Compensation and Reward Systems Exam 1

Disadvantage of Incentive Pay

1. Possesses the possibility to promote inflexibility 2. Supervisors must develop and maintain comprehensive performance measures to properly grant money. Must allow for learning curve 3. If incentive plan focuses on one dimension, they may neglect another area

Advantages of Incentive Pay

1. Promote relationship between pay and performance 2. Promote equitable distribution of comp within companies. Equitable pay enables companies to retain the best performers. 3. Compatible with individualistic cultures like the US

4 Types of Performance Appraisal Systems

1. Trait 2. Comparison Systems 3. Behavioral Systems 4. Management by Objectives

Improshare

Improved Productivity through sharing, measures productivity physically rather than in terms of dollar savings like those used in the Scanlon and Rucker plans, employee participation not a factor, (standard labor hours/actual)

Compensable Factors

Skill, effort, responsibility, working conditions

Management by Objectives

Supervisor appraises performance based on the accomplishment of pre-set objectives

Capital Intensity

The extent to which companies' operations are based on the use of large-scale equipment, and capital intensity is associated with higher wages (mfg vs. retail)

Job-based pay

based on current job: seniority, merit, incentive (differs from person-focused)

Compensation

both intrinsic and extrinsic rewards employees receive for performing their jobs and for their membership as employees.

Intrinsic

internal reward such as saving lives

Nonexempt

jobs that are subject to FLSA overtime pay provisions

Just-Meaningful Pay Increase

minimum pay increase that employees will see as making a meaningful change in compensation, trivial bonuses are unlikely to motivate excellent performers, needs to be a large amount

Extrinsic

monetary and non-monetary rewards (benefits)

Person-Focused/Competency-Based Pay

rewards employees for learning specific new curricula

Incentive Pay/Variable Pay

rewards employees for partially or completely attaining a predetermined work objective

Person-focused pay

rewards employees for specifically learning new curricula rather than demonstrating successful on the job performance (promise of future performance)

Longevity Pay

rewards employees who have reached pay grade maximums and are not likely to move into higher grades, paid for the strengthening of skills as they have worked there longer

Pay-for-Knowledge Plan

rewards managerial, service, or professional workers for learning new curricula

Horizontal Skills

skills at the same level of responsibility or difficulty, complementary to your current job

Skill-Block Model

skills do not necessarily need to build on each other, can go from Clerk 1 ot Clerk 4

Team-based or small-group incentive plans

small group of employees shares financial reward when specific objective is met

Vertical Skills

supervisory skills, moving up the ladder

Strategic Compensation

the design and implementation of compensation systems to reinforce the objectives of both HR strategies and competitive business strategies

Fair Pay Rules (2004)

those making less than $23,660/ year are guaranteed overtime protection

Individual Incentives Appropriate under 3 Conditions

1. Completion of # of units in production 2. Sales amount (Mary Kay) 3. Reduction in Error rate (reducing typing errors)

FLSA Exemption Criteria

1. Executives 2. Administrative 3. Learned Professionals 4. Creative Professionals 5. Computer Professionals 6. Outside Sales

Rucker Plan

A gain-sharing plan similar to the Scanlon plan but that expresses labor costs as a percentage of value added, want to have higher ratio (value added/total employment costs)

Error of Central Tendency

A performance rating error in which all employees are rated about average

error of leniency or strictness

An appraisal distributional error where the appraiser gives their employees unusually high or low marks.

Rating Errors

Bias Error, contrast error, errors of central tendency, leniency or strictness

Incentive Pay/Variable Pay

Comp other than base pay or salary that fluctuates according to employee's attainment of some standard, such as pre-established individual or group goals or company earnings, 1 time payment

Contrast Error

Compare employee to other employee and rate based on how one compares to the other

Bias Error

First impression effect, positive/negative halo, similar to me

Occupation

Grouping of jobs that perform similar tasks and responsibilities (group of jobs, recruiter, benefits, etc. are all jobs in HR occupation)

Comp and Legislation Laws

Laws regarding comp are grouped by: 1. Income continuity 2. Pay discrimination 3. Medical care and accommodating disabilities 4. Prevailing wage laws

Forced Distribution

assigns a certain percentage of employees to each category in a set of performance categories (30% excellent, 30% good, 30% fair, 10% poor)

Piecework Plan (individual incentives)

Type 1: Typically in mfg, rewards employees based on individual hourly production against an objective output standard and are determined by pace at which factory operates, receive piecework every hour in addition to hourly wage for every item produced over production standard Type 2: Plan establishes individual performance standards that are both objective and subjective (units and quality)

Spillover Effect

Unions bargain and have higher wages which increases wages for non-unions as well in order for the firm to compete with union firms

Management Incentive Plans

award bonuses to managers when they meet or exceed objectives based on sales, profit, production, or other measures for their division (complex, such as increasing market share 10%)

Scanlon Plan

a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard, teamwork to reduce cost, employee suggestion to implementation system, monetary reward

gain sharing plans

a group of employees generally a department or work unit that is rewarded for productivity gains. Productivity improvements, most often used when workplace tech does not constrain productivity (not mfg)

Paired Comparisons

an evaluation approach in which each employee in a business unit is compared to every other employee in the unit, see who is the better of the pair

Trait

asks raters to evaluate each employee's traits or characteristics (quality of work, dependability)

Employee Stock Option

companies grant employees the right to purchase shares of company stock

skill-based pay

compensation system that pays employees for learning additional skills, usually for employees doing physical work

Profit Sharing

employees earn financial reward when company's profit objective is met

Human Capital Theory

employees knowledge and skills generate productive capital known as human capital, over time they refine these skills and work productively

Behavioral Encouragement Plans

employees receive payments for specific behavioral accomplishments (safety records, SQF, attendance)

Job-Point Accrual Model

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

Comparison Systems

evaluate a given employee's performance against the performance of other employees, ranked from best to worst employee

Competencies

only spend money on what will be used in their job

Referral Plan

payment for referring new customers or recruiting successful job applicants

Difference between person-focused and job-based pay

person: developing skills for the future job: have successfully shown/proven skills

Cross-departmental Models

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

Behavioral Systems

rate employees on the extent to which they display successful job performance behaviors (removing trash from park, feeding animals)

Behavioral Anchored Rating Scale (BARS)

rates employee gradations in performance according to scales of specific behaviors

Spot Bonuses

relatively small monetary gifts provided to employees for outstanding work or effort during a reasonably short period of time

Critical Incident Technique (CIT)

requires job incumbents and their supervisors to identify performance incidents (e.g. on the job behaviors and behavioral outcomes) that distinguish successful performances from unsuccessful ones

Seniority Pay

reward job tenure and employee time with the company through permanent increases to base salary