Compensation Management Exam 1

Spillover Effect

Occurs when non-unionized companies offer similar benefits to unionized companies to keep employees from joining a union

Interindustry Wage Differentials

Pattern of pay and benefits associated with an industry.

Indirect Compensation

Pay for Time Not Worked (Vacations, Breaks, Holidays) Security Plans (Pensions, Social Security) Insuarance Plans (Medical, Dental, Vision, Life) Employee Services (Educational assistance, Rec Programs)

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Scooby Example 4: Vincent is an exempt executive at Mystery Inc. who makes $1,000 per week. He is also a reservist in the National Guard. One weekend a month, Vincent reports for Guard duty, for which he is paid $50 per day when he is on duty. On those weekends, he also misses work on Monday due to his military responsibilities. What is the minimum amount that Mystery Inc. can pay Vincent during those weeks?

$950

Pay Structure

* x-axis = Job Evaluation Points * y-axis = Annual Salary * Pay range = top to bottom * Pay grade = box itself

Fair Labor Standard Acts (FLSA) of 1935

*Covers: -Minimum wage (Federal $7.25/hr) -OT (1.5x over 40 hrs/week) -Child labor provisions *Exempt = OT and Minimum wage don't apply *Non-exempt = OT and Minimum wage DO apply

Equal Pay Act of 1963

- Equal pay for equal work - Prohibited sex discrimantion - Defined compensable factors - Established pay differentials

Errors of Leniency or Strictness

- Leniency = inflate rating - Strictness = rate lower than they should based on objective criteria

Americans with Disabilities Act (ADA)

- Prohibits discrimination against those with mental or physcial disabilities - Requires reasonable accommodation - Company must have 15+ employees to follow ADA

Disadvantages of Individual Incentive

- Promotes inflexibility - Measurement problems - Encourages undesirable behaviors - people only do what's rewarded

Advantages of Individual Incentive

- Promotes the relationship between pay and performance - Promotes equal distribution of compensation within a company - Fits with U.S culture

Age Discrimination in Employment Act (ADEA) of 1967

- Protects those 40+ from age discrimination - Eliminated min retirement age, with a few exceptions (public safety)

Pregnancy Discrimination Act (PDA) of 1978

- Protects women who are pregnant or may become pregnant - Must be given the same sick leave as temporary disability - Protects accrued retirement benefits and seniority

Family and Medical Leave Act (FMLA) of 1993

- Provides job protection in case of family or medical emergency - 12 weeks, unpaid leave - Guarantees same position or equivalent and pay

Stock Options

- Right to purchase company stock - Set number of shares - Predetermined price (usually at a discount)

4 Compensable Factors

- Skill - Effort - Responsibility - Working Conditions

Management by Objectives

- Supervisors and employees determine objectives for employees to meet during the rating period and employees evaluate how well they have been achieving their goals. - Could be the most effective PA technique - Mainly used for managers and executives

Collective Bargaining

- Written document containing terms agreed upon by employees and management - Includes: pay, work hours, conditions of employment

Civil Rights Act of 1964 (Title VII)

5 Protected Classes: - Race - Color - Religion - Sex - National Origin

Scooby Example 3: Finally, Fred realizes that he has erred and must reimburse Velma for the time he docked her. He is frustrated with the situation and calls the HR Department seeking advice on what to do if this pattern continues. Specifically, he wants to know whether he can suspend Velma without pay for two days for time abuse. What should HR tell him?

Absolutely not.

COLAs (Cost of Living Adjustments)

Adjustments for inflation and enables workers to maintain standard of living.

Direct Compensation

Base Pay (Wages & Salary) Incentives (Commissions, Piece Rate, Bonuses, Stock Options, Gainsharing)

KSA's (Knowledge, Skills, & Abilities)

Between occupational differences - Differences in KSA complexity -> maintenance vs professor Within occupational differences - Differences in KSAs within an occupational group -> Head coach vs. Defensive Line Coach

Piecework Example: Eileen works in a factory using a piece rate plan. She works 8-hour shifts. The piecework standard is 10 garments per hour. Workers are guaranteed $5.00 an hour regardless of whether or not they meet the piecework standard; however, if they meet the standard, they will receive $1.25 per additional garment. Eileen does not meet the standard during the first four hours of the day but can produce 3 extra garments per hour in the afternoon (4 hours). How much has Eileen earned for the day?

Calculating Piecework: *Regular Pay- $5/hr x 8hrs/day = $40/day *Piecework Units Produced- 3 garments/hr x 4 hrs = 12 garments *Incentive Pay- $1.25/garments x 12 garments = $15 *Total Pay- $40/day Regular Pay + $15/day Incentive Pay = $55/day

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Contrast Error

Comparing an employee to another employee instead of the standards.

