Comp & Rewards Final
What are integrated PTO policies?
-AKA paid time off banks -Combine holiday, sick, vacation and other personal leave policies into a single paid time off policy (do not distinguish between reasons for absence so employees can schedule time off without justifying reasons)
Explain the access to training design consideration for person-focused plans
-All employees must have equal access to the needed training for acquiring higher level knowledge or skills (be compliant w/ employment laws) -Must educate employees about training opportunities & how successful training will lead to higher pay
What is workers' compensation?
-Benefit designed to cover expenses incurred by employees' work-related accidents, run by states individually -Covers virtually all employees except domestic, some agricultural workers and small businesses w/less than a dozen regular employees -Company must provide income & cover medical expenses following work accident -Reduces legal-related expenses for the gov., employers and employees -Encourages employer's interest in safety and allows companies to identify causes of accidents
What is health insurance? In what forms can companies provide health insurance coverage?
-Benefit that covers costs related to a variety of services that promote sound physical and mental health (most costly benefit) - discretionary benefit that fell under "protection plans" until ACA of 2010) -Forms: 1. Fee-for-service plans: original health insurance plan where employees could go anywhere for service and payments made on "reasonable and customary" market costs determined by insurance companies (no network) 2. Alternative managed care plans: emphasize cost control by limiting employee's choice of doctors and hospitals (HMOs, PPOs, EPOs) 3. Consumer-driven approach plans: combines pretax payment account w/ high-deductible health plan
What are legally required benefits? What are the 4 categories of legally required benefits?
-Benefits employers offer because it is mandated by law -Categories: Social Security Programs, Workers' Compensation, Family & Medical Leave, and Health Insurance -Unlike other forms of comp., firms generally cannot use legally required benefits strategically to gain a competitive advantage (except for health insurance)
What do we consider when asking if CEOs in the U.S. get paid too much?
-Comparison between executive compensation and other work groups: executives get paid much more than non-executives -Strategic questions: is it pay for performance? executive pay most often tied to company performance -Ethical considerations: is it fair? -International competitiveness: is it so excessive that it hurts competitive advantage?
What is executive compensation?
-Compensation packages received by executives at an organization -Lucrative comp. and benefits compared to others -Nearly all parts of comp. plans provide favorable tax treatment
What are core employees vs. contingent workers?
-Core employees: part-time or full-time employees who generally plan on long-term or indefinite relationships with their employers. They are subject to control by the employer. -Contingent "flexible" workers: hired on-demand and considered non-permanent. They usually have more freedom and are not subject to control by the employer, except for the result of their work, but they lack job security (contingent workforce AKA "gig economy")
Why do companies use flexible workers?
-Economic recessions: often massive layoffs due to recessions which are easier for contingent workers -International competition: cut labor costs through contingent workers to keep up w/ lower global manufacturing costs -Shift from manufacturing to service economy: easy to hire someone on short-term basis to provide a service -Strategic objectives: lowest cost orgs. may hire contingent workers to reduce costs and differentiation orgs. to reduce groupthink & for workers w/specialized skills
What are social security programs?
-Established in the Social Security Act of 1935 and amendments that were added over the 20th century -Paid for by employers and employees in the form of taxes -Current social security system is unstable and future of these programs is uncertain: OASDI is particularly under strain bcz most SS payments are in form of retirement benefits and more workers (baby boomers) are retiring than ever before and are expected to drain SS in the next 15 years unless system changes
What is Family and Medical Leave?
-Family and Medical Leave Act (FMLA) requires all U.S. firms w/ at least 50 employees working w/in a 75-mile radius to offer 12 weeks unpaid leave to full-time employees w/ at least 1 year of service -For: birth, adoption or foster of new child; serious family medical problems, workers' serious medical problem -Only in CA: Paid Family Leave (PFL)- 8 weeks of paid leave for family and medical reasons & Healthy Workplaces, Health Families Act (HWHF)- 3 paid sick days (24 hours total) each year
What is the Job Characteristics Model (JCM)? How does the JCM relate to person-focused pay plans
-Five "core" job characteristics: skill variety, skill identity, skill significance, autonomy, feedback -> affect work outcomes (motivation, satisfaction, performance, absenteeism and turnover) through 3 psychological states (experienced meaningfulness, experienced responsibility, and knowledge of results) -Person-focused pay plans improve work outcomes because they affect core job characteristics (especially skill variety)
What are competencies?
