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Econ 308 midtrm 2


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back-loaded compensation
is when compensation increases faster than productivity as an employee ages, for example, professional services such as law and accounting firms. Firms offer back loaded compensation if productivity of workers increases rapidly over time but with uncertainity. workers choose back loaded compensation jobs as bonding and signaling. EX: employees might want to stay with the firm for many years. underpaid in the beginning and overpaid at the end but managers look at overall of how many years the employee has been working for them.
Compensation packages
Firms frequently offer attractive retirement packages to encourage older employees to retire and often have mandatory retirement age. A typical american worker recieves 75% of total compeachation in the form of pay for work and 25% in fringe benefits. The most important fringe benefits are medical insurance and pension plans. Different workers have different preferences in the tradeoff of pay versus fringe benefits. In designng compensation package, management should consider the total tax bill for the employee and the firm Fringe benefits such as sick leave and disability insurance can be costly to the firm beyond direct cost of insurance premium, e.g absenteeism some firms offer cafeteria plans of fringe benefits for employees to choose from at a fixed fringe benefit allowance. cafeteria plans costs are higher administrative costs, and adeverse selection. EX: Starting off as a deputy sheriff the organization already helps you to start thinking about retirement by offering a compensation package for only working 20+ years.
Examples of incentitive compensation
- piece rate and commission -bonuses or promotion for good performance -prizes for winning contests e.g a free vacation -stock option and profit sharing plans -demotion and firing upon poor performance EX: Walmart will give bonuses out to every employee that is working there at the end of every six months if their has not be any neglient action to cause an employee or customer harm when in the store. Some neglient actions are leaving boxes right around the corner for someone to come around and trip on and leaving a spill for someone to slip on.
Benefits of group incentive plans
-group performance measure is less costly than individual performance measure -encourages cooperation and teanwork -motivate mutual monitoring and enforcement among employees *a problem with group incentive pans is the free rider problem. EX: Educational career, Gateway: working in groups for each case study we have to do. When we present as the challenge team (asking presenting team questions) we are graded as a group not individually. In the Gateway class we act as if we are competing with the other groups so our outcome performance will be a good outcome. Everyone makes sure that everything is on tract with any assignment.
Employee working condition
Managers have to be conserned not only with how hard employees work but also with how they allocate their time amond asigned tasks. Compensating employees only on measurable tasks encourages them to exert effort on the measurable tasks and to shirk on the other takss. By offering a menu of incentive compensation contract for employees to choose from can induce employees to reveal private information. EX: A woman working for a corporation is an assitant which requires typing and faxing and so forth. She knows that she can get away with pretending to type away just by typing the keys on her keyboard and she will be compensated based on how much she is "typing" on her keyboard.
Employees performance is evaluated
-to provide employees with feedback on job achievement to improve performance -to determine rewards and sanctions EX: Employees at walmart that have been working there for at least 3 months are evaluated monthly by a manager oberseving their every mode, how they handle customers and so on. If they like their performance they will get an increase in their pay by a dollar or more and given a more quality task at their job.
Federal and state legislation
requires employers to document their compensation and promotion decisions to demonstrate their actions are related to performance and are not related to race, sex, age, physical handicap, religion and national origin. EX: even though by law that employers are suppose to give promotions out not based on race, sex, age and etc but there are places such as a walmart store that I know of where they give promotions to people based on race. As an example a manager who is mexican has two people he can decided from one being white the other mexican. The one who is white is very good at his job and the one who is mexican does a so so job but tends to shirk during his job activities. The manager will pick the mexican one because he will consider him to be "his brother" and will offer him the mangement position based off of that.
firms have to tradeoff between incremental compensation and turnover costs of workers
worker comes in his job and got another job offer at 30% increase. When a worker leaves, have to get a new one= turnonver cost of workers. Matching pay raise or not incremental compensation. EX: The employer will not try to match the job offer because it will be less turnover if the employee left than if he were to give the employee a better job offer.

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