Final Notes HRMN 3420
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This 23 page Study Guide was uploaded by Kayla Notetaker on Wednesday March 2, 2016. The Study Guide belongs to HRMN 3420 at Auburn University taught by J. Walker in Spring 2016. Since its upload, it has received 38 views. For similar materials see Human Resource Management with Walker in Business, management at Auburn University.
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Date Created: 03/02/16
HRMN Chapter 11 Compensation Management 11/27/2015 ▯ Compensation Management Compensation o Is the total of an employee’s pay and benefits o Costs are frequently 65 to 70 percent of total production costs in today’s firms o Affects the process of both attracting and of retaining employees Why do we care about it? o It presents a big cost to organizations – cost is rising Cost of providing health benefits is on the rise o It directly affects our human capital How attractive the organization is How well the organization retains its top employees o It affects the motivation levels of the employees ▯ ▯ Types of Compensation ▯ ▯ Take a total rewards approach it also takes into account the not so obvious (benefits/training) it takes into accounts anything that would be of cost Need to look at all rewards – pay, benefits, etc total rewards ▯ ▯ Motivation and Compensation Planning Goal of Compensation o To motivate our employees to achieve organizational goals Expectancy Theory o To help explain how that might work – Effort Performance rewards The first arrow is expectancy The second arrow is instrumentality And the last (rewards) is valance meaning are the rewards valued Expectancy the link between effort and performance – the more effort you put in, the better performance that comes out. o The perception that effort differences leads to performance differences. Instrumentality if I am the best employee, I should make the most amount of money – If I am the worst employee, I should receive the lowest amount of money It can break down if 1. Low valence 2. Low expectancy 3. Low instrumentality Equity Theory o All living beings want to be treated fairly. When we are evaluating how being treated we consider our inputs, outcomes, and a comparison of others (can be someone internal or external) When designing the compensation system you have to evaluate equity internally and externally ▯ ▯ Compensation Philosophies ▯ ▯ Entitlement Change compensation to change ten year Highest paid person in an entitlement will be ▯ ▯ Performance Changes in compensation will change in performance Low paid—low performance --Organizations fall somewhere in the middle of entitlement and performance --When designing a compensation system you have to think of the law Legal Constraints on Pay Systems Fair Labor Standards Act (FSLA) o Minimum Wage The FSLA sets a minimum wage (7.25) State and local laws can raise the amount of that wage o Child Labor Provisions Can start working at 14-15 years old but cant work during normal school hours or in hazardous occupations At age 16 and 17 – there are no hour limits but still restricted to working in hazardous occupations At age 18—there are no restrictions o Exempt and Non-Exempt Statuses Have to distinguish between exempt and non-exempt employees. It affects whether or not that employee if affected by overtime pay Can get into serious trouble if the employee is not getting paid for overtime pay when needed. Exempt no overtime pay Non-exempt can get paid over time To be classified as exempt, must check all 1 $23,660 – projected to raise to $50,440 – when that takes effect a lot of people will be able to take over time pay ( 10-15 million affected by this change) ** will have a significant impact on who is going to be considered exempt or non exempt 2 salary 3 preformed admin outside sales exec Overtime pay most occupations over time pay is considered to be 40 hours a week for hospitals and nursing homes its 80 hours a week but over a 2 week span non exempt employees are entitled to 1.5 x pay if overtime ▯ ▯ ▯ ▯ Compensation Management ▯ How do we develop a compensation system?? Function of supply and demand Numbers of workers are high and demand is low we can fill those jobs by offering low wages Basic economic theory, supply and demand The HR Dept evaluates what is going on internally and externally ▯ ▯ ▯ Creation of a Pay Structure and Individual Pay Rates ▯ ▯ ▯ Compensation Management ▯ st ▯ 1 approach – externally – obtaining industry data from some source going to take the mean of all 4 jobs to come up with midpoint calculate minimum and maximum ▯ 2 main problems how accurate the information/data is is their actual match between the work between a and b – we know the pay between the companies but not the actual work done ▯ ▯ Compensation Management Job evaluation o Is the process of determining the worth of each position relative to the other positions within the organizations Point factor o Objectively breaking down a job into “compensable factors” and applying points to each factor based on the job’s level of difficulty Internal approach Compensable factor o Common across jobs and it is important to realize them across jobs o -EX- responsibility, skills, complexity total (compensable factor scale) ▯ ▯ Pay Structure ▯ ▯ when evaluating equity perceptions ▯ going to plot against what I am paying ▯ ▯ Additional Pay Consideration Rates out of Range o Red-circled employees o Green-circled employees Pay compression Pay adjustment Matrix ▯ Incentives Incentives (Variable Pay) o Compensation that depends on some