MGMT 494 Exam 1

pay discrimination

- Equal Pay Act of 1963 - Lilly Ledbetter Fair Pay Act (2009) - Civil Rights Act of 1964, Title VII - Bennett Amendment (1964) Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved Laws Pertinent to Compensation Practice (2 of 2) - Age Discrimination in Employment Act of 1967 (amended in 1978, 1986, and 1990) - Civil Rights Act of 1991

On what theory is seniority pay based?

human capital theory

capital intensity

refers to the extent to which companies' operations are based on the use of large-scale equipment. on average, capital-intensive industries (e.g., manufacturing) pay more than industries that are less capital intensive

capital

refers to the factors that enable companies to generate income, higher company stock prices, economic value, strong positive brand identity, and reputation

just-meaningful pay increase

refers to the minimum pay increase that employees will see as making a substantial change in compensation

competitive business strategy

refers to the planned use of company resources—financial capital, equipment capital, and human capital—to promote and sustain competitive advantage. The time horizon for strategic decisions may span multiple years

Similar-to-me effect

refers to the tendency on the part of raters (e.g., supervisors) to judge employees favorably who they perceive as similar to themselves

spot bonuses

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

bennet amendment

allows employees to charge employers with Title VII violations regarding pay only when the employer has violated the Equal Pay Act of 1963

design thinking

approaching management problems as designers approach design problems

general schedule (GS)

classifies federal government jobs into 15 classifications (GS-1 through GS-15), based on such factors as skill, education, and experience levels. In addition, jobs that require high levels of specialized education (e.g., a physicist), significantly influence public policy (e.g., law judges), or require executive decision making are classified in three additional categories: Senior Level (SL), Scientific & Professional (SP) positions, and the Senior Executive Service (SES) (1 lowest-level jobs, 15 high) Divided into 15 classifications Classifications based on skills, education, and experience levels Employees eligible for 10 within-grade pay increases (WGI) Waiting period within steps varies between 1 and 3 years, taking 18 years to progress from step 1 to step 10 Steps 1-3: 1 year Steps 4-6: 2 years Steps 7-9: 3 years

annual salary

employees earn salaries for performing their jobs, regardless of the actual number of hours worked. Companies generally measure salary on an annual basis

merit pay factors

employees have control over their performance and when conditions outside employees' control do not substantially affect their performance Compensation professionals should consider two factors—commitment from top management and the design of jobs—before endorsing the use of merit pay systems. there must be explicit performance standards that specify the procedures or outcomes against which employees' job performance can be clearly evaluated Effective performance appraisals drive effective merit pay programs

pay grades

group jobs for pay policy application. Human resource professionals typically group jobs into pay grades based on similar compensable factors and value based on compensable factors

bias errors

happen in the performance evaluation process when the rater evaluates the employee based on the rater's negative or positive opinion of the employee rather than on the employee's actual performance

unions

rely on compensation professionals to: - Abide by their collective bargaining agreements - Ensure they get their COLA adjustments and seniority pay

employees

rely on compensation professionals to: - Develop and implement systematic training programs - Inform them of training and pay links - Offer discretionary benefits that provide: ▪ Income protection ▪ Paid time off ▪ Services

executives

rely on compensation professionals to: - Develop and manage sound compensation systems - Insure the company's practices are: ▪ Legally consistent ▪ Sufficiently attractive to recruit and retain ▪ Cost effective

line managers

rely on compensation professionals to: - Ensure knowledge of relevant laws to help them make sound compensation judgments - Advise for establishing pay differentials - Train them how to properly evaluate jobs

incentive vs traditional pay

Traditional pay generally includes an annual salary or hourly wage - Increased periodically on a seniority or merit basis with permanent increase to base pay Incentive pay generally - Increases base pay on goal attainment with pay increase nonrecurring - Companies use incentive pay to reward individual employees, teams of employees, or whole companies based on their performance

What industries pay the highest and lowest wages?

Utilities and mining pays highest Leisure and hospitality and retail trade pays lowest

leveraging human capital

Well-designed merit pay and incentive programs, which reinforce excellent job performance Incentive programs which reduce employee entitlement

graduated first-dollar-of-profits

a company may choose to share 3 percent of the first $8 million of profits and 6 percent of the profits more than that level. Graduated formulas motivate employees to strive for extraordinary profit targets by sharing even more of the incremental gain

Person-focused pay or competency-based pay

a system of rewards for employees for specifically learning new curricula

human capital

as defined by economists, refers to sets of collective knowledge, skills, and abilities (KSAs) that employees can apply to create value for their employers

portal-to-portal act (1947)

defines the term hours worked that appears in the FLSA

paid time-off

discretionary benefit. provides employees with pay for time when they are not working

Differentiation strategy

focus on offering unique goods or services to the public Effective when jobs: - Require highly creative behaviors - Have a long-term focus - Involve risk-taking

differentiation

focus on product or service development that is unique from those of its competitors. Differentiation can take many forms, including design or brand image, technology, features, customer service, and price

cost of living

geographic locations influence pay

job analysis

is a systematic process for gathering, documenting, and analyzing information in order to describe jobs

KSAs

knowledge, skills, and abilities

contrast errors

occur when a rater (e.g., a supervisor) compares an employee to other employees rather than to specific explicit performance standards other employees are required to perform only at minimum acceptable standards. Employees performing at minimally acceptable levels should receive satisfactory ratings, even if every other employee doing the job is performing at outstanding or above-average levels What if the best employee is average?

errors of central tendency

occur when raters (e.g., supervisors) judge all employees as average or close to average Usually occurs when only extreme behaviors require documentation

strictness error

occur when raters (e.g., supervisors) judge employee performance to be less than what it is when compared against objective criteria If supervisors make this error over time, employees may receive smaller pay raises than deserved, lower their effort, and perform poorly

halo effect

occurs when a rater (e.g., a supervisor) generalizes employees' behavior on one aspect of the job to all aspects of the job

leniency error

occurs when raters (e.g., supervisors) appraise an employee's performance more highly than it really rates, compared with objective criteria

relative pay differentials

often expressed as the percentage difference between a specific location and the national average The relative pay differential for Los Angeles is 20% higher than the national average The relative pay differential for Lincoln, Nebraska is 3 percent less than the national average

National Labor Relations Board (NLRB)

oversees the enforcement of the NLRA. The president of the United States appoints members to the NLRB for five-year terms

geographic pay differentials

pay rate differentials cost of living relative pay differentials

compensation managers

plan, direct, and coordinate how much an organization pays its employees and how employees are paid

benefits managers

plan, direct, and coordinate retirement plans, health insurance, and other benefits that an organization offers its employees

current profit sharing

plans award cash to employees, typically on a quarterly or annual basis

industry profitability

presumably, employee higher levels of knowledge, skills and abilities contribute to company profitability, which, in turn, is associated with higher wages

right to work laws

prohibit management and unions from entering into agreements requiring union membership as a condition of employment

pension programs

provide income to individuals throughout their retirement

human resource specialists

recruit, screen, interview, and place workers. They often handle other human resources work, such as those related to employee relations, payroll and benefits, and training. Labor relations specialists interpret and administer labor contracts regarding issues such as wages and salaries, employee welfare, healthcare, pensions, and union and management practices

job control unionism

refers to a union's success in negotiating formal contracts with employees and establishing quasi-judicial grievance procedures to adjudicate disputes between union members and employers

incentive effect

refers to a worker's willingness to work diligently to produce more quality output than simply attending work without putting in the effort incentives often are associated with higher employee performance

exempt

refers to an employee's status regarding the overtime pay provision of the Fair Labor Standards Act of 1938 (FLSA). Administrative, professional, and executive employees are generally exempt from the FLSA overtime and minimum wage provisions

piecework plans

reward workers for every item produced over a designated production standard • Awards based on individual production versus objective standards • Awards based on individual performance standards using objective and subjective criteria • Quantity and/or quality goals receive a guaranteed hourly pay rate regardless of whether they meet the designated production standard Companies use piecework plans when the time to produce a unit is relatively short, usually less than 15 minutes, and the cycle repeats continuously. Piecework plans are usually found in such manufacturing industries as textiles and apparel second type of piecework incentive plan establishes individual performance standards that include both objective and subjective criteria. Units produced represent an objective standard. Overall work quality is a subjective criterion that is based on supervisors' interpretations and judgments

pay for knowledge

rewarding managerial, service, or professional workers for successfully learning specific curricula (white-collar)

