Compensation
TCHRA
2013
Larry Morgan, SPHR, GPHR, MAIR
Orion HR Group, LLC
©Orion HR Group, LLC
Tonight
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Review any questions on workforce
planning and employment exam
Compensation
Total Rewards
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Compensation and Benefits
19% PHR
13% SPHR
What areas are covered on the
exam?
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Legal and legislative issues
Direct compensation
 Job analysis and evaluation
 Pay surveys and structure
 Data analysis
 Payroll issues
 Pay methods and issues
 Executive compensation
Covered on exam, continued
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Indirect compensation covered
under benefits module
International issues
Employee communication
A Total Compensation System
Total compensation
Direct
compensation
Pay
systems
+
Indirect
compensation
Benefit
programs
Total Compensation Overview
o
o
o
o
o
Legal/legislative considerations
Direct Compensation (cash, capital
accumulation); programs, methods,
rationale, pros and cons, etc.
Indirect Compensation (health and
welfare, retirement, paid time off, etc)
Relational Returns (affiliation,
coworker relationship, challenging
assignments, training, location, etc)
Communication (policies, methods,
programs)
Objectives of a Total Compensation
System
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Compatible with organizational mission,
values and strategy
Compatible with corporate culture
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Entitlement
Performance based / contribution oriented
Appropriate for the workforce
Attract and retain talent
Externally equitable
Internally equitable
Compliant
Easy to communicate and understand
Cost effective
Relationship of Compensation to
Organizational Market or Product Life Cycle
Compensation
Element
Introduction
Growth
Maturity
Decline
Base Salary
Competitive, low
end
Moderate
High, relatively
speaking
High, may need to
reduce
Incentives (Long
and Short Term)
Stock/equity
Bonus – based on
objectives,
options/combinatio
n plans
Bonus – retention
based plans and
equity in smaller
portions
Reduced bonuses
basis is costsavings most
commonly
Benefits
Basic package
Moderate package
Comprehensive
package
Limit costs; freeze,
change or eliminate
programs
Compensation Design Criteria and
Issues
Determine Compensation Philosophy: Match, lead or lag the
market?
 Match = median, middle of pack
 Lag decision may occur due to ability to pay/compete; and/or if strong
emphasis on performance and variable pay
 Lead decision may presuppose higher caliber employees; is this true?
 Consider union factors, if any
Fairness elements (perception)
• Contributions recognized; no negative rewards; lingerers as example.
Why? Manager reluctance. May include lack of differentiation for merit
pay. And, employee reaction to rater inconsistency
• Internal and external equity
• Non-discrimination
• Meet employee needs for fair wage/adequate benefits (living wage
issue)
Basic Elements of Compensation
Plan Administration
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Design – plan features, main elements, mix (base versus
variable, etc.)
 Base pay
 Variable pay (individual / team / group / organization)
 Benefits
 Pay Mix issues
Funding – how to pay for it, how much it costs.
Frequency of changes
Administration – policies, practices, procedures.
Communication – message emphasis, delivery method,
format, frequency.
Key Legislation and Regulations
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Davis Bacon Act, 1931
Copeland Act, 1934
Walsh Healey Act, 1936
Fair Labor Standards Act 1938
Service Contract Act, 1965
Equal Pay Act 1963
Fair Pay Act 2008
Employee vs. Contractor
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Legal Risks
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FLSA (overtime)
Tax Issues (withholding)
Benefits
Workers’ Compensation
Unemployment
Common Misconceptions
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But the individual wants to be a contractor
But we’ve always done it this way
But it saves time and money
1
3
How the IRS looks at employee vs.
contractor
◦Behavioral Control
 Type of instructions given
 Degree of instruction
 Evaluation systems
 Training
◦Financial
 Significant investment
 Unreimbursed expenses
 Opportunity for profit or loss
 Services available to the
market
 Method of payment
◦Type of Relationship
 Written contract
 Employee benefits
 Permanency/Length of
the relationship
 Key activity of the
business
Similar tests used by other agencies and with other laws
Student Interns
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Employees or contractors?
Common misconceptions
 “…but they get credit”
 They are learning something
 Minimum wage and overtime are not
required
 “…but we pay a stipend”
New audits
IRS and DOL standards
 Type of internship
 Credit provided?
