MQM 354 Final

Benefit Administration- Financing and Legal Issues

How should benefits be financed? •Noncontributory - employer pays total costs. •Contributory - costs are shared between employer and employee. •Employee financed - employee pays total costs for some benefits. Are the benefits legally defensible? •Benefits have to comply with hundreds of arcane sections of the tax code among other things. Benefit administrators may develop compliance checklists and conduct audits to ensure compliance with new and existing requirements

The Global Context continued

- Social contracts - Cultures - Trade unions - Ownership and financial markets - Managers' autonomy

Chapter 17 PPT

Look over!

Components of an Executive Pay Package

- Base Salary - Short-term (annual) incentives or bonuses - Long-term incentives - Benefits - Perquisites

Family and Medical Leave Act of 1993 (FMLA)

- Covered employers •Public agencies, including state, local and federal employers, local education agencies (schools). •Private employers with 50 or more employees for each working day in 20 or more calendar weeks of the current or preceding calendar year.

Improshare

(Improved Productivity through Sharing) is easier to administer and to communicate - First, a standard is developed identifying the expected hours required to produce an acceptable level of output.

Hours

-Firms examine overtime hours versus hiring more employees. -The four factors in the labor cost model are not independent. •Number of employees. •Hours worked. •Cash compensation. •Benefit costs.

Linking Pay to Peformance

Performance --> Pay --> Motivation --> Improved Performance

Merit Bonuses

differ from merit pay in that employees receive an end of year bonus that does not build into base pay - overtime these can be considerably less expensive than merit pay

Qualifying Events under FMLA

•Birth of a son or daughter to the employee and in order to care for such son or daughter. •Placement of a son or daughter with the employee for adoption or foster care. •Family leave in order to care for a spouse, son, daughter, or parent of the employee if such spouse, son, daughter, or parent has a serious health condition. •Serious health condition that makes the employee unable to perform their job.

Benefit Cutbacks

corresponding to wage concessions, some employers are negotiating with employees to eliminate employer contributions or reduce them to selected options

Data suggests employees prefer pay systems influenced by:

- Individual performance - Changes in the cost of living - Seniority - Market Rate

Communication: Managing the Message

-Compensation communicates what is important and what is not. -Employees must understand the pay system. •Understanding is shaped indirectly by paycheck. •Shaped directly through formal communication. -Two reasons for communicating pay information: •Attract, retain, and motivate performance. •Employees misperceive the pay system. -Especially helpful for benefit information.

Employee Benefits Basics

-Historical Perspective •1875 First pension plan established •1913 Department of Labor formed •1935 Social Security Established •Union Membership increases •Post WWII wage freezes promote benefit growth •Medicare and Medicaid established (Great Society) •1974 ERISA, IRC Section 125, HMO Act •Today's Health Care Debate

Deductible

an employee claim for insurance coverage is preceded by the requirement that the first X dollars be paid by the claimant

Employee Benefits under FMLA

•Provides for 12 weeks of UNPAID leave. •Employee must be allowed to return to his/her previous (or equivalent) job. •Employee is entitled to health insurance coverage during the leave period.

Unemployment Eligibility

- Did not leave job voluntarily - Able and available for work - Actively seeking work - Has not refused suitable work - Not off due to labor dispute - Not fired for gross work violations - Must be employed for the last four or five quarters (base period) prior to becoming unemployed

Reinforcement

- Rewards reinforce performance - Rewards must follow directly after behaviors to be reinforcing - Behaviors that are not rewarded will be discontinued.

Benefits

-Reducing benefits costs includes: •Suspending matching contributions. •Seeking bankruptcy protection. •Controlling health care benefits.

