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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
Q

LO3: define point system

A

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

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26
Q

LO3: 3 points to point system

A

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.

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27
Q

LO3: explain alternative to point system - profile method by korn ferry hay guide

A

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)

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28
Q

LO3: 6 steps in point system

A

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

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29
Q

LO3: define market pricing

A

Focuses on external competitiveness ie how much should org pay for jobs based on what competitors are paying

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30
Q

LO3: what does firm rely on to get market pricing data

A

Rely on Wage and salary surveys ie same labour market comparable jobs

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31
Q

LO3: 2 points to market pricing

A

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.

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32
Q

LO3: 3 types of market pricing

A

1) matching market
2) market leader
3) market lag

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33
Q

LO3: define matching market in market pricing

A

targeting 50% percentile means org will pay at middle of all orgs with similar positions

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34
Q

LO3: define market leader in market pricing

A

typically aim for paying 75th percentile

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35
Q

LO3: define market lag in market pricing

A

paying 25th percentile. May suit loose labour markets or org with strong variable compensation + benefits program.

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36
Q

LO4: define skill or knowledge based pay

A

pay system based on employee’s mastery of skill or knowledge

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37
Q

LO4: 3 things and examples skill/knowledge based pay is based on

A

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)

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38
Q

LO4: 3 points to depth pay systems

A

Commonly seen in skilled traders and professors and seen in white collar careers where there is dual career ladder
Existed since middle ages

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39
Q

LO4: 2 points to breadth pay system

A

1) balance between breadth (flexibility), depth and self management
2) Common in manufacturing, call centers, processing centres for banks + insurance

40
Q

LO4: what is causing need for skill based pay

A

rise of lean systems + trends like cross training, self inspection, shorter life cycles of products, product customization, market changes

41
Q

LO4: which pay system generates higher pay rate

A

skill based pay

42
Q

LO4: 2 things in phase 4

A

1) establish pay level for each job

2) creating compensation structure

43
Q

LO4: 5 points to wage trend line

A

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
Q

LO4; define key job

A

job common in org and in labour market like janitor, driver, secretary that is used to determine pay scales

45
Q

LO4: define merit raise

A

pay increase given to individual workers according to evaluation of performance, rate range enables this

46
Q

LO4: explain rate range

A

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
Q

LO4: 2 things to focus on in creating compensation structure

A

job classes + rate ranges

48
Q

LO4: 5 challenges affecting compensation

A

1) prevailing wage rates
2) union power
3) productivity
4) wage + salary policies
5) gov constraints

49
Q

LO4: explain red circled rate

A

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
Q

LO4: explain silver circled

A

pay more than max salary level to employees with long tenure

51
Q

LO4: explain gold circle

A

payments beyond max level if employee receives special merit pay that does not fit in established range

52
Q

LO4: explain green circle

A

jobs paid less than minimum, happens when org uses salary caps (limits)

53
Q

LO4: define compa-ratio

A

an index that indicates how an individual’s or group’s salary relates to the midpoint of their relevant pay grades

54
Q

LO4: what is a common wage + salary policy

A

give nonunion workers same raise as union workers or cost of living clauses

55
Q

LO4: explain and formula for compa-ratio

A

1) Ratio > 1 shows individual salary above midpoint of pay grade
2) = salary of employee / midpoint of pay grade

56
Q

LO4: explain productivity affecting compensation

A

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
Q

LO4: 3 points to group compa-ratio

A

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
Q

LO4: what federal gov constraint applies to unions

A

labour codes

59
Q

LO4: define wage compression

A

if those earning just above minimum wage do not also get raise, wage differentials will be squeezed together when minimum wage rises

60
Q

LO4: what does labour codes govern?

A

industrial relations, occupational health + safety, federal labour standards

61
Q

LO5: benefit of incentive pay

A

1) Incentives link pay to performance or productivity for part of or all income
2) quick and frequent
3) behaviour reinforced regularly

62
Q

LO5: challenges to incentive pay

A

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
Q

LO5: define incentive pay

A

compensation directly tied to employee performance, productivity or both

64
Q

LO5: 3 types of variable pay

A

1) individual incentive plans
2) team or group incentive plans
3) profit sharing and ownership plans

65
Q

LO5: 5 types of individual incentive pay

A

1) piecework
2) production bonuses
3) commissions
4) discretionary bonuses
5) spot awards

66
Q

LO5: define piecework

A

compensates workers for each unit of output

67
Q

LO5: define production bonus

A

additional compensation when employees surpass stated production goals

68
Q

LO5: explain how discretionary bonus works

A

When bonus based on performance, managers typically determine size of total bonus pool and allocate

69
Q

LO5: define pay at risk

A

discretionary bonus, earn additional amount or % of wage that is pay at risk provided they meet specific targets

70
Q

LO5: 3 types of discretionary bonus examples

A

1) pay at risk
2) sign on bonus
3) retention bonus

71
Q

LO5: define retention bonus

A

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
Q

LO5: 3 points to spot awards

A

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
Q

LO5: 2 types of team or group incentive plans

A

1) team results

2) production incentive plans

74
Q

LO5: 3 points to team results

A

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
Q

LO5: 2 points to production incentive plans

A

Groups of workers receive bonus for exceeding predetermined levels of output

76
Q

LO5: define profit sharing plans

A

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
Q

LO5: 2 points to employee stock ownership plans

A

1) Give employees ownership + voting power

2) Can be used for succession planning tool and to transition out of business

78
Q

LO6: define total reward model

A

inclusion of everything employees value in employment relationship aka total compensation approach

79
Q

LO6: 4 things total rewards model leads to

A

1) easier recruitment of high quality staff
2) Lower turnover
3) Higher employee performance
4) Enhanced employer reputation

80
Q

LO6: 13 examples of total rewards system

A 
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
Q

LO7: define pay equity

A

policy to eliminate gap between income of men and women, ensuring salary ranges correspond to value of work performed

82
Q

LO7: explain equal pay

A

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
Q

LO7: explain pay equity

A

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
Q

LO7: what makes pay equity difficult?

A

equal value not generally define

85
Q

LO7: 7 things that can justify differences in wages, only if applied consistently + equitably

A

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
Q

LO7; how much do women earn compared to men

A

87%

87
Q

LO7: 3 reasons wage gap exists

A

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
Q

LO7: what can explain the 5-10% wage gap for gender discrimination

A

May be explained due to differential pay to permanent full time jobs vs part time and casual jobs

89
Q

LO8: define pay secrecy

A

mgmt policy not to discuss or publish individual salaries

90
Q

LO8: 3 advantages of pay secrecy

A

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
Q

LO8: 2 disadvantages of pay secrecy

A

1) May generate distrust in the pay system

2) Employees may perceive there is no relationship between pay and performance

92
Q

LO8: what is common for international pay?

A

home country system, but can lead to HR discrepancies in policies

93
Q

Lecture: explain loblaws activity

A

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
Q

Lecture: pay transparency laws (faculty in canada)

A

1) slower rate of growth in salaries
2) reduced gender gap by 30%
3) more pronounced in unionized workplace

95
Q

Lecture: explain chris and pat case

A

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
Q

Lecture: what can improve internal and external equity problems with compensation

A

job evaluations for internal equity and wage + salary surveys for external equity

97
Q

Lecture: explain WEC compensation case (don’t think we covered this)

A

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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