MHR 523 Midterm: Compensation Midterm Notes

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Published on 7 Feb 2016
Ryerson University
Human Resources
MHR 523
Chapter 1 and 2
Pay Model
Strategy: The Totality of Decision
What is Compensation?
All forms of financial returns and tangible services and benefits employees receive as
part of an employment relationship
Types of Reward:
Sense of achievement
Working with great people
Society may identify pay with a measure of justice
-Men vs. women (gender gap)
Perspectives of Compensation:
Shareholders: paying someone on a basis of increasing company performance
Managers: consider affordability of compensation decisions
Employees: may see pay as a reward vs. a return on contribution/investment
Global view: entitlement
Labor cost vs. labor rates
Same thing
Save labor costs through reducing labor rates
Forms of Pay:
Merit increase: increase in base pay because of past behavior
Cost of living adjustment (COLA): increase of pay that ignores past behavior
Same % increase for all
Incentive: affects future performance
Meeting performance objective, one time pay, must be earned
Long-term incentive: come in the form of stock ownership or options to buy stocks at an
advantageous price
Work / Life Programs: programs that help employees better integrate their work and life
Allowance: compensation to provide for items that are short supply
(Housing allowance)
A pay model:
1. Compensation objectives
a) Comply with laws
b) Efficient: improving performance, pleasing shareholders & controlling labor cost
c) Fair
2. Strategic policies that form the foundation of the compensation system
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3. Techniques:
A) Internal: comparison between jobs or skill levels inside a single organization
b) External: a comparison of compensation with competitors external to the
c) Employee contribution: relative emphasis placed on employee performance
(seniority based, performance based, merit guidelines)
d) Management: policies related to managing the pay system (cost,
communication, change)
Chapter 3:
Strategy: The Totality of Decision
Compensation Strategy:
Internal alignment: the relationship of each job within a organization
a) Supports organization strategy
b) Workflow
c) Motivates behavior: providing pay increase promotions, providing challenging
work, see a linkage of work and organizations strategic goals/ objectives
Structure vary between organization:
a) Levels
b) Differentials: pay differences between levels
c) Criteria: used to determine difference (content and value)
I. A job- base structure looks at content: task, behaviors, competencies
II. Person based structure looks are skills, knowledge, or competencies
(49) Guidance from Evidence:
Equity theory: employees judge the fairness of their pay by comparing it to other jobs
(interval vs. external)
Comparisons rely on perfect knowledge
Supports egalitarian or hierarchical structure depending on accuracy of information
Tournament theory: motivation and performance
Focuses on higher reward yielding better performance
Institutional theory: copy others
Organizations simply copy what others are doing, “best practice”
Benchmarking behavior, have little concern for alignment and innovation pay practice
Designing an Internal Structure:
Considers the number of levels of the organization
The criteria used: look at the characteristics of the job
Equity theory:
Comparing the work and pay among other co-worker
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Pay structure: undertake training, increase experience, reduce turnover, facilitate career
progression, facilitate career progressions, performance, reduce pay-related grievance,
and reduce pay related work stoppages
Internal structure:
Efficient, fairness, compliance
Chapter 4
Job Analysis
Job analysis: collecting information about a specific job (requirements, skills, knowledge
and working conditions)
Foundation of all HR activities
Job Family: related jobs with similar content
Eg. HR department (compensation, training and development and recruitment)
Importance of relations (external and internal)
Can make job potentially more complicated and determines the skill level required
Method of collecting job
Interviews: Pros/ cons
Focus group: is a group of people
Cons: competitive, groupthink,
-Consider survey design is key, response rate
Observation: means of collecting job information
-Acting differently when people are watching you
-Cannot capture brain activity
-Jobs appropriate for job observation- trades
Journal and diaries:
Get the source to track their own activity
Con: takes away from productivity (accountant, depends on business cycle/ period of
Accuracy of information, different people saying different things
Pro: information coming from the source
** Can employ multiple methods
Position analysis question (196 questions)
Hay system helps determines the pay for each job
Means of evaluating compensation by evaluating factors such as:
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