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Administrative Studies
ADMS 2600
Wai Ming Ho

Chapter 9 – Managing Compensation STRATEGIC COMPENSATION – Strategic Compensation – It is compensation of employees in ways that enhance motivation and growth while at the same time aligning their efforts with the objectives, philosophies, and culture of the organization – Linking Compensation to Organizational Objectives – Common goals of a strategic compensation policy include: – To reward employees past performance – To remain competitive in the labour market – To maintain salary equity among employees – To mesh employees future performance with organizational goals – To control the compensation budget – To attract new employees – To reduce unnecessary turnover – Written Compensation philosophy:Alignment between business strategy and pay can have a positive impact on organizational effectiveness – Which components of the compensation package (benefits, base, pay, incentives etc) separately and in combination, create value for the organization and its employees – Motivation Employees through compensation: theoretical explanations – Equity Theory – Pay represents a reward receive in exchange for an employees contributions, status and recognition received on and off the job and standard of living – Essential that pay reflect an employees contribution to the organization and is equitable in terms of what other employees are receiving – Input/Output Ratio in reference to others determines feelings of under pay, just pay, or over pay – Feelings of equity have dramatic effects on employees motivation for work behaviour and productivity – Internally equitable: achieved when pay rates reflect the worth of the work to the organization – Externally equitable: achieved when pay rates are similar or matched to other employers – Expectancy Theory – Predicts that one's level of motivation depends on the attractiveness of the rewards and the probability of obtaining those reward – Employees must believe good performance is valued by their employer and will result in their receiving the expected reward – 3 conditions for a reward to be motivational: high valence, high instrumentality (assured reward will be given), high expectancy (attainability) – perceptions of pay depend on accuracy of employees knowledge and understanding of the compensations program objectives – The Bases for Compensation – Hourly work, piecework, salaried work, overtime pay DETERMINING COMPENSATION – THE WAGE MIX – The mix possesses both internal and external factors – Internal Factors – Internal Factors:Employers compensation strategy, the worth of a job, en employees relative worth in meeting job requirements, and an employer's ability to pay – Employers Compensation Strategy – Employer's should set pay policies reflecting: the internal wage relationship among jobs and skill levels, how much a company is paying their employees vs competitors. Policy to reward performance, administrative decisions on, overtime premiums, payment periods, and short-term/long-term incentives – Worth of a Job – Unformal job compensation: Pay rates can be influenced heavily by the labour markets or collective bargaining (unions) – Formal Job Compensation: pay rates depend on job evaluation – Jobs value should be based on total value delivered to the organization (attracts and retains the right talent to drive organizational performance) – Employee's Relative Worth – Superior performance can be rewarded merit raises (must be based off an effective performance appraisal system) – Raises may lack motivational value to employees when salary budgets are already low – EmployersAbility to Pay – Pay levels are limited by profits and other financial resources available to employers – More capital can increase pay for existing employees but a financially troubles company may have to reduce wages/lay-off people – External Factors – External Factors: Labour market conditions, are wage rates, cost of living, collective, bargaining (unionized) and legal requirements – Labour Market Conditions – Supply and demand of qualified labour forces help influence wage rates – Unions or government legislation may prevent firms from paying at market rate – Area Wage Rates – Formal wage structure should provide rates that are in line with those being paid by other employers for comparable jobs within the area – data for wages can be obtained from local wage surveys – Wage surveys (must take into account indirect wages paid from benefits): provide external wage equity between an organization and it's competitors, can prevent wages from going to high or to low in an area, – Cost of Living – Compensation rates adjust upward to accommodate for inflating (CPI) – wages based off cost of living figures do not inspire high employee performance – Cost of living expense seen as “entitlements” – esclator clauses – clauses in collective agreements that provide for quarterly cost of living adjustments in wages (based on CPI) – Collective Bargaining – Unions goals in each new agreement is to achieve increases in real wages (wage in creases larger then CPI increases) – the union scale b
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