Phr Exam Study - Accounting/budgets

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Accrued expense

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expenses such as vacation leave that have been incurred but not paid yet

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Accounts payable

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money owed by the business to its suppliers

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Accounts receivable

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money owed to the business by customers

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assets

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Tangible and Intangible items that are of value owned by the business.

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Tangible items

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physical assets of the business like land, equipment, stock, bonds cash

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Intangible items

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non-physical patents, trademarks, franchises, copyrights, internet domain names, computer software

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audited financial statements

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financial statements that have been examined by an independent auditor (not affiliated with the company) to determine whether they fairly represent the financial conditions of the business

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Budget

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A projection of revenue and expenses used to control actual expenses

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Cost of goods sold

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money spend on supplies and labor used to produce goods and services

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Equity

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value of the business to the owner after all liabilities have been paid

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expense

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money spent to operate the business

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generally accepted accounting principles (GAAP)

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standards established by Financial Accounting Standard Board

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Gross Profit

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sales revenue of goods sold

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Liability

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money owed by the business to others, such as lenders or the government (for payroll taxes withheld) or to employees (for unused vacation time)

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Net Profit

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gross profit less operating expenses

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Profit

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money earned by the business after all the expenses have been paid

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balance sheet

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picture of the financial state (condition) of the organization on a specific day, usually last day of accounting period

Information on balance sheet company assets, liabilities and equity.

Assets=liability + equity

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income statement

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also referred to as the profit and loss statement (P&L). provides information about the financial results of operations during the reporting period.

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statement of cash flow

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provide important facts about the money that flows through the business during the accounting period.

Where did the money come from?(was it borrowed or did it come from a new capital investment)

What was the money used for?

how much was the result of the sales, how much was spent to produce the products sold, how much was borrowed and how much was invested

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retained earnings

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net profit that are not distributed to owners but remain in the business as equity

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revenue

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money received from customers for products and services

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budgeting process

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determines how many and what kind of resources will be required to accomplish goals and objectives generated by the strategic plan. does the plan need additional employees, funds to outsource elements of the plan, new technology, equipment, how much cash is needed to achieve the goal?

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Two Basic ways to create a Budget

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1. Based on historical budget information

2. Zero-based budgeting

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budget based on historic information

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bases the current budget to the prior year's budget. budgets can increase by a flat percentage rate, based on inflation or anticipated salary increases. This method assumes that nothing will change operationally from the last budget

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Zero-based Budgeting (ZBB)

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concept - starting from scratch, and determine needs to achieve the goals. How many people required? how much need to spend on outsourcing? What will be the cost of new technology or equipment? each expenditure needs to be justified in terms of the new goals and action plan.As part of ZBB HR examine all the programs offered to employee to determine if they are still adding value to the organization. drop programs that are not adding value and replace with the program that do add value.

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Top-down budgeting

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created by senior management and forced on to the organization. Managers operating responsibility no input on how much they will have to achieve their goals. Advantageous to senior management-complete control of how and where money is spent.disadvantage individuals who create the budget arefar removed from the actual operations - do not have any knowledge of what will be needed to achieve the established goals. often results in political battles as mid level and lower level managers additional funds for their particular department.

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bottom up budgeting

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all managers with budgeting responsibility in the budget creation process. Managers develop a budget based on their knowledge of operating costs and provide information to Sr management who have a better view on the organizations status. advantage - operating managers commitment to a budget that they helped in creating. disadvantage amount of time required, lack of awareness of org big picture, initial budget requests are unrealistic

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Parallel budgeting

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includes elements of both top-down and bottom-up methods. Sr management provides a broad guidelines for operating managers to follow when they create budgets for individual departments. give operating managers a context for developing individual budgets that are more realistic.

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End result of the budget process

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is a projection of expected revenue and costs needed to generate the revenue.

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Budget reports also include

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cash flow projection projections that are used to prepare short or long term shortfalls of cash (like seasonal business - the cash flow that comes in during the sales period (Christmas or mother's day) it will support the expenses incurred over a longer period of time.

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capital budget

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used to project asset purchases, such as buildings, machinery and equipment that is used in manufacturing or computers.

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compa-ratios

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The percentage obtained by dividing the actual salary paid to an employee by the midpoint of the salary range for that position. Simply put,

CR (Compa-ratio) = AS (actual salary) X 100 MP (midpoint of pay range)

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What is my employee total compensation package worth?

