Introduction to Compensation Management

Compensation
Compensation improves performance, motivation & satisfaction of employees program for compensation HR responsibility helps to attract, maintain and retain workforce

Compensation
Want to ensure absolute pay is competitive with other Co. and relative pay s/b comparable within the Co. for those that do similar work if worker doing similar work have diff pay rates = dissatisfaction

Objectives of Compensation
Effective programs help:

acquire qualified resources retain present employees reward desired behaviors control costs comply with legal requirements

want to achieve as many of these as possible

Objectives of Compensation
HR dept uses job descriptions & evaluations to determine internal equity of pay external equity is achieved by research, conducting surveys to see what other Co are doing

Job Evaluations
Systematic process to determine relative worth of jobs (i.e. level & ranking) to put into categories want to look at duties, responsibilities, and working conditions

Job Evaluations
3 approaches traditionally used 1) Job Ranking

2) Job Grading

simplest, least accurate ranks jobs subjectively according to relative worth analysis try to consider skill, effort, responsibility, and working conditions

similar to ranking categorizes jobs according to their worth try to match job descriptions to grading descriptions pay levels increase with job importance

Job Evaluations
3) Point System evaluates critical factors of each job & points are assigned more widely used many steps involved

a) determine compensation factors (i.e.. critical components)

Job Evaluations
Examples: safety, equipment , assisting trainees, or accuracy, efficiency, etc, break down responsibility, skills , effort and working conditions into sub-factors

b)determine levels for each factor and attach points to there levels (i.e.. p.398 0-5)
can reward diff levels of responsibility

Job Evaluations

3) set up point matrix to review factors & points

ensure reflect relative importance of subfactors (i.e. experience higher than education) normally start with highest level and work back total points

4) review point levels degrees (i.e. across to see relative importance) of subfactors 5) analyst develops point manuals contains written explanation of each job element + defn of what is expected within each subfactors

Job Evaluations

6)apply point system

use point charts & descriptions to determine a total point value for each job total point = job ranking good idea to have manager review the points

Wage & Salary Surveys

external equity compares present wages to those of the labor market comparisons are made with research wage & salary survey data want to ensure same local area used

Sources of Compensation Data

Published surveys by:

Labor Canada Private Consultants Canada Employment groups Professional organizations Trade & Industrial Associations

want to watch surveys are relevant not out dated, job titles may be misleading between companies

Sources of Compensation Data

Large companies often conduct their own surveys normally key jobs are used contact various firms in the same market to find out what they are paying Pricing Jobs = involves combining rankings and market info to arrive at the correct pay for each job

Pay Levels
Job evaluations & survey info are combined using a scatter diagram points long the bottom & $ along the side after all key jobs are plotted a straight line is drawn to indicate the trend between key jobs for other jobs look at where points and $$ meet on straight line = salary

Compensation Structure
Easy to administer of a large no. of jobs can group into job classes the average pay for the jobs within that class = midpt then add/subtract a specified % to be top and bottom of the range (i.e. 15%)

Compensation Structure
Anyone falling below the new bottom is given an increase those above the new top are normally give a wage freeze as new jobs come up job evaluation is done to determine which group the new job belongs employees move within this range based on merit as indicated by their performance appraisals

Challenges & Compensation

Prevailing wage may be higher than company believes it should be union negotiations may move wages higher than internal equity dictates productivity of Co. can not pay more than employee contributes to the Co.

Challenges & Compensation

Government constraints such as minimum wages and OT pay rates note: in general admin, professional and others may be exempt from OT pay need to look at Labor codes for specifics

Pay Equity - Cdn Labor Code 1971

Equal pay for equal work = male & female employees have to be paid equally if they perform similar work exceptions must be based on merit and productivity

Cdn Human Rights 1978

Equal pay for work of equal value - makes it illegal to discriminate on the basis of job value (ie jobs of equal value s/b paid the same) or content 4 criteria are recommended: skill, effort, responsibility, and working conditions enforcement involves force equalization, retro if required

Pay Differences
Allowed for:

performance differences seniority job revaluation rehabilitation assignment (i.e. back after lengthily illness) demotion pay phased in wage reductions temp & training positions

Pay for Performance

Seeks to link performance & pay encourages actions that lead to higher pay if designed properly behavior should lead to increase pay & productivity stds & measures have to be developed to evaluate performance workers may earn more than supervisors who are on straight salary

Pay for Performance

Incentive may be based on quantity of production etc, (i.e. piece work bonus) employees may not receive incentive due to things beyond their control (i.e. machine breakdowns)

Individual Incentive Plans

Most common piece work - incentive based on per unit output once a specified level of output is achieved a bonus occurs commission - sales related jobs (% of selling price or flat $ per unit) If no base can be total earnings maturity curves general incentive to stay in job or with employer (tech jobs) productivity and experience placed on a pay curve

Individual Incentive Plans

Executive incentives large variety can be stock bonus, stock options, fringe benefits (Co car) computer s/b related to performance even if organizational

Team Based Plans

Bonus established for a group of workers may include profit sharing, incentives for exceeding production levels, rewards for keeping costs low etc. god idea if interrelation of jobs = improvement co-op and communication employee ownership plans where employees have ownership rights and votes

Pay Secrecy
Many employers prefer not to publish salary levels and specifics for employees levels & ranges can be helpful to motivate employees

New Approaches
Skill/Knowledge Based Pay

need to Id tasks to be performed then ID required skill to complete ID tasks skills are then priced to determine pay rates employees only paid for skills they are able to perform as skill increase pay does too lots of workforce flex - due to cross over skills can reduce disruptions

New Approaches
Variable Pay - objective to improve behaviour to increase performance to keep compensation competitive and control costs performance based can incorporate group individual, business units, Co financial and stock price performance variable components get added together to determine pay

New Approaches
Broad Banding

salary structure that combines large no. of pay grades into a few broad bands advantages:
encourages broadening of skills de-emphasis on promotions eases internal transfers supports a new organizational climate

International Pay
Challenge to develop HR policies to take into account pay difference between countries while maintaining transnational objectives