Untitled Quiz

Compensation

• Chapter 1 focuses on pay models
• Chapter 2 focuses on stratetegy
• Chapter 17 focuses on government and legal issues
• Chapter 4 focuses on job analysis

Pay Variation

• Pay varies across different industries
• Luxury retailers have higher margins and operating profits
• Discount retailers have lower margins
• The oil and gas industry has high margins and is capital intensive
• Labor costs represent a higher percentage of total operating expenses, up to 35%, for discount retailers
• Labor costs as a percentage of operating expenses are lower for oil and gas companies
• Food service companies often face profitability struggles
• Labor costs represent a large percentage of the cost structure for food sevice companies
• Food service companies face a challenge to increase productivity

Perspectives on Compensation

• Society views pay/benefits as a measure of equity or justice
• Pay inequalities between men and women exemplify this perspective
• Job losses or gains in a country are partly a function of labor costs
• Some stockholders believe that using stock to pay employees creates a sense of ownership, which will improve performance and subsequently stockholder welath
• Others believe it dilutes shareholder wealth
• Stockholders have an interest in linking executive pay to performance
• Managers see compensation as a major expense that must be managed
• Compensation is also a major determinant of employee attitudes and behaviors
• Employees may view pay as financial security
• Employees may view pay as a return in exchange for work
• Employees may view pay as an entitlement, an incentive, or a reward

Incentive and Sorting Effects

• Pay influences motivation and behavior via two main pathways
• The incentive effect is the degree to which pay influences individual and aggregate motivation
• Sorting effect is the effect pay has on the composition of employees

Definition of Compensation

• Compensation includes all forms of financial returns
• Compensation includes tangible services and benefits employees receive as part of an employment relationship

Total Returns/Rewards

• Total compensation includes pay received directly as cash and indirectly as benefits
• Cash payments can include: base pay, merit pay, cost-of-living (COLA) adjustments and incentives
• Benefits can include: pensions, medical insurance, work/life balance programs
• Relational returns are psychological which include recognition and status, employment security, learning opportunities, and challenging work

Cash Compensation: Base Pay

• Base pay (wage) represents the cash compensation an employer pays for work performed
• Base pay reflects the value of work or skills and ignores differences in individuals
• In the U.S., salary refers to annual or monthly pay for employees exempt from overtime pay
• Non-exempt employees are paid an hourly wage

Cash Compensation: COLA's & Merit Pay

• Cost of Living Adjustments (COLA's) include changes in what other employers are paying for the same work, changes in experience or skill, or chages in living costs
• Merit increases are performance based
• Merit bonuses are performance based given as a lump sum rather than a permanent change in salary

Cash Compensation: Incentives

• Incentives tie pay increases to performance but differ from merit adjustments
• Objective measures of performance are used
• Incentives do not increase base wage and must be re-earned
• Incentives are known beforehand, such as commissions
• Incentives try to influence future behavior, whereas merit rewards past behavior
• Incentives are a one-time payment, therefore, frequently referred to as variable pay
• Incentives may be short- or long-term
• Long-term incentives are in the form of stock ownership or options

Benefits

• Benefits, including income protection, work/life services, and allowances, are also part of total compensation
• Some programs are legally required in the U.S. - unemployment and Social Security
• Work/Life Balance includes time away from work, access to services to meet specific needs, and flexible work arrangements
• Allowances often grow out of whatever is in short supply, such as housing for rotational workers

Relational Returns

• Non-financial returns from work affect employees' behavior
• This includes recognition and status, employment security, challenging work, and opportunities to learn
• This includes personal satisfaction from facing new challenges, teaming with great co-workers, and receiving new uniforms
• Such factors are part of the total return, broader than total compensation

The Pay Model

• The pay model contains policies, techniques and objectives tied together
• The following policies are included: internal alignment, competiveness, contributions and management
• The following techniques are included: work analysis, descriptions, evaluation/internal certification structure, market definitions, surveys, policy lines, pay structure etc
• Objective of the pay model includes efficiency, fairness, compliance and ethics

The Pay Model: Compensation Objectives

• Objectives guide the design of pay systems, standard for judging success of the pay system
• Basic compensation objectives include efficienctly improvin performance, increasing quality, delighting customers & shareholders, or controlling labor costs
• Basic compensation objectives include fairness to recognize employee contributions & needs
• Basic compensation objectives include compliance, following federal & state regulations & laws
• Basic compensation objectives include ethics meaning the organization cares about how it achieves results

