Dessler Chapter 7 BUSMHR 3200 Notes Part 3 Employee compensation all forms of pay or rewards going to employees and arising from their employment o Direct Financial Payments wages salaries incentives commissions and bonuses o Indirect Payments financial benefits like employer paid insurance and vacations o Total rewards encompass traditional pay incentives and benefits but also things such as employee recognition programs and more challenging jobs o Four factors that determine pay legal union policy and equity factors Important compensation laws o 1938 Fair Labor Standards Act FLSA Contains minimum wage maximum hours overtime pay equal pay recordkeeping and child labor provisions covering most US workers virtually anyone engaged in producing or selling goods for interstate and foreign commerce o Exempt Nonexempt Employers do not have to pay all employees overtime pay Specific jobs are exempt from the act or certain provisions of the act and particularly from the act s overtime provisions o 1963 Equal Pay Act An amendment to the FLSA States that employees of one sex may not be paid wages at a rate lower than that paid to employees of the opposite sex for roughly equivalent work o 1964 Civil Rights Act Makes it unlawful for an employer to discriminate against any individual with respect to hiring compensation terms conditions or privileges of employment because of race color religion sex or national origin How do employers establish pay rates o 1 Determine the worth of each job through job evaluation o 2 Group similar jobs into pay grades o 3 Price each pay grade with a wage curve o 4 Conduct a salary survey of what other employers are paying comparable jobs o 5 Compare and adjust current and market wage rates for jobs or grades o 6 Develop rate ranges Salary surveys Job Evaluation to another responsibility and skills Compensable Factors o A formal and systematic comparison of jobs to determine the worth of one job relative o Compare the content of jobs in relation to one another in terms of each job s effort o Comparing jobs by determining how much of certain basic factors each job has o The factors that determine how the jobs compare to each other Job Evaluation Methods o The simplest method ranks each job relative to all other jobs usually based on some overall compensable factor such as job difficulty o The manager categorizes jobs into groups based on their similarity in terms of compensable factors such as skill and responsibility categories The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but are otherwise different o Assigning pay rates to each pay grade is usually accomplished with the help of a wage Wage Curve curve o It shows the average pay rates currently being paid for jobs in each pay grade relative to the points or rankings assigned to each job or grade by the job evaluation o Shows the relationship between 1 The value of each grade as determined by one of the job evaluation methods 2 The current average pay rates for the grades Incentive Plans o Individual incentive programs give performance based pay to individual employees o Team based incentives aim to incentivize work teams o Variable pay refers to pay plans that tie payments to productivity or to some other measure of the firm s profitability o Productivity the ratio of outputs divided by the inputs Piecework Plans o The oldest incentive plan and still the most common o The person is paid a piece rate for each unit he or she produces Incentive plans for managers and executives o Managers play a central role in influencing divisional and corporate profitability and most firms therefore put considerable thought into how to reward them o A stock option is the right to purchase a specific number of shares of company stock at a specific price during a specific period Group incentive plans Merit pay o Any salary increase awarded to an employee based on his or her individual performance o Unlike a bonus it usually becomes part of the employee s base salary whereas a bonus is a one time payment o Advocates argue that rewards tied directly to performance can motivate performance o Detractors say it can undermine teamwork and that since the merit pay typically depends on the performance appraisal unfair appraisals lead employees to perceive pay as unfair too Profit sharing plans o Most employees receive a share of the company s annual profits o Boosts productivity but that their effect on profits is insignificant once you factor in their costs o Cash plans are the most popular Employee stock ownership plans o Company wide plans in which a corporation transfers shares of its own stock or cash to purchase such stock to a trust established to purchase shares of that stock for employees o The firm generally makes these contributions annually in proportion to total employee compensation Gainsharing plans o The aim of which is to encourage improved employee productivity by sharing resulting financial gains with employees Earnings at risk pay plans Benefits work for the company Pay for time not worked o Employees agree to put some portion of their normal pay at risk if they don t meet their goals in return for possibly obtaining a much larger bonus if they exceed their goals o Indirect monetary and nonmonetary payments an employee receives for continuing to Unemployment insurance Vacations and holidays Sick leave Family and Medical Leave Act FMLA Severance Pay
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