1 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.Schwind 7th Canadian...

. 9N I N E

Compensation ManagementCompensation ManagementCompensation ManagementCompensation Management

C H A P T E R

CompensationCompensationCompensationCompensation

• Cash and non-cash rewards employees receive in exchange for their work

• Effective compensation management– Employees more likely to be satisfied and

motivated

• Compensation perceived to be inappropriate– Performance, motivation and satisfaction may

decline dramatically– Employee turnover may occur– Dissatisfaction with absolute or relative pay

Objectives of CompensationObjectives of CompensationObjectives of CompensationObjectives of Compensation

EffectiveCompensation

LegalLegalcompliancecompliance

AdministrativeAdministrativeefficiencyefficiency

ControlControlcostscosts

RetainRetainemployeesemployees

AcquireAcquirepersonnelpersonnel

EnsureEnsureequityequity

RewardRewardbehaviourbehaviour

Phase IPhase IJob AnalysisJob Analysis • Identify and study jobs

– Position descriptions

– Job descriptions

– Job standards

Compensation ManagementCompensation ManagementCompensation ManagementCompensation ManagementPhase IPhase I

Job AnalysisJob Analysis • Determine relative worth or value of jobs

• Provides for internal equity

• Job evaluation methods:– Job ranking

– Job grading

– Point system

Phase IIPhase IIJob EvaluationJob Evaluation

Job AnalysisJob Analysis • Discover what other employers are paying for specific key jobs

• Provides for external equity

• Sources of data:– HRDC– Consultants– Canada HR Centres– Associations– Self-conducted surveys

Phase IIIPhase IIISalary SurveysSalary Surveys

Job AnalysisJob Analysis • Establishing the pay level for each job– Combines job evaluation

ranking, survey wage rates, and other considerations e.g. organization’s pay policy

– Wage-trend line developed

• Grouping the different pay levels into a structure that can be managed– Job classes and rate ranges

Phase IIIPhase IIISalary SurveysSalary Surveys

Phase IVPhase IVPricing JobsPricing Jobs

Compensation ChallengesCompensation ChallengesCompensation ChallengesCompensation Challenges

CompensationCompensationChallengesChallenges

PrevailingPrevailingwage rateswage rates

UnionUnionpowerpower

ProductivityProductivity

GovernmentGovernmentconstraintsconstraints

Wage & salaryWage & salarypoliciespolicies

Pay EquityPay EquityPay EquityPay Equity

• Canada Human Rights Act prohibits discrimination because of sex

• It is illegal for companies to pay women less than men if their jobs involve equal skills, effort, responsibilities, and conditions

• Government enforces these provisions

• Equal pay for equal work– Part of the Canada Labour Code since 1971– Employers must pay men and women the

same wage or salary when they do the same work

• Equal pay for work of equal value– Jobs of comparable worth to the

organization should be equally paid

• Wage gap– Historical gap between the income of men

and women – Canadian women earn about 80 percent as

much as men

• Wage gap exists in part due to:– Women tend to work in lower-paying

occupations– Career gaps– Note: 5-10% of wage gap is unexplained

Pay-for-PerformancePay-for-PerformancePay-for-PerformancePay-for-Performance

• Incentive systems provide a clear link between pay and performance or productivity

• Incentive pay– Directly linked to an employee’s

performance or productivity

Incentive SystemsIncentive SystemsIncentive SystemsIncentive Systems

BenefitsBenefits ProblemsProblems

• Performance is reinforced regularly

• Reinforcement is quick and frequent

• Effective behaviours are likely to continue

• Wages paid in proportion with performance

• Administration can be complex

• May result in inequities

• Employees may not achieve standards due to uncontrollable forces

• Union resistance

• Focus efforts on one aspect

Individual vs. Team-based IncentivesIndividual vs. Team-based IncentivesIndividual vs. Team-based IncentivesIndividual vs. Team-based Incentives

Individual• PieceworkPiecework

• Production bonusesProduction bonuses

• CommissionsCommissions

• Maturity curvesMaturity curves

• Executive incentivesExecutive incentives

• Team resultsTeam results

• Production incentivesProduction incentives

• Profit-sharingProfit-sharing

• Stock ownership (ESOP)Stock ownership (ESOP)

• Cost reduction plansCost reduction plans

Team-basedTeam-based

Pay SecrecyPay SecrecyPay SecrecyPay Secrecy

AdvantagesAdvantages

DisadvantageDisadvantagess

• Most employees prefer to have their pay kept secret

• Gives managers greater freedom

• Covers up inequities in the internal pay structure

• May generate distrust in the pay system

• Employees may perceive that there is no relationship between pay and performance

New Approaches to PayNew Approaches to PayNew Approaches to PayNew Approaches to Pay

• Skill- or knowledge-based pay– Based on the employee’s skills or knowledge

• Variable pay– Performance-linked approach

• Broadbanding– Consolidation of pay grades

• Tailor-made perks– Employees choose

• International pay– Need to develop polices to meet global needs

Changing Compensation SystemsChanging Compensation SystemsChanging Compensation SystemsChanging Compensation Systems

TraditionalTraditional ModernModern

Entitlement-baseEntitlement-baseincreases increases

Performance-drivenPerformance-drivengains gains

Pay = 100% basePay = 100% basesalarysalary

Variable componentVariable componentaddedadded

Few incentive/bonusFew incentive/bonusplans, restricted toplans, restricted toexecutives executives

Many kinds of plans, Many kinds of plans, extended throughout extended throughout

the organizationthe organization

Pay & Organizational StrategyPay & Organizational StrategyPay & Organizational StrategyPay & Organizational Strategy

Areas that impactAreas that impactpay systemspay systems

Attract &Attract &retainretain

Identifying Identifying valued rewardsvalued rewards

MotivatingMotivatingdevelopmentdevelopment

Relating toRelating toperformanceperformance

SettingSettinggoalsgoalsConsequencesConsequences

MotivatingMotivatingperformanceperformance

Employee MotivationEmployee MotivationEmployee MotivationEmployee Motivation

• To be committed and productive employees must be motivated

• Motivation– A person’s drive to take action because that

person wants to do so

• Expectancy model is comprehensive– Shows the application of all human resource

functions

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C H A P T E R

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