SHRM CP and SCP - People - Compensation systems

compensation ratio

employee's rate rate/pay range midpoint

skill-based pay system

pay structures that set pay according to the employees' levels of skill or knowledge even is they do not use the skills in their current assignment. Most commonly used in a production environment

red-circle rates

payment rates above the maximum of the pay range

Acquiring knowledge and skill that enhances employee performance and satisfaction

A competency-based pay approach works best in an environment that fosters which of the following? -Acquiring knowledge and skill that enhances employee performance and satisfaction -Comparing inputs and outcomes by employees to those of their peers -Linking measures of quality or goals to individual performance -Focusing predominantly on seniority and longevity versus performance

When a link between the attainment of goals or achievement and the level of desired pay is needed

A differential piece-rate pay system works best in which type of environment? -When the focus is on what employees can become as opposed to the skills they already have -When the current employee skill set needs to be recognized while encouraging individuals to increase skills and knowledge -When managers need flexibility to determine who should be paid what rate when employees are hired -When a link between the attainment of goals or achievement and the level of desired pay is needed

knowledge-based pay system

A salary differentiation system that bases compensation on an individual's education, experience, knowledge, skills, or specialized training, such as scientists or teachers

She should be paid a salary plus a commission based on the total territory sales of those hired.

A salesperson takes over a new territory and will hire and manage five other sales associates and office staff. The salesperson is currently paid a straight commission but asks for a salary to match her current earnings so she can set up the office and train both the office staff and the sales force. Which is the best option to pay the salesperson? -She should be paid a salary plus a commission based on the total territory sales of those hired. -She should be paid a straight commission, and a sales trainer for new hires and an office manager should be hired. -She should be paid a straight salary to encourage the training efforts in the region. -She should be paid a salary for three months and then eased back into commission.

Single rate-pay or flat-rate pay

All employees of a job have the same rate of pay, regardless of performance or seniority. Works well for routine, simple jobs The rate is often set to correspond to target market survey data relating to the job.

cost-of-living adjustments (COLA)

An automatic increase in the incomes (wages) of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers.

0.94 (mid between 100,000 and 60,000 is 80,000. then take 75,000/80,000 = 0.94)

An employee is paid $75,000. The pay range for this position is $60,000 to $100,000. What is the employee's compensation ratio? 0.75 0.83 0.94 1.25

Performance bonus

An hourly employee is at the maximum level of a pay range. There are no job openings in the next pay range. Which is the best approach to reward the employee for exceptional performance without adjusting the base wage rate? -Incentive pay -Gainsharing -Performance bonus -Premium pay

Awarding compensation for results versus time in position

An organization conducts a pay survey and finds that some of its key employees are underpaid. Which approach best supports the desire to raise the pay for these employees while balancing a concern of adding to their salary burden? -Awarding compensation for results versus time in position -Providing a percentage increase based on individual compa-ratios -Adjusting pay in fixed increases that are linked to performance -Implementing annual increases to offset changes in purchasing power

Pay compression

An organization has been forced to hire new employees at higher pay rates than usual due to a tight labor supply. Employees who have been with the organization for one to three years are earning the same or only slightly more than the new hires they have to train. What is the organization experiencing? -Red-circle rates -Pay compression -Competency-based differential -Premium pay

general pay increase

Pay increase given to employees based on local competitive market requirements; awarded regardless of employee performance.

productivity-based pay

Pay is determined by the employee's output

person-based pay

Pay systems in which employee characteristics, rather than the job, determine pay.

pay compression

Occurs when there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority; also known as salary compression.

Nonqualified deferred compensation plan

-This is an agreement between a company and an employee in which the employee agrees to defer receipt of current income in favor of payout at retirement - it is assumed that the employee will be at a lower tax bracket at retirement -(BOD members with no other affiliation are not eligible for retirement planning)

Offer group incentive pay based on group performance targets.

