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CMS 1
Compensation Concepts and Principles
300
Other
Professional
04/03/2012

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Term
Compensation
Definition
refers to all forms of financial returns and tangible services and benefits that employees receive as part of an employment relationship
Term
Relational Returns
Definition
psychological returns employees believe they receive in the workplace
Term
Total Compensation
Definition
includes pay received directly as cash and indirectly as benefits
Term
Salary
Definition
refers to pay that is calculated at an annual or monthly rate rather than hourly
Term
Merit Increases
Definition
are given as increments to the base pay in recognition of past work behavior; some assessment of past performance is made, with or without a formal performance evaluation program, and the size of the increase is varied according to performance
Term
Cost-Of-Living adjustment
Definition
gives the same percentage increase to everyone regardless of performance in order to maintain pay levels relative to increases in the cost of living
Term
Incentives
Definition
one time payments; they do not have a permanent effect on labor costs; when performance declines, incentive pay automatically declines too; consequently, incentives are frequently referred to as variable pay
Term

Allowances

Definition

compensation to provide what is in short supply

Term
Present value earning opportunities
Definition
some employers claim that a relatively low starting offer will be overcome by larger future pay increases; in effect, they are selling the present value of the future stream of earnings
Term
Total Rewards
Definition
nonfinancial returns from work create intrinsic motivation that has a substantial effort on employees’ behavior
Term
Implicit Contract
Definition
an unwritten understanding between employers and employees about their reciprocal obligations and returns
Term
“commodity”
Definition
• Low cash compensation/low relational
Term
“cult-like”
Definition
• High cash compensation/High relational returns
Term
“hired guns”
Definition
• High Cash Compensation/Low Relational Returns
Term

“workers as commodity”

Definition

Low Cash Compensation/High Relational Returns

Term
Strategic Objective
Definition
goals identified by an organization as necessary for the achievement of its strategy for success
Term
Procedural Fairness
Definition
fairness of the process used to make a decision; concerned with the processes used to make decisions about pay; it suggests that the way a pay decision is made may be as important to employees as the result of the decision
Term
Internal Alignment
Definition
refers to comparisons between jobs or skill levels inside a single organization
Term
External Competitiveness
Definition
comparison of compensation with that of competitors
Term
Employee Contributions
Definition
refers to the relative emphasis placed on performance
Term
Management
Definition
policy regarding management of the pay system is the last building block in the pay model
Term
Caveat Emptor
Definition
be an informed consumer
Term
Competitive Advantage
Definition
a business practice of process that results in better performance than one’s competitors
Term
Strategic Perspective
Definition
a focus on compensation decisions that help the organization gain and sustain competitive advantage
Term
Innovator
Definition
stresses new products and short response time to market trends; a supporting compensation system system places emphasis on incentives designed to encourage innovation in products and processes.  Pay is market based and job descriptions are flexible and generic
Term

Cost Cutter

Definition

Focuses on operational efficiency; a supporting compensation systgem focuses on competitors labour costs, increasing variable pay and emphasizing prductivity

Term
Customer Focused
Definition
emphasizes ensuring customers are happy; a supporting compensation strategy focuses on customer satisfaction incentives; the value of the job and skills is based on customer contact
Term

Strategy

Definition

the fundamental business decisions that an organization has made in order to achieve its strategic objectives, such as what business to be in and how to obtain competitive advantage

Term
Vicious Circle
Definition
when organization performance declines, performance-based pay plans do not pay off
Term
Virtuous Circle
Definition
when there is success to share, success-sharing plans work best
Term
Pay
Definition
the general term for money or the like, usually given at regular rates or regular intervals in return for services in the form of wages and salary or other types of payment
Term
Distributive Justice
Definition
perceived fairness of pay or other work outcomes received
Term
Procedural justice
Definition
refers to the process by which a decision is reached
Term
Line-of-Sight
Definition
link between an individual employee’s work and the achievement of organizational objectives
Term
Differentials
Definition
pay differences between job levels
Term
gini coefficient
Definition
statistic that varies between zero and one, increasing with the magnitude of pay differentials between job levels – to describe the distribution of pay; a gini of zero means everyone is paid the identical wage
Term
Content
Definition
refers to the work performed in a job and how it gets done
Term
Value
Definition
refers to the worth of the work; its relative contribution to the organization objectives
Term
job-based structure
Definition
looks at work content – tasks, behaviours, responsibilities
Term
person-based structure
Definition
shifts the focus to the employee: the skills, knowledge, or competencies the employee possess, whether or not they are used on the particular job the employee is doing
Term
Marginal Productivity Theory
Definition
unless an employee can produce something of value from their job equal to the value received in wages, it will not be worthwhile for an employer to hire that employee
Term
Culture
Definition
is the mental programming for processing information that people share in common; such shared mindsets within a society may form a judgment of what size of pay differential is fair
Term
Human Capital
Definition
– the education, experience, knowledge, abilities, and skills that people possess
Term
Internal Labour Markets
Definition
rules and procedures that determine the pay for different jobs within a single organization and that allocate employees to those different jobs
Term
Tailored Structure
Definition
pay structure for well-defined jobs with relatively small differences in pay
Term
Loosely Coupled Structure
Definition
pay structure for jobs that are flexible, adaptable, and changing
Term
Equity Theory
Definition
Employees judge the equity of their pay by comparing the work, qualifications, and pay for jobs similar to theirs
Term
Expectancy Theory
Definition
Employees make cognitive estimates of how much effort will be required to perform at a certain level and what that performance level will mean in terms of personal outcomes
Term
Tournament Theory
Definition
promotes the idea that large differentials in pay will lead to maximum individual performance; tends t be associated with high turnover environments where individual performance is primary and supports the nation that hierarchical pay structures are best
Term
Institutional Theory
Definition
Internal pay structures are sometimes adopted because they mimic so-called “best practices
Term
Job analysis
Definition
the systemic process of collecting information about the nature of specific jobs
Term
Job family
Definition
grouping of related jobs with broadly similar content
Term
Job
Definition
group of tasks performed by one person that make up the total work assignment of that person
Term
Task
Definition
smallest unit of analysis, a specific statement of what a person does
Term
Position Analysis Questionnaire
Definition
a structured job analysis questionnaire used for analyzing jobs on the basis of 194 job elements and describe generic work behaviors
Term
Job Description
Definition
written summary of a job, including responsibilities, qualifications, and relationships
Term
Job Summary
Definition
consists of a short paragraph that provides an overview of the job
Term
Job Specification
Definition
qualifications required to be hired for a job; may be included in the job description
Term

