PART 5

Motivating and Rewarding

Human Resources
Employees have to be compensated for their
performance fairly and equitably. HR assists
managers in developing a total compensation
package. This package addresses how much
employees should be paid in terms of direct
compensation—wages, bonuses, commissions
and so forth—as well as employee benefits. It is
also one of the responsibilities of HR to create a
motivating job environment.
Each of these topics is discussed in Part 5. They
are important management tools for HR
specialists and managers alike.
 CHAPTER 9

Compensation Management
When determining appropriate levels of
compensation, management must determine if
the employee turnover rate is too low, too high,
or just right. If turnover rate is high enough to
adversely impact the entity’s performance, then
employee compensation is probably too low.
JASON CHAFFETZ1
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LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. LO1Define total compensation.
1. LO2Explain the objectives of effective compensation management.
1. LO3Describe what a compensation philosophy is and why
organizations need one.
1. LO4Describe how direct compensation is determined through job
evaluation and market pricing methods.
1. LO5Discuss skill-based approaches to pay.
1. LO6Describe the various forms of individual incentive and group or
team-based variable pay systems.
1. LO7Explain the differences between “equal pay for equal work” and
“equal pay for work of equal value.”
1. LO8Describe advantages and disadvantages of pay secrecy.
HR is responsible for developing and administering compensation
systems, which tie rewards to the achievement of company objectives.
Compensation systems aim to pay workers for the jobs they do and
incentivize them through enhancing motivation and job satisfaction. It
would be rare to find employees in any job who would claim that they are
overpaid (at least not directly to their managers!). Much more
commonly, employees will evaluate whether they are adequately paid or
underpaid. When compensation is perceived to be inadequate, the firm
may lose employees and will incur costs to recruit, select, train, and
develop replacements. Even if workers do not quit when they are
unhappy with their pay, they may become dissatisfied with the company,
which can impact their performance.
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Perceptions of fair and adequate pay are based

on absolute and relative levels of pay. When the total, or absolute,
amount of pay is too low, employees cannot adequately meet their needs.
In Canada, the absolute level of pay usually is high enough to meet basic
needs, at least minimally. A more common source of dissatisfaction
centres on relative pay. For instance, employees might compare their
salary with that of other employees in relation to experience and the
duties and responsibilities required. More duties and experience and
higher levels of responsibility bring expectations of higher relative pay.

Total Compensation
LO1
Model
Overwhelmingly, a total compensation model (also known as a total
rewards approach) has become dominant in the compensation field.
Total compensation includes everything that the company provides an
employee in exchange for working: wages/salary, variable pay, perks and
on-site amenities, and status/recognition, as well as benefits, discussed
in Chapter 10. Figure 9-1 lists 13 components that may be included in a
total compensation package. Of note, not all of the components have a
dollar value associated with them. For instance, on-site daycare and
casual dress codes may add to an employee’s total compensation
valuation through savings in time, worry, and stress.2
1. Compensation Wages, commissions, and
bonuses
2. Benefits Vacations and health and dental
insurance
3. Social interaction Friendly workplace
4. Security Stable, consistent position and
rewards
5. Status/recognition Respect, prominence
6. Work variety Opportunity to experience
different things
7. Workload Right amount of work (not too
much, not too little)
8. Work importance Is work valued by society?
9. Authority/control/autonomy Ability to influence others and
control own destiny
10. Advancement Chance to get ahead
11. Feedback Receive information helping to
improve performance
 12. Work conditions Hazard free
13. Development Formal and informal training to
opportunity learn new
knowledge/skills/abilities
FIGURE 9-1

Components of a Total Compensation System

Table Summary: Summary
SOURCE: George T. Milkovich, Jerry M. Newman, Nina Cole, and Margaret Yap (2013), Compensation (4th
Canadian ed.), Toronto: McGraw-Hill Ryerson, p. 224. Used with permission.

Studies have shown that companies with total rewards approaches enjoy
easier recruitment of high-quality staff, reduced costs because of lower
turnover, higher employee performance, and an enhanced reputation as
an employer of choice.3
Wages and salary, known as base pay, form the foundation of
compensation systems because they establish the standard of living for
employees.4 This chapter outlines how to determine wage and salary
ranges for jobs based on job evaluations, external market comparisons,
and the skills and knowledge employees hold. The chapter also discusses
multiple forms of variable pay, which is paid contingent on factors such
as employees’ performance and retention. Also central to compensation
management, pay equity and pay secrecy are discussed in this chapter.

Objectives of
LO2
Compensation Management
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When determining total compensation to pay employees, HR strives to
achieve internal equity and external equity. Internal equity requires that
pay be related to the relative worth of jobs within a company. That is, at
the same workplace, jobs of similar value should get similar pay. Jobs
that have a higher worth to the organization and/or require more skill or
knowledge to complete are paid more. Likewise, jobs that have less
worth to the organization or require less skill or knowledge are paid
less. External equity involves paying workers at a rate perceived to be
fair compared to what the market pays. In short, it compares what one
firm’s employees are being paid relative to employees in similar jobs
employed by competitors.
The objectives sought through effective compensation management
include the following:
• Acquire qualified personnel. Compensation needs to be high enough
to attract applicants. Companies compete in the labour market,
so pay levels must respond to the supply and demand of workers.
But sometimes a premium wage rate is needed to attract
applicants who are already employed in other firms.
• Retain present employees. To prevent employee turnover, pay must
be kept competitive with that of other employers. Additionally,
employees will compare their duties and responsibilities and the
pay they receive relative to others in the organization, and they
expect to be compensated more when they are providing higher
value.
• Reward desired behaviour. Pay should reinforce desired behaviours.
Good performance, experience, loyalty, new responsibilities, and
other behaviours can be rewarded through an effective
compensation plan.
• Control costs. A rational compensation program helps an
organization to obtain and retain its workforce at a reasonable
cost. Paying employees is typically the largest expense line for the
employer. Without a systematic wage and salary structure, the
organization might overpay or underpay its employees.
• Comply with legal regulations. As with other aspects of HR, wage
and salary management must comply with applicable provincial
or federal regulations. A sound pay program ensures adherence
to all government regulations, such as minimum wage, overtime,
and vacation provisions that affect employee compensation.
These objectives can sometimes conflict. For instance, base pay must
comply with minimum wage provisions across the country and be
attractive enough to gain and keep workers. But organizations must also
provide their goods and services at prices low enough that consumers
will buy them. Finding the balance between these objectives is addressed
through the firm’s compensation philosophy, discussed next.
Determining Base Pay
Figure 9-2 depicts the major phases of compensation management. The
first step in determining the wages and salary for a job is to establish the
firm’s compensation philosophy with the objectives listed previously in
mind.

