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What is the primary focus of Equity Theory?
What is the primary focus of Equity Theory?
Direct compensation includes employee benefits like health insurance.
Direct compensation includes employee benefits like health insurance.
False
What is the term used to describe a systematic approach to providing monetary value to employees?
What is the term used to describe a systematic approach to providing monetary value to employees?
Compensation
______ Theory emphasizes how the perceived value of rewards influences satisfaction.
______ Theory emphasizes how the perceived value of rewards influences satisfaction.
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Match each compensation theory with its main focus:
Match each compensation theory with its main focus:
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Which of the following is considered a component of indirect compensation?
Which of the following is considered a component of indirect compensation?
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Salary is defined as a fixed regular payment based on an employee's specific position.
Salary is defined as a fixed regular payment based on an employee's specific position.
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What is meant by a flexible compensation package?
What is meant by a flexible compensation package?
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What type of bonus is typically awarded to long-tenured employees to decrease their flight risk?
What type of bonus is typically awarded to long-tenured employees to decrease their flight risk?
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Performance appraisals only serve to decide employee promotions.
Performance appraisals only serve to decide employee promotions.
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What are non-discretionary bonuses focused on?
What are non-discretionary bonuses focused on?
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A ___________ bonus rewards employees based on the improvement of team-specific goals.
A ___________ bonus rewards employees based on the improvement of team-specific goals.
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Match each type of bonus to its primary focus:
Match each type of bonus to its primary focus:
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What does the term "salary" refer to?
What does the term "salary" refer to?
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Which of the following is NOT an advantage of a pay-for-performance plan?
Which of the following is NOT an advantage of a pay-for-performance plan?
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Hourly wages are calculated based on the total hours worked by an employee.
Hourly wages are calculated based on the total hours worked by an employee.
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Compensation philosophy explains how a company will implement its compensation strategy.
Compensation philosophy explains how a company will implement its compensation strategy.
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Name one significant advantage of conducting performance appraisals.
Name one significant advantage of conducting performance appraisals.
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What is the main purpose of incentive pay?
What is the main purpose of incentive pay?
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Employee stock options are a type of __________ compensation.
Employee stock options are a type of __________ compensation.
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Match the type of compensation with its definition:
Match the type of compensation with its definition:
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Which of the following is NOT considered a form of nonmonetary compensation?
Which of the following is NOT considered a form of nonmonetary compensation?
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Merit pay increases are typically awarded annually based on exceptional performance.
Merit pay increases are typically awarded annually based on exceptional performance.
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What are spot bonuses?
What are spot bonuses?
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What does a job-based pay structure emphasize?
What does a job-based pay structure emphasize?
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Fairness and equality in pay should not vary based on personal characteristics.
Fairness and equality in pay should not vary based on personal characteristics.
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What is meant by 'external competitiveness' in pay?
What is meant by 'external competitiveness' in pay?
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The _____ product of labor refers to the additional output associated with employing one more worker.
The _____ product of labor refers to the additional output associated with employing one more worker.
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Match the following pay policies with their descriptions:
Match the following pay policies with their descriptions:
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What happens in a wide pay level structure?
What happens in a wide pay level structure?
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The labor supply model assumes that people have accurate information about all job openings.
The labor supply model assumes that people have accurate information about all job openings.
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Name one organization factor that affects pay levels.
Name one organization factor that affects pay levels.
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What is one potential consequence of a lag pay level policy?
What is one potential consequence of a lag pay level policy?
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A pay structure defines the payment for each individual and their role based solely on market rates.
A pay structure defines the payment for each individual and their role based solely on market rates.
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What are the three types of consequences associated with pay level and mix decisions?
What are the three types of consequences associated with pay level and mix decisions?
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A pay structure that has far fewer and wider bands compared to traditional graded structures is known as __________.
A pay structure that has far fewer and wider bands compared to traditional graded structures is known as __________.
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Match the tools used for performance appraisal with their descriptions:
Match the tools used for performance appraisal with their descriptions:
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What does a pay policy line reflect?
What does a pay policy line reflect?
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Job family structures assign jobs based solely on salary requirements.
Job family structures assign jobs based solely on salary requirements.
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List two advantages of performance appraisal.
List two advantages of performance appraisal.
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Study Notes
Compensation
- Compensation is a systematic approach to providing monetary value to employees for their work.
- It's a tool used by management to advance the company.
Salary
- A consistent payment by an employer to an employee based on a specific position's work.
Wages
- A fixed regular payment, typically paid on a daily or weekly basis.
Concept of Compensation
- Individual worth: The value of an individual performing a job can vary depending on skills, knowledge, expertise, and behavior.
- Level to Company: The employer wants employees to ensure a return on investment through consistent performance.
