chapter eight establishing strategic reward plans © 2007 pearson education canada 8-1 dessler,...

Chapter Eight

Establishing Strategic Reward Plans

© 2007 Pearson Education Canada 8-1

Dessler, Cole, Goodman, and SutherlandIn-Class Edition

Management of Human ResourcesSecond Canadian Edition


Strategic Aspects of Total Rewards

–pay for skills and competencies

–pay for performance

–flexible pay systems

–pay for skills and competencies

–pay for performance

–flexible pay systems

Three Strategic Approaches


Direct

Payments

(pay)

Direct

Payments

(pay)

Two Main Components of Pay

Indirect

Payments

(benefits)

Indirect

Payments

(benefits)

Strategic Aspects of Total Rewards


Basic Considerations in Determining Pay Rates

Legal –employment/labour standards–pay equity–human rights–Canada/Quebec Pension Plan–Workers’ Compensation–Employment Insurance

Union –collective bargaining

Compensation policies –leader or follower in pay

Equity –internal and external

Legal –employment/labour standards–pay equity–human rights–Canada/Quebec Pension Plan–Workers’ Compensation–Employment Insurance

Union –collective bargaining

Compensation policies –leader or follower in pay

Equity –internal and external


Establishing Pay Rates

Step 1. Conduct job evaluation—for internal equity

Step 2. Group similar jobs into pay grades

Step 3. Conduct salary survey—for external equity

Step 4. Price each pay grade using wage curves

Step 5. Fine-tune pay rates

Step 1. Conduct job evaluation—for internal equity

Step 2. Group similar jobs into pay grades

Step 3. Conduct salary survey—for external equity

Step 4. Price each pay grade using wage curves

Step 5. Fine-tune pay rates



Job Evaluation–systematic comparison of jobs to determine their relative worth

Benchmark Job–job commonly found in organizations–critical to firm’s operations

Compensable Factor–fundamental compensable aspect of a job; eg. skill, effort, responsibility, working conditions

Job Evaluation–systematic comparison of jobs to determine their relative worth

Benchmark Job–job commonly found in organizations–critical to firm’s operations

Compensable Factor–fundamental compensable aspect of a job; eg. skill, effort, responsibility, working conditions

Step 1. Job Evaluation




Classification/grading methodClassification/grading method

Ranking methodRanking method

Point methodPoint method



Ranking Method

1. Obtain job information

2. Group jobs to be rated

3. Select compensable factors

4. Rank jobs

5. Combine ratings

Ranking Method

1. Obtain job information

2. Group jobs to be rated

3. Select compensable factors

4. Rank jobs

5. Combine ratings




Ranking Order Annual Pay• Office manager $60,000• Chief nurse 54,000• Bookkeeper 50,000• Nurse 40,000• Cook 26,000• Nurse’s aide 24,000• Maid 20,000

Ranking Order Annual Pay• Office manager $60,000• Chief nurse 54,000• Bookkeeper 50,000• Nurse 40,000• Cook 26,000• Nurse’s aide 24,000• Maid 20,000




Classification/Grading Method

–categorize jobs into groups (classes or grades)

–classes contain similar jobs

–grades contain dissimilar jobs of equal difficulty

Classification/Grading Method

–categorize jobs into groups (classes or grades)

–classes contain similar jobs

–grades contain dissimilar jobs of equal difficulty




Point Method

–identify compensable factors

–determine the degree to which each factor

is present in each job

Point Method

–identify compensable factors

–determine the degree to which each factor

is present in each job




Point Method (1 of 2)

1. determine clusters of jobs to be evaluated

2. collect job information

3. select and define compensable factors

4. define factor degrees


1. determine clusters of jobs to be evaluated

2. collect job information

3. select and define compensable factors

4. define factor degrees





5. determine factor weights

6. assign point values to factors and degrees

7. write the job evaluation manual

8. rate the jobs


5. determine factor weights

6. assign point values to factors and degrees

7. write the job evaluation manual

8. rate the jobs



Point System – XYZ Company

Possible Points WeightSkillTechnical Skill/Education 1-10Job-Related Experience 1-10Updating of Knowledge 1-5 25%

EffortPhysical Effort 1-5Visual Effort 1-5Mental Effort 1-10 20%

ResponsibilityAutonomy 1-10Supervisory Responsibility 0-15Internal/External Contacts 1-15 40%

Working ConditionsWork Environment 1-5Travel 0-10 15%

9-100 100%


Point System – ABC Company

Factor Level (I-IV)Min. Low Mod. High WeightI II III IV

SkillExperience 45 90 135 180Education/Training 25 50 75 100 28%

EffortPhysical 25 50 75 100Mental 35 70 105 150 25%

ResponsibilitySafety of Others 25 50 75 100Equipment and Materials 20 40 60 80Assisting Trainees 5 20 35 50Product/Service Quality 20 40 60 80 31%

Working ConditionsUnpleasant Conditions 20 40 60 80Hazards 20 40 60 80 16%

220 1000 100%



Pay Grade

– jobs of approximately equal value, eg.:

• point: jobs falling within a range of points

• ranking: all jobs falling within 2-3 ranks

• classification: jobs already in classes/grades

• factor comparison: specified range of pay

rates

Pay Grade

– jobs of approximately equal value, eg.:

• point: jobs falling within a range of points

• ranking: all jobs falling within 2-3 ranks

• classification: jobs already in classes/grades

• factor comparison: specified range of pay

rates

Step 2. Group Similar Jobs into Pay Grades



–formal or informal survey by employer

–commercial, professional, and government

salary surveys

–formal or informal survey by employer

–commercial, professional, and government

salary surveys

Step 3. Conduct a Wage/Salary Survey



–find average pay for each pay grade

–plot pay rates for each pay grade

–fit a wage line through points (regression)

–price jobs

–find average pay for each pay grade

–plot pay rates for each pay grade

–fit a wage line through points (regression)

–price jobs

Step 4. Price Each Pay Grade—Wage Curves



Job Evaluation Points

AverageWageRates

* * * * *

* ** *

* * **

WageCurve

Step 4. Price Each Pay Grade—Wage Curves



Step 5. Fine-Tune Pay Rates

I II III IV V VI

WageStructure



Step 5. Fine-Tune Pay Rates

Broadbanding$200,000

$175,000

$150,000

$125,000

$100,000

$75,000

$50,000

$35,000

Band 1

Trainee

Band 2

Independent

Contributor

Band 3

Senior

Specialist

Band 4

Expert

Represents organization to

external groups

Provides strategic direction and advice

Serves as a mentor or resource for ideas

Represents work group in meetingsWork is checked

regularly by supervisor

Develops credibility and reputation

Works under close supervision

Learning how things are done


Current Trends in Compensation

Skill/competency-based paySkill/competency-based pay

Customized job evaluation plansCustomized job evaluation plans



–to eliminate systemic pay discrimination by

providing equal pay to:

• male-dominated job classes

• female-dominated job classes

of equal value

–to eliminate systemic pay discrimination by

providing equal pay to:

• male-dominated job classes

• female-dominated job classes

of equal value

Pay Equity



–must ensure no gender bias in job evaluation

–long-term solution is women and men equally

represented in all jobs; i.e. no male or female-

dominated jobs (occupational segregation)

–must ensure no gender bias in job evaluation

–long-term solution is women and men equally

represented in all jobs; i.e. no male or female-

dominated jobs (occupational segregation)

Pay Equity


Pay for Managerial and Professional Jobs

–pay based on performance as well as the value

of the job

Compensating managers:

-salary, benefits, short-term incentives, long-term

incentives, perquisites

Compensating professional employees:

-market pricing as difficult to identify compensable

factors

–pay based on performance as well as the value

of the job

Compensating managers:

-salary, benefits, short-term incentives, long-term

incentives, perquisites

Compensating professional employees:

-market pricing as difficult to identify compensable

factors


Incentive Plans

Variable Pay

–plan that links pay to productivity or profitability

Variable Pay

–plan that links pay to productivity or profitability


Incentive Plans

Spot Bonus

–spontaneous incentive awarded to individuals

for accomplishments not easily measured by a

standard

Spot Bonus

–spontaneous incentive awarded to individuals

for accomplishments not easily measured by a

standard


Incentives for Operations Employees

–piecework plans—straight; guaranteed

–team or group incentive plan

–piecework plans—straight; guaranteed

–team or group incentive plan


Incentives for Managers and Executives

Short-term Incentives

annual bonus

Short-term Incentives

annual bonus

Long-term Incentives

capital accumulation plans

Long-term Incentives

capital accumulation plans



–eligibility

–fund size

–determining individual awards

–eligibility

–fund size

–determining individual awards

Annual Bonus—Decisions



Stock options – right to purchase a

stated number of shares of a company’s

stock at today’s price at some time in

the future

Stock options – right to purchase a

stated number of shares of a company’s

stock at today’s price at some time in

the future

Long-Term Incentives


Incentives for Salespeople

Salary

Plan

(fixed salary)

Salary

Plan

(fixed salary)

Commission

Plan

(pay in direct

proportion

to sales)

Commission

Plan

(pay in direct

proportion

to sales)

Combination

Plan

(salary plus

commission)

Combination

Plan

(salary plus

commission)


Organization-Wide Incentive Plans

–profit sharing plans

–employee share purchase/stock ownership plans

–gainsharing plans

–profit sharing plans

–employee share purchase/stock ownership plans

–gainsharing plans


Developing Effective Incentive Plans

Employee Recognition Programs

Lack of recognition and praise

is the #1 cause of

employee turnover

Lack of recognition and praise

is the #1 cause of

employee turnover

chapter eight establishing strategic reward plans © 2007 pearson education canada 8-1 dessler,...

Documents

pay rates step

job evaluation slide

pearson education canada

job information

grades step

ratings step

external slide

equity internal