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CONTENTS
1 The Pay Model 1
Why Should We Care about Compensation? 2
What Is Compensation? 2
Society 2
Stockholders 4
Managers 4
Employees 5
Global Views 5
Forms of Pay 5
Cash Compensation: Base Pay 6
Cash Compensation: Merit Increases and Cost-of-Living Adjustments 6
Cash Compensation: Incentives 6
Long-Term Incentives 7
Benefits: Insurance and Pensions 7
Benefits: Work/Life Programs 7
Benefits: Allowances 7
Total Earnings Opportunities: Present Value of a Stream of Earnings 8
Relational Returns from Work 8
The Organization as a Network of Returns 8
A Pay Model 8
Strategic Compensation Objectives 8
Four Policy Choices 10
Pay Techniques 14
Book Plan 14
Conclusion 14
Chapter Summary 15
Key Terms 15
Review Questions 15
Experiential Exercises 15
Case: The Role of Labour Costs 16
2 Strategy: The Totality of Decisions 18
Similarities and Differences in Strategies 19
Different Strategies within the Same Industry 20
Different Strategies within the Same Company 20
Strategic Choices 20
Support Business Strategy 21
Support HR Strategy 22
The Pay Model Guides Strategic Pay Decisions 23
Stated versus Unstated Strategies 24
Developing a Total Compensation Strategy: Four Steps 24
Step One: Assess Total Compensation Implications 24
Step Two: Map a Total Compensation Strategy 27
Steps Three and Four: Implement Strategy and Reassess the Fit 27
Source of Competitive Advantage: Three Tests 28
Align 28
Differentiate 28
Add Value 28
vi CONTENTS
“Best Fit” versus “Best Practices” 28

Guidance from the Evidence 29
Virtuous and Vicious Circles 29
Conclusion 30
Chapter Summary 30
Key Terms 30
Review Questions 30
Case: Difficult to Copy? 31
PART I
Internal Alignment: Determining the Structure 33
3 Defining Internal Alignment 35
Jobs and Compensation 36
Compensation Strategy: Internal Alignment 36
Supports Organization Strategy 36
Supports Workflow 36
Motivates Behaviour 37
Structures Vary between Organizations 38
Number of Levels 38
Differentials 38
Criteria: Content and Value 38
What Factors Shape Internal Structures? 40
Economic Pressures 40
Government Policies, Laws, and Regulations 41
Stakeholders 41
Cultures and Customs 41
Strategy 41
Technology 42
Human Capital 42
HR Policy 42
Employee Acceptance 43
Cost Implications 44
Strategic Choices in Designing Internal Structures 44
Tailored versus Loosely Coupled 44
Hierarchical versus Egalitarian and Layered versus Delayered Structures 44
Guidance From the Evidence 45
Equity Theory: Fairness 45
Tournament Theory: Motivation and Performance 46
Institutional Theory: Copy Others 46
(More) Guidance from the Evidence 47
Consequences of Structures 47
Efficiency 48
Fairness 48
Compliance 48
Conclusion 48
Chapter Summary 48
CONTENTS vii
Key Terms 49
Review Questions 49
Case: The Orchestra 49
4 Job Analysis 51
Structures Based on Jobs, People, or Both 52
Job-Based Approach: Most Common 53
Why Perform Job Analysis? 53
Job Analysis Procedures 53
What Information Should Be Collected? 55
Job Data: Identification 56
Job Data: Content 56
Employee Data 58
Level of Analysis 59
How Can the Information Be Collected? 59
Conventional Methods 59
Quantitative Methods 61
Who Collects the Information? 61
Who Provides the Information? 61
What about Discrepancies? 61
Job Descriptions Summarize the Data 62
Using Generic Job Descriptions 63
Describing Managerial/Professional Jobs 64
Verify the Description 64
Job Analysis, Globalization and Automation 65
Job Analysis and Susceptibility to Offshoring 65
Job Analysis Information and Comparability across Borders 66
Judging Job Analysis 66
Reliability 66
Validity 66
Acceptability 66
Currency 66
Usefulness 67
A Judgment Call 67
Conclusion 68
Chapter Summary 68
Key Terms 69
Review Questions 69
Case: The Customer Service Agent 69
5 Job-Based Pay Structures and Job Evaluation 71
Job-Based Structures: Job Evaluation 72
Defining Job Evaluation: Content, Value, and External Market Links 73
Job Content and Job Value 73
Linking Content with the External Market 73
Other Perspectives on Job Evaluation 73
“How To”: Major Decisions 74
viii CONTENTS
Establish the Purpose 74

Single Versus Multiple Plans 74
Choose Between Job Evaluation Methods 75
Job Evaluation Methods 76
Ranking 76
Classification 77
Point Method 77
Who Should Be Involved? 84
Evaluating the Usefulness of Results 85
The Design Process Matters 85
Appeals/Review Procedures 85
The Final Result: Job Structure 85
Balancing Chaos and Control 85
Conclusion 86
Chapter Summary 87
Key Terms 87
Review Questions 87
Case: Job Evaluation at Whole Foods 88
6 Person-Based Pay Structures 93
Person-Based Pay Structures: Skill Plans 94
Types of Skill-Based Plans 95
Purpose of the Skill-Based Structure 96
“How To”: Skill Analysis 96
What Information to Collect? 97
Whom to Involve? 98
Establish Certification Methods 98
Outcomes of Skill-Based Pay Plans: Guidance from Research and Experience 98
Person-Based Pay Structures: Competencies 99
Defining Competencies 101
Purpose of the Competency-Based Structure 102
“How To”: Competency Analysis 102
Objective 102
Establish Certification Methods 104
Whom to Involve? 104
Resulting Structure 105
Guidance (and Caution) from the Research on Competencies 107
One More Time: Internal Alignment Reflected in Structures (Person-Based or Job-Based) 107
Administering and Evaluating The Plan 107
Reliability of Job Evaluation Techniques 108
Validity/Usefulness 108
Acceptability 108
Bias in Internal Pay Structures 109
The Perfect Structure 109
Conclusion 111
Chapter Summary 111
Key Terms 112
CONTENTS ix
Review Questions 112

Case: Targeting Teachers’ Pay 112
PART II
External Competitiveness: Determining the Pay Level 114
7 Defining External Competitiveness 117
Compensation Strategy: External Competitiveness 118
Control Costs and Increase Revenues 118
Attract and Retain Talent 118
What Shapes External Competitiveness? 121
Labour Market Factors 121
Labour Demand 122
Marginal Product of Labour 122
Labour Supply 123
Modifications to The Demand Side 124
Compensating Differentials 124
Efficiency Wage 124
Signalling 125
Modifications to the Supply Side 125
Reservation Wage 126
Human Capital 126
Product Market Factors 126
Product Demand 126
Degree of Competition 127
Organizational Factors 127
Industry and Technology 127
Employer Size 127
Employees’ Preferences 127
Organization Strategy 127
Relevant Markets 128
Defining the Relevant Market 128
Competitive Pay Policy Alternatives 128
What Difference Does the Pay Level Policy Make? 129
Pay with Competition (Match) 129
Lead Policy 129
Lag Policy 130
Different Policies for Different Employee Groups 130
Pay Mix Strategies 130
Pitfalls of Pies 131
Consequences of Pay Level and Pay Mix Decisions 133
Conclusion 133
Chapter Summary 133
Key Terms 134
Case: Northern Software 135
x CONTENTS
8 Designing Pay Levels, Pay Mix, and Pay Structures 136

Major Decisions 137
Specify Competitive Pay Policy 138
The Purpose of a Compensation Survey 138
Adjust Pay Level—How Much to Pay? 138
Adjust Mix—What Pay Forms? 138
Adjust Pay Structure 138
Study Special Situations 138
Estimate Competitors’ Labour Costs 138
Select Relevant Market Competitors 139
Fuzzy Markets 140
Design the Compensation Survey 141
Who Should be Involved? 141
How Many Employers to Include? 141
Which Jobs to Include? 142
Interpret Survey Results and Construct a Market Pay Line 145
Verify Data 146
Statistical Analysis 148
Update the Survey Data 150
Construct a Market Pay Line 150
Combine Internal Structure and External Market Rates 150
From Policy to Practice: The Pay Policy Line 151
From Policy to Practice: Grades and Ranges 152
Develop Pay Grades 152
Establish Range Midpoints, Minimums, and Maximums 153
Overlap 153
Why Bother with Grades and Ranges? 154
From Policy to Practice: Broadbanding 154
Balancing Internal and External Pressures: Adjusting the Pay Structure 157
Reconciling Differences 157
Market Pricing 157
Conclusion 158
Chapter Summary 158
Key Terms 159
Case: Calculating Pay Ranges 159
Appendix 8-A: Calculating a Market Line Using Regression Analysis 160
9 Employee Benefits 161
Introduction to Employee Benefits 162
Why the Growth in Employee Benefits? 163
Government Impetus 163
Unions 163
Employer Impetus 163
Cost-Effectiveness of Benefits 164
The Value of Employee Benefits 164
Key Issues in Benefits Planning, Design, and Administration 164
CONTENTS xi
Benefits Planning and Design Issues 164

Administration Issues 165
Factors Influencing Benefit Planning 166
Employer Factors 166
Employee Factors 168
Administering the Benefits Program 168
Communication 168
Claims Processing 169
Cost Containment 169
Types of Benefits 170
Legally Required Benefits 170
Retirement and Savings Plans 174
Life Insurance 176
Medical Insurance 176
Income Security Plans 177
Pay for Time Not Worked 177
Other Benefits 177
Employee Assistance Plans (EAPs) 177
Childcare Services 178
Eldercare Services 178
Flexible Benefit Plans 178
Conclusion 179
Chapter Summary 180
Key Terms 180
Case: Lamps Plus 181
PART III
Employee Contributions: Determining Individual Pay 184
10 Pay for Performance: Performance Appraisal and Plan Design 186
What Behaviours Do Employers Care About? Linking Organizational Strategy
to Compensation and Performance Management 187
What Does it Take to Get These Behaviours? What Theory Says 189
What Does it Take to Get These Behaviours? What Practitioners Say 192
Total Reward System: Other Rewards Besides Money Influence Behaviour! 192
Does Compensation Motivate Behaviour? 195
Do People Join a Firm Because of Pay? 195
Do People Stay in a Firm (or Leave) Because of Pay? 196
Do Employees More Readily Agree to Develop Job Skills Because of Pay? 196
Do Employees Perform Better on Their Jobs Because of Pay? 196
The Role of Performance Appraisals in Compensation Decisions 197
Strategies to Better Understand and Measure Job Performance 198
Strategy One: Improve Appraisal Formats 198
Strategy Two: Select the Right Raters 203
Strategy Three: Understand How Raters Process Information 204
Strategy Four: Train Raters to Rate More Accurately 206
xii CONTENTS
Putting it All Together: The Performance Appraisal Process 206

Designing a Pay-for-Performance Plan 207
Efficiency 207
Fairness 208
Compliance 208
Linking Pay with Subjectively Appraised Performance 208
Conclusion 209
Chapter Summary 209
Key Terms 210
Case: Burger Boy 211
11 Pay-for-Performance Plans 214
What is a Pay-for-Performance Plan? 214
Pay-for-Performance Plans: Short-Term 215
Merit Pay 215
Lump-Sum Bonuses 218
Individual Spot Awards 218
Individual Incentive Plans 218
Individual Incentive Plans: Advantages and Disadvantages 220
Group Incentive Plans 221
Challenges with Group Incentive Plans 222
Types of Group Incentive Plans 223
Gain-Sharing Plans 223
Profit-Sharing Plans 225
Earnings-at-Risk Plans 226
Group Incentive Plans: Advantages and Disadvantages 226
Comparing Individual and Group Incentive Plans 227
The Choice between Individual and Group Incentive Plans 229
Pay-for-Performance Plans: Long-Term 229
Broad-Based Stock Option Plans (BBOPs) 229
Employee Stock Ownership Plans (ESOPs) 229
Compensation of Special Groups 230
Supervisors 230
Corporate Directors 231
Executives 231
Professional Employees 234
Sales Staff 236
Contingent Workers 238
Conclusion 239
Chapter Summary 239
Key Terms 239
Case: Pilots Pay 240
CONTENTS xiii
PART IV
Managing the System 242
12 The Roles of Governments and Unions in Compensation 244
Government as Part of The Employment Relationship 245
Demand for Labour 245
Supply of Labour 245
Employment Standards Acts 246
Minimum Wage 246
Paid Vacation 247
Paid Holidays 247
Standard Hours of Work and Overtime Pay 249
Leaves 249
Pay on Termination of Employment 249
Minimum Age of Employment 249
Equal Pay for Equal Work by Men and Women 249
Human Rights Laws 250
The Gender Wage Gap and Pay Equity Legislation 250
Reasons for the Gender Wage Gap 251
Pay Equity Legislation 253
How Pay Equity Works 253
The Impact of Unions on Wage Determination 255
Union Impact on General Wage and Benefit Levels 255
Union Impact on the Wage Structure 256
Union Impact on Non-union Firms: The Spillover Effect 256
Union Impact on Compensation Policies and Practices 256
Unions and Alternative Reward Systems 258
Conclusion 258
Chapter Summary 259
Key Terms 259
Case: From Barista to Manager 260
13 Compensation Budgets and Administration 261
Managing Labour Costs 262
Number of Employees and Hours Worked 262
Controlling Average Cash Compensation 264
The Top-Down Approach 264
The Bottom-Up Approach 266
Controlling Average Benefit Cost 267
Ethics: Managing or Manipulating? 267
Embedded Controls 267
Communication: Managing the Message 269
What to Communicate 271
Pay: Change Agent in Restructuring 272
Structuring the Compensation Function and Its Roles 272
Centralization—Decentralization 272
xiv CONTENTS
Flexibility within Corporate-wide Principles 272

Re-engineering and Outsourcing 273
Balancing Flexibility and Control 273
Compensation Enterprise Systems 273
Conclusion 274
Chapter Summary 274
Key Terms 274
Case: Two Harbours Teachers 275
Appendix: International Pay Systems 277

The Global Context 278
The Social Contract 278
Centralized–Localized Decision-Making 279
Culture 280
Is Culture a Major Constraint on Compensation? 281
Trade Unions and Employee Involvement 282
Ownership and Financial Markets 282
Managerial Autonomy 282
Comparing Costs 283
Cost of Living and Purchasing Power 283
Comparing Systems 283
The Total Pay Model: Strategic Choices 284
National Systems: Comparative Mindset 285
Japanese Traditional National System 285
German Traditional National System 287
Strategic Comparisons: Japan, Germany, Canada 288
Evolution and Change in Traditional Japanese and German Models 290
Strategic Market Mindset 290
Localizer: “Think Global, Act Local” 290
Exporter: “Headquarters Knows Best—One Size Fits All” 290
Globalizer: “Think and Act Globally and Locally” 290
Expatriate Pay 291
Elements of Expatriate Compensation 292
The Balance Sheet Approach 293
Expatriate Systems’ Objectives? Quel Dommage! 295
Borderless World → Borderless Pay? Globalists 295
Conclusion 296
Endnotes EN-1
Glossary GL-1
Sources SO-1
Name Index IN-1
Subject Index IN-3
PREFACE
Pay is a very important topic for a lot of us. It helps determine our economic status and reflect how much we are being
valued by the organizations we work for. Compensation is also uniquely important in organizations because it typically
represents the single largest operating cost in running an organization, especially in those organizations where employee
skills or human capital are the source of competitive advantage (e.g., Google/Alphabet, Facebook, investment banking, law,
accounting and consulting firms, professional sports teams, universities). Compensation is also important because employees
regularly name it as the most important factor that goes into their decision of whether to take a job or not. Compensation
also plays a major role in influencing what employees choose to do on the job once they are hired: how and where they direct
their efforts, the goals they pursue, how cooperative and flexible they are, and how ethical they are, etc. These all add up to
determine how efficient, innovative, customer-focused, and profitable an organization is over time. An organization that pays
too much, pays too little, and/or pays for the wrong things puts the company, its investors, and its employees at risk. On the
other hand, designing and executing an effective compensation strategy can play a key role in great shared success.
After you have read this book, you will also better understand that what you pay for also matters. Many years ago, when
Green Giant discovered too many insect parts in the pea packs from one of its plants, it designed a bonus plan that
paid people for finding insect parts. Green Giant got what it paid for: insect parts! Innovative Green Giant employees
brought insect parts from home to add to the peas just before they removed them and collected the bonus.
These problems are global. A British telephone company paid a cash bonus based on how fast operators completed
requests for information. Some operators discovered that the fastest way to complete a request was to give out a wrong
number or—even faster—just hang up on the caller. Conclusion: What you pay for matters.
After you have read this book, you will also learn that how you pay also matters. Motorola ended its old-fashioned pay
system that employees said guaranteed a raise every six months as long as you were still breathing. The new system paid
for learning new skills and working in teams. Sound better? It wasn’t. Employees resented those team members who
went off for six weeks of training at full pay while the remaining team members picked up their slack. Motorola was
forced to get rid of its new-fashioned system, too.
Compensation is a powerful tool that has major consequences for the success or failure of an organization. In this book,
we strive to cull beliefs from facts, wishful thinking from demonstrable results, and opinions from research. Yet, when all
is said and done, managing compensation is part science, but also part art.
This sixth Canadian edition continues to respond to the demand on the part of Canadian faculty and students for a
Canadian version that offers a unique perspective on compensation.
The text focuses on the strategic choices in managing compensation. These choices, which confront managers in Canada
and around the world, are introduced in the pay model in Chapter 1. This model provides an integrating framework used
throughout the book. Major compensation issues are discussed in the context of current theory, research, and practice.
These practices illustrate new developments as well as established approaches to compensation decisions.
Each chapter ends with a set of review questions and experiential exercises. The case study at the end of each chapter
asks students to apply the concepts and techniques discussed in the chapter.
WHAT’S NEW
All the chapters of this edition have been revised. This edition reinforces our conviction that, beyond how much you pay,
what you pay for and how people are paid really matters. Managing pay means ensuring that the right people get the
right pay for achieving an organizations’ strategic goals in the right way.
ORGANIZATION OF THE CANADIAN EDITION

