Student Quiz: Compensation and Benefits

First quartile strategy

"lag the market" by paying below market levels

A lower minimum wage of $2.13 an hour is set for

"tipped" employees

job evaluation

Formal, systematic means to determine the relative worth of jobs within an organization

market line

Graph line that shows the relationship between job value as determined by job evaluation points and job value as determined pay survey rates.

___________ pay is most common

Hourly

Employers are required to pay overtime for

Hourly jobs

compensatory time off

Hours are earned by public-sector nonexempt employees in lieu of payment for extra time worked at the rate of 1.5 times the number of hours over 40 that are worked in a week. Comp time is prohibited in the private sector and cannot be legally offered to employees working for private organizations

line of sight

Idea that employees can clearly see how their actions and decisions lead to desired outcomes

benefit

a tangible indirect reward provided to an employer or group of employees for organizational membership Important in attracting and retaining employees

open enrollment

a time when employees can change their participation level in various benefit plans and switch between benefit options

ranking method

generally more appropriate in a small organization

stock option plan

gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time

Older Workers Benefit Protection Act (OWBPA)

requires equal treatment for older workers in early retirement or severance situations

Consolidated Omnibus Budget Reconciliation Act (COBRA)

requires that most employers with 20 or more full-time and/or part-time employees offer extended health care coverage to certain groups of plan participants

defined benefit plan

retirement program in which employees are promised a pension amount based on age and service

defined contribution plan

retirement program in which the employer makes an annual payment to an employee's pension account

intrinsic rewards

rewards that are internal to the individual More powerful

workers compensation

security benefits provided to workers who are injured on the job

Adverse Selection

situation in which only higher-risk employees select and use certain benefits

The oldest benefit law was the

social security act

Security inspection time

some companies may have to count the time that employees spend going through security inspections after work as compensable

Donning and Doffing

some jobs require employees to spend a significant amount of time donning protective equipment before they report for duty. Regulations regarding putting on and taking off such clothing and gear are complex

Equity Theory

states that individuals judge fairness (equity) in compensation by comparing their inputs and outcomes against the inputs and outcomes of referent others

Gainsharing

system of sharing with employees greater than expected gains in profits and/or productivity

profit sharing

system to distribute a portion of the profits of an organization to employees

Incentives

tangible rewards that encourage or motivate action

self-service

technology that allows employees to change their benefits choices, track their benefits balances, and submit questions to HR staff members and external benefits providers

When FLSA was enacted

the goal was to provide overtime pay for as many workers as possible

After-hours email time

the increased use of email in organizations raises questions about whether employees can claim that responding to company emails after hours should count toward overtime. Organizations should consider adopting email curfew policies that discourage employees from reading and answering work-related emails off the clock

well-being

the overall level of employee physical, mental, financial, and social wellness

Copayments

the portion of medical expenses paid by an insured individual for medical treatment

Seniority

time spent in an organization or on a particular job

Training time

time spent in training must be counted as time worked by nonexempt employees unless it is voluntary or not directly related to the job

Gross-up

to increase the net amount of what the employee receives to include the taxes owed on the amount

market pricing

uses market pay data to identify the relative value of jobs based on what other employers pay for similar jobs

third-party administration (TPAs)

vendor that provide enrollment, record-keeping, and other administrative services to organizations

Lump-sum increase (LSI)

One-time payment of all or part of a yearly pay increase.

Several strategic issues should be considered when designing compensation practices

- Compliance with all applicable laws and regulations - cost-effectiveness for the organization - Internal and external equity for the organization - Performance enhancement for the organization - Enhanced recruitment, involvement, and retention of employees

The most common types of variable pay are

- bonuses - Incentive program payments - equity awards - commissions

Two general approaches for valuing jobs

- job evaluation - market pricing

The most common types of insurance benefits:

- life insurance - disability insurance - long term care insurance - legal insurance

Pay differences can be justified on the basis of

- merit - seniority - quantity - quality of work - experience - factors other than gender

Classifying employees can be a challenge for organizations because the criteria used are

- outdated - confusing - not always applied to the types of jobs currently found in modern companies

entitlement philosophy

- pay and raises based on length of service - across-the-board raises - pay scales increased annually - industry comparisons of pay only - holiday bonuses given to all employees

Performance philosophy

- pay and raises based on performance - No raises for poor-performaing employees - Market-adjusted pay scales - No raises for length of service or job tenure - Industry comparisons of total rewards

