Total Compensation (10.4%) Flashcards
Relevant Legislation to Compensation
1) Employment Standards Act
2) Human Rights Legislation
3) Pay Equity Legislation
4) Income Tax Act
5) Employment Insurance Act
6) Canada & Quebec Pension Plans
7) Government Health Care Plans
Employment Standards Act
sets minimum requirements related to compensation (minimum wage, overtime pay) and benefit entitlement (statutory holidays,vacation entitlement, paid rest and lunch periods, paid and unpaid leaves, etc.)
Human Rights Legislation
ensures compensation practices are not discriminatory to protected groups
Pay Equity Legislation
governs “equal pay for equal work” and “equal pay for work of equal value”
ensures that male-dominated job classes and female-dominated job classes of equal value are paid the same
Income Tax Act
governs required “deduction at source” payroll remittances by employers on their employee’s behalf
determines which benefits must be considered taxable benefits and thereby taxed as income
Pg 436 in Strategic Compensation in Canada for status of taxability of benefits
Employment Insurance Act
ensures income in the event of job loss (this topic is dealt with at greater length later in this module)
Canada & Quebec Pension Plans
mandate employee and employer contributions to these plans based upon the employee’s income (dealt with in greater detail later)
Government Health Care Plans
in some provinces require premiums to be deducted by employees
Total Compensation
= compensation + benefits
Intrinsic Rewards
= comes from one’s enjoyment and satisfaction with the “nature” of the work
inherent in job content
Include the following:
- Job Autonomy = the degree of freedom one has for determining how a job is to be performed
- Opportunity for Achievement
- Challenge and Responsibility (although TASK COMPLEXITY is NOT associated with job satisfaction)
- Opportunity for learning and growth
- Task Identity - extent to which someone performs all aspects of the job
- Skill variety
- Task significance = the perceived importance or social value of the task
- Job Feedback = the extent to which the job itself provides feedback on worker performance (i.e. an epee can assess their performance
important but play small part in determination of total compensation strategy
Extrinsic rewards
= come from outside the work or are external to the job
embedded in the job context
Include the following:
- financial compensation
- benefits and prequisites
- physical working environment and conditions
- status
- security
- promotion
total compensation often refers to the provision of extrinsic rewards
Job Enrichment
Process of resigning jobs to incorporate more of the five core dimensions of intrinsically satisfying work
Five Core Job Dimensions:
1) Task identity = the extent to which a worker performs a complete cycle of job activities
2) Task Significance = the perceived importance or social value of a given task
3) Skill Variety = the variety of skills required for task completion
4) Job Autonomy = the degree of freedom workers have in deciding how to perform their jobs
5) Job Feedback = the extent to which the job itself provides feedback on worker performance
Acquired Needs Theory
Needs are shaped over time by experiences (also known as Three-Need Theory or Learned Need Theory)
Most needs fall into 3 categories and people have a tendency towards 1 category:
1) Achievement –> seek to excel and appreciate frequent recognition; avoid low risk activities w/ no chance of gain and high risk where significant chance of failure
2) Affiliation –> seek harmonious rel’p w/ ppl; tend to conform and shy away from standing out; seek approval rather than recognition
3) Power –> want power to control other ppl (for own goals) or achieve higher goals (for greater good); seek neither recognition nor approval from others – only agreement and compliance
Attitude-Behaviour Consistency
Our attitudes (predispositions to behaviour) and actual behaviors are more likely to align if the following factors are true:
- our attitude and behaviour are both constrained to very specific circumstances
- there have been many opportunities to express attitude through behaviour
- we have history of attitude-behaviour consistency
- the attitudes are based on personal experience rather than being copied from others
- the attitudes are proven by past experience
- there is no social desirability bias where the presence of others will lead us into uncharacteristic behaviour
- we are low in self-monitoring so we do not distract
- the attitude is strongly held and is around core beliefs
Attribution Theory
The need to attribute cause that supports our ego. Attribute cause to give greater sense of control. When explaining behaviour, it can affect the standing of people within a group
Internal attribution - when another person has erred, we contribute it to internal factors OR if we have had a success
External attribution - when another has succeed, we tend to attribute causes to situational factors; If we have erred, we tend to attribute the event to situational factors
Attributions sig driven by emotional and motivational drives
Self serving attribution - blaming others and avoiding personal recrimination; defend perceived attacks
people with high need to avoid failure will have greater tendency to make attributions that put themselves in a good light; even tend to blame victims for fate to seek distance
tend to ascribe less variability to other people than ourselves, seeing ourselves as more multifaceted and less predictable than others (may be b/c see more of what is inside ourselves)
Two step process –> start with automatic internal attribution, followed by slower consideration of external attribution; if hurried or distracted, may not get to 2nd step (makes internal more likely)
Cognitive Dissonance
Non-alignment is uncomfortable
The feeling of uncomfortable tension that comes from holding two conflicting thoughts in the mind at the same time.
Dissonance increases with:
- the importance of the subject
- how strongly the dissonant thoughts conflict
- our inability to rationalize and explain away the conflict
Very powerful motivator, which will often lead us to change one or other of the conflicting belief or action. The discomfort often feels like tension btwn 2 opposing thoughts.
To release tension, 3 possible actions:
- change behaviour
- justify our behaviour by changing the conflicting cognition
- justify our behaviour by adding new cognitions
Most powerful when it is about our self-image (feelings of foolishness and immorality are dissonance in action)
If action cannot be undone, then after the fact dissonance compels us to change our beliefs; if beliefs are moved, then dissonance appears during decision making
increases with importance, impact and difficulty of reversing
Cognitive Evaluation Theory
We select tasks based on how doable they are
Evaluate tasks in terms of how well meet needs to feel competent and in control
if think able to complete, intrinsically motivated to complete task w/ no further ext motivation
Internal Locus of Control - feel in control of how they behave
External Locus of Control - believe the environment or others have greater influence over what they do
external rewards may have some degree of control or may be informational, such as where they reinforce feelings of competence and self-determination
when see reward as mostly for control, motivated by gaining reward but not by enacting requested behaviour
occasionally called Self-Perception Theory
Consistency theory
We seek the comfort of internal alignment
When beliefs, attitudes, and values all support one another and are supported by external evidence, then comfort
discomfort of congnitive dissonance occurs when alignment is not met, which leads us to try to achieve max practical level of consistency in our world
strong need to believe consistent w/ social norms; when conflict btwn behaviours and inner systems but consistent w/ social norms, swayed despite inner dissonance
Ways we achieve consistency:
- denial or ignoring
- rationalization and excuses
- separation of items
- transcendence
- changing item
- persuasion
Control Theory
We seek to control the world around us
Deep need for control that often controls us; effort for perfect control can make one miserable
alternative is to see world as series of choices
Negative feedback principle - outcomes compared to intent and used to moderate actions until intent is optimally achieved (negative refers to the difference btwn intent and outcome)
Important consequent is self regulation –> people seen as intelligent, goal-driven individuals who attempt to control activities to achieve goals, objectives, and needs
Disconfirmation Bias
Agreeing with what supports beliefs and vice versa
When people are faced with evidence for and against their beliefs, they will be more likely to accept the evidence that supports their beliefs with little scrutiny yet criticize and reject that which disconfirms their beliefs.
