Chapter 8 Wages and Benefits

Pay Structures

How does an HR practitioner go about determining the appropriate wage and benefit package for an organization or specific jobs within it? Basing compensation on only one or two factors, such as each worker’s bargaining power (i.e., their ability to demand a higher wage based on their skills and availability) or the average of wages in the industry, can quickly lead to inconsistent compensation. That, in turn, often leads to dissatisfaction among lower-paid workers and possibly internal strife, turnover, and poaching from other organizations. The overall approach to wages and benefits should reflect an organization’s overall strategy, financial capacity, and position in the market. Internal factors also matter.

The first step in developing a compensation strategy is to establish the organization’s pay structure. It is the level or range of pay for each job in the organization relative to the pay for other positions within the structure. A number of factors must be considered when creating the pay structure, including legal requirements, external forces, organizational priorities, and issues of equity and equality.

As discussed in Chapter 2, each jurisdiction in Canada establishes a set of minimum employment standards with which organizations must comply. These standards include minimum wage levels (which differ among jurisdictions), paid vacation and other leave entitlements, overtime premiums, and possibly maximum working hours. These requirements form the floor (or minimum) compensation that must be paid. The common law can also affect pay decisions. For example, substantially altering compensation packages is a form of wrongful dismissal (called constructive dismissal) and can trigger a claim of wrongful dismissal (see Chapter 9). This highlights the importance of correctly establishing the initial pay rate for a worker. All jurisdictions also have human rights provisions that prohibit wage discrimination on the basis of immutable personal characteristics. Some jurisdictions also require a form of pay equity among workers (see Feature Box 8.1).

The external environment also shapes the possible pay structures that an organization can develop. The external environment includes economic conditions, competitors’ decisions, inflation, and workers’ options for employment. Setting pay structures too low compared with competitors’ wages can make it harder to attract qualified workers. It is important to understand the economic and competitive environment. There are four external factors to consider.

• • State of the economy: Short-term and long-term trends in the economy shape the wage levels and other forms of compensation required to attract and retain workers. For example, an economic boom can increase the number of workers required by an organization as well as competition among organizations for those workers. Data on economic trends are often available from governments (particularly Statistics Canada), local economic development agencies, or chambers of commerce.
• • State of the labour market: The labour market is both shaped by the economy and has its own specific dynamics. Organizations should pay particular attention to the balance between labour supply (the number of qualified workers available) and labour demand (the number of jobs available). Usually, the labour market will have a surplus of workers (i.e., more workers than jobs, often called a loose labour market), which gives employers an advantage and allows them to set lower wage levels. At other times, demand for labour is high relative to the supply (called a tight labour market), and labour shortages can occur. In those circumstances, it might be necessary to increase wage rates or otherwise improve the terms and conditions of work to be able to attract qualified workers. Assessing the balance between demand and supply requires more than looking at the unemployment rate, for different occupations, industries, and regions can experience dynamics distinct from the overall trend. There is a range of statistics, some highly localized, measuring the labour market that can be accessed to conduct an analysis. We should also remember that labour markets are shaped by the actors within them. Of particular note is that the state, by changing policy, can affect the demand-supply balance in favour of one party or another (usually employers). For example, expanding employer access to temporary foreign workers can help employers to avoid the consequences of a tight labour market by expanding the pool of available workers.
• • Other organizations’ behaviour: The pay structure and compensation offered by other organizations that need similarly qualified workers affect the ability to attract and retain workers. Documenting and analyzing other organizations’ pay structures comprise a wage survey. It can be conducted informally by reviewing job postings and making inquiries or formally by accessing local wage statistics from government or economic development agencies.
• • Cost of living and inflation: The cost of living (e.g., the cost of essentials such as food, shelter, and transportation) varies from region to region. It affects both the prevailing wage rate in the area and how likely workers are to move into or out of an area. The cost of living is affected over time by inflation (the rate of increase in the cost of living). Consumer Price Index (CPI) rates are available at the municipal and regional levels. These issues are taken up in more detail in Feature Box 8.2.

Organizational factors can also affect pay structures. For example, total organizational revenue creates an absolute limit on what an organization is able to pay workers. Compensation must also be sensitive to the price and cost structure of an organization’s products or services. Compensation usually comprises a large portion of overall production costs and can affect the ability of an organization to compete on price. As shown in the opening vignette, however, there are multiple aspects of the cost of labour. An increase in wages can drive down other costs (e.g., turnover) as well as increase productivity.

An organization’s business and functional strategies can also affect the pay structure that the organization adopts (i.e., what it is willing to pay). For example, an organization that aims to compete on the basis of cost might be unwilling to increase compensation even if it could. An organization that has adopted a market-dominance business strategy might be prepared to pay more in order to attract the “best and brightest” (thereby denying these workers to its competitors). In this way, pay structures send messages to workers about whom and what the organization values, thereby shaping the workers’ behaviours.

Developing a Pay Structure

The external and internal factors help to establish the broad parameters of a pay structure. Constructing a pay structure starts with an HR practitioner’s determination of the value of each job in the organization relative to other jobs. This process is distinct from that of assigning a wage rate to each job, which happens later. The relative value of each job is determined by performing a job evaluation. It establishes a hierarchy of job values. There are three basic ways to perform a job evaluation.