An organization has identified several areas in which productivity is not meeting goals. The HR director is charged with finding a way to help increase productivity in the identified areas. After examining employee surveys from the underperforming areas, the HR director concludes that management is performing adequately but teams are still not working together as well as needed. The HR director also examines compensation in the area to see if below-average base pay is causing employees to lack motivation, but she finds that base salaries are competitive in the area. Which is the best option for the HR director to use to increase productivity? -Offer group incentive pay based on group performance targets. -Replace a portion of the underperforming teams with external candidates. -Offer individual incentive pay based on individual performance targets. -Reorganize the department to mix up underperforming teams.

Pay compression

An organization implements changes to its pay structure, resulting in new hires now being started at the same wage as workers who have been on the job for two years. What type of pay variation will most likely be created? -Pay compression -Green-circle rates -Lead-market strategy -Red-circle rates

Through a well-crafted pay-for-performance program that measures performance compared to goals

How should an HR leader evaluate an organization's return on labor expenses? -By adding salaries, overtime, benefits, and bonuses and then dividing by total costs -Through a well-crafted pay-for-performance program that measures performance compared to goals -By reviewing the overall employee output compared to the overall sales revenue -By the number of high performers compared to low performers in the organization

Performance-based pay

Situation where an individual's performance on the job is the basis for the amount and timing of pay increases; also called merit pay or pay for performance. (P4P or PfP); these are permanent increases in payroll

green-circle rates

Situations in which an employee's pay is below the minimum of the range.

It would give employees a stake in the company and enhance employee productivity and organizational performance.

The HR director wants to recommend that stock ownership incentive plans be offered to all levels of employees. What information should the HR director share that would best influence the rest of the leadership team to support this initiative? -It would improve individual performance by providing development opportunities that create a results-focused culture. -It would give employees a stake in the company and enhance employee productivity and organizational performance. -It would enhance individuals' ability to perform multiple tasks that help to increase their performance. -It would increase competition for retention of talent and address disgruntled employees who feel they deserve better.

Time based pay system

The employee's pay rate is based on longevity in the job. Pay increases occur on a predetermined schedule.

Offer a profit-sharing plan.

To strategically increase organization-wide performance, which is the best strategy that will incentivize all employees to perform better toward the overall performance? -Provide merit increases. -Offer a profit-sharing plan. -Recognize high performers. -Implement a commission plan.

They provide incentives for key executives to stay with the organization.

What is the advantage of nonqualified deferred compensation plans? -They protect the plans' funds from creditors in the event of the failure of the business. -They provide more-favorable tax advantages to employers than qualified plans. -They allow all company employees to contribute more than the limits prescribed by qualified plans. -They provide incentives for key executives to stay with the organization.

Pay levels may be raised over time regardless of performance.

Which is a disadvantage of a time-based pay system? -Quantity of work may be favored over quality of work. -The organization could be subject to significant equal pay litigation. -An enhanced performance management and appraisal system will be required. -Pay levels may be raised over time regardless of performance.

It can incentivize employees to perform less desirable work or work in undesirable locations.

Which is an organizational benefit of using differential pay? -It can reduce employees' taxable income while increasing benefit options for all. -It can identify employees who are not suited for certain types of work activities. -It can incentivize employees to perform less desirable work or work in undesirable locations. -It can improve key measures when comparing individual and group collaboration and performance.

Stock options, performance grants, and incentives

Which market practice benefits should be offered to attract or entice executives to join a global organization? -Health care, self-funded retirement, and bonuses -Car, transportation allowance, and meal allowance -Vacation, family leave, and holiday time off -Stock options, performance grants, and incentives

Lump Sum Increase (LSI) Or Performance Bonus

a one-time payment of all or part of a yearly pay increase. An employee's base wage rate is typically not adjusted by this increase

Competency based pay

highly structured pay system that identifies the competencies employees need to master to be eligible for pay raises

incentive pay

money offered to encourage employees to strive for higher levels of performance. Stems from the theory that rewards drive behavior

total organization compensation expense

salaries+overtime+benefits+bonuses/total operating costs

competency-based pay

set pay at the level at which an employee can operate in defined competencies (e.g., directing or training others). This type of system is commonly found when rewarding professional groups of employees.

differential piece rate pay system

the employee receives one piece rate up to the standard and then a higher rate once the standard has been exceeded