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Thread Number one:
HR Ethics: High-Tech Firms Collude to Limit Employee Pay
Several high-tech firms in Silicon Valley violated antitrust laws by agreeing that they would not
try to hire each other’s employees. This limited employees’ job options and income.
1. How should companies address the possibility of bidding wars when trying to retain
top talent? How should HR professionals or general managers help address this
issue?
2. What compensation strategies would enable companies to attract and retain good
employees without having to worry about bidding wars? How should the needs of
employees be addressed in these strategies?
Your assignment is to 1) read the information in the box content, 2) answer these questions,
3) present/defend your ideas with thoughtful logic or relevant evidence, and 4) respond to at
least two other students’ posts with other thoughtful analyses. Your posts should be
comprehensive (multiple lengthy paragraphs), as well as concise and detailed.
Grades are assigned using a rubric with the following dimensions: 1) logic/support, 2)
clarity/conciseness, 3) depth, 4) length, 5) contains multiple postings/responses.
Thread number 2:
The ninth Debate Discussion assignment in this class relates to the On-theJob video of Stew Leonard’s employee benefits, which is located in the online
Mind Tap content associated with this course (10 points).
When Stew Leonard’s started in 1979, it had seven items and nine
employees. Today, it has four food stores, nine wine stores, and 2,500
employees. The company has tried to keep its employees feeling like they are
part of making Stew Leonard’s successful. Karen Mazako, vice president of
human resources, gives a long list of benefits. The company also offers fun
benefits like appreciation dinners, picnics, and trips. Stew Leonard’s provides
training and tuition reimbursement to help employees advance in their
careers. During annual reviews, managers and employees discuss career
goals. The company invests in its employees. Happy team members make
the customers happy, and the business and profits flow naturally from that
interaction.
Discussion Questions:
1. If healthcare costs increase, should Stew Leonard’s reconsider the health benefits it
provides to its employees? What should it consider in making this decision?
2. Stew Leonard’s uses participation as a metric when evaluating its benefits. What is a
disadvantage of using participation as a key metric?
3. Companies in the grocery business often employ many part-time workers. What are
the pros and cons of Stew Leonard’s offering benefits to its part-time employees?
Your assignment is to 1) watch the video, 2) answer these questions,
3) present/defend your ideas with thoughtful logic or relevant evidence, and 4)
respond to at least two other students’ posts with other thoughtful analyses.
Your posts should be comprehensive (multiple lengthy paragraphs), as well
as concise and detailed.
Grades are assigned using a rubric with the following dimensions:
1) logic/support, 2) clarity/conciseness, 3) depth, 4) length, 5) contains
multiple postings/responses.
CHAPTER 13
Managing
Employee
Benefits
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Benefits
ï‚› Benefit: Tangible indirect rewards
provided to an employee or group of
employees for organizational membership
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits
ï‚› Include retirement plans; paid time off;
health, life, and disability insurance; and
more
ï‚› U.S. employers often provide benefits
 Taxes pay for many other countries’ benefits
 U.S. benefit cost average 33%–50% of
payroll expenses
ï‚› Health insurance is the largest percentage
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits as a Competitive
Advantage
ï‚› Benefits are offered to:
ï‚› Aid recruiting and retention
ï‚› Improve organizational performance
ï‚› Meet legal requirements
ï‚› Reinforce the company philosophy of social and
corporate citizenship
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits as a Competitive
Advantage
 Benefits can influence employees’ decisions
about:
ï‚› Which employer to work for
ï‚› Whether to stay with or leave an organization
ï‚› When to retire
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Tax-Favored Status of Benefits
ï‚› Most benefits are not taxed as income to
employees
ï‚› Except for paid time off
ï‚› Gross-up: To increase the net amount of
what the employee receives to include the
taxes owed on the amount
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Global Benefits
ï‚› Benefits differ significantly across the globe
ï‚› Total hourly compensation
ï‚› Retirement and health insurance plans
ï‚› Amount of paid leave and vacation time
ï‚› Paid time off for childbirth and medical disability
ï‚› Paid sick leave policies
ï‚› In many countries, employers and employees
are taxed heavily to pay into government
funds
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Global Benefits
ï‚› Multinational companies must determine how
to compensate both host-country nationals
and expatriates
ï‚› So that all employees will feel that they are being
treated fairly
ï‚› Decisions about compensation impact global
attraction and retention of employees for
