Compensation (7%)
Callback Pay
additional monies earned because one is asked to return to work after normal business hours, results from taking call.
Financial Inducements and Non Financial Inducements
Total rewards includes the financial inducements and rewards (direct pay, cash-based incentives, and benefits), as well as nonfinancial inducements and rewards such as the value of good job content as well as a good working environment.
Overtime Pay
Nonexempt employees one-and- a-half times their regular rate of pay when they work more than 40 hours in a single workweek. Employers can pay more than 1.5 if they wish
Base Pay Systems
- Single or Flat Rate System - Time-Based Step Rate System (Automatic Step Rate system, Step rate with Performance considerations, Combination Step rate and performance) - Performance-Based Merit Pay System - Productivity-Based System - Person-Based System
Person-Based System
An employee's characteristics determine pay. Superior knowledge or skill mastery is rewarded. - Knowledge-based (e.g., scientists whose pay is based on knowledge in a field or domain) - Skill-based (e.g., machine operators cross-trained on a variety of production equipment) - Competency-based (e.g., professionals who excel at defined competencies such as Organizational Development Specialists in HR)
Broadbanding
Combines several pay grades or job classifications that have narrow range spreads with a single band that has a wider spread. Organizations usually adopt broadbanding as a way to simplify their pay levels and reduce management oversight requirements. As a result, broadbanding typically is more popular in large organizations than in smaller ones. A reduction of pay grades can reduce opportunities for promotion Can also open the door for pay discrimination if not all jobs in a broadband are paid the same (since they are legally considered equal in a broadband).
Hazard Pay
Type of differential. Pay earned by employees who work in an environment that is considered more risky from a safety or health point of view.
Performance Based - Merit Pay System
A base pay system based on an employee's individual job performance. - Pay increases are normally awarded on an annual basis and influenced by the individual's overall job perfromance - A document identifying the percent pay increase linked to levels of performance and the individual's position in the applicable pay range (Merit Guidelines Document) is communicated to employees as an incentive to increase their performance
Profit Sharing
An organization-based pay type that gives employees a share of the profits of a company. An employee receives a percentage of the profits based on its quarterly or annual earnings. the company contributes a portion of its pretax profits to a pool that will be distributed among eligible employees. - Also known as a deferred profit-sharing plan
Compa-Ratios
Indicators of how wages match, lead, or lag the midpoint and are normally an indicator of market value. Compa-ratios are computed by dividing the worker's pay rate by the midpoint of the pay range. The compa-ratio formula is as follows: Compa-ratio = Pay rate / Midpoint Compa-ratios less than 100 percent (usually expressed as a "compa-ratio less than 1.00") mean the worker is paid less than the midpoint of the range. Compa-ratios greater than 100 percent (1.00) mean that wages exceed the midpoint. Compa-ratios can be used for budgetary controls as well as to investigate discrimination in that a difference between one group and another can indicate the possibility of discrimination.
Red Circle Rate
Organizations use red circle rates as a method to increase an employee's pay to a new rate higher than the maximum for the assigned pay range - Typically used in small organizations with fewer levels (Increasing someone's pay to exceed the maximum range instead of giving a promotion)
Job Evaluation: Quantitative Methods
Quantitative job evaluation methods include point-factor and factor comparison meth- ods. Quantitative methods evaluate factors on a defined measurable scale and provide a score as a result that is a measurable comparison of one job to another. - Factor Comparison (Job to job comparison) - Point Factor (Job to predetermined-standard comparison)
Shift Pay
Refers to supplemental pay paid to employees who work less-desirable hours, such as second or third shifts.
Green Circle Rates
Situations in which an employee's pay is below the minimum of the range of the applicable grade. It can also happen when a fast track employee is promoted and paid under the range due to an unfair level of increase that it would need to be. This can cause morale issues and are grounds for claims of discrimination.
