HR Lecture 6

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Management and Organizational Studies
Management and Organizational Studies 1021A/B
James O' Brien

HR Lecture 6 - Compensation Under evidence-based management - Pfeffer & Sutton (2006) argue that incentives have a number of different organizational effects: o Motivation effects; increasing effort o Informational effects; signalling what a company values o Selection effects; attracting certain kinds of people to an organization (and elect to say)  E.g. two big-box retailers had two compensation systems – commission and base salary – sales force have different salesmen drawn to stability/opportunity o Managers use incentives for these effects! Not in book, important! o Perverse or unintended incentives can have reverse effects Pay-for-performance - Helping employees see the link between their effects, performance, and rewards (line of sight) o E.g. effort put into studying  results/grades; upper-year students who are convinced there is no link between these two, they stop studying - Link to motivational theory – these linkages are required for rewards to have desired effects - Goal is distinguishing top from average performers o ACS example and “sharing the wealth” o Implementation problems (Fig 7.2) o Issue of organizational levels (makes no sense at individual level but at organizational)  E.g. waiting in line – why?? – because demand exceeds supply in health care system, so waiting is inevitable! Equity - Relationship between pay and contributions  employee perceptions of fairness - People make social comparisons: o Inputs/outputs o When inequities are perceived, creates tension/unhappiness; look for another job! o What are the line and staff roles in terms of compensation systems? - Bases for compensation: piecework (e.g. clothing factory, pay for each clothing you produce), hourly work, and salaried employees (typically also greater benefits) – salary seems to be member of professional group more than hourly wage; no measure of contribution to organization by hours, constantly working How much: How is compensation determined? - Internal factors o Compensation strategy – e.g. pay market average (going rate), or peg to specific percentile of salary survey, like 80% to attract better employees o Worth of a job – job evaluation in skill, effort, responsibility, working conditions o Employee’s relative worth – using performance appraisal to allocate raised based on standards of performance relative to other employees o Employer’s ability and willingness to pay – e.g. wage freezes in public sector based on political will and macroeconomic conditions; City of Toronto - External factors o Economy – e.g. how much do we pay in a recession? Less than good conditions likely o Labour market conditions – forces of supply and demand o Cost of living – helping employees maintain their purchasing power o Area wage rates – issue of competing with other local employers; geographic segments o Collective bargaining – what is pattern bargaining? E.g. faculty strike, NBA o Legal requirements – e.g. minimum wage Determining relative worth of jobs - Job ranking (most informal) o Perhaps only possible in smaller organizations, where a single person is knowledgeable about all the jobs o Manageable number of jobs and an experienced person who knows all about them - Job classification o Grouping related jobs by duties and responsibilities - Point system o Quantitative approach to determining job relative value based on compensable factors, like skills, efforts, responsibilities, working conditions… - Factor comparison system o Not an absolute way, but in a relative way by comparing to one or few jobs in factors o Like a point system, but based on key jobs in the organization – comparators o Used in pay equity – e.g. doctors in hospitals in Ontario not paid equally for equal work Compensation structure - Job evaluation systems do not determine the wage rate (only by relative) - What is the contribution of the wage and salary survey? o How much do web designers in Canada get paid, as an hourly rate? o Consider strategies of paying at the 95% or 75% percentile – high quality web design o What has the contribution of PSSDA been? Public Service Salary Disclosure Act – “Sunshine List” – increase transparency, but PERVERSE EFFECT: people go into interview and cherry-pick positions from the list to argue for increase in pay!  Conflict between public desire for transparency and private desire for privacy and also to maximize pay - Wage curve, pay grades, rate ranges [212] – overly simplistic in textbook o Mistaken impression that wage increases linearly as a function of time; good strategic reasons for wage rates to depart from this pattern at times - What about competency-based pay? Competencies  performance. Measure, compensate, provide opportunities to learn. - Broad-banding? Collapse grades into a few wide bands; competency
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