Compensation, sixth Canadian Edition, is divided into four parts:
1. Part I: Internal Alignment: Determining the Structure

2. Part II: External Competitiveness: Determining the Pay Level
3. Part III Employee Contributions: Determining Variable Pay
4. Part IV Managing the System
xvi PREFACE
Each chapter in these four parts (13 chapters in total) is interspersed with additional material provided to supplement
the chapter’s contents and provide both context and relevance, as follows:
The Pay Model: The unique Pay Model around which the text is based is introduced up front and is integrated throughout
all subsequent chapter discussions.
EXHIBIT I.1 The Pay Model
STRATEGIC STRATEGIC
TECHNIQUES
POLICIES OBJECTIVES
Job Job Evaluation/ INTERNAL

INTERNAL ALIGNMENT
Analysis Descriptions Certification STRUCTURE
EFFICIENCY
• Performance
• Quality
• Customers
and
C
EXTERNAL COMPETITIVENESS ER
Market
Definitions
Surveys Policy Lines
PAY
STRUCTURE
Stockholders
• Costs

FAIRNESS
eeb h
Seniority- Performance Merit
entitlemen
EMPLOYEE CONTRIBUT ONS return ntheirin
Based Based
stm
Guidelines
INCENTIVE
r r wa
PROGRAMS

COMPLIANCE
on ndrela

MANAGEMENT Costs Communications Change EVALUATION

andpa
Key Terms are highlighted polic type
in boldface line in
. each
heincentiveprog
chapter, and aamt chniqu
list of them sis provided
ssociatedw th end
at the ont ibutio saresenior
of the chapter and
in the Glossary.
KEY TERMS
allowances relationalreturns
compensation salary
cost-of-livingadjustment totalrewards
externalcompetitiveness totalcompensation
incentives(variablepay) wage
internalalignment work/lifeprograms
meritincreases

PREFACE xvii

t o j e e
Exhibits are interspersed throughout the text to illustrate concepts and provide a visual framework for students.

o anem
EXHIBIT 1.1loy e e io
Gender Wage Gap* in Median Earnings of Full-Time Employees

35 34.6
lude
2017
30

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24.5
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2017
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*The gender wag gap is defined as the difference between median Un

earnings of men and women relative to median
ingadjustment tota rewards
earnings of men. Data refer to full-time employees on the one hand and to self-employed on the other.
etiti t l i n
c v a le )
Review Questions and Experiential
Exercises
are suggested
at the end
of each
chapter.
These
real-life
exercises
require the
t ali l
applicationi iof learned concepts

and

techniques.

REVIEW
QUESTIONS

1. Howdodifferingperspectivesaffectourviewsofcompensation?
2. Refertotheimagethatopensthischapterandcategorizethevariousitemsbasedonwhatthefollowingstakeholder
groupsmayrefertoascompensation:employee,employer,society,andstockholders.
3. Discussfivedifferentformsofpaythatonemightexpecttoreceivefromwork.
4. Whatarethefourpolicyissuesinthepaymodel?Andwhatarethestrategicobjectivesofapaysystem?
EXPERIENTIAL EXERCISES
1. Whatisyourdefinitionofcompensation?Whichmeaningofcompensationseemsmostappropriatefroman
employee’spointofview—return,reward,orentitlement?Compareyourideaswithsomeonewhohasmore
experience,withsomeonefromanothercountry,andwithsomeonefromanotherfieldofstudy.
2. Listalltheformsofpayyoureceivefromwork.Compareyourlisttosomeoneelse’s.Explainanydifferences.
3. Whatisyouridealtotalcompensationpackageuponyourcompletionoftheprogramatyourcurrentinstitution?
Doyouthinktheseareachievable?Whataresomeofthethingsyoucanofferyouremployer?
4. Gotothewebsiteofacompanythatyouwanttoworkin.Findoutwhatkindofbenefitsitofferstheiremployees.
Learning Outcomes have been highlighted at the beginning of each chapter, and the Chapter Summary relating to these
learning objectives is included at the end of the chapter.

xviii PREFACE
Learning Outcomes
LO1 Definethetermcompensation.
LO2 Describehowcompensationisvieweddifferentlybysociety,stock-
holders,managers,andemployeesinCanadaandaroundtheworld.
LO3 Discussmajorcomponentsoftotalrewards.
LO4 Identifyandexplainthestrategicobjectivesofcompensation.
LO5 Describethefourstrategicpoliciesinthepaymodelandthe
techniquesassociatedwiththem.
CHAPTER SUMMARY
1. Employeebenefitshavebeenincreasingincostforthepastfewdecadesandnowconstituteasignificantamountof
compensationexpenseinallCanadianorganizations,ontheorderofupto40%ofpayroll.
2. Keyissuesinbenefitsplanninganddesignare(1)theroleofbenefitsinacompensationpackage,suchasattracting,
retainingormotivatingemployees;(2)externalcompetitivenesswithbenefitsofferedbyotherorganizations;(3)ben-
efitsadequacytomeettheneedsofemployeesandtheirfamilieswhenfacingseriousmedicalproblems,retirement,
orotherlifeissues;and(4)cost-effectiveness.Keyadministrativeissuesinclude(1)whoshouldbeincludedinthese
plans,(2)thelevelofflexibilityinemployeechoiceregardingtheirbenefits,and(3)employee–employercostsharing.
3. Threeimportantfunctionsinbenefitsadministrationarebenefitcommunication,claimsprocessing,andcost
containment.
4. LegallyrequiredbenefitsinCanadainclude:Workers’Compensation,theCanada/QuebecPensionPlan,Employ-
mentInsurance,government-sponsoredhealthcareplans,andbreaks/vacation/leaves.Workers’Compensationpro-

videscompensationforinjuriesanddiseasesthatariseoutof,andwhileinthecourseof,employment.TheCanada/
QuebecPensionPlanisaplanthatprovidesacertainlevelofincomeforemployedCanadiansupontheirretirement.
EmploymentInsuranceprovidesworkerswithtemporaryincomereplacementasaresultofemploymentinterrup-
tionsduetocircumstancessuchasworkshortages,sickness,maternityleave,andsoon.Respectiveemployment
Sec
standardslegislationalsorequiresemployerstoprovidetheiremployeeswithbreaks,vacationdays,andleaves.
5. Inadditiontothelegallyrequiredbenefits,employersmaychoosetoprovidetheiremployeeswithadditionalbenefits,
someofwhicharepaidforbyemployers,whileothersmayrequirecontributionsfrombothemployersandemployees.

A Web16
Exercise for each chapter can
C A TER 1 T P Y ODE be found on the Compensation
Connect
site.
The Web
exercise
will familiarize
students with the wealth of compensation-related material available on the Internet. Also included at the end of each

chapter is a comprehensive
Case requiring
application
of
the chapter material.

CASE
The Role of Labour Costs

Towhatextentiscompensationanimportantcauseofcompanysuccess(orlackofsuccess)intheretailelectronics

industry?ConsiderBestBuy,anAmericanmultinationalconsumerelectronicsretailerheadquarteredinRichfield,

Minnesota.ItwasoriginallyfoundedbyRichardM.SchulzeandJamesWheelerin1966asanaudiospecialtystore
calledSoundofMusic.In1983,itwasre-brandedunderitscurrentnamewithanemphasisplacedonconsumer

electronics.FutureShopwasaCanadianelectronicsstorechain.Itwasestablishedin1982byHassanKhosrowshahi.

By1990,thechainhadbecomeCanada’slargestretailerofcomputerandconsumerelectronics.InNovember2001,

BestBuyacquiredFutureShopfor$580million.

PREFACE xix
AWARD-WINNING TECHNOLOGY
McGraw Hill Connect® is an award-winning digital teaching and learning solution that empowers students to achieve bet-
ter outcomes and enables instructors to improve efficiency with course management. Within Connect, students have access
to SmartBook®, McGraw Hill’s adaptive learning and reading resource. SmartBook prompts students with questions based
on the material they are studying. By assessing individual answers, SmartBook learns what each student knows and identi-
fies which topics they need to practice, giving each student a personalized learning experience and path to success.
Connect’s key features also include analytics and reporting, simple assignment management, smart grading, the oppor-
tunity to post your own resources, and the Connect Instructor Library, a repository for additional resources to improve
student engagement in and out of the classroom.
Instructor resources for Compensation, 6th Canadian Edition:

• Instructor’s Manual
• Test Bank
• Microsoft® PowerPoint® Presentations
• Manager’s Hot Seat Videos
INSTRUCTOR’S MANUAL
The Instructor’s Manual, prepared by Jeff Young, Mount Saint Vincent University, contains a short topic outline of the
chapter and a listing of learning objectives, a detailed lecture outline, answers to review questions and experiential exer-
cises, summary of chapter content, and a case discussion outline.
COMPREHENSIVE TEST BANK

Within Connect, instructors can easily create automatically graded assessments from a comprehensive test bank featuring
multiple question types and randomized question order. The Test Bank was prepared by Ian Anderson, Algonquin College.
MICROSOFT® POWERPOINT® PRESENTATIONS

The PowerPoint slides for each chapter, prepared by text author Margaret Yap, is built around the learning objectives
and includes many of the exhibits from the textbook, as well as additional slides that support and expand the text discus-
sions. Slides can be modified by instructors with PowerPoint®.
MANAGER’S HOT SEAT VIDEOS

This resource allows students to watch real managers apply their years of experience to management and organizational
behaviour issues. Students assume the role of the manager as they watch the video and then answer multiple-choice
questions following the segment. The Manager’s Hot Seat Videos are ideal for group or classroom discussions.
WRITING ASSIGNMENTS
The Writing Assignment tool delivers a learning experience to help students improve their written communication skills
and conceptual understanding. As an instructor you can assign, monitor, grade, and provide feedback on writing more
efficiently and effectively.
TEST BUILDER
Available within Connect, Test Builder is a cloud-based tool that enables instructors to format tests that can be printed
or administered within a Learning Management System. Test Builder offers a modern, streamlined interface for easy
content configuration that matches course needs, without requiring a download.
Test Builder allows you to:

• access all test bank content from a particular title
• easily pinpoint the most relevant content through robust filtering options
xx PREFACE
• manipulate the order of questions or scramble questions and/or answers

• pin questions to a specific location within a test
• choose the layout and spacing
• add instructions and configure default settings
Test Builder provides a secure interface for better protection of content and allows for just-in-time updates to flow dir-
ectly into assessments.
REMOTE PROCTORING & BROWSER-LOCKING CAPABILITIES
New remote proctoring and browser-locking capabilities, hosted by Proctorio within Connect, provide control of the
assessment environment by enabling security options and verifying the identity of the student.
Seamlessly integrated within Connect, these services allow instructors to control students’ assessment experience by
restricting browser activity, recording students’ activity, and verifying students are doing their own work.
Instant and detailed reporting gives instructors an at-a-glance view of potential academic integrity concerns, thereby
avoiding personal bias and supporting evidence-based claims.
ACKNOWLEDGMENTS
Many people have contributed to our understanding of compensation and to the preparation of this textbook. In particu-
lar, we thank the following instructors, whose review and comments helped guide us in the writing of this edition:
Nicole Vincic, Mohawk College

Cheryl Berst, Algonquin College
Dorothy Milardovic, Conestoga College
Ted Mock, Seneca College & University of Toronto
Wendy Carroll, Saint Mary’s University
Finally, we thank the McGraw Hill publishing team—Amy Clarke-Spencley, Portfolio Manager; Krisha Escobar, Content Developer;
Jessica Barnoski, Supervising Editor; Karen Hunter, Permissions Editor; and Dina Theleritis, Copy Editor—for their dedicated
work in this collaborative undertaking.
Chapter 1
THE PAY MODEL

defined benefit plans
RRSP sales compensation

profit sharing plans
Compensation
higher profitability
loyalty
EI dental
overtime
incentives
pay raises
holidays stock options
pay RSUs increase market share vacation benefits
wages tuition assistance
retention bonuses
vision
allowances
short term disability recruitment promotion recognition
gain sharing plans
attraction motivation pension merit increase
salary
higher productivity
spot awards employee discount CPP commission
paid time off
workers compensation better engagement

extended healthcare defined contribution plans
long term disability
Learning Outcomes
LO1 Define the term compensation.
LO2 Describe how compensation is viewed differently by society, stock-
holders, managers, and employees in Canada and around the world.
LO3 Discuss major components of total rewards.
LO4 Identify and explain the strategic objectives of compensation.
LO5 Describe the four strategic policies in the pay model and the
techniques associated with them.
2 CHAPTER 1: THE PAY MODEL
WHY SHOULD WE CARE ABOUT COMPENSATION?

Why care about compensation? Perhaps you find life goes more smoothly when there is at least as much money coming
in as going out. Perhaps you would like to solve the mystery of why you or people you know get paid the way they do.
Why was the average hourly total compensation (i.e., wages plus benefits) in manufacturing $25 in the United States, but
$16 in Korea and $3 in Mexico? Why did workers at Chrysler in the United States received total compensation of about
$76 per hour, whereas U.S. workers at Toyota got $48 per hour? It may be justified to pay your workers more than your
competitors do if the company has higher productivity or produces more innovative and higher-quality products. But this
was not the case for Chrysler. It actually went bankrupt in 2009 but managed to remain in business after selling 20% of
the company to Fiat (an Italian auto company) and receiving a U.S. federal government bailout of $6.6 billion. Specifical-
ly, Chrysler took steps (as part of its bankruptcy plan) to bring its hourly labour costs down to about $49 more recently.1
General Motors (GM), like Chrysler, has also paid its workers well for decades—too well perhaps for what it received in
return. In 1970, GM had 150 U.S. manufacturing plants and 395,000 hourly workers. In sharp contrast, GM now has
35 U.S. manufacturing plants and 57,000 hourly workers.2 In June 2009, GM, like Chrysler, had to file for bankruptcy
(avoiding it for a while thanks to loans from the U.S. government—i.e., U.S. taxpayers). Not all of GM’s problems were
compensation related. Of course, building vehicles that consumers did not want was also a problem. But having labour
costs higher than the competition, without corresponding advantages in efficiency, quality, and customer service, does
not seem to have served GM or its stakeholders well. Its stock price peaked at $93.62 per share in April 2000. Its market
value was about $60 billion in 2000. That shareholder wealth was wiped out in bankruptcy. Think also of the billions of
dollars that U.S. taxpayers had to put into GM, the hundreds and thousands of jobs that have been lost, and the effects
on the communities that have lost those jobs.
On the other hand, Nucor, the largest producer of steel in the United States, pays its workers very well, relative to what
other companies inside and outside the steel industry pay. But the company also has much higher productivity than is
typical in the steel industry. The result: both the company and its workers do well. Similarly, Google and Facebook also
pay their workers well. So far, that seems to have worked—their high pay levels allow them to be very selective in who
they hire and who they keep, a strategy that has helped them foster growth and innovation.
How people are paid affects their behaviour at work, which affects an organization’s chances of success.3 For most
employers, compensation is a major part of the total cost of running a business, and often it is the single largest part
of operating cost. These two facts together mean that well-designed compensation systems can help an organization
achieve and sustain competitive advantage.4 On the other hand, as we have seen recently, poorly designed compensation
systems can likewise play a major role in undermining organization success.
LO1 WHAT IS COMPENSATION?

