chapter 10

compensation

refers to monetary and nonmonetary rewards employees receive, in exchange for work they do for an organization. There are two different forms of compensation provided to employees: Financial compensation and Non-financial compensation.

single rate system

Organizations might decide to have a single-rate system; paying all employees performing the job at the same rate. ant

differing company pay policies

Pay at the market Most companies follow this approach especially when talent is available. Pay above the market (Pay Leader) Companies that aim to attract and retain the best talent Pay below the market Companies are challenged to attract and retain talent

internal equity

employees perceive their pay to be fair relative to the pay of other jobs in the organization

salary survey

is a systematic process for collecting information about wages in the external labor market. Salary surveys can be constructed internally or acquired from professional organizations and HR consulting firms.

job pricing

is a systematic process of assigning monetary rates to jobs so that a firm's internal wages are aligned with the external wages in the marketplace. This is used to develop a company pay policy.

job evaluation

is a systematic way of determining the relative value/worth of a job, compared against other jobs in the organization, in order to make relative pay decisions. job eval assess jobs not the job holders. it is subjective.

employee equity

perceived fairness of the relative pay between employees performing SIMILAR jobs in the firm.

what are the common ways to evaluate a job?

-Job ranking -Job classification -Point factor -Factor comparison

point method

-Quantitative method A type of job evaluation method that involves assigning points values to jobs based on compensable factors to create the relative worth hierarchy for jobs in the company -Compensable factors - aspects of jobs, such as skill, effort, responsibility, and working conditions, Comprehensive and complex Minimum subjectivity involved Acceptable to employees Huge investment in terms of money and time Complex to understand by a lay man

job classification

A type of job evaluation that involves developing broad descriptions for groups that are similar in terms of their tasks, duties, responsibilities, and qualifications for the purpose of assigning wages. pre determined by a committee so there are standards. Less subjective compared to job ranking Simple to conduct, in case of small firms or lesser number of jobs Relatively less expensive and time consuming

equity theory

According to Society of Human Resource Management, an effective compensation philosophy should pass the following test: -Is the compensation equitable? -Do employees perceive compensation as fair? -Is there legal compliance? -Is the organization effectively communicating the philosophy? -Is the compensation competitive internally and externally? Employees compare their input (work effort) and outcomes (wages) with those of other people in similar situations to determine if they are being treated the same in terms of pay and other outcomes.

Walsh Healy act

Applies to contractors with over *$10,000* in contracts involved in manufacturing or providing goods and services to U.S. government Requires paying workers federal minimum wage for first 40 hours and 1.5 times minimum for additional work during week

indirect financial compensation

Benefits and services provided to the employees, in non-monetary form, in exchange for their labor. These can include health care insurance, stock options, 401(k) plans, vacation, lunches, company paid training programs and other perks. All these benefits given to the employee have financial value but is not a direct monetary payment.

factor comparison

Compare jobs to standardized descriptions of factors and degrees time consuming and expensive quantitative

what are the six elements of worldatwork total rewards

Compensation: Pay provided by an employer to its employees for services rendered Benefits: Programs an employer uses to supplement the cash compensation employees receive Work-Life Effectiveness: Programs that actively supports work life balance. Recognition: Either formal or informal programs that acknowledge or give special attention to employee actions, efforts, behavior or performance. Performance Management: The alignment of organizational, team and individual efforts toward the achievement of business goals and organizational success. Talent Development: Provides the opportunity and tools for employees to advance their skills and competencies in both their short- and long-term careers.

equitable

Continue at the same level of productivity as pay is perceived equitable

davis bacon act

Contractors and subcontractors with contracts in excess of *$2,000* with federal government must pay workers minimum wage Wage must be at least equal to local prevailing wages Also must provide local prevailing benefits

negative inequity

Dissatisfaction, reduced productivity and turnover also can cause : Ask for a raise or bonus. May stop working as hard. Look for reasons to answer their psychological perspective of inequity. Finally, may look for other jobs which pays them a better salary and quit the company.

fairness

Equal pay for equal work and higher pay for more important work are two most often cited fairness principles related to compensation systems.

