MAN 4330/5331 Compensation Final Exam

Graphical Rating Scale

- simplest and most popular method for evaluating performance - scale lists the traits or dimensions of performance and the range of performance values for each rating element - several rating options

Four categories of legally required benefits

- social security - workers' compensation - unpaid family and medical leave - health insurance

Four types of performance appraisal plans

- trait systems - comparison systems - behavioral systems - goal-oriented systems

Seniority and longevity pay rewards employees...

- with permanent additions to base pay - according to the employee's length of service in performing their jobs

Improshare

-Measure productivity physically rather than in terms of dollar savings -Incentive to finish products -Bonuses paid on a weekly basis based on a ratio of standard labor hours to actual labor hours -Includes a buy-back provision

Compa-ratio meanings

1 = market match rate <1 = market lag rate >1 = market lead rate

How many hours of work are required within a 12-month period for an employee to qualify for protection under the Family and Medical Leave Act (FMLA)?

1,250 hours

Goal-oriented Systems

Used mainly for managerial and professional employees and typically evaluate employees' progress toward strategic planning objectives

Pay Compression

When the pay spread between newly hired or less qualified individuals and more qualified job incumbents is small

Midpoint = (formula)

[(Max - Min) / 2] + Min

core competencies are derived from...

a company's strategic statements

Comparison Systems

evaluate a given employee's performance against the performance of other employees

benefits of forced ranking

forces managers to make clear decisions about talent, and in particular it forces them to confront poor performance

Preferred Provider Organization (PPO)

group of healthcare providers that provide services to a specific group, often at a reduced rate

most companies offer which time of life insurance plan?

group-term life insurance

Defined Benefit Plan

guarantees a specified level of retirement income (pension)

what was once a discretionary benefit but is now a legally required benefit?

health insurance

Health Maintenance Organizations (HMO)

health insurance plans which directly employ or contract selected medical professionals to provide health care services

reasons an employer would adopt a person-focused pay system

* technological innovations * increased global competition - removes entitlement label - connects pay to job-related abilities - increases employee autonomy - jobs require new and different worker skills

Disadvantages of profit sharing

- Can undermine the economic security of employees - May fail to motivate employees if they do not see a direct link between their efforts and profits

Two types of behavioral appraisal systems

- Critical Incident Technique (CIT) - Behaviorally anchored rating scales (BARS)

Advantages of profit sharing

- Enable employees to share in companies' profits - Allow companies greater financial flexibility

compensation fluctuates according to...

- a pre-established incentive formula - individual or group goals - company earnings or performance

Purpose of Incentive/variable pay

- adds to base pay on a nonrecurring basis - can help manage salary costs - motivates employees through explicit goal setting and recognition

Five pay considerations to consider when adopting an incentive program

- based on individual, group, and/or performance - acceptable level of risk - replace traditional pay - performance criteria evaluated - appropriate time horizon

major types of rater error

- bias errors - contrast errors - errors of central tendency - errors of leniency or strictness

Companies recognize pay differences by paying individuals according to their: (4 things)

- credentials - knowledge - geography - job performance

Rucker plan

- emphasis employee involvement - uses a value-added formula (value added/total employment costs) [- value of sales price - value of materials used - total labor costs] - larger ratios show that value added is greater than employment costs

Scanlon plan

- emphasis on teamwork - based on a cost savings suggestion system - production-level committees - screening or review committees - rewards = labor costs/SVOP - smaller Scanlon ratios show that labor costs are lower relative to SVOP

defined contribution plan

- employee contributions: expressed as a percentage of wage or salary - employer contributions: expressed as a percentage of an employee's contribution up to a specified limit

the two company-wide incentive plans

- employee stock option plan - profit sharing

Critical Incident Technique

- employees and supervisors identify and label specific critical job behaviors and results - supervisors observe and compile or record observed tasks/ behaviors (positive and negative) throughout the evaluation period - meet with employee periodically throughout the year to provide feedback - requires extensive documentation; typically narrative based

Behavioral Anchored Rating Scales (BARS)

