Compensation Flashcards
1
Q
360-degree feedback
A
A rating method that assesses employee performance from five points of view: supervisor, peer, self, customer, and subordinate.
2
Q
401(k) plan
A
A 401(k) plan, so named for the section of the Internal Revenue Code describing the requirements, is a savings plan in which employees are allowed to defer pretax income.
3
Q
ability to pay
A
The ability of a firm to meet employee wage demands while remaining profitable; a frequent issue in contract negotiations with unions. A firm’s ability to pay is constrained by its ability to compete in its product market.
4
Q
ability
A
An individual’s capability to engage in a specific behavior.
5
Q
access discrimination
A
Discrimination that focuses on the staffing and allocation decisions made by employers. It denies particular jobs, promotions, or training opportunities to qualified women or minorities. This type of discrimination is illegal under Title VII of the Civil Rights Act of 1964.
6
Q
affirmative action
A
Firms with government contracts must take affirmative steps to hire women and minorities in proportion to their presence in the labor force.
7
Q
Age Discrimination in Employment Act (ADEA) of 1967 (amended 1978, 1986, and 1990)
A
Legislation that makes nonfederal employees aged 40 and over a protected class relative to their treatment in pay, benefits, and other personnel actions. The 1990 amendment is called the Older Workers Benefit Protection Act.
8
Q
agency theory
A
A theory of motivation that depicts exchange relationships in terms of two parties: agents and principals. According to this theory, both sides of the exchange will seek the most favorable exchange possible and will act opportunistically if given a chance. As applied to executive compensation, agency theory would place part of the executive’s pay at risk to motivate the executive (agent) to act in the best interests of the shareholders (principals) rather than in the executive’s own self-interests.
9
Q
alternation ranking
A
A job evaluation method that involves ordering the job description alternately at each extreme. All the jobs are considered. Agreement is reached on which is the most valuable and then the least valuable. Evaluators alternate between the next most valued and next least valued and so on until the jobs have been ordered.
10
Q
Americans with Disabilities Act (ADA)
A
Legislation passed in 1990 that requires that reasonable accommodations be provided to permit employees with disabilities to perform the essential elements of a job.
11
Q
appeals processes
A
Mechanisms are created to handle pay disagreements. They provide a forum for employees and managers to voice their complaints and receive a hearing.
12
Q
balance sheet approach
A
A method for compensating expatriates based upon the belief that the employee should not suffer financially for accepting a foreign-based assignment. The expatriate’s pay is adjusted so that the amounts of the financial responsibilities the expatriate had prior to the assignment are kept at about the same level while on assignment—the company pays for the difference.
13
Q
balanced scorecard
A
A corporatewide, overall performance measure typically incorporating financial results, process improvements, customer service, and innovation.
14
Q
base wage
A
The basic cash compensation that an employer pays for the work performed. Tends to reflect the value of the work itself and ignore differences in individual contributions.
15
Q
Bedeaux plan
A
Individual incentive plan that provides a variation on straight piecework and standard hour plans. Instead of timing an entire task, a Bedeaux plan requires determination of the time required to complete each simple action of a task. Workers receive a wage incentive for completing a task in less than the standard time.
16
Q
behaviorally anchored rating scales (BARS)
A
Variants on standard rating scales in which the various scale levels are anchored with behavioral descriptions directly applicable to jobs being evaluated.
17
Q
benchmark (key) job
A
A prototypical job, or group of jobs, used as a reference point for making pay comparisons within or without the organization. Benchmark jobs have well-known and stable contents; their current pay rates are generally acceptable, and the pay differentials among them are relatively stable. A group of benchmark jobs, taken together, contains the entire range of compensable factors and is accepted in the external labor market for setting wages.
18
Q
benchmark conversion
A
Process of matching survey jobs by applying the employer’s plan to the external jobs and then comparing the worth of the external job with its internal “match.”
19
Q
benefit limitation
A
Limit of disability income payments to some maximum percentage of income and limit of medical/dental coverage for specific procedures to a certain fixed amount.
20
Q
best-pay practices
A
Compensation practices that allow employers to gain preferential access to superior human resource talent and competencies (i.e., valued assets), which in turn influence the strategies the organization adopts.
21
Q
bourse market
A
A market that allows haggling over terms and conditions until an agreement is reached.
22
Q
Brito v. Zia Company
A
Benchmark case that interpreted performance evaluation as a test, subject to validation requirements, and used these evaluations based on a rating format to lay off employees, resulting in a disproportionate number of minorities being discharged.
23
Q
broad banding
A
Collapsing a number of salary grades into a smaller number of broad grades with wide ranges.
24
Q
budgeting
A
A part of the organization’s planning process; helps to ensure that future financial expenditures are coordinated and controlled. It involves forecasting the total expenditures required by the pay system during the next period as well as the amount of the pay increases. Bottom up and top down are the two typical approaches to the process.
25
Bureau of Labor Statistics (BLS)
A major source of publicly available pay data. It also calculates the consumer price index.
26
career path
A progression of jobs within an organization.
27
cash balance plan
A defined benefit plan that looks like a defined contribution plan. Employees have a hypothetical account, such as a 401(k), into which is deposited what is typically a percentage of annual compensation. The dollar amount grows both from contributions by the employer and by some predetermined interest rate (e.g., often set equal to the rate given on 30-year treasury certificates).
28
central tendency
A midpoint in a group of measures.
