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C H A P T E RN E NI

Compensation Management
Schwind 9th Canadian Edition

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Compensation
Cash and non-cash rewards employees receive in exchange for their work Effective compensation management
Employees more likely to be satisfied and motivated

Compensation perceived to be inappropriate


Performance, motivation and satisfaction may decline dramatically Employee turnover may occur Dissatisfaction with absolute or relative pay

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Objectives of Compensation
Acquire personnel

Administrative efficiency

Retain employees

Legal compliance

Effective Compensation

Ensure equity

Control costs
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Reward behaviour
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Compensation Management
Phase I Job Analysis

Identify and study jobs


- Position descriptions - Job descriptions - Job standards

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Compensation Management
Phase I Job Analysis Phase II Job Evaluation

Determine relative worth or value of jobs Provides for internal equity Job evaluation methods
Job ranking Job grading Point system

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Compensation Management
Phase I Job Analysis Phase II Job Evaluation Phase III Salary Surveys

Discover what other employers are paying for specific key jobs Provides for external equity Sources of data: e.g.
Labour Canada HRSDC Offices Employer Associations Professional Associations Self-conducted Surveys

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Compensation Management
Phase I Job Analysis Phase II Job Evaluation Phase III Salary Surveys Phase IV Pricing Jobs Match

Establishing appropriate pay level for each job


Combines job evaluation ranking, survey wage rates, and other considerations e.g. organizations pay policy Wage-trend line developed

Grouping the different pay levels into a structure that can be managed
Job classes and rate ranges

Schwind 9th Canadian Edition

Copyright 2010 by McGraw-Hill Ryerson

Compensation Challenges
Prevailing wage rates Government constraints Union power

Compensation Challenges

Wage & salary policies

Productivity

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Pay Equity
Canadian Human Rights Act prohibits discrimination because of sex It is illegal for companies to pay women less than men if their jobs involve equal skills, effort, responsibilities, and conditions Government enforces these provisions

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Copyright 2010 by McGraw-Hill Ryerson

Pay Equity
Equal pay for equal work
Part of the Canada Labour Code since 1971 Employers must pay men and women the same wage or salary when they do the same work

Equal pay for work of equal value


Jobs of comparable worth to the organization should be paid equally Illegal to discriminate on the basis of job value (or content)

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Pay Equity
Pay gap Historical gap between the pay of men and women Canadian women earn about 80 percent as much as men Pay gap exists in part due to: Women tend to work in lower paying occupations Career gaps Note: 5 - 10% of the pay gap is unexplained

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Pay-for-Performance Model
Incentive systems provide a clear link between pay and performance or productivity Incentive pay
Directly linked to an employees performance or productivity

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Incentive Systems
Benefits
Performance is reinforced regularly Reinforcement is quick and frequent Desired behaviours are likely to continue Wages paid in proportion with performance
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Problems
Administration can be complex May result in inequities Employees may not achieve standards due to uncontrollable forces Union resistance Focus efforts on one aspect
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Individual vs. Team-based Incentives


Individual Team-based
Team results Production incentives Profit-sharing Stock ownership (ESOP) Cost reduction plans
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Piecework Production bonuses Commissions Executive incentives

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Pay Secrecy
Advantages
Most employees prefer to have their pay kept secret Gives managers greater freedom Covers up inequities in the internal pay structure

Disadvantages
May generate distrust in the pay system Employees may perceive that there is no relationship between pay and performance

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New Approaches to Pay


Skill- or knowledge-based pay
Based on the employees skills or knowledge

Variable pay
Performance-linked compensation approach

Total reward model


Considers everything an employee values

Broadbanding
Consolidation of pay grades into a few broad bands

Tailor-made perks International pay


Need to develop policies to meet global needs
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Changing Compensation Systems


Traditional
Pay = 100% base salary Entitlement-based increases Covers up inequities in the internal pay structure

Modern
Variable component added Employees may perceive there is no relationship between pay and performance

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Pay & Organizational Strategy


Motivating performance

Attract & retain

Identifying valued rewards

Motivating development

Areas that impact pay systems

Performancerelated

Consequences

Setting goals
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C H A P T E RN E NI
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Compensation Management
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Copyright 2010 by McGraw-Hill Ryerson