Dessler, Cole, Goodman and Sutherland Fundamentals of Human Resources Management in Canada Chapter Eight Employee Compensation © 2004 Pearson Education Canada Inc., Toronto, Ontario 8-1

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-2 Basic Aspects of Compensation at Work –pay for skills and competencies –pay for performance –flexible pay systems –pay for skills and competencies –pay for performance –flexible pay systems Three Strategic Approaches

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-3 Basic Aspects of Compensation at Work Direct Payments (cash) Direct Payments (cash) Two Main Components of Pay Indirect Payments (benefits) Indirect Payments (benefits)

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-4 Basic Considerations in Determining Pay Rates Legal –employment/labour standards –pay equity –human rights –Canada/Quebec Pension Plan –Workers’ Compensation –Employment Insurance Union –collective bargaining Compensation policies –leader or follower in pay Equity –internal and external Legal –employment/labour standards –pay equity –human rights –Canada/Quebec Pension Plan –Workers’ Compensation –Employment Insurance Union –collective bargaining Compensation policies –leader or follower in pay Equity –internal and external

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-5 Current Trends in Compensation Skill/competency-based pay Customized job evaluation plans

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-6 Current Trends in Compensation –to eliminate systemic pay discrimination by providing equal pay to: male-dominated job classes female-dominated job classes of equal value –to eliminate systemic pay discrimination by providing equal pay to: male-dominated job classes female-dominated job classes of equal value Pay Equity

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-7 Current Trends in Compensation –must ensure no gender bias in job evaluation –long-term solution is women and men equally represented in all jobs; i.e. no male or female- dominated jobs (occupational segregation) –must ensure no gender bias in job evaluation –long-term solution is women and men equally represented in all jobs; i.e. no male or female- dominated jobs (occupational segregation) Pay Equity

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-8 Incentive Plans Variable Pay –plan that links pay to productivity or profitability Variable Pay –plan that links pay to productivity or profitability

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-9 Incentive Plans Spot Bonus –spontaneous incentive awarded to individuals for accomplishments not easily measured by a standard Spot Bonus –spontaneous incentive awarded to individuals for accomplishments not easily measured by a standard

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-10 Incentives for Operations Employees –piecework plans—straight; guaranteed –standard hour plan –team or group incentive plan –piecework plans—straight; guaranteed –standard hour plan –team or group incentive plan

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-11 Incentives for Managers and Executives Short-term Incentives annual bonus Short-term Incentives annual bonus Long-term Incentives capital accumulation plans Long-term Incentives capital accumulation plans

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-12 Incentives for Managers and Executives –eligibility –fund size –determining individual awards –eligibility –fund size –determining individual awards Annual Bonus—Decisions

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-13 Incentives for Managers and Executives Stock options – right to purchase a stated number of shares of a company’s stock at today’s price at some time in the future Stock options – right to purchase a stated number of shares of a company’s stock at today’s price at some time in the future Long-Term Incentives

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-14 Incentives for Salespeople Salary Plan (fixed salary) Salary Plan (fixed salary) Commission Plan (pay in direct proportion to sales) Commission Plan (pay in direct proportion to sales) Combination Plan (salary plus commission) Combination Plan (salary plus commission)

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-15 Organization-Wide Incentive Plans –profit sharing plans –employee share purchase/stock ownership plans –gainsharing plans –profit sharing plans –employee share purchase/stock ownership plans –gainsharing plans

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-16 Developing Effective Incentive Plans Employee Recognition Programs Lack of recognition and praise is the #1 cause of employee turnover Lack of recognition and praise is the #1 cause of employee turnover

© 2004 Pearson Education Canada Inc., Toronto, Ontario 8-17 Developing Effective Incentive Plans Objectives –show support for employees –enhance employees’ attitudes to the company –enhance customer service –increase loyalty –increase productivity Objectives –show support for employees –enhance employees’ attitudes to the company –enhance customer service –increase loyalty –increase productivity Employee Recognition Programs