Human Resources Management in

Canada
Fourteenth Canadian Edition

Chapter 11
Strategic Pay Plans

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Learning Objectives (1 of 2)
11.1 Explain the strategic importance of total
rewards.
11.2 Describe four core considerations an
organization needs to make when determining
compensation decisions.
11.3 Define pay equity and explain its importance
today.
11.4 Explain equity theory of motivation and how an
organization can address feelings of inequity.

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Learning Objectives (2 of 2)
11.5 Explain in detail each of the three stages in
establishing pay rates.
11.6 Describe the elements of compensation for
special positions: executives, managers, and
professionals.
11.7 Discuss competency-based pay.

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Total Employment Rewards (1 of 5)
Employee Compensation:
• All forms of pay going to employees and arising from their
employment.
• Two main components:
– Direct financial payments (wages, salaries, incentives,
commissions, and bonuses).
– Indirect financial payments (financial benefits like employer-
paid insurance and vacations).
• Pay plans must adhere to legal requirements, union
issues, rewards alignment and equity.

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Total Employment Rewards (2 of 5)
Aligning Total Rewards with Strategy:
• Aligned reward strategy is directly related to employee
behaviours the firm needs to achieve its competitive
strategy.
• Total rewards include also more challenging jobs, career
development, and recognition programs.
• Considerations in setting compensation policy:
– Does the firm want to be a leader or follower regarding
pay.
– Business strategy.
– Cost of different types of compensation.
Important policies: basis for salary increases, promotion
and demotion policies, overtime pay policy, policies on
probationary pay and military service leave, jury duty, and
holidays.
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Total Employment Rewards (3 of 5)
Legal Considerations in Compensation:
Legislation affecting compensation are:
• Employment/Labour Standards Acts (Canada Labour
Code).
– Sets minimums for pay, wages, hours of work, vacations,
statutory holidays, termination pay, and record keeping of
pay information.
• Workers’ compensation laws:
– Each jurisdiction has own laws to provide reasonable
income to victims of work-related accidents/illnesses.

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Total Employment Rewards (4 of 5)
Legal Considerations in Compensation:
• Human rights acts:
– Protect workers from discrimination.( such as in
compensation)
• Canada/Quebec Pension Plans:
– Mandatory contributions by employees and employers.
• Pay Equity Act:
– Equal pay for jobs of equal value to all classes of
employees.
– Regardless of requirement, wage gaps still persist.

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Total Employment Rewards (5 of 5)
Union Considerations on Compensation Decisions:
• Unions and labour relations laws influence pay plans.
• The Canadian Industrial Relations Board ensures
employees are treated in accordance with their legal
rights.
• Union attitudes toward compensation:
– Concerns about managerial malpractice.
– Workers are the only ones who can judge the relative value
of each job.
– Management’s method in job evaluation can be manipulative
in order to restrict or lower pay.

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Equity Theory and Its Impact on Pay
Rates (1 of 2)
Equity Theory of Motivation:
• Proposes that people are motivated to maintain a balance
between what they perceive as their contributions and
their rewards.
• External equity – how does a job’s pay rate in one
company compare to a pay rate in other companies.
• Internal equity – compare pay rates with co-workers doing
the same or similar jobs.
• Individual equity – fairness of pay compared to
performance.
• Procedural equity – fairness in pay decisions.

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Equity Theory and Its Impact on Pay
Rates (2 of 2)
Addressing Equity Issues:
• Managers can use various means to address equity
issues:
– Salary surveys to monitor and maintain external equity.
– Job analysis and comparisons to maintain internal equity.
– Performance appraisals and incentive pay to maintain
individual equity.
– Communication, grievance mechanisms, and employee
participation to maintain procedural equity.

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Establishing Pay Rates (1 of 6)
• Stage 1: Preparing for Job Evaluation- determines which
factors to be compensated.

• Stage 2: Conduct a Wage Salary Survey

• Stage 3: Combine the Job Evaluation and Salary

survey- determines pay rate for each job.

