CH10: Compensation management
Influences on compensation
External
• Government (e.g., minimum wage, prevention of discrimination)
• Trade unions (strive to improve working conditions, wages & benefits)
• Economy – economic conditions of the industry (organization’s profitability)
• Labour market (pay higher if few skilled employees are available)
Organizational
• Size – bigger (generally) means higher pay
• Age – newer (generally) higher pay
• Managerial attitudes
o High pay-level (ability to attract talent, retention, productivity?)
o Comparable pay-level (to going pay at other organizations in given
geographic area)
o Low pay-level (minimum needed to hire enough employees)
J o b A n a ly s is
J o b E v a lu a t io n J o b D e s c r i p t io n J o b S p e c i f i c a t io n s
w S e le c t io n
w C o m p e n s a t io n w C r i t e r i o n D e v e lo p m e n t w P la c e m e n t
w P e r fo r m a n c e A p p r a is a l
w J o b D e s ig n /R e d e s ig n
w T r a i n in g
Uses of Job Analysis
• Job Classification – Categorize jobs into job families
• Criterion Development & Performance Appraisal – Identifies what the organization defines
as effective work behaviors
• Selection and Placement – Identify KSAOs that are necessary for successful performance
• Job Design and Redesign – Reveal problems and opportunities for better job design
• Training – Identify areas that need training programs to be developed
Job Evaluation
• Technique based on job analysis that determines the value of particular jobs
• Attempts to quantify differences between jobs for compensation purposes
• Typical Approach: Point System
o estimates value of jobs based on points assigned along dimensions or what are
called Compensable Factors
Point System
• Effort
• Skill
• Responsibility
• Working Conditions
• Jobs requiring great effort and skill, in which the EE is provided with tons of responsibility
and working outside in sub-zero temps deserve the most compensation
Point System Process of Job Evaluation
• Managers or SMEs use job analysis to identify compensable factors
• Each job assigned points with respect to degree that each has these compensable factors
• Assigned points are summed across factors to derive total score
• Points used to assign wages with goal of maintaining equity between jobs
• Scores plotted against current wage to determine under, over, or adequate compensation
• Don’t forget the labor market!
Job evaluation methods
• Job ranking method – from simplest to most challenging (in smaller organizations),
difference between adjacent ranks?
• Job classification system – classes (grades) defined, jobs placed into appropriate classes
based on definition of classes
• Factor comparison method – benchmark jobs are selected and other jobs are paid based on
comparison of key factors to the benchmark jobs
• Point system – most widely used, reliable & valid, but time consuming
Comparable Worth
• Equal Pay Act (1963) stipulates that men and women who do equal work must receive equal
pay
o “Equal” means the same jobs
• But, what about men and women who are in different jobs???
• Women are paid considerably less than men for similar work
o Wage gap of 23% between men’s and women’s wages
Incentive (Contingent) Pay
Salary and salary increases are based on:
• Job performance
Also called: Pay for Performance
If not added to base pay, called:
• Variable pay
Performance management is more effective when rewards are tied to results.
Incentive Plans force organizations to:
• Clearly define effective performance
• Determine what factors are necessary
Reasons for Incentive pay
• Supervisors and employees are better able to understand what really matters.
• IP plans enhance employee motivation to accomplish goals that match organizational
needs.
• IP plans help to recruit and retain top performers.
• IP plans projects good corporate image
IP Plans Help Improve Motivation When:
• Employees see clear link between their efforts and resulting performance. (Expectancy)
• Employees see clear link between their performance level and rewards received.
(Instrumentality)
• Employees value the rewards available. (Valence)
motivation = expectancy x instrumentality x valence
IP Systems for Different Organizational Cultures
Traditional organizations
• Piece rate
• Sales commissions
• Group incentives
Involvement organizations (shared decision making, lateral communication, loosely defined
roles)
• Profit sharing
• Skill-based pay
CP Plans to Enhance Strategic Directions
Employee development
• Skill-based pay
Customer service
• Competency-based pay
• Gainsharing
Overall profit
• Executive pay
• Profit or stock sharing
• Scanlon-type plans (bonuses for labour cost savings paid to all employees)
IP Plans to Enhance Strategic Directions (1)
Productivity
• Individual (can lead to competition)
o Piece rate
o Sales commissions
• Group (relationship between individual performance and group’s may not be clear)
o Gainsharing
o Group incentives (encourage peer pressure to perform)
Teamwork
• Team sales commissions
• Gainsharing
• Competency-based pay
Putting Pay in Context
A reward increases the chance that:
Specific behaviors and results will be repeated, or
Employee will engage in new behavior and produce better results.
Rewards Can Include:
Pay
Recognition
o Public
o Private
Status
Time
Sabbaticals
Trust and Respect
Challenge
Responsibility
Freedom
Relationships
How to Make Rewards Work
Define and measure performance first and then allocate rewards.
Only use rewards that are available.
Make sure all employees are eligible.
Rewards should be
• Financial & Nonfinancial
• Visible
• Contingent
• Timely
• Reversible
