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
*newly hired EEs may make $12 with a $.50 raise after 6 months–all other workers earn the $12.50
Base Pay Systems ‘Time Based Step Rate’
The EEs pay rate is based on longevity in the job. Pay inceases occur on a pre determined schedule
- Automatic by % and time
- Affected by performance
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
- Production/Manufacturing
- A quota to meet
- Quality can suffer
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 differnt 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 doesnt have to change
- Market-Based Increase: to be competitive in attracting new talent or keep key EEs
- Pay adjustment matrix: helps guide decisions on salary
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 scheudled 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 treament of benefits
Activities in 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
- Conduct gap analysis
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
Other Benefits
Social Security (varies by country) Perks (discounts, phone, prof orgz, housing, education fees, training, car, club, meals)
Metrics for Costs of Benefits
Benefits Costs as a % of Total Payroll Costs: total benefit cost/total payroll cost
Health Care Expense per EE: total healthcare expense/# of EE enrolled in health plan