FIGURE 9-2

Major Phases of Compensation Management

Phase 1: Establishing the

LO3
Compensation Philosophy
A compensation philosophy is a guiding principle for how the
organization manages compensation. Simply put, a strong compensation
philosophy ties an organization’s mission, core business, operating
strategies, and competitive outlook to the pay it provides its
employees.5 Organizations may have lead, match, or lag compensation
philosophies,6 as illustrated in the examples below.
With a lead strategy, a company pays rates that are higher than the
relative marketplace. For instance, a high-tech company with a core
strategy to attract and retain top talent in the tech industry to outpace its
competitors may adopt a strategy of leading the market with its total
compensation package. Google has followed a lead strategy with paying
its employees more than other high-tech firms.7
In a match strategy, a company matches the market by paying
comparable rates to the relative marketplace. For instance, one retail
store may choose to match the pay of other retailers in the same mall.
A company with a lag strategy will pay rates lower than those of the
relative marketplace. For example, a warehouse with low turnover in a
remote community with a large labour pool may set a compensation
strategy to control costs and offer compensation valued at less than it
would be in a highly competitive community.
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The compensation philosophy will be determined by HR in conjunction

with management buy-in and input to understand supply, demand, and
labour market issues in the organization, and the operational and legal
ramifications surrounding compensation.
Phase 2: Reviewing the Job Analysis
It will come as no surprise that, to determine fair pay for jobs, the second
step is to understand the elements of the job and the skills needed to
conduct the job by examining job analysis information. As discussed
in Chapter 2, job analyses produce job descriptions, job specifications,
and performance standards, which describe the tasks and skills
associated with jobs in the organizations. Compensation specialists
review the job analysis data to compare jobs for internal equity and to
identify comparable jobs at other organizations to make external equity
assessments.
LO4 Phase 3: Pricing Jobs
The third phase of the compensation process is to price the worth of each
job. Three approaches to pricing jobs are discussed next: job evaluation,
market-pricing, and skill-based evaluation.

Job Evaluation
Job evaluations are systematic procedures to determine the relative
worth or value of jobs. Although evaluations take several different
approaches, each one considers the duties, responsibilities, and working
conditions of the job. The purpose of job evaluation is to identify which
jobs should be paid more than others, which can be done by job ranking,
job grading, or points systems.

Job Ranking
The simplest method of job evaluation is 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.
These are overall rankings, although raters may consider the
responsibility, skill, effort, and working conditions of each job. Most
problematically, these rankings do not differentiate the relative
importance of jobs. In retail sales, for example, the job of regional
manager might be ranked as 1, the store manager might get a 2, and the
sales assistant might rank as a 3. But the store manager might be
significantly more important than the sales assistant and almost as
important as the regional manager. Pay scales based on these broad
rankings ensure that more important jobs are paid more. But because
the rankings lack precision, the resulting pay levels may be inaccurate.
Ranking tends to be best suited for smaller organizations with simple
organizational hierarchies.8
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Job Grading
Job grading, or job classification, works by assigning each job a grade, as
explained in Figure 9-3. The description in the figure that most nearly
matches the job description determines the grade of the job along with
its corresponding salary range. Once again, more important jobs are paid
more. The largest user of the job grading approach has been the Public
Service Commission of Canada, which employs over a half million
Canadians in occupations such as correctional services, border services,
and architecture and town planning across the country.
Job Grading Schedule
Directions: To determine appropriate job grade, match job classi�ication
description with job description.
Job Grade Job Classi�ication Description Salary
Range
Of�ice The Office Assistant 6 performs well defined $28,500 to
Assistant 6 tasks primarily in one function, such as: $36,500
• Pulling and �iling records, preparing �ile
folders, �iling pre-coded documents
• Photocopying and routine maintenance
• Sorting, recording, and distributing
incoming mail; processing outgoing
mail; providing messenger service
Of�ice The Office Assistant 9 carries out a variety of $35,500 to
Assistant 9 clerical tasks requiring determination of $43,500
sequencing and priorities:
• Reception
• Secretarial duties
• Maintaining a �ile system, including
assigning numbers and codes, purging,
arranging off-site storage, searching for
requested information
• Checking forms, compiling information
packages
FIGURE 9-3

Job Classification Example

Table Summary: A 2 part table. The first part is titled: Job Grading Schedule. The second part
has a table with columns titled: Job Grade, Job Classification Description and Salary Range.
SOURCE: Based on Office Assistant Grid 6 & 9 for the B.C. Provincial Government. Classification description
retrieved November 19, 2020, from: [Link]
supervisors/job-evaluation-process/office-assistant

Point System
The point system evaluates the critical—also called compensable—
factors of each job. Typically, each compensable factor is judged on how
much skill is required (experience, education, ability), how much
responsibility is required (fiscal vs. supervisory), the level of effort
required (physical, mental), and working conditions (location, hazards,
extremes in environment). Points are allocated to each compensable
factor based on the skill, responsibility, effort, and working conditions
required, and the total points are summed. Jobs are paid according to
their total points with more points leading to more pay. Although this
quantitative system is more difficult to develop initially, it is more
precise than other methods because it can handle critical factors in more
detail. It is usually done by job evaluation specialists using
predetermined job factors and assigned points to each factor.
Many organizations will engage a firm specializing in compensation to
help them to establish their pay systems. One well known consulting firm
specializing in job evaluation is Korn Ferry:
The Korn Ferry Hay Guide Chart—Profile Method—is widely used with
global recognition.9 This proprietary method evaluates each job on three
factors: (a) the value that is created by the job (accountability), (b) how
the value is created (problem solving), and (c) what the job requirements
are that an employee must meet to deliver the value (know-how).
Expandable guide charts help to ensure that the job evaluations fit their
client’s business, operating model, organization structure, and culture.
Korn Ferry provides direct comparisons with the reward strategies of
other organizations across their global total compensation databases,
which helps to benchmark jobs and increase confidence in their job
evaluation results.10
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Figure 9-4 shows an example of allocating points to evaluate the worth

of retail jobs. From the points allocated, the store manager would be paid
a rate closer to the regional manager than the sales assistant, which was
not evident from the job ranking approach examined above. The points
system is more precise than job ranking or grading approaches.
 Points Allocation Regional Store Sales
Framework Manager Manager Assistant
Skill (50 points per category)
1. Experience 50 40 20
2. Education 40 30 20
3. Ability 50 40 30
Responsibilities (50 points
per category)
1. Fiscal 50 40 20
2. Supervisory 40 40 10
Effort (50 points per
category) 10 20 30
1. Physical 50 40 20
2. Mental
Working Conditions (30
points per category)
1. Location 30 10 10
2. Hazards 10 10 10
3. Extremes in 10 10 10
Environment
Total Points 340 280 180
FIGURE 9-4

