Total Rewards Flashcards
What are Total Rewards?
- A cluster of competencies related to the management of rewards within an organization in a manner that maximally supports the execution of organizational strategy
- everything an employer provides that provides value to the employee.
- Each organizations rewards program is unique. Needs to support the companies organizational strategy.
What is the goal of a total rewards strategy?
- The objective of a total reward program is to shape employee behaviour
The goal is to increase:
1. Membership Behaviour
2. Task Behaviour
3. Organization Citizenship Behaviour
Attract, Retain & Motivate Employees
What is Membership Behaviour?
- Candidates want to join your organization and employees want to stay.
What is Task Behaviour?
- Employees do the tasks that are assigned to them.
What is Organization Citizenship Behaviour?
- Employees are motivated to support the success of the organization
What are Intrinsic Rewards?
relate to job content or job design( feelings a person gets that gives them a sense of self-worth and satisfaction. Providing challenging work that helps them grow will help with self-esteem.)
What is Task Identity?
doing the whole job, able to perform all aspects of a job
What is Task Significance?
social value, how their efforts have a positive impact on others
What is Skill Variety?
utilizing many skills
What is Job Autonomy?
freedom to act, determine how to perform their tasks
What is Job Feedback?
self monitoring, directly monitor their own performance
What is Job Enrichment?
is a strategy used to motivate employees by giving them increased responsibility and variety in their jobs. The idea is to allow employees to have more control over their work. By doing so, one can tap into their natural desire to do a good job and contribute to the overall goals of the company
What are Extrinsic Rewards?
- relate to job context, all the things of value that surround the job
- Monetary Rewards/Direct Pay
- Base Pay, salary and all the
cash components - Performance Pay
- Merit Pay
- Short-term Incentives
- Long-term Incentives
- Base Pay, salary and all the
- Monetary Rewards/Direct Pay
What are examples of indirect pay?
- Health and Welfare Benefits
- Retirement Plans
- Time off with Pay
- Perquisites & Employee Services (Ex: cars, clubs, education reimbursement)
- Working Conditions
- Supervisor Behaviour
- Co-Workers
What is Compensation Strategy?
- Determines external competitiveness
What is part in the Internal Environment?
- Sector
- Growth Strategy
- Competitive Strategy
- Culture
- Demographics
- Unionization
- Nature of Work
What is part in the External Environment?
- Economy
- Labour Force
- Competition
- Regulatory (ex: min wage)
- Employment Standards
- Pay Equity
What are the 2 main theories of motivation?
- Content Theories of Motivation: suggested human motivation is motivated by a persons need, economic and social needs
- Process Theories of Motivation: focus on processes people use to decide their actions, are employees understanding of the consequences of their actions
What are the Content Theories of Motivation?
- Maslow’s Hierarchy of Needs
- Herzberg’s Two-Factor Theory
- Hackman’s and Oldham’s Job Characteristics Theory
What are the Process Theories of Motivation?
- Reinforcement Theory
- Expectancy Theory
- Equity Theory
What does Maslow’s Hierarchy of Needs entail?
- satisfy their most basic needs before their psychological and fulfillment needs
- more common in low paying jobs
- Ex: a client of mine whose workforce was comprised of minimum wage cafeteria workers. Asked if they prefer a vacation or cheque and they preferred the cheque. At an engineering firm is would most likely be different
- lower salary employees are most likely to work overtime
In Maslow’s Hierarchy of Needs what are the basic needs?
- Security needs: safety, shelter & safety
- Physiological needs: food, water, warmth
In Maslow’s Hierarchy of Needs what are the Psychological needs?
- Eco Needs: self-esteem, accomplishment, recognition
- Belonging Needs: love, social connection, acceptance
In Maslow’s Hierarchy of Needs what are the Fulfillment needs?
- Self Actualization: creative fulfillment, satisfaction with reaching one’s potential
What is Herzberg’s 2 Factor Theory?
- suggests money is not a motivator
- people love their job because it is interesting and challenging and enables them to grow, however, pay could lead to job dissatisfaction if insufficient.
- design of a total rewards program should enhance job satisfaction
- overpaying people won’t lead to job satisfaction but underpaying them will leave them to feel undervalued and increased job dissatisfaction
What is Hackman & Oldham Job Characteristics Theory?
- focuses on intrinsic motivation
- job design is an important element in a total rewards program
- may accept slightly lower pay to have more job satisfaction
- job enrichment occurs when intrinsic job characteristics are increased
- Employees will expect to receive higher monetary rewards for their higher performance.