measure of individual performance or results in order to be rewarded o Distinguish performance differences leading to reward differences o Directly talks about instrumentality link ▯ ▯ Incentives Pay Characteristics of effective variable pay plans o It has to fit the strategy and culture of the organization o It has to reward the appropriate actions – ethical and unethical Atlanta teacher scandal—teachers would life about the scores of their students in order to get rewarded o It has to be properly administrated Why variable plans fail? o If it doesn’t fit those 3 things ^^^ then it will fail ▯ ▯ Categories of Variable Pay Plans ▯ ▯ Individual piece rate system : x amount of dollars for every unit produced ▯ Group/Team gainsharing – performance measure at the group level and then sharing happens Cutting costs and then sharing that saved money with everyone ▯ Organizational Profit sharing—motivational because it encourages employees to do what is right—sometiems profit is not strongly tied to effort – bonus check based on the profits of the organization – graphic on slide* drawbacks ▯ ▯ Individual Incentive Plan Advantages and Disadvantages ▯ Group Incentive Plan Advantages and Disadvantages Incentive Pay Individual Incentives Work Best When… o There are distinct, measureable outcomes for individual efforts o Individual jobs require autonomy Group incentives Work Best When… o We need people to cooperate o Individual contributions are difficult to identify o Members possess similar or complimentary skills ▯ ▯ Organizational Incentives Profit Sharing motivational because it encourages employees to d what is right o Primary Objectives Increase productivity and organizational performance Attract or retain employees Improve product/service quality Enhance employee morale o Drawbacks Disclosure of financial information Variability of profits from year to year Profit results not strongly tied to employee efforts ▯ ▯ Organizational Incentives Stock option plans o Gives the employee the right to purchase a fixed number of shares at a fixed price for a fixed amount of time o Often short term vs long term focus Employee Stock Ownership Plan (ESOP) o Organization has stock account *** ▯ ▯ Executive Compensation Executive Incentives o Should be designed to motivate the executive to make decisions that will benefit the organization over both the short and the long term Stock incentives Perquisites Short-term bonuses Long-term stock awards or options ▯ ▯ Executive Compensation The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 o Significant provisions Shareholders can vote on executives’ compensation packages (“say or pay” and “golden parachutes”) Golden parachutes severance package, it’s a buy out to get the CEO to leave the company Large lump sum of money given to the executives if they are ever let go Every public company must disclose the CEO’s total compensation and the total median compensation of all employees, and the ratio. All pubic firms must provide annual information on the relationship between executive compensation and the total shareholder return. ▯ ▯ Executive Compensation Criticisms ▯ Benefits and HR Strategy Benefit o An indirect reward given to an employee or group of employees for organizational membership o Every member of the organization, if offered benefits, would be considered an indirect benefit Employer provided benefits o Absorb social costs for health care and reimbursement o Influence employees decisions about employers o Are increasingly seen as entitlements o Average over 40% of total payroll costs Why do we care about benefits from a strategic standpoint? o Influences employees decisions source of competitive advantage Selection and retention – directly affects human capital o Costs a lot of money – significant cost to an organization Directly affects how much cash an organization has on hand o Can send signals to the marketplace about what the organization values (culture) Do they take care of their employees or do they have a lot of issues? (walmart vs google) ▯ ▯ How the Typical Benefit Dollar is Spent ▯ Benefit dollars go in a variety of different directions insurance payments, retired benefits, legally required contributions ▯ ▯ Employee benefits ▯ ▯ statutory benefits required by the law- must be offered to employees workers comp is not a statutory benefits in all states—AL does require, texas doesn’t group health insurance is no longer voluntary – an organization of a certain size has to offer (obama care) Employee Benefits statutory benefits social security o Old age, survivors and disability insurance programs (OASDI) o Retirement, disability and survivor benefits o Funded through employees and organizations. Pay 6.2% of that pay—payroll tax. o Employee and employer both pay 6.2% of that paycheck to fund social security when we reach retirement age, social security wont be there in the coming years, there will be a tweak to how it works Medicare o National healthcare program for the elderly or disabled o Is also a payroll tax—funded by 1.45% by both employee and employer Workers compensation o Provides medical treatment and temporary payments to employees who are injured on the job or become ill because of their job o Isn’t statutory by law in all states o It is an insurance policy that the organization takes out— contract with the insurance provider so if an employee gets hurt on the job they are taken care of o Funded by the organization—under workers comp, it is required to cover lost wages and rehab costs. The premium the organization pays depends on the