342B MOS Section 002 Winter 2007
Compensation and Benefits Management
Managing the Compensation System
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MOS 342B Managing Compensation
Overview
Implementing the Compensation System
Preparing
for implementation Implementation
Compensation Administration Evaluating the System Adapting the System
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MOS 342B Managing Compensation
Preparing for Implementation Issues to be considered:
Deciding
the administrative details Assigning responsibilities and planning infrastructure Documenting the compensation system Developing a training and communications plan Budgeting for compensation Developing the evaluation plan Developing the implementation plan
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MOS 342B Managing Compensation Issues in Preparing for Implementation
Deciding the administrative details:
All
the little things beyond strategic considerations, e.g.: How often to pay? Where to submit insurance claims? How to document use of company cars? administrative tasks (calculation, cheques, etc.) to HR staff or outside providers
Responsibilities and infrastructure:
Assigning
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MOS 342B Managing Compensation Outsourcing of Administrative Tasks
Advantages of outsourcing:
Economies
of scale Expertise (e.g., legal and tax issues of benefits) Facilitates concentration on strategic issues
Disadvantages of outsourcing:
Losing
touch with employees' problems Requires coordination with and monitoring of outside provider Layoffs of internal HR staff
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MOS 342B Managing Compensation Preparing for Implementation cont'd
Documenting the system:
Outline
system in manuals document responsibilities (internal administration) or contracts (outsourcing)
Developing training and communication plan:
Training:
Explaining the system to everyone involved in operating it Communication: Timing and media for communicating the plan to workforce
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MOS 342B Managing Compensation
Preparing for Implementation cont'd
Budgeting:
Bottom-up: Budget created by summing up pay components adjusted for expected raises and turnover Top-down: Management sets overall budget (or limit), which is then distributed across units Develop criteria for effects and conditions; if appropriate, measure these before implementation Compose task force for implementation Plan schedule and timing
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Developing evaluation plan:
Developing implementation plan:
MOS 342B Managing Compensation
Implementing the System
Establish task force Put infrastructure in place: Staff, facilities, equipment, materials Test run of system (especially computer software) Conduct the training Communicate the system and obtain feedback Launch and adjust system
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MOS 342B Managing Compensation Compensation Administration
Steps in Compensation Administration
Collecting necessary information: changes in workforce in ranks, number of hours/days worked, granted merit pay, changes in jobs Performing calculations (direct and indirect pay) Preparing and distributing remittances (to employees, government, and benefits providers) Detecting and correcting errors (auditing the process) All done with the aid of HR management software
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MOS 342B Managing Compensation Compensation Administration
Compensation Communication
Keep
supervisors updated Inform and consult individual employees, especially crucial with benefits:
Clear and concise information about entitlements Review employee's obligations individually Explain timelines and procedures for complaints
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MOS 342B Managing Compensation Evaluating the System
(Quasi-)Experimental Design
Most
common: Pre-post-test/control group design Problem: usually no control group available
Longitudinal Design:
Measure
criteria before implementation (baseline) and thereafter, repeat post-implementation measurement Initial dip: New systems tend to work poorly in the beginning Many effects are long-term Don't forget to control other antecedents / effects
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MOS 342B Managing Compensation Evaluating the System: Criteria
Compensation Cost Analysis
Actual
minus budgeted compensation costs Compensation cost ratio: The ratio of total compensation costs to total costs or to revenues Average employee earnings: Total compensation divided by the number of full-time equivalent employees Problem: Difficult to interpret
Other Financial Performance Indicators:
Profitability,
costs Problem: on Depend many factors beyond compensation (criterion contamination)
return on equity, revenue growth, total
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MOS 342B Managing Compensation Evaluating the System: Identify Criteria
Other Criteria: Where do they come from? Remember Strategy Formulation Process...
Step
1: Define required behaviour Step 2: Define role of compensation Define behavioural objectives Find and define measurable indicators for behavioural objectives Likely to be contaminated, too!
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MOS 342B Managing Compensation
Evaluating the System: Criteria
Behavioural Indicators
Membership Behaviours
Turnover: Control labour market conditions and differences between units Absences: Frequency better than duration as indicator of motivated absences Objective: Productivity, output (quantity); errors, scrap losses, customer satisfaction/complaints (quality) Subjective: Rated performance OCB: suggestions, peer/subordinate ratings CWB: disciplinary actions, inventory losses, grievances, selfreports (randomized response technique)
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Task Behaviours
Off-Task Behaviours
MOS 342B Managing Compensation Evaluating the System: Criteria
Attitudinal Indicators
General
Job Attitudes
Job satisfaction Organizational commitment (distinguish components)
Compensation-Related
Attitudes
Satisfaction with pay: amount of compensation (distributive), compensation system (procedural)
Usually measured in employee surveys
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MOS 342B Managing Compensation Evaluating the System: Measuring Attitudes
Types of employee surveys
Targeted
surveys (polls): Triggered by particular event and tailored to measure outcomes Benchmark surveys: Standardized, regular surveys for cross-organizational comparisons Intervention-focused surveys (e.g., survey feedback): Survey only part of organizational development
Key factors in employee surveys
Anonymity Support
by top management, participation of employees Voluntary participation during paid working hours
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MOS 342B Managing Compensation Evaluating the System: Side Effects
Control of unintended effects of compensation
May
occur even if objectives are attained Cause: Exclusive focus on explicit goals may interfere with objectives outside focus Examples:
Bonus for increased profit margins reduces market share (increased prices) Benefits reduce turnover but retain only employees with low qualifications Two-tier wage system reduces costs but losses in productivity outweigh cost reductions
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MOS 342B Managing Compensation Evaluating the System: Side Conditions
Monitor environment for changes that may make the compensation...