How people view compensation affects how they behave at work. It does not mean the same thing to everyone. Your view
probably differs depending on whether you look at compensation from the perspective of a member of society, a stock-
holder, a manager, or an employee. The following is a brief discussion of these various perspectives on compensation.
LO2 Society
Some people view pay as a measure of justice. For example, a comparison of earnings of women with those of men
highlights inequities in pay decisions. In 2016, women workers in Canada who work full-time earn an average of $0.75
for every dollar earned by men working full-time.5 Economists have identified a number of contributing factors to wage
determination, including human capital (work experience, education, and tenure), demographic characteristics (marital
status, having children living at home), and job characteristics (industry, size of establishment, and type of work). There
are a few observations of what may have contributed to the gender wage gap: that women are more likely to study health
and education, whereas men are more likely to study engineering and other technology fields; that women are more will-
ing than men to adjust their work location and hours to take care of young children and elderly parents, and to do most
if not all of the “unpaid” housework; and, finally, that nearly one in three women work in sales and service occupations,
whereas men are likely to work in construction trades, in transport, and as equipment operators.6
How does Canada do, relative to other countries? Exhibit 1.1 shows the gender gap in median earnings of full-time em-
ployees working in various OECD countries. Canada is definitely doing better than countries like Korea and Japan, but
worse than the United Kingdom, France, and Italy. The gender wage gap is certainly a global concern.
CHAPTER 1: THE PAY MODEL 3
EXHIBIT 1.1 Gender Wage Gap* in Median Earnings of Full-Time Employees
35 34.6
2017
30
24.5
Gender wage gap (%)
25
2017
20 18.2 18.2
16.2 16.4 2017
14.8 15.1 2017
15 13.5 14.0 2017 2018
2016 2018
11.7 2017 2018
9.9 2018
10
6.9 7.3 2014
5.6
2014 2017
5
2016
0
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Ko
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Ja
St
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ng
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Fr
Ca
D-
Sw
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Au
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Un
ite
Cz
Un
*The gender wage gap is defined as the difference between median earnings of men and women relative to median
earnings of men. Data refer to full-time employees on the one hand and to self-employed on the other.
Job losses (or gains) within a country over time are partly a function of relative labour costs (and productivity) across
countries. Canadians worry about losing manufacturing jobs to Mexico, China, and even the United States.7 (Increasingly,
white-collar work in areas like finance, computer programming, and legal services are also being sent overseas.) Exhibit 1.2
shows the hourly compensation (wages and benefits) for a few countries around the world. Hourly compensation for
production workers in Mexico is $3.91, as compared to $30.08 in Canada. China’s estimated $5.45 per hour is about 18%
of the Canadian rate. However, the value of what is being produced also needs to be taken into consideration. Productivity
EXHIBIT 1.2 H
ourly Compensation Costs for Production Workers in Manufacturing
and Economy-Wide Productivity (GDP) per Employed Person),
in U.S. Dollars
HOURLY COMPENSATION COST PRODUCTIVITY (GDP PER EMPLOYEE)

Canada $30.08 86,437
China 5.45 27,196
Mexico 3.91 38,306
Czech Republic 10.71 65,467
United States 39.03 113,922
Germany 43.18 89,309
Source: “Hourly Compensation Cost: The Conference Board. International Comparisons of Hourly Compensation Costs in
Manufacturing, 2016,” February 16, 2018. Productivity (projected for 2017): The World Bank, http://data.worldbank.org/
indicator/SL.GDP.PCAP.EM.KD, retrieved March 15, 2018.
Notes: Compensation includes wages and benefits. The most recent Conference Board compensation cost was $4.11 (in
2013) for China. The 2016 estimate for China was obtained by inflating the Conference Board estimates based on data on
annual average wage growth in urban units from the China Statistical Yearbook, Table 4-12, National Bureau of Statistics
of China. Productivity is gross domestic product (GDP), in constant 2011 purchasing power parity (PPP) $, divided by total
employment in the economy. Purchasing power parity GDP is GDP converted to 2011 constant international dollars using
PPP rates. (As such, these GDP per employee numbers are higher than past estimates using 1990 constant international
dollars using PPP rates.) An international dollar has the same purchasing power over GDP that a U.S. dollar has in the
United States.
(as measured in gross domestic product [GDP] per employee) in China is 31% of the Canadian level. Finally, if low wages
are the goal, there always seems to be somewhere that pays less. Some companies (e.g., Coach) are now moving work out
of China because its hourly wage, especially after recent increases,8 is not as low as countries like Vietnam, India, and the
Philippines. On the other hand, companies like FoxConn, which builds iPhones and iPads for Apple, maintain their opera-
tions in China. In addition, Foxconn has also recently announced it will build a major new presence in southeast Wiscon-
sin. Reasons include proximity to the U.S. market, as well as major incentives provided by the State of Wisconsin.
Stockholders
From the perspective of the stockholders (or shareholders), those who provide equity for the operation of businesses,
compensation matters. For example, some stockholders believe that using stock (shares of the company) to pay employ-
ees creates a sense of ownership that will improve performance (think WestJet), which will in turn increase stockholder
wealth. But others argue that granting employees too much ownership dilutes stockholder wealth and sometimes may
not incentivize the behaviour as one originally intends. For example, Google’s stock plan cost the company $600 million
in its first year of operation. So people who buy Google stock (the stockholders) are betting that this $600 million plan
will motivate employees to generate more than $600 million in extra stockholder wealth.
Stockholders also have an interest in executive compensation. Compensation should supposedly be tied to performance.
To the degree that the interests of executives are aligned with those of stockholders or shareholders (e.g., by paying
executives on the basis of company performance measures such as shareholder return), the hope is that company per-
formance will be better. There is debate, however, about whether executive pay and company performance are strongly
linked.9 In the absence of such a linkage, concerns arise that executives might somehow use their influence to obtain
high pay without necessarily performing well.
It is therefore an ongoing challenge to ensure that executives act in the best interests of the organization and, hence,
in the best interests of the shareholders. For example, leading up to the meltdown in the financial services industry in
2008, top executives at Bear Stearns and Lehman Brothers regularly exercised stock options and sold stock during the
2000-2008 period. One estimate is that these stock-related gains plus bonus payments generated $1.4 billion for the
top five executives at Bear Stearns and $1 billion for those at Lehman Brothers during that period. “Thus, while the
long-term shareholders were largely decimated, the executives’ performance-based compensation kept them in positive
territory.” The problem here is that shareholders paid a huge penalty for what appears to have been overly aggressive
risk-taking by executives, but the executives, in contrast, did quite well because of “their ability to claim large amounts of
compensation based on short-term results.”10
Managers
From the perspective of the managers, compensation directly influences their success in two ways. First, it is a major
expense that must be managed. Competitive pressures, both global and local, force managers to consider the affordability
of their compensation decisions. Studies show that in many enterprises, labour costs account for more than 50% of total
costs. In some industries, such as financial or professional services, or in education and government, this figure can be even
higher. However, even within an industry (e.g., automotive manufacturing, financial services), labour cost as a percentage
of total costs varies among individual firms. For example, small neighbourhood grocery stores, with labour costs between
15% and 18%, have been driven out of business by supermarkets that delivered the same products at a lower cost of labour
(9% to 12%). Supermarkets today are losing market share to warehouse club stores, such as Costco and Walmart, which
enjoy an even lower cost of labour (4% to 6%), even though Costco pays above-average wages in the industry.
In addition to seeing pay as a major expense that has to be managed, a manager uses it to influence employees’ attitudes
and behaviours and to improve organizational performance. The amount and the way people are paid affects the quality
of their work, their attitude toward customers, their willingness to be flexible or learn new skills, or suggest innovations,
and even their interest in unions or pursuing legal action against their employer. As an example, Costco and Walmart
both provide a unique shopping experience to their customers. Walmart competes on low prices, while Costco competes
not only on low prices but also with a mix that includes more high-end products aimed at a higher customer income
segment. To compete in this segment, Costco appears to have chosen to pay higher wages to its workers, perhaps as a
way to increase its ability to attract and retain a higher-quality workforce.11 Indeed, in a recent annual report, Costco states,
“With respect to expenses relating to the compensation of our employees, our philosophy is not to seek to minimize the
wages and benefits that our employees earn. Rather, we believe that achieving our longer-term objectives of reducing
employee turnover and enhancing employee satisfaction requires maintaining compensation levels that are better than
the industry average for much of our workforce.” By comparison, Walmart states in one of its annual report that they
“experience significant turnover in associates [i.e., employees] each year.” Looking at their organizational performance,
Costco has been quite successful, relative to its competitors, in terms of employee retention, customer satisfaction,
and the efficiency with which it generates sales. So, although its labour costs are higher than those at Walmart, the
strategy seems to have worked for Costco. This potential to influence employees’ behaviours, and subsequently
the productivity and effectiveness of the organization, is an important reason to learn more about compensation.12
Employees
The pay individuals receive in return for the work they perform is usually the major source of their financial security.
Hence, pay plays a vital role in a person’s economic and social well-being. Employees may view compensation as the
return in an exchange between their employer and themselves, as an entitlement for being an employee of the company,
as an incentive to take/stay in a job and invest in performing well in that job, or as a reward for performing well in the
job. Compensation can be all of these things.
Describing pay as a reward may sound a bit far-fetched to anyone who has reluctantly rolled out of bed to go to work.
Even though writers and consultants use the term “reward,” no one ever says, “They gave me a reward increase,” or
“Here is my weekly reward cheque.” Yet, if people see their pay as the return for their contributions and investments
rather than as a reward, and if writers and consultants persist in trying to convince them that pay is a reward for employ-
ees, this disconnect may mislead both employees and managers. Employees invest in education and training; they con-
tribute their time and energy at the workplace. Compensation is their return on those investments and contributions.13
In some circumstances, employees in large countries with state-owned enterprises (e.g., China) and in highly regulated coun-
tries (e.g., Sweden) sometimes believe their pay is an entitlement—their due, regardless of their performance or that of their
employers. It is not uncommon for political leaders, trade unions, and employer federations in countries such as Sweden and
Germany to negotiate compensation policies that support their country’s sociopolitical as well as economic priorities.14
Global Views
In English, compensation refers to something that counterbalances, offsets, or makes up for something else. However, if
we look at the origin of the word in different languages, we get a sense of the richness of its meaning, which combines
entitlement, return, and reward.15
In China, the traditional characters for the word compensation are based on the symbols for logs and water—compen-
sation provides the necessities in life. In the recent past, the state owned all enterprises, and compensation was treated
as an entitlement. In today’s China, however, the reforms of the last decades have led to the use of a new word, dai yu,
which refers to how one is being treated—wages, benefits, training opportunities, and so on. When people talk about
compensation, they ask each other about the dai yu in their companies. Rather than assuming that everyone is entitled
to the same treatment, the meaning of compensation now reflects a broader sense of returns as well as entitlement.16
Compensation in Japanese is kyuyo, which is made up of two separate characters (kyu and yo), both meaning “giving
something.” Kyu is an honorific used to indicate that the person doing the giving is of high rank, such as a feudal lord,
emperor, or samurai leader. Traditionally, compensation is thought of as something given by one’s superior. Today,
business consultants in Japan try to substitute the word hou-syu, which means reward and has no association with
notions of superiority. The many allowances that are part of Japanese compensation systems translate as teate, which
means “taking care of something.” Teate is regarded as compensation that takes care of employees’ financial needs. This
concept is consistent with the family, housing, and commuting allowances still used in many Japanese companies.17
These contrasting ideas about compensation—multiple views (societal, stockholder, managerial, employee, and even global)
and multiple meanings (returns, rewards, entitlement)—add richness to the topic. But they can also cause confusion unless
everyone is talking about the same thing, so a clear definition of compensation is essential. Compensation refers to all
forms of financial returns and tangible services and benefits that employees receive as part of an employment relationship.
LO3 FORMS OF PAY

Exhibit 1.3 shows the variety of returns people receive from work. They are categorized as total compensation and
relational returns. The relational returns (learning opportunities, recognition and status, challenging work, and so on)
are the psychological returns people believe they receive in the workplace.18 Total compensation is more transactional and
includes pay received directly as cash (e.g., base pay, merit increases, incentives, cost-of-living adjustments), stock, and
indirectly as benefits (e.g., pensions, healthcare and life insurance, programs to help balance work and life demands).19
While this book focuses on total compensation, we must not forget that total rewards include cash compensation, bene-
fits, and relational returns. The effects of compensation on employees (as well as the costs of employee compensation)
have major implications for how successfully organizations can execute their strategies and achieve their goals.
EXHIBIT 1.3 Total Rewards
Total Rewards
Relational Returns
Total Compensation
Recognition and Learning
Status Opportunities
Benefits Employment Challenging
Security Work
Cash
Life, Health,
Compensation
Disability Insurance, Allowances
and Pension
Base Pay Long-Term Work/Life
Incentives Programs
Merit/Cost Short-Term
of Living Incentives
Cash Compensation: Base Pay

Base pay—wage or salary—is the cash compensation an employee receives for the work performed. Base pay tends to
reflect the value of the work or skills and generally ignores differences attributable to individual employees. For exam-
ple, the base wage for machine operators may be $20 an hour. However, some individual operators might receive more
because of their experience and/or performance. Some pay systems set base wage as a function of the skill or education
an employee possesses; this is common for engineers and schoolteachers.20 A distinction is often made between a wage
and a salary, the latter referring to pay expressed at an annual or monthly rate rather than hourly. Managers and profes-
sionals are usually paid a salary. In contrast, workers who are covered by overtime are likely to have their pay calculated
on an hourly basis.
Cash Compensation: Merit Increases and Cost-of-Living Adjustments

Most Canadian organizations use merit pay increases.21 Merit increases are given as increments to the base pay in rec-
ognition of past work behaviour. Some assessment of past performance is made, with or without a formal performance
evaluation program, and the size of the increase varies according to performance. In recent years, average merit increas-
es have averaged around 2.5%.22 For example, outstanding performers could receive a 4% merit increase, an average
performer might receive a 2.5% increase, and a poor performer may receive nothing at all. By contrast, a cost-of-living
adjustment (COLA) gives the same percentage increase to everyone regardless of performance levels to maintain pay
levels relative to increases in the cost of living. These have become less prevalent than in the past as employers continu-
ously try to control fixed costs and to link pay increases to individual and/or organizational performance.
Cash Compensation: Incentives

Incentives (or variable pay) tie pay increases directly to performance. However, incentives differ from merit increases. First,
incentives are tied to objective performance measures (e.g., sales) usually in a formula-based way, whereas a merit increase
typically relies on a subjective performance rating. There is also some subjectivity in the size of the amount of increase
awarded for any particular rating. Second, incentives do not increase the base wage and so must be re-earned each pay
period. Third, the potential size of the incentive payment will generally be known beforehand, whereas merit pay programs
evaluate the past performance of an individual and then decide on the size of the increase. For example, a Toyota salesper-
son knows the commission on a Lexus versus the commission on a Prius prior to making the sale. The larger commission
he or she will earn by selling a Lexus is the incentive for the salesperson to sell a customer the Lexus rather than the Prius.
Fourth, incentives explicitly try to influence future performance whereas merit recognizes past performance.
Incentives can be tied to the performance of an individual employee; a team of employees; a total business unit; or some
combination of individual, team, and unit.23 The performance objective may be expense reduction, volume increases,
customer satisfaction, revenue growth, return on investments, or increases in total shareholder value—the possibilities
are endless.
Because incentives are one-time payments, they do not have a permanent effect on labour costs. When performance
declines, incentive pay automatically declines, too. Consequently, incentives are frequently referred to as variable pay.
Long-Term Incentives
Incentives may be short or long term. Long-term incentives are intended to focus employee efforts on multiyear results.
Typically they are in the form of stock ownership or options to buy stock at a predetermined price. The idea behind stock
ownership is that employees with a financial stake in the organization will focus on such long-term financial objectives as
return on investment, market share, and return on net assets, etc. Magna International grants shares of stock to employ-
ees who have made outstanding contributions to the firm’s success. Stock options are often the largest component in an
executive pay package. Some companies extend stock ownership beyond the ranks of managers and professionals. Intel,
Google, WestJet, and Starbucks offer stock and/or stock options to all their employees.24 These companies believe that
having a stake in the company supports a culture of ownership. They hope that employees will behave more like owners.25
Benefits: Insurance and Pensions