Points Allocation Framework

Spotlight on ETHICS
Job Evaluation and the Wage Gap
The issue of the wage gap between genders has been discussed for
decades, and pay equity legislation in Canada is supposed to address it.
However, Statistics Canada reports that there is still a gap of about 13
percent in average salaries across jobs and provinces. Consider this
scenario:
To comply with pay equity legislation, a large grocery chain is switching
from job rankings to the point system for job evaluation. You are
chairing the Job Evaluation Committee, which is currently discussing
point allocation to the cashier job category, the largest category in the
company. The discussion so far has focused on how many points to
allocate to the responsibility factor, and the committee is essentially
split. As it so happens, there are three women and three men on the
committee. The women argue that cashiers have the same responsibility
as the junior accountants in the office because both jobs balance money.
The male members of the committee, on the other hand, disagree,
suggesting that a cashier’s responsibility is to balance the cash register,
whereas the accountants must balance accounts, which is a more difficult
task.
You seem to have the deciding vote. The dilemma from your point of
view is that all the cashiers are women while the three junior accountants
are all male. In your assessment you agree that the accountants carry a
higher responsibility and deserve more points. If you support the male
members of the committee you are pretty sure that the cashiers will
launch a pay equity grievance, usually a costly and time-consuming
affair. If you agree with the female members, it means cashiers will fall
into a higher pay category, increasing payroll expenses significantly. You
know very well that the competition in the food market is fierce, with low
profit margins (2 to 3 percent). A pay increase would have a direct
impact on the bottom line. What do you do?
Market-Based Pay Structures
The job evaluation techniques discussed above all result in a ranking of
jobs based upon their relative worth. They assure internal equity, that is,
jobs that are worth more will be paid more within an organization. But
how much should be paid? What constitutes external equity? Market-
pricing focuses on external competitiveness—how much organizations
should pay for jobs based on what their competitors are offering for
similar work.
To determine a fair rate of compensation, most firms rely on wage and
salary surveys, which discover what other employers in the same labour
market are paying for specific key jobs. The labour market—the area
from which the employer recruits—is generally the local community;
however, firms may have to compete for some workers in a wider
market. Consider how the president of one large university viewed the
market:
Our labour market depends on the type of position we are trying to fill.
For the hourly paid jobs, such as facilities maintenance, student services,
and administrative assistants, the labour market is the surrounding
metropolitan community. When we hire professors, our labour market is
typically Canada. We have to compete with universities in other
provinces to get the type of faculty member we seek. When we have the
funds to hire a distinguished professor, our labour market is the whole
world.
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Sources of Compensation Data

Wage and salary data are benchmarks against which analysts compare
compensation levels. Sources for this information include the following:
• Employment and Social Development Canada
• Employee trade and professional associations
• Consulting companies
The major challenge of market pricing is matching jobs within the
organization to those reported in the survey. Simply matching job titles
may be misleading: Federal, provincial, and association job descriptions
using the same title may be considerably different. Compensation
specialists will also have to decide whether to use industry-specific
comparables or all-industry data, and whether to use only data from
organizations of similar revenue size across all levels of positions. One
professional group suggests that HR should look for comparables beyond
their specific industry, and should include the last employer of their new
hires and companies that their employees go to when they leave.11 Data
from wage and salary surveys also needs to be aged to a common point in
time. This means projecting forward the salary rates from older surveys
to account for salary movement in the interim. Survey data older than
two years is likely too old and has lost market reliability.12
Once all comparables for a job within the identified labour market are
known, the compensation specialist can see the range of direct
compensation paid by competitors. In conjunction with comparables
across all jobs, with job evaluation rankings for internal equity, and with
consideration of the compensation philosophy, the HR group can
determine the percentiles they are going to pay:
• Matching the market. Targeting the �iftieth percentile means the
organization will pay at the middle of all organizations with similar
positions. Fifty percent of competitors would pay more for the same
job, and 50 percent would pay less.
• Market leader. Organizations targeting a market leader position
typically aim for paying at the seventy-�ifth percentile, meaning 75
percent of competitors will pay less for the same job. When
competing for employees with specialized skill sets in a tight labour
market, as Google was in the earlier example, a market leader
position makes sense.
• Market lag. Paying at the twenty-�ifth percentile, where only 25
percent of �irms pay less for comparable jobs, is a market lag
position. This strategy may suit loose labour markets as in the
earlier warehouse example. Organizations with strong non-
monetary forms of compensation (e.g., status, growth
opportunities) may also opt for a market lag position.13
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Often, organizations will integrate job evaluation and market-based

pricing to settle on base pay that achieves both internal equity and
external equity. Notably, the use of market pricing has gone up with 9
out of 10 organizations using it to some degree and 50 percent relying on
it exclusively. The point-factor approach to job evaluation is now only
used by 20 percent of firms.14

LO5 Skill-Based Pay

Both the job evaluation and the market-pricing methods focus on paying
for the job done. An alternative method is to pay employees based on
the skills or knowledge they have. Skill- or knowledge-based pay can
reward the employee based on depth (gaining greater expertise in
existing skills), breadth (increases in the employee’s range of skills), and
self-management (gaining higher level management-type skills, such as
budgeting, training, planning, and so forth). Figure 9-5 depicts two
different forms that skill-based pay systems may take.
FIGURE 9-5

Two Forms of Skill-Based Pay Systems

Table Summary: Summary

As pictured in the purple circle labelled A in Figure 9-5, depth-oriented

plans pay employees for gaining greater experience on existing skills.
Employees in these systems gain specialized skills, and, as their mastery
of those skills goes up, their pay goes up as well. Pay systems based on
depth of skill have been around since the Middle Ages and are commonly
seen in the skilled trades (e.g., carpenter, boilermaker, millwright),
where workers move over their careers from apprentice to journeyperson
to master craftsperson.15 Depth-based pay is also used for professors
who move from assistant to associate to full professor ranks over the
course of their careers.
Depth-based pay systems are used in many white-collar careers, where
there is a dual career ladder. As shown in Figure 9-6, one branch of the
career ladder leads from technical practice into management levels,
whereas the second branch recognizes achievement of skill levels. Dual
career ladders are common in aerospace, pharmaceuticals, and high
technology.16
FIGURE 9-6

Dual Career Ladder Example

Table Summary: Summary

Information technology employees join the organization at Level 1 and earn promotions to Level 2. Future
promotions after Level 2 will be into either a management branch, pictured on the left, or technical branch,
pictured on the right. Both branches are valued by the organization. The branch on the right provides pay based
on skill depth.
Within the blue oval labelled B in Figure 9-5, the goal is to reward a
balance between skill breadth, depth, and self-management skills. This
type of skill-based system pays employees for their flexibility to do
different jobs in the organization, to conduct simple and more complex
tasks, and to work with few or no supervisors. These systems are most
common in manufacturing, but also occur in call centres, help desks, and
processing centres for banks and insurance services.17 Employees who
can flexibly work in multiple capacities for the organization are rewarded
with higher levels of pay, as can be seen in the example below:
Shell Canada’s Brockville Lubricants plant employs 85 people and is the
largest blender and packager of passenger-car motor oils in Canada
producing Shell, Quaker State, and Pennzoil brands. Missing are the
traditional forepersons and supervisors who tell people what to do and
how to do it. Every worker, or team operator, is a supervisor of sorts.
Operators must master all the jobs within their team, plus at least one
skill in two other groups. Pay is based on a number of defined skills. The
impact on pay when this new plant and pay system was introduced was
significant. The average salary increased by 22 percent, and some
employees almost doubled their income.18
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The greatest advantage of skill-based pay is the flexibility of the