-General abilities to orchestrate and apply combinations of knowledge and skills consistently over time to perform work successfully in required work situations -Build upon the use of knowledge, skills and abilities which we describe in job analysis
What are the reasons why employers offer benefits?
-Government mandate -Cost advantages: larger firm=larger risk pool -Different tax treatment of benefits -Worker productivity can be enhanced through benefits -Sorting and incentive effect (attract, retain & motivate)
What are HMOs, PPOs and EPOs?
-Health Maintenance Organizations (HMOs): primary care provider required, out-of-network coverage for medical emergencies only, referrals needed -Preferred Provider Organizations (PPOs): No primary care provider required, out-of-network coverage at a higher cost, referrals not needed -Exclusive Provider Organizations (EPOs): primary care provider often required, out-of-network coverage for medical emergencies only, referrals not needed
What are the disadvantages of person-focused pay plans?
-Hourly labor costs, training costs and overhead costs can all increase -May not mesh well w/existing incentive system (if incentive pay is higher than person-focused pay) -Effective person-focused plans depend on well-designed training programs (employers bear price of employees' pay while they get training & must wait to see benefits) -Difficult to determine monetary value of knowledge & skill sets -May not apply to all occupations -May anger some employees
What are the benefits for the flexible workforce?
-Independent contractors are not given legally required nor discretionary benefits (many companies provide them with self-service menus to help workers figure out how to purchase their own insurance products & small tokens of appreciation or "perks" such as Swag) -Temporary workers are given legally required but not discretionary benefits -Leased workers are given legally required and retirement benefits if the safe harbor rule requirements are met as set by the IRC
What are the differences between job-based pay and person-based pay?
-Job-based pay structure: based on "value of jobs", pays employees for assigned job regardless of their skills -Person-based pay structure: based on skill/knowledge or competency possessed by employees, pays employees for all skills regardless of whether work they are doing requires use of all or just a few of those skills
What is the legal context for independent contractors with regards to labor laws and legally required benefits?
-Many labor laws and legally required benefits do not apply to them -No overtime or min. wages provided by Fair Labor Standards Act (FLSA) -No worker's comp., unemployment insurance, or health insurance as mandated by Affordable Care Act (ACA) -Not protected from sexual harassment or discrimination -Not allowed to collectively organize (form unions) as mandated by National Labor Relations Act (NLRA)
Who are executives? What two groups did the Internal Revenue Code (IRC) create for fed. tax purposes that receive executive compensation?
-Officers who hold positions of substantial responsibility (typically CEOs, presidents, VPs and directors) 1. Key employees: officer w/ annual comp. >$185,000 in 2021 OR 5% owner of company or 1% owner w/ annual comp. >$150,000 2. Highly compensated employees (HCEs): 5% owner of company or comp. >$130,000 and top 20% of top paid employees at company
What are the three categories of discretionary benefits?
-Paid time off: provides employees w/their regular pay when they are not performing their work duties -Accommodation and enhancement: "services" in textbook- provide accommodations & enhancements to employees & their families (EAPs, Day care, transportation services, wellness programs, student loan repayment, pet insurance) -Protection Programs: provide family benefits, promote health & guard against income loss caused by such catastrophic factors as unemployment, disability, or serious illness (health insurance is no longer a discretionary benefit since the Affordable Care Act of 2010 mandated it)
What are three basic types of person-focused pay plans?
-Pay for knowledge: links pay w/ acquired knowledge & info used in performing tasks (educational degrees, certificates, etc.) - applies more to managerial, service or professional jobs -Skills-based pay (SBP): links pay to specific skills and expertise in performing tasks (more technical, applies to specific industries/jobs) -Competency-based pay: links pay to competencies (general ability)
What did Uber develop and get passed in response to AB5?
-Proposition 22: law that exempts platform-based drivers (rideshare & delivery workers) from AB5 -Main concern was to prevent unionizing & avoid paying healthcare benefits & family and medical leave -Law did require these companies to develop sexual harassment & anti-discrimination policies and some safety programs
What are the advantages of person-focused pay plans?
