© 2007 Hay Acquisition Company I, Inc. All Rights Reserved. State Employee Compensation Oversight Commission Compensation Terminology – July 30, 2007 State of Kansas

1 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Compensation Philosophy  Compensation Philosophy –An overarching policy statement to provide the foundation for the design and administration of compensation plans for an organization. –Written in general terms linked to the organizations mission, vision, and values in order to provide a lasting basis.

2 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Classification  Classification –One of more positions sufficiently similar with respect to Duties and Responsibilities that the same descriptive title and document can be used with clarity to designate each position allocated to the class. A classification means that the same required selection criteria are needed for performance of duties of position in the class, that the assessments may be used to select employees for positions in the class, and that the same schedule of pay can be applied with equity to all positions in the class under the same or substantially same employment conditions. (KAR )

3 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Classification  Job Analysis –A systematic study of the tasks comprising the job; the knowledge, skills, and abilities required to do the job; time factors; situational factors such as technology use, physical aspects, information flows; interpersonal and group interactions’ and historical traditions associated with the job. Job analysis provides the information needed for many human resource management processes, including job evaluation and performance appraisal.  Position/Job –A group of duties and responsibilities, assigned or delegated by an appointing authority, requiring the services of an employee on a full-time basis or, in some cases, on a less than full-time basis.

4 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Classification  Broadbanding –The grouping across various specific occupations that differ but have a common thread (e.g. all are skilled trade jobs) or across various grades within a job, or a combination of both. For example 18 skilled job titles might be reclassified into 2 broad banded groups of jobs: Skilled Trade Worker I and Skilled Trade Worker II. –Was initially developed as a means of seamless career progression for professional individual contributors.

5 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Job Evaluation  Job Evaluation –A formal process to determine the relative value to be placed on various jobs within the organization based on common factors. The end result of job evaluation consists of an assignment of jobs to a hierarchy of grades or some other hierarchical index of job value. Job evaluation is most closely associated with the criterion of internal equity.  Internal Equity –A fairness criterion that establishes pay ranges and rates based on each job or classifications relative value to the organization.  Whole Job Ranking –Methods of internal ranking that analyze the entire job in a effort to determine its relative value to the organization. No effort is made to break the job down into its components for the sake of job evaluation.

6 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pricing  Base Pay or Base Rate –The hourly (salary) rate paid for a job performed as a standard pace. Does not include premium pays such as shift differential or overtime.  Benchmark –A standard with characteristics that other classifications can be compared for purposes of internal alignment or external comparison. “Every home has one”.  Benefits –Part of total compensation which are offered on a non-cash basis and are generally offered and received by all employees, regardless of level in the organization.

7 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pricing  Broadband (need to split with Classification slide) –A strategy for salary structures that consolidates a large number of pay grades into a few broad pay bands. Typically associated with a broadbanded approach to classification and/or a market pricing driven pay plan  External Equity –A fairness criterion that provides a guideline for an employer to pay a wage that corresponds to rates prevailing in external markets for an employee’s occupation.

8 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pricing  Geographic Differential –Differences in wage rates, for the same job in different geographical areas, that reflect cost-of-living differentials or cost-of-labor differentials between or among those areas.  Market Pricing –A wage and salary policy that sets the rates to be paid for a job to the organization’s best estimate of the wage rate in the external marketplace for that job. Estimates of what the market would pay for a job, based on what it pays for similar jobs, are used to price jobs for which market data are not available.  Market Survey –The gathering of data on wages and compensation paid by other employers for select key job classes or survey benchmarks.

9 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pricing  Perquisites –Benefits that are job status related such as vehicles, country club membership, etc.  Relevant Labor Market –Those employers and organizations with whom the organization competes in the recruitment and retention of employees.  Skill Based Pay –A system for individual wage differentiation, based on the number of specified skills or tasks mastered by the employee.