Team and Group Incentives: Organization-Based Pay
pay-for-performance plans (PFPs), these plans tie compensation directly to specific business goals and management objectives: - Profit Sharing - Gainsharing
Job Evaluation: Non - Quantitative Methods
The primary objective of a nonquantitative method is to establish a relative hierarchy of jobs based on each job's relative worth. Nonquantitative methods often are referred to as whole-job methods because they rank jobs as a whole based on their perceived worth without placing a numerical value on each job. - Job Ranking (Job to job comparison) - Job Classification (Job to predetermined-standard comparison) Ranking and classification job evaluation systems are considered non-quantitative whole-job systems because they do not produce a specific numerical score; rather they measure the position of the "whole job" as compared to other jobs.
Single or Flat Rate System
Base Pay System in which each worker in the same job has the same rate of pay regardless of seniority or job performance. This pay system is most commonly found in elected public-sector jobs or in a union setting.
Geographic Differentials
Differences in pay for similar or identical jobs that are based on variations in costs of living in labor markets in particular geographic regions.
Compensation Secrecy or Transparency
Employers have conflicting views about whether compensation should be kept confidential or not. Federal contractors are prohibited from banning discussions about compensation among their employees. Executive Order 13665 (signed by President Obama on April 8, 2014) amended Executive Order 11246.
Time-Based Step Rate Systems
A base pay system that bases the employee's pay rate on the length of time in the job. Pay increases are published in advance on the basis of time. Three Variations - Automatic Step Rate system: Pay range is divided into several steps, each a predetermined range apart. At the prescribed time interval, each employee with the required seniority receives a one-step pay increase. This system is common in public-sector jobs and in a union environment. - Step Rate with Performance Considerations: Similar to the automatic system except that performance can influence the size or timing of the pay increase. - Combination Step Rate and Performance: employees receive step rate increases up to the established job rate. Above this level, increases are granted only for superior job performance.
Differential Pay
Additional compensation paid to an employee as an incentive to accept what would normally be considered adverse working conditions usually based on time, location, or situational conditions.
On Call Pay
An employee who is required to remain on his or her employer's premises or so close to the employee's work location that he or she cannot use the time effectively for his or her own purposes is working while on-call. Whether hours spent on-call are hours worked is a question to be decided on a case-by-case basis.
Weekend and Holiday Pay
An employer is required to pay hourly employees only for time actually worked. On the other hand, exempt employees (salaried employees who do not receive overtime) who are given the day off must be paid their full weekly salary if they work any hours during the week in which the holiday falls.
Gainsharing
An organization-based pay system of management in which an organization seeks higher levels of performance through the involvement and participation of its people. Measure performance and through a predetermined formula shares the savings with all employees. The organization's actual performance is compared to the baseline performance (often a historical trend) to determine the amount of the gain. Employees have an opportunity to earn a gain sharing bonus (if there is a gain) generally on a monthly or quarterly basis Gainsharing is based on increased productivity while profit sharing is based on a percentage of profits.
Financial Inducements: Direct Compensation (cash) vs. Indirect Compensation (benefits)
Direct Compensation (Cash): - Base pay (wages and salary) - Commissions - Bonuses - Merit pay - Piece rate - Differential pay - Cash awards - Profit sharing - Gainsharing Indirect Compensation (Benefits): - Social Security - Unemployment insurance - Disability insurance - Pensions - 401(k) and other similar programs - Healthcare - Vacations - Sick leave - Paid time off Some of the direct compensation programs are discretionary (i.e., cash awards, dif- ferential pay, and certain bonuses), while others are mandatory and governed by federal, state, and, in some cases, local law and regulation (base pay and incentives). Some of the indirect compensation programs are also discretionary; that is, they are used at the option of the employer. They include paid vacation, sick leave, paid time off, 401(k) and similar retirement plans, and pensions. Finally, some benefits are mandatory and governed by federal law and regulation. Social Security, workers' compensation, and unemployment insurance are examples. Even discretionary programs are subject to regulation when they are employed.
Regular Rate of Pay
FLSA requires employers to pay overtime based on an employee's regular rate of pay. Where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates.
