WorldatWork Society of Certified Professionals. WorldatWo s ‘The Total Rewards Association About ortsttok” Watson ero) art xstton prog kat conferees onl un eos as ning ‘campentin, enets woe anita ol ena tate ate a rah ad wcrc Foc 155 Woo say 30000 enh ote an 10 counties ts se ogo, Work of ated rons be eign Ceri Campane {C%, Cevtes Berets retention EP Col enrain Petes, Mak ke Cert Presa {RCD or See Compensation lesson (C2", sd nti Excave Compesaon Potent (C2, Wore ho oles ne, Ang nd Washington OC ‘Te ork roped rs ks: Aas We LA egress ar ANU wasp" Nato“ unten Conpensan CrmeunCopyright 2007 WorldatWork. All Rights Reserved. 'No portion of this publication may be reproduced in any form without express written permission from WorldatWork, WorldatWork Values and Protects Your Profes: “This book is your personal copy of the materials for this course, intended for your own use and professional development. To protect your and your company's considerable investment of time and resources for this course, WorldatWork does not permit reproductions or sharing of course materials in any form, including photocopying and scanning. Questions or concems may be directed to WorldatWork Customer Relationship Services, 877/951-9191 (\ol-free) or 480/922-2020, Congratulations on your commitment to professional development and excellence. Thank you. nal DevelopmentForeword Welcome to WorldatWork Course T1: Total Rewards Management. To achieve the greatest benefit from this program, your active participation is encouraged. Please feel free to ask questions relevant to the topics presented and share your ideas and experiences with the instructors and other participants. Additionally, the coffee breaks and lunches are excellent forums for sharing thoughts and ideas about the total rewards function, WorldatWork courses are developed through the efforts of many individuals, especially those who serve as WorldatWork faculty. Specifically, WorldatWork wishes to acknowledge the following current contributors to this course: G. Michael Barton, SPHR, Trover Foundation Regional Medical Center David W. Cheatham, CCP, The Coca-Cola Company Howard A. Coate, Coate & Sons Ltd Jason GC. Kovac, CCP, CBP, WorldatWork ‘Sandra O'Neal, Towers Perrin Daniel Purushotham, PhD, CCP, CBP, University of Connecticut In creating the WorldatWork educational program, we seek to offer the highest quality professional development opportunities for human resources professionals with ‘concentrations in compensation, benefits and total rewards. We invite your opinions and suggestions about the course and its content to assist us in updating our courses and to ensure they are meeting your needs. Thank you for your participation, Version 1.06.3 ‘The information in this publication, as propared by tho authors and reviewed by other experts inthe field, represents various approaches to compensation and benefits management. WorldatWork stives to provide information and perspectives that wil help readers apply appropriate practices in thelr own organizations, but does not provide prescriptive advice. Nothing herein should be construed as an attemat to ald or hinder the adoption of any pending legislation, regulation or interpretive rule, o as legal, accounting, actuarial or ather such professional advice. Tia04 2 Wotaor AlitoCourse T1 Course Overview This basic-level course is specifically designed to be the first course in the Certified Compensation Professional (CCP)/Certified Benefits Professional (CBP) sequence, Participants are introduced to the total rewards model and each of its components. Emphasis is given to the five elements of total rewards: compensation, benefits, work-life, performance and recognition, and development and career opportunities. Intended Audience This course is intended for those new to the compensation and benefits field of for generalists with limited exposure to compensation and benefits functions seeking a basic overview of total rewards. Preparing for the Course Please review the contents of this WorldatWork course book prior to attending the class. Also, please visit the Courses and Seminars section of the Web site at ‘www. woridatwork.org prior to attending to determine whether there is an amendment sheet, published for your course book. Amendment sheets include minor corrections and updates (not affecting the examinations) that are intended to maximize the currency of the course books between publishing dates, The amendment sheets can be viewed andlor printed from the Web site. Thank You ‘Thank you for choosing WorldatWork to support your professional development efforts. Ifyou have any questions about the course or are missing any of the course materials previously mentioned, please call WorldatWork headquarters at 877/951-9191 (Our mailing address is 14040 N. Northsight Blvd, Scottsdale, AZ 85260, Our Pledge to You WorldatWork is committed to providing you with high-quality products and services. Our staff at the association's global headquarters in Scottsdale, Ariz., is dedicated to your satisfaction. If we do not meet your expectations — or if you wish to share any comments, ‘suggestions or questions - please feel free to contact us at any time. We appreciate your support. WorldatWork Toll-free 877/951-9191 [email protected] Tim 02 ‘© Wotan. Mog esredOverview: Course T1 MODULE 4 Introduction to Total Rewards Begins the discussion of total rewards management by defining total rewards and looking at the process of developing a total rewards strategy. The evolution of rewards . fards mode! The total rewards approach The total rewards strategy The total re MODULE 2 Compensation Explains compensation, including the elements of a base pay structure and its importance in total rewards design. Elements of compensation Building a job worth hierarchy Components of a base pay structure Types of base pay Types of pay adjustments Vatiable pay MODULE 3 Benefits Details the various components of benefits that are available for total rewards design. ™ Benefits Elements of benefits Factors influencing benefits Income protection programs Pay for time not worked programs T1003OVERVIEW: COURSE T1 MODULE 4 Work-Life Defines work-life and details the categories within the work-life portfolio. m Work-life The workciife professional The work-ife portfolio MODULE 5, Performance and Recognition Discusses both the performance management process and approaches to showing recognition in organizations. Performance and recognition Performance management Performance management process phases 4 Phases 4 through 4 Recognition programs MODULE 6 Development and Career Opportunities Discusses learning opportunities to enhance present jobs as well as those to support future career plans and various types of development and career opportunities. Development and career opportunities Conduct annual development and career opportunities discussion ¢ Phase 5 Learning opportunities | Types of development and career opportunities Tim 0dOVERVIEW: COURSE T1 MODULE 7 Total Rewards ~ Putting It All Together Explains the drivers for the total rewards strategy, including organizational culture, business strategy and the human resource strategy. The total rewards design process and design considerations are addressed Revisiting the total rewards model Drivers of the total rewards strategy The total rewards strategy . . '™ The total rewards design process . ‘Total rewards design considerations APPENDIX ™ Quiz answers Support materials for course modules EXAMS Information on WorldatWork Society of Certified Professionals certification exams T1m05(biank) Tim 06 ‘2 Wotton. Atrgtsesenod.Introduction to Total Rewards Wortdatwork BD TWat4 wersewok 8g reservedModule 1 Introduction to Total Rewards Introduction Attraction, motivation and retention are key issues facing human resources professionals. Successfully addressing these issues begins with an understanding of the total rewards model and the five elements within the total rewards strategy. Module 1 Introduces the total rewards model and the five elements that, when formulated in the appropriate mix, lead to improved attraction, motivation and retention, The elements are briefly defined in Module 1 and will be examined in detail in subsequent modules. ‘The total rewards approach and advantages of taking the approach are discussed. In addition, the total rewards strategy and the key players involved in strategy development are introduced, Objectives By the conclusion of tis moclule, you wil beable to accomplish the folowing 1. Define and explain the elements of total rewards. 2, Identty and explain the total rewards approach and advantages of taking the approach 3. Discuss the total rewards strategy and the key players involved in strategy development. Thm12 © Wotaatver rats esea ti + Buse salary + as any + Base & vale + Postion + Vorable pay vo descpion + Icentes + Equity Pertomancs & + dob evtuaton |. Execuivooquty | * erties recgiton Sete cnay | rete Oovepmen& eter oporntes The Evolution of Rewards ‘Throughout history, employers have been challenged with attracting, motivating and retaining employees. From the simplest barter systems of centuries past to the current complex incentive formulas of taday, the organizational premise has been the same: provide productivity and results to an enterprise, and the enterprise will provide its employees with something of value. ‘Throughout the past decade, the profession has continued to mature. Increasingly, it has become clear that the battle for talent involves much more than highly effective, strategically designed compensation and benefits programs. While these programs remain critical, the most successful companies have realized that they must take a fotal rewards approach, emphasizing attraction, motivation and retention. They must deploy all of the elements of total rewards ~ compensation, benefits, work-life, performance and recognition, and development and career opportunities — to their strategic advantage. Tim1.3 © Wott ti sare,The Total Rewards Model The Total Rewards Model The total rewards model provides a framework for designing, implementing and assessing the rewards packages offered throughout the organization. A thorough understanding of the organizational culture, the business strategy and the human resources strategy ensures. alignment in the development of the total rewards strategy. These will be discussed in detail in Module 7. First, it is necessary to understand the elements of total rewards and the total rewards approach, Tit © wena, tis sere,THE TOTAL REWARDS MODEL Elements of Total Rewards ANSEL Ge Eurssche enna ci rs “Performance & Recognition, PEA e ue (eseauine Elements of Total Rewards Total rewards are the monetary and nonmonetary return provided to employees in exchange for their time, talents, efforts and results. Total rewards involve the deliberate integration of five key elements thal effectively attract, motivate and retain the talent required to achieve desired business results = Compensation — cash provided by an employer to an employee for services rendered Benefits — programs that an employer uses to supplement the cash compensation an employee receives | Work-life ~ a specific set of organizational practices, policies and programs as well as a philosophy that actively support efforts to help employees achieve success within and outside of the workplace ™ Performance and recognition ~ Performance involves the alignment and subsequent assessment of organizational, team and individual efforts toward the achievement of business goals and organizational success. Recognition gives special attention to employee actions, efforts, behavior or performance. | Development and career opportunities ~ Development comprises learning experiences designed to enhance employees’ skills and competencies. Career opportunities involve plans to help employees pursue their career goals. Tims © Weiter ight reared—— The Total Rewards Approach The Total Rewards Approach Human resources professionals are challenged with finding ways to attract, motivate and retain employees. What do the terms mean in relation to employee performance and how can they be accomplished? Using the total rewards approach, the human resource professional strives to find the appropriate mix of total rewards elements that will not only attract, motivate and retain employees, but lead to employee satisfaction and engagement as well ™ Attract - To attract is the ability an organization has to draw the right kind of talent necessary to achieve organizational success. Attraction of an adequate (and perpetual) supply of qualified talent is essential for the organization's survival, and it is one of the key planks of business strategy. One way an organization can address this issue is to determine which “attractors” within the total rewards programs bring the kind of talent that will drive organizational success. = Motivate — To motivate is the ability to cause employees to behave in a way that achieves the highest performance levels. There are two types of motivation: 4 Intrinsic motivation — Linked to factors that include an employee's sense of achievement, respect for the whole person, trust and appropriate advancement opportunities, Intrinsic motivation consistently results in higher performance levels. 