CH-9-11 Compensation – Canadian Human Resource Management: A Strategic Approach : Book Guide

This Document Contains Chapters 9 to 11 9 COMPENSATION CHAPTER OBJECTIVES After studying this chapter, you should be able to: Explain the objective of effective compensation management. Describe how wages and salaries are determined. Identify the major issues that influence compensation management. Explain the differences between “equal pay for equal work” and “equal pay for work of equal value.’ Evaluate the advantages and disadvantages of incentive systems. Explain the major approaches to group incentive plans. Define total compensation Describe pay and organizational strategy POWERPOINT® SLIDES Canadian Human Resource Management includes a complete set of Microsoft PowerPoint® files for each chapter. (Please contact your McGraw-Hill Ryerson representative to find out how instructors can receive these files.) In the lecture outline that follows, a reference to the relevant PowerPoint slide for this chapter is placed beside the corresponding lecture material. The slide number helps you to see your location in the slide show sequence and to skip slides that you don’t want to show to the class. (To jump ahead or back to a particular slide, just type the slide number and hit the Enter or Return key.) LECTURE OUTLINE (with PowerPoint® slides) Compensation Management Slide 1 Compensation Slide 2 Objectives of Compensation Slide 3 COMPENSATION • Cash and non-cash rewards employees receive in exchange for their work • Effective compensation management -- Employees are more likely to be satisfied and motivated to contribute to the achievement of organizational objectives • Compensation perceived to be inappropriate -- Performance, motivation, and satisfaction may decline dramatically -- Employee turnover may occur resulting in loss of investment for recruitment, selection, training, and development -- Dissatisfaction may be experienced with: -- Absolute pay (physiological and security needs) -- Relative pay (social and esteem needs) OBJECTIVES OF COMPENSATION ADMINISTRATION Sometimes, objectives may conflict with one another, and trade-offs must be made • Acquire qualified personnel -- Compensation needs to be high enough to attract applicants • Retain present employees -- To prevent turnover, pay must be kept competitive with other employers • Ensure equity -- Internal equity requires that jobs of similar value get similar pay, i.e., internal consistency -- External equity involves paying workers fairly relative to market rates • Reward desired behaviour -- Pay should reinforce desired behaviours, i.e., good performance, loyalty, new responsibilities, etc. • Control costs -- Obtain and retain workforce at a reasonable cost, i.e., organization does not overpay or underpay • Comply with legal regulations -- Ensures compliance with all government regulations • Further administrative efficiency -- Designing the program so that it can be efficiently administered (secondary consideration only) Compensation Management (Phase I) Slide 4 Compensation Management (Phase II) Slide 5 Compensation Management (Phase III) Slide 6 Compensation Management (Phase IV) Slide 7 Compensation Challenges Slide 8 Pay Equity Slide 9 Pay Equity Slide 10 Pay Equity Slide 11 Pay-for-Performance Slide 12 Incentive Systems Slide 13 Individual vs. Team-based Incentives Slide 14 Pay Secrecy Slide 15 New Approaches to Pay Slide 16 Changing Compensation Systems Slide 17 Pay & Organizational Strategy Slide 18 MAJOR PHASES OF COMPENSATION MANAGEMENT Phase I: Job Analysis • Initial job analysis (Chapter 2) • Identify and study jobs to learn about the duties, responsibilities, and working conditions -- Position descriptions -- Job descriptions -- Job standards Phase II: Job Evaluation • Job evaluation -- Systematic procedures to determine the relative worth or value of jobs -- Purpose is to identify which jobs should be paid more than others -- Provides for internal equity—perceived equity of a pay system in an organization • Job evaluation methods -- Job ranking is the simplest and least precise method of job evaluation. Jobs are ranked subjectively according to their overall worth to the organization e.g. janitor is ranked as 1, secretary as 2, and office manager is ranked as 3 -- Job grading (job classification), is a slightly more sophisticated method than job ranking, but is also not very precise. Jobs are assigned to pre-determined job classifications according to their relative worth to the organization -- Point systems are used more than any other evaluation method. It evaluates the critical (compensable) factors of each job, determines different levels or degrees for each factor, and allocates points to each level. Critical factors generally include: responsibility, skill, effort, and working conditions Phase III: Wage and Salary Surveys • Discover what other employers in the same labour market are paying for specific key jobs • Provides for external equity—perceived fairness in pay relative to what other employers are paying for the same type of work • Sources of Compensation Data: -- Human Resources and Social Development Canada (HRSDC) periodically conducts surveys in major metropolitan labour markets -- Consultants provide this service for their clients -- Canada Human Resource Centres also compile information for distribution to employers -- Employer and professional associations may survey member firms -- Some human resource departments conduct their own wage and salary surveys due to the problem of varying comparability encountered with using published surveys Phase IV: Pricing Jobs Pricing jobs includes two activities: • Establishing the pay level for each job involves combining the job evaluation rankings and the survey wage rates as well as other considerations, e.g., organization’s pay policy -- Create scattergram and draw a wage-trend line through the dots that represent key jobs • Creating the compensation structure involves grouping the different pay levels into a structure that can be managed (i.e., job classes and rate ranges) -- Rate range is a pay range for each job class -- Merit raise is a pay increase given to individual workers according to an evaluation of their performance CHALLENGES AFFECTING COMPENSATION • Prevailing Wage Rates -- Some jobs must be paid more than their relative worth because of market forces, e.g., scarcity of skilled workers for the oil patch in Alberta in 2012 -- Some jobs may be paid less than the established minimum, e.g. new hires with no experience may be paid less than the pay minimum until they gain experience • Union Power -- Unions may be successful in using their power to obtain wage rates higher than their relative worth • Productivity -- Ultimately, a company cannot pay workers more than they contribute back to the firm through their productivity • Wage and Salary Policies -- Policies that cause wages and salaries to be adjusted, e.g., to give non-union workers the same raise as unionized workers • Government Constraints -- Canada Labour Code is a federal law that regulates labour relations under federal jurisdiction, i.e., minimum wage, overtime pay, maintaining staff records, etc. -- All the provinces have minimum wage legislation PAY EQUITY • Canadian Human Rights Act prohibits discrimination because of sex, it is illegal for companies to pay women less than men if their jobs involve equal skills, effort, responsibilities, and conditions. -- Government enforces these provisions • Equal Pay for Equal Work (equal pay) requires an employer to pay men and women the same wage or salary when they do the same work -- Part of the Canada Labour Code since 1971 -- Some exceptions, e.g., seniority, sales commissions • Equal Pay for Work of Equal Value (pay equity) requires that jobs of comparable worth to the organization should be equally paid -- 1978 amendment to the Canadian Human Right Act makes it illegal to discriminate on the basis of job value (or content) • The wage gap is the historical gap between the income of men and women, i.e., in Canada women earn about 80 per cent as much as men -- Wage gap exists in part because women have traditionally found work in lower-paying occupations such as teaching, retail, nursing, secretarial work. Part of the wage gap is also due to career gaps, i.e., when women leave the labour force to care for children -- Ultimately, 5-10% of the wage gap cannot be explained by any factor other than gender-based pay discrimination -- Most provinces have also enacted pay equity legislation THE PAY-FOR-PERFORMANCE MODEL • Incentive systems provide the clearest link between pay and performance or productivity • Incentive pay is directly linked to an employee’s performance or productivity • Benefits of financial incentives: -- Better performance is reinforced on a regular basis -- Reinforcement is generally quick and frequent—usually with each paycheque -- The worker sees the results of the desired behaviour quickly, therefore, the behaviour is more likely to continue -- The employee benefits because wages are given in proportion to performance rather than indirect measures such as time worked • Problems with financial incentives -- Administration of an incentive system can be complex—standards must be established and results measured -- If standards are imprecise, the incentive system may result in inequities -- Employees may not achieve standards due to uncontrollable factors, such as work delays or machine breakdowns -- Unions often resist incentive systems because they are concerned management may change the standards and require employees to work harder for the same pay -- Incentive systems may focus efforts on only one aspect, e.g., sales Individual Incentive Plans • Piecework compensates the worker for each unit of output • Production Bonuses are used in conjunction with a base wage rate or salary and are incentives for exceeding a specified level of output • Commissions involve paying a salesperson a percentage of the selling price or a flat amount for each unit sold (may or may not be combined with a base salary) • Maturity Curves are a form of incentive for technical and professional employees that rewards employees for productivity and experience • Executive Incentives vary widely, e.g., cash bonuses, stock options, etc. that usually relate to the performance of the organization Team-based Incentive Plans • Team Results determine employee bonuses and salary increases • Production Incentive Plans allow groups of workers to receive bonuses for exceeding predetermined levels of output • Profit-Sharing Plans share company profits with the workers. Can create a sense of trust