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Compensation > Chapters 5 and 6 > Flashcards

Chapters 5 and 6 Flashcards

1
Q

what are the 3 broad categories of performance pay

A

individual performance, group performance, and organization performance

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2
Q

what are the 4 types of individual performance pay choices

A

piece rates, commissions, merit pay, and special purpose incentives

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3
Q

what are the 4 types of group performance pay

A

gain sharing, goal sharing competitive bonus, pooled performance pay

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4
Q

What is a piece rate and what are the 2 different types of them

A

piece rates are where individuals receive a specified sum of money for each unit of output they produce

2 diff types:

straight piece rate: same specified sum of money is paid for each piece produced, regardless of how many pieces are produced

differential piece rate: a Lowe sum of money per piece is paid if employee production does not meet production standard, and then once they do a meet it a higher sum per piece is paid

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5
Q

what are 4 advantages of piece rates?

A
  1. highly motivational in producing task behaviour
  2. reduce the need for external control of employees
  3. link compensation to output which reduces employer risk
  4. provide specific information about the standard level of output expected
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6
Q

what are 5 disadvantages of piece rates?

A
  1. can only be applied to limited number of circumstances
  2. needs to be recalculated each time a major change occurs
  3. setting rate is not a scientific process
  4. frequently does not motivation maximum effort
  5. can decrease production in layoff environments bc employees don’t want to work themselves out of a job
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7
Q

what is commission

A

commissions: pay that is geared towards the dollar volume of sales or transactions conducted

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8
Q

what is straight commission?

A

when the employee’s income is only based on their sales and the commission, they don’t receive base pay

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9
Q

what are the 4 types of selling

A

Maintenance selling:
Selling established products to existing customers

Conversion selling:
Selling established products to new customers

Leverage selling:
Selling new products to existing customers

New market selling:
Selling new products to new customers

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10
Q

what are 3 key dimensions for determining when commission is appropriate

A

degree of independence

degree of persuasive skills required

length of sales cycle (the time between meeting new client and closing the deal)

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11
Q

What are the 7 advantages of sales commissions

A

relatively easy to set and measure

less interdependence among sales employees than production

less worry about losing jobs

reduces the needs for other control mechanisms

serves as source of feedback and self-correcting

reduce employer risk bc based only on how much they sell

can increase sales

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12
Q

What are 6 disadvantages of sales commissions

A

income may be variable for employee

commissions might drop during poor economy

little to no income when building client base

sales people might not be interested in work that doesn’t bring them sales, such as training

may encourage overly aggressive sale behaviour and a competitive environment

deciding whose sale it actually is when multiple people work on different parts of sale can create conflict

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13
Q

what 3 things are included under merit pay

A

merit raises, merit bonuses, promotion

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14
Q

What is merit pay generally based off of

A

appraisals from overall employee performance

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15
Q

What are merit raises

A

An increase to an employee’s base bay in recognition of good job performance

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16
Q

what are the 4 advantages of merit raises

A

Provides feedback to employees

Employees can advance through their pay range

Helps to retain outstanding employees

Can foster perceptions of equity

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17
Q

What are the 5 disadvantages to merit raises

A

expensive for the company because they permanent

requires effective employee appraisal system

there needs to be a noticeable difference in pay between avg and above avg employees

employees can top out aka reach the top of their pay backet and then might not be motivated

can cause antagonism towards the supervisor bc its based on their judgment

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18
Q

What are merit bonuses

A

A cash payment, provided to recognize good employee performance, that does not increase base pay

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19
Q

What are the 4 advantages of merit bonuses

A

More flexible because they are not permanent, and employees have to keep performing well to keep their bonuses each year

Can be used in conjunction with a merit raise system

Can be related to financial conditions of firm

Can be paid out in lump sums and are more visible

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20
Q

What are 3 disadvantages to merit bonuses

A

Need valid performance measures

Not suitable where work is highly interdependent

Bonus amount may need to be higher because it’s not a permanent raise

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21
Q

What are 3 advantages of promotion?

A

Brings recognition and a pay raise

Typically the promotion contains more of the elements of intrinsically motivating work

Recognizes contributions employees have made to the organization

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22
Q

What are 5 disadvantages to promotions

A

Lack of promotion opportunity can be demotivating

Promotions in lieu of other rewards can result in a meaningless system if there are few upper-level vacancies

Those not promoted can become demotivated

Promotion not always seen as a reward

Peter principle

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23
Q

what is the Peter principle

A

that employees who are performing well will get promoted up, those who don’t will stay where they are meaning that eventually certain positions will just end up having someone incompetent

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24
Q

What are the 8 conditions you should have for merit pay to be applicable

A

Variable individual performance

Performance is controllable by individual

Individual performance can be separated out

accurate performance appraisal system

Pay has to be linked to performance appraisal

Merit system has to serve a purpose that cannot be served in another way

Undesirable side effects are easily manageable

Merit system fits with org culture and strategy

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25
Q

What are the 3 main purposes to merit pay

A

Motivate employee performance
Maintain equity
Salary progression

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26
Q

What is a special purpose incentive and what type of organization is it most useful in?

