Compensation and Benefits Administration

Week 10 (Part B)Dr. Teal McAteer

Teaching ProfessorDeGroote School of Business

McMaster University

Responsibilities ofCompensation Professionals

Legislative compliance Conduct pay or wage surveys Conduct job evaluations Create links between desired rewards and

levels of performance Monitor compensation costs

Pay Surveys

Method of obtaining accurate information about pay rates for relevant jobs in other organizations

Gauge of external equity

How To Conduct A Pay Survey Specify the purpose of the survey Specify jobs to be surveyed, their descriptions or

specifications, and the information needed from survey participants

Select comparison employers for inclusion in the survey

Select a survey method and design a survey instrument

Administer the survey Analyze and communicate survey data

Job Evaluation Systems

Determine relative worth of jobs to the organization

Internal equity Central to Pay Equity

Job Evaluation Process

Collect job analysis data Prepare job descriptions and job specifications Choose compensable factors – those factors an

organization values and chooses to reward through differential pay

Develop or choose a job evaluation method Evaluate jobs

Pay Equity

Job evaluation system must be compliant with Pay Equity which considers factors of

Skill Effort Responsibility Working conditions

System must be gender neutral

Types of Job Evaluation Methods

Ranking Level description (classification method) Factor comparison Point methods Market pricing

Ranking

Orders jobs from least valued to most valued More appropriate for small organizations and

those with small numbers of jobs Advantages

Simple Quick and inexpensive

Disadvantages Entirely subjective No explicit rationale or documentation for results

Level Description(Classification Method)

Places jobs in a pre-existing hierarchy Compares jobs to descriptions of job grades Advantages

Inexpensive Readily available

Disadvantages Cumbersome

Factor Comparison

Compares jobs to key jobs on scales of compensable factors

Advantages Custom-built Easy to use

Disadvantages System becomes less accurate as key jobs change Complex Limited to manufacturing, manual, blue-collar jobs

Point Method

Jobs are compared to standardized descriptions of degrees of universal compensable factors and sub factors

Advantages Most accurate Stable over time

Disadvantages Administrative costs can be high

Market Pricing Relies entirely on the labour market to

determine how much jobs should be paid Advantages

Avoids management bias Employees paid at market value

Disadvantages Promotes instability of pay structure May lead to perceived inequities Results depend on organizations surveyed Difficult to obtain pay information about some of the

less common jobs in an organization

Key Outcome of Job Evaluation

Hierarchy of jobs in terms of their relative value to the organization

How Is Pay Assigned to Jobs?

Requires pay philosophy decision regarding Relationship of pay levels to market

Lead Lag Match

Pay Policy Line

Graphic depiction of line drawn between midpoints of salary ranges

Represents an organization’s pay level

How do Organizations Structure Pay? Typically offer range of pay Variations in pay based on different in performance,

employee qualifications and/or seniority Requires rationale for setting starting pay and for

progression through the range Jobs of similar value can be grouped into pay grades Within a pay grade, there is a pay range which defines

the upper and lower limits of pay

Assigning Pay to Persons

Shift from job-based to person-based pay system

Skill based pay systems Based on knowledge and skills individuals

develop on the job Competency based pay systems

Compensation is based on individual traits, attitude and/or behaviours individuals bring and apply to the job.

Using Pay to Motivate Employees

Pay for performance = pay is contingent on some level of performance specified by the organization

Merit pay Hinging promotion to higher-paying jobs contingent of

superior performance Incentive pay system

Pay For Performance Systems

Individual

Group

Company

Merit Promotion Straight piece rate

Group piece rate Group standard hour

plans

Profit sharing plans Cost savings plan

Compensation Administration

Ensure that compensation system is achieving its goals and that compensation costs remain within allocated amounts

Mechanisms used include: Compa-ratio Budgets Periodic audits of wages

Pay Equity

Equal pay for work of equal value Pay Equity Plan is required for each bargaining

unit and for that part of the establishment that is not in any bargaining unit

Trend – Total Rewards

Definition: Any type of reward for service/work

More options now presented to compensate/reward employees. Desired effect is to enhance ability to attract, retain and motivate employees in a very competitive market (i.e. “War for Talent”)

Total Rewards Model

Work Experience

Benefits

Compensation

Why Total Rewards

Drive for profitability (private sector) Drive for improved effectiveness/efficiency Better control of labour costs Enhanced ability to recruit, attract and retain

key staff Enhanced flexibility

Categories Of Benefits

Universal benefits Statutory benefits Discretionary benefits for employee protection Pay for time not worked Employee services

Universal Benefits

Government provided without requiring direct contributions from either employees or employers

OAS (Old Age Security) GIS (Guaranteed Income Supplement) Provincial hospital and medical plans (OHIP)

Statutory Benefits

Employer must provide under federal and/or provincial laws

CPP/QPP Workers’ compensation Employment insurance Supplementary coverage i.e. SUB plans Health insurance

Discretionary Benefits

Private pension plans Defined benefit plan Defined contribution plan Combination

Group insurance programs

Holiday And Vacation Pay

Statutory plus others

Vacations

Employee Service Benefits

Savings plans Tuition loans Recreation facilities and programs Parking privileges

Flexible Benefits Flex plans allow employees a degree of choice

in some of the benefits, with varying levels of cost-sharing by level of coverage, and an opportunity to review the choice on a periodic basis

Four types Modular plans Core plus option plans Private health services plans Cafeteria plans

Controlling Benefits Cost

Provide benefits that the majority of employees value and eliminate those in which they have no interest

Have employees contribute a certain amount toward the purchase of discretionary benefits

Group insurance Managed care of employer-provided health

benefits

Issues In The Benefits Areas

Pension issues Same-sex spousal benefits Controlling rising benefit costs Disability management New accounting methods

Benefit Cost ContainmentStrategies Contribution changes Limits Coverage changes Drugs Proactive management approach Communication, education, incentives New Plan/programs

The Work Experience

Satisfy intrinsic needs Includes elements of reward that are important

to employees and employers but are less tangible than compensation and benefits

Employees place high value on the work experience

Elements Of The Work Experience

Acknowledgement and recognition Balance of work/life Culture Development Environment