Generally, we will avoid or discount evidence that might show us to be wrong.
Require significant evidence to change beliefs
Drive Theory
We seek to satisfy needs
needs prod us to actions to reduce stimuli by satisfying relevant needs
Drives necessary or needs would not be satisfied
Require perception of needs/stimuli to learn
Primary Drives –> related to basic survival and procreation
Secondary Drives –> related to social and identity factors (less important than survival)
As we act to satisfy needs, we come conditioned and acquire habits and other unconscious forms of responses and reactions
Behaviour changes only if habits are not satisfied, such that drive remains
If enacting of drives is frustrated or driven actions do not satisfy needs, can lead to anxiety and other negative emotions
Endowed Progress Effect
Progress is motivating
progress creates commitment to continued efforts to achieve goal
if feel making no progress, likely to abandon efforts
as get closer to goal, commitment likely to deepen as they strive increasingly harder to achieve success
ERG Theory
We seek to fulfill needs of existence, relatedness, and growth
simplified Maslow’s Hierarchy; seen on continuum than hierarchy
Existence –> lowest level, alive/safe, and foreseeable future; when satisfied, feel safe and physically comfortable; correlate to Maslow’s physiological and safety/security needs
Relatedness –> social needs (rel’p and what ppl think of us); feel a sense of identity and position in society; correlated with Maslow’s belonging and esteem
Growth –> seek growth and being creative (highest level); feel sense of wholeness, achievement and fulfillment; correlate with Self-Actualization
Escape Theory
We seek to escape uncomfortable realities
activities we indulge in help us get away from our lives
can be harmless or potentially dangerous
in effect trying to escape from ourselves or some aspect of our character
Goal-Setting Theory
different types of goals motivate us differently
in order to direct ourselves we set goals that are
1) CLEAR (not vague) and understandable so that we know what to do and what not to do
2) CHALLENGING so we will be stimulated and not bored
3) ACHIEVABLE so we are unlikely to fail
More likely to be motivated to work hard if involved with goal setting (feel we have set or directed the goal ourselves)
Require FEEDBACK to determine if succeeding or whether we need to change direction. Encouraging and motivating. Feedback can be from self too (self talk)
DIRECTIONAL GOAL - motivated to arrive at a particular conclusion; narrow thinking and beliefs that support the conclusion. The lack of deliberations also tends to make us more optimistic about achieving the goal
ACCURACY GOAL - motivated to arrive at the most accurate possible conclusion. These occur when the cost of being inaccurate is high. Ppl invest more effort in achieving accuracy goals as deviations have costs. Their deliberation also makes them realize that there is a real chance that they will not achieve their goal. When we have an accuracy goal we do not get to a “good enough” point and stop - we continue to search for improvements
Both directional and accuracy goals work by influencing our choice of beliefs and decision-making rules
Investment Model
Our commitment depends on how satisfied we are about:
- Rewards and costs and what we see as a fair balance
- A comparison with potential alternative rel’ps
- -How much we have already invested in the rel’p
investments can be financial, temporal (time) or emotion.
investments can thus have a sunk cost effect where person stays in a rel’p simply b/c they have already invested significantly in it
Reactance Theory
discomfort when freedom is threatened
when ppl feel that their freedom to choose an action is threatened, they get an unpleasant feeling called REACTANCE, which motivates them to perform the threatened behaviour thus proving that their free will has not been compromised
Self-Discrepancy Theory
We need beliefs to be consistent
We are strongly motivated to maintain a sense of consistency among our various beliefs and self-perceptions. This causes problems as there are invariably differences between our aspirations for ourselves and our actual behaviours
When the actual experience is somewhat less than we think we can achieve, we tend to feel a pattern of feelings such as sadness, dissatisfaction and other depressive senses. When the experience is less than we feel we should achieve, we experience fear, worry, and other anxieties
Act to reduce dissonance by various means
McGregor’s X Y Theory
impacts of negative vs positive management styles
Two theories of human behaviour at work. Two theories are extremes with whole spectrum of possible behaviours in between. Presents two fundmental approaches to managing ppl. Many mngrs tend toward theory x and generally get poor results. Enlightened mgrs use theory y, which produces better performances and results and allows ppl to grow
Theory X (authoritarian mngmt style)
- the average person dislikes work and will avoid it if he/she can
- therefore most people must be forced with the threat of punishment to works towards organisational objectives
- the average person prefers to be directed, to avoid responsibility, is relatively unambitious, and wants security above all else
Theory Y (participative mngmt style)
- effort in work is as natural as work and play
- ppl will apply self-control and self-direction in the pursuit of organisational objectives without external control or threat of punishment
- commitment to objectives is a function of rewards associated with their achievement
- ppl usually accept and often seek responsibility
- the capacity to use a high degree of imagination, ingenuity and creativity in solving organisational problems is widely, not narrowly, distributed in the population
- in industry, the intellectual potential of the avg person is only partly utilized
Hierarchy of Needs Theory
we are motivated to satisfy needs based on a hierarchy of importance that applies to all human beings
Motivation-Hygiene theory
Intrinsic factors are motivators that influence work motivation and positive job satisfaction
Extrinstic factors are hygiences that influence negative job satisfaction
Two Factor Theory
- Motivators - intrinsic factors related to job content that influence work motivation
- Hygienes - extrinsic factors related to job context that influence job satisfaction only to the extent that if not present then unsatisfied
Job Characteristics Theory (job enrichment)
Indicates that five core job dimensions contribute to intrinsic motivation
- Task identity
- Skill Variety
- Task Significance
- Autonomy
- Job Feedback
Equity Theory
A psychological process where employee’s balance inputs and outputs to gauge fair and equal treatment (according to some equivalent other)
Expectancy Theory
We are motivated by desirable things that we expect we can achieve. If things seem reasonably likely and attractive, we know how to get there and believe we can make a difference, which will motivate use to act to make this future come true
VALENCE - teh value of the perceived outcome (what’s in it for me?)
