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104 Cards in this Set

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  • Back
incentive pay
Compensation fluctuates according to: A pre-established formula, individual or group goals, and company earnings.
*adds to base pay, controls costs, and motivates employees
Effective incentive pay systems are based on three assumptions:
1) Individual employees and work teams differ in how much they contribute to the company, both in what they do as well as in how well they do it.

2) The company’s overall performance depends to a large degree on the performance of individuals and groups within the company.

3) To attract, retain, and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance.
individual pay system
these plans reward employees whose work is performed independently
individual performance measures
Quantity of work output
Quality of work output
Monthly sales
Work safety record
Work attendance
Types of Individual Incentive Plans
piecework plans
behavior encouragement
piecework plans
reward workers for every item produced over a designated production standard
types of piecework plans
 Awards based on individual production vs. objective standards
 Awards based on individual performance standards using objective and subjective criteria
 Quantity and/or quality goals
managment incentice plans
award bonuses to managers when they meet or exceed objectives based on sales, profit, production, or other measures for their division
behavior encouragement
employees receive payments for specific behavioral accomplishments
referral plans
employees receive bonuses for recruitment of highly qualified employees
group/team pay systems
these plans promote supportive, collaborative behavior among employees
group performance measures
-Customer satisfaction
-Labor cost savings
-Materials cost savings
-Reduction in accidents
-Services cost savings
company wide/organization pay plans
these plans tie employee compensation to a company’s performance over a short time frame; Rewards employees when company meets performance standards
organizational performance measures
Company profits
-Cost containment
-Market share
-Sales revenue
types of Company-Wide incentive plans:
1) Profit sharing plans:
Current profit-sharing plans: Financial reward for employees when company meets profit objectives
Deferred profit-sharing plans: Right to purchase shares of company stock given to employees
2) Employee stock option plans
Describe the types of commissions.
flat, ind. commision rate, ramped, and adjusted
flat commission
-% X $ amount sold
Individual commission rate (IDR
quota + % (as the volume is increased the % added in increased)
commission varies among the product. Different %’s for each product. (used in pharmaceutical companies)
system of management used by a business to get higher levels of performance through the involvement and participation of its people. As performance improves, employees share . Gainsharing is about people working smarter together and not just working harder.
gain sharing details
o Incentives based on company’s
o improved productivity
o Based on open leadership
o Involves employee participation
o Includes bonuses
o Most gain sharing programs have three components:
 Leadership philosophy
 Employee involvement systems
 Bonuses
profit sharing
provides for a common award level, either a fixed amount or a percentage of base pay, that will be paid to all eligible employees upon achieving a certain level of profitability
profit sharing details
o Current profit-sharing plans
 Financial reward for employees when company meets profit objectives
o Deferred profit-sharing plans
 Right to purchase shares of company stock given to employees
o Fixed first-dollar-of profits
o Graduated first-dollar-of profits
o Probability threshold formula
similarites and dif. in gainsharing and profit sharing
oGainsharing- common in production or production-oreinted environments
oProfit sharing-wide-variety of industries
oGainsharing-can start to lose their motivational value as incremental gains over prior performance periods start to diminish
oProfit sharing-less effective that other forms of variable pay in motivating specific individual
oGainsharing- group or organizational achievement
oProfit sharing- emphasizes profit
theories guiding executive compensation
managerial, marginal, class hegemony, human capital, efficeincy, figurehead, social comparison, prospect, agency, tournament
agency theory
Shareholders give control to executives
tournament theory
managers compete for pormotinos
social comparison theory
compensation compared to others
class hegemony theory
executives share a common bond
efficiency theory
paid a premium to exert effort and avoid firing
figurehead theory
CEO is a symbol and rep
human capital theory
value based on KSAO
managerial theory
CEO's have power yielded to them by owners
marginal productivity theory
CEO compensation is base on his/her value of the firm
prospect theory
focuses on executive's loss aversion
range penetration
employee’s salary – range min/max-min
* this ratio tells you how much room the employee has to increase their salary before they go over the max. in their pay grade
salary/midpoint of pay range
*This ratio helps decide how large of a raise in pay an employee needs at a given time. It allows an organization to understand how an individual’s pay relates to the organization’s pay ranges and the market. If the individual’s compa-ratio is 100%, then the individual is already being paid what a competent performer would be.
local national
individual who resides or originates from the host county
home country national who is sent to a host country for an assignment
host county national brought to home county for an assignment
employee who works in multiple host countries
Differentiate a host versus home country
•Host country – hosts portion of your business’s operation
•Home country – where the business is incorporated
Describe the cost equalization approach to expatriate compensation
The approach is a compensation plan that equalizes cost differences between the international assignment and the same assignment in the home country. It may be seen as a protection against higher costs, or it may be seen as part of an attempt to ensure that the employee neither giants nor loses in living standard from accepting the assignment other than from changes in direct pay.
