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Compensation & Benefits
Wages and Salaries
When determining what your organization will pay for wages and salaries, it is important to understand the economic conditions of the region in which you function, the volume of potential employees and the legislative requirements in place. When determining what to pay, the first consideration is the placement of the role organizationally and the second consideration is the skill and experience of the applicant.
Deciding what to pay
They are many situations in which you will be faced with deciding what to pay an employee.
- A new hire
- An existing employee due for an increase
- An existing employee moving into a new role, or
- A valuable employee who is considering leaving because of compensation
It is important to ensure that the approach taken is guided by the compensation philosophy and is applied consistently. Ensuring that established guidelines are followed will prevent offering a compensation package so tailored to a person that the organization is jeopardized by having too heavy a financial burden or that flexible arrangements actually hinder the critical work from being completed. It takes a carefully crafted balance between the organizational needs and the individual considerations to arrive at the correct compensation structure.
Answering these questions will help to formulate the appropriate balance:
From the organization’s perspective:
- Will you hire an employee or a contractor?
- Do you understand the difference? For more information on the difference,
see Home » HR Toolkit » Getting the Right People » Non-standard Employment Relationships - Which would be more cost effective?
- Do you understand the difference? For more information on the difference,
- What will the role will be doing?
- How much responsibility will they have?
- How specialized are the skills required to do the job?
- How much experience do they need to have?
- Are there others doing the same work? Are their title and responsibilities established? Is there alignment?
- How many people could potentially apply?
- Can you find a comparable job in a salary survey or on a job-posting website?
- How would not having this role filled impact your business?
- What is your range for this role? How does it compare to other roles already in place?
- How critical is the role to the achievement of organizational goals?
- What is the cost of living in your region? What is minimum wage?
- Have they been considered in your compensation strategy?
When considering a contractor, it is important to understand what that term means to you and how it compares to the Revenue Canada definition of a “contractor”. Courts will often consider an employee who has been employed under a series of fixed contracts to actually be a permanent employee. |
About the incumbent:
- How much responsibility will they have?
- How specialized are their skills?
- How much experience do they have?
- Are there others with the same experience? Are their title and responsibilities similar?
- What benefits and incentives can you offer instead of cash compensation?
- Are you able to provide some special training or professional development?
- Are you able to assist them in attaining accreditation or credentials?
- Can you offer flexible work arrangements?
- How generous are your benefits?
- What impact would not having this person have on your organization and how much is that impact worth to you?
Approaches and techniques to determining base pay
Determining base pay is directly linked to your compensation philosophy. Having a clear understanding of what role the position plays in the organization, including the complexity of the required responsibilities and tasks, is factored into the equation along with data on market and sector comparatives. Organizations that take the time to ensure they have factored in all of the following components will be more effective in managing their competitiveness externally as well as their consistency and credibility internally.
Create job descriptions
Job descriptions define the requirements and responsibilities of the job. Job descriptions are an important element of your organization’s overall compensation philosophy when they are used to develop a consistent salary structure based on the relative level of duties, responsibility and qualifications of each position in the organization.
Learn more about Job Descriptions »
Conduct a job analysis
Conducting an analysis of each job by group/department to determine which tasks are being done and by who will help both in determining if you have the most effective alignment of tasks to roles and in developing your job descriptions. This is important as compensation structures are built based on the level of skill and experience required for a certain role to perform core functions.
Should you find inconsistencies or inefficiencies, you should conduct a review to evaluate the appropriateness of the tasks assigned to that role. From there you determine if the job description and associated compensation warrants changing or not.
Learn more about Job Analysis »
Perform job evaluations
Job evaluation is a process by which you rank individual jobs within and between groups/departments of your organization. The process usually consists of describing the skill level, competencies, tasks and responsibility/authority of a role. Roles that are of a similar discipline or field are often grouped together and referred to as a ‘job family’. From there, levels are usually used to delineate the skills and competencies required, progressing from a junior to more senior level. For some professions, academic credentials can delineate between levels as could registration in a technical field.
