Compensation Management 9 . C H A P T E R N I N E Compensation Management

What we are going to discuss? Part One: The strategic Human Resource Model (Chapter One) Part Two: Planning Human Resources (chapter two and three) Part Three: Attracting Human Resources ( Chapter 4,5 and 6) Part Four: Placing, Developing and evaluating Human Resourcing (Chapter 7 & 8)

What we are going to discuss? Part Five: Motivating and Rewarding Human Resources (Chapter 9, 10) Part Six: Maintaining high performance (chapter 11,12,13 &14) Part seven: Strategy evaluation (chapter15)

Chapter Objectives Explain the effective compensation management Discuss the consequences of mismanaged compensation programs Describe how wages and salaries are determined Identify major issues that influence compensation management Explain the differences between “equal pay for equal work” and “equal pay for equal value” Evaluate the advantages and disadvantages of incentive systems Explain the major approaches to group incentive plans Apply the expectancy model of motivation in a Human Resource system

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

Objectives of Compensation Acquire personnel Administrative efficiency Retain employees Effective Compensation Legal compliance Ensure equity Reward behaviour Control costs

Compensation Management Phase I Job Analysis Identify and study jobs Position descriptions Job descriptions Job standards

Compensation Management Phase I Job Analysis Determine relative worth or value of jobs Provides for internal equity Job evaluation methods: Job ranking Job grading Point system Phase II Job Evaluation

Compensation Management Phase I Job Analysis Discover what other employers are paying for specific key jobs Provides for external equity Sources of data: HRSDC Consultants Canada HR Centres Associations Phase II Job Evaluation Phase III Salary Surveys

Compensation Management Phase I Job Analysis Establishing appropriate pay level for each job Combines job evaluation ranking, survey wage rates, and other considerations e.g. organization’s pay policy Wage-trend line developed Grouping the different pay levels into a structure that can be managed Job classes and rate ranges Phase II Job Evaluation Phase III Salary Surveys Phase IV Pricing Jobs Match

Compensation Challenges Prevailing wage rates Compensation Challenges Government constraints Union power Wage & salary policies Productivity

Pay Equity Canada 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

Pay Equity Equal pay for equal work Equal pay for work of equal value 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 equally paid Illegal to discriminate on the basis of job value (or content)

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

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

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

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

Pay Secrecy Advantages Disadvantages Most employees prefer to have their pay kept secret Gives managers greater freedom Covers up inequities in the internal pay structure May generate distrust in the pay system Employees may perceive that there is no relationship between pay and performance

New Approaches to Pay Skill- or knowledge-based pay Variable pay Based on the employee’s skills or knowledge Variable pay Performance-linked approach Total rewards model Considers everything an employee values Broadbanding Consolidation of pay grades into broad bands Tailor-made perks (point based 5000 ponits equvalen to $100) International pay Need to develop polices to meet global needs

Changing Compensation Systems Traditional Modern Pay = 100% base salary Variable component added Entitlement-base increases Performance-driven gains Few incentive/bonus plans, restricted to executives Many kinds of plans, extended throughout the organization

Pay & Organizational Strategy Motivating performance Identifying valued rewards Areas that impact pay systems Attract & retain Relating to performance Motivating development Setting goals Consequences

Employee Motivation To be committed and productive employees must be motivated Motivation Goal-directed behaviour that results from a felt need Expectancy model is comprehensive Shows the application of all human resource functions

Compensation Management 9 . C H A P T E R N I N E Compensation Management