- evaluation tool that anchors a numerical scale with specific examples of good and/or poor performance - based on 8-10 expected job behaviors - employees rated on ability to perform each behavior - ratings are highly (and legally) defensible - encourages all raters to make evaluations in similar ways

red circle rates result from

- failure to raise pay range maximums - attempt to retain exemplary employees not ready for promotion to jobs in successive pay grades - demotion of employee from a higher pay grade to a lower pay grade

pay compression is caused by

- failure to raise pay range minimum and maximum rates - scarcity of qualified applicants

Traditional Pay Methods

- generally includes an annual salary or hourly wage - Increased periodically on a seniority or merit basis with permanent increase to base pay

Three categories of incentive pay systems

- individual - group or work unit - organizational

basic assumptions of an incenctive and variable pay

- individual employees and work teams differ in how much they contribute to the company, both in what they do as well as how well they do it - the company's overall performance depends to a large degree on the performance of individuals and groups within the company - to attract, retain, and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance

Stair step model

- jobs from same job family - jobs differ in complexity - higher the step, greater the skills - companies use separate models - models designed to match jobs

negative aspects of incentives

- must balance intrinsic and extrinsic rewards - unintended consequences of behavior - some programs can de-motivate behavior if people feel the goals are unattainable or not realistic - can drive unhealthy competition that negatively effects the larger organization - incentives may not create lasting or sustainable commitment - incentives may not improve performance

Requirements that must be met to qualify for unemployment insurance benefits

- not have left the job voluntarily - be able and available for work - be actively seeking work - not have refused an offer of suitable employment - not be unemployed because of a labor dispute (exception in a few states) - not have had employment terminated because of gross violations of conduct within the workplace

Disadvantages of seniority pay

- pay practice may not support the organizational strategy - inhibit changing long-standing practices or procedures - create morale issues among employees - can lead to belief in entitlements relating to employment and promotional opportunities, compensation, and benefits

Pay structures represent

- pay rate differences for jobs of unequal - the framework for recognizing differences in employee contributions

Two main types of person-focused pay systems

- pay-for-knowledge - skill-based pay

Green circle rates result from

- paying employees who do not meet the minimum requirements less than the minimum rates - failure to raise pay range minimum and maximum rates

person-focused pay vs. job-based pay

- person-focused pay compensates employees for flexibility, potential contributions, skills and knowledge - job-based pay compensates employees for current jobs, sets pay limits for each job, evaluates based on job description and objectives, includes merit and incentive pay

Three initial purposes of social insurance programs

- preventing destitution of unemployed or injured - stabilizing well-being of dependents - enabling retirees to maintain subsistence income

three cateogires of discretionary benefits

- protection programs - paid time off - services

rating options of the graphical rating scale

- rate on generic job dimensions such as communication, teamwork, quality, etc. - rate actual job duties - rate achievement of meeting certain performance expectations or objectives - rate the level of exhibited competencies

positive aspects of incentives

- recognizes and rewards exceptional performance of employees and/or work units - encourages employees to attain higher levels of performance by giving them something to strive for - employees see how the companies' financial success is tied to their success - loyalty may increase because they become invested in the company - group incentives can improve cooperation among employees

Competencies

- refer to an individual's capability to coordinate and apply combinations of knowledge and skills consistently over time to perform work successfully in the required work situations

three common gain-sharing plans

- scanlon plan - rucker plan - improshare

Five Steps in Building a Pay Structure

1. decide how may pay structures to construct 2. determine a market pay line 3. define pay grades 4. calculate pay ranges 5. evaluate results

disability benefits are available to disabled workers who are unable to work because of a serious medical or mental impairment that lasts at least ___ months

12

forced distribution

A performance appraisal ranking system whereby raters are required to place a certain percentage of employees into various performance categories - pay raises (and evaluation ratings) based on ranking

employee stock option plan

Companies grant employees right to purchase share of company: - Company stock - Company stock shares - Stock options

Gain-sharing plan

Incentives based on company performance in: Increased productivity, Increased customer satisfaction, Lower costs, and Better safety records - Based on open leadership - Involves employee participation - Includes bonuses

