Week 8: Compensation and Benefits

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Week 8 Compensation and Benefits

• BUSI 4320
• Dr. D. Ford

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This Weeks Class

• Compensation
• Benefits

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Administrivia

• REMINDER The in-class debates are in three weeks
  (December 6th)! Summary sheets and peer
  evaluations are due that day.
• Marking key is in the course outline and was
  discussed in first class. REMINDER spelling,
  grammar, substance/content and references are key
  for your marks, as is addressing the
  questions/debated points.

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Compensation

• Important interaction between compensation and
  other HR functions.
• Planning
• Recruitment Selection
• Training
• Performance
• Labour Relations

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Compensation
Compensation
Direct
Indirect
Wages/Salaries
Time not worked
Insurance Plans
Commissions
Security Plans
Bonuses
Employee Services
Gainsharing
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Compensation

• Compensation objectives policies should
  facilitate HR practices as well as overall
  objectives of the organization.
• Formalized goals also possible which include
• Reward Ees past performance
• Remain competitive in the labour market
• Maintain salary equity among Ees
• Motivate Ees future performance
• Maintain the budget
• Attract new Ees
• Reduce unnecessary T/O
• To achieve goals, policies must assist mgmt in
  decision making

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Compensation

• Some key terms
• Pay-for-Performance Standard
• Standard by which managers tie compensation to Ee
  effort and performance.
• Includes merit pay, cash bonuses, incentive pay,
  gainsharing
• To differentiate the pay between average and
  outstanding
• Ees increase output 15-35 when an organization
  does PFP

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Compensation

• Motivating Value of Compensation
• Pay constitutes quantitative measure of Ees
  worth
• Pay Equity / Distributive Justice (OB!!)
• An Ees perception that compensation received is
  equal to the value of the work performed
• Internal pay equity important to performance
• Must be perceived as equitable

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Compensation

• Pay Expectancy
• Level of motivation depends on the attractiveness
  of the reward sought
• Ees perception is very important!

High Effort
High Performance
Value Monetary Rewards
Pay Satisfaction
Expectancy
Value
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Compensation

• Pay Secrecy
• Secrecy can generate distrust in compensation
  system, reduce Ee motivation, and decrease
  organizational effectiveness
• Serves to cover inequities
• Makes compensation easier to manage

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Compensation

• Bases for Compensation
• Hourly or day work
• Work paid on an hourly basis
• Piecework
• Work paid according to the of units produced
• Salaried Ees
• Fixed amount of pay per month.
• Overtime
• Employment Standards Act (usually 1.5 times)
• Non-exempt employees covered by ESA
• Exempt employees not covered by ESA Managers,
  supervisors, and white-collar professional
  employees are exempted on the basis of their
  exercise of independent judgment and other
  criteria.
• Regular pay
• Minimum wage (differs for different types of
  jobs e.g., waitress versus retail)

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Compensation

• Components of the Wage Mix
• Combination of external and internal factors can
  influence directly or indirectly amount Ees are
  paid
• External Factors
• Labour Market Conditions
• Area Wage Rates
• Cost of Living
• Cost of Hiring
• Collective Bargaining
• Legal Requirements

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Compensation

• Components of Wage Mix (cont.)
• Internal Factors
• Employers Compensation Policy (lead, lag, match)
• Worth of a job (relative worth reSKA)
• Employees relative worth (ind perf.)
• Employers ability to pay ()

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Compensation

• Job Evaluation Systems
• Systematic process of determining the relative
  worth of jobs in order to establish which jobs
  should be paid more than others within an
  organization.
• Helps establish internal pay equity

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Compensation
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Compensation

• Job Ranking System
• Simplest and oldest system. Also least precise
• Jobs are arranged on the basis of their relative
  worth to the organization
• Rank order does not take into consideration
  amount of difference between each rank

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Compensation

• Job Grading / Job Classification System
• System of job evaluation by which jobs are
  classified and grouped according to a series of
  predetermined wage grades.
• Slightly more sophisticated than job ranking, but
  not very precise.
• E.g., This is done with student markers at other
  universities
• TA I repetitive, numerical, no independent
  thought required 8.48/hr
• TA II non-repetitive, essays, independent
  thought required 10.56/hr

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Compensation

• Point System
• Quantitative job evaluation procedure that
  determines the relative value of a job by total
  points assigned to it.
• Consists of compensable factors, levels (or
  degrees) of the factors, and points allocated to
  each subfactor and levels.
• Point Manual written explanation of each job
  element and what is expected for each level.