-Provide workers w/job enrichment (intrinsically motivating & interesting work) as learning leads to more autonomy & skill variety -Increase job security (workers can do more jobs within a company & more attractive to other employers) -Increase job performance (know more about entire process & able to identify production shortcuts) -Reduce staffing costs (multi-skilled workers can fill in) -Greater flexibility to meet demands & tech innovations -Help deal w/ "plateau effect" where workers become unmotivated when unable to further raise pay through performance
What is portability as it relates to knowledge, skills and competencies?
-Refers to extent to which the skills, knowledge or competencies are those that employers value -Distinction between general and firm-specific (unique does not mean specific)
What are person-focused pay plans? What are they sometimes combined with?
-Reward employees for acquiring job-related knowledge, skills or competencies -Represent important innovations in comp. field -Training is considered "at the heart" of person-focused pay systems (reward employees for learning) -Not a reward for successful performance, instead reward for promise of improved performance in the future -May add to labor costs until increased performance manifests -Sometimes combined with traditional merit or incentive pay systems by awarding raises or bonuses according to how well they demonstrate competencies on the job
What laws have been developed in the U.S. to regulate the disclosure of executive compensation?
-Securities & Exchange Act of 1934: companies must file definitive proxy statement revealing detailed info about comp. of CEO and Named Exec. Officers (NEOs) -Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act): gives company shareholders right to vote on exec. compensation proposals
What types of long-term incentives are typically offered to executives?
-Stock options: stock awarded at discounted price -Restricted stock: stock at discounted price but cannot exercise until vested (golden handcuffs) -Stock appreciation rights: similar to restricted stock but company awards bonus payment instead of exercising stock rights -Phantom stock plans: bonus either equal to value of company shares or increase in value over time -Employee stock purchase plans: employee may purchase stock after specified period using money set aside through payroll deductions
Firms seeking a competitive advantage opt to use person-focused pay systems for what two key reasons?
-Technological innovation: due to rapidly advancing technologies, the skills required by workers may need to be consistently updated for company to stay competitive (especially true in manufacturing & physical labor industries in which tech can perform routine tasks)- goal is not to replace workers, but enhance their productivity (can save $ by paying existing workers for obtaining skills instead of hiring new ones) -Increased global competition: due to increased global competition, companies in the U.S. are forced to become more productive (provide workers w/leading-edge skills and apply them proficiently)
Explain the establishment of skills or knowledge blocks design consideration for person-focused plans
-What sets of skills & knowledge are necessary to perform a job or group of jobs and their value (no set formula for deciding how many blocks or their value - depends on variety of jobs in company) -Job descriptions are blueprints for identifying major knowledge & skills that can be acquired through training -Skill & knowledge blocks are priced based on presumed commercial value in both the market (external value) & the company (internal value)
Explain the whether the investment in training provides measurable payoffs design consideration for person-focused plans
-Whether person-focused pay system will deliver ROI -Person-focused plans are expensive to design & implement. Costs should be offset by improved productivity, quality, retention and other gains -If use seems risky, have slow or limited implementation and spend more time communicating the plan
Explain the whether training is in-house of outsourced design consideration for person-focused plans
-Whether training is developed or delivered in-house or by agency not directly affiliated w/company (community college, university, private consultant) -May outsource if in-house expertise is lacking, if there is urgent need (may take too long to develop in-house) -May use in-house if large number of employees need training (more affordable) or if info is firm-specific or involves trade secrets
Explain the assessment of skills/knowledge design consideration for person-focused plans
-Who should assess whether employees possess skills at levels that justify a pay raise, on what basis should assessments be made and when should they be conducted -Can use some combination of peer and self-assessment and input from experts (supervisors) -Assessments should be done frequently so employees know how they're doing
How well are person-focused pay plans studied? How much are they used?
-Widely implemented, but poorly understood and very little research is done on their effectiveness -Originated in 1980s and mainly used in manufacturing industry in the U.S. -One study in 1998 found that a SBP plan at a manufacturing plant increased productivity, lowered labor costs and lowered scrap -More recent study (2011) found person-focused pay systems are viewed favorably by workers
How do valuations of health insurance differ across workers?
