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BU 354 > Chp 9: Compensation Management > Flashcards

Chp 9: Compensation Management Flashcards

1
Q

LO1: one indicator of compensation

A

Look at turnover for compensation - if turnover rate is high enough to adversely impact firm performance, employee compensation is probably too low

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2
Q

LO1: what is compensation

A

Cash and non-cash rewards employee receive in exchange for their work

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3
Q

LO1: 2 types of compensation

A

direct, indirect

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4
Q

LO1: what includes direct compensation

A

Direct compensation includes wages paid and variable pay such as bonuses, commissions, and stocks paid as short or long term incentives in exchange for the work they do

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5
Q

LO1: what includes indirect compensation

A

Indirect compensation includes employee benefits and services (Chapter 10)

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6
Q

LO1: what do employees evaluate

A

if they are underpaid or adequately paid

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7
Q

LO1: 4 points to absolute vs relative pay

A

1) Total amount versus amount compared to others
2) Affect perceptions of fair and adequate pay
3) When total/absolute pay is too low - employees cannot meet physiological or safety needs
4) Dissatisfaction with relative pay more common (amount compared to others)

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8
Q

3 points to compensation perceived inappropriate

A

1) Performance, motivation, and satisfaction may decline dramatically
2) Turnover may occur
3) Dissatisfaction with absolute or relative pay

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9
Q

LO1: what does effective compensation try to achieve

A

internal and external equity

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10
Q

LO1: define internal equity

A

pay related to relative worth of jobs. Perceived equity of a pay system across different jobs within org. Compare jobs and skills within org in terms of relative contribution to org objectives.

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11
Q

LO1: define external equity

A

paying workers relative to market. Perceived fairness in pay relative to what other employers are paying for the same type of work

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12
Q

LO1: 5 effective compensation objectives

A

1) Acquire qualified personnel
2) Retain present employees
3) Reward desired behaviour
4) Control costs - without systematic wage + salary structure, the org might overpay or underpay employees
5) Legal compliance

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13
Q

LO2: phases in determining direct compensation

A

Phase 1: compensation philosophy (lead, match, lag) (LO2)
Phase 2: job analysis (job description, job specification, performance standards) (LO2)
Phase 3: pricing jobs (job evaluation, market pricing, skill based) (LO3)
Phase 4: matching employees to pay (LO4)

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14
Q

LO2: phase 1:what does strong compensation philosophy do

A

ties org mission, strategies, outlook to pay it provides employees

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15
Q

LO2: phase 1: define lead strategy

A

rates higher than relative marketplace like google to attract top talent ex. retail stores

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16
Q

LO2: phase 1: define lag strategy

A

rates lower than those of relative marketplace ex. Warehouse with low turnover in remote community w large labour pool.

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17
Q

LO2: 2 points to phase 2

A

Understand job + skills needed
Review job analysis info to compare jobs for internal equity and identify comparable jobs to make external equity assessments

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18
Q

LO3: 3 approaches to determining direct compensation

A

1) job evaluation
2) market pricing
3) skill or knowledge based

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19
Q

LO3: define job evaluation

A

Systematic procedures to determine the relative worth or value of jobs (internal equity). Systematic processes of assessing job content and ranking jobs according to consistent set of job characteristics and worker traits

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20
Q

LO3: 3 approaches to job evaluation method

A

1) job ranking
2) job grading aka job classification
3) point system

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21
Q

LO3: define job ranking

A

form of job evaluation in which jobs are ranked subjectively according to overall worth to org

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22
Q

LO3: 3 points to job ranking

A

1) Simplest form but least precise
2) Challenge: some elements may be overlooked or unimportant items weighted too heavily and do not differentiate relative importance of jobs. More important jobs paid more.
3) Best suited for small org with simple hierarchies

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23
Q

LO3: define job grading aka job classification

A

form of job evaluation that assigns jobs to predetermined job classifications according to their relative worth to org and job description

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24
Q

LO3: 3 points to job grading

A

1) More important jobs paid more but can lead to inaccurate pay levels
2) Assigns each job a grade based on classifications

