Chapter 9:

Compensation
Management
JOB EVALUATION
Systematic process of assessing job content and ranking jobs
according to a consistent set of job characteristics and worker
traits. Identifies which job should be paid more form than others.

JOB RANKING
A form of job evaluation in which jobs are ranked subjectively
according to their relative worth to the organization.
 JOB GRADING POINT SYSTEM
Assessed the relative importance of
A form of job evaluation that the job's key factors in order to arrive

assigns jobs to at the relative worth of jobs.

predetermined job
-Evaluates critical/compensable
classifications according to
factors of each job
their relative worth to the
organization. -Determines different levels of
degrees/levels for each factor.
JOB GRADE

1. Simple, highly repetitive work, done under

close supervision; minimal training and little
responsibility.
a. Ex.janitor

2. Simple, repetitive work - some training

required - employee expected to have some
responsibility
a. Ex. administrative assistant
3. Simple work with the little variation, under general
supervision - training required and minimal responsibilities
a. Ex. machine oiler

4. Moderately complex work, some variation and general

supervision. Employee responsible for safety and equipment.
Regularly exhibits initiate.
a. Ex. machine operator

5. Complex work, varied, general supervision. Advanced skill

required. Employee responsible for safety and high degree of
initiative.
a. Ex. tool and die specialist
Wages and Salary Surveys
Internal Equity
- Perceived equity of a pay system in an organization
External Equity
- Perceived fairness in pay relative to what other employers are
paying for the same work
Wages and Salary Surveys
- Studies made of wages and salaries paid by other organization
within the employer's labour market
Labour Market
- area from which employer recruits, usually local community
 Sources of Compensation Data

-Employment and Social Development Canada

-Canadian Human Resource Center
-Employee Associations
-Private Consultations
 Pricing Jobs
Includes two activities:

1. Establishing the appropriate pay level/job

2. Grouping the different pay levels into a structure that

can be managed effectively
KEY JOB

- Similar and common in the organization and its labour market

RATE RANGE
- A pay range for each job class

MERIT RAISE
- A pay increase given to individual workers according
to an evaluation of their performance
Challenges Affecting Compensation

Prevailing Wage Rates

- Some jobs must be paid more for their relative worth because
of market forces

Red-Circled Rate
- A rate of pay higher than contractual, or formerly established,
rate for the job

-Less than minimum = green - circled

Union Power
- when unions represent a portion of the work force, they
use their power to obtain wage rate.

Wage and Salary Policies

-COMPA RATIO : an index that indicates how an individual
or a groups salary relates to the midpoint of their relevant
pay grades
*ratio above/below 1 that the individual's salary is
above/below the midpoint of the pay grade
*the pay-grade midpoint can be viewed as a
benchmark for salary decision criteria such as
performance, tenure and experience.
Government Constraints

* Canada Labour Code

- Most comprehensive law affecting compensation
rights for organizations under federal jurisdictions

- Federal law regulating labour regulations under

federal jurisdiction

*Minimum wage applies to most but farms

workers.
PAY EQUITY
-A policy to eliminate the gap between income of
women/men, ensuring salary ranges correspond with the
amount of work done

* Equal Pay for Work of Equal Value

-The principle of equal pay for men and women
in jobs with my comparable content; based on the
criteria of skill, effort, responsibility and working
conditions; part of Canada's Human Rights Act .
* Equal Pay for Equal Work
-Policy of equal rates of pay for all employees in an
establishment performing the same kind and amount of
work, regardless of sex, race etc.

Factors that can affect wage gap

1. Different Performance Ratings

2. Seniority
3. Red-Circling (b/c of job re-evaluation)
4.Rehabilitation Assignment
5. Demotion Pay Procedures (unsatisfactory work)
6. Procedure of Phased- In Wage Reductions
7. Temporary Training Positions
INCENTIVE PAY

-Produciton bonuses, commission

-Can influence employee performance
-Disadvantages of Incentives Pay Systems

:External forces, not related to performance, can

affect the ability of employees to meet a pre-
determined standard

: The administration of an incentive system can

be complex
PIECEWORK
-A type of incentive system that
compensates workers for each unit of
output

:Daily/weekly pay is determining by

multiplying the output in unit's X the piece
rate per unit
:Piecework does not always mean
higher productivity
PRODUCTION BONUSES
-A type of incentives system that
provides employees with additional
compensation when they surpass
stated production goals

COMMISSIONS
-In sales job, a salesperson is paid a
percentage of the selling price for each
unit sold
EXECUTIVES INITIATIVES
-Executives are sometimes granted
stock options, that is, the right to
purchase a company's stick at a
predetermined price

-Price could be set at/below/above the

market value of the stock
PROFIT-SHARING PLAN
-A system whereby an employer pays
compensation or benefits to employee's
usually, on an annual basis, in addition to
their regular wag, on the basis of the profits
of the company.
Advantage: Employee's feel and act like
owners, helping to make the organization
more effective
Employee Stock Ownership Plan (ESOP)
-One day indicates over 11000 of such plans cover
almost 9 million employee's
-Can be modelled to fit the special needs of a company:
Attract/retain employee’s - knowledge
Motivate employees to promote productivity
Rescue a failing firm
Provide a source a additional financial
Create something for firm to offer in lieu of wage
and salary increases
Scanlon Plan
-An incentive plan developed by Joseph
Scanlon
-That has as its general objective the
reduction of labour costs through increased
efficiency and the sharing of resultant
savings among workers.

PAY SECRECY
- A management policy not to
discuss/publish individual’s salary.
New Approachs to Pay

Skill or knowledge Based Pay

- A pay based on the skills/knowledge that an employee
has (in contrast to the more common job-based pay)

Autonomous Work Groups

- Any of a variety of arrangements that allow employees
to decide democratically how they will meet their groups
works objectives.
- Greatest advantage of skill-based pay is the flexibility
of the workplace.
- This includes filling in after turnovers and covering for
absenteeism, for employees who are being trained, and
for those who are in meetings.
Total Reward Model

Inclusion of everything
employees values in an
employment relationship

-Reward system tailor-made

for the organization.
 Broad-banding
Technique that collapses salary grades into only a few "broad-
brands" each with a sizable range

Advantage
-It fosters cross-functional growth/development
-Allows job responsibilities to be defined more broadly and flexibly
-It supports organizations that have eliminated levels of managerial positions
-It allows employees to gain a depth of experience by moving laterally across
function.
Pay and Organizational strategy

1. Motivating performance
2.Identifying Valued Rewards
Ff.Relating Rewards to Performance
4.Setting Performance Goals
5. Motivation and Punishment
6. Motivating Skill and Knowledge
Development
7. Fostering Attraction and Retention
*Objectives of Variable Pay
-Improve business performance through
changed employee behaviour
-To control labour cost
-To keep compensation competitive

*Skill-based pay structures encourage leaner

staff because of employee turnover

*Absenteeism can be covered by current

multi-skilled workers