- Job Enrichment occurs when these job characteristics are increased: Skill Variety, Task Identity, Task Significance, Autonomy, Feedback
What is the Reinforcement Theory?
- employees will repeat certain behaviours if as a result of doing something, they will continue to perform to those standards
- merit adjustment or bonus for good performance is an example of positive reinforcement
- removing a discipline letter from an employees file after showing improvement is an example of negative reinforcement
- punishment and extinction may be necessary to decrease undesirable behaviour, they don’t necessarily drive high performance
In Reinforcement Theory what is Positive Reinforcement?
- Positive outcomes are provided for positive behaviour.
- This increases positive behaviour.
In Reinforcement Theory what is Negative Reinforcement?
- negative outcomes are removed for positive behaviour
- Increases Positive behaviour
In Reinforcement Theory what is Punishment?
- Negative outcomes are provided for negative behaviour
- Decreases negative behaviour
In Reinforcement Theory what is Extinction?
- Positive outcomes are removed for negative behaviour
- Decreases negative behaviour
What is Expectancy Theory?
- employees will work harder if they believe their efforts will lead to the outcome they desire
- when designing an incentive program, very important to ensure goals are achievable and rewards are sufficient and desirable
- Instrumentality: degree to which performance will lead to an outcome that will trigger a reward
- Valence: measures how desirable that reward is to the employee
- employees will be more motivated to work harder if they believe their performance will be successfully and rewarded effectively
What is Instrumentality?
degree to which performance will lead to an outcome that will trigger a reward
What is Valence?
measures how desirable that reward is to the employee
What is Equity Theory?
- employees will be demotivated if they believe the rewards they received underrepresent the value they contribute
- employees need to perceive that their rewards are fair, taking into the contribution they are making and what others are making
- want to know their effort is fairly rewarded
- similar pay to others doing similar work
- similar opportunities to promotions
- Procedural and Distributive Justice
What is Procedural Justice?
the method used to determine rewards to be fair
What is Distributive Justice?
the value of the reward to be fair, equity theory underlies the importance of communication
What is the process for establishing Job Worth?
- Job Analysis
- Job Description and Specifications
- Base Pay Methods
What is Position Analysis Questionnaire (PAQ)?
- helps create the JD and the Job Specifications
- Involving quantifiable data collection to determine the degree to which a large number of standard worker-oriented tasks (job elements) are performed in a job (ex: infrequent, occasional, moderate, considerable, substantial).
What are the methods used to help determine base pay?
- market pricing
- job evaluation
- pay for knowledge
What is the advantage of PAQ?
PAQ: advantage is it is standardized, can be used on a number of jobs
What are Job Element Dimensions?
- Information input - the info available to the employee
- Mental processes - of the thinking complexity involved
- Work output - physical activities, use of tools
- Relationships with other persons - ex: suppliers, customers
- Job Context - describes the physical and social environment in which they work
- Other characteristics - not covered by the first 5
What is Task Inventory Analysis?
- Involves the identification of all job tasks specific to an organization in order to create a job questionnaire for incumbents to complete
- customized to reflect an organizations specific tasks
What is Critical Incident Method?
- Involves the collection of specific task statements that describe the tasks most important in carrying out the job successfully
- only tasks that lead to job success are identified
What is Competency Based Analysis?
- Focuses on identifying the key competencies required in performing the job vs. the tasks involved
- skills needed to perform a job as opposed to specific tasks
- gaining popularity - suited to changing and fast-paced environments
- job competencies often identified through interviews, focus groups, those who interact with the job
What is Functional Job Analysis?
- Resulting in task statements comprised of 4 components
- Who performs what
- To whom or what
- With what tools, equipment of processes
- To achieve what purpose or outcome
- Ex: a barista makes specialty coffee drinks for a waiting company, using an espresso machine in a manner that involves speedy service
What is the Market Price Method for determining base pay?
-simplest of the 3.
- Using market surveys to determine the renumeration provided by other employers for similar jobs and then paying accordingly. Advantage - ensures the org base pay practices are aligned with it’s competitive market place. Doesn’t take into account that the org position may be different than others. Doesn’t ensure internal equity and puts that on other companies instead of internal
What is the Market Price Method for determining base pay?
What is the Pay for Knowledge Method for determining base pay?
- pay for people as opposed to pay for jobs
- Competency-based method - Ex: not uncommon for an employee with a classification rating to Engineer 1 to be promoted to Engineer 2 but after that they would still find themselves working on the same project and tasks, reporting to same manager. Not job that changed but value brought to job had grown.