INSTRUMENTALITY - the belief that if I can complete certain actions then I will achieve the outcome/reward (clear path?)
EXPECTANCY - the belief that I am able to complete the actions (my capability?)
Reinforcement Theory
we are motivated to repeat behaviours that are positively or negatively reinforced and avoid behaviours that are punished
positive reinforcement
negative reinforcement
punishment
Maslow’s Hierarchy of Needs Theory
posits that humans are motivated to satisfy their needs and that these needs are arranged in a hierarchy of 5 levels
indv strive to satisfy lower level needs before progressing to satisfying higher level needs
Moving from lower to higher
- physiological/physical
- safety/security
- social/belonging
- esteem/ego
- self actualization
1) Physiological - the need for air, water, food, exercise, rest, freedom from disease and disabilities)
2) Security - the need for safety, shelter, and stability
3) Belonging - the need for being loved, belonging, social interaction, and inclusion
4) Esteem - the need for self-esteem, power, recognition, prestige; these needs are met through achievement, recognition, promotions and bonuses
5) Self-Actualization - the need for development; these needs are met through autonomy and achievement
Herzberg’s Motivation-Hygiene Theory
Frederic Herzberg, 1960s
workers’ needs can be broken into 2 categories:
1) Hygienes needs
2) Motivational needs
2 categories have substantially different impact on job satisfaction, motivation and work performance
Motivational needs for achievement, interesting work, responsibility, learning and growth, and recognition will lead to job satisfactino
Hygiene needs for good working conditions, decent and equitable pay and benefits, and efficient administrative procedures do not contribute measurably to increased job satisfaction and motivation; fulfillment simply ensures that individual is not dissatisfied or not unhappy
Fulfilling hygiene needs does nto necessarily mean employees will be happy; this comes with motivational needs fulfillment
To motivate epees, mngrs must appeal to motivational needs
Task complexity is NOT a satisfier, but instead can lead to stress if the job is overly complex
Hackman and Oldham’s Job Characteristic Theory (Job Enrichment)
Identifies 5 job characteristics that contribute to intrinsic motivation
1) Job Feedback –> the level of feedback on both quantity and quality that the epee received from the job itself without having to rely external feedback from a superior or colleague
2) Job Autonomy –> the degree of freedom or discretion an epee has in performing his or her job
3) Skill Variety –> the degree to which a variety of skills are required to complete a job
4) Task Significance –> the perceived importance or social value of a job
5) Task Identity –> the degree to which an employee performs a complete cycle of job activities, from start to finish and not just one part of a job
Adams Equity Theory
suggests that employees strive for equity with others both inside and outside the orgsnization and that if they input at the same level as others, they expect to recieve the same level of output
if epees feel that there is equity between their input and output and the input and output of others, then they will be satisfied with their rewards
Distributive Justice –> epees are satisfied when they perceive that overall reward outcomes are fair
Procedural Justice –> refers to the perception that reward determination (process) is far
often difficult to ensure feelings of equity b/c epees have different perception of which inputs and which outputs are most valuable.
Lack of organisational justice and inequity contribute to reward disatisfaction
Distributive Justice
epees are satisfied when they perceive that overall reward outcomes are fair
Procedural Justice
refers to the perception that reward determination (process) is far
Porter and Lawler’s Expectancy Theory
epee motivation is dependent on an epee’s assesment of
1) their own ability to perform successfully
2) the likelihood of their perf being recognized
3) the value of the reward they will receive
INSTRUMENTALITY - will the effort and performance be instrumental in receiving the reward; will performance lead to reward
VALENCE - how strong is the attraction or desire for the reward; is reward valued
EXPECTANCY - belief that one is able to successfully perform proposed action; will effort lead to performance
THE PSYCHOLOGICAL CONTRACT - an expression of an epee’s expectations concerning the compensation rewards that will be provided by the organization if certain performance is achieved
Reinforcement Theory
suggests that people will repeat performances/actions if positively and/or negatively reinforced for doing so.
