CH-10 Performance Appraisal: The Key to Effective Performance Management – Human Resources Management in Canada : Chapter Notes

This document contains Chapters 10 to 13 PART THREE: DEVELOPING EFFECTIVE HUMAN RESOURCES CHAPTER 10 PERFORMANCE APPRAISAL: THE KEY TO EFFECTIVE PERFORMANCE MANAGEMENT LEARNING OUTCOMES • Explain what is meant by the term “performance management” and why it is important to effectively appraise performance. • Describe eight performance appraisal methods and the pros and cons of each. • Discuss the major problems inhibiting performance appraisals. • Discuss 360-degree appraisal from multiple sources. • Describe the three types of appraisal interviews. • Discuss the future of performance management. CHAPTER DESCRIPTION In the first part of this chapter, performance appraisal is defined and the process is described briefly. Next, there is a discussion of the reasons for performance appraisal, the HR department's role, and the steps involved. The focus then shifts to defining performance expectations, followed by a discussion of a variety of appraisal methods. The problems and solutions associated with performance appraisal are presented next, including ethical issues and who should do the appraising. This is followed by a discussion of the types of appraisal interviews, and an explanation of how to prepare and conduct such interviews. The chapter ends with a discussion on the future of performance management. LECTURE OUTLINE • this chapter reviews the topic of performance management, with emphasis on performance appraisal • better performance management is an untapped opportunity to improve company profitability • emphasis is on goal setting, merit pay increases, training and development, career management, and disciplinary action • provides opportunity for managers and employees to review each employee’s work-related behaviour • career plans reviewed in light of employees’ strengths and weaknesses and in light of strategic plans • reasons some appraisals fail: employees don’t know ahead of time what is good performance oblems with forms or procedures used to appraise performance poor communication in interview-feedback session • most effective way to develop the quality of employees • should link performance criteria to current strategic objectives and implementation plans • each duty should be measurable • appraisal methods are predetermined and formal • graphic rating system is simplest and most popular • rather than appraising generic traits or factors, specify the duties to be appraised • easier to distinguish between the worst and best employees than to rank them • helps to make the ranking method more precise; for every trait, every employee is paired with and compared to every other employee • places predetermined percentages of ratees in performance categories • similar to bell-curving • one’s performance is always rated relative to that of one’s peers • demotivating as large proportion of employees classified as below average • can be used to supplement another appraisal technique • advantages: provides specific hard facts for explaining the appraisal • ensures that a manager thinks about the employee’s appraisal throughout the year • provides concrete examples of what an employee can do to eliminate any performance deficiencies • adapted to specific job expectations • not useful for comparing employees or for making salary decisions • performance improvement plan: performance problem described in specific detail, organizational impact is specified, includes measurable improvement goals, directions regarding training and other performance-enhancing activities, encourages employees to add ideas, and explicitly states both positive and negative outcomes and consequences. • discussions focus on problem solving • combines the benefits of narratives, critical incidents, and quantified ratings by anchoring a quantified scale with specific behavioural examples. • more equitable • people will know the job and its requirements develop BARS • critical incidents along the scale clarify standards • critical incidents are useful in providing feedback • clustering of the critical incidents helps make dimensions more independent of each other • relatively consistent and reliable in that different raters’ appraisals of the same person tend to be similar • a comprehensive, organization-wide goal-setting and appraisal program • department heads and supervisors jointly set goals • department heads and employees set short-term performance targets • compare actual performance of each employee with expected results • discuss and evaluate progress in achieving expected results • objectives must be fair and attainable • manager must know the job and the employee’s ability in order to be confident about the standards set • employees are overly optimistic about what their ratings will be • emotional component leads to dishonest appraisals or abidance of appraisals • structural problems of validity and reliability • reliability means that the criteria for appraisal must be precise enough to result in consistent measures when applied across many employees by many different raters • validity means that the criteria must be accurate enough to be valid; must be relevant to the job; must be broad enough to cover all aspects of the job; and must be specific • unclear standards: caused by traits and degrees of merit are open to interpretation: develop and include descriptive phrases that define each trait • halo effect: rater biases by one trait and this influences rating on all other traits: awareness and training • central tendency: avoid high and low ratings and rate everyone average: ranking employees solves this • strictness/leniency: rater rates everyone very high or else very low. Due to fear of interpersonal conflict: ranking or forced distribution solves this • appraisal bias: individual differences among raters in terms of a wide variety of characteristics • recency effect: ratings based on employee’s most recent performance • similar-to-me bias: biased and discriminatory • training not always the answer • other factors which affect accuracy: extent to which pay is tied to performance, union pressure, employee turnover, time constraints, need to justify ratings, prior appraisal feedback • supervisor: best position to observe and evaluate, responsible for performance • peer: high correlation between peers and supervisor • rating committees: immediate supervisor plus 3–4 other supervisors • self-ratings: employees usually rate themselves higher than do supervisors or peers • employees/subordinates: upward feedback valuable when used for development • 360-degree: for success, you need an open communication climate, close fit with goals of the organization, commitment to continuous learning, complex jobs with matrix and team reporting relationships, confidential and anonymous, questionnaires custom designed and linked to organization’s strategic direction, vision, and values • major problems with 360-degree include: amount of time and effort involved, lack of trust in the system, lack of fit with strategic goals and other HR practices. • satisfactory/promotable: make development plans • satisfactory/unpromotable: maintain performance • unsatisfactory: plan correction • unsatisfactory/uncorrectable: tolerate or dismiss • to prepare for appraisal interview: assemble the data, prepare the employee, choose time and place • to conduct interview: use objective work data • compare person’s performance to a standard • use open questions and reflection • make sure employee understands and get agreement on how things should be improved and by what time • first reaction is denial • sometimes then anger/aggression • some retreat into a shell • criticism provided constructively in private • use examples of critical incidents and specific suggestions for what should be done and why • give feedback on a daily basis • criticism is objective and free of personal bias Recent research indicates that effective performance management involves: • linking individual goals and business strategy • showing leadership accountability at all levels of the organization • ensuring close ties among appraisal results, rewards, and recognition outcomes • investing in employee development planning • having an administratively efficient system with sufficient communication support • in the first quarter of the class time, introduce the topic of performance management, the performance appraisal process, and defining performance expectations • in the second quarter of the class time, provide detailed coverage