Compensation Flashcards
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A rating method that assesses employee performance from five points of view: supervisor, peer, self, customer, and subordinate.
401(k) plan
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.
ability to pay
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.
ability
An individual’s capability to engage in a specific behavior.
access discrimination
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.
affirmative action
Firms with government contracts must take affirmative steps to hire women and minorities in proportion to their presence in the labor force.
Age Discrimination in Employment Act (ADEA) of 1967 (amended 1978, 1986, and 1990)
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.
agency theory
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.
alternation ranking
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.
Americans with Disabilities Act (ADA)
Legislation passed in 1990 that requires that reasonable accommodations be provided to permit employees with disabilities to perform the essential elements of a job.
appeals processes
Mechanisms are created to handle pay disagreements. They provide a forum for employees and managers to voice their complaints and receive a hearing.
balance sheet approach
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.
balanced scorecard
A corporatewide, overall performance measure typically incorporating financial results, process improvements, customer service, and innovation.
base wage
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.
Bedeaux plan
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.
behaviorally anchored rating scales (BARS)
Variants on standard rating scales in which the various scale levels are anchored with behavioral descriptions directly applicable to jobs being evaluated.
benchmark (key) job
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.
benchmark conversion
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.”
benefit limitation
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.
best-pay practices
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.
bourse market
A market that allows haggling over terms and conditions until an agreement is reached.
Brito v. Zia Company
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.
broad banding
Collapsing a number of salary grades into a smaller number of broad grades with wide ranges.
budgeting
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.
Bureau of Labor Statistics (BLS)
A major source of publicly available pay data. It also calculates the consumer price index.
career path
A progression of jobs within an organization.
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).
central tendency
A midpoint in a group of measures.
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.
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.
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.
committee a priori judgment approach
Compensable factor importance weights are assigned by a committee based on a priori judgment.
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.
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.
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.
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.
compensation
All forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.
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.
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.
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.
competitive intelligence
The collection and analysis of information about external conditions and competitors that will enable an organization to be more competitive.
competitive position
The comparison of the compensation offered by one employer relative to that paid by its competitors.
compliance
As a pay objective, conforming to federal and state compensation laws and regulations.
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.
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.
content
The work performed in a job and how it gets done (tasks, behaviors, knowledge required, etc.).
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.)
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.
copay
Copay requires that employees pay a fixed or percentage amount for coverage.
core employees
Workers with whom a long-term, full-time work relationship is anticipated.
correlation coefficient
A common measure of association that indicates how changes in one variable are related to changes in another.
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.
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.
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.
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]).
criterion contamination
Allowing nonperforming factors to affect performance scores.
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).
criterion pay structure
A pay structure to be duplicated with a point plan.
culture
The informal rules, rituals, and value systems that influence how people behave.
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.
customer-focused business strategy
The customer-focused business strategy stresses delighting customers and bases employee pay on how well they achieve this.
customer-focused
The customer-focused business strategy stresses delighting customers and bases employee pay on how well they achieve this.
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.
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.
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.
delayering
Eliminating some layers or job levels in the pay structure.
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.
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.
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.
distributive justice
Fairness in the amount of reward distributed to employees.
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.
efficiency wage theory
A theory that explains why firms are rational in offering higher-than-necessary wages.
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).
employee contributions
Comparisons among individuals doing the same job for the same organization.
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.
employee stock ownership plan (ESOP)
A retirement plan in which the company contributes its stock as the retirement benefit.
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.
entitlement
Employee belief that returns and/ or rewards are due regardless of individual or company performance.
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.
equal employment opportunity
A mandate that all firms make employment decisions that are “blind” to minority/gender status.
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.
essay format
An open-ended performance appraisal format. The descriptors used can range from comparisons with other employees to adjectives, behaviors, and goal accomplishment.
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.
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.
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.
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.
expatriates
Employees assigned outside their base country for any period of time in excess of one year.
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.
external competitiveness
The pay relationships among organizations; focuses attention on the competitive positions reflected in these relationships.
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.
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.
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.
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.
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.
flat rate
A single rate, rather than a range of rates, for all individuals performing a certain job. Ignores seniority and performance differences.
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.
flexible compensation
The allocation of employee compensation in a variety of forms tailored to organization pay objectives and/or the needs of individual employees.
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.
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.
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.
geographic differentials
Local conditions that employees in a specific geographic area encounter, such as labor shortages and differences in housing costs.
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.
Green Circle Rate
Pay rate that is below the minimum rate for a job or pay range for a grade
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.
hit rate
The ability of a job evaluation plan to replicate a predetermined, agreed-upon job structure.
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.
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.
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.
incentive effect
The degree to which pay influences individual and aggregate motivation among employees at any point in time.
incentive
Inducement offered in advance to influence future performance (e.g., sales commissions).