The Pay Model: Compensation Objectives (Company Examples)

• Medtronic supports its mission, minimizes fixed costs, attracts/engages talent, emphasizes personal, team, & company performance, recognizes well-bring, and ensures fair treatment
• Whole Foods increases long-term shareholder value and creates capital for growth, prosperity, opportunity, job satisfaction & security
• Whole Foods supports team member happiness & excellence, and acknowledges team outcomes are collective

The Pay Model: Four Policy Choices

• Internal alignment refers to comparisons among jobs or skill levels inside an organization
• Internal alignment pay relationships affect compensation objectives
• External competitiveness refers to pay comparisons with competitors and affect objectives in two ways
• Employees must perceive their pay as competitive or they may leave, controlling labor costs keeps the company's products competitive
• Employee contributions or nature of the pay mix is a key decision
• External competiveness and empolyee contribution decisions are made jointly
• Management means ensuring the right people get the right pay for achieving the right objectives in the right way

Pay Model in Practice

• Techniques tie the objectives to the policy

Commonalities of Strategies

• Google continues to position itself as a feisty startup with stock options & benefits beyond the norm
• Nucor Steel emphasizes high productivity, high quality, and low cost with bonuses that raise wages above average and has no layoffs
• Merrill Lynch relies heavily on human capital and pays to attract, motivate, and retain the best talent
• Google, Nucor Steel, and Lyril Lynch all have pay strategies that support their business strategies

Differing Strategies

• Different tech companies approach compensation differently
• Google gives generous stock options and unique benefits
• Google also offers more financial compensation than other tech companies
• Microsoft scaled back stock awards and replaced them with cash
• SAS offers a better work/life balance which includes a 35-hour work week & lower cash compensation than other tech companies

Business Model & Strategy

• Corporate objectives, strategic plans, vision, and values dictate what business should be in
• Business unit strategies describe how to win (gain competitive advantage) in those businesses
• HR strategies determine how HR should help
• Social, competitive, and regulatory environments determine how total compensation helps
• These factors lead to compensation systems and the result is ultimately employee attitudes and behaviors
• Strategy refers to the fundamental direction(s) an organization chooses

Business Model Strategies

• Innovator strategy increases product complexity, shortens product life cycle, rewards innovation, is agile, and uses market-based pay
• Cost Cutter strategy focuses on efficiency, pursues cost-effective solutions, emphasizes system control, and values jobs and skills based on cutomer contact
• Customer Focused strategy delivers solutions to customers, delights the customer to exceed expectations, and has system control work specificiations

Compensation & Business Model Strategy

• Compensation that supports an innovator strategy places less emphasis on evaluating skills/jobs and emphasizes incentives
• When focusing on efficiency the system details steps in a job and uses variable pay
• Customer focused strategies on stresses delighting customers and bases employee pay on how well they do this

Support HR Strategy

• Researchers Boxall and Purcell found a commonly used performance theory they refer to as "AMO theory."
• Performance (P) is a function (f) of three factors: ability (A), motivation (M), and opportunity (0)
• Compensation is key to attracting, retaining, and motivating employees with the abilities necessary to execute the business strategy
• Compensation strategy and HR strategy are central to successful business strategy execution

Strategic Pay Decisions

• A goal is to look at how compensation should support business strategy and adapt to the cultural and regulatory pressures in a global market
• A goal iis to decide how differently different types and levels of skills and work be paid within the organization
• A goal is to evaluate how should total compensation stack up against competitors and what forms of compensation should be used
• It is importmant to determine if pay increases should be based on individual and/or team performance, on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal needs, and/or on each business unit's performance
• These strategies are the five strategic compensation choices managers face

Five Strategic Competencies

• Increase shareholder value, satisfy and delight customers, and seek employees who will help the company make money by settingobjecties
• Establish internal aligment
• Offer a unique total compensation package compared to competitors through external competiveness
• Use a shared fate technique and monthly performance to effect team pay for enployee contributions
• Maintain open communication through management

Compensation Policy

• A compensation strategy lays out the organization's point of view on how it will determine pay and benefits for employees

Key Steps in Formulatiing a Total Compensation Strategy

• Assess total compensation implications, understanding the HR strategy and other systems
• Map a total compensation strategy with objectives are aligned to increase competitiveness with contributions and good management
• Implement a strategy to ddesign a system to translate strategy into action and to fit strategy
• Reallign condisitions if the conditions or strategy changes