fair labor standards act

Establishes minimum wage Defines exempt versus nonexempt employees and requirements for each Sets what constitutes a work week and overtime requirements for pay over those hours Restricts use of child labor Requires employers to keep records

positive inequity

Improve the productivity as pay is perceived as more than output produced

how to achieve internal alignment? what. are the processes

Job evaluation - systematic process of establishing the relative worth of the jobs within the company. Job evaluation is derived from the job analysis Pay rates are usually established for jobs and not for individuals.

market pricing

Market Pricing - a method of determining pay for jobs by collecting salary information from the external labor market first rather than starting with the development of an internal structure based on the jobs within the company.

direct financial compensation

Money diirectly paid to the employees in exchange for their labor. These can be: Fixed financial compensation such as HOURLY WAGES AND SALARIES Variable financial compensation such as *incentives, bonuses, merit raises, stock options and commissions.*

pay grades

Most organizations have pay grades; the range of possible pay for a group of jobs within a grade.

equal pay act

Prohibits wage discrimination based on gender, sex, race and national origin. Employees in the same company who are performing work that requires equal skill, effort, and responsibility and performing under similar working conditions must not be paid differently based on their protected class (i.e. gender, sex, race and national origin).

job ranking

Qualitative method (based on managers' judgment, committees or job analysis) A type of job evaluation that involves reviewing job descriptions and listing the jobs in order, from highest to lowest worth to the company advantages : Simple and doesn't require complex calculations Economical as there is less subject matter expertise required Can be done in-house, no requirement of external HR consultants disadvantages : There is a lot of subjectivity involved as there is no set standard of measurement. People use their own judgement in ranking the jobs Complex to calculate in organizations with large number of jobs, thus mostly suitable for small organizations

skill/knowledge based pay

Skill-Based and Knowledge-Based Pay - systems that require employees to acquire certain skills or knowledge in order to receive a pay increase. An employee demonstrates mastery of each level of knowledge or skill by passing a test, a class, service as an apprentice or earning a degree.

when do u conduct a job evaluation?

after conducting job analysis, when a new role emerges, responsibilities changed, new company

merit raises

are increase in employee's hourly wages or yearly salary, based on the performance.

employee incentives

are rewards that motivate employees, by encouraging them to act in ways that are in line with the firm's interests.

compensation philosophy

communicates information to employees about what is valued within the organization, enhances the consistency in pay across the organizational units and helps attract, motivate and retain employees. In other words, the compensation philosophy addresses the question: why we pay our employees the way we do?

external equity

employees believe that their pay is fair compared to other SIMILAR jobs EXTERNALLY.

bonus

is a variable type of remuneration that are paid out for rewarding past achievements.

broadbanding

is an approach used to reduce the complexity of a compensation system by consolidating large number of pay grades into a few "broad" grades (bands).

commission

is money paid to the employee, upon completion of certain task, usually selling a certain amount of goods or services

job eval vs performance management

job eval focuses on what the job is worth where as performance focuses on what the employee is worth.

comparable worth

jobs with equal difficulty level should be paid same, regardless of who fills the positions.

internal alignment

occurs when each job in a company is valued appropriately relative to every other job in terms of its ability to help the firm achieve its goals (Relative Worth or Internal Equity).

red circle job

person is paid above maximum of range Freeze the salary until the pay range catch up Reduce the salary (unfavorable) Re-evaluate the job or amend the job to have higher evaluation Promote the employee

green circle job

person is paid below minimum of range Keep the salary (unfavorable) Re-evaluate the job or reclassify the job Give the employee a raise

hourly wage

refer to the dollar amount per hour of service to the employer, which is commonly used to compensate the blue collar workers in the workforce.

salary

refers to the pre-determined and a customarily set amount of remuneration over a defined period of time. Usually this is the dollar amount agreed per year of service. Generally, payments are made every two weeks.

pay mix

refers to the relative emphasis given to different compensation components. That is determining the fixed, variable and the indirect financial compensation, for a target performance.

total rewards

sum of all aspects of compensation package, which the employee perceives to be of value. It includes financial (direct and indirect) and nonfinancial rewards provided to the employee. The key idea is to highlight and signal to employees that they are receiving more than the base pay.