Selecting a Quartile

-Financial resources available -Competitiveness pressures -Market availability of employees with different capabilities

The two most important laws that govern issues related to the protection of former workers are

1. COBRA 2. HIPAA

The two basic compensation philosophies:

1. Entitlement 2. performance

Variable pay plans can by classified into three levels or categories

1. Individual 2. Team 3. Organizational

Four conditions are important when using individual incentive plans

1. Individual performance must be identifiable 2. individual competitiveness must be desirable 3. Individualism must be stressed in the organizational culture 4. Individuals must be in control of the pace of production

The provisions of both the original act (FLSA) and subsequent revisions focus on the following major areas

1. Minimum wage 2. Limits on the use of child labor 3. Overtime provision (exempt and non-exempt status)

Two methods used to establish pay grades

1. job evaluation data 2. job market banding

Three basic assumptions underlie the philosophical foundation of variable pay

1. some people or groups contribute more to organizational success than do others 2. Some people perform better and more productive than are others 3. Employees or groups who perform better or contribute more should receive greater compensation

Minimum age for employment with unlimited hours

16 years old

For hazardous occupations the minimum is

18 years old

Garnishment

A court order that directs an employer to set aside a portion of an employee's wages to pay a debt owed to a creditor.

commission

A percentage of the revenue generated by sales that is given to an agent or salesperson

health spending account

A tax-favored savings plan to provide funds for paying medical expenses

lead-the-market strategy

Aggressive approach that enables a company to attract and retain sufficient workers with the required capabilities and be more selective when hiring Third-quartile

HIPAA (Health Insurance Portability and Accountability Act)

Allows employees to switch their health insurance plans when they change jobs and to enroll in health coverage with the new company regardless of pre-existing health conditions

pay for performance philosophy

Assumes that compensation decisions reflect performance differences

Entitlement philosophy

Assumes that individuals who have worked another year are entitled to pay increases, with little regard for performance differences.

Auto-escalation

Automatic increases of 1 percent a year to a 401(k) plan

___________ and ___________ are the most common forms of direct compensation

Base pay and Variable pay

Base pay

Basic compensation that an employee receives, often as an hourly wage or salary

The most common types of indirect compensation provided to employees are _________

Benefits

pay survey

Collection of data on compensation rates for workers performing similar jobs in other organizations.

variable pay

Compensation linked directly to individual, team, or organizational performance

___________________, ________________________, and _____________________ include prevailing wage clauses that apply to firms engaged in federal construction projects or that work directly on federal government contracts

Davis-bacon act, the walsh-healey public contracts act, and the McNamara-O'Hara service contract act

Employee Stock Ownership Plan (ESOP)

Designed to give employees significant stock ownership in their organizations

Tangible rewards

Elements of compensation that can be quantitatively measured and compared between different organizations

Intangible rewards

Elements of compensation that cannot be easily measured or quantified

Nonexempt employees

Employees who must be paid overtime

Only employees who have worked at least 12 months and 1,250 hours in the previous year are eligible for leave under

FMLA

The current minimum wage of $7.25 an hour was set as part of the

Fair minimum wage act of 2007

Benefit

Indirect reward given to an employee or group of employees as part of membership in the organization, regardless of performance

______________ rewards are an important aspect of the package

Intangible

compensable factors

Job dimension commonly present throughout a group of jobs within an organization that can be rated for each job

Consumer credit protection act

Limits the amount of wages that can be garnished

Total rewards

Monetary and non-monetary rewards provided by companies to attract, motivate, and retain employees

Most people work for

Monetary rewards

Point-factor method

Most commonly used method of job evaluation

Match-the-Market Strategy

Most employers position themselves in a second quartile, the middle of the market, as determined by pay data

salary inversion

Occurs when the pay given to new hires is higher than the compensation provided to more senior employees.

classification method

Often used in public-sector organizations Descriptions of job classes are written, and then each job is put into a grade according to the class it best matches

Compa-ratio

Pay level divided by the midpoint of the pay range.

wages

Payments calculated directly on the basis of time worked by employees.

401(k) plan

Plan allows for a percentage of an employee's pay to be withheld and invested in a tax-deferred account

Paid Time Off (PTO)

Plans that combine all sick leave, vacation time, and holidays into a total number of hours or days that employees can take off with pay.

stock purchase plan

Plans where employees may buy shares in the company at a discount, or the company pays the brokerage fees

Broadbanding

Practice of using fewer pay grades with much broader ranges than in traditional compensation systems.