29
claims processing
Procedure that begins when an employee asserts that a specific event (e.g., disablement, hospitalization, unemployment) has occurred and demands that the employer fulfill a promise for payment. As such, a claims processor must first determine whether the act has, in fact, occurred.
30
classification
Job evaluation method that involves slotting job descriptions into a series of classes or grades that cover the range of jobs and that serve as a standard against which the job descriptions are compared.
31
commission
Payment tied directly to achievement of performance standards. Commissions are directly tied to a profit index (sales, production level) and employee costs; thus, they rise and fall in line with revenues.
32
committee a priori judgment approach
Compensable factor importance weights are assigned by a committee based on a priori judgment.
33
compa-ratio
An index that helps assess how managers actually pay employees in relation to the midpoint of the pay range established for jobs. It estimates how well actual practices correspond to intended policy. Calculated as average rates actually paid divided by range midpoint.
34
comparable worth
A policy that women performing jobs judged to be equal on some measure of inherent worth should be paid the same as men, excepting allowable differences, such as seniority, merit, production-based pay plans, and other non-sex-related factors. Objective is to eliminate use of the market in setting wages for jobs held by women.
35
compensable factor
Job attributes that provide the basis for evaluating the relative worth of jobs inside an organization. A compensable factor must be work-related, business-related, and acceptable to the parties involved.
36
compensating differentials
Economic theory that attributes the variety of pay rates in the external labor market to differences in attractive as well as negative characteristics in jobs. Pay differences must overcome negative characteristics to attract employees.
37
compensation
All forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.
38
competency-based pay system
Compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. Typically used in managerial and professional work where what is accomplished may be difficult to identify.
39
competency-based structure
Compensation approach that links pay to the depth and scope of competencies that are relevant to doing the work. Typically used in managerial and professional work where what is accomplished may be difficult to identify.
40
competency
Basic knowledge and abilities employees must acquire or demonstrate in a competency-based plan in order to successfully perform the work, satisfy customers, and achieve business objectives.
41
competitive intelligence
The collection and analysis of information about external conditions and competitors that will enable an organization to be more competitive.
42
competitive position
The comparison of the compensation offered by one employer relative to that paid by its competitors.
43
compliance
As a pay objective, conforming to federal and state compensation laws and regulations.
44
Consumer Price Index (CPI)
A measure of the changes in prices in a fixed market basket of goods and services purchased by a hypothetical average family. Not an absolute measure of living costs; rather, a measure of how fast costs are changing. Published by the Bureau of Labor Statistics, U.S. Department of Labor.
45
consumer-driven health care benefifits
Costs link consumer choice of more or less expensive options to higher or lower individual costs. Also called consumer-directed health care plans.
46
content
The work performed in a job and how it gets done (tasks, behaviors, knowledge required, etc.).
47
contingent workers
People who have no expectation of continued employment and/or expect their employment to be temporary. (See U.S. Bureau of Labor Statistics.)
48
conventional job analysis
Methods (e.g., functional job analysis) that typically involve an analyst using a questionnaire in conjunction with structured interviews of job incumbents and supervisors. The methods place considerable reliance on analysts’ ability to understand the work performed and to accurately describe it.
49
copay
Copay requires that employees pay a fixed or percentage amount for coverage.
50
core employees
Workers with whom a long-term, full-time work relationship is anticipated.
51
correlation coefficient
A common measure of association that indicates how changes in one variable are related to changes in another.
52
cost containment
An attempt made by organizations to contain benefit costs, such as imposing deductibles and coinsurance on health benefits or replacing defined benefit pension plans with defined contribution plans.
53
cost cutter
The cost cutter’s efficiency-focused strategy stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed.
54
cost-of-living adjustments (COLAs)
Across-the-board wage and salary increases or supplemental payments based on changes in some index of prices, usually the consumer price index (CPI). If included in a union contract, COLAs are designed to increase wages automatically during the life of the contract as a function of changes in the CPI.
55
cost-of-living increase
Same as across-the-board increase, except magnitude based on change in cost of living (e.g., as measured by the consumer price index [CPI]).
56
criterion contamination
Allowing nonperforming factors to affect performance scores.
57
criterion deficiency
A criterion is deficient if it fails to include all of the dimensions relevant to job performance (e.g., excluding keyboarding skills for a secretary’s job performance).
58
criterion pay structure
A pay structure to be duplicated with a point plan.
59
culture
The informal rules, rituals, and value systems that influence how people behave.
60
customer-driven health care
Medical care package where the employer finances the cost up to a dollar maximum and the employees search for options that best fit their specific needs.
61
customer-focused business strategy
The customer-focused business strategy stresses delighting customers and bases employee pay on how well they achieve this.
62
customer-focused
The customer-focused business strategy stresses delighting customers and bases employee pay on how well they achieve this.
63
deferred compensation
Pay approach that provides income to an employee at some future time as compensation for work performed now. Types of deferred compensation programs include stock option plans and pension plans.
64
defined benefit plan
A benefit option or package in which the employer agrees to give the specified benefit without regard to cost maximum. Opposite of defined contribution plan.
65
defined contribution plan
A benefit option or package in which the employer negotiates a dollar maximum payout. Any change in benefit costs over time reduces the amount of coverage unless new dollar limits are negotiated.
66
delayering
Eliminating some layers or job levels in the pay structure.
67
differentials
Pay differences among levels within the organization, such as the difference in pay between adjacent levels in a career path, between supervisors and subordinates, between union and nonunion employees, and between executives and regular employees.
