Module 2

Question 1

What is the definition of Compensation:

Answer 1

> Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of the employment relationship.

Question 2

Why is the study of Compensation Important?

Answer 2

1) It influences employee behaviour on the job

2) It links behaviour with overall organizational effectiveness

3) If employees believe compensation is unfair it potentially undermines organizational performance

4) Compensation is a major component of expenses and must be controlled and monitored.

Question 3

What are the four views of compensation?

Answer 3

> Society views Compensation as a form of Distributive Justice

> Stockholders view executive pay as a special interest (since pay for executives is

> intended to be tied to performance In Canada)

> Managers view compensation as an expense and an influence over employees’ work behaviour

> Employees view compensation as a return for work they perform.

Question 4

What three components are included under total rewards?

Answer 4

1) Cash compensation
2) Benefits
3) Relational returns (psychological returns employees believe they receive in the workplace)

Question 5

What does cash compensation include:

Answer 5

includes Base Pay-Wage and Salary; Merit Increases; Cost of Living Adjustments; Incentives/Variable Pay (one time payments for meeting objectives over a fixed period) and Long Term Incentives (to focus employees on longer term results)

Question 6

What do benefits include?

Answer 6

> include indirect compensation including health insurance, dental insurance, pensions and life insurance provided by the government (CPP/QPP and EI and the employer and work/life balance programs including vacations, counselling, financial planning, flexible working arrangements)

Question 7

What do relational returns include

Answer 7

include Recognition and Status, Employment Security, Challenging Work and Learning Opportunities.

Question 8

The Pay Model contains 3 building blocks - what are they?

Answer 8

> Strategic Policies, Techniques and Strategic Objectives.

Question 9

The Strategic Objectives serve as the standard to evaluating the system based on what three components?

Answer 9

1. Efficiency: that it improves performance and efficiency controlling labour cost
2. Fairness: attempts to ensure fair pay treatment for all employees by recognizing their contributions and needs ie procedural justice
3. Compliance: with all federal and provincial legislation

Question 10

What is the internal equity policy?

Answer 10

> refers to pay comparisons between jobs or skill levels inside a single organization. Jobs and employees’ skills are compared in terms of their relative contribution to the organization’s objectives.

Question 11

What is external equity policy?

Answer 11

> refers to compensation relationships external to the organization ie. comparison with competitors

Question 12

What are employee contribution policy?

Answer 12

> refers to the relative contribution based on performance.

Question 13

What are management policies?

Answer 13

> efers to the fact that the system will not achieve its objectives unless it is managed properly. Management needs to be competent and choose the appropriate forms of pay to include et al.

Question 14

What are pay techniques?

Answer 14

> Pay Techniques are procedures used to implement policy decisions such as job analysis and job evaluation processes and includes wage and salary surveys to establish external equity and incentive plans to distinguish employee contributions.

Question 15

How does society view compensation?

Answer 15

> some people see pay (and benefits) as a measure of justice - example: pay inequalities between men and women.

> Job losses organs in a country is particularly a function of labour costs (and productivity)

Question 16

How do stockholders view compensation?

Answer 16

> some stockholder say using stock to pay employees can create a sense of ownership
others argue that it dilutes stockholder wealth.
stockholders have a particular interest in executive pay
linking pay to company, performance increases, stockholders returns.

Question 17

How do managers view compensation?

Answer 17

> compensation is a major expense that must be managed, it is also a major determinant of employee attitudes and behaviours

Question 18

How do employees view compensation?

Answer 18

> for employees, pay is usually a major source of financial security.
ploys may also see compensation as a return in an exchange, and entitlement for being an employee of the company, an incentive to take/stay in a job and invest in performing well, or as a reward for having done so.

Question 19

What is total compensation?

Answer 19

> total compensation is the pay that is received directly as cash payments, such as base, pay, merit, pay, cost-of-living adjustments, and incentives,

> or it may also be pay that is received indirectly as benefits, such as benefits, vacation, pension, and insurance.

Question 20

What are relational returns?

Answer 20

> Relational returns are psychological, returns, such as recognition and status, employment, security, learning opportunities, and challenging work.

> Nonfinancial returns that substantially impact employee behavior, such as
employment security and learning and developmental opportunities.

Question 21

What is base pay?

Answer 21

Base pay is cash that an employer pays in return for the work performed on the skill or education and employee possesses.

Question 22

What are merit increases?

Answer 22

What are merit increases?> merit increases our increments to base pay based on performance.

Question 23

What is the cost of living adjustment (COLA)?

Answer 23

> cost of living adjustment is made to base pay on the basis of the cost of living.

Question 24

What are incentives or bonuses?

Answer 24

> incentives or bonuses are paid in a lump sum, rather than becoming a part of base bay, based on performance.

> Can be long term or short term.

Question 25

What are three types of benefits?

Answer 25

> Health Insurance
- Health insurance (medical/dental/vision), life and disability insurance

> Pension
- Retirement and savings programs.

> Allowances
- often grow out of short supply
- Example: housing and transportation allowances in China

Question 26

What is a network of returns and how is it created?

Answer 26

> a network of returns is created by different forms of pay, and is useful if bonuses, development opportunities, and promotions all work together.

Question 27

What are the three basic building blocks of the pay model?

Answer 27

> compensation objectives

> The policies that form the
foundation of the
compensation system.

> The techniques that make up
the compensation system.

Question 28

What are compensation objectives?

Answer 28

> Pay objectives guide the design of the pay system and are standards for
judging success.

• Efficiency: improving performance, increasing quality, and controlling
  costs.
• Fairness: both the process and outcomes of pay decisions should be fair.
• Compliance: conforming to federal, provincial and territorial laws and
  regulations.

Question 29

(1/4 policies) - what is internal alignment?

Answer 29

 Refers to comparisons among jobs or skill levels inside a single
organization.

 Pertains to the pay rates both for employees doing equal work and for
those doing dissimilar work.

 Pay relationships affect the compensation objectives of efficiency, fairness and compliance.

Question 30

(1/4 policies) - External
Competitiveness

Answer 30

 Refers to pay comparisons with competitors external to the organization.
 Pay is ‘market driven’.

> Objectives:
 To ensure that pay is sufficient to attract and retain employees.
 To control labor costs to ensure competitive pricing of products/
services.

Question 31

(1/4 policies) - Employee Contributions:

Answer 31

> Refers to how employees are rewarded.

> Understanding the basis for judging performance, helps perceive
pay as fair.

Question 32

(1/4 policies) - management:

Answer 32

Making sure that the right people get the right pay for achieving the right
objectives in the right way.

Question 33

What are pay techniques?

Answer 33

 Techniques tie the four basic policies to the pay objectives.

 Techniques refer to the tools and mechanisms that are used to achieve
the strategic objectives.

 Many variations of pay techniques exist.