of the various appraisal methods; have students work through examples to solidify their understanding of the mechanics of these methods; the running case can be used here, as well as the two experiential exercises • in the third quarter of the class time, cover the material in performance appraisal problems and solutions; use a case or exercise on rating errors • in the final quarter of the class time, review the material on the appraisal interview and on the closing material regarding the role of appraisals on managing performance; the Case Incident can be used here DISCUSSION BOX SUMMARIES WORKFORCE DIVERSITY: Avoiding Racial Discrimination in Performance Appraisal (page 262) Studies on employment equity consistently show that racialized persons are still largely concentrated in lower-level positions within organizations, and upward mobility continues to be a problem. It is important for organizations to be aware of how systems for promotion and advancement may result in obstacles for career progression. This box discusses the barriers posed by performance appraisal systems and the clustering of racialized persons in certain categories, and proposes best practices. ============================================================================= STRATEGIC HR: 360-Degree Feedback at PACCAR of Canada Ltd. (page 269) PACCAR’s corporate values include mutual respect, communication, teamwork, and continuous improvement. This box describes the process of adopting a 360-degree feedback process in the company. While there was initial union concern with using this feedback for evaluative purposes, the process has been very successful. Managers were open to participating from the start because results were being used for development purposes only, not evaluative purposes. The process has facilitated the communication of corporate values to managers on a regular basis and has helped to align managers’ behaviour and skills with these values. ============================================================================= ETHICAL DILEMMAS Is it ethical to use the forced distribution method, where we classify employees as having low performance, when we know we do not continue to employ workers whose performance really is poor? (page 254) The forced distribution method is not popular with either employers or employees. Anyone who feels that bell-curve grading is unethical will argue that this technique is also unethical, since both involve placing predetermined percentages of individuals in specific categories. What if the department employees are mostly poor performers? Is it right that some of them should get high and average ratings? What if the department happens to have a large percentage of outstanding performers? Is it right that some of them should get average ratings? These results could occur in a forced distribution performance appraisal, since a specified percentage of employees must be placed in each performance category. Is it fair to factor in employee self-ratings in 360-degree performance appraisal when we know that these appraisals tend to be inflated? (page 269) While it is true that employees value the opportunity to participate in performance appraisal more for the opportunity to be heard than for the opportunity to influence the end results, since 360-degree appraisals tend to be used for development/career planning purposes, at least in the initial stages, factoring in self-ratings makes a great deal of sense. Employees are more likely to accept and act upon the results if they have had the opportunity to provide input. Furthermore, since some raters may have a strictness bias, factoring in such ratings, even if slightly inflated, should “balance out” the final evaluation results. In fact, while there may be a discrepancy in the ratings made by individual raters, composite ratings can be more reliable, fair, and valid. Several raters can help cancel out problems like bias and the halo effect on the part of individual raters. KEY TERMS 360-Degree Appraisal A performance appraisal technique that uses multiple raters including peers, employees reporting to the appraisee, supervisors, and customers. (page 267) Alternation Ranking Method Ranking employees from best to worst on a particular trait. (page 253) Appraisal Bias The tendency to allow individual differences such as age, race, and sex to affect the appraisal ratings that these employees receive. (page 262) Appraisal Interview An interview in which the supervisor and employee review the appraisal and make plans to remedy deficiencies and reinforce strengths. (page 270) Behaviourally Anchored Rating Scale (BARS) An appraisal method that aims to combine the benefits of narratives, critical incidents, and quantified ratings by anchoring a quantified scale with specific narrative examples of good and poor performance. (page 255) Central Tendency A tendency to rate all employees in the middle of the scale. (page 261) Critical Incident Method Keeping a record of uncommonly good or undesirable examples of an employee's work-related behaviour and reviewing it with the employee at predetermined times. (page 254) Forced Distribution Method Predetermined percentages of ratees are placed in various performance categories. (page 254) Graphic Rating Scale A scale that lists a number of traits and a range of performance for each. The employee is then rated by identifying the score that best describes his or her level of performance for each trait. (page 251) Halo Effect In a performance appraisal, the problem that occurs when a supervisor's rating of an employee on one trait biases the rating of that person on other traits. (page 261) Management by Objectives (MBO) Involves setting specific measurable goals with each employee and then periodically reviewing the progress made. (page 258) Paired Comparison Method Ranking employees by making a chart of all possible pairs of the employees for each trait and indicating whom the better employee of the pair is. (page 253) Performance Management The process encompassing all activities related to improving employee performance, productivity, and effectiveness. (page 250) Recency Effect The rating error that occurs when ratings are based on the employee’s most recent performance rather than performance throughout the appraisal period. (page 263) Similar-to-Me Bias The tendency to give higher performance ratings to employees who are perceived to be similar to the rater in some way. (page 263) Strictness/Leniency The problem that occurs when a supervisor has a tendency to rate all employees either high or low. (page 261) Unclear Performance Standards An appraisal scale that is too open to interpretation of traits and standards. (page 261) PART FOUR: TOTAL REWARDS CHAPTER 11 ESTABLISHING STRATEGIC PAY PLANS LEARNING OUTCOMES • Explain the strategic importance of total rewards. • Explain in detail each of the five basic steps in establishing pay rates. • Discuss competency-based pay. • Describe the five basic elements of compensation for managers. • Define pay equity and explain its importance today. CHAPTER DESCRIPTION This chapter begins with a description of the basic aspects of total rewards. This is followed by a discussion of the legal, union, policy, and equity considerations involved in determining pay rates. The five basic steps in establishing pay rates (job evaluation, creation of pay grades, wage/salary surveys, pricing jobs with wage curves, and finetuning wage rates) are then explained in detail. Next, current trends in compensation are discussed, including competency-based pay. This is followed by an explanation of the issues involved in establishing pay rates for managerial and professional jobs. The chapter ends with a discussion on pay equity. LECTURE OUTLINE • This chapter introduces the topic of establishing strategic pay plans – plans for providing rewards to employees that will motivate them to successfully implement the organization’s strategy. • Rewards are particularly important when payroll is the largest budget item for the organization. • Total Rewards – An integrated package of all rewards (monetary and non-monetary, extrinsic and intrinsic) gained by employees arising from their employment. It: o Aligns rewards with business strategy. o Provides value to the employees. o Works within organizational cost constraints. • Has the following 3 broad categories: Compensation, Benefits, and Work Experiences. • Five components of Total Rewards: o Compensation – wages, salaries, incentives, commissions, and bonuses o Benefits – indirect payments in the form of financial