Compensation and Benefits Administration Week 10 (Part B) Dr. Teal McAteer Teaching Professor DeGroote School of Business McMaster University

Responsibilities of Compensation 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 BenefitsCompensation

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 Containment Strategies  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