international employers
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Public-Sector Benefits
ï‚› Public sector workers
ï‚› Enjoy more benefits than those in the private
sector
ï‚› Belong to labor unions at a much higher rate
than nongovernment workers
ï‚› Their union contracts include:
ï‚› Free health care
ï‚› Traditional defined benefit pension plans
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Managing Benefits
 Benefits Design – goal is providing value for
employees while remaining cost-effective
ï‚› Flexible Benefits
ï‚› Part-Time Employee Benefits and Status
ï‚› Domestic Partner Benefits
ï‚› Older Workers Benefit Needs
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Flexible Benefits
ï‚› Flexible benefits plan: Allows employees to
select the benefits they prefer from options
established by the employer
ï‚› Challenges faced when providing choices:
ï‚› Employees may choose an inappropriate package
ï‚› Younger employees may decide not to participate
in the retirement plan
ï‚› Adverse selection: Only higher-risk employees
select and use certain benefits
ï‚› Higher administrative costs for the organization
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Part-Time Employee Benefits
ï‚› Part time employees:
ï‚› Most do not receive employee benefits
ï‚› Are least likely to receive health and life insurance
benefits
ï‚› Employers create their own full- and part-time
thresholds
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Domestic Partner Benefits
ï‚› U.S. Supreme Court voted against DOMA
ï‚› Same-sex spouses may be entitled to benefits
ï‚› In states where gay marriage is legal:
ï‚› Companies determine whether to treat same-sex
spouses the same as traditional married couples
with regard to benefits
ï‚› Insurance issuers cannot deny coverage to same-
sex married couples
ï‚› Employers must provide benefits provided under
federal law
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Domestic Partner Benefits
ï‚› Not providing benefits to married same-sex
couples may result in litigation under Title VII
of the Civil Rights Act
ï‚› Providing benefits to married same-sex
couples shows that the organization:
ï‚› Is accommodating and respectful of all employees
ï‚› Can enhance recruiting, employee satisfaction,
and retention
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Older Workers Benefit Needs
ï‚› Benefits attractive to older workers
ï‚› Modified work schedules
ï‚› Part-time benefits
ï‚› Simplified seasonal travel
ï‚› Wellness programs
ï‚› Annual financial planning counseling
ï‚› Phased retirement programs allow
employees to work part time and withdraw
some retirement funds at the same time
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits Administration and
Technology
ï‚› Open enrollment: Time when employees can
change their participation level in various
benefit plans and switch between benefit
options
ï‚› Outsourcing benefits administration
ï‚› Many organizations must make coordinated efforts
to administer benefits programs
ï‚› Third-party administrator (TPA): Vendor that
provides administrative services to an organization
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits Administration and
Technology
ï‚› Technology and employee self-service
ï‚› Internet and computer-based systems are being
used to:
ï‚› Communicate benefits information
ï‚› Conduct employee benefits surveys
ï‚› Facilitate benefits administration
ï‚› Decrease expenses
ï‚› Increase positive communication
ï‚› Effectively connect people across many HR functions
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits Administration and
Technology
ï‚› Self-service: Technology that allows
employees to:
ï‚› Change their benefits choices
ï‚› Track their benefit balances
ï‚› Submit questions to HR staff members and external
benefit providers
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits Communication
ï‚› Employees often are not aware of values and
costs of benefits
ï‚› Employers develop benefit communication
systems using:
ï‚› Online/Print Materials
ï‚› Group Sessions
ï‚› Personal Counseling
ï‚› Benefits Website and Social Media
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Benefits Communication
ï‚› When communicating benefit information,
consider:
ï‚› Timing and Frequency
ï‚› Communication Methods
ï‚› Significant Changes to Benefits
ï‚› Rationale
ï‚› Personal benefits statement: Translates
benefits into dollar amounts
ï‚› Help employees see the value of their benefits
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Types of Benefits
ï‚› Employers offer both legally mandated and
voluntary benefits
ï‚› Employers offer a broad variety to compete
for and retain employees
ï‚› Cafeteria benefit plan: Employees are given
a budget and can purchase the bundle of
benefits most important to them from the
“menu” of options offered by the employer
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Legally Required Benefits
 Social Security Act of 1935 – Provides old age,
survivor’s, disability, and retirement benefits
 Medicare – government-operated health
insurance for Americans 65 and older
ï‚› Taxed on both employer and employee
ï‚› Social security tax is 6.2% (total of 12.4%)
ï‚› Medicare tax is 1.45%