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Employee salary + benefits, perks

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VA Compensation Calculation

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VA makes a determination about the severity of your disability based on the evidence you submit as part of your claim, or that VA obtains from your military records. VA rates disability from 0% to 100% in 10% increments (e.g. 10%, 20%, 30% etc.).

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Employee compensation

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employee compensation = cash compensation that the employee receives for work performed

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Types of Compensation

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1) Fixed pay

2) Variable pay

3) premium pay

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fixed pay (base pay)

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non discretionary compensation that does not fluctuate based on performance or results. linked to org's pay philosophy, structure as well as market conditions. Salary / hourly

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Variable pay

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compensation tied directly with perfomance positive changes and result achievement over a specific period of time. Performance sharing investments or profit sharing. short and long term incentives (cash bonuses, company stock) Promotions and pay increases

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premium pay

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comp tied to non traditional work schedules like shifts and skills. This is in addition to the fixed pay. differential pay, weekend/holiday pay, on call pay, skill based pay, shift base pay

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Strategic plan for compensation and benefits

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the strategic plan determines how much you want to pay your employees, what type of employees you want to attract

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compensation plan

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pay scales, reward programs, benefits packages and company perks. Full package Salary + benefits

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two types of pay structures

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internal equity method and market pricing method

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internal equity method

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pays according to the job placement in the hierarchy of the organization

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Market pricing

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jobs that are tied to the prevailing marketrate

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How to establish pay structure to determine pay level?

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compensation analysis

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compensation analysis

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1) start with payroll budget

2) Benchmark each job value

3)create salary ranges and pay grades

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start with payroll budget analysis

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1) research merit increases and salary adjustments in the company and overall industry.

2) determine how many jobs are needed and how they need to be priced. 3) project upcoming payroll budgets to account for these types of adjustments

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Benchmark

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A standard point of reference against which things may be compared or assessed to.

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How to Benchmark each job value

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1) with the use of a salary survey compare the internal job to external job with similar duties

within the same industry and geographic location

2)based on compensation philosophy determine the benchmark value

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create salary ranges and pay grades

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1) use internal equity methods to create a series of pay grades. Wide range at the top structure and narrower ranges at the bottom

2) each grade tied to a different level of responsibility within the company

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Executive compensation packages

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the package can include base pay, bonuses or performance incentives, signing bonuses(to join org), stock options, predetermined severance package and company perk

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average promotion increase

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non-exempt - 7.1%

Exempt - 8.3%

Executive - 9.5%

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Incentive pay - variable pay

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cash bonuses, short term(1 year) long term (2+ terms) incentives

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best approaches to incentives plans

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1) piece-rate

2) time-savings investment plans

3) productivity increase incentive plans

4) cost savings incentive plans

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piece rate

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employee is paid for each piece that he/she produces. for each product service completed the higher the bonus

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time savings incentive plan

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1) individual standard hour to fast completion better pay but quality suffers

2) Group - Improshare, - team working bonus for fast work

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Improshare

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improve productivity through sharing and group incentive plan.

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Productivity increase incentive plans

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Individual Level - piece rate for each product service completed the higher the bonus

Group Level - cash split achieve team goal

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cost savings incentive plans

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Individual - suggestion system where the employee is paid for good cost effective ideas. employee receives a bonus for good idea

Group Level: Scanlon Plan - bonus based on cost reduction

Org Level : gain sharing, the less cost to produce product/services the more bonuses given

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Scanlon Plan

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oldest and most used gain sharing plan. It is a wide spread participation (leadership, total workforce) Reward system linked to a group or organization performance pre-established cost saving based upon employee efforts

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Joseph N Scanlon

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1899-1956 - Scanlon believed that people were motivated by things besides money - a change to make a difference, pride and fellowship

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Douglas McGregor

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developed the Theory x vs Theory Y

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Theory X

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employers assume that employees are naturally lazy, unmotivated and dislike working which encourages the authoritative managerial style.

centralized controls, top heavy, need constant supervision, need to be enticed to produce results otherwise they have no ambition or incentive to work

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Theory Y

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employers assume that employees need to be happy to be self motivated, creative. partisipative managerial style -decentralized control. employees seek and accept responsibility do not need much direction

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Profit Increase Incentive Plan

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No individual level

Group Level - gain-sharing based on revenue generation

Org Level - Profit sharing stock option - company wide

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Profit Share

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Incentive plans that are direct and indirect paid to employees that is tied to the profitability of the organization.

