HRM 381 Quiz #4

Traditional Benefit Plans

Defined-benefit plans Defined-contribution plans

Compensation and Lifestyle

Differentiated pay package, high total compensation, geographic location, and respect for lifestyle.

Types of Compensation

Direct compensation Indirect compensation

Dysfunctional Turnover

Key individuals and high performers leave at critical times.

Lag the Market

Paying all that the firm can afford. Taking advantage of the abundant supply of potential employees in a loose labor market.

Lead the Market

Paying for higher qualified, more productive workers.

Wages

Payments calculated on the amount of time worked.

"No fault" Absenteeism

Reasons for absence do not matter. Absenteeism in excess on normal limits can trigger disciplinary action and lead to eventually to dismissal.

Total Rewards

Three Components: - Compensation - Benefits - Performance/Talent Management Balances costs of employer and needs of employees

Executive Compensation

"Reasonableness" of Executive Compensation - Would another company hire this person as an executive? - How does the executive's compensation compare with that for executives in similar companies in the industry - Is the executive's pay consistent with pay for other employees within the company? - What would an investor pay for the level of performance of the executive? Investors are owners We as managers are stewards (agency theory)

Unemployment Compensation

- A Federal/state payroll tax that funds state unemployment systems. - Involuntary unemployment and actively seeking work is required for persons to claim benefit.

Severance Pay

- A security benefit voluntarily offered by employer to employees who lose their jobs. - Payments are determined by the employee's level within the organization and years of employment. - Other benefits (e.g., outplacement and continued health insurance) may be offered in lieu of cash severance payments.

Health Insurance Portability and Accountability Act (HIPAA) of 1996 Provisions

- Allows employees to switch their health insurance plan from one company to another, regardless of pre-existing health conditions. - Health plans must continue to cover sick employees. - Require employers to provide privacy notices to employees. - Regulate the disclosure of protected health information without authorization.

Exit Interviews

- An interview in which individuals are asked to identify reasons for leaving the organization. - Key in getting "the real story".

Employee Surveys

- Attitude survey: focuses on employees' feelings and beliefs about their jobs and the organization. (Go over and USE these results!)

Competency Based Pay

- Compensation for what people know and CAN do - Must invest in training

Straight Commission

- Compensation is computed as a percentage of sales in units or dollars. - The draw system make advance payments against future commissions to salesperson.

Other Benefits

- Credit Unions, Purchase Discounts, Stock Investment - Family-Care Benefits - Family-Oriented Benefits - Social and Recreational - Educational Assistance - Life, Disability, Legal Insurances - Relocation Expenses

Defined-Contribution Plans

- Employer makes an annual payment to an employee's account. - Benefit payout is determined by the financial performance of the employee's retirement.

Walsh-Healy Public Contracts Act and the McNamara-O'Hara Service Contract Act

- Extended the payment of "prevailing wage" to service contracts - Required overtime payment for any employee hours worked over eight hours in one day; applies only to to federal contracts, not the private sector.

Consolidated Omnibus Budget Reconciliation Act (COBRA) Provisions

- Former employees are eligible to purchase group insurance at no more than 102% of group insurance premium rate. - Former employees, their spouses, and eligible dependents are covered for 18 to 36 months. - COBRA requirements incur additional paperwork and related costs for employers.

Impact of Turnover

- Inability to achieve business goals - Loss of "image" to attract other individuals - High costs of turnover and replacement

Problems with Flexible Plans

- Inappropriate benefits package choices - Adverse selection and use of specific benefits by higher-risk employees - Higher administrative cost

Disadvantages of Market Pricing

- It relies on market survey data that is limited or may have been gathered in methodologically sound ways. - The responsibilities of a specific job in a company may be somewhat different from those of the "matching" job identified in the survey. - The market data's scope (range of sources) is another concern. - Tying pay levels to market data can lead to wide fluctuations based on market conditions.

Ways to Measure Turnover:

- Job and job levels - Department, units, and location - Reason for leaving - Length of service - Demographic characteristics - Education and training - Knowledge, skills and abilities - Performance ratings/levels

Calculations of the costs of absenteeism should usually include:

- Lost wages - Benefits - Overtime for replacements - Fees for temporary employees, if incurred - Supervisor's time - Substandard production - Overstaffing necessary to cover absences

Measures of Absenteeism:

- Measuring Absenteeism: U.S. Department of Labor formula. - Incidence rate: the number of absences per 100 employees each day. - Inactivity rate: the percentage of time lost to absenteeism. - Severity rate: The average time lost per absent employee during a specified period of time.