2 Types of Strategic Compensation

Cost Leadership & Differentiation

Types of Compensation (Total Compensation)

Direct and Indirect

Human Capital Theory

Employees become more valuable over time.

Expectancy Theory

Employees need to believe that: - Their level of effort makes a difference in their performance. - That performance will be rewarded. - They will receive attractive outcomes for their hard work.

Capital Intensity

Extent to which a company uses large scale equipment - Higher CI -> higher wages - Complex jobs -> more skills/training

Cost Leadership

Focus on being the lowest cost producer in the market. Ex: Walmart, Amazon Compensation professionals should focus on reducing cost per employee.

History of Compensation Pt.1

Industrial Revolution - Division of labor - Change work from small groups to factories Scientific Management - Productivity measures - Piecework plans - Focus on increasing output

Disperate Treatment

Intentional mistreatment of workers based on their being in one of the protected classes.

Scooby Example 5: Shaggy, a recent law school graduate who just passed the bar exam, has been hired by Mystery Inc. as a staff attorney in their white-collar crime unit. He makes an annual salary of $20,000 a year. He comes to your office complaining that he is one of the most educated employees in his division and has been working 50 to 60 hours a week for the last few months and is entitled to overtime pay for all the extra time he has worked. Is he?

Lawyers are exempt under the FLSA.

Scooby Example 1: Velma is a senior manager at Mystery Inc. who earns an annual salary of $50,000. She directs the work of three junior investigators and decides whom to hire and fire. Velma is contemplating having LASIK eye surgery and a tummy tuck. Although she has no leave time available to her, she has left work early six times in the last month to consult with numerous surgeons. Velma's supervisor, Fred, believes her absences constitute an abuse of time and has docked her pay every time she was gone from the office for more than two hours. Is this OK?

No, she should be reimbursed for all time missed.

Scooby Example 7: Daphne has headed up the recruiting department of Mystery Inc. for about a year. She is in charge of hiring, firing, and training new investigators as well as supervising three administrative employees. Daphne makes a base salary of $850 bi-weekly. She is also eligible for a monthly bonus of $1,000 if her department meets its recruiting goals, which it always has under her leadership. She also receives a weekly cafeteria pass worth $35. So Daphne's total bi-weekly compensation is $1,420. The new human resources director is reclassifying all the employees and is not sure what to do with Daphne's status. Is she an exempt or nonexempt employee?

Nonexempt, doesn't meet required pay per week.

Bias Errors

Rating based on personal opinion not actual performance

Errors of Central Tendency

Rating everyone as average.

Refferals

Reward employees for recruiting a new hire

Gainsharing

Rewards a group for productivity or cost savings

Management Incentive

Rewards managers when performance targets are met

Civil Rights Act of 1991

Shifted the burden of proof of disparate impact from employees to employers. U.s citizens working overseas may file suit against U.S businesses for discriminatory employment practices

Adverse Impact

Unintentional, unequal treatment of protected employee groups. 4/5th rule used to determine

Differentiation

Unique products at a premium price. Ex: Apple, Tesla This strategy relies on employee creativity and willingness to take risks and requires longer time frames.

History of Compnesation Pt.2

Welfare Practices & Gov Regulations - Improving working conditions - Personnel management emerges b/c of regulations Competitive Advantage - Employees viewed as a source of competitive advantage - Pressure of globalized competition

Scooby Example 8: Fred is a senior mechanic employed by Mystery Inc. in their transportation department. He is married to the owner's daughter and they have six children. Fred's annual salary is $115,000 and he brings home over $2,000 on a weekly basis. His primary job duties consist of repairing, cleaning, and detailing the fleet of company vehicles. He also frequently oversees the work of three junior mechanics. Recently, a number of vehicles have been involved in serious accidents requiring Fred and his staff to each work 50 - 60 hours per week to complete the necessary repairs. Is Fred entitled to overtime pay for the additional hours worked?

Yes, he is entitled to overtime pay because of his job.

Scooby Example 2: Mystery Inc. has a written policy prohibiting improper deductions. Employees receive a copy of the policy in their employee handbook. The payroll department has told Fred to stop docking Velma for partial day absences, but he continues to dock her pay for half-day absences because she hasn't complained about the deductions. He tells the payroll department that he will continue docking Velma's pay until she gets the message and will do the same with any employee who doesn't follow his rules. Will Fred's actions impact Velma's status as an exempt employee?

Yes, it can influence that Fred doesn't intend to continue salary pay.

Scooby Example 6: Scooby, a senior executive, recently drove two junior investigators to a client meeting in the company van. It has come to your attention that Scooby drank 5 beers while driving to the client's office and nearly rear-ended another vehicle. You decide to send him a serious message that his behavior will not be tolerated by docking his next paycheck by $500. Is that permissible under the FLSA?

Yes, very serious violation and can dock pay.