Module 2--Compensation Flashcards
Identify and define the two primary elements of compensation.
■ FIXED PAY–also known as base pay, is nondiscretionary compensation that does not vary according to performance or results achieved.
■ VARIABLE pay–also known as bonus, incentive, or pay at risk, is compensation that is contingent on discretion, performance or results achieved.
What are the factors influencing compensation including pay-related laws.
■ Compensation strategy and philosophy
■ HR Strategy
■ Competive Environment
■ Financial Resources
■ Regulatory and other Requirements
What are 3 types of Pay-Related Laws
■ Minimum wage and overtime–Requires minimum pay rates for covered employees and payment of overtime beyond a certain number of hours per week.
■ Pay equity –Employees must be paid fairly and consistently, without discrimination based on gender, race or other protected categories.
■ Anti-competitive price fixing–Price fixing, wage fixing, or entering an agreement or establishing a mechanism to set wages and benefits is prohibited in many countries, including the U.S. Most organizations rely on third-party independent compensation survey providers to guarantee confidential data gathering.
What is Base Pay?
Base pay, or fixed pay, is the compensation paid to an employee for performing specific job responsibilities.
What are the Types of Base Pay
■ Salary – paid on a weekly, biweekly, semimonthly or monthly basis rather than by the hour, generally to higher level positions. In the U.S., exempt positions are typically paid a salary.
■ Hourly wages – paid by the hour for a job being performed. An individual’s annual pay is dependent on the number of hours worked during the course of the year and the hourly rate of pay. In the U.S., nonexempt positions are typically paid an hourly wage.
■ Piece rate – Payment is based on an individual employee’s rate of production.
What are the Steps in Base Pay Stucture Design
■ Job analysis – a systematic, formal study of duties and responsibilities that comprise job content, provides key information about the nature and level of work performed. Many organizations include job analysis as part of the job documentation process, but job analysis must occur before jobs can be documented.
■ Job documentation – includes written information about job content or the functions of the job and required knowledge, skills and abilities (KSAs) and behaviors. The job description is the most common form of job documentation.
■ Job evaluation – a structured process to determine the value of an organization’s jobs relative to each other.
■ Job worth hierarchy – to group or categorize jobs relative to other jobs (e.g., pay grades or job ladders). The job hierarchy is sometimes referred to as the job architecture. It is the final result of the job evaluation process.
■ Base pay structure – After the job hierarchy is established, a base pay structure can be created and utilized as a framework for pay decisions.
What is the purpose of a Job Analysis
■ Creating job documentation, such as job descriptions
■ Determining where a job fits in a ladder or family
■ Supporting recruitment, training, performance management and other HR processes
■ Providing a basis for legal and regulatory compliance
What are the 3 Types of Job Documentation
■ Job profiles= typically shorter than job descriptions, and may only include a general one or two paragraph summary of the job, such as is often found in salary survey descriptions.
■ Job descriptions = he most frequently used form of job documentation. It is a summary of the most important features of a job. A job description should describe and focus on the job itself and not on any specific individual who might fill the job. Important features included on a job description:
■ Job ladders = Information on multiple levels within the same job family. The may include a general summary of the family, and then specific level descriptors within the family (e.g., entry, intermediate, senior).
What are the two methods of Content Based Job Evaluation Approach?
■ Nonquantitative methods, or whole-job methods of job evaluation, view the job globally in terms of its importance to the company.
- Ranking is the simplest form of job evaluation. The process involves a whole-job, job-to-job comparison, resulting in an ordering of jobs from highest to lowest in relative worth to the organization. Ranking only gives an indication of order. It does not reveal anything about the relative degree of distance between jobs.
- The classification method also compares jobs on a whole-job basis. Predefined class descriptions are established, and then the job is placed in whichever classification best describes it. This is sometimes called “job slotting.”
■Quantative Methods: Quantitative methods, or factor methods of job evaluation, examine the importance of jobs in terms of compensable factors.
What is the Market Based Job Evaluation Approach?
Market pricing requires collection and interpretation of marketdata external to the organization as well as identification of the prevailing rate for a job.
What is Job Hierarchy?
Using an established relationships between jobs to indicate how jobs can be categorized within the organization, this is then used to form the foundation of the base pay system
What is the definition of Base Pay Structure
The pay structure of an organization is a management tool that reflects the collection and organization of internal and external compensation data to support job values.
A pay structure consists of a series of pay ranges that represent jobs of similar internal and/or external worth.
What are the 3 components of a base pay structure?
■ Number of pay grades/bands – The purpose of pay grades/bands is to identify a compensation range within which multiple jobs are grouped that have similar value based on internal comparisons and external market data.
■ Pay range
* Grades typically have a maximum, midpoint, and minimum. The midpoint of the pay range typically reflects market rate for the positions in that pay range. Some organizations may choose to set midpoints above or below market rates.
Midpoint-to-midpoint differential – the difference in rates paid at midpoint of two adjacent grades. A midpoint represents the middle of a given salary range or pay grade. 10-15% differentials are common.
What are the Most Common Base Pay Adjustments?
■ Merit increase– Organizations may provide employees an annual increase in the form of a merit increase tied to individual performance and prevailing merit budget practices.
* Increases can be stated as an overall pool of money by department – such as 4% of current salary budget to be distributed based on individual performance – or there may be specific guidelines by performance level.
■ Cost-of-living adjustments (COLAs) – usually made to keep up with the rate of inflation. They may be treated as a separate payment, in addition to the regular base pay.
■ Equity adjustments - reflect internal compression issues (for example, between supervisor and subordinate, or between peers with dissimilar lengths of service or performance levels).
■ General increases – often given to all or a significant percentage of employees when an organization finds its compensation program is behind competitive market rates. A set monetary amount or a percentage increase may be given.
■ Skill-based or pay-for-knowledge approach – Individuals are paid for the skills they possess rather than their job responsibilities. Pay increases are given based upon increased knowledge, skill or ability. The employee may or may not use the skill.
■ Lump-sum payment – often are provided in place of an annual increase to the base salary as a means of controlling annual fixed-cost increases. For example, a lump-sum payment may be made to an employee
What is premium Pay?
In addition to base pay, some employers pay differentials.
■ Shift differential – paid to an individual to accommodate specific working conditions. It is most often called a shift differential when the individual is working hours other than the traditional 8
a.m. to 5 p.m.
■ Weekend or holiday differential – paid in addition to the normal hourly rate to pay for working a holiday or weekend. It may take the form of an additional hourly rate or a flat monetary amount.
■ On-Call Pay – paid for being available to work upon notice
■ Hazard Pay – pay for working in hazardous conditions
■ Expatriate differential – paid for the difference in costs between an individual’s home country and the assignment location (e.g., housing, goods and services, hazardous duty allowance)
■ Geographic differential – pay differences established for the same job based on variations in costs of living or costs of labor among two or more geographical areas
■ Language differential – paid to an individual fluent in more than one language who uses these skills in the work setting to meet organizational needs
■ Skill-Based Pay – pay to an individual for possessing a particular skill
