Ch 9 Flashcards
What Is Compensation
direct compensation, Indirect compensation, Nonfinancial compensation, Total rewards
Direct compensation
encompasses employee wages and salaries, incentives, bonuses, and commissions
Indirect compensation
comprises the many benefits supplied by employers
Nonfinancial compensation
includes employee recognition programs, rewarding jobs, organizational support, work environment, and flexible
work hours
Total rewards
captures all three components, plus other aspects of organizational rewards, including career advancement/developmental opportunities, recognition, work-life balance, and job security
Strategic Compensation
the 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
an integral way of attracting talented candidates is offering a standout compensation package
Motivating employees through compensation
expectancy theory (employees should exert greater work effort if they have reason to expect that it will result in a reward that is valued) and equity theory (explains how people respond to situations in which they feel they have received less [or more] than they deserve)
The Bases for Compensation
- Hourly work
- Piecework: work paid according to the number of units produced
- Employment practices are a provincial jurisdiction, and each province has its own employment standards act
Determining Compensation - Internal Factors
- Compensation/pay strategy
- Job evaluation
- Merit raises
Determining Compensation - External Factors
- Supply and demand for qualified labour within an area
- Wage survey data
- Consumer price index (CPI)
- Escalator clauses
- Real wages
Consumer price index (CPI)
a measure of the average change in prices over time in a fixed “market basket” of goods and services
Escalator clauses
clauses in collective agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments on changes in the CPI
Real wages
wage increases larger than rises in the CPI, that is, the real earning power of wages
Job evaluation
a systematic process of determining the relative worth of jobs to establish which jobs should be paid more than others within an organization
Job ranking system
the simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth
Job classification system
a system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades
Point system
a quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it
- permits jobs to be evaluated quantitatively on the basis of compensable factors
Job Evaluation for Management Positions
- Point plans
- Hay profile method
Hay profile method
a job evaluation technique using three factors— knowledge, mental activity, and accountability—to evaluate executive and managerial positions
The Compensation Structure
The evaluated worth of each job in terms of its rank, class, points, or monetary worth must be converted into an hourly, daily, weekly, or monthly wage rate
Wage and salary survey
a survey of the wages paid to employees of other employers in the surveying organization’s relevant labour market
- permits an organization to maintain external equity
- only key jobs are used
Wage curve
a curve in a scattergram representing the relationship between the relative worth of jobs and wage rates
Pay grades
groups of jobs within a
particular class that are paid the same rate
Rate Ranges
- Rate ranges that are proportionately greater for each successive grade provide a greater incentive for employees to accept a promotion to a job in a higher grade
How are rate ranges divided
divided into a series of steps that permit employees to receive increases up to the maximum rate for the range on the basis of merit or seniority or a combination of the two
Red circle rates
payment rates above the maximum of the pay range
Broadbanding
collapses many traditional salary grades into a few wide salary bands
Competency-based pay
pay based on an employee’s skill level, variety of skills possessed, or increased job knowledge
- Organizations will grant an increase in pay after each skill or knowledge has been mastered
Government Regulation of Compensation
- Canada Labour Code and the Canada Labour Standards
Regulations set minimum labour standards for all employees and
employers in works or undertakings that fall within federal jurisdiction - Collective agreements are permitted to override the provisions of these acts
groups exempt from overtime requirements
Particular groups, including lawyers, doctors, engineers, and managers
Significant Compensation Issues
- Pay equity
- Wage-rate compression
- pay transparency
Pay equity
equal pay for work of equal value
- Organizations must inspect any differences in compensation between positions of equal value held in the majority by women compared to jobs held mainly by men
Wage-rate compression
compression of differentials between job classes, particularly the differential between hourly workers and their managers
Pay transparency
the ability for employees to be made aware of what other employees in their workplace are earning