- Skills-based method - results in employees earning more based on accumulating skills or credentials. Can result in overpaying an employee if not taking advantage of their skills.
What is the Job Evaluation Method for determining base pay?
- systematic approach to examine the whole job or some of its parts to determine its worth. Ensures that both internal equity and external competitiveness as it still involves market pricing
- to be evaluated you need a JD and job specifications
- depending on the method used, this can be easily performed in a way that complies with pay equity
- requires a comprehensive job evaluation program - still dependent to some degree on someones interpretation of the value of that job.
- less flexibility to reassign jobs without affecting their pay.
What are the advantages and disadvantages of the Market Price Method?
Advantages
- Simple
- Uses Salary Surveys
- Ensures market competitiveness
Disadvantages
- Availability of job matches for unique positions
- Quality of job matches
- No control
- May violate pay equity
What are the advantages and disadvantages of the Pay for Knowledge Method?
- Competency-based method
- Skills-based method
Advantages
- Encourages employee growth
- Flexible job assignment
- No job descriptions required
Disadvantages
- Can result in over-paying
- difficult to align with the market
- May violate pay equity
What are the advantages and disadvantages of the Job Evaluation Method?
Advantages
- Centralized control
- ensures internal equity and external competitiveness
- Encourages the development of job descriptions and specifications
- Pay equity compliant
Disadvantages
- Requires a job-evaluation system
- Can be perceived to be subjective
- Less flexible
What are the Non-Quantitative Methods of Job Evaluation (Whole Job) ?
- Ranking: raters examine job descriptions and arrange jobs according to their value to the company. Oldest method. jobs are stacked from high to low based on their perceived value. Fairly subjective and usually when there isn’t a lot of jobs. Difficult to determine ‘how much’ more value a job has
- Job Classification/Grading: generic job descriptions are used to anchor a job-grading structure against which all jobs are compared. Such as managerial, professional, clerical, technical. Diff levels of authority, competency is defined and jobs are slaughtered accordingly.
- fairly inexpensive
What are the Quantitative Methods of Job Evaluation? (Compensable Factor Job Methods)
- Factor Comparison: Dollar values are assigned to job “factors” and added to determine the job’s worth in dollars.
- Point-Factor: Numerical values (points) are assigned to job “factors” and added to determine the job’s worth in points.
What are Universal Compensable Factors?
- Skill
- Effort
- Responsibility
- Working conditions
- All = Pay Equity
- Pay Equity means no discrimination between men and women doing the same job
- equal pay for work of equal value - requires a reliable approach to measure job factors to determine relative value of different jobs
*Equal pay for equal work
*Equal pay for Work of equal value
What are skills?
- The experience, training, ability and education required to perform a job under consideration
- formal and informal knowledge and experience required to do a job
Sub-Factors
- Educational levels
- Years of experience required
- Technical knowledge
- Specialized knowledge
- Specialized training
- Interpersonal skills
What is Effort?
- The measurement of the physical, mental or emotional exertion needed to perform a job.
- This involves considering the complexity of responsibilities and assistance to employees for carrying out their tasks
Sub-Factors
- Diversity of tasks
- Complexity of tasks
- Creativity of thinking
- Analytical problem solving
- Physical application of skills
- Degree of assistance available
What is Responsibility?
- The extent to which an employer depends on the employee to perform the job as expected with emphasis on the importance of job obligation.
- authority over resources such as people and authority and autonomy one has over decisions
Sub-Factors
- Decision-making authority
- Scope of the organization under control
- Scope of the organization impacted
- Degree of integration of work with others
- Impact of failure
- Ability to perform tasks without supervision
What is meant by Working Conditions?
- Difficult or unhealthy aspects of the conditions in which the work is done.
- when work requires workers to work in unpleasant, stressful or dangerous situations
Sub-Factors:
- Hazards
- Exposure to dangerous
chemicals
- Stress
- Physical surroundings of the
job
- cramped quarters
- outdoor location
How do you establish Pay Equity?
- Determine what rules apply
- Federal
- Private sector with 10 to 99 employees
- All Public sector and private sector with 100 or more employees
- Multi-locations in different regions
- Union/non-union
- Identifying female and male job classes
- To be compliant in ON, need to know the rules that apply to your organization (ex: different rules apply depending on provincial vs federal level)
How do you identify Female & Male job classes?
Female:
- at least 60% are women
- Women have traditionally dominated the job
- Most people commonly think of the job as female dominated
Male:
- at least 70% are male
What are the methods used to compare jobs?
