Chapter 7: Total Rewards and Compensation

Pay Equity Laws

Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, color, sex, religion, or national origin - pay on the basis of sex was outlawed under the Equal Pay Act of 1963

HR Metrics for COmpensation

average hourly pay - add the individual hourly rates of al employees and divide by the number of employees number of full time equivalents - add the annual hours paid for all employees and divide by the # of hours a full time employee is scheduled to work (usually 2080 hours) average tenure - add the total years of service for all employees and divide by FTEs average compa-ratio (comparative ratio) - calculate the compa-ratio for each employee, add the cations, divide by the # of employees productivity - total revenue divided by number of FTEs average annual salary increase - calculate the salary increases for each employee, add the increase, divide by the number of FTEs

tangible rewards

can be measured and it is possible to calculate the monetary value of each reward - can easily compare the tangible rewards offered by various organizations

intangible rewards

cannot be as easily measured or quantified, the perceived value of intangible goods can differ among employees

external equity

if an emplyoer's rewards are not viewed as equitable compared to other organizations, the emplyoer is likely to experience higher turnover

Job Evaluation

ranking method classification method factor-comparison method

salary

receive the same payment each period regardless of the number of hours worked

standardized pay adjustment

seniority cost of living adjustments across-the board increases lump sum increases

performance based increases

targeting high performers pay adjustment matrix

FSLA: child labor provisions

the minimum age for employment with unlimited hours = 16 years old for hazardous occupations, the minimum is 18 years of age 14 -15 years olds may work outside of school hours with certain limitations many employers require age certificates (supplied by High Schools) for employees because they are responsible for ensuring that their employees are of legal age

gender pay gap

there is still a persistent pay gap between men and women on the basis of sex in the workplace women have been gaining ground in recent years

seniority

time spent in an organization or on a particular job - often called seniority or tenure - can be used as the basis for pay increases some employers required that employees work for a certain length of time before being eligible for pay increases

pay survey

used to evaluate many factors to determine if data are relevant and valid. the following questions should be answered for each survey: - participants - cover a realistic sample? -broad-based - include data from employers of different sizes, industries, locations? -timeliness - how current? -methodology - how established/how qualified are those that performed the survey? -job matches - does the survey contain job summaries so that appropriate matches to job descriptions can be made -details provided - does the survey report on base pay, incentive pay, and other elements of compensation?

pay grades

used to group individual jobs having approximately the same job worth established by looking at job evaluation data and use of job-market branding

market pricing

uses a market pay data to identify the relative value of jobs based on what other employers pay for similar jobs.

Independent Contractor Regulations

when a worker is classified as an independent contractor, payroll tax revenues are are lost and workers are not insured for unemployment or work related injuries this is advantageous for employers - they don't have to pay social security, unemployment, of compensation costs

cost-of-living adjustments (COLA)

whereby every employee's pay is increased to compensate for inflation and rising prices tied to CPI

Conditions eed to be met to participate in surveys - it is illegal for companies to collude when setting wages

- the survey must be administered by a third party such as a consultant or a trade/professional association -the data must be more than three months old -a minimum of 5 employers must participate in the survey - no single emplyoer's data may be worth more that 25% of the total -all data must be aggregated and stripped of of any identifying info

Strategic Decisions that guide the design of compensation practices

-legal compliance with all applicable laws and regulations -cost-effectiveness for the organization -internal and external equity for employees -optimal mix of compensation components -performance enhancement for the organization -performance recognition and talent management for employees -enhanced recruitment, involvement, and retention of emplyoees

FLSA: overtime

FSLA established overtime as one and one-half times the regular pay rate for all hours worked over 40 in a week except for exempt employees the work week is defined as a consecutive period of 168 hours (24 hrs. * 7 days) 24/7 hospitals and nursing homes have their own workweek no daily number of hours is required overtime except in some organizations like hospitals

lump-sum increases (LPI)

a one-time payment of all or part of a yearly pay increase workers can get discourage because their pay does not change

pay survey

a report based on research of compensation rates for workers performing similar jobs in other organizations useful for establishing external pay equity

ranking methods

a simply system that places jobs in order, from highest to lowest by their value to the organization better for smaller companies

compa-ratio

a value used to determine each individual employee's standing in relationship to the midpoint

enconomic recessions

address shortfalls in revenue by reducing employment-related expenses layoffs and reductions ay be strategies to lower cost

pay range

allows managers to reward employees based on performance while maintaining the integrity of the pay system can give employees raises risk is that it may led to claims of pay inequitites

