Introduction 1 but the focus in this chapter is pay. they all help maintain employee commitment There are many work motivators, including promotions desirable work assignments peer recognition work freedom Rewards Review 2 bonuses piecework commission incentive plans merit pay plans cost of living increase labor market adjustment profit sharing time-in-rank increase protection Program pay for time not worked services/ perks assigned parking space preferred assignments business cards own secretary impressive title participation in decision making greater job freedom more responsibility opportunities for growth diversity of activities Financial Non-financial Extrinsic Implied membership-based Performance based Explicit membership-based Intrinsic Types of Reward Plans 3 intrinsic rewards (personal satisfactions) come from the job itself, such as: pride in one’s work feelings of accomplishment being part of a work team extrinsic rewards come from a source outside the job, mainly by management: money promotions benefits Intrinsic versus Extrinsic Rewards Types of Reward Plans 4 financial rewards: Financial versus Nonfinancial Rewards nonfinancial rewards: wages bonuses profit sharing pension plans paid leaves purchase discounts make life on the job more attractive; employees vary greatly on what types they like Types of Reward Plans 5 performance-based rewards are tied to specific job performance criteria commissions piecework pay plans incentive systems group bonuses merit pay membership-based rewards such as cost-of-living increases, benefits, and salary increases are offered to all employees Performance-based versus Membership-Based Compensation Administration 6 An effective, fair compensation program: Companies derive their compensation programs from job evaluation, which defines the appropriate worth of each job. Both employees and employers can research compensation facts and issues at www.salary.com http://salary.nytimes.com/ http://www.salaryexpert.com/ attracts motivates Retains competent employees Compensation Administration 7 The Fair Labor Standards Act requires: minimum wage overtime pay record-keeping child labor restrictions exempt employees include professional and managerial employees not covered under FLSA overtime provisions nonexempt employees eligible for premium pay (time and one-half) when they work more than 40 hours in a week Compensation Administration 8 Civil Rights Act: broader than Equal Pay Act prohibits discrimination on the basis of gender used to support comparable worth concept salaries established based on skill, responsibility, effort, and working conditions Equal Pay Act of 1963 requires that men and women hired for the same job be paid the same. Job Evaluation and the Pay Structure 9 Job analysis information determines the relative value, or rank, of each job in the organization. Research wage information at the Bureau of Labor Statistics http://.

1. Introduction
1
but the focus in this chapter is pay.
they all help maintain employee commitment
There are many work motivators, including
promotions
desirable work assignments
peer recognition
work freedom
Rewards Review
2
bonuses
piecework
commission
incentive
plans
merit pay
plans
cost of living
increase
labor market
adjustment
profit sharing
time-in-rank
increase
protection
Program
pay for time

2. not worked
services/
perks
assigned
parking space
preferred
assignments
business
cards
own
secretary
impressive
title
participation in
decision making
greater job
freedom
more
responsibility
opportunities
for growth
diversity
of activities
Financial
Non-financial
Extrinsic

3. Implied
membership-based
Performance
based
Explicit
membership-based
Intrinsic
Types of Reward Plans
3
intrinsic rewards (personal satisfactions) come from the job
itself, such as:
pride in one’s work
feelings of accomplishment
being part of a work team
extrinsic rewards come from a source outside the job, mainly by
management:
money
promotions
benefits
Intrinsic versus Extrinsic Rewards
Types of Reward Plans
4
financial rewards:
Financial versus Nonfinancial Rewards
nonfinancial rewards:
wages
bonuses
profit sharing
pension plans
paid leaves

4. purchase discounts
make life on the job more attractive; employees vary greatly on
what types they like
Types of Reward Plans
5
performance-based rewards are tied to specific job performance
criteria
commissions
piecework pay plans
incentive systems
group bonuses
merit pay
membership-based rewards such as cost-of-living increases,
benefits, and salary increases are offered to all employees
Performance-based versus Membership-Based
Compensation Administration
6
An effective, fair compensation program:
Companies derive their compensation programs from job
evaluation, which defines the appropriate worth of each job.
Both employees and employers
can research compensation
facts and issues at
www.salary.com
http://salary.nytimes.com/
http://www.salaryexpert.com/
attracts
motivates
Retains competent employees

5. Compensation Administration
7
The Fair Labor Standards Act requires:
minimum wage
overtime pay
record-keeping
child labor restrictions
exempt employees
include professional and
managerial employees
not covered under
FLSA overtime provisions
nonexempt employees
eligible for premium pay
(time and one-half)
when they work more than
40 hours in a week
Compensation Administration
8
Civil Rights Act:
broader than Equal Pay Act
prohibits discrimination on the basis of gender
used to support comparable worth concept
salaries established based on skill, responsibility, effort, and
working conditions
Equal Pay Act of 1963 requires that men and women hired for
the same job be paid the same.
Job Evaluation and the Pay Structure

