Chapter 1 Flashcards
wall street financial service firms and banks used ______ plans that rewarded people for developing innovative financial investment vehicles
incentive
Federal Reserve officials advise firms to track warning signs of ______
excessive risk taking and cultural breakdowns
the incentive system encourages traders to be ______
confident and aggressive
what is the Troubled Asset Relief Program?
includes restrictions on executive pay that were designed to discourage executives from taking unnecessary and excessive risks
what are two causes of the global financial crisis?
misaligned incentives, weak education in compensation systems
benefits given as part of a total compensation package may also be seen as a reflection of ____
equity or justice in society
civilian employers spend about 46 cents for benefits on top of every dollar paid for _____
wages and salaries
individuals and businesses spend about __% of US economic output on health care
18
when unemployment rates increase, health care coverages (decline/incline)?
decline
job loss/gain is a function of ___
relative labor costs and productivity
why are some companies moving work out of China?
hourly wage is not as low in other countries such as Vietnam, India, and the Philippines
stockholders have a particular interest in what type of pay?
executive pay
how are the interests of executives aligned with shareholders?
they pay executives on the basis of company performance measures such as shareholder return
how do shareholders influence executive compensation decisions
shareholder proposals and election of directors in proxy votes
what are clawback provisions
designed to allow companies to reclaim compensation from executives in certain situations
what are the two ways compensation influences the success of managers?
- it is a major expense that must be managed
2. it is a major determinant of employee attitudes and behaviors
How do companies like Costco manages to hold an advantage over competitors even with higher labor costs?
employee retention, customer satisfaction, efficiency in generating sales
why is pay important?
it can influence employee behavior, quality of work, and attitude
how do employees view compensation?
return in an exchange between their employer and themselves, an entitlement for being an employee of the company, an incentive to stay in a job, and as a reward
the extensive legal framework governing pay consists of what
minimum wage, living wage, overtime, nondiscrimination regulations
what are the two ways pay influences employee motivation and behavior?
affects motivational intensity, direction, and persistence.
employee ability and organizational design.
what is the incentive effect
the ways in which pay influences motivation and behavior
what is the sorting effect
different types of pay strategies cause different types of people to apply and stay with an organization
what does compensation mean in the US
something that counterbalances, offsets, or makes up for something else
what does compensation mean in China
how you are being treated, wages, benefits, training
what does compensation mean in Japan
taking care of something, giving something
what is the definition of compensation
fall forms of financial returns and tangible services and benefits employees receive as part of an employment relationship
total returns are categorized as
total compensation and relational returns
what are relational returns
learning opportunities, status, challenging work
what is total compensation
base, merit, incentives, cost of living adjustments
what is base wage
the cash compensation that an employer pays for the work performed
what is salary
pay for employees who are exempt from regulations of the Fair Labor Standards Act
what are the criteria for cost of living adjustments
done on the basis of changes in what other employers are paying for the same work
merit increases
given as increments to base pay and are based on performance
merit bonus
based on performance rating and paid in lump sum
incentives
tie pay increases to performance
difference between incentive and merit
incentives are tied to objective performance measures in a formula based way, merit increase program typically relies on subjective performance rating
what can incentives be tied to
performance of an individual employee, a team of employees, a total business unit
variable pay
another term for incentive
long term incentive
focus employee efforts on multiyear results, in the form of stock ownership
programs that help employees better integrate their work and life responsibilities
time away from work, access to services to meet specific needs, flexible work arrangements
present value perspective
shifts the comparison of today’s initial offers to consideration of future bonuses, merit increases, and promotions
what are the objectives pay systems aim to achieve
efficiency, fairness, ethics, and compliance with laws and regulations
efficiency
improving performance, increasing quality, delighting customers and stockholders, and controlling labor costs
fairness (equity)
fundamental objective of pay systems
fairness objective
fair treatment for all employees by recognizing both employee contributions for combining the objectives of efficiency and fair treatment of employees as well as compliance
if an objective is to increase customer satisfaction, then…
incentive programs and merit pay might be used to pay for performance
four policy choices
internal alignment, external competitiveness, employee contributions, management of pay system
internal alignment
comparisons among jobs or skill levels inside a single organization
total cash compensation
wages plus bonuses
pay relationships within the organization affect what 3 things
employee decisions, flexibility, greater responsibility
external competitiveness
pay comparisons with competitors
employee contributions
nature of pay mix
managing compensation
answers the “so what” questions