Reliability

Definition

consistency of results from repeated applications of a measure

Term
Validity
Definition
accuracy of a measure
Term
Acceptability
Definition
If job holders and managers are dissatisfied with the initial data collected or with the process, they are not likely to buy into either the resulting job structure or the pay rates that eventually are attached to the structure
Term

 Usefulness

Definition

 If job analysis does this in a reliable, valid, and acceptable way, then the technique is of practical use

Term
Job Structure
Definition
hierarchy of all jobs based on value to the organization; provides the basis for the pay structure
Term
Job Evaluation
Definition
the process of systematically determining the relative worth of jobs to create a job structure for the organization. The evaluation is based on a combination of job content, skills required, value to the organization, organizational culture, and the external market
Term
Benchmark jobs
Definition
a job whose contents are well-known, relatively stable, and common across different employers
Term
Ranking
Definition
job evaluation method that ranks jobs from highest to lowest based on a global definition of value
Term
Alternative Ranking Method
Definition
ranking the highest- and lowest-valued jobs first, then the next highest- and lowest-valued jobs, repeating the process until all jobs have been ranked
Term
Paired Comparison Method
Definition
listing all jobs across columns and down rows of a matrix, comparing the two jobs in each cell and indicating which is of greater value, then ranking jobs based on the total number of times each is ranked as being of greater value
Term
Classification
Definition
job evaluation method based on job class descriptions into which jobs are categorized
Term
Point Method
Definition
– job evaluation method that assigns a number of points to each job, based on compensable factors that are numerically scaled and weighted
Term
Compensable Factors
Definition
characteristics of the work that the organization values, that help it pursue its strategy and achieve its objectives
Term
Factor Degree/Level
Definition
description of several different degrees or levels of a factor in jobs; a different number of points is associated with each degree/level
Term
Factor Weights
Definition
weighting assigned to each factor to reflect differences in importance to each factor by the employer
Term
Skill-based pay structures
Definition
link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work
Term
Skill analysis
Definition
a systematic process to identify and collect information about skills required to perform work in an organization
Term

Competencies

Definition

underlying, broadly applicable knowledge, skills, and behaviours that form the foundation for successful work performance

Term
Competency-based pay structure
Definition
links pay to work-related competencies
Term
Core competencies
Definition
competencies required for successful work performance in any job in the organization
Term
Competency sets
Definition
specific components of a competency
Term
Competency indicators
Definition
observable behaviours that indicate the level of competency within each competency set
Term
Pay Level
Definition
the average of the array of rates paid by the employer
Term
Pay forms
Definition
the mix of the various types of payments that make up total compensation
Term
Quoted Market Price
Definition
prices are specifically indicated
Term
Bourse Market
Definition
prices are subject to barter or negotiation
Term

Marginal Product of Labour

Definition

 the additional output associated with the employment of one additional human resources unit, with other production factors held constant

Term
Marginal Revenue of Labour
Definition
the additional revenue generated when the form employs one additional unit of human resources, with other production factors held constant
Term
Compensating differentials theory
Definition
higher wages must be offered to compensate for negative features of jobs
Term
Efficient Wage Theory
Definition
high wages may increase efficiency and lower labour costs by attracting higher-quality applicants who will work harder
Term
Signalling Theory
Definition
pay levels and pay mix are designed to signal desired employee behaviors
Term
Reservation wage theory
Definition
job seekers have a reservation wage level below which they will not accept a job
Term
Human Capital Theory
Definition
higher earnings are made by people who improve their potential productivity by acquiring education, training, and experience
Term
Survey
Definition
The systematic process of collecting and making judgments about the compensation paid by other employers
Term
Survey Levelling
Definition
Multiplying survey data by a factor to adjust for differences between the company job and the survey job
Term
Outlier
Definition
A data point that falls outside the majority of the data points
Term
Market Pay Line
Definition
Links a company's benchmark jobs on the horizantal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis
Term
Pay Policy Line
Definition
Pay line representing an adjustment to the market pay line to reflect the company's external competitive position in the market (i.e. lead, match, lag)
Term
Pay Grade
Definition
Grouping og jobs considered substantially equal for pay purposes
Term
Pay Range
Definition
An upper and lower limit on pay for all jobs in a pay grade
Term
Broadbanding
Definition
A large band of jobs containing several pay grades
Term
Market Pricing
Definition
Establishing pay structure by relying almost exclusively on external market pay rates
Term
Employee Benefits
Definition
Part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments, such as life insurance, pension plan, worker's compensation, vacation, etc
Term
Flexible Benefit Plans
Definition
Benefit plans in which the employee is provided with a specified amount of money and then chooses which benefits to spend the money on, according to their attractiveness and cost
Term
Vesting
Definition
Waiting period for entitlement to the employer-paid portion of pension benefits
Term

