Compensation and Benefits

Correlation coefficient

A common measure of association that indicates how changes in one variable are related to changes in another.

Fair Labor Standards Act of 1938

A federal law governing minimum wage, overtime pay, equal pay for men and women in the same types of jobs, child labor, and record-keeping requirements.

Job Classifications (grade)

A grouping of jobs that are considered substantially similar for pay purposes.

Minimum Wage

A minimum wage level for most Americans established by Congress as part of the Fair Labor Standards Act (FLSA) of 1938.

Compliance

A pay objective, conforming to federal and state compensation always and regulations.

Comparable Worth

A policy that women performing jobs judged to be equal on some measure of inherent worth should be paid the same as men, excepting allowable differences, such as seniority, merit, production-based pay plans, and other non-sex-related factors. Objective is to eliminate the use of the market in setting wages for jobs held by women.

Flat rate

A single rate, rather than a range of rates, for all individuals performing a certain job. Ignores seniority and performance differences.

Ability

An individual's capability to engage in a specific behavior.

Total cash

Base wage plus cash bonus; does not included benefits or stock options.

Employee contributions (Pay mix)

Comparisons among individuals doing the same job for the same organization.

Entitlement

Employee belief that returns and/or rewards are due regardless of individual or company performance.

Exempt Employees

Employees who are exempt from regulation of the Fair Labor Standards Act (FLSA) and hence do not receive overtime pay (e.g., managers and professionals). Exempt pay is calculated at an annual or monthly rate rather than hourly (see also Exhibit 17.6, pgs. 631 - 632).

Non-exempt Employees

Employees who are subject to the provisions of the Fair Labor Standards Act (FLSA). Pay for workers who are non-exempt is usually calculated at an hourly rate rather than a monthly or annual rate. These employees are eligible for overtime pay.

Exempt (jobs)

Jobs not subject to provisions of the Fair Labor Standards Act (FSLA) of with respect to minimum way and overtime. Exempt employees include most executives, administrators, professionals, and outside sales representatives.

American with Disabilities Act (ADA)

Legislation passed in 1990 that requires that reasonable accommodations be provided to permit employees with disabilities to perform the essential elements of a job.

The Age Discrimination in Employment Act (ADEA) pf 1967 (amended 1978, 1986, and 1990)

Legislation that makes nonfederal employees age 40 and over a protected class relative to their treatment in pay, benefits, and other personnel actions. The 1990 amendment is called the Older Workers Benefit Protection Act.

Prevailing-wage Laws

Legislation that provides for a government-defined prevailing wage as the minimum wage that must be paid for work done on covered government projects or purchases. In practice, these prevailing rates have been union rates paid in various geographic areas..

Salary

Pay given to employees who are exempt from regulation of the Fair Labor Standards Act (FLSA) and hence do not receive overtime pay (e.g., managers and professionals). Exempt pay is calculated at an annual or monthly rate rather than hourly.

Living Wage

Pay legislation in some U.S. cities that requires wages well above the federal minimum wage. Often applies only to city government employees.

Variable pay

Pay tied to productivity or some measure that can vary with the firm's profitability.

Commission

Payment tied directly to achievement of performance standards. Commissions are directly tied to a profit index (sales, production level) and employees costs; this, they rise and fall in line with revenues.

Compensation

Refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

Cost-of-living increase

Same as across-the-board increase, except magnitude based on change in cost of living (e.g., as measured by the Consumer Price Index [CPI]).

Total compensation

The complete pay package for employees, including all forms of money, bonuses, benefits, services, and stock.

Incentive effect

The degree to which pay influences individual and aggregate motivation among employees at any point in time.

Sorting effect

The effect that pay can have on the composition of the workforce. Different types of pay strategies may cause different types of people to apply to and stay with an organization.

Relational returns

The non-quantifiable returns employees get from employment, such as social satisfaction, friendship, feeling of belonging, or accomplishment.

Internal alignment

The pay relationships among jobs or skill levels within a single organization; focuses attention on employee and management acceptance of those relationship. It involves establishing equal pay for jobs of equal worth and acceptable pay differentials for jobs of unequal worth.

