Compensation and Rewards TEST Flashcards
Piece Rates
An employee receives a specified sum of money for each unit of output produced or processed.
Straight piece rate
The same specified sum of money is paid for each piece produced regardless of how many are produced.
Differential piece rate
A lower sum of money per piece is paid if employee production does not meet standard, higher sum is paid if standard is met.
Advantages of piece rate
- motivational in producing task behaviour
- reduce need for supervision
- link compensation to output
- provide info about production standard
Disadvantages of piece rate
- limited application
- jobs where tasks are constantly changing
- not accurate
- do not motivate max effort
- create conflict
- lower potential quality output
- expensive if needed machinery
- loss of safety focus
Sales commissions
Pay geared to dollar volume of sales or transactions (percentage of gross sales)
Straight commission
Pay geared toward volume of sales/transactions without base pay.
Advantages of commission
- easy to set and measure
- employee output is distinct
- no limit to sales employee can make
- reduce need for control mechanisms
- serve as feedback
- reduce employer risk
- increases sales
Disadvantages of commission
- income is variable
- need to attract top performers
- recessions may bring on drops in income at no fault to salesperson
- little initial income
- resist work not related to sales
- cause aggressive sales approaches
- competition
- credit for sale may be given away
Maintenance selling
selling established products to existing customers
Conversion selling
selling established products to new customers
Leverage selling
selling new products to existing customers
New market selling
selling new products to new customers
Merit pay
used to recognize and encourage continuing good performance by individual employees. Always used in combination with base pay and is an overall indicator of performance.
Merit raises
a permanent increase to an employee’s base pay in recognition of good performance.
Merit bonuses
A cash payment provided to recognize good performance that does not increase base pay.
Special purpose incentives
An incentive designed to motivate a specific type of employee behaviour.
Suggestion system
An incentive plan through which employees receive cash bonuses for submitting money-saving suggestions.
Gain sharing plans
Group performance pay plan that shares cost savings or productivity gains generated by a work group with all members of that group.
Advantages of gain sharing
- self funding
- generate productivity
- positive work group norms
- increased commitment
- awareness of the business and improved communication
- can be applied to non-for-profit
Disadvantages of gain sharing
- extra costs
- not amendable
- personal focus on maximizing bonuses
- provides additional matters to argue about
- free riding
- not often effective
Goal-sharing plan
Group performance pay plan in which a work group receives a bonus when it meets pre specified performance goals.
Advantages of goal-sharing
- simple and flexible
- less costly
- amendable
- motivational
- positive group norms
Disadvantages of goal-sharing
- arbitrary
- no established basis for judging value
- difficult to set goals
- situational factors affect goals
- dissatisfaction when goal isn’t reached
- conflict
- high discontinuation
Competitive bonus plan
group pay plan that rewards groups for outperforming other groups
Pooled performance pay
Pay plan in which performance results of a group are pooled and group members share equally in bonus.
Group commissions
Pay plan in which commissions of group of sales workers are pooled and then equally shared.
Group piece rates
Pay plan in which group members get paid based on the number of products produced by the group.
Employee profit-sharing plan
Formal pay program in which a firm provides bonus payments based on firm profitability.
Current distribution profit-sharing plan
Profit-sharing plan that distributes the profit-sharing bonus to employees in the form of cash or shares.
Deferred profit-sharing plan
The profit-sharing bonuses are allocated to employee accounts but not paid out until a later date
Combination profit-sharing plan
Plan that combines the current distribution and deferred plans
Employee stock plan
Type of plan through which employees acquire shares in the firm that employs them.
Employee stock bonus plan
Plan through which employees receive shares in their employer firm at no cost
Employee share purchase plan
Employees may purchase shares in their employer firm
Employee stock option plan
Employees are provided with options to purchase shares in their employer at a fixed price within a limited time period.
