NELSON
Strategic Compensation in Canada, Sixth Edition
by Richard J. Long and Parbudyal Singh
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Library and Archives Canada Cataloguing in Publication
Long, Richard J. (Richard Joseph), author
Strategic compensation in Canada / Richard J. Long, Parbudyal Singh.—Sixth edition.
(Nelson Education series in human resources management) Includes bibliographical
references and index. Issued in print and electronic formats.
ISBN 978-0-17-665716-1 (softcover).—ISBN 978-0-17-682554-6 (PDF)
1. Compensation management—Canada—Textbooks. 2. Textbooks. I. Singh, Parbudyal,
author II. Title. III. Series: Nelson Education series in human resource management
HF5549.5.C67L56 2017 658.3’220971
C2017-900419-0
C2017-900420-4
This book is dedicated to the memory of Richard Long.
—Parbudyal Singh
Brief Contents
About the Series
About the Authors
Preface
Part 1 Strategy, Rewards, and
Behaviour
Chapter 1 A Road Map to Effective Compensation
Chapter 2 A Strategic Framework for Compensation
Chapter 3 A Behavioural Framework for Compensation
Part 2 Formulating Reward and
Compensation Strategy
Chapter 4 Components of Compensation Strategy
Chapter 5 Performance Pay Choices
Chapter 6 Formulating the Reward and Compensation Strategy
Part 3 Determining Compensation
Values
Chapter 7 Evaluating Jobs: The Job Evaluation Process
Chapter 8 Evaluating Jobs: The Point Method of Job Evaluation
Chapter 9 Evaluating the Market
Chapter 10 Evaluating Individuals
Part 4 Designing Performance Pay and
Indirect Pay Plans
Chapter 11 Designing Performance Pay Plans
Chapter 12 Designing Indirect Pay Plans
Part 5 Implementing, Managing,
Evaluating, and Adapting the
Compensation System
Chapter 13 Activating and Maintaining an Effective Compensation System
Appendix
Glossary
Contents
About the Series
About the Authors
Preface
Part I Strategy, Rewards, and Behaviour
Chapter 1 A Road Map to Effective Compensation
Chapter Learning Objectives
Opening Vignette: A Whopping Salary Increase for Everyone! Does It Work?
Introduction to the Importance of Compensation Systems
Your Compensation System: Asset or Liability?
The Premise of This Book
Role and Purpose of the Compensation System
Extrinsic vs. Intrinsic Rewards
Rewards vs. Incentives
Reward vs. Compensation Strategy
Criteria for Success: Goals for the Compensation System
A Road Map to Effective Compensation
Step I: Understand Your Organization and Your People
Step II: Formulate Your Reward and Compensation Strategy
Step III: Determine Your Compensation Values
Step IV: Design Your Performance Pay and Indirect Pay Plans
Step V: Implement, Manage, Evaluate, and Adapt the Compensation System
The Context of Compensation Management
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Question
Simulation Cross-Reference
Notes
Chapter 2 A Strategic Framework for Compensation
Chapter Learning Objectives
Opening Vignette: A Tale of Two Firms
Introduction to Effective Compensation Systems
A Strategic Framework for Compensation
Strategy and the Concept of Fit
Structural Variables
Managerial Strategy
Contextual Variables
Managerial Strategies and Reward Systems
Classical Managerial Strategy
Human Relations Managerial Strategy
High-Involvement Managerial Strategy
Interrelationships Among Structural Variables
Determinants of the Most Appropriate Managerial Strategy
Environment
Corporate Strategy
Technology
Organization Size
The Nature of the Workforce
Tying It All Together
Trends in Managerial and Compensation Strategies
The Evolution of Managerial Strategies
Trends in Compensation Systems
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Chapter 3 A Behavioural Framework for Compensation
Chapter Learning Objectives
Opening Vignette: Fouled-Up Pay Systems Lead to an Economic Meltdown
Introduction to Reward Systems and Behaviour
Types of Reward Problems
Failure to Produce Desired Behaviour
Production of Desired Behaviour and Undesirable Consequences
Production of Reward Dissatisfaction
Desired Reward Outcomes
Three Key Employee Behaviours
Three Key Employee Attitudes
Causes and Consequences of Reward Dissatisfaction
Causes of Reward Dissatisfaction
Consequences of Reward Dissatisfaction
Understanding Membership Behaviour
Causes of Membership Behaviour
Rewards, Satisfaction, and Commitment
Is Low Turnover Always Good?
