HRM380-2013-Fall-Chapter 02-Introduction to Compensation Management (2)

7/27/2019 HRM380-2013-Fall-Chapter 02-Introduction to Compensation Management (2)

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Introduction to Compensation

Management


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Compensation

Compensation improves

performance, motivation

& satisfaction ofemployees

program for compensation

HR responsibility

helps to attract, maintain

and retain workforce


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Compensation

Want to ensure absolute

pay is competitive with

other Co. and relativepay s/b comparable

within the Co. for those

that do similar work

if worker doing similarwork have diff pay rates

= dissatisfaction


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Objectives of Compensation

Effective programs help:

acquire qualified resources

retain present employees

reward desired behaviors

control costs

comply with legal requirements

want to achieve as many of these as

possible


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Objectives of Compensation

HR dept uses job

descriptions &

evaluations to

determine internalequity of pay

external equity is

achieved by research,conducting surveys to

see what other Co are

doing


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Job Evaluations

Systematic process to

determine relative

worth of jobs (i.e.level & ranking) to put

into categories

want to look at duties,

responsibilities, andworking conditions


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Job Evaluations

3 approaches

traditionally used

1) Job Ranking simplest, least accurate

ranks jobs subjectively

according to relative

worth analysis try to consider

skill, effort,

responsibility, and

working conditions

2) Job Grading

similar to ranking

categorizes jobsaccording to their

worth

try to match job

descriptions to gradingdescriptions

pay levels increase

with job importance


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Job Evaluations

3) Point System -

evaluates critical

factors of each job &points are assigned

more widely used

many steps involved

a) determine

compensation factors

(i.e.. critical

components)


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Job Evaluations Examples: safety,

equipment , assisting

trainees, or accuracy,

efficiency, etc,

break down responsibility,skills , effort and working

conditions into sub-factors

b)determine levels for

each factor and attach

points to there levels (i.e..

p.398 0-5)

can reward diff levels of

responsibility


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Job Evaluations

3) set up point matrix

to review factors &

points

ensure reflect relative

importance of sub-

factors

(i.e. experience higher

than education)

normally start with

highest level and work

back

total points

4) review point levels

degrees (i.e. across to

see relative

importance) ofsubfactors

5) analyst develops

point manuals -

contains writtenexplanation of each job

element + defn of what

is expected within each

subfactors


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Job Evaluations

6)apply point system

use point charts &

descriptions to

determine a total pointvalue for each job

total point = job ranking

good idea to have

manager review the

points


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Wage & Salary Surveys

external equity

compares present

wages to those of thelabor market

comparisons are made

with research wage &

salary survey data

want to ensure same

local area used


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Sources of Compensation Data Published surveys by:

Labor Canada

Private Consultants

Canada Employment groups

Professional organizations

Trade & Industrial

Associations

want to watch surveys are

relevant not out dated, job

titles may be misleading

between companies


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Sources of Compensation Data

Large companies often conduct their own

surveys

normally key jobs are used

contact various firms in the same market to

find out what they are paying

Pricing Jobs = involves combining rankings

and market info to arrive at the correct pay

for each job


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Pay Levels Job evaluations & survey info are

combined using a scatter diagram

points long the bottom & $ along

the side after all key jobs are plotted a

straight line is drawn to indicate

the trend between key jobs

for other jobs look at where points

and $$ meet on straight line =

salary


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Compensation Structure

Easy to administer of a

large no. of jobs can

group into job classes the average pay for the

jobs within that class =

midpt

then add/subtract a

specified % to be top

and bottom of the

range (i.e. 15%)


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Compensation Structure

Anyone falling below the new bottom is given an

increase

those above the new top are normally give a wagefreeze

as new jobs come up job evaluation is done to

determine which group the new job belongs

employees move within this range based on merit

as indicated by their performance appraisals


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Challenges & Compensation

Prevailing wage may be

higher than company

believes it should be union negotiations may

move wages higher than

internal equity dictates

productivity of Co. can

not pay more than

employee contributes to

the Co.


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Challenges & Compensation

Government

constraints such as

minimum wages andOT pay rates

note: in general admin,

professional and

others may be exemptfrom OT pay

need to look at Labor

codes for specifics


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Pay Equity - Cdn Labor Code

1971

Equal pay for equal

work = male & female

employees have to bepaid equally if they

perform similar work

exceptions must be

based on merit andproductivity


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Cdn Human Rights 1978

Equal pay for work of equal

value - makes it illegal to

discriminate on the basis of job

value (ie jobs of equal value s/bpaid the same) or content

4 criteria are recommended:

skill, effort, responsibility, andworking conditions

enforcement involves force

equalization, retro if required


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Pay Differences

Allowed for:

performance differences

seniority job revaluation

rehabilitation assignment (i.e.

back after lengthily illness)

demotion pay phased in wage reductions

temp & training positions


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Pay for Performance

Seeks to link performance & pay

encourages actions that lead to higher pay

if designed properly behavior should lead to

increase pay & productivity

stds & measures have to be developed to

evaluate performance

workers may earn more than supervisors

who are on straight salary


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Pay for Performance

Incentive may be

based on quantity of

production etc, (i.e.piece work bonus)

employees may not

receive incentive due

to things beyond theircontrol (i.e. machine

breakdowns)


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Individual Incentive Plans

Most common piece

work - incentive based

on per unit output once a specified level

of output is achieved a

bonus occurs

commission - salesrelated jobs (% of

selling price or flat $

per unit)

If no base can be total

earnings

maturity curves -general incentive to

stay in job or with

employer (tech jobs)

productivity andexperience placed on a

pay curve


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Individual Incentive Plans

Executive incentives -

large variety

can be stock bonus,stock options, fringe

benefits (Co car)

computer

s/b related toperformance even if

organizational


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Team Based Plans

Bonus established for a group of workers

may include profit sharing, incentives

for exceeding production levels, rewards

for keeping costs low etc.

god idea if interrelation of jobs =

improvement co-op and communication

employee ownership plans whereemployees have ownership rights and

votes


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Pay Secrecy

Many employers

prefer not to publish

salary levels andspecifics for

employees

levels & ranges can be

helpful to motivateemployees


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New Approaches

Skill/Knowledge Based Pay

need to Id tasks to be performed

then ID required skill to complete ID tasks skills are then priced to determine pay rates

employees only paid for skills they are able to

perform

as skill increase pay does too

lots of workforce flex - due to cross over skills

can reduce disruptions


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New Approaches Variable Pay - objective to improve

behaviour to increase performance

to keep compensation competitive and

control costs

performance based

can incorporate group individual, business

units, Co financial and stock priceperformance

variable components get added together to

determine pay


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New Approaches

Broad Banding

salary structure that combines

large no. of pay grades into a

few broad bands advantages:

encourages broadening of skills

de-emphasis on promotions

eases internal transfers supports a new organizational

climate


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International Pay

Challenge to develop

HR policies to take

into account paydifference between

countries

while maintaining

transnationalobjectives

Documents

HRM380-2013-Fall-Chapter 02-Introduction to Compensation Management (2)