Long-term incentives
Type of performance pay in which the incentives are tied to an organization performance horizon that ranges beyond one year
Performance unit plan
A long-term incentive in which the bonus amounts are expressed in units for which the monetary value will fluctuate depending on degree of accomplishment
Performance share plan
A long-term incentive in which the bonus amounts are expressed in company shares
Employment Standards Legislation
Legislation that sets minimum standards for pay and other conditions of employment.
Human rights legislation
Legislation that prohibits discrimination in hiring or employment on the basis of race, gender, ethnic origin, religion, gender, marital status or age.
Trade union legislation
Legislation that defines the rights of parties involved in a collective bargaining relationship.
Labour market constraints
Constraints on compensation flowing from the relative levels of demand and supply for particular occupational groups.
Product/service market constraints
constraints on compensation caused by the nature of the product or service market in which the firm operates.
The compensation strategy formulation process
- define required behaviour
- define role of compensation
- determine compensation mix
- determine compensation level
- evaluate proposed strategy
Technical ladder
Defined progression of skills development to keep work interesting and provide opportunities for higher compensation.
Lag compensation-level strategy
compensation-level strategy based on paying below the average compensation in a labour market.
Lead compensation policy
A compensation-level strategy based on paying above the average compensation level in a given labour market.
Match compensation policy
Compensation-level strategy in based on paying at average compensation levels in a labour market.
utility analysis
A method used to analyze whether a lead, lag, or match compensation strategy is best for an organization.
Hybrid compensation policy
A compensation-level strategy that varies across employee groups or compensation components.
Three basic screens
Affordability, legality, and employee attraction
Contingent workers
workers not employed on a permanent full-time basis.
Job sharing
Two workers who share one full-time permanent job.
Balance sheet approach to expatriate pay
Approach to designing expatriate compensation that attempts to provide a standard of living comparable with the home country.
Negotiation approach to expatriate pay
entails negotiation between employer and employee to create a mutually acceptable compensation package.
Localization approach to expatriate pay
entails paying expatriate employees the same compensation as local nationals in equivalent positions.
Lump sum approach to expatriate pay
various allowance amounts are paid directly in home-country currency.
Job analysis
Process of collecting information on which job descriptions are based.
Job description
A summary of the duties, responsibilities, and reporting relationships pertaining to a job.
Job specifications
Employee qualifications deemed necessary to successfully perform the duties for a given job.
Four principal methods of job analysis
- observation
- questionnaires
- interviews
- functional job analysis
5 major methods for job evaluation
ranking
classification or grading
factor comparison
statistical/policy capturing
point method
Ranking method
The relative values of different jobs are determined by knowledgable individuals
Paired comparison method
Every job is compared with every other job, providing a basis for a ranking of jobs.
Classification/grading method
The use of generic grade descriptions for various classes of jobs to assign pay grades to specific jobs.
Factor comparison method
Assigns pay levels to jobs based on the extent to which they embody various job factors.
Statistical/policy capturing method
Combines use of statistical methods and job questionnaires to derive job values based on prevailing external or internal pay rates.
The point method
Establishes job values by the application of points to each job based on compensable factors.
Three main purposes for conducting job evaluation
control wage costs, create an equitable pay structure, and create perceptions of equitable pay
Four events that can trigger a need to re-evaluate jobs
- job itself has changed
- organizational strategy has changed
- job eval. system is no longer working
- legislative conditions require it
Job-to-job method
Establishes pay equity by comparing a female job class to a male job class that is comparable in terms of job evaluation criteria.
Proportional value method
Establishes pay equity where no comparator male job class exists by extrapolating a hypothetical male comparator job class based on other male job classes.
Proxy comparison method
Establishes pay equity in public sector organizations where neither job-to-job method nor the proportional value method can be used.
Permissible differences
Pay differences between female and male job classes that are not considered inequitable because they stem from certain specified allowable circumstances such as seniority.
Five main steps in developing a job evaluation system using point method:
- identify key characteristics that differentiate the value of jobs
- develop a measuring scale for each factor
- weight each factor according to its importance.
- apply job evaluation system to every job
- test the results
Compensable factors
Characteristics of jobs that are valued by the organization and differentiate jobs from one another.
