COMPENSATION
Third Canadian Edition
Milkovich, Newman, Cole
13-1
© 2010 McGraw Hill Ryerson
Managing Labour Costs
Labour
Costs
=
Employment
x
Average cash + Average
compensation
benefit cost
Core
Base Pay
Variable Pay
Contingent
13-2
© 2010 McGraw Hill Ryerson
Managing Labour Costs
 controlling employment: head count and
hours
 controlling average cash compensation
costs
13-3
© 2010 McGraw Hill Ryerson
Controlling Salary Costs:
Top Down





current year’s rise
ability to pay
competitive market
turnover effects
cost of living
13-4
© 2010 McGraw Hill Ryerson
Three Distinct but Related
Concepts and Their Measures
Employee’s cost
of living
Consumer
Price Index
Goods/service
markets price
changes
Personal Expense
Budget
Labour
market wage
changes
Pay
Surveys
13-5
© 2010 McGraw Hill Ryerson
Controlling Salary Costs:
Bottom Up
 instruct managers in compensation policies and
techniques
 distribute forecasting instructions and worksheets
 provide consultation to managers
 check data and compile reports
 analyze forecasts
 review/revise forecasts and budgets with
management
 conduct feedback with management
 monitor budgeted versus actual increases
13-6
© 2010 McGraw Hill Ryerson
Inherent Controls
 range maximums and minimums
broad bands
 compa-ratios
 variable pay
 analyzing costs of wage proposals
13-7
© 2010 McGraw Hill Ryerson
The Compensation
Communication Cycle
Defining the Objectives
What are the goals?
Evaluating the Program
Obtaining the Information
Was the program
successful?
What is the current
situation?
Conducting the Sessions
Developing the Strategy
How should the sessions be
implemented?
What is the best overall
approach?
Determining the Media
What “tools” are most
appropriate?
13-8
© 2010 McGraw Hill Ryerson
Compensation Components
Communicated to All Audiences
 job descriptions
 job evaluation
 market data collection
and analysis
 pay structure
development
 incentive plan design
 performance appraisal
system
 salary management
administration procedures
 benefit plans
13-9
© 2010 McGraw Hill Ryerson
Conducting Formal Communication
Sessions for Various Audiences
EXECUTIVES
MANAGERS
EMPLOYEES
Components explained
in a general way
Components thoroughly
explained throughout the
communication process
Fairly detailed explanation of
components
Emphasis on strategic
implications of the
compensation system
Reviewed at the formal sessions Emphasis on both process and
policy information
Executive
compensation
explained in detail in
one-on-one meetings
Emphasis on development and
motivation of employees using
salary management,
performance appraisal, and
incentive plan
Particular attention paid to the
workings of the incentive plan
13-10
© 2010 McGraw Hill Ryerson
Structuring the
Compensation Function
 centralization – decentralization
 flexibility within corporate-wide
principles
 reengineering and outsourcing
13-11
© 2010 McGraw Hill Ryerson
Conclusion
 pay administration includes control of
how managers decide individual
employees’ pay and of overall costs of
labour
 the salary budgeting and forecasting
processes impose additional controls
 pay systems are tools that must be
evaluated in terms of usefulness in
achieving an organization’s objectives
13-12
© 2010 McGraw Hill Ryerson