team-based pay plans

should accordingly emphasize cooperation between and within teams, compensate employees for additional responsibilities they often must assume in their roles as members of a team, and encourage team members to attain predetermined objectives for the team traditional pay programs will undermine the ability of teams to function effectively Both merit and seniority-based pay emphasize hierarchy among employees, which is incompatible with the very concept of a team encourage team members to learn new skills and assume broader responsibility than is expected of them under traditional pay structures that are geared toward individuals. Rather than following specific orders from a supervisor, employees who work in teams must initiate plans for achieving their team's production A pay plan for teams usually emphasizes cooperation and rewards its members for the additional responsibilities they must take on, as well as the skills and knowledge they must acquire

human resource strategy

specify the use of multiple HR practices to reinforce competitive business strategy. These statements are consistent with a company's competitive strategy

pay steps

stair-step model. steps represent jobs from a particular job family that differ in terms of complexity. Skills at higher levels build upon previous lower-level skills

human capital theory

states that employees' knowledge and skills generate productive capital known as human capital employees become more valuable over time

staff employees

support the functions performed by line employees. Human resources and accounting are examples of staff functions

group incentive plans

these plans promote supportive, collaborative behavior among employees. Group incentives work well in manufacturing and service delivery environments that rely on interdependent teams. In gainsharing programs, group improvements in productivity, cost savings, or product quality are shared by employees within the group Reward employees for their collective performance • Two types: - Team based or small group - Gain sharing Customer satisfaction Labor cost savings (through gain sharing plans) Materials cost savings Services cost savings (e.g., utilities) change to teams in US: in the 1980s, many more Japanese companies were conducting business in the United States, particularly in the automobile industry. A common feature of Japanese companies was the use of teams, which contributed to superior product quality. are most effective when all group members have some impact on achieving the goal, even though individual contributions might not be equal

longevity vs seniority vs merit

time with company vs individual age vs job performance

Check-ins

• Performance against goals - progress • What to change in the future / opportunities to improve • Resources needed to succeed • Impact on colleagues, the team, the business, the customers

Effective Performance Management

Clearly state Performance Management is about improving performance Few, big, mission-aligned goals Face-to-face mandatory training and practice for managers & employees on goal setting and coaching for performance Accountability for PM outcomes, not processes - for goal setting, coaching & reviews - and good things result from positive outcomes

advantages of group incentives

Companies can more easily develop performance measures for group incentive plans than for individual incentive plans. Thus, companies generally use fewer resources (e.g., staff time) to develop performance measures Greater group cohesion - Cohesive groups usually work more effectively toward achieving common goals than do individual group members focusing on the specific tasks for which they are responsible. Working collaboratively is undoubtedly in group members' best interests to maximize their incentive awards Well-designed group incentive plans ultimately reinforce teamwork, cultivate loyalty to the company, and increase productivity team-based job design promotes innovation in the workplace

companywide incentive plans

Companies instituted profit sharing programs to ease workers' dissatisfaction with low pay and to change their beliefs that company management paid workers substandard wages while earning substantial profits. Quite simply, management believed that workers would be less likely to challenge managerial practices if they received a share of company profits These plans tie employee compensation to a company's performance over a short time frame, usually from a one-month period to a five-year period Rewards employees when company exceeds minimum acceptable performance standards • Two types - Profit sharing plans - Employee stock options Advocates of company-wide incentive plans believe that well-designed programs make workers' and owners' goals more compatible as workers strive toward increasing company profits or value Operational Measures: Customer satisfaction Operational efficiency Service/quality Safety/occupational injury Financial Measures: Revenue Earnings per company stock share Operating income revenue growth

market competitiveness

Compensation policies that fit with business objectives Vital in attracting and retaining employees Based on: - Compensation surveys - Strategic analyses

Three questions to answer yes to provide a strategic contribution

Does compensation strategy fit well with the objectives of competitive business and HR strategies? Does the choice and design of compensation practices fit well to support compensation strategy? Does the implementation of compensation practices effectively direct employee behavior to enhance job performance that supports the choice of compensation practices?

Why might satisfying various stakeholders be a challenge for HR departments?

Each constituency [stakeholder] has its own set of expectations regarding the personnel department's activities; each holds its own standards for effective performance; each applies its own standards for assessing the extent to which the department's activities meets its expectations; and each attempts to prescribe preferred goals for the subunit or presents constraints to its sphere of discretion. Multiple stakeholders often compete directly or indirectly for the attention and priority of the personnel department

sources of performance appraisals

Employee (i.e., the individual whose job performance is being appraised) Employee's supervisor Employee's coworkers Employee's supervisees Employee's customers or clients

rewards allocation methods

Equal incentive payments to all team members: reinforces cooperation among team members except when team members perceive differences in members' contributions or performance Differential incentive payments to team members based on their contribution to the team's performance: distributes rewards based to some extent on individual performance. Differential approaches obviously can hinder cooperative behavior. Some employees may focus on their own performance rather than on the group's performance because they wish to maximize their income. As a compromise, companies may base part of the incentive on individual performance, with the remainder based on the team's performance Differential payments determined by a ratio of each team member's base pay to the total base pay of the group: rewards each group member in proportion to her or his base pay. This approach assumes that employees with higher base pay contribute more to the company and so should be rewarded in accord with that worth

human resources

HR is now all about developing people strategies closely aligned to the organization's mission and goals

What determines if an employee will receive a merit increase?

Managers rely on objective as well as subjective performance indicators to determine whether an employee will receive a merit increase and the amount of increase warranted. As a rule, supervisors give merit increases to employees based on subjective appraisal of employees' performance

daniel pink

Most of us believe that the best way to motivate ourselves and others is with external rewards like money—the carrot-and-stick approach. The secret to high performance and satisfaction—at work, at school, and at home—is the deeply human need to direct our own lives, to learn and create new things, and to do better by ourselves and our world. pink believes employees need more autonomy three elements of true motivation—autonomy, mastery, and purpose

objective performance measures

Number of units produced—an automobile parts production worker's completion of a turn signal lighting assembly Sales amount—a CA Technologies sales professional's monthly sales revenue Reduction in error rate—a warehouse worker's reduction in product damage

how does capital intensity influence wages? what are they if it is more capital intensive?

On average, capital-intensive industries (e.g., manufacturing) pay more than industries that are less capital intensive (e.g., retail)

What do companies expect employees to do after they've been in a job for a few years?

Over time, employees will reach the maximum pay rate for their jobs. Companies expect that most employees will earn promotions into higher-paying jobs that have seniority pay schedules

Lilly Ledbetter Fair Pay Act

Overturned the 2007 Ledbetter Supreme Court ruling Helps close the pay gap between men and women Pay discrimination charge must simply be filed within 180 days of a discriminatory paycheck

Legal Pay Differentials

Payments made pursuant to a: Seniority system Merit system Earnings measured by quantity or quality of production Differentials not based on gender

seniority pay disadvantages

Poor fit with most competitive strategies No incentives to improve Growing costs

disadvantages of profit sharing plans

Profit sharing plans may undermine the economic security of employees, particularly if profit sharing represents a sizable portion of direct compensation. Because company profits vary from year to year, so do employees' earnings. Thus, employees will find it difficult to predict their earnings, which will affect their saving and buying behavior. If there is significant variability in earnings, a company's excellent performers are likely to leave for employment with competitors. The turnover of excellent performers certainly represents a significant disadvantage to companies Profit sharing plans may fail to motivate employees because they do not see a direct link between their efforts and corporate profits. Hourly employees may have trouble seeing this connection because their efforts appear to be several steps removed from the company's performance. For instance, an assembly line worker who installs interior trim (e.g., carpeting and seats) in automobiles may not find any connection between his or her efforts and the level of company profits because interior trim represents just one of many steps in the production of automobiles

HR practices

Recruitment Selection Performance appraisal Training Career development Labor-management relations Employment termination Managing HR within the context of legislation

Pregnancy Discrimination Act (1978)

Amendment to Title VII • Prohibits disparate impact of pregnancy • Pregnancy treated like disability • The protected rights include - Credit for previous service - Accrued retirement benefits - Accumulated seniority

How does compensation fit with Recruitment/selection?

An agency may pay a recruitment incentive to a newly appointed career executive if the agency has determined that the position is likely to be difficult to fill in the absence of an incentive. A recruitment incentive may not exceed 25 percent of the executive's annual rate of basic pay in effect at the beginning of the service period multiplied by the number of years (including fractions of a year) in the service period (not to exceed 4 years). Relocation as well

accommodating disabilities and family needs

- Pregnancy Discrimination Act of 1978 - Americans with Disabilities Act of 1990 (amended in 2008) - Family and Medical Leave Act of 1993

bona fide

- it was adopted without discriminatory intent, - is an established system based on predetermined criteria for measuring seniority, merit, or productivity, - has been communicated to employees, and - has been consistently applied to all employees, regardless of gender, race, religion, etc.

