BUSMHR 3200 Professor Lount, Book Study Guide: DesslerDessler Chapter Seven: Compensating EmployeesEmployee Compensation - All forms of pay or rewards going to employees and arising from their employment o Direct financial payments in form of wages salaries incentives commissions and bonuseso Indirect payments in form of financial benefits like employer-paid insurance and vacations o Total rewards encompass tradition pay incentives and benefits Important Compensation Laws- Fair Labor Standards Act (FLSA) – minimum wage, maximum hours, overtime pay, equal pay, recordkeeping, child labor provisions covering most US workers - Exempt/Nonexempt – specific jobs are exempt from overtime pay dependent on responsibilities duties salaries - 1963 Equal Pay Act – employees of one sex may not be paid wages at lower rate then paid to employees of opposite sex for roughly equivalent work o If work requires similar skill effort responsibility and performed under similar working conditions employees of both sexes must receive equal pay unless based on seniority. Merit, quantity or quality of production or any factor other than sex - 1964 Civil Rights Act – unlawful for employer to discriminate against and individual with respect to hiring compensation terms conditions or privilege of employment because of race color religion sex or national origin - Age Discrimination in Employment Act prohibits age discrimination against employees who are 40 +- Americans with disabilities Act – prohibits discrimination against qualified person with disabilityHow Employers establish Pay Rates?- Employers strategy and compensation policies significantly affect wages and benefits it pays- Basis for salary increases, foreign pay differentials, overtime pay policy, locality - Distinguishing between high and low performers - What skills and performance does achieving strategic goals require and do our compensation policies make sense in terms of producing skills and performance?o Should produce an aligned reward strategy with total package including wages incentives benefits that produces employee behaviors the firm needs to support and achieve competitive strategy - Maintaining equity: must compare with rates in other companies or hard to attract qualified employees/internally - Setting pay rates while ensuring external and internal equity:o Determine worth of each job in organization through job evaluation Job evaluation – formal and systematic comparison of jobs to determine worth of one job relative to another 1BUSMHR 3200 Professor Lount, Book Study Guide: Dessler Compensable factors – compare jobs by determining how much of certain basic factors job has- Factors that determine how jobs compare to each other Job Evaluation Methods :- Job ranking method – ranks each job relative to all other jobs (job difficulty)- Job classification method – categorize jobs into groups based on similarity in terms of compensable factors such as skill and responsibility categories o Classes if contain similar jobs and grades if jobs similar in difficulty - Point method – quantitative job evaluation technique involvingidentifying compensation factors and deciding how many degrees each job contains o Group similar jobs into pay groups Pay grade comprises jobs of approx equal difficulty/importance as determined by job evaluation o Price each pay grade with wage curve Assign average pay rates to each of pay grades with help of wage curve – shows average pay rates currently paid for jobs in each pay grade relative to points assigned to each job- Relationship between value of each grade and current average pay rateso Conduct salary survey of what other employers are paying comparable jobs Salary survey – formal or informal survey of what other employers are paying for similar jobs Used to price benchmark jobs (anchor pay scale to slot other jobs around this) Price 20% or more of their positions directly in marketplace Collect data on benefits such as insurance sick leave and vacations o Compare and adjust current and market wage rates for jobs or grades Compare internal wage curve (what we are now paying for jobs grouped in each grade) to external wage curve (what others are paying for these same jobs o Develop rate ranges for each gradeIncentive Plans - Individual incentive programs give performance based pay to individual employees- Team based incentives aim to incentivize work teams- Variable pay refers to group pay plans that tie payments to productivity or some other measure of firms profit - Productivity – ratio of outputs divided by inputs Piecework Plans- Person is paid piece rate for each unit he or she produces 2BUSMHR 3200 Professor Lount, Book Study Guide: DesslerGroup Incentive Plans- Pay groups when want to encourage teamwork/pay all members same incentive based on overall performanceIncentive for Managers and Executives - Managers play central role in influencing divisional and corporate profitability and most firms put considerable thought into how to reward them (pay package direct towards accomplishing company goals)Stock Option - Stock option is right to purchase specific number of shares of company stock at specific price during specific period o Performance contingent restricted stock – executive receives shares when meets performance targeto Restricted stock plans – awards right to shares w/o cost to executive but employee restricted from acquiring shareso Indexed options – if company’s stock doe no better than market index managers options are worthlesso Premium priced – exercise price higher than stocks closing price on date of the grant so executive cant profit from options until stock makes significant gains o Phantom stock plans – executives receive not shares but units and later receive appreciation valueMerit Pay- Any salary increase awarded to employee based on individual performance- Becomes part of employees base salary whereas bonus is one-time pay- Advocates: rewards tied directly to performance can motivate performance - Detractors: undermine team work and since merit pay typically depends on performance appraisal unfair appraisals lead to employees perceive pay as unfair too Profit-Sharing plans- Most employees receive share of company’s annual profits Employee Stock Ownership Plans- Company wide plans in which corporation transfers shares of own stock or cash to purchase such stock to trust established to purchase
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