Benefit Maximums

Definition

Limitations on benefit payable

Term
Coinsurance
Definition
Percentage of insurance premiums paid for by the employer
Term
Deductible
Definition
Specified dollar amount of claims paid by the employee each year before insurance benefits begin
Term
Coordination of Benefits
Definition
Reduction of benefits by any amount paid under a spouse's plan
Term
Benefit Cutbacks
Definition
Wage concessions some employers are negotiating with employees to eliminate or reduce employer contributions to selected options
Term
Workers' Compensation
Definition
A mandatory government-sponsored, employer-paid, no-fault insurance plan that provides compensation for injuries and diseases that arise out of, and while in the course of, employment
Term
C/QPP
Definition
A mandatory, government sponsored pension plan for all employed Canadians, funded equally by employers and employees
Term
EI
Definition
a mandatory, government-sponsored plan for all employed Canadians that provides workers with temporary income replacement as a result of employment interruptions due to circumstances beyond their control; funded by employer and employee contributions
Term
Pension Plan
Definition
Plan that provides income to an employee as retirment as compensation for work performed now
Term
Define-Benefit Plan
Definition
Pension plan in which an employer agrees to provide a specific level of retirement pension, the exact cost of which is unknown
Term
Defined-Contribution Plan
Definition
Pension plan in which an employer agrees to provide specific contributions, but the final benefit is unknown
Term
STD/Salary Continuation Plans
Definition
Employer-sponsored plans that provide a continuation of all or part of an employee's earnings when the employee is absent from work due to an illness or injury that is not work-related
Term
Long-Term Disability Plans
Definition
Employer-sponsored plans that provide income protection due to long-term illness or injury that is not work-related
Term
Motivation
Definition
A process involving the determination of what is important to a person, and offering it in exchange for desired behavior
Term
Expectancy Theory
Definition
Motivation theory stating that people cognitively evaluate potential behaviors in relation to rewards offered in exchange
Term
Equity Theory
Definition
Motivation theory stating that people are concerned about fariness of the reward outcomes exchanged for employee inputs
Term
Agency Theory
Definition
Motivation theory stating that employees and management/owners both will act opportunistically to obtain the most favorable exchange possible
Term
Total Reward System
Definition
All rewards (in at least 13 categories) provided by organizations
Term
Performance Appraisal
Definition
Process of evaluating or appraising an employee's performance on the job
Term
Evaluation Format
Definition
The Method used to evaluate an employee's performance, either ranking against other employees or rating on one or more performance criteria
Term
Paired Comparison Performance Ranking
Definition
Ranking each employee against all other employeees, one pair at a time
Term
Behaviorally Anchored Rating Scale (BARS)
Definition
Performance rating scales using behavioral descriptions as anchors for different levels of performance on the scale
Term
Management by Objectives (MBO)
Definition
Performance rating method based on meeting objectives set at the beginning of the performance review period
Term
360-Degree Feedback
Definition
Performance appraisal method including feedback from up to five sources: supervisor, peers, self, customers, and subordinates
Term
Merit Pay
Definition
increase in base pay related to performance
Term
Team Incentive Plans
Definition
Incentive pay for meeting or exceeding team performance standards
Term
Gain-sharing Plans
Definition
Group incentive plan where employees share in cost savings
Term
Profit-sharing plans
Definition
Variable pay plans requiring a profit target to be met before any payouts occur
Term
Earnings-at-risk plan
Definition
Incentive plan sharing profits in successful years and reducing base pay in unsuccessful years
Term
Employee Stock Ownership Plan (ESOP)
Definition
Plan offering employees the opportunity to purchase company stock, often partially or fully matched by employer-paid stock for the employee
Term
Stock Options
Definition
The right to purchase stock at a specific (excercise) price for a fixed time period
Term
Broad-based option plans (BBOPs)
Definition
Stock options provided to employees at all levels
Term
Dual career ladder
Definition
Career progression on either a managerial path or a professional path
Term
Pay Equity
Definition
The amount by which the average pay for female workers is less than the average pay for male workers
Term
Occupational Segregation
Definition
The historical segregation of women into a small number of occupations such as clerical, sales, nursing, and teaching
Term
Pay Equity Legislation
Definition
legislation intended to redress the unexplained portion of the wage gap assumed to be due to gender discrimination
Term
Job-to-Job Method
Definition
Method of comparing pay for male- and female- dominated job classes where each female job class is compared to a male job class of equal or comparable value
Term
Wage Line Method
Definition
Method of comparing pay for male- and female- dominated job classes where the wage line for female job classes is compared indirectly with the wage line for male job classes
Term
Proportional Value Method
Definition
Method of comparing pay for male- and female- dominated job classes when female job classes have no appropriate male comparators under the job-to-job system, where the relationship between the value of the job and the pay received by male job classes is then applied when setting pay for female job classes
Term
Proxy Comparison Method
Definition
Method of comparing pay for male- and female- dominated job classes when pay equity cannot be achieved through job-to-job or proportional value methods, where female job classes are compared to similar female job classes that have achieved pay equity with another employer
Term
Spillover Effect
Definition
Employers seeking to avoid unionization offer workers the wages, benefits, and working conditions won in rival unionized firms
Term

Top-Down Budgeting

Definition

Top Management of each organizational unit estimates the pay-increase budget for that unit