ADA Amendments Act of 2008

-Expands the definition of major life activities -Mitigating measures other than "ordinary eyeglasses or contact lenses" shall not be considered in assessing whether an individual has a disability -Clarifies that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active

gainsharing

A group of employees, generally a department or work unit, is rewarded for productivity gains Incentives based on company performance in - Increased productivity - Increased customer satisfaction - Lower costs - Better safety records developed so that all employees could benefit financially from productivity improvements resulting from the suggestion system reflects a management philosophy that emphasizes employee involvement. The use of gainsharing is most appropriate where workplace technology does not constrain productivity improvements Most gain sharing programs have three components 1. Leadership philosophy - refers to a cooperative organizational climate that promotes high levels of trust, open communication, and participation 2. Employee involvement systems - drives organizational productivity improvements. Employee involvement systems use broadly based suggestion systems. Anyone can make suggestions to a committee made up of both hourly and management employees who oversee the suggestion implementation. This involvement system also may include other innovative employee involvement practices (e.g., problem-solving task forces) 3. Bonuses - A company awards gainsharing bonuses when its actual productivity exceeds its targeted productivity level. The gainsharing bonuses are usually based on a formula that measures productivity that employees perceive as fair and the employer believes will result in improvements in company performance. Employees typically receive gainsharing bonuses monthly. Most bonuses range between 5 and 10 percent of an employee's base annual pay. A noteworthy exception to this norm is Ameristeel. On average, Ameristeel's gainsharing plan pays out between 35 and 45 percent of base pay gainsharing programs' success has been attributed to company cultures that support cooperation among employees Such organizational, external environmental and financial information factors, including poor communications within and across departments, highly competitive product markets, and variable corporate profits over time can inhibit effective gainsharing programs poor communication - stifle the creativity needed to improve the efficiency of work processes when employees focus exclusively on their own work highly competitive product markets - often require companies to make frequent changes to their production methods, as in the automobile industry, where such changes occur each year with the introduction of new models. When companies make frequent or sudden changes, employees must have time to learn the new processes well before they can offer productive suggestions variable profits - Companies that experience variable profits from year to year most likely do not use gainsharing because management sets aside as much excess cash as possible in reserve for periods when profits are down and excess cash is scarce Three common forms: - Scanlon plan - Rucker plan - Improshare

How does compensation fit with Performance Appraisal?

Accurate performance appraisals are integral to effective merit pay programs. For merit pay programs to succeed, employees must know that their efforts toward meeting production quotas or quality standards will lead to pay raises. Job requirements must be realistic, and employees must be prepared to meet job goals with respect to their skills and abilities. Moreover, employees must perceive a strong relationship between attaining performance standards and receiving pay increases. Merit pay systems require specific performance appraisal approaches. Administering successful merit pay programs depends as much on sound performance appraisal practices as it does on the compensation professional's skill in designing and implementing such plans.

internal consistency

Achieved when the value of each job is clearly defined Represents: - Job structure - Hierarchy Achieved using: - Job analysis - Job evaluation

compensation system design

Compensation professionals promote effective compensation systems by meeting three important goals: - Internal consistency - Market competitiveness - Recognition of employee contributions 1. job analysis: identifies job tasks and qualifications- KSA 2. job documentation: creates job descriptions/specifications 3. job evaluation: establishes the value of a job 4. pay structure: establishes pay grade/ranges

Name and describe the two processes to achieve internal consistency

Compensation professionals use job analysis and job evaluation to achieve internal consistency Achieved when the value of each job is clearly defined

four activities to promote nondiscriminatory performance appraisal practices

Conduct job analyses to ascertain characteristics necessary for successful job performance Incorporate these characteristics into a rating instrument Train supervisors to use the rating instrument properly Several cases demonstrate that formal appeal mechanisms and review of ratings by upper-level personnel help make performance appraisal processes more accurate and effective

advantages of seniority pay to the employee

Employees are likely to perceive they are treated fairly because they earn pay increases according to seniority, which is an objective standard Seniority stands in contrast to subjective standards based on supervisory judgment The inherent objectivity of seniority pay systems should lead to greater cooperation among coworkers

profit sharing

Employees earn a financial reward when their company's profit objective is met pay a portion of company profits to employees, separate from base pay, cost-of-living adjustments, or permanent merit pay increases Current profit-sharing plans - Award cash to employees typically on a quarterly or annual basis Deferred profit-sharing plans - Place cash awards in trust accounts for employees Fixed first-dollar-of profits formula - Ex: 7% of corporate profits Graduated first-dollar-of profits formula - Ex: 3% of the first $8 million of profits and 6% of the profits in excess of that level Profitability threshold formula 22 percent of companies overall offer current profit sharing plans

seniority pay advantages

Employees perceive that they are treated fairly Facilitates administration of pay Avoids perception of favoritism

advantages of profit sharing plans

Enable employees to share in companies' profits. As employees benefit from profit sharing plans, they will be more likely to work productively to promote profits. The upshot of enhanced employee productivity obviously is greater profits for companies that use profit sharing plans Allow companies greater financial flexibility. Companies that use profit sharing programs gain greater financial flexibility. monetary payouts to employees vary with profit levels. During economic downturns, payout levels are significantly lower than they are during economic boom periods. This feature of profit sharing plans enables companies to use limited cash reserves where needed (e.g., for R&D activities)

expectancy

Expectancy is the belief that one's effort (E) will result in attainment of desired performance (P) goals. Usually based on an individual's past experience, self-confidence (self efficacy), and the perceived difficulty of the performance standard or goal.[5] Self efficacy - the person's belief about their ability to successfully perform a particular behavior. The individual will assess whether they have the required skills or knowledge desired to achieve their goals. Goal difficulty - when goals are set too high or performance expectations that are made too difficult. This will most likely lead to low expectancy. This occurs when the individual believes that their desired results are unattainable. Perceived control - Individuals must believe that they have some degree of control over the expected outcome. When individuals perceive that the outcome is beyond their ability to influence, expectancy, and thus motivation, is low.

limitations of merit pay programs

Failure to differentiate among performers Poor performance measures Supervisor biases Lack of open Communication between Management and Employees Mounting costs Using non merit factors Undesirable competition Little motivational value Undesirable social structures

group vs individual incentives

Group incentive programs are most suitable where the nature of the work is interdependent and the contributions of individual employees are difficult to measure. In such situations, companies require cooperative behavior among their employees individual incentive plans reward employees for meeting or surpassing such predetermined individual goals as production or sales quotas. The attainment of individual goals should be well within employees' grasp as is the case for group incentives. Moreover, goals for individual incentive programs should be based on independent work rather than interdependent work

How did government legislation about wage levels influence discretionary benefits?

In the 1940s and 1950s the federal government placed restrictions on increasing wage levels. companies used benefits to increase total compensation

advantages of individual incentives

Helps relate pay to performance - employees in the United States are highly motivated by earning money. Employees strive for excellence when they expect to earn incentive awards commensurate with their job performance Promotes equitable distribution of compensation - The better employees perform, the more they earn. Equitable pay ultimately enables companies to retain the best performers. Paying better performers more money sends a signal that the company appropriately values positive job performance Instills an ownership mentality - well-designed incentive plans can instill an ownership mentality for employees who participate. An innovative approach entails educating employees about the costs of doing business (e.g., costs of liability insurance) relative to sales revenue. Leaving employees out of this loop typically leads most to expect generous merit pay raises. A company's willingness to provide generous performance incentives for having employees take ownership over reducing costs and boosting revenues translates this idea into measurable actions and outcomes Compatible with America's individualistic culture - Because U.S. employees are socialized to make individual contributions and be recognized for them, the national culture of the United States probably enhances the motivational value of individual incentive programs

what three assumptions is incentive pay based on?

Individual employees and work teams differ in how much they contribute to the company, in what they do as well as in 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 based on their relative performance

management vs piecework incentive plans

Management incentive plans differ from piecework plans in that piecework plans base rewards on the attainment of one specific objective, and management incentive plans often require multiple complex objectives

Market competitiveness in compensation: •How is it achieved? •Why does it matter?