(total of 2.9%)
ï‚› Additional 0.9% Medicare tax for higher-income
employees
ï‚› Long-term viability of both taxes is in question
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Workers’ Compensation
 Workers’ compensation: Security benefits pro-
vided to workers who are injured on the job
ï‚› Concepts that balance the rights of
employers and employees under workers’
compensation:
ï‚› No-fault insurance: Injured worker receives benefits
even if the accident was the employee’s fault
 Exclusive remedy: Workers’ compensation benefits
are the only benefits injured workers may receive
from the employer to compensate for work-related
injuries
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Unemployment Compensation
ï‚› Established by the Social Security Act of 1935
ï‚› Provides a minimum level of benefits for
workers who are out of work
ï‚› Each state operates its own system, so
benefits differ by state
ï‚› Companies pay an unemployment tax
ï‚› Out-of-work and actively-looking employee
can receive 26 weeks of 50–80% pay
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Retirement Plan Concepts
ï‚› Vesting: Benefit that cannot be taken away
ï‚› No pension rights accrue if they have not been
employed long enough to be vested
ï‚› Portability: Retirement plan feature that
allows employees to move their retirement
benefits from one employer to another
ï‚› Once workers are vested they can transfer their
retirement benefits from one employer to another
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Retirement Plan
ï‚› Retirement plan: Program established and
funded by the employer and/or
employees to fund employee’s retirement
years
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Types of Retirement Plans
ï‚› Types of Retirement Plans
ï‚› Defined Benefit Plan: Employees are promised
a pension amount based on age and years of
service
ï‚› Defined Contribution Plan: Employer and/or
employee makes an annual payment to
employee’s retirement account
ï‚› Cash Balance Plan: Benefits are base on
accumulated annual company contributions
(% of pay + interest)
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Common Defined Contribution
Plans
ï‚› Profit-Sharing Plans
ï‚› Employee Stock Ownership Plans (ESOPs)
ï‚› 401(k) plan: Plan allows for a percentage of
an employee’s pay to be withheld and
invested in a tax-deferred account
ï‚› Auto-enrollment: Employee contributions to a 401(k)
plan are started automatically when an employee
is eligible to join the plan
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Legal Requirements of
Retirement Benefits
ï‚› Employee Retirement Security
ï‚› Employee Retirement Income Security Act
(ERISA) in 1974
ï‚› Retirement Benefits and Age Discrimination
(ADEA) in 1986
ï‚› Older Workers Benefit Protection Act
(OWBPA) in 1990
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Health Care Benefits
ï‚› Health plans are one of the most important
benefits companies offer
ï‚› Can cover medical, dental, prescription
drug, and vision care expenses
ï‚› Compared to the year 2000:
ï‚› Fewer Americans are covered by health plans
ï‚› Fewer private companies provide health plans
ï‚› Fewer employees enrolled in health plans
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Increases in Health
Benefit Costs
ï‚› Since the year 2000:
ï‚› Single worker premiums increased 100%
ï‚› Family premiums increased 125%
ï‚› Employees pay more of the premiums
ï‚› Average health care coverage expenses expected
to increase to $11,304 per year
ï‚› Employees predicted to pay 23.6% of premiums
($2,664) and $2,487 in out-of-pocket expenses
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Health Care Reform Legislation
ï‚› Patient Protection and Affordable Care Act
(PPACA) phased in to coverage in 2014
ï‚› Debate and litigation continues regarding
PPACA
ï‚› PPACA specifies 30 hours a week is full time
ï‚› Employer-sponsored health benefits will
continue to change
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Controlling Health Care
Benefit Costs
•Reducing or Dropping Benefits
•Cost Sharing with Employees
•Sponsoring Wellness Programs
•Fostering Employee Health Education
•Changing Prescription Drug Programs
•Consolidating of Benefits Packages
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Increasing Employee
Contributions
ï‚› Types of programs that attempt to reduce
health care costs paid by employers
ï‚› Managed care: Approaches that monitor and
reduce medical costs through restrictions and
market system alternatives
 Spousal exclusions: Limit access to a company’s
health plan when employee’s spouse works for
another company that offers health insurance
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Consumer-Driven Health Plans
ï‚› Consumer-driven health (CDH) plan: Provides
employer financial contributions to
employees to help cover their health-related
expenses
ï‚› Gives employees ownership of their health
care dollars
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 13-11: Timeline of COBRA
Notification Requirements
Source: Adapted from https://www.goigoe.com/Employers/COBRATimelines.aspx
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Health Insurance Portability
and Accountability Act
(HIPAA) of 1996