Term
Turnover Effect
Definition
Decreased budget required as lower paid workers replace employees who leave, calculated as annual turnover rate times planned average increase
Term
Consumer Price Index (CPI)
Definition
Index that measures changes in prices over time
Term
Bottom-Up Budgeting
Definition
Managers forecast the pay increases they will recommend in the coming year
Term
Red Circle Rates
Definition
Pay rates above the range maximum
Term
Green Circle Rates
Definition
Pay rates below the range minimum
Term
Compa-Ratio
Definition
Ratio of average rates actually paid to range midpoint
Term
Cash
Definition
Base, merit pay/cost of living, short-term incentives, long-term incentives
Term
Benefits
Definition
income protection, work/life focus, allowances, pensions, medical insurance
Term
Base Pay
Definition
cash paid for work performed, tends to reflect value of work/skills and generally ignores experience or performance differnces attributable to invididual employees
Term
Merit Increases/COLA
Definition
given as increments to base pay in recognition of past work behaviors
Term
Incentives
Definition
tie pay increases directly to performance; do not increase base pay; must be re-earend each pay period; performance objectives are specifically identified in advance
Term
  1. Strategic objectives
  2. Strategic Policies
  3. Pay Techniques
Definition
Components of a Pay Model
Term
  1. Efficiency
  2. Fairness
  3. Compliance

 

Definition
Strategic Objectives
Term
  1. Internal Alignment
  2. External Competitiveness
  3. Employee Contributions
  4. Management

 

Definition
Strategic Policies
Term
Efficiency
Definition
Improving performance, quality, delighting customers and shareholders and controlling labour costs
Term
Fairness
Definition
recognizing employee contributions - pay for performance, training, experience; recognizing employee needs - fair wage, determined by fair procedures
Term
Compliance
Definition
Conforming to relevant laws and regulations
Term
  1. Innovator Business Strategy
  2. Cost Cutter Business Strategy
  3. Customer-Focused Busines Strategy
Definition
Three types of compensation sytems
Term
Strategic Pay Decisions
Definition
decisions about policies and techniques necessary to meet the organizations human resource strategies and address the social, competitive, and regulatory environments
Term

 

                                                               i.      At the corporate level: what business should we be in?

 

                                                             ii.      At the business unit level: how do we win (gain and sustain competitive advantage) in those business?

 

                                                            iii.      At the human resources level: how does HR support competitive advantage

 

                                                           iv.      At the compensation level: how should our total compensation help gain and sustain competitive advantage?

 

Definition
Questions a manager should address when making strategic pay decisions
Term
  1. Assess Total Compensation Implicattions
  2. Map a Total Compensation Strategy
  3. Implement the Strategy
  4. Reassess and Realign
Definition
Steps in developing a total compensation strategy
Term

 

1.       Set objectives

 

2.       Specify policy on alignment

 

3.       Specify policy on competitiveness

 

4.       Specify policy on contributions

 

5.       Specify policy on management

 

Definition
Five decisions outlined in the Pay Model
Term
  1. Does it align?
  2. Does it differentiate?
  3. Does it add value?
Definition
three tests used to determine whether a pay strategy is a source of competitive advantage
Term
Best Fit
Definition
philosophic approach that compensation management is achieved when pay strategies and practices ‘fit’ with the environment and business strategy.  Compensation is highly customized to a particular organization
Term
Best Practice
Definition
philosophic approach where it is believe that there are a limited number of ‘best practices’ in compensation that will work for any organization (e.g. ‘one-right-way’ approach)
Term
Pay Structure
Definition
refers to the array of pay rates for different roles and/or skills within a single organization
Term

 

                                          i.    Consistently applied to all employees

 

                                        ii.    If there is employee participation in the process

 

                                       iii.    If there is an appeals process

 

                                       iv.    The data underlying the decision is accurate

 

Definition
the process leading to the pay decision is more likely to be perceived as ‘fair’ if:
Term
  1. Supports Workflow
  2. Supports Fairness
  3. Directs behavior towards organizational objectives
Definition
Objectives of an internally aligned pay structure
Term
Levels
Definition
Referse to the discrete layers in the pay structure to which a particular range of compensation is attached; often expressed in terms of a "grade" that ranks different jobs and/or skill sets
Term
  1. number of levels of work
  2. pay differentials among the job levels
  3. criteria used to determine levels and differentials
Definition
Factors that help define an internal pay structure
Term
  1. Economic Pressures
  2. Government polciies, Laws and Regulations
  3. External Stakeholders
  4. Culture and Customs
Definition
External factors affecting the internal structure
Term
  1. Strategy
  2. Human Capital
  3. Work Design
  4. Human Resources Policies
Definition
Internal Factors affecting internal structures
Term
Egalitarian Pay Structure
Definition

relatively flat pay structure with a small number of levels relatively samll difference between the top pay rate and the bottom pay rate

 

Term
Egalitarian Pay Structure
Definition
  1. thought to promote teamwork
  2. levels of responsibility and supervision are removed
  3. imply a belief that more equal treatment improves employee satisfaction and supports cooperation
Term
Hierarchical Pay Structure
Definition
Pay structure with many levels with large differences between the top and bottom pay rates
Term
Hierarchical Pay Structure
Definition

 

                                          i.    Thought to improve command-and-control performance usually through an extensive bureaucracy

 

                                        ii.    The multiple levels typically include detailed descriptions of work done at each level and delineate who is responsible for what

 

                                       iii.    Value the differences in individual employee skills, responsibilities and contributions to the organization

 

                                       iv.    Consistent with a belief in the motivational effects of frequent promotions

 

Term
  1. Competitive Advantage
  2. Fairness
  3. Legal Compliance
Definition
Reasons to attend to alignment
Term
Efficiency
Definition

 

    • The achievement of alignment is thought to improve efficiency through reduced turnover (retention), performance gains from increased training and experience, improvement in motivation, and reductions in pay grievances and work stoppages
Term
Fairness
Definition