Performance/Talent Management

- Performance feedback - Recognition - Training - Career Development

Retention Interventions

- Provide realistic job previews during the recruiting process. - Improve the selection process so that there is a better person-job fit for new hires. - Conduct effective job orientation and initial training. - Offer competitive, fair, and equitable compensation. - Provide an adequate benefits package. - Offer career development and training (not enough to have this in place, employees have to "see it"). - Engage in fair and nondiscriminatory employee relations.

Predicting & Managing Turnover through Job Attitudes & Commitment

- Psychological Ownership - Job Satisfaction - Organization Commitment (Loyalty)

Rates Out of Range

- Red-Circled Employees: An incumbent (current jobholder) who is paid above the range set for the job. - Green-Circled Employees: An incumbent who is paid below the range set for the job.

Problems with Group/Team Incentives

- Rewards in equal amounts may be perceived as "unfair" by employees who work harder, have more capabilities, or perform more difficult jobs. - Group/team members may be unwilling to handle incentive decisions for co-workers. - Many employees still expect to be paid according to individual performance. - Social Loafing - The folly of rewarding A and hoping for B

Distributing Rewards

- Same-size reward for each member - Different-size reward for each member

Costs of Turnover

- Separation costs - Replacement costs - Training costs - Hidden costs

Successful Incentive Plans Require

- The development of clear, understandable plans that are continually communicated. - The use of realistic performance measures. - Strong links among performance results and payouts that truly recognize performance differences. - Clear identification of variable pay incentives separately from base pay.

Advantages of Market Pricing

- Ties organizational pay levels to what is actually occurring in the market, without being distorted by "internal" job evaluation. - Communicates to employees that the compensation system is "market linked," rather than distorted by internal issues.

Performance Pay

- Turnover- higher performers have more incentives and are less likely to turnover. - Overall, this enhances functional turnover.

Security Benefits

- WARN- 60 days announcement during mass layoffs pending egregious shocks to the company - Worker's Compensation - Unemployment Compensation - Supplemental Unemployment Benefits (SUB) - Severance Pay

Determining Pay Increases

-Seniority: Time spent in an organization or on a particular job that is used to determine eligibility for organizational rewards and benefits. - Cost-of-Living Adjustments (COLA): A percentage increase in wages to maintain real wages in a period of economic inflation. Adjustments are tied to changes in an economic measure (e.g., the Consumer Price Index). - Lump-Sum Increases (LSI): A one-time payment of all or part of a yearly pay increase that does not increase base wages.

Three Major Indices for Managing Retention

1. Employee Surveys 2. Exit Interviews 3. First-Year Turnover Evaluations

Garnishment

A court action in which a portion of an employee's wages is set aside to pay a debt owed a creditor.

Preferred Provider Organization

A health-care provider that contracts with an employer group to provide health-care services to employees at a competitive rate.

Health Maintenance Organization (HMO)

A managed care plan that provides services for a fixed period on a prepaid basis.

Bonus

A one-time payment that does not become part of the employee's base pay.

Portability

A pension plan feature that allows employees to move their benefits from one employer to another.

Flexible Benefit Plan

A plan (flex or cafeteria plan) that allows employees to select the benefits they prefer from groups of benefits established by the employer.

Stock Option Plan

A plan that gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time. - If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit. - If the market price of the stock is below the specified option price, the stock option is "underwater" and is worthless to employees.

Employee Stock Ownership Plan (ESOP)

A plan whereby employees gain significant stock ownership in the organization for which they work. Advantages - Favorable tax treatment for ESOP earnings. - Employees motivated by their ownership stake in the firm. Disadvantages - Retirement benefit is tied to the firm's future performance. - Management tool to fend off hostile takeover attempts.

Job Satisfaction

A positive emotional state resulting from evaluating one's job experience.

Pay Compression and Inversion

A situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small.

Spot Bonus

A special type of bonus used is a "spot" bonus, so called because it can be awarded at any time.

Profit Sharing

A system to distribute a portion of the profits of the organization to employees. Primary objectives: - Increase productivity and organizational performance - Attract or retain employees - Improve product/service quality - Enhance employee morale Drawbacks - Disclosure of financial information - Variability of profits from year to year - Profit results not strongly tied to employee efforts

Supplemental Unemployment Benefits (SUB)

A union-negotiated benefit provision that pays a supplemental amount to laid-off employees who are drawing unemployment compensation.