and common fate among workers and management, however, it is often difficult for employees to perceive how their efforts make a difference. Most effective in organizations with open, two-way communication and participative management that fosters a satisfying work environment • Employee Stock Ownership Plans (ESOPs) give employees genuine ownership. Recent studies show very positive impacts on employee motivation, productivity, turnover, sales, long-term growth • Cost Reduction Plans reward employees for ways to reduce costs. These savings are shared with employees in the form of a bonus (e.g., Scanlon Plan) • Non-Monetary Rewards can also be highly motivational, e.g., recognition Pay Secrecy • Advantages -- Most employees prefer to have their pay kept secret -- Gives managers greater freedom -- Covers up inequities in the internal pay structure • Disadvantages -- May generate distrust in the pay system -- Employees may perceive that there is no relationship between pay and performance NEW APPROACHES TO PAY • Skill- or knowledge-based pay is a pay system based on the skills or knowledge that an employee has (in contrast to the more common job-based pay) -- Incentives for horizontal learning of skills, i.e., job enlargement, e.g., manufacturing jobs -- Incentives for vertical skills, e.g., Volvo rewards employees if the group is able to function without a supervisor • Variable pay is a performance-linked approach that involves the use of a variety of methods, e.g., business and special incentives, individual performance incentives, profit-sharing, gainsharing, etc. • Broadbanding is a strategy for salary structures that consolidates a large number of pay grades into a few “broad bands” in order to assist in flattening large, hierarchical organizations, encouraging employees to broaden their skills, de-emphasizing promotion, etc. • Tailor-Made Perks allows employees to choose their rewards, e.g., using a point-based system to choose merchandise • International Pay is a challenge for HR managers to develop policies which consider global trends, national cultures, and individual differences CHANGING COMPENSATION SYSTEMS • Traditional -- Pay = 100% base -- Entitlement-base increases -- Few incentive/bonus plans, restricted to executives • Modern -- Variable component added -- Performance-driven gains -- Many kinds of plans, extended throughout the organization PAY AND ORGANIZATIONAL STRATEGY Because of increased national and international competition organizations are concerned about maintaining competitive advantage. Seven areas of focus that affect pay systems are suggested by Lawler: • Motivating performance—money is still a strong motivator and effective incentive systems can improve individual motivation • Identifying valued rewards—management has to understand what is important to different people • Relating rewards to performance—employees need to perceive a connection between their pay and their performance • Setting performance goals—effective goals should be acceptable, attainable, and developed with employee input • Motivation and punishment—an individual’s motivation to perform is strongly influenced by the consequences • Motivating skill and knowledge development—an organization needs to develop the right mix of skills for its business objectives • Fostering attraction and retention—pay and reward systems have a major impact on the organization’s ability to attract and retain ANSWERS TO REVIEW AND DISCUSSION QUESTIONS 1. What is the difference between absolute and relative pay with regard to motivation? Absolute pay satisfies physiological and security needs, while relative pay satisfies social and esteem needs, the latter having a greater impact on pay satisfaction and motivation. 2. Why is job analysis information, discussed in Chapter 2, necessary before job evaluations can be performed? Job analysis information gives compensation specialists an understanding of the jobs and their compensable factors, and of what the key jobs in the organization are. Without job analysis information, even the simpler approaches to job evaluation -- job ranking and job grading -- would be difficult or impossible to do correctly. 3. Suppose when you interview new employees, you ask them what they think is a fair wage or salary. If you hire them, you pay them that amount as long as it is reasonable and not below minimum wage laws. What problems would you expect? Again, pay dissatisfaction is highly likely. Although the recruits may have been glad to receive the pay asked for, when they learn that others with similar jobs are getting paid more, dissatisfaction may result. In turn, performance may suffer, unionization or strikes may occur, and the attractiveness of the job is likely to decline. Absenteeism, turnover, psychological withdrawal, and other negative effects may occur. 4. Assume your company has a properly conducted compensation program. If a group of employees asks you why they receive different hourly pay rates even though they perform the same job, how would you respond? All employees should be within the same rate range. Within the rate range, seniority, performance, productivity, and experience may justify paying different workers different wage rates. 5. Why is the point system superior to all other systems? Discuss the advantages and disadvantages of this system. The point system is more precise than other methods because it can handle critical factors in more detail. This increased accuracy gives the organization greater assurance that workers are fairly compensated. The disadvantage of the point system is that it is more time-consuming, therefore, more difficult and costly to develop initially. 6. If you are told to find out what competitors in your area are paying their employees, how would you get this information without conducting a wage and salary survey? Published wage and salary surveys can be obtained from HRSDC, Canada Human Resource Centres, consultants, associations, or possibly from other firms that have already gathered this information. 7. Even after jobs are first priced using a wage-trend line, what other challenges might cause you to adjust some rates upward? The prevailing wage rate, union pressure, scarcity of recruits, wage and salary policies, minimum wage laws, and exceptional employee performance may lead to wages above the wage trend line. 8. Since financial incentives give employees feedback for good performance and they relate pay to performance, why do most companies pay wages and salaries rather than financial incentives? Several powerful reasons exist to explain the limited use of incentives. The lack of clear-cut standards or measures to evaluate performance is a common reason. Beyond that, there are complexities in the administration of incentive systems, concerns about the impact of uncontrollable forces impacting results, union resistance, and concern that only one aspect of performance will be addressed. 9. Explain the difference between "equal pay for equal work" and "equal pay for work of equal value" and the implications of the difference for a human resources manager. "Equal pay for equal work" has been part of the Canadian Labour Code for some time. It means that employers have to pay male and female workers the same wages if they perform substantially similar work. Exceptions: where valid seniority and merit pay systems have been adopted. "Equal pay for work of equal value" is a newer concept included into the Canadian Human Rights Act. It makes it illegal to discriminate on the basis of job value (or content). Four criteria are to be used for job evaluation -- skill, effort, responsibility, and working conditions -- and they are used as a composite measure. Since the Canadian Human Rights Act is relevant only to organizations under federal jurisdiction, only human resources managers of these organizations have to pay attention to it. However, in several provinces, all human resources managers have to follow the requirements of their specific pay equity laws. 10. Under what circumstances are pay differentials justified? The Equal Wage Guidelines of the federal legislation define seven "reasonable factors" that can justify differences in wages: (1) performance differences (as measured by a formal appraisal system) (2) seniority (based on length of service) (3) red-circling (because of job re-evaluation) (4) rehabilitation assignments (5) demotion pay (6) 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. 11. Why is it so important to explain to employees the performance-reward relationship? If performance is fairly and equitably rewarded, employees tend to experience job satisfaction (not as it had been believed: that happy (satisfied) workers perform well). 12. In what ways does the total reward model differ from the regular compensation approach? It is defined as the use as rewards of everything an employee values in an employment relationship. It requires a reward system tailor-made for the organization. A regular compensation approach tends use a one-fits-all model, with pay scales and same benefits for all. . ANSWERS TO CRITICAL THINKING QUESTIONS 1. Suppose you manage a small business with thirty employees. You discover that some people are much more motivated by money and others are motivated by security. To those who want more money, you offer an incentive plan in which their income is determined by their results. The other employees have a fair salary. What problems might arise? The other employees, who do not desire money as strongly, may feel discriminated against because they do not have an opportunity to earn more money. The result is likely to be pay dissatisfaction. 2. "Money is a strong motivator" and "in surveys on what employees want from their job, money ranks 5 or lower." How can you reconcile these two statements? Employees tend to see money from different points of views. On the one hand, it fulfills basic needs, on the other hand it is seen as a status symbol (see discussion on absolute and relative levels of pay on p. 331). 3. Obviously, profit-sharing plans are not an option as an incentive plan in non-profit and government organizations. Can you think of incentive plans that will fulfill a similar function? Cost reduction plans, like the Scanlon plan, would fit both types of organizations (see discussion on p. 350). 