Exhibit 1.3 shows that employee benefits, including life/health/disability insurance and pension, work/life programs, and
allowances, are also part of total compensation. Some programs are required by law. For example, in Canada, employers
(and employees) have to make contributions to the Canada/Quebec Pension Plan, Employment Insurance, and Workers’
Compensation. Different countries have different mandatory benefits. Some Canadian companies also provide their
employees with a company-sponsored pension plan in addition to the mandatory Canada/Quebec Pension Plan.
Health insurance, dental insurance, pensions, and life insurance are common benefits. They help protect employees
from the financial risks of daily life. Often, companies can provide these protections to employees more cheaply than
employees can obtain them for themselves. Because the cost of providing benefits has been rising, they are regarded as
an increasingly important form of compensation.
Benefits: Work/Life Programs

Work/life programs that help employees better integrate their work and life responsibilities include time away from work
(e.g., vacations, jury duty), access to services to meet specific needs (e.g., drug counselling, financial planning, referrals
for child- and eldercare), and flexible work arrangements (e.g., telecommuting, non-traditional schedules, non-paid time
off). Responding to the tight labour market for highly skilled employees and the changing demographics of the work-
force (e.g., two-income families that demand employer flexibility so that family obligations can be met), many Canadian
employers are giving higher priority to these forms of benefits. At Cisco Canada, 85% of the employees regularly work
outside the office. The culture at Allstate Insurance Co. of Canada supports a flexible work life—including formalized
and ad hoc work-from-home programs—and the firm doesn’t see such alternatives as career-limiting moves.26
Benefits: Allowances
Allowances often grow out of whatever is in short supply. In Vietnam and China, housing (dormitories and apartments)
and transportation allowances are frequently part of the pay package. Many decades after the end of World War II,
some Japanese companies continue to offer a “rice allowance” based on the number of dependents an employee has, a
practice that grew out of post-war food shortages. Almost all international companies starting operations in China soon
discover that housing, transportation, and other allowances are expected.27 Companies that resist these allowances have
to come up with other ways to attract and retain talented employees. In many European countries, managers expect a
car to be provided. The issue then becomes which make and model.28
In Canada, the Government of Nunavut provides its employees a Northern Allowance to make up the differences in the
cost of living between Nunavut communities and larger “designated” southern centres, and to equalize the compensation of
Government of Nunavut employees across Nunavut who may face different economic conditions in different communities.29
Total Earnings Opportunities: Present Value of a Stream of Earnings

Up to this point, compensation has been treated as something paid or received at a moment in time. But compensation
decisions have a temporal effect. If an employee with a job offer of $50,000 stays with the firm for five years and receives
an annual increase of 4%, he or she will be earning $60,833 a year at the beginning of the sixth year. The total costs to
the employer over the five years based on the decision to hire turn out to be over $270,000. If you add in an additional
30% for benefits, the decision to hire implies a commitment by the employer of over $350,000.
A present value perspective shifts the choice from comparing today’s initial offers to the consideration of future bonus-
es, merit increases, and promotions. Some employers claim that their relatively low starting offers will be overcome by
larger future pay increases. In effect, they are selling the present value of the future stream of earnings. But few candi-
dates apply that same analysis in calculating the future increases required to offset the lower initial offers.
Relational Returns from Work

Why do Google millionaires continue to show up for work every morning? There is no doubt that non-financial returns
from work have a substantial effect on employees’ behaviour. Exhibit 1.3 includes such relational returns as recognition
and status, employment security, challenging work, and opportunities to learn. Other relational returns might include
personal satisfaction from successfully facing new challenges, teaming with great co-workers, and the like. Such factors
are part of the total rewards, which is a broader umbrella than total compensation.
The Organization as a Network of Returns

Sometimes it is useful to think of an organization as a network of returns created by all these different forms of pay,
including total compensation and relational returns. The challenge is to design this network so that it helps the orga-
nization to succeed. As in the case of rowers pulling on their oars, success is more likely if all are pulling in unison
rather than working against one another. In the same way, the network of returns is more likely to be useful if bonuses,
development opportunities, and promotions all work together. Even though this book focuses on total compensation, it
is important to remember that compensation is only one of many factors affecting people’s decisions about work.
A PAY MODEL
The pay model shown in Exhibit 1.4 serves as both a framework for examining current pay systems and a guide to most
of this book. It contains three basic building blocks: (1) the strategic compensation objectives, (2) the strategic policies
that form the foundation of the compensation system, and (3) the techniques of compensation. Because objectives drive
the system, they are discussed first.
LO4 Strategic Compensation Objectives

Pay systems are designed and managed to achieve certain strategic objectives. The basic objectives, shown at the right
side of the pay model in Exhibit 1.4, are efficiency, fairness, and compliance with laws and regulations and ethics.
Efficiency can be stated more specifically: (1) improving performance, increasing quality, and delighting customers and
stockholders, and (2) controlling labour costs. Compensation objectives at Medtronic and Whole Foods are contrasted
in Exhibit 1.5. Medtronic is a medical technology company that pioneered cardiac pacemakers. Its compensation objec-
tives emphasize performance, business success, minimizing fixed costs, and attracting and energizing top talent. Whole
Foods is a large organic- and natural-foods grocer. Its markets are “a celebration of food”: bright, well stocked, and well
staffed.30 The company describes its commitment to offering the highest-quality and least-processed foods as a shared
responsibility. Its first compensation objective is “committed to increasing shareholder value.”
EXHIBIT 1.4 The Pay Model
STRATEGIC STRATEGIC
TECHNIQUES
POLICIES OBJECTIVES
Job Job Evaluation/ INTERNAL

INTERNAL ALIGNMENT
Analysis Descriptions Certification STRUCTURE
EFFICIENCY
• Performance
• Quality
• Customers
and
Market PAY Stockholders
EXTERNAL COMPETITIVENESS Surveys Policy Lines
Definitions STRUCTURE
• Costs
FAIRNESS
Seniority- Performance Merit INCENTIVE
EMPLOYEE CONTRIBUTIONS
Based Based Guidelines PROGRAMS
COMPLIANCE
MANAGEMENT Costs Communications Change EVALUATION
EXHIBIT 1.5 Comparison of Pay System Objectives at Medtronic and Whole Foods
MEDTRONIC WHOLE FOODS

Support Medtronic mission and increased Increase long-term shareholder value.
complexity of business.
Minimize increases in fixed costs. Earn profits through voluntary exchange with our
customers.
Attract and engage top talent. Through profits, create capital for growth, prosperity,
opportunity, job satisfaction, and job security.
Emphasize personal, team, and Medtronic Support team member happiness and excellence.
performance.
Recognize personal and family total well-being. Acknowledge that team outcomes are collective.
Ensure fair treatment.
Fairness is a fundamental objective of pay systems. In Medtronic’s objectives, fairness means “ensure fair treatment” and
“recognize personal and family well-being.” Whole Foods’ pay objectives discuss a shared fate. In their egalitarian work
culture, pay beyond base wages is linked to team performance, and employees have some say about who is on their team.
The fairness objective calls for fair treatment for all employees by recognizing both employee contributions (e.g., higher
pay for greater performance, experience, or training) and employee needs (e.g., a fair wage as well as fair procedures).
Procedural fairness refers to the process used to make decisions about pay.31 It suggests that the way a pay decision is
made may be as important to employees as the result of the decision (distributive fairness).
Compliance as a pay objective involves conforming to various federal, provincial, and territorial compensation laws and
regulations. As these laws and regulations change, pay systems might need to be adjusted to ensure continued compli-
ance. As companies go global, they must also comply with the laws of all the countries in which they operate.
The tension of working toward all the strategic objectives of efficiency, fairness, and compliance at times makes it
inevitable that managing pay creates ethical dilemmas. Exhibit 1.6 shows the Code of Business Conduct and Ethics
at Amazon, the world’s largest online retailer and a prominent cloud services provider. The challenge is to put these
statements into daily practice. Treating employees unfairly, making excessive demands of your employees, manipulating
results to ensure executive bonus payouts, misusing (or failing to understand) statistics used to measure competitors’ pay
rates, re-pricing or backdating stock options to increase their value, encouraging employees to invest a portion of their
wages in company stock while executives are bailing out, offering just enough pay to get a new hire in the door while ig-
noring the relationship to co-workers’ pay, and shaving the hours recorded in employees’ time cards are all-too-common
examples of ethical lapses.
Some, but not all, compensation professionals and consultants remain silent during ethical misconduct and outright
malfeasance. Absent a professional code, compensation managers must look to their own ethics—and the pay model,
which calls for combining the objectives of efficiency and fair treatment of employees as well as compliance.32 There are
probably as many statements of pay objectives as there are employers. In fact, highly diversified firms such as General
Electric, which operate multiple lines of business, may have different pay objectives for different business units. Howev-
er, each unit’s objectives must be aligned with GE’s overall objectives.
Objectives serve several purposes. First, they guide the design of the pay system. Consider the employer whose objective
is to reward outstanding performance. That objective will determine the pay policy (e.g., pay for performance) and the
elements of pay plans (e g., merit increases and/or incentives). On the other hand, if an objective is to increase customer
satisfaction, then incentive programs and merit pay might be used to pay for performance. Another employer’s objective
may be to develop innovative new products. In that case, a flexible, continuously learning workforce through job design,
training, and team-building techniques may be appropriate. A pay system aligned with this employer’s objectives might
have a policy of paying salaries that are at least equal to those of competitors and that go up with increased skills or
knowledge. This pay system might be very different from our first example, in which the focus is on performance.
The policies and techniques are the means to reach the objectives.
In summary, objectives guide the design of the pay systems. They also serve as standards for judging the success of the
pay system. If the objective is to attract and retain the best and the brightest, yet skilled employees are leaving for higher-
paying jobs elsewhere, the system may not be performing effectively. Although there may be many non-pay reasons for
turnover, objectives provide standards for evaluating the effectiveness of a pay system.33 Policies and techniques are the
means to reach the objectives.
LO5 Four Policy Choices

Every employer must address the strategic policy decisions shown on the left side of the pay model in Exhibit 1.4:
(1) internal alignment, (2) external competitiveness, (3) employee contributions, and (4) management of the pay sys-
tem. These policies form the foundation on which pay systems are built. They also serve as guidelines for managing pay
in ways that accomplish the system’s objectives.
INTERNAL ALIGNMENT
Internal alignment refers to pay comparisons between jobs or skill levels inside a single organization. Jobs and people’s
skills are compared in terms of their relative contribution to the organization’s objectives. For example, how does the
work of the programmer compare to the work of the systems analyst, the software engineer, or the software architect?
Does one contribute more than another to providing solutions to customers and satisfying stockholders? Does one
EXHIBIT 1.6 Amazon.com Code of Business Conduct and Ethics