 Productive work performed?
Objectives and Brief History of
FLSA
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Enacted by Congress in 1938 to guarantee minimum wages and
overtime standards among private employers
Part of the economic recovery of the Great Depression—ensuring
a livable wage for large numbers of employees
Amendments throughout its history such as:
> Retail and service industry amendments in 1961
> Extended to public sector employees in 1985
> Redefinition of exemption test for IS professionals in 2002
> Fair Pay Act 2005
> Fair Pay Act 2009
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Provisions relate to areas such as:
> Minimum wage
> Compensable time
> Record Keeping
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> Child Labor Regulations
> Rest and Meal Periods
> Exemption Status
State FLSAs—often similar but can differ
(e.g., MN tip credit)
Federal vs. State regulations

Generally, the more generous (to employee) controls
(state vs. federal)
 $7.25/hour federal minimum wage vs. lower
Minnesota wage
 Minnesota no offset of minimum wage for “tips”
 Final wages paid within 24 hours of involuntary
termination after demand or next payday for
voluntary
 Additional regulations on employment hours for
minors
Overtime
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Overtime after 40 hours in a workweek
Comp time only for public sector
8 and 80 hour rule (health care)
Union contracts
Overtime paid based on the “regular rate”:
TOTAL REMUNERATION IN A WORKWEEK
(except statutory exclusions)
÷
TOTAL HOURS ACTUALLY WORKED
=
REGULAR HOURLY RATE OF PAY
Overtime—Regular Rate
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What’s Remuneration?
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Commissions
Non-cash compensation
Nondiscretionary bonuses
Shift Differential
On-call pay
Blended rate issues
Not included:
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Discretionary bonuses
Gifts or gratuities
Tuition or loan forgiveness programs
Pay for time not worked (vacation, sick leave
and holidays)
Profit-sharing, pension and welfare payments
Overtime Calculation
An employer pays an employee a $40
attendance bonus for working a full 40-hour
workweek. If the worker works 45 hours
during that week, what will the employee’s
gross paycheck be if her hourly rate is $10?
A.$495.00
B.$509.50
C.$515.00
D.$517.25
Answer: D
To calculate the total pay for the week, you
must add the bonus to the hours worked at
base pay (45 x $10/hour = 450 + $40 bonus
= $490). To get the average straight time
hourly earnings (ASTHE), the $490 is divided
by the total hours worked, 45, to yield $10.89.
Pay calculation:
45 hours base pay ($450) + bonus ($40) =
$490.00
ASTHE = $490/45 hours = $10.89
Overtime premium = $10.89 x 0.5 = $5.45 x
5 = $27.25
Total gross pay = $517.25
Record Keeping Requirements
Nonexempt Employees (3 years)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Full Name
Home Address
Zip Code
Birth Date (if under 19)
Gender
Occupation in Which
Employee is Employed
Time and Date on Which
the Work Week Begins
Regular Hourly Rate of Pay
Basis on Which Wages are
Paid
Hours Worked Each Day
11.
12.
13.
14.
15.
16.
Total Hours Worked Each
Work Week
Total Daily or Weekly
Straight Time Earnings or
Wages
Total Weekly Overtime
Compensation
Total Deductions from
Wages for Each Pay Period
Total Wages Paid Each Pay
Period
Date of Payment and the
Pay Period Covered by the
Payment
Record Keeping Requirements
Exempt Employees (3 years)
Some of the same:
1.
2.
3.
4.
5.
6.
Full Name
Home Address
Zip Code
Birth Date (if under 19)
Gender
Occupation in Which Employee is Employed
As well as records reflecting basis on which wages are paid,
including enough to permit calculation, for each pay
period, of the employee’s total compensation (wages,
fringe benefits, etc.)
Exempt vs. nonexempt
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Exempt = normally salaried, no overtime
Nonexempt = normally hourly, entitled to
overtime
Duties and role control, not title or
“designation”.
You may have a salaried employee who is
nonexempt and therefore entitled to OT
What if employee performs both exempt
and nonexempt work?
What if exempt puts in significantly more
hours than anticipated?
Determining exemption category
When in doubt….