ï‚› Allows employees to switch their health
insurance when they change employers
ï‚› Requires employers to:
ï‚› Provide privacy notices to employees
ï‚› Not disclose of health information without
authorization
ï‚› Consider an entity that handles health information
a business associate
ï‚› Consider any disclosure of information a breach
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Insurance Benefits
ï‚› Common Types of Insurance Benefits
 Life Insurance – Typical level of coverage is one
and one-half or two times an employee’s annual
salary
 Disability Insurance – Provide continuing income
protection for employees who become disabled
and are unable to work
 Long-term care insurance – Allow employees to
purchase insurance to cover costs for long-term
health care in a nursing home, assisted-living
facility, or at a home
 Legal insurance – Employees (or employers) pay
a flat fee for a fixed number of hours of legal
assistance each month
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Family-Oriented Benefits
ï‚› Family and Medical Leave Act (FMLA)
ï‚› FMLA covers:
ï‚› Employers with 50 or more employees who live
within 75 miles of the workplace
ï‚› Employees who have worked at least 12 months
and 1,250 hours in the previous year
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Family Medical Leave Act
(FMLA)
ï‚› FMLA leave provisions:
ï‚› Maximum of 12 weeks of unpaid, job-protected
leave during any 12-month period for the following
situations:
ï‚› Childbirth and newborn care within one year of birth
ï‚› Adoption or foster care placement of a child
ï‚› Caring for a spouse, child, or parent with a serious
health condition
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Family Medical Leave Act
(FMLA)
ï‚› Serious health condition of the employee: Illness or
injury that requires inpatient care or continuing
treatment by a health care provider for medical
problems that exist beyond three days
ï‚› Military family members who must handle the affairs for
military members called to active duty
ï‚› 26 weeks leave to care for a military servicemember
injured while on active duty
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Family Medical Leave Act
(FMLA)
ï‚› Impact of the FMLA
ï‚› Significant percentage of employees have
taken family and medical leave
ï‚› Employers have to cover the workload for
employees on family leave
ï‚› Placed significant demands on HR professionals to
ensure compliance with FMLA provisions
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Family-Care Benefits
ï‚› Family-Based Benefits
ï‚› Adoption Benefits
ï‚› Child-Care Assistance
ï‚› Elder-Care Assistance
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Time-Off and Other Benefits
ï‚› Time-Off and Other Benefits
ï‚› Vacation and Holiday Pay
ï‚› Family and Sick Leave
ï‚› Leaves of Absence
ï‚› Paid-Time-Off (PTO) Plans
ï‚› Employee-Paid Group Benefits
ï‚› Vacation and Holiday Pay
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
CHAPTER 11
Total Rewards
and
Compensation
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Nature of Total Rewards
and Compensation
ï‚› Total rewards: Monetary and nonmonetary
rewards provided by companies to attract,
motivate, and retain employees
ï‚› Strategic decisions can guide the design of
compensation practices
ï‚› Compliance with all applicable laws and
regulations
ï‚› Cost-effectiveness for the organization
ï‚› Internal and external equity for employees
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Components of Compensation
Components
Description
___
Tangible Rewards
Elements of compensation that can be quantitatively
measured and compared between organizations
Intangible Rewards
Elements of compensation that cannot be as easily
measured or quantified
Base Pay
Basic compensation that an employee receives, often
as an hourly wage or salary
Wages
Payments calculated directly from the basis of time
worked by employees
Salary
Consistent payments made each period regardless of
the number of hours worked
Variable Pay
Compensation linked directly to individual, team, or
organizational performance
Benefit
Indirect reward given to an employee or group of
employees as part of membership in the organization
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Legal Constraints on
Pay Systems
ï‚› Fair Labor Standards Act (FLSA) – Primary
federal law affecting compensation which is
enforced by the Wage and Hour Division of
the U.S. Department of Labor
ï‚› Provisions focus on the areas covering:
ï‚› Minimum wage
ï‚› Limits on the use of child labor
ï‚› Overtime provisions (exempt and nonexempt status)
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Fair Labor Standards Act (FLSA)
ï‚› Minimum wage – Set by FLSA to be paid to a
broad spectrum of covered employees
ï‚› Congressional action is the only way to change it
ï‚› Child labor provisions – FLSA set the minimum
age for employment with unlimited hours at
16 years
ï‚› For hazardous occupations, the minimum is 18 years
of age
ï‚› Individuals 14 to 15 years old may work outside
school hours with certain limitations
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Fair Labor Standards Act (FLSA)
ï‚› Exempt and nonexempt statuses
ï‚› Exempt employees: Employees who are not
