Chapter 11: Strategic Pay Plans Flashcards
Employee compensation
includes all forms of pay or rewards going to employees and arising from their employment
Employee compensation has two main components, what are they?
1) direct financial payments
2) indirect financial payments
Direct financial payments
Pay in the form of wages, salaries, incentives, commissions, and bonuses
Indirect financial payments
Pay in the form of financial benefits, such as employer-paid insurance and vacations
For more senior positions or more dynamic jobs, such as managers or web designers, pay tends to be ______ and paid weekly, monthly, or yearly
salaried
Four basic considerations influence the formulation of any pay plan:
1) legal requirements,
2) union issues,
3) rewards alignment,
4) and equity
aligned reward strategy
This means creating a compensation package (including wages, incentives, and benefits) that produces the employee behaviours the firm needs to achieve its competitive strategy
Nonmonetary rewards
- Personal growth rewards
- Interpersonal rewards
Cash payments
- Base pay
- Merit plans
- Incentive plans
Benefits
- Vacations
- Insurance
- Pensions
Total rewards
encompass the traditional pay, incentives, and benefits, but also things such as more challenging jobs (job design), career development, and recognition programs.
Total rewards include direct and indirect financial benefits
Not health and safety programs
Do Our Compensation Policies Support Our Strategic Aims?
Q1: What are our strategic aims?
Q2: What employee behaviours and skills do we need to achieve our strategic aims?
Q3: What compensation policies and practices—salary, incentive plans, and benefits—will help to produce the employee behaviours we need to achieve our strategic aims?
All of the __ jurisdictions regulating employment in Canada (ten provinces, three territories, and the federal jurisdiction)
14
Employment/Labour Standards Acts (Canada Labour Code)
set minimum standards regarding pay, including minimum wage, maximum hours of work, overtime pay, paid vacation, paid statutory holidays, termination pay, record keeping of pay information, and more
Executive, administrative, and professional employees are generally exempt from the _______ pay requirements
overtime
Workers’ Compensation Laws
each jurisdiction has its own workers’ compensation laws
The objective of these laws is to provide a prompt, sure, and reasonable income to victims of work-related accidents and illnesses
Human Rights Acts
All jurisdictions have enacted human rights laws
prohibit discrimination in employment (such as in compensation and promotion) on the basis of age, sex, colour, or race; ancestry and place of origin; religion and creed; marital and family status; and physical or mental disability
Any human factor we cannot change (we are born with)
Canada/Quebec Pension Plan (CPP)
All employees and their employers must contribute
Pay Equity Act
redress systemic gender discrimination in compensation for work performed by employees in female-dominated job classes
Pay Equity BLUE
Providing equal pay to male dominated job classes and female dominated job classes of equal value to the employer
Which of the following would not be included in total rewards?
Vacations
Benefits
Monetary compensation
Health and safety programs
Health and safety programs
Equity Theory
Theory suggesting that people are motivated to maintain a balance between what they perceive as their contributors and their rewards
In compensation, what are the four types of equity
1) External equity
2) Internal equity
3) Individual equity
4) Procedural equity
1) External equity
refers to how a job’s pay rate in one company compares to the job’s pay rate in other companies.
2) Internal equity
refers to how fair the job’s pay rate is when compared to other jobs within the same company
for instance, is the sales manager’s pay fair when compared to what the production manager earns?
3) Individual equity
refers to the fairness of an individual’s pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company, based on each person’s performance.
4) Procedural equity
refers to the “perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.”
Steps required to establish pay rates
Stage 1: Preparing for Job Evaluation
Stage 2: Conduct a Wage/Salary Survey
Stage 3: Combine the Job Evaluation and Salary Survey Information to Determine Pay for Jobs
Job evaluation
A systematic comparison to determine the relative worth of jobs within a firm
benchmark jobs
A job that is critical to the firm’s operations or that is commonly found in other organizations
Compensable factors
A fundamental, compensable element of a job, such as skill, effort, responsibility, and working conditions
For example, most of the pay equity acts in Canada focus on four compensable factors:
1) skill,
2) effort,
3) responsibility,
4) working conditions
A job evaluation committee
A diverse group (including employees), HR staff, managers, and union reps established to ensure that fair and comprehensive representation of the nature and requirements of the jobs in question
Job Evaluation Methods
Classification Method
Classification/grading method
Method for categorizing jobs into groups
The groups are called classes
Classes
Groups of jobs based on a set of rules for each class, such as amount of independent judgement, skill, physical effort, and so forth
Class usually contain similar jobs such as secretaries
Grades
Groups of jobs based on a set of rules for each grade, where jobs are similar in difficulty but otherwise different.