Market-competitive pay systems play a significant role in attracting and retaining the most qualified employees. Compensation professionals build market-competitive compensation systems based on the results of compensation surveys. Compensation surveys traditionally focused on competitors' wage and salary practices. Now, employee benefits are also a target of surveys because benefits are a key element of market-competitive pay systems. Compensation surveys are important because they enable compensation professionals to obtain realistic views of competitors' pay practices. In the absence of compensation survey data, compensation professionals would have to use guesswork to build market-competitive compensation systems.

disadvantages of group incentives

May lead to higher employee turnover because of the free-rider effect Members may feel uncomfortable with the fact that other members' performance influences their compensation level

disadvantages of individual incentives

May promote inflexibility - Because supervisors determine employee performance levels, workers under individual incentive plans become dependent on supervisors for setting work goals. If employees become highly proficient performers, they are not likely to increase their performance beyond their reward compensation Measurement problems - upervisors must develop and maintain comprehensive performance measures to properly grant incentive awards. Individual incentive programs pose measurement problems when management implements improved work methods or equipment. When such changes occur, it will take some time for employees to become proficient performers. Thus, it will be difficult for companies to determine equitable incentive awards, which may lead to employees' resistance to the new methods May promote undesirable behaviors - may encourage undesirable workplace behavior when these plans reward only one or a subset of dimensions that constitute employees' total job performance. Let's assume that an incentive plan rewards employees for quantity of output. If employees' jobs address such various dimensions as quantity of output, quality, and customer satisfaction, employees may focus on the one dimension—in this case, quantity of output—that leads to incentive pay and thereby neglect of the other dimensions

What seems to be the attitude of U.S. companies toward merit pay?

Merit pay is one of the most commonly used compensation methods in the United States 2017 a survey of WorldatWork members revealed that 65 percent of companies indicated that they use a rating system with a performance score that is tied to pay increases rates were 72 percent and 65 percent in 2014 and 2010, respectively Merit pay programs occur most often in the private for-profit sector of the economy rather than in such public sector organizations as local and state governments

What is the common potential problem with merit pay for -Sales professionals? -Production workers?

Merit programs are most appropriate when employees have control over their performance and when conditions outside employees' control do not substantially affect their performance. Conditions beyond employees' control that are likely to limit job performance vary by the type of job For sales professionals, recessionary economic spells generally lead consumers to limit spending on new purchases because they anticipate the possibility of layoffs. Sales professionals certainly do not create recessionary periods nor can they allay consumers' fears about the future For production workers, regular equipment breakdowns will lead to lower output

civil rights act (1964)

Promotes equal employment opportunities for underrepresented minorities • Defined two types of discrimination - Disparate treatment → intentional discrimination - Disparate impact → unintentional discrimination apply to all employment-related decisions (e.g., recruitment, selection, performance appraisal, compensation, and termination)

Reasonable Accommodation

Reasonable accommodation for disabled employees may include such efforts as making existing facilities readily accessible, restructuring the job, and modifying work schedules. Every "qualified individual with a disability" is entitled to reasonable accommodation. A qualified individual with a disability, however, must be able to perform the "essential functions" of the job in question

Civil Rights Act of 1991

Shifts burden of proof of disparate impact to employers Filing of discrimination claims changed U.S. citizens working overseas may file suit against U.S. businesses for discriminatory employment practices Extends coverage to U.S. Senate employees and executive branch political appointees

What kind of challenges will Sportsman face specifically in the area of compensation?

Sportsman would face challenges both in terms of the current employees as well in case of the new employees in order to bring the transition into the business by shifting its focus to the niche market segment offering customized shoe products to its consumers. Accordingly, in case of the old employees, the issue would pertain to keep a consistency in their pay packages. There would be a significant rise in the overall cost of retaining or hiring of new employees in order to focus upon the changed module of the business. Hence the challenge would be to evaluate whether it would continue offering the same pay packages to the old employees or if they should lower the same due to increase in overall labor costs. Moreover, even in the field of selecting new specialized employees, it shall be a challenge to offer them the similar compensation packages as it used to, for the previous employees. The compensation package challenge is rather an important one as it gives a roadmap as whether the employees will continue to be with the Organization or leave the same. The challenge would be to offer efficient pay packages that would regard the needs of both, the old as well as the new specialized employees, keeping in pace with the overall increase in the administrative cost of the Organization.

paycheck fairness act

Strengthens the remedies available to put sex-based pay discrimination on par with race-based pay discrimination Prohibits employers from retaliating against employees who share salary information with their coworkers

How does compensation fit with Training/development?

Successful pay-for-knowledge plans depend on a company's ability to develop and implement systematic training programs. When training is well designed, employees should be able to learn the skills needed to increase their pay, as well as the skills necessary to teach and coach other employees at lower skill levels. Companies implementing pay-for-knowledge plans typically increase the amount of classroom and on-the-job training. Pay-for-knowledge systems make training necessary rather than optional. Companies that adopt pay-for-knowledge systems must accordingly ensure that all employees have equal access to the training needed to acquire higher-level skills.

FLSA exemption criteria

Test 1: Salary Level The employee must be paid at least $455 per week or $910 biweekly or $1,971.66 monthly or $23,660 annually Test 2: Salary Basis Employee must receive a predetermined, fixed salary that is not subject to reduction due to variations in quality or quantity of work performed Test 3: Job Duties Employee must meet all the criteria specified in one or more of the following exemptions: Executive - Management of the enterprise or a recognized department or subdivision Administrative - Performing office or nonmanual work directly related to the management or general business operations of the employer or employer's customers Learned professional - Performing office or nonmanual work requiring knowledge of an advanced type in a field of science or learning, customarily acquired by a prolonged course of specialized intellectual instruction Creative professional - Performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor Computer - Employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field

child labor provisions

The FLSA child labor provisions protect children from being overworked, working in potentially hazardous settings, and having their education jeopardized due to excessive work hours. The restrictions vary by age: Ages 14 and younger can't work Ages 14 and 15 can work - 3 hours on school nights - 18 hours per week when school is in - 40 hours per week when school is out Ages 16 and 17 - No hourly restrictions - Can't work in hazardous conditions

overtime provisions

The FLSA requires employers to pay workers at a rate at least equal to time and one-half for all hours worked more than 40 hours within a period of 7 consecutive days

level of risk

The level of risk clearly increases as incentive pay represents a greater proportion of total core compensation. The level of risk tends to be greater among higher-level employees than among those who are at the lower levels of a company's job structure Apart from an employee's rank, the level of risk chosen should depend on the extent to which employees control the attainment of the desired goal. The adoption of incentive pay programs makes the most sense when participants have a reasonable degree of control over the attainment of the plan's goals. Incentive programs logically are bound to fail when the goals are simply out of reach because they are too difficult or because extraneous factors are hampering employees' efforts to meet goals

Building Blocks and Structure of Strategic Compensation Systems

The main building blocks are extrinsic compensation and intrinsic compensation Our focus is on extrinsic compensation: - Core compensation - Adjustments to core compensation - Legally required employee benefits - Discretionary employee benefits

team-based incentives

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

individual incentive plans

These plans reward employees whose work is performed independently. Some companies have piecework plans, typically for their production employees. Under piecework plans, an employee's compensation depends on the number of units she or he produces over a given period employees' performance can be measured objectively individual incentive plans are appropriate when employees have sufficient control over work outcomes individual incentive plans are appropriate when they do not create a level of unhealthy competition among workers that ultimately leads to poor quality A company ultimately should employ the standards that represent work that an employee performs Quantity of work output Quality of work output Monthly sales Work safety record Work attendance When designed and implemented well, individual incentive plans reward employees based on results for which they are directly responsible. The result should be that excellent performers receive higher incentive awards than poor performers

how are competitive business strategy, human resource strategy and strategic compensation related?

They collectively lead to general and specific tactical HR decisions

Following Sportsman's shift in competitive strategy, what are some considerations for the company's HRM practices?