paid overtime
ï‚› Nonexempt employees: Employees who must
be paid overtime
ï‚› Overtime: FLSA established overtime pay
requirements at 1.5 times the regular pay rate
for all hours worked over 40 in a week
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Special Pay/Overtime Issues
ï‚› Compensatory Time Off
ï‚› Incentives for Nonexempt Employees
ï‚› Training Time
ï‚› Security Inspection Time
ï‚› After-Hours Email Time
ï‚› Travel Time
ï‚› Donning and Doffing Time
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Acts and Legislation Affecting
Compensation
ï‚› Paycheck Fairness Act
ï‚› Equal Pay Act of 1963
ï‚› Lilly Ledbetter Fair Pay Act
ï‚› Independent Contractor Regulations
Identifying Criteria for Independent Contractors
Behavioral Control
Financial Control
Type of Relationship
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Additional Laws Affecting
Compensation
ï‚› Prevailing wage: An hourly wage determined
by a formula that considers the rate paid for
a job by majority of the employers in the
appropriate geographic area
ï‚› Garnishment: A court order that directs an
employer to set aside a portion of an
employee’s wages to pay a debt owed to a
creditor
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Strategic Compensation
Decisions
ï‚› Organizational Climate
ï‚› Create a climate that reduces dissatisfaction with
compensation
ï‚› Entitlement philosophy: Assumes that individuals
who have worked another year with the company
are entitled to pay increases with little regard for
performance differences
ï‚› Pay-for-performance philosophy: Assumes that
compensation decisions reflect performance
differences
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Strategic Compensation
Decisions
ï‚› Communicating Pay Philosophy
ï‚› Helps employees recognize:
ï‚› Value of the total reward package
ï‚› How their work performance, tenure, and raises can
affect their compensation
ï‚› Work attitudes can improve
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Strategic Compensation
Decisions
ï‚› Compensation Responsibilities
ï‚› HR specialists and managers administer the
organizational compensation programs
ï‚› HR develops and administers the compensation
system
ï‚› HR ensures pay practices comply with all legal
requirements
ï‚› Line managers evaluate employee performance
and participate in pay decisions
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Payroll Administration
ï‚› Handled in different ways:
ï‚› HR process payroll
ï‚› Payroll staff reports to HR or to Accounting
ï‚› Payroll is outsourced
ï‚› Record keeping is critical
ï‚› Managers are responsible for accuracy
ï‚› Payroll processes must comply with
compensation laws
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Motivation Theories and
Compensation Philosophies
 Expectancy theory: Employee’s motivation is
based on the probability that his or her efforts
will lead to an expected level of
performance that is linked to a valued
reward
ï‚› Rewards that are not appreciated by the
employee have little value to motivate
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Motivation Theories and
Compensation Philosophies
ï‚› Equity theory: Individuals judge fairness
(equity) in compensation by comparing their
inputs and outcomes against the inputs and
outcomes of referent others
ï‚› Referent others: Workers that the individual
uses as a reference point to make these
comparisons
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Compensation Fairness
and Equity
ï‚› Compensation Fairness and Equity
ï‚› External Equity
ï‚› Internal Equity
ï‚› Procedural Justice
ï‚› Distributive Justice
ï‚› Pay Secrecy vs. Openness
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Market Competitive Compensation
ï‚› Lag-the-Market Strategy
ï‚› Used when the employer is experiencing financial
difficulties and when an abundance of workers is
available
ï‚› Lead-the-Market Strategy
ï‚› Aggressive approach that enables a company to attract
and retain sufficient workers with the required
capabilities and be more selective when hiring
ï‚› Match-the-Market Strategy
ï‚› Attempts to balance employer cost pressures and the
need to attract and retain employees by providing
compensation levels that meet the market for the
company’s jobs
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Selecting a Quartile
ï‚› Deciding which quartile position to target for
pay structures is a function of many
considerations:
ï‚› Financial resources available
ï‚› Competitiveness pressures
ï‚› Market availability of employees with different
capabilities
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Competency-Based Pay
ï‚› Competency-based pay: Rewards individuals
for the capabilities they demonstrate and
acquire
ï‚› In knowledge-based pay (KBP) or skill-based
pay (SBP) systems employees:
ï‚› Start at a base level of pay
ï‚› Receive increases as they learn to do other jobs
ï‚› Gain additional skills and knowledge
ï‚› Become more valuable to the employer
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Compensation System
Design Issues
Individual versus Team Rewards
Team
ï‚› How to develop
compensation
programs that
support the team
concept
Individual
ï‚› How to compensate
individuals whose
performance may