 

    • Some view small differentials and egalitarian structures as inherently fair while others argue that hierarchical structures with large differentials better reflect the relative contribution of individuals to the organization’s success

 

Term
Compliance
Definition

 

    • Organization’s will adapt their pay structures to comply with the relevant laws and regulations of the jurisdictions in which they employ staff

 

Term
  1. why are we collecting job information
  2. what information do we need
  3. how should we collect it
  4. who should be involved
  5. how useful are the results
Definition
the major decisions to be made in designing a job analysis system are
Term
  1. develop preliminary job information
  2. conduct initial tour of worksite
  3. conduct interviews
  4. conduct second tour of work site
  5. consolidate job information
  6. verify job description
Definition
the steps involved in job analysis
Term
Job Identification Data
Definition
basic information about the role such as job title, name or incumbent, name of department, name and title of manager, number of people who hold the job, etc
Term
Job Content Data
Definition

 

      1. It describes the tasks or elements required to fulfill the mission or responsibilities of the role

the basic tasks or units of work with emphasis on the purpose or outcome of each task

 

Term
Employee Characteristics Data
Definition

 

    1. The section of a job description that are concerned with the characteristics of the incumbent – skills, aptitudes, and other characteristics
    2. Can include professional/technical knowledge and manual, verbal, written, quantitative, mechanical, conceptual, managerial, leadership and interpersonal skills

 

Term
Internal Relationships Data
Definition

 

    1. Job descriptions often try to capture information on how a particular role will communicate with other roles within the organization.  The level of communication and the nature of the communication are important factors in understanding the interrelationships of roles
    2. Involve behavior between the employee and their supervisors, peers, and direct reports

 

Term
External Relationships Data
Definition

 

    1. Job descriptions often try to capture information on how a particular role will communicate with individuals outside of the organization (customers, suppliers, regulators, etc).  The level of communication and the nature of the communication are important factors in understanding the interrelationships of roles
    2. Involve behavior between the employee and their suppliers, customers, regulatory personnel, professional/industry personnel, the community at large and union/employee groups

 

Term
Questionnaires
Definition
Most common way to collect job information
Term
Quantitative Method of Data Collection
Definition
invo,ves the use of questionnaires that ask for responses to specific questions that may be analyzed statistically
Term
Job Content
Definition
refers to the responsibilities and tasks of a particular role
Term
Job Value
Definition
refers to the contribution that a given role makes to achieving organizational objectives
Term
Simple Ranking
Definition
the least reliable method of ranking
Term
Ranking
Definition
  • simplest, fastest, easiest to understand and explain to employees,and initially the cheapest
  • doesn't tell employees what in their jobs is important
  • criteria on which jobs are ranked is poorly defined
  • evaluations become more subjective opinions
Term
Ranking and Classification
Definition
examplesof whole job methods in which human judgment is the main determinant of hierarchy
Term
Classification Method
Definition
  • can group a wide range of work togehter in one system
  • descriptions may leave too much room for manipulation
  • can be difficult when jobs from several different job familes are covered by a single plan
Term
Point Method
Definition
  • most common method of job evaluation
Term
Point Method
Definition
  • compensable factors explain the basis for comparisions; make explicit the criteria for evaluating jobs and communicate what is valued
  • it can become bureaucratic and rule bound
  • compensable factors are defined on the basis of the strategic directions of the organization and how te work contributes to that strategy
Term
  1. Conduct job analysis
  2. determine the compensable factors
  3. scale the factors
  4. weight the factors
  5. communicate the plan
  6. apply to non benchmark jobs
Definition
Steps involved in the design of a point plan
Term
  1. Skills required
  2. effort required
  3. responsibility
  4. working conditions
Definition
Four generic groups for compensable factors in a point plan
Term
  1. Inconsisten construct format
  2. Factor Overlaps
  3. Hierarchical Grouping
  4. Gender Bias
Definition
Potential Pitfalls of using the point method of job evaluation
Term
Multi Skilled Plan
Definition
  • earn pay increases by acquiring new knowledge specific to a range of related jobs
  • pay increases come with certification of new skills, rather than with new job assignments
Term
Skills and knowledge
Definition
Considered the essential characteristics that everyone needs to be effective in a job
Term
Competency Modelling
Definition

 

    1. method for predicting employee performance without the bias of intelligence and aptitude testing.  When applied to developing a pay structure it involves gathering information about a job but then describing the job by:

 

                                          i.    Identifying the success factors or competencies required of incumbents

 

                                        ii.    Defining a behavioral description of each one

 

                                       iii.    Ranking the behavioral description by its criticality (importance)

 

                                       iv.    Establish a proficiency level for each factor

 

Term
Certification
Definition
the main problem in a competency-based structure
Term
  • Job Based
  • Person Based
  • Competency Based
Definition
three contrasting approached to internal pay systems
Term
Job Based Structure
Definition
  • pay increases are gained by promotions to more responsible jobs
  • focus is on placing the right people in the right jobs
  • controls costs by paying only as much as the work performed is worth
Term
Person Based Structures
Definition
  • pay increases are gained by acquring more valued sills/competencies
  • managers must assign the right work to the right people
  • flexibilty is maximized, but can also enoucrage all employees to become certified at the top rate
Term
Competency Model
Definition
the output from analyses that differentiate high performers from average and low performers
Term
Alternative Policies
Definition
an approach to setting pay levels where the organization may choose to lead in "mission critical" roles and match or lag in roles deemed less critical in meeting productivity, revenue or profitabiility targets
Term
Employer of Choice
Definition
some employers compete based on their overall repuation as a good place to work beyond compensation
Term
Shared Choice
Definition
a labour market competition strategy where the individual employee has some input into the mix of pay, benefits, and other conditions of employment to create a compensation mix that works best for them (within limits)
Term
  1. pay level relative to that of competitors
  2. mix of pay forms relative to that of competitiors
Definition
what two aspects of pay express the external competitiveness policy?
Term
  1. Competition in the labour market for people with various skills
  2. competition in the product and service markets, which affect the financial condition of the organization
  3. characteristics unique to each organization and its employees
Definition
what factors shape external competitiveness
Term

