Total Rewards Flashcards
Sherman Antitrust Act
The first US government action to limit monopolies and is the oldest of all US antitrust laws.
Also limits salary fixing
Davis-Bacon Act
US Federal law that est the requirement for paying prevailing wages on public works projects
All federal government contracts over $2,000 must include provisions for paying workers no less that locally prevailing wages/benefits
Copeland Act
Prohibits contractors from in any way inducing and employee to give up any part of comp to which he is entitled under his contract
Requires contractors to submit weekly statements of compliance
Walsh-Healey Act
Requires contractors engaged in manuf of materials/supplies/equipment to the US gov to pay employees who produce goods exceeding $10,000 the fed minimum wage for all hours worked and time 1/2 for over 40 hours in 1 week
Fair Labor Standards Act (FLSA)
Prescribes standards for the basic minimum wage and overtime pay
- affects most private and public employment
- req employers to pay employees who are not exempt the federal min wage and time 1/2 for overtime
- does not req employers to provide severance pay, sick leave, vacations, or holidays
FLSA - Minimum Wage
All employees covered by the law must pay employees at least the set min wage per hour
FLSA - Overtime Pay
Non-exempt employees who work > 40 hours per week must be paid 1.5x base wage
FLSA - Child Labor
An employee must be at least 16 years old to work in most non-farm jobs
At least 18 to work in non-farm jobs declared hazardous by sec of labor
Youths 14-15:
- may work outside school hours in non-manuf, non-mining, non-hazardous jobs
- no more than 3 hrs on a school day or 18 hours in school week
- 8 hours on non-school day or 40 hours in non-school week
- work may not begin before 7 am or end after 7 pm except 6/1 - Labor Day when hours are extended to 9 pm
FLSA - Recordkeeping
Every employer covered by FLSA must keep records including info about the employee, hours worked and wages earned
Employer must maintain for period of at least 3 years
- employees full name as for social security purposes
- address
- birth date
- sex & occupation
- time and day of week work week begins, hours worked each day, total hours worked each week
- pay period
- pay rate
- total overtime for work week
- additions to or deductions from employees wages
- total wages paid each pay period
Executive Exemption
Qualifications:
- employee must be comp’d at rate of at least $684 weekly
- employee’s primary duty must be managing the enterprise or managing a dept/subdivision of enterprise
- employee must direct the work of at least 2 or more full time employees
- employee must have authority to hire/fire other employees or make suggestions on such
Administrative Exemption
Qualifications:
- employee must be comp’d at least $684 weekly
- primary duty must be performance of office or non-manual work directly related to general business operations of employer
- primary duty includes exercise of discretion and judgement with respect to matters of significance
Professional Exepmtion
Qualifications:
- employee must be comp’d at least $684 per week
- employee’s primary duty must be performance of work requiring advanced knowledge (work which is predominantly intellectual in character and requires consistent exercise of judgement)
- advanced knowledge must be in a field of science or learning
- advanced knowledge must be customarily acquired by prolonged course of specialized instruction
Also — creative professional exemption and computer employee professional exemption
Outside Sales Exemption
Qualifications:
- employees primary duty must be making sales (as defined in FLSA) or obtaining orders/contracts for services or for use of facilities for which a consideration will be paid by client
- employee must be regularly engaged away from the employer’s place or places of business
Highly Compensated Employees
These employees making $107,432 or more are exempt from the FLSA if they regularly perform at least one of duties of an exempt executive, administrative, or professional employee
Blue Collar Workers
The exemptions in section 13(a)(1) apply only to “white collar” employees meeting the salary and duties tests in the regulations
Exemptions do not apply to manual laborers or “blue collar” workers who perform physical work
Police, fire fighters, paramedics, and other first responders
Exemptions do not apply
Section 13(a)(1) of the FLSA
Provides exemption from both minimum wage and overtime pay
To qualify, employees must meet certain tests regarding job duties and be paid on a salary basis (not less than $684 per week
Equal Pay Act (EPA)
Requires equal pay for men and women doing substantially equal work under similar working conditions
EPA is incorporated into FLSA and applies to all employers subject to FLSA