- Job to job method - not all org may be large enough to have comparisons
- Proportional Value Method - Ex: if male dominant jobs only existed in lowest and highest pay grades, a statistical evaluation would be calculated using the low and high job values to find the middle
- Proxy Comparison Method
- For government sector
- a government organization can compare female dominant jobs and male dominant jobs in other movement organizations
What happens if an incidence of pay inequity due to gender discrimination occurs?
- Adjust Compensation
- at least 1% of previous year’s payroll to correct inequities
- Communicate results
- All Public Sector employees and Private Sector employers with more than 100 employees must post
- results need to be posted
- Maintain
- steps must be taken to maintain pay equity in accordance to legislation
What is Direct Pay?
- Direct Pay = Monetary Rewards
- Base Pay - guaranteed wages, i.e. annual salaries
- Performance Pay (not guaranteed but dependent on individual, group or company performance)
- Merit Adjustments or Payments
- Short-term Incentives
- Long-term Incentives
How do we see what the competitive market is paying?
- Surveys - can be customized, self-administered or purchased from a 3rd party. Ensure the data reflects an accurate match of jobs. Has to include the duties and not just the title. Orgs can be very creative with titles so important to not just look at that.
- Based on job matches
- Considering industry, location and size
- Timing of the survey (date of the survey)
- May require an “aging the data”
What are the 2 questions that need to be answered in relation to pay?
- What is the competitive market paying?
- How competitive do we want to be?
Where do organizations want to land in regards to pay?
usually org want to match the 50th percentile. Where 50% of companies pay less and 50% of companies pay more
Are percentiles mathematical?
percentiles are purely positional, not mathematical
What does inter-quartile mean?
- the inter-quartile is the diff between the 75th and 25th percentiles
- tells us how different the pay is between an org that pays a lot and an org that pays little relative to the market place
- when there is a big difference, likely the data isn’t reflecting the same job level
What happens when an org has a diff competitive philosophy?
- They’re considered to have a hybrid comp plan
What is the wage curve?
- slotting jobs into the structure requires competitive market data and results of the job evaluation process to be taken into consideration
- externally competitive and internally equitable
- each grade has a min and max, the line between is the wage curve (target market grade for all the jobs that fall in that grade) wage curve reps 100% of the range
- difference between a grade min and grade max is the spread of the range
- diff between a grade midpoint and the next grade midpoint is called the inter-grade differential
- overlap each other
- when people move from grade 2 to grade 3 = promotion
- move up in the same range = progression
What is broadbanding?
- broadbanding collapses a traditional salary into fewer grades
- enables an org to progress employees across a much wider pay grade without responsibilities having to change
- often for role with high degree of intellectual capital
What is compa-ratio?
is a measurement of pay that compares an employee’s salary to the median compensation for similar positions within a company or a target market
For an individual = salary divided by range midpoint
- the employees compa-ratio reflects where his or her pay is on the range relative to the mid-point
- average compa-ratio of mean salary divided by the mid-point of the range
- if the compa-ratio goes up for a particular pay range, may be increase of pay or employees were paid lower on the range and no longer with the org or promoted to the next range
What is a Performance Pay Plan?
- Not guaranteed
- Reward varies depending on performance of employee or company
- know the diff between a bonus and incentive
- bonus - given for good performance without the employee expecting the reward
- incentive - shows behaviour and performance required to receive the reward (more powerful than a simple bonus
What is another work for Performance Pay?
Variable pay
What are Individual Short Term rewards?
- Raise: Merit or Seniority (can be based on performance or seniority)
- Lump Sum Merit Bonus/Incentive (a one time reward which can usually be re-earned every year)
- Commission (based on sales, need to know the value of the sale, length of sale cycle, etc)
- Piece Rate (ex: number of garments sewn per day) Result in faster production but also important to measure the quality of performance. Best for environments that aren’t changing and employees can work independently)
- Standard - same amount for every piece produced
- Differential - more for all pieces once a min standard is achieved
What are Group Short-Term Incentives?
- Goal Sharing
- Profit-Sharing
- Gain-Sharing
What is Goal Sharing?
- employees receive a reward for achieving a goal (ex: a project team meeting deadlines) Including multiple goals means that employees don’t neglect other areas of performance.
What is Profit Sharing?
- employees share a portion of the employers profits. Require registration with fed gov.
- Can be current (shared immediately)
- Can be deferred to a future date (not taxed until the reward is received such as termination or retirement) -
- Can be a combination
What is Gain Sharing?
