Compensation Final Exam

Compensating (Expatriates) Employees in Global Classifications

1. Base Salary- Annual Salary 2. Short & Long Term Incentives 3. Tax Equalization Allowances- payments for higher tax rates of other countries 4. Benefits- continuation of, or substitute for, home benefits. 5. Allowances & FSPs- cost-of-living, housing, education, medical, security, & relocation payments.

Nature of Performance Appraisal

1. Control mechanism and for feedback 2. Allows employee progress to be assessed 3. Ensures strategy-consistent behavior 4. Reinforces values of Organization 5. Ensures alignment of individual performance and behavior to: Organization Culture, Work systems

Performance Management Process

1. Establish expectations 2. Coaching and Development 3. Feedback 4. Review 5. Rewards & Recognition

Factors Related to Inaccurate Assessments

1. Guilt 2. Embarrassment about giving praise 3. Taking things for granted (If I don't say anything is wrong then things must be okay) 4. Not noticing (Not be award of an employee's actual performance or knowing the performance expectations) 5. Dislike of confrontations 6. Spending too little time on preparation of assessment

Defined Benefits Plan

1. Provides an explicit benefit which is easily communicated 2. Company absorbs risk associated with changes in inflation and interest rates which affect cost 3. More favorable to long service employees 4. Employer cost unknown

Defined Contribution Plan

1. Unknown benefit level is difficult to communicate 2. Employees assume these risks 3. More favorable to short-term employees 4. Employer cost known up front

Understanding Why Raters Make Mistakes

1.Errors in rating process 2.Errors in observation (attention) 3.Errors in storage and recall 4.Errors in actual observation

Components of an Executive Compensation Package

Base Salary Short-Term Incentives or Bonuses Long-Term Incentives and Capital appreciation plans Equity Executive Perquisites Retirement Severance

Compensation Packages

Base Salary vs. Perks: Issue of Taxation Currency Fluctuation Labor Regulations Cultural Influences

Two common methods use by entrepreneurs

Bottom-Up, Top-Down

Performance Management

Continuous process where employees and managers work together

Developing Budgets

Control of Expense-Revenue Ratio (Expense >Revenues = Losses) Coordinate Activities (Budget for ALL Department & activities) Set Performance Standards (Goal for Sales & Operational Budgets) Evaluation Tool (Deviation Anaylsis, +/- Comparison to Actual Results to Planned (Budgeted(] Corrective Control ( Take necessary action to prevent future over expenditures or under sales forecast)

Requirements to Link Pay to Performance

Define performance: Behaviors, Competencies, Traits Specify a continuum describing different levels from low to high on performance measures Decide how much of a merit increase is given for different levels of performance Performance-based Guidelines Performance Rating Salary Increase Matrix

Process for forecasting of a business

Determine pay of present employees Calculate total compensation for present employees (salary + benefit rider costs) Estimate present employee total compensation for the next year Calculate total compensation costs for additional new positions Total all compensation costs for existing and any new positions

Minimum Budget

Determine the minimum cost budget for each activity to meet performance requirements

Budgeting Process

Develop complete chart of accounts Research cost for each account Develop a budget book Avoid straight line estimating Forecast sales volume Relate to sales and HR requirements Project best case/worst case scenarios Project break-even budget

ERISA: Non-Qualified

Do not meet any one of the minimum standard provisions and are not available for favorable tax treatment

Levels of Global Perspectives

Domestic Global, International, Multinational

3 Perspectives of Global Decision-Making

Ethnocentric Polycentric Reglocentric Geocentric

Social Comparisons

Executive salaries bear a consistent relative relationship to pay of lower-level employees

Global Employee Status Classifications

Expatriate(PCN) Local(Host) Country National (LCN) Third Country National (TCN)

Do employees Value Their Benefits???

