Leaders Manage Compensation Programs

1. Leaders Manage Compensation Programs Chapter 9

2. Learning Objectives After completing this chapter, you should be able to: • Explain how managers must balance the concerns of owners, employees, and themselves as they develop and manage compensation programs. • Describe the three major components of compensation: wages, salaries, and benefits. • Describe major requirements of federal and state compensation laws. • Describe several of the most important factors that affect an operation’s compensation cost.

3. Learning Objectives continued: After completing this chapter, you should be able to: •Identify basic procedures for developing and controlling restaurant and foodservice compensation policies and procedures. • Explain how performance appraisals relate to compensation. •Review procedures for processing payroll-related information and other information required for employee files.

4. Overview of Compensation Challenges

5. A Close Look at Compensation Wages, Tips, and Salaries Benefits

7. Federal and State Compensation Laws Federal Compensation Laws State Compensation Laws

8. Factors Affecting Compensation Revenue Levels

9. Payroll Standards Local and Regional Pay Levels Competition’s Pay Levels Knowledge and Skills Required Collective Bargaining Agreements Other Factors

10. Operations Need Specific Pay Plans

11. Manager’s Math Answer the Questions: $180,000 X 0.30 = $54,000 $200,000 X 0.30 = $60,000

12. Compensation Policies and Procedures Control Process for Compensation Policies

13. Possible Compensation Policy Issues Management of Compensation Increases

14. Job Performance Accomplishments Current Pay Rate Contribution to Business Goals

15. Putting It All Together

16. Compensation Exceptions Payroll Information Is Private

17. Performance Appraisals and Compensation

18. Payroll Services and Record Keeping Payroll Services Record-Keeping Tasks Processing Payroll and Benefit Information Processing Human Resources Information Processing Human Resources Policies

19. 1. Explain how managers must balance the concerns of owners, employees, and themselves as they develop and manage compensation programs. • How compensation programs are managed impacts an operation’s culture and its profitability. • Owners require a profit, whereas employees should receive fair compensation. • Managers must strike a balance between owners and employees because they know that good employees are important.

20. 2. Describe the three major components of compensation: wages, salaries, and benefits. • Employee compensation is made up of wages, salaries, and benefits. • Wages are paid to employees based on hours worked. • Salaries are paid on an annual or other basis and do not depend on hours worked. • Some benefits are mandated by federal and state laws including social security, workers’ compensation, and unemployment. • Others are voluntary including healthcare coverage, vacations, educational assistance, and other programs, the costs for which may be shared by the operation and participating employees. • Employees may not be aware of the costs incurred to provide benefits.

21. 3. Describe major requirements of federal and state compensation laws. • The federal minimum wage law falls under the Fair Labor Standards Act (FLSA). • Most employees must be paid a minimum wage plus overtime for any time worked over 40 hours per week. • Many states also have applicable laws. • When employees are subject to both state and federal minimum wage laws, they are entitled to the greater benefit. • States also administer workers’ compensation and unemployment compensation programs. • These have significant impacts on an operation’s costs, and managers must know and carefully follow laws regulating these programs that apply to them.

22. 4. Describe several of the most important factors that affect an operation’s compensation cost. • These factors include the volume of the operation’s revenue and its payroll standards along with local and regional pay levels and the amount competitors pay. • Other factors include the knowledge and skills required of employees, collective bargaining agreements, if applicable, and other factors including benefits. • Managers must ensure that pay ranges are fair to the employer and employees. • Pay ranges are frequently reviewed annually and adjusted as necessary to stay current with competitors and to retain satisfied employees.

23. 5. Identify basic procedures for developing and controlling restaurant and foodservice compensation policies and procedures. • Compensation is best controlled when the factors that affect it are known and when standards and procedures drive how the process is managed. • Managers must monitor employee performance, take corrective action to maintain standards, and know about compensation issues that impact cost as well as regulatory requirements. • Many operations have merit pay plans that offer incentives for employees. • Factors used for these programs must be measurable and employees must know what they are. • Merit pay factors typically include job performance, accomplishments, current pay rates, and employee contributions to business goals.

24. 6. Explain how performance appraisals relate to compensation. • Employees are typically informed about compensation increases during performance appraisal sessions. • These meetings should focus on the extent to which employees met or exceeded agreed-upon standards. • These sessions should also be used to set expectations for the next appraisal period.

25. 7. Review procedures for processing payroll-related information and other information required for employee files. • Much time and information is required to process payroll and maintain the records to support it. • Some operations employ persons to do this work, and others outsource it. • Wages and salaries, along with employee and employer deductions for mandated and voluntary benefits, must be calculated. • Monies withheld and employer contributions must be sent to federal and state agencies as required. • Effective policies and procedures must guide collection of payroll information and processing of benefits. • Basic human resources information such as new employees and terminations must be correctly processed and confidentially maintained in employee files.

26. Key Terms: Anniversary date (employment) The date that the employee began working for the establishment. Benefits A service or right provided by an employer in addition to wages or salary, including employee health care, dental and vision insurance, vacation and sick leave pay, retirement contributions, or other benefits paid wholly or in part by the employer. Bonus (compensation) An agreed-upon amount of additional compensation to be paid when specific financial goals are met. Collective bargaining agreement A legally binding contract between managers and the employees represented by a union. It defines employment conditions including wages and procedures to resolve disputes. Compensation All of the financial, or money, and nonfinancial, or nonmoney, payments and rewards given to employees in return for the work they do.

27. Key Terms continued: Competitive employers Employers who hire the same type of employees as the establishment. Cost of living (COL) A pay increase related to an index developed by the U.S. Bureau of Labor Statistics that reflects changes in the costs of items such as food, housing, and transportation to the average consumer. Defined benefit pension A retirement plan in which the employer sets aside a certain percentage or amount of money to pay covered employees when they retire. Defined contributions A retirement plan in which benefits depend on the contributions made to and the results of an employee’s investments in stocks, bonds, mutual funds, and other alternatives. Equal Pay Act A federal law that requires that men and women in the same workplace be given equal pay for equal work. Exempt employee An employee who does not qualify for overtime pay according to the Fair Labor Standards Act (FLSA).

28. Key Terms continued: Fair Labor Standards Act (FLSA) A federal law that sets minimum wage, overtime pay, equal pay, record-keeping, and child-labor standards for covered employees. Garnishment A legal procedure by which someone who is owed money can collect what is owed from an employee’s wages. Ghost employee A person who receives a paycheck but is not currently employed. Gross pay The amount paid excluding contributions for payroll, social security, taxes, and other required employer payments. Medicare A federal medical insurance program that primarily serves individuals over 65 regardless of income, younger persons who are disabled, and dialysis patients. Merit pay plan A program that offers incentives for employees to improve performance and increase productivity.

29. Key Terms continued: Outsource Using an outside provider to do work that could otherwise be done by an employee. Performance standard A measure set by managers that defines the expected quality and quantity of an employee’s work. Prime cost The largest category of an operation’s costs. Social security A supplemental retirement system that is funded by payroll taxes; a certain percentage of an employee’s pay goes into a fund that provides benefits to current social security recipients. Tip (compensation) Money paid by customers in return for providing services. Unemployment insurance A temporary source of income to eligible persons who lose their job that is funded with money paid by the employer while the person was employed.

30. Key Terms continued: Withholding tax Money taken from an employee’s wages by an employer and paid directly to the government. Workers’ compensation A state-regulated insurance program that pays medical bills and some lost wages for employees who are injured at work or who have a work-related illness or disease.

31. Chapter Images

32. Chapter Images continued