Team Incentive Plans

The established standard measures team performance to determine the magnitude of the incentive pay. - Team based plans are simply not well communicated Team performance standards are typically based on: - Productivity improvements - Customer satisfaction measures - Financial performance - Quality of goods and services

Flexible Compensation

allows employees to choose rewards which best suit their personal needs

Managing Labor Costs

labor costs= number of workers and hours worked x average cash compensation + average benefit cost

Herzberg's Two-Factor Theory

- Employees are motivated by two types of motivators: hygiene factors and satisfiers - Hygiene factors in their absence prevent behaviors, but in their presence cannot motivate performance. They are related to basic living needs, security, and fair treatment. - Satisfiers, such as recognition, promotion, and achievement, motivate performance

Average Cash Compensation (Fixed and Variable Components)

-Includes average salary level plus variable compensation payments such as: •bonuses, gain sharing, stock plans, and/or profit sharing. •During recession, salaries may be frozen. •Adjustments to average cash compensation level can be made: -top down - management allocates money down. -bottom up - collection of individual's pay.

Expatriate Systems - Objectives?

-International compensation is complex. •Taxes, exchange rates, housing, etc. -Pay systems emphasize maintaining purchasing power. •But lack attention to aligning pay with organization objectives. -Pay must be sufficient but not so attractive as to be unfair.

Reducing Headcount

-Organizations reduce headcount through layoffs or exit incentives. •Reduces benefit costs. •Opportunity to reshape the workforce. •However, regulations make cuts difficult. •May harm employee relations, increase turnover. •Increases unemployment insurance tax rates and administrative costs and disrupts workflow. •May harm future business if cut too deep.

Embedded (Design) Controls

-Range maximums and minimums. •The maximum is an important cost control. -Rates above this are called red circle rates. -Green circle rates are paid below the minimum. -Broad bands offer managers flexibility. •Bands may be more about career management than pay decisions. -Promotions and external vs. internal hires. •These are strategic decisions.

Opening the Books

-Some advocate sharing all financial information with employees. -At the minimum, the most important information to be communicated is •work-related and business-related rationales on which pay systems are based.

Managing Pay to Support Strategy and Change

-Successful alignment drives future revenues. -Strategic business changes mean the compensation strategy must be realigned. -Pay changes can play two roles in restructuring. •Can be a leading catalyst for change, or •A follower of change.

Supervisors

The challenge in compensating supervisors centers on equity. •Incentives are needed to entice nonexempt employees to accept the challenges of being a supervisor. Supervisor jobs are often exempt from overtime pay. Strategies to attract workers into supervisory jobs include: •Provide a 5-30% differential from the top-paid subordinate. •Pay for scheduled overtime. •There is an increased use of variable pay.

The Structure of Wage Packages

The union's effect on benefits far exceeds the union's effect on wages and salaries. •So the effect of unions on total compensation exceeds the union effect on wages and salaries. A second dimension is the evolution of two-tier pay plans. •Differentiate pay based upon hiring date. •Management views wage tiers as a viable compensation strategy. •Unions allowed their spread thinking they were better than wage freezes and layoffs. •The inequality will eventually cause employee dissatisfaction.

Strategic Market Mind-set

§Localizer: "Think Global, Act Local". •May have many systems and competes by providing locally tailored products or services. §Exporter: "Headquarters Knows Best". •Using the same system increases flexibility. §Globalizer: "Think/Act Globally and Locally". •Seek a common system and share ideas. •Global approaches focus first on global business strategy and then adapt to local conditions.

Health Insurance Portability and Accountability Act (HIPAA)

- Enacted in 1996 - Designed to: - Lesson denial for preexisting condition - Prevent discriminations on the basis of health Privacy provisions caused added compliance problems

Disability Benefits

-Worker was fully insured - Meets Social Security work requirements - Varies according to age and disability - Disability must last one year or be terminal - Six-month waiting period

Do employees perform better because of pay?

