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Flashcards in Compensation Issues Deck (46):

Traditionally, compensation packages have been concerned with the market rates of pay for specific roles; however, in the modern globalized world economy, _________ compensation planning has developed to reward employees to stimulate motivation and growth in line with the overall goals of the organization.



The consequence of adopting a strategic compensation package is that employees are no longer paid the market rate but are instead _________ on the basis of their personal achievements or group contribution to the firms success.


This is a consequence of such planning companies are paying employees based on their abilities and contributions to organizational success.


A value-added compensation program is one in which the __________ of the program, such as wages and incentives, are beneficial to the employee and employer in advancing the needs of the organization.


Value-added compensation can also be called value-chain compensation.


In order to increase productivity and reduce labor costs, HRM are increasingly turning to compensation packages based on the pay-for-___________ standard.


This standard means that employers tie employee pay to results. This increases motivation and reduces labor costs.


The difficulties with instituting the pay-for-performance standard is that it is hard to establish the size of the pay increase, ____ to pay it, and to determine the employees output in a service industry.


The issue of when to make these payments is also difficult as it will affect motivation and a certain amount of jealously and resentment from the other employees may arise.


If employees believe that they are being paid fairly for the value of the work performed, then a state of pay equity is attained and this has a dramatic effect on __________.


Employees who feel that they are being paid what they are worth are motivated whereas those who believe the opposite are likely to be unmotivated and less productive.


The main differences between hourly employees and ________ employees are that the latter are paid a fixed amount calculated on a weekly, bi-weekly or monthly basis and receive certain benefits whereas the former are compensated only for the hours they work.


Salaried employees normally receive benefits such as health care and insurance benefits whereas hourly employees only receive pay for hours worked.


The compensation of employees is affected by their exempt or nonexempt classification in accordance with the __________ Standards Act.

Fair Labor

The Fair Labor Standards Act (FLSA) states that nonexempt employees covered by the Act must receive 1.5 times their regular pay for working overtime in excess of 40 hours a work week. Exempt employees not covered under the Act for the overtime provision are normally white-collar workers.


The wages for a job are determined by internal and external factors which form the wage ____.


The wage mix combines internal factors, such as the employers ability to pay and external factors such as the going rate for that job to create the mix upon which salaries are determined.


The internal factors that affect the wage mix include the compensation ________ of the employer, the jobs worth, the value attached to the particular employee and the employers ability to pay.


Some firms do not have a proper compensation plan and so wages are determined by the subjective view of the business owners as to what the individual should be paid.


The ________ factors that can determine the wage mix include the labor market conditions, area wage rates, cost of living and collective bargaining.


The rate of compensation is usually adjusted upwards according to the Consumer Price Index (CPI) in order for employees to retain their purchasing power.


The job __________ process consists of assessing the relative worth of jobs in order to establish which jobs should be better paid than others within an organization.


This is the explanation of a job evaluation process and it is normally performed only by bigger firms who have the expertise to do it.


The four main methods of conducting a job evaluation comparison are the job ranking system, the job classification system, the _____ system and the factor comparison system.


The point system for job evaluation utilizes a qualitative point system based on compensable factors, such as the skills, efforts and responsibilities for performing the job, which are then assigned a weight based on the organizations judgment of the importance of each factor.


The job _______ system for job evaluation is the most traditional system and it lines up jobs based on their relative worth, whereas the job classification system arranges and groups jobs in accordance with a selection of predetermined wage grades.


The lower grades cover jobs that require less knowledge, skills, abilities and other factors (KSAOs) compared to the higher grades which require higher KSAOs and therefore the higher grade jobs are better paid.


The _____ comparison system for job evaluation is carried out by assessing the compensable factors of the various jobs and then comparing it to the compensable factors of key jobs within the company.


The key jobs are the ones that are critical for establishing wages and are well known within the labor market. So, a factor comparison scale is constructed to enable the factor comparison system for job evaluation.


The Hay Profile method is a job evaluation process designed for ________.


This method evaluates the knowledge, problem-solving capabilities and accountability of candidates to determine their suitability for manager, executive, or professional positions.


In order to attain internal and external pay equity, job evaluation techniques must be used in conjunction with ___________ data.


Job evaluation provides internal equity in pay since it determines the relative worth of a job, while the wage survey data will ensure external equity by ensuring that a company's employees are being paid on a similar level to employees doing similar jobs in other organizations.


The wage curve can be graphically represented by a ___________ of the relationship between the relative worth of jobs and their wage rates.



Pay ______ are the types of jobs within a particular grouping that are paid at the same rate, whereas the rate ranges describes the range of pay rates for each pay grade.


It is easier administratively to group jobs into pay grades and pay those employees at a particular rate or rate range. Hence, the existence of this system.


Sometimes, employers pay certain employees above the set pay range and these rates are called __________ rates.

red circle

This occurs if the employee is fairly senior or promotional opportunities are limited.


__________-based pay does not reward employees based on their job position but instead on their skills, knowledge and abilities.


This system encourages employees to advance their skills and perform more tasks.


The main advantages of competence-based pay are increased productivity, greater workforce ___________, raised loyalty and reduced absenteeism.


As staff members improve their knowledge, skills, abilities, and other factors (KSAOs) through training they can perform an increasing array of tasks thereby providing the employer with greater flexibility when deploying tasks.


The major disadvantages with the competence-based pay system are that a wage _______ is normally applied by employers and when an employee has achieved the top wage, they may no longer want to continue training.


Employers normally apply a cap as to the amount of compensation that can be earned, despite the number of additional skills learned.


The Fair Labor Standards Act (FLSA) prescribes the federally mandated _______ wage payable to employees before taking into account overtime, but state wage laws and wage boards also intervene by doing the same.