4 Extrinsic motivation ~ Extrinsic motivation is most frequently associated with rewards that are tangible, such as pay. 1 Retain — To retain is an organization's abilty to keep employees who are valued contributors to organizational success for as long as is mutually beneficial, Desired talent can be kept on staff by using a dynamic blend of elements from the total rewards package as employees move through their career life cycles. However, not all retention is desirable, which is why a formal retention strategy with appropriate steps is essential Tim16 Work Alig tesoredTHE TOTAL REWARDS APPROACH Employee Engagement ™ What is engagement? | Employee Engagement ™ What is engagement? Employee engagement has become a corporate buzzword, but its meaning is some- times vague. In order to measure engagement and identify its drivers and outcomes, it must be clearly defined. What do we mean by engagement? The characteristics of an engaged employee fall into two primary categories: Behavioral = Working hard = Working with greater accuracy = Going the extra mile = Performing at an optimal level = Executing ™ Being productive = Being resilient = Solving problems 4 Emotional and attitudinal Aligning of one’s individual values with those of the organization = Connecting = Committing = Showing passion = Feeling invested in outcomes What does engagement mean in your organization? How is engagement a business issue? TmtTHE TOTAL REWARDS APPROACH Advantages of a Total Rewards Approach ® Higher profitability ™@ Lower labor costs = Greater flexibility Advantages of a Total Rewards Approach With enhanced attraction, motivation and retention, an organization may experience positive results such as ™ Higher profitability # A direct link exists between employee motivation and product/service quality. ‘¢ Companies highly rated by their employees often have higher profits = Lower labor costs 4 Many programs in the work-life area are low-cost solutions used to attract and retain employees. + Availability of programs considered part of the work-life element may reduce the ‘compensation needed to attract talent. However, compensation savings should not, be the driving force behind work-ife offerings 4 Highly rated companies generally offer competitive programs within work-life, in addition to competitive compensation. ™ Greater flexibility + Each company, given its own specific challenges, customizes its total rewards programs in unique proportions. This is called the total rewards mix. # Unique considerations may include job types, geographic and demographic issues. Tints ‘© Woteator Arts esvedThe Total Rewards Strategy Identifies: '™ The desired competitive position '™ The appropriate labor market segments The optimal mix of total rewards elements for each employee group m= The way each element will be earned and allocated The Total Rewards Strategy The total rewards strategy is the art of combining the five elements into tailored packages: designed to achieve optimal motivation, For a total rewards strategy to be successful, employees must perceive monetary and nonmonetary rewards as valuable. The total rewards strategy identifies: 1 The desired competitive position in the market for each employee group # Many companies want to offer a rewards program targeted at the 50th percentile in the market. However, itis important to define the competitive market because rewards programs vary between market segments. |= The appropriate labor market segments for each employee group where the market is identified according to industry, size, geographic location or performance 1 The optimal mix of total rewards elements (compensation, benefits, work-life, performance and recognition, development and career opportunities) for each. employee group + Some employers determine that they want to offer generous benefits and relatively low wages. Examples: Banking, education, government entities Other employers pay higher wages and lower benefits Examples: Real estate brokerage, established technology companies ¢ More and more employers are placing greater emphasis on providing work-life programs since they are often highly valued by employees. Organizations are beginning to explore how performance and recognition, and development and career opportunities can be effectively utilized 4 The life cycle of the business also can affect the optimal mix. Example: In a high-tech startup, there may be a cash shortage, so wages are low and benefits are low, but stook/share options may be high and the work environment may be desirable to attract talented employees. Tim19The Total Rewards Strategy ...contd 1 The way each element will be earned and allocated # Performance versus entitement + Individual versus group incentives + Fixed versus flex benefit ‘hoice) Tim 1.40 oa its esoTHE TOTAL REWARDS STRATEGY Key Players Involved } in Strategy Development @ Senior management/ board of directors ™ Human resources leadership = Employees ™ Outside consultants Key Players Involved Strategy Development ® Senior managementiboard of directors + Senior management typically gives approval to the strategy. The board of directors approves officer compensation. ¢ Involvement is important for buy-in and ownership. = Human resources leadership ¢ Articulates the HR strategy ¢ HR staff is instrumental in facilitating the process. ¢ Total rewards management = Employees + Internal, external or exit surveys may provide guidance in identifying the relative importance of total rewards elements to various employee groups. # Aunion contract, collective bargaining agreement, works council mandate, ete. may need to be considered if applicable. 1 Outside consultants # Ifoutside consultants are to be used, they would work closely with HR to facilitate the process, Development of the total rewards strategy is discussed in further detail in Module 7. Tima Wott Alig exer.Can You? ™ Define and explain the elements of total rewards. ™ Identify and explain the total rewards approach and advantages of taking the approach. ™ Discuss the total rewards strategy and the key players involved in strategy development. Tim 4.12Module Quiz |. Which of the following are three of the five elements of total rewards? A. Base pay, variable pay and medical coverage B. Development and career opportunities, work-life and benefits C. Performance and recognition, health coverage and retirement plans D. Attraction, motivation and retention What is one of the advantages of taking a total rewards approach? ‘A. Ensures that the HR strategy will align with the business strategy B. Ensures compliance with legal and regulatory requirements C. Offers flexibility for customizing total rewards programs in unique proportions D. ). Offers more career opportunities for HR professionals Which of the key players involved in the development of the total rewards strategy works closely with HR to facilitate the process? A. Customers 8. Suppliers C. Employees D. Outside consultants T1113 © Wetter igh esered(blank) Thm444 © Worve et rsaCompensation Wortdatwork’ B Tim24 © Worn. A gs eseModule 2 Compensation Introduction Compensation programs link to employee contributions in a very real way. When a compensation system operates effectively, employee performance warrants the compensation provided by the organization, and each party derives a reasonable return on its investment. When employees feel they are not paid fairly, their commitment to the organization may decrease, their productivity may drop, and, ultimately, they may choose to terminate their employment. Considering the fact that compensation is a large line item, it is necessary to understand what it constitutes, Objectives By the conclusion ofthis module, you willbe able to accomplish the following: 1. Identify and define the two primary elements of compensation, 2. Define and describe the steps involved in building a job worth hierarchy. 3. Describe the components of a base pay structure. 4, Differentiate between the three types of base pay: salary, nonexempt/hourly and piece rate. 5. Identify the types of pay adjustments as well as when and why they typically are implemented. Identify the types of variable pay as well as when and why they typically are implemented T1m22BUS UT) Bucs Fixed pay (ou Variable pay Elements of Compensation Compensation is pay provided by an employer to an employee for services rendered. Typically, itis the first aspect of the employment contract and calls for the extension of an acceptable monetary reward in return for the time, effort and skill of the employee, Compensation can be categorized into the following two primary elements: Fixed pay, also known as base pay, is nondiscretionary compensation that does not vary according to performance or results achieved. It is usually determined by the organization's philosophy and pay structure. Throughout this module, you may see both base pay and fixed pay; they are the same. Variable pay, also known as pay at risk, is compensation that is contingent on discretion, performance or results achieved. Much of the innovation in ‘compensation is occurring in the variable pay element. Companies are making greater use of variable pay programs by expanding them to a significantly broader portion of the workforce than they have in the past. T1023Building a Job Worth Hierarchy Building a Job Worth Hierarchy How does an organization decide what to pay its employees? A job worth hierarchy is developed and used in the administration of pay decisions. The creation of a job worth hierarchy begins with job analysis and includes the following steps: 1 Job analysis 4 The systematic, formal study of the duties and responsibilities that comprise job content to obtain information about the nature and level of the work performed = Job documentation 4 Written information about job content, usually in the form of job descriptions = Job evaluation 4 Market-based hierarchy — uses external data to find the going rate for benchmark jobs in the labor market relevant to the organization ¢ Job content approach = Nonquantitative methods to view the job in terms ofits importance to the ‘company through ranking or classifying = Quantitative methods examine the importance of jobs in terms of ‘compensable factors 1 Job worth hierarchy ¢ Final result of job evaluation process @ Illustrates where each job fits, relative to other jobs 1 Base pay structure # After the job worth hierarchy is bull, a base pay structure is created and used as a framework for pay decisions. Tim24BUILDING A JOB WORTH HIERARCHY Why Conduct a Job Analysis? Develop job worth hierarchy Document work methods Provide basis for performance appraisal Identify job families Identify qualifications Provide basis for legal and regulatory compliance Determine if a job should exist ™ Identify organizational design elements | Why Conduct a Job Analysis? Job analysis is the basis for practically everything related to job evaluation and paying employees. Job analysis is performed to: ™ Develop a job worth hierarchy | Document work methods and processes for training purposes Provide a basis for performance appraisal based on job-related standards 1 Identify job families and career paths Identity qualifications required to perform work for purposes of job posting, advertising, and candidate selection Provide a bat s for legal and regulatory compliance ™ Determine whether a job should exist in its present form 1 Identify organizational design elements Note: "Job" wil be used in tis module to describe a distinct role performed by one or mare employees. Tim25 © Water Ags eerBUILDING A JOB WORTH HIERARCHY Types of Job Documentation @ Job analysis questionnaires @ Job family matrices ™ Job descriptions Types of Job Documentation Although job documentation is typically associated with the job description, there are other forms. Job documentation consists of written information about job content, typically resulting from a job analysis effort. There are several types of job documentation: '® Job analysis questionnaires ¢ In many cases, questionnaires completed by incumbents and/or supervisors may contain more specific and extensive data about a particular job than a formal job description. 1 Job family matrices 4 Information on muttiple levels within the same job family 1 Job descriptions + A formal documentation of duties and responsibilities as well as job specifications Tim26BUILDING A JOB WORTH HIERARCHY Job Descriptions ™ The general nature of the work 4 Duties and responsibilities = The level of the work to be performed + Skill, effort, responsibility, working conditions, = Job specifications # Characteristics required for competent performance Job Descriptions A job description is the most frequently used form of job documentation. It is a summary of the most important features of a job. A job description should describe and focus on the job itself and not on any specific individual who right fil the job. Important features included on a job description: @ The general nature of the work Duties Responsibilities, 1 The level of the work to be performed Skill, effort, responsibilty, working conditions Job specifications ¢ Employee characteristics required for competent performance of the job T1m27BUILDING A JOB WORTH HIERARCHY Market-Based Job Evaluation Market pricing + Why should market data be collected? 4 Whatis @ benchmark job? ¢ Why use caution when comparing data? Market-Based Job Evaluation 1 Market pricing In today's competitive market place, it is common to see pay structures designed using ‘a market pricing technique. Market pricing requires collection and interpretation of market data external to the organization as well as identification of the going rate for a job. In emerging markets, availabilty of data may be scarce + Why collect market data? = Analyze pay competitiveness by collecting information on the going rate for benchmark jobs 1 Identity pay trends by watching movement of salaries in the labor market 1 Identify competitive pay practices by gathering information on practices, programs, policies and procedures ¢ What is a benchmark job? = A standard job used to make pay compar = The jobs selected should be easily defined and found in other organizations. ‘At least 50% of jobs should be benchmarked when using market pricing to build a base pay structure. 