HRM 5th chapter 9 managing compensation

Managing Compensation Managing Human Resources Belcourt * Bohlander * Snell 5th Canadian edition PowerPoint Presentation by Copyright © 2008 by Nelson, a division of Thomson Canada Limited All rights reserved Monica Belcourt, York University and Charlie Cook, The University of West Alabama Objectives 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 © 2008 by Nelson, a division of Thomson Canada Ltd 9–2 Objectives (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 © 2008 by Nelson, a division of Thomson Canada Ltd 9–3 Compensation • Pay is a statement of an employee’s worth by an employer • Pay is a perception of worth by an employee Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–4 Total TotalCompensation Compensation Direct Direct Indirect Indirect Wages Wages//Salaries Salaries Time TimeNot NotWorked Worked Commissions Commissions Bonuses Bonuses Gainsharing Gainsharing ••Vacations Vacations ••Breaks Breaks ••Holidays Holidays Insurance InsurancePlans Plans ••Medical Medical ••Dental Dental ••Life Life Security SecurityPlans Plans • •Pensions Pensions Employee EmployeeServices Services ••Educational Educationalassistance assistance ••Recreational programs Recreational programs Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–5 Compensation Management and Other HRM Functions Aid Aidor orimpair impairrecruitment recruitment Recruitment Recruitment Supply Supplyof ofapplicants applicants affects wage affects wagerates rates Pay Payrates ratesaffect affectselectivity selectivity Selection Selection Selection Selectionstandards standardsaffect affect level of pay required level of pay required Pay Paycan canmotivate motivatetraining training Training Trainingand and Development Development Increased Increasedknowledge knowledgeleads leads to higher pay to higher pay Training Compensation Trainingand anddevelopment developmentmay may Compensation lead Management leadto tohigher higherpay pay Management Low Lowpay payencourages encourages unionization unionization Copyright © 2008 by Nelson, a division of Thomson Canada Ltd Management AAbasis basisfor fordetermining determining employee’s employee’srate rateof ofpay pay Labour Labour Relations Relations Pay Payrates ratesdetermined determined through negotiation through negotiation 9–6 Strategic Compensation Planning • Strategic Compensation Planning  Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization  Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay-for-performance standard  Seeks to motivate employees through compensation Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–7 Linking Compensation to Organizational Objectives • Value-added Compensation  Evaluating the individual components of the compensation program (pay and benefits) to see if they advance the needs of employees and the goals of the organization “How does this compensation practice benefit the organization?”  “Does the benefit offset the administrative cost?”  Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–8 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 © 2008 by Nelson, a division of Thomson Canada Ltd 9–9 Strategic Compensation Policy Concerns The rate of pay within the organization and whether it is to be above, below, or at the prevailing community rate The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities The pay level at which employees may be recruited and the pay differential between new and more senior employees The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises The pay levels needed to facilitate the achievement of a sound financial position in relation to the products or services offered Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–10 Job Evaluation for Management Positions • Hay Profile Method  Job evaluation technique using three factors— knowledge, mental activity, and accountability—to evaluate executive and managerial positions Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–35 The Compensation Structure • Wage and Salary survey  A survey of the wages paid to employees of other employers in the surveying organization’s relevant labour market  Helps maintain internal and external pay equity for employees • Labour Market  The area from which employers obtain certain types of workers Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–36 Collecting Survey Data • Outside Sources of Data  Surveys by consulting firms  Provincial and municipal wage surveys  Online survey data • Problems with Surveys  They are not always compatible with the user’s jobs  The user cannot specify what specific data to collect Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–37 Collecting Survey Data (cont’d) • Conducting Employer-initiated Surveys  Select key jobs  Determine relevant labour market  Select organizations  Decide on information to collect: wages/ benefits/ pay policies  Compile data received  Determine wage structure and benefits to pay Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–38 Characteristics of Key Jobs • Key Jobs  Jobs that are important for wage-setting purposes and are widely known in the labour market • Characteristics of Key Jobs They are important to employees and the organization They contain a large number of positions They have relatively stable job content They have the same job content across many organizations They are acceptable to employees, management, and labour as appropriate for pay comparisons Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–39 The Wage Curve • Wage Curve  A curve in a scattergram representing the relationship between relative worth of jobs and wage rates • Pay Grades  Groups of jobs within a particular class that are paid the same rate • Rate Ranges  A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade • Red Circle Rates  Payment rates above the maximum of the pay range Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–40 Freehand Wage Curve Figure 9.5 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–41 Single Rate Structure Figure 9.6 