MODULE 7: Chapter 11 - Strategic Pay Plans

Steps Involved in Developing Job-Ranking Method of Job Evaluation

1) Developing job ranking method of job evaluation 2) Obtaining job information 3) Grouping hobs to be rated 4) Selecting comepnsable factors 5) Ranking jobs 6) Combining ratings

Steps in Pricing Jobs with a Wage Curve Using Grades

1) Find average pay for each pay grade 2) Plot pay rates for each pay grade 3) Price jobs

Primary Steps Involved in Developing a Job Evaluation Program

1) Identifying needs of program 2) Getting employees'cooperation 3) Choosing an evaluation committee which carries our actual job evaluation

Four Basic Considerations Influence Formulation of Any Pay Plan

1) Legal requirements 2) Union issues 3) Compensation policy 4) Equity

Establishing Pay Rates

1) Preparing for job evaluation 2) Conduct a wage/salary Survey 3) Combine the job evaluation and survey Info to determine pay for jobs

Compensation Plan to Pay Exec, Managerial & Professional Employees

Aim of plan is to attract good employees and maintain their commitment. Tend to emphasize performance incentives more than other employee's pay plans. General trend is to decrease relative importance of base salary and increase importance of short and long term executive incentives Almost always paid based on their performance as well as basis of static job demands, like working conditions.

Employee Compensation

All forms of pay or reward going to employees that arise from employment.

Pay for Knowledge Systems (Competency/Skill based Pay)

Alternative method to traditional job evaluation pay. Paying employees for their knowledge rather than how they apply it to their job. Pay based on: depth of skills, range & type of skills and knowledge. More efficient in the first years of existence. Pay for Knowledge Program Includes: 1) Competencies & Skills - Directly important to job performance - Defined in measurable and objective terms - Skills easier to measure than competencies 2) New & different competencies - Replace obsolete competencies or ones that are no longer important to job performances 3) On the Job Training - Those who possess competencies & skills should teach others 4) On the job assessment

Stage 3: Combining Information from Evaluation and Surveys to Determine Pay for Jobs

Assign pay rates to each pay grade. Wage Curve - Graphic description of the relationship btw value of job and wage paid for job - Helps when assigning pay rates to reach pay grade / job - Step 1: find average pay for each pay grade - Step 2: plot pay rates Developing Rate Ranges - Develop pay ranges for each pay grade allows for performance differences - Pay ranges: series of steps or levels within a pay grade, usually on years of service - Built around the wage line or curve Broadbanding - Reducing number of salary grades and ranges into a few wide levels of bands which each obtain relatively wide ranges of jobs and salary levels - Facilitates less specialized, boundaryless jobs and organizations - Advantage: injects greater flexibility into employee compensation Correcting Out of the Line Rates - Average pay of jobs is too high relative to other jobs in the firm --> pay cuts/freeze - Average pay of job low relative to other jobs in the firm --> - Red Circle Pay Rates: Rate of pay that is above the pay range maximum

Classification Method

Classes - Groups of jobs based on set of rules for each class - Such as the independent judgement of skills, physical effort etc Grades - Groups of jobs based on set of rules for each grade, where changes are similar in difficulty but different otherwise - Difficult to write grade descriptions Draw up classifying rules. Grade/Group Description - Written description of the level of compensable factors required by jobs in each grades, used to combine jobs into similar grades or classes

Union Influences on Compensation Decisions

Compensation negotiated between employer and employee union representatives. Unions feel that no one can better judge the relative value of a job better than the workers themselves. Any system used to evaluate the worth of a job can become a tool for management malpractice.

Types of Competencies

Core Competencies - Knowledge and behaviours that employees must exhibit in order for the organization to succeed - Ex. customer service orientation for all hotel employees Functional Competencies - Associated with a particular organizational function - Ex. negotiation skill for sales reps Behavioural Competencies - Expected behaviours - Ex. always walking customer to product that they are looking for rather than pointing

Legal Considerations in Compensation

Employment/Labour Acts (Canada Labour Code): - Set minimum standards in regards to pay (wage, max hours of work, paid vacation/stat holiday, termination pay, record keeping of pay, etc) Pay Equity Acts: - Providing equal pay to make dominated job classes and female dominated job classes of equal value to employer Workers Compensation Laws - Each jurisdiction has its own - Provide prompt, sure and reasonable income to victims of work-related accidents and illnesses Employment Insurance act: - Protects Canadian workers from economic destitution in event of employment termination beyond control - Allows up to 45 weeks of compensation for workers unemployed - Provides maternity leave, parental leave, and compassionate care leave Human Rights Act - Protect Canadians from discrimination on number of grounds in employment area Canada / Quebec Pension Plan - Pension benefits based n employee's average earnings paid during retirement