1f70% or more of the job content is similar, the job match is considered good and the data may be Used for benchmarking purposes, 4 Why use caution when comparing data? — The same statistics must be used in order to ensure that the data will be valid and reliable for comparison. tis important to ensure that reported salaties are in the same form (weekly salary, monthly salary) » Local surveys may use different methodologies. = Some vendors report figures as medians (middie number), others report means (averages). In order to have a valid comparison, the statistics must be reported in the same form. ons, T1828BUILDING A JOB WORTH HIERARCHY Content-Based Job Evaluation ™ Nonquantitative methods Ranking ¢ Classification ™ Quantitative methods ¢ Point factor Job component | [ee Content-Based Job Evaluation = Nonquantitative methods, or whole-job methods of job evaluation, view the job globally in terms of its importance to the company. # Ranking is the simplest form of job evaluation. The process involves a whole-job, job-to-ob comparison, resulting in an ordering of jobs from highest to lowest in relative worth to the organization, Ranking only gives an indication of order. it does not reveal anything about the relative degree of distance between jobs ¢ The classification method compares jobs on a whole-job basis. Predefined class descriptions are established, and then the job is placed in whichever classification best describes it. This method has been more commonly used for public sector positions, = Quantitative methods, or factor methods of job evaluation, examine the importance of jobs in terms of compensable factors. ¢ The point factor method of job evaluation uses defined factors and degrees to establish job value, The corresponding points for that level are then awarded to the job and combined for all factors to derive a total score, + The job component approach develops a job worth hierarchy by using statistical analysis. This analysis identifies the factors and factor weights that best explain the relative market pay levels of benchmark jobs. Nonbenchmark jobs can then be evaluated using the model produced from the statistical analysis. This approach is primarily used in large organizations, and then only rarely. T1m29 ‘© weitere Al rate sone,BUILDING A JOB WORTH HIERARCHY Job Worth Hierarchy = What is it? Perceived value of jobs in relationship to each other ™ Why is it important? ¢ Determines which jobs should be grouped together ¢ Forms the foundation of the base pay system = Whyis it used? @ To determine internal equity both among positions and groups of positions Job Worth Hierarchy Once the job evaluation is completed, a job worth hierarchy can be established. = What is it? 4 Ajob worth hierarchy indicates the perceived value of jobs in relationship to each other within an organization. = Why is it important? + The job worth hierarchy helps to establish a relationship between various jobs, allowing groupings of similar jobs. By establishing a job worth hierarchy, compensation professionals can determine how various jobs can be classified within the organization. ¢ Ittcan then be used to form the foundation of the base pay system. = Why is it used? 4 A job worth hierarchy is used to determine and ensure internal andlor external ‘equity both among positions and groups of positions. Job grades/pay structures. ate then based upon that internal and/or extemal equity Tim 2.40 ‘© WetatWor Alt eared,BUILDING A JOB WORTH HIERARCHY Job Worth Hierarchy ...conta | What does it look like? ¢ Market-based ¢ Job content-based Job Worth Hierarchy ...contd = What does it look like? Position Director of Accounting Director of Human Resources Senior Manager of Advertising Manager of Accounting ‘Senior Compensation Analyst ‘Senior Human Resources Analyst Senior Financial Analyst Financial Analyst ‘Supervisor, Accounts Payable Accounts Payable Clerk Human Resources File Clerk © wear le eared Market-Based (Market-Wage) Hierarchy 95,000 94,000 83,000 75,000 45,000 44,500 43,500 38,000 35,000 21,000 20,500 Timid Job Content-Based (Point Factor ) Hierarchy 875 866 764 691 a4 j Grouping 410 | Grouping 401 360 322 193 Grouping 189Base Pay 1 Definition of base pay can vary by country ™ Monthly equivalent salaries vary by country ® Bottom line ... fixed pay practices | based on competitive strategy for each country Base Pay Base pay, or fixed pay, is the compensation paid to an employee for performing specific job responsibilities. The definition of base pay can vary by country. For example # India and Mexico - A number of allowances are paid each period (e.g. overtime, transportation, meals, telephone allowances) and may be considered part of base pay for benefits calculations. ™ Base pay levels need to take into account variations in equivalent monthly salaries vary by country — While annual salary may be constant, pay delivery varies with many countries’ pay practices, including smaller monthly salaries with a bonus paid ‘out at certain times of the year. This bonus is not considered variable or at-risk pay. In some countries, base salary includes legally required bonuses, as well as other ‘components. These differences may affect survey data. | The bottom line ... fixed pay practices need to be based on a competitive strategy for each country ~ Factors affecting base pay: 4 Frequency of review due to: = Inflation = Government-imposed pay restraint = Cost-of-iving adjustment (COLA) plus variable performance-related pay + Allowances ¢ Government mandates (¢.g., concept of acquired rights) = Mexico, Germany, Taiwan, Brazil Tim 2.12 © Wonaon, til rosaComponents of a Base Pay Structure ™@ Base pay policy @ Pay grades/bands ® Midpoint differential Components of a Base Pay Structure ‘When building a base pay structure, the following must be determined: ™ Base pay policy ¢ The policy should be consistent with the compensation strategy of the organization. ™ Pay grades/bands ~ The purpose of pay grades/bands is to identify a compensation range within which multiple jobs are grouped that have similar value based on internal comparisons and extemal market data, ¢ Pay grades/bands usually overlap. Minimums and maximums usually fall within adjoining grades. + Pay grades/bands should distinguish between skill or responsibilty, and supervisorisubordinate relationships. + Pay grades/bands should allow for career progression. | Midpoint differential — the difference in wage rates paid at midpoint of two adjacent grades. A midpoint represents the middle of a given salary range or pay grade. # Mexico 15% to 30% ¢ Switzerland 15% to 18% 4 United States 12% to 14% T1213 Wort nhs sone,Components of a Base Pay Structure ...conta ™ Pay range Midpoint ¢ Typical range spreads # Broadbanded pay ranges ™ Number of pay structures Components of a Base Pay Structure ...contd ™ Pay range — has a minimum pay value, a maximum pay value and a midpoint ¢ Midpoint - The midpoint of the pay range typically reflects market rate for the positions in that pay range. ¢ Typical range spreads = Asia 60%t, broadbanding approaches more common = Europe 30% to 50% Latin America 30% to 60% (50% is the norm) = United States/Canada 40% to 50% + Broadbanded pay ranges ~ There may be a spread 100% to 300% from minimum to maximum. ™ The number of pay structures or bands may be affected by: 4 Diversity of jobs in the organization = Functional area (nursing, engineering, maintenance) = Job level (clerical, supervisory, executive) # Diversity in grading 4 Balance of internal equity and external competitiveness 4 Organization culture Due to country market influences, relationships between positions, levels and grades can vary dramatically. Tim 214 oak tig eseCOMPONENTS OF A BASE PAY STRUCTURE Base Compensation Base Pay Structure Example Base Pay Structure Example ‘9,000, 75,000 ‘o.00 ‘5,000, 50,000 45,000 135,000 ‘3.000 This is an example of an abbreviated base pay structure. Grade | Minimum Midpoint | Maximum | M/P Diff. ae 10 48,000 163,600 79.200 | 17.0% | 65% 9 41,700 54,300 6600 | 15.0% | 60% 8 37,100 47,300 57500 | 120% | 55% 7 33,700 42,200 50.600 | 10.0% | 50% 6 31,400 38,400 4500 | 100% | 45% 5 29,200 35,000 40,900 7.0% 40% 4 27,800 32,700 37,500 7.0% 35% 3 26,700 30,700 34,700 6.0% 30% 2 25,700 28,900 32,100 5.0% 25% 1 25,000 27,500 30,000 - 20% The graph above Is not an actual pay structure. It is used for lustrative purposes only ‘The midpoin-to-midpoint differentials have been rounded, Tm 2.15 Wotton gs reservedTypes of Base Pay @ Salary @ Nonexempt/hourly rate @ Piece rate Types of Base Pay Once base pay structures are built, the organization must determine how employees wil be paid. 1 Salary ~ paid on a weekly, biweekly, semimonthly or monthly ba hour, generally to higher level positions is rather than by the 1 Nonexempt/hourly rate — paid by the hour for a job being performed. An individual's annual pay is dependent on the number of hours worked during the course of the year and the nonexempt/hourly rate of pay. Piece rate ~ Payment is based on an individual employee's rate of production. ‘A payment is received for each piece or unit of work produced. Piece rate payment can be either in place of, or in addition to, nonexempt/hourly payment. T1m 2.16 2 Wort ig sevTypes of Pay Adjustments. @ Merit-based ® Skill-based ™ Competency-based @ Step rate = Lump-sum payment Types of Pay Adjustments Beyond the intial pay rate offered to a new employee, pay increases may be granted for a variety of reasons. 1 Merit-based ~ Organizations may provide employees an annual increase in the form of ‘a merit increase tied to individual performance and prevailing merit budget practices. ¢ Increases can be stated as an overall pool of money by department — such as 4% of current salary budget to be distributed based on individual performance — or there may be specific guidelines by performance level & Skill-based or pay-for-knowledge approach — Individuals are paid for the skills they possess rather than their job responsibilities. Pay increases are given based upon increased knowledge, skill or ability. The employee may or may not use the skil = Competency-based ~ broadens the concept of skill-based pay by focusing on key success characteristics including underlying attributes, personality traits and behaviors. Competencies are determined by what has to be done, as well as how it must be done to support the company's values. 1 Step rate ~ typically are based on longevity. At regular intervals, employees move up one step within their respective ranges. Employees also receive a second increase when the step's value increases, Typical in government or educational settings = Lump-sum payment - often are provided in place of an annual increase to the base salary as a means of controliing annual ixed-cost increases. For example, a lump-sum payment may be made to an employee at the top of his or her salary grade maximum to keep the salary from going over the maximum: 1192.17 © wordmark Ares sone,Types of Pay Adjustments ...conta General increases Cost-of-living adjustments Adjustments 7 . 7 ™ Combinations ™@ Automatic progression . Pay for performance Types of Pay Adjustments ...cont'd ™ General increases — often given to employees when an organization finds its compensation program is behind competitive market rales. A set monetary amount or a percentage increase may be given. © Cost-of-living adjustments (COLAs) — usually made to keep up with the rate of inflation. They may be treated as a separate payment, in addition to the regular base pay. | Adjustments — usually equity- or market-based ¢ Equity-based adjustments reflect internal compression issues (for example, between supervisor and subordinate, or between peers with dissimilar lengths of service or performance levels). + Market adjustments may be granted when a company finds the past year's engineers are making less than new college graduates. ™ Combinations — itis not uncommon to provide both merit and lump-sum increases or merit increases and equity adjustments. = Automatic progression — Automatic pay progression links pay increases primarily to some aspect of tenure. Globally there is a trend away from the practice. ™ Pay for performance — links pay (base andior variable), in whole or in part, to individual, group and/or organizational performance, This practice has been spreading throughout the world. T1m2.18TYPES OF PAY ADJUSTMENTS, stants | Differential Pay | @ Shift differential @ Weekend or holiday differential | @ Expatriate differential = Geographic differential Differential Pay In addition to base pay, some employers pay differentials, = Shift differential — paid to an individual to accommodate specific working conditions, {tis most often called a shift differential when the individual is working hours other than the traditional 8 a.m. to 5 pm. ™ Weekend or holiday differential — paid in adsition to the normal nonexempt/hourly rate to pay for working a holiday or weekend. It may take the form of an additional nonexempthouriy rate or a fiat monetary amount '™ Expatriate differential ~ paid for the difference in costs between an individual's home ‘country and the assignment location ™ Geographic differential - pay differences established for the same job based on Variations in costs of living or costs of labor among two or more geographical areas T1m2.19Pay Adjustments @ What pay adjustments does your organization use? Discussion - Pay Adjustments = What pay adjustments does your organization use? T1m2.20 ‘© wean, Alot rear,Variable Pay @ Pay at risk 4 Gainsharing programs + Profit-sharing programs Variable Pay The popularity and utilization of variable pay is not uniform throughout the world The concept of pay for performance, popular in North America, has been adopted in some countries. In certain countries and regions (e.g., China, Central Europe and Eastern Europe), the concept of pay for performance is not fully accepted, 1 Pay at risk — Vatiable pay is pay at risk. It may be based on organizational, team/group or individual performance. Often, the criteria may be company-based: retumn on equity (ROE), retum on investment (RO!), profit target; division or individual performance criteria (specific individual objectives). Gainsharing programs ~ any one of a number of incentive programs designed to share the results of productivity gains with employees as a group. Although ‘common is some areas, gainsharing programs are not universal in application (e.g., Latin America does not traditionally welcome such programs). ¢ Profit-sharing programs ~ provide for employee participation in the profits of an organization, The plan normally includes a predetermined and defined formula for allocating profit shares among participants and for distributing funds accumulated under the plan, However, some plans are discretionary. These have a long history in some regions. Tim 221 {© Worden, Ait sens.VARIABLE PAY Design Considerations for Variable Pay Plans | Eligibility = Types of plans @ Formula-driven ¢ Performance target @ Payout ™@ Performance measures Le Design Considerations for Variable Pay Plans When designing variable pay plans, the HR professional must consider the following design components: ™ Eligibility # Eligibility may be defined as a percentage of a company's total employee population, based on a minimum salary, a salary grade, reporting relationship or Gritical positions. ¢ A variable pay plan might become a legal entitlement. 