Burden of proof is on
employer to justify exempt
status
General requirements for exempt
status
Employer must demonstrate:
 Paid minimum salary of $455 / week (for
most) without deductions based on
quantity or quality of work
AND
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Primary duties fall into one or more
exempt categories, including:
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Executive
Administrative
Learned or creative professional
Highly Compensated
Computer professional
Outside sales
Executive Standard Duties Test
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Compensated on a salary basis at a rate not less than $455/week
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Primary duty must be managing the enterprise or managing a
customarily recognized department or subdivision;
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Must customarily and regularly direct the work of at least two or
more other full-time employees or their equivalent;
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Must have the authority to hire or fire other employees, or whose
suggestions and recommendations as to the hiring, firing,
advancement, promotion or any other change of status of other
employees must be given particular weight
Administrative Standard Duties Test
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Compensated on a salary or fee basis (as defined by the
regulations) at a rate not less than $455/week
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Primary duty is the performance of office or non-manual work
directly related to the management or general business operations
of the employer or the employer’s customers; and
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Primary duty includes the exercise of discretion and independent
judgment with respect to matters of significance i.e. “comparison
and evaluation of possible courses of conduct and acting or making
a decision.
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Often employees who are responsible for significant staff functions
or key employees without supervisory duties (e.g., accounting, HR,
public relations)
Professional Standard Duties Test
Learned Professional
 Compensated on a salary basis not less than $455 per week
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Primary duty must be the performance of work requiring
knowledge of an advanced type (defined as work which is
predominantly intellectual in character, and which includes work
requiring the consistent exercise of discretion and judgment)
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Advanced knowledge must be in a field of science or learning
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Advanced knowledge must be customarily acquired by a
prolonged course of specialized intellectual instruction
Professional Standard Duties Test
(cont.)
Creative Professional
 Compensated on a salary basis not less than $455 per
week
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Primary duty must be the performance of work requiring
invention, imagination, originality or talent in a recognized
field of artistic or creative endeavor
Highly Compensated
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Perform office or non-manual work;
Paid total annual compensation of $100,000
or more (including at least $455 each week);
AND
Customarily and regularly perform at least
one of the duties of an exempt executive,
administrative or professional employee
identified in the standard tests for those
exemptions.
Computer Employee Standard Duties
Test
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Compensated either on a salary or fee basis (as defined in the
regulations) at a rate not less than $455 per week OR if
compensated on an hourly basis, at a rate not less than $27.63
per hour
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Must be employed as a computer systems analyst, computer
programmer, software engineer or other similarly skilled worker
in the computer field performing specific duties described in the
law and regulations (generally not your office IT person)
Outside Sales Employees Standard
Duties Test
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Primary duty must be making sales or obtaining orders or
contracts for services or for the use of facilities for which a
consideration will be paid by the client or customer, and
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The employee must be customarily and regularly engaged
away from the employer’s place of business
Losing Exempt Status: Salary
Basis
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No reductions for variations in quality / quantity
work
Exceptions:
 Personal leaves for one or more full days
 Full day absences for sickness/disability if part
of bona fide plan
 Penalties for infractions of major safety rules
 Unpaid full day disciplinary suspensions for
infractions of written workplace conduct rules
 Employees commencing or leaving
employment mid-week
 Intermittent FMLA leave
When is fining an employee justified?
Safe Harbor Protections
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Clearly communicated policy
Prohibit improper pay deductions - good
faith commitment to comply with law
Include complaint mechanism
Reimburse employees for improper
deductions
Traps – Be Wary
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Docking of pay/ out of PTO
Time cards with employee signature
Take home training
Blended rates
Supervisors doing non-exempt work
“Donning and doffing”- prep and cleanup
time
Bonus awards for non-exempts
Traps, continued
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On call time
Travel Time
Employee Volunteers
Tip credit
First responders
Comp time
Travel TimePortal-to-Portal Act provides guidance
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Normal commuting time does not count as time worked
Additional travel time to client work site is compensable
Travel may be compensable if person is performing
work (driving, piloting, writing reports, etc)
If person is passenger or free to engage in other
activities, not necessarily compensable
Time at conferences and trade shows
Normal work schedule is critical
 Person normally works 8am – 5pm
 All travel within 8am – 5pm is paid, regardless of
day of week
 Time outside of these hours (regardless of day of
week) is not required to be paid if work not
performed
3
8
Travel Pay
Day
Activity
Friday
Travels to conference and
works en route
Total Paid
Hours
5
12
Saturday Works at conference
Sunday
Travels from conference
and does not work en route
Paid time
4
7 8
AM
9
10
11
12
1
2
3
PM
Normal Work Hours
Unpaid time
Time
4
5
6
7
Non-Discrimination Laws
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Civil Rights Act; protected class concept; difference
between disparate treatment and disparate impact – that
concept applies to compensation and benefits as well.