Two types of reinforcement
1) POSITIVE REINFORCEMENT
2) NEGATIVE REINFORCEMENT
3) PUNISHMENT
4) EXTINCTION
Positive reinforcement
occurrence of a valued behavioural consequence has the effect of strengthening the probability of the behaviour being repeated. The specific behavioural consequence is called a reinforcer; e.g. bonus for meeting sales quota; the administration of a positive reinforcer should make it more likely that the epee will continue to exert the necessary effort in the future
Negative Reinforcement
- results when an undesirable consequence is withheld with the effect of strengthening the probability of the behaviour being repeated; often confused with punishment but punishment attempts to decrease the prob of spec behaviours; negative reinforcement attempts to increase desired beh; positive and negative reinforcement have the effect of increasing the prob that a particular behaviour will be learned and repeated, e.g., decision to not reassign to undesirable area if meet quota; the administration of the negative reinforcer should make it more likely that epee will cont to exert necessary effort in the future
Punishment
attempts to decrease the probability of specific behaviours being exhibited
punishment is the administration of undesirable behavioural consequences in order to reduce the occurrence of the unwanted behaviour
punishment is one of the more commonly used reinforcement theory strategies, but many experts suggest that it should be used only if positive and negative reinforcement cannot be used or have previously failed because of the potentially negative side effects of punishment
e.g. demoting epee for not meeting goals or suspending for violation of rules
Extinction
purpose is to reduce unwanted behaviour
process begins when valued behavioural consequence is withheld in order to decrease the probability that a learned behaviour will continue
likely to result in ceasing of behaviour over time
may alternately serve to reduce a wanted behaviours, e.g. when positive reinforcer is no longer offered
e.g. continually praised for several months and no praise afterwards
to avoid unwanted extinction, mngrs may have to continue to offer positive behavioural consequences
Applying Motivation Theory
1) Compensation as an extrinsic reward is only one element in creating work satisfaction and should be BALANCED with other non-monetary aspects
2) Compensation is a measure of an EPEE’S WORTH - directly in terms of the standard of living they can achieve and indirectly in terms of a symbol of recognition
3) High Levels of compensation will not necessarily lead to JOB SATISFACTION but less than expected remuneration will likely lead to JOB DISSATISFACTION
4) PERCEIVED EQUITY both internally and externally is an important element in the design of any total compensation program
Strategic Compensation
support achievement of org’s goals
align with other HRM areas - recruitment, retention, org structure, job design, succession and career planning, etc. - to reinforce org’l priorities
purpose of comp’n program is to reward and shape behaviour
Essential elements include
- policy
- communication
- equity
- job worth (job analysis, job design, and job evaluation)
Policy
Critical to create overall compensation policy outlining purpose and underlying principles of program
First step –> understand the organization, its employees, and the nature of work
Policy therefore should be concerned with:
- the org’s goals
- the desired epee pop’n charac. and competencies
- work that is being performed
- beh/skill/perf goals to be achieved by program
- comparative labour market
- the desired competitive compensation placement within that market (usually expressed as a percentile match)
- the role equity will play in determining compensation
- the role of performance, service/seniority etc in determining compensation
- the degree of opennes and transparency in communicating the program
- a means of measuring and containing costs
- a means of measuring the other elements of program success
Communication
perception plays an important role of success of a compensation program
v. important to effectively communicate the components of the program
key elements
- transparency
- epee involvement
- openness
Equity
beyond legal requirements, the achievement of internal and external equity are vital concerns for an effective total compensation program
equity involves establishing job worth and aligning that worth with the competitive marketplace
Job Worth
fundamental to the development of a total compensation program is the determination of the worth of the job to the organization, which in turn leads to the amount of compensation provided to the job incumbent
Main activities are
1) Job Analysis
2) Job Design
3) Job Evaluation
Job Analysis
Involves the collection of all info pertaining to a job in order to determines its duties, tasks, and activities and results in the creation of a job description
job description generally includes:
- job purpose
- job context
- types of duties and responsibilities
- KSAs required
least common feature found in job description is the list of job performance standards
information generally collected through interviews, observations, questionnaires, journals and diaries
Types of Job Analysis Methods
1) Position analysis questionnaires (PAQ)
2) Structured Job Analysis questionnaires or inventories
3) Critical incident technique
4) Task inventory analysis
5) Competency-based Analysis
6) Worker trait inventories
7) Job element method
8) Flesihman job analysis survey
9) Functional Job Analysis
Position Analysis Questionnaires (PAQ)
quantifiable data collection method covering 194 different worker-oriented tasks
focuses on the general behaviours that make up a job by organizing job elements into 6 dimensions
- information input
- mental processes
- work output
- relationships
- job context
- and other characteristics
PAQ is best suited for assessing lower level jobs!
Disadvantage –> requires a college-level reading comprehension to complete it properly
Structured Job Analysis questionnaires or inventories
workers and other subject-matter experts respond to written questions about the activities and tasks, tools and equipment, and working conditions involved in their jobs
Critical Incident Technique
job analysis method that generates behaviourally focused descriptions of work activities based on the use of critical incidents that occur in the performance of the job
Task Inventory Analysis
a task-oriented analysis using a task inventory questionnaire that is customized to each organization (as opposed to PAQ which is standardized)
Competency-based Analysis
jobs are defined in terms of tasks, duties, processes and skills necessary for job success with a focus on identifying the key competencies for organization success.
This approach is a more realistic approach in today’s environments of constant change and technological advances
Worker Trait Inventories
focus on the traits required of job incumbents based on the job analysis data
Sometimes referred to as THRESHOLD TRAITS ANALYSIS SYSTEMS
Job Element Method
is a work oriented method focused on the human attributes needed for superior performance, used to match what epees can do against what the work calls for
Fleishman Job Analysis Survey
is a system for identifying epee characteristics taht influence job performance and assumes that job tasks differ with respect to the abilities required to perform them successfully
Functional Job Analysis
quantitative approach to job analysis that originally examined three broad worker functions
1) data
2) people
3) things
More recent functional job analysis methodology also includes an examination of worker instruction, reasoning, math and language
Job Design
process of assigning tasks, duties, responsibilities, and authority inherent in a job in order to achieve the desired results
the design and organization of jobs can have a major impact on epee motivation and performance
Design also has impact on the determination of job worth in that “enriched” or “enlarged” jobs inherently have more worth from a compensation perspective
Job Evaluation
Process used to establish INTERNAL worth of jobs
if systems are either “whole job” evaluations or ones based upon compensable factors (e.g. scope, responsibility, task complexity, and skill requirement)
Job Evaluation Systems
1) Job Ranking
2) Job Classification/Grading
3) Point Factor
4) Factor Comparison
Whole Job Evaluation Systems
Job Ranking (simple ranking, alternate ranking, or paired comparison)
&
Job Classification/Grading
Job Evaluation Systems using Compensable Factors
Point Factor
&
Factor Comparison
Job Ranking
Simplest, oldest, and most common form of job evaluation is non-quantitative “whole job” method
1) simple ranking
2) alternate ranking
3) paired comparison
Attractive due to simplicity
Disadvantage of not meeting pay equity legislation requirements
Simple Ranking
listing jobs from highest to lowest worth
JE method
whole job method
Alternate Ranking
ranking highest and lowest first and then next highest and next lowest, etc.
