Compensation and Benefits Administration Week 10 (Part B)

1. Compensation and Benefits AdministrationWeek 10 (Part B) Dr. Teal McAteer Teaching Professor DeGroote School of Business McMaster University

2. 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

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

4. 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

5. Job Evaluation Systems • Determine relative worth of jobs to the organization • Internal equity • Central to Pay Equity

6. 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

7. 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

8. Types of Job Evaluation Methods • Ranking • Level description (classification method) • Factor comparison • Point methods • Market pricing

9. 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

10. Level Description(Classification Method) • Places jobs in a pre-existing hierarchy • Compares jobs to descriptions of job grades • Advantages • Inexpensive • Readily available • Disadvantages • Cumbersome

11. 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

12. 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

13. 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

14. Key Outcome of Job Evaluation • Hierarchy of jobs in terms of their relative value to the organization

15. How Is Pay Assigned to Jobs? • Requires pay philosophy decision regarding Relationship of pay levels to market • Lead • Lag • Match

16. Pay Policy Line • Graphic depiction of line drawn between midpoints of salary ranges • Represents an organization’s pay level

17. 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

18. 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.

19. 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

20. 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

21. 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

22. 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

23. 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”)

24. Total Rewards Model External Influences Work Experience Compensation Benefits Internal Influences

25. 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

26. Categories Of Benefits • Universal benefits • Statutory benefits • Discretionary benefits for employee protection • Pay for time not worked • Employee services

27. 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)

28. 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

29. Discretionary Benefits • Private pension plans • Defined benefit plan • Defined contribution plan • Combination • Group insurance programs

30. Holiday And Vacation Pay • Statutory plus others • Vacations

31. Employee Service Benefits • Savings plans • Tuition loans • Recreation facilities and programs • Parking privileges

32. 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

33. 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

34. Issues In The Benefits Areas • Pension issues • Same-sex spousal benefits • Controlling rising benefit costs • Disability management • New accounting methods

35. Benefit Cost ContainmentStrategies • Contribution changes • Limits • Coverage changes • Drugs • Proactive management approach • Communication, education, incentives • New Plan/programs

36. 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

37. Elements Of The Work Experience • Acknowledgement and recognition • Balance of work/life • Culture • Development • Environment