workforce. This includes filling in after vacancies from turnover and
when other employees are in training or meetings and covering for
absences. Also, if a company’s production or service process is changing
frequently, it is desirable to have a highly trained workforce that can
adapt smoothly to changes. The rise of lean systems and trends such as
cross-training, self-inspection, shorter life cycles of products, the
increasing demand for product customization, and the need to respond
quickly to market changes mean that this type of skill-based pay system
is likely to grow in popularity in the future.19 Below is an example in
which a highly skilled workforce made a major difference:
Johnson & Johnson implemented a skill-based pay system for a plant
that makes Tylenol. As a result of the Tylenol poisoning tragedy, J&J
decided to completely redo its packaging of Tylenol to add greater safety.
The skill-based plant quickly installed the new technology needed and
got back into production. Not so with its sister plant, which was a
traditional, job-based seniority-driven plant. Seniority rights and
traditional pay grades got in the way of people’s flexibility in adapting to
the new technology.20
Skill-based pay systems tend to generate higher pay rates. This does not
mean total wage costs have to be higher; if the organization can make
better use of its people, total costs can be significantly lower.21
Phase 4: Matching Employees to Pay
The final step in the compensation process includes integrating the data
on pricing jobs obtained from job evaluations, market-pricing, and/or
skill-based approaches to match pay to employees. This involves
establishing the appropriate pay level for each job and grouping the
different pay levels into a structure that can be managed effectively.
Pay Levels
The appropriate pay level for any job reflects its relative and absolute
worth. A job’s relative worth is determined by its ranking through the job
evaluation process. The absolute worth of a job is influenced by market
pricing for what the labour market pays similar jobs. Setting the right
pay level means combining the job evaluation rankings and the survey
wage rates and/or skill-based data through the use of a scattergram.
As Figure 9-7 illustrates, the vertical axis of the scattergram shows the
pay rates. If the point system is used to determine the ranking of jobs,
the horizontal axis is in points. The scattergram is created by plotting the
total points and wage level for each key job. Thus, each dot represents
the intersection of the point value and the wage rate for a particular key
job. For example, Key Job A in Figure 9-7 is worth 500 points and is
paid $22 an hour.
FIGURE 9-7

The Development of a Wage-Trend Line

Through the dots that represent key jobs, a wage-trend line is drawn as
close to as many points as possible. The wage-trend line uses two steps to
help determine the wage rates for nonkey jobs. First, the point value for
the nonkey job is located on the horizontal axis. Second, a line is traced
vertically to the wage-trend line, then horizontally to the dollar scale. The
amount on the vertical scale is the appropriate wage rate for the nonkey
job. For example, Nonkey Job B is worth 700 points. By tracing a vertical
line up to the wage-trend line and then horizontally to the vertical
(dollar) scale, Figure 9-7 shows that the appropriate wage rate for Job B
is $24 per hour.

The Compensation Structure

When organizations have multiple people working in the same job,
paying all of them exactly the same rate has both advantages and
disadvantages. While equal pay would ensure that no person is paid less
based on protected factors such as gender or race, the problem with flat
rates is that exceptional performance is not rewarded. Higher
performance or longstanding tenure may warrant a merit raise in pay.
To solve these problems, most firms use rate ranges. A rate range is
simply a pay range for each job.
For example, suppose that the wage-trend line indicates that $24 is the
average hourly rate for a particular job. Using a flat rate, every employee
in that job is paid $24. With a rate range of $6, a marginal performer can
be paid $21 at the bottom of the range. Then, an average performer is
placed at the midpoint in the rate range, or $24. When performance
appraisals indicate above-average performance, the employee may be
given a merit raise of, say, $1 per hour for the exceptional performance.
If this performance continues, another merit raise of $1 can be granted.
Once the employee reaches the top of the rate range, no more wage
increases will be forthcoming. Either a promotion or a general across-
the-board pay raise needs to occur for this worker’s wage to exceed $27.
An across-the-board increase moves the entire wage-trend line upward.
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Where rate ranges are used, the new employee will start at the bottom of
the range and receive raises, where appropriate, to the top of the rate
range.
Challenges Affecting Compensation
Even the most rational methods of determining pay must be tempered by
several challenges. The implications of these contingencies may cause
wage and salary analysts to make further adjustments to employee
compensation.

Prevailing Wage Rates

Market forces sometimes indicate that a job must be paid more than its
relative worth. For instance, data scientists are currently in short
supply.22 Fitting these jobs onto a wage-trend line would result in a
wage rate below their prevailing wage rate. Because demand outstrips
supply, market forces cause wage rates for these specialists to rise above
their relative worth when compared with other jobs. Firms that need
these talents are forced to pay a premium. Some shortages become so
serious that firms offer huge hiring bonuses, which eventually force them
to raise salaries for these jobs, even at the entry level.23
Some companies will pay an employee with long-standing tenure more
than the maximum in the pay range. Alternatively, some jobs may be
paid less than the established minimum. This happens when an
organization uses salary caps or limits. For example, a company may pay
newly hired employees with no experience rates 10–20 percent below the
pay minimum until they have “learned the ropes.”

Union Power
When unions represent a portion of the workforce, they may be able to
use their power to obtain wage rates out of proportion to their relative
worth. For example, wage and salary studies may determine that $20 an
hour is appropriate for a truck driver. But if the union insists on $22, HR
may believe paying the higher rate is less expensive than a strike.
Sometimes the union controls most or all of a particular skill, such as
carpentry or plumbing. This enables the union actually to raise the
prevailing rate for those jobs.
Electricians belong to a dominant union, which is why their wage rates are so high. Should
an electrician be paid double—or close to double—what a carpenter makes?

Productivity
Companies must make a profit to survive. A company cannot pay
workers more than they contribute back to the firm through their
productivity over the long term. When this happens (because of scarcity
or union power), companies usually redesign those jobs, train new
workers to increase their supply, or automate.

Wage and Salary Policies

Most organizations have policies that cause wages and salaries to be
adjusted. One common policy is to give nonunion workers the same raise
as that received by unionized workers. Some companies have automatic
cost-of-living clauses that give employees automatic raises when the
Statistics Canada cost-of-living index increases. Raises or policies that
increase employee compensation move the wage-trend line upward.

Employment Standards and Labour Codes

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Canada is a nation of wage-earners. What people earn bears a direct

