2 - People: Total Rewards (From Study Group) Flashcards
Abilities
Job Analysis
Capabilities necessary to perform job
Additional Information Sources
Total Rewards Data Analysis
- Governments (e.g., ministries of labor or government statistical bureaus).
- International organizations (e.g., International Labor Organization). Membership-based business organizations (e.g., employer federations and local chambers of commerce)
- Professional, trade, and industrial associations
Annual increase/decrease in health-care benefit costs
Benchmarking
- Initiatives range from informal networking and knowledge sharing to formal engagements with private firms.
- Helps to identify gaps in policies and procedures compared to competitors and best practices.
Benefits
Tangible payments or services provided to broad groups of employees to cover common issues (e.g., retirement and paid time off), in addition to those required by law.
Benefits costs as a percentage of total payroll costs
Benefits Needs Assessment
Broadbanding
Combines salary grades to create larger ranges
- Allows people to move within their job without outgrowing the pay scale.
- Avoids having too many grades with small midpoint differences between them.
Advantages
- Provides wider ranges than the spread of a traditional pay range; generally permits the movement of individuals between jobs without being overly limited by pay ranges
- Reduces the number of job grades (e.g., from possibly 30 or more to as few as five)
- Reduces the number of reporting levels within an organization
- Provides more autonomy to line managers in salary and promotion decisions
- Enhances employee mobility as employees can transfer without requiring a change in assigned pay range
Disadvantages
- Reduces the value of ranges as parameters for governing pay rates
- Affords less control for the organization in salary and promotion decisions
- Creates overly broad salary ranges; affords less control of salary costs as there is no mechanism to tie the salary growth of individual employees to the skills necessary for advancement to the next higher-level position
- Makes it hard to justify salary differentials if two employees are in the same broadband doing similar work; can lead to the perception of pay inequity and increase the potential for pay discrimination charges
- Reduces the opportunity for promotion and accompanying job title and base salary changes; fewer salary ranges lessens promotions to another range, which can lead to retention issues
- Risks divergence from market pay practices; paying too little relative to competitors could mean higher employee turnover and paying too much could mean higher product or service costs
Choosing Benefits/Perquisites
- Which benefits are required by law?
- Which benefits enable an employer to compete for employees?
- Which benefits are cost-effective to purchase and to administer?
- Which benefits do employees prefer?
- Which benefits provide creative choices?
Compa-Ratios
- Divide the pay rate of an employee by the midpoint of the range.
- Given a range of $16 to $20 an hour, a midpoint of $18, and a salary of $16 an hour, the compa-ratio is:
$16 ÷ $18 = .89 or 89%.
- Compa-ratios below 1.00 mean wages are below the midpoint; compa-ratios greater than 1.00 mean wages exceed the midpoint.
Compensation
Refers to all other financial returns (beyond any tangible benefits payments or services), including salary and allowances.
Compensation for Outside Directors
- Base pay or retainer
- Fees paid for various events or services
- Benefits - liability, life insurance
- Perquisites
- Non-qualified stock options/grant plans
- Non-qualified deferred compensation programs
Compensation Philosophy
A short (but broad) statement documenting the organization’s guiding principles and core values about employee compensation
Philosophy should be:
- Equitable
- Defensible
- Perceived as fair
- Fiscally sensitive
- Legally compliant
- Easy to communicate
Programs offered should be:
- Fair
- Competitive
- Aligned to philosophy and policies
Compensation Ratio
Compensation System Design
Contribution-Oriented
Creating a Pay Structure
- Establish pay grades
- Group jobs that have the same relative internal or external worth.
- Pay the same rate or within the same pay range.
- Set pay ranges
- Set upper/lower bounds of possible compensation for individuals whose jobs fall in a pay grade.
- Market data from surveys used to determine a midpoint
Data Analysis
Salary data may need to be aged, leveled, and/or factored for geography.
- Aging uses movement in market rates to adjust outdated salary data.
- Leveling adjusts salaries when surveyed jobs are similar but not identical to jobs in the organization.
- Since wage rates will vary by location, the organization should factor any national salary survey data for geography.
Defined Benefit Plan
Retirement
- Promises payment of a specific benefit amount at retirement.