This is the good decision taken by Sportsman executive to shift its strategy from cost leadership to differentiation of the product as according to the requirement of the market. No doubt, if a company is going to adapt a new change, it requires a lot of considerations in all the departments. Like this, Human resource department also required to take some considerations for adapting the new policy of the company. The first issue will be planning. In which department, there is need of the people and how many are required? What should be the experience and qualificationof the people? Another issue will be recruitment. Sportsman Shoe has conducted the extensive market research to come to know the reasons of its struggle and making less profits, it was clear that now the people required more designer shoes with unique characteristics that can full fill their specific sports requirement. So for designing and understanding the needs of the athletics, it is necessary to recruit more people in product designing and marketing. Operations also required new and trained people to execute the operations as per the demand. So the problem will start to find new and experienced people to meet the need of the organisation. Another issue will be compensation. What compensation package a company should fix to attract the new, experienced and qualified person without losing the existing staff?Besides that, companys HR needs to make policies not only for hiring but for their retaining also. Retention of an employee depend on various parameters of the company like environment, culture, job satisfaction, salary and other perks etc. so it is important there should be fun activities at workplace. Human Resource Department needs to work out on how to engage the employees at work place. It is very important issue for the Human Resource Department. Another issue can be related to upgrading the skills of the existing and new employees in order to achieve the companys objective. So it can be possible by proper training and development. It is very important to meet the demand of the customers in proactive way and utilization of the employees in most efficient and effective manner.

compensable work activities

Waiting Time - employee was engaged to wait (fireman playing checkers between calls) On-call Time - An employee who is required to remain on call on the employer's premises is working while "on call" Rest and Meal Periods - Rest periods of short duration, usually 20 minutes or less, are common in industry (and promote the efficiency of the employee) and are customarily paid for as working time. These short periods must be counted as hours worked Sleeping Time and Certain Other Activities - An employee who is required to be on duty for less than 24 hours is working even though he or she is permitted to sleep or engage in other personal activities when not busy. An employee required to be on duty for 24 hours or more may agree with the employer to exclude from hours worked bona fide regularly scheduled sleeping periods of not more than 8 hours, provided adequate sleeping facilities are furnished by the employer and the employee can usually enjoy an uninterrupted night's sleep. No reduction is permitted unless at least five hours of sleep is taken Lectures, Meetings, and Training Programs - Attendance at lectures, meetings, training programs, and similar activities need not be counted as working time only if four criteria are met, namely: It is outside normal hours, voluntary, not job related, and no other work is concurrently performed. In other words, the time spent in employer-mandated training counts as compensable time Travel Time - The principles that apply in determining whether time spent in travel is compensable time depends upon the kind of travel involved Home to work travel - An employee who travels from home before the regular workday and returns to his or her home at the end of the workday is engaged in ordinary home-to-work travel, which is not work time Home to work on special one day assignment - An employee who regularly works at a fixed location in one city is given a special one-day assignment, including employer-mandated training, in another city and returns home the same day. The time spent in traveling to and returning from the other city is work time, except that the employer may deduct/not count that time the employee would normally spend commuting to the regular work site Travel that is all in a day's work - Time spent by an employee in travel as part of his or her principal activity, such as travel from job site to job site during the workday, is work time and must be counted as hours worked Travel away from home community - Travel that keeps an employee away from home overnight is travel away from home. Travel away from home is clearly work time when it cuts across the employee's workday. The time is not only hours worked on regular working days during normal working hours but also during corresponding hours on nonworking days. As an enforcement policy, the U.S. Department of Labor will not consider as work time that time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile

Industry's product market

Where there is little competition (e.g., mining, utilities), there is greater flexibility for providing higher wages

incentive pay program design factors

Whether the plan should be based on group or individual employee performance The level of risk employees will be willing to accept in their overall compensation package Whether incentive pay should replace or complement traditional pay The criteria by which performance should be judged The time horizon for goals—long term, short term, or a combination of both

management by objectives (MBO)

a goal-oriented performance-appraisal method, requires that supervisors and employees determine objectives for employees to meet during the rating period, and then employees appraise how well they have achieved their objectives Management by objectives is used mainly for managerial and professional employees and typically evaluates employees' progress toward strategic planning objectives At the end of the rating period, the employee writes a report explaining his or her progress toward accomplishing the objectives, and the employee's supervisor appraises the employee's performance based on accomplishment of the objectives can promote effective communication between employees and their supervisors. On the downside, management by objectives is time-consuming and requires a constant flow of information between employees and employers. Moreover, its focus is only on the attainment of particular goals, often to the exclusion of other important outcomes - Supervisors and employees set objectives - Highly effective technique - Rated on how well objectives are met - Mainly for professionals and managers

occupation

a group of jobs, found at more than one company, in which a common set of tasks are performed or are related in terms of similar objectives, methodologies, materials, products, worker actions, or worker characteristics

performance management

a process of ensuring that set of activities and outputs meets an organization's goals in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, an employee, or the processes in place to manage particular tasks a "strategic and integrated approach to increase the effectiveness of companies by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors." Managers use performance management to align company goals with the goals of teams and employees in an effort to increase efficiency, productivity, and profitability. Performance management guidelines stipulate clearly the activities and outcomes by which employees and teams are evaluated during performance appraisal. Benefits: Direct financial gain Motivated workforce Improved management control

critical incident technique (CIT)

a specific kind of behavioral system, requires job incumbents and their supervisors to identify performance incidents—on-the-job behaviors and behavioral outcomes—that distinguish successful performance from unsuccessful performance. The supervisor then observes the employees and records their performance on these critical job aspects Implementation of the CIT demands continuous and close observation of the employee. Supervisors may find the record keeping to be overly burdensome Employees and supervisors identify and label job behaviors and results • Supervisors observe and record • Requires extensive documentation

trait systems

a type of performance-appraisal method, require raters (e.g., supervisors or customers) to evaluate each employee's traits or characteristics (e.g., quality of work, quantity of work, appearance, dependability, cooperation, initiative, judgment, leadership responsibility, decision-making ability, and creativity) trait systems are highly subjective because they are based on the assumption that every supervisor's perception of a given trait is the same Another drawback is that systems rate individuals on subjective personality factors rather than on objective job performance data. Essentially, trait assessment focuses attention on employees rather than on job performance

comparison systems

a type of performance-appraisal method, require that raters (e.g., supervisors) evaluate a given employee's performance against other employees' performance attainments. Employees are ranked from the best performer to the poorest performer

paired comparison

a variation of simple ranking job evaluation plans, order all jobs from lowest to highest based on comparing the worth of each job in all possible job pairs. Paired comparisons also refers to a specific kind of comparison method for appraising job performance. Supervisors compare each employee to every other employee, identifying the better performer in each pair Comparative methods are best suited for small groups of employees who perform the same or similar jobs They tend to encourage subjective judgments, which increase the chance for rater errors and biases. In addition, small differences in performance between employees may become exaggerated by using such a method if supervisors feel compelled to distinguish among levels of employee performance

sorting effect

addresses an employee's choice to stay versus leave his or her employer for another job, presumably one without an incentive pay contingency a hardworking, highly skilled employee is likely to choose to remain employed under an incentive system because both diligence and skill presumably contribute to higher quantity and quality of output—thus, higher pay

FLSA (Fair Labor Standards Act)

addresses major abuses that intensified during the Great Depression and the transition from agricultural to industrial enterprises. These include substandard pay, excessive work hours, and the employment of children in oppressive working conditions The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state, and local governments. The U.S. Department of Labor enforces the FLSA

Behaviorally anchored rating scales (BARS)

are a specific kind of behavioral system based on the critical incident technique (CIT). These scales are developed in the same fashion with one exception. For the CIT, a critical incident would be written as "the incumbent completed the task in a timely fashion." For the BARS format, this incident would be written as, "The incumbent is expected to complete the task in a timely fashion" Based on 8-10 expected job behaviors • Employees rated on ability to perform each behavior • Ratings highly defensible in court • Encourages all raters to make evaluations in similar ways

behavioral systems

are a type of performance appraisal method that requires raters (e.g., supervisors) to judge the extent to which employees display successful job performance behavior

discretionary benefits

are benefits that employers offer at their own choice. These benefits fall into three broad categories: protection programs, paid time off, and service became more prominent in the 1940s and 1950s due in large part to federal government restrictions placed on increasing wage levels

line employees

are directly involved in producing companies' goods or service delivery. Assembler, production worker, and sales employee are examples of line jobs

referral plans

are individual incentive pay plans that reward employees for referring new customers or recruiting successful job applicants employees receive bonuses for recruitment of highly qualified employees rely on the idea that current employees' familiarity with company culture should enable them to identify viable candidates for job openings more efficiently than employment agencies could because agents are probably less familiar with client companies' cultures. Employees are likely to make only those referrals they truly believe are worthwhile because their personal reputations are at stake the use of referral bonuses is widespread in companies overall (74 percent)

compensable factors

are job attributes that compensation professionals use to determine the value of jobs Skill - Experience, training, education, and ability as measured by the performance requirements of a job Effort - The amount of mental or physical effort expended in the performance of a job Responsibility - The degree of accountability required in the performance of a job Working conditions - The physical surrounding and hazards of a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation

signing bonuses

are monetary awards given to promote recruitment and job offer acceptance. These bonuses are particularly effective when coupled with a competitive wage or salary offer

merit pay

are programs that assume that employees' compensation over time should be determined, at least in part, by differences in job performance as judged by supervisors or managers rewards excellent effort or results, motivates future performance, and helps employers retain valued employees reward employees with permanent increases to base pay according to differences in job performance occur most often in the private for-profit sector of the economy rather than in such public sector organizations as local and state governments Award permanent pay increases for performance • Reward excellent effort or results • Motivate future performance • Help retain valued employees • In 2017, average merit increase was 3.0% • Highest performers earned 4.5% In 2017, approximately 65% of companies used merit pay plans

legally required benefits

are protection programs that attempt to promote worker safety and health, maintain family income streams, and assist families in crisis. The key legally required benefits are mandated by the following laws: the Social Security Act of 1935, various state workers' compensation laws, the Family and Medical Leave Act of 1993, and the Patient Protection and Affordable Care Act of 2010

what do seniority and longevity pay assume?