In performing their job duties, Amazon.com employees should always act lawfully, ethically, and in the best
interests of Amazon.com. This Code of Business Conduct and Ethics (the “Code of Conduct”) sets out basic
guiding principles. Employees who are unsure whether their conduct or the conduct of their coworkers
complies with the Code of Conduct should contact their manager or the Legal Department. Employees
may also report any suspected noncompliance as provided in the Legal Department’s reporting guidelines
referred to in paragraph IX below.
I. Compliance with Laws, Rules and Regulations
Employees must follow applicable laws, rules and regulations at all times. Employees with questions about
the applicability or interpretation of any law, rule or regulation, should contact the Legal Department.
II. Conflicts of Interest
In performing their job duties, employees are expected to use their judgment to act, at all times and in all
ways, in the best interests of Amazon.com. A “conflict of interest” exists when an employee’s personal
interest interferes with the best interests of Amazon.com. For example, a conflict of interest may occur
when an employee or a family member receives a personal benefit as a result of the employee’s position
with Amazon.com. A conflict of interest may also arise from an employee’s business or personal relation-
ship with a customer, supplier, competitor, business partner, or other employee, if that relationship impairs
the employee’s objective business judgment.
Because an employee’s receipt of gifts or services could create a conflict of interest, the Legal Department
will develop and maintain guidelines for disclosure of gifts or services received from customers, suppliers,
competitors or business partners.
Employees should attempt to avoid conflicts of interest and employees who believe a conflict of interest
may exist should promptly notify the Legal Department. The Legal Department will consider the facts and
circumstances of the situation to decide whether corrective or mitigating action is appropriate.
III. Insider Trading Policy
Federal and state laws prohibit trading in securities by persons who have material information that is not
generally known or available to the public.
Employees of the Company may not a) trade in stock or other securities while in possession of material
nonpublic information or b) pass on material nonpublic information to others without express authorization
by the Company or recommend to others that they trade in stock or other securities based on material
nonpublic information.
The Company has adopted guidelines designed to implement this policy.
All employees are expected to review and follow the Amazon.com Insider Trading Guidelines. Certain employees
must comply with trading windows and/or preclearance requirements when they trade Amazon.com securities.
IV. Discrimination and Harassment
Amazon.com provides equal opportunity in all aspects of employment and will not tolerate any illegal
discrimination or harassment of any kind. For more information, see the Amazon.com policies on Equal
Employment Opportunity and Workplace Harassment in the Amazon.com Owner’s Manual.
V. Health and Safety
Amazon.com provides a clean, safe and healthy work environment. Each employee has responsibility for
maintaining a safe and healthy workplace by following safety and health rules and practices and reporting
accidents, injuries and unsafe conditions, procedures, or behaviors.
Violence and threatening behavior are not permitted. Employees must report to work in a condition to
perform their duties, free from the influence of illegal drugs or alcohol.
VI. Price Fixing
Employees may not discuss prices or make any formal or informal agreement with any competitor regard-
ing prices, discounts, business terms, or the market segments and channels in which the Company com-
petes, where the purpose or result of such discussion or agreement would be inconsistent with applicable
antitrust laws. If you have any questions about this section or the applicable antitrust laws, please contact
the Legal Department.
(continued)
(continued)
VII. Bribery; Payments to Government Personnel
Employees may not bribe anyone for any reason, whether in dealings with governments or the private
sector. The U.S. Foreign Corrupt Practices Act, and similar laws in other countries, prohibit offering or giving
anything of value, directly or indirectly, to government officials in order to obtain or retain business. Employ-
ees may not make illegal payments to government officials themselves or through a third party. Employees
who are conducting business with the government officials of any country must contact the Legal Depart-
ment for guidance on the law governing payments and gifts to governmental officials.
VIII. Recordkeeping, Reporting, and Financial Integrity
Amazon.com’s books, records, accounts and financial statements must be maintained in appropriate detail,
must properly reflect the Company’s transactions and must conform both to applicable law and to the
Company’s system of internal controls. Further, Amazon.com’s public financial reports must contain full, fair,
accurate, timely and understandable disclosure as required by law. The Company’s financial, accounting
and legal groups are responsible for procedures designed to assure proper internal and disclosure con-
trols, and all employees should cooperate with these procedures.
IX. Questions; Reporting Violations
Employees should speak with anyone in their management chain or the Legal Department when they have
a question about the application of the Code of Conduct or when in doubt about how to properly act in a
particular situation.
The Amazon.com Legal Department has developed and maintains reporting guidelines for employees who
wish to report violations of the Code of Conduct. These guidelines include information on making reports
to the Legal Department and to an independent third party. Please see the reporting guidelines for informa-
tion and instructions.
Amazon.com will not allow retaliation against an employee for reporting misconduct by others in good faith.
Employees must cooperate in internal investigations of potential or alleged misconduct.
Employees who violate the Code of Conduct will be subject to disciplinary action up to and including discharge.
X. Periodic Certification
The Legal Department will designate certain employees who, based on their level of responsibility or the
nature of their work, will be required to certify periodically that they have read, understand and complied
with the Code of Conduct.
XI. Board of Directors
With respect to their service on behalf of the Company, Amazon.com’s Board of Directors must comply with
the relevant provisions of this Code of Conduct, including conflicts of interest, insider trading and compli-
ance with all applicable laws, rules and regulations.
XII. Waivers
Waivers of this Code of Conduct may be made only in a manner permitted by law.
require more knowledge or experience than another? Internal alignment refers to the pay rates both for employees doing
equal work and for those doing dissimilar work. In fact, determining an appropriate difference in pay for people perform-
ing different work is a key challenge facing managers.
Internal alignment policies, or pay relationships within an organization, relate to all the compensation objectives. They
affect employee decisions to stay with the organization, to become more flexible by investing in additional training, or
to seek greater responsibility. By motivating employees to choose increased training and greater responsibility in dealing
with customers, pay relationships indirectly affect the capabilities of the workforce and hence the efficiency of the
entire organization. Fairness is affected by employees’ comparisons of their pay to the pay of others in the organization.
Compliance is affected by the basis used to make internal comparisons. Basic fairness is provided by Canadian human
rights laws, which make it discriminatory and illegal to make pay decisions on the basis of race, gender, age, and other
grounds. And, of course, the goal is to achieve everything is an ethical manner.
EXTERNAL COMPETITIVENESS
External competitiveness refers to compensation relationships external to the organization (i.e., compared with competi-
tors). How should an employer position its pay relative to what competitors are paying? How much should one employer
pay accountants in comparison to what other employers pay them? What mix of pay forms—base, incentives, stock,
benefits—will help achieve the compensation objectives? Employers have several policy options. Some may choose to pay
market rates, others may choose to pay below or above market rates.
Further, Medtronic believes that its benefits, particularly its emphasis on programs that balance work and life, make it a highly
attractive place to work. It believes that how pay is positioned and what forms it uses creates an advantage over competitors.
Many organizations claim their pay systems are market-driven, that is, based on what competitors pay. However, “market
driven” gets translated into practice in different ways. Some employers set their pay levels higher than those of their
competition, hoping to attract the best applicants. Of course, this assumes that someone is able to identify and hire the
“best” from a pool of applicants.
External competitiveness decisions—both how much and what forms—have a twofold effect on objectives: (1) they ensure
that the pay is sufficient to attract and retain employees—if employees do not perceive their pay as competitive with what
other organizations are offering for similar work, they may leave—and (2) they control labour costs so that the organiza-
tion remains competitive in the global economy. Thus, external competitiveness directly affects both efficiency and fair-
ness. And the organization must respond in a way that complies with relevant legislation and again, in an ethical manner.
EMPLOYEE CONTRIBUTIONS
This refers to the relative emphasis placed on performance. Should one programmer be paid more than another because
of better performance or greater seniority? Should all employees share in the organization’s financial success via incen-
tives based on profit? What about sharing financial losses? Should more-productive teams of employees be paid more
than less-productive teams?
The degree of emphasis placed on performance is an important policy decision, because it directly affects employees’
attitudes and work behaviours. Employers with strong pay-for-performance policies put greater emphasis on incentives
and merit pay. Starbucks emphasizes stock options and sharing the success of corporate performance with its employ-
ees. General Electric emphasizes performance at the individual, division, and company-wide level. Recognition of contri-
butions also affects fairness, because employees have to understand the basis for judging performance to conclude that
their pay is fair.
The external competitiveness and employee contribution decisions should be made jointly. For example, Whole Foods
combines base pay and team incentives to offer higher pay if team performance warrants. Medtronic sets its base pay to
match its competitors’ but ties bonuses to performance and offers stock to all employees on the basis of company perfor-
mance. Nucor, on the other hand, targets base pay below market, but targets total cash compensation (including profit
sharing and gain-sharing/plant production bonuses) at well above the market median.
MANAGEMENT
A policy regarding management of the pay system is the last building block in the pay model in Exhibit 1.4. Although
it is possible to design a system based on internal alignment, external competitiveness, and employee contributions, the
system will not achieve its objectives unless it is managed properly. Proper management of the pay system ensures that
the right people get the right pay for achieving the right objectives in the right way.
The ground under compensation management has shifted. The traditional focus on how to administer various tech-
niques is long gone, replaced by more strategic thinking—managing pay as part of the business. It goes beyond simply
managing pay as an expense to better understanding and analyzing the impact of pay decisions on people’s behaviours
and organizations’ success. The impact of pay decisions on expenses is one result that is easily measured and well
understood. But other measures, such as pay’s impact on attracting and retaining the right talent, and engaging this
talent productively, are not yet widely used in the management of compensation. Efforts to do so are increasing, and the
perspective is shifting from “how to” toward “so what?”34 Ease of measurement is not the same as importance; costs are
easy to measure (and, of course, important), so there is a tendency to focus there. Yet the consequences of pay, although
often less amenable to measurement, are nonetheless just as important.
Pay Techniques
The remaining portion of the pay model in Exhibit 1.4 shows the techniques that can help us come up with a pay strategy.
The exhibit provides an overview only; pay techniques are discussed throughout the rest of this book. Techniques tie the
four basic policies to the pay objectives. Uncounted variations in pay techniques exist; many are examined in this book.
BOOK PLAN
Compensation is such a broad and compelling topic that several books could be devoted to it. The focus of this book is on
the design and management of compensation systems. To aid in understanding how and why pay systems work, our pay
model, which emphasizes the key strategic objectives, policies, and techniques, provides the structure for much of the book.
Chapter 2 discusses how to formulate a compensation strategy. It analyzes what it means to be strategic about how
people are paid and how compensation can help achieve and sustain an organization’s competitive advantage. The pay
model plays a central role in formulating an organization’s pay strategy. The pay model identifies four basic policy deci-
sions that are the core of the pay strategy.
After strategy is discussed, the next parts of the book will examine each basic policy decision in detail. Part I, internal
alignment (Chapters 3 through 6), examines pay relationships within a single organization. Three chapters in Part II
(Chapters 7, 8, and 9) examine external competitiveness— the pay relationships among competing organizations—and
analyzes the influence of market-driven forces. Employee services and benefits will be examined in Chapter 9.
Once compensation rates and structures are established, other issues emerge. How much and how often should an em-
ployee’s pay be increased, and on what basis—experience, seniority, or performance? Should pay increases be contingent
on the organization’s and/or the employee’s performance? How should the organization share its success (or failure)
with employees? These are questions relating to employee contributions, the third building block in the model
(Chapters 10 and 11).
The role of governments and unions in compensation is explored in Chapter 12. The concluding chapter focuses on the
management of the compensation system (Chapter 13), which includes understanding, communicating, budgeting, and
evaluating results. More detail on global compensation systems is provided in the Appendix.
Although this book is divided into parts that reflect the pay model, pay policies, and decisions are not discrete. In fact,
all policy decisions are interrelated. Together, they influence employee behaviours and organization performance and
can be a source of competitive advantage.
Throughout this book, various compensation approaches will be examined. There rarely is a single correct approach;
rather, alternative approaches exist or can be designed.
CONCLUSION
The model presented in this chapter provides a structure for understanding compensation systems. The three main
components of the model are the objectives of the pay system, the policy decisions that provide the system’s foundation,
and the techniques that link policies and objectives. The following parts of the book examine each of the four policy
decisions—internal alignment, external competitiveness, employee contributions, and management—as well as tech-
niques, new directions, and related research.
Two questions should constantly be in the minds of managers and readers of this text. First, why do it this way? There is
rarely one correct way to design a system or pay an individual. Organizations, people, and circumstances are too varied.
But a well-trained professional can select or design a suitable approach.
Second, what does this technique do for us? How does it help achieve our organizational goals? If good answers are not
apparent, there is no point to the technique. Adapting the pay system to meet the needs of the employees and helping to
achieve the goals of the organization are what this book is all about.
The basic premise of this book is that compensation systems have a profound impact. Yet, too often, traditional pay
systems seem to be designed in response to some historical but long-forgotten problem. The practices continue, but the
logic underlying them is not always clear or even relevant.
CHAPTER SUMMARY
1. People may have different perspectives on compensation. From the societal perspective, compensation is viewed
as a measure of justice as well as a cause of increased taxes and price increases. Stockholders believe that paying
employees in stock creates a sense of ownership that will improve organizational performance. Managers view
compensation as a major expense and a means to influence employee behaviour. Employees view compensation as a
entitlement, a return on their investments, or a reward for a job well done.
2. Compensation refers to all forms of financial returns and tangible services and benefits that employees receive as
part of an employment relationship.
3. The two major components of total rewards are total compensation and relational returns. Total compensation is
composed of cash compensation (base pay and incentives) and benefits. Relational returns include psychological
aspects of work such as recognition and status, challenging work, and learning opportunities.
4. The strategic objectives of compensation are (1) efficiency in performance and quality, satisfying customers and
stockholders, and controlling costs; (2) fairness; (3) compliance with laws and regulations; and (4) ethics.
5. The four strategic policies in the pay model are internal alignment, external competitiveness, employee contributions,
and management. The internal structure techniques associated with alignment are job analysis, job descriptions, and
evaluation/certification. The pay structure techniques associated with competitiveness are market definitions, surveys,
and pay policy lines. The incentive program techniques associated with contributions are seniority based, incentives,
and merit guidelines. The evaluation techniques associated with management are cost, communication, and change.
KEY TERMS
allowances relational returns

compensation salary
cost-of-living adjustment total rewards
external competitiveness total compensation
incentives (variable pay) wage
internal alignment work/life programs
merit increases
REVIEW QUESTIONS
1. How do differing perspectives affect our views of compensation?

2. Refer to the image that opens this chapter and categorize the various items based on what the following stakeholder
groups may refer to as compensation: employee, employer, society, and stockholders.
3. Discuss five different forms of pay that one might expect to receive from work.
4. What are the four policy issues in the pay model? And what are the strategic objectives of a pay system?
EXPERIENTIAL EXERCISES
1. What is your definition of compensation? Which meaning of compensation seems most appropriate from an
employee’s point of view—return, reward, or entitlement? Compare your ideas with someone who has more
experience, with someone from another country, and with someone from another field of study.
2. List all the forms of pay you receive from work. Compare your list to someone else’s. Explain any differences.
3. What is your ideal total compensation package upon your completion of the program at your current institution?
Do you think these are achievable? What are some of the things you can offer your employer?
4. Go to the website of a company that you want to work in. Find out what kind of benefits it offers their employees.
CASE
The Role of Labour Costs

To what extent is compensation an important cause of company success (or lack of success) in the retail electronics
industry? Consider Best Buy, an American multinational consumer electronics retailer headquartered in Richfield,
Minnesota. It was originally founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store
called Sound of Music. In 1983, it was re-branded under its current name with an emphasis placed on consumer
electronics. Future Shop was a Canadian electronics store chain. It was established in 1982 by Hassan Khosrowshahi.
By 1990, the chain had become Canada’s largest retailer of computer and consumer electronics. In November 2001,
Best Buy acquired Future Shop for $580 million.
After the acquisition of Future Shop, Best Buy continued to establish new stores under the Best Buy banner and the
Future Shop stores continued to be operated as a separate chain. The two chains carried very similar products and many
Best Buy stores were geographically very close to Future Shop stores. One of the key differences is customers’ in-store
shopping experiences. Future Shop had traditionally used a commission pay plan that paid off big for experienced,
knowledgeable, and high-performing salespeople. Best Buy, on the other hand, has lower labour costs, as it hired young,
less-expert, less-experienced salespeople.
As the company faced slower sales, plus increased competition from Amazon and discount stores like Walmart, Best
Buy subsequently sought to further cut its own labour costs in 2009 by eliminating 1,000 assistant manager positions
and demoting 8,000 senior sales associates to a position that would pay 25% to 50% less than their earnings. Then, in
2012, Best Buy announced that it would close 50 stores and also cut 400 corporate jobs in an effort to cut $800 million
in costs. After these cuts, store closings and pay cuts, Best Buy again cut employment levels by around 2,000 in its stores
and regional offices in 2014. In order to minimize any negative impact on customer experience, the cuts targeted middle
managers, many of whom earned six-figure salaries and who supervised product categories at more than a dozen stores
each.
In Canada, Best Buy moved to close 66 Future Shop stores and rebrand 65 others as Best Buy stores in March 2015.
About 1,500 part-time and full-times employees were laid off.
Best Buy hopes to continue to lower costs as it continues to successfully compete on price (and service) against compet-
itors like Amazon and Walmart, which have much lower cost structures.
Hubert Joly, CEO of Best Buy (from September 2012 to June 2019) stated in his last message to the shareholders that
Best Buy continues to be excited by the power of their incredibly talented people, who are engaged, customer-oriented,
and aligned with Best Buy’s purpose and strategy. The strong culture at Best Buy is premised on the following powerful
beliefs:
• Work can be an instrument for doing good things in the world.

• A company is a human organization–a group of individuals working together in pursuit of a goal, not a soul-less
body.
• The purpose of a corporation is to contribute to the common good, by having a positive impact on its customers,
employees, vendors, shareholders, and the communities in which it operates. A business is more than for profit. It is
about doing well by doing good.
• “Magic” happens if you can connect what drives the individuals working at the company to the purpose of the com-
pany. More broadly, Best Buy believes that great things happen at companies where the individual who works there
can feel a sense of purpose, develop personal connections, have autonomy, develop a certain mastery, and feel they
are in a growth environment.
• Work is not about attempting to achieve perfection but about human connections. Best Buy believes performance
and growth come from accepting and embracing imperfections and vulnerabilities.
Below are data on U.S. opening stock prices for Best Buy, Amazon and Walmart, from 2009 to 2019:
Best Buy Amazon Walmart

2009 29.02 54.36 57.18
2010 40.19 133.90 54.23
2011 34.47 184.22 54.56
2012 23.68 179.03 60.33
2013 11.81 257.31 69.24
2014 40.50 397.97 78.91
2015 38.79 308.52 85.90
2016 30.65 636.99 61.46
2017 42.76 753.67 68.66
2018 69.16 1,189.01 98.59
2019 53.60 1,539.13 93.34
Questions
1. Is replacement of highly-paid workers with lower-paid workers a good idea to ensure a company’s success?
2. Why are Walmart and Amazon doing better than Best Buy? Do they have higher pay?
3. Are there larger problems in the competitive landscape for Best Buy that cannot be solved by compensation strategy
changes (e.g., lowering labour costs) alone? When customers look to buy electronics, what options do they have
other than Best Buy, and why would they choose these other options over Best Buy? Where do customers “test
drive” the product and where do they buy it? Can compensation changes address these challenges? Explain.
4. The stock price for Best Buy went down to $11.81 in 2013, but it has been doing better since then. Are you surprised
by their performance since 2013?
5. What do you think about the CEO’s message to the shareholders about the beliefs that Best Buy’s culture is built on?
Chapter 2
STRATEGY: THE TOTALITY

OF DECISIONS
carlo fornitano/Shutterstock.com
Learning Outcomes
LO1 xplain why managers should tailor their pay systems to support the
E
organization’s strategy.
LO2 Identify the four steps to develop a total compensation strategy.
LO3 Describe the three tests used to determine whether a pay strategy is a
source of competitive advantage.
LO4 Contrast the “best fit” perspective on compensation with the “best
practices” perspective.
Some organizations adopt a compensation strategy by simply paying market rates; that is, they let the market decide how
much they should pay their employees. Unfortunately, a dose of reality quickly reveals that it’s not quite that easy.
CHAPTER 2: STRATEGY: THE TOTALITY OF DECISIONS 19
SIMILARITIES AND DIFFERENCES IN STRATEGIES

In Exhibit 2.1, compensation strategies at Google, Nucor, and Merrill Lynch are compared. Google is a popular Internet
search engine company. Nucor is a pioneer in recycling steel scrap and other metals into steel products. Merrill Lynch,
now part of Bank of America after the meltdown in September 2008, is a financial services organization that advises
companies and clients around the world. All three are innovators in their industry. Their decisions on the five dimen-
sions of compensation strategy are both similar and different. All three formulate their pay strategy to support their
business strategy. All three emphasize outstanding employee performance and commitment. However, there are also
major differences.
EXHIBIT 2.1 Three Compensation Strategies
GOOGLE NUCOR MERRILL LYNCH