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25
LO3: define point system
form of job evaluation that assesses the relative importance of the job’s key/compensable factors in order to arrive at the relative worth of jobs
26
LO3: 3 points to point system
1) Most popular and valid 2) Jobs worth more are paid more like all these methods More difficult to develop initially but can be done by job evaluation committee or compensation analyst. Often use a standard approach with unique variations.
27
LO3: explain alternative to point system - profile method by korn ferry hay guide
evaluates jobs on 3 factors a) value created by job/accountability b) how value is created/problem solving c) what job requirements are that employee must meet to deliver value (know-how)
28
LO3: 6 steps in point system
1) determine compensable factors like safety of others, product/service quality 2) determine levels (or degrees) of factors 3) allocate points to subfactors (start with level IV) 4) allocatie points to levels (degrees) 5) develop point manual - contains written explanation for each job element and what is expected for 4 levels (degrees) for each subfactor 6) apply point system - subjective and requires specialists to compare job descriptions and point manual for each subfactor
29
LO3: define market pricing
Focuses on external competitiveness ie how much should org pay for jobs based on what competitors are paying
30
LO3: what does firm rely on to get market pricing data
Rely on Wage and salary surveys ie same labour market comparable jobs
31
LO3: 2 points to market pricing
1) One group suggests using comparables beyond industry and use last employer of new hires 2) Simply matching job titles can be misleading 3) Data from wage + salary surveys need to be aged to common point in time. Surveys older than 2 years are likely too old.
32
LO3: 3 types of market pricing
1) matching market 2) market leader 3) market lag
33
LO3: define matching market in market pricing
targeting 50% percentile means org will pay at middle of all orgs with similar positions
34
LO3: define market leader in market pricing
typically aim for paying 75th percentile
35
LO3: define market lag in market pricing
paying 25th percentile. May suit loose labour markets or org with strong variable compensation + benefits program.
36
LO4: define skill or knowledge based pay
pay system based on employee’s mastery of skill or knowledge
37
LO4: 3 things and examples skill/knowledge based pay is based on
Pay is based on depth (gaining greater expertise in existing skills), breadth (increases in employee range of skills), and self-management (gaining higher level of management-type skills like budgeting, training, planning)
38
LO4: 3 points to depth pay systems
Commonly seen in skilled traders and professors and seen in white collar careers where there is dual career ladder Existed since middle ages
39
LO4: 2 points to breadth pay system
1) balance between breadth (flexibility), depth and self management 2) Common in manufacturing, call centers, processing centres for banks + insurance
40
LO4: what is causing need for skill based pay
rise of lean systems + trends like cross training, self inspection, shorter life cycles of products, product customization, market changes
41
LO4: which pay system generates higher pay rate
skill based pay
42
LO4: 2 things in phase 4
1) establish pay level for each job | 2) creating compensation structure
43
LO4: 5 points to wage trend line
1) Scattergram plots total points + wage level for each key job 2) X axis - point values 3) Y axis - wages or salaries 4) To determine non-key job, draw vertical line from horizontal point values to wage trend line 5) ascending dashes if using point system
44
LO4; define key job
job common in org and in labour market like janitor, driver, secretary that is used to determine pay scales
45
LO4: define merit raise
pay increase given to individual workers according to evaluation of performance, rate range enables this
46
LO4: explain rate range
1) Once worker reaches top pay range, either promotion or general across the board pay raise need to occur for wage to increase 2) new employee starts at bottom of range
47
LO4: 2 things to focus on in creating compensation structure
job classes + rate ranges
48
LO4: 5 challenges affecting compensation
1) prevailing wage rates 2) union power 3) productivity 4) wage + salary policies 5) gov constraints
49
LO4: explain red circled rate
1) rate of pay higher than contractual or formerly established rate for job 2) Some jobs need to be paid more than relative worth because of market forces like jobs in short supply
50
LO4: explain silver circled
pay more than max salary level to employees with long tenure
51
LO4: explain gold circle
payments beyond max level if employee receives special merit pay that does not fit in established range
52
LO4: explain green circle
jobs paid less than minimum, happens when org uses salary caps (limits)
53
LO4: define compa-ratio
an index that indicates how an individual’s or group’s salary relates to the midpoint of their relevant pay grades
54
LO4: what is a common wage + salary policy
give nonunion workers same raise as union workers or cost of living clauses
55
LO4: explain and formula for compa-ratio
1) Ratio > 1 shows individual salary above midpoint of pay grade 2) = salary of employee / midpoint of pay grade
56
LO4: explain productivity affecting compensation
1) Firm cannot pay workers more than they contribute back to the firm through productivity long term. 2) When this happens because of scarcity or union power, firms redesign jobs, train new workers to increase supply, or automate
57
LO4: 3 points to group compa-ratio
1) Ratio > 1, large number of employees are bunched at top of pay grade 2) Ratio < 1 may be caused by new employees or high turnover 3) = avg of salaries paid / midpoint of pay grade
58
LO4: what federal gov constraint applies to unions
labour codes
59
LO4: define wage compression
if those earning just above minimum wage do not also get raise, wage differentials will be squeezed together when minimum wage rises
60
LO4: what does labour codes govern?
industrial relations, occupational health + safety, federal labour standards
61
LO5: benefit of incentive pay
1) Incentives link pay to performance or productivity for part of or all income 2) quick and frequent 3) behaviour reinforced regularly
62
LO5: challenges to incentive pay
