Compensation
and Benefits Administration
Week 10 (Part B)
Dr. Teal McAteer
Teaching Professor
DeGroote School of Business
McMaster University
Responsibilities of
Compensation Professionals
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Legislative compliance
Conduct pay or wage surveys
Conduct job evaluations
Create links between desired rewards and
levels of performance
 Monitor compensation costs
Pay Surveys
 Method of obtaining accurate information about
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pay rates for relevant jobs in other
organizations
Gauge of external equity
How To Conduct A Pay Survey
 Specify the purpose of the survey
 Specify jobs to be surveyed, their descriptions or
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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
Job Evaluation Systems
 Determine relative worth of jobs to the
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organization
Internal equity
Central to Pay Equity
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
Pay Equity
 Job evaluation system must be compliant with
Pay Equity which considers factors of
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Skill
Effort
Responsibility
Working conditions
 System must be gender neutral
Types of Job Evaluation Methods
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Ranking
Level description (classification method)
Factor comparison
Point methods
Market pricing
Ranking
 Orders jobs from least valued to most valued
 More appropriate for small organizations and
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those with small numbers of jobs
Advantages
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Simple
Quick and inexpensive
 Disadvantages
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Entirely subjective
No explicit rationale or documentation for results
Level Description
(Classification Method)
 Places jobs in a pre-existing hierarchy
 Compares jobs to descriptions of job grades
 Advantages
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Inexpensive
Readily available
 Disadvantages
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Cumbersome
Factor Comparison
 Compares jobs to key jobs on scales of
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compensable factors
Advantages
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Custom-built
Easy to use
 Disadvantages
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System becomes less accurate as key jobs change
Complex
Limited to manufacturing, manual, blue-collar jobs
Point Method
 Jobs are compared to standardized
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descriptions of degrees of universal
compensable factors and sub factors
Advantages
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Most accurate
Stable over time
 Disadvantages
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Administrative costs can be high
Market Pricing
 Relies entirely on the labour market to
determine how much jobs should be paid
 Advantages
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Avoids management bias
Employees paid at market value
 Disadvantages
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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
Key Outcome of Job Evaluation
 Hierarchy of jobs in terms of their relative value
to the organization
How Is Pay Assigned to Jobs?
 Requires pay philosophy decision regarding
Relationship of pay levels to market
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Lead
Lag
Match
Pay Policy Line
 Graphic depiction of line drawn between
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midpoints of salary ranges
Represents an organization’s pay level
How do Organizations
Structure Pay?
 Typically offer range of pay
 Variations in pay based on different in performance,
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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
Assigning Pay to Persons
 Shift from job-based to person-based pay
system
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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.
Using Pay to Motivate
Employees
 Pay for performance = pay is contingent on
some level of performance specified by the
organization
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Merit pay
Hinging promotion to higher-paying jobs contingent of
superior performance
Incentive pay system
Pay For Performance Systems
 Individual
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 Group
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 Company
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Merit
Promotion
Straight piece rate
Group piece rate
Group standard hour
plans
Profit sharing plans
Cost savings plan
Compensation Administration
 Ensure that compensation system is achieving
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its goals and that compensation costs remain
within allocated amounts
Mechanisms used include:
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Compa-ratio
Budgets
Periodic audits of wages
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
Trend – Total Rewards
 Definition:
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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”)
Total Rewards Model
Work
Experience
Benefits
Compensation
Why Total Rewards
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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
Categories Of Benefits
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Universal benefits
Statutory benefits
Discretionary benefits for employee protection
Pay for time not worked
Employee services
Universal Benefits
 Government provided without requiring direct
contributions from either employees or
employers
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OAS (Old Age Security)
GIS (Guaranteed Income Supplement)
Provincial hospital and medical plans (OHIP)
Statutory Benefits
 Employer must provide under federal and/or
provincial laws
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CPP/QPP
Workers’ compensation
Employment insurance
Supplementary coverage i.e. SUB plans
Health insurance
Discretionary Benefits
 Private pension plans
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Defined benefit plan
Defined contribution plan
Combination
 Group insurance programs
Holiday And Vacation Pay
 Statutory plus others
 Vacations
Employee Service Benefits
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Savings plans
Tuition loans
Recreation facilities and programs
Parking privileges
Flexible Benefits
 Flex plans allow employees a degree of choice
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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
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Modular plans
Core plus option plans
Private health services plans
Cafeteria plans
Controlling Benefits Cost
 Provide benefits that the majority of employees
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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
Issues In The Benefits Areas
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Pension issues
Same-sex spousal benefits
Controlling rising benefit costs
Disability management
New accounting methods
Benefit Cost Containment
Strategies
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Contribution changes
Limits
Coverage changes
Drugs
Proactive management approach
Communication, education, incentives
New Plan/programs
The Work Experience
 Satisfy intrinsic needs
 Includes elements of reward that are important
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to employees and employers but are less
tangible than compensation and benefits
Employees place high value on the work
experience
Elements Of The Work Experience
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Acknowledgement and recognition
Balance of work/life
Culture
Development
Environment