1. Managing Compensation
Managing Human Resources - Unit 9
Managing Compensation
Copyright © 2011 by Nelson Education Ltd.

2. Managing Human Resources - Unit 9
Learning Outcomes
After studying this chapter, you should be able to:
Explain employer concerns in developing a strategic compensation program.
Indicate the various factors that influence the setting of wages.
Differentiate the mechanics of each of the major job evaluation systems.
Explain the purpose of a wage survey.
Define the wage curve, pay grades, and rate ranges as parts of the compensation structure.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

3. Learning Outcomes (Cont’d)
Managing Human Resources - Unit 9
Learning Outcomes (Cont’d)
After studying this chapter, you should be able to:
Identify the major provisions of the laws and regulations affecting compensation.
Discuss the current issues of equal pay for work of equal value and pay compression.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

4. Managing Human Resources - Unit 9
Compensation
Pay is a statement of an employee’s worth by an employer.
Pay is a perception of worth by an employee.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

5. Managing Human Resources - Unit 9
Total Compensation
Managing Human Resources - Unit 9
Direct
Indirect
Wages / Salaries
Time Not Worked
Vacations
Breaks
Holidays
Commissions
Insurance Plans
Medical
Dental
Life
Bonuses
Gainsharing
Security Plans
Pensions
Employee Services
Educational assistance
Recreational programs
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6. Managing Human Resources - Unit 9
Goals of compensation
To Motivate Employees
To Retain Employees
To Attract Employees
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

7. Compensation Management and Other HRM Functions
Managing Human Resources - Unit 9
Compensation Management and Other HRM Functions
Aid or impair recruitment
Recruitment
Supply of applicants affects wage rates
Pay rates affect selectivity
Selection
Selection standards affect level of pay required
Pay can motivate training
Training and Development
Increased knowledge leads to higher pay
Training and development may lead to higher pay
Compensation Management
A basis for determining employee’s rate of pay
Low pay encourages unionization
Labour Relations
Pay rates determined through negotiation
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

8. Strategic Compensation Planning
Managing Human Resources - Unit 9
Strategic Compensation Planning
Strategic Compensation Planning
Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

9. Linking Compensation to Organizational Objectives
Managing Human Resources - Unit 9
Linking Compensation to Organizational Objectives
Alignment between business strategy and compensation objectives.
Change in business strategy requires change in compensation strategy.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

10. Common Strategic Compensation Goals
Managing Human Resources - Unit 9
Common Strategic Compensation Goals
To reward employees’ past performance.
To remain competitive in the labour market.
To maintain salary equity among employees.
To mesh employees’ future performance with organizational goals.
To control the compensation budget.
To attract new employees.
To reduce unnecessary turnover.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

11. The Pay-for-Performance Standard
Managing Human Resources - Unit 9
The Pay-for-Performance Standard
Pay-for-Performance Standard
The standard by which managers tie compensation to employee effort and performance.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

12. Designing a Pay-for-Performance System
Managing Human Resources - Unit 9
Designing a Pay-for-Performance System
How will performance be measured?
How will monies to be allocated for compensation increases.
Which employees will be eligible?
How will payouts be made?
How often will payouts occur?
How large will the payouts be?
Will employees perceive the rewards as valued?
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

13. Motivating Employees through Compensation
Managing Human Resources - Unit 9
Motivating Employees through Compensation
Pay Equity
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

14. Figure 9–1 Relationship between Pay Equity and Motivation
Managing Human Resources - Unit 9
Figure 9–1 Relationship between Pay Equity and Motivation
The greater the perceived disparity between my input/output ratio and the comparison person’s input/output ratio, the greater the motivation to reduce the inequity.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

15. Expectancy Theory and Pay
Managing Human Resources - Unit 9
Expectancy Theory and Pay
Expectancy Theory
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Copyright © 2011 by Nelson Education Ltd.

16. Figure 9–2 Pay-for-Performance and Expectancy Theory
Managing Human Resources - Unit 9
Figure 9–2 Pay-for-Performance and Expectancy Theory
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Copyright © 2011 by Nelson Education Ltd.

17. Motivating Employees through Compensation (cont'd)
Managing Human Resources - Unit 9
Motivating Employees through Compensation (cont'd)
Pay Secrecy
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Copyright © 2011 by Nelson Education Ltd.

18. The Bases for Compensation
Managing Human Resources - Unit 9
The Bases for Compensation
Hourly Work
Piecework
Salary Workers
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Copyright © 2011 by Nelson Education Ltd.