 

                                          i.    Adjust the pay level is response to changing competitor pay rates

 

                                        ii.    Set the mix of pay forms relative to those paid by competitors

 

                                       iii.    Establish of price its pay structure

 

                                       iv.    Analyze pay-related problems

 

                                        v.    Estimate the labour costs of product market competitors

 

Definition
Pay survey purposes
Term

 

                                          i.    Who should be involved in the survey design

 

                                        ii.    How many employers should be included (sample size)

 

                                       iii.    Which jobs should be included

 

                                       iv.    What information should be collected

 

Definition
Designing a pay survey requires the following questions to be answered:
Term
Low-High Approach
Definition
only the highest and lowest compensation data for a particular group of employees is used to interpolate the pay for all the employees/jobs in between
Term
Benchmark Conversion Approach
Definition
to evaluate the external job using the organization's internal job evaluation system
Term
Standard Deviation
Definition
the most common statistical measure of variation
Term
Weighted mean
Definition
gives equal weight to each individual employee's wages
Term
Mean
Definition
may be calculated by adding each company's base wage and dividing by the number of companies
Term
Frequency Distributions
Definition
helps visualize the information in a pay survey and highlight non conformities
Term
Variation
Definition
Distribution of rates around a measure of central tendency
Term
Reference Rates
Definition
pay rates from market data used in pricing broadbands; the broadbanding equvalents to grades and ranges
Term

 

                                          i.    Who should receive the benefit?

 

                                        ii.    How much choice/input should employees have in the benefit program?

 

                                       iii.    How should the benefit be financed?

 

Definition
Issues to be considered in benefits administration include:
Term

 

                                          i.    Employees choose a package that best satisfies their unique needs

 

                                        ii.    They help organizations meet the changing needs of a changing workforce

 

                                       iii.    Increased employee involvement in making choices improves their understanding of benefits

 

                                       iv.    They may the introduction of new benefits less costly.  The new option is added as one among a wide variety of elements from which an employee can choose

 

                                        v.    They can be used as a cost-containment strategy.  Organizations set dollar maximums and employees choose their benefits from within those constraints

 

Definition
Advantages of a flexible benefit system
Term

 

                                          i.    Employees may make uninformed choices and find themselves not covered for predictable emergencies

 

                                        ii.    There is an increase in administrative expenses

 

                                       iii.    Employees select only the benefits they needs.  The subsequent high benefit utilization increases costs (also known as adverse selection)

 

Definition
Disadvantages of a flexible benefit system
Term
Non Contributory Benefit Plans
Definition
plans where the employer pays the entire cost of the benefit
Term
Contributory Benefit Plans
Definition
involve some level of employee payment of benefit cost or premium
Term
Use Value
Definition
reflects the value of goods and services an employee produces in a job
Term
Exchange Value
Definition
whatever wage the employer and employee agree on for a job
Term
  • probationary periods
  • benefit maximums
  • coinsurance
  • deductibles
  • coordination of benefits
  • administrative cost containment i.e. competitive bids
  • outsourcing
Definition
Strategies for containing benefit costs
Term
Advantages and Disadvantages of a Defined Contribution Pension Plan
Definition

 

                                          i.    The unknown benefit level is difficult to communicate to employees

 

                                        ii.    Employees assume the risks associated with changes in inflation and interest rate that affects pension plan costs

 

                                       iii.    It is more favorable to short-service employees

 

                                       iv.    Employer costs are known up front

 

                                        v.    There is no surplus or deficit in the pension fund to manage

 

Term
Advantages and Disadvantages of a Defined Benefit Plan
Definition

 

                                          i.    Provides an explicit benefit that is easily communicated to employees

 

                                        ii.    Employer absorbs risks associated with changes in inflation and interest rate that affect pension plan costs

 

                                       iii.    Is more favorable to long-service employees

 

                                       iv.    Employer costs are unknown

 

                                        v.    A pension fund surplus, but not deficit, must be shared with employees if the plan is wound up

 

Term
Pay for Performance Plan
Definition
links individual pay to some measure of performance on the job
Term
Maslow's Need Hierarchy
Definition
a hierarchy of ‘needs’ that motivate employees to perform work beginning with basic needs like food, shelter, security moving and progressing to psycho-social needs like recognition to ‘self-actualization’ at the ultimate need.  As each need is satisfied it declines in importance in an individual’s motivation
Term
Herzberg's 2-Factor Theory
Definition

 

                                          i.    Hygiene needs – as basic needs of food, shelter, safety

 

                                        ii.    Satisfiers – roughly correlate to Maslow’s higher psycho-social needs

 