Equal Pay Act / Fair Pay Act – Started as gender
based, now expanded to include all forms including Title
VII, ADEA, ADA. Expanded time frame to 180/300 days
to each paycheck
Various tax and work program/disadvantaged and
socio-economically affected groups
Work Opportunity Tax Credit (and laws similarly
named): applies tax credits based on hiring certain kinds
of disadvantaged workers; defined by regulation.
Other legislation
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Dodd Frank Wall Street Reform and
Consumer Protection Act
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Executive compensation disclosure
Compensation committee
independence
Clawback provision
Shareholder voting rights
IRS Intermediate Sanctions
Job Analysis
-
Definition: systematic study of jobs to determine
activities, relationships, qualifications, conditions.
Used in multiple ways:
Job design and organization structure
Recruitment, selection, placement
New employee orientation and training
Performance appraisal
Career development
Identifies job families
Compliance (FLSA, ADA as examples)
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Documented output is a job description.
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Methods of Conducting Job
Analysis
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Observation
Interview
Open ended or highly structured
questionnaire
Work diary or log
PAQ (Position Analysis Questionnaire)
FJA – functional job analysis (government),
using DOT as basis (Dictionary of
Occupational Titles)
Benchmark job concept
Job Descriptions

Elements typically include:
-
Summary (purpose)
Essential functions, non-essential functions
Knowledge, skills, abilities
Any supervision
Working conditions
Success measures or performance factors (rare)
Disclaimer; standard
ADA requirements
Job Evaluation
Method to determine worth/value of a job by a
hierarchical approach
Internal vs. external equity
Can be quantitative or qualitative.
Types:
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1.
2.
3.
4.
5.
Ranking; simple ranking based on organizational hierarchy
Quantitative; Factor comparison, point factor
Paired Comparison; Ranking using paired comparison (two
jobs, compared to each other, a pair at a time, including
job evaluated compared to every other job rated)
Classification; using benchmark jobs as basis, organizing
into a hierarchy with grades
Market based evaluation (not a true internal factor job
evaluation system, is based on external data)
Job Evaluation Methodology
Examples
Point Factor: Typically evaluates compensable factors on a scale,
with total points added at end of the process. Uses a
management / HR committee to evaluate, may be HR alone. Most
widely recognized in the period of widespread use was Hay Guide
Chart Profile method.
Typical factors may include job knowledge (education, experience);
complexity (degrees of how routine duties are or freedom to
solve novel problems, with a continuum; and impact, results or
accountability – the measured or observed impact of a job on
revenue, cost, or things like efficiency, customer interactions,
etc.)
Education Example – Job Requirements and Rating Scale (This is a
compensable factor, one of several):
High school = 5 points
Post secondary = 10 points
Bachelor degree = 15 points
Masters degree = 20 points
Ph.D. = 25 points
Job Evaluation Methods
Method
Pros
Cons
Ranking
Simple to use, basic
Limited to small organizations,
limited value
Classification
Basic, allows internal
hierarchy, common in
public sector
Limited value
Paired Comparison
Easy to use
Subjective, only use in small
organizations
Factor Comparison
Organization specific, ties
to values and culture
Subjective, assumes proper
factors determined and
evaluated
Point Factor
Provides perception of
“scientific method”, helps
with unusual positions
Complex, requires training and
administration with
committees, may not tie to
market
Market based
Assists with recruitment
and retention, easy to
understand
Must purchase surveys,
leveling and aging, assume
matches
Job Pricing and Developing a
Pay Structure
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Pay surveys: sources include government, published, purchased, custom. Some
are collected by geography, occupational type, company size, industry, for
example.
Considerations: design factors; which information is key?; application? Need to
know and understand basic statistics. Averages, weighted and simple; median.
Know basic concepts of advanced statistics; frequency tables, regression formula –
simple or linear.