19. Internal Factors External Factors Wage Mix The Wage Mix
How are the wages for my job determined?
Wage Mix
Internal Factors
External Factors
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20. The Wage Mix—Internal Factors
Managing Human Resources - Unit 9
The Wage Mix—Internal Factors
Employer’s Compensation Strategy
Worth of a Job
Employee’s Relative Worth
Employer’s Ability-to-Pay
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

21. The Wage Mix—External Factors
Managing Human Resources - Unit 9
The Wage Mix—External Factors
Labour Market Conditions
Area Wage Rates
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Copyright © 2011 by Nelson Education Ltd.

22. The Wage Mix—External Factors
Managing Human Resources - Unit 9
The Wage Mix—External Factors
Cost of Living
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Copyright © 2011 by Nelson Education Ltd.

23. Consumer Price Index (CPI)
Managing Human Resources - Unit 9
Consumer Price Index (CPI)
A measure of the average change in prices over time in a fixed “market basket” of goods and services
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

24. The Wage Mix—External Factors
Managing Human Resources - Unit 9
The Wage Mix—External Factors
Collective Bargaining
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Copyright © 2011 by Nelson Education Ltd.

25. Job Evaluation Systems
Managing Human Resources - Unit 9
Job Evaluation Systems
Job Evaluation
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Copyright © 2011 by Nelson Education Ltd.

26. Different Job Evaluation Systems
Managing Human Resources - Unit 9
Different Job Evaluation Systems
JOB AS JOB PARTS BASIS FOR A WHOLE OR FACTORS COMPARISON (NONQUANTITATIVE) (QUANTITATIVE)
Job vs. job Job ranking Factor comparison system system
Job vs. scale Job classification Point system system
SCOPE OF COMPARISON
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Copyright © 2011 by Nelson Education Ltd.

27. Job Evaluation Systems (Cont'd)
Managing Human Resources - Unit 9
Job Evaluation Systems (Cont'd)
Job Ranking System
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Copyright © 2011 by Nelson Education Ltd.

28. Job Evaluation Systems (Cont'd)
Managing Human Resources - Unit 9
Job Evaluation Systems (Cont'd)
Job Classification system
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

29. Managing Human Resources - Unit 9
Point System
Point System
The Point Manual
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Copyright © 2011 by Nelson Education Ltd.

30. Work Valuation Methods
Managing Human Resources - Unit 9
Work Valuation Methods
Work Valuation
A job evaluation system that seeks to measure a job’s worth through its value to the organization.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

31. Job Evaluation for Management Positions
Managing Human Resources - Unit 9
Job Evaluation for Management Positions
Hay Profile Method
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Copyright © 2011 by Nelson Education Ltd.

32. The Compensation Structure
Managing Human Resources - Unit 9
The Compensation Structure
Wage and Salary Survey
Labour Market
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Copyright © 2011 by Nelson Education Ltd.

33. Collecting Survey Data
Managing Human Resources - Unit 9
Collecting Survey Data
Outside Sources of Data
Problems with Surveys
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Copyright © 2011 by Nelson Education Ltd.

34. Managing Human Resources - Unit 9
The Wage Curve
Wage Curve
Pay Grades
Rate Ranges
Red Circle Rates
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Copyright © 2011 by Nelson Education Ltd.

35. Figure 9–4 Freehand Wage Curve
Managing Human Resources - Unit 9
Figure 9–4 Freehand Wage Curve
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Copyright © 2011 by Nelson Education Ltd.

36. Figure 9–5 Single Rate Structure
Managing Human Resources - Unit 9
Figure 9–5 Single Rate Structure
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Copyright © 2011 by Nelson Education Ltd.

37. Figure 9–6 Wage Structure with Increasing Rate Ranges
Managing Human Resources - Unit 9
Figure 9–6 Wage Structure with Increasing Rate Ranges
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

38. The Wage Curve (cont’d)
Managing Human Resources - Unit 9
The Wage Curve (cont’d)
Competence-based Pay
Broadbanding
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

39. Government Regulation of Compensation
Managing Human Resources - Unit 9
Government Regulation of Compensation
Canada Labour Code
Minimum labour standards for all employees falling within federal jurisdiction
Employment Standards Acts
Example: minimum work week and provision for 1.5 times in overtime payment.
Pay Equity
Fair employment practices applied to members of designated groups, regulated provincially.
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40. Significant Compensation Issues
Managing Human Resources - Unit 9
Significant Compensation Issues
Equal Pay for Work of Equal Value
Wage-Rate Compression
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.

41. Reducing Wage-Rate Compression
Managing Human Resources - Unit 9
Reducing Wage-Rate Compression
Give larger compensation increases to more-senior employees.
Emphasize pay-for-performance and reward meritworthy employees.
Limit the hiring of new applicants seeking exorbitant salaries.
Design the pay structure to allow a wide spread between hourly and supervisory jobs or between new hires and senior employees.
Provide equity adjustments for selected employees hardest hit by pay compression.
Copyright © 2011 by Nelson Education Ltd.
Copyright © 2011 by Nelson Education Ltd.