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World at Work > Variable Pay > Flashcards

Variable Pay Flashcards

1
Q

Annual Bonus

A

Usually a lump-sum payment (cash, shares, etc.) made once a year in addition to an employee’s normal salary or wage for a fiscal or calendar year. Generally nondiscretionary and not based on predetermined performance criteria or standards.

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2
Q

Award

A

An amount of cash, a prize, a symbol or an intangible reward given as a form of recognition. Awards can be in the form of money, prizes, plaques, travel, and public commendations. The payouts of sales contests usually are called “awards”.

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3
Q

Benchmarking

A

The process by which an organization seeks to identify top performing organizations and analyzes their strategies, policies and practices for the purpose of learning some or all of them.

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4
Q

Benefits

A

Programs that an employer uses to supplement the cash compensation an employee receives. Benefits include income protection programs such as publically mandated and voluntary private “income protection” programs that often are provided through insurance, pay for time not worked and other employee perquisites.

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5
Q

Bonus

A

An after-the-fact reward or payment (may be either discretionary or nondiscretionary) based on the performance of an individual, a group of workers operating as a unit, a division or business unit, or an entire workforce. Payments may be made in cash, shares, share options or other items of value. In the context of sales compensation, a defined, pre-established amount of money to be earned for achieving a specified performance goal. Planned bonus amounts commonly are expressed as a percent of the incumbent’s base salary, salary range midpoint, percentage of target cash compensation or incentive compensation, or a defined dollar amount.

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6
Q

Bonus-eligible

A

A term referring to groups or classes of employees who are eligible to participate in a bonus program.

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7
Q

Business Strategy

A

The broad principles and approaches that guide the day-to-day operations of the business, ensuring that the business supports the organization’s mission, goals and objectives. The business strategy includes the advantage that the organization believes it has over its competition.

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8
Q

Cap

A

The total incentive opportunity that can be earned in a given period. Cap may also refer to the maximum cash compensation an employee may earn in a given time period.

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9
Q

Cash-based plans

A

Long-term incentive plans designed to motivate strategic performance with cash awards.

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10
Q

Cave-in

A

An incentive award that is lower than expected due to events outside the participants’ control.

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11
Q

Commission

A

A payment based on a formula that is used to calculate the incentive compensation opportunity for salespeople. In this context, it provides a predetermined incentive amount for each discrete unit of sales made by the salesperson. Commissions commonly are expressed as a percent of each sales dollar (revenue), percent of gross margin (profit), or a dollar amount per unit sold. A commission-only compensation program is sometimes known as “full commission” or “straight commission”.

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12
Q

Compensation

A

Cash provided by an employer to an employee for services rendered. Compensation comprises the elements of pay (e.g. base salary, variable pay, stock, etc.) that an employer offers an employee in return for his or her services.

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13
Q

Compensation philosophy

A

Ensures that a compensation program supports an organization’s culture.

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14
Q

Compensation policy

A

Ensures that a compensation program carries out the compensation strategy while supporting the compensation philosophy.

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15
Q

Compensation strategy

A

The principles that guide design, implementation and administration of a compensation program at an organization. The strategy ensures that a compensation program, consisting of both pay and benefits, supports an organization’s mission, goals and business objectives. It may also specify what programs will be used and how they will be administered.

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16
Q

Corporate culture

A

The norms, beliefs and assumptions adopted by an organization to enable it to adapt to its external environment and integrate people and units internally. It is strongly influenced by the values and behavior of an organization’s management. In turn, corporate culture influences both the behavior of the members of the organization and the quality of the work experience.

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17
Q

Cycling

A

A variation of performance above and below the baseline. Can result in no cumulative improvement over the course of the plan period due to performance during subsequent payout periods.

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18
Q

Deferred compensation

A

Any of a number of compensation payments that are payable to an employee at some point in the future. These include voluntary deferral of earned incentives, mandatory deferrals of earned incentives as well as earnings and retirement plan vehicles.

