Managing Compensation Managing Human Resources - Unit 9 Managing Compensation Copyright © 2011 by Nelson Education Ltd.

Managing Human Resources - Unit 9 Learning Outcomes After studying this chapter, you should be able to: Explain employer concerns in developing a strategic compensation program. Indicate the various factors that influence the setting of wages. Differentiate the mechanics of each of the major job evaluation systems. Explain the purpose of a wage survey. Define the wage curve, pay grades, and rate ranges as parts of the compensation structure. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Learning Outcomes (Cont’d) Managing Human Resources - Unit 9 Learning Outcomes (Cont’d) After studying this chapter, you should be able to: Identify the major provisions of the laws and regulations affecting compensation. Discuss the current issues of equal pay for work of equal value and pay compression. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Managing Human Resources - Unit 9 Compensation Pay is a statement of an employee’s worth by an employer. Pay is a perception of worth by an employee. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Managing Human Resources - Unit 9 Total Compensation Managing Human Resources - Unit 9 Direct Indirect Wages / Salaries Time Not Worked Vacations Breaks Holidays Commissions Insurance Plans Medical Dental Life Bonuses Gainsharing Security Plans Pensions Employee Services Educational assistance Recreational programs Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd. 6

Managing Human Resources - Unit 9 Goals of compensation To Motivate Employees To Retain Employees To Attract Employees Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Compensation Management and Other HRM Functions Managing Human Resources - Unit 9 Compensation Management and Other HRM Functions Aid or impair recruitment Recruitment Supply of applicants affects wage rates Pay rates affect selectivity Selection Selection standards affect level of pay required Pay can motivate training Training and Development Increased knowledge leads to higher pay Training and development may lead to higher pay Compensation Management A basis for determining employee’s rate of pay Low pay encourages unionization Labour Relations Pay rates determined through negotiation Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Strategic Compensation Planning Managing Human Resources - Unit 9 Strategic Compensation Planning Strategic Compensation Planning Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Linking Compensation to Organizational Objectives Managing Human Resources - Unit 9 Linking Compensation to Organizational Objectives Alignment between business strategy and compensation objectives. Change in business strategy requires change in compensation strategy. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Common Strategic Compensation Goals Managing Human Resources - Unit 9 Common Strategic Compensation Goals To reward employees’ past performance. To remain competitive in the labour market. To maintain salary equity among employees. To mesh employees’ future performance with organizational goals. To control the compensation budget. To attract new employees. To reduce unnecessary turnover. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Pay-for-Performance Standard Managing Human Resources - Unit 9 The Pay-for-Performance Standard Pay-for-Performance Standard The standard by which managers tie compensation to employee effort and performance. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Designing a Pay-for-Performance System Managing Human Resources - Unit 9 Designing a Pay-for-Performance System How will performance be measured? How will monies to be allocated for compensation increases. Which employees will be eligible? How will payouts be made? How often will payouts occur? How large will the payouts be? Will employees perceive the rewards as valued? Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Motivating Employees through Compensation Managing Human Resources - Unit 9 Motivating Employees through Compensation Pay Equity Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Figure 9–1 Relationship between Pay Equity and Motivation Managing Human Resources - Unit 9 Figure 9–1 Relationship between Pay Equity and Motivation The greater the perceived disparity between my input/output ratio and the comparison person’s input/output ratio, the greater the motivation to reduce the inequity. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Expectancy Theory and Pay Managing Human Resources - Unit 9 Expectancy Theory and Pay Expectancy Theory Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Figure 9–2 Pay-for-Performance and Expectancy Theory Managing Human Resources - Unit 9 Figure 9–2 Pay-for-Performance and Expectancy Theory Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Motivating Employees through Compensation (cont'd) Managing Human Resources - Unit 9 Motivating Employees through Compensation (cont'd) Pay Secrecy Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Bases for Compensation Managing Human Resources - Unit 9 The Bases for Compensation Hourly Work Piecework Salary Workers Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Internal Factors External Factors Wage Mix The Wage Mix How are the wages for my job determined? Wage Mix Internal Factors External Factors Copyright © 2011 by Nelson Education Ltd.