4. "Minimum wages increase unemployment." Please comment on this statement often made by economists. Do you agree? There is no conclusive evidence one way or the other. Some economists used data to show that an increase in minimum wages resulted in higher unemployment in certain geographic areas, but critiques point out that other causes could account for this rise. A recent study by another group of economists could not find any evidence of a negative impact of minimum wages, i.e., increased unemployment. So: it's a draw. 5. How should a HR manager find out what employees value as rewards? Is it acceptable to ask employees directly? Discuss. Are other methods preferable? Which? Why? The best and most valid method is to ask employees directly what they prefer. There is nothing wrong with the direct approach. It provides the employee with the feeling of being involved in the reward process and gives the supervisor individual feedback. Other methods used could be focus groups or, on a larger scale, a survey. These two approaches have the disadvantage of providing only general information. This may be useful for an overview of what types of rewards are valued. However, to be effective, individual preferences are needed. ETHICS QUESTION Comments to Instructors There is no right or wrong answer to this question. It is for class discussion purposes. WEB RESEARCH Comments to Instructors These exercises have been designed for students to demonstrate their computer and Internet skills to research the required information. Answers will vary. INCIDENT 9.1: COMPENSATION ADMINISTRATION AT REYNOLDS PLASTIC PRODUCTS Incident Comments This incident illustrates some of the errors that can occur in compensation administration when this human resources activity is not administered properly. These types of problems are found more often in organizations that lack a formal compensation program. Develop a step-by-step plan of the actions you would take and the order in which you would take them if you were made human resource director of the Reynolds subsidiary. Immediately, all workers who are being paid less than minimum wage should be given a raise to the prevailing minimum wage. Overtime should be paid for all hours more than forty during any work week. The policy of paying nontechnical jobs 15 percent below the prevailing rate should be studied and probably those jobs should be raised to the prevailing wage rate or to a much smaller differential. Pay differentials for heads of households should be abolished immediately. Once these "quick fixes" were implemented, it would be advisable to undertake a thorough job evaluation, wage and salary study and determine what back pay liabilities the firm owes. Beginning with job analysis information, job evaluation, pay surveys, and pricing jobs in a rational manner, the organization would create an appropriate pay scale for workers and avoid charges of pay discrimination. EXERCISE 9-1: A REALISTIC JOB EVALUATION SIMULATION Form groups of 3 to 5 students (3 students may need approximately 20 minutes, 5 students about 45 minutes for the exercise). Use the following rules: 1. Each student chooses a job s/he is familiar with (ideally, a job description would be available, but is not essential). The jobs should be different, but from one organization, e.g., hospital, school, manufacturing plant. 2. Use table shown on p. 360. 3. Using Figure 9-4, p. 336, find consensus in your group in choosing the most appropriate point level for each job. 4. Example: For the job of a janitor, what level of responsibility for the safety of others, Critical Factor 1a, is appropriate? Probably not a high one, so a good choice may be Level I, 20 points. For a bus driver or an emergency room nurse the appropriate choice may be Level IV, or 200 points. 5. Choose one of the above jobs, called a key job. A key job is a well-known job, ideally common in many organizations, e.g., secretary, accountant, tool and die maker in the manufacturing industry, etc. Do a simulated wage survey. In this exercise it is sufficient to take an educated guess on what the key job is paid in the job market. It does not matter whether you choose an hourly wage or a monthly or annual salary, but it has to be the same for each job. 6. Calculate the pay coefficient by dividing the estimated wage by the point total of the key job, according to the formula wage of key job $ Pay coefficient pc = ------------------------------- = -------- point total for key job point 7. Multiply all job point totals by the pay coefficient. The results are the wages/salaries for all the above jobs. In reality, this procedure would have to be done by the job evaluation committee for all jobs in the organization, often in the hundreds. Comment: This exercise is quite a realistic simulation of what goes on in a job evaluation committee. In all probability, the opinions in each group will be diverse when it comes to determining the level for each job. The results, of course, are not realistic since the point table has been created artificially and not by a job evaluation committee, and the pay level of the key job has been estimated by students. Nevertheless, this exercise should give a good feel for the job evaluation process, using the point method. It also demonstrates the need to choose members of the committee who are knowledgeable about the jobs in the organization and are trained in the application of the point method. One more point: Up until the wage survey, money was not part of the discussion, only points. CASE STUDY: MAPLE LEAF SHOES LTD., COMPENSATION POLICY Answers to Discussion Questions 1. You are the consultant. Clark has asked you to submit a proposal for a PS plan for Maple Leaf Shoes. You wonder about the appropriateness of such an incentive system for Maple Leaf Shoes, but promised to look into it. What will you tell Robert Clark? Clark seems to have the mistaken belief that profit sharing plan motivates employees and increases productivity. There is no evidence of that (see pp.348-349). Companies with PS plans tend to have higher productivity and higher morale, but these companies have many other characteristics that may cause stronger employee commitment. "Tend" implies that there are companies with PS plans which do worse than companies without one. The consultant should tell Clark about the limitations of the incentive effect of a PS plan and point out that many other organizational changes would be necessary until a truly motivating job environment would develop, e.g., more participative management, two-way communication, direct incentive systems, etc. 2. Do you see a possibility of convincing Maple Leaf Shoes’ unions to buy in on a PS plan? It will be a tough selling job. Unions tend to look negatively at PS plans. But if union representatives could be shown evidence of some real benefits of a PS plan to their members it may work. Arranging a meeting between Maple Leaf union reps and union reps from a company with an effective PS plan may result in a change of mind for the Maple Leaf union reps. This should work even better if the unions would be given a chance to participate in the development of the plan. 3. What are other incentive plans suitable for Maple Leaf Shoes? Piece-rate plans certainly would be very effective, but it would also be worthwhile to look into a production incentive plan or a cost-reduction plan (see pp. 346, 348, and 350). CASE STUDY: CANADIAN PACIFIC AND INTERNATIONAL BANK (PAMELA JONES) The Pamela Jones case is a real case, describing the experiences of the wife of the author of this case. Suggestions For Discussion • Did management make the "right" hiring decision? It seems that a proper hiring decision was made. Pamela had an appropriate education and a personality test indicated that she had the proper aptitude for banking. She worked hard and was dedicated to her employer. • How did management fare with regard to providing a motivating environment? Management seems to have done a very inadequate job in providing a motivating environment for Pamela Jones. • To what degree did management fulfill the expectations of Pamela? Initially, Pamela's expectations were met, but very soon her work environment deteriorated, causing her motivation to drop and eventually causing her to quit. • Was the performance-reward connection clear to her? The performance reward link was not clear. • What should management have done to create a truly motivating environment? An excellent way to find out what employees want is to ask them about their preferences. Not all preferences can be fulfilled, but such surveys provide useful feedback for a performance pay model. Appendix A Comments for the Instructor Appendix A contains a replication of Figure 9-4 to assist in the job evaluation exercise. The steps in the application of the Point Method are illustrated in examples. EMPLOYEE BENEFITS AND SERVICES 1000 CHAPTER OBJECTIVES After studying this chapter, you should be able to: Describe the objectives of indirect compensation. Explain how government furthers employee security and which major Canadian laws relate to it. Describe the costs of employee benefits and ways to control them. Describe the advantages and disadvantages of flexible benefit plans Explain the key issues in designing pension plans. Identify the administrative problems of employee benefits and services and suggest improvements. Discuss benefits and services that are likely to become more common in the future. POWERPOINT® SLIDES Canadian Human Resource Management includes a complete set of Microsoft PowerPoint® files for each chapter. (Please contact your McGraw-Hill Ryerson representative to find out how instructors can receive these files.) In the lecture outline that follows, a reference to the relevant PowerPoint slide for this chapter is placed beside the corresponding lecture material. The slide number helps you to see your location in the slide show sequence and to skip slides that you don’t want to show to the class. (To jump ahead or back to a particular slide, just type the slide number and hit the Enter or Return key.) LECTURE OUTLINE (with PowerPoint® slides) Employee Benefits & Services Slide 1 Total Compensation Slide 2 Indirect Compensation: Societal Objectives Slide 3 Indirect Compensation: Organizational Objectives Slide 4 Indirect Compensation: Employee Objectives Slide 5 EMPLOYEE BENEFITS • Direct compensation is the employee’s pay -- Based on critical job factors or performance • Indirect compensation consists of benefits and services -- Usually extended as a condition of employment -- Not directly related to performance -- Includes insurance, income security, time off, educational, financial, and social services -- Represents a very significant part of a company’s compensation system—approaching 50% of annual payroll expenses, as compared to about 15% in the early 1950’s -- Significant impact on attracting and retaining employees THE ROLE OF INDIRECT COMPENSATION • Societal