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19
Q

Discretionary bonus

A

A plan in which management determines the size of the bonus pool and the amounts to be allocated to specific individuals after a performance period. These have no predetermined formula or promises, and are not guaranteed.

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20
Q

Downsizing

A

Reducing the size of the workforce.

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21
Q

Earned time off

A

An incentive or reward that takes the form of pay for time not worked.

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22
Q

Earnings

A

Total wages or cash received during a specified period of time (e.g., pay period, month, year) for time worked or service rendered, including all regular pay, overtime, premium pay, bonuses, etc.

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23
Q

Employee stock ownership plan (ESOP)

A

A qualified defined contribution (DC) plan that enables employees to receive company shares that they accrue as plan participants upon retirement or separation from the organization.

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24
Q

Employee stock purchase plan (ESPP)

A

A benefits plan that allows employees to use payroll deductions to acquire company stock, usually at a discounted rate.

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25
Q

Equity-based plan

A

The use of company shares to create an equity interest in the company and foster identification with shareholder interests.

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26
Q

Extrinsic rewards

A

Work-related rewards received for performance that have value measurable in monetary or financial terms.

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27
Q

Fair Labor Standards Act of 1938 (FLSA)

A

A federal law governing minimum wage, overtime pay, child labor and record-keeping requirements.

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28
Q

Feedback

A

Information about the state or outcome of a system that can be used to modify or correct a system’s operation. As the term usually is used with respect to compensation, it relates to the process in which supervisors give employees information about the status of their performance. Performance appraisals are an example of a feedback mechanism.

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29
Q

Fixed pay

A

Nondiscretionary compensation that does not regularly vary according to performance or results achieved.

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30
Q

Gainsharing

A

Any one of a number of incentive programs (e.g., Rucker, Improshare, Scanlon) designed to share the results of productivity gains with employees as a group.

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31
Q

Goalsharing

A

A group incentive plan that is designed to measure performance against future-oriented business objectives or performance targets (i.e., not against history).

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32
Q

Going rate

A

Refers to the employer’s best estimate of the wage rate that is prevailing in a labor market for a specific job. Also known as market rate.

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33
Q

Incentive

A

Any form of variable payment tied to performance. The payment may be a monetary award, such as cash or equity, or a nonmonetary award, such as merchandise or travel. Incentives are contrasted with bonuses in that performance goals for incentives are predetermined.

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34
Q

Incentive compensation

A

Variable rewards for performance or achievement of short-term or long-term goals. Designed to stimulate employee performance.

35
Q

Incentive eligible

A

A term referring to groups or classes of employees who are eligible to participate in an incentive plan.

36
Q

Incentive pay plan

A

Formula-driven pay plan that is designed to reward the accomplishment of specific results. Rewards usually are tied to expected results identified at the beginning of the performance cycle. The plans can be individual, group, companywide or a combination or any. Incentive plans are forward-looking; in contrast to bonuses, they are not discretionary.

37
Q

Incentive payments

A

Within the context of international compensation, any one of a variety of payments in excess of base pay made as an inducement either to accept, remain on or complete a foreign assignment.

38
Q

Incentive plan

A

Plan that ties employees’ earnings to their actual production on either an individual or group basis.

39
Q

Individual pay rate

A

The wage or salary level assigned to a given individual. Individual pay rates may vary for the same job or as a function of time and grade, performance, or some other basis for establishing variation in the employee’s value to the organization.

40
Q

Intrinsic motivation

A

Employee satisfaction contingent upon job content or job context, as opposed to job consequences. It is a result of factors such as the opportunity to perform meaningful work, experience complete cycles of work or finished products, experience variety, and receive feedback on successful work results.

41
Q

Knowledge-based pay

A

A system of salary differentiation based on the formal education, related experience or specialized training a professional employee has that qualifies the individual to deal with specific subject matter, or work effectively in a specific field. Salary level may not be dependent on whether the incumbent utilizes the knowledge.