The Wage Mix—Internal Factors Managing Human Resources - Unit 9 The Wage Mix—Internal Factors Employer’s Compensation Strategy Worth of a Job Employee’s Relative Worth Employer’s Ability-to-Pay Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Wage Mix—External Factors Managing Human Resources - Unit 9 The Wage Mix—External Factors Labour Market Conditions Area Wage Rates Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Wage Mix—External Factors Managing Human Resources - Unit 9 The Wage Mix—External Factors Cost of Living Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Consumer Price Index (CPI) Managing Human Resources - Unit 9 Consumer Price Index (CPI) A measure of the average change in prices over time in a fixed “market basket” of goods and services Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Wage Mix—External Factors Managing Human Resources - Unit 9 The Wage Mix—External Factors Collective Bargaining Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Job Evaluation Systems Managing Human Resources - Unit 9 Job Evaluation Systems Job Evaluation Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Different Job Evaluation Systems Managing Human Resources - Unit 9 Different Job Evaluation Systems JOB AS JOB PARTS BASIS FOR A WHOLE OR FACTORS COMPARISON (NONQUANTITATIVE) (QUANTITATIVE) Job vs. job Job ranking Factor comparison system system Job vs. scale Job classification Point system system SCOPE OF COMPARISON Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Job Evaluation Systems (Cont'd) Managing Human Resources - Unit 9 Job Evaluation Systems (Cont'd) Job Ranking System Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Job Evaluation Systems (Cont'd) Managing Human Resources - Unit 9 Job Evaluation Systems (Cont'd) Job Classification system Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Managing Human Resources - Unit 9 Point System Point System The Point Manual Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Work Valuation Methods Managing Human Resources - Unit 9 Work Valuation Methods Work Valuation A job evaluation system that seeks to measure a job’s worth through its value to the organization. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Job Evaluation for Management Positions Managing Human Resources - Unit 9 Job Evaluation for Management Positions Hay Profile Method Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Compensation Structure Managing Human Resources - Unit 9 The Compensation Structure Wage and Salary Survey Labour Market Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Collecting Survey Data Managing Human Resources - Unit 9 Collecting Survey Data Outside Sources of Data Problems with Surveys Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Managing Human Resources - Unit 9 The Wage Curve Wage Curve Pay Grades Rate Ranges Red Circle Rates Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Figure 9–4 Freehand Wage Curve Managing Human Resources - Unit 9 Figure 9–4 Freehand Wage Curve Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Figure 9–5 Single Rate Structure Managing Human Resources - Unit 9 Figure 9–5 Single Rate Structure Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Figure 9–6 Wage Structure with Increasing Rate Ranges Managing Human Resources - Unit 9 Figure 9–6 Wage Structure with Increasing Rate Ranges Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

The Wage Curve (cont’d) Managing Human Resources - Unit 9 The Wage Curve (cont’d) Competence-based Pay Broadbanding Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Government Regulation of Compensation Managing Human Resources - Unit 9 Government Regulation of Compensation Canada Labour Code Minimum labour standards for all employees falling within federal jurisdiction Employment Standards Acts Example: minimum work week and provision for 1.5 times in overtime payment. Pay Equity Fair employment practices applied to members of designated groups, regulated provincially. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd. 4

Significant Compensation Issues Managing Human Resources - Unit 9 Significant Compensation Issues Equal Pay for Work of Equal Value Wage-Rate Compression Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.

Reducing Wage-Rate Compression Managing Human Resources - Unit 9 Reducing Wage-Rate Compression Give larger compensation increases to more-senior employees. Emphasize pay-for-performance and reward meritworthy employees. Limit the hiring of new applicants seeking exorbitant salaries. Design the pay structure to allow a wide spread between hourly and supervisory jobs or between new hires and senior employees. Provide equity adjustments for selected employees hardest hit by pay compression. Copyright © 2011 by Nelson Education Ltd. Copyright © 2011 by Nelson Education Ltd.