Objectives -- To solve social problems and provide security for interdependent wage earners governments rely on the support of employees -- Employers can deduct the cost of benefits as a business expense -- Employees can receive most benefits tax-free -- Benefits and services give many employees financial security against illness, disability, and retirement • Organizational Objectives -- Must offer some benefits to be able to recruit and retain -- Vacations, holidays, and rest breaks help reduce fatigue and many enhance productivity during hours worked -- Discourage labour unrest -- Satisfy employee objectives -- Aid recruitment -- Reduce turnover -- Minimize overtime costs • Employee Objectives -- Seek employer-provided benefits and services because of lower costs and availability -- Lower income taxes -- Partial protection from inflation e.g. the value of a two-week vacation is not reduced in value by inflation -- Primary objective may be to obtain benefits and services e.g. supplementary health and life insurance Benefits & Services Slide 6 Insurance & Employee Security Slide 7 Paid Time-off & Services Slide 8 Emerging Services & Trends Slide 9 Current Trends Slide 10 LEGALLY REQUIRED BENEFITS Imposed upon organizations by the government. Employers must comply with the law and its procedures. Legally required benefits and services are designed to help employees by ensuring minimum levels of financial security for the nation’s workforce. • Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) -- Mandatory plan for all employees and the self-employed -- Contributory plan, i.e., both the employer and the employee pay part of the costs -- Portability within Canada • Employment Insurance (EI) -- Intended to help monetary problems during a job transition -- Self-employed are not eligible for benefits • Workers’ Compensation Acts -- Workers are entitled to compensation in the event of personal injury by accident during their regular work -- Compensation is payable by workers collectively • Health Insurance Plans -- Medical care is funded by the federal and provincial governments -- Supplementary health plans are discussed under voluntary benefits • Holidays and Vacations -- Usually based on the employee’s length of service but minimum requirements exist VOLUNTARY BENEFITS • Life and Health Insurance • Salary Continuation Plans • Employee Security • Paid Time-off Benefits • Employee Services • Insurance Benefits spread the financial risks encountered by employees and their families -- Life Insurance was the first form of insurance offered employees -- Group life insurance is an almost universal employee benefit -- Health-related Insurance that supplements provincial health-care programs may include disability insurance, out-of-province/country medical insurance, dental insurance, etc. -- Salary Continuation Plans, i.e., short-term and long-term disability • Employee Security Benefits are non-insurance benefits that enhance employee -- Employment Income Security, e.g., severance pay, guaranteed annual wage (GAW) if faced with layoffs or lack of work -- Retirement Security e.g. Registered Pension Plans include defined benefits plans and defined contribution plans (secured by legislation i.e. Pension Benefits Standards Act) • Paid Time-off Benefits include legal requirements e.g. statutory holidays and vacations and voluntary benefits such as wash-up time -- On-the-Job Breaks, i.e., rest breaks, meal breaks, wash-up time -- Paid Sick Leave includes paid time when employees are absent for medical reasons (one of the most abused benefits) -- Holidays and Vacations are provided by many employers beyond the minimum legislated requirements • Employee Services go beyond pay and traditional benefits -- Educational Assistance, e.g., tuition refund programs -- Financial Services, e.g., employee discount plans, credit unions, and stock purchase programs -- Social Services, e.g., Employee Assistance programs (EAP) to assist employees with personal problems and relocation programs EMERGING SERVICES & TRENDS • Increased medical coverage, e.g., dental plans and optometrist services; also greater assumption of costs provided by employers • More and longer vacations including reduced length-of-service requirements and more holidays • Increased pension coverage with greater contributions by employers as well as cost-of-living adjustments • Pension portability improvements as well as earlier vesting • Paid leaves, e.g., sabbatical leaves for managers, paid educational leave for employees • Child and elder care with the employer providing subsidized childcare and time-off and access to assistance and counselling to deal with care for aging relatives • Same-sex benefits, i.e., granting all benefits to same-sex couples • Benefits for part-time employees (and retirees) • Current trends -- Indirect compensation will form a greater proportion of total compensation offered -- Employees may be able to make choices among benefits and may encounter ore liberalized eligibility requirements -- Need to adopt a total compensation approach -- Changes in the labour force will impact workforce demands, e.g., aging workforce will result in greater emphasis on pensions; more working women will impact demand for paid maternity leave, etc. Management of Voluntary Programs Slide 11 Flexible Benefits Slide 12 Implications for HRM Slide 13 Implications for HRM (cont’d) Slide 14 Benefit Audit Slide 15 Benefits & Strategy Implications Slide 16 MANAGEMENT OF VOLUNTARY BENEFIT AND SERVICE PROGRAMS A serious shortcoming of human resource management has been poor management of indirect compensation i.e. benefits and services have grown in a haphazard manner in many organizations • Problems in Administration -- Lack of employee involvement, i.e., employees have little discretion once the benefit program is designed -- Failing to recognize individual differences and needs, i.e., employees receive benefits they neither need or want -- Workers may be unaware of all the benefits to which they are entitled -- Results in pressure from employees for more benefits to meet their needs, complaints, and dissatisfaction • Traditional Remedies -- Traditional solution has been to increase employee awareness, usually by publicizing benefits, e.g., orientation sessions, employee handbooks, mailings, announcements, etc. • A Proactive Solution: Flexible Benefits -- Also known as cafeteria benefit programs -- Allows employees to select benefits and services that match their individual needs -- Workers are provided a benefit and services account which they use to shop for specific benefits offered by the employer -- Increases administrative costs and obligations to advise employees, however, offers several advantages including employee participation -- Technology is increasingly being used to handle administration, e.g., interactive voice response systems (IVRs) and web-based technologies IMPLICATIONS FOR HUMAN RESOURCE MANAGEMENT • Comply -- Comply with all legal requirements and maintain accurate employee records, e.g., pension deductions, accurate records of overtime, etc. • Avoid duplication – Human resource managers need to consider CPP and other benefits, e.g., health benefits available to employees when designing benefit plans • Reducing accidents -- To lower the costs of workers’ compensation • Challenge Unjustified Claims -- For employment compensation made against employers • Control health costs -- May be able to save 15% of costs by using generic drugs, out-of-country medical coverage for personal travel, etc. • Retention of key employees -- Several studies have shown that innovative and flexible benefit plans are very effective tools in attracting and retaining highly skilled staff BENEFIT AUDIT System to control the efficiency of a benefit program. Usually consists of two components: • Claims audit which examines claims and claim trends • Organization audit which examines the efficiency and effectiveness of handling employee benefits including dealing with an insurer or a third-party administrator A benefits audit enables employers to: • Identify opportunities for financial and human resource savings • Ensure that insurers or third-party administrators are doing a good job • Exert effective control over benefits area • Identify who is in control of the benefits budget • Check how their employee claiming habits compare against other Canadian employers BENEFITS AND STRATEGY IMPLICATIONS The following steps are required: • Define the objectives of the organization • Link objectives of the human resource department with the objectives of the organization • Assess the needs of employees • Assess the legal requirements to ensure that laws are followed • Compare the company’s benefits with those of the competition • Make sure the benefits are valued by the employees • Conduct an annual benefit audit ANSWERS TO REVIEW AND DISCUSSION QUESTIONS 1. Why has government been interested in providing financial security to workers through laws? What areas do you think are likely to receive governmental attention in the future to ensure employee financial security? Since we are a nation of workers who are dependent upon the income from employment, anything that affects the security of that income affects workers. When enough workers are affected, society suffers. In the future, the government may direct more attention to providing workers with greater financial security. Possible directions this effort may take include larger penalties or unemployment compensation taxes on employers who experience large variations in their employment levels. 2. Some people believe that employment insurance has over a period of time worked against the workers rather than for them. What is your opinion of employment insurance? Why? Although student answers may vary widely, it should be pointed out that this law was never intended to provide complete financial security. Rather, it takes care of the pressing needs of the worker (and family) during the transition from one job to another. It may be pointed out by some students that EI has led to higher taxes and costs of operation in Canada. At least a few students will point out the loose way the system was administered in the past. Against this, the freedom and security that the system provides to the workers (especially in a recessionary period) has to be compared. 