Employee Compensation Principles

Study Notes

• Wages: Payments calculated directly based on time worked by employees.
• Commission: A percentage of revenue generated by sales, given to an agent or salesperson.
• Garnishment: A court order directing an employer to withhold a portion of an employee's wages to pay a debt.
• Pay Survey: Data collection on compensation rates for similar jobs in other organizations.
• Compa-ratio: Pay level divided by the midpoint of the pay range.
• Claw-back Provision: Permits an organization to recover rewards earned through unethical or negligent actions.
• Gain Sharing: System of sharing profits exceeding expectations with employees.
• Consumer Credit Protection Act: Regulations that limit wage garnishment and restrict employer termination rights for employees whose pay is subject to a garnishment order.
• Market Pricing Method: Uses market data to identify the relative value of jobs based on what other employers pay for similar jobs.
• IRS Independent Contractor Status: Criteria for independent contractor status is established by the Internal Revenue Service (IRS). The general principle is that a company may control only the result of the work being contracted but not "what will be done" or "how" it will be done. Factors the IRS considers include the amount of behavioral and financial control a company exercises.
• Inputs: Time, effort, loyalty, commitment, skill, knowledge, and enthusiasm (equity theory)
• Outputs: Pay, job security, benefits, praise, recognition, and thanks (equity theory).
• Performance Philosophy of compensation: Compensation decisions that reflect performance differences, with pay raises and incentives structured to reward performance.
• Entitlement Philosophy of compensation: Assumes employees are entitled to pay raises regardless of performance. Increases are based on length of service.
• Pay Grades: Groupings of jobs with similar values to the organization (generally 11-17 grades in smaller organizations).
• Pay Ranges (Scales): The minimum and maximum pay rates for each job grade are established using market data, and the midpoint is computed by averaging.
• FLSA overtime pay requirements: Non-exempt employees are entitled to 1.5-times the regular pay rate for hours worked over 40 in a week, but there are exceptions for farm workers and others.
• Dodd Frank Act and “Say-on-pay”: Executive compensation is handled differently than non-executive compensation and is subject to shareholder approval.
• Discretionary Bonus System: Bonuses are tied to performance results. Rewards are higher when performance improves.
• Organizational Incentive System: Systems that tie employee compensation to organizational performance, often including profit sharing or employee stock plans.
• Individual Incentives: Incentives that tie an employee's personal effort to additional rewards (piece-rate, bonuses, etc.). Conditions include identifiable performance, desirability of competition, a supportive organizational culture, and employee control over production pace.
• Team Incentives: Incentives that distribute rewards equitably to team members. Rewards distribution is frequently equal or equitable.
• Organizational Incentives: Compensates all employees according to overall organizational performance, driving company-wide efforts and cooperation (profit sharing, employee stock options).
• State Minimum Wage: If a state's minimum wage is higher than the federal minimum wage, the state wage must be paid.
• Pay Adjustment Matrix: A matrix that integrates performance appraisal ratings with pay changes. The matrix considers performance ratings and pay range quartiles to determine pay increase eligibility.
• HIPAA: Health Insurance Portability and Accountability Act regulations ensure employee rights related to health insurance plans while individuals change jobs, prohibiting the denial of coverage due to pre-existing conditions.
• Managed Care: Approaches used to control medical costs through restrictions and market alternatives.
• Serious health conditions under FMLA: Conditions requiring inpatient care or ongoing treatment.
• ADEA amendment: Protects employees from mandatory retirement at a specific age.
• Medicare: A government-run health insurance program for people over 65 or with disabilities.
• Paid Time Off (PTO): Combines sick leave, vacation, and holidays in a single framework.
• Bereavement Leave: Allows employees paid time off to deal with the death of immediate family members.
• COBRA: Requires most employers to make health-insurance options available to their employees or former employees during certain life events.
• Stock Purchase Plans: Plans allowing employees to buy company stock at a discount.
• Workers' Compensation: Provides benefits to workers injured on the job; covers medical care, rehabilitation, and temporary salary lost. Employers must fund the program and employees cannot sue employers for injuries that occurred during work.
• Defined Contribution Plan: A retirement plan in which the employer and/or employee makes contributions to a fund.
• Cumulative Trauma Disorders: Injuries resulting from repetitive and physically demanding activities.
• Wellness Programs: Programs aimed at increasing employee health before serious problems develop.
• Ergonomics: Study of the worker's environment to determine the most ergonomic configuration for work that the work may affect physical demands on individuals.
• Restricted Duty: Another key component of returning to work programs, restricted duty requires employees to work limited hours and fewer physical demands.
• Safety Management Approaches: Engineering (preventing accidents through design), systems (integrated approach to injury prevention), organizational (policies and training), individual.
• Accident Investigation Process: Steps taken to investigate causes of workplace accidents.
• Early Warning Signs of Workplace Violence: Indicators of escalating workplace violence situations.
• OSHA Compliance: Employers are required to comply with OSHA regulations regarding hazardous chemicals, including proper labeling, communication, and evaluation.
• Child Labor Laws: The minimum age for most employment is 16, with exceptions for specific activities and age groups.
• Flexible Benefits Plan: Employee choices from a set of options for health care benefits, retirement, and other employee benefits.
• Intercultural Competence Training: Training that helps employees working internationally. Training covers emotional intelligence, behavioral competencies, and cognitive awareness, along with intercultural sensitivity to varying cultures.
• Drug-Free Workplace Act: Federal regulations requiring contractors to have policies that prevent employee drug use.
• Disciplinary Processes: Correcting employee performance problems and, if necessary, terminating employment. Progressive discipline is important and consistent follow up methods.
• Formal Employment Contracts: Contracts defining employment terms and conditions; often used in high risk or high compensation situations.
• Company Business Models: Options like franchising, mergers, or joint ventures.
• Cultural Orientations: Ways of doing business unique to different countries (ethnocentric, polycentric, regiocentric, geocentric)
• Globalization: The increasing interconnectedness of businesses and economies worldwide.
• International Justice: Measuring fairness in employment decisions' and processes.
• International Compensation Approaches: How compensation is adjusted globally.
• Repatriation Focus: Considerations for employee needs when returning to the home country from a foreign assignment.
• Demographic Trends Analysis of age, population trends and migration patterns in different parts of the world.
• Criticism of Globalization: Concerns around labor practices, working conditions, and wage disparities in certain countries.

This quiz covers essential concepts related to employee compensation, including wages, commission structures, garnishment processes, and pay surveys. You'll also explore gain-sharing, compa-ratio, claw-back provisions, and important regulations such as the Consumer Credit Protection Act. Test your knowledge on these critical aspects of employee remuneration.