Chapter 8 Total Rewards

Total Rewards Approach

• Total Rewards encompasses all investments an organization makes in its workforce, aligning with what employees value in their work experience.
• Organizations are shifting focus to the overall employee experience, considering aspects beyond just salary and benefits.
• A robust employee value proposition (EVP) is essential for attracting and retaining talented individuals.
• Canadian companies ensure their total rewards strategy aligns with broader business objectives to maintain a competitive edge.
• Key priorities include competitive pay and benefits, attracting and retaining talent, aligning compensation with business goals, and ensuring internal equity and pay-for-performance models.
• Employers must adhere to federal, provincial, and territorial employment laws, including minimum wage, overtime pay, vacation, and statutory holiday regulations.

Fairness and Equity in Compensation

• Human Rights Legislation dictates that pay cannot be differentiated based on age, ethnicity, gender, or other discriminatory factors.
• Employment/Labour Standards vary across provinces, with some offering extended leave for Indigenous cultural practices.
• Ontario's Right to Disconnect law enables employees to disengage from work-related communication after work hours.
• Pay equity laws aim to eliminate gender wage gaps.
• New federal requirements mandate companies with 100+ employees to disclose salary data.
• Ontario's Pay Transparency Act requires salary disclosure in job postings and prohibits inquiries about past compensation.

Legally Required Benefits

• Governments mandate certain benefits, including the Canadian Pension Plan/Quebec Pension Plan (CPP/QPP), Employment Insurance (EI), Workers' Compensation Insurance, and, in some cases, Paid Sick Leave.
• CPP/QPP provides retirement, disability, and survivor benefits via a mandatory contributory pension plan.
• Employment Insurance (EI) offers temporary financial aid to individuals who lose their jobs, covering illness, maternity/paternity leave, and caregiving.
• Employers and employees contribute equally; self-employed individuals cover the full amount.
• Workers' Compensation Insurance supports employees who suffer work-related injuries or illnesses.
• It covers loss of earnings, medical care, and rehabilitation costs.
• Employers fund the program, which operates under a no-fault liability principle to protect workers and employers from legal disputes.
• In British Columbia, all employees receive five paid sick days annually, and federally regulated industries must provide ten paid sick days.

Base Pay Decisions

• Organizations should plan employee pay to ensure fairness, cost control, and talent retention.
• An unstructured approach to pay can lead to unfairness, dissatisfaction, and hiring challenges.
• Job Structure: Defines relative pay differences among various roles and levels of responsibility within an organization.
• Pay Level: Determines the average compensation for a specific job.

Pay Structure

• Job structure and pay levels combine to form a pay structure that supports organizational goals, including employee motivation, cost efficiency, and talent acquisition.
• HR designs the structure based on legal requirements, market conditions, and company objectives to maintain fairness and competitiveness.
• Economic forces set pay limits, but companies can choose to pay at, above, or below market rates.
• Paying above market can attract top talent, leading to innovation, efficiency, and better products.
• Some companies struggle to raise wages due to competitive pricing pressures.
• Companies use surveys from government sources (e.g., Job Bank), industry groups, and platforms like Glassdoor to compare salaries.
• Employers must ensure data quality, considering industry, location, and job category.

Pay Fairness

• Employees usually compare their pay to others.
• Many employees incorrectly believe they are underpaid.
• Dissatisfaction with pay perception drives turnover and harms company reputation.
• Companies should communicate pay fairness to employees to prevent dissatisfaction.
• Pay transparency is rising, but can be a double-edged sword.

Job Structure: Relative Value of Jobs

• Job Evaluation: A process to measure the relative worth of jobs within an organization.
• Job evaluation is conducted by a job evaluation committee, with HR specialists and external consultants.
• Compensable Factors: Key job characteristics are valued by the organization, such as effort, skill, working conditions, and responsibility.
• Each job is rated based on these factors, with scores according to importance.
• Point Manual System: Uses predefined point scales to assign value to jobs.
• The total points determine the relative internal worth of a job.

Pay Equity

• Jobs with higher evaluation scores are considered more valuable and receive higher pay.
• Pay Surveys: Organizations focus on key jobs to establish pay structure.
• Pay is determined based on their relationship to key jobs within the organization's structure.

Pay Structure: Putting It All Together

• A pay structure combines pay level (how much to pay) and job structure.
• Balances market forces and internal equity.
• Types of Pay: Hourly, piecework rate, and salary.
• Market research is used to determine key salaries.
• Non-key jobs' pay is estimated using a pay policy line.
• Pay may deviate due to market shortages or surpluses.
• Internal approach: Pays based on job evaluation but risks over/underpaying.
• Market-based approach: Pays based on market data.
• Simplifies pay structures but may lead to misalignment with market rates.