-Workers with families care more than single workers -Women care more than men (and would consequently pay more for health insurance) -Older workers care more than younger workers, because they are more likely to need the services
What are 3 cost management approaches HR professionals can take to minimize the cost burden associated with legally required benefits?
1. "Shift the Cost": increase employee contribution of premium, increase deductibles, co-insurance and co-pays, limit employee choice 2. "Impacting the Supply": telemedicine and virtual doctors, cutting out the insurance "giants" with integrated hospital/doctor/provider systems 3. "Controlling the Demand": prevention and behavior changing, wellness programs, incentives for participation in safety training or healthy activities
What 3 theories can explain why executive compensation is so high?
1. Agency Theory: agent (executive) acts on behalf of the principle (organization) & to avoid agency problem (agent acting in self-interest) companies need to align interests of CEO w/interests of org. (e.g. stock options) 2. Tournament Theory: workers gain large "prize" for moving up in org.'s hierarchy (ultimate prize is promotion to CEO & its lucrative comp. package) 3. Social Comparison Theory: individuals have need to evaluate accomplishments & do so by comparing themselves to others and since comp. committees for CEOs often consist of CEOs from similar or better companies they will decide to pay them well
What are three methods to calculate expat base salary?
1. Balanced sheet method: determined as if they were performing similar work in their home country & they receive same standard of living they would receive in home country (best for short-term assignments) 2. Localization method: determined according to host country's market rate (best for long-term assignments) 3. Global systems method: determined according to pay rate used at headquarters which may be different than home country (best for high mobility employees)
What are the 6 main components of executive compensation?
1. Base Salary: fixed element & smallest portion of executive compensation 2. Long-term Incentives: AKA equity plans or equity agreements & largest portion for most exec. comp. 3. Short-term Incentives (Bonuses): single pay-for-performance payment to reward employees for meeting specific goals 4. Employee Benefits: executives often receive enhanced protection programs and exclusive perks, which are often expected (perquisites) 5. Separation Agreements: guarantee an executive a lucrative compensation package upon employment termination 6. Clawback provisions: allow board of directors to take back performance-based compensation if they later learn that performance goals were not met, regardless of if CEO was responsible or not
What is breadth, range (vertical and horizontal) and depth of knowledge or skills?
1. Breadth: increasing one's range of knowledge or skills that allows one to perform other jobs in the org. 2. Horizontal: similar skills or knowledge 3. Vertical: skills traditionally considered supervisory (coordinating, training, leading others) - often emphasized for self-managed (autonomous) teams 4. Depth: increasing one's level of specialization or expertise in existing skills
What are the two primary tests to determine if a worker is an employee or independent contractor?
1. Common-law tests: uses 10 factors to evaluate 2. Economic realities test: looks at economic realities of the arrangement to determine whether an individual is in reality subject to the direction & control of the employer or is in business themselves -In general, if a company has the right to control work activities, the worker is an employee
What are the 3 design configurations for retirement plans?
1. Defined benefit plan: commonly referred to as pension plan- annual pension= (c/100)xLargest Annual Salary where c is the replacement ratio determined by years of service & retirement age (financial risk solely on employer, cost is uncertain, no individual employee accounts, usually get pension if fired or quit if vested 2. Defined contribution plan: employees & employers contribute to separate account in employee's name, employer's invest funds in employee's name, financial risk on both employees & employers, employees can keep account if fired or quit, Internal Revenue Code (IRC) sets max. annual contribution amounts 3. Hybrid plan: combines features of traditional defined benefit and defined contribution plans (most common is cash balance plan- defined benefit plan, but receive total amount in form of stated account balance instead of annually)
What are the three most important protection programs?
1. Disability Insurance: replaces income for employees who become unable to work because of sickness or accidents (greater access in hazardous work environments and manufacturing industry) 2. Life Insurance: pays employees' beneficiaries upon employees' death (usually 1-2x employee's annual salary) -Term life insurance (covered for defined length of time, most common type, no cash value) -Permanent life insurance (provides life-long coverage with "cash value" component-whole premiums are set & universal premiums you decide flexibly) 3. Retirement Programs: ensure financial independence & ability to continue living in society after one is no longer able to work
What four types of bonuses are common in executive compensation?