- Flexible Compensation Package: Employees are offered compensation structures with a range of benefits to choose from.
Types of Compensation
- Direct Compensation: Financial (monetary) form of compensation.
- Indirect Compensation: Employee benefits or perks of the job.
Different Types of Compensation Theories
- Classical Theory: Concentrates on job content and management of physical resources. Adam Smith's "Wealth of Nations" (1776) is considered the start of classical economics.
- Neo Classical Theory: Contends that pay levels tend toward equality.
- Equity Theory: Focuses on the fairness of the compensation system.
- Porter-Lowler Theory: States that the perceived value of reward is determined by intrinsic and extrinsic rewards.
- Vroom Expectancy Theory: Emphasizes the complexities of motivation. This theory states that felt needs cause human behavior.
- Reinforcement Theory: Focuses on the consequences of actions rather than underlying needs or preferences.
Employee Compensation
- Refers to payments received by an employee from an employer including salary, wages, benefits, and variable pay.
Types of Employee Compensation
- Salary: A fixed regular payment given to employees on a weekly, bi-monthly, or monthly basis.
- Hourly Wages: The amount received by an employee for each hour worked.
- Sales Commission: An amount of money an employee receives upon selling company products, in addition to their standard salary.
- Tips/Tip Income: Also called gratuity, a sum of money given to a worker for services rendered.
- Stock Options: Employee stock options (ESOs) are a type of equity compensation granted by companies to employees and executives.
- Incentive Pay: Used to encourage employees to achieve a higher standard.
- Bonuses: Additional compensation given by the company in addition to salary or hourly wages.
- Overtime Pay: Additional payment for working beyond scheduled regular working hours.
- Benefits: Payments or gifts made by an employer for the welfare of employees.
- Nonmonetary Compensation: Recognition, meals, flex-time, time off, free or discounted parking, mentoring programs, childcare, etc.
Pay-for-Performance Plan
- A method of compensation where workers are paid based on productivity, opposed to hours worked or a set salary.
Types of Pay-for-Performance Plans
- Merit Pay Increases: Salary boosts awarded to employees for exceptional performance, typically given annually.
- Variable Pay Programs: Include various bonuses that can change based on eligibility, payout periods, and performance metrics.
-
Discretionary Bonuses: Awarded on an ad-hoc basis to employees who demonstrate exceptional performance, often without pre-defined goals.
- Spot Bonuses: Reward employees "on the spot" for achievements that deserve special recognition.
- Project Bonuses: Reward employees for completion or superior completion of a specific project.
- Retention Bonuses: Typically awarded to long-tenured employees or employees in hot jobs, to decrease their flight risk.
-
Non-Discretionary Bonuses: Incentives are rewards given to employees, teams, or organizations for achieving specific goals.
- Company-Wide Bonuses: Reward employees based on how much improvement is made on company-wide goals within a certain period.
- Team-Incentive Bonuses: Focus on specific improvement goals for one team and are rewarded based on that team's performance.
- Individual Incentive Bonuses: Plans often based on predetermined, measurable business objectives (MBOs) that are evaluated periodically based on an individual's performance.
Advantages of Pay-for-Performance Plans
- Unlimited Compensation: The potential for compensation is unlimited based on performance.
- Increased Motivation: Pay-for-performance plans motivate employees to perform better.
- Flexibility: Flexibility to adjust compensation based on business needs.
- Increased Productivity: Pay-for-performance plans lead to higher levels of productivity.
- Better Retention: Employees are more likely to stay with the company if they are rewarded for their performance.
Performance Appraisal
- A systematic evaluation of the performance of employees to understand their abilities.
Advantages of Performance Appraisal
- Promotion: Performance appraisals inform promotion decisions.
- Compensation: Feedback from performance appraisals informs salary increases and bonuses.
- Employee Development: Performance appraisals provide employees with feedback on their strengths and weaknesses.
- Selection Validation: Performance appraisals help validate selection processes.
- Motivation: Performance appraisals can motivate employees to improve their performance.
- Communication: Performance appraisals promote communication between managers and employees.
Performance Appraisal Tools
- Ranking: Employees are ranked according to their performance.
- Paired Comparison: Employees are compared to each other in pairs.
- Forced Distribution: A predetermined percentage of employees are placed into each performance category.
- Confidential Report: A confidential review of an employee's performance.
- Essay Evaluation: An essay-style evaluation of an employee's performance.
- Critical Incident: A record of specific examples of an employee's performance.
- Checklists: A list of important aspects of an employee job for evaluation.
- Graphic Rating Scale: A scale that allows for numerical rating of specific performance dimensions.
- BARS (Behaviorally anchored rating scale): Defines each performance level with specific behavioral examples.
