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The WorldatWork Handbook of Compensation, Benefits & Total Rewards: A Comprehensive Guide for HR Professionals

ISBN: 978-0-470-08580-6
864 pages
May 2007
The WorldatWork Handbook of Compensation, Benefits & Total Rewards: A Comprehensive Guide for HR Professionals  (0470085800) cover image
Praise for The WorldatWork Handbook of Compensation, Benefits & Total Rewards

This is the definitive guide to compensation and benefits for modern HR professionals who must attract, motivate, and retain quality employees. Technical enough for specialists but broad in scope for generalists, this well-rounded resource belongs on the desk of every recruiter and HR executive. An indispensable tool for understanding and implementing the total rewards concept, the WorldatWork Handbook of Compensation, Benefits, and Total Rewards is the key to designing compensation practices that ensure organizational success.

Coverage includes:

  • Why the total rewards strategy works
  • Developing the components of a total rewards program
  • Common ways a total rewards program can go wrong
  • Designing and implementing a total rewards program
  • Communicating the total rewards vision
  • Developing a compensation philosophy and package
  • FLSA and other laws that affect compensation
  • Determining and setting competitive salary levels
  • And much more
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Introduction: Redefining Employee Rewards
Anne C. Ruddy, CCP, CPCU, President, WorldatWork xx

