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MGT 4610-Chapter 9-Compensation


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The total of all rewards provided employees in return for their labor.
Direct financial compensation
Pay received in the form of wages, salaries, bonuses, and commissions
Indirect financial compensation
All financial rewards not included in direct compensation
The perception by workers that they are being treated fairly.
External equity
Firm's employees are paid comparably to workers who perform similar jobs in other firms
Internal equity
Exists when employees are paid according to relative value of their jobs within same organization
Employee equity
A condition that exists when individuals performing similar jobs for the same firm are paid according to factors unique to the employee, such as performance level or seniority.
Team equity
Payment of more productive teams in an organization at a higher rate than less productive teams.
Compensation policy
Polices that provide general guidelines for making compensation decisions.
Labor market
The geographic area from which employees are recruited for a particular job.
Compensation survey
A means of obtaining data regarding what other firms are paying for specific jobs or job classes within a given labor market.
Benchmark job
A standard job used to make pay comparisons, either within the organization or to comparable jobs outside the organization
Cost-of-living allowance (COLA)
An escalator clause in a labor agreement that automatically increases wages as the U.S. Bureau of Labor Statistics’ cost-of-living index rises.
Job evaluation
Assessment of the relative worth of jobs to a firm
Job evaluation ranking method
A method in which the raters examine the description of each job being evaluated and arrange the jobs in order according to their value to the company.
Classification method
A job evaluation method in which classes or grades are defined to describe a group of jobs.
Point method
An approach to job evaluation in which numerical values are assigned to specific job components, and the sum of these values provides a quantitative assessment of a job’s relative worth.
Job pricing
Placing a dollar value on the worth of a job.
Pay grade
The grouping of similar jobs to simplify the job-pricing process.
Wage curve
The fitting of plotted points on a curve to create a smooth progression between pay grades (also known as the pay curve).
Pay range
A minimum and maximum pay rate for a job, with enough variance between the two to allow for a significant pay difference.
A compensation technique that collapses many pay grades (salary grades) into a few wide bands in order to improve organizational effectiveness.
Merit pay
Pay increase given to employees based on their level of performance as indicated in the appraisal. The increase is added to the employee’s base pay.
Bonus (lump sum payment)
A one-time award that is not added to employees’ base pay.
An incentive pay plans in which employees are paid for each unit produced.
The length of time that an employee has worked in various capacities with the firm.
Profit sharing
A compensation plan that results in the distribution of a predetermined percentage of the firm’s profits to employees.
Plans designed to bind employees to the firm’s productivity and provide an incentive payment based on improved company performance.
Scanlon plan
A gainsharing plan that provides a financial reward to employees for savings in labor costs that result from their suggestions.
Stock option plan
An incentive plan in which managers can buy a specified amount of stock in their company in the future at or below the current market price.
Perquisites (perks)
Special benefits provided by a firm to key executives to give them something extra.
Fair Labor Standards Act of 1938 (FLSA)
The federal legislation that established overtime wage requirements and defined specific exempt occupations.
A budgeted position in which no employee is currently appointed.
Full-Time Employment
employment of an individual for 40 hours per week.
a change in the classification (job title) of a position resulting from a job audit (job analysis).
Pay Plan
the document that outlines pay ranges for all classified job titles.
Perquisites or Perks
Non cash incentives given to a firm’s executives
Benchmark jobs (aka key jobs)
Jobs that are characterized by stable tasks and stable jobs specifications
Davis-Bacon Act 1931
This act requires contractors and subcontractors on federally funded construction projects in excess of $2000 in the U.S. to pay wages and benefits at least equal to those prevailing in the area where the work is performed.
Walsh-Healey Act, 1936
This act requires that time and a half be paid for work exceeding eight hours a day and 40 hours a week for manufacturers and suppliers of goods for federal government contracts in excess of $10,000
Copeland “Anti-kickback” Act, 1934
This act prohibits federal contractors from receiving kickbacks from employees or subcontractors for wages earned on federal projects.
FLSA Fair Labor Standards Act, 1938
This act is commonly referred to as the Wage and Hour Law
The IRS has a ___-factor test to determine whether workers are employees or independent contractors.
Exempt employees
These types of employees are excluded from FLSA minimum wage and overtime pay requirements
These types of employees are covered by the FLSA regulations for minimum wage and overtime pay requirements.
Under current rules, most workers with a quoted salary of less than $______ per year are guaranteed overtime protection and are classified as nonexempt employees
Any employee quoted and compensated on this basis is automatically considered a nonexempt employee.
Primary duty
The main or most important duty of a job, including the exercise of discretion and independent judgment with respect to matters of significance.
Matters of significance
The level of importance or consequence of the work performed.
Under current rules, most workers with a quoted salary of less than $___ per week are guaranteed overtime protection and are classified as nonexempt employees
White-collar employees
Bona fide executives, administrative and professional employees, highly compensated employees, certain computer employees and outside sales employees are commonly referred to as what type of employees?
Highly compensated employees
Type of employees with salaries of $100,000 or more per anniversary, calendar, or fiscal year who must also perform at least one of the job duties of an exempt executive, administrative or professional.
1.5 times their regular rate
All nonexempt workers must be paid overtime at what rate?
