People Knowledge - Total Rewards Flashcards
What is total rewards? Why is it it important to have an effective total rewards program?
Total rewards refers to all of the compensation and benefits received for performing tasks related to each position.
First, it encourages employees to join and then stay with the organization. Second, there are legal concerns associated with the minimum amount of compensation an individual can receive for a certain amount it work
What are the two main types of rewards used to compensate employees?
Monetary compensation is any tangible reward provided as payment for work, including direct compensation (ie. salary and wages) or indirect (paid through a third party, ie. paid sick days, paid vacation time, retirement plans, and stock options)
Non-monetary compensation is any intangible reward provided to encourage an individual to perform work, including better assignments, employee-of-the-month awards, flexible scheduling, and special privileges
What are the two types of total rewards philosophy?
An entitlement philosophy issues rewards based on the length of time a particular employee has been with the organization. It assumes an individual is entitled to certain rewards because of seniority or length of time in a specific position. This philosophy encourages individuals to stay with a company but do no necessarily encourage effective performance.
A performance-based philosophy issues rewards for good performance.
What should be considered when developing a total rewards strategy?
- Competitive environment - the effect competition has on the ability to allocate resources to the total rewards program
- Economic environment - the effect the economy has on the cost of labor
- Labor market - availability of skilled employees
- Legal environment - taxes and regulations
How do organizations go about establishing pay structures?
Most organizations begin the process by:
- Conducting a job evaluation for each position and assigning a value
- Categorizing jobs based on the value they bring
- Gathering information from salary surveys to determine the market median for each category and wages an individual would receive at the midpoint of a similar pay category for another organization
- Using this information as a guide, a pay range is developed for each category
Why and how do companies further break out their compensation structures into levels or bands?
To maintain pay equity and stay within budget
This can be done by conducting a job analysis and grouping titles into families. Jobs may also be evaluated and ranked based upon overall responsibilities and worth to the organization.
What is broadbanding? Why would organizations choose to use this approach?
Broadbanding is a type of pay structure design in which an organization creates a small number of broadly defined pay grades into which all jobs are separated, for example, general staff, management, and executives.
Organizations usually choose to use a broadbanding approach to encourage teamwork and eliminate problems arising from perceived differences in status between different pay grades. The focus is on performance rather than activities related to achieving promotions.
Why is it important to conduct a job evaluation during the rewards planning process?
- A job evaluation identifies the positions most important to success so rewards can be assigned appropriately.
- It determines whether there should be a difference in pay between two positions.
For example, a secretary and an administrative assistant with the same skills and performing similar jobs should receive equal pay even though they have different titles.
What is a compensable factor?
A compensable factor is a specific characteristic of a position used to determine the value of that position; specific job requirements that are considered important, and individuals are compensated based on their ability to meet these requirements.
ie. knowledge, skills, and abilities / experience required, level of education required, level of responsibility required, and knowledge of specific technology or processes required
What are the two main types of job evaluation techniques used to determine the value of a particular position?
Non-quantitative techniques, or whole job methods, are used to evaluate the skills and abilities associated with a particular position and assign it a value based on whether it requires more or less skills than other jobs within the organization.
Quantitative techniques, or nontraditional techniques or factor-based methods, are techniques of assigning a specific value to each factor in a series of compensable factors identified as important. The organization can then evaluate each position, determine how many compensable factors are required for the position, and can assign a value to the position by using a mathematical formula
What are the three most common non-quantitative job evaluation techniques?
- Classification method - separates positions into categories based on tasks. each category is then listed in order of its importance and assigned pay based on its importance
- Pricing method (slotting method) - assigns a value to a position equal to the value of a similar position or category that already exists.
- Ranking method - ranks each position from lowest to highest based on how the skills and abilities required to perform the position compare with those associated with other positions
What are the two most common quantitative job evaluation techniques?
- Factor comparison method - identifies a series of compensable factors and establishes a ranking system to measure how much of a particular compensable factor, such as education, is required for a particular position. Each factor ranking is assigned a specific dollar value, and the value of the position is determined by adding the total dollar value for the rank of each factor required for each position
- Point factor method - similar but assigns a point value to each factor instead of a dollar value, and the pay for the position is determined by comparing the total amount of points to a chart
What is compa-ratio and how do you calculate it?
A compa-ratio is a mathematical formula used to compare a specific employee’s pay with the pay at the middle of the pay range (percentage). Used to compare an employee’s current pay with the pay of other employees in similar positions to determine whether the individual is receiving a fair amount considering seniority, performance, and so on.
Compa-ratio = base salary / midpoint salary for the employee’s pay range
How do you calculate piece rate?
Piece rate is the amount of compensation an employee receives for conducting a specified unit of work.
