Chapter 9 Flashcards
Both the intrinsic and extrinsic rewards employees receive for
performing their jobs.
Total compensation
Pay that a person receives in
the form of wages, salary, commissions, and bonuses.
Direct financial compensation (monetary compensation)
All financial rewards that are not
included in direct financial compensation.
Indirect financial compensation (employee benefits)
Satisfaction that a person receives from the job itself or
from the psychological and/or physical environment in which the person works
Nonfinancial compensation
Potential employees located within the geographic area from which
employees are recruited.
Labor market
Non-union companies offer of similar compensation unionized
companies with the goal of reducing the likelihood that non-union workforces will seek
union representation
Spillover effect
Pattern of pay and benefits
associated with characteristics of industries
Interindustry wage or compensation differentials
Employees categorized as executive, administrative, professional, or
outside salespersons, and not required to be paid at an overtime rate for work beyond the
completion of standard work hours
Exempt employees
Employees not categorized as executive, administrative,
professional, or outside salespersons, and required to receive overtime pay for work
beyond the completion of standard work hours.
Nonexempt employees
The monetary compensation employees earn on a regular basis for performing
their jobs. Hourly pay and salary are the main forms.
Base pay
One type of base pay. Employees earn hourly pay for each hour
worked.
Hourly pay (wage)
One type of base pay. Employees earn salaries for performing their jobs,
regardless of the actual number of hours worked. Companies generally measure salary on
an annual basis
Salary
Escalator clause in a labor agreement that
automatically increases wages as the U.S. Bureau of Labor Statistics’ cost-of-living index
rises.
Cost-of-living adjustment (COLA)
Measure of the purchasing power of a dollar
Real hourly compensation
The face value of a dollar.
Nominal hourly compensation
Length of time an employee has been associated with the company, division,
department, or job
Seniority
Pay program in which pay increases are based on length of service
Seniority pay
A theory premised on the idea that employees’ knowledge and
skills generate productive capital known as human capital. Employees can develop
knowledge and skills from formal education or on-the-job experiences
Human capital theory
As defined by economists, refers to sets of collective skills, knowledge,
and ability that employees can apply to create economic value for their employers
Human capital
Classification of federal government jobs into 15 classifications (GS-
1 through GS-15), based on such factors as skill, education, and experience levels. In
addition, jobs that require high levels of specialized education (e.g., a physicist),
significantly influence public policy (e.g., law judges), or require executive decision
making are classified in three additional categories: Senior Level (SL), Scientific &
Professional (SP) positions, and the Senior Executive Service (SES)
General Schedule
Pay increase added to employees’ base pay based on their level of
performance.
Merit pay
One-time annual financial award based on productivity that is not added
to base pay.
Merit bonuses
Relatively small monetary gift provided employees for outstanding work or
effort during a reasonably short period.
Spot bonus
Compensation, other than base wages or salaries, that fluctuates
according to employees’ attainment of some standard (e.g., a pre-established formula,
individual or group goals, or company earnings)
Incentive pay
Incentive pay plan in which employees are paid for each unit they produce
Piecework
Bonuses to managers who meet or exceed objectives
based on sales, profit, production, or other measures for their division, department, or
unit
Management incentive plans
Individual incentive pay plans that reward employees
for specific behavioral accomplishments as such good attendance.
Behavioral encouragement plans
Individual incentive pay plans for rewarding the referral of new
customers or recruiting successful job applicants
Referral plans
Group incentive systems that provide participating employees with an
incentive payment based on improved company performance for increased productivity,
increased customer satisfaction, lower costs, or better safety records
Gain sharing
Gainsharing plan that provides a financial reward to employees for
savings in labor costs resulting from their suggestions
Scanlon plan
Compensation plans that result in the distribution of a predetermined
percentage of the firm’s profits to employees.
Profit sharing
The right to purchase shares of company stock.
Employee stock plans
Incentive plan in which employees can buy a specified amount of stock in
their company in the future at or below the current market price
Stock option
The total equity or worth of the company.
Company stock
Equity segments of equal value, which increase with the
number of stock shares held
Company stock shares
Employee compensation for jobs employees currently perform.
Job-based pay
Compensation for developing the flexibility, knowledge, and skills
to perform a number of jobs effectively
Person-focused pay
System that compensates employees for their job-related skills and
knowledge, not for their job titles
Skill-based pay
Compensation plan that rewards employees for the capabilities
they attain
Competency-based pay
An ordered set of similar jobs based on worth.
Job structure
Process that determines the relative value of one job in relation to
another
Job evaluation
Job evaluation method in which the raters examine the
description of each job being evaluated and arrange the jobs in order according to their
value to the company
Job evaluation ranking method
Job evaluation method in which classes or grades are defined to
describe a group of jobs
Classification method
Job evaluation method that assumes there are five universal
factors consisting of mental requirements, skills, physical requirements, responsibilities,
and working conditions; the evaluator makes decisions on these factors independently.
Factor comparison method
Job evaluation method in which the raters assign numerical values to
specific job factors, such as knowledge required, and the sum of these values provides a
quantitative assessment of a job’s relative worth.
Point method
Policies that provide general guidelines for making compensation
decisions
Compensation policy
Determine whether the company will be a pay leader
(market lead), a pay follower (market lag), or assume an average position (market match)
in the labor market.
Pay level compensation policies
Pay policy that distinguishes companies from the competition by
compensating employees more highly than most competitors. Leading the market denotes
pay levels above the market pay line.
Market lead policies
Average pay that most employers provide for a similar job in a
particular area or industry.
Market match policies
Pay policy that distinguishes companies from the competition by
compensating employees less than most competitors. Lagging the market indicates that
pay levels fall below the market pay line
Market lag policies
Pay rate differences for jobs of unequal worth and the framework for
recognizing differences in employee contributions.
Pay structures
A means of obtaining data regarding what other firms are paying
for specific jobs or job classes within a given labor market
Compensation survey
Grouping of similar jobs to simplify pricing jobs.
Pay grade
Minimum and maximum pay rate with enough variance between the two to
allow for a significant pay difference.
Pay range
Fitting of plotted points on a curve to create a smooth progression between pay grades (also known as the pay curve)
Wage curve
Compensation technique that collapses many pay grades (salary grades)
into a few wide bands to improve organizational effectiveness.
Broadbanding
A wage structure where newly hired workers are paid less than
current employees for performing the same or similar jobs
Two-tier wage systems
A company’s pay spread between newly hired or less qualified
employees and more qualified job incumbents is small.
Pay compression
Allows the company to recover compensation if subsequent review
indicates that payments were not calculated accurately or performance goals were not
met
Clawback policy
Special benefits provided by a firm to key executives to give the
executives something extra
Perquisites (perks)
Perquisite that protects executives in the event that another
company acquires their firm or if the executive is forced to leave the firm for other
reasons.
Golden parachute contract
Provision that gives shareholders in all but the smallest companies an
advisory vote on executive pay.
Say on pay
Management techniques used for determining a job’s
relative worth including job analysis, job descriptions, and job evaluation.
Job Structures
After companies have
clearly written job descriptions and they have specified job structures, they move
on to deciding _______, which focus on pay level and
pay mix.
Competitive Compensation Policies
Coupled closely with these choices is job pricing, which
leads to the construction of _______.
Pay Structures