Data for example: Assume rates reported for a given job are as follows –
$25,000
$28,000
$30,000
$36,000
–
–
–
1 incumbent
2 incumbents
3 incumbents
4 incumbents
Simple Average: Take the sum of the rates divided by 4, the number of reporting
organizations – this results in a $29,750 rate. This is also called unweighted simple or
non weighted average.
Job Pricing (cont’d)

Using same example, a weighted average is derived by
using the number
of incumbents in the calculation.
1
2
3
4
x
x
x
x
$25,000
$28,000
$30,000
$36,000
=
=
=
=
$25,000
$56,000
$90,000
$144,000
Sum = $315,000. Divide by 10 (total incumbents). Weighted avg. is
$31,500.
Median = middle most point in data set. 50% of data falls
above the median and 50% falls below it. We have 10
incumbents. So 5 will be above, 5 below. Median is
$30,000.
Job Pricing (cont’d)
Calculating the median:

1.
2.
3.
4.
5.
Count total number of elements given (10).
Arrange the elements in ascending order. $25,000 to $36,000,
enter one for each incumbent. This is also called a frequency
distribution.
10 elements divided by 2 (since half fall above and half below) = 5.
Numbers in the fifth and sixth position are both $30,000.
$30,000 + $30,000 = $60,000/2 = $30,000. This is the median.
Percentiles: good surveys also report 25th and 75th, and may
report other points besides the median, simple and
weighted average. Also, good surveys define specific
terms and methodology for sampling size; must be
statistically significant to report (i.e., enough data to be
valid).
Job Pricing (cont’d)

Some surveys use statistical regression, utilizing a
frequency table and frequency distribution to
graphically plot and calculate a correlation to
metrics, like company size. This is common in
executive pay, where there is a historical correlation
between pay levels and size of the
organization.
-
-
Simple regression uses a frequency table, plots a
trend line.
Linear regression uses a formula to predict pay
along the trend line.
Pay Structures: Grades and Ranges

Example range: $16,000 - $20,000 - $24,000
(Min)
(Midpt)
(Max)
80% of Midpoint = Minimum
100% = Midpoint of range
120% of Midpoint = Maximum
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Traditionally, midpoint is used as the theoretical
point at which a fully competent and qualified
employee is paid, assuming the right amount of
previous and/or current organization experience. It
is usually attained over a period of time.
Range spread is Maximum – Minimum / Minimum
Broadbanding – An Alternative
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Concept is to widen ranges beyond traditional, for specific
reasons.
Leads to fewer grades, less employee “dynamics” in associating
their pay with the grade number, or the perception relative to a
midpoint.
Leads to more mobility, easier to move people around.
At some point, the range loses its significance – so wide as to be
difficult to explain.
Example
$16,000 - $27,200 (Uses only a minimum and maximum) – a 70%
spread
Relies heavily on market survey data to pinpoint where to pay
someone within.
Some terms used in compensation
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Compa-ratio; term used to describe actual pay relative to the
range assigned. Salary divided by midpoint is traditional
calculation.
Red Circled: pay is over the range maximum. Can solve via
freeze/lump sum in lieu of base merit raise; lump sums also
called “performance bonus” sometimes.
Green Circled: pay is under the range minimum.
Pay Compression: new hire gets higher starting salary than
existing employees. This is typically a market phenomena or
may occur with first line supervisors.
Base Pay
Various ways to provide:
Single pay rate (or flat rate)
Time based
Time based with performance element
Performance Based or Merit Pay
- Historically the philosophy most organizations choose. But there are
challenges that are inherent, not easily solved. Inextricably tied to
management practices.
Productivity Based (historical, when economy was more manufacturing
based)
Straight and differential piecework: examples.
Historical perspective; times have greatly changed prevalence.
Person Based
Focus is on the worker, not a system.
“competency based” pay.
Includes “skill based pay” and
Solutions to Compensation Problems
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Management training.
Strengthen pay link to performance.
Truly differentiate higher performers.
Recognition and non cash rewards
-
Observation: A guide chart is helpful but is just an
administrative aid, and most often used to control the
budget as much as anything.
-
Business cycles make pay for performance even more of a
challenge.
-
Does money motivate? See next slide and topic.