1) administration complex 2) may result in inequities 2) employees may not achieve standards due to uncontrollable forces 4) union resistance 5) employees may focus on only one aspect
63
LO5: define incentive pay
compensation directly tied to employee performance, productivity or both
64
LO5: 3 types of variable pay
1) individual incentive plans 2) team or group incentive plans 3) profit sharing and ownership plans
65
LO5: 5 types of individual incentive pay
1) piecework 2) production bonuses 3) commissions 4) discretionary bonuses 5) spot awards
66
LO5: define piecework
compensates workers for each unit of output
67
LO5: define production bonus
additional compensation when employees surpass stated production goals
68
LO5: explain how discretionary bonus works
When bonus based on performance, managers typically determine size of total bonus pool and allocate
69
LO5: define pay at risk
discretionary bonus, earn additional amount or % of wage that is pay at risk provided they meet specific targets
70
LO5: 3 types of discretionary bonus examples
1) pay at risk 2) sign on bonus 3) retention bonus
71
LO5: define retention bonus
employees will working for firm after period time will receive lump sum bonus; used for firms in transition like merger or firms in difficult times
72
LO5: 3 points to spot awards
1) Recognize special contributions as they occur 2) Generally for project or task completed in short period 3) Can be thank you notes, gift cards etc to reinforce good behaviour
73
LO5: 2 types of team or group incentive plans
1) team results | 2) production incentive plans
74
LO5: 3 points to team results
1) Based on team overall results and typically shared equally 2) Benefits: jobs are interrelated (depend on each other), foster cohesion + org commitment, interpersonal skills to improve cooperation and incentives for cross training 3) Disadvantage: freeloader effect, social pressure on high performers to lower input to avoid drawing mgmt attention to low performers. Most likely occurs in hostile management - union environment. May result in competition between teams and hoarding resources + info
75
LO5: 2 points to production incentive plans
Groups of workers receive bonus for exceeding predetermined levels of output
76
LO5: define profit sharing plans
system where employer pays compensation or benefits to employees, usually on annual basis, in addition to regular wage, on basis of profits of firm
77
LO5: 2 points to employee stock ownership plans
1) Give employees ownership + voting power | 2) Can be used for succession planning tool and to transition out of business
78
LO6: define total reward model
inclusion of everything employees value in employment relationship aka total compensation approach
79
LO6: 4 things total rewards model leads to
1) easier recruitment of high quality staff 2) Lower turnover 3) Higher employee performance 4) Enhanced employer reputation
80
LO6: 13 examples of total rewards system
``` Compensation (wages, commission, bonuses) Benefits (vacations, health insurance) Social interaction (Friendly workplace) Security (stable, consistent position + rewards) status/recognition (respect, prominence) Work variety Workload Work importance (valued by society) authority/control/autonomy Advancement Feedback Work conditions Development (formal + informal training) ```
81
LO7: define pay equity
policy to eliminate gap between income of men and women, ensuring salary ranges correspond to value of work performed
82
LO7: explain equal pay
1) Equal pay for equal work (Equal Pay) 2) Part of Canada Labour Code since 1971 3) Employers must pay men and women the same wage or salary when they do the same kind and amount of work
83
LO7: explain pay equity
1) Equal pay for work of equal value (Pay Equity) 2) Jobs of comparable worth to the organization should be paid equally 3) Part of Canadian Human Rights Act since 1978 4) ie nurses and electricians should be paid same if same job evaluation points, regardless of market conditions 5) Based on criteria of skill, effort, responsibility and working conditions
84
LO7: what makes pay equity difficult?
equal value not generally define
85
LO7: 7 things that can justify differences in wages, only if applied consistently + equitably
1) Different performance ratings 2) Seniority 3) Red circling 4) Rehabilitation assignment (after lengthy absence due to sickness) 5) Demotion pay procedures 6) Procedure of phased in wage reductions 7) Temporary training positions
86
LO7; how much do women earn compared to men
87%
87
LO7: 3 reasons wage gap exists
1) Women tend to work in lower-paying occupations 2) Career gaps - leave workforce to care for children 3) 5-10% due to gender-based pay discrimination
88
LO7: what can explain the 5-10% wage gap for gender discrimination
May be explained due to differential pay to permanent full time jobs vs part time and casual jobs
89
LO8: define pay secrecy
mgmt policy not to discuss or publish individual salaries
90
LO8: 3 advantages of pay secrecy
1) Most employees prefer to have their pay kept secret, but like being given pay ranges + policies 2) Gives managers greater freedom 3) Covers up inequities
91
LO8: 2 disadvantages of pay secrecy
1) May generate distrust in the pay system | 2) Employees may perceive there is no relationship between pay and performance
92
LO8: what is common for international pay?
home country system, but can lead to HR discrepancies in policies
93
Lecture: explain loblaws activity
1) loblaws demands workers pay back overpayment 2) Called constructive dismissal, changing terms of contract 3) employees should ignore letter because it was a done deal
94
Lecture: pay transparency laws (faculty in canada)
1) slower rate of growth in salaries 2) reduced gender gap by 30% 3) more pronounced in unionized workplace
95
Lecture: explain chris and pat case
1) chris earns less than pat and doesn't see why they should be paid differently 2) all reasons are wise and legal except for protected grounds
96
Lecture: what can improve internal and external equity problems with compensation
job evaluations for internal equity and wage + salary surveys for external equity
97
Lecture: explain WEC compensation case (don't think we covered this)
rebecca is the hiring manager, Abdul quit when Abigail was paid more than him. other candidates didn't want the job because other places paid more. Charlotte was the manager

BU 354 (11 decks)

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