Chapter 9 - Managing Compensation Flashcards
What is the importance of an organization’s pay system?
-Helps attract and retain top talent and motivate employees
-Drives employees’ behaviours that are pivotal to achieving strategic objectives
-Send important signals on its values
-Increases employee loyalty
What are the three main components of compensation?
-Direct Compensation: Employee wages, salaries, incentives, bonuses, and commissions
-Indirect Compensation: Benefits supplied by employers
-Non-financial Compensation: Employee recognition programs, rewarding jobs, organizational support, work environment, and flexible work hours
What is strategic compensation?
-Compensation of employees in ways that enhance motivation and growth, while aligning these efforts with the objectives, philosophies, and culture of the organization
-Links compensation to the organization’s mission and general business objectives
-Serves to mesh the monetary payments made to employees with specific functions of the HR program (ex. rate of pay increases/limits the supply of applicants)
What are the common goals of a strategic compensation policy?
-Reward employees’ past performance
-Remain competitive in the labour market
-Maintain salary equity among employees
-Mesh employees’ future performance with organizational goals
-Control the compensation budget
-Attract new employees
-Reduce unnecessary turnover
-Motivate employees
What does the equity theory say about the motivating effects of an organization’s compensation system?
-An employee’s pay must be equitable to their contributions
-An employee’s pay must be equitable to what other employees are receiving for their contributions
-The strength of an employee’s motivation is proportional to the magnitude of perceived inequity
-Equity is achieved when an employee’s perceived input/output ratio = input/output ratio of referent others
-Internally equitable compensation policies exist when employees believe the wage rates for their jobs approximate the job’s worth to the organization
-Externally equitable compensation policies exist when the organization pays wages relatively equal to what other employers pay for similar types of work
What does the expectancy theory say about the motivating effects of an organization’s compensation system?
-Employees should exert greater work effort if they have reason to expect that this will result in a reward that is valued –> Attractive monetary reward
-Employees must believe that good performance is valued and results in receiving the expected reward
-For the reward to be motivational, it must have high:
(a) Valence: Reward is valued by the employee
(b) Instrumentality: Belief that the attainment of goals/objectives will result in the promised rewards
(c) Expectancy: Belief that the goals are challenging, but attainable
How can management contribute to employees’ accurate perception of pay?
-Effective communication of pay information (knowledge and understanding of the compensation program’s strategic objectives)
-Organizational environment eliciting trust in management
What is hourly work compensation?
Work paid on an hourly basis
What is piecework compensation?
Work paid according to the number of units produced
What are the differences between hourly and salaried employees?
-Hourly employees are compensated on an hourly basis, while salaried employees’ compensation is computed on the basis of weekly, biweekly, or monthly periods;
-Hourly employees are paid only for the time they work, while salaried employees may work fewer/more hours but receive the same pay;
-Salaried employees receive certain benefits.
Are employment practices federally-regulated, or provincially-regulated?
Employment practices are a provincial jurisdiction. Every province has its own employment standards act.
How does overtime pay work?
Each provincial employment standards act contains a provision requiring the employer to reimburse the employee at a specific rate, after working the minimum required hours (eg. 1.5x base hourly rate of pay, or time-off equivalent).
Who usually receives overtime pay?
Supervisory and management personnel are not usually paid overtime (“exempt roles”).
What are the internal factors that influence wage rate?
-Employer’s compensation strategy
-Worth of a job
-Employee’s relative worth in meeting job requirements
-Employer’s ability to pay
What are the external factors that influence wage rate?
-Conditions of the labour market
-Area wage rates
-Cost of living
-Collective bargaining
-Legal requirements
At a minimum, what should pay policies reflect?
- The internal wage relationship among jobs and skill levels
- The external competition or an employer’s pay position, relative to what competitors are paying
- A policy of rewarding employee performance
- Administrative decisions concerning elements of the pay system (eg. overtime premiums, payment periods, short- or long-term incentives)
How should be the worth of a job be evaluated, in an organization without a formal compensation program?
On the subjective opinions of people familiar with the jobs (eg. labour market, collective bargaining)
How should be the worth of a job be evaluated, in an organization with a formal compensation program?
Based on a system of job evaluation to aid in rate determination
What should be the worth of a job based on?
More than just market prices, or an internally driven job evaluation program!
A job’s value should be based on the total value delivered to the organization.