Motivation/Pay/Performance
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Historically, several management and
industrial psychology theories as shown on
following slide. Does money motivate? A
decades-long debate.
Different thought leadership continues,
some historical, some present. See next
slide
Class poll: Does merit pay work?
Key Motivation Theories –
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Maslow’s hierarchy of needs. Pyramid. Theory is that where someone is on the
pyramid will determine what reward will be effective with that person.
Hygiene Motivator – Herzberg. Says there are hygiene factors in the workplace that
affect performance such as policies and how administered; supervisory practices;
working conditions.
Expectancy Theory – Vroom. Expectancy, Valence, Instrumentality.

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Expectancy – estimate of probability that effort produces desired outcome
Valence – how much the goal is valued by the person
Instrumentality – what is likelihood that if the effort is there, reward will actually
occur
Equity Theory – Adams. Fairness is a matter of perception, based on perceived
equity or inequity, this applies to pay as well as other aspects of employment
relationship. Inputs = Outputs
Daniel Pink - DRIVE
Other Forms of Pay:
Differential/Other Miscellaneous
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Schedule/shift
On call / call back
Emergency shift
Geographic differential
Hazard pay
Supplemental – any wages beyond base pay.
Required and non-required OT.
Holiday and other premium pay.
Emergency shift.
Reporting pay.
Travel pay.
NOTE: In the sample testing on the HRCI website, the
terms “differential pay” and “variable pay” are
interchangeable
Pay Plans for Selected Groups
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Executive compensation. In today’s news, big-time. Mix is
now in question, amount debated. Gets to very essence of
a capitalist, free enterprise system.
Short term incentives
Long term incentives
Sarbanes Oxley
Golden handcuffs
Golden parachutes
Section 409a
Executive perquisites (perks)
Taxation is key issue. Deferred compensation and nonqualified deferred compensation. Must be “substantial risk
of forfeiture” to avoid immediate taxation. Often placed in
a Rabbi Trust.
Equity based compensation

Stock options
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Incentive Stock Options
Non-Qualified Options
Restricted stock
Stock Appreciation Rights
Phantom Stock
FAS 123R deals with expensing treatment
May or may not have added performance
element.
Appreciation of value is the key. No real
downside to employee, lots of upside potential.
Sales compensation
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Sales
- Straight salary
- Straight commission (commission is
compensation expressed as a % of sales)
- Draw
- Combination (bonus/commission also can
be combined, terms used interchangeably
at times but technical definitions are
different)
Pay for Professionals and
Outside Boards of Directors
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Dual track concept – career and pay hierarchy structure;
designed for technical populations.
Hot skill premium – additional pay based on current demand for
limited skilsets.
Maturity curve surveys were originated by academic institutions –
measuring pay correlated to experience post-degree, by
occupation.
Boards of Directors – Outside Directors
Cash retainer; sometimes flat, other times broken down into
meetings, extra fees for chairing committees, etc.
Incentives (long term, not short term – a conflict with role)
Benefits – rare; larger companies only, for the most part
Perquisites’s
Recent years have brought Board role and pay into focus, like
executive compensation.
Incentive Pay
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Be careful in design; implementation also key, particularly in first
measurement and payout period. Involve cross-functional
representation to cover all business aspects.
Organizational readiness is key; circumstances must be right to
implement.
Individual, group, organization-wide; all can be used in combination as
well.
Forms of currency and time horizon are important considerations –
overlap into benefits and capital accumulation, at some point blurring the
lines between cash or direct compensation and indirect. If used for
retention, represents form of “golden handcuffs”. Be careful with that.
Be familiar with Deferred Compensation plans – those that defer some or
all of pay into the future.
Line of sight is important concept; addresses the need to have employee
ability to relate to the incentive by understanding specifically what they
can do/how they can control and impact the results on which the
incentive is based.
Gainsharing Plans
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Scanlon – production environment. Focus on operations and cost.
Employee involvement, committee. Formula based with
discretion as to elements. When formula shows a dollar gain to
company, an incentive pool is calculated and the money is then
split between company and employees.
Improshare – industrial engineering based. Uses past production
records as baseline, measures improvement in productivity. If a
gain results that can be measured in dollars, it’s split again
between the two parties.
Halsey – time based. Incentive pay occurs when job completion
occurs in a time faster than standard, dollar gain then measured
and workers share in gain with company. Only time based, not
productivity, though they are linked.
