1 copyright © 2005 by the mcgraw-hill companies, inc. all rights reserved.schwind 7th canadian...
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1 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
. 9N I N E
Compensation ManagementCompensation ManagementCompensation ManagementCompensation Management
C H A P T E R
2 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
CompensationCompensationCompensationCompensation
• Cash and non-cash rewards employees receive in exchange for their work
• Effective compensation management– Employees more likely to be satisfied and
motivated
• Compensation perceived to be inappropriate– Performance, motivation and satisfaction may
decline dramatically– Employee turnover may occur– Dissatisfaction with absolute or relative pay
3 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Objectives of CompensationObjectives of CompensationObjectives of CompensationObjectives of Compensation
EffectiveCompensation
LegalLegalcompliancecompliance
AdministrativeAdministrativeefficiencyefficiency
ControlControlcostscosts
RetainRetainemployeesemployees
AcquireAcquirepersonnelpersonnel
EnsureEnsureequityequity
RewardRewardbehaviourbehaviour
4 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Compensation ManagementCompensation ManagementCompensation ManagementCompensation Management
Phase IPhase IJob AnalysisJob Analysis • Identify and study jobs
– Position descriptions
– Job descriptions
– Job standards
5 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Compensation ManagementCompensation ManagementCompensation ManagementCompensation ManagementPhase IPhase I
Job AnalysisJob Analysis • Determine relative worth or value of jobs
• Provides for internal equity
• Job evaluation methods:– Job ranking
– Job grading
– Point system
Phase IIPhase IIJob EvaluationJob Evaluation
6 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Compensation ManagementCompensation ManagementCompensation ManagementCompensation ManagementPhase IPhase I
Job AnalysisJob Analysis • Discover what other employers are paying for specific key jobs
• Provides for external equity
• Sources of data:– HRDC– Consultants– Canada HR Centres– Associations– Self-conducted surveys
Phase IIPhase IIJob EvaluationJob Evaluation
Phase IIIPhase IIISalary SurveysSalary Surveys
7 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Compensation ManagementCompensation ManagementCompensation ManagementCompensation ManagementPhase IPhase I
Job AnalysisJob Analysis • Establishing the pay level for each job– Combines job evaluation
ranking, survey wage rates, and other considerations e.g. organization’s pay policy
– Wage-trend line developed
• Grouping the different pay levels into a structure that can be managed– Job classes and rate ranges
Phase IIPhase IIJob EvaluationJob Evaluation
Phase IIIPhase IIISalary SurveysSalary Surveys
Phase IVPhase IVPricing JobsPricing Jobs
Match
8 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Compensation ChallengesCompensation ChallengesCompensation ChallengesCompensation Challenges
CompensationCompensationChallengesChallenges
PrevailingPrevailingwage rateswage rates
UnionUnionpowerpower
ProductivityProductivity
GovernmentGovernmentconstraintsconstraints
Wage & salaryWage & salarypoliciespolicies
9 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Pay EquityPay EquityPay EquityPay Equity
• Canada Human Rights Act prohibits discrimination because of sex
• It is illegal for companies to pay women less than men if their jobs involve equal skills, effort, responsibilities, and conditions
• Government enforces these provisions
10 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Pay EquityPay EquityPay EquityPay Equity
• Equal pay for equal work– Part of the Canada Labour Code since 1971– Employers must pay men and women the
same wage or salary when they do the same work
• Equal pay for work of equal value– Jobs of comparable worth to the
organization should be equally paid
11 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Pay EquityPay EquityPay EquityPay Equity
• Wage gap– Historical gap between the income of men
and women – Canadian women earn about 80 percent as
much as men
• Wage gap exists in part due to:– Women tend to work in lower-paying
occupations– Career gaps– Note: 5-10% of wage gap is unexplained
12 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Pay-for-PerformancePay-for-PerformancePay-for-PerformancePay-for-Performance
• Incentive systems provide a clear link between pay and performance or productivity
• Incentive pay– Directly linked to an employee’s
performance or productivity
13 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Incentive SystemsIncentive SystemsIncentive SystemsIncentive Systems
BenefitsBenefits ProblemsProblems
• Performance is reinforced regularly
• Reinforcement is quick and frequent
• Effective behaviours are likely to continue
• Wages paid in proportion with performance
• Administration can be complex
• May result in inequities
• Employees may not achieve standards due to uncontrollable forces
• Union resistance
• Focus efforts on one aspect
14 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Individual vs. Team-based IncentivesIndividual vs. Team-based IncentivesIndividual vs. Team-based IncentivesIndividual vs. Team-based Incentives
Individual• PieceworkPiecework
• Production bonusesProduction bonuses
• CommissionsCommissions
• Maturity curvesMaturity curves
• Executive incentivesExecutive incentives
• Team resultsTeam results
• Production incentivesProduction incentives
• Profit-sharingProfit-sharing
• Stock ownership (ESOP)Stock ownership (ESOP)
• Cost reduction plansCost reduction plans
Team-basedTeam-based
15 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Pay SecrecyPay SecrecyPay SecrecyPay Secrecy
AdvantagesAdvantages
DisadvantageDisadvantagess
• Most employees prefer to have their pay kept secret
• Gives managers greater freedom
• Covers up inequities in the internal pay structure
• May generate distrust in the pay system
• Employees may perceive that there is no relationship between pay and performance
16 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
New Approaches to PayNew Approaches to PayNew Approaches to PayNew Approaches to Pay
• Skill- or knowledge-based pay– Based on the employee’s skills or knowledge
• Variable pay– Performance-linked approach
• Broadbanding– Consolidation of pay grades
• Tailor-made perks– Employees choose
• International pay– Need to develop polices to meet global needs
17 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Changing Compensation SystemsChanging Compensation SystemsChanging Compensation SystemsChanging Compensation Systems
TraditionalTraditional ModernModern
Entitlement-baseEntitlement-baseincreases increases
Performance-drivenPerformance-drivengains gains
Pay = 100% basePay = 100% basesalarysalary
Variable componentVariable componentaddedadded
Few incentive/bonusFew incentive/bonusplans, restricted toplans, restricted toexecutives executives
Many kinds of plans, Many kinds of plans, extended throughout extended throughout
the organizationthe organization
18 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Pay & Organizational StrategyPay & Organizational StrategyPay & Organizational StrategyPay & Organizational Strategy
Areas that impactAreas that impactpay systemspay systems
Attract &Attract &retainretain
Identifying Identifying valued rewardsvalued rewards
MotivatingMotivatingdevelopmentdevelopment
Relating toRelating toperformanceperformance
SettingSettinggoalsgoalsConsequencesConsequences
MotivatingMotivatingperformanceperformance
19 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
Employee MotivationEmployee MotivationEmployee MotivationEmployee Motivation
• To be committed and productive employees must be motivated
• Motivation– A person’s drive to take action because that
person wants to do so
• Expectancy model is comprehensive– Shows the application of all human resource
functions
20 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Schwind 7th Canadian Edition
. 9N I N E
Compensation ManagementCompensation ManagementCompensation ManagementCompensation Management
C H A P T E R