Competitive Advantage

• Competitive advantage can be achieved through having compensation well alligned
• Important to differentiate how the pay system is managed
• Must have a ROI on the pay investements

Shared Outcomes

• Performance is best when shared success and practices are in place
• If performancee is in decline, payment of pay performance may have negitive effects

US Government

• There are 3 ranches of the US Government
• Legislative (Makes laws, e.g. congress, senate, house of representatives)
• Executive (cars out the laws, e.g president, vice president and cabinet)
• Judicial (interprets laws, e.g supreme court, others federal courts)

Government Role

• The 3 branches of federal government play a role in the legal and regulatory framework of compliance
• Legislative branch passes laws, executive branch enforces laws and the judicial branch interprets laws
• There are also state and local laws
• Compliance issues fall into two areas: Employment discrimination and wage and hour issues

Government interests in compensation are:

• Procedures for determining pay are fair (pay discrimination)
• Safety nets for unemployed and disadvantaged are sufficient
• Employees are protected from exploitation

Fair Labor Standards Act (FLSA) - 1938

• FLSA’s major provisions address minimum wage, hours of work (including overtime), recordkeeping, and child labor
• Requires that records be kept of employees, their hours worked, and their pay
• Employers have paid billions of dollars resulting from FLSA lawsuits and enforcement activity by the DOL Wage and Hour Division

Minimum Wage Legislation

• Minimum-wage legislation is intended to provide an income floor for workers in society’s least productive jobs
• It was enacted in 1938 at a rate of 25 cents per hour, now at $7.25 with the last increase in 2009
• Is at $11.00 in AR, effective 01/01/21

Overtime

• FLSA requires time-and-a-half for over 40 hours per week
• State laws may go beyond FLSA, with “employees working more than 8 hours a day are eligible for overtime”
• Some employees may be exempt from overtime, meaning they are not eligible to receive overtime because their job qualifies and is paid a salary vs by the hour
• One of the qualifications is that the pay must be $684/wk or $35,568 annually

Overtime:

• Breaks are not required; though are paid by the employer (e.g., 5-20 min) – may vary by state
• The Portal-to-Portal Act provides that time spent on activities before beginning the "principal activity” is not compensable
• The Worker Economic Opportunity Act allows stock options and bonuses to be exempt from inclusion in overtime pay calculations
• Private sector employers are not allowed to offer 'comp time'

Exemptions

• FLSA has strict criteria that, if met, allows certain jobs to be exempt from minimum-wage and overtime provisions
• Must have salary on basis salary and fulfilll job specific reuirements for:
• Exectutive (managing and directing 2 employees)
• Administrative (performance of office)
• Professional (requiring advanced knowledgeq <BR>https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fs17a_overview.pdf

Employee vs Independent Contractor

• Employers must pay Social Security, unemployment, and workers' compensation taxes on wages and salaries
• Must do a six factor test, effective January 2024

Prevailing Wage Laws

• Prevailing wage laws set pay for work done to produce goods and services contracted by the federal government
• Prevents contractors from using their size to drive down wages
• To comply, contractors must determine the "going rate" for construction labor in the area
• It distorts market wages and drives up cost of government projects

Equal Pay Act

• The Equal Pay Act (EPA) of 1963, part of FLSA, forbids wage discrimination on the basis of gender for equal work
• Jobs are equal if they require equal skill, effort, and responsibility and are performed under similar working conditions
• Differences in pay are legal if differences are based on any of four criteria, called an affirmative defense
  • Seniority
  • Merit or quality of performance
  • Quality or quantity of production
  • Some factor other than sex

Schultz v. Wheaton Glass, 1970

• Two job classifications existed for the same job – male and female
• The female job paid 10% less than the male job
• The court ruled jobs need only be substantially equal, not identical
• The actual work performed must be used to decide job equality

Equal Pay

• Factors other than sex include shift differentials, temporary assignments,bona fide training programs,differences based on ability, training, or experience and other reasons of “business necessity."
• Regarding "reverse” discrimination when adjusting women's pay viewed collectively, the courts have provided reasonable interpretations of the Equal Pay Act though, 58% of all women are in jobs not equal to jobs of men
• 58% of all women are in jobs not covered by the Equal Pay Act