6. 9
Job analysis information determines the relative value, or rank,
of each job in the organization.
Research wage information at
the Bureau of Labor Statistics
http://www.bls.gov/bls/blswage.htm
Job evaluation helps set pay structure.
Other pay structure factors:
labor market conditions
collective bargaining
individual skill differences
Job Evaluation and the Pay Structure
10
Job Evaluation Methods
A committee places jobs in a simple rank order from highest
(worth highest pay) to lowest.
Jobs placed in grades to compare their descriptions to the
benchmarked jobs. Look for a common denominator (skills,
knowledge, responsibility).
Jobs are rated and allocated points on several criteria.
Jobs with similar point totals are placed in similar pay grades.
Offers the greatest stability.
ordering
method
classification
method
point

7. method
Job Evaluation and the Pay Structure
11
Establishing the Pay Structure
compensation
surveys
Used to gather factual data on pay rates for other organizations.
Information is often collected on associated employee benefits
as well.
Designates pay ranges for jobs of similar value. Results in a
logical hierarchy of wages, in overlapping ranges.
wage
curves
wage
structure
Drawn by plotting job evaluation data (such as job points or
grades) against pay rates (actual or from survey data).
Indicates whether pay structure is logical.
Job Evaluation and the Pay Structure
12
External factors also influence pay structure.
geographic differences (local supply and demand)

8. labor supply (low supply = higher wages and vice versa)
competition (HR can match, lead, or lag)
cost of living as determined by the CPI
collective bargaining (unions)
employees must know how the pay structure is derived
Special Cases of Compensation
13
Incentive Compensation Plans
incentives can be added to the basic pay structure to provide
rewards for performance
individual
group
organization-wide
Special Cases of Compensation
14
merit pay plans (annual increase, based on performance)
piecework plans (pay based on number of units produced
typically in a specified time period)
time-savings bonuses and commissions
Individual Incentives
these work best where clear objectives are set and tasks are
independent
Special Cases of Compensation
15
Group Incentives

9. Incentives can be offered to groups, rather than individuals,
when employees' tasks are interdependent and require
cooperation.
Advantages
Disadvantages
Can be costly to install and administer.
De-emphasizes individual performance, which can result in
excessive peer pressure.
Requires open communication with employees on costs,
profitability, etc. If the performance targets are not carefully
selected, adverse results may occur.
Focuses the group on specific performance targets.
Since rewards are controllable by individuals, the programs can
be very motivational.
The program can be integrated with other corporate initiatives
and leads to improved communication and employee relations
Special Cases of Compensation
16
Organization-wide Incentives
Direct employee efforts toward organizational goals (such as
cost reduction)
Scanlon Plan - supervisor and employee committees suggest
labor-saving improvements.
IMPROSHARE - formula is used to determine bonuses based on
labor cost savings.
See http://www.qualitydigest.com/jul/gainshre.html
See http://www.scanlon.org/

10. Special Cases of Compensation
17
Competency-based compensation
Rewarded for skills, knowledge and behaviors
leadership
problem solving
decision making
strategic planning
Broad-banding: pre-set pay levels that determine what people
are paid based on their type and level of competency.
Paying for Performance
Special Cases of Compensation
18
incentives for empowered work teams to exceed established
goals and share equally in rewards
depends on:
clarity of team purpose and goals
ability of the team to obtain needed resources
effective team communication skills and trust
Team-Based Compensation
Executive Compensation Programs
19
executive pay can run 400 times higher than that of the average
worker
2008 saw a decline in exec compensation, mostly due to
economic and political forces.
See: http://online.wsj.com/article/SB123375514020647787.html

11. competition for executive talent raises the price of hiring an
executive
high salaries can be a motivator for executives and lower-level
managers
Salaries of Top Managers
Executive Compensation Programs
20
Supplemental Financial Compensation
deferred bonuses – paid to executives over extended time
periods, to encourage them to stay with the company
stock options – allow executives to purchase stock in the future
at a fixed price
hiring bonuses – compensate for the deferred compensation lost
when leaving a former company
Executive Compensation Program
21
mortgage assistance
Supplemental Nonfinancial Compensation Perquisites
perks may
include
paid life insurance
club memberships
expense accounts
free financial, legal and tax counseling