Term
Reinforcement Theory
Definition
states that people will be motivated by the reward and the time that passes between the desired behavior and the reward (i.e. the sooner the better).  Behaviors that are not rewarded are not repeated.  Led to the ‘Catch them doing the right thing’ immediate rewards approach of the 90s
Term
Goal Setting Theory
Definition
states that people are motivated to perform when presented with challenging, yet achievable goals.  This theory underpins Management by Objectives approaches to performance management
Term
wages, salaries, benefits and across-the-board increases
Definition
Low risk levels of individual components of total compensation
Term
merit-pay, success sharing and gain-sharing
Definition
Moderate risk levels of individual components of total compensation
Term
profit sharing, individual incentives, lump sum bonuses with individual performance criteria
Definition
High risk levels of individual components of total compensation
Term
Halo Error
Definition
involves an appraiser giving favorable ratings to all job duties based on impressive performance in just one job function. 
Term
Negative Halo Error
Definition
Involves downgrading an employee across all performance dimensions exclusively because of poor performance on one dimension
Term
First Impression Error
Definition
involves developing a negative or positive opinion of an employee early in the review period and allowing that to negatively or positively influence all later perceptions of performance
Term
Recency Error
Definition
Involves allowing performance, either good or bad, at the end of the review period to play too large a role in determining an employee’s rating for the entire period
Term
Leniency Error
Definition
involves consistently rating someone higher than is deserved
Term
Severity Error
Definition
Involves rating an employee consistently lower than is deserved
Term
Similar-to-me Error
Definition
involves giving better ratings to employees who are like the rater in behavior and/or personality
Term
Spillover Error
Definition
involves continuing to downgrade an employee for performance errors in prior rating periods and not spending enough time preparing for the appraisal
Term
Raters
Definition
individuals, usually supervisors, but may include others that are asked to provide feedback on employee performance
Term
Straight Piecework Plan
Definition
rate determination is based on units of production per time period, and wages vary directly as a function of production level
Term
Standard Hour Plan
Definition
sets standards based on time per unit and ties incentives directly to the level of output
Term
Taylor Plan
Definition
establishes two piecework rates. One rate goes into effect when an employee exceeds the published standard for a given time period.  This rate is set higher than the regular wage incentive level.  A second rate is established for production below standard, and this rate is lower than the regular wage
Term
Merrick Plan
Definition
three piecework rates are set.  The high end of the range for production exceeding 100% of standard is one rate set.  The second rate set is for production between 83% and 100% of standard.  The third rate set is the one for the low end, or less than 83% of standard
Term
Halsey 50-50 Method
Definition
derives its name from the shared split between employee and employer of any savings in direct cost.  An allowed time for a task is determined via a time study.  The savings resulting from the completion of a task in less than the standard time is allocated 50-50 between the employee and the employer
Term
Straight Piecework plan
Definition
most frequently implemented incentive plan
Term
  • Straight Piecework plans
  • Standard Hour Plan
  • Taylor Differential Piecerate System
  • Merrick multiple piece rate system
  • Halsey 50-50 method
Definition
Individual Incentive Plans
Term
  • Scanlon
  • Rucker
  • Halsey50/50
  • Improshare
Definition
Productivity/Gainsharing Plans
Term
Productivity/Gainsharing Incentive Plans
Definition

 

    1. Advantages:

 

                                          i.    Clear performance/reward link

 

                                        ii.    Can result in productivity and quality improvements

 

                                       iii.    Employees’ knowledge of business increases

 

                                       iv.    Fosters teamwork, cooperation

 

    1. Disadvantages:

 

                                          i.    Can be administratively complicated

 

                                        ii.    Unintended effects, such as a decline in quality

 

                                       iii.    Management must “open the books”

 

                                       iv.    Payouts can occur even if organization’s financial performance is poor

 

Term
Scanlon Plan
Definition

 

    1. A gain-sharing plan at the group or organizational level that provides incentives based on the ratio between output described as the sales volume of production (SVOP) and the labour costs.  25% is distributed to employees monthly, 50% goes to the company, and the remaining 25% is held in reserve to offset bad months – the remaining balance is distributed to employees at year end

 

Term
Rucker Plan
Definition

 

    1. A gain-sharing plan based on the labour contribution to the cost of production.  If employees produce more than expected for the labour costs then the amount is distributed in the same manner as the Scanlon Plan.  A little more precise than the Scanlon Plan in that raw material and other supply costs are factored out
    2. involves a somewhat more complex formula than a Scanlon plan for determining employee incentive bonuses.  Essentially, a ratio is calculated that expresses the value of production required for each dollar of the total wage bill

 

Term
Improshare Plan
Definition
 a gain sharing plan where a standard time per unit produced is calculated through history or time-motion studies.  Reductions in the time per unit results in an amount that is shared with employees on a 50/50 basis
Term
  • productivity norm
  • development of effective worker committees
Definition
Two major components vital to the implementation and success of Rucker or Scanlon
Term
Group Incentive Plans
Definition

 

    1. AKA as ‘Team Incentive Plans’ these are incentive pay plans for meeting or exceeding team performance standards
    2. Award determined based on group performance goals or objectives
    3. Payout can be more frequent than annually and can also extend beyond the life of the team
    4. Payout may be uniform for group members

 

Term
Group Incentive Plans
Definition

 

    1. Advantages:

 

                                          i.    Reinforces teamwork and team identity/results

 

                                        ii.    Effective in stimulating ideas and problem solving

 

                                       iii.    Minimizes distinctions between team members

 

                                       iv.    May better reflect how work is performed

 

                                        v.    Positive impact on organization and individual performance

 

                                       vi.    Easier to develop performance measures than for individual plans

 

                                      vii.    Signals that cooperation, both within and across groups, is a desired behavior

 

                                    viii.    Teamwork meets with enthusiastic support from most employees

 

                                       ix.    May increase participation of employees in the decision-making process

 

    1. Disadvantages:

 

                                          i.    May be difficult to isolate impact of team

 

                                        ii.    Not all employees work on a team

 

                                       iii.    Can be administratively complex

 

                                       iv.    May create team competition

 

