Compensation third canadian edition milkovich newman cole
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COMPENSATION Third Canadian Edition Milkovich, Newman, Cole. Chapter 13 Budgets and Administration. Managing Labour Costs. Labour Costs. Employment. Average cash compensation. Average benefit cost. +. =. x. Core. Base Pay. Variable Pay. Contingent. Managing Labour Costs.

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COMPENSATION Third Canadian Edition Milkovich, Newman, Cole

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Compensation third canadian edition milkovich newman cole

COMPENSATIONThird Canadian EditionMilkovich, Newman, Cole

Chapter 13

Budgets and Administration

Managing labour costs

Managing Labour Costs




Average cash compensation

Average benefit cost





Base Pay

Variable Pay


Managing labour costs1

Managing Labour Costs

  • controlling employment: head count and hours

  • controlling average cash compensation costs

Controlling salary costs top down

Controlling Salary Costs: Top Down

  • current year’s rise

  • ability to pay

  • competitive market

  • turnover effects

  • cost of living

Compensation third canadian edition milkovich newman cole

Three Distinct but Related Concepts and Their Measures

Personal Expense Budget

Employee’s cost of living

Goods/service markets price changes

Labour market wage changes

Consumer Price Index

Pay Surveys

Controlling salary costs bottom up

Controlling Salary Costs: Bottom Up

  • instruct managers in compensation policies and techniques

  • distribute forecasting instructions and worksheets

  • provide consultation to managers

  • check data and compile reports

  • analyze forecasts

  • review/revise forecasts and budgets with management

  • conduct feedback with management

  • monitor budgeted versus actual increases

Inherent controls

Inherent Controls

  • range maximums and minimums

  • broad bands

  • compa-ratios

  • variable pay

  • analyzing costs of wage proposals

The compensation communication cycle

The Compensation Communication Cycle

Defining the Objectives

What are the goals?

Evaluating the Program

Obtaining the Information

Was the program successful?

What is the current situation?

Conducting the Sessions

Developing the Strategy

How should the sessions be implemented?

What is the best overall approach?

Determining the Media

What “tools” are most appropriate?

Compensation components communicated to all audiences

job descriptions

job evaluation

market data collection and analysis

pay structure development

incentive plan design

performance appraisal system

salary management administration procedures

benefit plans

Compensation Components Communicated to All Audiences

Compensation third canadian edition milkovich newman cole

Conducting Formal Communication Sessions for Various Audiences

Structuring the compensation function

Structuring the Compensation Function

  • centralization – decentralization

  • flexibility within corporate-wide principles

  • reengineering and outsourcing



  • pay administration includes control of how managers decide individual employees’ pay and of overall costs of labour

  • the salary budgeting and forecasting processes impose additional controls

  • pay systems are tools that must be evaluated in terms of usefulness in achieving an organization’s objectives

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