- Vesting schedule is set up.
- Benefits are based on service and perhaps salary; decided by a formula.
- Provides a pre-specified level of benefits.
- Employer bears investment risk.
Defined Contribution Plan
Retirement
- Money contributed regularly is specified.
- No promise is made regarding the future value of the benefit.
- Employees receive 100% of their investment and the vested employer portion
- Requires individual employee accounts.
- Amount at retirement depends on the return.
- Employee bears investment risk.
Disability Benefits
Pays employees unable to work because of illness or injuries; causes may be in or outside the workplace; may be funded by government, employer, and employee.
- Short-term
- Long-term
- Permanent
Effective Communication of Total Rewards
Requires attention to a variety of factors, such as:
- Type of information (required and voluntary communication)
- Communication plans
- Direct communication
- Individualized total compensation statements
- Self-service technologies
- Consistent key messages
Starts with an overarching strategy and standard implementation guidelines but adaptable to organizational specifications and local conditions and norms.
Entitlement-Oriented
Promote caring, protective, feeling and want employees feel as if they are a part of the family.
- Health care
- Employee assistance
- Disability
Evaluating a Total Rewards Strategy
Is the total rewards strategy:
- In compliance?
- Compatible with the organization’s mission and strategy?
- A fit with the organization’s culture and appropriate workforce?
- Internally equitable?
- Externally competitive?
Executive Compensation
HR’s Role
- Consulting on strategy.
- Participating in selecting outside experts.
- Monitoring and evaluating compensation systems.
External Equity
External Remuneration Surveys
Offer different options for externally published data
Family-Oriented Benefits
Help employees balance work roles with family roles.
- Flexible work hours
- Child and elder care
- Domestic partner benefits.
Fiduciary
Refers to the obligated party
- An individual or party entrusted with the care of money or property
Fiduciary Duty
Implies a legal obligation of one party (e.g., the employer) to act in the best interest of another (e.g., the employees).
Finance and Accounting Knowledge
- Total rewards are a significant component of an organization’s operating expenses.
- Understanding key finance and accounting terms and concepts, financial statement basics, and payroll provides critical insights.
Partnering with finance colleagues is always helpful as well as consulting “finance for non-finance professionals” resources.
Geographic Differential Pay
Differentials:
- For labor costs
- To attract workers to certain locations
- For foreign countries
Global Influences
- Standardization vs. localization
- Culture
- Competitive Labor Market
- Collective bargaining, employee representation, government mandates
- Economic factors
- Taxation
Global Market Survey Considerations
- What are the best sources of salary data?
- How much information is available?
- How frequently does the market change?
- Does the data for the jobs available match or compare to the ones being compared?
Green-Circle Rates
Rates below the range minimum
Group Incentive Pay
Used when measuring individual performance is difficult or when performance requires cooperation
- gainsharing plans
- team bonuses
Health Benefits
Funded through social or private insurance; affected by culture and location.
- Medical
- Dental
- Wellness
- Employee assistance programs.
Health-care expense per employee
Importance of Total Rewards Strategy Communication
- Educating employees about the organization’s total rewards practices
- Achieving employees’ buy-in and making them aware of the overall value
- Supporting the organization’s strategic objectives
- Supporting the organization’s goals for performance management
A total rewards program is a powerful motivator when it is understood and accepted by employees.
Incentive Pay
- Motivates employees to perform at higher levels
- Pays for performance beyond base-pay expectations
- Must be related to aspects of the job that an employee can influence with achievable goals
- Can be structured to reward short-term accomplishments or long-term results or a balance of both short- and long-term goals
Incentives or Premiums
Payments in return for the achievement of specific, time-limited, targeted objectives; often calculated as a percentage of base salary and paid as lump sums or ongoing payments.
Indirect Compensation
- Life insurance
- STD
- Health insurance
- Dental
- Vacations
- Noncash rewards
Individual Incentive Pay
Purpose is to improve individual performance
- piece rate
- commissions
- noncash reward programs
Challenges for global organizations include designing and awarding culturally appropriate incentives and regulatory compliance.