JE method
whole job method
Paired Comparison
ever job being compared to every other job to form hierarchy
JE method
whole job method
Job Classification/Grading
Non-quantitative “whole job” method that involves predefined generic levels of compensable factors and comapres whole job in terms of these factors against BENCHMARK POSITIONS and ranks them accordingly
Benchmark Job/Position
a job in the firm’s job evaluation system for which there is a good match in the labour market data
Point Factor
quantitative method where compensable factors are defined in “degrees” or levels; points are assigned to each degree level
job worth is reflected in the total number of points awarded to the job
generally use:
- effort
- working conditions
- responsibility
- skill
Factor Comparison
quantitative “compensable factor” method
extension of the job ranking method, whereby each job is ranked on every factor and plotted on a matrix against wage rate assigned for each factor
Compensable factors
characteristics of jobs that are valued by the org and differentiate jobs from one another
Establishing a Salary Structure
1) Evaluate Jobs
2) Conduct Market Matches
3) Price Jobs
4) Create Market Wage Curve
5) Assess Current Wage Curve
6) Integrate Internal Equity and Market Rates
7) Create Wage Ranges (est’g min, max, and control points)
8) Create Job Grade Structure (e.g. absolute point spreads, percent point spreads, fixed or increasing point spreads)
9) Create Pay Range Structure (e.g. mid-point to mid-point differentials, range depth; range overlap)
10) Job Evaluation Determines Pay Grades
11) Market Analysis determines Pay Ranges
Create Pay Range Structure –> mid-point to mid-point differentials, range depth; range overlap
typical midpoint differentials:
- 5-10% for clerical
- 8-15% for professional and management
- 15-20% between supervisor and subordinates
promotion policies affecting the capping of adjustments should align with mid-point to mid-point differentials
traditional range depth is midpoint + 20% and midpoint - 20% resulting in a 50% spread; however, more and more organizations are deviating from this standard, resulting in unbalanced range spreads (e.g. midpoint +10% and midpoint - 20%)
midpoint progression is lower for jobs at lower grades (e.g. 10%) and higher for jobs in higher grades (e.g. 20%)
Job Evaluation Committees
involve individuals who bring a wide range of perspectives to the evaluation process
they increase the credibility, fairness, and accuracy of the evaluation process because they involve employees who are familiar with the work
Job Evaluation Process
includes
1) Identifying benchmark positions
2) identifying compensable factors that will be used to determine the value of the position
3) evaluating the position using the agreed system
Salary Surveys
play an important role in that the information contained in them is used to determine external pay equity
normally, the survey information is related to benchmark jobs and includes:
- actual mean and median pay
- variable pay eligibility and targets
- actual total salary compensation
- pay ranges and target rates of pay
- benefit and perquisite entitlements
important considerations when reviewing surveys:
- industry and sector (public or private)
- location
- size of org and unionization
can conduct own salary surveys or purchase from reputable survey provider
when choosing a survey, consider
- how current the data is
- the “fit” of the job match
- survey sample size
- cost
- reputation of the survey organization
Conducting a salary survey
1) Define the jobs to be surveyed
2) determine the information to be collected
3) determine the source of the information (e.g. who to survey)
4) collect the information
5) analyze the information relative to the org’s compensation philosophy
Market Wage Curves or Lines
graphical representation of salaries in the labour market
vertical axis - salary levels
horizontal - lists benchmark jobs or salary grades with survey information being posted on the graph
Current wage curves or lines
existing organizational salaries are created and compared with the market wage curve information
Wage Ranges
developed for the benchmark positions, with minimum, maximum, and control points
traditional range depth for mid-level of senior-level positions is midpoint +20% and midpoint -20%
entry level positions - range is typically smaller (e.g.g midponit plus/minus 10% or 15%)
See page 155 for typical graphical representation of a salary structure showing market and current wage curves and wage ranges for each salary grade
Pay Scale / Pay Structure
is a collection of grades defining the ranges
Pay Grade
is a classification assigned to identify a job or jobs of similar worth as determined through job evaluation or simple market matching
Range Minimum, Midpoint, and Maximum
are the lowest, middle, and highest wage rate for a particular grade
Range Spread/Height
is the percentage difference between the grade minimum and maximum wage or salary
Calculate a Pay Range Spread
= (Maximum - Minimum) / Minimum
Calculate Pay Range Minimum
= Midpoint / [1 + (.5 x spread)]
Calculate Pay Range Maximum
= Midpoint + (Midpoint - Minimum)
Hackman and Oldham’s Job Characteristic Model
Core Dimensions –> Psychological State
Skill variety, task identity and task significance –> meaningfulness of work
Autonomy –> responsibility for outcomes
Job Feedback –> knowledge of results
OUTCOMES
- high intrinsic motivation
- high job performance
- high job satisfaction
- low absenteeism and turnover
Range Overlap
the degree to which the maximum rate of a lower grade overlaps the minimum rate of the next highest grade
Midpoint progression/Inter-grade Differentials
the spread between midpoints of consecutive grades
Maturity Curve
graphical representation showing the relationship between the wage rate and number of years of experience for identified occupational groups
more commonly used for professional groups, e.g. engineers, professors, research scientists
Job Rate/Control Point
the target wage rate when the job is being performed in a fully satisfactory manner
usually the midpoint or at the top of the range
(top when seniority involved - generally)
Split Pay Scale
occur when seniority increases are provided up to the control point and merit increases are given beyond the control point
Compa-ratio (Compensation Cost Ratio)
the position of an actual wage, shown as a percentage, compared to the control point for the range
the percentage can be greater or less than 100 depending upon whether the actual salary is above or below the control point
FOR AN INDIVIDUAL::
compa-ratio = Salary / Control Point
FOR A GROUP IN ONE PAY GRADE:
compa-ratio = average salary / control point
FOR A GROUP IN A DIFFERENT PAY GRADE (i.e. for a dept):
compa-ratio = the average of individual compa-ratios
Steps (stepped salary structure)
predetermined salary progression/increase points and are most often used in seniority based systems
Leading/Lagging Position
describes whether the organization wants to lead or lag the industry in making wage and range adjustments
involves “aging” the market data to a specific point in time
Progression
movement through a pay range
Merit Pay increases
occurs when progression through salary range is based on performance
Red Circle
is a term applied to a corrective measure that freezes an actual wage if it is above a range max
the “red circled” salary remains frozen until changes in the wage curve and ranges bring it within the range
Green Circle
is a corrective measure designed to advance or accelerate an actual wage that is below the range minimum
Base Pay
is a term denoting pay that is not “at risk”
Two-tiered Pay Scheme
cost cutting/containment measure whereby the salary range for new employees is lower than that of existing employees in the same job
Cost of Living Differentials
supplemental pay amounts provided to compensate employees for different living costs due to economic and/or geographic conditions
Broadbanding
type of pay scheme that has a reduced number of pay grades with wider ranges or “bands”
Advantages –>
assists in flattening large, hierarchical organizations
encourages epees to broaden their skills
allows for more flexible workforce and org
de-emphasizes promotion
Disadvantage–>
some find that it diminishes the distinctions made through point-factor job evaluation, as jobs with varying point factors are assigned to the same grade
as a result, some org abandon their job evaluation systems when introducing broad banding
also, broad banding can lead to inconsistencies across depts and favoritism increasing pay
thus, losing control of ensuring fair and equitable pay
Skill-based Pay
involves paying for skills or how many jobs one can perform rather than paying for the worth of the job
Hybrid Pay Plan
a blend of compensation elements that reflects the strategy of the organization by varying across…
employee groups (i.e. entry level vs. professional staff)
OR
compensation components (i.e. base pay, variable pay and indirect pay)…
in terms of leading or lagging the market
e.g. may lag in base salary (direct pay) but lead in variable pay (bonuses)
Salary Compression
occurs when salaries paid to inexperienced epees bump up against those paid to experienced epees
most often occurs in tight labour markets and/or unionized situations
Variable Pay
salary provided for productivity, profitability or some form of performance
includes incentives, bonuses, commissions, etc.