Title VII

• Title VII prohibits discrimination on the basis of sex, race, color, religion, or national origin in any employment condition
• The Age Discrimination in Employment Act (ADEA) employers cannot discriminate against workers age 40 and above
• Americans with Disabilities Act (ADA) prohibits employers from discriminating against people with disabilities in all employment-related activities

Title VII

• Title VII cases typically focus on differences in pay, promotions, pay raises, and performance reviews
• The Lilly Ledbetter Fair Pay Act increased compliance challenges and discrimination occurs, starting a new statute of limitations, each time a discriminatory paycheck is issued

Title VII: Differing Theories

• Disparate Treatment applies different standards to different employees, examples include asking women but not men if they plan to have children
• Disparate Impact is where practices having a differential effect are illegal unless work-related differences as decided in Griggs v. Duke Power Co -With this intent to discriminate is irrelevant

Family Medical Leave Act (FMLA)

• The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of insurance coverage

Pay Equity

• Job evaluation has become an importaint standard because pay differences for dissimilar jobs may reflect discrimination
• In addition, a second approach to determining pay discrimination on dissimilar jobs hinges on finding a standard to compare the value of jobs where it must permit jobs with dissimilar content to be declared equal but also permit pay differences for dissimilar jobs that are not comparable

Comparable-Worth Plans

• To enact comparable-Worth Plans it is key to adopt a single "gender neutral" point job evaluation plan for all jobs within a unit
• All jobs with equal job evaluation results should be paid the same
• Next, identify the percent of male/female employees in each job group
• Finally, The wage-to-job evaluation point ratio should be based on the wages paid for male-dominated jobs

Laws that Prohibit Discrimiation:

• Title VII of the Civil Rights Act
• Americans with Disabilities Act
• Age Discrimination in Employment Act

Affirmative action plans

• Written affirmative action plans
• Desk audits and in person investigations
• Complaints

Compliance

• Compliance is for laws and regulations, can be a constraint and/or an opportunity for a compensation manager where they can communicate changes to the workforce
• The fair treatment of all employees is the goal of a good pay system, the same goal of legislation

Job Analysis

• Is the systematic method of discovering and describing differences and similarities among jobs
• Produces a job description; is the list of tasks, duties, and responsibilities that make up a job
• Provides job specifications, summarizing the characteristics of someone able to do the job well

Job Analysis Types

• Job Based looks at what people are doing and the expected outcomes
• Skills based focus on what people are doing and the expected outcomes

Job vs Person Analysis

• Look at internal structure, and the job relations and perform a job analysis
• The next step is to create a job evaluation and comparison
• Need to define what value it truly holds
• Collect and Summarize and add similarities

Job Summary (Example)

• Accountable for the complete spectrum of patient care from admission through transfer or discharge through the nursing process of assessment, planning, implementation, and evaluation and has primary authority to fulfill responsibility of the nursing process

Job Content

• Provides the underlying information and identifies the content of the job, leading ultimately to an internal structure
• For evaluations, descriptions and structure

Job family

• Broadly similar jobs combine into a job family
• Example: HR Director, Recruiter, HR Generalist

Task

• Is the smallest unit of analysis, a specific statement of what a person does:
• Example: Answer the phone

Job descriptions:

• A way to standardize tasks in a work environment

Information Needs

• Should be a review of titles,duties, task dimensions and work flows and whether it is accurate
• Collect sufficient information to adequately identify,define, and describe a job and to categorize it and relationships

Typical Data Collected for Job Anaylsis:

• Job Identification: Job Title and Department
• Job Conent: Acrtions, activities, constraints and performance criteria and conditions
• • **Employee Characteristics:**Manual skills, verbal skills,Written skills
• • Employee Connections: Bosses, Peers, suboordinates

Components Needed for Job Analysis

• Job identification includes job titles, departments, the number of people who hold the job and whether it is exempt from the Fair Labor Standards Act
• Job content is the heart of job analysis wwith units if work with emphisis on task

Tasks

• “Perform What (Action)? + to Whom? or What? + to produce What or Why? How?”

• Tips for Job Analysis can be more general, not very specific, and do use abbrevations

Task Data reveals the Actual Werk

• Need to audits and employee time records

Essential information is provided if an applicant an and is consistent

Methodology

• Conventional methods of questionerrie and observation
• • Quantitative methods move the questionnaire online for a quantitative method
• Questions assessed in order of importance to job

Information Collection for Analysis

• Knowledge Working conditions Questions grouped around 5 compensable factors Accountability

• Communication Reason