Financial Incentives
Financial incentives are a monetary benefit offered to organizations, employees, and consumers to encourage behavior or actions that otherwise would not take place. - Differential Pay - Overtime Pay - Regular Rate of Pay - Hazard Pay - Shift Pay - On-Call Pay - Callback Pay - Geographic Differentials - Weekend and Holiday Pay
Health Insurance Portability and Accountability Act (HIPAA)
HIPAA is federal legislation that provides data privacy and security provisions for safe- guarding medical information. The act contains five sections, or titles: Title I protects health insurance coverage for individuals who lose or change jobs. Title II requires the U.S. Department of Health and Human Services to establish national standards for processing electronic healthcare transactions. Title III includes tax-related provisions and guidelines for medical care. Title IV further defines health insurance reform. Title V includes provisions on company-owned life insurance and treatment of those who lose their U.S. citizenship for income tax purposes. Patient Protection and Affordable Care Act (PPACA) Also known as Obamacare, the PPACA is the landmark health reform legislation passed by the 111th Congress and signed into law by President Barack Obama in March 2010.
Job Evaluation
Job evaluation is the systematic process for assessing the relative worth of jobs within an organization. A comprehensive analysis of each position's tasks, responsibilities, knowledge, and skill requirements is used to assess the value of the job's content to the employer and provide an internal ranking of the jobs. Job ranking, point factor, job classification, and factor comparison are four of the most common methods used. Job evaluation methods can be nonquantitative or quantitative. Nonquantitative methods often are referred to as whole-job methods because they rank jobs as a whole based on their perceived worth without placing a numerical value on each job. An example of a nonquantitative method would be to rank a clerical job below a supervisory job on the basis of their relative, nonquantitative worth.
Job Evaluation: Job Classification Method
Jobs can be compared to an outside scale. This also can be done on a whole-job basis called a job classification method. Job classification is the result of grouping jobs into a predetermined number of grades or classifications. Each classification has a class description. The federal government has a classification system known as the General Schedule (GS). The GS is the predominant pay scale for federal employees, especially employees in professional, technical, administrative, and clerical positions. The system consists of 15 grades, from GS-1, the lowest level, to GS-15, the highest level. There are also ten steps within each grade. The grade level assigned to a position determines the pay level for that job. Classes can be further identified by using benchmark jobs that fall into each class. Benchmark jobs have the following characteristics: The essential functions and knowledge, skills, and abilities (KSAs) are established and stable. They represent the entire range of jobs in each class. A significant percentage of workers are employed in these jobs. External market rates for these jobs are an acceptable basis for setting wages . In the job classification method, a job may be compared to a similar job or to other jobs in the General Schedule to determine its relative ranking. Job classification is most frequently formally performed in large companies, civil ser- vice and government employment, nonprofit agencies, and colleges and universities.
Non-financial Inducements
Nonfinancial rewards can have an even more substantial impact on employee satisfaction and motivation than traditional financial rewards. Job Content: Workers, who are dynamic in nature, do not show preference for routine jobs. They are always ready to accept challenging assignments, which can be brought through mentor- ing, job redesigning, job enlargement, and job enrichment. It is important to under- stand the capabilities of every individual in the organization and assign work to him or her accordingly. Job Environment: A good job environment includes employee recognition. Employees who receive recognition for their work accomplishments tend to have increased morale and positive work- place attitudes. Employee recognition is an incentive employers utilize to offer feedback and encouragement to employees. Employee recognition rewards include verbal praise, award ceremonies, and public announcements for a job well done. Workplace recognition rewards occur frequently such as at the end of the day, at the end of the week, or at the conclusion of the sales month. Compensation Ethics: In an organization, workplace behavior ethics should be a core value. Aside from doing the right thing, conducting ourselves ethically has great rewards and returns. Being ethi- cal is essential to fixing problems and improving processes. It is needed to establish base- line measures and increase efficiencies. Most importantly, it is essential to having strong working relationships with people. On the other hand, covering up unethical behavior does the opposite of these important workplace practices and impedes the individual's ability to grow as a worker or as a leader.
Pay Grades and Ranges
Pay grades, or job groups, are the way an organization organizes jobs of similar values. The valuation is a result of the job evaluation process. Jobs of the same or comparatively the same value, even though dissimilar in function, are paid within the same pay grade. Factors to consider: - The size and structure of the organization - The "distance" between the lowest and highest jobs in the organization - The organization's pay increase and promotion policy - The grouping of nonexempt and exempt jobs as well as job families (i.e., clerical, technical, professional, supervisory, and management jobs) - Creating sufficient grades to permit distinguishing difficulty levels but not so many that the difference between adjoining grades is insignificant
Productivity-Based System
Pay is determined by employee's output. This system is mostly used on an assembly line in a manufacturing environment: - Straight Piece-Rate System: Employee receives a base rate of pay and is award- ed additional compensation for the amount of output produced - Differential Piece-Rate System: Employee receives one rate of pay up to the production standard and a higher rate of pay when the standard is exceeded Both of these systems are focused on quantity over quality.
