Topic 9: Compensating Employees

Stock option

an opportunity for a manager to buy an organization's stock at a later date, but at a price established when the option is granted. The idea behind stock options is that managers will work harder to improve their performance and the profitability of the company, if they can share in the long-term success of the organization.

Sales incentive plans

Commission pay - percentage of the sales revenue generated by the employee. Sometimes base pay plus salary.

Piecework plan

employees are guaranteed a standard pay rate for each unit of output, also called a piece rate. The rate per hour is frequently determined by the time-and-motion studies of standard output and the current base pay of the job.

Profit sharing plans

employees receive, as a bonus, a percentage of their base wage if the organization reaches a set goal. Employees receiving the same base wage or salary rate will therefore receive the same incentive. Often not considered a form of incentive compensation because individual employees have only partial and indirect control over organizational profits.

Wage-dividend plans

set the percentage of profits paid to employees according to the amount of dividends paid to stockholders. It is assumed that these plans increase understanding between employees and stockholders and are often perceived as more fair to employees than regular cash plans.

Standard hour plan

standards are denoted in time per unit of output rather than money per unit. Tasks are broken down according to the amount of time it takes to complete them. This can be determined by historical records, time-and-motion studies, or a combination of both. The time to perform each task then becomes a "standard time."

Indirect compensation

(also known as "non-monetary rewards"), on the other hand, includes employee services, benefits, trainings and/or any other indirect form of compensation or benefit.

Job Classifications

(or job families) includes grouping together all jobs that are similar in value.

Fair Labor Standards Act of 1938 (FLSA)

A federal law that restricts child labor and establishes minimum wage and overtime pay standards for employees. The intent of the law was to "put a floor under wages and a ceiling over hours of work and to abolish abuses of child labor."

Givebacks

A reduction in employee wages or benefits conceded by a labor union in exchange for other benefits or in recognition of unfavorable economic conditions.

What Is a "Wage-dividend" Plan?

A special type of cash plan in which the company sets the percentage of profits paid to employees according to the amount of dividends paid to stockholders

How is HR planning connected to compensation? A. Compensation is integrated into the organization's strategic planning objectives B. Compensation is not connected to HR planning because HR planning takes place at the beginning of the HR process and compensation decisions are made at the end C. Compensation is what determines the organization's strategic planning objectives D. Compensation is separate from the organization's strategic planning objectives

A. Compensation is integrated into the organization's strategic planning objectives

Which of the following correctly describes what variable compensation is? A. Compensation that is linked to employee and organizational performance B. Pay that is based on seniority C. Compensation that is independent of performance D. Varying how much an individual is paid based on race, gender, or appearance

A. Compensation that is linked to employee and organizational performance

What is the first step in the wage determination process? A. Formally evaluating the jobs B. Grouping jobs into classes or grades C. Establishing pay ranges D. Arranging jobs in order of importance

A. Formally evaluating the jobs

When using a performance-based system, which of the following is usually the major portion of the individual's compensation? A. Incentive pay B. Merit pay

A. Incentive pay

Which of the following statements is true? A. Managers say pay differences should be based on performance and unions often put more emphasis on seniority B. Unions say pay differences should be based on performance and managers often put more emphasis on seniority C. Both managers and unions put more emphasis on seniority than on performance for pay differences D. Both managers and unions put more emphasis on performance than seniority for pay differences

A. Managers say pay differences should be based on performance and unions often put more emphasis on seniority

Which of the following laws has been the primary law governing wages and salaries? A. The Fair Labor Standards Act B. Family Medical Leave Act C. The Equal Pay Act D. The Lilly Ledbetter Fair Pay Act

A. The Fair Labor Standards Act

Which of the following laws relaxed the statute of limitations for filing equal-pay discrimination lawsuits? A. The Lilly Ledbetter Fair Pay Act of 2009 B. The Americans with Disabilities Act C. The Family and Medical Leave Act D. The Civil Rights Act of 1964

