� Compensation consists of three main components
Direct
Indirect
Non-financial Componenents
Encompasses employee wages and salaries, incentives, bonuses, and commissions
Direct Compensation
Comprises the many benefits supplied by employers.
Indirect Compensation
Includes employee recognition programs, rewarding jobs, organizational support, work environment, and flexible work hours to accommodate personal needs.
Nonfinancial compensation
In certain manufacturing environments, compensation is as high as ___ of total costs and even higher for many service organizations.
60%
The compensation of employees in ways that enhance motivation and growth, while at the same time aligning their efforts with the objectives of the organization.
Strategic Compensation
Developing a compensation strategy requires that the _____ are first analyzed. Once you figure this out, you can then decide what types of behaviors and skills will be rewarded. This shows you pay for performance.
organizational objectives
Market rates are one element of compensation planning.
True
Strategic compensation serves to mesh the monetary payments made to employees with other ____, such as recruitment, selection, training, retention, and performance appraisal.
HR initiatives
Step one is to develop a compensation strategy that is linked to the _____.
organization's objectives
Managers must first and foremost understand the strategic objectives of the organization in relation to the ___ in which it operates.
industry
Next, they need to move away from paying for a specific position or job title to rewarding employees on the basis of their individual ___ or work ____ to these organizational objectives.
competencies
contributions
Serves to raise productivity and lower labor costs in today's competitive economic environment.
Pay-for-Performance Standard
It's not easy to design. You need to consider how employee performance will be ____. Other concerns include the monies to be allocated for compensation increases, which employees to cover, the payment method, and the periods when payments will be made.
measured
A critical concern for a successful pay-for-performance system is the perceived ___ of the pay decision
fairness
For most employees, pay has a direct bearing not only on perceived fairness, but also on the ____ and ____ they may be able to achieve both on and off the job.
status and recognition
Pay needs to be equitable to an employee's ___
contributions
It's also essential that an employee's pay be equitable in terms of what ____ are receiving for their contributions
other employees
Also referred to as distributive fairness, is a motivation theory that explains how people respond to situations in which they feel they have received less (or more) than they deserve
Equity Theory
According to the equity theory, individuals make comparisons with people both __ and ___ their organization, and that these comparisons influence their motivation.
inside and outside
In a work setting, individuals form a ratio of their inputs (____) to their outputs (salary, benefits). The strength of their motivation is proportional to the ____ of the perceived inequity.
(abilities, skills, experiences)
magnitude
For employees, pay equity is achieved when the compensation received is equal to the ____ of the work performed.
value
3 Types of Pay Equity
External Equity
Internal Equity
Individual Equity
People in similar jobs compare themselves to what others are making in different organizations
External Equity
People compare themselves to peers in different jobs in the same organization
Internal Equity
People compare themselves to others in their organization with the same job
Individual Equity
Pay equity perceptions affect ___ and ___.
work behavior and productivity
Predicts that one's level of motivation depends on the attractiveness of the rewards sought and the probability of obtaining those rewards
Expectancy Theory of Motivation
Expectancy theory holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that is valued. This model predicts that high effort will lead to ____. (expectancy)
high performance
Second, high performance should result in rewards that are appreciated by the ___(valued)
employee
Elements of a compensation package are said to have ____ when an employee's high performance leads to monetary rewards that are valued.
instrumentality
The perceptions employees develop concerning their pay are influenced by the ____ of their knowledge and understanding of the compensation program's strategic objectives.
accuracy
Misperceptions concerning the equity of pay and its relationship to performance can be created by ___about the pay that others receive.
secrecy
Secrecy generates ____ in compensation system, reduces employee ____, and inhibits organizational ____.
distrust
motivation
effectiveness
One of the greatest reasons for pay secrecy is greater freedom in ____. If pay decisions are not disclosed, there is no need to justify or defend them.
compensation management
Secrecy also covers up ____ existing within the internal pay structure.
inequities
Employees are paid according to the number of units they produce
piecework
Covered by the Fair Labor Standards Act (FLSA) and must be paid at a rate of one and a half times regular pay rate for time worked in excess of forty hours in their workweek. Includes most hourly workers.
