BUSMHR 3200 Notes Part 3Dessler-Chapter 7:- Employee compensation: all forms of pay or rewards going to employees and arising from their employmento Direct Financial Payments: wages, salaries, incentives, commissions and bonuseso Indirect Payments: financial benefits like employer-paid insurance and vacationso Total rewards: encompass traditional pay, incentives, and benefits, but also things such as employee recognition programs and more challenging jobso Four factors that determine pay: legal, union, policy, and equity factors- Important compensation lawso 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 provisionso 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 worko 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 evaluationo 2. Group similar jobs into pay gradeso 3. Price each pay grade with a wage curveo 4. Conduct a salary survey of what other employers are paying comparable jobso 5. Compare and adjust current and market wage rates for jobs or gradeso 6. Develop rate ranges- Salary surveys- Job Evaluation:o A formal and systematic comparison of jobs to determine the worth of one job relative to anothero Compare the “content” of jobs in relation to one another in terms of each job’s effort, responsibility, and skills- Compensable Factors:o Comparing jobs by determining how much of certain basic factors each job haso The factors that determine how the jobs compare to each other- Job Evaluation Methodso The simplest method ranks each job relative to all other jobs, usually based on some overall compensable factor such as job difficultyo 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 containjobs that are similar in difficulty but are otherwise different- Wage Curveo Assigning pay rates to each pay grade is usually accomplished with the help of a wage curveo 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 evaluationo 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 Planso Individual incentive programs: give performance-based pay to individual employeeso Team-based incentives: aim to incentivize work teamso Variable pay: refers to pay plans that tie payments to productivity or to some other measure of the firm’s profitabilityo Productivity: the ratio of outputs divided by the inputs- Piecework Planso The oldest incentive plan and still the most commono The person is paid a “piece rate” for each unit he or she produces- Incentive plans for managers and executiveso Managers play a central role in influencing divisional and corporate profitability, and most firms therefore put considerable thought into how to reward themo A stock option is the right to purchase a specific number of shares of company stock at aspecific price during a specific period- Group incentive plans- Merit payo Any salary increase awarded to an employee based on his or her individual performanceo Unlike a bonus, it usually becomes part of the employee’s base salary, whereas a bonus is a one-time paymento Advocates argue that rewards tied directly to performance can motivate performanceo 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 planso Most employees receive a share of the company’s annual profitso Boosts productivity, but that their effect on profits is insignificant, once you factor in their costso Cash plans are the most popular- Employee stock ownership planso 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 employeeso The firm generally makes these contributions annually in proportion to total employee compensation - Gainsharing planso The aim of which is to encourage improved employee productivity by sharing resulting financial gains with employees- Earnings-at-risk pay planso 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- Benefitso Indirect monetary and nonmonetary payments an employee receives for continuing to work for the company Pay for time not worked- Unemployment insurance- Vacations and holidays- Sick leave- Family and Medical Leave Act (FMLA)- Severance
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