People - Total Rewards 2 Flashcards
Base Pay Systems ‘Single of Flat Rate’
Each incumbent of a job has the same rate of pay, regardless of performance or seniority
Base Pay Systems ‘Time Based Step Rate’
The EEs pay rate is based on longevity in the job. Pay increases occur on a pre determined schedule
Base Pay Systems ‘Performance or Merit Based’
the individual EEs performance on the job is the basis for the amount and timing of pay increases. A performance based pay system is commonly called merit pay or pay for performance or P4P or PfP
Base Pay Systems ‘Productivity Based’
Pay is determined by the EEs output
Base Pay Systems ‘Person Based’
EE characteristics, rather than how the job is performed, determine pay. The person with superior knowledge or skill receives more pay.
3 Approaches To Tying Base Pay to Peoples Qualifications
Knowledge-Based: pay is based on the level of knowledge the EE has in a field.
Skill-Based: pay on the # of different skills an EE is qualified to perform.
Competency-Based: pay at the level at which an EE can operate in defined competencies. Ex: directing or training others.
Pay Adjustments
- COLA
- General Pay Increase
- Seniority Increase
- Lump-Sum Increase: one time payment for a yearly increase, and the base salary doesn’t have to change
- Market-Based Increase: to be competitive in attracting new talent or keep key EEs
Differential Pay
Depends on performance and is not added to the EEs base pay.
Time-Based Differential Pay
Shift Pay: working less desirable hours
Emergency Shift Pay: responding to an emergency
Premium Pay: working holidays, 6th or 7th day of straight time, after 8 hrs in a work day
On call or Call back: being on standby or coming back to work
Reporting Pay: for reporting to work as scheduled and there is no work available
Travel Pay: time spent traveling to work assignments
Over time Pay: per legislation
Geographic Differential Pay
- For labor costs: impact of COLA in differnt geographic areas
- To attract workers to certain locations: remote workplace attraction, climate might be bad
- For foreign countries: employees who work in foreign countries
Incentive Pay
Used to motivate EEs to perform at a higher level by paying for performance that exceeds base pay expectations
Types of Incentives
Individual: to improve individual performance, gifts, awards, trips
Groups: used when measuring individual performance is difficult or when performance requires cooperation of the group. Gain sharing plans=an orgz shares a portion of the gains from a successful group.
Orgz: Profit sharing are the most common orgz wide incentive plans. Another example is a bonus.
Types of Executive Compensation
- Annual Salary
- Stock option plans: purchase company stock at a pre determined price
- Stock purchase plans: purchase shares at a discount or without paying fees
- Restricted stock grants: cannot sell stock until a certain time period has passed of being employed
- Phatom stock: cash awards designed to mimic shares of stock
- Restricted stock unit: used to defer comp of key executives until after they have retired
- Performance grants: tied to orgz performance
Direct Sales Compensation
Straight Salary or Straight Commission.
Salary + Commission is the most widely used approach to compensating sales ppl because it motivates ppl
Red Circle v Green Circle
Red: EEs pay rates are above the range max
Green: EEs pay is below the minimum of the range
Pay Compression
Situations where there is only a small difference in pay between EEs regardless of their experience, skills, level, or seniority
Caused by: labor market increases more rapidly than the employers pay, beginning salaries are raised due to minimum wage
Metrics for Compensation
Compesation Ratio=EEs pay rate/midpoint
Total Orgz Comp Expense=salaries+OT+benefits+bonus/total operating costs
Choosing Benefits and Perks
- Which benefits are required by law?
- Which benefits enable an employer to compete for EEs?
- Which benefits are cost effective to purchase and to administer?
- Which benefits do EEs prefer?
- Which benefits provide creative choices?
General Benefits Variations Across Countries
- Benefits that are government provided
- Benefits that are government mandated
- Benefits that are voluntary or discretionary
- Benefits that are market practice
- Tax treatment of benefits
Benefits Needs Assessment
- Review the orgz strategy
- Review orgz comp philosophy
- Analyze the demographics of the orgz workforce
- Analyze the design and utilization data on all benefit plans
Paid Time Off and Family Oriented Benefits
- PTO (vacation, holiday, leave)
- Family Oriented (flex work hours, child care)
- Health & Welfare (health, disability, life ins, workers comp
- Severane/Unemployment: severance packages, unemployment, retirement
- Other: SS, Perks,
Types of Retirement Plans
Defined Benefit: promises specific benefit amount upon retirement, employers bear the investment risk (pensions)
Defined Contribution: amount of $ that is to be regularly contributed to the fund is specified, no promises are made about the future value, employee bears the risk of the investment (401k)
Fiduciary Responsibility
A fiduciary duty implies a legal obligation of one party to act in the best interest of another. The obligated party is typically referred to as a ‘fiduciary’
Metric for Cost of Benefits
Benefits Costs as a % of Total Payroll Costs
total benefits costs/total payroll costs
Golden Parachutes
Special payments or benefits to executives under certain adverse conditions such as the loss of their position.