1. Discretionary: given on elective basis usually based on company profits, financial condition of company, business conditions & prospects for the future 2. Performance-contingent: based on attainment of specific performance criteria (usually use PA system) 3. Predetermined allocation: size of bonus based on fixed formula that accounts for company profits 4. Target plan: bonuses tied to executive performance and size of bonus increases/decreases w/performance
What five key factors should we consider when designing person-focused pay plans?
1. Establishment of skills or knowledge blocks 2. Assessment of skills/knowledge 3. Access to training 4. Whether training is in-house of outsourced 5. Whether the investment in training provides measurable payoffs
What are some incentives for expats?
1. Foreign service premiums or "uplift": temporary pay raise to encourage employees to take foreign assignments (higher for longer term assignment) 2. Mobility premium: single lump sum bonus given to encourage employees to take new foreign assignments (larger if less employees wiling to move) 3. Allowances: payments given in small amounts during an expat's assignment to cover various expenses (hardship allowances, spousal allowances, housing and utilities allowances "quarters allowances", education allowances, language lesson allowances, etc.)
What are the three types of competencies included in the Competency Model Clearinghouse developed by the Dept. of Labor, O*Net and industry partners?
1. Foundational competencies: tiers 1-3 are competencies that provide the foundation for success in school and work (often prerequisite for learning industry-related knowledge and skills) 2. Industry-related competencies: tiers 4-5 are competencies specific to an industry or industry sector (allow for flexible workforce - move across industry sub-sectors) 3. Occupation-related competencies: tiers 6-9 are competencies that define performance in a workplace, to design competency-based curriculum, or to articulate the requirements for an occupational credential (license or certification)
What are three reasons why U.S. companies globalize?
1. Free trade agreements (North American Free Trade Agreement or NAFTA) 2. Relocation to cheaper production or raw material areas 3. Search for new global markets and talents
What are the 3 different types of matching contributions to defined contribution plans?
1. Full match: employer fully matches an employee's contributions up to max set by IRC 2. Fixed dollar match: employer matches up to specified limit (e.g. up to 5%) 3. Variable dollar match: employer's contribution decreases as employee's contribution increases (e.g. $1 to $1 on first 3% and $0.50 per $1 for next 3%)
What two types of separation agreements can executives receive?
1. Golden parachutes: provide pay & benefits to executives following their termination resulting from change in ownership or corp. takeover through mergers 2. Platinum parachutes: compensate departing executives with severance pay, continuation of company benefits and even stock options in the event the CEO is terminated after period of unsatisfactory performance
What are three types of international employees?
1. Host Country Nationals (HCN): foreign national citizens who work in US companies' office/plant in their home country 2. Third Country Nationals (TCN): foreign citizens who work in a U.S. company's branch in a foreign country other than the U.S. or their home country 3. Expatriates or "Expats": U.S. citizens employed by a U.S. company in a foreign country (most int'l comp. issues concerned with these)
What are 4 important factors HR professionals must consider when constructing international compensation packages?
1. Length of international assignment: short-term vs. long-term 2. Mobility level: does the employee need to move to multiple foreign countries? 3. Equity: is the pay considered fair by home and horse country employees? 4. Relocation appeal: is the location somewhere that employees want to go?
For what 3 reasons does the board of directors include separation clauses?
1. Protect executives in the event of a takeover 2. Protect the company (don't want CEOs to undermine mergers/acquisitions) 3. Avoid getting sued by CEOs if they're fired
What are the most common defined contribution plans (named after the sections of the IRC that created them)
1. Section 401(k) Plans: contributions are pre-tax, no taxes due until money is withdrawn 2. Roth 401(k) Plans: pay income taxes upfront & make withdrawals tax-free 3. Section 403(b) Plans: same as 401(k) but offered to employees of tax-exempt groups like churches & schools 4. Section 457 Plans: same as 401(k) but applies to state gov. employees
What are the 4 pay structure models for person-focused pay programs?