be a result of team
efforts and
achievements
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Global Compensation Issues
ï‚› The growing world economy has led to an
increase in employees working internationally
ï‚› Laws, living costs, tax policies, currency
fluctuations, local wage scales, and more
must be considered
ï‚› Offshoring: Moving jobs to lower-wage
countries
ï‚› Reshoring: Returning operations to the United
States
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
International Assignees
 Home Country–Based Approach
ï‚› Maintains the standard of living the expatriate had
in the home country
 Host Country–Based Approach
ï‚› Compensates the expatriate at the same level as
workers from the host country
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Job Evaluation and Methods
ï‚› Job evaluation: Formal, systematic means to
determine the relative worth of jobs within an
organization
ï‚› Compensable factor (Point Factor Method):
Job dimension commonly present throughout
a group of jobs within an organization that
can be rated for each job
ï‚› Derived from job analysis
ï‚› Reflect the nature of different types of work
performed in the organization
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Job Evaluation Methods
ï‚› Other Job Evaluation Methods
ï‚› Ranking Method
ï‚› Classification Method
ï‚› Factor-Comparison Method
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Market Pricing
ï‚› Market pricing: Uses market pay data to
identify the relative value of jobs based on
what other employers pay for similar jobs
ï‚› Identifying relevant market pay data for jobs
that are good matches with the employer’s:
ï‚› Jobs
ï‚› Geographic considerations
ï‚› Company strategies and philosophies about
desired market competitiveness levels
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Market Pricing
Advantages
Disadvantages
•Ties organizational pay
levels to the external job
market, without internal job
evaluation distortion
•Pay survey data may be
limited or unsound
•Communicates to
employees that the
compensation system is
market linked
•Compensation mix may
differ from matching jobs in
the market
•Tying pay levels to market
data can lead to wide
fluctuations
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Pay Surveys
ï‚› Pay survey: Collection of data on
compensation rates for workers performing
similar jobs in other organizations
ï‚› Benchmark jobs: Jobs that are found in many
organizations that can be used for the
purposes of comparison
ï‚› Internet-based pay information is prevalent
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Pay Surveys and Legal Issues
ï‚› Organizations are permitted to participate in
surveys only if they meet the following conditions:
ï‚› Survey must be administered by a third party
ï‚› Data must be more than three months old
ï‚› Minimum of five employers must participate in the survey
 No single employer’s data may be worth more than 25%
of the total
ï‚› All data must be aggregated and stripped of any
identifying information
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Pay Grades
ï‚› Pay grades: Groupings of individual jobs that
have approximately the same value to the
organization
ï‚› Market line: Graph line that shows the
relationship between:
ï‚› Job value as determined by job evaluation points
ï‚› Job value as determined pay survey rates
ï‚› Market banding: Grouping jobs into pay
grades based on similar market survey
amounts
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11-12:
Market Pay
Line and Job
Evaluation
Points
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Pay Ranges
ï‚› Each pay grade pay level can be
determined by making the market line the
midpoint line of the new pay structure
ï‚› Broadbanding: Practice of using fewer pay
grades with much broader ranges than in
traditional compensation systems
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Individual Pay
ï‚› Red-circled employees: Incumbent who is
paid above the range set for the job
ï‚› Green-circled employees: Incumbent who is
paid below the range set for the job
ï‚› Pay compression: Occurs when the pay
differences among individuals with different
levels of experience and performance
become small
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Performance-Based Increases
ï‚› Targeting high performers – Focuses on
providing the top-performing employees with
higher pay raises
ï‚› Pay adjustment matrix – Reflects an
employee’s upward movement in a firm
ï‚› Factors considered:
 Employee’s level of performance as rated in an
appraisal
 Employee’s position in the pay range
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Standardized Pay Adjustments
ï‚› Standardized Pay Increases
ï‚› Seniority
ï‚› Cost-of-Living Adjustments (COLA)
ï‚› Across-the-Board Increases
ï‚› Lump-Sum Increases (LSI)
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Compensation Challenges
ï‚› Economic Recessions
ï‚› Organizations reduce employment-related
expenses
ï‚› Use sparingly to reduce dissatisfaction and turnover
ï‚› Gender Pay Gap
ï‚› Women have gained ground recently
ï‚› Gap increases in executive-level positions
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.

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