history of the workers comp claims that they have made and how dangerous the occupation is. If there is a lot of previous workers comp claims, the premium will be higher. Unemployment insurance o Federal program managed by each state o Provides payments for a fixed period to workers who lost their jobs (up to 26 weeks) between 50-80% of normal payment during normal economic times but only if they are actively searching for a job o Funded by state and federal taxes o During times of high unemployment, that period of time can be extended to up to 99 weeks. Family and Medical Leave Act of 1993 (FMLA) o Unpaid leave that employers must provide to eligible employees when they or immediate family members are faced with medical issues o FMLA benefits provide to employees – given a same or similar job if leave when you return for a family emergency o Up to 12 weeks of unpaid leave and some organizations will give paid leave but it is not mandated by the law – medical emergency The Patient Protection and Affordable Care Act of 2010 (PPACA) o Requires all employers with more than 50 employees to provide health insurance for employees or face significant penalties levied by the federal government (obama care) o Has to at least meet the medical standards of obama care if the organization has at least 50 employees o Full time employment is defined as 30 hours a week under obama care – must provide option of group health care coverage If they don’t offer group health care coverage if they work full time, they are fined $2000 per employee (first 30 employees are exempt) 51-30=21*2000= $42,000 *** will be on exam Individuals are also required to carry health care coverage, if you decide not to carry health care coverage, in 2104 it was $95 or 1% of adjusted gross income, in 2014, that increased to $325 or 2% of income, in 2016, $ 695 penalty or 2.5% of income *** know the amounts** For children, its half of that Its either the penalty in dollars or % which ever is higher Its per person, and half for children ▯ ▯ Statutory Requirements When Providing Certain Voluntary Benefits Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) o Requires employers to offer to temporarily maintain health insurance on individuals who leave their employment o It’s a certain amount of maintaining your health care coverage up to 18 months, but have to pay the entire premium o Normally in an organization, the employee pays a % of the premium and the employer pays % of the premium – group plan will normally be lower Health Insurance Portability and Accountability Act of 1996 (HIPPA) o If an employee had group health insurance at a previous employer and if the new employer has health care coverage, the firm is required to provide the opportunity to participate in their health insurance plan o Made health care providers not consider any pre-existing conditions, but under obama care, pre-existing conditions couldn’t apply anyway Privacy of health care is required by HIPPA ▯ ▯ Employee Benefits Voluntary benefits—strategically designed benefit options o Paid time off Vacation or annual leave Sick leave Holiday pay Paid personal leave Voluntary Benefits – Group health Insurance Traditional Health Care Plans o Typically cover a set percent of fees for medical services Health Maitenance Organization (HMO) o Is a managed care program that provides both health maitenance services and medical care o The employee is provided with a fixed service at a fixed rate at a fixed period of time. o Relatively small network of health care providers—referral needed if going to a specialist Advantage – you typically pay lower premiums compared to a PPO Disadvantage – more restrictive Preferred Provider Organization (PPO) o Is a hybrid between traditional fee-for-service plans and HMOs o Not nearly as restrictive, don’t have to have a referral, don’t have to go to a primary care physcian o More expensive premiums o In net work and out of network o Statement of benefits reflects changes of what you pay and what your insurance pays Health or Medical Savings Account (HSA/MSA) o Allows employers and employees to fund a medical savings account from which employees can pay medical expenses with pretax dollars o You plan and project how much your medical costs will be per year and take that money out of your pay check pre tax and put it into your account. –paying for medical costs with pretax dollars o If the money if unused, it will go away, that is why you have to be realistic to save how much you might really need ▯ ▯ Retirement Benefits are not mandatory, but if provided, the firm most comply with ERISA provisions – a way to attract and retain employees Defined Benefit plan o Provides the retiree with a specific amount and type of benefit that will be available when the individual retires. o pension plan– you know what benefit you will receive when you retire. o You contribute and your org contributes money, but you don’t handle that money o the formula is the number of years of service * highest 3 years salary * 2.025 (don’t need to memorize formula) how ever long you live after retirement you will get that amount of money o plans becoming more rare because people are living longer– most states moving toward defined contribution plan Defined Contribution plan o Identifies only the amount of funds that will go into a retirement account, not what the employee will receive upon retirement o You manage the money, as that balance changes, if you run out of money upon retirement, oh well. ▯ ** If you have the option between defined benefit or defined contribution – find out the vesting period – know what your plans are for the future ▯ Vesting – minimum amount of time you have to be employed before eligible to receive this benefits ▯ 401K o is a retirement plan that is a savings investment account for individual employees of corporations. o A 403b retirement plan is similar but is used for nonprofits These are retirement plans offered by organizations Need to set aside at least the company’s minimum ▯ Matching Contributions o Many employers that offer a 401k and 403b provide a matching contribution up to a set maximum IRAs and Roth IRAs o Any taxpayer can make tax-free contributions to an IRA (subject to a maximum annual income limit) o These contributions reduce the taxable income by the full amount of the contribution in the year in which they are placed into the account. o IRA- Tax is taken out at the end o Roth IRA- taxed at the beginning, do this while young, wont have tax implications if planned ahead ▯ ▯ Administration Benefits Flexible Benefit (cafeteria) Plans o Employees choose from multiple options o choose what is the best fit for you benefits save money for org and employee- don’t have to provide blanket coverage… negatives don’t think they need a lot of health care coverage if normally healthy but then something goes wrong and they aren’t covered ▯ ▯ Common benefit metrics ▯ Benefits pose a significant cost to organizations Way of benchmarking—common ways ▯ Workplace Safety and The Occupational Safety and Health Act (OSH Act) OSH Act o Requires employers to pursue workplace safety Workplace Safety o Deals with the physical protection of people from injury or illness while on the job Employers must meet all OSHA safety standards, maintain records of injuries and deaths due to workplace accidents, and submit to on-site inspections when notified Before this act was passed there were major issues with accidents in the workplace o Needed a standard in place so employees were safe o Main thing- establish OSHA– coming up with ways for safety o - conduct inspections o - OSHA does a lot regarding hazard communication o - set guidelines for personal protection equipment (hardhat, eye goggles) o - establish important guidelines on how employees should handle blood born pathogens o - OSHA provides whistle blowers protection ▯ ▯ The Occupational Safety and Health Administration (OSHA) The division within the Dept of Labor that is charged with overseeing the OSH Act, and that was created to ensure safe and healthful working conditions for working men and women by setting and enforcing standards and by providing training, outreach, education and assistance o Inspection can be initiated by the annual report o The HR dept keeps a careful record of all the accidents that take place o Inspection is usually started when there was an accident, death, or annual report. ▯ ▯ ▯ What does OSHA do? Sets and communicates federal safety and health standards to employers Occupational safety and health inspections, made without any advance notice in response to o Imminent dangers o Catastrophes o Worker complaints o Targeted inspections o Follow-up inspections Workplace Safety, Health, and Security OSHA and Violations, Citations and Penalties Willful o Employer knew a hazardous condition existed but made no effort to eliminate it Serious o The hazard could cause injury or illness that would most likely result in death or significant physical harm Other than Serious o Any illness or injury likely to result from the hazard is unlikely to cause death or serious physical harm, but the violation has a direct impact on safety and health If violation is found, OSHA can present citations 1. De Minimis– doesn’t have any direct threat to any employees– no fine– warning and asked to correct 2. other than serious violation– unlikely to cause harm or death to the employees – up to a 7000 dollar fine 3. Serious violation – more likely to cause harm to employee 4. willful violation– org knew something was wrong but didn’t make the effort to correct it – 70 k fine 5. Repeated violation – 70 k fine o 6. Failure to abate – 7000 per day Typically what you’ll see by an OSHA rep doing an inspection De Minimis o Violation has no direct or immediate safety or health danger; (so this doesn’t result in citations or penalties) Failure to Abate o Employer has not corrected a previous violation for which a citation was issued and the settlement date has passed Repeated o Employer has been previously cited for the same type of violation within the previous five years Employee Health Is the state of physical and psychological wellness in the workforce Work life balance o Spillover The effect of work and family on one another that generates similarities between the two domains To help keep a better work-life balance, firms offer more work-family benefits such as flexible work schedules, child care and elder care HR can get involved by developing programs to diminish spillover Workplace Safety, health and securit What stresses out employees? Bell curve—beneficial stress (called EU stress) and Distress (negative consequences of stress) Sexual harassment – major source of stress Workplace bullying Workplace Security Is the management of personnel, equipment and facilities in order to maintain their protection o Is concerned with mitigating the risks of violence, bomb threats, management of natural and man-made disasters, risk to company computer systems and intranets, and many other issues o HR needs to be proactive in ensuring work place security
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