HR Toolkit


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, first consideration is placement of the role organizationally which can be determined through job evaluation/classification. The second consideration is the job relevant skills and experience the applicant possesses which may impact their placement in the salary range upon hire.

In this Section:

  1. Deciding what to pay
  2. Approaches and techniques to determining base pay
  3. Pay increases, bonus and incentive plans
  4. Communicating wage and salary information

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
  • A valuable employee who is considering leaving because of compensation
  • Market conditions
  • Scarce skill

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 optimal 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 visit:
  • What will the role 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 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?
Links and Resources

Making compensation data interactive: Map of average compensation costs in small charities, by city
An interactive map that allows users to ‘point and click’ on cities across the country and discover average compensation costs for small charities (those with less than ten employees). The data applies to costs for full-time employees and is pulled from charities’ information returns submitted to the Canada Revenue Agency. Accompanying charts demonstrate averages for each city in comparison to data on all cities.

 

Important

When considering using an independent 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. Other factors that courts take into consideration when deciding if an individual is an employee or an independent contractor are:


  • The level of control the payer has over the worker;
  • Whether or not the worker provides the tools and equipment
  • Whether the worker can subcontract the work or hire assistants
  • The degree of financial risk taken by the worker
  • The degree of responsibility for investment and management held by the worker
  • The worker’s opportunity for profit
  • Any other relevant factors, such as written contracts



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 a job that has been created to meet an organizational need. 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 evaluation

Job evaluation is the process for assessing the relative worth of jobs within an organization. Paying fairly based on internal relative worth is called Internal Equity. A comprehensive analysis of each position’s tasks, responsibilities, knowledge, and skill requirements is used to assess the value to the employer of the work performed and provide an internal ranking of the jobs. Job evaluation is a measurement of the internal relativity of the position and not the incumbent in the position. Job evaluation can be used independently, although it is usually part of a compensation system designed to provide appropriate salary ranges for all positions. This process will ensure an equitable and defensible compensation structure which compensates employees fairly for job value.

Learn more about Job Evaluation »

Review pay structures

Pay structures are helpful when standardizing your organization’s compensation practices as they reflect the grouping of jobs based on relative worth. 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.

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.

  • The most basic salary structure is one in which each job class is a level with a single salary for all incumbents within the level.
    • This is seen as somewhat limited as employees (or potential employees) come with a variety of experience and skills and therefore should not all be compensated at the same rate.
  • An alternative to the basic salary structure is to incorporate salary ranges for each of the different job levels.
    • 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 should be described in the Compensation Policy.

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

 

Salary Scale
Range

Salary Scale
Midpoint

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
Range

Salary Scale
Midpoint

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 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.

However, there could be reasonable rational for this group being 95% of the midpoint. Differences in employee pay within the same salary range can be based on seniority, performance and different starting salaries.

Participate in salary surveys

Salary surveys are conducted with employers in the same labour 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 »



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.

A cost of living increase

  • This is an 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 account for increases in the cost of living. When this is offered regularly, employees can begin to see it as an entitlement.
  • If Cost of living increases are provided, they are generally done on an annual basis, and are given 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.
  • Many small organizations are moving away from the standard cost of living increase and performing market adjustments instead.

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 market. Many organizations have predetermined the percent of market they want to be paying at – i.e. a decision to pay at the median, or 50th percentile.
  • If a position in the organization is significantly overpaid compared to market or, some companies will notify employees and not provide an increase to the employee. In this situation, the employee is considered to be “red circled” (unable to qualify for any salary increases until their salary comes in line with market)

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 can receive a promotional increase at the time of the promotion aligned to the appropriate point in the new salary range, taking into consideration performance, qualifications, and market information.
  • Promotion is usually based on availability of opportunities and preparedness of employees to advance.

A merit increase

  • Merit increases are awarded to recognize an employee’s contribution 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 the midpoint or higher. 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 outlined 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 or a cash bonus whereas a non-financial incentive plans offer benefits such as additional paid vacations or increased professional development



Communicating wage and salary information

Communication

Effective communications about compensation makes employees more aware of the value they receive from their compensation plan. When employees have a good understanding of their compensation plan they are more confident that they are being paid fairly - which results in greater motivation and retention.

A compensation communication strategy should be created in alignment with the organization’s HR strategy as well as be supported by management.

The level of transparency is highly dependent on the organization’s culture and varies for each organization. Ideally; employees should be advised of their own salary, their job grade / level, the position of their salary in the salary range for their job grade / level, the basis for progress through the range over time (seniority and / or performance), and the procedures for annual salary adjustments (if any).

Communicating total compensation information through formats such as statements, booklets, newsletters and memos provides a consistent message and allows employees to refer to the material later. Presenting compensation information through meetings, workshops and ongoing support allows interaction so individual questions and concerns can be addressed immediately. Overall, it is important to ensure employees have access to information regarding the compensation plan and that it is provided in clear and concise language. A compensation plan can also be used to attract prospective employees and therefore effective external communication is also important.

 

Next Section: Direct Benefits