© 2010 McGraw Hill Ryerson 12-1 COMPENSATION Third Canadian Edition Milkovich, Newman, Cole

© 2010 McGraw Hill Ryerson 12-2 STRATEGIC POLICIES TECHNIQUES STRATEGIC OBJECTIVES EFFICIENCY  Performance  Quality  Customers  Stockholders  Costs FAIRNESS COMPLIANCE ALIGNMENT COMPETITIVENESS CONTRIBUTORS MANAGEMENT INTERNAL STRUCTURE PAY STRUCTURE INCENTIVE PROGRAMS EVALUATION THE PAY MODEL

© 2010 McGraw Hill Ryerson 12-3 Government as Part of the Employment Relationship  government is a key stakeholder in compensation decision making.  governments’ usual interests are whether: procedures for determining pay are fair (pay discrimination) safety nets for the unemployed and disadvantaged are sufficient (minimum wage, employment insurance) employees are protected from exploitation (human rights, pay equity)

© 2010 McGraw Hill Ryerson 12-4 Employment Standards Acts  minimum wage  paid vacation  paid holidays  standard hours of work and overtime pay  pay on termination of employment  minimum age of employment  equal pay for equal work by men and women

© 2010 McGraw Hill Ryerson 12-5 Human Rights Laws  based on Charter of Human Rights and Freedoms in Canadian Constitution  equal treatment in employment and opportunity for employment regardless of race, colour, religion, sex…  prohibit harassment in the workplace

© 2010 McGraw Hill Ryerson 12-6 Pay Equity  issue relating to the gender wage gap  gender wage gap is the amount by which the average pay for female workers is less than the average pay for male workers

© 2010 McGraw Hill Ryerson 12-7 Reasons for Gender Wage Gap  differences in occupational attainment; women historically segregated in small number of occupations e.g., sales, nursing  differences in number of hours worked  differences in industries and firms  differences in union membership  presence of discrimination

© 2010 McGraw Hill Ryerson 12-8 Pay Equity Legislation  intended to redress the portion of the wage gap assumed to be due to discrimination, through comparison of male- and female-dominated jobs  four job evaluation factors required: Skill Effort Responsibility working conditions  compare male and female job classes: job to job method proportional value/wage line method proxy comparison method

© 2010 McGraw Hill Ryerson 12-9 The Impact of Unions in Wage Determination  impact on general wage and benefit levels  impact on the structure of wage packages  impact on non-union firms (spillover)  impact on wage and salary policies and practices in unionized firms

© 2010 McGraw Hill Ryerson Union Impact on General Wage Levels  union workers earn about 10 percent more than non-union workers  size of the gap varies from year to year union impact higher during periods of higher unemployment and slow economy union impact smaller during strong economy  union benefits 20 to 30 percent higher than non-union

© 2010 McGraw Hill Ryerson Union Impact on Structure of Wage Packages  Division between wages and benefits Union benefits 20 to 30 percent higher than non-union  Two-tier wage plans Lower wages for lower seniority workers

© 2010 McGraw Hill Ryerson Union Impact: The Spillover Effect  employers seek to avoid unionization by offering workers the wages, benefits, and working conditions won in rival unionized firms e.g., Dofasco  non-union management continues to enjoy the freedom from union “interference” in decision making  non-union workers receive the “spillover” of rewards obtained by unionized counterparts

© 2010 McGraw Hill Ryerson Role of Unions in Pay Policies and Practices  collective agreement/contract specifies: basis of pay (regular, overtime) occupation - wage differentials experience / merit differentials vacations and holidays wage adjustment provisions (COLA)

© 2010 McGraw Hill Ryerson Unions and Alternative Reward Systems  some collective agreements include alternative rewards: lump sum awards piece rates gain-sharing profit sharing pay-for-knowledge (skill/competency- based pay)

© 2010 McGraw Hill Ryerson Conclusion  governments assess fairness and legislate employment standards, human rights, and pay equity rules that affect compensation management  unions affect compensation management directly through collective agreements, and are facing the need to adjust compensation due to international competition