A. The Lilly Ledbetter Fair Pay Act of 2009

What does an organization need to do to make their compensation function have a strategic approach? A. Give the best compensation to employees, when compared to its competitors B. Create a program to get and keep individuals who will benefit the organization C. Create a program to award compensation based on the employees' personalities D. An organization must create a program that has the goal of making more money

B. Create a program to get and keep individuals who will benefit the organization

What is a standard hour plan? A. Employees are guaranteed a standard pay rate for each unit of output B. Employees are guaranteed a standard pay rate for the time per unit of output C. Standards are determined by the results of a ranking procedure D. Employees are paid a base salary plus commission

B. Employees are guaranteed a standard pay rate for the time per unit of output

Generally, if an employee feels that their compensation is unfair or inequitable (they are doing more work than someone else for the same pay), what are they more likely to do? A. Work harder so they will get paid more in the future B. Engage in behaviors that will limit their contribution to the organization C. Engage in behaviors that will help them stand out more D. Actively engage in finding out the organization's strategic goals and work towards them

B. Engage in behaviors that will limit their contribution to the organization

Wage surveys help determine which type of pay equity? A. Internal B. External

B. External

Job classes are based on what? A. Organizational evaluations B. Job evaluations C. Supervisor evaluations D. Performance evaluations

B. Job evaluations

Which of the following types of organizations can usually base job classes on already-existing wage rates? A. Newly established organizations B. Mature organizations

B. Mature organizations

What is an objective of performance-based pay systems? A. To motivate workers to look good for their supervisor B. To motivate workers to perform at high levels C. To motivate workers to perform better than their coworker D. To help workers all function at the same level

B. To motivate workers to perform at high levels

Which of the following Organization-Wide Incentive Plans is perceived as more fair to employees? A. Standard hour plan B. Wage-dividend plan C. Performing sharing plan D. Cash plan

B. Wage-dividend plan

What did the 2004 revision of the Fair Labor Standards Act do in regards to blue-collar workers, police, firefighters, paramedics and other first responders? A. Clarify that they are not able to be exempted at all from the provisions of the FLSA B. Clarify that they are exempt from the overtime provisions of the FLSA C. Clarify that none of them are exempt from the overtime provisions of the FLSA D. Clarify that they are all exempt from the provisions of the FLSA

C. Clarify that none of them are exempt from the overtime provisions of the FLSA

How are compensation and job analysis related? A. Job analysis measures performance B. Job analysis determines how much new employees will make C. Job analysis determines the job description, which determines the job evaluation D. Job analysis creates the organization's strategic planning objectives

C. Job analysis determines the job description, which determines the job evaluation

Which of the following types of individual incentive plans is the most common? A. Stock options B. Measured day work plans C. Piecework plan D. Standard hour plan

C. Piecework plan

Wage Surveys

Can be used to develop compensation levels, wage structures, and even payment plans. Whereas job evaluation helps ensure internal equity, wage surveys provide information to help ensure external equity.

What is "fixed pay"?

Compensation that does not vary according to performance; also known as "base pay," fixed pay is nondiscretionary compensation

Direct Compensation

Consists of the basic wage or salary, and performance-based pay

What is one disadvantage to grouping jobs into classes? A. It makes it harder to justify small differences in pay B. It creates more errors than were created in the classification process C. It is not a very efficient means of salary administration D. Employees can find fault if they feel their job is more important than others in their group

D. Employees can find fault if they feel their job is more important than others in their group

What did the Equal Pay Act ensure when it was amended to the FLSA in 1963? A. Ensured that all protected group status employees could not be discriminated against with regard to wages B. Ensured that those with a protected group status could not be discriminated against, with regards to compensation and benefits C. Amended the statute of limitations for filing an equal pay lawsuit D. Ensured that both genders are paid similarly for similar jobs

D. Ensured that both genders are paid similarly for similar jobs

Which of the following incentive plans is less precise on the typical standards? A. Piecework plan B. Standard hour plan C. Performance plan D. Measured day work plan