Total rewards

Encompasses traditional pay, incentives, benefits, career development and recognition programs. Purpose is to attract, retain, motivate and engage employees through positive emotional connection back to the employer. Approach has arisen from the changing business environment of the last several decades. Considers individual reward components as part of an integrated whole. Originally conceptualized as having three broad categories: compensation, benefits and work experience (work/life programs, performance & recognition, and development & career opps). pos

Equity

Equity Theory of Motivation - People are motivated to maintain a balance between what they perceive as contributions and their rewards External Equity - How a job' pay rate in one company compares to another's company Internal Equity - How fair the job's pay rate is when compared to other jobs within the company Individual Equity - Fairness of an individual's pay rate as compared to co-workers with similar jobs Procedural Equity - Perceived fairness of the processes and procedures used to decide pay allocation

Compensating Executives and Managers

Five Elements in Compensation Package 1) Salary 2) Benefits 3) Short-term Incentives 4) Long-term Incentives 5) Perquisites ' Salary paid depends on value of person's work to the organization and how well they honour responsibilities. Emphasis on performance incentives because organizational results likely to reflect executives' contributions.

Stage 1: Preparing for Job Evaluation

Job Evaluation - Systematic comparison to determine the relative worth of a job within a firm Main Steps of Job Evaluation - Identifying need for the program, getting cooperation and picking an evaluation committee that carries eval. out Benchmark Job - Job that is critical to the firm's operations or that is commonly found in another organization Compensable Factors - Ranking method: jobs viewed with greater value or worth than others (disagreement on resulting job hierarchy) - Alternative method is comparing jobs based on compensible factors - Fundamental and compensable element of a job - Ex. skills, effort, responsibility and working conditions Job Evaluation Committee - Diverse group established to ensure fair and comprehensive representation of the nature and requirements of the jobs in question Classification method - Categorizes jobs into groups Point Method - number of compensable factors identified, the degree to which each of these factors is present is determined and an overall point value is calculated - Easily explained to employees - Pay grade: comprises jobs of approximately equal value

Compensating Professional Employees

Non-supervisory professional employees - Ex. engineers and scientists Difficult to measure creativity, problem solving skills & economic impact only indirectly related to individuals' effort. Traditional methods of job evaluation rarely used. Commonly use job classification as the job evaluation method. Market Pricing Approach - Limited to determining compensation for professional jobs based on values established for similar benchmark jobs in the market

Indirect Financial Payment

Pay in the form of financial benefit, such as employer paid insurance or vacation

Direct Financial Payment

Pay in the form of wages, salaries, incentives, commissions and bonuses. Two methods: 1) Based on increments of time 2) Based on performance

Upward Bias

Problem resulting from using data in employee comepsnation surveys

Pay Equity

Requires equal wages paid for jobs of equal values as determined by gender neutral job evaluation techniques. Wage gap has narrowed since introduction of pay equity legislation.

Wage Gap

Result of: - Systemic discrimination - Experience level - Level of unionization - Differences in hours worked - Education levels

Minimum Standards Relating to Pay

Set by employment/labour standard acts. - Minimum wage - Maximum hours of work - Overtime pay - Paid vacation - Paid statutory holidays - Termination pay - Record keeping of pay info

Stage 2: Conduct a Wage/Salary Survey

Wage/Salary Survey - Central role in determining pay rates for jobs - Purpose of pricing jobs - Can also obtain information on industry demands Used in three ways: 1. Determine pay rates for benchmark jobs that serve as reference points or anchors for the employer's pay scale (other jobs compared to this job to determine pay) 2. Compensation increasingly shaped by market wages 3. Collect data on employee benefits, work-life programs, pay-for-performance plans, recognition plans, etc to provide a basis to which to make decisions regarding other types of rewards Employer Surveys - Informal (telephone surveys or discussions) - Formal (questionnaire surveys used to collect compensation info from other employers) (ex. number of employees, overtime policies, starting salaries, paid vacay Commercial, Professional & Gov't Salary Surveys - Employers also rely on surveys published by various commercial firms, professional org., or gov't agencies (Ex. Stats Canada) - Provides example to earnings data by geographic area, industry and occupation

Compensation Policies

Written by HR or compensation manager in conjunction with senior management. Provides important guidelines regarding wages and benefits that it pays. Number of factors taken into account when developing a compensation policy: - Whether organization wants to be a leader/follower regarding pay - Business strategy - Cost of different types of compensation Determine Pay Structure: - Salaried, commission or hourly Important Policies: - Basis for salary increases - Promotion and demotion policies - Overtime pay policy - Probationary pay - Leaves for jury duty/holiday