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Chapter 10

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Department
Business
Course
BU354
Professor
Steve Risavy
Semester
Fall

Description
Chapter 10: Strategic Pay Plans Strategic Importance of Total Rewards • Total Rewards o an integrated package of all rewards (monetary and non-monetary, extrinsic and intrinsic) gained by employees arising from their employment o aligned with business strategy o provide employee value within cost constraints o employees are increasingly regarded as drivers of productivity o originally total rewards were conceptualized as having three broad categories: benefits, compensation and work experience Five Components of Total Rewards • (1) Compensation o Direct financial payments in the form of wages, salaries, incentives, commissions and bonuses • (2) Benefits o Indirect payments in the form of financial benefits, vacations, pensions and insurance • (3) Work-life programs (support for child care and everything in acknowledging that people have a life outside of the business) o Programs that help employees do their jobs effectively, such as flexible scheduling • (4) Performance and recognition (80% of people leave a company because of the lack of recognition) o Pay for performance and recognition programs • (5) Development and career opportunities (personal development – tuition assistance -and personal exposure to new ideas and things) o Advancement and change in responsibilities to best suit individual skills, talents and desires Impact of rewards • Engagement refers to a positive emotional connection to the employer and a clear understanding of the strategic significance of the job, which results in discretionary effort on the employers part • Employees are attracted to competitive base pay, belief that the organization cares about the talent management, provide opportunities to learn and develop skills • Senior managements interest in employee well being, improvement of personal skills and capabilities, and the reputation of the organization as a good employer were the top factors influencing employee engagement • Work/life programs, performance and recognition, and development and career opportunities can differ dramatically and can be difficult for competitors to duplicate Basic Considerations in Determining Pay Rates (four factors) • Legal considerations in compensation o Employment/ labour standards act  Minimum standards regarding minimum wage, hours, termination, vacations o Pay Equity  Employers are required to identify males and female dominated jobs and then use a gender-neutral job evaluation system based on compensable factors to evaluate the job o Human Rights  Prohibit discrimination o Canada/Quebec Pension Plan  Pension benefits on the employees average earnings are paid during retirement o Workers’ Compensation  Provide a prompt, sure and reasonable income to victims of work-related accidents and illnesses o Employment Insurance  Aimed at protecting Canadian workers from total economic destitution in the event of employment termination that is beyond their control • Union o Oversee employer practices and ensure employees are treated in accordance with the legal rights o Wage rates have been the main issue, others are time off with pay, income security, cost of living adjustments and pensions o Many union leaders fear that any system used to evaluate the worth of a job can becoe a tool for management malpractice o Believe that managements usual method of using several compensable factors to evaluate and rank the worth of jobs can be manipulative device for restricting or lowering the pay of workers • Compensation policies - leader or follower in pay o You want to be a pay leader when the demand for workers is high o These may change in economic situations and may be different in different divisions (janitor vs. developer) o Basis for salary increases, promotion and demotion policies, overtime pay policy, and policies regarding probationary pay and leaves for military service, jury duty and holiday • Equity - internal and external o Is it fair that I am getting outputs for my inputs, especially compared to others o Must compare in other organizations or an employer will find it hard to attract and retain qualified employees Establishing Pay Rates • Step 1.determine the worth of each job through job evaluation – for internal equity • Step 2. Group similar jobs into pay grades • Step 3. Conduct salary survey of what other employers are paying for similar jobs – for external equity • Step 4. Price each pay grade using wage curves • Step 5. Fine-tune pay rates Step 1. Job Evaluation • Job Evaluation o systematic comparison of jobs to determine their relative worth o once the specialist knows how to price key benchmark jobs and can use job evaluations to determine the worth of all the other jobs in the firm relative to these key jobs, they are able to pay all jobs in the organization equitably o benchmark Job: commonly found in other organizations that is used to anchor the employers pay scale and that acts as a reference point around which other jobs are arranged in order of relative worth • two approaches to comparing jobs, by an intuitive approach (this job is better than others), or by compensable factors • Compensable Factor o fundamental compensable aspect of a job o what should someone be compensated for (ex. If their working conditions are dangerous) o most of the pay equity acts in Canada focus on four compensable factors: skill, effort, responsibility, and working conditions o all jobs in each employee group, department, or business unit are evaluated using the same compensable factors Preparing for job evaluation • identifying the need for job evaluation is easy – dissatisfaction with the inequities of paying employees different rates for similar jobs may be reflected in high turnover, work stoppage or arguments • get employee co-operation – employees may fear that a systematic evaluation of their jobs may actually reduce their wage rates • choosing a job evaluation committee – two reasons, (1) committee should bring to bear the points of view of several people who are familiar with the jobs in question and (2) assuming that the committee includes at least some employees, the committee approach can help to ensure greater employee acceptance of the job evaluation results o group usually consists of 5 members (mostly employees) but also union representative o perform three main functions, (1) members identify 10-15 key benchmark jobs, (2) committee may select compensable factors and (3) the committee turns to its most important function –actually evaluating the worth of each job Job Evaluation Methods -most people outsource these -rating from the point method and job classification method are most consistent -the job evaluation step often takes the longest (1)Ranking Method • the simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty” • Obtain job information • Group jobs to be rated • Select compensable factors • Rank jobs • Combine ratings • ADV – takes less time to accomplish • DIS – derive more from how it is used than from the method itself, rely too heavily on “guesstimates”, often used by small organizations that unable to afford the time or develop a more elaborate system, and the legal compliance requirements Ranking Method Example (ex. Grand River) Ranking Order Annual Pay • Office manager $60,000 • Chief nurse 54,000 • Bookkeeper 50,000 • Nurse 40,000 • Cook 26,000 • Nurse’s aid 24,000 • Maid 20,000 (2) Classification/Grading Method • categorize jobs into groups –groups are called classes in they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different • ways to categorize jobs: draw up class descriptions and place jobs into classes based on their correspondence to these descriptions, draw up a set of classifying rules for each class and categorize jobs according to rules or (most common) choose compensable factors and then develop class or grade descriptions that describe each class in terms of amount or level of compensable factors in jobs  this creates a grade/group description, which is used to combine similar grades or classes • ADV: most employees usually end up classifying jobs anyways • DIS: its difficult to write class/grade descriptions and judgment is required in applying them (3) Point Method Overview • identify compensable factors and determine the degree to which each factor is present in each job --then an overall point value is calculated • external surveys provide data on the different levels of skill • Point Method Steps o determine clusters of jobs to be evaluated  make it easier to go through all the jobs in a shorter time o collect job information o select and define compensable factors  factors that are important for that job o define factor degrees o determine factor
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