Pay Ranges

• Groups jobs with similar worth into categories
• Minimum, midpoint and maximum pay within each grade is established.
• Allows flexibility to reward high performers and adjust for market changes.
• Higher-level jobs have wider pay ranges due to their greater impact.
• Overlapping pay ranges provide flexibility for job transfers.
• Less overlap between pay grades encourages career progression.
• Organizations adjust pay structures to retain key employees.
• Broadbanding: Combines many job grades into fewer bands.
• Encourages lateral movement but limits promotion options.
• Competency-Based Rewards: Pays based on skills and knowledge
• HR sets policy (pay structure), but actual pay must be monitored for alignment.

Compa-Ratio

• Average Pay divided by midpoint of pay range.
• = 1: Pay matches the plan.

• 1: Overpaying - May affect cost control.

• < 1: Underpaying - May affect attraction/retention.

Paying for Performance

• Incentive pays reward employees for their contributions, and differs from base pay structures.
• It can be linked to individual, team, or organizational performance.
• Organizations choose incentives based on cost and alignment with company goals.
• 98% of organizations with short-term incentive plans tie payouts to performance.
• Incentive pay is most common in the private sector and among executives and management.
• Piecework Rates: Pay based on production quantity.
• Standard Hour Plans: Employees can earn extra pay for completing tasks faster than a set standard time.
• Merit Pay: Increases base pay based on performance appraisals.
• Performance Bonuses: One-time rewards for specific performance goals.
• Commissions: Pay based on sales percentage.
• Team-Based Incentives: Gainsharing encourages efficiency by distributing a portion of productivity gains.
• Requires management commitment, cooperation, and clear performance measures.
• Team Bonuses and Rewards: Reward smaller workgroups for achieving specific goals.
• Profit Sharing: Employees receive a percentage of company profits.
• Stock Ownership: Employees can buy shares at a set price.
• Employee Stock Ownership (ESOPs): Shares placed in a trust for employees.
• Balanced Scorecard Approach: Combines multiple incentive programs.

Employee Benefits

• Benefits are an essential component of an employee's total rewards.
• Common employee benefit includes health plans, retirement savings, sick leave, and mental health support.
• Employers need to regularly review and adjust their benefits packages.
• Employee benefits helps employees maintain economic security.
• Employee benefits have become standard expectations for employees.
• Significantly costs employers (often comprising more than 31% of total compensation).
• Some benefits are legally required, while others are tax advantaged.
• Non-cash benefits are generally not taxed.
• Employers use creative benefits offerings to attract and retain talent.
• Employee benefits have become an important marker of a “good job”.

Optional Employee Benefits

• Optional Benefits include health benefits, insurance, retirement, and paid leave, typically offered in addition to legally required benefits, typically for Full-time employees.
• Employers often provide more paid leave than legal minimum.
• Group Insurance is offered for health, life, and disability coverage.
• Employee Wellness Programs aim to improve employee health through activities, resources, and facilities.
• Employee Assistance Programs (EAPs) provide confidential counselling.
• Employers may provide life insurance or allow employees to purchase additional coverage at low rates.
• Retirement Plans may be offered beyond the required government contributions.

Family Friendly Benefits

• Provide benefits like parental leave, child and elder care assistance, adoption support, and fertility treatments.
• Tuition Reimbursement is offered to support employee learning and development.
• Benefits decisions should align with the organizational goals, budget, and employee expectations.
• Establishing clear objectives for the benefits packages is crucial.
• Common goals include controlling healthcare costs and retaining employees.

Communicating Benefits

• Effective communication is crucial for the success of a total rewards program.
• Employees and job applicants often underestimate the value of the rewards they receive.
• Comprehensive communication strategy is essential.
• Many benefits, especially health and retirement benefits, are complex.
• Simplified communications and provide clear explanations are important.
• Employers should use a variety of media to communicate total rewards.
• Total Rewards Statements help employees understand.
• AI can support total rewards communication by automating and assisting.
• Automation: Sending automated benefits emails tailored to employees' preferences.
• Assisted: Chatbots interact with employees to provide answers to compensation/benefits questions.

Executive Compensation

• Executive compensation, particularly for CEOs, has garnered public attention due to high pay rates.
• A significant portion is tied to performance-related pay.
• Executive pay decisions are typically made by the board of directors.
• Public debate centers on fairness.
• Equity theory suggests that pay should be proportionate to contribution.
• CEO compensation increasingly emphasizes incentives rather than salary.
• Short-term incentives are tied to annual performance metrics.
• Shareholders want managers to act in the company's best interest.
• In addition to compensation, executives often receive extra perks.
• Performance measures for executives should balance the interests of shareholders, customers, and employees.
• Linking compensation to stock performance can lead to ethical challenges.
• Incentive pay remains essential for motivation executives.