assume that employees become more valuable to companies with time and that valued employees will leave if they do not have a clear idea that their salaries will progress over time. This rationale comes from human capital theory, which states that employees' knowledge and skills generate productive capital known as human capital

management incentive plans

award bonuses to managers who meet or exceed objectives based on sales, profit, production, or other measures for their division, department, or unit

internally consistent compensation systems

clearly define the relative value of each job among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy. Companies rely on a simple, yet fundamental, principle for building internally consistent compensation systems: Jobs that require greater qualifications, more responsibilities, and more complex duties should be paid more highly than jobs that require lesser qualifications, fewer responsibilities, and less complex job duties

What effect does unionization tend to have on pay?

companies in highly unionized industries tend to pay higher wages, on average, than do companies in lesser unionized industries. In general, the power of collectively negotiating employment terms, including pay, is greater than the negotiating power of a single individual. Employees' right to strike could cripple not only their employer, but also hurt companies that rely on receiving raw materials or finished goods

How do product markets influence wages?

companies that operate in product markets where there is relatively little competition from other companies tend to pay higher wages because these companies generally exhibit substantial profits

project teams

consist of a group of people assigned to complete a one-time project - Ex: Engineers working on the construction of a bridge Members usually have well-defined roles and may work on specific phases of the project, either full time or in addition to other work responsibilities of the team. Project teams usually work across such functions as engineering, product development, and marketing to ensure that the final product meets company specifications in terms of cost, quality, and responsiveness to market demands

early retirement programs

contain incentives designed to encourage highly paid employees with substantial seniority to retire earlier than they planned. These incentives expedite senior employees' retirement eligibility and increase retirement income. In addition, many companies include continuation of medical benefits

COLAs

cost-of-living adjustments, represent automatic pay increases that are based on changes in prices, as recorded by the consumer price index (CPI). COLAs enable workers to maintain their standards of living by adjusting wages for inflation most common in unions typically 2-3% annually

Equal Pay Act of 1963 (EPA)

courts of law use skill, effort, responsibility, and working condition factors to determine whether jobs are equal Enforced by EEOC • Prohibited sex discrimination • Defined compensable factors • Established legal pay differentials

prevailing wage

defined as the hourly wage, usual benefits and overtime, paid in the largest city in each county, to the majority of workers, laborers, and mechanics. Prevailing wages are established, by the Department of Labor & Industries, for each trade and occupation employed in the performance of public work laws Davis-Bacon Act of 1931 Walsh-Healey Public Contracts Act of 1936

core compensation

describes the monetary rewards employees receive. There are seven types of core compensation: two forms of base pay hourly pay (or wage) and salary, seniority pay, merit pay, incentive pay, cost-of-living adjustments (COLAs), and pay-for-knowledge and skill-based pay

brand loyalty, research & development frequently go hand-in-hand with differentiation

differentiation strategies lead to competitive advantage through building brand loyalty among devoted consumers. Brand-loyal consumers are probably less sensitive to price increases, which enables companies to invest in research and development initiatives to further differentiate themselves from competing companies

protection programs

discretionary benefit. provide family benefits, promote health, and guard against income loss caused by such catastrophic factors as unemployment, disability, or serious illness

services

discretionary benefit. provides such enhancements as tuition reimbursement and day care assistance to employees and their families

How do discretionary benefits differ from legally required benefits?

discretionary benefits are given at the companies discretion, they are not required. legally required benefits are required to be given to employees by law

What stakeholders must a compensation system satisfy?

employees line managers executives unions us government

hourly pay

employees earn hourly pay for each hour worked

How does compensation fit with Engagement?

employees that believe they are being paid their worth are more motivated within the organization. high performers who receive small or no raises will not be engaged. poor performers who receive compensation increases like everyone else will continue to perform poorly

What is the basic assumption of merit pay programs?

employees' compensation over time should be determined, at least in part, by differences in job performance

Equal Employment Opportunity Commission (EEOC)

enforces the Equal Pay Act of 1963. The EEOC possesses the authority to investigate and reconcile charges of illegal discrimination. The Act applies to all employers and labor organizations

Occupational Safety and Health Act of 1970

ensures safe and healthful working conditions for working men and women by authorizing enforcement of the standards under the act

Davis-Bacon Act of 1931

established employment standards for construction contractors holding federal government contracts valued at more than $2,000. Such contractors must pay laborers and mechanics at least the prevailing wage in their local area set minimum wage rates for companies that provide paid services—such as building maintenance—to the U.S. government • Standards for contractors with federal contracts • Applies to on-site laborers and mechanics • Must pay prevailing wages • Must offer comparable benefits

social security act of 1935

established three main types of legally required benefits: unemployment insurance, retirement income and benefits for dependents, and medical insurance (Medicare)

pay rate differentials

expressed in dollars as annual or hourly pay differences for occupations based on particular geographic regions and the nation overall

Lowest cost strategy

focus on being lowest cost producer/seller of goods or services Effective when jobs: - Include predictable behaviors - Have a short-term focus - Require autonomous activity - Focus on quantity of output

cost leadership

focuses on gaining competitive advantage by being the lowest-cost producer of a product or service within the marketplace, while selling the product or service at a price advantage relative to the industry average. Lowest-cost strategies require aggressive construction of efficient-scale facilities and vigorous pursuit of cost minimization in areas such as operations, marketing, and human resources

within-grade increases

follows the general schedule Divided into 15 classifications based on skills, education, and experience levels Employees are eligible for ten within-grade step pay increases, each increase amounts to about 3 percent of the employee's salary. Progression through the steps is based on an assumption that their job performance is acceptable. The increase from step to step equals the within-grade increase (WGI) amount. The waiting periods within steps are: Steps 1-3: 1 year Steps 4-6: 2 years Steps 7-9: 3 years

Federal Constitution

forms the basis for employment laws: - Article 1, Section 8 ▪ Scope of Congressional powers - First Amendment ▪ Limits to Congressional power - Fifth Amendment ▪ Individual Rights - Fourteenth Amendment, Section 1 ▪ State governments' limitations

profitability threshold

fund profit sharing pools only if profits exceed a predetermined minimum level but fall below some established maximum level. Companies establish minimums to guarantee a return to shareholders before they distribute profits to employees. They establish maximums because they attribute any profits beyond this level to factors other than employee productivity or creativity (e.g., technological innovation)

rating errors

in performance appraisals reflect differences between human judgment processes versus objective, accurate assessments uncolored by bias, prejudice, or other subjective, extraneous influences Rating errors occur because raters must always make subjective judgments Bias errors Contrast errors Errors of central tendency Errors of leniency or strictness

parallel teams (task forces)

include employees assigned to work on a specific task in addition to normal work duties the modifier "parallel" indicates that an employee works on the team task while continuing to work on normal duties. Also, parallel teams or task forces operate on a temporary basis until their work culminates in a recommendation to top management. Task forces are used to evaluate existing systems and processes, to select new technology, and to improve existing products. There is some evidence that team interactions on complex tasks are likely to influence creativity more than individual efforts, and group incentive plans may foster creativity. This especially seems to be the case when incentive compensation is truly an add-on, and independent of employees' regular base pay

extrinsic compensation

includes both monetary and nonmonetary rewards. organizational development professionals promote intrinsic compensation through effective job design