- designed to share the value of reduced costs or increased productivity with employees and often found in unionized environments.
What are the 4 types of Gain Sharing?
- Scanlon: these involve employees developing productivity improvements and sharing in the resulting financial benefits
- Rucker: expresses labour costs as a percentage of the labour added
- Improshare: doesn’t use dollar values in production but rather labour hours per units of output. Purely about productivity gains
- Family of Measures: gain sharing plan that uses multiple measures, evaluating one at a time and adding the gains and losses together to determine the size of the bonus pool
What are the types of Long Term Rewards?
- Employee Stock Bonus Plans
- Employee Stock Option Plans
- Employee Share Purchase Plans
- Phantom Shares
What are Employee Share Purchase Plans?
- employees can buy shares for less than they are worth. (Ex: matching)
What are Employee Stock Bonus plans?
- receive company shares at no cost to them
What are Phantom Shares?
- pretend shares, they are provided with units equivalent to the value of shares they would of received and then receive cash value as if they were actual shares.
What is the In-Direct Compensation Program?
- doesn’t involve direct distribution of cash
- Benefits mandated by law (ex: workers comp)
- Retirement plans (and pension plans)
- Income Protection (life insurance, short-term disability and long-term disability) or Welfare plans
- Health Benefits
- Paid Time Off
- Perquisites (employee assistant programs like gym memberships, car allowances, etc) and Employee Services
- Special Purpose
- Attendance rewards
- Service rewards
- Peer recognition
- Etc.
What are Employee Stock Option plans?
- can purchase shares in the future but at todays market price. Number of stocks established as a grant. Good retention strategy
What are the different Retirement Plans?-
- Defined Contribution
- Defined Benefit
- Hybrid - a combo of both
What is the Defined Contribution plan?
- Retirement program which the employer makes an annual payment to the employees pension account
- More unpredictable than defined benefit
- Registered RRSP
- Deferred Profit Sharing - only the employer contributes to this not the employee
What is the Defined Benefit plan?
- contribution into the plan and benefit received at retirement is each defined. Large risk in funding this.
- Provided income at retirement
- Jointly funded by employee and employer
- Retirement program in which employee is promised a pension amount based on age and service.
What can be part of Health & Welfare benefits?
- Dental plans
- Long-term disability insurance
- Life Insurance
- Flexible benefits
- Health Spending Accounts
What are 3 different types of benefits plans?
- Fixed - no choice over the benefits they receive
- Flexible - employees can choose benefits they most want and get credits from the list of options provided by their employer. More expensive but helps employers control their costs. More expensive because include some premium based plans based on utilization. Helps employers contain costs. Critically important to communicate it thoroughly so employees understand the plan and can make the best choices
- Semi-flexible - employees have some but not total choice. To make a fixed plan semi-flexible, one way is to add a health spending account
What are Health Spending Accounts?
- Employer Funded, employees can purchase benefits on their own
- Tax-favourable - money provided is not taxed as if it was income and the employer can deduct the contribution as business expenses.
- Regulated by Revenue Canada
How are Benefit Funding plans set up?
- Non-Contributory - fully funded by employer
- Fully Contributory - fully funded by employee
- Contributory - cost-shared by both
- With exception of life insurance, if the employer funds the benefit contributions, those contributions are not taxable by the employee. The others are taxable
- Benefit plans often have cost-sharing to maximize the benefits, some employees can pay more without requiring all employees to contribute to these benefits
What are intrinsic types of compensation?
- internal satisfaction/ meaning and opportunity for growth, quality or of work life and job satisfaction.
What are extrinsic types of compensation?
- external factors. Tangible and take both monetary and non-monetary forms such as direct and indirect compensation.
What is variable pay?
compensation linked directly to individual team organizational performance.
What is incentive pay?
directly linked to employees performance or productivity
What are contributory plans?
benefits that require the employer to contribute to the cost of the benefit
What is the Canadian Pension Plan?
- a mandatory contributory and portable pension plan applicable to all employees and self-employed pensions in Canada
What is Group Life insurance?
The employer’s contribution is taxable to the employee.
What is mandatory and contributed to by employers?
Employment insurance (EI)
What is a defining feature of split pay range?
progression through the range is based on seniority and performance
When designing a benefits plan, what’s important to answer?
what is the role of benefits in our compensation strategy?
What is adverse impact?
employment practices that appear neutral but have a discriminatory effect on a protected group.
Ex: selection rate for a protected group identified in human right legislation is lower than the selection rate for the comparison group.
