Chapter 11 Strategic Pay Plans PDF

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Chapter 11 Strategic Pay Plans The Strategic Importance of Total Rewards    

Total rewards – refers to an integrated package of all rewards (monetary and nonmonetary, extrinsic and intrinsic) gained by employees arising from their employment Employee value is created when rewards are meaningful to employees and influence their affiliation with the organization Total rewards were conceptualized as having 3 broad categories: compensation, benefits and work experience WorldatWork clarified work experience category by splitting into three parts work/life programs, performance and recognition and development and career opportunities

5 components of Total Rewards 1. Compensation - Direct financial payments in the form of wages, salaries, incentives, commissions and bonuses 2. Benefits - Indirect payments in the form of financial benefits like employer-paid insurance and vacations 3. Work/Life programs - Program that help employees do their jobs effectively, ex. Scheduling 4. Performance and recognition - Pay-for-performance and recognition programs 5. Development and career opportunities - Reward focuses on planning for the advancement and/or change in responsibilities to best suit individual skills, talents and desires Impact of Rewards 

Engagement refers to a positive emotional connection to the employer and a clear understanding of the strategic significance of the job

Basic Considerations in Determining Pay Rates Legal Considerations in Compensation 

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Employment/Labour Standards Acts (Canada Labour Code) - Minimum standards regarding pay, minimum wage, maximum hours of work, overtime pay, paid vacation, paid statutory holidays, termination pay, record keeping of pay information Pay Equity Acts - Equal pay for work of equal value performed by men and women Human Rights Acts - Prohibit discrimination in employment on the basis of age, sex, colour, race/ancestry/place of origin, religion/creed, marital/family status and physical or mental disability Canada/Quebec Pension Plan - All employees and their employers must contribute to Canada/Quebec Pension Plan based on employee’s average earnings Other Legislation Affecting Compensation - Every province and territory, has its own workers’ compensation laws - Objective is to provide a prompt, sure and reasonable income to victims of work-related accidents and illnesses

Union Influences on Compensation Decisions 

Canada Labour Relations Board in each province and territory oversee employer practices and ensure that employees are treated in accordance with their legal rights

Union Attitudes toward Compensation Decisions 

One implication is that the best way in which to gain the cooperation of union members in evaluating the worth of jobs is to get their active involvement in this process and in assignment fair rates of pay to jobs

Compensation Policies 

Important policies include the basis for salary increases, promotion and demotion policies, overtime pay policy and policies regarding probationary pay and leaves for military service, jury duty, and holidays

Equity and Its Impact on Pay Rates  

Research has indicated that employee perceptions of fairness are one of the three key conditions for effective reward program Externally, pay compare favourably with rates in other organization

Establishing Pay Rates

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3 stages Determine the worth of jobs through job evaluation Conduct wage/salary survey of what other employers are paying Combine the job evaluation (internal) and salary survey (external)

Stage 1: Job Evaluation  

Job evaluation – a systematic comparison to determine the relative worth of jobs within a firm Benchmark job – a job that is critical to the firm’s operations or commonly found in other organization

Compensable Factors   

Compensable factors – a fundamental, compensable element of a job, such as skill, effort, responsibility, and working conditions Pay equity acts in Canada focus on 4 compensable factors: skill, effort, responsibility and working conditions Job evaluation method by Hay Group consulting firm focus on 4 compensable factors: know-how, problem solving, accountability and working conditions

Job Evaluation Committee 

Established to ensure the representation of the points of view of various people who are familiar with the jobs in question, each of whom may have a different perspective regarding the nature of the job

Classification Method  

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Classification/grading method – a method for categorizing jobs into groups Classes – groups of jobs based on a set of rules for each class, such as amount of independent judgment, skill, physical effort and so forth. Classes usually contain similar jobs – such as all secretaries Grades – groups of jobs based on a set of rules for each grade, where jobs are similar in difficulty but otherwise different. Grade often contain dissimilar jobs, such as secretaries, mechanics and fire-fighters Grade/group description – a written description of the level of compensable factors required by jobs in each grade. Used to combine similar jobs into grades or classes

Point Method

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The job evaluation method in which a number of compensable factors are identified, the degree to which each of these factors is present in the job is determined and an overall point value is calculated Preliminary steps Determine factor weights (number of points) and degrees (definition of varying amounts)  Sub-factor for the factor “working conditions” might have 3 degrees 1. Occasional – less than 30% of time on an annual basis 2. Frequent – 30% to 60% 3. Continuous – more than 60% of the time on an annual basis Assign points for each degree Evaluate the jobs Pay grade – comprises jobs of approximately equal value

Stage 2: Conduct a Wage/Salary Survey 

Wage/salary survey – a survey aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for comparable jobs. Formal written questionnaire surveys are the most comprehensive

Formal and Informal Surveys by the Employer  

Informal telephone surveys to collect data on a relatively small number of easily identified and quickly recognized jobs Formal questionnaire surveys to collect compensation information from other employers, including things like number of employees, overtime policies, starting salaries and paid vacations

Commercial, Professional and Government Salary Surveys 

Many employers rely on surveys published by various commercial firms, professional associations or government agencies

Stage 3: Combine the Job Evaluation and Salary Survey Information to Determine Pay for the Jobs 

Wage curve – a graphic description of the relationship between the value of the job and the average wage paid for this job

Developing Rate Ranges 

Pay ranges – a series of steps or levels within a pay grade, usually based on years of service

Broadbanding

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Broadbanding – reducing the number of salary grades and ranges into just a few wide levels or bands each of which then contains relatively wide range of jobs and salary levels Injects greater flexibility into employee compensation

Connecting Out-of-Line Rates  

Average pay for job is currently too high or too low relative to other jobs in the firm Red circle pay rate s- a rate of pay that is above the pay range maximum

Pay for Knowledge     

Competency-based pay (management and professional employees) Skills-based pay (manufacturing employees) Core competencies – knowledge and behaviours that employees throughout the organization must exhibit for the organization to succeed Functional competencies – associated with a particular organizational function such as negotiation skills for salespeople Behaviour competencies – always walking a customer to the product they are looking for rather than pointing

Pay for Executive, Managerial and Professional Jobs  

Goal is to attract good employees and maintain their commitments Executives are almost always paid based on their performance as well as job demands, like working conditions

Compensating Executives and Managers 

5 elements in executive/managerial compensation package: salary, benefits, short-term incentives, long-term incentives and perquisites

Compensating Professional Employees 

Most employers use a market-pricing approaching in evaluating professional jobs

Pay Equity  

Providing equal pay to male-dominated job classes and female-dominated job classes of equal value to the employer Best way is to eliminate male and female dominated jobs by ensuring women have equal access to and are equally represented in all jobs...