360 degree performance appraisals

incorporate several sources of pertinent information to give a more complete (and presumably) less biased assessment of job performance. Examples of pertinent sources include supervisors, coworkers, and clients problems: people were saying nice things about one another, resulting in all good ratings. input from peers, who may be competitors for raises and promotions, might intentionally distort the data and sabotage the colleague Significant risks with 360-degree feedback are confidentiality and possible legal ramifications • Uses more than one appraisal source • Reduces common appraisal errors • Results in a more comprehensive and fair view of performance

behavioral encouragement plans

individual incentive pay plans that reward employees for such behavioral accomplishments as good attendance or safety records employees receive payments for specific behavioral accomplishments

disparate treatment

intentional employment discrimination, occurring whenever employers intentionally treat some workers less favorably than others because of their race, color, sex, national origin, or religion

Why is internal consistency in compensation important?

internally consistent job structures formally recognize differences in job characteristics, which therefore enable compensation managers to set pay accordingly

intrinsic compensation

intrinsic compensation represents employees' critical psychological states that result from performing their jobs extrinsic compensation includes both monetary and nonmonetary rewards

compensation surveys

involve the collection and subsequent analysis of competitors' compensation data

forced distribution

is a specific kind of comparison performance appraisal system in which raters (e.g., supervisors) assign employees to groups that represent the entire range of performance Many companies use forced distribution approaches to minimize the tendency for supervisors to rate most employees as excellent performers. This tendency usually arises out of supervisors' self-promotion motives Some believe it fosters cutthroat competition, paranoia, and general ill will, and destroys employee loyalty forced distribution approach can distort ratings because employee performance may not fall into these predetermined distributions

incentive pay (variable pay)

is defined as compensation, other than base wages or salaries, that fluctuates according to employees' attainment of some standard (e.g., a pre-established formula, individual or group goals, or company earnings) Compensation fluctuates according to: - A preestablished formula - Individual or group goals - Company earnings • Adds to base pay on a nonrecurring basis • Controls costs • Motivates employees through explicit goal setting

What does it mean for compensation systems to be internally consistent?

jobs that require greater qualifications, more responsibilities, and more complex duties should be paid more highly than jobs that require lesser qualifications, fewer responsibilities, and less complex job duties

internal environment

manager's role: assess goals assess internal resources assess culture assess employee capabilities

external environment

manager's role: industry analysis customer analysis supplier analysis competitor analysis

strategy formulation/implementation

manager's role: select industries in which to compete define core competencies and unique activities make trade-offs create fit among activities

free-rider effect

occurs when employees of lower ability, skill, and effort benefit equally as employees of higher ability, skill, and effort in group incentive plans. The free-rider effect can lead to resentment and turnover of stronger contributors because weaker contributors are getting a "free ride."

Walsh-Healey Public Contracts Act of 1936

mandates that contractors with federal contracts meet guidelines regarding wages and hours, child labor, convict labor, and hazardous working conditions. Contractors must observe the minimum wage and overtime provisions of the FLSA. In addition, this act prohibits the employment of individuals younger than 16 and convicted criminals. Furthermore, it prohibits contractors from exposing workers to any conditions that violate the Occupational Safety and Health Act • Covers contractors and manufacturers who sell supplies, materials, and equipment to the federal government • Coverage is more extensive than Davis-Bacon Act • Applies to both construction and non construction activities

specialist

may be an HR executive, manager, or non-manager who is typically concerned with only one of the areas of compensation practice

generalist

may be an executive, performs tasks in a variety of HR-related areas. The generalist is involved in several, or all, of the compensation functions such as building job structures, market competitive pay systems, and merit pay structures

unionization of the workforce

more highly unionized industries pay more highly, in part, because the collective bargaining process gives labor greater leverage for negotiating higher wages and benefits

seniority pay most common in what types of organizations?

most unionized private sector and public sector organizations continue to base salary on seniority or length of employee service, though the number of these workplaces is steadily declining. The use of seniority pay is more common in the public sector given the substantially higher unionization rate than in the private sector.

how does incentive pay differ from merit pay?

much like seniority and merit pay approaches, incentive pay augments employees' base pay, but incentive pay appears as a one-time payment. Employees usually receive a combination of recurring base pay and incentive pay, with base pay representing the greater portion of core compensation

first impression effect

occurs when a rater (e.g., a supervisor) makes an initial favorable or unfavorable judgment about an employee and then ignores or distorts the employee's actual performance based on this impression

illegal discriminatory bias

occurs when a supervisor rates members of his or her race, gender, nationality, or religion more favorably than members of other classes

human resource managers

plan, direct, and coordinate the administrative functions of an organization. They oversee the recruiting, interviewing, and hiring of new staff; consult with top executives on strategic planning; and serve as a link between an organization's management and its employees

deferred profit sharing

plans place cash awards in trust accounts for employees. These trusts are set aside on employees' behalf as a source of retirement income

Age Discrimination in Employment Act of 1967 (ADEA)

prohibits discrimination against individuals with mental or physical disabilities within and outside employment settings, including public services and transportation, public accommodations, and employment Protection for workers age 40+ in all employment decisions Eliminated minimum retirement age with a few exceptions such as for jobs where public safety is at issue Prohibits discrimination of employees with disabilities Reasonable accommodations such as: - Making existing facilities readily accessible - Job restructuring - Modifying work schedules Defines "qualified individuals with disabilities" Enforced by the EEOC

expectancy theory

proposes that an individual will behave or act in a certain way because they are motivated to select a specific behavior over others due to what they expect the result of that selected behavior will be the motivation of the behavior selection is determined by the desirability of the outcome Expectancy theory is about the mental processes regarding choice, or choosing. It explains the processes that an individual undergoes to make choices. In the study of organizational behavior, expectancy theory is a motivation theory first proposed by Victor Vroom of the Yale School of Management The expectancy theory of motivation explains the behavioral process of why individuals choose one behavioral option over the other. This theory explains that individuals can be motivated towards goals if they believe that there is a positive correlation between efforts and performance, the outcome of a favorable performance will result in a desirable reward, a reward from a performance will satisfy an important need, and/or the outcome satisfies their need enough to make the effort worthwhile. Expectancy theory has three components: expectancy, instrumentality, and valence. Expectancy: effort → performance (E→P) Instrumentality: performance → outcome (P→O) Valence: V(R) outcome → reward

National Labor Relations Act (NLRA) of 1935

protect the rights of employees and employers, to encourage collective bargaining, and to curtail certain private sector labor and management practices, which can harm the general welfare of workers, businesses and the U.S. economy The purpose of this act was to remove barriers to free commerce and to restore equality of bargaining power between employees and employers requires private-sector employers enter into good-faith negotiations with workers over the terms of employment. Workers join unions to influence employment-related decisions, especially when they are dissatisfied with job security, wages, benefits, and supervisory practices

Title VII of the Civil Rights Act of 1964

protects employees who work for all private sector employers; local, state, and federal governments; and educational institutions that employ 15 or more individuals. Title VII also applies to private and public employment agencies, labor organizations, and joint labor management committees controlling apprenticeship and training

work (process) teams

refer to organizational units that perform the work of the organization on an ongoing basis - Ex: Customer service teams, assembly teams on production lines. Membership is relatively permanent, and members work full time in the team Work teams are effective when individuals are cross-trained to perform other team members' work when they are absent. The goal is to maintain consistency in performance quality (e.g., addressing customer concerns promptly even when one or more team members are absent) and output (e.g., in the case of assembly teams). Team members ultimately engage in performance sharing rather than focusing exclusively on one set of tasks

collective bargaining agreement

refers to a written document that describes the terms of employment approved by management and employees during negotiations. It codifies the terms and conditions of employment regarding rates of pay and pay adjustments, hours of work, or other working conditions of employees

non-exempt

refers to an employee's status regarding the overtime pay provision of the Fair Labor Standards Act of 1938 (FLSA). Employees whose jobs do not fall into particular categories (e.g., administrative, professional, and executive employees) are generally covered by overtime and minimum wage provisions

spillover effect

refers to nonunion companies' offer of similar compensation as offered by union companies to their employees. The goal is to reduce the likelihood that nonunion workforces will seek union representation suggests that non union employers tend to pay higher than they might otherwise pay in order to avoid unionization

strategic compensation

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

performance appraisal

represent a company's way of telling employees what is expected of them in their jobs and how well they are meeting those expectations Conduct a job analysis • Incorporate results into ratings • Trains supervisors on use • Implement formal appeals and review of ratings processes

