Compensating Employees Team C:Traci Parlier Jacob Burke Jacob Hammond Lee Jarson Brock McDowell Patrick Sekel

What Determines How Much You Pay?

❖ Employee Compensation➢ Direct Financial Payments➢ Indirect Payments➢ Total Rewards

❖ Important Compensation Laws

➢ 1938 Fair Labor Standards Act

➢ 1963 Equal Pay Act

➢ 1964 Civil Rights Act

➢ Other Discrimination Laws

What Determines How Much You Pay?

❖ Compensation Policies➢ Differentiating Between Employees

❖ Strategy and HR➢ Aligned Reward Strategy

❖ Equity

How to Create a Market-Competitive Plan

1. Job Evaluations to determine worth2. Pay Grades by rank of job importance3. Wage Curves revealing relationship between pay and

value4. Salary Surveys of other companies5. Comparison of current and market wage rates6. Develop Rate Ranges for each pay grade

Incentive Plans

❖ An incentive is a bonus added onto a salary or wage to encourage potential or current employee’s to become interested in the job and stick with it. Incentive plans are traditionally pay-for-performance plans.

❖ The 5 building blocks to effective Incentive Plans1. Does it make sense to use incentives here?2. Link the incentive with your strategy.3. Make sure the program is motivational.4. Set complete standards.5. Be scientific.

Incentive Plans

❖ Incentive plans usually fall into two categories:➢ Individual Incentive Programs➢ Team-Based Incentives

❖ Types of Incentive Plans include:➢ Piecework Plans➢ Stock Options➢ Merit Pay➢ Earnings-at-Risk Pay Plan

Incentive Programs

❖ Piecework Plan - a piecework plan is the oldest, and most common type of individual incentive plan

Employee is paid a “piece rate” for each unit he or she produces or sells

❖ Stock Options - an employee is offered a specific number of shares in company stock at a specific price during a specific period.➢ Usually reserved for managerial positions

Incentive Programs

❖ Merit Pay - any salary increase that is awarded to an employee based on his or her individual performance

While Merit Pay is based on performance and can motivate performance, critics of this plan say that it undermines teamwork.

❖ Earnings-at-Risk Pay Plan - employees agree to section off a percentage of their salary in hopes to obtain a larger percentage back if their goal is obtained. If the goal is not obtained, then the employee foregoes that percentage of pay.

Nontangible & Recognition-Based Awards

❖ Studies have shown that job recognition has a positive impact on performance, so employers have begun combining recognition-based awards with financial incentive optimally motivates employees.

❖ Types of rewards used:➢ Employee recognition➢ Gift certificates➢ Cash rewards➢ Merchandise incentive➢ Training programs➢ Work/life benefits➢ Individual travel➢ Sweepstakes

Benefits

Benefits – indirect monetary and nonmonetary payments an employee receives for continuing work for a company❖ A few of the benefits include:

➢ Pay for Time Not Worked➢ Insurance➢ Retirement➢ Employee Services and Family

Friendly/Work-Life

Pay for Time Not Worked ❖ Supplemental pay benefits (one of employer’s most expensive benefits) ❖ Holidays❖ Vacations

➢ Collectively Americans failed to take 577,212,000 available vacation days in 2013

❖ Sick Leave➢ Out of Work b/c of illness➢ Pulled Paid Leave (Lumping all paid days off and using them at once)➢ Buying back unused sick days

❖ Maternity Leave ❖ Unemployment Insurance Payments

➢ Employees who are unable to work through no fault of their own ➢ Current National Unemployment Rate 5.5% North Carolina 5.4%

❖ Severance Pay

➢ One time separation payment when terminating an employee

Insurance Benefits

❖ Workers Compensation ➢ laws aimed to provide prompt income and medical benefits

to work related employee accident victims or their dependents

➢ Required by law/plans vary by state ➢ NC requires that all businesses which employ 3 or more

employees obtain workers’ compensation insurance or qualify as self-insured employers

❖ Health Care ➢ Health Maintenance Organizations (HMO) - medical

specialists operating out of a health care center ➢ Preferred Provider Organization (PPO) - employees

select participating physicians who provide discounts/specials

Health Care (Cont.)