A well designed plan linking pay to behaviors generally results in better individual and organizational performance

Executive Benefits and Perquisites

Beyond the typical benefits, many executives also receive: •Additional life insurance. •Exclusions from deductibles for health-related costs. •Supplementary pension income exceeding ERISA maximum limits. ERISA and tax code restrict benefits too far above other workers. •Plans may have to cover 80% of employees, provide determinable benefits, or meet vesting and nondiscrimination requirements. Tax and regulatory agencies require a value on "perks." •If the CEO of the Shaw group dies, the company will pay his family $18 million for him to not compete against Shaw for two years. •7% of Fortune 500 firms give cash allowances, averaging $32,000. •A personal car, and driver.

Benefits Mix

First class benefit plan includes a mix of these benefits - Education reimbursement - On-site child care services - Car cleaning - Financial counseling - Concierge services - Retirement Benefits

Medicare

For citizens age 65 and older. Provided insurance coverage for: - Hospitalization - Convalescent care - Major doctor bills - Prescription drug costs

CEO Pay and Company Performance

Research suggests CEO pay and company performance are strongly aligned. •The pay-performance relationship is often not optimally studied. •After correcting, the authors found strong relationships between CEO return and total shareholder return. •In some cases, what looks like a lack of alignment probably is not. There is concern over CEO pay structure leading to bad behavior. •Heavy use of bonuses and stock-based compensation may lead to taking too large of risks. •The Dodd-Frank Wall Street Reform and Consumer Protection Act: •Improves accountability and transparency in the financial system. •Proposes to end "too big to fail" and ending bailouts. Aims to protect consumers from abusive financial services practices

Sales Forces

To meet the needs of the complex environment between the customers and the organization, the sales job has morphed. •The job can be outsourced and called either indirect sales force or manufacturing reps or even independent reps. •In-house sales jobs can be broken down by inside or outside reps. Interacting in the field with customers requires high initiative and has low supervision for extended periods of time. •Standard compensation is not designed for this so there is more reliance on incentive pay tied to individual performance. •If the product is in high demand, the compensation mix is mostly base salary with a small incentive component. •If sales ability is important, the size of the incentive component increases.

Merit Pay

system links increases in base pay to how highly employees are rated on a performance evaluation - Compa-ratio: employee salary divided by range midpoint

Affordable Care Act: Reporting Provisions

•The act will require employers to annually report to the IRS information pertaining to their group benefits, including the following: •Whether the employer offers minimum essential coverage to full-time employees; •Waiting period for health coverage; •The monthly premium for the lowest cost option in each enrollment category under the group's plan; •The employer's share of the total allowed cost of benefits provided under the plan. •The number of full-time employees during each month; •The name, address, and taxpayer identification number (or Social Security number) of each full-time employee, and the months each employee was covered under the employer's plan, and •"Such other information as the HHS may require." This requirement will likely be further refined in later regulations.

Valence

is the value employees attach to the organization rewards offered for satisfactory job performance

OASDI Survivor Benefits

Based on Eligibility Status and Relationship - Deceased was fully insured - Dependent, unmarried children - Widows age 60 and older - Dependent parent age 62 and older

The Big Picture

Behavior = f (M,A,E) M= Motivation A= Ability E= Environment

Administering the Program: Communication

Benefits communication revolves around four issues. •What is communicated. •To whom. •How it is communicate. •And how frequently. Efforts focus on identifying methods (how) of communication. •The employee benefit handbook. Effective communication should match the message with the appropriate medium. Failure to understand benefit components and their value is one of the root causes of employee dissatisfaction with benefits.

Individual Incentive Plans

Offer a promise of pay for some objective, pre-established level of performance - all plans have one common feature: an established standard - these plans do not work for every job

Dual Coverage

in families where both spouses work there is frequently coverage of specific claims from each employer's benefit package. Employers cut costs by specifying payment limitations under such conditions.