68
disparate impact
Discrimination theory that outlaws the application of pay practices that may appear to be neutral but have a negative effect on females or minorities unless those practices can be shown to be business-related.
69
disparate treatment
Discrimination theory that outlaws the application of different standards to different classes of employees unless the standards can be shown to be business-related.
70
distributive justice
Fairness in the amount of reward distributed to employees.
71
dual-career ladders
Presence of two different ways to progress in an organization, each reflecting different types of contribution to the organization’s mission. The managerial ladder ascends through increasing responsibility for supervision or direction of people. The professional track ascends through increasing contributions of a professional nature that do not mainly entail the supervision of employees.
72
efficiency wage theory
A theory that explains why firms are rational in offering higher-than-necessary wages.
73
employee benefits
The parts of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments (e.g., life insurance, pension, workers’ compensation, vacation).
74
employee contributions
Comparisons among individuals doing the same job for the same organization.
75
Employee Retirement Income Security Act (ERISA)
For employers who choose to have a retirement plan, this act sets some formidable rules that must be followed to be in compliance.
76
employee stock ownership plan (ESOP)
A retirement plan in which the company contributes its stock as the retirement benefit.
77
employer of choice
The view that a firm’s external wage competitiveness is just one facet of its overall human resource policy and that competitiveness is more properly judged on overall policies. Challenging work, great colleagues, or an organization’s prestige must be factored into an overall consideration of attractiveness.
78
entitlement
Employee belief that returns and/ or rewards are due regardless of individual or company performance.
79
entry jobs
Jobs that are filled from the external labor market and whose pay tends to reflect external economic factors rather than an organization’s culture and traditions.
80
equal employment opportunity
A mandate that all firms make employment decisions that are “blind” to minority/gender status.
81
Equal Pay Act (EPA) of 1963
An amendment to the Fair Labor Standards Act of 1938 that prohibits pay differentials on jobs that are substantially equal in terms of skills, efforts, responsibility, and working conditions, except when they are the result of bona fide seniority, merit, production-based systems, or any other job-related factor other than sex.
82
essay format
An open-ended performance appraisal format. The descriptors used can range from comparisons with other employees to adjectives, behaviors, and goal accomplishment.
83
essential elements
The parts of a job that cannot be assigned to another employee. The Americans with Disabilities Act requires that if applicants with disabilities can perform the essential elements of a job, reasonable accommodations must then be made to enable the qualified individuals to perform the job.
84
exchange value
The price of labor (the wage) determined in a competitive market; in other words, labor’s worth (the price) is whatever the buyer and seller agree upon.
85
exempt
Jobs not subject to provisions of the Fair Labor Standards Act with respect to minimum wage and overtime. Exempt employees include most executives, administrators, professionals, and outside sales representatives.
86
expatriate colony
A section of a large city where expatriates tend to locate and form a community that takes on some of the cultural flavor of their home country.
87
expatriates
Employees assigned outside their base country for any period of time in excess of one year.
88
experience rating
Rating system in which insurance premiums vary directly with the number of claims filed. An experience rating is applied to unemployment insurance and workers’ compensation and may be applied to commercial health insurance premiums. In a community rating system, insurance rates are based on the medical experience of the entire community.
89
external competitiveness
The pay relationships among organizations; focuses attention on the competitive positions reflected in these relationships.
90
extrinsic rewards
Rewards that a person receives from sources other than the job itself. They include compensation, supervision, promotions, vacations, friendships, and all other important outcomes apart from the job itself.
91
factor scales
Measures that reflect different degrees within each compensable factor. Most commonly five to seven degrees are defined. Each degree may be anchored by typical skills, tasks and behaviors, or key job titles.
92
factor weights
Measures that indicate the importance of each compensable factor in a job evaluation system. Weights can be derived through either a committee judgment or a statistical analysis.
93
Fair Labor Standards Act of 1938 (FLSA)
A federal law governing minimum wage, overtime pay, equal pay for men and women in the same types of jobs, child labor, and record-keeping requirements.
94
Family and Medical Leave Act
Legislation passed in 1993 that entitles eligible employees to receive unpaid leave up to 12 weeks per year for specified family or medical reasons, such as caring for ill family members or adopting a child.
95
flat rate
A single rate, rather than a range of rates, for all individuals performing a certain job. Ignores seniority and performance differences.
96
flexible benefit plan
Benefit package in which employees are given a core of critical benefits (necessary for minimum security) and permitted to expend the remainder of their benefit allotment on options that they find most attractive.
97
flexible compensation
The allocation of employee compensation in a variety of forms tailored to organization pay objectives and/or the needs of individual employees.
98
forms of compensation
The various types of pay, which may be received directly in the form of cash (e.g., wages, bonuses, incentives) or indirectly through series and benefits (e.g., pensions, health insurance, vacations). This definition excludes other forms of rewards or returns that employees may receive, such as promotion, recognition for outstanding work behavior, and the like.
99
gain-sharing (group incentive) plans
Incentive plans that are based on some measure of group performance rather than individual performance. Taking data on a past year as a base, group incentive plans may focus on cost savings (e.g., the Scanlon, Rucker, and Improshare plans) or on profit increases (profit-sharing plans) as the standard for distributing a portion of the accrued funds among relevant employees.
100
Gantt plan
Individual incentive plan that provides for variable incentives as a function of a standard expressed as time period per unit of production. Under this plan, a standard time for a task is purposely set at a level requiring high effort to complete.
