Ch.9 - Compensation Management

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Ch.9 - Compensation Management Door Mind Map: Ch.9 - Compensation Management

1. Objectives of Compensation Management

1.1. Internal and External Equity

1.1.1. Internal Equity Pay is related to the relative worth of jobs

1.1.2. External Equity Pay workers at a rate perceived to be fair compared to the market rate

1.2. Effective Compensation Management Objectives:

1.2.1. Acquire qualified personnel Compensation needs to be high enough to attract applicants

1.2.2. Retain present employees Pay must be competitive with that of other employees

1.2.3. Reward desired behaviour Pay should reinforce desired behaviours

1.2.4. Control costs Want to obtain and retain workforce at a reasonable cost

1.2.5. Stay legal Comply with applicable provincial/federal regulations

2. Determining Direct Compensation

2.1. Phase 1: Establishing Compensation Stratey

2.1.1. Lead Company pays rates higher than relative marketplace

2.1.2. Match Company matches relative market rate pay

2.1.3. Lag Company pays rates lower than relative marketplace

2.2. Phase 2: Reviewing Job Analysis

2.2.1. Recall from Ch.2: A job analysis produces a job description, job specifications, and performance standards

2.2.2. Compensation specialists review job analysis data to assess internal & external equity

2.3. Phase 3: Pricing Jobs

2.3.1. Job Evaluation: systematic procedures to determine the relative worth of jobs Job Ranking Jobs are ranked subjectively by their overall worth to the organization Job Grading Assign jobs to predetermined job classifications according to their relative worth to the org. Point System Assesses the relative importance of the job's key factors to obtain the relative worth of jobs Implementation Steps:

2.4. Phase 4: Matching Employees to Pay

2.4.1. Pay levels The appropriate pay level for any job reflects its relative and absolute worth

2.4.2. Compensation structure Most compensation analysts lump jobs together into job classes for convenience Rate range Merit raise

2.4.3. EXAMPLE: NHL players make much less than other players in the NFL, MLH, and NBA

3. Challenges Affecting Compensation

3.1. Prevailing Wage Rates

3.1.1. Red Circle Rate: rates higher than relative worth EXAMPLE: Jenny makes $50/hr serving coffee at Tim Hortons

3.1.2. Silver circle: long tenure employees paid higher than max salary EXAMPLE: Jenny has worked for ABC Inc. for 30 years and has been earning the maximum salary. She is now receiving an increase in her salary.

3.1.3. Gold circled: merit pay beyond maximum level EXAMPLE: Jenny receives a bonus for exceptional performance, which puts her past her maximum pay level

3.1.4. Green circled: jobs paid less than the established minimum EXAMPLE: Jenny is hired at XYZ Corp. (a mining company) and is given a full-time salary of 30,000 per year, much lower than the market salary range for this line of work

3.2. Union Power

3.2.1. Can use their power to raise wages higher than relative worth

3.3. Productivity

3.3.1. Increased by training new workers

3.4. Wage and Salary Policies

3.4.1. Compa-ratio Formula Indicates how the salary of an employee relates to the midpoint of the relevant pay grade = (salary of the employee) / (midpoint of pay grade)

3.4.2. Group Compa-ratio Formula = (avg. of salaries paid) / (midpoint of pay grade)

3.5. Government Constraints

3.5.1. Canadian Labour Code

3.5.2. Minimum wage EXAMPLE: Tim Hortons tried to protest the increasing minimum wage due to the need to increase prices to sustain

3.5.3. Government contracts

3.5.4. Staff Records

4. Payment Systems

4.1. Skill Based Pay

4.1.1. Depth Gaining greater expertise in existing skills

4.1.2. Breadth Increases in employee's range of skill

4.1.3. Self-Management Gaining higher level management-type skills, such as budgeting, training, planning, and so forth

4.1.4. Tend to generate higher pay rates as organization makes better use of its people ---> total cost can be significantly lower

4.2. Variable Pay

4.2.1. Individual Incentive Plans Production bonuses Incentives paid to workers for exceeding a specified level of output Commision Salesperson paid a % of the selling price or a flat amount for each unit sold Discretionary bonus plan EXAMPLE: Amid an RCMP investigation, SNC Lavalin paid employees a 50% salary payment in order to keep them from leaving the sinking ships Employees are paid base wages, and then a bonus at the discretion of management Spot Awards Recognize special contributions as they occur Piecework An incentive system that compensates the worker for each unit of output

4.2.2. Profit Sharing and Ownership Plans Profit-Sharing Plan Shares company profits with the workers Stock Ownership Plans (ESOP) EXAMPLE: Beau, an independent beer producer, has maintained independence from large producers by handing ownership over to its employees through an ESOP An employee benefit plan that gives workers ownership interest in the company

4.2.3. Team/Group Incentive Plans Team Results Pros Cons Production Incentive Plans Allow groups of workers to receive bonuses for exceeding predetermined levels of output EXAMPLE: Safelight Glass Corp's change from hourly pay to incentive pay lead to a 44% increase in productivity

4.3. Total Rewards Model

4.3.1. Components Compensation & Benefits Social interaction/status/recognition Security Work variety, workload, autonomy, control, authority Advancement/ feedback/ development opportunities Work conditions

5. Pay Equity

5.1. Pay-4-Performance

5.1.1. Incentive Pay Based on Performance EXAMPLE: Nike incentivizes basketball players to score certain number of points, assists, steals, blocks to demonstrate exceptional performance (promotes basketball shoes) Based on Productivity EXAMPLE: Monetary or non-monetary (dinner, gifts) for employees that exceed performance goals

5.2. Equal Pay 4 Equal Work

5.2.1. Equal Wage Guideline's 7 Reasonable Factors 1. Different Performance Ratings 2. Seniority 3. Red-Circling (job re-evaluation) 4. Rehabilitation assignment 5. Demotion pay procedures 6. Procedure of Phased-in Wage Reductions 7. Temporary Training Positions

5.3. Pay Secrecy

5.3.1. Advantages Most employees prefer to have their pay kept secret Gives managers freedom Covers up inequities in the internal pay structure

5.3.2. Disadvantages May generate distrust in the pay system Employees may perceive there is no relation between pay and performance