Benefit ceiling

employers establish a maximum payout for specific claims (ex: limiting liability for extended hospital stays to $150,000)

Defined contribution plan

employers establish the limits of their responsibility for employee benefits in terms of a dollar contribution maximum

Defined benefit plans

employers establish the limits of their responsibility for employee benefits in terms of a specific benefit and the options included. As the cost of these options rises in future years, the employer is obligated to provide the benefit as negotiated, despite its increased cost

Long term incentive plans

focus on performance beyond one year

Culture

is a shared mental programming which is rooted in the value, beliefs, and assumptions held in common by a group of people and which influences how information is processed

Expectancy

is employees' assessment of their ability to perform required job tasks

Instrumentality

is employees' beliefs that requisite job performance will be rewarded by the organization

Expatriate Pay

§Expatriates are employees temporarily working and living in a foreign country. •Parent-country nationals (PCNs) §citizens of employer's home country, working in another country. •Third-country nationals (TCNs) §citizens of neither employer's country nor country in which they work. •Local country nationals (LCNs) §citizens of a foreign country where the parent employer operates. §Inpatriate •LCN/HCN are reassigned to an Organizations Home Country §Flexpatriate (International Cadre) •PCN/TCN continuously work abroad

The Global Context

§Organizations must first determine •the degree to which each contextual factor constrains their compensation practices. §An organization must decide •how their compensation practices will be similar to and differ from other organizations. §Finally, organizations may •weigh the home and local country context differently for different jobs.

Success Sharing

•Employee base wages are constant and variable pay adds on a predetermined amount in successful years. •If the company does poorly, employees forgo any variable pay.

Workers Compensation

•Form of no-fault insurance •2015 Average Costs for All Jobs •$ .47/hour or $980/ year •Range $ .23/hour - $ 1.08/hour •Covers •Medical care for work-related injuries •Temporary disability benefits •Permanent partial and permanent total disability benefits •Survivor benefits •Rehabilitation Covered by State, not Federal laws

Employee Stock Ownership Plans (ESOPS)

•The effects are long-term and employee's working harder means nothing at the time. •Management cannot predict what makes stocks rise, a central ingredient in the reward component of ESOPs. Why use ESOP? They foster employee willingness to participate in decision making

Do incentives work?

- A low-incentive component is appropriate in organizations with highly variable annual performance - Larger- incentive components are appropriate in companies with stable annual performance

Federal Unemployment Trust Fund

- Administered by the Treasury Department - An employer's actual tax burden varies according to an experience rating system - A company that lays off a large percentage of employees will have a higher tax rate than a company that lays off relatively few or none of its employees

Compensation should reinforce the following behaviors:

- Attraction: it should make recruiting and hiring easier - Retention: it needs to make sure good employees stay - Development: after attracting and retaining good employees, concentrate on building further knowledge and skills - Performance: Compensation should motivate employees to apply their abilities in ways that contribute to organizational performance.

IRC Section 911

- Can exclude up to $70,000 of income Exclusions - Cash (income, bonuses, incentives, etc.) - Noncash (housing, vehicles, meals, home leave, etc.)

Goal Setting

- Challenging performance goals influence greater intensity and duration in employee performance - Goals serve as feedback standards to which employees can compare their performance - Individuals are motivated to the extent that goal achievement is combined with receiving valued rewards

Equity

- Employees are motivated when perceived outputs (pay) are equal to inputs (effort, work behaviors) - A disequilibrium in the output to input balance causes discomfort - If employees perceive that others are paid more for the same effort, they will react negatively to correct the output to input balance.

Value of Employee Benefits

- Employees consistently rank medical benefits as the most important benefit. - Employers have to plan and design effective benefit programs and need to communicate their value to employees

Consolidated Omnibus Budget Reconciliation Act (COBRA)

- Enacted in 1985 - Applies if 20 or more employees - Extends health coverage during certain events - An employer can charge individuals up to 102% of the premium - Brief qualifying period of 18 months

Components of a Benefit Plan- Employee Factors

- Equity: fairness historically and in relationship to what others receive - Personal needs linked to: Age, Sex, Martial status, and number of dependents