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Job Family and Competency Chart
Competency |
Level 1 |
Level 2 |
Level 3 |
Level 4 |
Organizational Awareness |
Learns working knowledge of organizational structure |
Quickly develops working knowledge of organizational and relationships for problem solving |
Possess strong knowledge of organization and relationships (formal and informal) |
Possess in-depth knowledge of organization and relationships (internal and external) affecting team and organizational success. |
Communication skills |
Demonstrates an understanding of basic communication skills. Able to present ideas in a clear structure both verbally and written. |
Demonstrates ability to acquire, interpret and communicate information. Able to clearly define task/job requirements. Demonstrates ability to present ideas clearly in written and verbal forms |
Able to select appropriate information and best method or format for presentation in written and verbal forms. Able to clearly convey ideas on non-routine subjects |
Capable of using persuasion and negotiation to build cooperation and consensus towards decisions. Able to translate advanced technical issues into understandable terms for non-technical users. |
Team Work |
Works collaboratively with people both inside and outside of the agency recognizing his/her role in relation to the team to accomplish given tasks |
Demonstrates competence to work with and share responsibilities while modeling positive interactions within the team |
Capable of planning, managing and working on shared or joint projects as applicable. Coordinates with others to achieve agreed upon outcomes. |
Leads team efforts and assessing and integrating the skills and strengths of individuals and teams for project and organizational success. |
For some organizations the ranking is based on hierarchical responsibilities and for others the ranking is directly linked to market–based pay. Based in this analysis, a compensation matrix or comparative chart can be developed to track comparatives. With either approach, the goal is to identify what is required to ensure satisfactory performance and/or progression. Therefore, the same criteria should be used when hiring a new employee, during the establishment of goals and expectations, in recognizing achievement, or in promotion of an employee. Even if the factors used to differentiate between levels are based on academic or technical requirements, the importance is on actually achieving the target or receiving the credentials.
Whether your philosophy is to compare to other roles within your organization or against the broader sector/market, clearly established criteria allows for fair and consistent evaluation and compensation. |
Review pay structures
Pay structures are helpful when standardizing your organization’s compensation practices. Typical pay structures can have several grades or levels, career bands, or job families with each having a minimum or maximum salary associated. These could be identified by hourly wages or annual salaries.
As in the previous example, a number of levels may exist for a role or types of roles linked together, and for each a dollar value would be associated. Creation of pay structures are based on internal and/or external data.
- Some scales are created with just one level and salary per role; all employees are started or placed at that one salary.
- This is seen as somewhat limited as employees (or potential employees) come with a variety of experience and skill and may not have the comparable skills and abilities as outlined, yet show tremendous potential and seem to be a good fit with the culture of the organization.
- Other scales are created still with only one level per role but provide a range for the associated salary.
- Placement in the range is based on established criteria outlining experience, skill, potential and fit
- The scale is usually created by evaluating the market comparative data however, the placement of the person in the salary range is usually based on their skill and ability against other employees in the same role
- Criteria for moving through a salary grade must align with the compensation philosophy and be identified at the time of development
Building a matrix that identifies the hierarchy of the job family through levels as well as skills and competencies can assist in determining the appropriate placement of a position.
Example: Caseworker roles against Market data (numbers have been made up for purposes of this example)
Role Evaluation for Salary against External Data
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Salary Scale |
Salary Scale |
External Survey Midpoint |
Intermediate |
35,550 – 43,450 |
39,500 |
40,000 |
|
Senior |
39,690 – 48,510 |
44,100 |
45,000 |
|
Supervisory |
47,880 – 58,520 |
53,200 |
58,500 |
In this example, the intermediate and senior salary midpoints are consistent with the external market data. However, the supervisory midpoint is significantly below market averages. A supervisor in this organization would have to be receiving 110% of the salary scale to be consistent with the market’s average salary. In this case, the first salary the organization would want to address would be that of the supervisory staff.
Role Evaluation for Salary against Internal Data
Salary Scale |
Salary Scale |
Average Salary of Current Incumbents |
Percentage of Midpoint |
|
|
Intermediate |
35,550 – 43,450 |
39,500 |
39,000 |
99% |
|
Senior |
39,690 – 48,510 |
44,100 |
43,200 |
98% |
|
Supervisory |
48,780 – 59,620 |
54,200 |
51,500 |
95% |
Similarly in this example, the average salaries for the both the intermediate and senior staff are close to the organization’s salary midpoint, whereas the supervisory salaries are only 95% of the organization’s midpoint (which remember is $5,000 less than the midpoint of all the organizations who participated in the salary survey). This type of inequity, both internally and against the market, could result in increased difficultly keeping or finding the right people.
Participate in salary surveys
Salary surveys are conducted with numerous employers in the same labor market to determine pay levels for specific job categories. Generally wage and salary surveys are conducted either by region, sector or job classification for the purposes of comparability. By participating in salary surveys, you’ll be have access to information that will allow you to benchmark your organization’s compensation practices including wages, salaries, bonuses and benefit provisions against other organizations in your region or sector.
Learn more about Salary Surveys »
Create policies and administrative procedures
Once the previous steps have been completed, it is important to document your organization’s compensation philosophy and policy.