A

An incentive designed to motivate a specific type of employee behaviour that are important for the organization

Most useful in human relations organizations

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27
Q

What are 2 most common types of special purpose incentives

A

suggestion programs where employees receive cash for submitting creative money saving solutions

attendance programs: employees receive money for not missing work

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28
Q

what are the 3 components to a suggestion program

A

: system to channel suggestions, systematic process of evaluating them, incentive for submitting useable ideas

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29
Q

What is an advantages of a special purpose incentive

A

Focuses attention on key employee behaviours
Depends on specific nature of plan

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30
Q

what is a disadvantages of special purpose incentives

A

Employees may focus only on rewarded behaviours and neglect other important behaviours

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31
Q

When are special purpose incentives applicable

A

where intrinsic motivation does not exist

Where both intended and unintended behaviours are easy to observe

When there are no other alternatives to inducing desired behaviour

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32
Q

What is gain sharing

A

A group performance pay plan that shares cost savings or productivity gains generated by a work group with all members of that group

33
Q

Where is gain sharing plans applicable and where is it the best

A

unionized firms, human relations, best in high involvement

34
Q

What is goal sharing

A

A group performance pay plan in which a work group receives a bonus when it meets prespecified performance goals

35
Q

When would goal sharing be an a applicable option

A

when there is a high level of trust between management and employees therefore good in a high involvement moderate in human relations, not good for dynamic firms

36
Q

What is a competitive bonus

A

rewards work groups for outperforming other work groups

37
Q

what is pooled performance pay

A

performance results of a group are pooled, and group members share equally in the performance bonus

38
Q

What are 2 types of pooled performance pay

A

Group commissions: where commissions of a group a sales workers are pooled then shared equally among the group

Group piece rates: group members are paid based on the number of completed products produced by the group

39
Q

What are 6 advantages of gain sharing plans

A

Self-funding if designed properly

Can stimulate higher productivity

May create positive group norms

May lead to internalized worker commitment, and reduce need for external control

increase employee knowledge of the business

Applicable to not-for-profits and government

40
Q

What are the 6 disadvantages of gain-sharing plans

A

Costs of establishing and administering plan

Doesn’t work well with changing circumstances so you can’t determine if increase in productivity is due to increased worker input or other factors

focus attention on group’s interests only even if their actions have negative consequences

create more opportunities for labour-management conflict bc It provides additional matters to argue about

May create “free riders”

High discontinuation rate

41
Q

What are some advantages of goal-sharing plans

A

More flexible than gain sharing

Less costly to operate that gain-sharing plans

Can be adjusted as circumstances require

Powerful motivational tool for groups and individuals

May create positive group norms

42
Q

What are the 7 disadvantages of goal-sharing plan

A

Can be arbitrary in goal levels and bonus amounts

No established basis for judging value of meeting a goal

Setting appropriate goals can be difficult

Situational factors can affect goal development

May cause frustration if efforts fall slightly short

Can produce conflict

High discontinuation rate

43
Q

What is a profit sharing plan and where does it work best

A

A formal pay program in which a firm provides bonus payments to employees based on the profitability of the firm

works best in high involvement, flat structure

44
Q

3 forms of profit sharing are…

A

current distribution profit, deferred profit sharing plan, and combination profit-sharing plan

45
Q

What is a current distribution performance pay plans

A

distributes the profit-sharing bonus to employees in the form of cash or shares at least annually

aka a cash plan

46
Q

What is a deferred profit-sharing plan

A

profit-sharing bonuses are allocated to employee accounts but not actually paid out until a later date, usually on termination or retirement

47
Q

Combination profit-sharing

A

combines the current distribution and deferred profit sharing plans by paying some of the profit sharing bonus on a current (cash) basis and deferring the remainder

48
Q

What are 7 advantages of profit sharing plans

A

When interests are aligned, employees may be more motivated to improve performance

Can reduce need for supervision

Profit sharing is related to company ability to pay, it only has to pay higher amounts when the company is doing well

Leads to higher total employee earnings

May reduce the need for layoffs because in poor economic conditions labour cost are automatically adjusted downwards

Greater job satisfaction

Simpler to set up and administer than plans like gain-sharing

49
Q

What are the disadvantages of a profit sharing plan

A

employees free riding

Unions may oppose

50
Q

What are employee stock plans and what are the 3 types of them

A

any type of plan where employees acquire shares in the firm that employs them

3 main types: employee stock bonus, employee share purchase, employee stock option