Unemployment Insurance

- Financed by: •Employers that pay federal and state unemployment insurance tax - Federal tax- 6.2% of the first $7,000 earned by each worker - States additionally impose a tax above the $7,000 figure - The extra amount a company pays depends on its experience rating - Generally, employers must pay both state and federal unemployment taxes if: •(1) they pay wages to employees totaling $1,500 or more in any quarter of a calendar year; or •(2) they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether the weeks were consecutive. However, some state laws differ from the federal law

Types of Commissions

- Flat Commission: Rate x Volume - Individual Commission Rate (ICR) Individuals Incentive Target Dividend by Individual's Quota - Ramped: Rate adjusted based on achievement of sales volume or quota - Adjusted: rate varies based on characteristic other than volume or quota

Sales plus Commission

- Key Sales Compensation Terms - Target cash compensation (TCC) - Salary/Incentive Mix - Leverage - A few Motivation Theories - McClelland Need's Theory - Reinforcement Theory - Expectancy Theory

What is a Pay for Performance Plan?

- Many compensation practices are lumped under pay for performance, such as: - Incentive plans, variable pay plans, compensation at risk, earnings at risk, success sharing, risk sharing, etc. - Pay for Performance plans move toward pay that varies with some measure of individual or organizational performance - Many surveys on pay for performance omit the starting point of all these plans, merit pay

Concerns about Merit Pay

- Merit pay increases fixed compensation costs over time - Merit pay becomes costly if too many high performance ratings are awarded - Merit pay differentials are too small to motivate performance - Individual performance is a deficient measure when work is interdependent and requires cooperation to obtain objectives.

The Important Role of Promotion in PFP

- Merit pay is widely used and the average merit pay increase is about 3% per year - Average employee would double their salary in about 23 years - Salary increases due to promotion are much larger, ranging around 15%. •Salary could double every 5 years.

Problem with Social Security

- Number of retired workers is rising •No corresponding increase in number of contributors to offset costs - Currently, 3.5 workers pay into system for each person collecting benefits - Within next 40 years this ratio drops to about 2 to 1

Comparing Systems

- Objectives of pay systems - External competitiveness - Internal alignment - Employee contributions - Management

Social Security aka OASDI

- Old Age, Survivor, and Disability Insurance - Enacted in 1935 for retirement - Survivors insurance added in 1939 - Disability insurance added in 1965 Requirements - §Earn 40 quarters of credit, or: § Be employed for 10 years § Be age 62 for partial benefits § Be age 65 for full benefits In 2022, be age 67

Evidence of Merit Pay

- PFP plans create an environment that rewards excellence - Most discussion of merit pay focuses on incentive effects. - Merit pay may also have significant sorting effect causing employees who do not want pay tied to performance to leave. - For merit pay to live up to its potential, it must be managed.

Agency

- Pay directs and motivates employee performance - Employees prefer static wages (a salary) to performance based pay - If performance can be accurately monitored, payments should be based upon satisfactory completion of work duties - If performance cannot be monitored, pay should be aligned with achieving organizational objectives

Maslow's Needs Hierarchy

- People are motivated by inner needs - Needs form a hierarchy from most basic (food and shelter) to higher order (self-esteem, love, etc.) - Needs are never fully met, they operate cyclically - Higher order needs become motivating after lower order needs have been met When needs are not met, they become frustrating

Benefits Planning and Design Issues

- Planning should include strategies for ensuring external competitiveness and adequacy of benefits. •Firms conduct benefit surveys of competitors. •Ensuring benefits are adequate is a bit more difficult. •There is no magic formula. •The answer may lie in the relationship between adequacy and cost of effectiveness. •Employers are shifting increased benefit costs to employees through higher deductibles and co-pays.

Cost Containment

- Probationary periods - Benefit limitations - Co-pay - Administrative cost containment - Outsource benefits and administration

Wage Components and Risk

- Risk is defined in terms of stability of income, or the ability to accurately predict income level from year to year - Base pay is the guaranteed portion of income

Designing a Pay-For-Performance Plan

- Strategy: the plan must support corporate objectives, should link well with HR strategy/objectives, how much increase makes a difference? - Structure: is organization structure decentralized, allowing flexible variations on a general plan? - Standards: the key rests on standards, concerns include objectives, measure, eligibility, and funding

Do employees develop skills because of pay?

