Chapter 10 Flashcards
Explain the strategic importance of an organization’s approach to total compensation
Total compensation is strategically important because it can be used to attract, retain, and motivate talent. It can also be used to implement the business strategy and improve productivity
total compensation
refers to the monetary and non monetary rewards offered to employees
clawback provisions
require executives to repay any incentive compensation that was improperly awarded based on financial restatements
pay mix
the way an organization distributes pay among all monetary and non monetary elements of total compensation
Base pay
refers to the wage or salary an employee receives, exclusive of any incentive pay or benefits
monetary compensation
includes direct payments, such as salary, wages, and bonuses, and indirect payments, such as payments to cover benefits and services.
Non monetary compensation
includes many forms of social and psychological rewards, such as recognition and respect for others, enjoyment from the doing the job itself, opportunities for self-development, etc
How does total compensation fit within the integrated HRM system
Total compensation should be designed to fit the organization’s external and internal environments. Labor market conditions, the legal environment, and unions all influence an organization’s approach to total compensation. The organization’s size, company culture, and business strategy share the specific approach. Other HR practices that should be aligned with compensation include job analysis and competency modeling, recruitment, performance management, and training and development
Fair Labor Standards Act (FLSA)
Sets minimum wages, maximum hours, child labor standards, and overtime pay provisions for employees
Nonexempt employees
Employees who are protected by the FLSA
Exempt employees
Employees who are not covered by the minimum wage or overtime provisions of the FLSA
Equal Pay Act
Prohibits an employer from discriminating between employees on the basis of sex by paying wages to employees of one gender at a rate less than that paid to employees of the opposite sex for work that requires equal skill, effort, and responsibility and is performed under similar working conditions
Comparable worth
Based on the principle that even pay for dissimilar jobs should be equal if the jobs have a similar overall value to the organization
What are the roles and responsibilities of the HR Triad related to total compensation?
HR professionals, line managers, and employees all have substantial responsibilities with respect to total compensation. The HR Triad is responsible for aligning the needs and characteristics of the organization with the motivation and behaviors of employees while ensuring that employees are paid fairly
How do organizations establish the internal value of jobs?
Most organizations use a job-based pay structure that specifies the minimum and maximum pay for all jobs in the organization. The pay structure should ensure both internal and external equity
Pay structure
Combines job evaluation information and information about market pay rates to establish a policy that specifies the base pay of employees in each job
Job evaluation
A procedure for establishing the relative internal worth of jobs
Internal equity
The perception by employees that they are compensated fairly compared to others in the same organization given the contributions that they and others make
Job-based pay structure
The pay that people receive is determined primarily by the job they hold
Job ranking method
Involves placing jobs into a rank order according to their perceived overall value or importance
Job classification method
Groups jobs into smaller sets of job classes, and then the job classes (not the individual job) are ranked according to their value to the organization
Point factor ranking method
Uses a sophisticated system for assigning values to jobs based on numeric ratings of compensable factors
Compensable factors
The specific dimensions of work that an organization chooses to use when establishing the relative value of jobs
Competency-based job evaluation
Keeps the focus on the job but emphasizes the competencies needed to perform that job rather than job tasks and duties
Broadbanding
Refers to the use of pay structures with very few (e.g., three to five) pay grades
Skill-based pay
Compensates employees for the types and depth of skills they’re capable of using, regardless of whether the job they currently hold requires the use of those skills
Describe how organizations set pay levels using external market values
Organizations establish market-based pay levels by determining external market rates, establishing the market pay policy, and setting the organization pay policy. Employers can choose a policy that leads, matches, or lags the pay offered by competitors.
External equity
Exists when employees feel they are being compensated fairly relative to how people in similar jobs (or with similar competencies) are compensated by other employers
Compensation survey
Used by employers to obtain data about pay rates in the external labor market
Benchmark jobs
Those jobs that are commonly found across a range of organizations and that involve essentially the same work and responsibilities regardless of the company
Market pay policy
Established by plotting pay rates against evaluation points that the company has assigned to the benchmark jobs
Organization pay policy
Specifies the organization’s pay level, which is how its pay compares to that of other organizations
Explain the design of an internal pay structure
Most organizations use a job-based pay structure that specifies the minimum and maximum pay for all jobs in the organization. The pay structure should ensure both internal and external equity
What are the adjustments organizations make to the pay system
Adjustments to the pay structure and to individual pay may be needed to balance internal and external equity, to adapt to changes over time, and to achieve individual equity
Shadow range
A temporary readjustment that expands the size of the maximum pay rates associated with a pay grade
Salary budget surveys
Estimate the amount of salary increases for the coming year
Individual equity
Established when the individual perceives that he or she is being compensated fairly compared to others in the same organization with the same job
Green-circled
Indicates that the person needs to be given a pay adjustment to bring his or her pay up to at least the pay grade’s minimum
Red-circled
Indicates that the person’s pay is frozen and that he or she should not receive any more raises
How does globalization affect total compensation
MNCs face the challenge of designing total compensation that balances the advantages of global consistency with the need for sensitivity to local conditions. Consistency can be established by centralizing the pay structure, but local conditions, such as laws and cultural norms for pay, should be considered
Explain two current issues related to total compensation
Total compensation during difficult economic conditions and the government’s role in compensation decisions