when considering variable pay plays it is important to consider whether they should be based on individual or teram performance
Questions that need to be considered include:
- is indv performance variable?
- is individual perf w/in control of the indv?
- are there any negative side effects to team cohesiveness to introducing a plan based on individual performance
Questions for determining team vs. indv variable pay
- variability of indv perf
- control over indv perf
- adverse effects to team cohesion
Pay at Risk
applies when a portion of pay is at risk subject to org perf and is another way of describing variable pay
Pay for Performance
is compensation based on the achievement of agreed levels of perf (indv, team, or org)
Split Award
occurs when an indv’s bonus is determined by individual, team, and/or org perf
Line of Sight
term that describes the degree to which epees can see the connection between their perf and the rewards they receive
Incentives
within notion of variable pay
can be short term or long term
can be based on idv, team, or org perf
Individual vs. Team Incentives
important that indv can control their perf outcome
when not possible, result is more often due to the interdependent efforts of a group, then team incentives are more important
Short Term Incentive Plans
involve variable pay schemes that financially reward and reinforce epees for perf or other meritorious conduct within a period of one year or less of the performance or conduct
Types of Short Term Incentive Plans
1) Spot Bonuses
2) Merit Bonuses
3) Profit Sharing (cash plans and deferred plans)
4) Commissions
5) Piecework (straight and guaranteed piecework)
6) Gain Sharing (scanlon plan, rucker plan, improshare)
7) Standard Hour Plan
Spot Bonuses
form of recognition given to individuals or teams at the discretion of management
usually unannounced and therefore unexpected; therefore, do not typically shape behaviour
Merit bonuses
usually part of a formal compensation program and often formula driven dependent either on individual, team, division or org performance or a blend of all four
traditionally merit bonuses are provided at the management/professional levels
Profit Sharing
dependent on the profitability of the org and not necessarily on indv form
can either be
- cash plans
- deferred plans (deferred profit sharing plans)
Cash Plans (profit sharing)
paid out on a quarterly, semi-annual or annual basis
Deferred plans (deferred profit sharing plans or DPSPs)
bonuses are not paid out as cash but are held in trust for epees
thereby having certain tax advantages
payout comes at retirement or when epee leaves the org
Commissions
normally provided to sales people and are dependent upon sales volume
Piecework
provides compensation based on the number of nits created or processed in a given time period
Can be
- straight piecework
- guaranteed piecework
Straight piecework
set of amount is paid for each piece/unit
Guaranteed piecework
guaranteed minimum wage enhanced by straight piecework for a number of pieces produced above a certain minimum
Gain Sharing
takes place when productivity and performance gains are shared with epees on the bases of an agreed formulas
Scanlon plan
Rucker plan
Improshare
Scanlon plan
early version of gain sharing which uses suggestions and participative committees and where profit sharing awards are calculated using payroll costs and revenue results (most common gain sharing plan, often used in unionized environments
Rucker plan
another version of gain sharing
benefits are determined by dividing payroll costs by sales value (total sales minus materials and supplies)
Improshare
gain sharing plan that does not involve epee participation and is based on the creation of departmental production standards that are used as basis for calculating bonuses
Standard Hour Plan
based on a worker receiving a bonus for exceeding the performance standard, calculated as a percentage of his/her hourly wage, and equivalent to the degree to which teh perf std was exceeded
Long Term Incentive Plans
have been traditionally provided to top management to emphasize the long term perf in terms of increased share value or what is sometimes referred to as capital/equity accumulation or appreciation
Common Types of LT incentive plans
1) Employee Stock Options (ESO)
2) Employee Share Purchase/Stock Ownership Plans (ESOPs)
3) Performance Share Plan
Capital Appreciation
rise in value of assets based in rise in value of market price
Employee Stock Options (ESO)
provide the holder of the option with the right to purchase company shares at an agree or STRIKE price sometime in the future
Cliff
the date when epee can begin to exercise options
Grant
the number of options provided at a particular strike price
Vesting
the date at which the epee can receive the monetary benefit from the options
Exercise
the action of using the option to buy stock
Sell
the selling of stocks
Term
the expiry date of the option after which the epee can no longer exercise the option
Black Scholes
method often used to determine the value of a stock option
Employee Share Purchase / Stock Ownership Plans (ESOPs)
allow epees to purchase stock, normally through payroll deduction, at current market prices and without having to incur brokerage fees
Performance Share Plans
bonuses are paid out in the form of company shares
Trends in Variable Pay/Incentive Programs
becoming more popular at all levels in past decade b/c of perceived impact they have on motivation and b/c they are onlypaid out if acceptable profits and perf occur
for plans to work successfully, they must be carefully designed to ensure they do not result in epees focusing on one element of perf (e.g. short term profits) at the expense of other important perf criteria (e.g. LT quality)
also they require valid and reliable perf measurement systems to be effective
Executive Pay Plans