12. company cars
supplemental disability insurance
interest-free loans
supplemental retirement accounts
postretirement consulting contracts
Executive Compensation Programs
22
Supplemental Nonfinancial Compensation Perks
Golden parachutes protect executives when a merger or hostile
takeover occurs by providing severance pay or a guaranteed
position.
For the history of the golden parachute, see:
http://www.businessweek.com/magazine/content/05_50/b396311
1.htm
Read about the top 10 golden parachute recipients:
http://www.time.com/time/specials/packages/completelist/0,295
69,1848501,00.html
International Compensation
23
base pay: the pay of employees in comparable jobs at home
differentials: compensation given to offset higher costs of
living abroad
incentives: inducements given to encourage employees to
accept overseas assignments

13. assistance programs: payment for expenses involved in moving
a family abroad and in providing some services overseas
HR needs to understand the statutory requirements of each
country
International compensation packages generally utilize the
“balance-sheet approach,” using these four factors:
Fill-in-the-blanks
24
1. _________ rewards come from the job itself; _________
rewards come from outside the job.
Intrinsic; extrinsic
2. Wages, bonuses, and pension plans are examples of
_________ rewards.
financial
3. The _________ is the source of companies’ compensation
programs.
job evaluation
4. Scanlon and IMPROSHARE are examples of ________
incentives.
organization-wide
5. Using pre-set pay levels that determine what people are paid
based on their type and level of competency is called _______.
Broad-banding
6. _______ protect executives when a merger or hostile takeover
occurs by providing severance pay or a guaranteed position.
Golden parachutes
Introduction
1
legislation, unions, and a changing workforce have expanded

14. benefit offerings
Employee Benefits
have grown in importance and variety
are typically membership-based rewards offered to attract and
keep employees
do not directly affect a worker’s performance, but inadequate
benefits lead to employee dissatisfaction
Introduction
2
Some of the benefits we enjoy today were established under
Franklin Roosevelt’s New Deal as a response to the Great
Depression--
most notably unemployment insurance and social security.
To get a taste of this extraordinary time, watch
http://www.youtube.com/watch?v=4F4yT0KAMyo
benefit and service offerings add about 30% to an
organization’s payroll cost
benefits become the focus of negotiations with employees when
large wage and salary increases are not feasible
Introduction
3
Contemporary Benefits Offerings
benefits today reflect a diverse workforce
challenge -- designing a benefits package that is lawful and
attractive
social security
unemployment compensation
workers’ compensation

15. FMLA
meets legal
requirements
health insurance
retirement plans
time off
disability
life insurance
attracts applicants
and current workers
Legally Required Benefits
4
Social Security
financed by equal employee and employer contributions, based
on a percentage of earnings
provides income for retirees, disabled workers and surviving
dependents
provides some health insurance coverage through Medicare
SS was never intended to be sole source of retirement income.
Watch: http://www.youtube.com/watch?v=aVZijG4WSOw
Legally Required Benefits
5
Unemployment Compensation
funded by employers who pay combined federal and state tax
imposed on taxable wage base
tax varies based on organization’s unemployment experience:
the more layoffs, the higher the rate
provides employees with some income continuation during
periods of involuntary unemployment
typical coverage is for 26 weeks
Requirements to Receiving Unemployment Benefits:
involuntary loss of job (but not having been fired)

16. must have worked a minimum number of weeks
have applied to a state agency for unemployment
have registered for available work
are willing to accept any suitable job offered through the state
agency
Legally Required Benefits
6
Workers’ Compensation
paid for by the organization
rates based on likelihood of accidents, past history, and the type
of industry
benefits pay expenses and/or compensate for losses resulting
from work-related accidents or illness, regardless of fault
Legally Required Benefits
7
Family and Medical Leave Act
requires employers with 50 or more employees to allow up to 12
weeks of unpaid leave for family or medical reasons
specifies record-keeping and communication requirements
employer must maintain health benefits.
Voluntary Benefits
8
Health Insurance
increases in healthcare costs have made health insurance a
critical benefit

17. healthcare costs are growing faster than wages
purpose is to protect employee from catastrophic loss should a
serious illness occur
The current debate over a public option for health insurance is
heated. For the pros and cons, see:
http://www.balancedpolitics.org/universal_health_care.htm
Voluntary Benefits
9
Traditional Health Insurance
typically has the fewest coverage limitations for the employee
usually the most expensive
provides coverage in three areas:
Some major traditional health insurers are:
1. hospitalizations
3. major medical
2. medical/surgical
Voluntary Benefits
10
Health Maintenance Organizations (HMOs)
alternative benefit required by Health Maintenance Act of 1973
broad comprehensive care provided by physicians who are “in
network”
employee incurs small copay
health care choices significantly limited
Major HMOs…