NOT same pay for same job
It’s same pay for similar job
Lilly Ledbetter Fair Pay Act
Clarified comp practices that allow pay discrimination to be determined with the issuance of each new pay check rather than the old system which gave the complainant 180 days to file a complaint from last issuance of discriminatory pay check
Ledbetter was paid less than male colleagues while employed. She discovered the wage disparity after she retired. This new act awarded her restitution
Portal-to-Portal Act
Defined exactly what time was considered compensable work time
As long as an employee is doing work that benefits the employer, regardless of when they are performed, the employer is obligated to pay the employee for his or her time
Time to and from work is not considered paid working time
McNamara-O’Hara Service Contract Act (SCA)
Requires contractors and subcontractors performing services on covered federal contracts in excess of $2500 to pay service employees no less than the monetary wage rates and to furnish fringe benefits found prevailing in the locality
Wage Garnishment Act
Aka wage garnishment provisions of the Consumer Credit Protection Act (CCPA)
Protects employees from discharge by employers because their wages have been garnished for any one debt
It also limits the amt of an employee’s earnings that may be garnished in any one week
Disposable Earnings
Different from gross pay or take home pay
“Earnings” means compensation paid or payable for personal services and includes wages, salary, commission, bonus, and includes periodic payments through pension or retirement program
Does not include tips
Deductions
Disposable earnings means only that portion of earnings left after deductions required by law
Can include fed income tax withholding, fed social security taxes, state & city tax withholding, state unemployment insurance taxes, and deductions required under state employees retirement systems
Fair Credit Reporting Act (FCRA)
Regulates the collection, dissemination and use of consumer credit info
Under this law users of information for credit, insurance, or employment must:
- notify the consumer when an adverse action is taken on the basis of these reports
- identify the company that provided the report so that the accuracy and completeness of the report may be verified or contested by the consumer
Independent Contractors
The employer is generally relieved of responsibility for withholding and paying employment taxes. And for providing benefits and ensuring protections of other employment laws
An employer that incorrectly classifies a worker as an independent contractor can be liable for tax, interest, and penalties
Test to determine:
- who sets hours of work?
- who sets pay rate?
- who pays for equipment?
Real determination is answering “is the person in business for themselves?”
Benefit Laws - Social Security Act
A social insurance program funded through dedicated payroll taxes called FICA (Federal Insurance Contributions Act)
Major benefits include:
- retirement
- disability
- survivorship
- death
Benefits Laws - Workers’ Compensation
Provides employees with financial protection in the event of a disabling workplace injury or illness and protects employers from costly damage suits
Benefits Laws - Age Discrimination in Employment Act (ADEA)
Prohibits employment discrimination against persons 40 years of age or older
Also sets standards for pensions and benefits provided by employers
Employee Retirement Income Security Act (ERISA)
Requires that employers provide employees with specific info concerning benefit plans
Requires reporting and disclosure of pension and profit sharing plans and welfare plans such as those dealing with group life, group accident, hospitalization, medical and surgical, and dental care insurance
If employers modify plans they must communicate to employees
Form 5500
A financial report that must be filed with IRS by employers who provide a qualified retirement plan (i.e. a pension, profit sharing or 401(k) plan, or section 125 plan)
This form is also needed when an employer provides group medical, dental, life, or disability with 100 or more plan participants
Pregnancy Discrimination Act
Prevents expectant mothers from being fired, not hired, or discriminated against due to pregnancy or intent to become pregnant
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving employment
Uniformed Services Employment and Reemployment Rights Act (USERRA)
Requires employers to provide health insurance continuation for individuals performing military duty of more than 30 days
Older Workers Benefit Protection Act (OWBPA)
Amended ADEA to specifically prohibit employers from denying benefits to older employees
This is because it is more expensive to provide benefits to older workers than younger workers and this could create disincentive to hire older workers
