People - Total Rewards Flashcards
I-P-O model
Inputs - Process - Outputs
Ex: total rewards strategy
- Inputs - HR goals (recruitment, engagement, retention)
- Process - Alignment with strategy, culture, market, employment laws
- Outputs - Total rewards strategy (compensation & benefits, rewards, incentives)
“Total Rewards” synonyms
Total Rewards
Remuneration
Compensation & Benefits
**All these mean the same thing
Total Rewards categories
- Compensation
- Incentives
- Benefits
- Perquisites
Compensation - salary and allowances
Incentives - payments in return for achievement of certain objectives
Benefits - tangible payments or services provided to broad groups of employees (ex: health insurance, retirement plan, paid time off, training/development opportunities)
Perquisites - goods or services provided to individual employees (ex: cell phone, company car) (sometimes counted in the “benefits” category)
Compensation philosophy
Statement documenting the organization’s values and guiding principles regarding employee compensation
Creates a framework for consistency and transparency
Entitlement-oriented vs. Contribution-oriented compensation strategies
Entitlement-oriented - assumes all employees are entitled to benefits as a condition of employment; benefits increase equally as the company does better; usually found in companies with family-like culture
Contribution-oriented - emphasizes individual achievement with benefits such as performance-based pay, incentives, and shared responsibility for benefits (such as copays for medical insurance)
Pay strategies
- Lag market
- Match market
- Lead market
- Lead-lag market
Lag - controls labor costs by setting pay rates below competitors; might still be able to attract talent by smart use of other rewards
Match - most common approach; considered to be externally competitive
Lead - assumes that higher wages will attract the best, most productive talent
Lead-lag - leads market during first half of fiscal year, then lags during 2nd half
ESS applications
Employee Self-Service - provides employees with quick and easy access to their compensation & benefits info online
Steps in designing a compensation system
Job analysis
Job documentation (creating job descriptions)
Job evaluation (determining relative value of jobs to the organization)
Pay structure (establishing pay grades/ranges)
Non-quantitative job evaluation
- job ranking
- job classification
Job ranking - establishes a hierarchy of jobs from lowest to highest importance; sometimes uses paired-comparison (comparing each job to every other, and then the job with the most “greater-than” ratings is the highest in the heirarchy)
Job classification - writes job descriptions for each class of job, and then sorts each job into the most suitable class
Job classification -
Quantitative job evaluation
- point factor system
Point factor system - most common method of job evaluation; starts with identifying compensable factors, and then a committee (usually) assigns a point value for each factor for each job
Compensable factors
Factors that determine the value of a job, such as skills, responsibility, work conditions and hazards, effort and physical demands, and supervision of others
Remuneration surveys
Collect info on current market compensation and benefits practices
Aging salary data
Assume that pay increases 3% each year
Pay grades / pay ranges
Pay grades - used to group jobs that have similar value in an organization
Each pay grade has its own pay range
Pay range recommendations
- overlap?
- degree of spread?
Overlap - yes, it’s suggested for an experienced employee at a low pay grade to make more than a new employee at the next higher grade
Spread depends on pay grade - usually less spread for entry-level positions (employees don’t stay there as long), and broader spread for higher-level positions where you want people to stay in their position long-term
- 40% for hourly positions
- 50% for salaried positions
- 60% for executive positions
Compa-ratio
Compensation Ratio (pay rate of an employee divided by midpoint of the pay range)
Can help managers determine whether employees are being paid fairly for their skills/experience, and whether actual pay rates align with the compensation strategy (to lag, match, or lead the market)
Broadbanding
Combining 2 or more salary grades to create a larger range
Can help simplify the pay system and give people more latitude to grow within their job
Base-pay systems
- single- or flat-rate systems
- time-based step-rate systems
- performance or merit-based systems
Single-rate or flat-rate - each person in a particular job makes the same pay rate; can include details such as “training rate” (ex: newly hired factory employees make $12/hr, and then make full rate of $12.50/hr after 6 months on the job)
Time-based step-rate - employee’s pay rate is based on longevity
Performance-based or merit-based - also called “pay for performance” or “P4P”
Variations on performance-based pay systems
- productivity-based systems
- person-based systems
Productivity-based - pay is determined by employee’s output (ex: straight piece-rate: employee earns minimum wage plus $0.10 per item produced) (ex: differential piece-rate: employee earns one piece rate up to standard production, and then higher rate once standard has been exceeded)
Person-based - employee characteristics determine pay; an employee with superior knowledge or skill mastery is paid more even if others are performing similar tasks
Differential pay
Performance-dependent pay that does not count as part of the employee’s base pay (such as hazard pay or extra pay for working an undesirable shift)
Can also include premium pay (for overtime, holidays, or 6th/7th work day in a row), emergency-shift pay, on-call pay, reporting pay, travel pay, or geographic differential pay
Also called “variable pay”
Incentive pay
Paying for performance that exceeds base-pay expectations, as a way of motivating employees to perform at higher levels
Ex: sales commissions
Types of incentives - individual, group, and organization-wide
Individual - includes piece-rate pay systems and sales commissions
Group - gainsharing plans, team bonuses
Organization - profit sharing, stock ownership, organization-wide bonus for exceeding goal
Executive compensation options
- stock option plans
- phantom stock
- restricted stock units
- performance grants
Stock option plans - option to purchase stock at pre-determined price for certain time period (usually 5-10 years)
Phantom stock - cash awards designed to mimic shares of stock without actually giving equity
Restricted stock units - certain amount of stock is promised after specified restrictions have been met (used to defer compensation of key executives until after they have retired)
Performance grants - stock-based compensation tied to organization performance
Stock purchase plans
Plan available to most or all of a public company’s employees; can buy shares at a discount or without brokerage fees
HR role in executive compensation
Communication with board/management/execs about benefits, costs, options available
Help determine what in-house and outside expertise is needed to handle executive compensation program
Assess the program and recommend changes as needed
Red-circle/green-circle pay rates
Red-circle - employee pay rates above the range maximum
Green-circle - employee pay rates below the range minimum
Pay compression (salary compression)
Situation where there is only a small difference in pay between employees with different experience, skill, level, or seniority
Employee Assistance Programs
Gives employees access to a network of professionals, who can provide assistance with concerns such as education/tuition, financial information, legal advice, retirement planning, medical advice, counseling resources
Retirement plans - defined benefit vs. defined contribution
Defined benefit plans - promises specific benefit amount upon retirement, usually determined by formula (which usually take into account salary and length of service); employer makes investment decisions and bears the risk
Defined contribution plans - individual account for each employee, with (usually) specified contributions by employer; amount depends on investment return; employee bears the risk
Fiduciary responsibility
Idea that the one party has a legal responsibility to act in the best interest of another
Ex: an employer has fiduciary responsibility when administering a 401(k) for employees
