Compensation Flashcards
Direct compensation
Encompasses wages and salaries, incentives, bonuses, and commissions
Indirect compensation
Comprises the many benefits supplied by employers
Nonfinancial compensation
Includes employee recognition programs, rewarding jobs, organizational support, work environment, and flexible working hours to accommodate personal needs (Intrinsic rewards)
Equity Theory
States that individuals form a ratio of their inputs (abilities, skills, experiences) in a situation to their outcomes (salary, benefits) in the situation); they then compare the value of the ratio to value of the input/output ratio for other individuals in a similar class of jobs either internal or external. For employees, equity is achieved when their perceived input/output ratio equals the input/output ratio of the referent others.
Expectancy Theory
Predicts that one’s level of motivation depends on the attractiveness of the rewards sought and the probability of achieving those rewards.
Three Conditions for Rewards to Motivate (Expectancy)
1) It must have high valance (aka. it must be valued). 2) Must have instrumentality (must be a connection between goals and rewards). 3) There must be an expectancy that the tasks can be achieved (must be attainable)
Hourly work
Work paid on an hourly basis
Piece work
Work paid according to the number of units produced
Consumer Price Index (CPI)
A measure of the average change in prices over time in a fixed “market basket” of goods and services
Escalator clauses
Clauses in collective agreements that provide quarterly cost-of-living adjustments in wages, basing the adjustments on changes in the consumer price index
Real wages
Wage increases larger than rises in the CPI, that is, the real earning power of wages
Job evaluation
A systematic process of determining the relative worth of jobs to establish which jobs should be paid more than others within an organization
Job ranking system
The simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth; not very precise and doesn’t show value differences between jobs; it can also only really work for organizations with less than 15 jobs
Job classification system
A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades. Successive grades require increasing amounts of responsibility, skill, knowledge, ability or other factors selected to compare jobs. (E.g GS-1 in the US Federal Government); it is less precise than the point system because jobs are evaluated as a whole
Point system
A quantitative job evaluation procedure that determines a job’s relative value by calculating the total points assigned to it; points are assigned based on compensable factors e.g. skills, efforts, responsibilities, and working conditions
Point manual
A handbook that contains a description of the compensable factors and the degrees to which these factors may exist within the jobs
Work valuation
A job evaluation system that seeks to measure a job’s worth through its value to the business goals of the organization. This is a relatively new approach championed to meet the demands of a dynamic business environment.
Hay profile method
A job evaluation technique using three factors - knowledge, mental activity, and accountability - to evaluate executive and managerial positions
Wage and salary survey
A survey of the wages paid to employees of other employers in the surveying organizations’ relevant labour market (e.g. local, regional, or national)
Wage curve
A curve in a scattergram representing the relationship between the relative worth of jobs and wage rates
Pay grades
Groups of jobs within a particular class that are paid the same rate (This can occur as part of the job evaluation process)
Red Circle Rates
Payment rates above the maximum of the pay range
Competency-based pay (Skill- or Knowledge-based)
Pay based on an employee’s skill level, variety of skills possessed, or increased job knowledge; encourages employees to earn higher base wages by learning and performing a wider variety of skills (or jobs) or displaying a larger array of competencies
Broadbanding
Collapsing the many traditional salary grades into a few wide salary bands; encourages lateral skill building while addressing the need to pay employees performing multiples jobs with different skill level requirements
Pay Equity
Equal pay for work of equal value
Wage-rate compression
Compression of differentials between different job classes, particularly the differential between hourly workers and their managers
Variable pay
Tying pay to some measure of individual, group, or organizational performance
Straight piecework
An incentive plan under which employees receive a certain rate for each unit produced
Differential piece rate
A compensation rate under which employees whose production exceeds the standard amount of output receive a higher rate for all their work than the rate paid for those who d not exceed the standard amount
Standard hour plan
An incentive plan that sets rates based on the completion of a job in a predetermined standard time (Common in auto mechanic shops)
Bonus
An incentive payment that is supplemental to the base wage
Spot bonus
An unplanned bonus given for employee effort unrelated to an established performance measure
Merit guidelines
Guidelines for awarding merit raises that are tied to performance objectives
Lump-sum merit program
Program under which employees receive a year-end payment which is not added to their base pay
Straight salary plan
A compensation plan that permits salespeople to be paid for performing various duties that are not reflected immediately in their sales volume
Straight commission plan
A compensation plan based on a percentage of sales
Combined salary and commission plan
A compensation plan that includes straight salary and a commission (This is most common)
Salary plus bonus plan
A compensation plan that pays a salary plus a bonus achieved by reaching targeted sales goals
Components of Executive Pay Package
1) Base salary; 2) Short-term incentives/bonuses; 3) Long-term incentives or stock plans; 4) benefits; 5) perquisites
Perquisites
Special nonmonetary benefits given to executives; often referred to as PERKS
Team incentive plan
A compensation plan in which all team members receive an incentive bonus payment when production or service standards are met or exceeded; seek to foster cooperation
Gainsharing plans
Programs under which both employees and the organization share financial gains according to a predetermined formula that reflects improved productivity and profitability
Profit sharing
Any procedure by. which an employer pays, or makes available to all regular employees, in addition to base pay, special current or deferred. sums based on the profits of the enterprise
Scanlon Plan (sales value)
Gainsharing plan that creates mechanisms for employee participation in developing productivity improvements and that shares the financial benefits of those improvements with the employee group that generated them (E.g by reducing costs and increasing productivity)
Rucker Plan (value added)
Modified version of Scanlon Plan by expressing labour costs as a percentage of value-added (SV - purchased inputs), rather than the sales value of production.
Improshare
A gainsharing plan that focuses on labour hours per unit of output and does not usually include worker participation
Family of measures
Any gain-sharing formula that uses variety of measures to determine the extent to which a bonus is justified; benefits include flexibility and focus
Employee stock ownership plans (ESOPs)
Stock plans in which an organization contributes shares of its stocks to an established trust for the purpose of stock purchases by employees
Flexible benefit plans
Benefit plans that enable individual employees to choose the benefits that are best suited to their particular needs
Contributory Plan
A pension plan in which contributions are made jointly by employees and employers
Noncontributory Plan
A pension plan in which contributions are made solely by the employer
Defined-benefit plan
A pension plan in which the amount an employee is to receive on retirement is specifically set forth; usually determined based on an employee’s years of service, average earnings during a specified period, and age at time of retirement)
Defined-contribution plan
A pension plan that establishes the basis on which an employer will contribute to the pension fund
Vesting
A guarantee of accrued benefits to participants at retirement age, regardless of their employment status at the time
Employee Assistance Program (EAP)
Services provided by employers to help workers cope with a wide variety of problems that interfere with the way they perform their jobs
