Formulating the Reward

1
Formulating the Reward Compensation Strategy

• Chapter 5

2
Constraints on Compensation

• Legislated constraints
• Labour market constraints
• Product/service market constraints
• Financial constraints of the organization

3
Compensation Strategy Formulation Process
Define the Required Behaviour
Define the Role of Compensation
Determine to Compensation Mix
Determine the Compensation Level
Evaluate the Proposed Strategy
4
Employment Standards Legislation

• Legislation that sets minimum standards for pay
  and other conditions of employment such as wages,
  hours of work, vacation, statutory holiday and so
  forth

5
Human Rights Legislation

• Legislation that prohibits discrimination in
  hiring or employment on the basis of race, ethnic
  origin, religion, gender, marital status, or age

6
Trade Union Legislation

• Legislation that defines the rights of parties
  involved in a collective bargaining relationship

7
Labour Market Constraints

• Constraints on compensation strategy flowing from
  the relative levels of demand and supply for
  particular occupational groups

8
Product/Service Market Constraints

• Constraints on compensation strategy caused by
  the nature of the product or service market in
  which the firm operates

9
Dimensions of Task Behaviour

• Are tasks simple or complex?
• Procedural or creative?
• Low or high skill requirements?
• Narrow tasks or broad?
• Low or high interdependence?
• Individual or team-based outputs?
• Low or high cost of errors?
• Adequate or high performance required?
• Low or high employee risk-taking desired?
• Low or high customer contact?

10
Dimensions of Task Behaviour

• Low or high impact on organizational performance?
• Low or high employee discretion over work
  process?
• High or low ability to supervise employees?
• Individual output identifiable or not?
• Short-term or long-term results?
• Tasks deal with things or human beings?

11
Characteristics of Employer of Choice

• Career development/advancement opportunities
• Compensation plan/level
• Company reputation in community
• Management/leadership style
• Corporate culture
• Profitability
• Ethical standards
• Type of industry
• Benefits package
• Technology
• Geographic location
• Training programs
• Source Conference Board of Canada 1996. The
  Pursuit of High Quality Workers, HR Executive
  Review, 3(4) 5 12.

12
Technical Ladder

• Defined progression of skills development to keep
  work interesting and provide opportunities for
  higher compensation

13
Compensation Mix Choices
Compensation Mix
Base Pay
Performance Pay
Indirect Pay
14
Base Pay
Base Pay
Job Evaluation
Market Pricing
Pay for Knowledge
15
Performance Pay
Performance Pay
Individual Performance
Group Performance
Organizational Performance
16
Indirect Pay
Indirect Pay
Mandatory Benefits
Pay for Time Not Worked
Pension Plan
Employee Services
Other Benefits
Health Life Insurance
17
Lag Compensation Policy

• A compensation-level strategy based on paying
  below the average compensation level in a given
  labour market

18
Lead Compensation Policy

• A compensation-level strategy based on paying
  above the average compensation level in a given
  labour market

19
Match Compensation Policy

• A compensation level strategy based on paying at
  average compensation levels in a given labour
  market

20
Utility Analysis

• A method used to analyze whether a lead, lag, or
  match compensation-level strategy is most
  efficient for a given organization

21
Hybrid Compensation Policy

• A compensation-level strategy that varies across
  employee groups or compensation components

22
Contingent Workers

• Workers not employed on a permanent, full-time
  basis

23
Two-Tier Wage System

• Pay system in which new employees are subject to
  a different (lower) pay structure than existing
  employees

24
Balance Sheet Approach

• Approach to designing expatriate compensation
  that attempts to provide a standard of living
  comparable with the home country