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–42 Wage Structure with Increasing Rate Ranges Figure 9.7 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–43 The Wage Curve (cont’d) • Competence-based Pay, (also skill-based pay or knowledge-based pay)  Compensation for the different skills or increased knowledge employees possess rather than for the job they hold in a designated job category  Greater productivity, increased employee learning and commitment to work, improved staffing flexibility to meet production or service demands, and the reduced effects of absenteeism and turnover, • Broadbanding  Collapses many traditional salary grades into a few wide salary bands Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–44 Government Regulation of Compensation Canada CanadaLabour Labour Code Code Minimum Minimumlabour labourstandards standardsfor for all all employees employeesfalling falling within withinfederal federal jurisdiction jurisdiction Employment Employment Standards StandardsActs Acts Example: Example: minimum minimumwork workweek weekand and provision provisionfor for 1.5 1.5times timesin inovertime overtime payment payment Pay PayEquity Equity Fair Fair employment employment practices practicesapplied applied to to members membersof ofdesignated designated groups, groups, regulated regulated provincially provincially Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–45 Significant Compensation Issues • Equal Pay for Work of Equal Value  The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same • Wage-Rate Compression  Compression of pay differentials between job classes, particularly the pay differentials between hourly workers and their managers Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–46 How Can You Compare Apples and Oranges? Figure 9.8 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–47 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 © 2008 by Nelson, a division of Thomson Canada Ltd 9–48 Key Terms • pay equity • competence-based pay • pay-for-performance standard • consumer price index (CPI) • pay grades • equal pay for work of equal value • piecework • escalator clauses • real wages • Hay profile method • red circle rates • hourly work • value-added compensation • job classification system • wage and salary survey • job evaluation • wage curve • job ranking system • wage-rate compression • point system • work valuation Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9–49 [...]... factors may exist within the jobs Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 31 Highlights in HRM Highlights 9. 2 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 32 Highlights in HRM Highlights in HRM (cont’d) Highlights 9. 2 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 33 Work Valuation Methods • Work Valuation  A job evaluation system that seeks to measure... Nelson, a division of Thomson Canada Ltd 9 15 Pay-for-Performance and Expectancy Theory Figure 9. 2 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 16 Motivating Employees through Compensation • Pay Secrecy  An organizational policy prohibiting employees from revealing their compensation information to anyone  Creates misperceptions and distrust of compensation fairness and pay-for-performance... Employer’s Ability-to-Pay  Having the resources and profits to pay employees Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 20 Highlights in HRM Comparison of Compensation Strategies Highlights 9. 1 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 21 The Wage Mix—External Factors • Labour Market Conditions  Availability and quality of potential employees is affected by economic... Thomson Canada Ltd 9 17 The Bases for Compensation • Hourly Work  Work paid on an hourly basis • Piecework  Work paid according to the number of units produced • Salary Workers  Employees whose compensation is computed on the basis of weekly, biweekly, or monthly pay periods Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 18 Factors Affecting the Wage Mix Figure 9. 3 Copyright © 2008... 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 © 2008 by Nelson, a division of Thomson Canada Ltd 9 12 Motivating Employees through Compensation • Pay Equity  An employee’s perception that compensation received is... reasonably small number of jobs  Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 28 Paired-Comparison Job Ranking Table Directions: Place an X in the cell where the value of a row job is higher than that of a column job Figure 9. 4 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 29 Job Evaluation Systems • Job Classification system  A system of job evaluation in which jobs... 2008 by Nelson, a division of Thomson Canada Ltd 9 18 Factors Affecting the Wage Mix Figure 9. 3 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 19 The Wage Mix—Internal Factors • Employer’s Compensation Strategy  Setting organization compensation policy to lead, lag, or match competitors’ pay • Worth of a Job  Establishing the internal wage relationship among jobs and skill levels • Employee’s... division of Thomson Canada Ltd 9 22 The Wage Mix—External Factors • Cost of Living  Local housing and environmental conditions can cause wide variations in the cost of living for employees  Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 23 The Wage Mix—External... Pay-for-Performance Standard  The standard by which managers tie compensation to employee effort and performance  Refers to a wide range of compensation options, including merit-based pay, bonuses, salary commissions, job and pay banding, team/ group incentives, and various gainsharing programs Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 11 Designing a Pay-for-Performance System • How will... Canada Ltd 9 13 Relationship between Pay Equity and Motivation Doing More and Receiving Less Doing the Same and Receiving the Same Doing Less and Receiving More 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 Figure 9. 1 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd 9 14 Expectancy