Chapter 9 ADMN2230

Compensation

• Compensation encompasses direct and indirect forms.
• Direct compensation includes wages, salaries, incentives, bonuses and commissions.
• Indirect compensation includes benefits like retirement and insurance, and pay for time not worked.
• Non-financial compensation includes employee recognition, rewarding work environment and flexible hours.
• Total rewards encompass all three components, encompassing job security, work-life balance and career growth.

Learning Objectives

• Understanding strategic compensation and its goals.
• Exploring compensation's influence on employee motivation.
• Learning the factors affecting wage determination.
• Analyzing pay system design.
• Reviewing laws and regulations affecting compensation.

What is Compensation?

• Direct compensation: Wages (hourly) and salaries, incentives, bonuses and commissions.
• Indirect compensation: Benefits(retirement, insurance, paid time off) by employers.
• Non-financial compensation: Employee recognition programs, workplace environment, work flexibility.
• Total rewards: encompass all three to capture the full impact of career advancement, work-life balance and job security.

Strategic Compensation

• Links employee compensation to organizational goals.
• Aims to satisfy organizational mission, objectives, culture and philosophies.
• Common goals: reward past performance, remain competitive, maintain equity and synchronize compensation with company goals.
• Additional goals include controlling compensation, attracting new employees, and reducing turnover.

Motivating Employees through Compensation

• Pay Equity: Employees perceive their compensation as matching the value of their work.
• Equity theory: Equity is achieved when perceived input/output ratios equal those of referent others.
• Motivation through equity and perceived contributions and rewards.

Motivating Employees through Compensation: Expectancy Theory

• A motivation theory where employees exert more effort in anticipation of a reward.
• Key factors: Is the task worth doing? Will rewards exceed effort expenditure and costs? Will the reward be received if the task is completed? Is employee able to accomplish task with effort exerted? Is expectancy strong?

Bases for Compensation

• Hourly Work: Paid on an hourly basis (e.g., receptionists, customer service representatives)
• Piecework: Compensation tied to the number of units produced (e.g., carpet installers, real estate brokers, dentists).
• Consideration for piecework basis across different professions is questioned.

Determining Compensation - The Wage Mix

• Internal factors: Compensation strategy of organization, worth of job, employee's relative worth, employer's ability to pay.
• External factors: Conditions of labour market, wage rates, cost of living, collective bargaining and legal requirements.
• All these factors influence the determination of the pay mix for employees.

External Factors

• Collective bargaining: Pay, hours and work conditions are negotiated with unions.
• Cost of living: Wage increases exceeding consumer price index changes.
• Consumer Price Index (CPI): Measures average price changes over time for goods/services.
• Escalator clauses: Quarterly cost-of-living adjustments based on CPI changes in collective agreements.

Internal Factors: Job Evaluation Systems

• Job evaluation: A systematic process to determine relative worth of jobs for equitable internal pay adjustments.
• Methods include Job Ranking, Job Classification, Point System and Hay Profile method.

Job Evaluation Systems: Job Ranking

• Simplest job evaluation method ranking jobs based on relative worth without precise measurement.
• Limitations: Limited detail in measuring job worth. Primarily used for small numbers of jobs.

Job Evaluation Systems: Job Classification

• Classifies jobs into predetermined wage grades.
• Frequently used in government sector.

Job Evaluation Systems: Point System

• Quantitative approach determining job relative worth based on assigned points.
• Compensable factors include skills, effort, responsibility and working conditions.
• Consider most valid approach for determining job value.
• Includes a point manual detailing compensable factors and their degrees.

Job Evaluation Systems: Hay Profile Method

• Special technique evaluating executive and managerial positions.
• Evaluates based on knowledge, mental activity and accountability.

The Compensation Structure: Wage and Salary Survey

• Wage and Salary survey: Survey of wages paid to employees in other organizations to achieve external equity.
• Helps to determine external equity.
• Data can be from third-party resources or employer initiated surveys.

Collecting Survey Data (Employer-Initiated Surveys)

• Select Key jobs/benchmark jobs, Determine relevant labor market, Select organizations, Decide on information (wages, benefits, pay policies), Compile data, Determine wage structure and benefits.

The Wage Curve

• Graphical representation of relationship between job worth and wage rates.
• Pay grades are grouped into jobs paying the same rate.

The Wage Curve: Rate Ranges

• Rate ranges: Established rates for pay grades. Rates can be the same or proportionally higher for successive grades.
• Red Circle rates: Rates exceeding the maximum of a pay range.

The Wage Curve: Broadbanding

• Broadbanding: Merging traditional salary grades into fewer wider bands.

Competency-Based Pay

• Pay based on employee's skill level and increased knowledge.
• Also known as skill-based or knowledge-based pay.

Government Regulation of Compensation

• Canada Labour Code and employment standards legislation (minimum wage, hours, paid time off, overtime).
• Provincial/Territorial regulations and/or legislation (employment equity, human rights).

This quiz explores the essential concepts of compensation, including direct, indirect, and non-financial forms. You'll learn about factors influencing wage determination and the strategic goals behind compensation systems. Gain insight into how compensation impacts employee motivation and overall job satisfaction.