This is any fixed, recurring period of 168 hours
Comp-Time or Compensatory Time
In general, overtime must be paid in cash, however, public-sector employers may grant this instead of cash?
According to the the Fair Labor Standards Act (FLSA) covered nonexempt workers are entitled to a minimum wage of not less than ___ an hour
To be covered by FLSA private-sector employers must be engaged in interstate commerce or retail service firms must have two or more employees and gross sales of at least $500,000 per year.
Under FLSA penalties for violations can include up to three years of back pay for these types of violations
Employers of tipped employees must pay a cash wage of at least this per hour if they claim a tip credit against their minimum wage obligation
Portal-to-Portal Act, 1947
General rules for hours worked are defined by this act
Employee Commuting Flexibility Act of 1996
This 1996 amendment to the Portal-Portal Act clarifies that commuting time is not paid work time, even when the employer is using a company vehicle.
Travel pay
Pay typically paid to nonexempt workers for the time they spend traveling to or between work assignments.
Equal work
This is defined by four factors, equal skills, equal effort, equal responsibility and equal working conditions
Equal Pay Act of 1963
Requires that men and women be paid the same for performing substantially similar jobs with limited non-gender exceptions (e.g., merit and seniority).
Merit Increase
An increase to an individual’s base pay rate based on performance.
Job Classification
A group of positions sufficiently alike in respect to their duties and responsibilities to justify a common name and similar treatment in selection, compensation, and other employment processes.
Skill-based Pay
A person-based remuneration system based on the repertoire of jobs an employee can perform rather than the specific job that the employee may be doing at a particular time.
Extra pay for not taking sick leave.
Exempt Employee
An employee who is not covered by the provisions of the Fair Labor Standards Act. Most professional, administrative, executive, and outside sales jobs fall into this category.
To be covered by the FLSA a business must have annual gross sales of over how much money?
Time and a half
The FLSA requires that nonexempt employees be paid what rate over the standard wage for each hour they work over 40 hours a week.
Piece-Rate System
One in which an employee is paid for each unit of production.
Pay Compression
A situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small.
An incumbent paid below the range set for the job.
Fair Labor Standards Act (1938)
Aka the Wage and Hour Law
Portal-to-Portal Act (1947)
This act defined the general rules for hours worked and the determination of on-call/standby time, preparatory/concluding activities, waiting time and meals and breaks.
Total compensation
All forms of financial returns that employees receive from their employers
base pay
The basic monetary compensation that an employee receives, usually as a wage or salary.
Payments calculated on the amount of time worked
Consistent payments made each period regardless of the number of hours worked in the period.
Variable Pay
Compensation linked to individual, team, or organizational performance.
Equity Theory
A pay fairness theory that states that people form equity beliefs by comparing their outcome/ input ratio to that of a referent other
J Stacy Adams
Who proposed Equity theory?
Entitlement Philosophy
Assumes that individuals who have worked another year are entitled to pay increases, with little regard for performance differences.
Pay-for-Performance Philosophy
Requires that compensation changes reflect individual performance differences.
Meet the Market
Attempting to balance employer costs and the need to attract and retain employees. “aka market rate or going rate”
Lag the Market
Paying all that the firm can afford. Taking advantage of the abundant supply of potential employees in a loose labor market. “aka pay followers”
Lead the Market
Paying for higher qualified, more productive workers. “aka pay leaders”
Knowledge-based pay
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
The Fair Labor Standards Act (FLSA)
This is the most significant law affecting compensation
Fair Labor Standards Act (FSLA) of 1938
This act requires overtime (1½) pay for hours over 40 hours
Non-exempt Employees
Employees who must be paid overtime under the Fair Labor Standards Act.
Non-exempt employees must be paid this for all hours worked over 40 regular hours in a workweek
Compensatory Time Off (Comp Time)
Hours off regular work time given to an employee in lieu of payment for extra time worked.
Davis-Bacon Act of 1931
This act requires contractors and subcontractors on federally funded construction projects in excess of $2000 in the U.S. to pay wages and benefits at least equal to those prevailing in the area where the work is performed.
Walsh-Healy Public Contracts Act
This act requires that time and a half be paid for work exceeding eight hours a day and 40 hours a week for manufacturers and suppliers of goods for federal government contracts in excess of $10,000
McNamara-O’Hara Service Contract Act
This 1936 act extended the concept of prevailing wage to manufacturers and suppliers of services for federal government contracts in excess of $10,000.
Makes revenue and private-letter rulings that interpret tax legislation
Private-letter rulings
Type of IRS ruling that addresses only specific a taxpayer or organizations requesting the ruling
Revenue rulings
Type of IRS ruling that is published as general guidelines to all taxpayers or organizations
This method of job evaluation is one of the simplest to administer
Market Pricing
Use of pay survey data to identify the relative value of jobs based on what other employers pay for similar jobs.
Job Family
A group of jobs having common organizational characteristics.
Broad banding
The practice of using fewer pay grades having broader pay ranges that in traditional systems
Red-Circled Employees
An incumbent (current jobholder) who is paid above the range set for the job.
Green-Circled Employees
An incumbent who is paid below the range set for the job.
Compensable factors
Elements of a job for which the organization is willing to pay.

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