red-circled employees

an employee who is paid above the range for the job - the person would be red-circled and proper administration of the pay system would make the employee ineligible for a pay increase their pay can be frozen until the pay range is adjusted upward also can employee a small lump-sum payment but not adjust the pay rate when others are given raises

expectancy theory

an employees motivation is based on several linked concepts - need to find rewards that are valued by the employee so that they are motivated

benefits

an indirect reward given to an employees or a group of employees for organizational membership, regardless of performance ex. health insurance, vacation pay, retirement pensions indirect compensation - employees receive financial rewards without receiving actual cash

green-circled emplyoee

an individual whose pay is below the range for a job -promotion is a major contributor to this situation -green-circled employee might also result from opportunistic hiring when employees are earning below-market pay and their former employee

variable pay

another type of direct pay - it is compensation linked directly to individual, team, or organizational performance. The most common types of variable pay are bonuses, incentive program payments, equity awards, and commissions

pay-for-performance philosophy

assumes that compensation decisions reflect performance differences - pay and incentives are structured to reward performance differences among employees ex. pay and raise based on performance -no raises for poor-performing employees -market-adjusted pay scales -no raises for length of service or job tenure - industry comparisons of total rewards

entitlement philosophy

assumes that individuals who have worked another year are entitled to pay increases with little regard for performance differences - most employees receive the same or nearly the same % increase - often called cost-of-living raises ex. -pay raises based on length of service -across-the-board raises -pay scales increased annually -industry comparisons of pay only -holiday bonuses given to all employees

payroll adminsitration

calculate pay and ensure timely, accurate, payroll processing complies with compensation laws to maintain positive employee relations

across-the-board increases

called merit based raises which they aren't - not tied to merit or good performance usually given as a percentage raise based on a standard market determination

individual pay

can be established and set once pay grades and pay ranges have been established

prevailing wage

determined by a formula that considers the rate paid for a job by a majority of the employers in the appropriate geographic area

compensation challenges

economic recessions two-tier wage system gender pay gap

Indirect Compensation

employee benefits

internal equity

employees are compensate fairly with regard to the knowledge, skills, and abilities (KSAs) they use in their jobs, as well as their responsibilities

wages

employees paid by the hour -they receive payment calculated on the basis of the time worked

home-country based approach

expatriates - most common compensates the expatriate at the same level as workers from the host country objective is to maintain the expatriate's standard of living in his or her home country - housing, taxes and discretionary spending expenses are calculated based on those items in the home country changes funding if the cost of living changes in the home country -can result in emplyoer employer costs and more administrative complexity than other plans

targeting high performers

focuses on top performing employees with significantly higher pay raises want to reward and retain critical high-performing individuals to identify them you need to look at how much their performance exceeds normal work expectations

market branding

groups jobs into pay grades based on similar market survey amounts - the midpoint of the survey average is used to develop pay range minimums and maximums

FSLA: exempt workers

hold positions for which employers are not required to pay overtime categories for exempt status: - executive, administrative, professional (learned and creative), computer employee, outside sales (including pharmaceutical sales) major criteria for exempt status: -pay level per week - minimum of $455 /week -paid on a salary basis -job duties and responsibilities - primary duties of managing, decision discretion/judgement, requires advanced knowledge and/or training/education, pursue artistic or creative endeavors

compensable factor -

identifies a dimension that is part of every job and can be rated for each job considers the components of the job rather than the total job and it quantifies job elements

towal rewards

includes all forms of compensation which are the monetary and non monetary rewards provided by a company to attract, motivate, and retain employees effectiveness depends on linking compensation to organizational objectives and strategies

pay secrecy

individual pay info may be kept secret in closed systems and might include pay amounts, pay raises and incentive payouts some employers do not allow employees to discuss pay with one another

Common Overtime Issues

individuals who are nonexempt employers may encounter many issues including: - compensatory time off -earned by public sector nonexempt employees in lieu of payment for extra time worked at the rate of 1 and 1 1/2 time the number of hours over 40 in a week - it is prohibited in the private sector -incentives for nonexempt employees - employees must add the among of direct work-related incentives to an employee's base pay and then calculate overtime pay as one and one-half times the higher (adjusted) rate of pay -training time - time spent training must be counted as work time if it occurs during normal work hours for the benefit of the emplyoer -travel time - travel must be counted as time worked if it occurs during normal work hours for the benefit of the emplyoer - travel to and from work is not considered compensable travel time -donning and doffing time - some jobs require employees to change clothes or spend time donning protective equipment before they report for duty - regulation regarding putting on and taking off such clothing and gear are complec and should be researched with the DoL

pay adjusted matrix

integrating performance-appraisal ratings with pay changes is done through the development of a pay adjusted matrix, or merit-based performance matrix pay adjusted reflects an employee's upward movement in an organization considers employee's level of performance as rate in the appraisal and the employee's position in the pay range people with poor performance receive low or no raises as employers move up the pay range, they must exhibit higher performance to earn the same percentage raise as those lower in the range performing athe same level general objective is for all employees to paid at approximately the pay-range midpoint

factor-comparison method

is a complex quantitative method that combines the ranking and point factor methods time consuming and difficult to use

procedural justice

is the perceived fairness of the process and procedures used to make decisions about employees, including their pay