benefits such as employer-paid insurance and vacations o Work/life programs – flexible scheduling, telecommuting, child-care programs, and so on o Performance and recognitions o Development and career opportunities – tuition assistance, professional development, sabbaticals, coaching and mentoring opportunities, succession planning, and apprenticeships are all examples of career-enhancing programs. • Basic considerations in determining pay rates: o Legal requirements – employment standards legislation, pay equity, human rights, and required government benefit plans such as workers’ compensation, Employment Insurance, and CP/QPP o Union issues – provisions of any collective agreements with unionized employees o Compensation policy – the organization’s compensation policies o Equity – providing internal and external equity in pay rates • Five steps involved in establishing pay rates: Step 1 – job evaluation to ensure internal equity Step 2 – group similar jobs into pay grades Step 3 – conduct salary surveys to ensure external equity Step 4 – price each pay grade using wage curves Step 5 – fine-tune the pay rates • Job evaluation is a systematic comparison of jobs to determine their relative worth to the organization. The result is a hierarchy of jobs from most valuable to least valuable. • Benchmark jobs are jobs that are commonly found in all organizations and/or are critical to the firm’s operations. • Compensable factor is a fundamental compensable aspect of the job such as skill, effort, responsibility, and working conditions. • Step 1 – job evaluation, which results in a hierarchy of jobs in order of value to the organization • there are four commonly used methods of job evaluation: o ranking method o classification/grading method o point method o factor comparison method • each of these methods will be reviewed in detail • the ranking method: o obtain job information from job analysis o group the jobs to be rated – e.g. factory workers, clerical workers o select compensable factors o rank the jobs on each compensable factor in order of value to the organization o combine the ratings of several raters • this method is commonly used in small organizations • Table 11.1 illustrates the hierarchy of jobs in one organization after ranking • the jobs are listed from most valuable to least valuable, relative to the compensable factors • the figure shows how the pay for each job is consistent with its ranking • the classification/grading method involves writing descriptions of job groups called classes or grades, and then categorizes each job into a class/grade • Figure 11.2 provides an example of a group definition in the Federal Government • classes contain similar jobs – e.g. Administrative Assistant I, Administrative Assistant II • grades/groups contain dissimilar jobs of equal difficulty – e.g. nurses, police officers • commonly used in the public sector • the point method of job evaluation is based on the identification and description of compensable factors and sub-factors • then the degree to which each factor is present in each job is determined by a job evaluation committee • a number of points is assigned to each job for each compensable factor depending on the degree to which that factor is present in the job • widely used in the private sector • Point Method Steps o determine clusters of jobs to be evaluated – eg. plant, office, management, executive o collect job information from job analysis of the jobs in each cluster o select and define compensable factors and sub-factors. Commonly used factors are skill, effort, responsibility, and working conditions o define factor degrees o determine factor weights according to the relative importance to the organization o assign point values to factors and degrees o write the job evaluation manual to explain how to use factors, degrees, and points in rating jobs o a committee of raters rates the jobs and assigns points to each one based on the instructions in the manual • this figure provides an example of how three factors – decision making, problem solving, and knowledge – are weighted and how points are assigned to each degree of each factor. • the factor comparison method involves ranking each job several times – once for each compensable factor • then the rankings for each factor are summed to provide an overall numerical ranking for each job • finally, the wage rate for each job is distributed by factor, and wage rates for each factor in each job are shown on a job-comparison scale • Table 11.3 provides an example of a job-comparison scale • Step 2 – group similar jobs into pay grades • Pay grades are composed of a group of jobs of approximately equal value: o Point – jobs falling within a range of points o Ranking – all jobs falling within 2–3 ranks o Classification – jobs already in classes/grades o Factor comparison – specified range of pay rates • Step 3 – conduct a wage/salary survey of other organizations to ensure external equity • a wage/salary survey can be conducted by the employer, either formally or informally • Wage/salary survey is aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for comparable jobs. Formal written questionnaire surveys are the most comprehensive. • another option is to buy surveys from consultants, industry/professional associations, or government agencies • Table 11.4 provides an example of earnings data by industry and occupation • Step 4 – plot a wage curve/line and use it to determine pay for the jobs (price jobs) • wage curve is a graphic description of the relationship between the value of the job and the average wage paid for this job • a wage curve is created by finding the average pay for the jobs in each pay grade (using current pay unless out of step with market pay obtained through the survey), plotting the pay rates for each pay grade (grouping of job evaluation points), and fitting a wage curve/line through the points (regression can be used here) • then the pay for all jobs can be determined based on where they fall on the wage curve/line • Figure 11.4 provides an example of the wage curve/line plotted through existing wage rates for various levels of job evaluation points • Step 5 – fine-tune pay rates by using a wage structure with pay rate ranges • Figure 11.5 provides an example of rate ranges built around the wage curve/line • Broad banding – collapsing salary grades and ranges into just a few wide levels or “bands,” each of which then contains a relatively wide range of jobs and salary levels as shown in Figure 11.6 • this figure illustrates broad banding with only a small number (three to five) of broad salary ranges • Red circle pay rate is a rate of pay that is above the pay range • Broad banding is appropriate for flat organizations and those organized around self managed teams • Competency-based pay – pays employees for the range, depth, and types of knowledge that they are capable of using, rather than for the job that they currently hold • Competencies – individual knowledge, skills, and behaviours that are critical to successful individual or corporate performance • increased workforce flexibility is one of the most significant advantages of competency based pay • Five elements of pay for managerial and professional employees are: o salary o benefits o short-term incentives o long-term incentives o perquisites • today there is reduced emphasis on salary, and increased emphasis on short- and long term incentives • Pay Equity – providing equal pay to male-dominated job classes and female-dominated job classes of equal value to the employer • intended to eliminate systemic pay discrimination by providing equal pay to male-dominated job classes and female-dominated job classes • particularly important to ensure that there are not gender biases in job evaluations • pay equity has been found to reduce the wage gap in Ontario to some extent. However, although pay equity legislation has narrowed the wage gap, it has not eliminated it, and there is still no explanation other than systemic discrimination for much of the 30 percent gap that still persists • six provinces (Ontario, Quebec, Manitoba, Nova Scotia, New Brunswick, and Prince Edward Island) have created separate proactive legislation that specifically requires that pay equity be achieved • in the first quarter of the class time, cover the introductory material and review job evaluation methods • spend the next quarter of the class time doing a hands-on job evaluation exercise (point method is usually the most important method for students to become familiar with) • in the third quarter of the class time, cover