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