Auto-enrollment

Process by which employee contributions to a 401(k) plan are started automatically when an employee is eligible to join the plan.

retirement plan

Program established and funded by the employer and/or employees to fund employee's retirement years

Equal Pay Act of 1963

Prohibits companies from using different wage scales for men and women performing substantially the same jobs

clawback provision

Provision which permits the organization to require an employee to return rewards obtained through unethical or negligent actions

Portability

Retirement plan feature that allows employees to move their retirement benefits from one employer to another

Competency-based pay

Rewards individuals for the capabilities they demonstrate and acquire.

extrinsic rewards

Rewards that are external to the individual

Key performance indicators (KPIs)

Scorecard measures that tell managers how well the organization is performing relative to critical success factors

Expectancy Theory

States that an employee's motivation is based on the probability that his or her efforts will lead to an expected level of performance that is linked to a valued reward

Travel time

Travel time must be counted as work time if it occurs during normal work hours for the benefit of the employer - Travel to and from work is not considered compensable travel time

Critical Success Factors

Variables that have a strong influence on the results of the organization

exclusive remedy

Workers' compensation benefits are the only benefits injured workers may receive to compensate for a work-related injury.

vesting

a benefit that cannot be taken away

Free rider

a member of the group who contributes little

three-legged stool

a model showing the three sources of income to fund an employee's retirement

Many organizations use a _________________ to establish policies about where they wish to be positioned in the labor market

quartile strategy

Outside of school hours and with certain limitations for children

ages 14-15

Qualifying Event

an event that causes a plan participant to lose group health benefits

Prevailing Wage

an hourly wage determined by a formula that considers the rate paid for a job by a majority of the employers in the appropriate geographic area

Serious health condition

an illness or injury that requires inpatient care or continuing treatment by a health care provider for medical problems that exist beyond three days

No-fault insurance

an injured worker receives benefits even if the accident was the employees' fault

managed care

approaches that monitor and reduce medical costs through restrictions and market system alternatives

Companies with at least 50 full-time or employees who work at least 30 hours per week

are required to offer minimum essential health care coverage

Salary

consistent payments made each period regardless of the number of hours worked

Incentives for nonexempt employees

employers must add the amount of direct work related incentives to a person's base pay and then calculate pay as 1.5 times the higher (adjusted) rate of pay

Emplyee retirment incom Security ACT of 1974 (ERISA)

ensure that private pension plans and other plans governed by ERISA meet minimum standards

Lily Ledbetter Fair Pay Act of 2009

extended the statute of limitations for equal pay claims and essentially treats each paycheck as a new act of discrimination. Pay discrimination need not be intentional to be unlawful Pay practices resulting in disparate impact are also actionable. Steps to reduce liability include conducting a periodic disparate impact analysis of compensation plans, properly documenting all compensation decisions, retaining complete pay records for an appropriate duration, and limiting discretion in pay decisions to higher levels in the organization

market banding

grouping jobs into pay grades based on similar market survey amounts

pay grades

groupings of individual jobs having approximately the same job worth

Consumer-driven health (CDH) plan

health plan that provides employer financial contributions to employees to help cover their health-related expenses

Exempt employees

hold positions for which they are not paid overtime

Red Circle Employee

incumbent who is paid above the range set for a job

Green-circled employee

incumbent who is paid below the range set for a job

The biggest disadvantage of market pricing

is that pay survey data may be limited or may not be gathered in methodological sound ways

a major strategy of cost reduction

is wellness programs that focus on improving worker health

Benchmark jobs

jobs found in many organizations that can be used for the purposes of comparison

Deductible

money paid by an insured individual before a health plan pays for medical expenses

An effective total rewards approach balances the company's interests and costs with the __________ and _________ of employees

needs and expectations

Pay compression

occurs when the pay differences among individuals with different levels of experience and performance become small

Employees in positions classified as salaried nonexempt are also entitled to

overtime pay

piece-rate system

pay system in which wages are determined by multiplying the number of units produced by the piece rate for one unit most basic individual incentives

flexible benefit plan

program that allows employees to select the benefits they prefer from groups of benefits established by the employer

Title VII of the Civil Rights Act of 1964

prohibits all forms of employment discrimination based on race, color, religion, national origin, or sex.

Unemployment Compensation

provides workers whose jobs have been terminated through no fault of their own monetary payments for up to 26 weeks