Objectives Emphasis on innovation Focus on customer Focus on customer
Commitment to cost Most productive Attract, motivate, and
containment Highest quality retain the best talent
Recognize contributions Fair, understandable
Attract and reward the best policies and practices
Internal Alignment Minimize hierarchy Succeed by working Pay fairly internally
Everyone wears several together Job sized on four
hats No defined career factors: knowledge/skill,
Emphasize collaboration paths, but many complexity, business
opportunities impact, strategic value
External Market leader in pay and Below market for Market competitive in
Competitiveness benefits base base and benefits
Unique benefits Market leader Market competitive in
for total cash incentive/bonus and
compensation stock
Employee Recognize individual Bonuses based on Financial advisors work
Contributions contributions plant production under a strong incentive
Significant stock programs and company system based on client
profits wealth management
fees/commissions and
total wealth of their
client base
Management Love employees, want Not for everyone Understandable,
them to know it No-layoff practice, consistent message
but income fluctuates
Google (now called Alphabet), one of the largest companies in the world with a market value of over $700 billion,
positions itself as still being the feisty start-up populated by nerds and math wizards. It offers all its employees such
generous stock options that many of them have become millionaires. Its benefits are “way beyond the basics” compared
to its competitors. (Yes, there is a gym, a grand piano, bocce courts, a bowling alley, and roller hockey in the parking lot.
There is also food: 25 cafes in the company, all free.) Not surprisingly, Google was named the best company to work for
by Fortune in 2007, 2008, 2012, 2013, 2014, 2015, 2016, and 2017. Google has traditionally not emphasized cash com-
pensation in its communications; however, a quick internet search shows that pay levels at Google is quite a bit higher
than the national average. For example, software engineers in Canada earn, on average, about $80,000 a year, compared
to the average pay of software engineers at Google Canada at over $108,000.
At Nucor Steel, the emphasis is on high productivity, high quality, and low-cost products. Nucor provides an opportuni-
ty for those who are willing to work hard to make a lot of money by helping the company be productive and profitable.
Consider that in a good year, an hourly worker can make $75,000 or more in wages and bonuses. That compares to an
average annual wage in U.S. manufacturing of about $47,000 (based on U.S. Bureau of Labor Statistics data). In addi-
tion, Nucor has had no layoffs, even when sales dropped from $23.7 billion in 2008 to $11.2 billion in 2009. Thus, when
20 CHAPTER 2: STRATEGY: THE TOTALITY OF DECISIONS
Nucor says in its corporate mission that it succeeds by “working together” and that all of its customers (including all of
their employees) are important, its actions show it takes these words seriously. However, some workers at Nucor did expe-
rience substantial reductions in pay (primarily in bonus payouts) a few years ago when competition in the steel industry,
including from imports, drove steel prices and profits lower.1 Thus, Nucor’s labour costs have downward flexibility when
necessary, but that flexibility is not achieved through the use of layoffs. (Indeed, this flexibility helps avoid layoffs.)
Merrill Lynch’s pay objectives are straightforward: to attract, motivate, and retain the best talent. Merrill Lynch, which
relies heavily on the human capital of its employees to compete, focuses on total compensation, which includes competi-
tive base pay, very aggressive bonuses, and equally aggressive stock awards based on each individual’s accomplishments.
Pay for performance is the key. This aggressive pay-for-performance approach at Merrill Lynch was traditionally seen as
a key factor in generating substantial wealth for both its shareholders and many of its employees. However, a widely held
view is that this aggressive approach led to too much risk-taking (e.g., in areas of the business like subprime lending and
currency trading) and unethical behaviour by managers, which is also now seen as a key factor in the meltdown in the
financial industry in late 2008. Having said that, recent financial results show that Merrill Lynch, which accounts for
8.6% of the Bank of America’s employees, produced 15.9% of its income.
These three companies are in very different businesses facing different conditions, serving different customers, and
employing different talent. So the differences in their pay strategies may not be surprising. Pay strategies can also differ
among companies competing for the same talent and similar customers.2
Different Strategies within the Same Industry

Google, Microsoft, and SAS Institute (SAS) all compete for software engineers and marketing professionals. In its
earlier years, Microsoft adopted a very similar strategy to Google’s, except its employees accepted less base pay to join a
company whose stock value was increasing exponentially.3 But when its stock quit performing so spectacularly, Micro-
soft shifted its strategy to increase base and bonus to the 65th percentile from the 45th percentile of competitors’ pay. It
still retained its strong emphasis on stock-related compensation but eliminated its longstanding broad-based stock option
plan in favour of stock grants. Its benefits continue to lead the market. Google so far retains the excitement of a start-up,
while Microsoft has now morphed into “the new Boeing—a solid place to work for a great salary.”4
SAS, the world’s largest privately owned software company, takes a very different approach. It emphasizes its work/life
programs over cash compensation and gives only limited bonuses and no stock awards. SAS, headquartered in Cary,
North Carolina, includes free on-site childcare centres, subsidized private schools for children of employees, doctors on
site for free medical care, plus recreation facilities.5 Working more than 35 hours per week is discouraged. By removing
as many of the frustrations and distractions of day-to-day life as possible, SAS believes people will focus on work when
they are at work and won’t burn out. The compensation strategy at SAS emphasizes its work/life balance programs.
These examples illustrate the variability in strategic perspectives among companies in different industries (Google,
Nucor, and Merrill Lynch) and even among companies in the same industry (Google, Microsoft, and SAS).
Different Strategies within the Same Company

Sometimes different business units within the same corporation will have very different competitive conditions, adopt
different business strategies, and thus fit different compensation strategies. General Electric, headquartered in Boston,
Massachusetts, operates in many countries around the world and owns a number of businesses, including GE Capital,
GE Healthcare, GE Renewable Energy, GE Aviation, and GE Lighting. These businesses face very different competitive
conditions. The Korean company SK Group, one of the largest conglomerates in South Korea, has a wide variety of
business units. They include SK Telecom, SK Chemicals, SK Communications, and SK Engineering and Construction.
SK Group has different compensation strategies aligned to each of its very different businesses.6
Thus, a strategic perspective on compensation is more complex than it first appears. Taking a strategic perspective
requires a focus on compensation decisions that help the organization gain and sustain a competitive advantage.
LO1 STRATEGIC CHOICES

Strategy refers to the fundamental decisions that an organization chooses.7 An organization defines its strategy through
the tradeoffs it makes in choosing what (and what not) to do. Exhibit 2.2 relates these strategic choices to the quest for
competitive advantage. At the corporate level, the fundamental strategic choice is: What business should we be in? At the
business unit level, the choice shifts to: How do we gain and sustain competitive advantage in this business? At the function
level, the strategic choice is: How should total compensation help this business gain and sustain competitive advantage? The
ultimate purpose is to gain and sustain competitive advantage.8
EXHIBIT 2.2 Strategic Choices
Corporate objectives,
• What business strategic plans,
should we be in? vision, and values
• How do we win (gain

Business unit
competitive advantage)
strategies
in those businesses?
• How should HR help us win? HR strategies
• How should total Social, competitive, Strategic

compensation and regulatory compensation
help us win? environment decisions
Compensation
systems
Employee
attitudes and
behaviours
Competitive
advantage
Support Business Strategy

A currently popular theory found in almost every book and consultant’s report tells managers to tailor their pay systems
to align with the business strategy. The rationale is based on contingency notions. That is, differences in a firm’s strategy
should be supported by corresponding differences in its human resources strategy, including compensation. The under-
lying premise is that the greater the alignment, or fit, between the organization and the compensation system, the more
effective the organization.9
Exhibit 2.3 gives an example of how compensation systems might be tailored to three general business strategies. The
innovator stresses new products and short response times to market trends. A supporting compensation approach puts
less emphasis on evaluating skills and jobs and more on incentives designed to encourage innovation. The cost cutter’s
efficiency-focused strategy stresses doing more with less by minimizing costs, encouraging productivity increases, and
specifying in greater detail exactly how jobs should be performed. The customer-focused business strategy stresses de-
lighting customers and bases employee pay on how well they do this.
EXHIBIT 2.3 Tailor the Compensation System to the Strategy
HR PROGRAM COMPENSATION
STRATEGY BUSINESS RESPONSE ALIGNMENT SYSTEMS
Innovator: Increase • Product leadership • C
ommitment to agile, • R eward for innovation in
product complexity • Shift to mass risk-taking, innova- products and processes
and shorten product customization tive people • Market-based pay
life cycle • Shorter cycle time • Flexible/generic job
descriptions
Cost cutter: Focus • Operational excellence • Do more with less • F ocus on competitors’
on efficiency • Pursue cost-effective labour costs
solutions • Increase in variable pay
• Emphasis on
productivity
• Focus on system control
and work specifications
Customer focused: • D
eliver solutions to • D
elight customers, • C ustomer satisfaction
Increase customer customers exceed expectations incentives
satisfaction • Speed to market • Value of job and skills
based on customer
contact
Other business strategy frameworks rely on similar ideas. In Michael Porter’s model, firms that cut costs are said to
follow a cost leadership strategy, while those that seek to provide a unique and/or innovative product or service at a
premium price are said to follow a differentiation strategy. Likewise, Miles and Snow refer to defenders as those that
operate in stable markets and compete on cost, whereas prospectors are more focused on innovation, new markets, and
so forth.10 These are known as generic strategy frameworks. Conventional wisdom is that competing on cost requires
lower compensation, whereas competing through innovation is likely to be more successful with high-powered incentives
or pay for performance programs.
Most firms, however, do not have generic strategies. Instead, they tend to have various aspects of cost and innovation.
Likewise, compensation strategies do not necessarily line up neatly with generic business strategies. Although Lincoln
Electric, Nucor Steel, and Southwest Airlines rely heavily on cost leadership in their strategies, they pay their employees
well above market (e.g., using stock and profit-sharing plans) when firm performance is strong. SAS follows a customer
and innovation strategy but uses little in the way of pay for performance. These generic business strategy and pay strate-
gy ideas provide a starting point for an organization to fashion its own unique way of adding value and gaining competi-
tive advantage through aligning its business strategy with its pay strategy.11
It also follows that when business strategies change, pay strategy should change too. A classic example is IBM’s strate-
gic and cultural transformation. IBM’s emphasis on internal alignment (e.g., well-developed job evaluation plan, clear
hierarchy for decision making, work/life balance benefits, policy of no layoffs) had served it well during the decades
when the company dominated the market for high-profit, mainframe computers. But it did not provide flexibility to adapt
to competitive changes in the new century. A redesigned IBM no longer sells the PCs they popularized. Instead, IBM
describes its current strategy as having a focus on the high-growth, high-value segments of the IT industry and offers a
broad mix of businesses and capabilities that provide business insight and solutions for its clients. Exhibit 2.4 depicts
IBM’s “New Blue” approach to executing its strategy. A new business strategy requires a new compensation strategy. At
IBM, this meant streamlining the organization by cutting layers of management, redesigning jobs to build in more flexi-
bility, increasing incentive pay to more strongly differentiate on performance, and keeping a constant eye on costs. IBM
changed its pay strategy and system to support its changed business strategy.
Support HR Strategy
As discussed, it is critical that an organization has a compensation strategy that supports its business strategy. It is also
imperative that there be alignment between its compensation strategy and its overall HR strategy. HR systems will be
most effective (1) when roles are designed to allow employees to be involved in decisions and to have an opportunity to
make an impact, (2) when employee ability is developed through selective hiring and training and development, and
EXHIBIT 2.4 IBM’s Strategic Principles and Priorities in Strategy Execution
PRINCIPLES PRIORITIES
1. T he marketplace is the driving force behind 1. Delivering business value
everything. 2. Offering world-class open infrastructure
2. At our core, we are a technology company 3. Developing innovative leadership technology
with an overriding commitment to quality. 4. Exploiting new profitable growth opportunities
3. Our primary measures of success are 5. Creating brand leadership and a superior
customer satisfaction and shareholder value. customer experience
4. We operate as an entrepreneurial organiza- 6. Attracting, motivating, and retaining the best
tion with a minimum of bureaucracy and a talent in our industry
never-ending focus on productivity.

5. We never lose sight of our strategic vision.

6. We think and act with a sense of urgency.
7. Outstanding, dedicated people make it
happen, particularly when they work
together as a team.
8. We are sensitive to the needs of all employees
and to the communities in which we operate.
Source: Adapted from IBM.
(3) when the compensation system motivates employees to act on their abilities and take advantage of the opportunity
to make a difference. Compensation is the key to attracting, retaining, and motivating employees with the abilities neces-
sary to execute the business strategy and handle greater decision-making responsibilities.
Consider alignment between compensation and other aspects of HR at SAS. Rather than being sold in a one-time
transaction, SAS’s software is licensed. This is part of a business strategy by which SAS gets ongoing and substantial
feedback from customers regarding how products can be continuously improved and also regarding what new products
customers would like. To support this long-term customer relationship, SAS seeks to have low employee turnover. Its
heavy emphasis on benefits in compensation helps in term of employee retention. SAS also gets many job applications,
which allows it to be very selective in its hiring. The de-emphasis on pay for individual performance reduces the risk
that competition among employees will undermine this objective. As will be discussed in the next section, Whole
Foods also relies heavily on pay for team performance. Contrast the de-emphasis on differences in individual perfor-
mance at SAS and Whole Foods with the strong emphasis on individual pay for performance that seems to fit the
business and HR strategies of companies such as General Electric, Nucor Steel, Lincoln Electric, and Merrill Lynch.
Hence, alignment of an organization’s compensation strategy and its HR strategy is central to successful business
strategy execution.
THE PAY MODEL GUIDES STRATEGIC PAY DECISIONS

The competitive advantage of Whole Foods is apparent with the first visit to one of its grocery stores, described as “a
mouth-watering festival of colors, smells, and textures; an homage to the appetite.”12 What started out in 1978 as a small
health food store in Austin, Texas, has, through strategic decisions, grown to become the world’s leading natural- and
organic-foods supermarket. Along the way, the company has designed a total compensation system to support the com-
pany’s phenomenal growth (from 10,000 team members or employees and $900 million in sales in 1996 to more than
89,000 team members and sales of $16 billion in fiscal 2017) while remaining true to the founder’s vision.
Using the pay model discussed in the previous chapter, the following is an analysis of the five strategic compensation
decisions facing Whole Foods:
1. Objectives: How should compensation support the business strategy and be adaptive to the cultural and regulatory
pressures in a global environment? (Whole Foods objectives are as follows: increase shareholder value through prof-
its and growth; go to extraordinary lengths to satisfy and delight customers; seek and engage employees who will
help the company make money—every new hire must win a two-thirds vote from team members before being given a
permanent position.)
2. Internal alignment: How differently should the different types and levels of skills and work be paid within the organi-
zation? (The Whole Foods model is as follows: store operations are organized around eight to ten self-managed teams
that make decisions that are often reserved for managers (e.g., what products to order and stock). Egalitarian, shared-
fate philosophy means that executive salaries do not exceed 19 times the average pay of full-time employees (the ratio
used to be 8 times; note that for top executives, salary typically accounts for well under one-half of total compensation);
all full-time employees qualify for stock options; and 94% of the company’s options go to non-executive employees.)
3. External competitiveness: How should total compensation be positioned against competitors? (Whole Foods offers
a unique deal compared to competitors.) What forms of compensation should be used? (Whole Foods provides
health insurance for all full-time employees and 20 hours of paid time per year to do volunteer work.)
4. Employee contributions: Should pay increases be based on individual and/or team performance, on experience and/
or continuous learning, on improved skills, on changes in cost of living, on personal needs (e.g., housing, trans-
portation, health services), and/or on each business unit’s performance? (Whole Foods employees have a shared
fate—every four weeks, the performance of each team is measured in terms of revenue per hour worked, which
directly affects what they get paid. This is one reason why staffers are given a say in who gets hired—co-workers want
someone who will help them make money!)
5. Management: How open and transparent should the pay decisions be to all employees? Who should be involved in
designing and managing the system? (Whole Foods has a “no-secrets” management—every store has a book listing
the previous year’s pay for every employee including executives; with the “You Decide” program, employees can
pick their health insurance rather than have one imposed by management.)
These decisions, taken together, form a pattern that becomes an organization’s compensation strategy. It would be inter-
esting to see how any of these strategies may change after Amazon’s $13.7 billion acquisition of Whole Foods in 2017.
Stated versus Unstated Strategies

All organizations that pay people have a compensation strategy. Some may have written, or stated, compensation strat-
egies for all to see and understand. Others may not even realize they have a compensation strategy, claiming that “We
do whatever it takes.” Their compensation strategy is inferred from the pay decisions they have made.13 The point is that
managers in all organizations make the five strategic decisions discussed earlier. Some do it in a rational, planned way;
others do it more chaotically—as ad hoc responses to pressures from the economic, sociopolitical, and regulatory context
in which the organization operates. But in any organization that pays people, there is a compensation strategy at work.
LO2 DEVELOPING A TOTAL COMPENSATION STRATEGY: FOUR STEPS

Developing a compensation strategy involves four simple steps, shown in Exhibit 2.5. While the steps are simple, execut-
ing them is complex. Trial and error, experience, and insight play major roles. Research evidence can also help.14
Step One: Assess Total Compensation Implications

The factors in the business environment that can contribute to a company’s success and that are likely to become more
(or less) important as the company looks ahead are classified in Exhibit 2.5. They are business strategy and competitive
dynamics, HR strategy, culture/values, social and political context, employee/union preferences, and other HR systems.
The implications of all these factors are all necessary to formulate a compensation strategy.
BUSINESS STRATEGY AND COMPETITIVE DYNAMICS—UNDERSTAND THE BUSINESS

This first step includes an understanding of the specific industry in which the organization operates and how it plans to
compete. To cope with turbulent, competitive dynamics, focusing on factors in the business environment (i.e., changing
customer needs, competitors’ actions, changing labour market conditions, changing legislations and regulations, global-
ization, climate change) are important today. What will be important in the future?
It is important to learn to gauge the underlying dynamics in business, such as its business strategy, and to consider how
the compensation system should change to support and be part of that strategy. Aligning different compensation strate-
gies to different business strategies—cost cutter, customer centred, and innovator (see Exhibit 2.3)—has already been dis-
cussed. But reality is more complex and chaotic. Organizations are not necessarily innovators, cost cutters, or customer
centred. Instead, they are some of each, and more. So the rational, planned, and orderly image conveyed in Exhibit 2.3
does not adequately capture the turbulent competitive dynamics underlying this process.15
EXHIBIT 2.5 Key Steps in Formulating a Total Compensation Strategy
1. Assess Total Compensation

Implications
Business Strategy and
Competitive Dynamics
HR Strategy
Culture/Values
Social and Political Context
Employee/Union Preferences
Other HR Systems
2. Map a Total Compensation

Strategy
Objectives
Internal Alignment
External Competitiveness
4. Reassess the Fit Employee Contributions
Realign as Conditions Change Management
Realign as Strategy Changes
3. Implement Strategy
Design System to Translate Strategy
into Action
Choose Techniques to Fit Strategy
Competitive dynamics can be assessed globally.16 However, comparing pay between countries is complex. There are
differences in hourly labour costs and productivity (output per dollar of wages) between countries. Countries also differ
in the average length of the workweek, the average number of paid holidays, the kinds of social programs, and even how
pay is determined. Therefore, managers in multinational firms must become knowledgeable about the competitive condi-
tions and pay practices both globally and locally.
HR STRATEGY: DOES PAY PLAY A SUPPORTING ROLE OR A CATALYST FOR CHANGE?