Wage Surveys
Paying people fairly is good for business. If you underpay, employees will eventually look for a better offer. If you overpay, the payroll budget and profitability will suffer. That's why companies use market data to research the value of their jobs. But what is "market data" anyway? To determine the prevailing rate for a job, a company can "benchmark" jobs against compensation surveys that are detailed and specific to the company's industries and regions. A good compensation survey uses standard, proven methods of data gathering and statistical analysis to determine how much companies pay for a specific job in a specific industry. A number of types of organizations conduct salary surveys, including compensation information businesses, compensation consulting firms, industry associations, educational institutions, and state and federal governments.
Fair Labor Standards Act (1938)
The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employ- ment standards affecting employees in the private sector and in federal, state, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective 2009. Overtime pay at a rate not less than one-and-a-half times the regular rate of pay is required after 40 hours of work in a workweek. FLSA minimum wage The federal minimum wage is $7.25 per hour. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage. FLSA overtime Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours, which is seven consecutive 24-hour periods) at a rate not less than one-and-a-half times the regular rate of pay. There is no limit on the number of hours employees 16 years or older may work in any workweek. The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days. Hours worked Hours worked ordinarily include all the time during which an employee is required to be on the employer's premises, on duty, or at a prescribed workplace. Recordkeeping Employers must display an official poster outlining the requirements of the FLSA. Employers must also keep employee time and pay records. Child labor FLSA provisions are designed to protect the educational opportunities of minors and prohibit their employment in jobs and under conditions detrimental to their health or well-being.
Family and Medical Leave Act (FMLA)
The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. Eligible employees are entitled to the following: Twelve workweeks of leave in a 12-month period for any of these reasons: The birth of a child and to care for the newborn child within one year of birth The placement with the employee of a child for adoption or foster care and to care for the newly placed child within one year of placement To care for the employee's spouse, child, or parent who has a serious health condition A serious health condition that makes the employee unable to perform the essential functions of his or her job Any qualifying exigency arising out of the fact that the employee's spouse, son, daughter, or parent is a covered military member on "covered active duty" Twenty-six workweeks of leave during a single 12-month period to care for a covered service member with a serious injury or illness if the eligible employee is the service member's spouse, son, daughter, parent, or next of kin (military caregiver leave) On February 23, 2015, the U.S. Department of Labor's Wage and Hour Division announced a Final Rule to revise the definition of spouse under the Family and Medical Leave Act in light of the United States Supreme Court's decision that found the Defense of Marriage Act to be unconstitutional. The Final Rule amends the definition of spouse so that eligible employees in legal same-sex marriages will be able to take FMLA leave to care for their spouse or family member, regardless of where they live.2
Job Evaluation: Factor Comparison Method
The factor comparison method is more complex than ranking, classification, or the point-factor methods and is only occasionally used. It involves ranking each job by each compensable factor and then, as an additional step, identifying dollar values for each level of each factor to develop an actual pay rate for the evaluated job. The factor comparison method is most often used in union negotiations as part of a labor contract and in limited cases where wages are steady over a period of time and the organization uses a flat rate for each job. Factor comparison breaks down a job into a small number of key factors, such as skills, effort, knowledge, and responsibilities. The next stage is to identify benchmark jobs, which are well-known positions that retain consistency across different companies and organizations. Each job is then assigned a salary, which is further broken down for each factor. Advantages of factor comparison include its broad application; it can be applied to a wide range of job roles and industries and can also be applied to new roles in order to compare them to similar positions. Distilling the value of the job in monetary terms can also help organizations make sure their recruitment methods provide a decent return on investment (ROI). One of the main disadvantages is that someone has to make a deci- sion on the relative worth of each factor; for example, someone may believe knowledge is worth more than skills and give this factor "too much" salary.