Expect benefits as part of their total compensation Do not understand true value of benefits Often undervalue their benefits Often take benefits for granted???? Often can't list all benefits received Have preferences regarding types of benefits they want Key is communication

Work-Life Balance Programs

Flextime Compressed- Workweek Job Sharing Two-in-a-Box Telecommuting

Home Balance Sheet Approach

Foreign Service Premiums( Beyond Base) Quality of Life (Family) Purchasing Power

Health & Medical Benefits

General Health & Medical Care Health care: Cost Control Strategies Short & Long Term Disability Dental Insurance Vision Care

Common Errors in the Employee Appraisal Process

Halo Error, Horn Error, First Impression Error, Recency Error, Leniency Error, Severity Error, Central Tendency Error, Clone Error, Spillover Error

Reasons for offering benefits

Help attract employees Help retain employees Elevate the image of the organization with employees and other organizations Increase job satisfaction

Types of Coverage

Hospitalization Surgical Physical Pharmacy

Agency Theory

Incorporates political motivations CEO compensation should be designed to ensure executives focus on best interests of firm and stockholders

Primary Global Issues

International vs.Global Competition Cross-Country Differences Global Philosophies Issues Global Strategic HR Perspectives & Classifications Compensation

Cross Country Differences

Know & Respect Cultural Differences

Locational Appeal

Labor Pooling Wage Rates Technological Spillovers Workers Productivity Natural Resource Availability Regulatory Environment Inflation Rates Energy Costs Tax rates

HIPAA 1996

Lessens an employer's ability to deny coverage for a preexisting condition Prohibits discrimination on the basis of health-related status Provides stringent privacy provisions

Global HR Strategy Perspectives

Localizer, Exporter, Globalizer

Voluntary Benefits

Major Medical, Supplemental Insurance, Life Insurance, Dental, Educational Reimbursement, Retirement, Vacation, Holiday, Health/Fitness Club Expense, Child care, Financial/Legal Services, Relocation Expense

Types of Benefits

Mandatory vs. Voluntary

Budgeting Techniques when Revenue Forecast are Uncertain

Minimum Budget, Must-Do-Budget

Must-Do-Budget

Minimum Revenue to Survive- Warning: DO NOT be conservative by Underestimating Cost or Overstating Revenues.

Key Issues in Benefit Planning

Modifying Employee Benefits Allowing for employee Input Establishing Specific Objectives Providing Flexibility Communicating Benefits Information

Pay Adjustment Matrix

No pay adjustment can increase an employees pay rate above the maximum of their job's pay range.

Financing Benefits Plans: Alternatives

Non-Contributory: Employer Pays total costs Contributory: Costs shared between employer and employee Employee Financed: Employee pays total costs for some benefits.

Exporter

One size fits all

Miscellaneous Benefits

Paid Time Off During Working Hours Payment for Time Not Worked Child & Elderly Care Work-Life Balance Programs Domestic Partner Benefits Legal Insurance

Global Cultural Issues

Power Distance Individualism-Collectivism Masculinity-Femininity Uncertainty Avoidance Long-Tern vs. Short-Term Orientation

Cost Containment Trends

Probationary Periods Benefit Limitations Copay Administrative cost containment Retaining Strategic function internally Significant movement to outsourcing Promote preventive health programs

Pay Guidelines with Low Motivational Impact

Provide equal increases to all employees regardless of performance. General Increase, Cost-of-living adjustments Pay increases based on a preset progression pattern based on seniority

ERISA: Qualified

Provide favorable tax benefits for Employers and Employees for plans that possess the 13 fundamental characteristics

COBRA 1984

Provides the opportunity for an employee to continue insurance coverage if they leave the company due to no fault of their own

Types of Performance Appraisal Systems

Ranking, Rating, MBO/MBR

Ranking

Rater compares employees against each other

Rating

Rater evaluates employees on some absolute standard

MBO/MBR

Rater evaluates performance on measures relative to mutually agrees upon results

Compensation and the Re acculturation of Expatriates

Reentry transition may result in culture shock 60%-70% of expatriates don't know what their position will be upon their return. 25% leave the company within one year upon returning

Explanations for CEO Compensation

Social Comparisons Economic Approach Agency Theory

Mandatory Benefits

Social Security, Unemployment Insurance, Workers' Compensation, ERISA 1973, FMLA

Who are Special Groups?

Supervisors, Professional Employees, Sales Staff, Contingent Workers, Corporate Directors, Top Management Executives

Corrective Controls & Budgeting

Take necessary action to prevent future over expenditures or under sales forecast

What are Employee Benefits?

That part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments, workers' compensation, vacation, holidays....

Globalizer

Think and Act Globally and Locally

Localize

Think, Global, Act, Locally

Balance Scorecard Approach

Uses a Constellation of measures Categories of measures Forces discussions about priorities among different measures Outcomes: Objectives with different weights in terms of importance

Economic Approach

Value of CEO should correspond to some measure of organizational success

Top-Down

begin with estimate or available revenue and allocate to the business activities

Bottom-Up

determine cost for each activity and sum them to determine revenue needs