3. Suppose a friend of yours contracted lead poisoning on the job. What sources of income could this person rely on while recovering during the next two months? What if it took two years for your friend to recover? Are there other sources of income available? The employee is eligible for any unused sick leave, vacation, short- and long-term disability payments, workers' compensation payments, and in some instances Canada Pension Plan benefits. During the first two months, unused sick leave and vacations, short-term disability, and workers' compensation are the income sources which might be available. After six months, long-term disability and the Canada Pension Plan apply in most cases. 4. Besides retirement income, what other benefits are provided through the Canada Pension Plan? The Canada Pension Plan provides disability benefits and death benefits when a covered worker dies. Benefits to surviving children and the spouse are available under certain conditions. 5. What changes should be made to the employment insurance system to avoid its present weaknesses? Some of the suggestions may be: increasing the waiting time, reducing the overall benefits, changing the provisions to make faster job search attractive, and/or changing the eligibility criteria. The student should be encouraged to first identify the present weaknesses. He or she should then be asked to identify solutions to these, keeping in mind the undesirable consequences of changing some of the present provisions. 6. What factors have contributed to the rapid growth of benefits since the Second World War? The tax advantages of fringe benefits have been a major force. Employers subtract the cost of benefits from income as a business expense while employees do not have to count the value of benefits as taxable income. Union pressures, competition among employers for workers, the administrative and actuarial advantages, trends toward more leisure time, and greater affluence of workers have contributed to the growth of benefits. 7. Briefly describe the benefits an organization might give employees to provide them with greater financial security. Severance pay, retirement plans, short- and long-term disability, life insurance, supplemental employment insurance, major medical coverage, and other forms of insurance or services protect the worker from large, unforeseen expenses. Although not truly a benefit, a financially healthy and growing employer may provide the best security of all. 8. Why was the Pension Benefits Standards Act needed? What are its major provisions? The Pension Benefits Standards Act was needed to ensure that deserving workers receive the pension rights to which they are entitled. It precludes employers from denying long-service employees retirement compensation even if these workers quit or are fired. It also protects workers from being denied a private pension because the employer has become insolvent. The major provisions of the Pension Benefits Standards Act include requirements about eligibility, vesting, funding, fiduciary standards, reporting and disclosure, plan termination insurance, portability, and survivorship options for private pension plans. 9. What are the common problems you would expect to find with the benefits and services programs of a large company? The common problems centre around lack of employee involvement in the design of benefits and services. Most employees are given a package of benefits by the organization with little say in the nature of those benefits. As a result, apathy and ignorance about benefits are likely. Of course, in a large company there are problems of cost, administration, renegotiation of benefits with vendors, and other problems associated with any large undertaking. 10. If you were asked to increase employee awareness of benefits, what actions would you take without changing the way the company provides benefits? If you could change the entire benefit program, what other methods might you use to increase employee awareness? Within the constraints of a traditional benefit program, increased publicity about benefits through company newspaper articles, letters to employees, bulletin board announcements, meetings, and other communications efforts is about all that can be done. If the company changed its benefit program to some form of flexible benefits structure, employees would become aware of the benefit program because they would have to make selections among various options presented to them. . ANSWERS TO CRITICAL THINKING QUESTIONS 1. Suppose you are requested to explain why employees are better off receiving pay and benefits rather than getting larger pay cheques that include the monetary value of benefits. What arguments will you use? The tax advantages result in the employee getting the benefits without having to pay income taxes on the value of these benefits. Further, economies of scale lead to lower administrative costs and actuarial advantages. The result is the cost of fringe benefits is probably lower than the employee could obtain elsewhere. Another argument for benefits and wages is that some benefits -- retirement plans, for example -- may help to lower employee turnover. Finally, many employees may spend the money and not provide themselves or their families with minimum protection. 2. For each of the following groups of employees, what types of problems are likely to occur if a company goes from a five-day, forty-hour week to a four-day, forty-hour week? (a) working mothers (b) labourers (c) assembly line workers (a) Working mothers may find it difficult to make suitable child care arrangements. Additionally, many working mothers face an extremely long day when the time needed to prepare children for babysitters in the morning and to prepare evening meals is added. (b) Labourers are likely to suffer considerable fatigue. (c) Assembly line workers would likely suffer fatigue and boredom, which could increase error rates and decrease productivity. 3. Should companies pay educational assistance? Assume that it was for a degree in information technology. What if a competitor offers a higher salary to the successful graduate? How could you make sure the company's investment remains in the organization? First, most companies will pay educational assistance only if the courses taken are beneficial to its objectives. Second, an agreement could be reached with the employee to the effect that s/he would remain in the employment of the company for a specified period of time, usually 5 years. If s/he would leave earlier, a pro-rated amount of the benefits would have to be pre-paid. Of course, if an employee becomes more valuable for the organization, s/he has to be compensated accordingly, otherwise competitors will bid for the employee's services. ETHICS QUESTION Comments to Instructors There is no right or wrong answer to this question. It is for class discussion purposes. WEB RESEARCH Comments to Instructors These exercises have been designed for students to demonstrate their computer and Internet skills to research the required information. Answers will vary. INCIDENT 10.1: SOAP PRODUCERS AND DISTRIBUTORS LTD. Incident Comments Although this incident is structured to focus on the benefit area, there may be other causes contributing to the turnover rate. Management treatment of workers may be inappropriate, working conditions may be substandard, or jobs may be designed poorly. However, considering the benefits issue, the benefit program may be insufficient. 1. What additions do you think should be made to the company's benefit program? No mention in the case is made of rest breaks, paid sick leave, short- or long-term disability, retirement programs, and other benefits mentioned in the chapter. 2. What problem in the incident might be solved by a cafeteria approach? The complaints about the employer's benefits do not seem to be aimed at any one specific benefit. Presumably, different groups of workers have different needs and seek benefits related to those needs. For example, younger workers may seek maternity insurance or more life insurance. Older workers may be concerned about having a retirement plan or other benefits. A cafeteria approach allows different groups to customize their benefits to fit their needs. 3. To overcome the company's recruitment problems, what other changes do you suggest? The implementation of shorter work weeks or flextime may serve as a very attractive recruitment inducement. Scheduling benefits may increase the attractiveness of employment with the firm for new recruits, and the present employees may be more willing to stay. CASE STUDY: MAPLE LEAF SHOES LTD., FLEXIBLE BENEFIT PROGRAM Answers to Discussion Question Sam Polyani, a union rep, wants to sell the company's CEO on the benefits of a flexible benefit plan since his members want it. 1. Can you assist Sam Polyani in his attempt to sell Robert Clark on a flexible benefit plan? What are the advantages and disadvantages of such plans? There is only one advantage for the company: Flexible benefit plans seem to improve morale and job satisfaction of employees, and it may be a useful strategy for Clark to buy into this plan if he intends to create a more motivating job environment. On the other hand, a flexible benefit plan is more expensive, mainly because of extra administration costs. It looks as if Sam may have to offer some additional incentives as bargaining chips if he wants the flexible benefit plan. CASE STUDY: CANADIAN PACIFIC AND INTERNATIONAL BANK Answers to Discussion Questions 1. Use Web research to find arguments for and against using the Internet and the bank’s intranet for the administration and delivery of its benefit services. Internet administration would allow for easy access to off-the-shelf benefits plans. Such plans would be less expensive than a custom designed one. The Internet would make it easier to compare among the benefits plans that are available, and to receive updated information on any legal changes that could affect benefits administration. The disadvantage of using the Internet is that employees may not be involved in an Internet-administered benefits package. The benefits package may not be equally well-suited to all employees. Intranet administration allows the employees ready access to information about CPIB’s benefits program. Any questions can also be dealt with through the intranet. However, not all workers will make use of the intranet. Older and less skilled workers are less likely to access the intranet to get information about the benefits available. 2. Is outsourcing benefit administration advisable? Why? What criteria should be used in making the decision? Outsourcing of benefits is advisable only if the internal cost of administration is greater than the external cost of administration at CPIB. Given the large workforce at CPIB, a cost analysis should be conducted to determine if outsourcing is more economical. The criteria for whether the benefits should be outsourced should be based on a needs analysis, and deal with the following questions: What tasks need to be performed? Who performs these tasks and how much does it cost? What would the outsourcing benefits program cost in comparison? How long will it take to implement such a program? 