101
geographic differentials
Local conditions that employees in a specific geographic area encounter, such as labor shortages and differences in housing costs.
102
global approach
Substitution of a particular skill and experience level for job descriptions in determining external market rates. Includes rates for all individuals who possess that skill.
103
Green Circle Rate
Pay rate that is below the minimum rate for a job or pay range for a grade
104
Halsey 50–50 method
Individual incentive method that provides for variable incentives as a function of a standard expressed as time period per unit of production. This plan derives its name from the shared split between worker and employer of any savings in direct costs.
105
hit rate
The ability of a job evaluation plan to replicate a predetermined, agreed-upon job structure.
106
human capital
An economic theory proposing that the investment one is willing to make to enter an occupation is related to the returns one expects to earn over time in the form of compensation.
107
human resource planning system
Put in place by the benefit administrator to make realistic estimates of human resource needs and avoid a pattern of hasty hiring and morale-breaking terminations.
108
Improshare (IMproved PROductivity through SHARing)
A gain-sharing plan in which a standard is developed to identify the expected hours required to produce an acceptable level of output. Any savings arising from production of agreed-upon output in fewer-than-expected hours are shared by the firm and the worker.
109
incentive effect
The degree to which pay influences individual and aggregate motivation among employees at any point in time.
110
incentive
Inducement offered in advance to influence future performance (e.g., sales commissions).
111
indirect compensation
Noncash benefits provided to an employee.
112
individual retirement accounts (IRAs)
Tax-favored retirement savings plans that individuals can establish themselves.
113
innovator
The innovator stresses new products and short response time to market trends.
114
internal alignment
The pay relationships among jobs or skill levels within a single organization; focuses attention on employee and management acceptance of those relationships. It involves establishing equal pay for jobs of equal worth and acceptable pay differentials for jobs of unequal worth.
115
interval scaling
A particular numerical point difference has the same meaning on all parts of a scale.
116
job analysis
The systematic process of collecting information related to the nature of a specific job. It provides the knowledge needed to define jobs and conduct job evaluation.
117
job classification (grade)
A grouping of jobs that are considered substantially similar for pay purposes.
118
job content
Information that describes a job. May include responsibility assumed and/or the tasks performed.
119
job description
A summary of the most important features of a job. It identifies the job and describes the general nature of the work, specific task responsibilities, outcomes, and the employee characteristics required to perform the job.
120
job evaluation committee
Group that may be charged with the responsibility of (1) selecting a job evaluation system, (2) carrying out or at least supervising the process of job evaluation, and (3) evaluating the success with which the job evaluation has been conducted. Its role may vary among organizations, but its members usually represent all important constituencies within the organization.
121
job evaluation
A systematic procedure designed to aid in establishing pay differentials among jobs within a single company. It includes classification, comparison of the relative worth of jobs, blending internal and external market forces, measurement, negotiation, and judgment.
122
job family
A group of jobs involving work of the same nature but requiring different skill and responsibility levels (e.g., computing and account recording are a job family; bookkeeper, accounting clerk, and teller are jobs within that family).
123
job hierarchy
A grouping of jobs based on their job-related similarities and differences and on their value to the organization’s objectives.
124
job pricing
The process of assigning pay to jobs, based on thorough job analysis and job evaluation.
125
job specifications
The job specifications that can be used as a basis for hiring are knowledge, skills, and abilities required to adequately perform the tasks.
126
job structure
Relationship among jobs inside an organization, based on work content and each job’s relative contribution to achieving the organization’s objectives.
127
job-based structure
Structure that relies on work content—tasks, behaviors, responsibilities.
128
job-based systems
Systems that focus on jobs as the basic unit of analysis to determine the pay structure; hence, job analysis is required.
129
just wage doctrine
A theory of job value that posits a “just” or equitable wage for any occupation based on that occupation’s place in the larger social hierarchy. According to this doctrine, pay structures should be designed on the basis of societal norms, customs, and tradition, not on the basis of economic and market forces.
130
labor demand
The employment level organizations require. An increase in wage rates will reduce the demand for labor, other factors constant. Thus, the labor demand curve (the relationship between employment levels and wage rates) is downward-sloping.
131
lag pay-level policy
A wage structure that is set to match market rates at the beginning of the plan year only. The rest of the plan year, internal rates will lag behind market rates. Its objective is to offset labor costs, but it may hinder a firm’s ability to attract and retain quality employees.
132
lead pay-level policy
A wage structure that is set to lead the market throughout the plan year. Its aim is to maximize a firm’s ability to attract and retain quality employees and to minimize employee dissatisfaction with pay.
133
lifetime employment
Most prevalent in Japanese companies, the notion of employees’ staying with the same company for their entire career, despite possible poor performance on the part of either an employee or the company.
134
line of sight
An employee’s ability to see how individual performance affects incentive pay-out. Employees on a straight piecework pay system have a clear line of sight—their pay is a direct function of the number of units they produce; employees covered by profit sharing have a fuzzier line of sight—their payouts are a function of many forces, only one of which is individual performance.
135
living wage
Pay legislation in some U.S. cities that requires wages well above the federal minimum wage. Often applies only to city government employees.
136
local country nationals (LCNs)
Citizens of a country in which a U.S. foreign subsidiary is located. LCNs’ compensation is tied either to local wage rates or to the rates of U.S. expatriates performing the same job.