Compensation or pay strategy is influenced by how it fits with the overall HR strategy. Whatever this strategy, a decision
about the role of pay within it is critical. Pay can play a supporting role, as in the high-performance approach, or it can
take the lead and be a catalyst for change. Whatever the role, compensation is embedded in the total HR approach.17
CULTURE/VALUES
A pay system reflects the core values that guide an employer’s behaviour and underlie its treatment of employees. The
pay system mirrors the company’s image and reputation. Exhibit 2.6 shows Medtronic’s mission. Written in 1960, their
mission dictates that their first and foremost priority is to contribute to human welfare. Over a half-century later, the
mission continues to serve as their ethical framework and as an inspirational goal for their employees around the world.
It publishes its mission statement in 24 languages. It guides their day-to-day work and reminds them that their efforts
are transforming the lives of millions of people each year. The fourth item recognizes employees’ worth by fostering
“personal satisfaction in work accomplished, security, advancement opportunity, and means to share in the company
success.” Its compensation strategy reflects this value by including work/life balance programs for security, incentives,
and stock options to share in the company’s success.
EXHIBIT 2.6 Medtronic Mission and Values
To contribute to human welfare by application of biomedical engineering in the research, design,

manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.
• T
o direct our growth in the areas of biomedical engineering where we display maximum strength and
ability; to gather people and facilities that tend to augment these areas; to continuously build on these
areas through education and knowledge assimilation; to avoid participation in areas where we cannot
make unique and worthy contributions.
• T
o strive without reserve for the greatest possible reliability and quality in our products; to be the
unsurpassed standard of comparison and to be recognized as a company of dedication, honesty,
integrity, and service.
• T
o make a fair profit on current operations to meet our obligations, sustain our growth, and reach
our goals.
• T
o recognize the personal worth of employees by providing an employment framework that allows per-
sonal satisfaction in work accomplished, security, advancement opportunity, and means to share in the
company’s success.
• To maintain good citizenship as a company.
Source: https://www.medtronic.com/za-en/about/mission.html, accessed September 27, 2019.
But there are some skeptics out there. Mission statements have been described as “an assemblage of trite phrases” that
impress no one.18 On the other hand, Johnson and Johnson considers its statement its “moral compass” and “recipe for
business success.”19
SOCIAL AND POLITICAL CONTEXT

Context refers to a wide range of factors, including legal and regulatory requirements, cultural differences, changing
workforce demographics, expectations, and so on. In the case of Whole Foods, its business is very people-intensive.
Consequently, Whole Foods managers may find that an increasingly diverse workforce and increasingly diverse forms of
pay (childcare, chemical dependency counselling, educational reimbursements, employee assistance programs) may add
value and be difficult for competitors (other supermarkets) to imitate.
As governments are major stakeholders in determining compensation, government relations to influence laws and reg-
ulations may also be part of compensation strategies. For example, the European Union’s “social contract” becomes a
matter of interest to managers.20 And in China, many companies have discovered that building relationships with govern-
ment officials is essential. So from a strategic perspective, compensation managers may try to shape the sociopolitical
environment as well as be shaped by it.
EMPLOYEE PREFERENCES
The simple fact that employees differ is too easily overlooked in formulating a compensation strategy. Individual employees
join the organization, make investment decisions, interact with customers, design new products, assemble components,
and so on. Individual employees receive the pay. A major challenge of next-generation pay systems is how to better satisfy
individual needs and preferences. Offering more choice is one approach. Older, highly paid workers may wish to defer
taxes by putting their pay into retirement funds, whereas younger employees may have high cash needs to buy a house, sup-
port a family, or finance an education. Dual-career couples who have healthcare coverage in both workplaces may prefer to
use more of their combined pay for childcare, automobile insurance, financial counselling, or other benefits such as flexible
schedules. Employees who have young children or dependent parents may desire dependent care coverage.21
A number of contemporary pay systems in Canada do offer some choices. Flexible benefits and choices among health-
care coverage and choices in investment funds for retirement plans are examples. This approach adds value and is
difficult for other companies to imitate—it is a source of competitive advantage.
Some studies have found that employees do not always choose well. They do not always understand the alternatives,
and too many choices simply confuse them. Thus, the value added by offering choices and satisfying preferences may
be offset by the expense of communicating and simply confusing people.22 In addition to possibly confusing employees,
offering too many choices is also a challenge to design and manage.
UNION PREFERENCES
Pay strategies also need to be adapted to the nature of the union–management relationship.23 About 30% of Canadian
workers work in unionized workplaces so union influence on pay systems in Canada remains significant. Bombardier em-
ployees represented by the International Association of Machinists and Aerospace Workers negotiated a flexible benefits
plan for their members.24 Union preferences for different forms of pay (e.g., retirement and healthcare plans) and their
concern with job security also affect pay strategy. For example, a few years ago, Air Canada was pushing to switch from
a defined benefits to a defined contribution pension plan for its new customer service staff. The union was, of course,
vehemently opposed to the change and the issue was sent to arbitration. The arbitrator ultimately ruled that Air Canada
had to create a hybrid pension plan. New hires would receive part of their benefit from the existing defined benefits plan,
under a reduced formula, and part from a defined contribution plan, contributed to by both workers and the employer.
Internationally, the role of unions in pay determination also varies greatly.25 In Europe, unions are major players in all
strategic pay decisions. The point here is that union interests are part of the environmental pressures that help shape
compensation strategies.
In sum, assessing the compensation implications of many factors—including the organization’s business strategy, the
competitive dynamics, its culture and values, the sociopolitical context, employee/union preferences, and how it fits with
other HR systems—is necessary to formulate a compensation strategy.
Step Two: Map a Total Compensation Strategy

The compensation strategy is made up of the five decisions outlined in the pay model: set the objectives and specify the
four policy choices of internal alignment, external competitiveness, employee contributions, and management. Mapping
these decisions is Step two in developing a compensation strategy. It requires compensation decisions that fit the organiza-
tion’s business and environment. As already noted, compensation decisions should support different business strategies.
Objectives: The organization’s objective is to make the right compensation decisions based on how the organization de-
cides to compete. Will compensation play a lead role? Or a more supporting role to other HR programs? At Microsoft,
compensation is highly prominent, i.e. total compensation plays a very important role in its overall HR strategy; whereas
at SAS, it is more supportive.
Internal Alignment: How hierarchical is the organization? How much does pay differ among job levels and how well does
compensation support career growth? Both SAS and Microsoft use pay to support flexible work design and promotions.
But pay differences at SAS, whose philosophy is “Everyone is part of the SAS family,” are smaller than at Microsoft,
where differences in pay are seen as returns for superior performance.
External Competitiveness: How much are our competitors paying, and what forms of pay are they using? For example,
SAS competes on work/family balance in family-oriented benefits such as providing access to childcare and medical
services on the company’s campus.
Employee Contributions: How does an organization go about recognizing and rewarding their employee contributions?
SAS uses only limited individual-based performance pay, consistent with its overall egalitarian approach. Microsoft
makes greater use of pay based on individual company performance.
Management: What roles do non-HR managers play in making pay decisions? How transparent is the organization when
it comes to communication about pay? As one might expect, both Microsoft and SAS depend heavily on technology to
manage their pay systems.
The rest of this book discusses these compensation decisions in detail. It is important to realize, however, that the deci-
sions in the pay model work in concert. It is the totality of these decisions that forms the compensation strategy.
Steps Three and Four: Implement Strategy and Reassess the Fit
Step three is to implement the strategy through the design and execution of the compensation system. The compensa-
tion system translates strategy into practice. Employees infer the underlying strategy based on how they are treated by
their employer through the compensation system.
Step four, reassess the fit, closes the loop. This step recognizes that the compensation strategy must change to fit chang-
ing conditions. Thus, periodic reassessment of the fit is needed to continuously learn, adapt, and improve. Managing the
links between the compensation strategy (policy decisions) and the pay system (procedures for paying people), as well
as understanding the importance of people’s perceptions and behaviours, is vital to implementing a pay strategy. The
results need to be assessed against the objectives.
LO3 SOURCE OF COMPETITIVE ADVANTAGE: THREE TESTS

Developing and implementing a pay strategy that is a source of sustained competitive advantage is easier said than done.
Not all compensation decisions are strategic or a source of competitive advantage. Three tests determine whether a pay
strategy is a source of competitive advantage: (1) Is it aligned? (2) Does it differentiate? (3) Does it add value?
Align
Alignment of the pay strategy includes three aspects: (1) align with the business strategy, (2) align externally with the
economic and sociopolitical conditions, and (3) align internally with the overall HR system. Alignment is probably the
easiest test to pass.
Differentiate
Some people believe that the only thing that really matters about a strategy is how it is different from everyone else’s. If a
pay system is relatively simple for a competitor to copy, it cannot sustain as a source of competitive advantage for very long.
The pay strategy is woven into the fabric of the company’s overall HR strategy. Copying one or another dimension of a
strategy means ripping apart the overall approach and patching in a new one. So, in a sense, the alignment test (weaving
the fabric) helps ensure that the differentiation test is passed. Microsoft’s use of stock awards for all employees, often
worth considerably more than base pay, is difficult for its competitors to copy. The SAS work–family balance strategy
is difficult to copy. It might be relatively easy to copy part of what a competitor does (e.g., grant stock options to more
employees or offer more choices in benefits), but the strategic perspective implies that the way the various programs
fit together and fit the organization is what is difficult to copy. Simply copying others—blindly following so-called best
practices—amounts to trying to merely stay in the race, not to win it.26
Add Value
Organizations today look for the return they are getting from their incentives, benefits, and even base pay. Compensation
is often a company’s largest controllable expense. Because consultants and some researchers treat different forms of pay
as investments, the task becomes how to come up with ways to calculate the return on those investments (ROI). But
this is a difficult proposition. Costs are easy to fit into a spreadsheet, but any value created as a result of those costs is
difficult to specify, much less measure.27
Trying to measure an ROI for a compensation strategy implies that people are “human capital,” just like other factors of
production. Many people find this view dehumanizing. They argue that viewing pay as an investment with measurable
returns diminishes the importance of treating people fairly.28 Of the three tests of competitive advantage—align, differen-
tiate, add value—this last is the most difficult to achieve.
It is known that in products and services, first movers (innovators) have well-recognized advantages that can offset the
risks involved—high margins, market share, and brand recognition.29 What is not known is what advantages accrue to in-
novators in total compensation in the talent market. For example, do Microsoft (one of the first to offer very large stock
options to all employees) or American Express (among the first to offer flexible benefit programs in Canada) enjoy any
advantages now that many of their competitors are doing the same. Does a compensation innovator attract more and
better talent, induces talent to stay and contribute, or provide cost advantages? Studies are needed to find the answers.
LO4 “BEST FIT” VERSUS “BEST PRACTICES”

The underlying premise of any strategic perspective is that if managers align pay decisions with the organization’s strate-
gy and values, are responsive to employees and unions, and are globally competitive, the organization will be more likely
to achieve competitive advantage.30 The challenge is to design the “fit” with the environment, business strategy, and pay
plan. The better the fit, the greater the competitive advantage.
But not everyone agrees. In contrast to the notion of strategic fit, some believe that (1) a set of best pay practices exists
and (2) these practices can be applied universally across situations. Rather than a better fit between business strategy
and compensation plans that yields better performance, they say a set of best practices results in better performance
with almost any business strategy.31 It is believed that adopting the best pay practices allows the employer to gain pref-
erential access to superior employees. These superior employees will in turn be the organization’s source of competitive
advantage. The challenge here is to select from various recommended lists what are the best practices.32 Research from
the past few years is beginning to provide guidance to improve our choices.
GUIDANCE FROM THE EVIDENCE

There is consistent research evidence that the following practices do matter to the organization’s objectives:
• Internal alignment: Both smaller and larger pay differences among jobs inside an organization can affect results.
Smaller internal pay differences and larger internal pay differences can both be a “best” practice. Which one de-
pends on the context, including the fit with business strategy, other HR practices, organizational culture, and so on.33
• External competitiveness: Paying higher than the average paid by competitors can affect results. Is higher competitive
pay a best practice? Again, it depends on the context.
• Employee contributions: Performance-based pay can affect results. Are performance incentives a “best” practice?
Once again it depends on the context.34
• Management: Rather than focusing on only one dimension of the pay strategy, such as pay for performance or inter-
nal pay differences, all dimensions need to be considered together.35
• Compensation strategy: Finally, embedding compensation strategy within the broader HR strategy affects results.
Compensation does not act alone; it is part of the overall HR approach.36
So specific pay practices appear to be more beneficial in some contexts than in others,37 and “best practices versus best
fit” does not appear to be a useful way to frame the question. A more useful question is: What practices pay off best under
what conditions? Much of the rest of this book is devoted to this question.
VIRTUOUS AND VICIOUS CIRCLES

Studies have shown that performance-based pay and stock options grants may be examples of best practices. However,
some studies suggest that performance-based pay works only when the organization is performing well. This phenom-
enon is like a virtuous circle. As depicted in Exhibit 2.7, an organization with increasing profits or market share can
pay larger incentives in the form of bonuses and stock awards. And paying these incentives fairly improves employee
attitudes and work behaviours, which in turn improves their performance and ultimately results in better organizational
performance.38 The circle gains upward momentum.39 Employees receive returns that compensate for the risks they take.
And they behave like owners, since they are sharing in the organization’s success.
EXHIBIT 2.7 Virtuous and Vicious Circles
(A) Virtuous Circle (B) Vicious Circle

Organization Organization
Performance Pay for Performance Pay for
Increasing Performance Decreasing Performance
Ownership Ownership
Culture Culture
Risk–Return Risk–Return
Balance Imbalance
Upward Momentum, Continuous Improvement Downward Momentum, Continuous Difficulties
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The Project Gutenberg eBook of Smoking flax
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States and most other parts of the world at no cost and with
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laws of the country where you are located before using this
eBook.
Title: Smoking flax
Author: Hallie Erminie Rives
Release date: July 22, 2022 [eBook #68586]
Language: English
Original publication: United Kingdom: F. Tennyson Neely, 1897
Credits: D A Alexander and the Online Distributed Proofreading

Team at https://www.pgdp.net (This file was produced
from images generously made available by University
of California libraries)
*** START OF THE PROJECT GUTENBERG EBOOK SMOKING

FLAX ***
SMOKING FLAX
BY
Hallie Erminie Rives
SECOND EDITION
F. TENNYSON NEELY
PUBLISHER
LONDON NEW YORK
Neely’s Prismatic
Library.
GILT TOP, 50 CENTS.
“I know of nothing in the

book line that equals Neely’s
Prismatic Library for elegance
and careful selection. It sets a
pace that others will not easily
equal and none surpass.”—E.
A. Robinson.
SOUR SAINTS AND SWEET
SINNERS. By Carlos Martyn.
SEVEN SMILES AND A FEW
FIBS. By Thomas J. Vivian.
With full-page illustrations by
well-known artists.
A MODERN PROMETHEUS.
By E. Phillips Oppenheim.
THE SHACKLES OF FATE. By
Max Nordau.
A BACHELOR OF PARIS. By
John W. Harding. With over 50
illustrations by William
Hofacher.
MONTRESOR. By Loota.
REVERIES OF A SPINSTER.
By Helen Davies.
THE ART MELODIOUS. By
Louis Lombard.
THE HONOR OF A
PRINCESS. By F. Kimball
Scribner.
OBSERVATIONS OF A
BACHELOR. By Louis
Lombard.
KINGS IN ADVERSITY. By E.
S. Van Zile.
NOBLE BLOOD AND A WEST
POINT PARALLEL. By Captain
King.
TRUMPETER FRED. By
Captain King. Illustrated.
FATHER STAFFORD. By
Anthony Hope.
THE KING IN YELLOW. By R.
W. Chambers.
IN THE QUARTER. By R. W.
Chambers.
A PROFESSIONAL LOVER.
By Gyp.
BIJOU’S COURTSHIPS. By
Gyp. Illustrated.
A CONSPIRACY OF THE
CARBONARI. By Louise
Muhlbach.
SOAP BUBBLES. By Dr. Max
Nordau.
F. TENNYSON NEELY,
PUBLISHER,
NEW YORK, LONDON.
Copyrighted in the
United States and
Great Britain in
MDCCCXCVII by
F. Tennyson Neely.
All rights reserved.