10 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pricing  Target Pay –The expected pay for a position, including both base pay and at-risk pay. The variable portion of target compensation is based on what the employee ought to earn on average, given satisfactory performance. High performers will exceed target earnings and poor performers will fall short of the target.  Total Cash Compensation –The sum of base pay, allowances, overtime and bonus/incentive paid to an individual in the form of cash compensation in a given year.  Total Compensation –This represents the sum of total cash plus the value of benefits/perquisites.  Variable Pay –Pay that varies on the basis of performance or results.

11 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pay Delivery  Across the Board Increase –An identical pay increase (in either a flat rate such as cents per hour, or as a percentage of current salary) given to every eligible employee. Commonly referred to as a general increase.  At Risk Pay –Pay that an employee is not guaranteed to receive but may receive under certain circumstances. Examples include commissions, piece rates, and various kinds of bonuses such as safety and attendance awards.  Bonus (Production/Non-Production Combined) –Extra payment based on production in excess of a quota or on completion of a job in less than standard time. A cash payment that is not directly related to the output of either the employee or a group of employees. Examples include: attendance, Christmas, profit- sharing, safety, year end.

12 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pay Delivery  General Increase –An identical pay increase (in either a flat rate such as cents per hour, or as a percentage of current salary) given to every eligible employee. Sometimes referred to as an across the board increase.  Group Incentive –Any incentive that focuses on work teams or larger sets of workers operating in a unit.  Incentive –A reward, financial or otherwise, that compensates the worker for high and/or continued performance above standard based on pre-determined standards and performance measures.  Short Term Incentive –Incentives based on short-term results, usually provided in the form of a bonus.

13 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pay Administration  Compa-ratio –A ratio of the actual pay rate as a percentage of the midpoint/market target of the pay grade. Compa-ratios are used primarily to compare an individual’s actual pay rate with the pay grade midpoint or “market rate of the pay grade.  Compression –The narrowing of the differences in rates of pay to the degree that purported differences in the values of jobs are not recognizable. The term may be applied to differences between (1) the pay of supervisors and subordinates, (2) the pay of experienced and newly hired employees, and pay range midpoints in successive job grades.

14 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pay Administration  Control Point –That point within a salary range representing the desired pay for a fully qualified, satisfactory performer in a job or groups of jobs at a given time. Midpoints frequently serve as control points.  Minimum –The lowest pay rate in a pay grade (Step 4 in State of Kansas).  Midpoint –The salary midway between the minimum and maximum of a pay range.  Maximum –The greatest or highest pay rate in a pay grade (Step 16 in State of Kansas)

15 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pay Administration  Open Pay Range –The pay range consists of a minimum rate, midpoint and a maximum rate only.  Pay Grade –A salary and wage range in the pay plan prepared by the Director as required by KSA (KAR )  Pay Grade Overlap –The degree to which the pay ranges assigned to adjacent pay grades in a structure overlap. Numerically, the percentage of overlap between two adjacent pay ranges. A lack of meaningful wage differences or too much overlap can result to wage compression between employees.  Pay Range –The range of pay rates, from minimum to maximum, set for a pay grade.

16 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Pay Administration  Pay Steps –Specified levels or rates within a pay range. Employees may progress from step to step on the basis of time-in- grade, performance, or the acquisition of skills.  Premium/Additional Pay –Extra pay, beyond the regular wage rate. Commonly provided for (1) work performed outside or beyond regularly scheduled work periods, (2) work on a holiday, or (3) work performed under specific conditions, i.e. hazardous conditions.  Red Circle –Wage rates that are above the pay grade maximum for a job. Red circle wages are commonly frozen from further increases until the market rates catch up.

17 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Other  Central States’ Compensation Association –An organization of state governments that was created to (1) improve the validity of job matches and accuracy of data in compensation surveys among the states; (2) reduce the number of individual surveys exchanged among states on an annual basis; (3) conduct an annual compensation survey and report to the member states; (4) provide a forum for compensation professional from member states to exchange information, professional expertise, and knowledge related to the compensation of state government employees.  Consumer Price Index (CPI) –An indicator of the cost of living published by the US Bureau of Labor Statistics. The CPI is an indicator of the changing purchasing power of the dollar.

18 © 2007 Hay Acquisition Company I, Inc. All Rights Reserved. Other