pay grades, surveys, wage curves/lines, and fine-tuning pay rates; it is helpful to have a sample salary survey that can be handed around to the class • spend the last quarter of the class on competency-based pay, customized job evaluation plans, pay for managers and professionals, pay equity, and other issues; pay equity examples or latest tribunal cases are interesting for students to be made aware of; speakers on any of this last group of topics can be beneficial • the Acme Manufacturing case is best used with the material on pay equity • the LearnInMotion.com case is best used at the end of the class DISCUSSION BOX SUMMARIES WORKFORCE DIVERSITY: Rewards for Generation Y (page 280) Discusses how rewards should be changed to the needs of the younger workforce (Generation Y) entering the job market and types of rewards that would be attractive to this generation. ============================================================================= STRATEGIC HR: Total Rewards Becoming More Critical (page 281) Discusses the critical role total rewards play within an organization. It also describes that total rewards need to be constantly re-examined to meet the needs of the workforce. ============================================================================= ETHICAL DILEMMAS What should employers do when there is a shortage of a certain type of skills and they cannot attract any workers unless they pay a market rate above the maximum of their salary range for that job? How should other jobs in the same salary range be paid? (page 295) The preferred strategy when dealing with skills shortages is to offer higher pay to attract and retain employees in the skills-shortage occupations. In order to maintain internal equity, other jobs in the same salary range should be paid within-range rates. As soon as the skills shortage is over, within-range rates are once again paid to those occupations. To accomplish this without resorting to demotivating pay cuts, “red circling” is generally used, whereby the pay rates of such overpaid employees are typically frozen until general salary increases bring the pay range up to encompass their salaries. Is it right that CEOs earn enormous amount of money when most employees are getting small increases each year (sometimes even less than inflation)? (page 300) This question should provoke hot debate. Those in favour of egalitarianism will argue that large pay differentials are demotivating and are totally inappropriate in firms that stress teamwork and employee empowerment. Others will argue that CEOs deserve to earn a great deal because they have a much larger impact on company performance, survival, and profitability than do other employees. If differentials are not large enough, there will be no motivation to obtain the KSAs required to assume such jobs. In addition, to attract and retain high-calibre employees, the pay must be attractive enough to compensate for the high risk and high stress involved. KEY TERMS Benchmark Job A job commonly found in other organizations and/or critical to the firm's operations that is used to anchor the employer's pay scale and acts as a reference point around which other jobs are arranged in order of relative worth. (page 285) Broad banding Reducing the number of salary grades and ranges into just a few wide levels of “bands,” each of which then contains a relatively wide range of jobs and salary levels. (page 296) Classes Groups of jobs based on a set of rules for each class, such as amount of independent judgment, skill, physical effort, and so forth. Classes usually contain similar jobs, such as all secretaries. (page 287) Classification (or Grading) Method A method for categorizing jobs into groups. (page 287) Compensable Factor A fundamental, compensable element of a job, such as skill, effort, responsibility, and working conditions. (page 285) Competencies Individual skills, knowledge, and behaviours that are critical to successful individual or corporate performance. (page 298) Factor Comparison Method A method of ranking jobs according to a variety of skill and difficulty factors, adding these rankings to arrive at an overall numerical rating for each given job, and then incorporating wage rates. (page 291) Grade/Group Description Written description of the level of compensable factors required by jobs in each grade. Similar jobs can be combined into grades or classes. (page 288) Grades Groups of jobs based on a set of rules for each grade, where jobs are similar in difficulty but otherwise different. Grades often contain dissimilar jobs, such as secretaries, mechanics, and firefighters. (page 287) Job Evaluation A systematic comparison to determine the relative worth of jobs within a firm. (page 284) Pay Equity Providing equal pay to male-dominated job classes and female-dominated job classes of equal value to the employer. (page 302) Pay Grade A pay grade comprises jobs of approximately equal value. (page 292) Point Method The job evaluation method in which a number of compensable factors are identified, then the degree to which each of these factors is present in the job is determined, and an overall point value is calculated. (page 288) Ranking Method The simplest method of job evaluation, which involves ranking each job relative to all other jobs, usually based on overall difficulty. (page 286) Rate Ranges A series of steps or levels within a pay grade, usually based upon years of service. (page 296) Red Circle Pay Rate A rate of pay that is above the pay range maximum. (page 298) Total Rewards All forms of pay or compensation provided to employees and arising from their employment. (page 279) Wage Curve A graphic description of the relationship between the value of the job and the average wage paid for this job. (page 295) Wage/Salary Survey A survey aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for comparable jobs. Formal written questionnaire surveys are the most comprehensive. (page 292) PART FOUR: TOTAL REWARDS CHAPTER 12 PAY-FOR-PERFORMANCE AND FINANCIAL INCENTIVES LEARNING OUTCOMES • Discuss how piecework, standard hour, and team or group incentive plans are used. • Explain how to use short-term and long-term incentives for managers and executives. • Analyze the main advantages and disadvantages of salary plans and commission plans for salespeople. • Explain why money is somewhat less important as an incentive for professional employees than it is for other employees. • Compare the three types of organization-wide incentive plans. • Explain under what conditions it is best to use an incentive plan. • Analyze the emerging emphasis on employee recognition. CHAPTER DESCRIPTION The chapter opens with a discussion of the background and trends pertaining to money and motivation, and an introduction to the various types of incentive plans. Incentives for operations employees are then described, including piecework, standard hour, and team or group incentive plans. This is followed by an explanation of short-term and long-term incentives for senior managers and executives. The focus then shifts to salespeople, and a discussion of salary, commission, and combination plans. Incentives for other professionals are examined next, including merit pay and incentives for professional employees. A number of organization-wide incentives are then explored, including profit-sharing, employee share purchase/stock ownership, Scanlon plans and gainsharing. The chapter then provides some helpful hints regarding the development of effective incentive plans and finally discusses the growing use of employee recognition programs. LECTURE OUTLINE • this chapter explores the topic of pay-for-performance and financial incentives • these rewards are intended to motivate employees to achieve the organization’s strategy • Variable Pay • any plan that links pay to productivity or profitability • helps to control base pay inflation • companies continue to increase their use of variable pay plans, while holding salary increases to modest levels • there are two broad categories of incentive plans – individual and group • spot bonuses are spontaneous incentive awards to individuals for accomplishments not readily measured by a standard • there are two sub-categories of group incentive plans – profit-sharing plans and gainsharing plans • incentives for operations employees are among the oldest types of incentive plans • Piecework plans – pay based on the number of items produced • straight piecework plans – paying for each piece • guaranteed piecework plans – paying a minimum hourly wage plus an incentive for each item