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Establishing Pay Rates (1 of 6)
Stage 1: Preparing for Job Evaluation:
• Job evaluation is a formal and systemic comparison of
jobs to determine the relative worth of a job.
• Establish a benchmark job against which other jobs are
compared.
• Compensable factors:
– Fundamental elements of a job such as skill, effort,
responsibility, and working conditions.
– May include know-how, problem solving, accountability.
– All comparable jobs are evaluated using the same factors.

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Establishing Pay Rates (2 of 6)
Stage 1: Preparing for Job Evaluation:
• Job evaluation committee:
– May include employees, HR staff, managers, and union
representatives.
– Committee identifies key benchmark job which will be
evaluated first.
– Relative value and importance of all other jobs will be
compared to the benchmark jobs.

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Establishing Pay Rates (3 of 6)
Stage 1: Preparing for Job Evaluation:
• Job evaluation methods:
– Classification/grading method: categorizing jobs into groups.
▪ Classes are groups of similar jobs.
▪ Grades are groups of jobs similar in difficulty but otherwise
different.
▪ Pay grade comprises jobs of approximately equal value or
importance.
– Point method identifies number of compensable factors in
a job.
▪ Most common factors: skill, effort, responsibility, and working
conditions.
▪ The extent to which each factor present in the job is evaluated
and points assigned for each factor.
▪ Points for each factor summed up to get overall value of job.

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Establishing Pay Rates (4 of 6)
Stage 1: Preparing for Job Evaluation:

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Establishing Pay Rates (5 of 6)
Stage 2: Conduct a Wage/Salary Survey:
• Use survey to:
– Determine pay rates for benchmark jobs.
– Determine pay based on marketplace rates.
– Collect data on benefits, pay-for-performance, etc.
• Formal/informal surveys by the employer.
• Commercial, professional, and government salary
surveys.
• Any survey data must be carefully assessed for accuracy.

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Establishing Pay Rates (6 of 6)
Stage 3: Combine Job Evaluation and Salary
Surveys to Determine Pay for Jobs:
• Determine pay for pay grades and develop rate ranges.
• Benefits of using pay ranges:
– Allows employers to provide for performance differences.
– More flexibility for employees with greater experience of
seniority.
• Broadbanding reduces the number of salary grades and
ranges; allows flexibility in compensation.

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Special Considerations in
Compensation (1 of 4)
Correcting Out-of-Line Rates:
• Underpaid employees should have wages raised to the
minimum of the rate range for their pay grade.
• Overpaid employees are often called red circle pay
rates.
– Freeze the rate paid.
– Transfer or promote to jobs that match the rate.
– Freeze rate for a period to time; if promotion is not
possible, the cut the rate to the maximum in the pay range
for their grade.

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Special Considerations in
Compensation (2 of 4)
Pay for Knowledge: Competency-Based Pay Plans:
• Pay for range, depth and types of knowledge employees
are capable of using, rather than for the job they hold.
– Core competencies – knowledge and behaviours.
– Functional competencies – organizational function.
– Behavioural competencies – expected behaviours.
– Pay-for-knowledge program should include:
▪ Measurable competencies/skills directly important for job
performance.
▪ New and different competencies.
▪ On-the-job training.

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Special Considerations in
Compensation (3 of 4)
Pay for Executive, Managerial and Professional
Jobs:
• Executives and managers Compensation package:
– Salary, benefits, short term incentives, long-term incentives,
and perquisites.
– Salary depends on the value of the person’s work to the
organization and how well responsibilities are carried out.
– Compensation tends to emphasize performance incentives.

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Special Considerations in
Compensation (4 of 4)
Pay for Executive, Managerial and Professional
Jobs:
• Compensating professional employees:
– Compensable factors not easily measured for analytical
jobs.
– Focus is on problem solving, creativity, job scope and
technical knowledge and expertise.
– Job evaluation does not show value of professional work.
Knowledge is extremely difficult to quantify and measure.
– Employers use market-pricing approach.

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