External competitiveness

The pay relationships among organizations; focuses attention on the competitive positions reflected in these relationships.

Success sharing plans

a generic term for variable pay plans that tie pay to measures of group/organization performance. Distinguished from risk-sharing plans because employees share in any success - any performance above standard - but are not penalized for performance below standard.

Job evaluation

a systematic procedure designed to aid in establishing pay differentials among jobs within a single company. It includes classification, comparison of the relative worth of jobs, blending internal and external market forces, measurement, negotiation, and judgment.

Skill requirements

composite of experience, training, and ability as measured by the performance requirements of a particular job.

Merit bonus

nonpermanent (variable) payment (bonus or lump sum) form of variable pay granted to employee as a function of some (typically primarily subjective) assessment of individual employee performance.

Across-the-board increase

permanent base wage/salary increase granted to all employees, regardless of performance. Size related to some subjective assessment of employer ability to pay.

Merit pay

permanent wage/salary increase granted to employee as function of some (typically primarily subjective) assessment of individual employee performance.

Extrinsic rewards

rewards that a person receives from sources other than the job itself. They include compensation, supervision, promotions, vacations, friendships, and all other important outcomes apart from the job itself.

Pay Equity (Gender Pay Equity)

see Comparable Worth.

Base pay

the guaranteed portion of an employee's wage package.

Job pricing

the process of assigning pay to jobs based on thorough job analysis and job evaluation.

Job analysis

the systematic process of collecting information related to the nature of a specific job. It provides the knowledge needed to define jobs and conduct job evaluation.

Gainsharing

variable pay plan where payout depends not on company level performance such as profitability, but rather on performance at some sub-unit such as a plant/facility. Also, performance is often defined more broadly than just financial terms. Performance examples include labor cost/revenue, safety, cost of scrap, cost of utilities, customer (including patient) satisfaction.

Profit sharing

variable pay plan where payout depends on company profitability. Can also be used at lower levels such as the division. Size of payouts to individuals can be modified based on other measures such as individual performance.

Individual incentive

variable pay tied directly to objective measure of individual performance such as sales, production volume, or production quality.

Incentive

Inducement offered in advance to influence future performance (e.g., sales commissions).

Valuation Discrimination

Discrimination that focuses on the pay women and minorities receive for the work they perform. Discrimination occurs when members of these groups are paid less than white males for performing substantially equal work. This definition of pay discrimination is based on the standard of "equal pay for equal work." Many believe that this definition is limited and that valuation discrimination can also occur when men and women hold entirely different jobs (in content or results) that are of comparable worth to the employer. Existing federal laws do not support the "equal pay for work of comparable worth" standard.

Access Discrimination

Discrimination that focuses on the staffing and allocation decisions made my employers. It denies particular jobs, promotions, or training opportunities to qualified women or minorities. This type of discrimination is illegal under Title VII of the Civil Rights Act of 1964.

Disparate Treatment

Discrimination theory that outlaws the application of different standards to different classes of employees unless the standards can be shown to be business-related.

Disparate Impact

Discrimination theory that outlaws the application of pay practices that may appear to be neutral but have a negative effect on females or minorities unless those practices can be shown to be business-related.

Team incentives

Group incentive restricted to team members, with payout usually based on improvements in productivity, customer satisfaction, financial performance, or quality of goods and services directly attributable to the team.

Reengineering

Making changes in the way work is designed to include external customer focus. Usually includes organizational delayering and job restructuring.

Pay techniques

Mechanisms or technologies of compensation management, such as job analysis, job descriptions, market surveys, job evaluation, and the like, that tie the four basic pay policies to the pay objectives.

Wage

Pay given to employees who are covered by overtime and reporting provisions of the Fair Labor Standards Act (FLSA). Pay for workers who are non-exempt is usually calculated at an hourly rate rather than a monthly or annual rate.

Pay objectives

What an organization seeks to achieve through tis compensation strategy. Basic objectives are efficiency, fairness, ethics, and compliance with laws and regulations.