18. Voluntary Benefits
11
Preferred Provider Organizations (PPOs)
member health care providers agree to provide services at a
fixed fee
employees are encouraged by lower rates to use member or
“preferred” providers
combine best of HMOs and traditional insurance
Point-of-Service Plans (POS)
require primary care physicians
employee can go out of network, but pays up front and seeks
reimbursement herself
Voluntary Benefits
12
Consumer-driven Health Plans
high deductible
health savings account
support services help employees make decisions
Employer-operated Coverage
employers self-fund insurance programs
operated under a Voluntary Employees Beneficiary Association
(VEBA) to reduce costs
often hire third party to administer
Voluntary Benefits

19. 13
Health Insurance Continuation
The Consolidated Omnibus Budget Reconciliation Act
(COBRA)
provides for continuation of benefits for up to three years after
an employee leaves a job
cost is paid by the employee
The HIPAA Requirement
The Health Insurance Portability and Accountability Act of
1996
imposed on employers and health providers regulations
regarding the confidentiality of employee health information
Retirement Benefits
14
Employee Retirement Income Security Act (ERISA) of 1974
vesting rights – right to pension benefits even if one leaves the
company
enables pension rights to be portable
sets up Pension Benefit Guaranty Corporation (PBGC)
claims corporate assets to cover inadequately funded pension
plans
requires Summary Plan Description (SPD)
Retirement Benefits
15
Defined Benefit Plans
plan specifies the dollar benefit workers receive at retirement

20. usually based on some formula of years of service and average
final compensation
used more in government and unionized industries
Retirement Benefits
16
Defined Contribution Plans
employee and employer may contribute to account based on
rules established for contributions
amount of benefits depends on success of account investments
money purchase
pension plans
profit-sharing
plans
IRAs
401Ks
Retirement Benefits
17
Money Purchase Pension Plan
type of defined contribution plan
organization commits to depositing fixed amount of money or
percentage of employee’s pay annually
Profit-Sharing Plans
variation of defined contribution plan
company amount contributed depends on profit level in the
organization

21. contribution is optional, not required
Retirement Benefits
18
Individual Retirement Accounts (IRAs)
employer makes contributions
can defer taxes on amount deposited and interest earned in
retirement account
two types exist for small businesses and self-employed
401(k)s:
permit workers to set aside specified amount of income on tax-
deferred basis
employers may match employee contribution
Paid Time Off
19
Vacation and Holiday Leave
vacation time is usually related to the length of time on the job
some companies also allow personal days that can be used for
any reason
Paid Time Off
20
Disability Insurance Programs
provides salary continuation for:
short-term disabilities (sick leave)
long-term disabilities (coverage usually effective after 6
months)

22. some companies provide financial incentives to employees to
not use their sick leave
long-term disability plans usually replace a portion of the
employee’s salary, often 60%
Survivor Benefits
21
Group Term Life Insurance
benefit is usually based on one’s annual rate of pay
supplemental insurance increases coverage to two to five-times
the employee’s salary
Travel Insurance
life insurance for business travel-related deaths (not including
normal commuting)
Survivor Benefits
22
The Service Side of Benefits
employee assistance programs
credit unions
housing
tuition reimbursement
uniforms
company-paid transportation
social and recreational events
parking
employers often can provide services at no cost or at a
significant reduction from the usual cost

23. An Integrative Perspective on Employee Benefits
23
These programs allow employees to choose which benefits they
want and help to keep costs down.
Flexible Benefits
An Integrative Perspective on Employee Benefits
24
Flexible Spending Accounts
under Section I25 of the Internal Revenue Code employees can
set aside a designated dollar amount before taxes for specified
services such as
health-care premiums
medical expenses
dependent child or elder care
group legal services
IRS requires that accounts for different purposes be separate
and that all money be spent during the year or forfeited
not subject to federal, state, and social security taxes
An Integrative Perspective on Employee Benefits
25
Modular Plans
employees choose a pre-designed package of benefits from
several options
Core-Plus Options Plans
employees given core coverage (e.g. medical, life, disability)
with option to select other benefits

24. Let’s Play Jeopardy-style!
26
1. Social Security, unemployment compensation, workers’
compensation, FMLA.
What are legally required benefits?
2. Benefits that pay expenses and/or compensate for losses
resulting from work-related accidents or illness, regardless of
fault.
What is workers’ compensation?
3. Health insurance, retirement plans, time off, disability, life
insurance.
What are voluntary benefits?
4. Requires employers with 50 or more employees to allow up to
12 weeks of unpaid leave for family or medical reasons.
What is the Family Medical Leave Act?
5. Money purchase pension plans, profit-sharing plans, IRAs,
401Ks.
What are defined contribution plans?
6. Flexible spending accounts, modular plans, core-plus plans.
What are flexible benefits?