Chapter 9-Compensation
External equity
Exists when an organization's employees believe that their pay is fair when compared to what other employers pay their employees who perform similar jobs. If a local competitor pays employees 20 percent more that their employer pays them, they probably don't feel that is fair
Job classification method
Of job analysis subjectively classifies jobs into an existing hierarchy of grades or categories.
Compensation issue:equity
Two most often cited fairness principles underlying compensation systems. 1. Equal pay for equal work. 2. Higher pay for more important work
Ranking method
A job evaluation compares jobs to each other based on their overall worth to the organization or their relative difficulty to rank them from most to least valuable.
Job evaluation
A systematic process that uses expert judgement to assess differences in value between jobs.
No financial compensation
Includes employees rewards and incentives that are not financial in nature. Ex. Flexible work schedules, developmental opportunities, casual dress codes, and helping employees balance work with other demands in their lives.
Compensable factor
Is any characteristic used to provide a basis for judging a job's value.After prioritizing each compensable factor in order of importance, each factor is subdivided into levels which are assigned points. Example, jobs with point totals 200-250 may all be paid $55,000. Best to use 1. Skill, 2.responsibilities, 3.effort, and 4. Working conditions (look at figure 9-4)
Goals of a strategic compensation system
attract and retain qualified employees, reflect relative value of each job, be externally competitive, internally consistent, and friar, motivate individual performance and employees' contribution to organizational goal achievement, foster employee engagement and productive work relationships, comply with all state and federal laws and regulation.
Compensation laws and regulations
Fair labor standards act (FLSA), equal pay act, workers compensation
The fair labor standards act (FLSA)
1938 to stimulate economic recovery from the Great Depression. The FLSA is a federal law that sets standards for minimum wages, overtime pay, equal pay(1963) for me a and women performing the same jobs. Employers may not fire or discriminate in any other manner against an employee for filing a complaint or participating in a legal proceeding under FLSA.
Position analysis questionnaire
A job analysis technique that is also useful in evaluating jobs for compensation purposes. Rather that using subjective judgments of job's compensable factors the PAQ uses statistical determinations of how the labor market is actually valuing worker characteristic. It is a structured job analysis questionnaire that is subdivided into six sections covering 187 job elements. For example, one section sues 35 job elements to assess the types of information sources that a worker must perceive. The job evaluation equation used to score the PAQ is proprietary, but is empirically derived from the labor market
Minimum wage (FLSA)
A primary goal of the FLSA was to ensure a maximum number of jobs paying at least minimum livable wage. Employers get a civil money penalty up $1100 for each violation. ***state laws often affect minimum wage rate for different industries. When an employee is covered by both state and federal minimum wage laws the employee is entitled to higher wage rate
Workers compensation
A type of insurance that replaces wages and medical benefits for workers on the job. Given in exchange for not sueing for neglance or perceive negligence.
Indirect financial compensation
All the tangible and financially valued rewards that are not included in direct compensation, including free meals, vacation time, and health insurance. Example, incentive pay
Benchmark jobs
Are jobs that tend to exit across departments and across diverse organizations, allowing them to be used as a basis for compensation comparisons.
Compensation surveys
Are surveys of other organizations conducted to learn what they are paying for specific jobs or job classes. Example, payscale.com
Resource dependence theory
Argues that organizational. Are influenced by internal and external agents who control critical resources
Job pricing
Based on evaluation data, quantifiable information. Single rate system( they go across the board for the same job). Pay grades( a range of possible pay for a certain groups of job). Broadband (a vary wide range of pay grades and then increase pay rather flexibly)
Direct financial compensation
Consists of the pay an employee receives in the form of wages, salary, bonuses, and commissions.
Equal pay act
Contains prohibition against gender base wage discrimination. Are they doing the same job for the same job.
Overtime pay (FLSA)
EXEMPT EMPLOYEES =Are those who meet one of the FLSA exemption tests, are paid a fixed salary, and are not entitle to overtime. NON EXEMPT EMPLOYEES ( not exempt form coverage) are employees who do not meet any of the FLSA exemption tests and are paid on an hourly basis and coved by wage and hour laws regarding minimum wage, overtime pay, and hours worked.
Compensation
Employees and their employers have an exchange relationship in which employees apply their time and talents to create value for the organization in exchange for tangible and intangible rewards and employees value.
