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Explain the strategic importance of an organization's approach to total compensation

Total compensation is strategically important because it can be used to attract, retain, and motivate talent. It can also be used to implement the business strategy and improve productivity


total compensation

refers to the monetary and non monetary rewards offered to employees


clawback provisions

require executives to repay any incentive compensation that was improperly awarded based on financial restatements


pay mix

the way an organization distributes pay among all monetary and non monetary elements of total compensation


Base pay

refers to the wage or salary an employee receives, exclusive of any incentive pay or benefits


monetary compensation

includes direct payments, such as salary, wages, and bonuses, and indirect payments, such as payments to cover benefits and services.


Non monetary compensation

includes many forms of social and psychological rewards, such as recognition and respect for others, enjoyment from the doing the job itself, opportunities for self-development, etc


How does total compensation fit within the integrated HRM system

Total compensation should be designed to fit the organization's external and internal environments. Labor market conditions, the legal environment, and unions all influence an organization's approach to total compensation. The organization's size, company culture, and business strategy share the specific approach. Other HR practices that should be aligned with compensation include job analysis and competency modeling, recruitment, performance management, and training and development


Fair Labor Standards Act (FLSA)

Sets minimum wages, maximum hours, child labor standards, and overtime pay provisions for employees


Nonexempt employees

Employees who are protected by the FLSA


Exempt employees

Employees who are not covered by the minimum wage or overtime provisions of the FLSA


Equal Pay Act

Prohibits an employer from discriminating between employees on the basis of sex by paying wages to employees of one gender at a rate less than that paid to employees of the opposite sex for work that requires equal skill, effort, and responsibility and is performed under similar working conditions


Comparable worth

Based on the principle that even pay for dissimilar jobs should be equal if the jobs have a similar overall value to the organization


What are the roles and responsibilities of the HR Triad related to total compensation?

HR professionals, line managers, and employees all have substantial responsibilities with respect to total compensation. The HR Triad is responsible for aligning the needs and characteristics of the organization with the motivation and behaviors of employees while ensuring that employees are paid fairly


How do organizations establish the internal value of jobs?

Most organizations use a job-based pay structure that specifies the minimum and maximum pay for all jobs in the organization. The pay structure should ensure both internal and external equity


Pay structure

Combines job evaluation information and information about market pay rates to establish a policy that specifies the base pay of employees in each job


Job evaluation

A procedure for establishing the relative internal worth of jobs


Internal equity

The perception by employees that they are compensated fairly compared to others in the same organization given the contributions that they and others make


Job-based pay structure

The pay that people receive is determined primarily by the job they hold


Job ranking method

Involves placing jobs into a rank order according to their perceived overall value or importance


Job classification method

Groups jobs into smaller sets of job classes, and then the job classes (not the individual job) are ranked according to their value to the organization


Point factor ranking method

Uses a sophisticated system for assigning values to jobs based on numeric ratings of compensable factors


Compensable factors

The specific dimensions of work that an organization chooses to use when establishing the relative value of jobs


Competency-based job evaluation

Keeps the focus on the job but emphasizes the competencies needed to perform that job rather than job tasks and duties



Refers to the use of pay structures with very few (e.g., three to five) pay grades


Skill-based pay

Compensates employees for the types and depth of skills they're capable of using, regardless of whether the job they currently hold requires the use of those skills


Describe how organizations set pay levels using external market values

Organizations establish market-based pay levels by determining external market rates, establishing the market pay policy, and setting the organization pay policy. Employers can choose a policy that leads, matches, or lags the pay offered by competitors.


External equity

Exists when employees feel they are being compensated fairly relative to how people in similar jobs (or with similar competencies) are compensated by other employers


Compensation survey

Used by employers to obtain data about pay rates in the external labor market


Benchmark jobs

Those jobs that are commonly found across a range of organizations and that involve essentially the same work and responsibilities regardless of the company