- The answer is unknown - Skill based pay is intended to pay employees for learning new skills that will help with current and future performance

Legally Required Benefits

- Worker's Compensation - Unemployment Compensation - Social Security - Health Insurance - Family Medical Leave

How widely used is PFP?

-99% of organizations use some form of short-term incentive plan. - The most common performance basis is a combination of corporate, unit, and individual objectives. - Long-term incentive plans are more likely to be used for officers/executives and other higher job levels.

IRC Section 901

-Can credit foreign taxes from U.S. tax -If U.S. tax is greater • Expatriates pay difference to IRS - If foreign tax is greater •Expatriates can deduct excess to future U.S. taxes For up to five years

Managing Revenues

-Compensation drives future revenues. -Companies analyze the value added of pay decisions and influence on revenues. •Requires a shift in viewing compensation as an investment as well as an expense. -Employers must keep compensation current and competitive. •To retain high performing employees.

Embedded (Design) Controls pt. 2

-Range midpoints reflect the pay policy line in relation to external competition. •To assess how pay relates to the midpoint, an index called a compa-ratio is often used. •Compa-ratio = average rate actual paid/ range midpoint •A ratio less than 1 means below midpoint pay. •A ratio greater than 1 pays above the midpoint.

Managing Labor Costs and Revenues

-The cost implications of actions is critical for making sound decisions. •Compensation budgets require tradeoffs, -employee contributions versus across-the-board, -short- versus long-term incentives, -performance versus seniority, and -cash compensation compared to benefits. •Planning allows potential returns to be identified.

Budget Controls: Top Down

-Top management sets an estimated pay increase budget for the whole organization. -A typical approach is planned pay-level rise, •the percentage increase in average pay. •Factors influencing size of increase: -how much the average level has increased, -ability to pay, -competitive market pressures, -turnover effects, and cost of living.

Embedded (Design) Controls pt. 3

-Variable pay must be re-earned each period. •The financial insecurity may affect employees. -Costing out wage proposals is done prior to recommending pay increases. •Software is available to analyze every aspect of compensation information.

Two plan types for large group incentive plans

1. Gain sharing plans use operating measures to guage performance 2. Profit sharing plans use financial measures

Compensation Forecasting and Budgeting Cycle

1. Instruct managers in compensation policies and techniques 2. Distribute forecasting instructions and worksheets 3. Provide consultation to managers 4. Check data and compile reports 5. Analyze forecasts 6. Review and revise forecasts and budgets with management 7. Conduct feedback with management 8. Monitor budgeted versus actual increases

Types of Individual Incentive Plans

1. Straight Piecework System: most frequently implemented 2. Standard hour plans and Bedeaux Plans: Two common plans set standards based on time per unit and tie incentives directly to level of output. 3. Taylor Plans and the Merrick System: Two plans provide variable incentives as a function of units of production per time period. 4. Halsey 50-50 method, Rowan Plan, and Gantt Plan: Three plans provide for variable incentives linked to a standard expressed as a time period per unit of production.

Corporate Directors

A board of directors provides strategic decision-making advice. •8-11 individuals from both inside and outside the company. Due to attention to CEO pay and concerns about impartiality, companies are filling boards with outside directors. •Perceived as less probe to bias than internal directors. •Internal members used to "rubber stamp" the CEO's decision process. •Now a director faces highly charged analysis of many things, including CEO compensation. •There is considerable risk as stockholders may sue directors. In exchange for assuming this risk, directors are well paid. •Typically $260,000 for working 30-40 hours per month.

Maturity Curve

A process of determining employees' salaries as a function of years from the time of the first degree earned.

