Compensation: Overview and short summary

Applying the Concept 10.2, Employee Exemptions, on page 262 of your text: Distinguish between Exempt Employees and Nonexempt Employees as outlined in the Fair Labor Standards Act of 1938 (FLSA). Include a brief discussion of when an Exempt Employee is eligible for overtime based on the salary threshold and duties test as outlined in the FLSA.

According to FLSA, if someone is exempt, they are exempt from the minimum wage requirement, overtime provisions, child labor rules, or possibly all three. If an employee does not meet any of these exemption requirements, they are said to be nonexempt and must receive the minimum wage, overtime, and so on.

For instance, restaurant workers are nonexempt, meaning an employer is not required to pay a minimum wage. It also applies to several other professions, including seasonal workers, newspaper carriers, etc. Under the provisions of the FLSA, someone qualifies as nonexempt if they make under $455 per week or $23,660 per year.

Nonexempt employees that work more than a certain number of hours in a week are eligible for overtime. FLSA set a 150% overtime of the individual’s normal wages for all hours over 40 hours worked in a calendar week. An employee who meets the salary level tests and salary basis tests is exempt only if they also perform exempt job duties; executive, professional or administrative. For example, the executive exemption applies for employees earning at least $455 per week that direct the work of at least two full-time employees, tasked with managing a recognized department, and have authority to hire or fire other employees. Other exemptions based on duty include administrative exemption, outside sales exemption, and computer employee exemption.

Applying the Concept 10.3, Job Evaluation, on page 265 of your text: Define what the Job Evaluation process is and its purpose in determining a pay structure for a firm.

The job evaluation process is concerned with the techniques used to establish the comparative worth of jobs in an organization. It entails making decisions on what people get paid for the work they do. It is crucial because it is the foundation of job pricing and fixing individual rates of pay. The purpose of determining the pay structure for an organization is to help overcome difficulties in managing internal relativities and maintaining an equitable and competitive pay structure. It can also help address grading issues logically and systematically (Armstrong & Baron, 1995). It helps produce order out of the chaos within organizations if pay decisions were to be subjective. There are several ways to accomplish job evaluation, such as the job ranking method, point-factor method, and factor comparison method. Understanding pay levels allows managers to provide good answers to employees on why their pay is at a certain level.

Self-Assessment, Compensation Management in Action, page 271 of your text: How does your assessing your job satisfaction related to compensation help you better understand how a company’s pay structure may relate to employees who work for you and their individual assessment of these same factors?

A self-assessment of compensation is essential to managers. As a manager, I would like to feel satisfied with a compensation system. It would, however, require an accurate assessment of the metrics used to determine how much the managerial role is worth in terms of wages. Getting a clear understanding of what factors to consider in evaluating such worth is crucial and could determine my job morale and how well I manage employees at the workplace. For instance, if I feel satisfied with the base pay as a manager, it is much likely that I can find ways to explain the disparities and metrics to employees. Most employees feel satisfied when the manager can answer questions regarding their pay and benefits.

Giving my employees concrete answers to their questions regarding the compensation system could be crucial and could depend on my assessment of the compensation. Pressures on benefit costs lead to compensation professionals redesigning and manage benefit programs effectively. Thus, understanding the components of a compensation system that matter to employees is paramount to organizational leaders.

Communication Skills section on page 276 of your text: Answer question #2. “As the HR manager, would you pay more attention to expectancy theory or equity theory in designing your compensation system? Why?” Be sure to discuss the main concepts of both the expectancy theory and the equity theory in your answer.

Firstly, it is essential to understand expectancy and equity theories as they relate to compensation. Expectancy theory is a theory of motivation in which employees are motivated when they believe they can accomplish a particular task and that the rewards thereof are worth the effort. The higher one’s expectancy, the better the chance of motivation. There are two other things to note in this theory; instrumentality and valence. The former refers to an individual’s perception that a particular level of performance could provide them with the desired reward. The latter refers to the value individual places on the benefit and may vary since not all people value the same reward. The implication of this theory to a manager is that if employees get what they want, they can help managers meet the organizational goals. Equity theory suggests that people get motivated to seek social equity in the rewards in exchange for their performance. They are motivated when the ratio of their perceived outcomes to inputs is at least roughly equal to that of other referent individuals. If employees get fair treatment, they are more motivated to achieve organizational objectives. One challenge with this theory is that equity may exist in an organization, yet, employees could perceive it as inequity and create a version of what they consider to be equity. Unfair and abusive managers demotivate employees and hurt performance.

As a manager, I would apply expectancy theory because it ties performance increases to the pay perquisites. With equity theory, once employees move through the stages of benevolence, sensitivity, and entitlement, they could become dissatisfied with the job beyond recovery to a state where they start being productive again (Jewczyn, 2010). With expectancy theory, when there is a positive perception that an employee has a reasonable expectation that better work results in more pay and better results, employees’ behavior modification takes place with ease. An employee will increase their performance if they believe doing so could produce a positive reward. If performance standards are clarified and expectations delivered consistently, it is easier for a manager to use expectancy theory to predict performance. At the same time, employees will have a better understanding of their position within the organization.

Complete Skill Builder 10.1 Job Evaluation on pages 278-279 of your text: Please provide the table so that it is easy to see how you are assessing each type of job to its Mental, Physical, Skill, Responsibilities, and Working Conditions. Please do not just list out numbers that have no value to your reader when listed on their own. How does completing this exercise help to further define the role of a job and its TDRs and KSAOs requirements when determining compensation/benefits?