51
Q

what is a employee stock bonus

A

type of employee stock plan where employees receive shares from their employer at no cost

52
Q

employee stock purchase

A

a plan through which employees may purchase shares in their employer but don’t have to pay full price

53
Q

employee stock option

A

plan where employees have the option to purchase stock in their employee at a fixed price within a limited time period the idea they will purchase once the value of the stock price rises

54
Q

what are advantages of employee stock plans

A

can create stronger understanding and concern for company performance

55
Q

what are some disadvantages of employee stock plans

A

decline in share price can demoralize employees

56
Q

What is a long-term incentive

A

type of performance pay where incentive are tied to org performance that’s way into the future

57
Q

What are the 4 constraints on a compensation strategy

A

legislated
labour market
product/service market
financial

58
Q

What are the 4 types of legislation that are legislated constraints

A

Employment standards
Sets minimum standards for pay and other conditions of employment

Human rights legislation
Prohibits discrimination in hiring or employment on the basis of gender, ethnicity, or age

Trade Union Legislation
Defines the rights of parties involved in a collective bargaining relationship

Tax Legislation
Income and corporate tax laws

59
Q

What have tax laws does in terms of direct pay vs indirect pay

A

movement away from direct pay (which is fully taxed) and toward indirect pay (which often is not)

60
Q

what are labour market constraints

A

Constraints on compensation strategy flowing from the relative levels of demand and supply for particular occupational groups

61
Q

what are product/service market constraints

A

Constraints on compensation strategy caused by the nature of the product or service market in which the firm operates

62
Q

what are examples of financial constraints

A

Unprofitable firms more limited in their compensation options than profitable firms

Growth stage (new or fast growing firms short on cash)

Funding (usually public sectors organizations, can limit how much they can give for compensation based on how much funding they get)

63
Q

what are the steps in the compensation strategy formulation

A
  1. define the required behaviour (task, membership, or citizenship)
  2. define the role of compensation
  3. determine the compensation mix
  4. determine the compensation level
  5. evaluate proposed strategy
64
Q

How would you define the role of compensation in each of the 3 managerial strategies

A

Classical organizations
Focus on economic needs as the main motivator of behaviour

Human relations organizations
Focus on social needs

High-involvement organizations
Focus on employee needs for participation, growth, and development

65
Q

What are 3 options to determine compensation level

A

Lagging the market
A compensation level strategy based on paying below the average compensation level in a given labour market

Leading the market
A compensation level strategy based on paying above the average compensation level in a given labour market

Matching the market
A compensation level strategy based on paying at average compensation levels in a given labour market

66
Q

What is a utility analysis

A

Utility analysis is an approach to analyzing whether a lead, lag, or match strategy would be most efficient for a given organization

67
Q

what is the advantage of doing a utility analysis

A

Advantage: gives the ability to answer what if questions and identify min conditions necessary for a change in policy to pay off

68
Q

Hybrid compensation level policies

A

A compensation-level strategy that varies across employee groups or compensation components
Firm could choose to lag for entry-level positions, especially if applicants are plentiful, but to lead in higher level positions in order to avoid turnover of highly trained personnel

69
Q

Compensation mix affects the amount of compensation you can…

A

afford to pay

70
Q

are are the 3 criteria to evaluating the compensation strategy

A

Affordability
Legality
Employee attraction

have to pass all 3 for the strategy to be good

71
Q

what are job families

A

Employees are categorized into several groups
Separate compensation system is used for each group

72
Q

what are 6 generic groups of job families

A

Hourly paid employees
Clerical employees
Sales employees
Professional employees
Managerial employees
Executives

73
Q

what are contingent workers

A

Workers who are not employed on a full-time permanent basis

Other types of contingent workers
Temporary full-time employees, independent contractors, and persons hired from temporary help agencies

74
Q

Who are the 3 main groups for whom the compensation system often differ from the compensation norm

A

Contingent workers
Executives
International employees (foreign workers)

75
Q

how does pay for executive work

A

paid mostly on bonuses and incentives, with some amount of base pay too

76
Q

what are 6 decision issues for CEO pay

A

Amount of performance pay relative to base pay and indirect pay

Amount of short-term (annual) performance pay versus longer-term performance pay

Nature of the performance pay itself

Specific performance indicators used as criteria for the performance pay

Stringency of the performance criteria

Time period to be used as the performance period for the incentive

77
Q

which component accounts for the largest portion of total value of exec compensation in Canada

A

stock grants and stock options

78
Q

what are 4 approaches to foreign worker compensation

A

Balance sheet: Provides a standard of living comparable with the home country

Negotiation: Process in which the employer and employee negotiate a mutually acceptable package

Localization: Practice of paying foreign worker employees the same compensation as local nationals in equivalent positions

Lump sum: Various allowance amounts are paid directly in home-country currency

Compensation (3 decks)

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