Four main categories of compensable factors
skill, effort, responsibility and working conditions
Benchmark job
A job in the firm’s job evaluation system for which there is a good match in the labour market data.
Market Line
A regression line that relates job evaluation points to market pay for the benchmark jobs
Pay policy line
The intended pay policy for the organization generated by adjusting the market line for the intended pay level strategy of the organization.
Correlation coefficient
A statistic that measures the extent to which plots of two variables on a graph fall in a straight line.
Pitfalls of point method
- inconsistent construction formation
- factor overlaps
- hierarchal grounding
- gender bias
Base pay structure
The structure of pay grades and pay ranges along with the criteria for movement within pay ranges that applies to base pay.
Pay grade
A grouping of jobs of similar value to the organization typically grouped by point totals.
Pay range
The minimum and maximum pay rates for jobs in a particular pay grade.
Equal interval approach
Method to establish pay grade widths, in which the point spreads are equal for all pay grades
Equal increase approach
Method to establish pay grade sizes in which each pay grade increases in width by a constant number of points from the preceding pay grade.
Equal percentage approach
Method to establish pay grade sizes in which each pay grade increases in width by an equal percentage
Broadbanding
The practice of reducing the number of pay grades by creating large grades sometimes known as bands.
Intergrade differentials
The differences between the range midpoints of adjacent pay grades in a pay structure.
Range spread
The difference between the max and min pay level for a given pay range.
Range spread percentage
A percentage calculated by dividing the range spread by the minimum for that pay range.
Just noticeable difference
The amount of pay increase necessary to be considered significant by employees receiving the increase.
Reward
Anything provided by the job or the organization that satisfies an employee need.
Extrinsic reward
Factors that satisfy basic human needs for survival and security, as well as social needs and needs for recognition.
Intrinsic reward
Factors that satisfy higher-order human needs for self esteem, achievement, growth and development.
Incentive
A promise that a specified reward will be provided if a specified employee behaviour is performed.
Reward system
The mix of intrinsic and extrinsic rewards that an organization provides to its members.
Comensation system
The economic or monetary part of the reward system.
Total rewards
A compensation philosophy that considers the entire spectrum of rewards that an organization may offer to employees.
Reward strategy
The plan for the mix of rewards to be provided to members along with the means through which they will be provided.
Base pay
The foundation pay component for most employees, usually based on some unit of time worked.
Performance pay
Relates employee monetary rewards to some measure of individual, group, or organizational performance.
Indirect pay
Noncash items or services that satisfy a variety of specific employee needs sometimes known as employee benefits.
Compensation strategy
The plan for the mix and total amount of base pay, performance pay, and indirect pay to be paid to various categories of employees.
Optimal reward system
The reward system that adds the most value to the organization after considering all its costs.
Required Professional Capabilities
A set of capabilities designated by the Canadian Council of Human Resources Associations as essential for HR practitioners and required for CHRP.
Organizations
Systems that apply procedures to a set of resources to transform inputs into valued outputs.
Technology
Procedures and resources used by an organization to transform inputs to outputs.
Business strategy
An organization’s plan for achieving its goals/
Organization structure
The means through which an organization generates the behaviours necessary to execute its business strategy.
Contingency approach to organization design
An approach to organization design based on the premise that the best type of structure for an organization depends on the key contingencies associated with that organization.
Job design
A dimension of organization structure that describes the manner in which the total task of an organization is divided into separate jobs.
Coordination and departmentation
A dimension of organization structure that describes the methods used to coordinate the work of individual employees and subunits in the organization.
Control structure
Describes the nature of the processes used to control employee behaviour
Managerial strategy
One of three main patterns or combinations of structural variables that can be adopted- classical, human resources or high involvement.
Contextual variables
Factors in the firm’s context that indicate the most appropriate managerial strategy and organizational structure
Classical managerial strategy
Assumes most employees inherently dislike work but can be induced to work in order to satisfy their economic needs
Human relations managerial strategy
Assumes most employee inherently dislike work but can be induced to work to satisfy social needs
High involvement managerial strategy
Assumes that work can be intrinsically motivating if the organization is structured properly
Organizational culture
The set of core values and understandings shared by members of an organization.