                                        v.    Difficult to set equitable targets for all teams

 

                                       vi.    Employees may find it more difficult to see how their individual performance affects their incentive payouts

 

                                      vii.    May lead to increased turnover among top individual performers who are discouraged because they must share with lesser contributors

 

                                    viii.    Increases compensation risk to employees because of lower income stability.  It may influence some applicants to apply for jobs in organizations where based pay is the larger compensation component

 

Term
  • New Year's Day
  • Good Friday
  • Canada Day
  • Labour Day
  • Christmas Day
Definition
All jurisdictions include these holidays:
Term
40 to 48 hours
Definition
Standard hours of work:
Term
Wage Gap
Definition
a term used to refer to the gap between the median earnings of women versus the median earnings of men
Term
Factors that contribute to the wage gap
Definition

 

                                          i.    Differences in occupational attainment and the jobs held by men and women, such as level of responsibility, working conditions, skills and effort required

 

                                        ii.    Differences in personal work-related characteristics, such as performance and absenteeism

 

                                       iii.    Differences among industries and firms, for example, organizational objectives, organizational size, and organization’s ability to pay

 

                                       iv.    Differences in union membership

 

                                        v.    Differences in labour market conditions

 

                                       vi.    The presence of discrimination

 

Term
Stages in the Pay Equity Process
Definition

 

                                          i.    Identify the organizational unit for the plan

 

                                        ii.    Identity job classes (job descriptions)

 

                                       iii.    Identify males, female, neutral job classes

Assess the value of the job to the organization using a gender-bias free method of evaluation

Term
Impact of unions on general wage and benefit levels
Definition
  • earn approximately 10% more than their non union counterparts
  • prefer a fixed rate that are not based on individual performance
  • adds 20-30% to employee benefits
  • two-tier pay plans
Term
  • the current year's rise
  • ability to pay
  • competitive market
  • turnover effects
  • changes in cost of living
Definition

 

    1. Various factors that influence the average pay increase budget decision in an organization include:

 

Term
Head Count
Definition
the number of core employees in the organization
Term
average cash compensation
Definition
the total cash compensation earned including pay, overtime, bonuses, incentives and dividing it by the total number of hours worked.  Sometimes simplified by calculating on a per employee basis
Term
Average Benefit Cost
Definition
the total amount spent on benefits (all non-cash benefits) and dividing it by the total number of hours worked.  Sometimes simplified by calculating on a per employee basis
Term

 

·         % rise = 100 * (avg pay at year end – avg pay at year beg.)/Avg pay at year beginning

 

Definition
Current year's rise calculation
Term
Compensation Cost Ratios
Definition
ratios that are determined by taking total compensation cost as a percentage of total costs or as a percentage of revenues
Term
Average Employee Earnings
Definition
total compensation divided by the number of full-time equivalent employees it covers
Term
Social Contract
Definition
refers to the understanding that is reached between employees, employeres and other stakeholders in the soceity regarding acceptable pay practices
Term

 

                                          i.    Power distance (respect for status and hierarchy)

 

                                        ii.    Individualism vs. collectivism

 

                                       iii.    Uncertainty avoidance (risk tolerance)

 

                                       iv.    Masculinity vs. femininity (degree to which aggressiveness and standing out from the crowd is valued or tolerated)

 

Definition
Hofstede's cultural calssification factors:
Term
Localizer
Definition
pay decisions are left to locall managers; think gloabl, act local approach, pay systems are designed to be consisten with location conditions; operate independently of corporate headquarters
Term
Exporter
Definition
compensation strategy is set centrally and exported to all locations; one size fits all approach,
Term
Globalizer
Definition
compensation decisions are made globally by international consensus; seeks a common pay system that can be used to support consistency across all global locations; focus is on aligning the total pay system with the global business strategy
Term
Expatriate
Definition
term used to describe employees on assignment with the organization outside their home country
Term
Third-country national
Definition
employees of the organization that are not nationals of the home or host country
Term
local country nationals
Definition
all employees of the local unit of a company based in another country
Term
Balance Sheet Approach
Definition

 

    1. An approach to expat compensation that considers the cost of living in the host country and attempts to compensate the employee for the differences through a variety of allowances so that the employee can purchase what they require to maintain parity with the peers back home.  Particularly useful when the intent is to repatriate the employee in their home country after the assignment; approach to setting expatriate pay is based on the premise that employees on overseas assignments should have the same spending power as they would in their home country.  Therefore, the home country is the standard for all payments

 

Term

 

                                          i.    To ensure mobility of expat talent to global assignments as cost effectively as is feasible

 

                                        ii.    To ensure that expats neither gain nor lose financially

 

                                       iii.    To minimize adjustments required of expats and their dependents

 

Definition
Three objectives of the balance sheet approach
Term
Negotiation
Definition
employee and the employer negotiate a mutually agreeable package
Term
Localization
Definition
the employee is positioned within the pay structure of the host country with some allowances provided to address specific difference between the home and host country
Term
Modified Balance Sheet
Definition
 limited allowances for differences within a region (Europe, Asia, North America, etc.); ties salary to a region
Term
Assimilation
Definition
term used to provide allowances for a transition period until the employee adapts their lifestyle to local conditions; decreasing allowances over time
Term
Lump Sum/Cafeteria Approach
Definition
the employee receives a salary designed to provide a comparable standard of living in the host country usually determined through analysis and negotiation.  The employee is left to decide how to spend their salary as they see fit
Term
Sick Leave Plans
Definition
employer-sponsored plans that grant a specified number of paid sick days per month or year
Term
Central Tendency Error
Definition
avoiding extremes in ratings across employees
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