Understanding Task Behaviour
Content Theories of Motivation
Maslow’s Hierarchy of Needs
Process Theories of Motivation
Money as a Motivator
Understanding Organizational Citizenship Behaviour
Causes of Citizenship Behaviour
Creating Citizenship Behaviour
Behavioural Implications for Designing Reward Systems
1. Define the Necessary Employee Behaviour
2. Determine the Necessary Employee Attributes
3. Identify Salient Employee Needs
4. Ensure a Positive Reward Valence
5. Make It Clear That Performance Will Lead to Rewards
6. Provide Conditions for Effort to Lead to Performance
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Part 2 Formulating Reward and Compensation
Strategy
Chapter 4 Components of Compensation Strategy
Chapter Learning Objectives
Opening Vignette: Pay Systems Are Changing
Introduction to Compensation Mix Choices
Fundamental Components of the Compensation Mix
Base Pay
Performance Pay
Indirect Pay
Base Pay Methods: Market Pricing
Advantages of Market Pricing
Disadvantages of Market Pricing
Base Pay Methods: Job Evaluation
Advantages of Job Evaluation
Disadvantages of Job Evaluation
Base Pay Methods: Pay for Knowledge
Advantages of Skill-based Pay
Disadvantages of Skill-based Pay
Issues in Developing a Skill-based Pay System
Competency-based Pay Systems
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Chapter 5 Performance Pay Choices
Chapter Learning Objectives
Opening Vignette: Fun and Games at the Exhibition
Introduction to Performance Pay Choices
Individual Performance Pay
Piece Rates
Sales Commissions
Merit Pay
Merit Bonuses
Promotions as Rewards
Special-Purpose Incentives
Group Performance Pay
Gain-Sharing Plans
Goal-Sharing Plans
Other Types of Group Performance Pay Plans
Organization Performance Pay Plans
Profit Sharing
Employee Stock Plans
Other Organization Performance Pay Plans
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Chapter 6 Formulating the Reward and Compensation Strategy
Chapter Learning Objectives
Opening Vignette: Compensation Strategy at WestJet Airlines
Introduction to Compensation Strategy
Constraints on Compensation Strategy
Legislated Constraints
Labour Market Constraints
Product/Service Market Constraints
Financial Constraints of the Organization
Formulating the Compensation Strategy
Define the Required Behaviour
Define the Role of Compensation
Determine the Compensation Mix
Determine the Compensation Level
Evaluate the Proposed Compensation Strategy
Who Develops the Compensation Strategy?
Compensation Strategy for Special Employee Groups
Contingent Workers
Executives
Expatriate and Foreign Employees
Compensation Strategy Formulation: An Example
Your Challenge
Your Company
The Problems
Formulating the New Compensation Strategy at Canada Chemicals
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Part 3 Determining Compensation Values
Chapter 7 Evaluating Jobs: The Job Evaluation Process
Chapter Learning Objectives
Opening Vignette: How Do You Compare Apples and Oranges?
Introduction to Effective Job Evaluation
Job Analysis
Nature of Required Information
Methods of Job Analysis
Identifying Job Families
Pitfalls in Job Analysis
Job Evaluation Methods
Ranking/Paired Comparison
Classification/Grading
Factor Comparison Method
Statistical/Policy Capturing Method
The Point Method
Conducting and Managing the Job Evaluation Process
Who Conducts the Job Evaluations?
Communicating the Job Evaluation Process
Applying Job Evaluation Results
Developing Appeal/Review Mechanisms
Updating Job Evaluations
Conforming to Pay Equity Requirements
Determine What Rules Apply
Identify Female and Male Job Classes
Establish a Body for Conducting the Pay Equity Process
Select a Gender-Neutral Job Comparison System
Collect Job Information
Compare Jobs
Check for Permissible Differences
Adjust Compensation
Communicate the Results
Maintain Pay Equity
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Question
Simulation Cross-Reference
Notes
Chapter 8 Evaluating Jobs: The Point Method of Job Evaluation
Chapter Learning Objectives
Opening Vignette: Nurses or Painters: Who Is More Valuable to a Hospital?
