCN) Local(Host) Country National (LCN) Third Country National (TCN)
Do employees Value Their Benefits???
Expect benefits as part of their total compensation Do not understand true value of benefits Often undervalue their benefits Often take benefits for granted???? Often can't list all benefits received Have preferences regarding types of benefits they want Key is communication
Work-Life Balance Programs
Flextime Compressed- Workweek Job Sharing Two-in-a-Box Telecommuting
Home Balance Sheet Approach
Foreign Service Premiums( Beyond Base) Quality of Life (Family) Purchasing Power
Health & Medical Benefits
General Health & Medical Care Health care: Cost Control Strategies Short & Long Term Disability Dental Insurance Vision Care
Common Errors in the Employee Appraisal Process
Halo Error, Horn Error, First Impression Error, Recency Error, Leniency Error, Severity Error, Central Tendency Error, Clone Error, Spillover Error
Reasons for offering benefits
Help attract employees Help retain employees Elevate the image of the organization with employees and other organizations Increase job satisfaction
Types of Coverage
Hospitalization Surgical Physical Pharmacy
Agency Theory
Incorporates political motivations CEO compensation should be designed to ensure executives focus on best interests of firm and stockholders
Primary Global Issues
International vs.Global Competition Cross-Country Differences Global Philosophies Issues Global Strategic HR Perspectives & Classifications Compensation
Cross Country Differences
Know & Respect Cultural Differences
Locational Appeal
Labor Pooling Wage Rates Technological Spillovers Workers Productivity Natural Resource Availability Regulatory Environment Inflation Rates Energy Costs Tax rates
HIPAA 1996
Lessens an employer's ability to deny coverage for a preexisting condition Prohibits discrimination on the basis of health-related status Provides stringent privacy provisions
Global HR Strategy Perspectives
Localizer, Exporter, Globalizer
Voluntary Benefits
Major Medical, Supplemental Insurance, Life Insurance, Dental, Educational Reimbursement, Retirement, Vacation, Holiday, Health/Fitness Club Expense, Child care, Financial/Legal Services, Relocation Expense
Types of Benefits
Mandatory vs. Voluntary
Budgeting Techniques when Revenue Forecast are Uncertain
Minimum Budget, Must-Do-Budget
Must-Do-Budget
Minimum Revenue to Survive- Warning: DO NOT be conservative by Underestimating Cost or Overstating Revenues.
Key Issues in Benefit Planning
Modifying Employee Benefits Allowing for employee Input Establishing Specific Objectives Providing Flexibility Communicating Benefits Information
Pay Adjustment Matrix
No pay adjustment can increase an employees pay rate above the maximum of their job's pay range.
Financing Benefits Plans: Alternatives
Non-Contributory: Employer Pays total costs Contributory: Costs shared between employer and employee Employee Financed: Employee pays total costs for some benefits.
Exporter
One size fits all
Miscellaneous Benefits
Paid Time Off During Working Hours Payment for Time Not Worked Child & Elderly Care Work-Life Balance Programs Domestic Partner Benefits Legal Insurance
Global Cultural Issues
Power Distance Individualism-Collectivism Masculinity-Femininity Uncertainty Avoidance Long-Tern vs. Short-Term Orientation
Cost Containment Trends
Probationary Periods Benefit Limitations Copay Administrative cost containment Retaining Strategic function internally Significant movement to outsourcing Promote preventive health programs
Pay Guidelines with Low Motivational Impact
Provide equal increases to all employees regardless of performance. General Increase, Cost-of-living adjustments Pay increases based on a preset progression pattern based on seniority
ERISA: Qualified
Provide favorable tax benefits for Employers and Employees for plans that possess the 13 fundamental characteristics
COBRA 1984
Provides the opportunity for an employee to continue insurance coverage if they leave the company due to no fault of their own
Types of Performance Appraisal Systems
Ranking, Rating, MBO/MBR
Ranking
Rater compares employees against each other
Rating
Rater evaluates employees on some absolute standard
MBO/MBR
Rater evaluates performance on measures relative to mutually agrees upon results
Compensation and the Re acculturation of Expatriates
Reentry transition may result in culture shock 60%-70% of expatriates don't know what their position will be upon their return. 25% leave the company within one year upon returning
Explanations for CEO Compensation
Social Comparisons Economic Approach Agency Theory
Mandatory Benefits
Social Security, Unemployment Insurance, Workers' Compensation, ERISA 1973, FMLA
Who are Special Groups?
Supervisors, Professional Employees, Sales Staff, Contingent Workers, Corporate Directors, Top Management Executives
Corrective Controls & Budgeting
Take necessary action to prevent future over expenditures or under sales forecast
What are Employee Benefits?
That part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments, workers' compensation, vacation, holidays....
Globalizer
Think and Act Globally and Locally
Localize
Think, Global, Act, Locally
Balance Scorecard Approach
Uses a Constellation of measures Categories of measures Forces discussions about priorities among different measures Outcomes: Objectives with different weights in terms of importance
Economic Approach
Value of CEO should correspond to some measure of organizational success
Top-Down
begin with estimate or available revenue and allocate to the business activities
Bottom-Up
determine cost for each activity and sum them to determine revenue needs