Compensation Management

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Business 4320

• Compensation Management

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N I N E
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Chapter Objectives

• Explain the objectives of effective compensation
  management.
• Discuss the consequences of mismanaged
  compensation programs.
• Describe how wages and salaries are determined.
• Identify the major issues that influence
  compensation management.
• Explain the differences between equal pay for
  equal work and equal pay for work of equal
  value.
• Evaluate the advantages and disadvantages of
  incentive systems.
• Explain the major approaches to group incentive
  plans.
• Apply the expectancy model of motivation in a
  human resource system.

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Compensation

• 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

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Objectives of Compensation
Effective Compensation
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Compensation Management
Phase I Job Analysis
Phase II Job Evaluation
Phase III Salary Surveys
Phase IV Pricing Jobs
Match
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Compensation Challenges
Prevailing wage rates
Compensation Challenges
Union power
Government constraints
Productivity
Wage salary policies
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Pay 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

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Pay 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

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Pay 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

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Pay-for-Performance

• Incentive systems provide a clear link between
  pay and performance or productivity
• Incentive pay
• Directly linked to an employees performance or
  productivity

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Incentive Systems
Benefits
Problems

• 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

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Individual vs. Team-based Incentives
Team-based
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Pay Secrecy
Advantages
Disadvantages

• 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

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New Approaches to Pay

• Skill- or knowledge-based pay
• Based on the employees 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

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Changing Compensation Systems
Traditional
Modern
Pay 100 base salary
Variable component added
Entitlement-base increases
Performance-driven gains
Few incentive/bonus plans, restricted
to executives
Many kinds of plans, extended throughout the
organization
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Pay Organizational Strategy
Motivating performance
Identifying valued rewards
Areas that impact pay systems
Attract retain
Relating to performance
Motivating development
Setting goals
Consequences