1. Stair-step model: resembles a flight of stairs where the steps represent jobs from a job family that differ in complexity (rewards depth of knowledge and skills) 2. Skill blocks model: resembles stair-step model, but skills don't necessarily build on each other (emphasizes both horizontal & vertical skills) 3. Job-point accrual model: rewards gaining new knowledge or skills that address key company concerns & are important for competitive advantage - emphasizes broadening skills (points often limited to avoid having "jack of all trades") 4. Cross-departmental model: promotes staffing flexibility by training employees from one dept. w/ critical skills they would need to perform effectively in another dept. (emphasizes broadening skills, often achieved through broadbanding where multiple pay grades & ranges are consolidated into fewer, wider)
What are 4 types of flexible workers?
1. Temporary workers: contracted workers who perform a job for a limited time based on needs of employer (can be a probationary period during which employer decides whether they want to hire the employee) 2. On-call arrangements: another form of temporary employment (work sporadically throughout yr when companies require their services) 3. Leased employee arrangements: lease companies employ qualified individuals & place them in client companies on long-term basis (bill client direct costs of employing workers & charge fixed fee) 4. Independent contractors: non-employee that performs work for company for agreed upon price (independent contractors, freelancers, consultants)
What are the 3 types of social security programs?
1. Unemployment insurance: temporary benefit for spells of unemployment that result through no fault of the employee (must be employed for last 4-5 quarters prior to being unemployed-base period, applies to almost all workers except agricultural and domestic, weekly benefits vary state by state, avg. duration is 12-18 weeks) 2. Old Age, Survivor and Disability Insurance (OASDI): provides benefits to retirees and disabled ppl- and to their spouses, children & survivors (old age: based on income in 35 yrs worked most, fully insured after working 10 years ; survivor: benefit given to individuals dependent on deceased, fully insured worker ; disability: benefit for totally disabled & their family, disability must last at least 1 year or result in death) 3. Medicare/Medicaid: Medicare: health insurance program for nearly all U.S. citizens age 65+, Medicaid serves low-income individuals (run at state level)
What is one tax consideration for international compensation programs? How do companies deal with this?
Double taxation problem: expats must continue paying taxes to the U.S. gov. while on assignment & they must pay income tax to foreign gov. where they're based. Companies may use 1 of the 3 to deal w/ this: 1. Tax localization: expat pays all home & host country taxes w/ no reimbursements from company 2. Tax protection: expat pays all their home & host country taxes & gets reimbursed if actual taxes they paid are higher than hypothetical taxes (hypo tax) they would have paid if they stayed in U.S. 3. Tax equalization: employer pays all expat's home & host country taxes & in exchange the hypothetical taxes the employee would have paid if they stayed in U.S. are subtracted from income (most popular approach)
What are the different types of employee and employer contributions under a defined contribution plan?
Employee: "elective" contribution: what % of your wage or salary you decide to put in the account Employer: -"Non-elective": something for nothing (e.g. everyone gets 3%) -"Profit sharing": if we meet our goals, we contribute a percent to your account -"Matching": you contribute, we contribute (full matching, fixed dollar matching, or variable dollar matching)
What are some ethical concerns with regards to the gig economy?
Resulted in devaluation of human worker -Employer may exploit contingent workers by paying them lower wages and benefits than core employees -May promote racial and gender disparities (more women & people of color in contingent workforce) -Cheap labor-> poorly trained & less skilled workers (will hamper competitive advantage) -Contingent workers may erode labor standards (cannot form unions or have legitimate say in labor practices, weaker union bargaining power) -No way to report sexual harassment -Gov. could be missing out on taxes
What legal and discretionary benefits do expats generally receive?
Same legal and discretionary benefits as U.S. domestic workers with some special enhanced benefits. -All legally required benefits except worker's comp. -Same discretionary benefits, but typically more PTO bcz U.S. has no mandatory paid holidays or paid annual leave days, but most other countries do -Enhanced benefits such as: relocation assistance payments, home leave benefits (PTO to prepare for move), travel reimbursements, rest & relaxation leave (in designated retreat)
What do we use in CA to determine if a worker is an employee or independent contractor?
The ABC test, which was established with CA's Assembly Bill 5 "AB5" (strong, proactive, pro-employee test) -Establishes that a worker is an employee unless the employer can establish 3 factors: 1. The work is done w/out employer's direction & control 2. The work is performed outside the usual course of employer's business 3. The work is done by someone with their own, independent business or trade doing that kind of work