2 approaches for valuing jobs

job evaluation market pricing

benchmark jobs

jobs that are found in many other organizations - provide anchors against which other jobs can be compared

FSLA: nonexempt workers

must be paid overtime - for hourly jobs -those classified as salaried nonexempt are also entitled to overtime pay -ex. - secretarial, clerical, and salaried blue-collar positions like shift supervisors

garnishment

occurs when a creditor obtains a court order that directs an emplyoer to set aside a portion of an employee's wages to pay a debt owed to the creditor

pay compression

occurs when pay differences among individuals with different levels of experience and performance become small frequently a result of labor market pay levels increasing faster than current employees' pay adjustments

classification method

often used in public-sector organizations - description of job classes are written and then each job is put into a grade according to the class it best matches difficulty is that it is subjective to develop the descriptions

Fair Labor Standards ACT (FSLA)

pay practices are regulated by several key laws that address issues including - minimum wage -limits on the use of child labor -exempt and nonexempt status (overtime provisions)

two-tier wage system

popular in unionized environments new employees are paid a lower starting wage than existing workers - new hires may be less motivated

Equal Pay Act of 1963

prohibits companies from using different wage scales for men and women performing substantially the same jobs - can be adjusted on the basis of merit, seniority, quantity or quality of pay, experience or other factors not related to gender - similar pay must be given for jobs requiring equal skills, equal responsibilities, and equal efforts or for jobs done under similar working conditions

HR professionals can access a wide range of pay data online

salary.com provides sample: job titles and responsibilities experience KSAs performance geographic differences company size and industry base pay vs. total compensation

FSLA: Minimum Wage

sets a minimum wage to be paid to a broad spectrum of covered employees -a lower minimum wage is set for "tipped" employees, such as restaurant servers, but their compensation must equal or exceed the minimum wage when average tips are included current minimum wage is $7.25 - 2007 some sates have raised their minimum wage - if a state's minimum wage is higher that then federal minimum wage, employers must pay this higher wage

market line

shows the relationship between job value as determined by job evaluation points and job value as determined by pay-survey rates

Direct Compensaiton

tangible: the monetary rewards for work done and performance results achieved ex. base pay and variable pay

Thir-Quartile: Lead-the-Market Strategy

targets pay ranges so that 25% of other firms pay above and 75% pay below aggressive approach - enables a company to attract and retain sufficient workers with the required capabilities and be more selective when hiring

Second-Quartile: Match-the-Market Strategy

targets pay ranges so that 50% of other firms pay above and 50% pay below most common - determined by pay data surveys of other employers' compensation plans -attempts to balance employer cost pressures and the need to attract and retain employees by providing compensation levels that "meet the market"

First-Quartile: Lag-the Market Strategy

targets pay ranges so that 75% of other firms pay above and 25% pay below paying below market levels -if they are facing financial difficulties they may not be able to pay more -also when an abundance of workers is available, a below-market approach can be used to attract sufficient workers at a lower cost downside - it increases the likelihood of higher worker turnover and lower employee morale

base pay

the compensation that an employee receives, usually provided as an hourly wage or a salary 2 base pay categories: - hourly and salaried - identified according to the way pay is determine and the nature of the jobs hourly is most common - paid based on time

point factor method

the most widely used job evaluation method looks at compensable factors in a group of similar jobs and assigns weights, or points to them

distributive justice

the perceived fairness in how rewards are distributed

broadbanding

the practice of using fewer pay grades with much broader ranges than in traditional compensation systems -encourage horizontal movement within jobs and therefore more skill acquisition -more consistent with the flattening of organizational levels and the growing use of jobs that are multidimensional

offshoring

the variations of compensation levels have led to significant offshoring of jobs to lower-wage countries

Equity theory

theory of motivation states that individuals judge fairness (equity) in compensation by comparing their inputs and outcomes of referent others referent others - workers that are that the individual uses as a reference point to make these comparisons inputs - time, effort, loyalty, commitment, skill, enthusiasm outcomes - pay, job security, benefits, praise, recognition, and thanks can adjust inputs and outputs to change outcomes