social security act of 1935
Brought about three programs in order to relieve social problems cause by the Great Depression
generally employers must pay both state and federal unemployement taxes under the unemployement insurance when..
they pay wages to employees totaling $1,500 or more in any quarter of a calendar year; or
 they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether the weeks were consecutive. However, some state laws differ from the federal law
o 6.2 percent of taxable wages of employees
 first $7,000 paid in wages, or $454 per employee per year
 Early and timely payments receive an offset credit of up to 5.4 percent
o States administer within federal guidelines
o States send money to federal government
o Agriculture and domestic workers are exempt
o 6.2 percent of taxable wages of employees
 first $7,000 paid in wages, or $454 per employee per year
 Early and timely payments receive an offset credit of up to 5.4 percent
o States administer within federal guidelines
o States send money to federal government
oAgriculture and domestic workers are exempt
Old age, Survivor, Disability insurance (OASDI) exemptions
Civilian federal worker
Railroad employees (before 1984)
State and local government workers
•Under 21 if working for a parent
•Unless over 18 working in the family’s business
OASDI Requirements
Earn 40 quarters of credit or:
Be employed for 10 years
Be age 62 for partial benefits
Be age 65 for full benefits
In 2002 be age 67
medicare- CHMP
oFor citizens age 65 and older
oProvided insurance coverage for
Convalescent care
Major doctor bills
Prescription drug costs
equity reward
o as an employee reward, equity represents ownership in a company, Ownership typically is in the form of stock
company stock
stock shares you own for the company you work for
common stock
form of corporate equity ownership, a type of security. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time.
preferred stock
equity securities in which an owners rate of return is fixed. Preferred stock receives a higher priority to be paid back than common stock in the event of liquidation or bankruptcy
stock split
change in the number of shares issued by adjusting the number of shares to current owner
generate cash to meet short term financial obligations
o payments to shareholders by a corporation, paid from the company’s retained earnings and not deductible as an expense to the company
rate of return on an investment-expressed as %
downside risk
o the potential for losing money when a downturn in the market or the stock price negatively affects the value of one’s stock holdings
public securities market
when stocks are publicly sold/traded
initial public offering (IPO)
a company's initial sale of its shares to the investing pulic
governing agencies that deal with equity based rewards
securities and exchange commission
financial accounting stantards board
international accounting standards board
dept. of labor
internal revenue service
securities and exhcnage commission
Regulates “insider trading”
Publicly traded company reports here
financial acct. standards board
 A private body that decides how financial executives should report their firms’ financial information to their shareholders. It derives its authority from the Securities and Exchange Commission (SEC), and the SEC enforces the accounting standards.
dept of labor
subject to FLSA and ERISA
internal revenue service
makes rulings on revenue and private-letter that interpret legislation
forms of taxation for employee
o Ordinary income tax
o Capital gains taxes
 Tax on gains from interest
o Short-term capital gain
o Long-term capital gain
 Held for 1 year and 1 day later
o Dividend tax rate
 Added by JAGTRRA
o Alternative minimum tax (AMT)
forms of taxation for the employer
consult firms acountnat or enrollin advance taxation
ERISA- employee pension benefit plan and pension plans
 Any plan, fund, or program…to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program—
• Provides retirement income: or
• Results in a deferral of income
ERISA title 1 exclusions
 Government plans
 Certain Church plans
 Unfunded excess benefits plans
 Plans maintained outside of the United States
HIPPA (health insurance portability and accountablilty act of 1996)
o Imposed requirements on employer-sponsored group health plans, insurance companies, and health maintenance organizations (HMOs) beyond ERISA, IRC, etc
 Limit exclusion for pre-existing conditions
 Prohibit discrimination due to health status
 Guarantee renewability and availability of coverage to certain employers and individuals
HIPPA title 1 rules
 Pre-existing conditions is a condition for which medical advice,, diagnosis, care or treatment was recommended or received for six months
HIPPA Pre-existing Condition Limitations
•Plans must cover pre-existing conditions after 12 months (18 for late enrollees)
•Employees must be given credit for previous coverage that occurred without a “break” in coverage (63 days or more) AKA “creditable coverage”
•COBRA counts
foreign-service premium
a payment made to all expatriates going on assignment. Direct cash incentives that are unrelated to cost. Usually fifteen percent of pay in every check
mobility premium
a lump sum usually paid in two amounts one in the beginning and one at the end of the year, used as an incentive payment for going on assignment
hardship premiums
Money given to an employee for moving to a difficult location. Payment usually expressed as a percentage of salary and ranges from 5 to 35 percent of pay.
