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Module 2 Notes

Compensation encompasses all financial returns and benefits employees receive in their employment, influencing behavior and organizational effectiveness. Perspectives on compensation vary among society, stakeholders, managers, and employees, each viewing it through different lenses such as justice, expense, and reward. The strategic objectives of compensation focus on efficiency, fairness, and compliance, with policy choices including internal and external equity, employee contributions, and effective management.

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12 views3 pages

Module 2 Notes

Compensation encompasses all financial returns and benefits employees receive in their employment, influencing behavior and organizational effectiveness. Perspectives on compensation vary among society, stakeholders, managers, and employees, each viewing it through different lenses such as justice, expense, and reward. The strategic objectives of compensation focus on efficiency, fairness, and compliance, with policy choices including internal and external equity, employee contributions, and effective management.

Uploaded by

jennifer.mcconachie
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Module Objectives

Readings

Activities and Evaluations

Definition of Compensation

Compensation refers to all forms of financial returns and tangible services and benefits employees
receive as part of the employment relationship.

Why is the study of Compensation Important?

1. It influences employee behaviour on the job

2. It links behaviour with overall organizational effectiveness

3. If employees believe compensation is unfair it potentially undermines organizational


performance

4. Compensation is a major component of expenses and must be controlled and monitored.

Compensation is NOT the same for everyone!

 Society views Compensation as a form of Distributive Justice

 Stockholders view executive pay as a special interest (since pay for executives is intended to be
tied to performance In Canada)

 Managers view compensation as an expense and an influence over employees’ work behaviour

 Employees view compensation as a return for work they perform.

Forms of Pay

Total Rewards include:

1. Cash Compensation includes Base Pay-Wage and Salary; Merit Increases; Cost of Living Adjustments;
Incentives/Variable Pay (one time payments for meeting objectives over a fixed period) and Long Term
Incentives (to focus employees on longer term results)
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2. Benefits include indirect compensation including health insurance, dental insurance, pensions and life
insurance provided by the government (CPP/QPP and EI and the employer and work/life balance
programs including vacations, counselling, financial planning, flexible working arrangements)

3. Relational Returns (psychological returns employees believe they receive in the workplace) include
Recognition and Status, Employment Security, Challenging Work and Learning Opportunities.

The Pay Model

The Pay Model contains 3 building blocks: Strategic Policies, Techniques and Strategic Objectives.

The Strategic Objectives serve as the standard to evaluating the system based on:

1. Efficiency: that it improves performance and efficiency controlling labour cost

2. Fairness: attempts to ensure fair pay treatment for all employees by recognizing their
contributions and needs ie procedural justice

3. Compliance: with all federal and provincial legislation

Policy Choices

1. Internal Equity: refers to pay comparisons between jobs or skill levels inside a single
organization. Jobs and employees’ skills are compared in terms of their relative contribution to
the organization's objectives.

2. External Equity: refers to compensation relationships external to the organization ie.


comparison with competitors

3. Employee Contributions: refers to the relative contribution based on performance.

4. Management: refers to the fact that the system will not achieve its objectives unless it is
managed properly. Management needs to be competent and choose the appropriate forms of
pay to include et al.

Pay Techniques

Pay Techniques are procedures used to implement policy decisions such as job analysis and job
evaluation processes and includes wage and salary surveys to establish external equity and incentive
plans to distinguish employee contributions.

Additional Resources
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Summary

1. Compensation refers to all forms of financial returns and tangible services and benefits that an
employee receives as part of an employment relationship

2. There are different perspectives on compensation. Society views it as a form of distributive


justice; stakeholders believe that paying senior executives and employees in stock will increase
performance. Managers view it as an expense and a means of influencing behaviour. Employees
view it as a return in exchange with their employer or as a reward.

3. Two components of total rewards are total compensation and relational returns. Total
compensation includes cash compensation-based pay and incentives and benefits. Relational
returns include psychological aspects of work such as recognition and status.

4. The strategic objectives of compensation are efficiency, fairness and compliance with legislation.

5. The strategic policy objectives are internal equity, external equity, employee contributions and
management. The internal structure techniques include job analysis and job evaluation; the pay
structure techniques include pay policy lines and salary surveys; the incentive program
techniques associated with contributions are seniority-based, performance-based, and merit
guidelines. Those associated with management are budgeting, planning and communication.

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