relationship to the economy and general welfare of the population. The
federal government and each provincial government have
established employment standards that regulate the rights, restrictions,
and obligations of nonunionized workers and employers in Canada.
(Labour codes, which apply to unionized workers, are discussed below.)
The federal employment standards apply to federally regulated
occupations (such as banking, media, and transportation) that cross
provincial boundaries, and all other employees are governed by the
employment standards of their respective province. The provisions in the
legislation cover such things as the following:
• Minimum wage
• Annual vacations and other types of leave
 • Public (statutory) holidays
• Hours of work, including standard hours, overtime, and emergency
requirements
• Staff records
The minimum wage provisions require employers to pay at least a
minimum hourly rate of pay regardless of the worth of the job. When the
minimum is increased by law, it may mean adjusting upward the wages
of those who already earn above the minimum. If those just above
minimum wage do not also get raises, wage differentials will be squeezed
together. This is called wage compression.24 The current minimum wage
rates at the provincial and federal levels can be found at [Link].
The rates shown are typical for persons 18 years of age and over.
While minimum wages are intended to create a minimum standard of
living to protect the health and well-being of employees, some argue that
minimum wage regulations increase the cost of production in Canada.
Increases in minimum wages are usually accompanied by increases in
unemployment figures of low-skilled and young persons in the
workforce. Continual increases in minimum wage rates may actually
contribute to the inflationary trends in the economy.25
In terms of overtime, for every covered job, the organization must pay 1.5
times the employee’s regular pay rate for all hours over a stipulated
maximum number per day or per week. Executive, administrative,
professional, and other employees are exempt from the overtime
provisions.
The employment standards also furnish information relating to hours of
work, general holidays, annual vacation, and conditions of employment.
Accurate records are also to be kept, for example, on maternity leave and
severance pay relating to all affected employees. This is to ensure that all
provisions of the legislation relating to such things as minimum wages,
maximum weekly hours, and overtime payments are strictly adhered to
by each employer. Further information defining the employment
standards in a particular jurisdiction can be found here.
In parallel to the employment standards guiding nonunionized
employment, federal and provincial labour laws regulate the rights,
restrictions, and obligations of trade unions, workers, and employers in
Canada. These labour codes guide industrial relations (such as collective
bargaining, dispute resolution, strikes and lockouts), occupational health
and safety, and federal labour standards. In a union context, the specific
conditions of employment are guided by the collective agreement
between the union and management. The union–management
framework is the topic of Chapter 13. Of note, about 94 percent of
employees fall under provincial legislation, with 6 percent covered by the
Canada Labour Code.26

LO6 Variable Pay

There is strong evidence that the prevalence and variety of variable pay
programs at Canadian companies is on the rise. One recent report
suggests that 74 percent of Canadian companies now use variable pay,
with that number rising to 82 percent of top-performing companies and
85 percent of enterprise companies.27 WorldatWork reports that
variable pay plans were used by 88 percent of organizations.28 Figure 9-
8 shows the frequency with which various types of variable pay programs
are used by companies around the world.
Pro�it Performan Individua Bonuses Recogniti
Sharin ce Sharing l (e.g., on (e.g.,
g (based on Incentive sign-on, spot
other s (other retentio award)
�inancial or than n)
non�inanci sales
al goals) incentive
s)
United 19% 65% 52% 80% 73%
States/Cana
da
Africa 16% 66% 43% 66% 59%
Asia-Paci�ic 13% 67% 53% 68% 64%
Eastern 14% 66% 56% 66% 64%
Europe
 Western 16% 67% 52% 71% 64%
Europe
Middle East 14% 61% 45% 73% 67%
Latin 19% 64% 57% 68% 62%
America
FIGURE 9-8

Types of Variable Pay Plans Used Around the World

Table Summary: The table has 6 columns. Column 1 lists the region. Columns 2 to 6 have
column headers.

Contents © 2016. Reprinted with permission from WorldatWork. Content is licensed for use by purchaser only.
No part of this article may be reproduced, excerpted or redistributed in any form without express written
permission from WorldatWork.
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The objectives of variable pay are (1) to improve business performance

through efficient and productive employee behaviour, (2) to keep
compensation competitive, and (3) to enhance employee recruitment,
engagement, retention, and employer branding.29 The advantage of the
variable compensation approach is that it provides employees with
incentives linked to performance. Unlike merit pay, it can incorporate
the performance of individuals, groups, business units, and corporate
financial and stock price performances. The cost advantage of a variable
pay plan to the organization is that the award must be re-earned every
year and does not permanently increase base salary.
Variable pay systems provide the clearest link between pay and
performance or productivity. Performance is the accomplishment of
assigned tasks; productivity is the measure of output. Incentive
pay offered through variable pay systems is directly linked to an
employee’s performance or productivity. Employees who work under a
financial incentive system find that their performance (productivity)
determines, in whole or in part, their income. A typical example of an
incentive pay is a salesperson’s commission. The more the salesperson
sells, the more they earn.
The HR function has a significant role in the design and implementation
of incentive compensation programs, including the following:30
• Surveying employees about the incentives they value
 • Explaining how incentives work, and the level of performance
necessary to achieve the incentives
• Checking in with employees regularly to gauge their satisfaction
with the incentive plan
• Interviewing employees who are leaving the organization to
determine if the incentive plan had anything to do with their exit
decision
• Keeping upper-level management aware of how the incentive plan
is working
One of the most significant benefits of financial incentives is that better
performance is reinforced on a regular basis. Unlike raises and
promotions, the reinforcement is generally quick and frequent—usually
with each paycheque. Since the worker sees the results of the desired
behaviour quickly, that behaviour is more likely to continue. The
employer wins because wages are given in proportion to performance,
not for the indirect measure of time worked. And if employees are
motivated by the system to expand their output, recruiting expenses for
additional employees and capital outlays for new workstations are
minimized. A switch from hourly to direct incentive pay can be quite
dramatic:
At Safelite Glass Corporation, the changeover from hourly pay to
incentive pay led to an increase in productivity of 44 percent per worker.
Incentive pay induced (1) higher output per worker, (2) lower quitting
rates among the highest output workers, and (3) the company’s ability to
hire more productive workers.31
Offsetting these advantages are some potential challenges. The
administration of an incentive system can be complex. As with any
control system, standards have to be established and results measured.
For many jobs, the standards and measures are too imprecise or too
costly to develop. This means that the incentive system may result in
inequities. Some incentive systems require less effort than other systems
that pay the same. Sometimes, workers make more than their
supervisors, who are on salary. Another problem is that the employee
may not achieve the standard because of uncontrollable forces, such as
work delays, machine breakdowns, or pandemic shutdowns.
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Variable pay programs tend to focus efforts on only one aspect (output,
sales, or stock prices), sometimes to the exclusion of other dimensions
(quality, service, and long-term objectives). Some of the more common
individual incentive plans, team (or group) incentive plans, and
employee ownership and profit sharing systems are outlined below.

Individual Incentive Plans

There are multiple forms that individual incentive plans can take. In
general, these pay plans reward the accomplishment of specific results.
Typically, the amount of the reward is tied to expected results from the
outset so that employees know what their compensation will be for
particular levels of performance. Common individual incentive plans
include piecework, production bonuses, sales commission, discretionary
bonuses, and spot awards.

Piecework
Piecework is an incentive system that compensates the worker for each
unit of output. Daily or weekly pay is determined by multiplying the
output in units times the piece rate per unit. For example, in agricultural
labour, workers are often paid a specific amount per bushel of produce
picked. Piecework does not always mean higher productivity, however.
Group norms may have a more significant impact if peer pressure works
against higher productivity. And in many jobs, it may be difficult to
measure the person’s productive contribution (e.g., receptionist), or the
employee may not be able to control the rate of output (e.g., an
assembly-line worker).

Production Bonuses
Production bonuses are incentives paid to workers for exceeding a
specified level of output. They are used in conjunction with a base wage
rate or salary. Under one approach, the employee receives a
predetermined salary or wage. Through extra effort that results in output
above the standard, the base compensation is supplemented by a bonus,
usually figured at a given rate for each unit of production over the
standard.
A variation rewards the employee for saving time. For example, if the
standard time for replacing an automobile transmission is four hours
and the mechanic does it in three, the mechanic may be paid for four
hours. Through taking on an additional task during the fourth hour, the
organization can service more vehicles and the employee is compensated
for their speedy work.
A third method combines production bonuses with piecework by
compensating workers on an hourly basis, plus an incentive payment for
each unit produced. In some cases, the employee may get a higher piece
rate once a minimum number of units are produced. For example, the
employee may be paid $15 an hour plus $0.30 per unit for the first 30
units each day. Beginning with unit 31, the production bonus may
become $0.50.