often directly link the org’s leaders to the success of the org
the goals of the org will directly affect the compensation of the executive’s plan
e.g. their pay plan will have different triggers if the org values market share over profitability or perhaps quality of product over gross margin
if it is publically traded organization, often compensation is tied to the value of the org’s stock, since this reflects the management competency of the executive team
Types of Executive Pay Plans
1) Book Value Plans
2) Stock Appreciation Rights
3) Restricted Stock
4) Phantom Stock
Book Value Plans
are form of stock option plans where the purchase price of the option is based on the book value of the company
under these schemes epees can purchase stock at an agreed book value and sell them at market value
Stock Appreciation Rights
grant eligible employees an award equal to the increased market value of an assigned number of shares of the org’s stock
Restricted Stock
stock that is granted to epees but has certain restrictions placed upon it in terms of when and how much it can be sold for and may also not have shareholder voting rights
Phantom Stock
as the name implies, epees are assigned an amount of “phantom” shares in the org at a current price
their bonus is determined by the increase in the value of those shares as measured by the performance of actual shares
defers benefits of share ownership without actually giving them any company stock
Two fundamental kinds of employee benefit programs
- legally required
- voluntarily provided by employer
Legally Required Benefits
- Employment Insurance (EI)
- Canada/Quebec Pension Plan
- Workers Compensation
- Government Healthcare Plans
- Paid Leave
- Unpaid Leave
- Maternity/Paternity/Parental/Adoption Leave
Employment Insurance
Federal program providing weekly income benefits to individuals who are unable to work through no fault of their own
Important elements of EI:
- funded by epee and empr contributions
- emprs contribute 1.4 x the epee contribution
- Empr contributions are decreased when sick leave plans exist
- does not apply to self-employed individuals
- epees are not eligible if they resign or are terminated with cause
- waiting period is triggered following unemployment; usually 2 weeks
- severance pay and holiday pay extend the trigger of the waiting period
- eligibility varies by geographic region, requiring an individual to be employed and covered for amin number of hours during a min number of weeks
- unemp’t benefit is often 55% of average earnings for last 20 weeks of emp’t (the qualifying period) and payable for up to 45 weeks
- to receive benefits, indvs must be able to show they are actively looking for work
- part-time work while on benefits is accommodated. Earnings of over 25% of EI benefits are deducted from benefit
- Provides sick leave benefit of 15 weeks
- benefits are provided for maternity/parental leave of up to 50 weeks
- provides compassionate care benefit of six weeks in the event of a family member diagnosed as terminally ill
SUPPLEMENTAL UNEMPLOYMENT BENEFTITS (SUB) can be provided by emprs, enabling epee to receive benefit “top ups”. These are most often found for maternity leave and sometimes in industries where heavy layoffs occur (e.g. manufacturing)
WORKSHARING programs allow epees to work a shorter work week and receive EI for reduced hours
Canada/Quebec Pension Plan
provides:
- retirement benefits
- survivor/death benefits to dependents
- disability benefits
Canadians - including self-employed individuals - between the ages of 18 and 65 are covered. Contributions and benefit determination are based on “maximum pensionable earnings” - a figure calculated from the average industrial wage
Workers Compensation
covered in detail in the module on occupational health and safety
government health care plans
may require employer contributions, epee deductions at source and remittance, depending upon the jurisdiction
Paid Leave
such as statutory holidays and min vacation entitlement
required by employment standards legislation
Unpaid Leave
particularly for educational purposes
may be required by employment standards legislation
Maternity/Paternity/Parental/Adoption Leave
has different provisions, depending upon the jurisdiction
Discretionary benefits
beyond what is required by law and can be extensive
include
- Paid vacation
- Sabbaticals
- ST diability/illness salary continuation plan (STD)
- LT disability insurance (LTD)
- Extended or supplemental medical coverage
- dental plans
- Retirement or pension plans (defined benefit or defined contribution)
- Registered retirement savings plan (RRSP)
- Deferred Profit-sharing plans
- Life insurance premium payout
- Accidental death and dismemberment
- Employee and family assistance programs (EFAP)
- Personal services
- Perquisites or “perks”
Paid vacation
beyond what is required by employment standards legislation
Sabbaticals
leaves that are unpaid, partially paid, or paid through deferred income
Short-term Disability/Illness Salary Continuation Plans (STD)
provide part or all of an epee’s earnings while away on sick leave
plans can be insured, administered through a third party (called ADMINISTRATIVE SERVICES ONLY (ASO)), or self-funded
Long-Term Disability Insurance (LTD)
usually provides from 50% to 70% of income with a waiting period (typically 120 days during which employees are covered by a combination of STD and EI).
LTD is a taxable benefit if the empr pays the insurance premium BUT not taxable if epees pay premiums
Due to unlimited liability of LTD, these programs are insured (as opposed to self-funded like sick leave or STD programs)
They also involve RETURN-TO-WORK PROTOCOLS, MODIFIED WORK DUTIES, WORK HARDENING and ACCOMMODATION issues
Extended or Supplemental Medical Coverage
provides medical cost reimbursement for health care costs not covered by provincial government programs.
