compensation ch.1

___ in ___ of the uninsured in the US are from working families

8 in 10

incentive effect

Degree to which pay influences individual and aggregate motivation

income protection

Medical insurance, retirement programs, and life insurance

team incentives

Offers higher pay if the team performance warrants it

procedural fairness

The process used to make pay decisions the way a pay decision is made may be equally as important to employees as the results of the decision

pay relationships within the organization affect all three compensation objectives

They affect employee decisions to stay with the organization, to become more flexible by investing in additional training, or to seek greater responsibility.

total compensation

Total compensation returns are more transactional. They include pay received directly as cash (e.g., base, merit, incentives, cost-of-living adjustments) and indirectly as benefits (e.g., pensions, medical insurance, programs to help balance work and life demands, brightly colored uniforms).39 So pay comes in different forms, and programs to pay people can be designed in a wide variety of ways

the hourly compensation for mexican manufacturing work are about __% of those paid in

US

total cash compensation

Wages + Bonuses

employees may see compensation as

a return in an exchange between their employer and themselves, as an entitlement for being an employee of the company, as an incentive to decide to take/stay in a job and invest in performing well in that job, or as a reward for having done so

stockholders have a particular interest in executive pay in that interests of executives are

aligned with those of shareholders

incentives

also tie pay increases to performance.51 However, incentives differ from merit adjustments. First, incentives do not increase the base wage and so must be reearned each pay period. Second, the potential size of the incentive payment will generally be known beforehand. Whereas merit pay programs evaluate past performance of an individual and then decide on the size of the increase, what must happen in order to receive the incentive payment is called out very specifically ahead of time

merit bonuses

based on a performance rating but unlike merit increases, are paid in the form of a lump sum rather than becoming a permanent part of the base salary may now become more important that traditional merit increases

how people view compensation affects how they

behave; it does not mean the same thing to everyone, need to recognize different perspectives

the network of returns is more likely to be useful if

bonuses, development opportunities, and promotions all work together

managing compensation means answering the

so what question-so what is the impact of this policy, technique, decision

an incentive program relies on an objective measure of performance, whereas a merit increase program typically relies on a

subjective rating of performance

a firm's compensation decisions have a ____ effect

temporal

objectives serve several purposes such as

guide decision of pay system develop innovative new products

small employers are much less likely than large employers to offer

health insurance to their employees

incentives are frequently referred to as

variable pay

management

means ensuring that the right people get the right pay for achieving the right objectives in the right way. The greatest system design in the world is useless without competent management.

society perspective

measure of justice-inequalities between pay for men and women (women earn 82% of what men earn under even best case scenario, employers spend about 44 cents for benefits on top of every dollar paid for wages and salaries

basic objectives of pay systems

efficiency, fairness, ethics, and compliance with laws and regulations. Efficiency can be stated more specifically: (1) improving performance, increasing quality, delighting customers and stockholders, and (2) controlling labor costs.

people in the US worry about losing manufacturing jobs to

mexico, china, and other nations

motivation, together with employee ability and work/organizational design determines e

employee behaviors such as performance

Pay can influence employee motivation and behavior in two ways

pay can affect the motivational intensity, direction, and persistence of current emploees

external competitiveness

pay comparisons with competitors. How much do we wish to pay in comparison to what other employers pay?

salary

pay for employees who are exempt from regulations of the Fair Labor Standards Act (FLSA) and hence do not receive overtime pay.44 Managers and professionals usually fit this category. Their pay is calculated at an annual or monthly rate rather than hourly, because hours worked do not need to be recorded.

the way people are paid affects the

quality of their work and their attitude toward customers, willingness to be flexible, learn new skills, or suggest innovations

relational returns

recognition and status, employment security, challenging work, and opportunities to learn. Other forms of relational return might include personal satisfaction from successfully facing new challenges, teaming with great co-workers, receiving new uniforms, and the =total return

compensation

refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

the peformance objective of incentives may be

expense reduction, volume increases, customer satisfaction, revenue growth, return on investments, increase in stock value

employee contributions (nature of pay mix)

important policy decision since it directly affects employee's attitudes and work behaviors

some believe that using stock to pay employees creates a sense of ownership that will

improve performance, which will in turn increase stockholder wealth

performance based pay affects fairness in that employees need to understad the basis for judging performance

in order to beleive that their pay is fair

job losses or gains in a country over time are partly a function of

relative labor costs across countries

shareholders can influence executive compensation decisions in a variety of way such as

shareholder proposals and election of directors in proxy votes

by paying executives on the basis of company performance measures such as

shareholder return-hope is that company performance will be higher

roughly __% of americans don't have health care

14%;41 million

individuals and businesses in the US spend

2.9 trillion per year or 17.4 percent of its economic output on health care

productivity in China is about __% of that in the US

22

mexican worker productivity is about __% of US workers

30

labor costs can account for

50% of total costs

hourly compensation costs

Permit a comparison of typical expenditures of compensation across countries based on the PPP exchange rate China-3.38 mexico-6.82 czech republic-12.17 germany-49.98

the answer to how strongly CEO pay and sharholder return are related depends on how

carefully the timing and measurement of performance are addressed

internal alignment

comparisons among jobs or skill levels inside a single organization. Jobs and people's skills are compared in terms of their relative contributions to the organization's business objectives. Internal alignment pertains to the pay rates both for employees doing equal work and for those doing dissimilar work. In fact, determining what is an appropriate difference in pay for people performing different work is one of the key challenges facing managers.

compliance

conforming to federal and state compensation laws and regulations. If laws change, pay systems may need to change, too, to ensure continued compliance. As companies go global, they must comply with the laws of all the countries in which they operate.

