Chapter 9: Managing Compensation Flashcards
What are the 3 components of compensation?
Direct compensation, indirect compensation, nonfinancial compensation
What does direct compensation include?
Employee wages and salaries, incentives, bonuses, and commissions
What does indirect compensation include?
Benefits supplied by employers (e.g. Health benefits, childcare, etc)
What does nonfinancial compensation include?
Employee recognition programs, rewarding jobs, organizational support, work environment, flexible work hours
What is strategic compensation?
The compensation of employees in ways that enhance motivation and growth while aligning their efforts with the objectives, philosophies, and culture of the organization
How is compensation linked to organizational objectives?
Firms need to be able to attract talented candidates to achieve their goals. A major attractor is the compensation provided
What does expectancy theory say about compensation?
Employees will exert greater work effort if they have reason to believe it will result in a valued reward
What does equity theory say about compensation?
Says that reward received for contributions must be equitable in terms of those contributions. People will compare their inputs and results to others in similar jobs which has them perceive their pay as equitable or inequitable
What are some bases for compensation?
Hourly work, piecework, commission, salary, overtime
What are some internal factors that determine compensation?
The compensation strategy, the worth of a job, the employee’s relative worth, and the employer’s ability to pay
What are some external factors that determine compensation?
Labour market conditions, area wage rates, the cost of living, collective bargaining
What is an escalator clause?
A clause in a collective agreement that provides for quarterly cost-of-living adjustments in wages, basing the adjustments on changes in the consumer price index
What is job evaluation?
A systematic process of determining the relative worth of jobs to establish which should be paid more than others within an organization
What is a job ranking system?
The simplest and oldest system of job evaluation where jobs are arrayed on the basis of their relative worth. This does not provide a precise measure of each job’s worth
What is a job classification system?
A system of job evaluation where jobs are classified and grouped according to a series of predetermined wage grades
What is the point system for job evaluation?
A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it
How are points determined in the point system of job evaluation?
Points are decided by checking the point manual which has a description of compensable factors, the degree to which those factors exist within jobs, and the number of points allocated to each factor
What is the Hay profile method?
A method of job evaluation for management positions. Uses knowledge, mental activity, and accountability to evaluate each position
What is a wage and salary survey?
A survey of the wages paid to employees of other employers in the surveying organization’s relevant labour market
What is the labour market?
The area from which employers obtain certain types of workers
What is a wage curve?
A curve in a scatterplot that represents the relationship between the relative worth of jobs and wage rates
What is a pay grade?
A group of jobs within a particular class that are paid the same rate
What is a red circle rate?
A payment rate above the maximum of the pay range which may be done if an employee has high seniority or promotional opportunities are scarce
What is broadbanding?
Collapsing many traditional salary grades into a few wide salary bands
What is competency-based pay?
Pay based on an employee’s skill level, variety of skills possessed, or increased job knowledge. Firms grant an increase in pay after a skill has been mastered and can be demonstrated to a certain standard
What does the Canada Labour Code establish?
Minimum labour standards for all employees and employers under federal jurisdiction
What is pay equity?
Equal pay for work of equal value
What is wage-rate compression?
Compression of differentials between job classes, particularly the differential between hourly workers and their managers
What is pay transparency?
Making employees aware of what other employees in their workplace are earning