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Gainshareing

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Incentive plans that are tied to performance. As performance improves employees share financial gain. This is a team approach to increase level of performance

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Direct Compensation

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base, differential, incentive and overtime pay

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compensation refers to

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wages and salary

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Successful Incentive Plan

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Individual performance evaluation to find out if the person is a free rider or social loaf

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Free Rider

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individual that does less effort because the others work hard(this is intentional)

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Social Loafing

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individual that slacks off and doesn't care because they know the will still get paid (unintentional)

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Conditions of work incentive plans

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1) accurate measurements

2) adequate line of sight (people need ti see the contribution being made)

3) adequate base pay

4) pay and participation both are valued

5) trust

6) ratcheting labor standards(RLS)

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ratcheting labor standards (RLS)

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is a regulatory alternative that aims to improve the social performance of firms in the global economy. Under RLS, firms disclose to a certified monitor, information on their social performance, minimally including working conditions, hours, and wages. ) cheaper products often lead to unacceptable working conditions, brutal use of child labor in dangerous environment

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Promotion Pay

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base pay increase - it is less reachable than merit pay and more desirable (higher than merit) happens sooner than later

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Merit pay

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most used as an addition to base pay, done a yearly basis it is determined by management

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variable considered with promotion increases

reach needed for promotions

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1) pay rage of new promotion (66%)

2) pay of others in new range (60%)

3) external pay data (36%)

4)performance rating (34%)

5) Average percent promoted (7%)

6) budget for promotions (44% promotion, 24% merit

7) promotion guidelines when asked by other employees (63%)

8) promotional guidelines for employees who are actually receiving promotions (6%)

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effectiveness of promotions

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motivation 62%

engagement - commitment to work 59%

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performance level

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outstanding 10%-12%

very satisfactory 7-10%

Satisfactory 5-7%

marginal satisfactory 3-5%

unsatisfactory 0

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merit pay framework

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1) Assess if merit pay is effective - establish a pay performance relationship

2) correlate performance increase and pay

3) wait to measure perceived relationship which is typically smaller correlation

motivation increases, they see the relationship between pay and performance

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merit pay context

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1) environment (unemployment low, substitutes low, merit increase high. unemployment high and substitutes high merit increase low

2) Organization

3) evaluate and recipient

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merit pay process

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pay & performance relationship

outcomes: performance an satisfation

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conditions for merit pay to work

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1) accurate measurements ( there should not be any rating errors. errors high efficiency low)

2) lump sum used

3) just noticeable difference between high and low performance (5% - 1%)

4) adequate budget

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internal equity

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base on employees perception of their pay and how they are paid in comparison to other within the org doing the same job and to others in the organization

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Stacy Adams 1963

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equity theory

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equity theory

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employees seek to maintain equity between the input that they bring to a job and what they receive as payment in turn. Theory of fairness

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external equity

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base on employees perception of their pay and how they are paid in comparison to same job and same duties in the marketplace. fairness of pay

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equity measured by

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comparing the ratios of contributions and benefits of each person. employee seek input = valuable outcome

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total reward

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compensation & benefits & perks

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base pay increases

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based on the length of service with the organization

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benefits

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health & welfare

paid time off (pto)

retirement

personal growth

training

career development

performance management

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benefits history

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dates back to WWII the war labor board in charge of pay, pay increases down, money toward war) 40 - 40%, 80% - 20%, Now - 40%

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Rating scale Development

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1) Job Analysis– behaviors/results needed, break the job into dimensions 2)Dimensions 3)Standards– what reports are supposed to be generated 4) Scaling– scale used for evaluation

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Ratings Solutions

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Training– use video screen to trick others to make rating errors in practice, make sure it teaches how to eliminate errors Diary– effective/ineffective behaviors/results seen. combats memory decay Multiple raters– 360 assessment– consensus Accountability– have consequences for performance appraisal skills Consensus– talk about appraisals in a group, no technology

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Rating Errors

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1) Halo– sources of contamination, generalizing from one aspect to another for performance, peoples promotion because of one good skill 2) Leniency– positive or negative. All 5's or 1's. some people are good at some things and not at others

3)Central tendency– supervisor gives average ratings to eliminate any enemies or artificial friends

4) Similar to Me– appraise others at the same as yourself, gives higher ratings to who are similar to them along non–job related reasons (my team is great so i should have a good rating)

5) Contrast Effect– first 3 performers have high ratings, next is just average but gets rated poor in comparison. works both ways