MGMT333 Exam 1 (Chpt. 1, 2, 13, 15 & 17)

Strategy Types

Business strategy (innovator, cost-cutter, customer focused), HR Strategy and External HR Drivers

Health Care Delivery Model (POS)

POS: Point-of-service plan (POS) is a hybrid plan combining HMO and PPO benefits. The POS plan permits an individual to choose which plan to seek treatment from at the time that services are needed. POS plans, therefore, provide the economic benefits of the HMO with the freedom of the PPO. . When POS plan participants receive all of their care from physicians in the network, they are fully covered, as they would be under a traditional HMO. Point-of-service plans also allow individuals to see a doctor outside the network, for which payment of an annual deductible ranging between $100 and $5,000 is required.

Health Care Delivery Model (PPO)

PPO: Preferred provider organizations (PPO) represent a variation on health-care delivery in which there is a direct contractual relationship between and among employers, health-care providers, and third-party payers. An employer is able to select certain providers who agree to provide price discounts and submit to strict utilization controls (e.g., strict standards on number of diagnostic tests that can be ordered). In turn, the employer influences employees to use the preferred providers through financial incentives. Doctors benefit by increased patient flow. Employers benefit through increased cost savings. And employees benefit through a wider choice of doctors than might be available under an HMO.

Time Off as a Benefit

Paid rest periods, lunch periods, wash-up time, travel time, clothes-change time, and get-ready time benefits are self-explanatory. Included within this category are several self-explanatory benefits: 1. Paid vacations and payments in lieu of vacation 2. Payments for holidays not worked 3. Paid sick leave 4. Other (payments for National Guard, Army, or other reserve duty; jury duty and voting pay allowances; payments for time lost due to death in the family or other personal reasons). Many companies are switching from traditional time-off plans (TTO), as described above, to paid-time-off (PTO) plans. These lump all time off together into one total allotment and deduct any day missed from this bank. Not only is this administratively easier for companies to track, but it also eliminates the need for employees to lie and say they're sick when the reality is, for example, a scheduled dentist appointment.

Pay Techniques (Purposes and Influences)

Pay influences employee behavior which influences organization's success. Incentive to Perform: Incentive = Intensity + Direction + Persistence and Incentive = Motivation x Ability Cue for Self-selection: Decision to come, stay, Retention of high-value and high- performance talent Matter of National Culture: Common words do not convey common meaning, Entitlement? Reward? Return?

Unions and Workplace Decisions

Workforce members with a role in decisions don't need representation Workforce members with line of sight have freedom to contribute to success

Government Role in Safety Net

Benefits and Access, Ensure Compliance

Government as Employer and Purchaser

Competes for talent, Requires compliance for contracts Cost of doing business Ex: Executive Order 11246

Fairness and Worker Status

Employees, contractors and contingent workers.

Employee Involvement

Gain-sharing plans are designed to align workers and management in efforts to streamline operations and cut costs. Any cost savings resulting from employees' working more efficiently are split, according to some formula, between the organization and the workers. Some reports indicate gain sharing is more common in unionized than nonunionized firms.

Interests of Compensation Stakeholders (Stockholders)

How employees are paid, using stock to pay employees makes stockholders rich and produce better performance (Owners, invest money expect a return of the money plus, "say or pay" (Executive pay))

Tax Advantages to Saving

Interest from a savings account is taxed at your earned income tax rate for the year. In other words, it's an addition to your earnings and is taxed as such. ... If you received a cash bonus for signing up for your savings account, you'll owe income tax on that amount. Your bank will report it on your 1099-INT form. The term "tax-advantaged" refers to any type of investment, financial account, or savings plan that is either exempt from taxation, tax-deferred, or that offers other types of tax benefits. Tax-advantaged plans include IRAs and qualified retirement plans such as 401(k)s.

Interests of Compensation Stakeholders (Managers)

Interest in cost, manage budgets and organization, want to be effective, and keep as much money as they can so they can look better for their organization

Pay Policies (Purpose and Types)

Internal Alignment: comparisons among jobs or skill levels inside a single organization. External Competitiveness: pay comparisons with competitors. How much do we wish to pay in comparison to what other employers pay? Employee Contributions: Emphasis on (pay mix) on performance, workplace practices and behaviors Management of the pay system: Ensure right people get right pay for achieving right objectives in right way The A in STAR

Pay Techniques (Types)

Key resources, tools, and steps to ensure pay policy choices successfully support the system's pay objectives. Internal Structure: Work analysis, Descriptions, and Evaluation/ certification Pay Structure: Market definitions, Surveys, and Policy lines Pay for Performance: Seniority based, Incentives, and Merit guidelines Evaluation: Cost, Communication, and Change

Rational Returns and its Elements

Learning opportunities, recognition and status, challenging work, and employment security are psychological.