These plans can be managed on a premium basis with group plans “POOLING” individual organization’s EXPERIENCE RATING to determine premium rates
A variation of these plans is HEALTH SPENDING ACCOUNTS that allow organizations to cap the amount of money per epee that they will be required to spend
As a cost-sharing and cost containment strategy, DEDUCTIBLES and ALLOWABLE MAXIMUMS are commonplace
Dental Plans
include a deductible amount and cost coverage for, in most cases, four types of care:
- preventative/diagnostic
- minor restorative
- major restorative
- orthodontics
in large organizations, dental plans are often “self funded”
Retirement or Pension Plans
Different Forms
- defined benefit
- defined contribution
Defined Benefit Pension Plan
where the payout in the form of a monthly amount is based on a defined formula, usually between 1 and 2 % of monthly salary at retirement for each year the employee was a member of the plan up to a maximum percentage
E.g. 2% x Best 5 year average earnings x years of service
Defined Contribution Pension Plans
where there is not an agreed payout amount but there is an agreed amount that is contributed to the plan
these plans are sometimes referred to as CAPITAL ACCUMULATION PLANS
RRSP plans are defined contribution plans
Terms related to pension administration
- Vesting
- Portability
- Commuted Value
Vesting
means that the epee has the right to the retirement benefits once they have been members of the plan for a specified period of time - usually two years
upon vesting, all contributions are considered to be locked-in
Portability
refers to the ability for the funds to be transferred to another plan when an individuals shifts from one plan to another, or upon termination when an actuarially calculated amount (called a COMMUTED VALUE) is established - the amount that is transferred or paid out to the terminating employee
Commuted Value
refers to the amount of money that needs to be set aside today in a defined benefit pension plan, at a current market interest rate and give the plan’s actuarial assumptions, in order to provide sufficient funds to pay for a pension when a plan member retires
Registered Retirement Savings Plans (RRSP)
a form of defined contribution plan that may or may not involve empr contributions
epee contributions to defined benefit, defined contribution, and RRSP plans are tax deductible in the tax year the contribution is made, with taxes paid when the benefit is withdrawn or paid out to the epee
Deferred profit-sharing plans
form of defined contribution plan that provides a means for the empr to contribut a portion of profits to an epee’s retirement fund w/o triggering a taxable benefit to the epee
Life Insurance Premium Payment
taxable benefit if paid by the empr and non-taxable benefit if paid by the epee
premium most often paid for by the epee converting it to a tax friendly benefit
designed to provide lump-sum payment to survivors in the event of an epee’s death
Accidental Death and Dismemberment
premium payment provides for a lump-sum benefit when death is accidental or individual is dismembered
Employee and Family Assistance Programs (EFAP)
covered in greater detail in Occupational and Health and Safety
Personal Serivces
include things such as employee credit unions, day care subsidies, meal vouchers, financial services, convenience services, such as care detailing or dry cleaning, etc
Perquisites or Perks
term that applies to a plethora of epee (usually executives) benefits and can include - company cars - private club memberships - medical examinations - tax counseling - access to special facilities (e.g. private dining room or corporate jet) - subsidized mortgages - reserved parking spots etc
Benefit Design Considerations (BRIEF)
need to be aware of a number of benefit design considerations
most important
- company’s overall compensation philosophy
- affordability and funding
- risk tolerance
- self insurance
- ASO
- STOP LOSS provisions (that limit the organization’s benefits liability exposure through the purchase of insurance specifically to cover catastrophic situations
important consideration - tax implications on epees
Taxable benefits
include payment of provincial health and life insurance premiums and most perquisites
tax “friendly” or tax “favourable” benefits include:
- supplemental health, dental coverage and AD&D
- LTD and life insurance (if premiums paid for by epee)
Benefit Design Considerations
1) What is the company’s overall compensation philosophy?
2) What is the company’s demographic profile?
3) What do employees want?
4) What level of benefits can the employer provide?
5) Will the plan be fixed or flexible (cafeteria style benefits)?
6) What percentage of the total compensation program does the benefit plan comprise?
7) What is the competitive market place providing?
8) Who is eligible?
9) What is the best funding arrangement given company size, demographics and risk tolerance?
10) What will be covered?
11) Will there be employee contributions?
12) What are the tax implications?
13) Where can benefits be integrated?
[ST disability, LT disability , epee and family assistance programs, medical benefits, physical workplace environment, proactive health education, ergonomics and safety training, and employee communication can be integrated to reduce absence and illness, and improve epee health,morale and capabilities]
Types of Benefit Funding Models
1) Fully Insured - Pooled, Non-Refund/Non-Participating, and Refund/Participating
2) Self-Insured Plans - administrative services only, minimum premium plan, and self-administered/self adjudicated
Fully Insured Plans
1) Pooled
- large pool
- stop loss (claims above agreed upon max are pooled; lower prem b/c risk up front)
- duration pool (claims beyond set time-line are pooled); self fund is 1st year
- incident pool (only claims for specific incidents are pooled)
2) Non-Refund/Non-Participating
- partially experience rated
- premiums track emerging claims
- surpluses not refunded
- deficits are not recovered
3) Refund/Participating
- fully experience rated
- premiums track emerging claims
- surpluses and deficits tracked
- surpluses are refunded and insurer assumes deficits
Self Insured Plans
1) Administrative services only (ASO)
- employer assumes total risk
- org funds own epee benefit program but hires outside firm to perform specific administrative functions (e.g. evaluate and process claims)
2) Minimum premium plan (MPP)
- employer self-insures a fixed percent of estimated monthly claims with insurer insuring the excess
3) Self-Administered / Self-Adjudicated
- ASO with employer maintaining all records and adjudicating provision of benefits
Flexible Benefit Plans
also known as cafeteria plans
allow epees to select from a menu of benefits using a defined number of points or dollars that have been provided by empr
involving epees in this way is an advantage as it strengthens their understanding and appreciation of the value of a benefit plan
opposit of a flexible benefit plan is a fixed benefit plan
when benefits under flexible benefit plan are insured, the premium charged for the benefit is higher since the utilization rate is also likely to be higher given that only the epees who wanted the benefit choose it
introducing flex benefit plans is also a good way of capping benefit costs, since increases in premiums are not necessary accompanied with increased points or dollars provided to epees to make their benefit choices
Health Spending Accounts (HSA)
Health Spending Accounts are self-insured Private Health Services Plans (PHSP) arranged by employer for their epees in accordance with Revenue Canada guidelines for providing this benefit.
Rising Health Benefit Costs Containment Strategies
due to rapid increases in benefit costs, org have opted for variety of containment strategies
1) imposing caps and reducing maximums on specific benefits
2) increasing deductibles
3) increasing cost-sharing arrangements through epee co-payment
4) covering only a restricted list of drugs or generic brand drugs only
5) Reducing coverage for spouses and/or dependents
6) eliminating benefit coverage on some items
Epee education, provision of health work environment, EFAPs, work life balance initiatives and rewards programs are other ways in which org have endeavored to cut benefit costs
benefit administration can be done in house or out sourced; evaluation of benefits is best done by external experts
Trends in Total Compensation
1) Employers moving away from entitlement based rewards in favour of performance based rewards
2) Remuneration being less about tasks or responsibilities and more about skills and results
3) Employers pushing more risk onto the epee (e.g. increased variable pay or moving from a defined benefit to a defined contribution pension plan)
4) Moving away from paternalistic or prescribed toward empowered and providing choice (e.g. flexible benefit plans or health spending accounts)