Using the Point Method to Design a Job Evaluation System
Identifying Compensable Factors
Scaling the Factors
Weighting the Factors
Applying the Job Evaluation System
Testing the Job Evaluation System
Possible Pitfalls of the Point Method of Job Evaluation
Inconsistent Construct Formation
Factor Overlaps
Hierarchical Grounding
Gender Bias
Determining the Base Pay Structure
Establishing Pay Grades
Establishing Pay Ranges
Movement Through the Pay Range
Other Possible Elements of Base Pay Structure
Living Wage
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Chapter 9 Evaluating the Market
Chapter Learning Objectives
Opening Vignette: Where Would You Choose to Work?
Introduction to What Is Appropriate Compensation
Understanding Labour Markets
Defining the Relevant Labour Market
Sources of Compensation Data
Third-Party Surveys
In-House Surveys
Conducting Compensation Surveys
Identify the Jobs to Be Surveyed
Determine What Information to Collect
Determine Whom to Survey
Determine How to Collect the Data
Analyzing and Interpreting Survey Data
Analytical Procedures
Interpreting Survey Data
Limitations of Compensation Surveys
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Question
Simulation Cross-Reference
Notes
Chapter 10 Evaluating Individuals
Chapter Learning Objectives
Opening Vignette: Microsoft Changes Its Performance Management System to Support
Strategy
Introduction to Performance Appraisal and Performance Management
Experience with and Reasons for Performance Appraisal
Experience with Performance Appraisal
Why Do Performance Appraisals?
Pitfalls in Performance Appraisal
Intentional Inaccuracies in Appraisals
Unintentional Inaccuracies in Appraisals
Methods and Instruments for Appraisal
Ranking and Forced Distribution
Graphic Rating Scale
Behaviourally Anchored Rating Scales
Behavioural Observation Scales
Objectives-based and Results-based Systems
Field Review
Combination Approaches
Sources of Appraisals
Appraisal by Superiors
Peer Appraisals
Subordinate Appraisals
Self-Appraisals
Customer Appraisals
Other Appraisers
Multisource Systems/360-Degree Feedback
Performance Management
Linking Pay to Performance Appraisals
Issues in Designing an Effective Merit System
Define the Objectives for Merit Pay
Determine the Most Appropriate Performance Measurement System
Determine the Frequency of Appraisals
Determine How to Link Appraisals to Pay
Determine How to Provide Feedback
Determine Mechanisms for Procedural Justice
Determine Procedures for Rater Training and Evaluation
Develop Procedures for Evaluating the Merit System
Evaluating Individuals in Teams
How Can Individuals in Teams Be Evaluated?
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Part 4 Designing Performance Pay and Indirect Pay
Plans
Chapter 11 Designing Performance Pay Plans
Chapter Learning Objectives
Opening Vignette: Who Wants to Be a Millionaire?
Introduction to Types of Plans and Design Issues
Gain-Sharing Plans
Types of Gain-Sharing Plans
Issues in Designing Gain-Sharing Plans
Goal-Sharing Plans
Types of Goal-Sharing Plans
Issues in Designing Goal-Sharing Plans
Profit-Sharing Plans
Types of Profit-Sharing Plans
Issues in Designing Profit-Sharing Plans
Employee Stock Plans
Employee Stock Bonus Plans
Issues in Designing Stock Plans
Nonmonetary Reward Plans
Types of Nonmonetary Reward Plans
Issues in Designing Nonmonetary Reward Plans
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Chapter 12 Designing Indirect Pay Plans
Chapter Learning Objectives
Opening Vignette: Benefits Are Extreme Here!