Salary-Only

All compensation is paid as a base wage with no incentives.

Non-contributory Plan

All pension benefits funding is paid by the employer.

Benefit

An indirect compensation given to an employee or group of employees as a part of organizational membership. Health benefits in the U.S. are provided by employers: - This is unique - Benefit costs are being shifted even more on employers by state and federal governments

Absenteeism

Any failure to report for work as scheduled or to stay at work when scheduled. - Involuntary absenteeism: Unavoidable with understandable cause (e.g., actual illness) - Voluntary absenteeism: Avoidable without justifiable cause (e.g., feigning illness)

Managed Care

Approaches that monitor and reduce medical costs using restrictions and market system alternatives.

Meet the Market

Attempting to balance employer costs and the need to attract and retain employees.

Compensation

Base and Merit/Variable Pay

Variable Pay: Incentives for Performance

Basic assumptions: - Some jobs contribute more to organizational success than others. - Some people perform better and are more productive than others. - Employees who perform better should receive more compensation. - Some of employees' total compensation should be tied directly to performance.

Worker's Compensation

Benefits provided to persons injured on the job.

Strategic Perspectives on Benefits

Benefits vs. Salaries- which is preferred for addition or subtraction? Benefits influence employee decisions about employers: - Retention - Absenteeism - Recruitment Benefits are increasingly seen as entitlements. Benefit costs average over 40% of total payroll costs.

Contributory Plan

Both employer and employee pay money into the retirement fund.

Performance Awards

Cash or merchandise used as an incentive reward.

Salary-Plus-Commission or Bonuses

Compensation is part salary for income stability and part commission for incentive.

Variable Pay

Compensation linked to individual, group/team, and/or organizational performance.

Variable (Merit) Pay

Compensation linked to individual, team, or organizational performance.

Salary

Consistent payments made each period regardless of the number of hours worked in the period.

Family Medical Leave Act (FMLA)

Coverage - Employers with 50 or more employees - Employees who have worked at least 12 months and 1,250 hours in the previous year. Requirements - Employers must allow eligible employees to take up to a total of 12 weeks of unpaid leave in a 12-month period to attend to a family or serious medical condition. - Employees have the right to continued health benefits and the right to return to their job.

Benefits for Domestic Partners

Domestic Partners or Spousal Equivalents - Unmarried employees who are living with individuals of the opposite sex - Gay and lesbian employees who have partners Affidavit of Spousal Equivalence - Each is the other's only spousal equivalent. - They are not blood relatives. - They are living together and jointly share responsibility for their common welfare and financial obligations.

Retention Measurement and Assessment

Employee Surveys Exit Interviews

External Equity

Employee compensation viewed as equitable in relation to the compensation of employees performing similar jobs in other organizations.

Differential Piece-Rate Systems

Employees are paid one piece-rate for units produced up to a standard output and a higher piece-rate wage for units produced over the standard.

Defined-Benefit Plans

Employees are promised a definite pension amount based on age and length of service.

Voluntary Turnover

Employees leave by choice.

Uncontrollable Turnover

Employees leave for reasons outside the control of the organization. (environmental jolts)

Internal Equity

Employees receive compensation in relation to the knowledge, skills, and abilities they use in their jobs as well as their responsibilities and accomplishments.

Indirect compensation

Employer-provided benefits—like health insurance—that are provide employees for being a member of the organization.

Components of the Psychological Contract

Employers provide: - Competitive compensation and benefits - Career development opportunities - Flexibility to balance work and home life Employees contribute: - Continuous skill improvement - Reasonable time with the organization - Extra effort when needed

Social Security Act of 1935

Established a system providing old age, survivor's, disability, and retirement benefits. - Federal payroll tax (7.65%) on both the employer and the employee. - Medicare taxes are 2.9% - Benefit payments are based on an employee's lifetime earnings. Administered by the Social Security Administration.

FLSA Employee Classifications

Exempt Employees: Employees to whom employers are not required to pay overtime under the Fair Labor Standards Act. - Executives, administrators, professional (learned or creative) employees, computer employees, outside sales persons Non-exempt Employees: Employees who must be paid overtime under the Fair Labor Standards Act. - Hourly - Salaried non-exempt

Attractive Job

Freedom and autonomy, exciting challenges, and career advancement and growth.