The minimum wage is meant to prevent employers from exploiting employees and to ensure that they are paid at least a minimum sum as required by the federal or state government or wage board.


_________ plans are becoming increasingly popular with organizations that tie wage payments to performance.


Incentive plans are also known as variable pay plans and award the employee a baseline salary which can then be lifted depending on their personal or team contribution to the company.


Commonly used incentive plans include _________, standard hour plan, bonuses and merit pay.


A bonus is an additional payment made on top of the standard wage and is determined according to factors such as the company's profitability and the performance of the employee. The bonus is normally paid annually.


________ describes an incentive plan where the rate of payment is determined by the number of units produced, whereas the standard hour plan determines the incentive rates based on a pre-set time for completing the job.


The standard hour plan is best illustrated by the following example. The worker has been given 10 hours to finish a job and the rate is $100 per hour. If the worker completes the task in 5 hours, he or she will still be paid $1000.


The _____ pay incentive program connects an increase in base pay to the degree of success with which an employee performs their job.


Merit pay is a tool to increase the base pay of high-performing employees.


The _______ merit payment is a one-off incentive payment received at the end of the year.


The lump-sum merit payment is not included in the base pay.


________ compensation plans usually consist of four elements--the base salary, short-term incentives, long-term incentives and perquisites.



Short-term incentives in an executive pay plan normally consist of bonuses that are tied to the company's profits whereas the most common long-term incentive offered are _____________.

stock options

Stock options are believed to give top management a direct incentive for the company to perform well since the higher the price of the stock, the greater their financial gain.


Group incentive plans reward teams with a bonus when they perform well, whereas enterprise incentive plans such as profit-sharing are meant to reward the members of the organization as a ____.


A profit-sharing plan is a common enterprise incentive. It makes available to all employees or pays to employees a share in the company's profits, a special sum now or at a later date, in addition to the base salary.


All employees can participate in the bonus incentive _______ Plan that encourages employees to make suggestions to improve productivity, who are in turn rewarded through this scheme.


Under the Scanlon Plan, employee suggestions are passed through various management committees that evaluate the idea to determine if it should be implemented.


The Scanlon Plan is a member of the family of ___________ plans where the organization and employees share financial success gained from increased productivity and reduced costs through a predetermined formula.



Employee _______________ plans (ESOPs) allow for the employer to contribute shares of its own stock into a trust for the benefit of employees, with the amount allocated depending on the seniority or wage level of the employee.

stock ownership

The purpose of using an ESOP trust is to take advantage of the tax-exempt status of such trusts in accordance with the Internal Revenue Code.


Employee ________ are meant as indirect compensation to improve the work and personal lives of employees.


Employee benefits include such things as paid sick leave and health insurance. Benefits, on average, account for about 40% of the employer's payroll.


The main purposes of an employee benefits program are to improve worker satisfaction, meet health and safety rules, attract and motivate workers, retain workers and secure the ___________ edge.


In order to attract the best workers, employers need to offer a good range of benefits to make their jobs desirable to potential employees.


In order to accommodate for the wide range of employee needs, many employers are offering ________ benefits.


This is also known as the cafeteria plan. This gives the workers greater choice in selecting the benefits that they want to suit their requirements.


The main advantages of the cafeteria plan are that the benefits offered can be _______ to the changing workforce, employers gain a competitive advantage over their rivals and employees develop a better understanding of the benefits available to them. The main disadvantages are that the plan is expensive to manage, employees may choose benefits that are more costly to employers and a bad selection by the employee leads to unnecessary financial cost.


The costs of setting up and operating such a plan will certainly be more expensive than merely offering a fixed set of benefits to the employee. Some employers outsource this type of program to an external professional benefits vendor.


Employers must correctly communicate information about the benefits available to employees and if they should purposely mislead employees about their benefit entitlements, then the US Supreme Court decision of Varity Corp v. ____ (1996) has ruled that the employee would be entitled to compensation from the employer.


This is the landmark decision with regards to the right to know and be correctly informed about the benefits an employee is entitled to.


By law, the benefits that an employer must provide are social security, unemployment insurance and ____________________ insurance.

workers compensation

Unemployment insurance is a requirement of the Social Security Act for employees covered by this legislation. If an employee qualifies, then he or she may receive up to 26 weeks of unemployment insurance benefits during the period of unemployment.


__________________________ Benefits (SUB) are paid by companies who have agreed to it as a result of collective bargaining agreements between management and the union.

Supplementary Unemployment

The SUB plan allows an employee who is laid off to receive weekly benefits from the company in addition to state unemployment compensation. SUB payments come out of a special fund created for this purpose by employer contributions.


For employees who are covered by the Social Security Act, the ________ must make a contribution in the form of a tax which must be matched by the employer in order to pay old-age insurance benefits, disability benefits and survivors' insurance benefits.


The Social Security Program pays benefits to workers who are too seriously disabled to perform substantially gainful work. In order to be eligible for these benefits, the worker must have been contributing to the program for at least 6 months and was expected to continue doing so for at least 12 months.


____________________ insurance is required by both federal and state law in order to defray the loss of income and medical costs that an employee will suffer as a consequence of a work-related accident or illness.

Workers compensation

The loss of income will result from a work-related illness or accident and hence this insurance will have reduced that effect on the worker and his or her family.


__________ employee benefits include retirement plans, paid vacation leave, life insurance and health benefits


Some employers offer a retirement plan to its employees. These plans (also known as pension plans) can be contributory - where both employers and employees contribute to the fund or it can be noncontributory, so that only the employee contributes.


A cost of living allowance adjusts workers income automatically to inflation. ____ clauses turn price level increases into wage increases.


A COLA (cost of living allowance) adjusts worker wages for inflation, which is reflected by increasing prices.