employee benefits

represent nonmonetary rewards. Employee benefits include any variety of programs that provide paid time off (e.g., vacation), employee services (e.g., transportation services), and protection programs (e.g., life insurance)

stock option plans

represent one type of companywide incentives. Companies grant employees the right to purchase shares of company stock Employees do not actually own stock until they exercise the stock option rights. This is done by purchasing stock at a designated price after a company-chosen time lapses, usually no more than 10 years. Employee stock options provide an incentive to work productively, with the expectation that collective employee productivity will increase the value of company stock over time. Employees earn monetary compensation when they sell the stock at a higher price than they originally paid for it

pay structures

represent pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions determined by employees' credentials, job knowledge, and job performance

interindustry wage differentials

represent the pattern of pay and benefits associated with characteristics of industries. Interindustry wage differentials can be attributed to a number of factors, including the industry's product market, the degree of capital intensity, the profitability of the industry, and unionization of the workforce

pay ranges

represent the span of possible pay rates for each pay grade. Pay ranges include midpoint, minimum, and maximum pay rates. The minimum and maximum values denote the acceptable lower and upper bounds of pay for the jobs within particular pay grades built on grades, uses midpoint, minimum, and maximum pay rates

compensation

represents both the intrinsic and extrinsic rewards employees receive for performing their jobs and for their membership as employees. Together, both intrinsic and extrinsic compensation describe a company's total compensation system

base pay

represents the monetary compensation employees earn on a regular basis for performing their jobs. Hourly pay and salary are the main forms of base pay

US government

requires compensation professionals to: - Keep updated and comply with all employment legislation - Demonstrate that alleged discriminatory pay practices are not in fact discriminatory; or, are a business necessity

FMLA (Family and Medical Leave Act)

requires employers to provide employees 12 weeks of unpaid leave per year in cases of family or medical emergency Job protection during family and medical emergencies Guarantees unpaid leave Employee returns with same or similar - Position - Pay - Conditions - Benefits

equal pay act (1963)

requires that men and women should receive equal pay for performing equal work

advantage of seniority pay to the employer

seniority pay facilitates the administration of pay programs. Pay increase amounts are set in advance, and employers award raises according to a pay schedule, much like the federal government's GS employers are less likely to offend some employees by showing favoritism to others because seniority is an objective basis for making awards. The absence of favoritism should enable supervisors and managers effectively to motivate employees to perform their jobs even in the absence of a formal performance appraisal system

What is the difference between seniority and longevity pay?

seniority pay is based on age. older employees are given preference. longevity pay is based on duration of employment.

What was the initial purpose of legally required benefits?

social insurance. they were prompted largely by the rapid growth of industrialization in the United States during the late nineteenth and early twentieth centuries as well as the Great Depression of the 1930s, initial social insurance programs were designed to minimize the possibility of destitution for individuals who were unemployed or became severely injured while working. In addition, social insurance programs aimed to stabilize the well-being of dependent family members of injured or unemployed individuals. Further, early social insurance programs were designed to enable retirees to maintain subsistence income levels.

FairPay rules

specify the criteria for distinguishing between work that is not exempt from the overtime pay provision of the Fair Labor Standards Act workers earning less than $23,660 per year—or $455 per week—are guaranteed overtime protection

job evaluation

systematically recognizes differences in the relative worth among a set of jobs and establishes pay differentials accordingly

longevity pay

systems reward employees with periodic additions to base pay according to employees' length of service in performing their jobs Longevity pay designed to: - Address pay of employees who reach maximum pay grade rates based on seniority - Rewards employees with periodic pay increases that do not become part of base pay Used for most government employees General Schedule system for federal employees

seniority pay

systems reward employees with permanent additions to base pay periodically, according to employees' length of service performing their jobs

OWBPA

the 1990 amendment to the ADEA Under particular circumstances, employers may require older employees to pay more for health care, disability, or life insurance This is the case because these benefits cost more for older workers (e.g., an older worker may be more likely to become ill) Charging more cannot be a condition of employment Older workers could choose lower, less costly levels of coverage

Income Continuity, Safety, and Work Hours

the Great Depression, the move from family businesses to large factories, and divisions of labor within factories the main U.S. economic activities prior to the twentieth century were agriculture and small family businesses that were organized along craft lines. Workers began to move from their farms and small family businesses to capitalists' factories for employment. The character of work changed dramatically with the move of workers to factories. An individual's status changed from owner to employee. This status change meant that individuals lost control over their earnings and working conditions the factory system also created divisions of labor characterized by differences in skills and responsibilities. Some workers received training, whereas others did not - Fair Labor Standards Act of 1938 - Portal-to-Portal Act of 1947 - Equal Pay Act of 1963 - Work Hours and Safety Standards Act of 1962 - McNamara-O'Hara Service Contract Act of 1965

how right to work laws have impacted union membership

the prevalence of unions' influence on wages varies tremendously by state based on whether there are right-to-work laws in place. In right-to-work states, union influence is less potent than in other states. Currently, 28 states have right-to-work laws in place. this has led many manufacturing businesses to relocate in right-to-work states where employment costs are lower, further weakening unions' influence

prevailing wage

the typical hourly wage paid to more than 50 percent of all laborers and mechanics employed in the local area

essential functions

those job duties that are critical to the job. The act prohibits employers from offsetting the cost of providing reasonable accommodation by lowering pay

how do KSAs affect pay

typically, jobs that are based on knowledge and skills, which are developed based on formal education (vocational education, college education) or early job experiences such as internships or apprenticeships (for example, in the cases of medical doctors or plumbers, respectively) are highly valued as measured by pay levels. Jobs with less specialized or complex KSAs are typically paid much less

disparate impact

unintentional employment discrimination. It occurs whenever an employer applies an employment practice to all employees, but the practice leads to unequal treatment of protected employee groups

decline in unionization

unions often intimidated workers to become members even if they did not care to do so unions provided a voice to protect the tights of disadvantaged groups, but then title VII of the Civil Rights Act instituted protections globalization of business and the need for workforce flexibility new manufacturing facilities in states where unionization is low unionization is substantially higher in the public or government sector than in the private sector

PPACA (Patient Protection and Affordable Care Act)

until this was passed, employers offered health insurance as a discretionary benefit

skill-based pay

used mostly for employees who do physical work, increases these workers' pay as they master new skills (blue-collar)

fixed-dollar-of-profits

uses a specific percentage of annual profits, contingent upon the successful attainment of a company goal. For instance, a company might establish that the profit sharing fund will equal 7 percent of corporate profits; however, payment is contingent on a specified reduction in scrap rates

severance pay

usually includes several months of pay following involuntary termination and, in some cases, continued coverage under the employer's medical insurance plan. Employees often rely on severance pay to meet financial obligations while searching for employment

rubino

variable rewards ​Comprehensive variable reward programs emphasize incentive-reward payouts for meeting individual, team and organizationwide goals, and de-emphasize—or eliminate—raising salaries annually to reward performance "Annual bonuses often devolve into beauty contests" to reward managers' favorite workers, "with no underpinning of specific performance measures to rationalize incentive payments." Variable rewards based on clearly defined target goals at the individual, departmental and organizational level can change employees' mindsets from "this is what I need to do to please my boss so I can get a big raise or bonus" to "this is what I need to do to add value to the company," successful variable rewards : An organization's culture and values must support a variable rewards framework. Senior management must allow the variable pay program to work and not impede it with exceptions. Performance measures must be internally equitable and externally competitive. Performance criteria must be discernible, valid and understandable. The program must deliver what is promised on time and fairly

In order for merit pay programs to succeed, employees must know their effort

will lead to pay raises

can incentive pay be used with traditional base pay?

yes. some companies use incentive pay programs that replace all or a portion of base pay to control payroll expenditures and to link pay to performance. Since 1998, there has been more than a 50 percent increase in the use of incentive pay programs nowadays, most companies use a mix of traditional and incentive pay methods. The mix has steadily changed. In 1998, traditional pay increases totaled 4.2 percent of payroll while incentive pay increases amounted to 8.0 percent. In 2017, the amounts were 3.0 percent and 11.6 percent, respectively

incentive pay considerations

• Based on individual or group performance • Acceptable level of risk • Replace or complement traditional pay • Performance criteria evaluated • Appropriate time horizon for goals

effective merit pay systems

• Based on objective and subjective indicators of job performance • Periodic performance reviews • Realistic and attainable standards • Pay increases reflect performance • Just-meaningful pay increases: amounts that employees will see as making a meaningful change in compensation for their performance