3. If Mary asks for a benefit audit, what would the auditor look at? A benefit audit will enable Mary to determine the following: a. Identify opportunities for financial and HR savings. b. Determine whether insurers or 3rd party administrators are doing a good job. c. Determine if there is effective control over their benefits area. d. Identify who is in control of the benefits budget. e. Check on employee claiming patterns compared to claiming patterns at other banks. . MANAGING EMPLOYEE RELATIONS 110 CHAPTER OBJECTIVES After studying this chapter, you should be able to: Discuss the importance of downward and upward communication in organizational settings. Define employee counselling and the major types of counselling. Describe how progressive discipline and wrongful dismissal work. Explain the different techniques available to improve quality of work life. Outline the major issues relating to downsizing the workforce and their implications for strategic human resource management. POWERPOINT® SLIDES Canadian Human Resource Management includes a complete set of Microsoft PowerPoint® files for each chapter. (Please contact your McGraw-Hill Ryerson representative to find out how instructors can receive these files.) In the lecture outline that follows, a reference to the relevant PowerPoint slide for this chapter is placed beside the corresponding lecture material. The slide number helps you to see your location in the slide show sequence and to skip slides that you don’t want to show to the class. (To jump ahead or back to a particular slide, just type the slide number and hit the Enter or Return key.) LECTURE OUTLINE (with PowerPoint® slides) Managing Employee Relations Slide 1 Employee Relations Slide 2 Importance of Employee Relations Slide 3 EMPLOYEE RELATIONS The state of employee relations in an organization is determined by how human resource planning, placement, training and development, evaluation and compensation is handled • Open-door policy encourages employees to come to higher management with any concerns STRATEGIC IMPORTANCE OF EMPLOYEE RELATIONS PRACTICES Employee relations is a complex blend of organizational culture, human resource practices, and individual perceptions. Virtually everything the human resource department does affects employee relations • Improve productivity -- Employee productivity is significantly affected by ability and attitude and effective employee relations practices improve both • Implementation of organizational strategies -- Employees need to understand their roles and be rewarded for exhibiting desired behaviours -- Effective employee relations practices ensure that organizational goals and strategies are properly communicated to employees and receive their commitment • Reduce employment costs -- When the organization’s culture includes concern for and interest in employees, the result is reduced turnover and absenteeism which results in significant cost savings • Help employees grow and develop -- An important goal of human resource departments is to help employees achieve their personal goals -- Interest in employees’ work and career goals results in benefits of improved morale, loyalty, productivity, and availability of skilled people 5 Key Dimensions of Employee Relations Slide 4 Employee Communication Slide 5 Employee Counselling Slide 6 Employee Discipline Slide 7 FIVE KEY DIMENSIONS OF EMPLOYEE RELATIONS There are five major components of effective employee relations: communications, counselling, discipline, rights and involvement 1. Effective Employee Communication • Downward communication systems -- Begins at some point in the organization and feeds down the organizational hierarchy to inform or influence others -- Multiple channels are used to overcome barriers and reach the intended receivers -- In-House Publications to inform employees about current developments and to foster understanding of objectives. May contain articles about sports activities, employee profiles, etc. -- Information Booklets are often distributed by human resource departments, e.g., employee handbook, specialized subjects such as employee assistance programs, etc. -- Employee Bulletins concerning day-to-day operations are published by human resource departments. Increasingly electronic media are being used to communicate with employees -- Pre-recorded Messages may take the form of television programs, automated voicemail, etc. -- Electronic Communication (e-mail) is taken for granted in many organizations. Intranets (internal communications systems that function like a smaller version of the World Wide Web) are being used for a wide variety of purposes including communication with employees. Extranets (intranets linked with vendors) are being used for purposes such as benefit inquiries. To prevent the misuse of electronic communications organizations require policies on Internet usage -- Social Media use by employees is providing a variety of challenges to employers including issues relating to security of networks and data, employee time spent on social media sites, and improper or illegal communications. However, social media may also be a powerful tool in attracting and retaining people. -- Information Sharing and Open Book Management include sharing financial and other information with employees. • Upward Communication Systems -- Area of communication that requires improvement in most organizations -- Upward communication begins in the organization and proceeds up the hierarchy to inform or influence others -- Grapevine is an informal system that arises spontaneously from the social interaction of people in the organization. Feedback includes information about areas of job dissatisfaction, difficulties with supervisors, etc. -- Electronic Communication such as e-mail, intranets, and discussion groups can also be used effectively to facilitate upward communication. More organizations are implementing Human Resource Management Systems (HRMS). -- In-House Complaint Procedures are formal methods through which an employee can register a complaint. Alternate dispute resolution (ADR) programs are used in many organizations to resolve disputes in a timely, cost-effective manner. ADR programs include open door policy, peer review panel, ombudsperson, mediation and arbitration -- Manager-Employee Meetings are meetings between managers and groups of employees to discuss issues, suggestions, opinions, etc. -- Suggestion Systems are a formal method for generating, evaluating, and implementing employee ideas. These systems may fail because suggestions may take too long to implement or supervisors/managers have failed to fully support or encourage the process—also need to reflect group contributions -- Employee Attitude/Opinion Surveys are systematic methods of determining what employees think about their organizations (usually conducted through anonymous questionnaires); requires feedback of results and action; many organizations are using Web technology to conduct on-line surveys 2. Employee Counselling • Discussion of a problem with an employee in order to resolve the issue and / or help the employee cope with the situation. -- Many employers have formal arrangements with outside professional counselling agencies to help their employees • Employee Assistance Programs (EFAP) -- Comprehensive company programs that seek to help employees to overcome their personal and work-related problems -- Online communications are increasingly being used to supplement EAP structures, e.g., video counselling, chat rooms, bulletin boards, and self-help applications 3. Employee Discipline is management action taken to encourage compliance with the organization’s standards • Preventive Discipline is an action taken prior to any infraction to encourage employees to follow the rules -- Management has responsibility for ensuring standards are known and understood -- The human resource department has a major responsibility, e.g., developing specific programs, communication Employee Discipline Slide 8 Positive Discipline Slide 9 Dismissal Slide 10 Dismissing an Incompetent Employee Slide 11 Constructive Dismissal Slide 12 Reasonable Notice Slide 13 The Wallace Effect Slide 14 Managing the Dismissal Slide 15 Employee Rights Slide 16 Employee Involvement Slide 17 Job Security, Downsizing & Employee Retention Slide 18 Retaining Top Performers Slide 19 • Restrictions on Discipline -- Ability to discipline may be restricted by union contracts (concerns about management authority) and government legislation for workers who assert rights protected by law (e.g., failing to perform work that is unsafe) -- Due process may be required to ensure established rules and procedures for disciplinary action are followed, and employees have an opportunity to respond to the charges • Progressive Discipline is a type of discipline whereby there are stronger penalties for repeated offences including verbal reprimand, written reprimand, suspension, discharge for cause -- Verbal reprimand by supervisor -- Written reprimand, with a record in file -- One- to three-day suspension from work -- Suspension for one week or longer -- Discharge for cause • Positive Discipline -- Takes a problem-solving approach instead of using punishment -- Involves employee acceptance that a problem exists and agreement that the employee takes responsibility -- Focus on the specific problem rather than the employee’s attitude or personality -- Gain agreement with the employee that a performance problem exists and that the employee is responsible for changing his/her behaviour -- Approach discipline as a problem-solving process -- Document suggested changes and employee commitments -- Follow up to ensure the employee is keeping commitments DISMISSAL The ultimate disciplinary action is dismissal (i.e. fired, terminated, discharged, involuntarily separated) • Wrongful Dismissal -- A non-union employer who does not have just cause for dismissing an employee may be sued for wrongful dismissal -- The law is very complicated and legal guidance is advised -- Employment standards legislation provides minimum notice for dismissal without cause, however, the courts frequently exceed these provisions • Determining Just Cause -- Cause for dismissal under common law includes an act by an employee that could have serious negative effects on the organization, e.g., incompetence; employee misconduct -- Employer is responsible for proving the existence of just cause -- Perceptions of employers and the courts often differ • Incompetent Work Performance -- The employment contract contains an implied warranty that the employee is “reasonably competent” and able to perform the work for which the employee was hired. -- Requirements in dismissing an incompetent employee include: 1. Providing reasonable, objective standards of performance in a clear and understandable manner. 