Grades often contain dissimilar jobs, such as secretaries, firefighters, and mechanics
grade/group description
Written document of the level of compensable factors required by jobs in each grade; used to combine similar jobs into grades or classes
Point Method
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
Needed: necessary to have current job descriptions and job specifications based on a thorough job analysis
Pay grade
comprises jobs of approximate equal value or importance, as determined by job evaluation
wage/salary surveys
A survey aimed at determining prevailing wage rates
An employer may use wage/salary surveys in three way
First, survey data are used to determine pay rates for benchmark jobs that serve as reference points or anchors for the employer’s pay scale, meaning that other jobs are then paid based on their relative worth compared to the benchmark jobs.
Second, an increasing number of positions are paid solely based on the marketplace (rather than relative to the firm’s benchmark jobs)
Finally, surveys also collect data on employee benefits, work–life programs, pay-for-performance plans, recognition plans, and so on to provide a basis on which to make decisions regarding other types of rewards.
wage curve
.
A graphic description of the relationship between the value of the job and the average wage paid for this job
Broadbanding
combining salary grades and ranges into just a few wide levels or “bands,” each of which then contains a relatively wide range of jobs and salary levels
What is the main purpose of doing a job evaluation with respect to total rewards?
Preamature Quiz Question
To determine the value of a job for internal equity
There are a number of advantages to using a broadbanding pay system, such as greater flexibility in employee compensation and:
Preamature Quiz Question
facilitating less specialized, boundaryless jobs and organizations.
Correcting Out-of-Line Rates
his means that the average pay for that job is currently too high or too low relative to other jobs in the firm
If a point falls well below the line, a pay raise for the job may be required. If the plot falls well above the wage line, pay cuts or a pay freeze may be required.
Red circle pay rates
KNOW ME FOR MIDTERM
A rate of pay that is above the pay range maximum
One is to freeze the rate paid to employees in this grade until general salary increases bring the other jobs into line with it
A second alternative is to transfer or promote some or all of the employees involved to jobs for which they can legitimately be paid their current pay rates
Pay-for-knowledge systems are known as
competency-based pay
skill-based pay
Core competencies
describe knowledge and behaviours that employees throughout the organization must exhibit for the organization to succeed,
such as “customer service orientation” for all hotel employees
Functional competencies
are associated with a particular organizational function, such as “negotiation skills” for salespeople, or “safety orientation” for pilots
Behavioural competencies
expected behaviours, such as “always walking a customer to the product they are looking for rather than pointing.”
Developing a compensation plan to pay executive, managerial, and professional employees is similar in many respects to developing a plan for other ______
employees
There are five elements in an executive/managerial compensation package:
salary, benefits, short-term incentives, long-term incentives, and perquisites.
market-pricing approach
An approach usually limited to determining compensation for professional jobs based on values established for similar benchmark jobs in the market
According to the textbook, blue-collar and clerical workers typically receive which of the following types of pay?
QUIZ QUESTION
Hourly or daily wages
According to the textbook, which of the following do unions believe will be the best able to judge the relative value of a job?
QUIZ QUESTION
The workers themselves
The argument that the way in which most compensation surveys are constructed, interpreted, and used leads almost invariably to a situation in which firms set higher wages than they otherwise might is reflective of which of the following terms?
QUIZ QUESTION
Upward bias
What are “pay-for-knowledge” systems also known as when they are used for management and professional employees?
QUIZ QUESTION
Competency-based pay
Which of the following components of equity theory specifically refers to the fairness of an employee’s pay compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each employee’s performance?