Family and Medical Leave Act (FMLA)
Allows an employee to take unpaid leave due to serious health condition that makes the employee unable to perform his job (up to 12 weeks unpaid)
Events covered:
- birth, adoption, or placement in foster care of a child
- “serious health condition” involving the employee or an immediate family member (spouse, child, parent)
Must have worked for an employer for 12 months to qualify
Health Insurance Portability and Accountability Act (HIPAA)
Limits restrictions that a group health plan can place on benefits for pre-existing conditions
Was superseded by Affordable Care
Act
Still relevant to the candidate in relation to privacy provisions - est regs for the use and disclosure of “Protected Health Information”
Sarbanes-Oxley Act
Requires that rank-and-file participants in “individual account plans” be notified when they will be subject to a “blackout period”
Think selling profit shares to retire
Patient Protection & Affordable Care Act (ACA)
Ensures all Americans have access to quality, affordable health care
Things to know:
- eliminates lifetime annual limits on benefits
- prohibits rescissions of health ins policies (cancellations due to health problems)
- provides assistance to those uninsured due to preexisting conditions
- requires coverage of preventative services and immunizations
- extends dependent coverage to age 26
- develop a uniform coverage docs so consumers can make apples to apples comparisons for health ins
- ensures consumers have access to effective appeals process
- est internet portal to assist Americans in identifying coverage options
- facilitates admin simplification to lower health system costs
Total Comp: Compensation Strategies
Comp is single most important element in the employment relationship
Top factor in deciding whether to accept or continue employment
Comp is largest component of total labor costs and far exceeds expenses for recruitment, training, administration, or HR functions
Matching Compensation to Strategic Goals
Understanding a company’s business objectives is the most important knowledge a compensation planner can possess
Comp plans can:
- communicate business objectives
- provide incentives for employees to change behaviors
- reinforce relat btw individual goals and corporate objectives
- reward discretionary effort
Comp & HR Goals: 3 primary goals of a compensation program
Effective recruitment
Retention
Motivation
Recruitment
Appropriate starting rates and an attractive pay program can position a company to meet its recruitment needs on a consistent basis
Low starting rates - shortage of suitable candidates, low-potential employees
High rates - overpaying exp workers can undercut internal equity
Retention
Comp program can be used to adjust turnover for various positions to achieve optimal workforce at the lowest cost
Turnover is expensive - recruiting, hiring new employees, orientation and training and downtime
A company’s growth potential diminishes every time an experienced and promotable employee resigns
Motivation
A comp program based solely on market rates and length of service fails to motivate
A program based on skills and performance turns every paycheck into a concrete statement of a company’s business objectives
Traditional Compensation Plans
Largely consist of base pay - grounded in extensive job evaluation - plus a fixed package of benefits
Employees comp level depends on length of service and fulfillment of job requirements
Alternative Compensation Systems
Less standardized and less centralized
Rely less on job evaluation and more on performance appraisal
De-emphasize base pay - rely more on incentives for unit, group, or individual performance as defined by growth or productivity
Successful AC Systems are based on:
- sound projections about financial returns that result from improved performance
- accurate methods of measuring improvements
- effective methods of tying improvements to payouts
Reward Strategies
Primary objective of a comp program is to motivate employees behaviors needed to achieve business goals
Equity Theory (Adams) of pay comparisons
Based on an individual subjective determination about his perception of pay comparisons
3 types:
- internal: employee compares his pay to others within the org
- external: employee compares his pay to a similar job outside the org
- individual: employee compares his/her pay to individual doing same job within same organization
Expectancy Theory (Vroom)
Holds that employees expectations determine effort and performance
Performance appraisal system ensures that employees receive feedback they need to perform well
A well-designed pay system ensures that performance is rewarded appropriately
Maslow’s Hierarchy of Needs
Human nature is an ascending hierarchy of 5 basic needs