1 Types of plans ¢ Formula-driven — percentage of profits or net income that exceeds a percentage of capital. Formula generates a fund and individuals share on a pro-rata basis, 4 Performance target ~ Individual award and/or organizational goal is established and awards are based on achievement against goals. = Payout — Typically, the higher-level positions in an organization are more likely to receive individual incentive plans. in most cases, the higher an employee is in the organization, the higher the payout potential. These may be paid on an annual basis, or may be paid in varying time frames such as monthly or quarterly ® Performance measures 4 Successful performance measures are based on the business plan: the purpose of the incentive, the results the company wants rewarded and the behaviors it wants toreinforce (team focus, individual focus, etc.) 4 Decide on the appropriate measures and the applicable organizational level Tim 2.22MARIABLE PAY Types of Variable Pay @ Commissions @ Bonuses —_ Incentive plans Profit-sharing plans Performance-sharing plans Equity 11m 2.23 ‘© Wontawort tg esoroeVARIABLE PAY Commissions = Sales incentive plans matched to type of responsibilities @ Areas of responsibility usually fall into one of three categories ¢ Customer identification ¢ Customer service 4 Customer persuasion Commissions Commissions are cash payments, based on a predetermined performance and reward schedule, that typically make up the larger portion of an individual's total compensation. They are typically based on sales or profit margin on those sales. Commissions are usually for sales employees. ® Sales incentive plans matched to type of responsibilities — Effective sales incentive plans must be matched to the type of responsibilities expected of the salesperson 4 These areas of responsibility usually fall into one of three categories — Compensation programs must match the mix of compensation to the skill set required of the jobs ¢ Customer identification ~ analyze market, contact prospects, qualify leads 4 Customer service — expedite orders, handle service problems, coordinate service efforts 4 Customer persuasion (rain maker) ~ These employees select accounts to call on, identify buyers, make presentations, overcome objections and make sales, The more persuasion required, the higher the targeted at-risk percentage. Tim 2.24 2 Wook gt sev,VARIABLE PAY Bonuses @ Annual @ Spot Bonuses Bonuses are usually distinguished from incentive pay plans by the discretionary aspect of their award, Typically, bonuses are given without prior objectives being established. They are usually given in one of two forms: ™ Annual ~ given after the close of the year when the company wants to recognize an individual or group for contributions to the organization. They are not based on prior objectives against which performance was measured, = Spot — bonuses given to team members for their extra contributions or to individual ‘employees for some significant contribution. These awards are typically of a smaller monetary nature and should be awarded close to the time the behavior occurs. T1m2.25 © Wonton. At ats eroVARIABLE PAY Incentive Plans ™ Group 4 Organizational unit Team 1 Small number of people = Performance measures = Payouts # cash + Noncash Incentive Plans Incentives are delivered through plans that predetermine a performance and reward schedule. The incentive may be paid in an accounting period (month, quarter, year, multi-year) or upon an event (reaching an objective, completing a project, etc) Organizations that seek to create a closer link between employee compensation and the “risks” of doing business have increased the prevalence of group/team incentives, 1 Group ¢ Organizational unit, division, department = Team Small number of people with complementary skills, ‘committed to a common purpose ™ Performance measures can be a combination of the following: # Organizational abjectives Meeting financial targets (profit, ROI, etc.) 4 Teamigroup objectives = Developing a new product or service = Budget variances 4 Individual objectives = Competencies ® Contributions, participation = Payouts Cash — lump sum, percent of base 4 Noncash — travel, education pay, merchandise, ete. 11m 2.26 [ote ie asadVARIABLE PAY — Profit-Sharing Plans @ Definition # Rewards based on financial performance ™ Primary objective 4 Employee identification with the | organization's success @ Payout Organization attainment of financial goal (e.g., profit target) Profit-Sharing Plans ™ Definition 4 Profit-sharing is a form of variable pay provided to all employees based on the profits of the company. Companies usually have predetermined goals and formulas for determining the amount that willbe allocated to employees. Cash profit-sharing is generally considered @ compensation program. Deferred profit-sharing is generally considered an employee benefit program if the deferral is Until employee termination, '® Primary objective — Profit-sharing plans are typically implemented to achieve employee participation and identification with the organization's success. = Payout may be given in the following forms when the organization attains its financial goals (e.g., profit target) # Cash $ Deferred cash in a retirement program (if geographically relevant) Company stock/shares # Cash and stock/shares Tim 2.27 © wetter Al gs earedVARIABLE PAY Performance-Sharing Plans ™ Definition Multiple measures, often reflecting a combination of quantitative / qualitative measures Primary objectives # Increase employee identification with the | organization's success + Increase employee understanding of what is, important to the organization ™ Typical performance factors Performance-Sharing Plans = Definition — A variable pay plan that bases rewards on the performance of a combination of quantitative and/or qualitative measures, ™ Primary objectives + Increase employee identification with the organization's success, which is measured by muttiple factors. ¢ Increase employee understanding of what is important to the organization and communicate the basis upon which success is measured. 1 Typical performance factors may include measures of: ¢ Financial performance 4 Business process improvement 4 Customer satisfaction 4 Workforce development 7102.28VARIABLE PAY Equity @ Time period @ Types 4 Stock/share options 4 Stock/share grants 4 Restricted stock/ shares 4 Performance unit plans Equity Equity compensation programs typically are used as long-term incentives utilizing stock! share or a stock/share equivalent for payments. Equity may be used to foster employee ‘ownership in the organization 1 Time period ~ Long-term incentives are paid out based on performance extending past a 12-month period, 1 Types Equity incentives may include the following: 1 Stock/share options — the right to purchase company stock/shares at a specified price over a specified time period after time requirements of continued employment are met ™ Stock/share grants — stockishares provided to employees at no cost to them ® Restricted stock/shares ~ stock/shares awarded to employees with prohibitions on sale ar transfer until restrictions lapse = Performance unit plans — Units having a monetary value are awarded to employees based on the attainment of certain internal or external performance measures, 1102.29 © Wore, Adis sere,VARIABLE PAY Global Equity-Based Rewards ™ Taxation to employee 1 Tax deduction to company = Exchange rate fluctuations '™ Local registration of stock/shares = Integration with other benefits = Employee appreciation Global Equity-Based Rewards Variable pay programs featuring equity-based rewards, including stock or share option plans/schemes and employee stock/share purchase plans, are also popular globally A company contemplating the globalization of an equity-based rewards program should consider the following: = Taxation to the employee — Driven by local legislation, but generally the benefit is, imputed as income to the employee and subject to tax. The benefit can include: ¢ Company contribution/allocation Discount on purchase price + Dividends payable 1 Tax deduction to company + This will vary based on the country, type of plan and local tax laws. The general principle is that the company will receive a tax deduction if employee is taxed. = Exchange rate fluctuations 4 The employee is exposed to the risk of both currency and equity market volatility Local registration of stock/shares $ Some countries may require the stock/shares offering to be registered with the local authorities, © Integration with other benefits ¢ Is the stock/share plan an add-on benefit or should it be integrated with the retirement and savings plan offered by the company? '™ Employee appreciation 4 Generally not high, with the outcome being low participation rates in contributory plans and employees cashing out rather than holding the stock/shares 11m 2.30 2 Worden At ig serveCompensation @ How does compensation attract, motivate and retain your workforce? i What role does compensation play in employee satisfaction and engagement? Discussion - Compensation = How does compensation attract, motivate and retain your workforce? What role does compensation play in employee satisfaction and engagement? T1231 Werk tis one.Exercise — Compensation Using the Total Rewards Exercise on page APP 0.3, discuss the following questions: 1. How might each of the six employees view compensation in terms of attraction, motivation and retention? 2. How might the mix of base and variable pay work differently for each of the employees? Tim 2.32 © Wook A ips ose.___ Can You? Identify and define the two primary elements of compensation. Define and describe the steps involved in building a job worth hierarchy. Describe the components of a base pay structure. Differentiate between the three types of base pay: salary, nonexempt/hourly and piece rate. Identify the types of pay adjustments as well as When and why they typically are implemented, Identify the types of variable pay as well as when and why they typically are implemented. 11m 2.33 © Werte tae earnModule Quiz 1. Which of the following best describes the two primary elements of compensation? ‘A. Profit sharing and incentive pay B. Financial and nonfinancial pay ©. Fixed and variable pay 2. What is the first step in building a job worth hierarchy? A. Complete the job documentation Complete a job analysi B. CC. Conduct a job evaluation D. Build a base pay structure 3. Which job evaluation method involves collecting competitors’ data to identify the going rate for a job? Market pricing Point factor og Job component 9 Ranking 4. Which statement is most accurate regarding pay grades? A. Pay grades rarely overlap. B. Pay grades should not allow for career progression. C. Pay grades distinguish between skill or responsibilty Payment that is typically based on an individual employee's rate of production is referred to as which type of base pay? A. Salary B. Piece rale C. Nonexempt/hourly rate D. Shift differential Tm 2.34Module Quiz ...cont'd 6. An organization typically uses which of the following types of pay adjustments to regain a competitive position with market rates? A. Merit B. General C. Lump-sum D. Step rate 7. Which of the following best describes a type of variable pay? A. Salary B. Profit sharing C. Competency-based pay D. Pay for performance 11m 2.35 ‘© wee Ae reser,(blank) 11m 2.36 {2 Wook Aig reseed,Benefits Wortdatwork BD Tim34 veer ge sere,Module 3 Benefits Introduction Employee benefits represent a considerable portion of the total rewards package and consequently, significant expense to the organization, The importance of the benefits function is highlighted in its role of attracting and retaining employees and fulfiling employee needs. Regardless of the country, benefits supplement compensation by providing employees with a level of security related specifically to health and welfare, retirement and time off. While employee needs may be similar around the world, the degree to which those needs ate met through other sources varies by country. Governmental programs and country culture contribute to a variance in the demand for certain benefits. Many of the differen in benefits practices relate to the extent of governments’ involvement in providing retirement and medical security to its citizens. In some countries, the influence of government is pronounced (e.g, Italy, Kuwait), with the government taking an active role in providing these services. In other counties, individuals and their employers have the primary responsibilty (e.g., Chile, Malaysia). Consequently, the level of benefits provided by employers often is directly related to the level provided by or mandated by the government. Additionally, the influence of government, laborirade unions and other factors tend to either ‘augment or hinder the process of providing employee benefits. Objectives By the conclusion of this module you will be able to accomplish the following 4. Identify and define the two primary elements of benefits programs. 2. Identify and describe specific factors that influence benefits programs. 