- Forced Choice Method: Requires selecting from a set of statements that represent different performance levels.
- MBO (Management by objectives): Employees set specific goals in collaboration with their managers.
- Field Review Technique: Involve feedback from peers, customers, and other relevant stakeholders.
- Performance Test: Involves employees completing tasks to demonstrate their skills.
Compensation Philosophy
- Represents the "why" behind a company's compensation approach.
- It sets guiding principles and long-term goals for how the company will compensate its employees.
Compensation Strategy
- Outlines the "how" and "what" that operationalize the compensation philosophy.
- It's a comprehensive plan and methods used to achieve the compensation philosophy.
Compensation Plan
- A detailed "roadmap" that implements the compensation strategy.
- It provides specific guidelines and structures for day-to-day compensation decisions.
Prevailing Wages
- Pay rates that are standard for a particular job or industry in a specific geographic location.
Job Base Pay Structure
- A system where pay is determined based on the job's value to the organization.
Pay-for-Value
- In a job-based pay structure, you are paid for the value of the work you perform for the company.
Fairness and Equality
- Pay theoretically shouldn't vary based on personal qualities but solely on job value and performance.
Clear Steps to Higher Pay
- A job-based pay structure provides clear pathways for salary increases through promotions and skill development.
Pay Comparisons
- Job-based pay structures facilitate easy comparison of pay between different employees performing similar roles.
External Competitiveness
- Refers to the pay relationship between an organization and its competitors.
Pay Level
- Used to denote differences in compensation due to the smallest possible change in job specification.
Pay Level Types
- Close Pay Levels: When pay levels are close, differences between two job levels in terms of job specification become very thin.
- Wide Pay Levels: In this pay structure, pay levels are separated by wide differences in job specification. This can result in employees remaining in the same pay level for longer periods.
Pay Mix
- The ratio of base salary and target incentives that make up target total cash compensation.
Labor Demand
- The number of people an employer will hire.
- Analysis of labor demand is essential for determining pay levels.
Marginal Product
- The additional output associated with the employment of one additional human resource unit.
- Other production factors are held constant.
Marginal Revenue
- The money generated by the sale of the marginal product.
- It's the additional output from the employment of one additional person.
Labor Supply Model
- Assumes that many people are seeking jobs and possess accurate information about job openings.
Product Market Factors That Influence Pay Levels
- Product Demand: Sets a limit on the maximum pay level an employer can set.
- Degree of Competition: In highly competitive markets, employers have less ability to raise prices without losing revenue.
Organization Factors That Influence Pay Levels
- Industry and Technology: The type of industry and the level of technological advancement can influence pay levels.
- Employer Size: Larger companies typically have higher pay levels.
- People's Preferences: The preferences of potential employees can influence pay levels, including work-life balance, benefits, and career advancement opportunities.
- Organization Strategy: The company's overall strategy can influence pay levels, such as growth, cost reduction, or customer service.
Competitive Pay Policy Alternatives
- Pay With Competition (Match): Ensures that an organization's wage cost is equal to its labor market competitors.
- Lead Pay-Level Policy: Maximizes the ability to attract and retain quality employees and minimizes employee satisfaction with pay.
- Lag Pay: Coupled with the promise of higher future returns, this combination can increase employee commitment, foster teamwork, and increase productivity.
Consequences of Pay Level and Mix Decisions
- Efficiency: Can impact the company's efficiency and profitability.
- Fairness: Can impact employee morale and motivation.
- Compliance: Pay level and mix decisions must comply with legal requirements.
Designing Pay Levels, Mix, and Pay Structures
- Interpret Survey Results and Construct the Market Line: Analysis of market pay data to set a competitive pay level.
- Construct a Pay Policy Line: Reflect external pay policy.
- Balance Competitiveness With Internal Alignment: Through the use of ranges, flat rates, and/or bands.
Pay Structure
- A system that defines how much each individual and each role is paid based on their value to the business and their effectiveness.
- Also known as salary structures. They set out different pay levels for jobs, or groups of jobs, based on skills, experience, and responsibilities.
Types of Pay Structures
- Graded Structures: Use pay grades to group jobs with similar value based on skill, experience, and responsibilities.
- Broadband Structures: Similar to graded structures but with fewer, broader bands. The maximum of the band can be 100% or more above the minimum.
- Job Family Structures: Each job family has a different graded structure. Jobs are allocated a job family based on activities carried out, skills, and competencies.
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Description
This quiz covers essential concepts related to compensation, including salary, wages, and the various types of compensation structures. It explores how compensation serves as a tool for both employees and management, along with various compensation theories. Test your knowledge on the systematic approaches to providing monetary value to employees.
