Pay Model

Pay Model
What Is Compensation
- Society
- Pay as a measure of justice
- GENDER WAGE GAP
- Difference between wages earned
by men and wages earned by
women
- Gendered concentration in
different fields, men make more
$
- Differences in compensation
b/w countries
- Pay as the cause of price increases
- Shareholders
- Equity for the operation of a business
- Company's success = their success
- Believe stock as pay creates sense
of ownership & improved
performance
- Interest in executive comp
- Supposed to be tied to performance (i.e. paying
executives based on company performance),
there is debate on this
- Managers
- Compensation directly
influences their success in 2
ways
- 1. It is a major expense
- Compensation costs are even
higher for certain industries
- Ex. financial, professional
services, government,
education
- Small grocery stores and family run businesses often have labour
costs between 15-19%
- 2. Managers have to influence employee
behaviours to improve organizational
performance
- The amount and way that people
are paid affects
- The quality of their work
- Their attitude towards customers
- Pay as a major expense that
has to be minimized or
optimized
- Pay's role in improving productivity,
effectiveness & organizational
behaviour
- Employees
- See pay as
- The return in an exchange
between their employer and
themselves
- Contribute their time and energy
to a workplace:
- Work performed
- Invest in education and
training
- An entitlement for being an
employee of the company
- A reward for a job
well done
- Global views
- English definition: something that counterbalances, offsets, or
makes up for something else
- Chinese definition: symbols for logs and water, therefore
compensation provides the necessities of life
- More recently, compensation in China refers to
how one is being treated: wages, benefits,
training opportunities, etc.
- Japanese definition: characters meaning giving something
- More recently, compensation in Japan refers to “taking care of
something” which runs in accordance to many Japanese
company policies of providing the employee with family, housing
and commuting allowances
- Clear definition = essential
- COMPENSATION
- All forms of financial returns & tangible services
an employee receives as part of an employment
relationship
Forms of Pay
- TOTAL REWARDS
- All rewards received by employees, including
cash compensation, benefits & relational
returns
- RELATIONAL
RETURNS
- Psychological returns employees
believe they receive in he
workplace
- Learning opportunities
- Recognition & status
- Challenging work
- Total compensation
- More transactional & includes
pay received directly as cash
- Base pay
- Merit increses
- Incentives
- Cost of living adjustments
- Indirect total compensation
benefits
- Pensions
- Health care
- Life insurance
- Programs to help
work/life balance
- Cash compensation: base
pay
- BASE PAY
- The cash compensation an
employee receives for work
performed
- Reflects value of work/skills &
ignores individual differences
- SALARY
- Pay expressed at an annual
or monthly rate
- WAGE
- Pay expressed at an hourly rate
- Cash compensation: merit
increased & cost-of-living
adjustments
- Cash compensation: incentives
- INCENTIVES (VARIABLE PAY)
- One-time payments for meeting pre-established
performance objectives in a future
time period
- Both incentives & merit
increases influence behaviour
but differ
- Incentives = future
behaviour
- Merit = past behavior
- Can be based on individual or team
based, total business uni performance
- Performance objective may be expense reduction,
volume increases, customer satisfaction, revenue
growth, return on investments, increases in total
shareholder value, etc.
- Long-Term incentives
- Intended to focus
employees on multi-layered
results
- Usually in the form of
stock ownership or options
to buy stock at specified,
advantageous prices
- The idea behind stock
ownership is that
employees with a financial
stake in the organization
will focus on long term
financial objectives as
return on investment,
market share, and return
on net assets
- Extended to different people
depending on organization
- Key performers (magna
international)
- Every employee (google,
westjet, starbucks)
- Their hope is that
employees will behave as
though they are owners
- Benefits: insurance &
pensions
- Part of total
compensation
- Some insurance
programs are required by
law (CPP, EI, Workers
Comp)
- Some companies provide
EEs with a pension plan in
addition to CPP
- Common benefits: health, dental, life
insurance and pensions are common
benefits
- Benefits: work/life programs
- Programs that help EEs better
integrate their work and life
responsibilities
- Access to services to meet
specific needs
- Drug counseling, financial
planning, child/elder care
- Flexible work
arrangements
- Non-traditional schedules, non-paid
time off,
telecommunicating
- Appeals to changing workforce
demographics
- Benefits: allowances
- Compensation to provide for
items that are in short supply
- Japanese companies
offer a rice allowance
- In Europe, managers
expect a car to be provided
- In China, housing (dormitories and
apartments) and transportation
allowance
- Companies who do not
offer this type of
compensation must attract
talented employees in
other ways
- The organization as a network of
returns created by different forms of
pay
- Challenge: design network that
leads to success
- More useful if bonuses, development
opportunities, promotions all work
together
A Pay Model
- Strategic Compensation
Objectives
- Three objectives
- 1. Efficiency
- 3. Compliance
- Conforming to various federal, provincial,
and territorial compensation laws and
regulations
- As changes occur, pay systems
might need to be adjusted
- 2. Fairness
- Fundamental objective of pay
systems
- Objectives guide design of pay
system
- Different objectives guide the
design of different pay systems
- Serve as standards for judging
the success of the pay system
- Four policy choices
- INTERNAL
ALIGNMENT
- Pay comparisons between jobs or
skill levels inside a single
organization
- Jobs and skills are compared in terms of their
relative contribution to the organizations
objectives
- Refers to the pay rates both for EEs doing
equal work and for those doing dissimilar
work
- Compliance is affected by the
basis used to make internal
comparisons
- EXTERNAL
COMPETITIVENESS
- Comparison of compensation
with that of competitors
- Employers have several options
- Base pay + team incentives to offer higher
pay if team performance warrants (Whole
Foods)
- Employee contributions
- The relative emphasis placed
on performance
- Directly affects EEs attitudes
and work behaviours
- Management
- In order for the pay model to achieve internal
alignment, external competitiveness.
- Impact of pay decisions is
easily managed and
understood
- Trying to understand how to attract and retain
the right talent and engaging it is the new
goal
- Pay techniques
- The way you go about paying
EEs
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