137
long-term disability (LTD) plan
An insurance plan that provides payments to replace income lost through an inability to work that is not covered by other legally required disability income plans.
138
long-term incentives
Inducements offered in advance to influence longer-rate (multiyear) results. Usually offered to top managers and professionals to get them to focus on long-term organization objectives.
139
lump-sum award
Payment of entire increase (typically merit-based) at one time. Because amount is not factored into base pay, any benefits tied to base pay do not increase.
140
management by objectives (MBO)
An employee planning, development, and appraisal procedure in which a supervisor and a subordinate, or group of subordinates, jointly identify and establish common performance goals. Employee performance on the absolute standards is evaluated at the end of the specified period.
141
marginal product of labor
The additional output associated with the employment of one additional human resource unit, with other factors held constant.
142
marginal productivity
In contrast to Marxist “surplus value” theory, a theory that focuses on labor demand rather than supply and argues that employers will pay a wage to a unit of labor that equals that unit’s use (not exchange) value. That is, work is compensated in proportion to its contribution to the organization’s production objectives.
143
marginal revenue of labor
The additional revenue generated when the firm employs one additional unit of human resources, with other factors held constant.
144
market line
line on a graph that links a com- pany’s benchmark job evaluation points on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis. It summarizes the distribution of going rates paid by competitors in the market.
145
market pay line
Using key/benchmark jobs, a market pay policy line can be constructed that shows external market pay survey data as a function of internal job evaluation points. In many cases, the market pay policy line is obtained by using regression analysis, which yields an equation of the form “market pay = intercept + slope × job evaluation points.” By plugging the job evaluation points for any job (both benchmark and non-benchmark jobs) into the equation, the predicted pay for each job can be obtained.
146
market pricing
Setting pay structures almost exclusively through matching pay for a very large percentage of jobs with the rates paid in the external market.
147
maturity curve
A plot of the empirical relationship between current pay and years since a professional has last received a degree (YSLD), thus allowing organizations to determine a competitive wage level for specific professional employees with varying levels of experience.
148
merit bonus
Payment of entire increase (typically merit-based) at one time. Because amount is not factored into base pay, any benefits tied to base pay do not increase. Also called lump-sum bonus or lump-sum award.
149
merit increase guidelines
Specifications that tie pay increases to performance. They may take one of two forms: The simplest version specifies pay increases permissible for different levels of performance. More complex guidelines tie pay not only to performance but also to position in the pay range.
150
merit pay
A reward that recognizes outstanding past performance. It can be given in the form of lump-sum payments or as increments to the base pay. Merit programs are commonly designed to pay different amounts (often at different times) depending on the level of performance.
151
Merrick plan
Individual incentive plan that provides for variable incentives as a function of units of production per time period. It works like the Taylor plan, but three piecework rates are set: (1) high—for production exceeding 100 percent of standard; (2) medium—for production between 83 and 100 percent of standard; and (3) low—for production less than 83 percent of standard.
152
minimum wage
A minimum-wage level for most Americans established by Congress as part of the Fair Labor Standards Act of 1938.
153
motivation
An individual’s willingness to engage in some behavior. Primarily concerned with (1) what energizes human behavior, (2) what directs or channels such behavior, and (3) how this behavior is maintained or sustained.
154
multiskill systems
Systems that link pay to the number of different jobs (breadth) an employee is certified to do, regardless of the specific job he or she is doing.
155
National Electrical Manufacturers Association (NEMA) plan
A point factor job evaluation system that evolved into the National Position Evaluation Plan sponsored by NMTA associates.
156
National Metal Trades Association (NMTA) plan
A point factor job evaluation plan for production, maintenance, and service personnel.
157
nonexempt employees
Employees who are subject to the provisions of the Fair Labor Standards Act.
158
nonexempt
Employees who are subject to the provisions of the Fair Labor Standards Act.
159
offshoring
Offshoring refers to the movement of jobs to locations beyond a country’s borders.
160
outsourcing
The practice of hiring outside vendors to perform functions that do not directly contribute to business objectives and in which the organization does not have a comparative advantage.
161
paid-time-off (PTO) plan
Eliminates the distinction between sick days and other paid days off, thus eliminating the incentive to “fake” illness.
162
paired comparison ranking
A ranking job evaluation method that involves comparing all possible pairs of jobs under study.
163
paired comparison
A ranking job evaluation method that involves comparing all possible pairs of jobs under study.
164
pay discrimination
Discrimination usually defined as including (1) access discrimination, which occurs when qualified women and minorities are denied access to particular jobs, promotions, or training opportunities; and (2) valuation discrimination, which takes place when minorities or women are paid less than white males for performing substantially equal work. Both types of discrimination are illegal under Title VII of the Civil Rights Act of 1964. Some argue that valuation discrimination can also occur when men and women hold entirely different jobs (in content or results) that are of comparable worth to the employer. Existing federal laws do not support the “equal pay for work of comparable worth” standard.
165
pay grade
One of the classes, levels, or groups into which jobs of the same or similar values are grouped for compensation purposes. All jobs in a pay grade have the same pay range—maximum, minimum, and midpoint.
166
pay increase guidelines
The mechanisms through which levels are translated into pay increases and, therefore, dictate the size and time of the pay reward for good performance.
167
pay level
An average of the array of rates paid by an employer.
168
pay mix (or pay forms)
Relative emphasis among compensation components such as base pay, merit, incentives, and benefits.