QUIZ QUESTION
Individual equity
Julien and Bernard, friends in the same commerce program, find similar summer jobs at different banks at the end of their winter school terms. Julien learns that Bernard’s compensation is 11% more than what he is being paid. Julien feels that his employer provides unfair compensation and begins looking for a new job; what is this an example of?
QUIZ QUESTION
External equity
When using a job evaluation method, such as the ranking method, which of the following is the eventual result of that approach?
QUIZ QUESTION
Next Best Guess Compensable factors
Do not select Job hierarchy
The job evaluation committee typically includes several employees and has the important task of evaluating the worth of each job using which of the following?
QUIZ QUESTION
Compensable factors
Fareena runs a small manufacturing company. A worker hurt his hand on a vertical grinding machine. Fareena filed the proper legal documents quickly so that the worker could receive benefits while recovering from his injury. Which type of legislation did Fareena adhere to?
QUIZ QUESTION
Workers compensation
Pay-for-knowledge systems meet pay equity requirements in Canada.
QUIZ QUESTION
False
According to the textbook, which of the following conducts five compensation surveys annually covering executive; management; professional, supervisory, and sales; information technology; and administrative and support positions?
QUIZ QUESTION
The Toronto Board of Trade
The term “total rewards” refers only to the monetary components of compensation.
QUIZ QUESTION
FALSE
According to the recent study conducted by Towers Watson referenced in the textbook, what is the most important factor in attracting employees to an organization?
QUIZ QUESTION
Competitive base pay
An advantage of using pay ranges for each pay grade is that it allows for which of the following?
QUIZ QUESTION
Performance differences between employees within the same grade
Which of the following refers to the creation of a compensation package that produces the employee behaviours that a company requires in order to achieve their competitive strategy?
QUIZ QUESTION
Aligned reward strategy
Which of the following is mentioned in the textbook as a disadvantage associated with using the job classification/grading method in job evaluation?
QUIZ QUESTION
Considerable judgment is required in applying the class or grade descriptions.
A pay grade comprises jobs of varying value and importance to the company.
QUIZ QUESTION
FALSE
Victoria has been a contract worker for a construction company and has just been offered a full-time, non-contract position. She will now receive additional benefits, such as employer-paid insurance and vacation; what are these components of employee compensation called?
QUIZ QUESTION
Indirect financial payments
According to the textbook, which of the following are the most popular job evaluation methods that can be applied to compensation decisions?
QUIZ QUESTION
The classification and point methods
Which of the following is the term used to describe the graphical depiction of the relationship between the value of the job and the average wage paid for that job?
QUIZ QUESTION
Wage curve
Wages, salaries, incentives, commissions, and bonuses are known as which of the following?
QUIZ QUESTION
Direct financial payments
Which job evaluation method identifies compensable factors in a job as well as the degree to which each of these factors is present in the job and then calculates a value for each job?
QUIZ QUESTION
Point method
An advantage of using pay ranges for each pay grade is that it allows for which of the following?
QUIZ QUESTION
Performance differences between employees within the same grade
What is the term used to describe a diverse group established to ensure the fair and comprehensive representation of the nature and requirements of a job in question for the purposes of determining compensation?
QUIZ QUESTION
Job evaluation committee
Justin used to assemble 18 desks per hour during his shift for the furniture company he works for; then he found out that other workers who only assemble 13 to 15 desks per hour were receiving the same compensation as he was. Justin now assembles 14 desks per hour. Which of the following would help to explain Justin’s behaviour?
QUIZ QUESTION
Equity theory
The purpose of pay equity legislation is to eliminate discrimination based on age and culture.
QUIZ QUESTION
FALSE
Underpaid employees should have their wages raised to which of the following?
QUIZ QUESTION
The minimum of the rate range for their pay grade
Which of the following is another way of categorizing jobs when undertaking the job classification/grading method, other than using class descriptions and placing jobs into classes based on their correspondence to these descriptions?
QUIZ QUESTION
Draw up a set of classifying rules for each class and then categorize the jobs according to these rules.
