Do you agree with paying people for competencies and skills that are rarely required to use on the job?

HRM2600 Human Resource Management Compensation and Benefits (Total Rewards) Agenda Definition of total rewards Strategic importance of total rewards Establishing base pay rates (Chapter 9) Pay for performance- Incentive (Chapter 10) Benefits and services (Chapter 11)Next Week Total Rewards for Work Total Rewards Extrinsic Intrinsic Benefits Compensation Base Merit increase Long-term Incentives Short-term Incentives Income Protection Recognition & Status Allowances Work-life balance Career Opportunities Strategic Importance of Total Rewards Administrative efficiency Acquire personnel Retain employees Effective Compensation & Benefits Legal compliance Control costs Reward behaviour Motivate employees What Canadian Employers Say All the tables and charts are from Compensation Planning Outlook 2015, The Conference Board of Canada. It is a survey of more than 1500 Canadian employers. http://www.conferenceboard.ca/e-library/abstract.aspx?did=7359 Establishing Pay Rates (Base Pay) Basic Considerations Legal-Employment/Labour Standards Employment/Labour Standards Acts Pay Equity Human Rights Canada/Quebec Pension Plan Workers' Compensation Employment Insurance Equity - internal and external Compensation policies - lag, match, lead, mix Union - collective bargaining Establishing Pay Rates--Process Step 1. Conduct job evaluation - for internal equity Step 2. Conduct salary survey - for external equity Step 3. Combine the job evaluation and salary survey information to determine pay for jobs Step 1. Job Evaluation 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 e.g. skill, effort, responsibility, working conditions ( Candida pay equity) e.g. know-how, problem solving, accountability, working conditions ( Hay Group). Job Evaluation Methods Ranking method Ranking method Classification/grading method Classification/grading method Point method Point method Job Evaluation Methods-Ranking Simple ranking plan Paired comparisons Alternation ranking Ranking Method Example Ranking Order Office manager Chief nurse Bookkeeper Nurse Cook Nurse's aid Maid Annual Pay $60,000 54,000 50,000 40,000 26,000 24,000 20,000 Job Evaluation MethodsJob Classification Place jobs into categories based on compensable factors EXAMPLE: \"Grade IV includes all positions that involve computerized functions and that require basic knowledge and skill in written communication. Grade V includes all positions that require some independent judgment, confidentiality, interpersonal skills, but that has no direct supervisory responsibility.\" http://www.tbs-sct.gc.ca/cla/def/cx-eng.asp Job Evaluation MethodsJob Classification Developing a job classification system requires the following steps: 1. Obtain job information. 2. Select compensable factors. 3.Determine the number of classes. 4. Develop class descriptions. 5. Classify jobs. The Point Plan Process Job evaluation method that assigns a number of points to each job, based on compensable factors that are numerically scaled and weighted. Most commonly used in Canada. The Point Plan Process Step 1: Determine Compensable Factors These factors include: Skill, Effort, Responsibility, Working conditions These four are required in pay legislation across Canada. They must be present in all jobs. The factor must vary in degree. Need to determine sub-factors Determine Compensable Factors Skill: the experience, training, ability, and education required to perform a job under consideration Technical Know-how Specialized Knowledge Organizational Awareness Educational Levels Specialized Training Years of Experience Required Interpersonal Skills Degree of Supervisory Skills Determine Compensable Factors Effort: the measurement of the physical or mental exertion needed for performance of a job Diversity of Tasks Complexity of Tasks Creativity of Thinking Analytical Problem Solving Physical Application of Skills Degree of Assistance Available Determine Compensable Factors 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 Decision-making Authority Scope of the organization under control Scope of the organization impacted Degree of integration of work with others Impact of failure or risk of job Ability to perform tasks without supervision Determine Compensable Factors Working Conditions: Hazards Degree of Danger Which Can be Exposed to Others Impact of Specialized Motor or Concentration Skills Physical surroundings of the job Degree of Discomfort, Exposure, or Dirtiness in Doing Job The Point Plan Process Step 2: Scale the Factors First Degree Very Light Gray Second Degree Light Gray Third Degree Gray Fourth Degree Dark Gray The Point Plan Process Step 3: Determine the weight of each factor Represents the importance of the factor to the overall value of the job. The weights of compensable factors are usually expressed as percentage. Can reflect judgment of organization leaders, committee Can reflect a negotiated structure Can reflect a market-based structure Example of weighting Skill is the most highly valued compensable factor, weighted 60% Responsibility is the next, weighted 25% Effort is weighted at 10% Working condition factor is least important, weighted at 5% The Point Plan Process Step 4: Determine the point value for each factor 1. Establish the maximum possible point values for the complete set of compensable factors. ( rule of thumb: number of factors X250) 2. The maximum possible point value for each compensable factor is based on total weight as describe in Step 3 3. Distribute these points across degree statements within each compensable factors. Example of ABC company 1. Total points 1000 ( 4 compostable factors X250) 2: The maximum possible point value for each compensable factor Skill=60%X1000=600 Responsibility=25%X1000=250 Effort=10%X1000=100 Working conditions=5%X1000=50 Example of ABC company 3. Distribute points across degrees within each factor Let's assume SKILL factor has five degrees, Degree 1 represents the most basic skill level, degree 5 represents the most advance skill level Degree1=120 points (120pointsX1) Degree2=240 points (120pointsX2) Degree3=360 points (120pointsX3) Degree4=480 points (120pointsX4) Degree5=600 points (120pointsX5) 4.Again, distribute these points within each subfactor Overview of the Point System Degree of Factor Factor Skill Weight 1 Education Experience 30% 30% 2 60 60 3 4 5 Job A 120 120 180 180 240 240 300 300 30 30 40 40 50 50 50 50 75 75 100 100 30 40 50 300 120 Effort Physical 5% Mental 5% 10 10 20 20 50 30 Responsibility For safety For budget 12.5% 25 12.5% 25 125 125 75 25 Working Conditions Hazards 5% Total 10 20 40 1000 640 Step 2. Conduct a Wage/Salary Survey Formal or informal survey by employer Commercial, professional, and government salary surveys Salary Survey--Sources Government agencies Human Resources Development Canada Toronto Board of Trade Industry group The Conference Board of Canada Compensation consultants The Hay Associate (www.haygroup.com) Hewitt Associate (www.aon.com/default.jsp) Towers Watsom (www.towerswatson.com) Free website Salary expert http://www.salaryexpert.com Salary wizard http://swz.salary.com/CanadaSalaryWizard/layoutscripts/csw zl_newsearch.aspx Step 3. Combine the Job Evaluation and Salary Survey to Determine Pay for Jobs Price Each Pay Grade - Wage Curves find average pay for each pay grade plot pay rates for each pay grade fit a wage line through points (regression) price jobs Scatterplot 7 survey 6 monthly 5 salary ($000) 4 PAY 3 2 1 80 120 160 200 240 280 Our Job Evaluation Points 320 360 Developing a Pay Policy Line 7 6 survey monthly 5 salary 4 ($000) PAY using internal job evaluation information 3 2 1 80 120 160 200 240 280 Our Job Evaluation Points 320 360 Developing a Pay Policy Line 7 6 survey monthly 5 salary 4 ($000) PAY using market-survey data (updated and aged to reflect pay policy) 3 2 1 80 120 160 200 240 280 Our Job Evaluation Points 320 360 Decide the Pay Range for Each Grade Pay range: upper and lower limits on pay Why pay range External Pressures: quality variations (KSAs) among individuals in the external market recognition of differences in the productivity-related value to employers of these quality variations Internal Pressures the intention to recognize individual performance variations with pay employees' expectations that their pay will increase over time Pay Structure: the Base Pay 8 7 Pay Range 6 our monthly 5 salary 4 (000) PAY V Pay Grades IV 3 III 2 Pay Policy Line II 1 I 100 150 200 250 300 Our Job Evaluation Points 350 Broadbanding collapses the number of salary ranges and grades within a traditional salary structure into a few broad bands purpose is to manage career growth and administer pay an alternative to traditional salary grade structures Competency-Based Pay/ Skill-Based Pay ( Pay for Knowledge) individual knowledge, skills and behaviours that are critical to successful individual or corporate performance pay for range, depth and types of knowledge that employees are capable of using, rather than current job duties Discussion Question Do you agree with paying people for competencies and skills that are rarely required to use on the job? Pay Equity Providing equal pay to male-dominated job classes and female-dominated job classes of equal value to the employer. http://www.statcan.gc.ca/pub/89-503x/2010001/article/11388/tbl/tbl007-eng.htm http://www.parl.gc.ca/content/lop/research publications/2010-30-e.htm Critical Thinking Questions What are some potential reasons that gender-based pay discrimination is so hard to eradicate? Pay for performance Pay for performance (financial incentives/variable pay) Definition Types of Incentive Plans Employee Recognition Programs Pay for performance plan that links pay to productivity, profitability, or some other measure of organizational performance accurate performance appraisal or measurable outcomes is a precondition for effective pay-for-performance plans Incentives for Operations Employees Piecework plans Straight Guaranteed Differential piece rate $80*(200/160)=$100 Standard hour plan Team or group incentive plan Incentives for Senior Managers and Executives Short-term Incentives Short-term Incentives annual bonus annual bonus Long-term Incentives Long-term Incentives capital accumulation plans capital accumulation plans Short-term Incentive Types Annual Bonus - Decisions eligibility fund size determining individual awards Long-Term Incentives stock options http://www.budget.gc.ca/2010/plan/anx5eng.html#a20 Vesting ( waiting ) period Conference Board of Canada 2015 Other Long-term Incentive Types Incentives for Salespeople Salary Salary Commission Commission Combination Combination Plan Plan Plan Plan Plan Plan (fixed salary) (fixed salary) (pay in direct (pay in direct (salary plus (salary plus proportion proportion commission) commission) to sales) to sales) Incentives for Executives The Executive Pay Package Base salary Short-term incentives or bonuses Long-term incentives or stock plans Benefits Perquisites (perks) Organization-Wide Incentive Plans merit pay profit-sharing plans employee share purchase/stock ownership plans gainsharing plans Principles for Effective Implementation of Incentives pay for performance link incentives to career development and challenging opportunities link incentives to measurable competencies match incentives to the culture of the organization keep group incentives clear and simple over-communicate remember greatest incentive is the work itself Employee Recognition Programs Lack of recognition and praise is the #1 cause of employee turnover Specific, immediate, personal and spontaneous Employee Recognition Programs: Benefits cost-effective: praise and modest gifts improves employee attitudes and productivity creates strategic change if recognition criteria aligned with strategy fuels achievement of high performers important communication tool Trend in Employee Recognition http://www.worldatwork.org/waw/adimLink?id=72689 Critical Thinking Questions Do you think it is a good idea to award employees with merit raises? Why? If not, what approach would you take to incentive compensation? Distribution of Total Direction Compensation in Canada