Total Compensation and its Elements

More transactional: includes pay received directly as cash (e.g., base, merit, incentives, cost-of-living adjustments) and indirectly as benefits (e.g., pensions, medical insurance, programs to help balance work and life demands, brightly colored uniforms).

Unions and Employee Autonomy

Participation in decision-making and autonomy may be the key.

Interests of Compensation Stakeholders (Society)

See pay as a measure of justice (productivity)

Reopener Clauses

There are three major ways these adjustments might be specified: (1) deferred wage increases, (2) reopener clauses, and (3) cost-of-living adjustments (COLAs) or escalator clauses. A reopener clause is a provision in an employment contract that specifies that wages, and sometimes such nonwage items as pension and benefits, will be renegotiated at a specified time or under certain conditions. (changes in cost of living, organization, profitability, and so on).

Vicious vs. Virtuous Cycle

Think of pay as part of a circle. An organization whose profits or market share is increasing is able to pay larger bonuses and stock awards. And paying these bonuses fairly improves employee attitudes and work behaviors, which in turn improves their performance. 60 The circle gains upward momentum. 61 Employees receive returns that compensate for the risks they take. And they behave like owners since they are sharing in the organization's success. Performance-based pay that shares success with employees does improve employee attitudes, behaviors, performance— especially when coupled with the other "high-performance" practices.

Total Returns and its Element

Total returns include total compensation + relational returns

Strategy

refers to the fundamental directions that an organization chooses, in what and what not to do, in order to achieve competitive advantage.

Align and Factors

1. Align with the business strategy 2. Align externally with the economic and sociopolitical conditions 3. Align internally within the overall HR system. Alignment is probably the easiest test to pass

Steps for Strategic Compensation

1. Assess total compensation implications 2. Map a total compensation strategy 3. Implement Strategy 4. Reassess

Test 1 Short answer essay 1. What is business strategy? 2. What is the organization approach to competitiveness 3. Which pay policy is most important? 4. Which pay objective is most important 5. What is a pay technic that might be appropriate for this company to consider?

1. Cost cutter Innovator Customer focused 2. Align Differentiate Add valueGain momentum 3. Internal alignment External competitiveness Employee contribution Management 4. Ethics Compliance Fairness Effiecency (If efficiency, what part?

Interests of Compensation Stakeholders (Employees)

A return in an exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done. Interest in well-being, need to be able to live, be reasonable and keep a commitment with organization and themselves, fair treatment and justice. May feel entitled as if they are not paid enough and won't be satisfied until they are paid the amount they approve of

Legally Required Benefits

Legacy of protection called for by statute. Workers' Compensation•Coverage•Self-insurance, Social Security•Old age•Survivor•Disability, Unemployment Insurance•Experience rating, Health•FMLA•COBRA•HIPAA

Two-tier Pay Plans

One indication is the changing stance of unions on two-tier wages. One of the hallmarks of unionism is equality of treatment. Yet in recent years, to keep their wages whole, many unions have agreed to two-tier wages—new hires receive significantly lower wages. Within the UAW, internal factions are calling for the end of two tiers. In the most recent contract, a compromise resulted in a $3 per hour increase for the lower tier. Two-tier pay plans initially spread because unions viewed them as less painful than wage freezes and staff cuts among existing employees. The tradeoff, however, was a bargaining away of equivalent wage treatment for future employees. Two-tier plans are obviously at odds with this principle. Lower-tier employees, those hired after the contract is ratified, receive wages 50 to 80 percent lower than employees in the higher tier. 34 The contract may specify that the wage differential may be permanent, or the lower tier may be scheduled ultimately to catch up with the upper tier.

Competitive Advantage

Organizations must be diligent in their approach and use compensation practices to seek, achieve and maintain competitive advantage—the ultimate success.

Government Role in Fairness (Equity)

Pay and Status Equity, Ex. Title VII (Civil Rights Act, 1964)Prohibits discrimination in all employment practices on basis of race, sex, color, religion, or national origin, Equal Pay Act (Equal pay required for men and women doing "substantially similar" work in terms of skill, effort, responsibility, and working conditions and ADEA (Protects employees age 40 and over against age discrimination).

Gaining Momentum and Factors

To achieve and sustain competitive advantage: How to pay and how much? What practices pay off best under what conditions? Best Practices: Better performance with almost any business strategy Best Fit: Better performance by design (fit + environment + strategy) Best Share of Success: Better performance by shaping risk/return dynamics

Differentiate and Factors

Different proposition if organization wants to get into the race, stay in the race and win the race. Simply Different: can it be copied? Is it an imitation?Compensation Decision: Pay can signal direction and Pay can support policy. Compensation Coupling: Woven into HR strategy?•Separate action/option?