produced above a set number of pieces per hour • Standard hour plans – paying a basic hourly wage rate plus an extra percentage of the base rate for exceeding the production standard • Team/group incentive plans – paying members of a team for exceeding a production standard • incentives for senior managers and executives are usually separated into the following: • Short-term incentives – incentives based on short-term performance (i.e. annual bonus) • Annual bonus plans are designed to motivate the short-term performance of managers and are tied to company profitability • Long-term incentives – incentives based on long-term performance (i.e. capital accumulation plans or stock-based plans) • Capital accumulation plans are most often reserved for senior executives. • there are three basic issues to be considered when designing an annual bonus: 1. Eligibility – determines who will be eligible for the bonus. There are three factors that contribute to determining eligibility – key position, salary level, salary grade 2. Fund Size – how much money will be allocated to the bonus fund 3. Determine individual rewards – discretionary, actual results vs. budget, individual vs. team vs. organizational performance, or other • there are several popular long-term incentives for senior managers and executives • Stock options • are the most popular long-term incentive • provide the right to purchase a stated number of shares of a company at today’s prices at some time in the future • they have recently been attacked as a motive for short-term managerial focus on getting the stock price up as fast as possible, without regard to the long-term best interests of the company • Book value plans – provide for the purchase of stock at the current book value to be sold at future book value later on • Stock appreciation rights – provide the option to purchase shares in the future and to receive any appreciation in stock price in cash, stocks, or a combination • Performance achievement plans – award stock for achieving financial targets • Restricted stock plans – provide shares with certain restrictions such as vesting requirements • Phantom stock plans – provide “units” rather than shares and pay out any appreciation in cash • Performance plans – provide units with a unit value payable if objectives are achieved • sales compensation has always relied heavily on incentives • Salary plan – salespeople are sometimes paid a salary, particularly when their focus is on developing new business or servicing accounts • Commission plan – pay salespeople in direct proportion to their sales • Combination plan – salespeople are most commonly paid with a combination of a basic salary plus commission based on their actual sales • other professionals are often provided with Merit Pay – a salary increase based on individual performance • the motivational impact of merit pay is dependent on the validity of the performance appraisal system • sometimes merit pay is paid as a lump sum rather than as an increment to salary • incentives for professional employees usually represent a small percentage of total compensation • incentives are usually based on long-term achievements • pay is often not a major motivator for professionals – they prefer up-to-date equipment and facilities, a supportive management style, and support for research activities • There are several organization-wide incentive plans: • Profit-sharing plans – distribute some amount of profit to every employee in the organization • Employee share purchase/stock ownership plans – provide an opportunity for employees to purchase stock in the company, often with matching contributions from the company to purchase additional shares – these plans create a sense of ownership and commitment for employees Scanlon plan – designed to encourage cooperation, involvement, and sharing of benefits • Gainsharing plans – promote a common effort to achieve productivity objectives by sharing cost savings between the company and the employees • the key feature of a Scanlon plan (developed in 1937 by Joseph Scanlon, a union official) is that it engages many or all employees in a common effort to achieve a company’s productivity objectives • any resulting incremental cost savings are shared among employees and the company based on a specific formula • The five main features of a Scanlon plan are: o a philosophy of cooperation o a clear understanding on the part of employees regarding the company’s identity o the assumption of competence on the part of employees o employee involvement in the plan o sharing of benefits formula • Gainsharing plans have been successful because of the following factors: • due to the cooperation between management and labour • joint development of the plan • effective communication of the plan • clear guidelines regarding plan changes • setting achievable goals • Incentive plans are most effectively used when: • units of output can be measured objectively • there is a clear relationship between employee effort and quantity of output • there are standardized jobs with a regular workflow and few or very consistent delays • quality is less important than quantity • Seven principles support the successful, effective implementation of incentive plans: 1. pay for performance 2. link incentives to career development and challenging opportunities 3. link incentives to measurable competencies 4. match incentives to the culture of the organization 5. keep group incentives clear and simple 6. overcommunicate 7. remember that the greatest incentive is the work itself • monetary rewards are quickly spent and offer no lasting symbol of recognition • recognition plans have become important because lack of recognition and praise is the #1 cause of employee turnover; employees consistently say they receive little recognition • employees value being appreciated by an employer • Employee recognition programs: • are cost-effective because praise and modest gifts are inexpensive • improve employee attitude and productivity • create strategic change if program criteria are aligned with organizational strategy • fuel high performance • act as communication tools • use the Case Incident to illustrate problems with team/group incentives • use the first two critical thinking questions in conjunction with the material on merit pay • use the LearnInMotion.com case with the material on stock options; there has been a lot of popular media material available on this topic over the last several years that can be very illustrative of the current climate of concern about the effects of stock options • all three experiential exercises can be used at the end of the class to design incentives for various positions. The third exercise – Express Automotive – could be used piece-by-piece throughout the class as the different types of incentives are introduced • if capital accumulation plans are going to be stressed, a significant amount of class or tutorial time should be devoted to these, and sample calculations provided to enhance understanding DISCUSSION BOX SUMMARIES WORKFORCE DIVERSITY: Targeting Incentives for Life Stage (page 310) This box provides an understanding of which incentive program/approach is most effective for people in various life stages. Information provided in the box can be used to create a workforce that is satisfied, engaged, and more likely to perform better and remain with the company. ============================================================================= STRATEGIC: HR Recognition at RBC Financial Group (page 329) Steve Richardson at RBC Financial Group provides an insight as to how he manages RBC’s recognition programs. He mentions how rewards should not be an expected event, and that it should be done when it is warranted unlike a paycheck. ============================================================================= ETHICAL DILEMMAS Is it ethical to provide potentially large bonuses to managers and executives on a purely discretionary basis, not necessarily related to performance? (page 315) Most would argue that providing potentially large bonuses to managers and executives on a purely discretionary basis is neither ethical nor desirable, since subjective standards can be inappropriately high or unacceptably low – either of which could have negative results. Inappropriately high standards that cannot be attained are not motivating and may result in turnover. Standards that are too low may result in unnecessary expense for the company and may encourage behaviour or activity that is not in the firm’s long-term best interests. It is far more appropriate to