About the Author xxii

1. Total Rewards: Everything That Employees Value in the Employment Relationship 1

Broadening the Definition of Total Rewards 2

Evolution of the WorldatWork Total Rewards Model 5

Exploring the Key Areas 6

2. Why the Total Rewards Approach Works 14

The Top Five Advantages of a Total Rewards Approach 15

3. Developing a Total Rewards Strategy 18

The Total Rewards Blueprint 18

Five Common Ways a Total Rewards Strategy Can Go Astray 19

Crystallizing the Spirit of Your Total Rewards Plan 20

Issues That a Total Rewards Strategy Should Address 24

The Bottom Line 27

4. Designing a Total Rewards Program 28

Step 1: Analyze and Assess 28

Step 2: Design 31

Step 3: Develop 34

Step 4: Implement 38

Step 5: Communicate 40

Step 6: Evaluate and Revise 46

5. Communicating Total Rewards 53

A Communications Approach with Oomph 54

The Power of Communication 54

Top Management Buy-In 55

The Bottom Line 56

Communication Fundamentals 56

Models of Communication 57

The Communication Process 58

Communicating the Program’s Richness 64

Special Situations 69

Media Considerations 71

A Case Study: Southern Company 71

Total Rewards Branding 72

Media Choices 73

Implementation 81

Planning a Campaign 81

Managing a Campaign 82

Measuring Return on Investment 85

Critical Outcomes 86

6. Compensation Fundamentals 87

The Foundation: A Compensation Philosophy 87

Characteristics of Compensation Programs 90

Elements of Compensation 91

The Basics: Base Pay 92

Job Analysis 92

Job Evaluation 94

Market Analysis 97

Salary Ranges 98

Competencies 101

Incentive Pay 102

Design Elements 102

Reasons for Failure 104

Management of Pay for Performance 105

Effective Compensation Management 107

7. Regulatory Environment: The FLSA and Other Laws That Affect Compensation Practices 109

Fair Labor Standards Act of 1938 109

Sherman Antitrust Act of 1890 135

Davis-Bacon Act of 1931 137

National Labor Relations Act 137

Walsh-Healey Act 137

Service Contract Act 138

Anti-Discrimination Laws 138

8. Market Pricing 143

Where Do You Begin? 144

Job Analysis 144

Job Documentation and Job Descriptions 145

Job Evaluation 145

Benchmark Jobs 145

Collecting the Right Data 146

Decision Factors in Collecting Market Data 146

Know the Market: Half the Battle 147

Gathering Valid Data 148

Data Sources 149

Capturing Competitive Market Data for High-Demand Jobs 151

Crunching Numbers 151

Options for Measuring Central Tendency 152

Percentiles 153

Aging Data to a Common Point in Time 153

Weighting Market Data across Survey Sources 154

Developing Market Index of Competitiveness 154

Market Blips—A Word of Caution 156

Approaches to Program Costs 157

How to Keep Employees in the Loop 158

Opening the Pay Dialogue 160

9. Salary Surveys: A Snapshot 161

The Big Picture 161

Definition and Purposes 163

Benchmark Surveys 164

Job Matching 168

Job Title and Characteristics 170

Survey Frequency 172

Stretching the Salary Survey Budget 173

Behind the Scenes 173

The Compensation Practitioner’s Role 175

Salary Survey Guidelines 177

10. Job Analysis, Documentation, and Evaluation 180

Job Documentation 182

What Is a Job? 184

Job Analysis: A Step-by-Step Process 185

Job and Work Analysis: Weighing Costs and Benefi ts 204

Job Evaluation 205

Internal Job Evaluation—Nonquantitative Methods 205

Internal Job Evaluation—Quantitative Methods 208

Internal Job Evaluation—Point Factor 213

11. Base Pay Structures 223

Pay Structures 223

General and Specific Factors Affecting Pay Structures 224

Anatomy of a Pay Structure 226

Pay Ranges and Range Spreads 226

Midpoints 229

Range Penetration 230

Midpoint Progression 231

Pay Grades 232

Developing a Pay Structure 233

Key Steps in Designing an Effective Pay Structure 237

Pitfalls and Precautions 247

Broadbanding 248

Starting Rates of Pay 249

Increases to Base Rates of Pay 249

Merit Pay Considerations 252

Performance Appraisal Considerations 252

Maintaining and Auditing the Pay Program 253

Keys to Successful Pay Program Maintenance 253

Ongoing Administrative Activities 254

Pay Program Audits 254

12. Sales Compensation Fundamentals 257

Working with the Sales Organization 257

Six Areas of Sales Compensation Plan Involvement 260

Learning a New Language 265

Compensation Tied to Total Rewards 266

Variable Pay Plan Categories 268

Sales Compensation Philosophy 269

Guiding Principles 270

Eligibility for Sales Compensation 270

Timing Considerations 281

Alternative Mechanics 282

Understanding How Sales Compensation Fits 286

13. Executive Compensation: An Introduction 287

Owner-Manager Conflict: Agency Theory 288

Other Theories That Explain and Influence

Executive Compensation 289

External Influences on the Executive Compensation Package 291

Sources of Data on Executive Compensation 292

Components of Executive Compensation 293

Making the Offer Attractive 297

Providing the Proper Incentives 297

Designing the Contract to Retain the Executive 299

Restrictions 299

Minimizing Costs to the Corporation 300

14. Linking Pay to Performance 311

Determining What to Reward 312

Documenting Performance Standards 313

Establishing a Merit Budget 315

Determining Budget Size 316

Determining Budget Allocation 316

Setting Merit Pay Policy 317

Policy Decisions 317

Policy Implementation 320

Managing a Merit Pay Plan 324

Training 325

Perception of Fairness 325

How Computer Technology Can Assist Administration 326

Evaluating a Merit Pay Plan 326

Merit Pay Advantages and Disadvantages 327

Linking Results and Competencies to Business Strategy 328

Determining the Performance Management Cycle 330

Performance Rating Approaches 332

Multirater Assessment 334

Linking Performance Management and Pay Delivery 335

15. Cash Bonus Plans and Recognition Programs 338

What Is a Sign-on Bonus? 338

Size of Sign-on Bonus 339