42
Q

Leveraged employee stock ownership plan (LESOP)

A

A plan under which the company can borrow money using its stock as security or collateral for the loan and pay the principal back on a pretax basis. Under a LESOP, the organization borrows money from a financial institution, using its stock as security or collateral for the loan. During a prescribed period of time, the organization repays the loan, with principal and interest payments being tax-deductible. With each loan repayment, the lending institution releases a certain amount of stock held as security, which is placed into an employee stock ownership trust (ESOT) for distribution at no cost to qualified employees.

43
Q

Line of sight

A

Employee’s perception of the degree to which his or her contributions influence improvement.

44
Q

Long-term bonus

A

Usually a form of deferred compensation that establish an income stream in the form of a bonus over time, typically at a predetermined age or upon retirement.

45
Q

Lump-sum bonus

A

An award that is paid in a single cash payment.

46
Q

Merit Increase

A

An adjustment to an individual’s base pay rate based on performance or some other individual measure.

47
Q

Mix

A

Relative to compensation, the relationship between the base salary and the planned (or target) incentive amounts in the total cash compensation package at planned or expected performance. The two portions of the mix, expressed as percentages, always add to 100 percent.

48
Q

Multiple measure plan

A

Incentive plan designed to measure and reward performance using one or more goals. Plan may reflect several ways to measure performance against a single objective or several objectives.

49
Q

National Labor Relations Act of 1935 (Wagner Act)

A

A federal law that gives employees the right to organize unions, bargain collectively and engage in concerted actions for mutual protection. It also requires employers to recognize unions selected by employees and to bargain in good faith, and it prevents employers from conducting certain unfair labor practices.

50
Q

Noncash incentives/recognition programs

A

Incentive payments that are not readily convertible to cash (e.g., extra time off, meal or merchandise awards, a reserved parking space, membership in a luncheon club).

51
Q

Nondiscretionary bonus

A

A plan in which management determines the size of the bonus pool and the amounts to be allocated to specific individuals after a performance period. These use a predetermined formula and promises.

52
Q

Organizational development (OD)

A

Systems and programs aimed at improving organizational and individual behavior and performance through training and development. Specific techniques may include group exercise, management by objectives (MBO), sensitivity training and group discussion.

53
Q

Output-based plans

A

Short-term cash incentive plans that use output as the basis for payouts.

54
Q

Pay at risk

A

A variable pay plan funded on the basis of a reduction in base pay that usually is offset by the possibility of a larger variable pay plan payout.

55
Q

Pay for time not worked

A

Refers to time off work with pay. Typically, it includes: holidays, vacations, personal days, jury duty, approved paid leaves, military duty, etc.

56
Q

Payout frequency

A

The timing of incentive payouts. Payouts commonly are made weekly, monthly, quarterly, or annually.

57
Q

Performance appraisal

A

Any system of determining how well an individual employee has performed during a period of time, frequently used as a basis for determining merit increases.

58
Q

Performance culture

A

A set of shared norms and attitudes relating to performance in an organization. An organization with a performance culture based on teamwork, for example, is unlikely to be fertile ground for a reward system based on competitive performance among individuals. A merit pay system may reflect an individual ethic within an organization’s performance culture.

59
Q

Performance management

A

A systematic approach for managing individuals and/or groups that involves planning, monitoring, appraising, rewarding, and improving performance in support of the business strategy.

60
Q

Performance measurement

A

Any technique employed to gather data that provides a basis for exercising performance appraisal judgment.

61
Q

Performance sharing

A

An incentive plan design in which performance is defined in terms of selected criteria (e.g., quality, customer satisfaction, responsiveness, profit, etc.), standards are established and incentive awards are made contingent upon meeting these standards, typically at the business-unit or organizational level.

62
Q

Performance standards

A

The defined performance levels, derived from organizational objectives, that an organization expects from individuals and/or groups with respect to specific objectives.

63
Q

Performance targets

A

Tasks or behavioral goals established for an employee that provide the comparative basis for performance appraisal.

64
Q

Person-based pay

A

Compensation programs that base an employee’s salary on that individual’s skills or knowledge rather than on the nature of a rigidly defined job. Types include skill-, knowledge- and competency-based pay.

