Chapter 11: Compensation Flashcards
Employee Compensation
all forms of pay going to employees and arising from their employment
Direct Financial Payments
wages, salaries, commissions and bonuses
Indirect Financial Payments
employer-paid insurance, vacations
Four Basic Considerations Influencing the Formulation of a Pay Plan
- legal requirements
- union issues
- rewards alignment
- equity
Total Rewards
approach to determine the best mix of reward that are aligned with a business strategy and that provide employee value all within the cost constraints of the organization
Equity Theory of Motivation
a theory that suggests that people are motivated to maintain a balance between their perceived contributions and their rewards
External Equity
an employee’s perception of pay as fair given the pay rates of comparable jobs in other organizations
Internal Equity
an employee’s perception of pay as fair given the pay rates of others in the organization
Individual Equity
an evaluation of the fairness of an individuals pay as compared with what their co-workers are earning for the same or very similar jobs within the company. Based on each person’s performance
Procedural Equity
perceived fairness of the procedures used to make decisions regarding the allocation of pay
Pay Equity
providing equal pay to jobs of equal value as determined by a gender neutral decisions criteria
Three Stages in Establishing Pay Rates
- prepare for job evaluation
- conduct wage/salary survey
- combine job evaluation and salary survey information to determine pay
Job Evaluation
systematic comparison to determine the relative worth of jobs within a firm
Benchmark Jobs
job that is critical to the firm’s operations or that is commonly found in other organizations
Job Evaluation Methods
- ranking method
- job classification method
- point method
Ranking Method
simplest job evaluation method that ranks each job relative to all other jobs based on some overall factor
Job Classification Method
a method for categorizing similar value jobs into groups for pay purposes
Job Classes
Groups of jobs based on compensable factors for each class. Classes usually contain similar jobs.
Job Grades
groups of jobs based on a set of rule for each grade, where jobs are similar in difficulty but otherwise different
Grade/Group Description
a written description of the level of compensable factors required by jobs in each grade, used to combine similar jobs into grades or classes
Point Method
a job evaluation method in which a number of compensable factors are identified, the degree to which each of these factors is present in the job is determined, and an overall point is calculated
Pay Grade
Comprises jobs of approximately equal value
Wage/Salary survey
a survey aimed at determining prevailing wage rates
Wage Curve
shows the pay rates currently paid for jobs, relative to the points assigned to each job by the job evaluation
