CH 1 THE PAY MODEL

Question 1

What is compensation?

Answer 1

refers to all form of monetary returns, and tangible services and benefits employees receive as a part of employment relationship

Question 2

what are the different perspectives on compensation?

Answer 2

1. societal
2. stakeholder
3. employee
4. manager
5. Global

Question 3

What is the stockholder perspective?

Answer 3

• using stocks as compensation creates ownership and will improve work motivation
• executive compensation should be tied to performance

Question 4

What is society’s perspective?

Answer 4

• compensation is a means of justice
• gain and losses are part of labor cost and productivity

Question 5

What are managers’ perspectives?

Answer 5

• compensation is an expense that needs to be managed
• compensation influences employee behaviour and organization performance and productivity

Question 6

What is the employee perspective?

Answer 6

• the source of financial security
• exchange between employer and themselves as an entitlement for being an employee
• sometimes seen as a reward

Question 7

What are global views?

Answer 7

• compensation refers to the balance of offsets
• financial returns and tangible services that benefit employees and organizations as a part of employment relationship

Question 8

Types of Compensation?

Answer 8

Total compensation –> complete pay package –> cash, bonus, stocks, COLA and benefits (common and work/life programs)

Relational return: psychological returns employee believe their receive in the workplace
–> recognition, status, learn opportune, challenging work, employment security

Total reward: total com + relational return

Question 9

What is the base pay of cash compensation?

Answer 9

is the cash compensation an employee receives for the work performed

• ignores differences attributable to individual employee
• wage vs salary
• reflects skills and value of the work

Question 10

What is merit increases in cash pay?

Answer 10

• increments base pay in recognition of past work behaviour (2.5%)

Question 11

What is COLA in cash pay?

Answer 11

• gives the same percentage increase to everyone regardless of performance levels to maintain pay levels relative to increase the cost of living

Question 12

What are incentives?

Answer 12

Also known as variable pay

• one time for meeting pre-established performance objectives in a future period
• formula based

Question 13

what are long term incentive?

Answer 13

• stock ownership at predetermined price –> biggest portion of executive pay
• employee effort on multi year results

Question 14

What are common benefits?

Answer 14

Health insurance, dental insurance, pensions, and life insurance

Question 15

What are work/life program?

Answer 15

• programs that help employees better integrate their work and life sensibilities
• vacations, access to services for specific needs and allowances

Question 16

What is the strategic compensation objectives?

Answer 16

1. efficiency (improve performance, control labour costs)
2. fairness (treat employees fairly and recognize employee needs, procedural fairness)
3. compliance (with laws and regulations)
4. Ethics

Question 17

What are strategic policies?

Answer 17

1. internal alignment (pay comparisons, pay differentials, pay relationships)
2. external competitiveness (comparison of pay with competitors, sufficient pay for job attraction, control labour costs)
   3, employee contributions (performance, recognition)
3. management of the pay system (analyzing and understanding pay decision)