Piece rate = (# of unit x rate per piece) / hours worked
A worker who produces multiple products at different rates would need overtime calculated using a combined weighted average to find the regular hourly rate.
Piece rate = [(# of unit x rate per piece) + (# of unit x rate per piece) + …] / hours worked
What are the FSLA requirements of differential pay?
FSLA requires that employers pay time and a half for overtime hours in excess of a 40-hour workweek. Some regulations may impose additional overtime payments, such as overtime hours in excess of an eight-hour workday.
FSLA requires that employers compensate on-call employees if their activities are restricted, and premiums often compensate employees who are called back to work for emergency services due to the inconvenience (ie. shift differential or hazard pay)
Many organizations use some form of differential pay for performing unpleasant or less desirable work. For example, weekends or holidays might be paid at time and a half or even double time.
What are forms of financial incentives organizations can use that are tied to productivity?
- Merit pay increases - an adjustment or one-time bonus awarded to top performers following an evaluation of clearly defined objectives
- Bonuses and commissions - must be earned each period and do not need to be tied to individual performance. Sometimes can be awarded at manager’s discretion or based upon company performance.
- Production or piece rate plan (ie. Halsey Premium Plan) - production standards are based by past performance, and employees receive a guaranteed hourly rate plus a percentage of the rate for any time saved
- Gainsharing - encourages the achievement of certain financial goals by offering a percentage of the money the organization earns or saves from achieving that goal
- Profit sharing - encourages the achievement of certain goals by offering a percentage of the profit when goals are met
How are executive compensation plans structured?
Executive compensation plans may be influenced by many factors but are most associated with revenue and responsibility.
Monetary - salary, bonuses/commissions, stock options, director fees, or deferred compensation
Non-monetary - company vehicle, first class travel arrangements, health club membership etc.
Executive bonuses are generally higher than mid-level managers (can be greater than 100% of base pay)
What are rewards to consider when creating a renumeration package for expatriate employees?
- Europeans consider benefits/perks to be a much larger part of the total compensation package than in the US (American execs are overpaid)
- Many firms pay a cost-of-living allowance to expatriates to equalize the cost of living in both the host/home countries
- Housing allowances are often considered the single most expensive item in expatriate renumeration and must be frequently reviewed
What is deferred compensation?
Any compensation that is paid out at a specified future date or during retirement is likely a form of deferred compensation. These plans may be qualifying or non-qualifying pensions, retirement plan accounts, or employee stock options plans.
401(k), 403(b), 503(c), Individual Retirement Accounts (IRA), or Savings Incentive Match Plans for Employees (SIMPLE) are qualifying plans and must adhere to the Employee Retirement Income Security Act and IRS limits.
What are non-qualifying plans?
Non-qualifying plans often involve funds that are withheld and may be invested to be paid out at a lter time for tax advantages and potential capital gains. Companies might choose deferred plans, such as top hat plans, restorative benefit plans, or supplemental executive retirement plans to attract and retain business officers.
Payments for nonqualifying deferred compensation plans must be scheduled for a specific future date, and funds may not be withheld in advance. Non-qualifying plans can carry concerns about company sustainability or what happens in the event of mergers and acquisitions or bankruptcy.
What are profit sharing plans?
In profit sharing plans, employees receive their regular pay and a share of the company’s profits. These may be cash plans, in which payments are made after the close of a specified (quarterly or annual) period, or tax-advantageous deferred plans, in which funds are invested. If deferred, funds are a tax-deductible expense for the company for the year in which they are contributed, and employees are not taxed until their funds are received.
What are types of gainsharing plans?
In gainsharing plans, employees receive bonsues based upon improved productivity as opposed to profits.
- Scanlon Plans - most popular in union environments and combine gainsharing with an employee recommendation system. These plans establish a standard ratio of labor costs as a percentage of revenue.
- Rucker Plans - employee gains are based upon production. Establish a ratio of labor costs as a percentage of value added or the sales value of output minus the cost of materials
- Improshare Plans - broken down as improved productivity through sharing, provide bonuses to employees based on the amount of time saved
What is an employee stock ownership plan (ESOP)?
An employee stock ownership plan (ESOP) is created by establishing a trust into which the business makes contributions of cash or stock that are tax deductible. Employees are then granted with the ability to purchase stock or allocate funds into individual employee accounts. The stock is held in an employee stock ownership trust (ESOT), and the business can make regular contributions, typically up to 25% of its annual payroll
What are some of the different factors to take into account with paid time off (PTO) policies?
Differentiating vs. single pool of PTO (which includes vacation, persona, sick, and holidays all in one)
Gift employees with a bank of time immediately or at a predetermined time vs. accrued
Carryover provisions and whether or not negative balances are allowed