2. Showing that the employee failed to meet those standards. 3. Establishing that the employee was given a clear and unequivocal warning that s/he failed to meet the standards. 4. Clearing warning the employee that failing to meet the requisite standards will result in dismissal. • Employee Misconduct -- Theft, fraud, and dishonesty are among the most serious grounds for dismissal -- Other cases involve consideration of the nature of the misconduct and the employer’s position within the organization, e.g., senior mangers or those in position of trust (such as a teacher) may be held to a higher standard of conduct both on and off the job • Business or Economic Reasons -- Terminating an employee for business or economic reasons is not just cause for dismissal i.e. reasonable notice or compensation is required • Constructive Dismissal -- A major change in the employment terms that results in an employee resigning may be considered constructive dismissal Examples: significant change in job function, a demotion, a demand for an employee’s resignation, or a forced transfer • Reasonable Notice When just cause for dismissal does not exist, a dismissed employee must be provided “reasonable notice” or compensation in lieu of notice -- Major considerations include former employee’s age, length of service, salary, occupational status, labour market conditions. Note: employees who are terminated are required to attempt to mitigate losses, i.e., make efforts to find alternative employment • The Wallace Effect The 1997 decision of the Supreme Court in Wallace v. United Grain Growers resulted in the awarding of extended periods of notice in a number of wrongful dismissal cases where the employer has been acting in a callous manner. -- In a recent decision (Honda Canada v. Keays), the Supreme Court of Canada addressed the manner in which bad-faith damages should be assessed and restricted the use of punitive damages • Managing the Dismissal There are several guidelines to follow in dismissing an employee: -- Prepare for the interview and conduct a rehearsal -- Consider the dismissal process from the employee's perspective and ask "How would I like to be treated in such a situation?" -- Get to the point -- Select the time and place -- Have any necessary information ready -- Notify others in the organization and ensure that the individual's duties are covered -- In some instance, special security measures may be necessary -- Discuss the process with other colleagues who have had to terminate employees 4. Employee Rights • Right to Privacy -- Personal privacy legislation requires organizations to hold personal information about employees in a responsible manner and severely limiting the disclosure of such information without the employee’s consent -- Employers must only collect job-related information -- Many organizations monitor employee communications and activities on the job • Right to Fair Treatment -- An individual’s age, race, gender, religion, physical disability, etc. should not be considered when hiring (unless it is a bona fide occupational requirement) -- An employer has an obligation to make reasonable accommodation to meet employee needs -- These principles must also govern the day-to-day working relationship -- Right to work in a safe and harassment-free environment 5. Employee Involvement Most of the approaches to employee involvement focus on the increased participation of workers. Employee involvement is a popular method to increase the quality of work life. • Self-Directed Work Teams -- Teams of workers without a formal company-appointed supervisor who make decisions traditionally handled by a supervisor, e.g., daily work assignments, the use of job rotation, orientation, training, and production schedules • High-Involvement Work Practices -- Set / bundle of human resource practices aimed at increasing employee and employer performance -- Benefits include lower turnover, higher productivity, and improved financial performance • Employee Self-Service Aimed at reducing the amount of administrative work. Can be divided into two groups: -- Productivity applications, i.e., management of personal data, retirement plans, health and benefits management -- Strategic applications, i.e., online recruitment and skills management JOB SECURITY, DOWNSIZING, AND EMPLOYEE RETENTION • No-Layoff Policies -- Employees who have job security are more receptive to change, more likely to be innovative • Organizational Downsizing -- Major corporations around the world continue to downsize -- Implemented to enhance organizational performance and in response to the global financial crisis, however, studies show that morale sinks, productivity drops, and survivors distrust management • Retaining Top Performers -- Develop a planned approach to employee retention including addressing individual needs, investing in employees, etc. -- Become an employer of choice with a goal of retaining employees -- Communicate the organization’s vision and values clearly, frequently, and consistently -- Reward supervisors and managers for keeping good people -- Use exit interviews to obtain information as to why people are leaving the organization ANSWERS TO REVIEW AND DISCUSSION QUESTIONS 1. Think of a situation in which you learned some new information from the grapevine and took action on the basis of that information. Discuss. Answers will vary. However, students’ examples will illustrate how grapevines can supplement more formal organizational communications. 2. List and describe different types of programs that can be used by the human resource department to improve communication. Company magazines, newspapers, and other in-house publications provide employees with one-way communication about developments within the organization. This information may be supplemented by printed booklets, bulletins and various electronic communication media that inform employees about specific programs or changes in those programs. Television and other pre-recorded messages provide the same one-way communication but do it in a different format. Job-holder reports and meetings share information with employees about the organization's economic success. Employee meetings, employee question-answer programs, electronic communication, suggestion programs, and formal attitude and opinion surveys allow employees to communicate upwardly with others in the organization, which furthers the goals of two-way communications. Likewise, an open-door policy furthers two-way communication because it allows employees to interact with others in the organization. 3. Discuss differences between preventive and corrective discipline. What examples of either one were applied to you on the last job you had? Preventive discipline attempts to inform employees of expected standards, provide guidelines for expected behaviour, and develop self-discipline. Corrective discipline is reactive; it seeks to punish for violations of standards in the hope the corrective action will prevent the employee from violating standards in the future. 4. What is progressive discipline? How does it work? Is its basic approach realistic in work situations? Explain your answer. Progressive disciplinary systems impose stronger penalties for repeated offenses. The purpose of this is to give an employee an opportunity to take corrective action before more serious penalties are applied. A typical progressive discipline system involves a verbal reprimand for the first infraction. A second infraction is accompanied by written reprimand with a record in file. Further infractions build up to stronger discipline (e.g., one- to three-day suspension from work, suspension for one week, etc.) leading finally to discharge. Many (if not most) employers today employ such a progressive discipline model. ANSWERS TO CRITICAL THINKING QUESTIONS 1. Employee involvement (EI) has become a popular concept. As a manager, what steps would you take to increase EI in your division? Employee involvement (EI) consists of a variety of systematic methods that empower employees to participate in the decisions that affect them and their relationship with the organization. To increase employee involvement a manager should consider the implementation of self-directed work teams that would typically decide daily work assignments, orient new employees and perform other tasks that may currently be handled by a supervisor. Other high-involvement work practices could include the introduction of problem-solving groups, job enlargement/enrichment, etc. 2. Suppose you are plant or division manager and you want to improve the quality of work life in your division. What steps would you take? To create a high quality of work life environment often means changing attitudes, beliefs, and values within the organization. It has to do with the dignity of human beings and the management philosophy that is applied to workers. Management that adopt negative views of workers and let those negative views reflect through their management philosophy into their day-to-day management decision making detract from the organization's quality of work life environment. Since these attitudes and human resource assumptions tend to be subtle, a mere "directive" from top management may be grossly insufficient. What will be needed in almost every case is a long-term effort that may require specific organizational development interventions. Any of the approaches discussed in the text (e.g., self-directed work teams, high involvement work practices etc.) may be mentioned by the student. The specific steps to implement these are discussed in the text. 3. Think of an organization that you have worked in. What employee relations practices could be implemented to improve performance? Answers will vary. 4. Assume you have been asked to terminate an employee. How would you conduct the termination interview? The interview should be as positive and constructive as possible, not an easy task (see p. 408). ETHICS QUESTION Comments to Instructors There is no right or wrong answer to this question. It is for class discussion purposes. WEB RESEARCH Comments to Instructors These exercises have been designed for students to demonstrate their computer and Internet skills to research the required information. Answers will vary. INCIDENT 11.1: THE MACHINIST’S ABUSIVE COMMENTS TO THE SUPERVISOR Incident Comments This incident gives students some insight into a specific discipline situation. It can be used to underscore the need for maintaining industrial discipline and the problem of insubordination, which potential managers may encounter in their careers. 