TO MY MOTHER AND THE SOUTH
INTRODUCTION.
“Smoking Flax” is a story of the South written by a young
Kentucky woman. Undoubtedly in the South its advent will be saluted
with enthusiastic bravos. What will be the nature of its reception in
the North it is hazardous to predict. One thing, however, can be
confidently prophesied for it everywhere—consideration. This the
subject and manner of its treatment assures.
The methods of Judge Lynch viewed from most standpoints are,
without extenuation, evil; from a few aspects they may appear to be
perhaps not wholly without justification. Miss Rives, through the
medium of romance, presents the question as seen from many
sides, and then leaves to the reader the responsibility of determining
“what is truth,” though where her own sympathies lie she does not
leave much in doubt.
The authoress comes of an old Virginia stock to whom the gift of
narrative and literary expression seem to be a birthright. Since
revolutionary days literature has been more or less enriched by
contributions from successive members of the family—the well
known contemporary novelist and the youthful author of this book
sharing at the present time the responsibility of upholding the
hereditary traditions. It seems, therefore, happily appropriate that
Miss Rives should have taken upon herself the task of placing before
the world southern views of the problem of lynching, which, be it
understood, are far from unanimous. The subject is handled with
admirable tact, the author steering clear alike from prudish
affectations of modesty and shocking details of inartistic realism: and
throughout is maintained a judicial impartiality infrequent in the
treatment of such burning questions.
Miss Rives will achieve distinction in the South and at least
notability elsewhere.
H. F. G.
Rochester, N. Y.
September 22nd, 97.
CHAPTER I.
The house faced the college campus and was the only one in the
block. This, in Georgetown, implies a lawn of no small dimensions;
the place had neither gardener’s house nor porter’s lodge—nothing
but that old home half hidden by ancient elms. For many a year it
had stood with closed doors in the very heart of that prosperous
Kentucky town, presenting a gloomy aspect and exercising for many
a singular attraction. Near the deep veranda a great tree, whose
boughs were no longer held in check by trimming, had thrust one of
its branches through the frontmost window. Dampness had attacked
everything. The upper balcony was loosened, the roof warped, and
lizards sunned themselves on the wall.
As for the garden, long ago it had lapsed into a chaotic state. The
thistle and the pale poppy grew in fragrant tangle with the wild ivy
and Virginia creeper, and wilful weeds thrust their way across the
gravel walks.
Sadly old residents saw the place approaching the last stages of
decay—saw this house, once the pride of the town, in its decrepitude
and loneliness the plaything of the elements.
“A noble wreck! It must have a history of some kind,” strangers
would remark.
“Ah, that it has, and a sombre one it is!” any man or woman living
near would have answered, as they recalled the history of Richard
Harding’s home. For the fate of Richard Harding was a sad memory
to them. They remembered how he had been the representative of a
fine old family and that much of his fortune had been spent in
beautifying this place, to make it a fitting home for Catharine Field,
his bride.
She too had been of gentle birth and held an important place in
their memory as one who brought with her to this rural community
the wider experience usual to a young woman educated in Boston,
who, after a few seasons of social success in an ultra fashionable
set, has crowned her many achievements by a brilliant marriage.
Her husband adored her and showed his devotion by humoring
her extravagant tastes and prodigal fancies. He detested gayeties,
yet complied with her slightest wish for social pleasures.
Although it was generally agreed that this young couple got on
well together, at the end of two years the husband had to admit to
himself that his efforts to render his wife happy had not been entirely
successful. He saw that she fretted for her northern life, was bored
by everything about her. She cherished a bitter resentment for the
slaveholders, vowing that it was barbarous and inhuman to own
human beings as her husband and neighbors did. Though
expressing pity for the poor, simple, dependent creatures, she did
little to make their tasks more healthful and reasonable ones, or to
render them more capable and contented.
Her baby’s nurse was the one servant of her household who met
with gracious treatment at her hands. This old slave came to her
endowed with the womanly virtues of honor, self-respect and
humility. But in marveling at her on these accounts, Mrs. Harding
forgot that it was the former mistress—her husband’s mother—that
had made her what she was.
At length the truth became clearly apparent that she was an
obstinate, intensely prejudiced and very unreasonable woman, who,
having lived for a time at a centre of fashionable intelligence in a city
of culture, supposed herself to be quite beyond the reach of and
entirely superior to ordinary country folk. Eventually, her morbid
dissatisfaction became so extreme that her husband yielded to her
importunities, closed the house, and with her and their baby boy,
went to live in Boston.
This sacrifice he made quietly and uncomplainingly, his closest
friends not then knowing how it wrenched his heart. A year passed,
then another, and at the end of the third, the papers announced the
death of Richard Harding.
Though never again seeing his southern home, where he had
planned to live his life in peace and useful happiness, it had held to
the end a most sacred place in his memory—a memory which he
truly hoped would be transmittted to the heart and mind of his son. It
was his last wish that the old homestead should remain as it was—
closed to strangers—that no living being, unless of his own blood,
should inhabit that abode of love and sorrow, that it be kept from the
careless profanation of aliens.
The world prophesied that his widow would soon forget the
wishes of the dead, but as witness that she had thus far kept faith,
there stood the closed, abandoned home, upon which Nature alone
laid a destroying hand.
CHAPTER II.
In process of time, hardly a brick was to be seen in this old house
that had not grown purple with age and become cloaked with moss
and ivy. Antiquity looked out from covering to foundation stone. Only
the flowers were young, and flowers spring from a remote ancestry.
This house, inlaid in solitude, was as quiet as some cloister hidden
away within some French forest.
One summer afternoon, the quiet was broken by a group of
college girls looking for some new flower for their botanical
collection. But so full of youthful spirits were they that they hardly
saw the valley lilies with stems so short that they could scarcely bear
up their innocent, sweet eyes, distressed, and stare like children in a
crowd.
Among these girls was one whom the most casual observer
would have singled out from her companions for a beauty rare even
in that land of beautiful women. She had wandered off alone and
found a sleepy little primrose. As she freed the blossom from its
stem and held it in her hand, a tide of thought surged up from her
memory and deepened the color of her face. Quietly she dropped
down upon the grass and began turning the leaves of her floral diary
until she came to a similar flower pressed between its pages.
In a corner was written: “Gathered in the mountains on the 18th
of August.”
“How strange,” she thought, “to note how late it was found there,
while it blooms so early here.”
Commonplace as that discovery seemed to be, the face so
radiant a moment before, became thoughtfully drawn.
She looked at the name “E. Harding” written below the dry, dead
blossom, and thought of the time when it had been written, thence
back to her first meeting with its owner—one of those happy chances
of travel, which have all the charm of the unexpected—as fresh in
her memory as though it had been but yesterday. That summer had
been one of those idyllic periods which are lived so unconsciously
that their beauty is only realized in memories. To become conscious
of such charm at the time would be to break the spell which lies in
the very ignorance of its existence.
She, this ardent novice in learning, fresh from graduating honors,
and full of unmanageable, new emotions did not comprehend that
the same youthful impetuosity which had made the two fast friends in
so brief a time, had also made it possible for a few heedless words
even more quickly to separate them. An older or more experienced
woman would have missed the sudden bloom and escaped the no
less sudden storm.
“Primroses are his favorite flowers,” she said half aloud, and a
dainty little smile lifted ever so slightly the corners of her mouth as if
there were pleasure in the thought. Then she took up her pencil and
studiously began to jot down the botanical notes concerning the
primrose. “Primrose, a biennial herb, from three to six inches tall.
The flower is regular, symmetrical and four parted.”
A twig snapped. The girl looked up quickly. “Welcome to my
flowers,” said a voice beside her, and a young man smiled frankly, as
he bowed and raised his white straw hat.
“Mr. Harding!” she exclaimed, opening her eyes in wonder and
staring at him with the prettiest face of astonishment. Alarm had
brought color to her cheeks, while the level rays of the sun, which
forced her to screen her eyes with one hand, clothed her figure in a
broad belt of gold. “How did you happen to be here?”
“I did not happen. Man comes not to his place by accident.”
His answer, though given with a laugh, had a touch of truth.
Through the bright excitement of her eyes, a sudden gleam of
archness flashed.
“Have you come to write us up, or rather down?” she asked.
“I have come to help those who won’t help themselves, but first
let us make peace, if such a thing be necessary between us. Here is
my offering,” and smilingly he laid two fresh white roses in her hand.
She answered his smile with one of her own as she thrust the
long generous stems through her waist belt; but she did not thank
him with words, and he was glad that she did not. Just as he would
have spoken again, a number of girlish voices called in chorus:
“Come, Dorothy, we are going now.”
CHAPTER III.
In the same year that Elliott Harding was graduated from
Princeton, he came into possession of his estate, which he at once
began to share with his mother. Her love of good living and luxury,
her craving for such elegancies as sumptuous furniture, expensive
bric-à-brac, and stylish equipages had well nigh exhausted her
means, and she was now almost entirely dependent upon a half-
interest in the small estate in Kentucky. Considering that Elliott had a
leaning towards the learned professions and political and social
pursuits, added to a constitutional abhorrence of a business career,
his financial condition was not altogether uncomfortable. He longed
to own a superb library, a collection of books, great both in number
and quality, and, furthermore, he wanted to complete his education
by travel abroad, followed by a year or two of serious research in the
South. He realized how ill these aspirations mated with the pleasure
loving habits of his mother and how impossible it would be for him to
realize his dreams, so long as his purse remained the joint source of
supply.
To many a young man the outlook would have been deeply
discouraging. To him it was a means of developing the endurance
and the strength of will which were among his distinguishing
characteristics.
Nature had fashioned Elliott Harding when in one of her kindly
moods. She had endowed him with many gifts; good birth, sound
health of body and mind, industry, resolution and ambition. Besides
possessing these goodly qualifications, he stood six feet in height,
and in breadth of shoulder, depth of chest, sturdiness of legs and
arms, he had few superiors. There was, too, a nobility of proportion
in his forehead that indicated high breeding and broad intellectuality,
and his face was full of force and refinement. His steel blue eyes
gleamed with a superb self-confidence.
By profession, Elliott Harding was a lawyer; by instinct, a writer.
He practiced law for gain. He wrote because it was his ruling
passion. He was a man who had been early taught to have faith in
his own destiny and to consider himself an agent called by God to do
a great work. When he came to his southern home he came with a
purpose—a purpose which he determined to carry out quietly but
with mighty earnestness. When he first arrived in the town he was
content to rest unheralded, and his presence was not understood by
the villagers. Nearly every morning now, he could be seen from the
opposite window of the college to enter the old abandoned house
and sit for hours near the door, his head bowed, his fingers busy with
note-book and pencil.
For some weeks this proceeding had continued with little
variation. People noted it with diverse conjectures. Old men and
women feared lest this man, whoever he might be,—a real estate
agent perhaps—would bring about the restoration and sale of the old
Harding home. These old-time friends, who had known and loved the
father, Richard Harding, through youth and manhood, now rebelled
against the possible disregard of his last request, which had become
a heritage of the locality. With anxiety they watched the maneuvers
of this mysterious individual and drearily wondered what would result
from his stay.
To young Harding the anxiety he had caused was unknown.
Absorbed in his own affairs, he was too much occupied to think of
the impression he was creating. His whole thought was given to
gleaning the knowledge he required for the writing of the book by
which he hoped to permanently mould southern opinion in conformity
with his own against what he believed to be the shame of his native
land.
It was an evening in the third month of his residence in
Georgetown. Elliott Harding paused in his walk along the street not
quite decided which way to go.
“She writes me she has drawn a ten-day draft for twenty-two
hundred dollars,” he said to himself. “How on earth can I meet it?
What shall I do about it? Let me think it out.” And checking his steps,
which had begun to tend towards the college, where a reception to
which he had been invited was being held, he took a turn or two in
the already darkening street, and then started back to his rooms. In
his mind, step by step, he traced out the possible consequences of
action in the matter, but long consideration only confirmed his first
impression that it was too late now to change the course of affairs so
long existing.
“But how am I to meet this last demand?” he questioned. “There
is but one way open to me,” he finally thought. “The old home must
go.”
He nervously walked on, repeating to himself, “Mother! mother! I
could never do this for anyone but you.”
With the memory of his beloved father so strong within him, it
was difficult to bring himself to face the inevitable with composure.
The turbulent working of his heart contended against the resignation
of his brain, and, when for a moment he felt resigned, then the
memory of his dead father’s wish would rise up and protest, and the
battle would have to be fought over again.
But what he considered to be duty to the living triumphed over
what he held as loyalty to the dead, so the next time he went to the
old homestead, “For Sale” glared coldly and, he even imagined,
reproachfully at him. It was then that Elliott realized the immensity of
his sacrifice and bowed his head in silent sorrow.

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Compensation, 6th Edition (Canadian

Edition) Margaret Yap

Test Bank for Compensation Sixth Canadian Edition (6th)

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Compensation, 14e ISE 14th/ISE Edition Barry Gerhart

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Strategic Compensation: A Human Resource Management

Wartime Friends Margaret Dickinson

“Best Fit” versus “Best Practices” 28

Establish the Purpose 74

Review Questions 112

8 Designing Pay Levels, Pay Mix, and Pay Structures 136

Benefits Planning and Design Issues 164

Putting it All Together: The Performance Appraisal Process 206

Flexibility within Corporate-wide Principles 272

Appendix: International Pay Systems 277

ORGANIZATION OF THE CANADIAN EDITION

1. Part I: Internal Alignment: Determining the Structure

EXHIBIT I.1 The Pay Model

Job Job Evaluation/ INTERNAL

*The gender wag gap is defined as the difference between median Un

The Role of Labour Costs

Instructor resources for Compensation, 6th Canadian Edition:

COMPREHENSIVE TEST BANK

MICROSOFT® POWERPOINT® PRESENTATIONS

MANAGER’S HOT SEAT VIDEOS

Test Builder allows you to:

• manipulate the order of questions or scramble questions and/or answers

REMOTE PROCTORING & BROWSER-LOCKING CAPABILITIES

Nicole Vincic, Mohawk College

THE PAY MODEL

RRSP sales compensation

workers compensation better engagement

WHY SHOULD WE CARE ABOUT COMPENSATION?

LO1 WHAT IS COMPENSATION?

EXHIBIT 1.1 Gender Wage Gap* in Median Earnings of Full-Time Employees

HOURLY COMPENSATION COST PRODUCTIVITY (GDP PER EMPLOYEE)

LO3 FORMS OF PAY

EXHIBIT 1.3 Total Rewards

Cash Compensation: Base Pay

Cash Compensation: Merit Increases and Cost-of-Living Adjustments

Cash Compensation: Incentives

Benefits: Insurance and Pensions

Benefits: Work/Life Programs

Total Earnings Opportunities: Present Value of a Stream of Earnings

Relational Returns from Work

The Organization as a Network of Returns

LO4 Strategic Compensation Objectives

EXHIBIT 1.4 The Pay Model

Job Job Evaluation/ INTERNAL

MANAGEMENT Costs Communications Change EVALUATION

MEDTRONIC WHOLE FOODS

LO5 Four Policy Choices

EXHIBIT 1.6 Amazon.com Code of Business Conduct and Ethics

allowances relational returns

1. How do differing perspectives affect our views of compensation?

LO1 STRATEGIC CHOICES

5. We never lose sight of our strategic vision.