Types of Employee Benefits and Services
Mandatory Benefits
Retirement Income
Health Benefits
Pay for Time Not Worked
Employee Services
Miscellaneous Benefits
Fixed versus Flexible Benefit Systems
Fixed Benefit Systems
Semi-Flexible Benefit Systems
Flexible Benefit Systems
Designing the Benefit System
Issue 1: Determine the Role of Indirect Pay in the Compensation Strategy
Issue 2: Choose the Process for Plan Design
Issue 3: Identify the Benefits System and Benefits to Be Included
Issue 4: Determine the Structure of Each Benefit
Issue 5: Develop Procedures for Administering, Communicating, Evaluating, and Adapting
the System
Summary
Key Terms
Discussion Questions
Using the Internet
Exercises
Case Questions
Simulation Cross-Reference
Notes
Part 5 Implementing, Managing, Evaluating, and
Adapting the Compensation System
Chapter 13 Activating and Maintaining an Effective Compensation System
Chapter Learning Objectives
Opening Vignette: Thousands of Federal Employees Plagued by Problems with New
Compensation System
Introduction to Putting the Systems in Place
Preparing for Implementation
Preparing the Compensation Budget
Planning for Compensation Administration
Planning for Information Technology
Organizing for Compensation Administration
Developing the Implementation Plan
Developing the Plan for Managing Implementation
Developing the Training Plan
Developing the Communications Plan
Developing the Evaluation Plan
Implementing the Compensation System
Step 1: Establish the Implementation Task Forces
Step 2: Put the Infrastructure into Place
Step 3: Test the System
Step 4: Conduct the Training
Step 5: Communicate Information on the System
Step 6: Launch and Adjust the System
Communicating Compensation System Information
Keeping Managers Informed
Keeping Employees Informed
Evaluating the Compensation System
Impact on Compensation Objectives
Impact on Compensation Costs
Impact on Employee Behaviours and Attitudes
Monitoring Changing Circumstances
Changes in External Circumstances
Changes in Internal Circumstances
Adapting the Compensation System
Identifying What to Adapt
Adapting to Financial Crises
Adapting to Labour Shortages
Should Exceptions Be Made for Individual Employees?
Summary
Key Terms
Discussion Questions
Using the Internet
Exercise
Case Question
Simulation Cross-Reference
Notes
Appendix
Cases for Analysis
Achtymichuk Machine Works
Alliston Instruments
Eastern Provincial University
The Fit Stop Ltd.
Henderson Printing
Multi-Products Corporation
Plastco Packaging Ltd.
Glossary
Index
About the Series
The management of human resources has become the most important source of
innovation, competitive advantage, and productivity, more so than any other resource.
More than ever, human resources management (HRM) professionals need the knowledge
and skills to design HRM policies and practices that not only meet legal requirements but
also are effective in supporting organizational strategy. Increasingly, these professionals
turn to published research and books on best practices for assistance in the development
of effective HR strategies. The books in the Nelson Series in Human Resources
Management are the best source in Canada for reliable, valid, and current knowledge about
practices in HRM.
The texts in this series include:
• Managing Performance through Training and Development
• Management of Occupational Health and Safety
• Recruitment and Selection in Canada
• Strategic Compensation in Canada
• Strategic Human Resources Planning
• Industrial Relations in Canada
• Research, Measurement, and Evaluation of Human Resources
• International Human Resources: A Canadian Perspective
The Nelson Series in Human Resources Management represents a significant development
in the field of HRM for many reasons. Each book in the series is the first and now best-
selling text in the functional area. Furthermore, HR professionals in Canada must work with
Canadian laws, statistics, policies, and values. This series serves their needs. It is the only
opportunity that students and practitioners have to access a complete set of HRM books,
standardized in presentation, which enables them to access information quickly across
many HRM disciplines. Students who are pursuing the CHRP (Certified Human Resource
Professional) designation through their provincial HR associations will find the books in
this series invaluable in preparing for the knowledge exams. This one-stop resource will
prove useful to anyone looking for solutions for the effective management of people.
The publication of this series signals that the HRM field has advanced to the stage where
theory and applied research guide practice. The books in the series present the best and
most current research in the functional areas of HRM. Research is supplemented with
examples of the best practices used by Canadian companies that are leaders in HRM. Each
text begins with a general model of the discipline, and then describes the implementation
of effective strategies. Thus, the books serve as an introduction to the functional area for
the new student of HR and as a validation source for the more experienced HRM
practitioner. Cases, exercises,and endnotes provide opportunities for further discussion
and analysis.
As you read and consult the books in this series, I hope you share my excitement in being
involved and knowledgeable about a profession that has such a significant impact on the
achievement of organizational goals, and on employees’ lives.