1. As a human resource director, what comments would you make? Although students may argue that the employee should be given a warning or the discipline may have been too harsh, the supervisor had to take some action or his credibility among the other workers might have been undermined. When an employee uses abusive language toward a supervisor and refuses to follow reasonable orders, no action by the supervisor may be interpreted as weakness and may encourage other discipline problems among other employees. The supervisor should be commended for remaining calm and conducting the discipline in private. The supervisor also should be commended for immediately notifying the human resource department. Depending on normal company procedure, the supervisor in some companies is required to notify the human resource department before major disciplinary action is taken. That requirement does not appear to be the case in this company. Finally, the supervisor seems to have applied the "hot-stove rule," although the supervisor may have been very upset at the time and maybe should have waited until he and the employee had calmed down more before implementing the discipline. 2. What follow-up actions should the human resource director take or recommend that Horace take? For example, do you recommend counseling for William? Would you reconsider existing disciplinary procedures or policies? When William returns from the one-day suspension, Horace should call him into the office for a brief counselling session to learn if William has some stress-related problem that is contributing to his uncooperative behaviour. The supervisor also should explore whether William is willing to follow orders in the future. If William remains adamant in his stance about picking up trash or otherwise seems uncooperative, Horace may want to refer William to the human resource department for additional counselling. Perhaps Horace should have been more proactive and counseled William after his comment during the weekly department meeting. If that counselling failed, William may have been referred to the human resource department for additional counselling. Instead, Horace waited until there was an infraction, insubordination, and abusive language before taking action. CASE STUDY: MAPLE LEAF SHOES LTD., ADDRESSING EMPLOYEE RELATIONS Answers to Discussion Questions 1. / 2. How should Britney deal with the Joan Jorgenson incident? What suggestions would you make to improve the policy on employee communications? Regarding the Joan Jorgenson incident, one of the key points surrounds the issue of "whistle-blowing". Students should also note that the approach to dealing with sexual harassment at the Maple Leaf office involved having Natalie go to Winnipeg. Is this an effective way to deal with the issue? In considering what action Britney might take with regard to Joan, some of the factors to consider include: • the company policy on employee communications • the fact that the policy is communicated regularly to employees • Joan's position (clerical) — would a different response be called for if Joan was in a different position? • Joan's decision to notify both the Human Rights Commission and the local media In determining an appropriate approach, it is important to consider the impact of any action on both Joan and other employees. Particularly relevant to the decision are the concepts relating to discipline (preventive/corrective/progressive and positive discipline) covered in the chapter. 3. What disciplinary action (if any) would you recommend Britney take with regard to the case involving Max MacSweeney? With reference to the Max MacSweeney incident, a potential ground for dismissal would be on the basis of misconduct. However, as noted in the text, establishing just cause for dismissal is not easy — employers frequently believe they have cause when in fact they don't. It is important to consider: • Max's position in the organization — accountant (courts often place a higher duty on more senior employees) • Max's previous record — there is a greater likelihood that the courts will give employees a second chance if they have an unblemished work record • the nature of the alleged misconduct -- this issue is complicated by the fact that while Max used company property to access the web sites, he did so on his "own" time (outside of regular working hours) • absence of a policy on Internet usage. While some disciplinary action may be called for, it is unlikely that a court would uphold a dismissal on the basis of just cause. However, the organization has the option to dismiss Max and provide "reasonable notice" or compensation in lieu of notice. 4. Develop a company policy on Internet usage. Concerning the development of a policy on Internet usage, material covered in the text is of assistance. As well, the policy needs to be adapted to the requirements of the organization. Some considerations include: • who can use the Internet (all employees or selected employees) • use of the Internet for business purposes • rules of conduct • right of the employer to monitor Internet usage • specific prohibitions — copyright issues, distribution of viruses, material that is threatening, abusive, defamatory or obscene. Maple Leaf Shoes should have a policy which restricts the use of the Internet for business purposes only. If employees are caught using the Internet for personal reasons, a progressive discipline system should be implemented. See Figure 11-2, p. 403, for the steps that should be followed. 5. Do you recommend that Paul Bertuzzi be dismissed? Is there just cause for dismissal? In considering whether there is just cause for dismissal, a number of issues are worthy of attention: • Paul's position is a supervisor — fiduciary duty • the nature of the misconduct — theft and divulging of company secrets • Paul did not participate in the misconduct — his involvement was passive in that he had only "heard" about the activities of the other supervisors • Does Paul have a duty to report the misconduct? Paul might argue that a very short time had elapsed from him becoming aware of the misconduct and the audit. Perhaps Paul was seeking to verify the information or planning to reveal the actions of the other supervisors in the near future. 6. Regardless of your answer to Question 1, what would be “reasonable notice” in the event that a court ruled that your organization did not have just cause to terminate Paul? Explain your answer. In determining "reasonable notice", there are a wide number of factors the court considers. Some of the most important are: • employee's age • employee's length of service • employee's occupational status • employee's salary • labour market opportunities elsewhere • employee's duty to mitigate losses Students frequently apply the guidelines provided in the text. Assuming Paul is considered mid-management, he would receive about three weeks notice for each year of service (3 weeks x 11 years or about 33 weeks — approximately 8 months). It is important for students to realize that the courts don't simply apply the guidelines; rather they consider the various factors and come up with a notice period. The guidelines are merely given to give students some sense of the notice periods awarded. 7. If you were in Paul Bertuzzi’s position, would you have reported the scheme to senior management? The issue of whether a student in Paul's position would report the scheme to senior management addresses both practical and ethical issues. A strict interpretation of a fiduciary duty would suggest that Paul had an obligation to report what he had heard. On the other hand, employees are often unwilling to "tell" on co-workers. CASE STUDY: A MATTER OF SECURITY AT CANADIAN PACIFIC AND INTERNATIONAL BANK Answers to Discussion Questions 1. Would you recommend disciplinary action in this case? Why or why not? Brenda exercised reasonable caution but did not follow CPIB’s typical procedure for securing sensitive property. Students should recommend a progressive discipline, where a letter of reprimand would be placed in her personnel file. In the letter, there would be a detailed summary of what she did and why that was unacceptable, steps for what she should have done to secure the property, and a warning that if she misplaced or lost sensitive files again, she would be dismissed from her current position. Depending on the severity of future loss of property, she would either be demoted or dismissed from the organization as well. 2. Are there long-term implications for the human resource function as a result of this incident? The long-term implications are to explicitly state in the rules and procedures, how employees should be dealt with if certain infractions are made. Disciplining policies must follow the principles of fair treatment, based on just cause. This suggests that CPIB must anticipate future behaviours that are subject to sanctions, and then develop a policy to deal with such behaviours. 3. Assume head office has demanded a new policy addressing the security of bank property. Discuss the merits and drawbacks of having such a policy. The primary merit is that there is a uniform code for how infractions will be handled, ensuring more consistent application of sanctions. The drawback is that such a policy may be too rigid, where extenuating circumstances are not duly considered when implementing sanctions. This may lead the employees to claim unfair treatment because the disciplinary actions were too harsh given the situations. 4. Develop a policy for CPIB. Implement a policy where the criteria for infractions are clearly spelled out in the rules and policies. The policy should specify any extenuating circumstances that should be considered when imposing sanctions. Otherwise the steps of progressive discipline (see Figure 11-2, p. 403) should be followed. Monitor how many infractions are reported a year after the policy is in place. If a particular infraction is repeated by a number of employees, employees may need remedial orientation on handling sensitive property. Solution Manual for Canadian Human Resource Management: A Strategic Approach Hermann F. Schwind, Hari Das, Terry H. Wagar, Neil Fassina, Julie Bulmash 9780071051552, 9781259066665