3, Identify and explain the various types of income protection programs including health and welfare and retirement programs. Identify and explain the various types of pay for time not worked programs, Tim32 ewer lates resaredyore Taree) SSAA MAA Income protection rograms Benefits preg Pay for time not worked programs Benefits Benefits are a core element of the total rewards model. Benefits include health and welfare plans, retirement plans and programs providing pay for time not worked. Over time, employee benefits have evolved from basic fringe benefits of insurance coverage and a few perquisites to a wide range of benefits designed to strike a balance between an employee's personal and professional fe T1m33 © Worden rats earedElements of Benefits ™ Income protection programs. | ® Pay for time not worked programs Elements of Benefits Benefits programs may be categorized into the following two elements: 1 Income protection programs — designed to protect the standard of living of the ‘employee and his or her family ‘¢ Mandatory in some countries required by law to cover employees for: = Unemployment = Workers’ compensation = Social security Disability (occupational) ¢ Nonmandatory or voluntary ~ at the discretion of the employer = Medical = Survivor benefits = Dental = Disability = Mental health = Retirement plans ® Vision plans '™ Pay for time not worked programs ~ designed to protect the employee's income flow during certain periods when the employee is not working 4 Atwork Not at work Tim © Vontawon. At int serveFactors Influencing Benefits ™@ Corporate philosophy/ business objectives @ Competitive practices @ Employer initiative = Regulatory environment @ Taxation Factors Influencing Benefits A variety of factors are influencing growth and change of employee benefits: ™ Corporate philosophy/business objectives ~ Influences outside the organization. must be reconciled with the company's philosophy and business objectives ™ Competitive practices — All of the total rewards elements (compensation, benefits, work-life, performance and recognition, and development and career opportunities) are influenced by competitive practices and may be geographically or employer-based. Competitive practices may result in richer benefits programs in some regions and may also cause employers to re-evaluate the level of benefits in other regions ifthe employer's package is significantly more generous than the competition's. '& Employer initiative — Employers commonly use employee benefits to help protect the standard of living of their workers. ® Regulatory environment — In many countries, the government is the major factor influencing growth and change of employee benefits. It is also the main provider of ‘employee benefit programs. In other countries, the government mandates or encourages employers to provide certain programs. 1 Taxation + Benefits taxation affects: = Benefits levels through the imposition of benefits limits The source of benefits (eg., directly from company or through a pension fund) The employee/company cost-sharing basis, T1m35 © Wonton. Al gts ered.Factors Influencing Benefits ..conts = Employee demands Costs = Demographic changes 1 Perceived value 1 Desire for choices Factors Influencing Benefits ...cont'd '™ Employee demands — Employees often request new or different benefits, Unions sometimes represent workers in negotiating with companies for benefits, ™ Costs — Rising employee benefits costs are a substantial issue in many countries | Demographic changes — As the needs of a workforce change, employee benefits also need to change. The following are examples of several economic and demographic changes influencing international benefits structures today’ 4 The growth of multinational free trade areas = European Union North American Free Trade Agreement (NAFTA) Mercosur (Brazil, Argentina, Uruguay and Latin America free trade area) = Association of South East Asian Nations (ASEAN) ¢ Opening and globalization of economies ¢ Major additions to global skilled workforce Aging population in many countries 4 Increasing number of females in the workforce + Increased competition has resulted in the following: = Employees often have shorter career expectations, = Companies are less paternalistic. = There is more emphasis on "today's" paycheck, '™ Perceived value ~ Employers sometimes reconsider offering benefits that are not perceived by the workforce to be of value. ™ Desire for choices — In some countries, employees are expressing a greater desire for choices in their benefits. Tim3.6 2 Woot, Ag sevIncome Protection Programs @ Health care benefits @ Welfare benefits @ Retirement and investment plans | In some countries there are certain income protection programs that are required by law. In addition, there are also programs that companies may offer by choice to accomplish organizational goals. These benefits can include: Income Protection Programs. 1m Health care ben ™ Welfare benefits = Retirement and investment plans T1937 2 Worden hs resonINCOME PROTECTION PROGRAMS Health Care Benefits = Variations by region ™ Sources of health care + Government programs 4 Private programs = Common challenges eee Health Care Benefits = Variations by region — Health care systems worldwide are influenced by the beliefs, values, culture and perceptions in different regions regarding the role of government in providing health care to its citizens. For example: 4 In European countries, governments typically provide health care to all citizens, financed by taxes. + The United States is the only developed country without a national health care program. Medicare provides for the elderly and Medicaid provides for certain low- income individuals and families + In-emerging markets, health care programs can be terribly under-funded, with access to health care in short suppiy. Even basic medical attention may not be available. § Sources of health care 4 Government programs — Most countries have some form of government mandated health care, These programs may be provided nationally, at the state or provincial level, or by means of various agencies or industry groups. Allocation of funding and resources will vary by country. Government-mandated health care programs may be referred to as social secutity or as other social programs ¢ Private programs ~ Employers commonly supplement the above programs with health care plans influenced by corporate objectives, competitive practices and the limitations of government programs. Limitations of government-sponsored programs may include restricted access, limits on services/facilities, payments, reimbursement and gaps in coverage. ™ Common challenges — Global health care presents similar challenges in most countries. Global employers are concerned with the rising cost of health care, access to quality care, longer life spans, technological advances, and the determination of responsibilty for retiree health care (retiree, country or company). T1m3.8INCOME PROTECTION PROGRAMS Health Care Benefits conta ™@ Medical plans — design components Deductible ¢ Co-insurance | # Co-payment ¢ Usual, customary and reasonable charges ¢ Out-of-pocket maximum ¢ Coordination of benefits Health Care Benefits ...cont'd Because of the rising cost of providing medical benefits, private medical plans have evolved into a more "managed care" environment. This means that some aspect of the plan is managed through the service provider andior the organization and includes variations in plan design. Listed below are several design components utilized when establishing and renewing medical plans. ™ Medical plans - design components ¢ Deductible — typically an amount paid up front by the member for any services rendered ¢ Co-insurance ~ the percentage paid by the member and the plan after the deductible has been met + Co-payment the amount that the member pays for covered services rendered at the time of service Usual, customary and reasonable charges (UCR) (often referred to as, reasonable and customary ~ R&C) — the charges that an insurance carrier determines are normal for a particular medical procedure within a specific geographical area Out-of-pocket maximum (OOP) - the total monetary amount limit that the member will be liable for in relation to the co-insurance + Coordination of benefits (COB) ~ helps ensure that the correct medical plan is paying expenses when a member is covered under more than one plan (e.g., an ‘employee is covered under his or her plan and also under a spouse's plan) T1m39INCOME PROTECTION PROGRAMS, Health Care Benefits ..conta @ Dental plans ® Vision plans | ® Hearing plans Health Care Benefits ...cont'd ™ Dental plans ¢ Indemnity plans ~ cover preventive and limited basic and major care Dental maintenance organization plans — require use of participating providers = Vision plans ¢ Insured plans with periodic coverage of routine exam, lenses and frames 4 Discount plans with retail networks = Hearing plans + Plans with coverage for routine exams and hearing aids # Discounts with network providers Tim 3.10INCOME PROTECTION PROGRAMS, Benefits ri : @ How have the health care benefits in your organization evolved because of the rising cost of providing these benefits? Discussion — Benefits || How have the health care benefits in your organization evolved because of the rising cost of providing these benefits? T1344INCOME PROTECTION PROGRAMS Welfare Benefits @ Death benefits @ Disability ™ Long-term care Welfare Benet ‘The factors that influence health and retirement benefits may also affect other benefits, such as life insurance, disability and time off. Depending on the type of benefit, statutory requirements, coordination with government programs, collective bargaining agreements and other influences may shape or define the final program, limiting employer flexibility in pian design '™ Death benefits ~ Company-provided death benefits are prevalent in most countries, Benefits vary in both form and amount. Not always insured, not necessarily provided through a life insurance policy ¢ May be offered in some countries as a social program; human resources should ‘examine benefits available in each country to avoid over-insuring employees. ltaly is among the countries with the highest benefits (five to six times pay). ¢ Payout relative to annual salary; one to two times pay is common; fixed amount in some countries, regardless of salary + Payout options: Lump sum or installment/annuity Tim 3.42INCOME PROTECTION PROGRAMS Welfare Benefits ...cont'd ™ Disability ~ also known globally as long-term disability, invalidity or permanent ill health. Similar to provisions of death benefits; payments may be minor or substantial; not yet provided in some countries. Determination and definition of disabitity wil differ Payments often on a scheduled basis and range from 30% to 100% of pay; typically limited to base pay. Local workers’ compensation may provide benefits for work-related disabilty = Long-term care ~ Workforce patterns are changing the historic reliance on extended family members. Some companies are beginning to respond to the need to provide long-term care benefits. These benefits typically include a stream of payment, such as a monthly income, to provide assistance when an individual cannot perform daily living activities. 1193.43 ‘© Wonder igi esavedINCOME PROTECTION PROGRAMS Retirement and Investment Plans ® Defined benefit plans ™ Defined contribution plans @ Hybrid plans Retirement and Investment Plans Qualified retirement plans include both the traditional defined benefit (DB) pension plans and defined contribution (DC) plans. = Defined benefit plans — generally provide better benefits to employees with longer service . eeee Benefit at retirement is based on a formula that considers pay and service (ie., one percent of compensation for each year of continuing service). Plan sponsor is at risk for financial resources. Predominant plan varies by location and government-required regulations, Integration with government-sponsored programs is very important and complex. Companies have terminated or amended their defined benefit plans to reduce their potential costs, In some countries, the plan is at risk for the investment performance, T1314INCOME PROTECTION PROGRAMS, Retirement and Investment Plans ...contd 4 Defined contribution plans ~ characterized by employee and employer contributions made to individual participant accounts No promise of a specific benefit at retirement Employee is at risk for financial resources, ‘Sometimes replace or supplement defined benefit plans Individual accounts must be maintained for each participant. Becoming increasingly popular worldwide Types 1 Savings/thrift plans = Profitsharing plans ™ Money pure eeeee 2 plans @ Hybrid plans ~ combine elements of defined benefit and defined contribution plans ¢ Cash balance plans 4 Pension equity Thm 3.45INCOME PROTECTION PROGRAMS Retirement Benefits ® Variations by region ™ Sources of retirement benefits ¢ Government programs 4 Company-provided programs Retirement Benefits ™ Variations by region ~ Retirement benefits like health benefits, are provided by both government programs and company programs. In some countries, retirement programs are quite substantial. In others, they may be virtually nonexistent. Programs may be influenced by local collective bargaining agreements. Potential program variations include: + Defined contribution plans with employee andlor employer contributing ‘Savings plans with no company-paid retirement or match ¢ Broad-based stock/share programs intended for retirement 4 Defined benefit plans that may require employee contributions = Sources of retirement benefits — An intial assessment of retirement programs by county will include statutory social security programs that pay benefits upon retirement, death or disability, Additionally, there may be mandatory requirements exclusive of social programs. Common program features include varying benefits by income level and maximum benefits ¢ Government programs - Government programs and corresponding procedures and coverage vary by country. For example ‘= Retirement benefits in italy generally replace 80% of income. 