169
pay objectives
What an organization seeks to achieve through its compensation strategy. Basic objectives are efficiency, fairness, ethics, and compliance with laws and regulations.
170
pay ranges
The range of pay rates from minimum to maximum set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job.
171
pay satisfaction
A function of the discrepancy between employees’ perceptions of how much pay they should receive and how much pay they do receive. If these perceptions are equal, an employee is said to experience pay satisfaction.
172
pay structures
The array of pay rates for different jobs within a single organization; they focus attention on differential compensation paid for work of unequal worth.
173
pay techniques
Mechanisms or technologies of compensation management, such as job analysis, job descriptions, market surveys, job evaluation, and the like, that tie the four basic pay policies to the pay objectives.
174
pay-for-knowledge plans
A compensation practice whereby employees are paid for the number of different jobs they can adequately perform or the amount of knowledge they possess.
175
pay-for-performance plans
Pay that varies with some measure of individual or organizational performance, such as merit pay, lump-sum bonus plans, skill-based pay, incentive plans, variable pay plans, risk sharing, and success sharing.
176
pay-policy line
Representation of the organization’s pay-level policy relative to what competitors pay for similar jobs.
177
pay-with-competition policy
Policy that tries to ensure that a firm’s labor costs are approximately equal to those of its competitors. It seeks to avoid placing an employer at a disadvantage in pricing products or in maintaining a qualified workforce.
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pension benefit guaranty corporation (PBGC)
Agency to which employers are required to pay insurance premiums to protect individuals from bankrupt companies (and pension plans!). In turn, the PBGC guarantees payment of vested benefits to employees formerly covered by terminated pension plans.
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performance metrics
Quantitative measures of job performance.
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performance-dimension training
Training that gives performance appraisers an understanding of the dimensions on which to evaluate employee performance.
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performance-standard training
Training that gives performance appraisers a frame of reference for making ratee appraisals.
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perquisites (perks)
The extras bestowed on top management, such as private dining rooms, company cars, and first-class airfare.
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person-based structure
A person-based structure shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee’s particular job.
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planned pay-level rise
The percentage increase in average pay that is planned to occur after considering such factors as anticipated rates of change in market data, changes in cost of living, the employer’s ability to pay, and the efforts of turnover and pro- motions. This index may be used in top-down budgeting to control compensation costs.
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point (factor) method
A job evaluation method that employs (1) compensable factors, (2) factor degrees numerically scaled, and (3) weights reflecting the relative importance of each factor. Once scaled degrees and weights are established for each factor, each job is measured against each compensable factor and a total score is calculated for each job. The total points assigned to a job determine the job’s relative value and hence its location in the pay structure.
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point-of-service plan (POS)
A point-of-service plan is a hybrid plan combining health maintenance organization (HMO) and preferred provider organization (PPO) benefits.
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policy capturing
Compensable factor importance weights are inferred using statistical methods such as regression analysis.
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portability
Transferability of pension benefits for employees moving to a new organization. ERISA does not require mandatory portability of private pensions. On a voluntary basis, the employer may agree to let an employee’s pension benefit transfer to an individual retirement account (IRA) or, in a reciprocating arrangement, to the new employer.
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Position Analysis Questionnaire (PAQ)
A structured job analysis technique that classifies job information into seven basic factors: information input, mental processes, work output, relationships with other persons, job context, other job characteristics, and general dimensions. The PAQ analyzes jobs in terms of worker-oriented data.
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prevailing-wage laws
Legislation that provides for a government-defined prevailing wage as the minimum wage that must be paid for work done on covered government projects or purchases. In practice, these prevailing rates have been union rates paid in various geographic areas.
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probationary period
Period during which new employees are excluded from benefits coverage, usually until some term of employment (e.g., three months) is completed.
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procedural justice/fairness
Concept concerned with the process used to make and implement decisions about pay. It suggests that the way pay decisions are made and implemented may be as important to employees as the results of the decisions.
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professional
An employee who has specialized training of a scientific or intellectual nature and whose major duties do not entail the supervision of people.
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profit-sharing plan
A plan that focuses on profitability as the standard for group incentive. These plans typically involve one of three distributions: (1) Cash or current distribution plans provide full payment to participants soon after profits have been determined (quarterly or annually); (2) deferred plans have a portion of current profits credited to employee accounts, with cash payments made at time of retirement, disability, severance, or death; and (3) combination plans that incorporate aspects of both current and deferred options.
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quantitative job analysis (QJA)
Job analysis method that relies on scaled questionnaires and inventories that produce job-related data that are documentable, can be statistically analyzed, and may be more objective than other analyses.
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quoted-price market
Stores that label each item’s price or ads that list a job’s opening starting wage are examples of quoted-price markets.
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range maximums
The maximum values to be paid for a job grade, representing the top value the organization places on the output of the work.
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range midpoint
The salary midway between the minimum and maximum rates of a salary range. The midpoint rate for each range is usually set to correspond to the pay-policy line and represents the rate paid for satisfactory performance on the job.
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range minimums
The minimum values to be paid for a job grade, representing the minimum value the organization places on the work. Often, rates below the minimum are used for trainees.
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ranges
The range of pay rates from minimum to maximum set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job.
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rank and yank
Requires managers to complete performance appraisals by ranking employees into a preset distribution of top, middle, and needs improvement categories. Often this latter category has employees who are “yanked” or terminated from the organization.
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ranking format
A type of performance appraisal format that requires that the rater compare employees against each other to determine the relative ordering of the group on some performance measure.