Non-exempt Employees
Employees not covered by the overtime provision of the FLSA are ____. These include managers and supervisors.
exempt employees
Internal Factors in the Design of the Pay Mix
o Organization's ____
o ____ of a job
o Employee's ___ in meeting job requirements
o Employer's ____
OWWE
compensation strategy
Worth
relative worth
ability to pay
External Factors in the Design of the Pay Mix
o Conditions of the ___
o Area ____
o Cost of living
o _____
o ____ requirements
CACCL
labor market
pay rates
living
Collective Bargaining
Legal
At a minimum, both large and small employers should set pay policies reflecting:
o The internal wage relationship among ___ and ____
o The external competition in __
o Policy rewarding ____
o Administrative decisions concerning ____ such as OT, payment pe
jobs and skill levels
pay
employee performance
elements of the pay system
Organizations without a formal compensation program generally base the worth of jobs on the ____ of people familiar with the jobs. In such cases, typically pay rates influenced by collective bargaining of union.
subjective opinions
Organizations with formal compensation programs rely on a system of ____ to aid in rate determination.
job evaluation
The jobs covered most frequently by job evaluation are clerical, technical, and various blue-collar groups. A job's value should be based on the ____ delivered to the organization.
TOTAL VALUE
____ raises can be awarded if determined by an effective performance appraisal system that differentiates between employees who deserve the raises and those who do not.
Merit
Employer pay levels are limited by earned ____ and other financial resources available to employers.
profits
An organization's ability to pay is determined in part by the ___ of its employees.
productivity
Increases in ___ reduce the number of employees required to perform the work and increase an employer's ability to provide higher pay for those it employs.
capital investment
The labor market reflects the forces of supply and demand for qualified labor within an area. ___ and ___ can affect this.
Government and unions
A measure of the average change in prices over time in a fixed "market basket" of goods and services used in everyday living.
Consumer Price Index
Employees who work under a union contract may receive wage increases through ___ found in their labor agreement. These clauses provide for cost-of-living adjustments in wages based on changes in the CPI. The most common adjustments are 1 cent per hour for
escalator clauses
Collective Bargaining:
The union's goal is to achieve increases in ___ - wages increases larger than the increase in the CPI - thereby improving the purchasing power and standard of living of its members.
real wages
A systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.
Job Evaluation
Relative worth of job determined by comparing it with others within the organization or by comparing it with a scale that has been constructed for this purpose. Can be made on whole or parts that constitute the jobs.
True
Three traditional methods of comparison in job evaluation:
o Rank the value of jobs from __
o Classify jobs so they can be ___ internally or externally
o Award points to each job based on how much they are linked to ____
highest to lowest
benchmarked
organizational objectives
Job valuation helps in designing employee compensation, and in determining whether a job can be contracted to a ___.
local or off-shore company.
The simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.
Disadvantages:
o Does not provide a precise measure of each job's worth
o Final ranking of job indicates the relative importance of the job, n
Job Ranking System
A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades.
� Simple, but less precise than the point system because the job is evaluated as a whole
� Federal civil service job classification bes
Job Classification System
A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.
Point System
Jobs evaluated on compensable factors that constitute a job. Once selected, compensable factors will be assigned weights according to their relative importance to the organization.
Point System
A handbook that contains a description of the compensable factors and the degrees to which these factors may exist within the jobs.
Point Manual
Job evaluation under the point system is accomplished by comparing the job descriptions and job specifications, factor by factor, against the various factor-degree descriptions contained in the manual.
Point System
� A job evaluation system that seeks to measure a job's worth through its value to the organization.
� New system championed to meet the demands of a dynamic business environment.
Work Valuation
Cornerstone for work valuation is that work should be valued relative to the ___ of the organization rather than by an internally applied point-factor job evaluation system.
business goals
� Serves to direct compensation dollars to the type of work pivotal to organizational goals.