1 Retirement benefits are relatively low in the Philippines and Hong Kong. 1193.16 (© Weiter, it vseINCOME PROTECTION PROGRAMS, Retirement Benefits ...cont'd ™ Sources of retirement benefits 4 Government programs ...cont'd 1 Formulas for determining retirement benefits differ, For example: + The United States uses an indexed career average pay. + The Netherlands uses flat amounts unrelated to pay. + Company-provided programs - Company-sponsored retirement programs present challenges in both the determination of appropriate benefit levels and alignment with local practices. Some government programs may reduce benefits when coverage Is provided by company plans. Company plan design should consider eligibility for social security and other mandatory benefits, the effect of other governmental restrictions (¢.g., tax treatment), competitive practices, union/work council directives, cost and business need. Defined benefit, defined contribution and hybrid programs (e.g., cash balance, pension equity) are all used globally, For example, defined conttibution is popular in countries with a British influence and defined benefit plans are found in parts of Europe and the Americas. 1193.17 (© WetentWer ltt ered‘decietion Benefits @ What retirement benefits are offered in your organization? Discussion — Benefits | What retirement benefits are offered in your organization? Tim 3.18 (© Werte Al ip sen,Pay for Time Not Worked Programs, ™ Atwork ® Not at work # PTO bank # Severance allowance Pay for Time Not Worked Programs ‘Time off with pay is provided for a variety of situations in different countries and refers to any nonworking period for which the regular rate of pay is earned. ® At work + Rest periods ¢ Travel time 4 Wash-up time 4 Coffee/smoke breaks Clothes changing time ¢ Birthday celebrations ¢ Training and education 4 Department meetings = Not at work ~ often guided by company policy, practice or union contract, Practices vary regarding holiday and vacation entitlements across countries and regions. In addition, in many countries the term “vacation” can also be referred to as “holiday.” + Vacations ¢ Company shutdown Holidays Sabbatical Personal leave 4 Reserve duly and miltary leave Jury duty ¢ Family/medical Sick + Religious observations Bereavement Paid time off (PTO) bank ~ collapses separate programs into one policy. Itreplaces what are traditionally segregated time-off programs into a single block of time. ™ Combines vacation, sick, personal days and sometimes holidays into one bank Severance allowance —a continuation of an employee's salary after termination that is paid either in a jump sum or on a continuation basis, T1m3.19 © verde tie sore,Exercise — Benefits Using the Total Rewards Exercise on page APP 0.3, discuss the following questions: How might each of the six employees view benefits in terms of attraction, motivation and retention? 2. What types of retirement plans would meet the needs of the employees? Why? ‘3, What variations in benefits packages might be desirable for the employees? Why? T1 03.20 © Woteatok Alans resore,Can You? ™ Identify and define the two primary elements of benefits programs. = Identify and describe specific factors that influence benefits programs. ™ Identify and explain the various types of income protection programs including health and welfare and retirement programs. 1 Identify and explain the various types of pay for time not worked programs. 1103.21 © Watater Al gle esevedModule Quiz 1. Which of the following best describes the two primary elements of benefits programs? A. Income protection and pay for time not worked B. Health insurance and social security ©. Medical and dental plans 2. Which of the following is a major factor influencing the growth and change of ‘employee benefits? A. The availability and quality of internal data B. The recent market data ©. The government 3, Which of the following is typically considered a type of income protection program? A. Vacation/holiday benefits B. Retirement benefits C. Sick leave 4, Which of the following refers to a pay for time not worked program? A. Merit-based pay B. Holiday pay C. Weekend differential pay Tim 3.22 ‘© Weta Avge earedWork-Life Wortdatwor BD Tim44 {© Wore Al ats sereModule 4 Work-Life Introduction ‘Today's workers are looking at the “big picture” when assessing where they want to work. Often, it extends beyond the traditional areas of compensation and benefits In any labor market, employers will face attraction, motivation and retention issues when ‘competing for the best talent. One way HR professionals can help management achieve their goals is to look at total rewards when determining what programs are right for their organization, Can some elements of work-life be considered benefits? Yes, many organizations stil consider them benefits. The total rewards model takes into account the fluidity of the relationship between compensation, benefits, work-life, performance and recognition, and development and career opportunities. It will be up to each individual organization to define precisely where the various elements will be categorized and how initiatives will be carried out. Objectives By the conclusion ofthis module, you wil be able lo accomplish the folowing 1, Define work-life and explain the needs work-life programs satisfy, 2, Discuss the responsibilities of a work-lfe professional and an HR practitioner involved in work-life initiatives. 3. Describe the seven categories of the work-life portfolio. Tim 4.2Work-Life TOTAL REWARDS Suave Caring for dependents Supporting health and wellness Creating workplace flexibility Financial support programs Creative use of paid and unpaid time off Community involvement programs. Culture change initiatives Work-Life Wor: ife is composed of offerings in the total rewards package that address the ur individual needs of the employee. These offerings are important to the employee but may be less tangible than compensation and benefits. To understand the difference between traditional compensation and benefits programs and elements of worklfe, consider the needs that the programs satisfy. For example: ™ Compensation satisfies a financial need for income. Benefits satisty protection needs, such as insurance and retirement security. Work-life programs satisfy intrinsic needs, such as control over one’s work environment. . '= Performance and recognition satisfy the need to receive recognition for achievements, . Development and career opportunities satisfy the need for personal challenge and growth. T1843 © Weve lt eared“A specific set of organizational practices, policies and programs that actively supports the efforts of everyone who works to achieve success both at work and at home” Work-Life ...cont'd = Definition — a specific set of organizational practices, policies and programs that actively supports the efforts of everyone who works to achieve success both at work. and at home 4 Refers to the reciprocal inks between an individual's work and personal life. ‘The organizational objective is to enable an employee to be successful at both work and home, resulting in enhanced organizational performance. Workiife effectiveness is grounded in a philosophy of respecting people for who they are as well as for what they do for the organization. This philosophy recognizes every worker's need to be appreciated as a contributor to the organization's success. Productivity is enhanced when the organization supports employees in their efforts to manage both work and personal responsibilities. This supportive environment leads to an improved abilty to attract, motivate and retain the workforce. Tim4d 2 ona Alig resersae el ere SoD ace Pee ee + Prasents business case to upper management + Communicates programs: to employees The Work-Life Professional The work-life professional can be a consultant, an in-house work-life expert, an HR practitioner or another professional with work-lfe responsibilities, This slide presents the work-life professional and HR practitioner as two individuals. In some cases, one person might possess all ofthe skills necessary to perform both functions; this individual would be able to present the business case for work-life effectiveness, as well as have the skill set to design, implement and administer programs, The person(s) who presents to upper management and communicates to employees must not only act as an advocate of work-life programs, but also understand and be able to articulate the business case for implementing the programs. Even if an advocate Is persuasive as to the need for work-life programs, upper management will not buy in Unless a compelling business case is made for the programs. Itis important, therefore, that all of the skills required be present — whether in one individual, or more than one. If any of the skills are missing, the likelihood of failure is great. Tims © Woteaton. Arg esos.The Work-Life Portfolio “> Caring for dependents 12) Supporting health and wellness "38D Creating workplace flexibility “2 Financial support programs “16D. Creative use of paid and unpaid time off “36), Community involvement programs “32 Culture change initiatives The Work-Life Portfolio The work-life categories below can help organizations create a collaborative relationship between employers and employees in order to optimize business outcomes. These categories of support for work-life address the most important intersections between the worker, his or her family, the community and the workplace. They include: Caring for dependents ‘Supporting health and wellness Creating workplace flexibility Financial support programs Creative use of paid and unpaid time off Community invalvement programs N@Pereene Culture change initiatives T1m46 ‘© Wereek A sereTHE WORK-LIFE PORTFOLIO Caring for Dependents @ Child care @ Elder care Caring for Dependents Work-life programs began in many organizations in response to the growing need of dual-income parents for child care resource and referral services. These services have greatly expanded over the past decade to include elder care support, long-term care insurance and emergency backup dependent care services for both children and olderty relatives, ‘The caring for dependents category may contain, but is not limited to, the following services: ™ Child care Child care resource and referral services Child care discount program at national providers ¢ Emergency backup child care service (two options: center-based and in-home care) 1 Elder care 4 Elder care resource and referral services + Long-term care insurance # Emergency backup elder care service Tim AT ‘© Wotan. Ags oresTHE WORK-LIFE PORTFOLIO Supporting Health and Wellness i) HELMET. gg EA AWE Supporting Health and Wellness ‘An organization supporting health and wellness may provide opportunities for its employees to enjoy: An absence of disease and infirmity ™ An awareness of and active progress toward maintaining proper diet, exercise and personal habits '™ A balance in all aspects of life ~ physical, emotional, spiritual, intellectual and social '™ Resiliency — A step above health and wellness, resiliency in an individual is the ability to recover readily from the adversities of life such as stress, illness and loss. This is manifest in the workforce as employees who are fully engaged and more productive, 1 Stress reduction ~ A focus on reduction in stress-related illness holds great promise for reducing escalating health care costs. 148 © Were Avge rearedTHE WORK-LIFE PORTFOLIO Supporting Health and Wellness ...conta = Examples 4+ Employee assistance programs + Farnly and medical leave ‘4 Workplace convenience services + Proactive wellness: strategies ‘Supporting Health and Wellness ...cont'd = Examples — The supporting health and wellness category may contain, but is not limited to, the following + Employee assistance programs (EAPs) ~ programs that provide counseling or referral services to employees. Services vary by employer but may include assistance with chemical dependency, as well as psychological, financial, legal, family and career counseling, Family and medical leave ~ programs that provide paid or nonpaid leave for employees to manage a major family event such as: = The birth and care of an employee's newborn child = Placement with the employee of a son or daughter for adoption or foster care = Care of an immediate family member (spouse, child, or parent) with a serious health condition = Medical leave when the employee is unable to work due to a serious health condition 4 Workplace convenience services ~ Many of the following services cost the company nothing, yet contribute much value to employees, thereby reducing stress. Services may include concierge service, a post office, dry cleaning, take- home meals and/or a lactation room for nursing mothers. + Proactive wellness strategies — Instituting wellness strategies helps employees to lower stress levels as well as lowering their own and the company’s health care costs. These may include fitness center affiliations and discounts (off-site or near site), on-site fitness programs and centers, on-site medical clinics, health and wellness seminars, and on-site yoga, Pilates, “deskercise” (no sweat exercise and stretching), TingTHE WORK-LIFE PORTFOLIO Creating Workplace Flexibility “Options of how, where and when employees do their work" “A variety of flexible work options" "A way to define how and when work gets done and how careers are organized” Creating Workplace Flexibility © Definition #1 (adapted from IBM) — options related to how, where and when employees do their work. These choices are available to a workforce that is mobile and focused on results. Definition #2 (WorldatWork) —a variety of flexible work options that enable greater control over when, where and how work gets done ™ Definition #3 (Families and Work Institute) — a way to define how and when work gets done and how careers are organized. Workplace