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Compensation

• Factor Comparison System
• Job evaluation system that permits the evaluation
  process to be accomplished on a factor-by-factor
  basis by developing a factor comparison scale.
• The compensable factors of a job evaluated are
  compared against the compensable factors of key
  jobs within the organization that serve as the
  job evaluation scale

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• Key jobs
• Important for wage-setting purposes, and are
  widely known in the labour market
• Important to Ees and organization
• Vary in terms of job requirements (e.g.,
  accountant, janitor, tool-and-die maker)
• Relatively stable job content
• Used in salary surveys for wage determination

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• Job Evaluation for Management Positions
• Hay Profile Method (1938 E.N. Hay Bank)
• Uses 3 factors knowledge, mental effort, and
  responsibility (know-how KH, problem-solving PS,
  accountability AC)
• Evaluators to examine differences between
  positions.
• If no seen differences then same.
• Slight differences 1 step (15)
• Definite differences 2 steps (30)
• Differences without studying 3 steps (50)

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Compensation

• Wage and Salary Survey
• Survey of wages paid to Ees of other Ers in
  relevant labour market
• Helps maintain internal and external pay equity
  for Ees
• Sources of data HRDC (Human Resources
  Development Canada), consultants, Canada Human
  Resources Centres (CHRC), employer association.
• Key jobs are used for surveys.

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Benefits

• Constitute and indirect form of compensation that
  is intended to
• Improve the quality of work life for Ees,
• Increase productivity and retention for orgn,
• To support societal needs.
• Growth of Ee benefits
• Initially fringe benefits to decrease
  unionization now viewed as rights and key in
  recruitment
• Costs almost half the Ees salary (e.g., 50,000
  annual salary costs an organization 75,000 in
  payroll expenses)

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Benefits

• Requirements
• Establishing specific objectives
• Depends on size, location, union, profits
• Must be compatible with philosophy and policies
  of organization
• Allowing for Ee input
• Opinion surveys, interviews
• Modifying Ee benefits
• Providing for flexibility
• Flexible benefits plans (cafeteria plans) enable
  Ees to choose the benefits that are best suited
  to their particular needs.
• Communicating employee benefits information
• Concerns of Management
• Rising Costs
• Legal Concerns

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Benefits

• Employee Benefits Required by Law
• Constitutes 11.2 of benefit package that Ers
  provide
• CPP/QPP (1966) mandatory contributory plan (Er
  and Ee contribute), portable plan (not linked to
  a specific Er) for pension. Payment based on Ee
  salary with cap.
• EI (UI in 1940 ? EI in 1995) - Self-employed not
  covered, based on hours not weeks worked
  Payment based on Ee salary.
• WCI (workers compensation insurance provincial)
  group insurance for Ers in case Ee injured at
  work. Payment based on of payroll figures and
  history of claims.
• Some provinces Medicare (e.g., ON)
• Supplemental unemployment benefits (1950s due to
  unions) must be approved by UIC (Unemployment
  Insurance Commission)
• Vacation and holidays min. 2 weeks (3wk in SK),
  inc. with yr.
• Leaves without pay

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Benefits

• Discretionary Major Employee Benefits
• Health-care benefits
• Life insurance
• Health-related insurance dental, supplementary
  medical, vision.
• Pay for time not worked (vacation with pay, paid
  holidays, sick leave/personal leave day,
  on-the-job breaks, severance pay)
• Salary Continuation Plans
• Short-term disability plan
• Long-term disability plan
• Retirement programs (RPP)
• Defined benefits plan (DB) fixed amount based
  on age and length of service
• Defined contribution plans (DC) Ee and Er
  contribute to pension plan Pension Benefits
  Standards Act

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Benefits

• Employee Services
• Employee Assistance Programs (EAP)
• Service provided by Ers to help workers cope with
  a wide variety of problems that interfere with
  the way they perform their job.
• Need to pay attn to credentials, liability and
  confidentiality, cost, accountability and service
  capabilities
• Personal cries for help, emotional problems and
  alcoholism
• Counselling Services
• An important part of EAP (family, marriage,
  mental health)
• Educational Assistance Plans
• Help Ees keep up-to-date skills

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Benefits

• Employee Services (cont.)
• Childcare
• Assist Ees, especially with the inc. of women
  with dependents
• Eldercare
• Hurts productivity flextime
• Other services
• Food
• Legal
• Financial planning
• House and moving expenses
• Transportation assistance
• Purchasing
• Credit unions
• Recreational and social services
• Awards

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Next Week

• Managing Employee Relations
• Diversity Management
• Unions