International Human Resource

Management: A Strategic
Approach

Compensation Management

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 Compensation
1. Classification Systems

2. Highly structured Factor Comparaison

Systems

3. Whole Job Ranking and Paired Comparaison

Systems

4. Unstructured "Free-Market" Nonsystems

 Organizational Issues for a competency-based system
as opposed to a Job-based pay system
•

Inability to attrack "good" employees

Change is so fast that the concept of "stable job" have lost

its meaning

The need for incentives to motivate employees to maintain

and enhance State-of-the-art skills

A traditional job evaluation system that appears to reward

"empire building"

Highly structured compensation systems that are expensive

to develop and maintain
• Highly structured compensation systems promote
bureaucracy:

Rigid hierarchies
Narrow job descriptions
Restrictive job classification (reduce organizational
flexibility)

Employees treated as
"commodities“
instead of "valuing in
inviduals differences"
Competencies

•Initiative
•self-confidence
•concern of effectiveness
•Teamwork
•technical skills
•Knowledge
•interpersonal understanding
•Flexibility
Competencies Behaviours

•Set high standards

•Supports risk taking
•Communicates openly
•Fosters teamwork
•Delegates
•Coaches and develops
•Recognizes and rewards
•Manages diverse work groups
 Jobs: Competency requirements
Competency Study Design

1. Define performance effectiveness criteria

2. Identify a criterion sample
3. Collect Data
4. Analyse data and develop a competency
model
5. Validate the competency model
6. Prepare applications of the competency
model
Performance Appraisal provides
information for:
•Compensation

•Succession Planning

•Discipline

•Development

•Career Path
 Performance appraisal
Improvement of Organizational Performance

Performance Competence

What How

Quantitative Qualitative

Short time frame Longer time frame

Reward oriented Development oriente

Performance Management
System
 Model of the Consequences of Pay Dissatisfaction

Performance

Desire for Strikes

More Pay Absenteeism

Grievances
Turnover
Job Search for
Higher Pay
Psychological
Withdrawal
Job
Lower
Pay Dissatisfaction Dispensary
Attractiveness
Dissatisfaction Visits
of job
Absenteeism Poor Mental
Health
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Consequences of Overpayment
of Wages and Salaries

 Overpaid employees may feel anxiety, guilt,

and discomfort.

 High compensation can reduce an

organization’s competitiveness and lessen
its future ability to provide attractive jobs.

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Achieving Balance

The balance between pay satisfaction

and the organization’s competitiveness
underlies most of the human resource
department’s compensation efforts.

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Objectives of Effective
Compensation Management

What does the organization hope to

achieve with effective compensation?

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Objectives of Effective
Compensation Management
 Acquire qualified personnel
 Retain present employees
 Ensure equity
 Reward desired behaviour
 Control costs
 Comply with legal regulations
 Further administrative efficiency

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Compensation meets Employee
Needs:
Absolute Pay:
 total pay needed to
meet the physiological
and security needs of
the employee (food,
shelter, basic clothing)

 Can I survive on this?

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Compensation meets Employee
Needs:
Relative Pay:
 pay needed to allow self-
worth to be determined
 pay compared to other
workers, which affects
social and esteem needs
 Is my contribution, as
compared to others, being
recognized?

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Job Evaluation:
 Systematic procedures to determine the
relative worth of jobs. The purpose of job
evaluation is to identify which jobs should
be paid more than other jobs within the
organization.
 How is Job Evaluation different from
Performance Evaluation?

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Job Ranking
 Specialists review the job
analysis information for each job.
 Each job is then ranked
subjectively according to its
importance in comparison with
other jobs.
 Because rankings lack precision,
the resulting pay levels may be
inaccurate.

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Job Grading
 Each job is assigned a
grade, according to a
standard description that
most nearly matches the job
description. See Fig. 10-5.
 Slightly more sophisticated
than job ranking, still
lacking precision.

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Factor Comparison
 Job evaluation committee
must compare critical job
components
– responsibility
– skill
– mental effort
– physical effort
– working conditions
(most widely used
components)

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Factor Comparison
 Uses current wages to
compare key jobs and
then evaluates other
jobs.
 Jobs can then be
ranked according to
their relative worth as
indicated by job’s
wage rate.

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Point System
 Research shows point
system used more than
any other method.
 Evaluates critical
factors of each job and
breaks these down to
sub-levels.

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Point System
 Points are used instead
of wages.
 More difficult to
develop initially, but
more precise.

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Characteristics of Changing
Compensation Systems:
Modern:
 Variable component added
 Performance-driven gains
 Many kinds of plans, extended throughout
the organization

Source: Conference Board of Canada

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Wage and Salary Surveys
 Surveys that discover what other employers in
the same labour market are paying for specific
key jobs.
 The labour market is the area from which the
employer recruits.
 Could be local community, could be extended
beyond local community.
 Sample surveys from World Wide Web.

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 New Approaches to Pay
Skill or knowledge based pay:
 identifies tasks which have to be performed
 identifies skills required to complete these tasks
 skills priced so that pay rates can be determined
 employees are paid only for those skills they are
able to perform, but incentive there to broaden
one’s skill level

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New Approaches to Pay
 Incentives for horizontal learning of skills
(job enlargement principle)
 Vertical skills: every member of a work
group is given an increase if the group is able
to function without a supervisor
 Variable Pay: performance linked,
combines short-term and long-term variable
compensation with base salary

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Characteristics of Changing
Compensation Systems
Traditional:
 Pay = 100% base salary
 Entitlement-base increases
 Few incentive/bonus plans, restricted to
executives

Source: Conference Board of Canada

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