flexibility takes into account the employee as a whole person and looks for ways to manage work that is effective for both employers and employees. The way organizations define workplace flexibility will continue to change and evolve as this area of work-life advances. Tim 410 «worden Ali reserveTHE WORK-LIFE PORTFOLIO Creating Workplace Flexibility ...conta @ Examples ¢ Flexible work arrangements 4 Work redesign @ Career flexibility Creating Workplace Flexibility ...contd = Examples ~ The workplace flexibility category may contain, but is not limited to, the following 4 Flexible work arrangements (FWAs) ~ a central too! for implementation of workplace flexibility. Itincludes a variety of work options that enable greater customization over when, where and how work gets done. = Common fulltime options include flextime, compressed workweek and telecommutingltelework. = Common less-than-fulltime options include reduced schedules and job sharing. ¢ Work redesign — a method of assessing how work is designed and structured, determining which tasks are essential, creating an efficient work flow, and eliminating unnecessary work and inefficiencies Career flexibility ~ a work option that allows for multiple points of entry and reentry over the course of a career for things such as leaves, sabbaticals and phased relirement, as well as taking time out of the paid labor market Tim4tt ‘8 Wwe Al aes reseres,THE WORK-LIFE PORTFOLIO Financial Support Programs @ Definition ¢ Voluntary financial benefits programs # Resources and referrals Financial Support Programs = Definition — In the area of financial support, workcife is primarily concerned with gaining approval for — and helping implement — voluntary financial benefits and resources and referrals that assist employees with managing their financial responsiblties 4 Voluntary financial benefits programs » Long-term care insurance = Domestic partner benefits 1 Financial planning services (retirement and health care) = Tuition assistance ‘Adoption assistance 4 Resources and referrals = Legal referral program = Group insurance discounts (for automobile, homeowners) Financial resource and referral services Financial seminars Employee discounts Credit counseling services Housing counseling Tim 4.12THE WORK-LIFE PORTFOLIO Creative Use of Paid and Unpaid Time Off @ Definition ¢ Time to spend with family, friends and self ¢ May be paid or unpaid = Examples Creative Use of Paid and Unpaid Time Off = Definition ¢ Time to spend with family, friends and self — personal time away from work for family, relaxation, education, volunteerism, emergencies or military service. Some of the newer policies in this category include paid family leave for new fathers as well as mothers, and paid or release time for community service. ¢ May be paid or unpaid ™ Examples — The paid and unpaid time off category may contain, but is not limited to, the following benefits + Vacation sharing # Emergency flexibility 4 Furloughs Paid or released time for community service 184.13 € Worden. At ag serTHE WORK-LIFE PORTFOLIO Community Involvement ® Definition | 4 Corporate citizenship Community Involvement ™ Definition 4 Corporate citizenship — not only external community outreach, such as company giving (foundations or direct), but also a renewed focus on bulding a strong internal sense of community. Formal ethics programs, shared (or catastrophic) such as leave banks and disaster relief funds, are sore of the creative new ways of taking care of each other. Tim4tsTHE WORK-LIFE PORTFOLIO Community Involvement ...conta = Examples ¢ External outreach ¢ Intemal sharing 'y Involvement ...contd = Examples ~ The community involvement category may contain, but is not limited to, the following 4 External outreach = Community volunteer program = Matching gift program = Cash contribution — A company contributes money to a nonprofit entity where an employee volunteers. Most have application processes. The contribution is based on a specific number of hours the employee volunteers. = Executive-on-loan programs — Executives are “loaned” to worthy organizations, e.g., United Way, for a period of time. The executive gains additional real-world experience and the receiving organization benefits from the executive's expertise. The value proposition is leadership development. # Internal sharing Shared leave program — donating personativacation time to others facing ‘emergency situations ™ Disaster relief fund = Catastrophic leave Tim 4t5THE WORK-LIFE PORTFOLIO Culture Change Initiatives ™ Strong leadership in culture change | @ Core of work-life effectiveness Culture Change Initiatives © Strong leadership in culture change ~ Creating support for work-life at all levels of an organization is often difficult and requires strong leadership in the areas of culture change. This often requires new types of management training to create a collegial, flexible work environment. Core of work-life effectiveness — Workplace culture is the core of workclife. It is one of the most difficult targets to focus on because it requires a strategic, long-term, sustained commitment by a company. Therefore, it often does not have the senior management commitment needed for long-term success. 4 Accompany may have lots of work-life programs and stil be a poor place to work because utilization of workife programs can be discouraged by individual managers, peers, or senior leaders (role mode's). Additionally, the culture may promote “all the time work" as a means to improve profits, regardless of stress and burn-out Ti 4.16THE WORK-LIFE PORTFOLIO Culture Change Initiatives ...conta @ Examples ¢ Diversity /inclusion ¢ Women's advancement # Mentoring 4 Work redesign to reduce work overload and burnout ae ee! Culture Change Initiatives ...cont'é = Examples — The culture change initiatives category may include, but is not limited to, the following # Diversity/inctusion = Providing equal opportunities for all = Sponsoring diversity awareness fairs = Expecting diversity to be respected 4 Women’s advancement = Removing the “glass ceiling” ® Opportunities for career development ¢ Mentoring = Encouraging successful employees to mentor less-experienced employees 4 Work redesign to reduce work overload and burnout ® Deliberately structured approaches to identify and reduce the primary sources of work overload and bumout Tim4a7 © Word tat sensTHE WORK-LIFE PORTFOLIO Culture Change Initiatives ...conta | @ Examples ...cont'd ¢ Team effectiveness strategies # Work environment initiatives @ Management flexibility training Older worker initiatives Culture Change Initiatives ...contd = Examples ...conté 4 Team effectiveness strategies = Helping employees learn to work successfully in team environment = Providing team leadership opportunities iatives 4% Work environment = Reinventing specific cultural, behavioral and physical elements of the work environment = Creating a compelling workplace that attracts, motivates and retains the talent required for organizational success ¢ Management flexibility training ‘= Educating managers for success in creating an optimally collegial, flexible work environment Older worker initiatives = Valuing, engaging and keeping older workers on the job in some youth- oriented cultures presents significant challenges. 1184.18Work-Life @ What work-life programs are offered in your organization? | Discussion ~ Work-Life What work-life programs are offered in your organization? Tim 419 e weratert ht rearedExercise — Work-Life Using the Total Rewards Exercise on page APP 0.3, discuss the following questions: 1. How would worklife programs act as attractors, motivators and retainers for the employees? 2. Which employees might be more concerned about flexible work schedules? Elder/ohild care? Financial support programs? Paid/Unpaid time off? 3. What variations in work-life programs might be desirable for these employees? Why? T1420 © Wordetvok Ah reared™@ Define work-life and explain the needs work-life programs satisfy. @ Discuss the responsibilities of a work- life professional and an HR practitioner involved in work-life initiatives. ™ Describe the seven categories of the work-life portfolio. T1042Module Quiz 1, Which of the following best describes the need that work-life satisfies in the total rewards mix? ‘A. It provides a valuable experience for one’s resume. B. It addresses employees’ intrinsic needs. C. It provides retirement programs so employees can relax, 2. Avworlciife professional is more likely than an HR practitioner to do which of the following? A. Advocate work-life programs B. Design work-life programs C. Implement work-life programs D. Administer workslife programs 3. Assistance with chemical dependency and family counseling are example programs of which category of work-life? ‘A. Creating workplace flexibility B. Supporting health and wellness C. Creative use of paid and unpaid time off D, Culture change initiatives 4, Which of the following is an example of a culture change initiative? Vacation sharing Leave banks and disaster relief funds Executive-on-loan program pom> Women's advancement Tim 4.22Performance and Recognition Wortdatwork BD Tim54 © Vontaek At ights esared,Module 5 Performance and Recognition Introduction Performance management is one of the most challenging areas of responsibility in human. resources. It is also one of the most controversial because it involves the measurement and evaluation of empioyee performance, Recognition involves identifying and reinforcing positive work performance. Its basic premise is that employees want to be acknowledged and valued for their contributions to the organization. Rewards involve giving something of value to recagnize positive work results. Rewards are an integral part of any recognition program, Module 5 discusses both the performance management process as well as approaches to giving recognition in the organization. Objectives By the conclusion of this module, you will be able to accomplish the following: 1. Discuss the performance management process, including details of the activities that take place during each phase in the process. 2. Discuss and give examples of formal and informal recognition programs, including their value and essential elements. Tim52 2 Woda, arseReUAHaUGOE Bisa Performance and Recognition Each organization's performance management system and recognition program must be designed and implemented with the unique characteristics of the organization in mind, What works for one organization's employees may not work well in a different organization. However, there are some basic principles to follow when deciding how these elements will be used to support the business strategy and meet organizational goals. ™ Performance ~ involves the alignment and subsequent assessment of organizational, team and individual effort toward the achievement of business goals and organizational success. Organizational, team and individual performance are assessed in order to identify what was accomplished and how it was accomplished. '™ Recognition ~ Acknowledges or gives special attention to employee actions, efforts, behavior or performance In the first part of this module, we wil discuss the performance management process. The last part of the module will address recognition programs, T1853 © weraater Altes eres,Performance Management @ Performance management system ™ Performance management process Performance Management ‘An organization's ability to achieve its business objectives depends on the individual performance of every person in the company. An individual's effort contributes to team success which contributes to department success which leads to success of the organization. No one works in a vacuum. There should be a spirit of working together to accomplish the goals of the business. ™ Performance management system - The performance management system affects employee performance as well as the entire organization and its departments, teams/groups, processes, programs, projects, products/services and customers. ‘The performance management process is a part of this system. '™ Performance management process ~ The performance management process is based on a few key principles: ¢ The process is ongoing; itis not a one-time event ¢ Mutual respect and trust should be the foundation of the relationship between, the manager and employee. ¢ The communication must be between the manager and the employee: itis not one-sided. + Involvement of both the manager and the employee in planning and measuring performance is important to success. ¢ Expectations for performance, standards and measures should be clearly defined. TiedPerformance Management Process Phases Detine gos, stanaards ‘Eimeasutemenis Conduct anna development ne carger ‘ppertni discussion © Prove cogoing coaching & feedback Determine perormance recegton, awards) consequences, Performance Management Process Phases The performance management process is designed to involve managers and reports in each part of the cycle. The cycle can take place quarterly, semi-annually or annually Notice that the process is a circle; itis an unbroken cycle of communication between the manager and employee. The phases of the performance management process are: Phase 1: Define goals, standards and measurements, Phase 2: Provide ongoing coaching and feedback Phase 3: Conduct performance dialogue Phase 4: Determine performance recognition, rewards or consequences Phase 5: Conduct annual development and career opportunities discussion ‘This module will address the first four phases of the performance management process. Development and career opportunities will be covered in Module 6, T1m55 © Woranton ees earnsPERFORMANCE MANAGEMENT PROCESS PHASES Goal Alignment Ce nal Drivers Strategy [Organizationwide Customer satisfaction Wenorooconal | TGepadinenianie ‘sliacien ing ty ‘hover | Customer satisfaction | Ie AINA As 800 |r be an een | cussion rag by Waadmwote2ix | Customer satisfaction a eo re eT | nee i ame oven {Oto he Est | Te pee 9 Went an hel acho 2natonc ranger