MGMT 4953: Reward/Compensation Exam 1

4 Policy choices

1. Internal Alignment: - Comparison among job/skill levels in the organization 2. External Competitiveness: pay comparisons with competitors -employees must see their pay as competitive - Labor costs must be controlled 3. Employee contributions: external competitiveness & employee contribution must be made jointly 4. Management: ensuring the right people get the right pay for achieving objectives in the right way

Compensation Defined

All forms of financial returns and tangible services and benefits employees receive as a a part of an employment relationship

Benefits

Also a part of Total compensation - some are legally required in the U.S. like unemployment and social security - Work/life balance includes: time away from work, access to services to meet specific needs, and flexible work arrangements - Allowances often grow out of whatever is in short supply: Example- housing for rotational workers

Bus. Strategy: Customer focused

HR Alignment: Delight customer, exceed expectations Comp. systems: Customer satisfaction incentives, value of job and skills based on customer contact

Bus. Strategy: Cost Cutter (focus on efficiency)

HR Alignment: Do more with less Comp. Systems: Focus on competitors labor costs, increase variable pay (merit), Emphasize productivity, focus on system control and work specifications

Bus. Strategy: innovator

HR Alignment: committed to agile, risk-taking, innovative people Comp. Systems: reward innovation in products and processes, Market-based pay, Flexible/Generic Job descriptions

Job Identification

Includes: Job titles, departments, the number of people who hold the job and whether it is exempt from the Fair Labor Standards Act

Fair Labor Standards Act (FLSA) - 1938

Major provisions: - minimum wage - Hours of work, including overtime - Child labor - Requires that records be kept of employees, their hours worked, and their pay - Minimum wage was 25 cents in 1938, then 7.25, soon 11.00 - FLSA requires time-and-a-half for over 40 hours per week

Reliability

Measures the consistency of results among various analysts, methods, sources of data, or over time

Relational returns

Non-financial returns from work affect employees behavior - Includes recognition and status, employment security, challenging work, and opportunities to learn - Personal satisfaction from facing new challenges, teaming with great co-workers, and receiving new uniforms - such factors are part of the total return, broader than total compensation

Equal Pay Act (EPA) of 1963

Part of FLSA, forbids wage discrimination on the basis of gender for equal work Differences of pay are legal if differences are based on any of 4 criteria, called an affirmative defense: - Seniority - merit or quality performance - Quality or quantity of production - some factor other than sex

Pay Influences in 2 ways

Pay influences Motivation and behavior in two ways: - Incentive effect: degree to which pay influences individual and aggregate motivation - Sorting effect: the effect pay can have on the composition of the workforce Ex. attracting different types of people

Title VII of the Civil Rights Act

Prohibits discrimination on the basis of sex, race, color, religion, or national origin in any employment condition - The age discrimination in employment act (ADEA) and the American with Disabilities Act (ADA) prohibit discrimination

Base Pay

The cash compensation an employer pays for work performed - Reflects the value of work or skills and ignores differences in individuals - in the U.S. salary refers to annual or monthly pay for employees exempt from overtime pay - Non-exempt employees are paid an hourly wage

Strategy Defined

The fundamental direction an organization chooses

Job Content

The heart of job analysis - Data involves the elemental tasks or units of work, with emphasis on the purpose of each task - There is also an emphasis on the objective of the task - Task data reveals the actual work performed and its purpose or outcome

Job Description

The list of tasks, duties, and responsibilities that make up the job - observable actions - Job title, location, summary - Reporting to - working conditions - job duties - machines used - hazards

Quantitative Methods

- Jobholders assess each item as to its importance to their job - Questions are grouped around five factors, and subcategorized - Results help prepare a job profile based on compensable factors - they can be tailored to the needs of the organization

Merit Pay

- Merit increases are performance based - Merit bonuses are performance based given as a lump sum rather than a permanent change in salary

Tasks Statement

- Perform what? + to Whom? or What? + to produce What? or Why? How?

The Pay Model

- Policies - Techniques -Compensation objectives Basic Objectives: Efficiency, Fairness, Compliance, ethics

Conventional methods

- Questionnaires, interviews, and observation - employee involvement increases their understanding of the process, however, the results are only as good as the people involved

Total Rewards

- Total Compensation: Cash compensation, Benefits - Relational returns

Employee vs. Independent Contractor

Employers must pay employees social security, unemployment, and workers compensation taxes on wages and salaries - Not required for independent contractors - Independent contractors do not typically receive benefits - The more control the firm has, the more likely the IRS considers the person an employee

Total Compensation includes

- Cash compensation: base pay, Merit/cost of living, Short-term incentives, Long-term incentives - Benefits: income protection, Work/life balance, Allowances

Cost of Living Adjustments (COLA)

- Changes in what other employers are paying for the same work - Changes in living costs - Changes in experience or skill

From a managers perspective

- Compensation is a major expense & must be managed - Major determinant of employee behavior and attitude

From employees perspective

- Financial security - a return in an exchange - an entitlement - an incentive or reward

P = F (A,M,O) Strategy

- Founded by researchers Boxall and Purcell - Performance (P) is a function (F) of three factors: Ability (A), Motivation (M), and Opportunity (O) - Compensation is key to attracting, retaining, and motivating employees with the abilities necessary to execute the business strategy

What to avoid when writing Task Statement

- Unnecessary words: write task as concise and clear as possible - Double-barreled item: Remove extra actions or break the item into two or more separate items - Overly Specific Items: replace specific items with more general actions - Vague or ambiguous terms: replace subjective adjectives and adverbs with more descriptive terms - Abbreviations and acronyms: avoid using abbreviations and acronyms, spell out the term whenever possible

Disparate Treatment

- intentional - applies different standards to different employees

Key steps to formulating a total compensation strategy

1. Assess total compensation implications: - Understand the specific industry in which the organization operates and how the organization plans to compete, understand your company strategy (how will you compete to win) 2. Map a Total compensation Strategy: - (Pay model) objectives, Alignment, competitiveness, Contributions, Management 3. Implement Strategy: - Design system to translate strategy into action, choose techniques to fit strategy 4. Reassess: - realign as conditions change, realign as strategy changes

Process flow of Job Analysis

1. Collect and summarize work content information that identifies similarities and differences 2. Determine what to value 3. Assess the relative value 4. Translate the relative value into an internal structure

incentives

Differ from merit adjustments: - use objective measures of performance - Do not increase base wage and must be re-earned - Is known beforehand (such as commission) - Try to influence behavior, whereas merit rewards past behavior Incentives are a one-time payment therefore, frequently referred to as Variable pay Incentives may be short-term or long-term: - long-term incentives are in the form of stock ownership or options

Validity

examines the agreement of results among sources and methods

Strategic Perspective

focuses on those compensation choices that help the organization gain and sustain competitive advantage

Job-Based Structures

look at what people are doing and the expected outcomes (Looks at the job itself)

Disparate Impact

occurs when an employer creates a seemingly fair employment practice that has a negative impact on members of a protected class. - Intent to discriminate is irrelevent

From the perspective of society

see pay & benefits as a measure of justice, such as pay inequalities between men and women

From the perspective of the Shareholder

some shareholders say using stock to pay employees creates a sense of ownership while others say it dilutes shareholder wealth - Interest in linking executive pay to performance

Skill/competency based Structures

structures look at the person

Job specification

the list of KSAOs and other characteristics necessary to perform the job well - Qualifications - Experience - training - skills - responsibilities - emotional characteristics - Sensory demands

Job Analysis Defined

the systematic method of discovering and describing differences and similarities among jobs