Commissions
Commission is commonly paid in sales jobs. The salesperson may be
paid a percentage of the selling price or a flat amount for each unit sold.
Organizations often tie commission rates to sales quotas.32 Salespeople
meeting the highest quotas will be paid the highest commission rates,
with those meeting lower targets paid lesser commission rates. For
instance, salespeople may receive 10 percent commission on each unit
sold up to the tenth one, and 20 percent commission on each unit sold
thereafter. The salesperson is motivated to sell more units to make more
money. Another approach is to tie commission rates to revenue goals.
The goal may be to sell, say, $100,000 worth of goods with a higher
commission rate paid for each dollar of goods sold over that amount.
When no base compensation is paid, the salesperson’s total earnings
come from commissions. Real estate agents and car salespeople are often
paid this form of straight commission. Variations on straight commission
plans include combining commissions with base wages, as one example
below depicts:
EchoSign, a software as a service company, initially based its
compensation plan on a high quota, base salary, and low commissions.
Problems with the system included that retention was poor, that the
relatively low commission did not inspire reps to spend time serving
their customers once signed, and that the mediocre reps were being paid
too much while the best reps were not making enough. The company
redesigned its compensation structure so that it included a competitive
base salary, but reps had to cover their base salary with their sales before
bonuses would kick in. After covering their base salary, they would make
twice the rate of commission. The company also inspired reps to take
care of their customers by paying them on receipt of payment as opposed
to at contract e-signing. New reps became highly motivated to perform at
their peak performance watching the top performers driving their M6
convertibles. Mediocre reps voluntarily left the organization.33

Discretionary Bonus Plans

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With discretionary bonus plans, employees are paid base wages and then
are paid a bonus at the discretion of management. When these bonuses
are paid on the basis of performance, management will typically
determine the size of the total bonus pool and then allocate amounts to
individuals after a performance period. The top employees may receive
bonus amounts commonly around 10 percent of their base salary.
Employees who did not meet performance expectations will get no
bonus. A related form of discretionary bonus is pay-at-risk. Employees
can earn the additional amount or percentage of their wages that is pay-
at-risk provided they meet specific targets.
Other discretionary bonuses may be paid as sign-on bonuses to prompt
new employees to join and stay at the organization. These are one-time
payments made at the start of employment, ranging from cash amounts
of $5,000 to $10,000 most commonly, or as a percentage of
salary.34 Such bonuses often make the sought-after new employee’s
salary more affordable for the organization.
Sign-on bonuses aim to increase the length of time that employees will
stay at an organization. However, similar-sized sign-on bonuses show
the relationship with tenure not to be strong. For instance, Tesla Motors,
Pandora, and Spotify all had average sign-on bonuses around $20,000
and employees stayed about two years. Microsoft had a similar-sized
sign-on bonus and employees stayed, on average, 44 months. Hewlett-
Packard Enterprise paid an average of only $8,265 and employees stayed
about 3.5 years.35
Other bonuses may be paid as retention bonuses. With retention
bonuses, employees who are still working for the organization after the
stipulated period of time will receive a lump-sum bonus. These are
common with overseas employment, where the organization has invested
a lot of money in moving the employee (and potentially their family as
well). Employees may be paid the retention bonus when they hit three-
or five-year time points. They are also used when companies are going
through transitions, such as a merger. Companies in difficult situations
may pay retention bonuses to have existing employees see them through
their tough times.36 One criticism of retention bonuses is that
employees may stay just for the money and not because they are
committed and engaged.
Amid negative news and RCMP investigations, SNC-Lavalin paid cash
rewards of 50 percent of salary to key employees to keep them from
leaving the “sinking ship.”37

Spot Awards
Spot awards recognize special contributions as they occur. Employees
may receive spot awards for a project or task, generally accomplished in
a short period.38 These types of recognition awards can range from gift
certificates and thank-you notes to paid time off to cash awards or salary
increments unrelated to annual merit increases. Their aim is to
acknowledge the employee’s noteworthy contribution and reinforce the
behaviours and values. Spot awards that are given to the deserving
employee publicly have higher status than private ones. While thank-you
notes and celebrations can be valued, it is fair to say that “good old-
fashioned cash” is still one of the best incentives.39

Team (or Group) Incentive Plans

Several plans have been developed to provide incentives based on the
performance of a group or work team. These programs often are used
when measurable output is the result of group effort and it is difficult to
separate individual contributions.

Team Results
Under team-based pay plans, employee bonuses and salary increases are
based on a team’s overall results and typically shared equally. There can
be a number of advantages in a team-based pay system. For example, in
project teams, many jobs are interrelated; that is, they depend on each
other for making progress. A team approach tends to foster group
cohesion and organizational commitment. Communication in cohesive
teams tends to be more open, and decision making can be more effective
if a consensus approach is in the team’s interest. Team-based pay often
includes rewards for developing better interpersonal skills to improve
cooperation and incentives for cross-training.
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There can also be disadvantages to team-based pay systems. If team

cohesiveness is not strong, a “freeloader effect” may take place. As in any
group, individual contributions to team goals vary. Some put in more
effort; others, less. If these differences are significant and the high
performers do not receive satisfaction for their input, they may cut back
their contributions. Usually, however, high-input members get their
satisfaction from being recognized as team leaders or higher status
members, for example as experts or specialists. Another potential
drawback is social pressure on high performers to lower their input to
avoid drawing management’s attention to the low performers. This issue
will most likely occur in a hostile management–union environment. It is
also possible that the team approach may be too effective, resulting in
competition between teams and undesirable consequences, such as
hoarding of resources or withholding of important information.

Production Incentive Plans

Production incentive plans allow groups of workers to receive bonuses
for exceeding predetermined levels of output. They tend to be short-
range and related to very specific production goals. A work team may be
offered a bonus for exceeding predetermined production levels, or it may
receive a per-unit incentive that results in a group piece rate.

Profit-Sharing and Ownership Plans

Apart from individual incentive and team-based incentives,
organizations may also compensate employees through profit-sharing
plans and employee stock ownership plans.

Profit-Sharing Plans
A profit-sharing plan shares company profits with the workers. When
the organization is profitable, the employer shares profits with all, or a
participating group of, employees. The amounts paid are given to a
trustee and invested for the benefit of all of the beneficiaries of the plan.
Profitability, however, is not always related to employee performance: A
recession or new competitors may impact whether or not the company
makes money. Furthermore, it is often difficult for employees to perceive
their efforts as making much difference. Some companies further reduce
the effectiveness of the incentive by diverting the employees’ share of
profits into retirement plans. Thus, the immediate reinforcement value
of the incentive is reduced because the incentive is delayed. However,
when these plans work well they can have a dramatic impact on the
organization because profit-sharing plans can create a sense of trust and
a feeling of common fate among workers and management.
How effective are profit-sharing plans in motivating employees? The
evidence is not that clear-cut. Profitable companies with profit-sharing
plans also tend to have open and two-way communication between
management and employees. In addition, managers in these companies
tend to have participative management styles, resulting in a supportive
and satisfying work environment.40 Although companies with profit-
sharing plans tend to be more profitable, it is by no means certain that
the plan is the cause of increased profitability.41 As usual, many factors
play a role.