al ZoRKqsroty see Soper pees Goal Alignment Customer requirements, organizational drivers and business strategy lead to the development of specific organizational performance objectives. These objectives include a variety of clearly identified, measurable goals that need to be attained to achieve the business strategy. Goal alignment ~ In Phase 1 of the performance management process: . . Organizationwide goals are set that are determined by customer requirements, organizational drivers and the business strategy. ‘These goals cascade to department/unit managers who meet with their staffs to discuss the organizationwide, department and group unit goals and plans to achieve them. Individual employees then document their own goals along with standards and how the goals will be measured. Each individual's goals should align to the manager's goals, thereby giving a clear line of sight to the organizationwide goals and business strategy. ‘The employee and manager then meet for a dialogue regarding alignment of the goals, if goals are achievable, and the measures they will use to evaluate success. T1m56PERFORMANCE MANAGEMENT PROCESS PHASES. —— — Phase 1: Define Goals, Standards and Measurements @ Performance standards @ Four types of performance standards # Quality # Quantity # Time ¢ Process | Phase 1: Define Goals, Standards and Measures = Performance standards — A performance standard specifies an expected outcome, With input from the employee, performance standards should be developed for each job. Here is an example of a performance standard: 4 Job duty: Deliver mail to each department daily + Performance standard: Deliver the mail with 100% accuracy to each department by 10:00 a.m. daily There are four types of performance standards: Quality ~ how well a duty or activity is performed Quantity — how much or the volume of work an employee performs Time — when a duty is o be performed Process ~ steps or procedures necessary to complete a job duty T1m57 ‘© Wore Al ehts resrvedPERFORMANCE MANAGEMENT PROCESS PHASES Phase 1: Define Goals, Standards and Measurements ...conta ™@ Performance measures cre ™ Method of rating @ Levels of rating # Exceeds the standard # Meets the standard # Does not meet the standard —__osos et Phase 1: Define Goals, Standards and Measurements ...cont’d Although developing performance standards requires time and resources, it produces. an objective and legally defensible appraisal ™ Performance measures 1. Direct observation ~ The leader directly observes the employee's performance. 2. Documented examples ~ Someone provides documented examples of the employee's performance, such as a project leader documenting a team member's performance on a project, or customer complaints and compliments. 3, Data-based ~ The most objective method, it involves quantified data that can be measured and tracked, | Method of rating — Using the information obtained from the measurement criteria, the next step is to individually rate each standard. = Levels of rating ~ Levels of rating can vary depending on the organization. Some organizations may have up to five or seven ratings. Some of the most common ratings are: 4 Exceeds the standard ~ Performance is consistently above what is expected. # Meets the standard ~ Performance is what is expected. This means the employee is doing a good job. ¢ Does not meet the standard ~ The employee does not meet acceptable standards or goals; the employee generally requires close supervision T1588PERFORMANCE MANAGEMENT PROCESS PHASES Phase 2: Provide Ongoing Coaching and Feedback @ Communicating # Coaching ® Monitoring + Feedback Phase 2: Provide Ongoing Coaching and Feedback ‘Throughout the performance management process, managers and their reports should continue to discuss progress. In some businesses, strategies and objectives change quickly, sometimes every few months. in such cases, managers and employees may need to change their goals to match those of the changed business objectives, =| Communicating ~ Two-way communication is at the heart of the performance management process. To encourage two-way communication, itis important for both the manager and the employee to check in frequently throughout the performance cycle 10 talk about progression toward goals. # Coaching — Conversations that are ongoing, face-to-face, open, honest and positive provide instant information to those carrying out the work, so they can monitor their own performance and enhance the probability of improving | Monitoring — Employees are responsible for monitoring their own performance and asking for help as needed. This promotes employee ownership and control over the process. As employees assess the behavioral changes they need to make, they ask. for manager's feedback ¢ Feedback — Comparing performance against goals to evaluate progress can be beneficial in helping employees to improve their performance. Managers can assist ‘employees in reevaluating their direction and reprioritizing their efforts T1m59PERFORMANCE MANAGEMENT PROCESS PHASES Performance Management . ddecuesion m™ What are some of the performance standards used in your organization? @ What kinds of measurement criteria are used in your organization? @ How do managers in your company coach or mentor their reports? Discussion — Performance Management 1 What are some of the performance standards used in your organization? = What kinds of measurement criteria are used in your organization? | How do managers in your company coach or mentor their reports? Tim 5.10 ‘© Werte Al ls oro,PERFORMANCE MANAGEMENT PROCESS PHASES Phase 3: Conduct Performance Appraisal and Evaluation Discussion & Periodic reviews = Year-end reviews 1 Methods of performance appraisal Phase 3: Conduct Performance Appraisal and Evaluation Discussion '™ Periodic reviews — As a supplement to the ongoing communication process and to minimize the chance of surprises for the manager or the employee, itis important to hold periodic discussions or reviews, Some businesses require quarterly dialogues While others require semi-annual or annual reviews. ™ Year-end reviews ~ During the year-end review, the dialogue centers on the employee's accomplishments and shortfalls for the year. = Methods of performance appraisal - There are ton widely used methods of conducting performance appraisals with employees. The performance management model shown in this module uses the goal-setting or management by objectives (MBO) method. + It begins by establishing clear and precisely defined goal statements for the work to be done by an employee. The goals must be quantifiable and measurable before being included in an MBO plan Establishes a pian indicating how these goals are to be achieved ‘Allows the employee to implement the plan Measures goal achievement Takes corrective action when necessary Establishes new goals for the future with the active participation of the employee in the goal-setting process Explanations of other methods of performance appraisal are found in the Appendix Tims.1t © otek Aight serePERFORMANCE MANAGEMENT PROCESS PHASES Conducting the | Performance Appraisal Meeting Allow enough time Maintain confidentiality Seek input Clarify performance issues Be specific about the performance rating Offer assistance Provide ongoing feedback about performance Conducting the Performance Appraisal Meeting = Allow enough time ~ Schedule in advance and allow sufficient time for the meeting 1 Maintain confidentiality ~ The appraiser should not share results with other employees. In addition, a location which protects the confidentiality of the meeting should be chosen ™ Seek input ~ In preparation for the meeting, the appraiser should ask the employee for his/her accomplishments during the period being evaluated. ™ Clarify performance issues ~ The appraiser should provide specific information about performance deficiencies. '™ Be specific about the performance rating — Help the employee develop and grow in his/her work by giving a truthful rating, even if it is not positive. = Offer assistance ~ Offer an improvement plan to help the employee, ™ Provide ongoing feedback about performance ~ Remember to give feedback often, not just during an annual evaluation. list of common pitalls to avoid when completing an appralsal is found in the Appendix, Tim 5.12PERFORMANCE MANAGEMENT PROCESS PHASES ¥ Performance Management ™ How often are performance appraisals done in your organization? ™ Can you give some best practices for conducting performance appraisals? Discussion ~ Performance Management "= How often are performance appraisals done in your organization? ™ Can you give some best practices for conducting performance appraisals? Tim 5.13PERFORMANCE MANAGEMENT PROCESS PHASES Phase 4: Determine Performance Rewards/Consequences ™ Relationships between pay programs 4 Achievement of goals # Standards @ Pay for performance = Recognition eee Phase 4: Determine Performance Rewards/Consequences = Relationships between pay programs ~ Some time after the performance review has taken place, the manager should utilize the salary planning guidelines to determine the appropriate reward andlor consequence which compares the actual performance against the defined levels. Performance rewards are given through merit pay or extra payment such as a cash bonus. These were discussed in the compensation module. Achievement of goals ~ Whether or not the goal was achieved is discussed. ¢ Standards ~ The way the employee met the defined standards of quality, quantity, time and process will determine, to a great extent, the reward or consequence. ™ Pay for performance — The rewards are based on achievement of goals and standards = Recognition — The remainder of this module discusses recognition programs that give special attention to employee actions, efforts or behavior, but are not usually associated with achievement of preset goals, Note: Phase 6 Conduct Annual Development and Career Opportunities Discussion, wil be discussed in Module 6, T1m514Recognition Programs | ™ Employee acknowledgement can: ¢ Meet an intrinsic psychological need ¢ Support the business strategy # Acknowledge contributions Ye immediately | Recognition Programs ‘As organizations seek to retain their best employees, recognition can become an important part of the total work experience. Recognition has been instrumental in reducing turnover, increasing productivity and in general, creating a positive working environment. Recognition programs focus on recruiting, valuing and retaining employees. Recognition should be more than the occasional “thank you'" or pat on the back. It involves a total commitment by the organization and its leadership 1 Employee acknowledgement — Recognition programs acknowledge or give special attention to employee actions, efforts, behavior or performance. These programs can ‘¢ Meet an intrinsic psychological need for appreciation Support business strategy by reinforcing certain behaviors (e.g., extraordinary accomplishments) that contribute to organizational success # Acknowledge employee contributions immediately aftor the fact, usually without predetermined goals or performance levels that the employee is expected to achieve Excerpted from "Recognition at Work” by G. Michael Berton, SPHR, wth permission from WorldatWork, ©2002. Tim 5.15RECOGNITION PROGRAMS The Value of Recognition Programs ™ Reinforce valued behaviors ™ Foster continued improvement ™ Formalize the process = Provide positive and immediate feedback ™ Foster communication of valued behavior The Value of Recognition Programs ™ Reinforce valued behaviors — Recognition programs can reinforce the value of performance improvement. Foster continued improvement ~ Although it isn't quaranteed, generally employees respond to special acknowledgements and continue to improve so that other recognitions will be given. 1m Formalize the process — Acts of showing appreciation are formalized through a recognition program ™ Provide positive and immediate feedback — When positive behaviors are immediately recognized, they provide motivation for employees. '™ Foster communication of valued behavior ~ Employees who know what behaviors and activities are valued in the organization can strive to meet those expectations. Extracted from "Recognition at Wort by G. Michael Barton, SPHR, with permission from WestdatWork, ©2002, Tim 5.16 2 Woe, tis seedRECOGNITION PROGRAMS Costs vs. Benefits of Recognition Programs IE, ome GEER, coe Slee can Program Cost 208,000 "Saaoon rane) on _/Reeogntion Program Cost ‘$511,000 Recognition Recognition) cae | Nat Gain ‘teenie $504,000 sss Organization © | Organization | Orgenization A Costs vs. Benefits of Recognition Programs ‘A recognition program's cost depends on many factors including the size of the organization, types of rewards offered, training and administrative support. Because it ‘can be a substantial investment, itis important to monitor the impact that the program can have on critical factors such as revenue, employee retention and productivity. The diagram above shows how three organizations realized a gain by offering a recognition program. Organization A is @ smaller organization that was able to tie the impact of recognition to net revenue. It focused on how recognition affected customer service, employee performance and quality improvement, All three of those areas then had a direct or indirect effect on net revenue. = Organization 6 was most concerned with employee retention, It was estimated the cost to replace and train a new employee was about $20,000. The recognition program was responsible for retaining 44 full-time employees ($880,000) based on historical tumover and employee feedback = Organization C honed in on the relationship between recognition and productivity. Based ona before-and-after comparison, the formal recognition program increased productivity by 10 percent, which resulted in a $504,000 nat gain Exiracted from “Recognition at Work” by G, Michael Barton, SPHR, with permission from WorldatWork, ©2002. Tim 547 ‘eWeek Al igs resved