Claw Back Clause 340

Aligning the Sign-on Bonus with Total Rewards 341

Executive Sign-on Bonus 341

Potential Pitfalls 342

Communicating the Sign-on Bonus 343

What Is a Referral Bonus? 343

Eligibility 344

Timing of Cash Award Distribution 344

Promoting an Employee Referral Program 345

What Is a Spot Bonus? 348

Size of Spot Bonus 349

Spot Recognition Program Guidelines 349

How to Effectively Use Spot Recognition 351

Potential Pitfalls 352

Conducting the Recognition Event 352

Documenting Recognition 354

Communicating the Spot Program 354

Legal and Tax Requirements 355

What Is a Retention Bonus? 356

Building a Business Case 357

Retention Bonus Q&A 361

Potential Pitfalls 363

Communicating the Retention Plan 364

Cash Bonuses in the Total Rewards Mix 364

16. Equity-Based Rewards 366

Business Structures 366

Compensation Plans Using Equity 367

Benefits Plans Using Equity 368

Equity Terminology 368

Evolution of Equity-Based Rewards 369

Evolution of Stock Options 369

Evolution of Benefits Plans Using Equity 370

Why Equity Is Used to Reward Employees 370

Legal, Tax, and Accounting Issues 371

Impact of Legislation on Equity-Based Rewards Programs 371

Forms of Taxation—Employee 372

Forms of Taxation—Employer 374

Accounting Basics—Financial Statements 374

Accounting for Equity-Based Rewards 375

Overview of Stock Options 378

Types of Stock Options 380

Types of Stock Awards and Alternatives 382

The Use of Equity in Benefits Plans 391

Employee Stock Purchase Plan (ESPP) 391

Defined Contributions Plans 393

17. Employee Benefits Basics 397

Historical Perspective of Benefits 397

Elements of Benefits 399

Benefits Plan Objectives 401

Government Regulation of Benefits Plans 403

Statutory Benefits 407

Health and Welfare Plans 411

Health Care 412

Disability Income 416

Survivor Benefits 417

Flexible Benefits 418

Retirement Plans 418

Pay for Time Not Worked Benefits 422

Other Benefits 423

The Importance of Effective Communication 424

Projected Benefits Trends 427

18. Benefits Compliance: An Overview for the HR Professional 428

The Employee Retirement Income Security Act of 1974 (ERISA) 428

The Internal Revenue Code 444

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) 451

19. Worker Privacy, Unpaid Leave, and Other Benefit-Related Laws That Protect the Individual 458

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) 458

The Newborns’ and Mothers’ Health Protection Act 465

The Mental Health Parity Act of 1996 466

The Women’s Health and Cancer Rights Act of 1998 467

Family and Medical Leave Act of 1993 (FMLA) 468

Nondiscrimination Laws 474

Uniformed Services Employment and

Re-employment Rights Act of 1994 (USERRA) 478

Worker Adjustment and Retraining Notification Act of 1988 (WARNA) 480

In Closing 481

20. Planning Benefits Strategically 483

Internal and External Influences on Strategy 483

The Strategic Planning Process 486

Approaches to Strategic Benefits Planning 487

Who’s Managing the Strategic Benefits Planning Process? 490

Design and Implementation 491

Outcomes of Strategic Benefits Planning 496

Evaluation 497

Beyond the Strategic Plan 499

21. Implementing Flexible Benefits 500

Types of Flexible Benefits Plans 500

Flexible Benefits Plan Design 502

Pricing Flexible Benefits Options 507

Tax Issues and Employer Objectives 509

Communication Approaches 511

Annual Enrollment Process 512

Ongoing Enrollment 514

Annual Re-enrollment 514

Spending Account Administration 515

Legal Issues 515

22. Work-Life Effectiveness 518

Changing Demographics 519

The Evolution of Work-Life Initiatives 520

Work-Life Effectiveness: A Definition 520

Why Companies Address Work-Life Issues 522

Ways to Address Work-Life Issues 528

Supportive Work Environment 530

Company Culture 531

Work-Life Strategy 532

How to Begin 534

Source of Commitment 535

Anticipating Problems 536

Developing and Appropriate Marketing Strategy 536

Putting it All Together: Checklist 536

Calculating the Return on Investment 538

The Future of Work-Life Effectiveness 539

23. Caring for Dependents 541

Child-Care Issues 541

Direct Child-Care Services 543

Assessing Child-Care Needs 548

On-Site and Near-Site Child-Care Centers 549

Consortium Child-Care Centers 550

Back-Up (Emergency) Child Care 551

Care for Sick Children 552

School-Age Child Care 553

24-Hour (Odd-Hour) Care 553

Other Child-Care Options 554

Elder-Care Issues 555

Description of Elder Care 557

Cost of Elder Care and the Needs of Working Caregivers 557

Employers’ Responses to Employees’ Elder-Care Needs 558

Information and Support 559

Policies 562

Financial Assistance/Financial Planning 563

Direct Elder-Care Services 563

Implementing a New Elder-Care Program 564

Evaluating an Elder-Care Program 565

The Future of Corporate Elder Care 565

24. Culture at Work 566

Defining Culture 567

Importance of Culture 576

Matching Culture with Strategic Goals 577

Impact of Culture on Total Rewards Programs 578

Notes 585

Total Rewards Glossary 589

Handbook References 821

WorldatWork Bibliography 823

Index 827

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WorldatWork, founded in 1955, is the world's leading not-for-profit professional association dedicated to knowledge leadership in total rewards, compensation, benefits, and work-life. WorldatWork focuses on human resources disciplines associated with attracting, motivating, and retaining employees. Besides serving as the membership association of the professions, the WorldatWork familyof organizations provides education, certification (Certified Compensation Professional/CCP®, Certified Benefits Professional®/CBP, Global Remuneration Professional/GRP®, and Work-Life Certified Professional/WLCP), publications, knowledge resources, surveys, conferences, research, and networking.
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