Employee Stock Ownership Plans (ESOPs)

Employee stock ownership plans (ESOPs) have become very popular in
North America and Europe. One study indicates that 28 million U.S.
employees participating in 11,000 employee ownership plans own 8
percent of corporate equity in the U.S. In Europe, 85 percent of publicly
traded firms have employee stock ownership plans, with 10 million
employees in Europe holding some form of company stock.42 Many
Canadian firms, such as WestJet and Golder Associates, have adopted
ESOPs. Unlike the more traditional profit-sharing plans, ESOPs give
employees genuine ownership and voting power when it comes to major
decisions relating to the company’s future.
Beau’s, the largest independent producer of organic beer in Canada,
plans to maintain its independence from large breweries by handing
ownership over to its employees. Around 4–5 percent of the company
was offered to employees during the first year of the ESOP. Employees
could spend up to 2 percent of their salary buying shares in the company.
Future-year share offerings will depend on how much the Beauchesne
family decides to put up for sale. Other craft breweries in the area have
been acquired by Labatt Breweries of Canada. The ESOP plan was
adopted to maintain legacy and protect workers from layoffs in the event
of an acquisition.43
In addition to motivating employees and improving their productivity,
some Canadian employers are using ESOPs as a succession planning tool
and to transition out of their business.44 Viive Tamm, president of
Toronto-based advertising and branding agency Tamm
Communications, is using an ESOP as her exit strategy. She is selling 49
percent of the business to her employees, aiming for the company to
flourish as workers take on ownership. Over time, she plans to sell the
remainder of the company to employees.45
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Although some stock-ownership plans vest shares to employees as

compensation for their work, a variation on this is offering the employee
a stock option. Stock-option plans grant employees the right to buy a
certain amount of company shares at a predetermined price for a certain
period of time. With stock options, the employees are not granted stocks
automatically but, rather, are given the opportunity to buy in to the
company over time.

LO7 Pay Equity

As first mentioned in Chapter 4, an important issue in compensation
management and equal opportunity is equal pay for work of equal
value, the concept that jobs of comparable worth to the organization
should be equally paid (referred to as pay equity). The idea goes
beyond equal pay for equal work (referred to as equal pay), which
requires an employer to pay men and women the same wage or salary
when they do the same work.
The pay equity concept, and legislation stemming from the Canadian
Human Rights Act, makes it illegal to discriminate on the basis of job value
(or content). For example, if a nurse and an electrician both received
approximately the same number of job evaluation points under the point
system, they would have to be paid the same wage or salary, regardless of
market conditions. This approach to compensation is sought by
governments as a means of eliminating the historical gap between the
income of men and women, which results in women in Canada earning
about 87 percent as much as men.46 This gap exists in part because
women have traditionally found work in lower paying occupations, such
as teaching, retailing, nursing, and secretarial work.
Tesco supermarket is embroiled in the employment tribunal process
under claims that female shop workers should get the same wages as
male warehouse staff. Currently, the shopworkers are paid about $5 less
per hour than the warehouse staff.47
It should be emphasized, however, that the above-mentioned figure of 87
percent as the earnings gap between men and women is misleading,
although it is widely used by proponents of equal pay to point to the
discrimination in pay against women. This figure emerges if one
compares all men and women wage-earners regardless of job tenure and
skill level. However, women have greater career interruptions during
which their male colleagues may have obtained training and
advancement opportunities. By using comparable groups, the pay gap
decreases to 5–10 percent, depending on the group studied.48 For
example, the income of single women aged 35–44 was 94.5 percent of
that earned by men of the same age. If one looks only at the most
educated members of that age group—single females with a university
degree—women actually made 6 percent more than their male
counterparts. Taking all of the above factors into account, a gap of 5–10
percent still exists that is not explained. The COVID-19 pandemic
disproportionately affected women because of layoffs in female-
dominated industries such as the service sector, and initially only half of
women who became unemployed were seeking to return to work due to
childcare.49 The participation rate of women in the labour force was
reduced to levels not seen in 30 years.
One contributing factor to the gap may be in the form of differential pay
to permanent full-time jobs versus part-time and casual jobs. An
arbitration decision in Ontario saw a wage increase for casual workers,
who were mostly female, to make their wages the same as full-time
workers, who were mostly men:
An arbitration decision compelled the Liquor Control Board of Ontario
(LCBO) to pay casual workers the same wages as full-time workers. The
casual workers performed essentially the same work as the full-time
workers but were paid $2 to $7 per hour less. Of the casual workers, the
“vast majority” are female.50
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Although the casual category is frequently used to justify a pay

difference, it becomes an issue of unequal pay if one of those jobs is
gendered. Notably, a job is gender-dominated if, depending on
jurisdiction, 60–70 percent of the job occupants are from one sex. There
is no evidence that there is a conspiracy among entrepreneurs and
managers to keep the wages of female-dominated jobs down.

In 2015–2016, nearly 1,900 women in Canada received more than $6.8 million in
compensation adjustments following workplace investigations of pay inequity.51