Pay Objectives (Purpose and Types)

Efficiency: Performance, Quality, Customer/Stockholder Delight, Employee Satisfaction and Cost Fairness: Fair Treatment and Fair Process Compliance: Laws/Regulations and Changes & Rulings Ethics: How results are achieved and Values put into practice

Government Contracts and Prevailing Wages

Prevailing wage laws set pay for work done to produce goods and services contracted by the federal government. A government-defined prevailing wage is the minimum wage that must be paid for work done on covered government projects or purchases. The main prevailing-wage laws include the Davis-Bacon Act, the Walsh-Healey Public Contracts Act, the Service Contract Act, and the National Foundation for the Arts and Humanities Act. Prevailing-wage laws prevent contractors from using their size to drive down wages. To comply with the law, contractors must determine the "going rate" for construction labor in an area. As a practical matter, the "union rate" for labor becomes the going rate. That rate then becomes the mandated minimum wage on the government-financed project.

Unions and Competition

Rate of change is at odds with multi-year collective bargaining agreements Many experts believe that unions are facing their most critical challenge of the last 50 years. From 1983 to 2011, union membership fell from 20.1 percent to 11.8 percent among wage and salary workers. Four popular explanations are usually offered for this decline: (1) The structure of American industry is changing, and declining industries are most heavily unionized, while growing industries are less so. (While this is true, research suggests this isn't a primary explanation for union decline.) (2) Unionization may be declining because workers don't view unions as a solution to their problems. (3) There has been reduced intensity of union organizing efforts (frequently cited as a reason why several large and powerful unions, including the Teamsters, broke off from the AFL-CIO in 2005). And (4) management is taking an increasingly hard stance against unions in general and union demands in particular. 6 A large portion of this management opposition to unions is spurred by increasing pressure from both domestic and international competitors. Management more frequently resists wage increases that would give nonunion competitors, both domestic and foreign, a competitive price advantage. The end result of these competitive pressures is a declining union-nonunion wage differential. In fact, one study shows that a 10 percent rise in import share (a popular measure of international competition) has the effect of lowering the union wage differential (the difference between union and nonunion wages) by approximately 2 percent. Such competitive pressures, starting in the 1980s and continuing today, have triggered lower-than-normal wage increases in unionized firms and even some wage concessions.

Safety Net and Corporate Social Responsibility

ADA, COBRA, FMLA, ERISA

Compensation

All financial returns and tangible services and benefits employees receive as part of an employment relationship

Dependent Care and Other Domestic Benefits

Child Care: Relatively few companies directly provide child care. However, it's becoming quite common for employers (96 percent) to offer flexible spending accounts with child care expenditures as a legitimate expense. 85 The employee, employer, or both pay into an account with pre-tax monies, and individuals can then use these funds to pay local child care providers. Elder Care: With longer life expectancy than ever before and the aging of the baby-boom generation, one benefit that will become increasingly important is elder care assistance. Almost one-half of the companies offering child care assistance to employees also offer elder care assistance. Dependent Care: Domestic partner benefits are benefits that are voluntarily offered by employers to an employee's unmarried partner, whether of the same or opposite sex. The major reasons motivating U.S. corporations to provide domestic partner benefits include fairness to all employees regardless of their sexual orientation or marital status.

Government Role in Protection

Child labor restrictions, Hours and rate of pay Ex: FLSA, Davis-Bacon Act Living wage emerging as a state/local initiative

Adding Value and Factors

Considers employees as investments (human capital) and seeks returns. Complex topic with practice & research gap. Productivity: Top-line growth, Bottom-line control. Availability: Faster talent onboarding and Faster process cycle times. Satisfaction: Customers, Others (External) and Employees (Internal).

Vision/Dental Benefits as Prevention

Dental: 90 percent of all employers with more than 500 employees providing some level of coverage. In many respects dental care coverage follows the model originated in health-care plans. The dental equivalent of HMOs and PPOs is the standard delivery system. For example, a dental HMO enlists a group of dentists who agree to treat company employees in return for a fixed monthly fee per employee. At the start of the century, the typical cost for employee dental coverage was $219. Annual cost increases now, though, are beginning to heat up. Employers battle these increases by requiring employee contributions—94 percent of employers require cost sharing now. The relatively modest increase in dental care costs can be traced to stringent cost control strategies (e.g., plan maximum payouts are typically $1,000 or less per year) and an excess supply of dentists. As the excess turns into a predicted shortage in the coming years, we may expect dental benefit costs to grow at a faster rate. Vision: Vision care dates back only to the 1976 contract between the United States Auto Workers and the Big Three automakers. Since then, this benefit has spread to other auto-related industries and parts of the public sector. Seventy-eight percent of large employers offer a vision plan. Most plans are noncontributory and usually cover partial costs of eye examination, lenses, and frames. Sixty-five thousand GM auto workers are likely to lose both vision and dental care as part of the bankruptcy plan currently being negotiated. This may signal a growing reluctance across industries to provide these two forms of health care.