Sales Pay Plans and Organizational Strategy

A sales compensation plan should link desired behaviors to organizational strategy. Salespeople should know when to stress customer service and when to stress volume sales. •If you want to motivate aggressive sales behavior, a straight commission-based incentive plan will focus sales efforts. •Each measure of performance corresponds to a business goal. Generally, there are two types of compensation plans. •Unit rate plans differ by the amount they pay for each unit of sales. •Commissions are either flat, ramped, declining, or pooled. •Add-on plans focus sales staff on specific types of sales with extra incentives for each sale of that line.

Risk Sharing

Base pay is reduced by some amount relative to the level that would be offered in a success-sharing plan.

Employee Benefits

Can no longer be called "fringe benefits" but the cost has risen over time - The average costs of benefits accounts for 30% of total compensation - Benefits add 44 cents to every dollar of wages and salaries

Contingent Workers

Contingent workers are anyone hired through a temp agency, anyone on an on-call basis, or independent contractors. Why the move to contingent workers? •It may signal a permanent change in the way business is done. •Temp workers afford a level of flexibility. A major compensation challenge centers on equity. •Some companies consider contingent workers as a pool of candidates. •Others champion the idea of boundary-less careers. There are also high-paid "gig" workers who work on demand.

Do people stay (or leave) because of pay?

Equity theory documented that workers who feel unfairly treated in pay react by leaving the firm. Besides money, other rewards influencing the decision to stay: - Job satisfaction: work enjoyment - Pay and benefits - Social: coworkers are fun - Organizational commitment: not a job jumper, loyal - Organizational prestige: company or industry respect

Should pay be tied to performance?

Evidence indicates management and workers alike say "Yes"

Scientists and Engineers

Firms hiring scientists and engineers, classified as professionals, struggle to figure out what pay should be. •For the first few years after graduation, an engineer's knowledge is a valuable resource but gradually, the knowledge becomes obsolete. Because salaries plateau, many make career changes such as moving into management or updating their knowledge. •Some companies use the dual-career ladder providing two ways of progressing, either the managerial or the professional track. A second problem centers on the question of equity. •Maturity curves reflect the years of experience in the labor market. Organizations develop perks to satisfy the needs of professionals. •Flexible schedules, large offices, campus-like facilities, and lavish athletic facilities.

Impact of Unions in Wage Determination

Four areas of union impact •Impact general wage and benefit levels. •Impact the structure of wages. •Impact nonunion firms through the spillover effect. •Impact wage and salary policies and practices in unionized firms.

Executives

In the 500 largest companies, average CEO pay is $12.7 million and the highest paid executives make much more. CEO pay is larger in large companies. •Average CEO pay in S&P SmallCap 600 is $3.5 million. •CEO pay to median employee compensation is also larger. How do people respond to these pay levels and CEO pay ratio? •74% of average Americans feel CEOs are overpaid and should make no more than 6 times the pay of an average worker. •Respondents thought CEOs should receive 0.5% bonus if the value of their company rose by $100 million. •In a survey of company directors, only 18% disapproved of CEO pay. Those respondents felt the CEO deserved 1.5% if the firm's value increased by $100 million.

Do people join a firm because of pay?

Job candidates look for organizations with reward systems that fit their personalities - Materialistic: more concerned about pay level - Low self esteem: wants large, decentralized organization with little pay for performance - Risk takers: want more pay based on performance - Risk Adverse: want less performance based pay - Individualists: want pay plans based on individual performance, not group performance

Executive Base Salary

Job evaluation still play a role in determining base pay but other sources are much more important. •The compensation committee is usually a subset of the board. A common approach of compensation committees is to identify competitors and set pay level between the best and worst. •Where a CEO falls in this range depends on many factors. •CEOs likely to be raided generally have higher compensation. •Larger companies hit the high end of the range.

Affordable Care Act: Covered Employers

Large Employers - those employing 50 or more full-time employees or equivalents. Defines a full-time employee as one working an average of at least 30 hours per week, or at least 130 hours in a month. ◦FTEs are calculated ◦An employer with 40 fulltime employees and 15 part-time employees (who worked 20 hours per week) would be classed as a large employer. ◦40 Full-time + 10 FTEs ((15*20)/30).

