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UNIT 9 - Managing Compensation.docx

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Department
Administrative Studies
Course
ADMS 2600
Professor
Monica Belcourt
Semester
Fall

Description
ADMS 2600 November 15, 2013 UNIT 9 – MANAGING COMPENSATION Strategic Compensation • Placework: work paid according to # of units produced • Pay: is a statement of an employee’s worth by an employer • Higher salaries attract better employees, but some employers take a trade-off (ex: McDonalds has high recruitment costs because of high turnover but savings in labour and training) • Goals of compensation: o Motivate employees o Retain employees  More experienced and tenured employees are less likely to leave because of the money (hard to leave good pay, can’t find a job that will pay the same) o Attract employees • Common strategic goals of a strategic compensation policy: o Reward employees’ past performance o Remain competitive in the labour market o Maintain salary equity among employees o Mesh employee’s future performance with organizational goals o Control compensation budget o Attract employees o Reduce turnover o Summed up by attract, motivate, retain • Total compensation: o Direct  Wages/salary  Commissions ADMS 2600 November 15, 2013  Bonuses  Gainsharing o Indirect  Time not worked (ex: vacation)  Insurance plans  Security plans (pensions)  Employee services • Strategic Compensation Planning o Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization. Serves to mesh the monetary payments made to employees with specific functions of the HR programing establishing a pay-for- performance standard. Seeks to motivate employees o Alignment between business strategy and compensation objectives.  Change in business strategy requires change in compensation strategy. o Compensation consultants need to consider the following questions:  “How does this compensation practice benefit the organization?”  “Does the benefit offset the administrative cost?” • Pay-for-performance standard: base compensation on performance. Usually tied to different compensation options like merit-based pay, bonuses, etc. o But how will performance be measured? How will payouts be made? Etc… • Pay equity: perception that compensation received is equal to value of the work performed. • Pay theory: summed up by “A fair days work for a fair days pay”. How many individuals are satisfied with their pay based on the effort put in? ADMS 2600 November 15, 2013 • Equity theory: pay constitutes a quantitative measure of an employee’s relative worth. • Expectancy Theory: theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value. o Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward  Ex: if you don’t like tennis, you may not be motivated because you don’t value the outcome of becoming a tennis player • High effort  high performance  valued monetary rewards  pay satisfaction (expectancy linkage) (value linkage) • Pay secrecy: An organizational policy prohibiting employees from revealing their compensation information to anyone. o Creates misperceptions and distrust of compensation fairness and pay-for- performance standards. Salary disclosures will lead to people wanting higher wages. The Wage Mix • Factors affecting the pay mix: ADMS 2600 November 15, 2013 • Pay policies: o Lead  Deliberately pay above average wages to attract the best people o Lag  Keep expenses and prices low. Ex: McDonalds puts up with low-skilled people o Match  Paying around the median • External factors o Labour Market Conditions  Availability and quality of potential employees is affected by economic conditions, government regulations and policies, and the presence of unions.  It is common for the same job in the private sector to be paid more than in the public section in North America and Europe. o Area Wage Rates  A firm’s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs o Cost of Living  Local housing and environmental conditions can cause wide variations in the cost of living for employees.  Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power (COLA: cost-of-living- adjustments)  Consumer price index (CPI): measure of the average change in prices over time in a fixed “market basket” of goods and services o
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