Wage Protection and Living Wages

Recently, Maryland became the first to adopt a statewide living wage ordinance, effective in 2009. Los Angeles's law covers "contractors/subcontractors who have agreements with the city." The law mandates $10.42 an hour if health-care benefits are offered by the employer, $11.67 an hour if not offered. The required wage rate is higher for airport workers. A study of the Los Angeles law's effects found that 7,735 of the covered employees got an average wage increase of 20 percent. Living wage laws are increasingly popular. Coalitions of union members and church groups often support them. Because they are so narrowly tailored, there is some speculation that their real intention is to reduce any cost savings a municipality might receive from outsourcing. Reduced outsourcing means more government jobs, which generally translates into more union members.

Pay Model (What it does and Why it is used)

Serves as a framework to examine pay systems, to compare different systems, and to promote the success of new or enhanced systems. Compensation Objectives (Drives the system) Policies that form the foundation of the compensation system Techniques that make up the compensation system

Health Care Delivery Model (HMO)

Social goal of health care coverage extends to the workplace. Delivery Models•HMO •PPO•POS HMO: As a fourth delivery system, health maintenance organizations (HMO) provide comprehensive benefits for a fixed fee. Health maintenance organizations offer routine medical services at a specific site. Employees make prepayments in exchange for guaranteed health-care services on demand. By law, employers of more than 25 employees are required to provide employees the option of joining a federally qualified HMO. If the employee opts for HMO coverage, the employer is required to pay the HMO premium or an amount equal to the premium for previous health coverage, whichever is less.

Compensation Stakeholders

Stakeholders are different people in different roles and ways that influences organizational success. Examples are society, stockholders, managers and employees.

Assigning Risk in Savings

Sufficient savings for a successful retirement. Risk: Defined Benefit Defined Contribution Adequacy, Qualified: Ex: 401k, 403b•Ex: Stock ownership, profit-sharing as deferred compensation, Protection: Vesting Portability, ERISA/PBGC, PPA.

Integration of Disability Coverage

A number of benefit options provide some form of protection for disability. For example, workers' compensation covers disabilities that are work-related. Even Social Security has provisions for disability income to those who qualify. Beyond these two legally required sources, there are two private sources of disability income: employee salary continuation plans and long-term disability plans. Many companies have some form of salary continuation plan that pays out varying levels of income depending on duration of illness. The most prevalent practice these days is to give paid time off (PTO) rather than sick days. This reduces the need for companies to "police" whether employees are indeed sick, and allows employees more flexibility in life planning. After such benefits run out, disability benefits become operative. Short-term disability (STD) pays a percentage of your salary (about 60 percent on average) for temporary disability because of sickness or injury (on-the-job injuries are covered by workers' compensation). Only about 30 percent of all employers provide this insurance after sick leave. Long-term disability plans (LTD), if available, typically kick in after the short-term plan expires. Long-term disability is usually underwritten by insurance firms and provides 60 to 70 percent of pre-disability pay for a period varying between two years and life. Estimates indicate that only about 30 percent of all U.S. businesses provide long-term disability insurance.

Health Care Cost Controls (Co-Pays)

Cost Control: Co-Pays, Out-of-network, Deductibles There are three general strategies available to benefit managers for controlling the rapidly escalating costs of health care. 66 First, organizations can motivate employees to change their demand for health care, through changes in either the design or the administration of health insurance policies. Included in this category of control strategies are (1) deductibles, or the first x dollars of health-care cost are paid by the employee (at the extreme the state of Georgia recently told employees that certain name brand drugs will require a $100 copay, clearly signaling that enough is enough. (2) coinsurance rates (premium payments are shared by the company and employee); (3) maximum benefits (defining a maximum payout schedule for specific health problems); (4) coordination of benefits (ensure no double payment when coverage exists under the employee's plan and a spouse's plan); (5) auditing of hospital charges for accuracy; (6) requiring preauthorization for selected visits to health-care facilities; (7) mandatory second opinion whenever surgery is recommended; (8) using intranet technology to allow employees access to online benefit information, saving some of the cost of benefit specialists.The more questions answered online, the fewer specialists needed. A final example in this category is the formation of personal care accounts (PCA ). This is a tool used by employers to salvage some control over health-care costs while still providing health security to workers. The second general cost control strategy involves changing the structure of healthcare delivery systems and participating in business coalitions (for data collection and dissemination). At the extreme are companies that simply decline to provide any health-care coverage whatsoever. A final category of cost control strategies links incentives to healthy behaviors. We know that preventable illnesses account for 70 percent of all health-care costs. 71 Obesity, for example, is preventable. Dieting, however, is not a favorite pastime. How, then, do we get people to lose weight? The answer may be health incentives. Positive incentives include things like discounts on gym memberships a