establish a target bonus for each eligible position and to make adjustments for greater or less than targeted performance. Often, a maximum amount is set. Is it fair to compensate sales employees on a 100-percent commission basis with no financial security? (page 320) In some jurisdictions (such as Alberta), it is illegal to compensate outside sales employees on a 100-percent commission basis without providing a guaranteed minimum wage. Even in jurisdictions in which this is not the case, many would argue that it is neither ethical nor desirable to have a compensation system with no guaranteed minimum amount covering basic living expenses. While it is true that 100-percent commission pay plans can be highly motivating and often attract high-performing salespeople, there are a number of drawbacks with such systems, some of which may hinder the firm’s long-term performance. Salespeople tend to focus on making a sale and on high-volume items and may fail to cultivate dedicated customers, push hard-to-sell items, or perform important non-selling duties such as servicing small accounts. Feelings of inequity may arise if there are wide variations in income between sales representatives or if pay is excessive in boom times and extremely low during recessionary times. KEY TERMS Annual Bonus Plans that are designed to motivate short-term performance of managers and are tied to company profitability. (page 313) Capital Accumulation Programs Long-term incentives most often reserved for senior executives. Six popular plans include stock options, book value plans, stock appreciation rights, performance achievement plans, restricted stock plans, and phantom stock plans. (page 316) Employee Share Purchase/Stock Ownership Plan A trust is established to hold shares of company stock purchased for or issued to employees. The trust distributes the stock to employees on retirement, separation from service, or as otherwise prescribed by the plan. (page 324) Gainsharing Plan An incentive plan that engages employees in a common effort to achieve productivity objectives and share the gains. (page 326) Guaranteed Piecework Plan The minimum hourly wage plus an incentive for each piece produced above a set number of pieces per hour. (page 311) Merit Pay (Merit Raise) Any salary increase awarded to an employee based on his or her individual performance. (page 322) Piecework A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day. (page 311) Profit-sharing Plan A plan whereby most or all employees share in the company's profits. (page 323) Scanlon Plan An incentive plan developed in 1937 by Joseph Scanlon and designed to encourage cooperation, involvement, and sharing of benefits. (page 325) Spot Bonus A spontaneous incentive awarded to individuals for accomplishments not readily measured by a standard. (page 310) Standard Hour Plan A plan by which a worker is paid a basic hourly rate plus an extra percentage of his or her base rate for production exceeding the standard per hour or per day. It is similar to piecework payment, but is based on a percent premium. (page 312) Stock Option The right to purchase a stated number of shares of a company stock at today's price at some time in the future. (page 316) Straight Piecework Plan A set payment for each piece produced or processed in a factory or shop. (page 311) Team or Group Incentive Plan A plan in which a production standard is set for a specific work group, and its members are paid incentives if the group exceeds the production standard. (page 313) Variable Pay Any plan that ties pay to productivity or profitability. (page 309) PART FOUR: TOTAL REWARDS CHAPTER 13 EMPLOYEE BENEFITS AND SERVICES LEARNING OUTCOMES • Explain the strategic role of employee benefits. • Describe six government-sponsored benefits. • Explain why the cost of health insurance benefits is increasing and how employers can reduce these costs. • Describe recent trends in retirement benefits. • Discuss three types of personal employee services and six types of job-related services offered by many organizations. • Explain how to set up a flexible benefits program. CHAPTER DESCRIPTION In the first part of this chapter, the strategic role of employee benefits is described briefly. Government-sponsored benefits are discussed next. This is followed by an explanation of the various types of payments made for time not worked. Life insurance, supplementary health-care/medical insurance, and various types of employer-sponsored benefits are explored next, along with a number of cost-management issues. The focus then shifts to retirement benefits and employee services. The chapter concludes with a discussion of flexible benefits programs and benefits administration issues. LECTURE OUTLINE • This chapter introduces the various types of employee benefits provided by government and employers in Canada. It also covers employee services, flexible benefits plans, and benefits administration. • Employee benefits are indirect financial payments given to employees. They may include supplementary health and life insurance, vacation, pension, education plans, and discounts on company products • the role of employee benefits has changed over the last twenty years • benefits were traditionally used to reward loyalty to and tenure with an organization • in today’s post-job-security era, employee services and assistance with work/life balance are more important • benefits administration is increasingly specialized and expensive • Government -sponsored benefits include: - Employment Insurance (EI) - Canada/Quebec Pension Plan (CPP/QPP) - Workers’ compensation - Vacations and holidays - Leaves of absence - Pay on termination of employment • each of these will be considered in more detail • Employment Insurance provides weekly income benefits for individuals unable to work through no fault of their own. It’s a federal program • EI does not apply to self-employed workers • both employers and employees contribute to the plan • supplemental unemployment benefits plans (SUBs) are an agreement between the employer and employees that enables employees who are eligible for EI benefits to receive additional benefits from an SUB fund created by the employer (e.g. while on maternity leave) • Canada/Quebec Pension Plan provides retirement income, disability benefits, and survivor benefits to individuals who contribute to these plans • self-employed workers also participate in the plan • both employers and employees contribute to the plan • types of benefits provided: retirement pension, disability benefits, survivor benefits • Workers’ Compensation provides income and medical benefits to victims of work-related accidents and illness, regardless of fault • employers collectively pay the full cost of workers’ compensation • workers’ compensation costs have proven difficult to control; the best approaches are health and safety programs designed to reduce accidents, and rehabilitation programs to help injured employees return to work as soon as possible • Vacation and Holidays – labour/employment standards legislation sets out a minimum amount of paid vacation that must be provided to employees, usually two weeks per year, but the requirements vary by jurisdiction and according to employer policies • The number of paid holidays similarly varies considerably from one jurisdiction to another, from a minimum of five to a maximum of nine. The most common paid holidays include New Year’s Day, Good Friday, Canada Day, Labour Day, Thanksgiving Day, and Christmas Day • Leaves of absence (unpaid) • Varies considerably across jurisdictions. Various types include: • Maternity/pregnancy leave • Paternity/parental/adoption leave • Bereavement leave • Compassionate care leave • Pay on Termination – Employment/labour standards legislation requires that employees whose employment is being terminated by the employer be provided with termination pay when they leave. The amount to be paid varies between jurisdictions and with the circumstances • Pay in lieu of notice – employer must provide written notice if employment is going to be terminated. Most employers request the employee to cease work immediately and pay a lump sum amount equal to the notice period, which is known as pay in lieu of notice. • Severance pay – Employees in Ontario and the federal jurisdiction may be eligible for severance pay in addition to pay in lieu of notice in certain termination situations (i.e. in Ontario, employees may be eligible for this after 5 years of service) • Pay for mass layoff – varies according to the jurisdiction and the number of people being laid off • most employers provide insurance benefits such as: • life insurance • supplementary health-care/medical insurance • sick leave/short term disability • long term disability insurance • retirement benefits • additional vacation/holidays and leaves of absence • these benefits are much less costly when provided on a group basis as compared to individual • Life Insurance • Group life insurance is insurance provided at lower rates for all employees, including new employees, regardless of health or physical condition • Accidental death and dismemberment coverage provides a fixed lump-sum benefit in addition to life insurance benefits when death is accidental • Critical illness insurance provides a lump-sum benefit to an employee who is diagnosed with and/or survives a life-threatening illness • Supplementary Health-Care/Medical Insurance • prescription drug benefits are the most important benefits to Canadian workers, closely followed by disability benefits and dental benefits • supplementary health-care/medical benefits include cost control features such as deductibles and coinsurance • the deductible is the annual amount of health/dental expense paid by the employee before insurance benefits will be paid • coinsurance is the percentage of expenses (in excess of the deductible) paid for by the insurance plan • health benefits costs have been rising sharply • methods used to reduce health benefits costs for employers include: • increasing the amount paid by employees • publishing a restricted list of drugs that will be covered, usually generic rather than the more costly brand-name versions • offering health promotion programs to encourage employees to keep fit • implementing risk assessment programs to identify health risk factors • providing health services spending accounts, where a specified dollar amount is provided to each employee for health-care expenses each year, to be spent as the employee sees fit • retiree health benefits costs are also rising sharply as the baby boomers enter retirement; hospital stays are projected to rise sharply over the next 25 years • Short-term disability/Sick leave – provides a continuation of all or part of an employee’s earnings when the employee is absent from work due to non-work-related illness or injury • Sick leaves operate quite differently from short-term disability plans. Most sick leave policies grant full pay for a specified number of permissible sick days – usually up to about 12 per year • Long-term disability benefits – provide income protection in cases of long-term illness or injury that is not work-related • the number of long-term disability claims is rising sharply • Disability Management is a proactive, employer-centred process that coordinates the activities of the employer, the insurance company, and health-care providers in an effort to minimize the impact of injury, disability, or disease on a worker’s capacity to successfully perform his or her job • The three most common disability management approaches: • reduced work hours • reduced work duties • workstation modification for employees recovering from disabilities • Mental health benefits • almost half of non-occupational disabilities are related to psychological conditions; psychiatric disabilities are the fastest growing of all occupational disabilities • depression is the most common and has been called a “clear and present danger” to business • depression is associated with costly behaviours including alcoholism, absenteeism, increased injuries, physical illness, and lost productivity • employers are trying to reduce costs with prevention and early intervention programs including psychiatric counselling and peer-support groups • Additional holidays/vacation • Some employers provide full or partial pay for all or part of legally-required unpaid leaves by “topping up” what employees receive from EI so the total amount they receive more closely matches their regular salary (i.e. for maternity/pregnancy leave “top up”) • Most employers provide additional vacation time for staff or “floating days” • Retirement benefits • there are two basic types of retirement plans: defined benefit and defined contribution • Defined benefit pension plans contain a formula for determining retirement benefits; the employer assumes the risk of paying for the benefits • Defined contribution pension plans specify the employer’s contribution to the employees’ retirement fund; no specific benefit is promised • another option for retirement plans is a group registered retirement savings plan/deferred profit-sharing plan (Group RRSP/DPSP) • employees contribute to the Group RRSP • employers contribute to the DPSP • both sets of contributions are tax-deductible • Key issues to consider when developing a pension plan: • membership requirements for joining the plan • benefits formula (for defined benefit plans only) – usually the pension is related to final average earnings • retirement age for normal, early, and late retirement • funding requirements, specifically whether or not employees will be required to contribute, and if so, how much • vesting/locking-in of employer contributions for the employee after a certain period of plan membership; legislated maximum vesting requirements apply • portability of earned benefits to a personal RRSP or a new employer’s pension plan when changing jobs • Trends in pension plans include: • the rapid growth of defined contribution plans because of cost and complexity of defined benefit plans; some employers are offering “hybrid” plans that combine defined benefit and defined contribution features • same-sex benefits, arising from new legal requirements under human rights codes • phased retirement replacing early retirement windows that encouraged early retirement with enhanced benefits; phased retirement is used to encourage retirement-age employees to gradually stop working using reduced workdays and shortened workweeks • supplemental employee retirement plans (SERPs) provide promised benefits to high-income employees whose pension benefits are capped under income tax legislation • Employee Services – provide personal services and job-related services • Personal services include: • credit unions; counselling services: employee assistance programs (EAPs); social, recreational, and other services • EAPs are used in a broad cross-section of organizations for relationship problems, childrelated issues, depression, and other stressors • Job-related services include: • subsidized childcare for employees with childcare responsibilities • eldercare for employees with responsibility for aging parents or relatives • subsidized employee transportation by facilitating car-pooling or negotiating with transit services • food services to provide subsidized meals for employees • educational subsidies to encourage employees to continue their education and learning in job-related and sometimes non-job-related areas • family-friendly services such as flexible hours, leave for family illness, emergency childcare • Executive Perquisites are provided to only a few top executives: • loans • golden parachutes in case of termination • financial counselling • company relocation benefits • limousines • executive dining rooms • concierge service and many more • Flexible Benefits Programs provide employees with choice regarding their benefits through individualized plans that accommodate employee needs and preferences • each employee is provided with a certain amount of money to spend on benefits; this helps manage employer cost • advantages of flexible benefits plans: • employees can choose benefits suited to their individual needs • the employer can meet the changing needs of the workforce • increased employee involvement in choosing benefits enhances understanding of benefits • new benefits can be introduced as another option without increasing cost • cost containment due to the dollar maximum for each employee • disadvantages of flexible benefits plans: • employees may make poor choices and not be covered for predictable emergencies • administrative costs increase considerably compared to traditional benefits plans • adverse selection where employees pick only benefits they will use, and the subsequent high benefit utilization increases costs • Benefits Administration is becoming increasingly complex due to more flexibility in benefits, increasing job changes, and government legislative requirements • Outsourcing of benefits administration is becoming a popular way to achieve greater efficiency and consistency, and enhanced service • modern information technology such as intranets