When one need is fulfilled a person strives to fulfill the need from the next level - once a need is satisfied it’s no longer a motivator
Basic needs = sufficient salary
Safety or security needs = safe environment, job stability
Social needs = sense of belonging/acceptance and interpersonal relationships
Esteem needs = feeling of self-worth, sense of achievement, appreciation from others
Self-actualization = fulfillment of ones full potential
Reward Theory or Reinforcement Theory
Based on idea that employees will repeat behaviors that are rewarded and will avoids behaviors that are not rewarded
Just paying for time worked doesn’t motivate high performers. This rewards standard levels of performance
Pay is contingent on high performance can directly influence behavior
Goal-setting Theory (Management by Objectives)
Only those rewards that employees value can motivate behaviors
Must set mutual goals that benefit the org and its employees
This theory holds that pay can motivate employees if:
- employees participate in goal setting and accept these goals as their own
- goals are specific and set a sufficiently challenging level
- specific monetary rewards are designated for each goal achieved
Intrinsic vs. extrinsic rewards:
Intrinsic = psychological & intellectual rewards (i.e. performing meaningful work or feeling accomplished)
Extrinsic = derive from sources external to job itself (can be prestige/positive feedback or $$)
Designing the Comp System
4 basic steps:
1) determining relative worth of benchmark jobs and collecting data on market rates for these jobs
2) analyzing how actual pay rates compare to market rates
3) deciding where target pay rates should be relative to market rates
4) establishing appropriate pay grades and pay ranges
Internal Equity Issues
Employees compare their pay with other positions to determine fairness of their title’s comp vs. others
Wage Compression
Refers to situations where pay differences between employees in different jobs are so small that internal pay inequities occur
Example: supervisors exempt from overtime pay vs. subordinates with a lot of overtime pay
Permissible wage differentials
EPA allows wage differentials if based on:
- a seniority system
- a merit system
- a system that measures earnings by quantity or quality of production
- any other factor other than sex
Employers may pay different wages and provide different terms of employment for employees who work at different locations
External Equity Issues
Value differential btw org’s internal reward system relative to employees in the outside marketplace
Benchmark Jobs
A job with duties that can be clearly identified, defined, and compared to other jobs in the marketplace
Employers utilize area wage surveys to gauge whether they lead, lag, or match marketplace pay rates
Lead vs. Lag: Lead Policy
Company projects where market will be at end of the structure plan head and matches those rates at the start of the plan year
Lead vs. Lag: Lag Policy
A company matches market rates at the beginning of the plan year. Structure is competitive with the market at the start of the year and as competition moves ahead the structure will lag behind the market
Lead vs. Lag: Lead/Lag Policy
Company projects where market rates will be at the middle of the plan year and matches those rates at the start of the plan year.
The structure will lead the competition for the first part of the year and lag behind the market for the second part of the year.
Compa-Ratio and Measures of Central Tendency
Statistical metrics used to judge the health of the pay system - central tendency
3 ways to find the measure of central tendency:
- mean = average
- median = middle most score
- mode = most frequent score
- range = difference between greatest and least #s
Compa-ratio
Provides an employer with a benchmark to determine how close actual pay rates compare to the company defined mid-point of pay range
It’s the avg of an employees actual pay divided by the range midpoint
Indicates how well an employee is paid compared against an industry standard
Compa-ratio calculation
Compa-ratio = Actual Salary / Mid-point of Pay Range
$44,200 / $52,000 = .85
$103,100 / $90,000 = 1.15
80-86% - new inexperienced or unsatisfactory
96-103% - fully competent performing as job is defined
112-120% - universally recognized as outstanding performers inside and outside org
Establishing Pay Grades and Ranges
Multiple Pay Structures
How many structures should a company have?
Range of Pay Rates
Range may be so great that one structure may not comfortable fit highest and lowest rate
Example: CEO vs hourly employee
Separate structures should be established - exempt job structure vs. non-exempt structure
Setting Grades
Once a pay line has been est you must then define a series of pay grades.