location premium
A more politically correct term for hardship premium.
tantalization agreement
bilateral social security agreement. Companies try to be exempt from the host country’s social security system and still participate in the home country’s social security system. Usually for temporary assignments and only lasts for 5-6 years.
split pay approach
Here the company pays the expatriate in local and home currency. The local amount is used for housing and food expenses and the home currency protects the expatriate from fluctuations in currencies.
balance sheet approach
Combining all policies to compensate the expatriate.
three ways in which compensation is commonly defined across the world.
cash compensation
gross compensation
net compensation
cash conpensation
wage rates, salary, cash bonuses and sort term incentives but excludes the value of employee benefits, special allowances, long term incentives, deferred compensation, contributions to savings plans, distributions through profit sharing plans, and noncash compensation such as equities.
gross compensation
payroll costs of all employee benefits and allowances as well as the total of cash compensation as defined above
net compensation
used when comparing net (after tax) calculation of compensation
historical influences upon Employee Benefits
• 1875 First pension plan established
• 1913 Department of Labor formed
• 1935 Social Security Established
• Union Membership increases
• Post WWII wage freezes promote benefit growth
• Medicare and Medicaid established (Great Society)
• 1974 ERISA, IRS Section 125, HMO Act
todays health care debate
According to Section 125 of the IRS tax code
a cafeteria plan is a written document which allows employees to convert certain taxable benefits into non-taxable benefits.
mandatory benefits
social security
workers compensation
family and medical leave
nonmandatory benefits
health care
life insurance
retirement/pension plans
flexible compensation
paid leave
social security
provides for the needs of both individuals and their families. This program protects the aged and disabled against expenses that might otherwise exhaust their entire savings. While unemployment provides benefits for those that lose their jobs, workers compensation programs provide benefits to those workers disabled by occupational illness or injury.
unemployement insurance
 Generally, employers must pay both state and federal unemployment taxes if:
 (1) they pay wages to employees totaling $1,500 or more in any quarter of a calendar year; or
 (2) they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether the weeks were consecutive. However, some state laws differ from the federal law
 6.2 percent of taxable wages of employees
 first $7,000 paid in wages, or $454 per employee per year
 Early and timely payments receive an offset credit of up to 5.4 percent
 States administer within federal guidelines
 States send money to federal government
unemployement eligibility
Did not leave job voluntarily
 Able and available for work
 Actively seeking work
 Has not refused suitable work
 Not off due to labor dispute
 Not fired for gross work violations
 Must be employed for the last four or five quarters (base period) prior to becoming unemployed
OASDI survivor benefits
• Based on Eligibility Status and Relationship
• Deceased was fully insured
• Dependent, unmarried children
• Widows age 60 and older
• Dependent parent age 62 and older
OASDI disability benefits
• Worker was fully insured
• Meets Social Security work requirements
• Varies according to age and disability
• Disability must last one year or be terminal
• Six-month waiting period
medicare part A
• Covers inpatient and outpatient hospital care and services
• Provides unlimited in-home care
• Participants
• Social security beneficiaries
• Retirees
• Voluntary enrollees
• Disabled
• Employer and employee financed
medicare part B
• Voluntary supplementary medical insurance
• $110 deductible, then covers 80%
• Financed by government and enrollees
• Participants
• Part A enrollees
• Those on social security
• Railroad retirees
• Supplements Parts A and B
• Through private insurers
• 10 standardized choices
• Medicare Select Option
• Lower premiums for fewer choices
• Not offered in all states
medicare part c
• Medicare + Choice, Medicare Advantage
• Established through Balanced Budget Act of 1997
• Alternative to Parts A and B
• Options:
o Fee-for-services
o Managed care plans
o Medical savings accounts
medicare part d
 Medicare Part D
• Medicare Prescription Drug Program
• Covers 75% after $250 deductible up to $2,250
• Cover 95% after $5,100 out-of-pocket
• Employer subsidy for similar plan
workers compensation
State compulsory disability laws
o Enacted in 1911
o Employer liable regardless of fault
o Maritime, federal civilian, domestic agriculture, and small business workers not covered
workers comp claims
injury, occupational disease, and death
workers comp benefits
medical services
disability income
death benefits
rehabilitation services
workers comp objective
 Provide income and medical benefits
 Reduce litigation
 Relieve charities’ financial drain
 Eliminate legal fees and time
 Encourage employer safety
 Promote accident study and avoidance
family and medical leave
o 12 weeks of unpaid leave for:
 Birth, adoption, foster care
 Serious family medical problems
 Worker’s serious medical problem
o Retention of:
 Seniority
 Health insurance coverage
 Credit for previous service
 Accrued retirement benefits