- Once you have determined what criteria are being used for placing a person on a salary scale or in a pay range, it needs to be documented for consistent application across the organization
- Once your organization determines how and when job descriptions can be updated, this should be documented for future reference
You should also develop and document strategies for all compensation practices including merit raises, cost of living increases, performance reviews, bonuses, and promotions.
Part-time employees
Compensation for part-time employees should be consistent with your overall compensation philosophy. In a lot of cases, a regular part-time employee will participate in both salary and benefit programs on a pro-rated basis of that of a full-time employee. The most important consideration is that you provide fair and equitable compensation to a part-time person as you do to one working full-time.
If you have an employee who works .6 of a full-time role or three days a week (22.5 hours) they are usually eligible for the same benefits as a full-time employee; however it may look different and there are a few exceptions.
Vacation
Statutory Holidays |
Purpose of minimum wage
The minimum wage is designed to impose a broad and enforceable standard on employers that would guarantee a minimum level of income for unskilled, non-unionized workers. Minimum wage standards are also designed to stop these workers from trying to undercut each other by agreeing to work for less than someone else. Some exceptions exist for those who are student employees, self-employed, independent contracts and commissioned sales people. Each province or territory has its own minimum wage guidelines and exceptions.
Learn more about the minimum wage in your province or territory »
Pay increases, bonus and incentive plans
Pay increases
Base pay is a fixed regular payment made to an employee in exchange for performance of the duties and responsibilities of their role. When an employee receives an increase to their base pay, it is considered a pay increase. There are various reasons and methods for determining an increase, but the common factor is that the increase changes the level of ongoing base pay.
An annual cost of living increase
- This is an annual increase offered to employees, regardless of performance, with the intention of increasing base pay for each role on the salary scale by a set percentage in order to combat increases in the cost of living. When this is offered regularly, employees can begin to see it as an entitlement.
- Cost of living increases are usually provided on an annual basis to all employees at a rate recommended by the Executive Director and approved by the Board of Directors and is contingent on the overall financial stability of the agency.
A market adjustment following a compensation review against pre-established criteria
- Market adjustments are typically made following the receipt of market survey data. This data is usually received and evaluated towards the end of either your fiscal or calendar year. Organizations will evaluate their salaries against market data and, if required, adjust base salaries for roles that are below the range of market. Many organizations have predetermined the percent of market they want to be paying at – i.e. a decision to pay at the medium, or 75th percent.
- If a type of position in the organization is significantly overpaid compared to market, some companies will notify employees and either not provide an increase or actually reduce the midpoint for that role which could cause an employee to become “red circled” (unable to qualify for any salary increases until their salary comes in line with market)
- This adjustment is usually implemented for all impacted positions early in either the fiscal or calendar year. Many small organizations are moving away from the standard cost of living increase and performing market adjustments instead.
A promotional increase
- A promotion is the advancement of an employee to a position that is evaluated at a higher grade level than the position to which the employee is currently assigned.
- An employee who is being promoted will receive a promotional increase at the time of the promotion aligned to the appropriate point in the new salary range considering performance, qualifications, and market information.
- Promotion is usually based on availability and preparedness.
A merit increase
- Merit increases are awarded to recognize the outstanding contribution of employees and to compensate them for their high level of performance.
- Performance is the key factor in awarding a merit increase and can be the factor that moves a person through the salary scale towards midpoint or greater. Merit increases can be awarded on an employee’s anniversary date following a formal performance review or at the beginning of a calendar year, depending on your compensation structure and philosophy.
Bonus payments
Bonus pay is compensation over and above the amount of pay specified as wages or salary and it is only distributed as the organization is able to pay or as outlind in an employment contract.
Bonus pay is used by many organizations to improve employee morale, motivation, and productivity or as a thank you to employees who achieve a significant goal.
As long as bonus pay is discretionary by the employer, it is not considered to be a contract. If the employer promises a bonus, they may be legally liable to pay it out.
Incentive plans
Incentive plans have not typically been popular in the nonprofit sector. However, leaders are starting to see a change in perspective regarding the use of incentive plans. Providing incentive plans, especially to senior level staff, can enable organizations to compete for talent they would otherwise have not been able to pursue.
- Incentive plans are established to reward employees for improved commitment and performance and as a means of motivation
- An incentive plan is designed to supplement base pay and fringe benefits
- A financial incentive plan may offer a percentage of base salary, stock options or a cash bonus, whereas a non-financial incentive plans offer benefits such as additional paid vacations or increased professional development
Next Section: Salary Surveys
