Chapter 8 Total rewards Flashcards
Total rewards
A comprehensive approach to compensating and rewarding employees
Creates a value proposition for current and prospective employees
Influences the kinds of employees who are attracted to and remain with the organization
Primary reason for developing a total rewards strategy is to align rewards with the business strategy
Total rewards strategy ch8 p.5
Total compensation
Total compensation:
Direct and indirect compensation received in exchange for the employee’s contribution of time, talent, effort, and results
Direct compensation: Financial rewards employees receive as part of their employment
Indirect compensation: Benefits and services employees receive
Décisions about base pay
ch8 p.7
Pay structure
Pay structure consists of :
Job structure—the relative pay for different jobs within the organization
e.g. defines the difference in pay between an entry-level accountant and an entry-level assembler
Pay level—average amount the organization pays for a particular job
Pay structure helps the organization meet goals related to employee motivation, cost control, and ability to attract and retain
Legal requirements
Human rights legislation :
Differences in pay must link to job responsibilities or performance
Employment/ Labour standards :
Laws provide minimum requirements
Pay equity :
Attempts to address the wage gap between female and male dominated jobs
Pay transparency :
Provincially-regulated employers have several requirements
Economic influences on pay
Product markets :
- Organizations that offer competing goods ans services
- Compete with other firms to hire the same skilled employees
Labour markets :
- Compete with other firms to hire the same skilled employees
Pay level : Deciding what to pay
Range in which organizations make decisions :
- May choose to pay at, above, or below market rate
- Must evaluate pay as more than a cost—view as an investment
Gathering information about market pay :
- Benchmarking—compare practices to successful competitors e.g. pay surveys
Pay fairness (based on equity theory) :
- Employees evaluate their pay relative to others
- Social media and sites like Glassdoor share information
Opinions about fairness : Pay equity
Equity : pay seems fair
My outcomes/inputs (Balance with = ) your outcomes/inputs
Inequity : Pay seems unfair
My outcomes/inputs (>) your outcomes/inputs
Job structure : Relative value of jobs
Job evaluation: Administrative procedure for measuring the relative internal worth of the organization’s jobs
Considers each job’s compensable factors e.g. skill requirements, effort required, responsibility, and working conditions
Basis for determining relative internal worth—value of the job within the organization
Pay surveys may be limited to key jobs
Job structure : Relative value of jobs
Job evaluation :
- Measures relative internal worth of organization’s jobs
- Committee identifies each job’s compensable factors
- Characteristics organization values ans is willing to pay for
- Jobs rated for each factor
Compensable factors :
1. Expérience
2. Education
3. Complexity
4. Working conditions
5. Responsibility
Job evaluation of three jobs with three factors
ch8 p.11-12
Pay structure : Putting it all together
Hourly wage :
Rate of pay per each hour worked
Piecework rate :
Rate of pay per each unit produced
Salary :
Rate of pay per week, month, or year worked
(Con) ch8 p.15-16-19
Pay Rates :
Rates of key jobs can be based on market research.
Nonkey jobs often have no survey data available; professional must base rate off job evaluation by plotting data on graph.
Pay policy line on graph shows relationship between job evaluation points and pay rates.
-Reflects the pay structure in the market, which does not always match rates in the organization.
Pay Grades
Sets of jobs having similar worth or content grouped together to establish rates of pay.
May not match market rate.
Alternatives to job-based pay
Broadbanding :
- Pay structure that consolidates pay grades into a few “broad bands”
- Reduces promotion opportunities but provides flexibility for lateral career moves
Competency-based pay system (skill-based pay system) :
- Sets pay according to employees’ level of skill or knowledge
- Rewards employees for acquiring skills
Pay structure and actual pay
Compa-Ratio
Ratio of average pay to the midpoint of pay range.
Ensures that pay policies and practices match.
- If average equals midpoint, CR is 1.
- If CR is greater than 1, average pay is above midpoint.
- If CR is less than 1, average pay is below midpoint.
Incentive pay
- Forms of pay designed to energize, direct, or control employees’ behavior.
- Often linked to employee’s performance as an individual, group member, or organization member.
- May be in the form of a commission or bonus.
- Organizations may combine a number of incentives so employees do not focus on one measure to the exclusion of others.
- Employees compare their efforts and rewards with those of other employees, considering a plan to be fair when the rewards are distributed according to what the employees contribute.
Con :
Effective Incentive Pay Plan Requirements :
1. Performance measurements are linked to company goals.
2. Employees believe they can meet performance standards.
3. Employees are given resources needed to meet goals.
4. Employees value rewards given.
5. Employees believe the reward system is fair.
6. Pay plans consider that employees may ignore any goals that are not rewarded.
- Incentives linked to individual performance
- Incentives kinked to team performance
- Incentives linked to organizational performance