Monica Belcourt, Ph.D., CHRP
Series Editor
October 2016
About The Authors
Richard J. Long
Richard J. Long was Professor of Human Resources and Organizational Behaviour at the
Edwards School of at the University of Saskatchewan. He held B.Com. and M.B.A.
degrees from the University of Alberta and a Ph.D. from Cornell University and was a
Certified Human Resources Professional (CHRP).
Dr. Long taught, conducted research, and consulted in human resources management for
more than 35 years and produced over 100 publications based on his research and
experience. He was the author of two books, New Office Information Technology: Human
and Managerial Implications, and the textbook Strategic Compensation in Canada. He
served on the editorial boards of International Journal of Human Resource
Management and Relations Industrielles/Industrial Relations. He received the University of
Saskatchewan’s coveted Master Teacher award in 2014.
Parbudyal Singh
Parbudyal Singh is a Professor of Human Resource Management at York University,
Toronto. He completed his Ph.D. from McMaster University. Prior to York, he was the
Associate Dean of the School of at the University of New Haven, Connecticut. Dr.
Singh has more than 100 refereed publications, many of which are in top-tier journals such
as Industrial Relations, Journal of Ethics, The Leadership Quarterly, Human
Resource Management, International Journal of Human Resource Management, and Human
Resource Management Review. He is a co-author of one of the leading human resource
management textbooks in Canada (Managing Human Resources, Eighth Canadian Edition,
Nelson Canada). Over his career, Dr. Singh has won numerous scholastic awards, several
national research grants, and teaching and research awards.
Dr. Singh was a member of the committee appointed by the Ontario government in 2015 to
study, consult, and make recommendations on closing the gender wage gap in Ontario. He
has also served as an advisor/consultant for many leading Canadian firms, as well as public
sector organizations, on their compensation systems. Prior to being a university professor,
Dr. Singh was a personnel manager at a large manufacturing firm.
Preface
The premise of this book is that an organization’s compensation system can have a major
impact on its success, but that the most effective compensation system may be very
different from one organization to the next and may even differ over time for the same
organization. However, if there is no single compensation system that fits all organizations,
this makes life very complicated for those who manage organizations.
This book provides a systematic framework for identifying and designing the
compensation system that will add the most value to the organization. Chapter 1 lays out a
road map for how this book will do that. As you will see, the first half of the book focuses on
developing the compensation strategy, and the second half focuses on how to transform
the compensation strategy into an operating compensation system.
Achieving an effective compensation system requires a diagnostic approach. That is, to
identify the most effective compensation system for a given organization, it is first
necessary to understand that organization, its strategy, and its people. Part One of the
book focuses on developing these understandings by first providing a road map to effective
compensation (Chapter 1), a strategic framework for compensation (Chapter 2), and then a
behavioural framework for compensation (Chapter 3).
Part Two provides the ingredients and processes for formulating a compensation strategy.
The three main components of a compensation system are examined, along with the
choices to be made in determining the most appropriate compensation mix for a given firm
(Chapter 4). Next, the available choices of performance pay plans is presented (Chapter 5),
along with the key factors in deciding which of these choices are suitable for inclusion in
the compensation mix. After identifying factors that constrain compensation
choices, Chapter 6 provides a process that should result in the formulation of the most
appropriate compensation strategy for a given firm.
However, the formulation of the compensation strategy does not mark the end of the
compensation process. Compensation strategy needs to be translated into an operating
compensation system that results in an actual dollar value of compensation for every
employee. Determining a compensation value for a given employee depends on a
combination of the relative value of that employee’s job to his or her employer (as
determined through job evaluation), the value the labour market places on that job (as
determined by compensation surveys), and the value of that employee’s performance (as
determined by performance appraisal). Part Three covers the many technical processes
necessary to convert the compensation strategy into a compensation system, including
those for evaluating jobs (Chapters 7 and 8), for evaluating the market (Chapter 9), and for
evaluating individual employees (Chapter 10).
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Part Four provides detailed guidance on the key issues in designing performance pay plans
(Chapter 11) and indirect pay plans (Chapter 12). Finally, Part Five provides detailed
…
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