❖ Cost containment Specialists - help reduce health care cost by negotiating with health care insurance providers

❖ Cost Control Strategies: ➢ Online Administration/Technology ➢ Outsourcing services ➢ Wellness programs ➢ Claims Audits ➢ Medical Tourism ➢ Mini Plans

Protection & Affordable Care Act of 2010

❖ Employers must report value of health care benefits on employees’ W-2 statements

❖ Contributions to health care flexible spending arrangements must be limited to $2,500

❖ 40% excise tax on high-cost health insurance plans ❖ Individual & Group health plans that already provide

dependent coverage must expand eligibility to age 26❖ Potential cost raisers:

➢ Expanded coverage for older children ➢ Rule of offering coverage to employee working less

than 30hrs a week

Retirement Benefits Social Security

Three types of benefitsi. Retirement benefits: Provide income if an employee insured

under the Social Security Act retires at age 62 or thereafterii. Death benefits: Provide monthly payments to dependents

regardless of the employee’s age at deathiii. Disability payments: Provide monthly payments to an employee

and his or her dependants f the employee becomes disabled for work

Full retirement age is 65, but has now rose to 67 for those born 1960 or later

Pension Plans Provide income to individuals in their retirement About over half of full-time workers participate in some type of pension

plans at work Three classifications

i. Contributory vs. Noncontributory plansii. Qualified vs. Nonqualified plansiii. Defined contribution vs. Defined benefit plans

Retirement Benefits (cont.) 401(K) Plans

Employees have their employer place a portion of their compensation into a company profit-sharing or stock bonus plan, or into investments the employee selects

ERISA Employee Retirement Income Security Act (ERISA) protects

pensions of workers and to stimulate pension plan growth Vesting

Guaranteed to the employee Two ways

i. Cliff Vesting: period for acquiring a nonforfeitable right in employer matching contributions is 3 years

ii. Graded Vesting: participates must receive nonforfeitable rights to the matching contributions as follows: 20% after 2 years, and then 20% for each succeeding year, with 100% nonforfeitable right by the end of 6 years

Small Business Retirement - According to a recent Business and Financial Planning Survey by the CNBC

and Financial Planning Association, an average of 70% of small business owners’ wealth is invested in their growth companies

- 42% of owners polled said that developing a retirement plan and exit strategy was their most pressing financial challenge

- 94% of financial planners have discussed the issue of succession planning with their clients

- Confidence in retirement is growing after the late recession in 2009

- 60% of small company workers were “very confident” or “somewhat confident” that they will retire comfortably, compared to 55 and 50% in 2013 and 2012

- According to the TransAmerican study, 68% of small companies sponsored employee-funded 401(K)s and other plans in 2012, while only 59% did in 2013 and 2014

- TransAmerica study also revealed that there’s more expectant to rely on Social Security than in years past. In 2011, 25% said they’d be relying primarily in Social Security while 30% said so in 2014

- Small business employers and employees alike recognize the need to save and plan their futures, but have not taken the necessary steps

http://www.thinkadvisor.com/2015/04/27/small-businesses-still-lagging-on-retirement-plann

Other Benefits

❖ Employee Assistance Programs (EAP’s) ➢ College Tuition Reimbursement➢ Person legal/financial services

❖ Family-Friendly Benefits ➢ Flexible work schedule

❖ Workplace Flexibility ➢ arming employees with information technology enabling

them to complete the job wherever they are ❖ Flexible Benefits (Cafeteria Plans)

➢ Employees spend their benefits allowances on a choice of benefit options

➢ Employer must limit total cost for each package ➢ Must have certain nonoptional items

Current Compensation Trends❖ Competencies are demonstrable personal characteristics such as

knowledge, skills, and behaviors.

❖ Competency-or skill-based pay:➢ With competency- or skill- based pay, you pay the employee for the

skills and knowledge he or she is capable of using rather than for the responsibilities of the job currently held.

❖ Competency- based pay generally contain five

elements: The employer defines specific required skills and chooses a method for trying the person’s pay to his or her skill competencies. A training system lets employees seek and acquire skills. There is a formal competency testing system. And, the work is designed so that employees can easily move among jobs of varying skill levels.

Current Compensation Trends (cont.)

❖ Most firms end up with pay plans that slot jobs into classes or grades, each with its own vertical pay rate range.

❖ For an employee whose job falls in one of these grades, the pay range for that grade dictates his or her minimum and maximum salary.

❖ How wide should the salary grades be, in terms of the number of job evaluation points they include?

❖ There is a downside to narrow grades. For instance, if you want someone whose job is in grade 2 to learn about a job that happens to be in grade 3, the employee might object without a corresponding raise to grade 3 pay.

❖ One solution is broader pay grades.

Broadbanding means collapsing salary grades and ranges into just a few wide levels or bands, each of which then contains a relatively wide range of jobs and salary levels.