D. Measured day work plan

Which of the following individual incentive plans is NOT used for line employees in manufacturing or other, similar industries? A. Piecework plan B. Measured day work plans C. Standard hour plan D. Sales incentive plans

D. Sales incentive plans

Which of the following individual incentive plans does not include a cash bonus? A. Sales incentive plans B. Measured day work plan C. Piecework plan D. Stock options

D. Stock options

Which of the following is NOT a principal determinant of basic wage? A. The establishment of a pay structure B. The value/worth of the job C. The individual wage determination D. The determination of employee classes

D. The determination of employee classes

What is the compensation function of HR? A. To make sure that employees are satisfied with their compensation B. To give the employees rewards based on how well their supervisor likes them C. To make sure that employees are paid above average D. To evaluate the contributions of employees and give rewards

D. To evaluate the contributions of employees and give rewards

What Is the Difference Between Direct and Indirect Compensation (Benefits)?

Direct compensation is monies given through wages and salaries; the terms "fringe benefits" and "benefits-pay" are used by many corporations to denote indirect compensation

What is "piecework"?

Employees are guaranteed a standard pay rate for each unit of output, also called a piece rate

Equity Theory

Equity theory states that the motivation of an individual is positively correlated with his or her perception of justice and fair treatment as practiced by the management of the company or organization. The employee finds an equilibrium between the efforts he or she contributes (input) and the kind of compensation he or she receives in return (output). The employee compares this input-output balance with that of the other employees in the organization.

True or False: Because most employees make job-choice decisions according to maximum pay level, HR departments need to make sure they are paying the maximum to get the best employees.

False

True or False: Labor unions only influence the wages paid to employees; they do not deal with any other type of compensation.

False

True or False: Most organizations are usually able to subscribe to a single survey to get all of the wage survey information that they need.

False

True or False: Pay equity is what people deserve to be paid in relation to what others deserve to be paid.

False

What Is the Major Difference Between Fixed and Variable Compensation?

Fixed pay may be seen as the amount known in advance; variable compensation is determined by performance or productivity during the pay period or another period of time that adds to an employee's earnings

What Is Variable Compensation?

Monies given to link employee pay to employee and organizational performance

What Is a "Stock Option"?

Opportunity for a manager to buy an organization's stock at a later date, but at a price established when the option is granted

Job Evaluation

Process to determine the relative worth of job-related contributions.

Cash Plan

Provides for payment of profit shares at regular intervals; Payment of profit shares at regular intervals, typically monthly or yearly

Variable compensation

Rewards that link employee pay to employee and organizational performance. Examples include forms of profit sharing, bonuses, stock options, merit pay, and piecework plans.

What is job evaluation?

The process of comparing jobs by the use of formal and systemic procedures to determine their relative worth within the organization; used to create a job structure such as pay grades or bands 1) job evaluation, 2) determination of job classes, 3) establishment of pay structure, and 4) individual wage determinations.

What Is the Role of Annual Bonuses in An Organization Compensation Philosophy?

To assist an organization in their strategic role to be more competitive

True or False: Compensation relies on other HR functions to be successful.

True

True or False: Job compensation and wages are not only based on job performance and personal contributions, but also on job-related contributions.

True

True or False: Merit-based pay plans reward performance with salary increases.

True

True or False: Performance contribution is often an explanation for pay differentials, but personal factors also influence individual wages.

True

Pay equity

What people feel they deserve to be paid in relation to what others deserve to be paid.

Incentive pay plans

a specific type of performance-based pay system which is used to encourage specific actions and motivate employees. Incentive pay plans are typically structured in a way that reflects the organization's strategy, culture, objectives, and financial capabilities. Incentive programs are often used to attract and retain employees.

Measured day work plans

formal production standards are established and employee performance is judged against these standards. But with measured day work, typical standards are less precise. For example, standards may be determined by the results of a ranking procedure rather than by an objective index such as units produced.

Cash Plans (profit sharing)

provide for payment of profit shares at regular intervals, typically monthly or yearly. The percentage of profits distributed ranges from 8 to 75 percent. If profits are not realized by the company, no cash payments are made to employees.