Employee Compensation 1 The compensation system Base pay salary or hourly wage, paid at flat rate Base pay add-ons overtime pay, shift differentials, premium pay (e.g., for holidays & weekends) Incentive pay performance-based (e.g., piecework, commissions, bonuses) Benefits various forms of insurance (e.g., health), retirement plans, memberships, tuition support 2
Direct & indirect, monetary & non-monetary Direct compensation Base pay, wage & salary add-ons, incentive pay Indirect compensation Benefits Use of equipment, vehicles, tools, etc. during on business activities or hours Monetary compensation paid in dollars Non-monetary compensation availability or opportunity Memberships, educational opportunities 3 Factors affecting compensation Labor unions Major presence in some states, including Illinois Employee associations Market forces Vary by location & by job type Supply & demand factors Legislation at Federal & State levels Minimum wage requirements Prevailing wage legislation (in Illinois) Nondiscrimination 4
Labor unions Collective bargaining Wages, raises (why, how, when), benefits, seniority systems, grievance procedures, layoffs & recalls, work rules, disciplinary procedures Hot button items for unions Starting wages, wage equity, wage compression Wage compression = Starting wages increase more rapidly than existing wages (due to inflation or market factors), reducing the gap between experienced and new employees Paid leave, family medical leave Work conditions Work rules 5 Supply & demand factors Operate in compensation as they do in the market generally High demand for specific job KSAs leads to higher wages High supply of or low demand for specific job KSAs suppresses wages 6
3 pay systems Informal / arbitrary No real system Informal comparable worth No rigid structure, pay based on job responsibilities, comparisons among jobs, or past practice Formal comparable worth Based on analysis of job descriptions, classification of jobs & development of formal pay structure 7 Periodic pay increases Performance-based Merit pay Non-performance-based Cost-of-living adjustments (COLAs) Across-the-board (given to all employees or to specific groups of employees) Longevity 8
Benefits Increasingly important to employees Increasingly costly to employers 9 Benefit types health insurance This is the biggie Employee only / employee s family Basic or expanded No cost to employee / shared cost prorated by salary Health care providers: Health maintenance organization (HMO) or Preferred provider organization (PPO) Both contract with networks of healthcare providers Both require copayments for services HMOs: require using specific providers, discourage using outside providers, require referrals from primary care physicians PPOs: providers outside network cost more, easier to access specialist care without referrals, annual deductibles, higher copayments 10
Other benefit types Life insurance shared cost typical Disability insurance usually employee option, cost based on age & salary Supplemental insurance employee option, deals with specific conditions Pension & retirement plans Social security intended to supplement other retirement income Two types of retirement plans: Defined benefit employer contributions based on age, salary and/or length of service; paid out at pre-defined rate Defined contribution employee & employer both contribute at agreed percent of base salary, additional employee contributions possible, contributions can be tax-shielded, require vesting; no guarantee for payout amount Defined contribution plans replacing defined benefit plans 11 More benefit types Paid time off Annual vacation accrued at defined rate, usually expressed as vacation days earned monthly Unused vacation days may be cashed in when leaving employer Longevity affects ability to accrue vacation days Holidays some required by law, some acknowledged by employer Sick leave accrued at defined rate, usually expressed as sick days accrued monthly Bereavement leave 12
Still more benefit types Memberships in professional societies Continuing education, training & development Free or discounted services, admissions, etc. Uniforms or clothing If specific uniforms or clothing required but not provided, cost to employee may be tax deductible Employee assistance programs (e.g., personal or financial counseling) Senior management benefits enhanced benefits designed to retain senior managers 13 Enhanced benefits preferred to pay raises? Recent survey (https://www.glassdoor.com/blog/ecs-q3-2015/ ; accessed 2/3/2016 at 0903 CST) suggests 79% of employees would prefer enhanced benefits over a pay raise By sex: Women 82%, men 76% By age: 18-34 89%, 35-44 84%, 45-54 70%, 55-64 66% 14
Enhanced benefit types preferred over pay increases Healthcare insurance (e.g., medical, dental): 40% Vacation/Paid time off: 37% Performance bonus: 35% Paid sick days: 32% 401(k) plan, retirement plan and/or pension: 31% Flexible schedule (e.g., work from home): 30% Office perks (e.g., free lunch, casual dress): 19% Employee development programs (e.g., on-the-job training, professional development): 19% Tuition reimbursement: 18% Employee discounts: 17% 15 Legislation affecting compensation Fair Labor Standards Act Requires minimum wage, requires overtime pay, regulates child labor Affects both full & part-time workers IMPORTANT Definitions of full / part-time work are in flux; keep an eye on this Overtime pay may be taken as compensatory time off Multiple acts at Federal & State level require paying prevailing wages, minimum wages & fringe benefits if doing business with Federal or State governments paying service workers prevailing wages & benefits 16
Other government requirements for benefits Social Security & Medicare Employee Retirement Income Security Act (ERISA) sets uniform standards COBRA allows retention of health insurance if employee loses employerprovided coverage; requires loss of coverage through qualifying event & payment by individual HIPPA amends & extends ERISA, prohibits discrimination against employees based on health status, prohibits excluding health insurance coverage based on preexisting conditions Occupational Safety & Health Act (OSHA) 17 Pay structure Pay structure hierarchy of jobs in the organization and their rates of pay Pay structure includes: Job structure this gives us our job hierarchy (think organization chart) Pay level (or pay grade) each job is assigned a specific pay level; at each pay level there are likely to be many different types of jobs, paid the same amount because their value to the organization is roughly the same Job title is not the same as pay level the job title secretary may include multiple pay levels (e.g., secretary I, secretary II, and so on) 18