Minimum = (formula)

Midpoint/1 + (Range spread/2)

Maximum = (formula)

Minimum + (range spread x minimum)

individual incentive

a reward that depends on the performance of the individual employee

Rater error

an error in performance appraisals that reflects consistent biases on the part of the rater

Skill block:

applies to jobs within the same job family, but skills do not necessarily build on one another

Compa-ratios are used to

assess the competitiveness of an employee's pay level

Straight commision

based on a fixed percentage of sales price

according to the Human Capital Theory, employees...

become more valuable over time

Discretionary benefits

benefits not required by law

limitations of forced ranking

can create fear and turn employees against one another

Most employers use what type of retirement plan?

defined contribution (401k type)

Compa-Ratio

divide pay rates by midpoint

Whole life insurance

does not terminate until payment is made to beneficiaries

Legally required benefits

employee benefits mandated by law

referral plan

employees receive bonuses for recruitment of highly qualified employees

Behavior encouragement plans

employees receive payments for specific behavioral accomplishments

Job-point accural

encourages employees to develop skills and learn to perform jobs from different job families

One advantage of a person-focused pay system is the...

increase in employee commitment

graduated commission

increased percentage rates for higher sales volume

multi-tiered commission

increased percentage rates for meeting and exceeding sales goal

Challenge of pay compression

it threatens competitive advantage

Short-term disability length

less than six months

depth of skills

level of expertise or specialization an employee possesses

Leniency Errors

managers rate employees' performances more highly than they would rate them using objective criteria

Merit Pay Systems

pay raises and bonuses are based on the merit rating received from their boss; pay for performance

Red Circle Rates

payment rates above the maximum of the pay range

Green circle rates

payment rates below the minimum of the pay range

group or work unit incentive

promote supportive, collaborative behavior among employees

cross-departmental

promotes staffing flexibility by training employees in one department with critical skills they would need to perform effectively in other departments

Term Life Insurance

provides protection to employees' beneficiaries only during a limited period based on a specified number of years

Behavioral Systems

rate employees on the extent to which they display successful job performance behaviors

Trait Systems

raters evaluate each employee's traits or characteristics (or competencies)

piecework plans

reward employees for every item produced over a designated production standard

Pay-for-knowledge plan

reward managerial, service, or professional workers for successfully learning specific curricula

Person-focused pay system

rewards employees for acquiring job-related knowledge and/or skills

Horizontal skills

skills at the same level of responsibility or difficulty (skills necessary to do the job)

vertical skills

skills that are traditionally considered supervisory

Strictness Error

supervisors rate employees' performance lower than they would rate them using objective criteria

Midpoint is largely based off _______.

the market

HIPPA (Health Insurance Portability and Accountability Act)

three provisions: - guarantee that employees and their dependents that leave their employer's group health plan will have ready access to coverage under a subsequent employer's health plan, regardless of their health or claims experience - sets limits on the length of time that health plans and health insurance issuers may impose preexisting health conditions and identify conditions to which no preexisting condition may apply - protects the transfer, disclosure, and use of health care information

organizational incentive

tie employee compensation to a company's performance over a short time frame

Purpose of legally required benefits

to provide a form of social insurance; minimize the possibility that individuals who become unemployed or severely injured while working would become destitute

Skills-based pay

used mostly for employees who do physical work; increase these workers' pay as they master new skills

General considerations for merit pay systems

▪ Communicate link between pay and performance ▪ Establish increase amount and types ▪ Driven off base pay level; in most cases is an additive to base pay ▪ Use of effective appraisal methods (performance management) is essential ▪ Align increase amount with performance criteria

Merit pay increases are based on...

▪ Current pay/salary ▪ Position in the salary range ▪ Internal equity ▪ Reflects performance relative to employees in your work group/like position ▪ Budget

Factors that affect merit increases...

▪ Needs to motivate ▪ Needs to be meaningful ▪ Influenced by the cost of living ▪ Indexed as a percentage of budget (usually set annually) ▪ Individually administered as a percentage of salary