HRM303 Chapter Notes - Chapter 6: Balance Sheet, Lump Sum, Job Sharing

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Chapter 6: formulating the reward and compensation strategy
To apple this process effectively, you need foundation of four basic undestandings
1. Understanding of organization and context
2. Understanding of workforce
3. Understanding of compensation options
4. Understanding of compensation constraints
Constraints on compensation strategy
Legislated constraints
Labour market constraints
Produce/service market constraints
Financial constraints
Legislated constraints
Four types affect compensation systems
oEmployment standards act: sets minimum standards for wages, hours
of work
oHuman rights act which prohibit employment discrimination (gender,
sex, ethnicity)
oLegislation relating to unions and collective bargaining
Employment standards legislation
Legislation that sets minimum standards for pay and other conditions of
employment
Legal difference between employee and contractor: contract need not work
at payer’s premises, can accept/refuse work from payer, can choose
time/manner which work will be competed
Use overtime to avoid the cost of hiring new employees
Human rights legislation
Legislation that prohibits discrimination in hiring or employment on basis of
race, ethnic origin, religion, gender, martial status or age
Trade union legislation
Legislation that defines rights of parties involved in collective bargaining
relationship
Unionized employees have been more likely to work under seniority based
system rather than performance based pay system because its more fair
Tax legislation
Corporate tax laws which encourage certain pay approaches and discourage
others
Changing work’s status from employee to independent contractor can have
significant income tax benefits for workers
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Labour market constraints
Constraints on compensation strategy flowing from relative levels of demand
and supply for particular occupational groups
Depending on geographical area, supply/demand for particular type of
labour may be high or low
Demand is high but supply is low, labour market is considered tight, opposite
and the labour market is loose
Product/service market constraints
Constraints on compensation strategy caused by nature of product or service
market in which firm operates
Constraints more severe if competitors are able to move their production to
labour markets where cost of labour is much lower or where legislated
constraints are less onerous
Financial constraints of organization
Unprofitable firms are much more limited in their compensation options
than profitable ones
Formulating the compensation strategy
The compensation strategy formulation process
Define the required behaviour  define role of compensation  determine the
compensation mix  determine the compensation level  evaluate the propose
strategy
Define required behaviour
Membership behaviour: what are costs of turnover? Is affective commitment
necessary, or is continuance commitment sufficient?
Task behaviour: are tasks simple or complex? Do employees work under
supervision? Are high performance levels required?
Citizenship behaviour: how important is cooperation for each company unit
and individuals in it? What extent can extra employee initiative or ideas
make diff to organization performance?
Technical ladder: defined progression of skills development to keep work
interesting and provide opportunities for high compensation
Define role of compensation
Classical organizations tend to focus on economic needs as the main
motivator of behaviour
Human relations organizations on social needs
High involvement organizations on employees needs for participation,
growth and development
Define the compensation mix
What role will be played by base pay, performance pay and indirect pay?
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