65
Q

Piece rate

A

A direct performance payment based on production by an individual worker. A payment is made for each piece or other quantity unit of work produced by an employee.

66
Q

Premium pay

A

Extra pay, beyond the base wage rate, for work performed outside or beyond regularly scheduled work periods (e.g., Sundays, holidays, night shifts, etc.). Also may refer to extra pay for high-demand knowledge or skills.

67
Q

Productivity

A

Any index measuring the efficiency of an operation, usually involving a ratio of outputs to inputs or costs. Rewards frequently are tied to productivity-related measures.

68
Q

Progressive incentive formula

A

A rewards program in which the incentive payout rate increases as performance exceeds predetermined levels (e.g., nonlinear sales commission formulas).

69
Q

Quota

A

A predetermined performance goal. Quotas can be expressed as absolute numbers, a percent (100 percent), percent change or units sold. Also referred to as goal, objective, and performance target.

70
Q

Recognition program

A

A policy of acknowledging employee contributions after the fact, possibly without predetermined goals or performance levels that the employee is expected to achieve. Examples include giving employees clocks or other gifts on milestone anniversaries, granting an extra personal day for perfect attendance or paying a one-time cash bonus for making a cost-saving suggestion.

71
Q

Regular rate of pay

A

Under the Fair Labor Standards Act of 1938 (FLSA), the amount of compensation that is used to calculate overtime rates. The regular rate of pay includes the base rate, shift premium, piece rate, pay allowances and bonuses.

72
Q

Reliability

A

The quality of measuring a device, including human raters and evaluators, that determines how free the device is from common measurement errors, operationalized by correlating measures from two or more separate observations using the same measures on the same subjects.

73
Q

Rucker Share of Production Plan

A

A gainsharing cost-reduction program in which specific cost savings that result from an employee effort are shared with employees.

74
Q

Sales compensation

A

Monetary amounts paid to sales representatives or sales management that vary in accordance with accomplishment of sales goals. Sales compensation formulas usually attempt to establish direct incentives for sales.

75
Q

Scanlon Plan

A

A gainsharing program in which employees share in specific cost savings that are due to employee effort. The Scanlon Plan involves formal employee participation, a predetermined incentive formula and periodic progress reporting.

76
Q

Single measure plans

A

Incentive plans based on a single measure (financial or productivity) of performance.

77
Q

Skill-based pay

A

A person-based compensation system based on the repertoire of skills and employee can perform, rather than the specific skill that the employee may be doing at a particular time. Pay increases generally are associated with the addition and/or improvement of the skills of an individual employee, as opposed to better performance or seniority within the system. Pay level generally is not dependent on whether any of the skills are utilized.

78
Q

Slope

A

In a similar linear model, y= a+bx, the coefficient b is the change in the value of y, the dependent variable, for each unit change in the value of x, the independent variable. Graphically, slope represents the “rise” over the “run” of a given line and directly determines a line’s steepness. In a multiple linear model, y= a+b1x1 + b2x2 + … + bkxk, each xi has a slope bi, which is sometimes called a b-weight, partial regression weight or regression coefficient. Each bi is the change in y for each unit change in the corresponding xi when all the other xs are held constant.

79
Q

Small-group incentive

A

Any incentive program that focuses on the performance of a small group, usually a work team. These incentive programs are most useful when measurable output is the result of group effort and individual contributions are difficult to separate from the group effort.

80
Q

Spot award

A

A type of informal recognition that is delivered spontaneously or “on the spot.”

81
Q

Team

A

A small number of people with complementary skills who are committed to a common purpose, set of performance goals and approach for which they hold themselves mutually accountable.

82
Q

Time off with pay

A

An employee benefits category that includes vacation, holidays, sick leave, lunch periods, and other miscellaneous leave for which the employee is compensated. Also known as pay for time not worked.

83
Q

Windfall

A

A sales result that was realized outside the normal influencing role of the sales representative. Because the sales person had low or no involvement in creating the sale, a windfall is sometimes excluded from normal incentive compensation treatment.

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