Compensation PDF

Compensation 1  Learning Objectives Strategic compensation and its goal. Compensation and employee motivation Various factors that influence the setting of wages. How to design pay systems. Major provisions of the laws and regulations affecting compensat...

Compensation 1  Learning Objectives Strategic compensation and its goal. Compensation and employee motivation Various factors that influence the setting of wages. How to design pay systems. Major provisions of the laws and regulations affecting compensation. 2  What is compensation? Direct compensation: wages (hourly) and salaries, incentives, bonuses, and commissions Indirect compensation: benefits (retirement, insurance, pay for time not worked) supplied by the employers Non-financial compensation: employee recognition programs, rewarding jobs, work environment, flexible work hours etc. Total rewards capture all three components, including career advancement, work-life balance, job security etc. 3  Strategic Compensation Strategic Compensation Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization Common goals: 1. To reward employees’ past performance 2. To remain competitive in the labour market 3. To maintain salary equity among employees 4. To mesh employees’ future performance with organizational goals 5. To control the compensation budget 6. To attract new employees (many org. may want to be more selective in hiring people) 7. To reduce unnecessary turnover 4  Motivating Employees through Compensation Pay Equity An employee’s perception that compensation received is equal to the value of the work performed According to equity theory, equity is achieved when their perceived input/output ratio equals the input/output ration of referent others. 5 Relationship between Equity and Motivation Copyright © 2020 by Nelson Education Ltd. 6  Motivating Employees through Compensation Expectancy Theory A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value Is the task worth doing? 1. Do the rewards exceed the costs? Is net valence positive? Will I actually receive the rewards if I accomplish the task? Is the instrumentality clear? 2. Will I actually be able to accomplish the task if I exert the effort ? Is my expectancy strong? 3. 7  The Bases For Compensation Hourly Work Work paid on an hourly basis (receptionist, customer service rep) Piecework Work paid according to the number of units produced (carpet installer, real state broker, dentist) Can we pay all the jobs piece work basis? 8 Determining Compensation– The Wage Mix Copyright © 2020 by Nelson Education Ltd. 9  External Factors Collective Bargaining any changes to pay, hours of work, and working conditions must be negotiated with the union. pay is a major agenda in CB the impact of CB agreement extends beyond the segment of the labour force that is unionized 10  External Factors Cost of Living: Real Wages – Wage increases larger than rises in the consumer price index, that is, the real earning power of wages Consumer Price Index (CPI) – A measure of the average change in prices over time in a fixed “market basket” of goods and services Escalator Clauses – Clauses in collective agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments on changes in the consumer price index 11 Internal Factors: Job Evaluation Systems (worth of a job) Job Evaluation A systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization Helps achieve internal equity of compensation Methods of job evaluation Job Ranking System Job Classification System Point System Hay profile method 12  Job Evaluation Systems Job Ranking System The simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth Disadvantages: Does not provide a precise measure of each job’s worth Final job rankings indicate the relative importance of jobs Method can be used to consider only a reasonably small number of jobs 13  Job Evaluation Systems Job Classification System A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades Usually used in govt. jobs 14  Point System Point System A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it. Compensable factors: skills, efforts, responsibilities, and working conditions Considered to be most valid approach Point Manual A handbook that contains a description of the compensable factors and the degrees to which these factors may exist within the jobs 15  Work Valuation Work Valuation A job evaluation system that seeks to measure a job’s worth through its value to the organization Values jobs relative to financial, operational, or customer service objectives of the organization It is a relatively new job evaluation system 16  Job Evaluation For Management Positions Hay profile method A job evaluation technique to evaluate executive and managerial positions. Uses three key factors: knowledge, mental activity, and accountability 17  The Compensation Structure Wage and Salary Survey A survey of the wages paid to employees of other employers in the surveying organization’s relevant labour market. Helps achieve external equity of compensation Third party survey (Mercer, Hays, Hewitt,..) Employer initiated survey 18  Collecting Survey Data Employer-Initiated Surveys Select key jobs/benchmark jobs Determine the relevant labour market. Select organizations. Decide on information to collect: wages/benefits/ pay policies. Compile data received. Determine wage structure and benefits to pay. 19  The Wage Curve Wage Curve A curve in a scattergram representing the relationship between relative worth of jobs and wage rates Pay Grades Groups of jobs within a particular class that are paid the same rate 20  The Wage Curve Rate Ranges A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade Red Circle Rates Payment rates above the maximum of the pay range 21 The Wage Curve Copyright © 2020 by Nelson Education Ltd. 22  The Wage Curve Broadbanding Collapses many traditional salary grades into a few wide salary bands Competency-Based Pay (Skill-Based Pay or Knowledge-Based Pay) Pay based on an employee’s skill level, variety of skills possessed, or increased job knowledge Copyright © 2020 by Nelson Education Ltd. 23  Government Regulation of Compensation Canada Federal Labour Code jurisdictions Employment Standards Legislation Provincial and (minimum wage, hours of work, paid time off, territorial overtime pay etc) jurisdictions Other Legislation Employment (Ontario pay equity legislation, Human Rights equity and pay Legislation) equity Copyright © 2020 by Nelson Education Ltd. 24