What makes the issue of equal pay for work of equal value very tricky is
the lack of any generally acceptable definition of “equal value” and how it
can be measured. The definition offered in the guidelines issued by the
Canadian Human Rights Commission is not of much help:
“Value of work is the value which the work performed by an employee in
a given establishment represents in relation to the value of work of
another employee, or group of employees, the value being determined on
the basis of approved criteria, without the wage market or negotiated
wage rates being taken into account.”52
The “approved criteria” referred to above are skill, effort, responsibility,
and working conditions. These criteria will be considered together; that
is, they will form a composite measure. This does not mean that
employees must be paid the same salary, even if their jobs are considered
equal. The equal wage guidelines define seven “reasonable factors” that
can justify differences in wages:
1. Different performance ratings (ratings must be based on a formal
appraisal system and be brought to the attention of each
employee)
2. Seniority (based on length of service)
3. Red-circled rate, where an employee is paid higher wages
because it was what they were paid prior to a job re-evaluation
(rather than cut the employee’s salary, they red-circle and freeze
the salary until future pay raises bring others up to match the
red-circled rate of pay)
4. Rehabilitation assignment (e.g., after lengthy absence because of
sickness)
 5. Demotion pay procedures (because of unsatisfactory work
performance, or reassignment because of labour force surplus)
6. Procedure of phased-in wage reductions
7. Temporary training positions
These factors justify a difference in wages only if they are applied
consistently and equitably. It must be clearly demonstrable that existing
wage differences are not based on sex.
Where does this leave the HR manager? An HR manager has to make
sure that the company’s pay system is in line with the province’s or the
federal government’s legislation. An overview of pay equity in various
Canadian jurisdictions can be found here. The Spotlight on
HRM provides a series of suggestions to examine pay equity and then act
on inequities identified.
Spotlight on HRM
What Can Employers Do to Address Gender Pay Inequity?
Executives can begin by gaining a high-level understanding of the state
of gender equity at their organizations. Some simple metrics to start with
include metrics such as “female ratio” (looking at the percentage of total
head count that are female) by department, role or location, and in
hiring pipelines.
Next, executives should dig deeper to find out if pay and performance
ratings are unbiased for men and women. Compa-ratio is a classic
compensation calculation that indicates how close a person’s base pay is
to the pay level midpoint for the role they perform. The best practice for
ensuring pay equity is a well-designed, individual compensation plan
that takes into consideration job difficulty, education and training
requirements, experience and performance.
If women have a lower than average compa-ratio, then it is likely pay
decisions are not being made equitably. Similarly, understanding the
proportion of employees who receive each level of performance rating,
and then comparing this to the proportion of each rating for female
employees, will uncover if performance ratings are handed out in an
unbiased manner.
To address the manager divide and increase the representation of
women in manager roles, companies need to measure not only
promotions by gender, but also the nature of the promotions—by role,
department or location—and analyze if the percentage of women
promoted to or holding manager positions is lower than the percentage
of men promoted to or holding manager positions.
Lastly, executives need to take steps to correct gender inequity, starting
with their processes for hiring and promotion. One idea is to implement
the Rooney Rule—for every open manager position, consider “at least
one woman and one underrepresented minority” in the slate of
candidates.
Originally implemented by the National Football League (NFL) and
named after Pittsburgh Steelers chair Dan Rooney, the Rooney Rule
sought to increase the opportunities for minorities to hold NFL head
coaching positions.
Executives can also consider blind screening of resumés (removing
names or other gender identifiers from resumés) when selecting
applicants for interviews.
It is important to note that even with these policies in place, society must
be willing to give women a reasonable job experience credit for time
spent raising children, and promote women to enter management ranks
at the same rate as men.
Without these changes, the pay gap inside a given profession is likely to
remain.
SOURCE: John Schwarz (2017, October 16), “Best Practices for Gender Pay Equity,” Canadian HR Reporter.
Although much of the focus of pay equity is about gender, racial and
sexual orientation-related wage disparities also exist. A recent study
found that white men are paid more than Black men, despite similar
educational attainment and family backgrounds.53 A study of Canadian-
born men and women who are white, Indigenous, and members of
visible-minority groups revealed that, compared to white men, white
women earned 30 percent less, visible minority women earned 17
percent less, and Indigenous women earned 44 percent less. Visible-
minority men earned 8 percent less than white men, and Indigenous
men earned 18 percent less. The earnings gap for recent immigrants is
larger, with male recent immigrants who are visible minorities earning
40 percent less.54
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Not a lot of data is available on the wage gap in the LGBTQ+ community.
Women in same-sex couples may make significantly less than men in
same-sex couples, according to a Student Loan Hero study. Transgender
women may earn one third less after they transition, and transgender
people experience high rates of poverty and are more likely to earn less
than $10,000 per year in the United States.55
Although some progress has been made in the past 20 years towards
narrowing the gap, organizations are being encouraged to take an “equity
pledge” rather than rely solely on adherence to policy changes.56 But
policy changes are also being made to address pay gaps. As of 2021,
Canadian federally regulated employers must include aggregated wage
gap information for women, Indigenous people, persons with disabilities,
and members of visible minorities in their annual reporting on
employment equity.57
Not only is pay equity a human right, but it also makes good business
sense. The pay equity process helps organizations and employees
accurately see the value of all jobs in the organization, identify potential
biases, and remove barriers to engagement and productivity. Workplaces
that establish pay equity have a recruitment advantage, lower turnover,
and better organizational and financial performance.58
The gender pay gap represents $18 billion in forgone income per year,
according to a 2016 analysis by Deloitte.59 Imagine the economic impact
through additional taxes paid and consumer spending if the gap were
eliminated. From societal and economic perspectives, pay equity makes
good sense.

LO8 Pay Secrecy

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Pay secrecy is a touchy topic. Many employers prefer not to publish
salary levels to avoid having to defend their pay decisions. If a pay policy
is indefensible, disclosure may cause significant dissatisfaction among
employees. Research has shown that employees generally prefer secrecy
about individual salaries but favour disclosure of pay ranges and pay
policies.60 Figure 9-9 shows the advantages and disadvantages of
insisting on secrecy.
Advantages Disadvantages
Most employees prefer to May generate distrust in the pay system
have their pay kept secret
Gives managers greater Employees may perceive that there is no
freedom relationship between pay and performance
Covers up inequities in the
internal pay structure
FIGURE 9-9

Advantages and Disadvantages of Pay Secrecy

Table Summary: Summary
According to Edward Lawler, founder and director of the Center for
Effective Organizations, pay secrecy has two major effects: (1) it lowers
the pay satisfaction of employees and (2) it reduces employees’
motivation to perform.61 It is practically unavoidable that employees
will talk about and compare salaries. On the basis of rumours and
speculations, employees tend to overestimate the salaries of their
colleagues, causing feelings of unfairness, inequity, and resentment. Pay
secrecy also prevents employees from perceiving the connection between
their performance and their pay.
When it comes to asking about salary histories during hiring, some U.S.
jurisdictions are currently prohibiting employers from asking about
salary history in an effort to improve pay equity. However, WorldatWork
suggests that employers should have access to all relevant employment
information to determine fair compensation—including a candidate’s
total rewards history. WorldatWork rationalizes that compensation
should then be tied to specific job requirements and market pricing to
determine the rate of pay for a job.62
SUMMARY
Employee compensation, if properly administered, can be an effective
tool to improve employee performance, motivation, and satisfaction.
Mismanaged pay programs can lead to high turnover and absenteeism,
more grievances, poor performance, and job dissatisfaction.
A total rewards model aims to examine all forms of compensation
provided to an employee, including base wages, variable pay, and
benefits and services. For compensation to be appropriate, it must be
internally and externally equitable. The organization must first establish
a compensation philosophy to determine whether it will lead, match, or
lag its market competitors. Referring to job analysis data and with their
compensation philosophy in hand, organizations can begin the process of
pricing jobs. Jobs are priced within an organization through job
evaluation techniques. This assures internal equity. Wage and salary
surveys are used to determine external equity by comparing what similar
jobs are paid by competitors. Another approach is to value employee pay
according to the knowledge and skills held by the employee. With
knowledge of the relative worth of jobs and external pay levels, each job
can be properly priced with pay matched to individuals within the
organization.
Variable pay offers incentives to employees to reach peak performance or
meet other desired behaviours. Individual incentives, such as
commission and discretionary bonuses, relate pay to productivity. Group
or team-based incentive plans, such as a bonus for reaching a production
target, aim to inspire high team performance. Profit sharing plans and
employee stock ownership plans share the company’s profits with
workers and may inspire loyalty through ownership in the company.
Determining compensation rates is affected by multiple factors,
including union power, the productivity of workers, and government
constraints on pay. Pay equity legislation requires “equal pay for work of
equal value,” which requires employers to compare the content of jobs
when determining pay scales and to pay equal wages for jobs of
comparable value.
The next chapter describes the range of benefits and services offered by
employers.