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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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Presentation Transcript
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

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
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