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rater error training
Training that enables performance appraisers to identify and suppress psychometric errors such as leniency, severity, central tendency, and halo errors when evaluating employee performance.
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rating format
A type of performance appraisal format that requires that raters evaluate employees on absolute measurement scales that indicate varying levels of performance.
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red circle rates
Pay rates that are above the maximum rate for a job or pay range/pay grade.
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reengineering
Making changes in the way work is designed to include external customer focus. Usually includes organizational delayering and job restructuring.
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regression
A statistical technique for relating present-pay differentials to some criterion, that is, pay rates in the external market, rates for jobs held predominantly by men, or factor weights that duplicate present rates for all jobs in the organization.
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relational returns
The nonquantifiable returns employees get from employment, such as social satisfaction, friendship, feeling of belonging, or accomplishment.
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relative value of jobs
The relative contribution of jobs to organizational goals, to their external market rates, or to some other agreed-upon rates.
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relevant markets
Those employers with which an organization competes for skills and products/services. Three factors commonly used to determine the relevant markets are the occupation or skills required, the geography (willingness to relocate and/or commute), and employers that compete in the product market.
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reliability
The consistency of the results obtained, that is, the extent to which any measuring procedure yields the same results on repeated trials. Reliable job information does not mean that it is accurate (valid), comprehensive, or free from bias.
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rent
Amount by which payment to a factor of production (capital or labor) exceeds the payment needed to keep it employed and/or its productivity. In the case of an employee (labor), economic rent would be compensation paid beyond what is necessary to retain the employee and/or beyond his/her marginal product.
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reopener clause
A provision in an employment contract that specifies that wages, and sometimes such nonwage items as pension/ benefits, will be renegotiated under certain conditions (changes in cost of living, organization, profitability, and so on).
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reservation wage
A theoretical minimum standard below which a job seeker will not accept an offer, no matter how attractive the other job attributes.
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risk sharing
An incentive plan in which employees’ base wages are set below a specified level (e.g., 80% of the market wage) and incentive earnings are used to raise wages above the base. In good years, an employee’s incentive pay will more than make up for the 20 percent shortfall, giving the employee a pay premium. Because employees assume some of the risk, risk-sharing plans pay more generously than success-sharing plans in good years.
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Rowan plan
Individual incentive plan that provides for variable incentives as a function of a standard expressed as time period per unit of production. It is similar to the Halsey plan, but in this plan a worker’s bonus increases as the time required to complete the task decreases.
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Rucker plan
A group cost-savings plan in which cost reductions due to employee efforts are shared with the employees. It involves a somewhat more complex formula than a Scanlon plan for determining employee incentive bonuses.
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salary continuation plans
Benefit options that provide some form of protection for disability. Some are legally required, such as workers’ compensation provisions for work-related disability and social security disability income provisions for those who qualify.
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salary
Pay given to employees who are exempt from regulations of the Fair Labor Standards Act and hence do not receive overtime pay (e.g., managers and professionals). Exempt pay is calculated at an annual or monthly rate rather than hourly.
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sales value of production (SVOP)
An incentive metric that calculates the dollar value of goods produced and in inventory.
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scaling
Determining the intervals on a measurement instrument.
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Scanlon plan
A group cost-savings plan designed to lower labor costs without lowering the level of a firm’s activity. Incentives are derived as the ratio between labor costs and sales value of production (SVOP).
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self-funding plans
These plans specify that payouts only occur after the company reaches a certain profit target. Then variable payouts for individual, team, and company performance are triggered.
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seniority increases
Pay increases tied to a progression pattern based on seniority. To the extent performance improves with time on the job, this method has the rudiments of paying for performance.
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shared choice
An external competitiveness policy that offers employees substantial choice among their pay forms.
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shirking behavior
The propensity of employees to allow the marginal revenue product of their labor to be less than its marginal cost; to be lax.
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skill analysis
A systematic process to identify and collect information about the skills required to perform work in an organization.
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skill blocks
Basic units of knowledge employees must master to perform the work, satisfy customers, and achieve business objectives.
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skill requirement
Composite of experience, training, and ability as measured by the performance requirements of a particular job.
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skill-based pay
A pay structure in which workers are paid for the skills they are certified to have obtained.
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skill-based structure
Pay structure that links pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work.
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social security
Program based on federal law that provides retirement and disability benefits.
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sorting effect
The effect that pay can have on the composition of the workforce. Different types of pay strategies may cause different types of people to apply to and stay with an organization.
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spillover effect
The fact that improvements obtained in unionized firms “spill over” to nonunion firms seeking ways to lessen workers’ incentives for organizing a union.
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spot award
One-time award for exceptional performance; also called a spot bonus.
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standard hour plan
Individual incentive plan in which rate determination is based on time period per unit of production and wages vary directly as a constant function of product level. In this context, the incentive rate in standard hour plans is set based on completion of a task in some expected time period.
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standard rating scales
Appraisal system characterized by (1) one or more performance standards being developed and defined for the appraiser and (2) each performance standard having a measurement scale indicating varying levels of performance on that dimension. Appraisers rate the appraisee by checking the point on the scale that best represents the appraisee’s performance level. Rating scales vary in the extent to which anchors along the scale are defined.
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straight piecework system
Individual incentive plan in which rate determination is based on units of production per time period; wages vary directly as a constant function of production level.
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straight ranking procedure
A type of performance appraisal format in which the rater compares or ranks each employee relative to each other employee.