Fair labor standards act (FLSA)
Federal law that set stand pay for minimum wage, over time, equal pay for men and woman for the same jobs.
Wage rate compression equality
Happens when starting salaries for new hires exceed the salaries paid to experienced employees. Wage rate compression is an internal equity issue that can create moral problem and increase turnover of highly skilled and experience employees as they seek higher salaries elsewhere. Primary cause is increasing market rates for skills that are in short supply. Examples to address it: increase the pay of experienced employees, develop experienced employees for promotion to higher paying positions, introduce pay for performance plans that give high performing employees the opportunity to earn higher pay.
Comparable worth equality
Is that if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them.The issue is not whether woman and men should be paid the same for doing the same job, but that jobs that tend to be held by women housekeeper or secretary) tend to be paid less than those that tend to be held by men (mechanic or truck driver)even though the jobs contribute equally to organizational performance.
Job pricing
Is the gyration of salary structure s and pay levels for each job base on the job evaluation data.
Broadbanding
Is the use of very wide pay grades (for example, salary ranges of plus or minus 30-60 percent of the salary midpoint)to increase pay flexibility.
Evaluating the worth of a job
Market pricing, job evaluation methods, position analysis questionnaire
Compensation laws and regulation
Numerous federal and state laws and regulation influence compensation. The 3 most important federal laws affecting compensation are: 1. Fair labor standard act,2. Equal pay act, 3. Workers' compensation.
Hay group guide chart-profile method
Of job evaluation extends the point factor method..used to extensively evaluate executive, managerial, supervisory, and professional white and blue collar jobs. For each job, a point factor system is used to produce a profile in which the weight and relationship of the factors reflects the size and nature of the job. For example, problem solving is weighted more heavily than accountability for research jobs, but the reverse is done for production line jobs.IT USES 3 TO 4 FACTORS. 1. Know-how (the level of knowledge, skills and experience necessary for fully acceptable job performance, 2. Problem solving, 3.accountability, and 4.work conditions.***weakness may have gender bias.
Employee equity
Refers to the perceived fairness of the relative pay between employees performing similar jobs for the same organization. If a new employee with less experience and lower skill is paid more than a higher performing, experience employee then the experience employee is likely to perceive unfairness.
Team, executive, global compenssations
Team=rewards motivate effective team behaviors. Executive= A golden parachute refers to lucrative benefits including bonuses and stock options given to executives in the event a company is taken over.Global compensation= compensation becomes more complex when organization's must pay employees in multiple parts of the world. It has to think about, cost of living, housing, hardship premium, taxis, inflation
The equal pay act (Enforced by the Equal Opportunity Commission(EEOC)
The basic provisions of the equal pay act are prohibitions against gender base wage discrimination. Employees in the same company who are performing work which requires equal skill, effort, and responsibility and performing under similar working conditions must not be paid differently based on gender. Pay differential are permissible if based on factors other than gender such as seniority, education, and experience, shift work, dissimilar working conditions, and additional job duties for additional skills. PENALTIES FOR VIOLATION ARE COMPENSATORY DAMAGES AND PUNITIVE DAMAGES.
What influences direct financial compensation
The organization(the availability of resources,profit, their budget), the job (what is required in terms of skills and effort), the employee (merit-paid for performance and seniority), external forces (do we have a shortage or abundance of people to do the job, it could be geographical or economy)
Internal equity
This is compensation equity that exists when employees perceive their pay to be fair relative to the pay of other jobs in the organization. (Most people would find it inequitable if a lower level position is paid more than their job)
Point factor method
This job evaluation uses a set of compensable factors to determine the value of each job
Workers compenstation
Type of insurance that replaces wages and medical benefits for employees injured on the job in exchange for relinquishing the employees right to sue the employer for negligence. Any is administered by state by state basis and overseen by a state governing board.
When is an employee initialed to overtime?
When state overtime laws differ from federal requirements, the employee is entitled to overtime pay for the actual time worked based on the higher standard. Time paid for but not actually worked(vacation, sick leave, holiday, other paid leave) is excluded. Private employers cannot provide compensatory time off in lieu of overtime pay, although with employee agreement sate and local government employers may provide compensatory time off. If an employee works unauthorized overtime, it must be paid, it is a disciplinary issue. Compensable time for covered, non-exempt employees may include: travel,meetings, rest and meal periods, on call duty, changing clothes and paring for work.