Internal Equity
When EEs feel that performance or job differences result in corresponding differences in rewards that are fair.
Internal Remuneration Surveys
Allow for more control over survey technique and data analysis
Job Context
Job Analysis Considerations
The purpose of the job, its work environment, its place in the organizational structure
Job Analysis Methods
- Observation
- Interview
- Open-ended questionnaire
- Highly structured questionnaire
- Work diary or log
Job Content
Job Analysis Considerations
The duties and responsibilities of people who hold the job
Job Evaluation
Determines the relative worth and pay structure of jobs based on an assessment of their content and relationship to other jobs in the organization
Job Specifications/Qualifications
Job Analysis Considerations
Knowledge, skills, and abilities required for a person to have a reasonable chance of successfully performing the job
Knowledge
Job Analysis
Body of information necessary for task performance
Legal Compliance
- Laws and regulations legislated by a cooperative region
- Laws pertaining to the industry legislated by the country
Legal Compliance Complexities
Due diligence should include an understanding of relevant:
- International standards and regulations.
- Extraterritorial application of national law.
- Application of national laws to international-owned subsidiaries operating within a nation’s borders.
LIfe Insurance Benefits
Funded through social insurance and/or private insurance; paid to beneficiary.
Market-Based Job Evaluation
Determines the relative worth and pay structure of different jobs based on their market value or the going rate in the marketplace
- Sometimes called “market pricing.”
- Data collection includes survey formats, survey analysis, and slotting.
- Job content or internal job relationships may be secondary considerations.
Methods for Compensating Employees
- Develop and maintain a pay system that helps attract, motivate, and retain employees.
- Most employees receive base pay in the form of an hourly wage or salary.
Non-Voluntary Terminations
When employers discharge employees for cause or workforce adjustments
Nonquantitative or Whole-Job Evaluation Methods
Establish order of jobs in terms of their value to the organization
- Job ranking
- Paired-comparison
- Job classification
Objectives of a Total Rewards Strategy
- Compatible with the organization’s mission and strategy
- Compatible with the culture
- Entitlement-oriented vs. contribution-oriented
- Appropriate for workforce
- Internally and externally equitable
Organizaton-Wide Incentive Pay
Reward overall results
- profit sharing
- stock ownership
- bonus programs
Paid Time Off
PTO
Often legislated or part of collective bargaining agreements; embedded in culture and tradition.
- public holidays
- parental leave
- leave for illness.
Pay Adjustments
- Pay adjustment matrix
- General pay increases
- Lump-sum increases
- COLAs
- Seniority increases
- Market-based increases
Pay Compression
Small differences in pay regardless of experience, skills, level, or seniority
Pay Equity
Fairness in compensation & benefits paid to EEs
Pay Strategies
Compares an organization to other organizations that share its industry, occupation, or location.
Organizations may decide to:
- Lag
- Match
- Lead
Pay Transparency - Advantages
- Supports the achievement of strategic business objectives
- Reduces conflicts among employees and between employees and management regarding pay
Pay Transparency - Challenges
- Can lead to jealousy and performance problems and employees questioning the system’s fairness
- Poses a risk that information may be used for inappropriate or unintended purposes
- Requires protection of employee privacy and proprietary information
- Raises individual and cultural concerns about fairness in the global environment
Pay Variations
- Red-circle rates
- Green-circle rates
- Pay compression
Performance Criteria
Job Analysis Considerations
Desired behaviors/results that will constitute performance in the job
Performance-based or merit pay (P4P or PfP)
Base-Pay Systems
- Linked to measures of work quality or goals.
- Employers must be able to defend practices.
- Global differences must be addressed:
- Types of incentives and remuneration.
- Individual vs. collective performance.
- Impact on risk.
Perquisites
Compensation provided on an individual basis in the form of goods or services (e.g., automobiles and mobile devices).
Perquisites
Vary by country & culture
- Free/discounted products or services
- Mobile devices
- Professional organizations/certifications
- Training programs
- Education fees
- Housing
- Company car and/or cash car allowances
- Club memberships
- Meal allowances
Person-Based
Base-Pay Systems
Affected by employee’s knowledge, skill, or competencies.