Pay grades group together jobs of similar internal value that will be considered similar for pay purposes
Consider for pay grades:
- internal relationship of jobs & job groups
- # of structures that will be used
- # of jobs to be included
- system of determining internal values
- external values and differentiations
Grouping Jobs
The key to est job grades is the grouping of jobs
This is done by considering both internal relationships of each job and the type of job evaluation system used
Natural breaks are defined by distinctions such as:
- reporting relationships: manager/supervisor or supervisor/subordinate
- job families: senior accountant/accountant/junior accountant or senior clerk/clerk
Job Evaluations
The process of systematically determining a relative value of jobs in an org to set pay grades and group jobs
Most job evaluation systems divide job factors into 4 categories:
- skill
- effort
- responsibility
- working conditions
Job evaluations: Skill
Includes job factors like: education, training, time reqd to learn, knowledge of equipment, initiative/creativity, resourcefulness, manual dexterity, interpersonal skills, analytical ability
Job evaluations: effort
Covers both physical and mental exertion
Includes job factors like: mental effort, concentration, fatigue, eye fatigue and visual application, physical effort, demand, monotony, deadline and high work volume pressure
Job evaluations: responsibility
Includes job factors relating to responsibility for: other workers, their work product, property, equipment, assets, cash, records, material, decision making, judgement, independent action, quality, accuracy, coordination of work, safety
Job evaluations: working conditions
Includes job factors like: temperature, noise, isolation, health/safety hazards
How to select meaningful job factors:
- focus on factors that contribute to differences in job worth and differences in rates of pay
- select factors that are independent and unique (avoid redundancy)
- keep factors simple and concrete so they are clearly defined
- ensure each factor selected can be realistically measured
Ranking Method
Job ranking involves ordering jobs from highest to lowest based on definition of value/contributions
Advantage = least expensive and easiest to understand
Disadvantage = does not measure differences between jobs
Classification/Grading Method
Used by fed gov
Each job is categorized into groups called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different
Advantage = easy to administer and inexpensive
Disadvantage = difficult to write the class or grade descriptions and requires a lot of judgement
Factor Comparison Method
This method is seldom used by employers
Instead use modern adaptation that uses a computer and specialized statistical software
Compares several factors to obtain a numeric value for each job and to arrive at a job structure
Jobs are compared with each other using factors like:
- mental requirements
- physical requirements
- skill requirements
- responsibility
- working conditions
Point Method
Involved rating each job on several compensator factors and adding the scores on each factor to obtain a point total for a job
Advantage = the stability of the rating scales. Only major changes in the org demand a change in scales
Most commonly used job content evaluation system
Job evaluators apply the following methodology:
- determine appropriate # of points (typically between 400 - 1,000 pts)
- assign range of pts to each factor based on relative value
- divide each factor into degrees to represent varying levels of the characteristic under review
- define each degree and provide work examples
- assign point values to each degree
- analyze specific duties performed by each job by examining the first factor and determining the extent it is present on the job
- sum up points for the job and array total pts assigned to each job to establish relative order of job worth
- compare hierarchy against market values
- make adjustments and develop a final structure
Guide Chart-Profile Method (Hay Method)
Most popular point factor plan
Described as a form of factor comparison for the following reasons:
- uses universal factors
- bases job values in 15% intervals
- makes job-to-job comparisons
Universal factors in the Hay plan
- know how (skill)
- procedures and techniques
- breadth of mgmt skills
- person to person skills
- problem solving
- thinking environment
- thinking challenge
- accountability
- freedom to act
- impact on results
- magnitude
- working conditions
- hazards
- environment
- physical demand
Point Spreads
Internal point values can be used in determining pay grades
If a percent-based point spread is used, equal or increasing % are applied to the internal point values
Ex: lower grades may have 20% point spread, middle 25% and upper 30%
Pay Line as a Continuum
Another method of identifying pay grades
Each internal value point has its own pay value
No magical # of grades to use - will depend on company’s needs and best for of the jobs
3 major considerations in setting pay ranges:
- midpoint progressions
- range spread
- range overlap
Midpoint Progressions
Represent the percent increase from
The midpoint of one grade to the midpoint of the next higher grade
Can be constant % or can increase from grade to grade
Idea is to create enough pay grades so that there is a sufficient but not too great difference between grades
Rule: midpoint differentials will be smaller for lower lay grades and will increase for higher pay grades
Range Spread
Next step is to determine range spread of pay grade. This in combination with the midpoint is used to derive mins and maxs for grades
Generally narrow ranges with smaller percent spread are used for lower pay grades
Spread increases as pay grade levels increase
