Compensation and Pay Model Midterm PDF

**CHAPTER 1: The Pay Model** **Three Basic Building Blocks:** 1. The **Compensation Objectives (Strategic)** Pay **objectives (Strategic)** guide the design of the pay system and are standards for judging success. - **Efficiency** is improving performance, increasing quality, and controll...

**CHAPTER 1: The Pay Model** **Three Basic Building Blocks:** 1. The **Compensation Objectives (Strategic)** Pay **objectives (Strategic)** guide the design of the pay system and are standards for judging success. - **Efficiency** is improving performance, increasing quality, and controlling costs. - **Fairness** (procedural fairness) is the process used to make pay decisions. - **Compliance** is conforming to federal, provincial and territorial laws and regulations. Examples: Pay System Objectives A blue and yellow checklist with white text AI-generated content may be incorrect. 2. The **Strategic Policies** that form the foundation of the compensation system. **There are Four (4) "Strategic Policy" Choices** [\[1\] INTERNAL ALIGNMENT] - Refers to **comparisons among jobs or skill levels inside** a single organization. - Relates to **pay rates** both for employees doing equal work and for those doing dissimilar work. (Note: Chapter 3 is on Internal Align) [\[2\] EXTERNAL COMPETITIVENESS] - Refers to **pay comparisons with competitors external** to the organization. - Pay is '**market driven'**. - Goals is to attract, retain employees and control costs [\[3\] EMPLOYEE CONTRIBUTIONS] - Is the relative **emphasis placed on performance** - Should **one person be paid more than the other** (i.e., same job) because of better performance or greater seniority? - Should **all employees share** in the organization's financial success? - Degree of **emphasis placed on performance is an important policy decision** because it affects employees' attitudes/work behaviours [\[4\] MANAGEMENT] - The **effective management** of the pay system - Making sure the **right people get the right pay** for achieving the right objectives in the right way. 3. The **Techniques** used by HR/Mgmt. That make up the compensation system Techniques tie to the **four basic policies as it relates to pay objectives**. - Many variations of **pay techniques** exist. (See Pay Model) - Each technique is independent but also interdependent of each other **Example:**  **Compensation:** Refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship. *4 Perspectives:* **Society** Some people see pay as a **Measure of Justice**. - Laws and regulations aim to eliminate the gap between male/female earnings differentials. - Benefits may also be seen as a reflection of equality or justice in society. Compensation increases often seen as the reason for rising prices. **Stakeholders** Some stakeholders say using stock to pay employees **Creates a Sense of Ownership**. - Others argue it dilutes stockholder wealth. Stockholders have a particular interest in executive pay. - Linking executive pay to company performance increases stockholders\' returns. **Managers** Compensation influences manager's success in two ways: - First, it is a **Major Expense** that must be **Managed**. - Second, it is a **Major Determinant** of **Employee Attitudes and Behaviors**. **Employees** Employees may see compensation as: - A **Return** in an **Exchange** - An **Entitlement** for **Being** an **Employee** of the company - An **Incentive** to **Take/Stay** in a job and **Invest** in **Performing Well**, - Also, a form of **security** **Total Rewards** are categorized in **Two Ways (CONNECTED!)** **Total Compensation:** Pay received directly as **Cash** and indirectly as **Benefits**. - Organizations do not have to offer **Benefits**. Some will offer more than others. **Relational Returns:** Are psychological. Impacts the employment relationship - **Total Rewards is the "Complete Compensation Package"** **Total Rewards (TR) Package** A diagram of benefits and relation AI-generated content may be incorrect. **Forms of Pay (Compensation)** **Base Pay:** Cash than an employer pays in return for the work performed, based on the skill or education an employee possesses. **Merit Increases:** Are increments to base pay based on performance. - Do not **NEED** to be given to employee. Although organizations should. **A Cost-of-Living Adjustment (COLA)** is made to base pay based on changes in costs of living. - **Ex. Minimum Wage** **Incentives (or bonuses)** are paid in a lump sum rather than becoming a part of base pay, based on performance. Can be long or short term. **Benefits** **Insurance and Pension** - Health insurance (**Medical/Dental/Vision**), **life** and **disability** insurance, **retirement** (pension) programs. **Work**/**Life** Balance - Includes **Time Away** from work, **Access** to services, **Flexible** work arrangements. **Allowances** - Often **Grow** out of **Short Supply** (e.g., housing, car) **Total Earnings Opportunities** **Present Value of a "Stream of Earnings"** - Comparison of today\'s initial offers to consideration of ***future bonuses, merit increases, and promotions*.** - **Nonfinancial Returns** that substantially impact employee behavior (i.e., the "psychological returns" people receive) - ***Example**: Learning opportunities, recognition and status, challenging work, etc.)* **A Network of Returns** - Created by ***different forms of pay***; useful if bonuses, development opportunities, and promotions all work together. What is Compensation? (Video Worksheet) 1. What is the basic definition of **["Compensation"]**? - Anything that an employer is willing to offer in return for an individual's contributions of time, skills, knowledge, and commitment to an organization/project. 2. What does **["Total Compensation"]** refer to and what does it include? - Monetary and Benefit 3. What does **["Monetary Compensation"]** refer to and what does it include? - Base Pay: Monetary compensation for work performed - Merit Increase: An addition to base pay based on past performance - Merit Bonus (Lump Sum Bonus): One-time lump sum, based on past performance - Short-Term Incentives: One-time payments that must be re-earned each period Ex. Bonus, Commission. - Long-Term Incentives (Stock Grants, Option to buy stock at fixed price): Payments based on multi-year results. Available after a certain level of seniority. 4. List and briefly describe the **[different types of benefits]** that are associated with compensation and some examples of each - Income Protection (**REQUIRED**: Social Security, Workers Compensation, Unemployment Insurance) (**VOLUNTARY**: Medical Insurance, Retirement Program, Life Insurance, Savings Plan) 5. What are examples of **[Work/life fit programs]**, **[Allowances]** and **[Miscellaneous Benefits]**? - Time Off - Child Care - Counselling (Substance Abuse) - Financial Planning - Flexible Work Arrangements - Allowances (Transportation, Housing) - Miscellaneous Benefits (Employee Discounts, Meals, Education Expenses) 6. What does Wayne say want you to **"think of compensation as"** and what is **"the challenge"**? - Think of your total compensation as 3 forms of pay. - The challenge is designing the total compensation package so that it helps the organization to succeed. 7. According to Wayne, approximately what percentage of benefits make up of \$1.00 of pay? (Note: He makes a US reference, but statistically it almost identical in Canada) - Average almost \$0.45/47 CDN per dollar. (45-47%) - Tack on that extra 45% when asked how much you make. Paint a better picture of how much you make.