Process to Develop a Total Rewards Strategy
Productivity-based
Base-Pay Systems
- Based on output.
- Straight piece-rate (base plus).
- Differential piece-rate (rate increases in steps after standard is met).
Quantitative Job Evaluation Methods
Use scale based on compensable factors to show how much more one job is worth than another
- Point-factor system
Red-Circle Rates
Rates above the range maximum
Remuneration Surveys
Collect information on prevailing market compensation and benefits practices
- Internal & External Surveys
Considerations between internal and external surveys:
- Internal time and expertise required
- Relevance/match of external surveyed jobs to organization’s jobs
- How current external survey data is
- Expense associated with type of survey
Roles of Job Analysis in HR
- HR Planning
- Staffing
- Training
- Performance Management
- Safety and Health
- Rewards
- Employee Relations
- Legal Compliance
Salary Plus Commission and/or Bonus
Direct Sales Compensation
Use when:
- Organization needs to reward behaviors that support strategy.
- System needs to be adaptable and allow for readjustments.
- Competitors use the same strategy.
Severance
- If required, severance pay must be compliant and fairly compensate terminated employees to avoid discrimination lawsuits and regulatory fines and penalties.
- Circumstances, requirements, and amount varies by country; some similarities within regions.
Single- or Flat-Rate
Base-Pay System
- Employees receive the same rate of pay, regardless of performance or seniority.
- Generally corresponds to target market survey data for the job.
- May be a training wage in a flat-rate job.
Skills
Job Analysis
Level of proficiency needed for task performance
Social Security
- Varies by country.
- Generally refers to:
- Social insurance, where people receive benefits or services in recognition of contributions to an insurance program.
- Services provided by government or designated agencies responsible for social security provision.
- Basic security irrespective of participation in specific insurance programs where eligibility may otherwise be an issue.
Straight Commisson
Direct Sales Compensation
Use when:
- Organizational objective is to increase volume (even if it means less service).
- Holding down cost of sales is important.
- Competitors use the same strategy.
Straight Salary
Direct Sales Compensation
Use when:
- More time is spent on service than sales.
- Measuring sales performance is difficult.
- Individual sales and support efforts are hard to separate.
- Sales cycle is long.
Strategic Alignment
- Support organizational missions & strategies
- Attract the right people to the right jobs at the right time and place
- Performance incentives to produce engaged employees
Time-Based Differential Pay
Based on when an employee works
- Shift pay
- Emergency-shift pay
- Premium pay
- On-call or call-back pay
- Reporting pay
- Travel pay
- Overtime pay
Time-Based Step-Rate
Base-Pay System
- Rate based on longevity.
- Increases occur on pre-determined schedule:
- Automatic by percentage and time.
- Affected by performance.
- Combination of step-rate and performance (when job rate is reached).
Total Organization Compensation Expense
Total Rewards
Direct and indirect remuneration (money paid) approaches that employers use to attract, recognize, and retain workers; “remuneration” and “compensation and benefits” have the same meaning.
Types of Executive Compensation
- Annual salary
- Stock option plans
- Stock purchase plans
- Restricted stock grants
- Phantom stock
- Restricted stock units
- Performance grants
Types of Incentive Pay
- Individual
- Group
- Organization-wide
Unemployment Insurance
- Applies toward paying a percentage of an employee’s salary in the case of the employee losing his or her job through no fault of the employee.
- Helps workers who have been terminated to transition from one job to another equally suitable job.
- May require a waiting period; benefit period is limited, as is the financial payout.
- Other terms associated with this benefit are employment insurance, job seekers’ allowance/benefit, redundancy funds.
Variations in Benefits
Standardization is difficult because of variations in benefits.
- Government-provided benefits
- Government-mandated benefits
- Voluntary or discretionary benefits
- Market practice benefits
- Tax treatment of benefits
Voluntary Terminations
When an employee resigns or retires
Wage and Hour Law Compliance
- Minimum wage and increases
- Overtime and holiday pay
- Equal pay
- Exemption
- Cap on hours worked
- Special issues under local law
- Taxation
Workers’ Compensation Benefits
Pays employees portion of salary if they are unable to work due to a work-related accident or illness.