Job Evaluation: Job Ranking Method
The job ranking method is often called a whole-job comparison because it is a compari- son of the whole job compared to another whole job rather than a comparison based on each job's measurable factors. Job ranking using the whole-job method is quick and easy but not very precise. When there are a large number of jobs to evaluate, a paired-comparison method of ranking can be used. This method enables each job to be compared with every other job. Jobs are methodically compared to the next job and, depending on the perceived worth, moved up or below the next job. Ultimately, the job with the highest number of upward movements is the highest ranked. Other jobs are ranked accordingly. In a job ranking method, jobs are arranged in order of their value or merit to the organization. Accordingly, the jobs at the top of the list provide more value to the organization, and the relative importance keeps decreasing as you move down the list. The worth of a job is usually based on judgments of the following: Skill Effort (physical and mental) Responsibility Working conditions Because of its simplistic nature, this method works well for small organizations but is not very effective for big organizations where the jobs are large in number, and thus this becomes a complex process.
Job Evaluation: Point-Factor Method
The most commonly used job evaluation method is the point-factor method, which uses specific compensable factors as its reference points to measure relative job worth. Compensable factors are significant job characteristics that contribute to the value of the work and the organization as a whole. The following are two well-known systems used to identify compensable factors: The Hay plan Uses a standard criteria comprising three compensable factors: know-how, problem-solving, and accountability. The factor evaluation system (FES) Determines levels of duties and responsibilities using a point rating system to evaluate selected positions. FES uses weighted factors to address the major position characteristics of responsibility, education/experience, job conditions, physical requirements, supervision, training, and so on. These are the five steps in the point-factor method of job evaluation: 1. Identify key jobs. These are benchmark jobs, not necessarily the most important jobs in the organization, but jobs that are equitably paid, stable, and well defined. 2. Identify the compensable factors. These are the factors that will be used to distinguish one job from another. Six to eight factors are generally sufficient. Experience, responsibility, and education are most often used. Other factors that can be considered, depending on their general applicability, include physical demands, mental requirements, skill, working conditions, and supervisory responsibilities. 3. Weight the factors according to their overall worth. Usually, the most heavily weighted factors are knowledge, responsibility, experience, education, degree of difficulty, and supervisory responsibilities. 4. Divide each job factor into degrees that range from high to low. Assign points to each degree. The number of points assigned to each degree should correspond with the weighting of the factors. As an example, if the factor for skill is weighted 40 percent, the factor of working conditions is weighted 10 percent, and both factors have 5 degrees, then degree 2 for skill should have 4 times as many points as degree 2 for working conditions. 5. The final result will be a table. Based on the assigned point values, the job in this example is 126 on a scale of 50 to 200 points. Points usually determine the pay grade to which the job will be assigned.
Wage vs. Salary
Wages are primarily associated with employee compensation based on the number of hours worked multiplied by an hourly rate of pay. By contrast, salaries are primarily associated with the employer's assessment of job worth; that is the value of the job to the organization.. Salaries are fixed amounts. Many organizations classify all cash based income as wages, whether salary or hourly.
Pay Grades and Ranges Continued.
Well-structured pay grades enable management to develop a well-coordinated pay system rather than having to create a separate pay range for each job. Pay ranges establish the upper and lower boundaries of each pay grade. Market data for a benchmark job (ideally, a "key" job that will link to market value) in each pay range helps to determine the range midpoint. The range spread reflects the equal dispersion of pay on either side of the midpoint to the lower and upper range boundary. Quartiles and percentiles show dispersion of data throughout a range. These are commonly recognized reference points an organization uses to measure its position against the market as well as for internal compensation management purposes. The range spread is the dispersion of pay from the lowest boundary to the highest boundary of a pay range. Range spread is calculated by subtracting the range minimum from the range maximum and dividing that figure by the range minimum. Range spread is expressed as a percentage. Maximum - Minimum / Minimum For example, the range spread for a pay range with a $30,000 minimum and a $45,000 maximum would be as follows: $45,000 - $30,000 / $30,000 = 50% Typical range spreads in organizations are as follows: Nonexempt jobs: 40% Exempt jobs: 50% Executive jobs: 60%
