Compensation and Benefits Administration Week 10 (Part B)

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Compensation and Benefits AdministrationWeek 10
(Part B)

• Dr. Teal McAteer
• Teaching Professor
• DeGroote School of Business
• McMaster University

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Responsibilities ofCompensation Professionals

• Legislative compliance
• Conduct pay or wage surveys
• Conduct job evaluations
• Create links between desired rewards and levels
  of performance
• Monitor compensation costs

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Pay Surveys

• Method of obtaining accurate information about
  pay rates for relevant jobs in other
  organizations
• Gauge of external equity

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How To Conduct A Pay Survey

• Specify the purpose of the survey
• Specify jobs to be surveyed, their descriptions
  or specifications, and the information needed
  from survey participants
• Select comparison employers for inclusion in the
  survey
• Select a survey method and design a survey
  instrument
• Administer the survey
• Analyze and communicate survey data

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Job Evaluation Systems

• Determine relative worth of jobs to the
  organization
• Internal equity
• Central to Pay Equity

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Job Evaluation Process

• Collect job analysis data
• Prepare job descriptions and job specifications
• Choose compensable factors those factors an
  organization values and chooses to reward through
  differential pay
• Develop or choose a job evaluation method
• Evaluate jobs

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Pay Equity

• Job evaluation system must be compliant with Pay
  Equity which considers factors of
• Skill
• Effort
• Responsibility
• Working conditions
• System must be gender neutral

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Types of Job Evaluation Methods

• Ranking
• Level description (classification method)
• Factor comparison
• Point methods
• Market pricing

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Ranking

• Orders jobs from least valued to most valued
• More appropriate for small organizations and
  those with small numbers of jobs
• Advantages
• Simple
• Quick and inexpensive
• Disadvantages
• Entirely subjective
• No explicit rationale or documentation for results

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Level Description(Classification Method)

• Places jobs in a pre-existing hierarchy
• Compares jobs to descriptions of job grades
• Advantages
• Inexpensive
• Readily available
• Disadvantages
• Cumbersome

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Factor Comparison

• Compares jobs to key jobs on scales of
  compensable factors
• Advantages
• Custom-built
• Easy to use
• Disadvantages
• System becomes less accurate as key jobs change
• Complex
• Limited to manufacturing, manual, blue-collar jobs

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Point Method

• Jobs are compared to standardized descriptions of
  degrees of universal compensable factors and sub
  factors
• Advantages
• Most accurate
• Stable over time
• Disadvantages
• Administrative costs can be high

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Market Pricing

• Relies entirely on the labour market to determine
  how much jobs should be paid
• Advantages
• Avoids management bias
• Employees paid at market value
• Disadvantages
• Promotes instability of pay structure
• May lead to perceived inequities
• Results depend on organizations surveyed
• Difficult to obtain pay information about some of
  the less common jobs in an organization

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Key Outcome of Job Evaluation

• Hierarchy of jobs in terms of their relative
  value to the organization

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How Is Pay Assigned to Jobs?

• Requires pay philosophy decision regarding
  Relationship of pay levels to market
• Lead
• Lag
• Match

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Pay Policy Line

• Graphic depiction of line drawn between midpoints
  of salary ranges
• Represents an organizations pay level

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How do Organizations Structure Pay?

• Typically offer range of pay
• Variations in pay based on different in
  performance, employee qualifications and/or
  seniority
• Requires rationale for setting starting pay and
  for progression through the range
• Jobs of similar value can be grouped into pay
  grades
• Within a pay grade, there is a pay range which
  defines the upper and lower limits of pay

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Assigning Pay to Persons

• Shift from job-based to person-based pay system
• Skill based pay systems
• Based on knowledge and skills individuals develop
  on the job
• Competency based pay systems
• Compensation is based on individual traits,
  attitude and/or behaviours individuals bring and
  apply to the job.

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Using Pay to Motivate Employees

• Pay for performance pay is contingent on some
  level of performance specified by the
  organization
• Merit pay
• Hinging promotion to higher-paying jobs
  contingent of superior performance
• Incentive pay system

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Pay For Performance Systems

• Individual
• Group
• Company

• Merit
• Promotion
• Straight piece rate
• Group piece rate
• Group standard hour plans
• Profit sharing plans
• Cost savings plan

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Compensation Administration

• Ensure that compensation system is achieving its
  goals and that compensation costs remain within
  allocated amounts
• Mechanisms used include
• Compa-ratio
• Budgets
• Periodic audits of wages

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Pay Equity

• Equal pay for work of equal value
• Pay Equity Plan is required for each bargaining
  unit and for that part of the establishment that
  is not in any bargaining unit

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Trend Total Rewards

• Definition
• Any type of reward for service/work
• More options now presented to compensate/reward
  employees. Desired effect is to enhance ability
  to attract, retain and motivate employees in a
  very competitive market (i.e. War for Talent)

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Total Rewards Model
External Influences
Internal Influences
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Why Total Rewards

• Drive for profitability (private sector)
• Drive for improved effectiveness/efficiency
• Better control of labour costs
• Enhanced ability to recruit, attract and retain
  key staff
• Enhanced flexibility

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Categories Of Benefits

• Universal benefits
• Statutory benefits
• Discretionary benefits for employee protection
• Pay for time not worked
• Employee services

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Universal Benefits

• Government provided without requiring direct
  contributions from either employees or employers
• OAS (Old Age Security)
• GIS (Guaranteed Income Supplement)
• Provincial hospital and medical plans (OHIP)

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Statutory Benefits

• Employer must provide under federal and/or
  provincial laws
• CPP/QPP
• Workers compensation
• Employment insurance
• Supplementary coverage i.e. SUB plans
• Health insurance

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Discretionary Benefits

• Private pension plans
• Defined benefit plan
• Defined contribution plan
• Combination
• Group insurance programs

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Holiday And Vacation Pay

• Statutory plus others
• Vacations

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Employee Service Benefits

• Savings plans
• Tuition loans
• Recreation facilities and programs
• Parking privileges

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Flexible Benefits

• Flex plans allow employees a degree of choice in
  some of the benefits, with varying levels of
  cost-sharing by level of coverage, and an
  opportunity to review the choice on a periodic
  basis
• Four types
• Modular plans
• Core plus option plans
• Private health services plans
• Cafeteria plans

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Controlling Benefits Cost

• Provide benefits that the majority of employees
  value and eliminate those in which they have no
  interest
• Have employees contribute a certain amount toward
  the purchase of discretionary benefits
• Group insurance
• Managed care of employer-provided health benefits

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Issues In The Benefits Areas

• Pension issues
• Same-sex spousal benefits
• Controlling rising benefit costs
• Disability management
• New accounting methods

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Benefit Cost ContainmentStrategies

• Contribution changes
• Limits
• Coverage changes
• Drugs
• Proactive management approach
• Communication, education, incentives
• New Plan/programs

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The Work Experience

• Satisfy intrinsic needs
• Includes elements of reward that are important to
  employees and employers but are less tangible
  than compensation and benefits
• Employees place high value on the work experience

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Elements Of The Work Experience

• Acknowledgement and recognition
• Balance of work/life
• Culture
• Development
• Environment