In English, compensation means something that

counterbalances, offsets, or makes up for something else. if we look at the origin of the word in different languages, we get a sense of the richness of the meaning, which combines entitlement, return, and reward.

In today's China, compensation takes on a more subtle meaning.

dai yu, is used. It refers to how you are being treated—your wages, benefits, training opportunities, and so on. When people talk about compensation, they ask each other about the dai yu in their companies. Rather than assuming that everyone is entitled to the same treatment, the meaning of compensation now includes a broader sense of returns as well as entitlement.

as the unemployment rate increases, health coverage

declines further

sorting effect

different types of pay strategies may cause different types of people to apply to and stay with (i.e., self-select into) an organization. In the case of pay structure/level, it may be that higher pay levels help organizations to attract more high-quality applicants, allowing them to be more selective in their hiring. Similarly, higher pay levels may improve employee retention.

the impact of pay decisions on expenses is one result that is

easily measured and well understood

fairness

fair treatment for all employees by recognizing both employee contributions (e.g., higher pay for greater performance, experience, or training) and employee needs (e.g., a fair wage as well as fair procedures)

the pay indivuduals receive in return for the work they perform and the value they create is usually the major source of their

financial security

some pay systems set base wage as a

function of the skill or education an employee possesses, common for engineers and schoolteachers

present-value perspective shifts the comparison of today's intial offers to consideration of

future bonuses, merit increases, and promotions

merit increases

given as increments to base pay and are based on performance.45 According to surveys, 90 percent of U.S. firms use merit pay increases.46 An assessment (or rating) of recent past performance is made, with or without a formal performance evaluation. In recent years, merit increase budgets (or average merit increases) have been just under 3 percent, creeping up to 3 percent most recently. Survey data indicate that, on average, an outstanding performer receives a 4.4 percent increase, an average performer a 2.8 percent increase, and a poor performer a 0.4 percent increase

rather than treating pay only as an expense to be minimized, a manager can also use it to

influence employee behaviors and to improve the organizations performance

long term incentives

intended to focus employee efforts on multiyear results. Typically they are in the form of stock ownership or options to buy stock at a fixed price (thus leading to a monetary gain to the degree the stock price later goes up). The belief underlying stock ownership is that employees with a financial stake in the organization will focus on long-term financial objectives: return on investment, market share, return on net assets, and the like.

the external competitiveness and employee contribution decisions should be made

jointly

compensation in japanese is

kyuyo, which is made up of two separate characters (kyu and yo), both meaning "giving something." Kyu is an honorific used to indicate that the person doing the giving is someone of high rank, such as a feudal lord, an emperor, or a samurai leader. Traditionally, compensation is thought of as something given by one's superior. Today, business consultants in Japan try to substitute the word hou-syu, which means "reward" and has no associations with notions of superiors. The many allowances that are part of Japanese compensation systems translate as teate, which means "taking care of something." Teate is regarded as compensation that takes care of employees' financial needs. This concept is consistent with the family, housing, and commuting allowances that are still used in many Japanese companies

because incentives are one time payments, they do not permanently increase

labor costs-when performance declines, incentive pay automatically declines too

wages and benefits are a major focus of

labor unions efforts to serve their members interests

relational returns

learning opportunities, status, challenging work, and so on) are psychological.

Cost-of-living adjustment (COLA)

made on the basis of changes in what other employers are paying for the same work, changes in living costs, or changes in experience or skill. Such provisions are less common than in the past as employers continually try to control fixed costs and link pay increases to individual and/or company performance.

for managers, compensation influences their success in two ways

major expense that must be managed, major determinant of employee attitudes and behaviors

allowances

often grow out of whatever is in short supply

increasingly, white collar work like finance, computer programming, and legal services is also being sent

overseas

incentives explicitly try to influence future behavior whereas merit recognizes

past behavior, which is hoped to influence future behavior

you believe sorting effects matter if

prefer to work in an organization where their pay can be much higher depending on how they perform

base wage

the cash compensation that an employer pays for the work performed reflects the value of the work or skills and ignores differences attributable to individual employees

ethics

the organization cares about how its results are achieved.

incentives can be tied to

the performance of an individual employee, a team of employees, a total business unit, or some combination of individual team, and unit

pay techniques

tie the four basic policies to the pay objectives

work-life balance

time away from work (vacations, jury duty), access to services to meet specific needs (drug counseling, financial planning, referrals for child and elder care), and flexible work arrangements (telecommuting, nontraditional schedules, nonpaid time off). Responding to the changing demographics of the workforce (two-income families or single parents who need work-schedule flexibility so that family obligations can be met), many U.S. employers are giving a higher priority to these benefit forms

external competitiveness decisions -both how much and what forms-have a two fold effect on objectives

to ensure that the pay is sufficient to attract and retain employees—if employees do not perceive their pay as competitive in comparison to what other organizations are offering for similar work, they may be more likely to leave—and (2) to control labor costs so that the organization's prices of products or services can remain competitive in a global economy.

an above market compensation level is most effective and sustainable when it exists

together with above market employee contributions to productivity, quality, customer service, or other important strategic objectives

there is a strong relationship between

total shareholder return and CEO return

nonexempts

workers who are covered by overtime and reporting provisions of the Fair Labor Standards Act—nonexempts—have their pay calculated as an hourly wage. Some organizations, such as IBM, Eaton, and Walmart, label all base pay as "salary." Rather than dividing employees into separate categories of salaried and wage earners, they believe that an "all-salaried" workforce reinforces an organizational culture in which all employees are part of the same team. However, merely changing the terminology does not negate the need to comply with the FLSA