Caution: Overlap today into labor relations laws and use of
employee committees must be done very carefully so as not to
violate NLRB.
Incentive Plan Design Considerations
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Alignment to organization values and strategies
and direction.
Be careful about transplanting. Plans don’t
necessarily work from organization to
organization.
Must consider how data will be captured and
administered, in up front planning.
First year is key – reasonable chance of payout
is important.
Communication and understanding is key.
Be careful what you ask for…..
International CompensationSPHR
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Key considerations
 Regulations and tax issues vary
greatly from country to country
 Standardization vs. localization
 Cultural issues
 Competitive labor market
 Collective bargaining
 Economic issues
 Taxation
International, continued
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Expatriate concept
 Duration of assignment
 Funding
 Balance sheet
 Ad hoc / negotiation
 Pure locationization
 Higher of home or host country
 Lump sum
 Cafeteria
 Totalization agreement
 Home vs host country
Payroll Administration
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Gross earnings = earnings before taxes and other
deductions.
Taxable wages and witholding
Know how to calculate overtime, other premium pay;
state and local tax administration compliance;
required reporting to governmental authorities
(identification verification, agency notifications, wage
garnishment orders).
Voluntary deductions (union dues, health insurance,
flexible spending accounts, retirement, charity)
Involuntary deductions (child support, garnishments,
tax levies)
Payroll, continued
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For our purpose, focus on knowing the options
available and when each is typically used.
Administration
 In house
 Service bureau
 Outsourced
Considerations
 Cost
 Security
 People
 Compatibility
Administrative Controls
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Salary ranges, guidelines, management of these.
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Green and red circling
Pay compression
Lump sum
Budgeting process is usually partnering with
finance/accounting for forecasting compensation
amounts, which are fixed versus variable, etc.
Auditing and reporting system must be in place, no
matter if manual to some extent, or else visibility is
lost and controls are considered weak, exposed.
One can always apply the “how’s it all working?”
question.
Communication of Compensation
Programs
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Trend toward transparency
Public companies have SEC filings and disclosure rules
through proxy statements.
Voluntary communications – most do some. Manuals,
references in handbooks, manager training content;
balance of too much versus too little.
Cannot discipline employees for discussing compensation
Dealing with concerns – develop a philosophy.
Communicate and arm managers with this, proactively. A
written policy is somewhat common.
Administrative Controls /
Evaluating Whole System
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Know the purposes of budgeting and where compensation
planning fits.
Most companies have at least some compensation
philosophy, policies and procedures in writing.
Merit pay means existence of performance measurement
system
Is the program/system
 Effective
 Competitive (market),
 Equitable (fair and consistent in administration)
 Compliant with the regulations affecting compensation?
Key terms to be familiar with
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Balance sheet
Benchmark job
Blended rate calculation
Call back pay
Compa ratio
Comparable worth
Compensable factors
Consumer price index (CPI)
Cost of living adjustment (COLA)
Deferred compensation
Draw
Dual ladder career progression
Equal Pay Act
Emergency shift pay
Equity
Exempt
Expatriates
Terms
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External Equity
Fair Labor Standards Act (FLSA)
Fair Pay Act
Flat rate pay
Frequency distribution
General pay increase
Geographic pay differential
Golden handcuffs
Golden parachute
Green circle
Hazard pay
Incentive pay
Independent contractor
Internal equity
Line of sight
Long term incentive
Lump sum increase
Terms
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Market pricing
Mean
Median
Merit pay
Minimum wage
Mode
Nonexempt
Nonqualified deferred compensation
On call pay
Overtime pay
Paired comparison method
Pay compression
Pay grades
Performance pay
Perquisites
Terms
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Person based pay
Phantom stock
Point factor method
Portal to Portal Act
Premium pay
Prevailing wage
Rabbi Trust
Red circle
Repatriation
Restricted stock
Salary structure
Sarbanes Oxley Act (SOX)
Service Contract Act
Shift pay or shift differential
Terms
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Short term incentive
Stock options
Total rewards
Totalization agreements
Travel pay
Unweighted average
Variable pay
Work opportunity tax credit
Your questions?
Larry Morgan
952-210-0742
larry.morgan@orionhr.com
www.orionhr.com