Chapter 9 managing compensation HR

 Only up to page 341

Total rewards
 An integrated package of all rewards (monetary, non monetary, extrinsic,
intrinsic)
 Goal is to attract, retain, an engage employees
 Aligned to company’s strategy; provide value
 Financial rewards  direct: wages and salaries, incentives, bonuses,
commissions
  Indirect: employee benefits

 Non financial Rewards  employee recognition

 Work like balance programs
 Career development opportunities

Managing Compensation (legal requirements for compensation):

 Human rights legislation
 Pay equity
 Employment labour standards

Pay fairness
Equity – my outcomes/my inputs compared to your outcomes/your inputs
 The aim is to have balance in this ratio

Expectancy theory
 Employees should exert greater work effort if they have reason to expect that
is will result in a reward (outcome) that they value. (Effort  performance
outcomes). If they value what they are doing they will put in more effort

Factors affecting the pay

Internal factors:
 Compensating strategy of the organization
 Worth of job
 Employees relative worth
 Employers ability to pay

External Factors:
 Conditions of the labor market: supply and demand for labor within an
area, other forces (collective agreement, government regulation)
 Area wage rates: wage structure needs to be in line with local wages
 Cost of living: based on consumer price index, escalator clauses COLA 
cost of living (CPI)(a basket of normal goods how is this basket changing in
price over time, tells about inflation)
  Collecting bargaining: union bargaining collectively to achieve increases in
real wages
 Legal requirements: minimum wage and shit

Job evaluation systems

Job evaluation: the systematic process of determining the relative worth of jobs in
order to establish which jobs should be paid more than others within an
organization  ensures internal equity

1) Job ranking system: jobs are ranked on the basis of their relative worth. EX)
restaurant – cashier/server, cook, manager
 Disadvantages: not systematic, based on judgment can be bias, cant use in a large
organization, based on relative worth not absolute worth

2) Job classification system: jobs are classified and grouped according to a series
of predetermined wage grades
 Wage grades have increasing amounts of skill, knowledge, ability, or other factors
 All jobs are then compared to descriptions of job classes
 Each job is slotted into the appropriate grade
Ex) federal government

3) Point system: permits jobs to be evaluated quantitatively on the basis of factors

or elements compensable factors that constitute the job
 Factors could be: skills, experience, effort, responsibility, job conditions, and
supervisory responsibility
 The point manual: contains a description of the compensable factors and the
degrees to which these factors may exist. (Understand figure 9.2 - 5 factors are: skill,
effort, responsibility, job conditions, client service)

4) Work Valuation: A job evaluation system that seeks to measure a jobs worth
through its value to the organization
 Valued relative to financial, operational or customer service objectives of the
organization - rather than internally applied points
 How do they contribute to overall success?
Management and executive positions: often difficult to evaluate, may use a
different method than hourly
Ex) hay profile: 3 factors knowledge, mental activity, and accountability

TEXTBOOK NOTES

Motivating employees through compensation: theoretical explanations

Equity Theory:

For employees, equity is achieved when their perceived input/output ratio equals
the input/output ratio of referent others (or those to whom they compare
themselves).

Expectancy Theory: three conditions must be met for a reward to be motivational.

it must be valued by employees.
Second, compensation packages; that is, employees must believe that the attainment
of goals and objectives set by the organization must result in the promised rewards.
Third, employees must have expectancy that they can do the required tasks; that is,
although goals can be challenging, they must be attainable.

The bases for compensation

Hourly work: Work paid on an hourly basis
Piecework: Work paid according to the number of units produced
Internal Factors
Employer’s Compensation Strategy:
(1) the internal wage relationship among jobs and skill levels, (2) the external
competition or an employer’s pay position relative to what competitors are paying,
(3) a policy of rewarding employee performance, and (4) adminis- trative decisions
concerning elements of the pay system such as overtime pre- miums, payment
periods, and short-term or long-term incentives.

Worth of a Job: subjective opinions of people familiar with the jobs, job evaluation
to aid in rate determination.

Employee’s Relative worth: employee performance can be recognized and

rewarded through promotion and with various incentive systems.

Employer’s Ability to Pay: limited by earned profits and other financial resources
available to employers.

External factors
Labour Market Conditions: The labour market reflects the forces of supply and
demand for qualified labour within an area.

Area wage Rates: A formal wage structure should provide rates that are in line with
those being paid by other employers for comparable jobs within the area.

Cost of Living: consumer price index (CPI): A measure of the average change in
prices over time in a fixed “market basket” of goods and services
Escalator clauses: Clauses in collective agreements that provide for quarterly
cost-of- living adjustments in wages, basing the adjustments on changes in the
consumer price index

Collective Bargaining:
Real wages: Wage increases larger than rises in the consumer price index, that is,
the real earning power of wages

Job evaluation systems

Job evaluation: A systematic process of determining the relative worth of jobs to
establish which jobs should be paid more than others within an organization

Job ranking system: The simplest and oldest system of job evaluation by which
jobs are arrayed on the basis of their relative worth

Job classification system: A system of job evaluation in which jobs are classified
and grouped according to a series of predetermined wage grades
Point system: A quantitative job evaluation procedure that determines the relative
value of a job by the total points assigned to it
 The Point Manual: a handbook that contains a description of the compensable
factors and the degrees to which these factors may exist within the jobs.

Work valuation: A job evaluation system that seeks to measure a job’s worth
through its value to the organization

Hay profile method: A job evaluation technique using three factors—knowledge,

mental activity, and accountability—to evaluate executive and managerial positions