Chapter 11 - Compensation

Question 1

Explain the strategic importance of total rewards.

Answer 1

A total rewards approach considers individual reward components as part of an integrated whole to determine the best mix of rewards that are aligned with business strategy and provide employee value, all within the cost constraints of the organization. Alignment is the extent to which rewards support outcomes that are important to achieving the organization’s strategic objectives. Employee value is created when rewards are meaningful to employees and influence their affiliation with the organization.

Question 2

** What are the total rewards?

Answer 2

Total rewards:
Compensation
Benefits
Work/life programs
Pay-for-performance and recognitions
Development and career opportunities

Note: Some are direct payments, some are indirect

Question 3

Describe four core considerations an organization needs to make when determining compensation decisions.

Answer 3

How an organization compensates its employees must include:
legal considerations (including the employment and labour standards acts, workers’ compensation laws, human rights acts, mandatory pension plans, and pay equity acts),
union influences,
rewards, and
equity considerations.

Question 4

** Define pay equity and explain its importance today.

Answer 4

Pay equity is intended to address systemic gender discrimination as measured by the wage gap, which includes full-time working women, in Canada persists. Pay equity requires equal pay for female-dominated jobs of equal value to male-dominated jobs (where value is determined through job evaluation).

Question 5

Explain equity theory of motivation and how an organization can address feelings of inequity

Answer 5

Equity theory of motivation suggests that people are motivated to maintain a balance between their contributions or effort and how they are rewarded for their contributions or efforts. An imbalance between an individual’s input and output of effort or contributions creates tension, which motivates the individual to alter his or her input to achieve balance. There are four equity considerations in compensation: external equity, internal equity, individual equity, and procedural equity.

Question 6

** What are four basic considerations that influence the formulation of any pay plan?

Answer 6

Four basic considerations influence the formulation of any pay plan:

LUCE

> Legal requirements
Employment/labour standards (minimum wage)
Pay Equity
Human Rights
Canada/Quebec Pension Plan
Workers’ Compensation

> Union issues:
Collective bargaining

> Compensation policy/strategy
Leader or follower in pay

> Equity
Internal and external
Procedural justice
Distributive justice

Question 7

** What are internal factors that affect the wage mix?

Answer 7

WEREAC

> Worth of the Job
> Employees relative worth
> Employers ability to pay
> Compensation policy/strategy
Leader or follower in pay

Question 8

** What are external factors that affect the wage mix?

Answer 8

CACostCBargLeg

> Conditions of the Labour Market
> Area wage rates
> Cost of living
> Collective Bargaining
> Legal requirements

Question 9

** What are the three stages in establishing pay rates?

Answer 9

1> Determine worth of each job through job evaluation (to achieve internal equity).
2> Conduct a salary survey to see what other employers are paying for comparable jobs (to achieve external equity).
3> Combine job evaluation and salary survey to determine pay

Question 10

** What are methods to determine worth of each job through job evaluation?

Answer 10

1. RANKING METHOD: highest jobs get most pay to lowest jobs get the least pay
2. Classification/grading method
   Categorizes jobs into groups called classes or grades based on grade/group description
   Class = similar jobs; grade = dissimilar jobs but similar difficulty
3. Point method
   identify compensable factors
   determine the degree to which each factor is present in each job

Question 11

** What is the purpose of a salary survey? How should salary data be broken down?

Answer 11

Survey data are used to price “benchmark” jobs
Positions are often priced directly in the marketplace
Collect data on benefits

Salary data should be broken down by
size of organizations
geographic regions
by sectors and industries
by roles
by differences in compensation, communication, administration, and employee demographics

Question 12

Wage curve

Answer 12

Graphic description of relationship between the value of the job and the average wage paid for this job

Question 13

Pay ranges

Answer 13

A series of steps or levels within a pay grade, usually based on years of service

Question 14

Broadbanding

Answer 14

Combining salary grades/ranges into fewer categories

Question 15

external equity

Answer 15

An employee perception of pay as fair given the pay rates in other organizations.

Question 16

red circle pay rate

Answer 16

A rate of pay that is above the pay range maximum.

Question 17

employee compensation

Answer 17

All forms of pay or rewards going to employees and arising from their employment.

Question 18

pay equity

Answer 18

Providing equal pay to male-dominated job classes and female-dominated job classes of equal value to the employer.

Question 19

internal equity

Answer 19

An employee perception of pay as fair given the pay rates of others in the organization.

Question 20

benchmark job

Answer 20

A job that is critical to the firm’s operations or that is commonly found in other organizations.

Question 21

** point method

Answer 21

A job evaluation method in which a number of compensable factors are identified, the degree to which each of these factors is present in the job is determined, and an overall point value is calculated.

Question 22

indirect financial payments

Answer 22

Pay in the form of financial benefits such as insurance.

Question 23

pay grade

Answer 23

Comprises jobs of approximately equal value.

Question 24

grade/group description

Answer 24

A written description of the level of compensable factors required by jobs in each grade; used to combine similar jobs into grades or classes.

Question 25

direct financial payments

Answer 25

Pay in the form of wages, salaries, incentives, commissions, and bonuses.

Question 26

classification/grading method

Answer 26

A method for categorizing jobs into groups.

Question 27

job evaluation committee

Answer 27

A diverse group (including employees, HR staff, managers, and union representatives) established to ensure the fair and comprehensive representation of the nature and requirements of the jobs in question.

Question 28

equity theory

Answer 28

A theory suggesting that people are motivated to maintain a balance between what they perceive as their contributions and their rewards.

Question 29

compensable factor

Answer 29

A fundamental, compensable element of a job, such as skill, effort, responsibility, and working conditions.

Question 30

classes

Answer 30

Groups of jobs based on a set of rules for each class, such as amount of independent judgment, skill, physical effort, and so forth. Classes usually contain similar jobs—such as all secretaries.

Question 31

market-pricing approach

Answer 31

An approach usually limited to determining compensation for professional jobs based on values established for similar benchmark jobs in the market.

Question 32

job evaluation

Answer 32

A systematic comparison to determine the relative worth of jobs within a firm.