� Measured through standards that come directly from business goals.
Work Valuation
A job evaluation technique using three factors - knowledge, mental activity, and accountability - to evaluate executive and managerial positions.
Hay Profile Method
The Hay Profile Method is a technique using three factors ___, ____, and ____ to evaluate the executive and managerial positions.
Knowledge
Mental Activity
Accountability
A survey of the wages paid by employers in an organization's relevant labor market - local, regional, or national, depending on the job. The primary compensation tool used to set pay .
wage and salary survey
It's the wage and salary survey that permits an organization to maintain ___ equity - that is, to pay its employees wages equivalent to the wages similar employees earn in other establishments.
external
Two problems with all published surveys are that:
o They are not always ___ with the user's jobs
o The user cannot specify what __ to collect
compatible
specific data
A curve in a scattergram representing the relationship between relative worth of jobs and pay rates.
� This curve may indicate the rates currently paid for jobs within an organization, new rates resulting from job evaluation, or rates for similar jobs cur
Wage Curve
Groups of jobs within a particular class that are paid the same rate.
Pay Grades
� When the ___ system is used, jobs are grouped into grades as part of the evaluation process.
� When the ___ is used, pay grades must be established at selected intervals that represent either the point or the evaluated monetary value of these jobs.
job evaluation
point system
The grades within a pay structure may vary in number, affected by factors such as the ___ of the wage curve, the ___ and ___ of the jobs within the structure, and the organization's ____ and promotion policies.
slope
number and distribution
wage administration
Can have single rate for each pay grade or provide a range of rates for each pay grade.
� Rate ranges generally are divided into a series of steps that permit employees to receive increases up to the maximum rate for the range on the basis of ___ or ___ o
merit
seniority
Payment rates above the maximum of the pay range. Because these rates are exceptions to the pay structure (high seniority or promotional opps are scarce), employers often "freeze" these rates until all ranges are shifted upward through market wage adjustm
Red Circle Rates
Pay based on an employee's skill level, variety of skills possessed, or increased job knowledge.
Competence-Based Pay
Collapses many traditional salary grades into a few wide salary bands. Organizations that adopt a competency-based or skill-based pay system frequently use this to structure their compensation payments to employees.
Broadbanding
Compensation Assessment
With the right measures, you can:
o Detect compensation ___
o Make compensation decisions more ____
o Improve the alignment of compensation decisions with ___
problems
transparent
organizational objectives
Collects and displays the results for all the measures that a company uses to monitor and compare compensation among internal departments or units. It improves transparency of how people are rewarded and makes managers responsible for how they spend compa
Compensation Scorecard
T or F: Compensation management is subject to state and federal regulations.
True
Three principal federal laws affecting wages: Davis-Bacon Act, Walsh-Healy Act, and ___. Enacted during the 1930s.
Fair Labor Standards Act
o Also referred to as the Prevailing Wage Law
o Oldest of the three federal wage laws
o Requires that the minimum wage rates paid to people employed on federal public works projects worth more than $2,000 be at least equal to the prevailing rates and that
� Davis-Bacon Act of 1931
o Officially called the Public Contracts Act
o Requires contractors to pay employees at least the prevailing wage rates established for the area by the Sec. of Labor and OT at one and one-half times the regular rate for all work performed in excess of eig
Walsh-Healy Act of 1936
� aka Wage and Hour Act
� Covers employees who are engaged in the production of goods for interstate and foreign commerce. Covers ag workers.
� Concerned with minimum wage and OT rates, child labor, and equal rights.
Fair Labor Standards Act
Compression of pay between new and experienced employees caused by the higher starting salaries of new employees; also the differential between hourly workers and their managers.
� Internal pay equity concern
� Means that differences between low and high
Pay Rate Compression
Pay Equity Provisions
Three laws protect employees against pay discrimination:
o Equal Pay Act of 1963 - __ and ___
o Title ___ of the Civil Rights Act of 1964 - race and religion
o Federal ___ - 40 and older
men and women
VII
Age Discrimination