Five contextual variables
environment, corporate strategy, technology, organization size, nature of the workforce
Defender business strategy
focuses on dominating narrow product or service market segment
Prospector business strategy
Focuses on identifying and exploiting new opportunities quickly
Analyzer business strategy
focuses on exploiting new opportunities at an early stage while maintaining base of traditional products/services
Low-cost business stategy
depends on providing low-cost products/services to a broad range of customers
Focused low-cost strategy
providing low-cost to a narrow range of customers
Long-linked technology
Divides the total task of producing a product or service into a series of small sequential steps performed by different employees
Mediating technology
Uses standardized transactions to connect parties wishing a mutually beneficial relationship
intensive technology
Requires each item or case to be dealt with individually, depending on the specific nature of each case
routine technology
Few exceptions occur during the production process and those exceptions that occur can be dealt with in a standardized way
nonroutine technology
many exceptions are inherent in the production process and there is no standardized way to deal with exceptions
Craft technology
few exceptions occur but there is no standardized way to deal with them
Engineering technology
Many exceptions occur but there are standardized ways of dealing with them
process technology
Manufacturing technology that produces a single product in a continuous flow
Three basic types of reward problems
failure to produce desired behaviour
production of desired behaviour with undesirable consequences
production of reward dissatisfaction
Membership behaviour
occurs when employees decide to join and remain with a firm
Task behaviour
occurs when employees perform the tasks that have been assigned to them
organizational citizenship behaviour
Occurs when employees voluntarily undertake special behaviours beneficial to the organization
Job satisfaction
attitude one holds toward one’s job and workplace
Work motivation
attitude one holds toward good job performance
Organizational identification
A sense of shared goals and belongingness and the desire to remain a member of the organization
Relationships between attitudes and behaviours
job satisfaction = membership behaviour
work motivation = task behaviour
organizational identification = citizenship behaviour
Causes of reward dissatisfaction
violation of psychological contract
perceived inequity
relative deprivation
lack of organizational justice
Psychological contract
Expectations about the rewards offered by a given job and the contributions necessary to perform the job
Equity theory
employees’ base perceptions of equity on a comparison of their contributions/rewards ratio to others perceived as being similar
Distributive justice
Perception that overall reward outcomes are fair
Procedural justice
perception that the process for reward determination is fair
Equity sensitivity
a personality trait that entails a high predisposition toward perceiving personal inequity
Organizational commitment
The strength of the individual’s attachment to their organization
Affective commitment
Attachment to an organization based on positive feelings toward the organization
Continuance commitment
Attachment to an organization based on perceived lack of better alternatives
content theories of motivation
focus on understanding motivation by identifying underlying human needs
Process theories of motivation
focus on understanding motivation by determining the processes humans use to make choices about the specific actions they will take
Maslow’s hierarchy of needs
survival needs
safety needs
social needs
ego needs
self-actualization
Two-factor theory of motivation
Argues that intrinsic factors influence work motivation while extrinsic factors influence job satisfaction
Task identity
The extent to which a worker performs a complete cycle of job activities
Task significance
The perceived importance or social value of a given task
Skill variety
The variety of skills required for task completion
Job autonomy
Degree of freedom workers have in deciding how to perform their jobs
need salience
The degree of urgency an individual attaches to the satisfaction of a particular need
Reinforcement theory
states that a behaviour will be repeated if valued outcomes flow from that behaviour or if performing the behaviour reduces undesirable outcomes
Expectancy theory
states that individuals are more likely to exert effort to perform behaviours if they believe the behaviour will lead to valued consequences
Attribution theory
Argues that humans often act without understanding their motives and attempt to attribute motives to actions
personal competencies
person’s physical, verbal and mental skills
Personal values
core beliefs about appropriate and inappropriate behaviour
personality characteristics
behavioural and emotional tendencies