can help to enhance the efficiency of the benefits administration process through self-service • there is an increasing focus on communication of benefits, especially pensions, where court challenges are rising as people’s awareness of their right to information grows • the first quarter of the class time can be spent on the introductory material and government benefits; additional material on controlling workers’ compensation costs might be presented • the second quarter of the class time can be spent on pay for time not worked and insurance benefits; the Case Incident at the end of the chapter can be used to promote discussion on controlling health-care benefits costs • the third quarter of the class time can be spent on retirement plans; numerical examples of defined benefit and defined contribution plans could be presented • the last quarter of the class can be used to review employee services and perquisites, to introduce the concept of flexible benefits, and to discuss the challenges of benefits administration • the LearnInMotion.com case can be used as a comprehensive case at the end of the class DISCUSSION BOX SUMMARIES STRATEGIC HR: Proactive Enbridge Reduces Health Care Costs (page 345) This box provides a scenario where Enbridge tried to combat escalating benefits costs, particularly prescription drugs. It describes how the human resources department, along with the assistance of the company’s benefits carrier, identified where escalating costs were in terms of prescriptive drugs and developed methods to combat these issues. ============================================================================= WORKFORCE DIVERSITY: Diversity Issues in Return-to-work Plans (page 347) This box describes a number of situations where diversity might pose an issue in returning to work after a disability, and how supervisors and HR staff should be sensitive to these issues to ensure employees are treated fairly at work and that further injuries or work delays do not occur. ============================================================================= GLOBAL HRM: Cultural Issues in Retirement Plans (page 350) This box reviews how cultural differences affect approaches to pension planning in different parts of the world. From the Asia-Pacific region to North America, Europe, and Latin America, this box describes various cultural differences that contribute to the differences in pension planning in each region. ETHICAL DILEMMAS Should it be the employer’s responsibility to cover health-care costs for early retirees until they become eligible for government health-care benefits at age 65? (page 345) While it can be argued that there are no legal or ethical obligations to do so, failing to cover health-care costs for early retirees until they become eligible for government health-care benefits at age 65 will decrease the attractiveness of early retirement windows. Since many firms have been using early retirement incentives as a means of downsizing and/or restructuring without having to lay off or terminate employees, and of creating more opportunities for their younger employees to enhance their ability to retain such workers, failing to do so is not in the employer’s best interests. Should an employer with a pension plan covering employees in several provinces give each group the minimum vesting and portability benefits for their province or take the most generous of these and provide it to all employees? (page 351) Since internal equity is a key compensation issue, most will argue that the company pension plan should be standardized across jurisdictions. Doing so will also make it easier for the firm to encourage transfers and/or promotions from the firm’s facilities in one jurisdiction to those in another jurisdiction. Is it ethical for executive perquisites to continue if the company is facing financial problems? (page 356) Many will no doubt say that executive perquisites should not continue if the company is facing financial problems. However, there are certain factors that should be considered here. Firms must provide executives attractive total compensation packages to attract and retain the best. This applies especially in a situation where the company’s aim is to overcome a financially difficult situation. Some companies hire executives to “turn around” companies. In order to attract experienced executives to financially risky situations, where their own financial situations and reputation is at risk, it requires attractive financial packages. Too much emphasis on cash compensation and not enough emphasis on benefits, perks, and long-term incentives can be highly unattractive from an income tax perspective. However, many firms are no longer offering perks that highlight differences in position and status, such as executive dining rooms, executive apartments, company planes, and full-time chauffeurs for high-ranking employees, since such perks can hinder teamwork and cooperation. This is especially true in organizations with a flat structure and/or team-based design. KEY TERMS Canada/Quebec Pension Plan Programs that provide three types of benefits: retirement income; survivor or death benefits payable to the employee's dependents regardless of age at time of death; and disability benefits payable to disabled employees and their dependents. Benefits are payable only to those individuals who make contributions to the plans and/or their family members. (page 337) Coinsurance The percentage of expenses (in excess of the deductible) that are paid for by the insurance plan. (page 343) Deductible The annual amount of health/dental expenses an employee must pay before insurance benefits will be paid. (page 343) Deferred Profit-sharing Plan A plan in which a certain amount of company profits is credited to each employee's account, payable at retirement, termination, or death. (page 349) Defined Benefit Pension Plan A plan that contains a formula for determining retirement benefits. (page 349) Defined Contribution Pension Plan A plan in which the employer's contribution to the employees' retirement fund is specified. (page 349) Disability Management A proactive employer-centred process that coordinates the activities of the employer, the insurance company, and health-care providers in an effort to minimize the impact of injury, disability, or disease in a worker’s capacity to successfully perform his or her job. (page 346) Employee Assistance Program (EAP) A company-sponsored program to help employees cope with personal problems that are interfering with or have the potential to interfere with their job performance, as well as issues affecting their well-being and/or that of their families. (page 354) Employee Benefits Indirect financial payments given to employees. They may include supplementary health and life insurance, vacation, pension, education plans, and discounts on company products, for instance. (page 336) Employment Insurance A federal program that provides income benefits if a person is unable to work through no fault of his or her own. (page 336) Flexible Benefits Program Individualized benefits plans to accommodate employee needs and preferences. (page 357) Group Life Insurance Insurance provided at lower rates for all employees, including new employees, regardless of health or physical condition. (page 342) Pension Plans Plans that provide income when employees reach a predetermined retirement age. (page 349) Phased Retirement An arrangement whereby employees gradually ease into retirement using reduced workdays and/or shortened workweeks. (page 352) Portability A provision that employees who change jobs can transfer the lump-sum value of the pension they have earned to a locked-in RRSP or their new employer's pension plan. (page 351) Short-term Disability/Sick Leave Plans that provide pay to an employee when he or she is unable to work because of a non-work-related illness or injury. (page 345) Supplemental Employee Retirement Plans Plans that provide the additional pension benefits required for employees to receive their full pension benefits in cases where their full pension benefits exceed the maximum allowable benefits under the Income Tax Act. (page 352) Vesting Provision that employer money placed in a pension fund cannot be forfeited for any reason. (page 351) Workers' Compensation Workers' compensation provides income and medical benefits to victims of work-related accidents or illnesses and/or their dependents, regardless of fault. (page 338) Instructor Manual for Human Resources Management in Canada Gary Dessler, Nina D. Cole 9780132270878, 9780134005447