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
- 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!
- Relationship between pay and contributions employee perceptions of fairness
- People make social comparisons:
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
- 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  – 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