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CHAPTER

1
THE PAY MODEL
LEARNING OUTCOMES


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Describe how compensation is viewed differently by society, stakeholders, managers, and employees in Canada and around the world. Discuss major components of total returns for work. Describe the four strategic policies in the pay model and the techniques associated with them. Discuss the objectives of compensation in the pay model.



A friend of ours writes that she is in the touring company of the musical Cats. In the company are two performers called swings who sit backstage during each performance. Each swing must learn five different lead roles in the show. During the performance, the swing sits next to a rack with five different costumes and makeup for each of the five roles. Our friend, who has a lead in the show, once hurt her shoulder during a dance number. She signalled to someone offstage, and by the time she finished her number, the swing was dressed, in makeup, and out on stage for the next scene. Our friend is paid $2,000 per week for playing one of the cats in the show. She is expected to do a certain number of performances and a certain number of rehearsals per week. She gets paid for the job she does. The swing gets paid $2,500 per week, whether she performs 20 shows that week or none. She is paid for knowing the five roles, whether she plays them or not. Think of all the other employees, in addition to the performers, required to put on a performance of Cats. Electricians, trombonists, choreographers, dressers, janitors, nurses, vocal coaches, accountants, stagehands, payroll supervisors, ushers, lighting technicians, ticket sellers— the list goes on. Consider the array of wages paid to these employees. Why does the swing get paid more than other performers? Why does the performer get paid more (or less) than the trombonist? How are these decisions made, and who is involved in making them? Whether it’s our own or someone else’s, compensation questions engage our attention. Does the compensation received by all the people connected with Cats matter? Most employers believe that how people are paid affects people’s behaviour at work, which affects an organization’s chances of success. Compensation systems can help an organization achieve and sustain competitive advantage.1

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Chapter 1 | The Pay Model

■ COMPENSATION
What image does the word “compensation” bring to mind? It does not mean the same thing to everyone. Yet, how people view compensation affects how they behave at work. Thus, we must begin by recognizing different perspectives.

Society
Some people see pay as a measure of justice. For example, a comparison of earnings of women with those of men highlights what many consider inequities in pay decisions. The gender pay gap in Canada for full-time, full-year workers narrowed from 42 percent in 1967 to 30 percent in 2000. Despite this narrowing, and despite pay equity legislation, the gap persists, and always to the benefit of men. The latest studies show that, because women often withdraw temporarily from the labour force for family-related reasons, the resulting reduction in their experience has a serious impact on pay over the long term. For workers with less than two years’ experience, the gap is only four percent, but it still exists.2 However, a large portion of the wage gap still has yet to be explained. Sometimes differences in compensation between countries are listed as a cause of loss of North American jobs to less developed economies. As Exhibit 1.1(a) reveals, labour costs in Mexico are about fourteen percent of those in Canada.3 However, Exhibit 1.1(b) shows that when differences in productivity (the relative output for each dollar of pay) are factored in, the wage advantage of Mexico, Korea, and Taiwan disappears. Productivity is highest in France, the United States, and Germany.

EXHIBIT

1.1(a) Hourly Compensation Costs*
Mexico Taiwan Korea Spain Canada Australia UK Italy France United States Japan Sweden...
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