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strategic perspective
A focus on those compensation choices that help the organization gain and sustain competitive advantage.
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strategy
The fundamental direction of the organization. It guides the deployment of all resources, including compensation.
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success sharing
An incentive plan (e.g., profit sharing or gain sharing) in which an employee’s base wage matches the market wage and variable pay adds on during successful years. Because base pay is not reduced in bad years, employees bear little risk.
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surplus value
The difference between labor’s use and exchange values. According to Marx, under capitalism wages are based on labor’s exchange value—which is lower than its use value—and thus provide only a subsistence wage.
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survey
The systematic process of collecting and making judgments about the compensation paid by other employers.
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tacit work
Complex work (as compared to transactional, or routine, work).
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tariff agreements
In some European countries, the wage rates negotiated by employer associations and trade union federations for all wage earners for all companies in an industry group.
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task (work) data
Information on the elemental units of work (tasks), with emphasis on the purpose of each task, collected for job analysis. Work data describe the job in terms of actual tasks performed and their output.
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tax equalization
A method whereby an expatriate pays neither more nor less tax than the assumed home-country tax on base remuneration.
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Taylor plan
Individual incentive plan that provides for variable incentives as a function of units of production per time period. It provides two piecework rates that are established for production above and below standard, and these rates are higher and lower than the regular wage incentive level.
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team incentive
Group incentive restricted to team members, with payout usually based on improvements in productivity, customer satisfaction, financial performance, or quality of goods and services directly attributable to the team.
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third-country nationals
(TCNs) Employees of a U.S. foreign subsidiary who maintain citizenship in a country other than the United States or the host country. TCNs’ compensation is tied to comparative wages in the local country, the United States, or the country of citizenship.
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Title VII
A major piece of legislation prohibiting pay discrimination. It is much broader in intent than the Equal Pay Act, forbidding dis- crimination on the basis of race, color, religion, sex, pregnancy, or national origin.
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topping out
Situation in which employees in a skill-based compensation plan attain the top pay rate in a job category by accumulating and/or becoming certified for the top-paid skill block(s).
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total cash
Base wage plus cash bonus; does not include benefits or stock options.
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total compensation
The complete pay package for employees, including all forms of money, bonuses, benefits, services, and stock.
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tournament theory
The notion that larger differences in pay are more motivating than smaller differences. Like prize awards in a golf tournament, pay increases should get successively greater as one moves up the job hierarchy. Differences between the top job and the second-highest job should be the largest.
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traditional time-off (TTO) plan
Paid vacations, holidays (or pay if worked), sick leave, and personal leave, tracked separately.
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transactional work
Routine work.
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turnover effect
The downward pressure on average wage that results from the replacement of high-wage-earning employees with workers earning a lower wage.
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two-tier pay plans
Wage structures that differentiate pay for the same jobs based on hiring date. A contract is negotiated that specifies that employees hired after a stated day will receive lower wages than their higher-seniority peers working on the same or similar jobs.
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U.S. expatriates (USEs)
American citizens working for a U.S. subsidiary in a foreign country. Main compensation concerns are to “keep the expatriates whole” relative to their U.S.-based counterparts and to provide expatriates with an incentive wage for accepting the foreign assignment.
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unemployment insurance (UI)
State-administered program that provides financial security for workers during periods of joblessness.
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use value
The value or price ascribed to the use or consumption of labor in the production of goods or services.
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utility theory
The analysis of utility, the dollar value created by increasing revenues and/or decreasing costs by changing one or more human resource practices. It has most typically been used to analyze the payoff to making more valid employee hiring/selection decisions.
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validity
The accuracy of the results obtained; that is, the extent to which any measuring device measures what it purports to measure.
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valuation discrimination
Discrimination that focuses on the pay women and minorities receive for the work they perform. Discrimination occurs when members of these groups are paid less than white males for performing substantially equal work. This definition of pay discrimination is based on the standard of “equal pay for equal work.” Many believe that this definition is limited and that valuation discrimination can also occur when men and women hold entirely different jobs (in content or results) that are of comparable worth to the employer. Existing federal laws do not support the “equal pay for work of comparable worth” standard.
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value
The worth of the work; its relative contribution to organization objectives.
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variable pay
Pay tied to productivity or some measure that can vary with the firm’s profitability.
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vesting
A benefit plan provision that guarantees that participants will, after meeting certain requirements, retain a right to the benefits they have accrued, or some portion of them, even if employment under their plan terminates before retirement.
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wage and price controls
Government regulations that aim at maintaining low inflation and low levels of unemployment. They frequently focus on “cost-push” inflation, limiting the size of pay raises and the rate of increases in prices charged for goods and services. Used for limited time periods only.
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wage
Pay given to employees who are covered by overtime and reporting provisions of the Fair Labor Standards Act. Pay for workers who are nonexempt usually is calculated at an hourly rate rather than a monthly or annual rate.
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work flow analysis
How work gets performed and where value is or is not added.
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work flow
The process by which goods and services are delivered to the customer.
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workers’ compensation
Legally required programs in each state that provide payment of medical expenses and compensation for lost wages resulting from work-related injuries or disabilities.
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zones
Ranges of pay used as controls or guidelines within pay bands that can keep the system more structurally intact. Maximums, midpoints, and minimums provide guides to appropriate pay for certain levels of work. Without zones employees may float to the maximum pay, which for many jobs in the band is higher than market value.