The Cascading Link Between Organization Strategy and Employee Behavior

Organizational Strategy --> Corporate Goals --> SBU Goals --> Department/Team Goals as well as Employee Team Results --> Individual Goals as well as Employee Task Behaviors

Does variable pay improve performance results?

Pay-for-performance plans: •That introduce variability into the level of pay an employee receives. •Seems to have a positive impact on performance if they are designed well. Too often the plans have: •Too small a payout for the work expected. •Unattainable (or too easy) goals. •Outdated or inaccurate metrics. •Or too many metrics making it difficult to determine what is important.

Components of a Benefit Plan - Employer Factors

Relationship to Total Compensation Costs. •Benefit costs are only one part of a total compensation package. Costs Relative to Benefits. •Adopt a broad, cost-centered approach. Competitor Offerings. •Determine external equity with a benefits survey. Role of Benefits in Attraction, Retention, and Motivation. •Benefit schedules favor longer-term employees. •For benefits to matter, they must meet employee needs. Legal Requirements. Absolute and Relative Compensation Costs

Designing a Sales Compensation Plan

Six major factors influence the design of pay packages. 1. The nature of people who enter the sales profession - Salespeople rank pay significantly higher than five other forms of reward. 2. Organizational strategy 3. Market maturity. - Companies should adapt compensation to sales patterns as the product matures - focusing on customer satisfaction and retention. 4. Competitor practices. - External competitiveness is essential. 5. Economic environment. - Sales forces expand during good economic times and constrict during recessive environments. 6. The product to be sold.

Who are Special Groups?

Special groups include: •Supervisors, top management, boards of directors, scientists and engineers, sales personnel, and contingent workers. Groups that receive special treatment. •Either in the form of add-on packages not received by other employees. •In the form of compensation components unique in the organization. Special groups share two characteristics. •They tend to be strategically important to the company. •Their positions tend to have built-in conflict arising from different factions placing incompatible demands on members of the group.

Employee Eligibility under FMLA

To be eligible for FMLA benefits, an employee must: (1) work for a covered employer; (2) have worked for the employer for a total of 12 months; (3) have worked at least 1,250 hours over the previous 12 months (approximately 31.25 work weeks or 7.5 months of work for a full-time employee (40 hours per week); and (4) work at a location in the United States or in any territory or possession of the United States where at least 50 employees are employed by the employer within 75 miles of the facility

The Scanlon and Rucker Gain Sharing Plans

Two major components are vital to success of either plan 1. A productivity norm requires effective measure of the base-year and employee acceptance. 2. Effective work/productivity/bonus committees whose primary function is to evaluate suggestions for improving productivity and/or cutting costs. - Individual plans focus on wage incentives to motivate - The scanlon/rucker plans focus on organizational behavior variables

Union Impact: The Spillover Effect

Union wage settlements have declined but union impact would be understated if the spillover effect were not accounted for. •Employers seeking to avoid unionization offer workers the wages, benefits, and working conditions of rival unionized firms. •The nonunion management continues to enjoy freedom from union interference and workers receive the spillover rewards. •This is a documented phenomenon, although the effect is diminishing as union power diminishes. •Providing further evidence of the continuing role played by unions in wage determination.

Benefit Administration Issues

Who should be protected or benefited? Probationary periods, dependents, retirees, survivors, workers with disabilities, and even layoffs offer challenges

Coinsurance

a proportion of insurance premiums are paid by the employee

Spot Awards

are given for exceptional performance, often on special projects or for performance exceeding expectation

Claims Processing

arises when an employee asserts a specific event occurred and demand the employer fulfill a promise. •If the event occurred, the next step is determining eligibility. •If payment is not denied, the claims processor calculates payment. •It is important to coordinate benefits. •If multiple insurance companies are liable, a good processor can save 10-15% of a claim's cost by ensuring joint payment.