HR Decisions Affecting Benefit Design:

How much total compensation? - Lag, Meet or Lead the Market What part of total compensation should benefits comprise? What expense levels are acceptable for each benefit? Which employees should get which benefits? - Legal, Ethical and Business reasons for decisions What are we getting in return for the benefit? (ROI) How will offering benefits affect turnover, recruiting, and retention of employees? How flexible should the benefits package be? - Flexibility is high today due to the different familial structure in U.S. families than has been historically prevalent - What happens to ROI when the plan is more flexible?

Disciplinary Approach

Increasingly severe disciplinary action leading eventually to dismissal.

Intrinsic

Intangible, psychological and social effects of compensation.

Types of Rewards

Intrinsic Extrinsic

Functional Turnover

Lower-performing or disruptive employees leave the organization.

Why is health care so expensive?

NUMBER ONE: Uninsured workers Retirees Older generations in the workplace FDA rules versus pharmaceutical ROI Lawsuits? Other?

Strategic Compensation

Objectives of a Strategically Supportive Compensation System: - Legal compliance with all appropriate laws and regulations - Cost effectiveness for the organization - Internal, external, and individual equity for employees - Performance enhancement for the organization

Controllable Turnover

Occurs due to factors that could be influenced by the employer.

Distributive Justice

Perceived fairness in the distribution of outcomes.

Procedural Justice

Perceived fairness of the process and procedures used to make decisions about employees.

Compensation Systems Effects

Performance Pay Competency Based Pay

Culture and Values

Positive, distinctive company that is well-managed, and offers exciting challenges.

Fair Labor Standards Act (FLSA) of 1938

Provisions of the Act - Minimum wage requirement sets wage floor - Child labor (under 14 years old) is prohibited - Requires overtime payments for non-exempt employees - Exempts Certain Jobs - Requires overtime (1½) pay for hours over 40 hours - Requires compensatory time at overtime (1½) pay rates

Recognition Awards

Recognition of individuals for their performance or service to customers in areas targeted by the firm.

Davis-Bacon Act of 1931

Required payment of "prevailing wage" by firms engaged in federal construction projects.

Equal Pay Act of 1963

Requires that men and women be paid the same for performing substantially similar jobs with limited non-gender exceptions (e.g., merit and seniority).

Pension Plans

Retirement benefits established and funded by employers and employees. ERISA- you don't HAVE to have a pension plan. However, if you do, it is governed by ERISA.

Positive Reinforcement

Rewarding attendance with prizes and bonuses.

Service Awards

Rewards to employees for lengthy service with an organization.

Extrinsic

Tangible, monetary and nonmonetary effects of compensation.

Involuntary Turnover

Terminations for poor performance or work rule violations.

Base Pay

The basic monetary compensation that an employee receives, usually as a wage or salary.

Pay Openness/Secrecy

The degree of openness or secrecy that an organization allows regarding its pay system.

Organization Commitment (Loyalty)

The degree to which employees believe in and accept organizational goals and desire to remain with the organization. - Continuance commitment (I need this commitment) - Affective commitment (I feel commited) - Normative commitment (I put too much time in to quit)

Direct compensation

The employer exchanges monetary rewards for work done. - Base Pay - Wages - Salary - Variable (Merit) Pay

Equity

The perceived fairness between what a person does (inputs) and what the person receives (outcomes).

Broadbanding

The practice of using fewer pay grades having broader pay ranges that in traditional systems. Benefits: - Encourages horizontal movement of employees - Is consistent with trend towards flatter organizations - Creates a more flexible organization - Encourages competency development - Emphasizes career development

Turnover

The process in which employees leave the organization and have to be replaced.

Vesting

The right of employees to receive certain benefits from their pension plans.

Paid Time-Off Programs

Time-off is not categorized by type. Absences in excess of employer-paid time-off are unpaid.

Benefits

Typical plus extras (e.g., education, work-life balance)

Combination Approach

Use of both discipline and rewards to motivate employee attendance.

Market Pricing

Use of pay survey data to identify the relative value of jobs based on what other employers pay for similar jobs.

Straight Piece-Rate Systems

Wages are determined by multiplying the number of pieces produced by the piece rate for one unit.

Psychological Ownership

When individuals feel that they have some control, responsibilities and rights in the organization.