JobMental Requirements (education, experience, and specialized knowledge)Physical requirements (effort such as standing, walking, and lifting)Skill requirement (specific job knowledge/training to do work)Responsibilities (for equipment, money, public contact, and supervision)Working conditions (safety, heat, ventilation, and coworkers)
Manager51551
Wait Staff44142
Cook35415
Helper13224
Bartender22333

Filing the table gives an idea of the relative value of the jobs by comparing against each. Each role has different TDR’s and KSAOs. For instance, the tasks of a manager are different from those of the cook or bartender. Similarly, the knowledge and skills of a cook are distinct from those of the manager. Understanding these disparities is essential because it depicts what a compensation system could look like and the significant factors. The table shows a simple scenario of job evaluation, giving a more practical approach in assigning ranks to different job roles to aid in making decisions such as wage structure. The job positions that rank highest in mental and skills are likely to warrant higher compensation and benefits than one that ranks high in physical requirements and working conditions.

What is happening with the minimum wage in Illinois? Prepare a table outlining what the minimum wage will be for the years 2021, 2022, 2023, 2024, and 2025. Provide a definition of Wage/Pay Compression and how it impacts worker satisfaction and performance. What is your recommendation to employers who are facing wage compression issues with employees who for example may have been earning $11 or $12 per hour due to their value to the firm and are now faced with that amount being minimum wage? Is the reality that today $15/hour is minimum wage? Why has this become a norm?

It was in 1938 when the government imposed the first minimum wage in the United States. At the time, it was $0.25 per hour. The minimum wage has had a significant impact on low-wage workers across the nation, particularly the African-American minority. After 9/11/2001, the US experienced a recession during which there was minimal to no growth in the economy. In 2003, there was substantial job loss among the Midwestern states. At the time, the Federal minimum wage of $5.15 an hour was in effect in Illinois and other U.S. states. One year later, Illinois raised the minimum wage by $.35 an hour, causing a job growth of about 0.2%, while other states achieved at least a 1% growth rate (Jepsen, 2017). In 2005, Illinois increased the minimum wage by another $1.00 an hour, amounting to $6.50, which according to Jepsen, resulted in its second-highest employment growth rate in the region.

Fast-forward to 2020, according to Public Act 101-001, there were some changes in hourly minimum wage rates in Illinois. For instance, new employees (who worked for less than 90 days of employment) over 18 could get up to 50 cents less per hour. Starting in 2020 January, if a worker under the age of 18 works more than 650 hours for the employer in a calendar year, they were to receive the regular wage (over 18 wages). The tipped employees could earn 60% of the hourly minimum wage, and certain employees were eligible for overtime at time and one-half of the regular rate after spending 40 hours working in a week. Currently, the minimum wage in Illinois is $11-an-hour and $6.60-an-hour for tipped employees. This wage is scheduled to increase to about $12-an-hour by January 2022 and will gradually increase to $15-an-hour by January 2025.

Table: Minimum Wage for Illinois between 2021 and 2025.

YearMinimum WageTippedYouths (under 18) (working less than 650 hours per calendar year)
Jan 2021$11$6.60$8.50
Jan 2022$12                           $7.20$9.25
Jan 2023$13$7.80$10.50
Jan 2024$14$8.40$12
Jan 2025$15$9$13

Wage compression occurs when new employees require higher starting pay than the historical norm, resulting in narrowing the pay gap between experienced and new employees (Lussier & Hendon, 2016, p. 258). Organizations hire during bad and good times. During the bad times, such as the post-COVID-19 era, organizations depress wages, and people are willing to accept low-paying jobs than they would in good economic times. With wage compression, a situation may arise whereby workers with less time on the job get paid nearly as much as the employees who have worked for the same company for many years. As a result, it could weaken the desire connection on the part of long-term employees’ performance resulting in dissatisfaction because of pay differential.

For employers facing wage compression issues with employees, the best recommendation is to plan how to adjust the compensation when conditions improve and invest in better pay communications to distribute the strategy to the rest of the company. It is necessary to let the employees know the situation and create a plan that clarifies what employees have to do for a pay rise. The employer can consider incentive pay to boost their morale at least temporarily or sometimes permanently.

It might not yet be the official federal minimum wage, but $15 an hour is turning into a reality. Many businesses have been trying to offer a $15-an-hour to try and fill enough jobs to satisfy labor demand. Organizations are finding it hard to attract top talents without offering competitive wages. The unemployed are willing to hold out for higher pay because of stimulus checks and expanded jobless aid. Undoubtedly, the number of job postings advertising $15 an hour has increased over the recent years. Illinois is one of the states whose commitment towards a $15 an hour wage floor is evident. Many employers are required to pay more to keep up with other companies, such as Amazon.

References

Armstrong, M., & Baron, A. (1995). The job evaluation handbook. CIPD Publishing.

Jepsen, P. (2017). Impact on employment in cities when the minimum wage is increased [Doctoral dissertation].

Jewczyn, N. (2010). A comparison of equity theory and expectancy theory and some implications for managers in a global work environment.

Lussier, P. R., & Hendon, J. R. (2016). Fundamentals of human resource management: Functions, applications, skill development. Sage Publications.