• • Job ranking system: The value of each job in the organization is assessed, and jobs are then ranked from highest to lowest. A person or people knowledgeable about all jobs in the organization systematically review each job, compare it with other jobs, and rank it accordingly. This is the easiest and cheapest method of determining the hierarchy because it evaluates each job in its entirety. However, this approach also lacks nuance and is susceptible to personal bias. This method is most common among small employers with fewer employees and simple organizational structures.
• • Job classification system: This two-part process begins by grouping jobs with similar duties, responsibilities, or subject matter (e.g., administrative, IT, managerial) into classes. Then, within each class, the jobs are evaluated and assigned classifications based on degree of skill, responsibility, complexity, and experience required. For example, the administrative class might have four levels to reflect different responsibilities. This approach handles complexity well but still evaluates whole jobs, and it is susceptible to bias, in particular along equity lines, since jobs are clustered with “like” jobs rather than across classes. This system is common in large organizations (e.g., government agencies) with large numbers of job types and complex structures.
• • The point method: This system breaks down each job into its key characteristics (e.g., experience needed, decision-making authority, working conditions), and each characteristic is assigned a score. All of the scores are summed up to create an overall point score for the position. The scores are then used to order jobs based on their perceived values. Feature Box 8.3 provides an example of the point method. It is more complex to establish and requires more in-depth knowledge of each job, but it can provide a more nuanced assessment of each job because it breaks jobs into their components. This extra rigour helps to control for but does not entirely eliminate bias.

All of the job evaluation systems are vulnerable to bias, both explicit and implicit. Whenever a person or group of people is tasked to evaluate and rank jobs based on perceptions of their characteristics, stereotypes and biased assumptions can influence the process. Common biases include downgrading the difficulty of work more likely performed by women than men since it is perceived as less demanding or less complex, such as the emotional labour discussed in Feature Box 3.5. Similarly, blue-collar (i.e., manual) work is often seen as of lower value than white-collar work because it is perceived as requiring physical strength or endurance rather than “intelligence.” Often organizations value jobs more directly associated with the product or service (i.e., working “on the tools”) more than they do the indirect support positions that keep the organization operating. These stereotypes entrench existing inequities in the workplace. To escape bias, evaluators consciously need to build equity into the process, challenging presuppositions about a particular job’s value or difficulty.

Once a job hierarchy has been completed, it is necessary to determine the pay for each job. The external factors (e.g., competitor salaries) and internal factors (e.g., business strategy, ability to pay) will affect the pay for each position. Feature Box 8.4 offers an example of how the job evaluation can be translated into a pay grid.

Commonly, organizations establish a pay range for each job or classification. A pay range sets out the minimum and maximum wage rate for that position. Each worker is placed within the range based on seniority, experience, education, and other factors. Larger organizations might establish more complex systems, and in a unionized workplace these pay ranges would be negotiated with the union. Table 8.4 illustrates how an organization might use minimum, average, and maximum wages to develop a pay range for jobs at our notional elementary school.

The utility of a pay structure is that it makes determining what to pay a particular worker more transparent, fair, and straightforward. The two main risks associated with developing pay structures are the possibility of entrenching inequities (e.g., undervaluing the work of women) and diminishing the efforts of workers by making transparent the employer’s valuation of a particular job. When developing a pay range, it is also necessary to contemplate how pay increases will be awarded. Will an annual increase to offset the impact of inflation be offered? Will workers’ salaries increase annually by a certain amount (e.g., 2.8%) to reflect increased experience and value? If so, then on which criteria (if any) will the increase be conditional? The answers to these questions can be influenced by an organization’s overarching strategy as well as industry norms.

The issue of determining the value of a position becomes more complicated when addressing senior management or positions requiring rare skills or abilities. It can be difficult to determine how much more valuable a senior executive’s position is compared with that of their subordinates. The standard points method might not work as well in these situations. Often at higher levels of an organization, value is determined by how well the executive can negotiate and what they could get working elsewhere. Over the years, this has created a situation of executive pay inflation, in which the pay of CEOs and other senior executives vastly outstrips the pay of anyone else in the organization. Feature Box 8.5 discusses this issue in more depth.

Establishing the Wage Structure

Once a pay structure is established, an organization must determine which form that payment will take. The wage portion of compensation (in contrast to benefits, discussed below) can take different forms, including base pay and variable pay. Which form of payment is most appropriate depends on the nature of the work and the organization’s strategic goals. Issues of pay equity also need to be considered.

Base pay is the permanent, non-varying core wage provided for work performed. It can take the form of an hourly wage or a fixed salary (weekly, monthly, or annual). It generally does not vary according to performance, finances, or any other criteria. It is the most common form of wage payment because it is predictable (for workers and employers) and is easy to administer. Base pay is easily increased over time (e.g., as workers’ performance or job tenure increases or to offset inflation) but is much more difficult to reduce. As discussed in Chapter 9, reducing a worker’s base wage is often considered a breach of the employment contract and gives the worker the right to sue for wrongful dismissal. For this reason, employers need to take great care in establishing the original rate of pay since they cannot go back and correct it if they believe later that they are paying too much.

To link workers’ pay more closely with their performance or the organization’s financial situation, some organizations utilize variable pay, either as an alternative or as a supplement to base pay. Variable pay is compensation linked to a measure of worker or organizational performance. Unlike base pay, it can increase or decrease (or not be paid at all) over time. Changing variable pay is legally permitted because the employment contract stipulates that it will vary, and usually it is in addition to base pay.

Variable pay takes several forms. Some types are designed to be a supplement to base pay, whereas others are an alternative form of core compensation. Some are sporadic in timing (e.g., annual bonuses), whereas others are more consistent (e.g., commissions). The forms of variable pay can be sorted into six groups.

1. 1. Pay for performance: Payment is linked explicitly to and varies based on measures of a worker’s performance. For example, commissioned retail salespeople receive a percentage of the sales that they make. Piecework pay is another example: workers are paid a predefined amount for each unit that they produce or service that they perform. Sometimes a worker’s entire income is performance based. Other times an employer might establish pay for performance on top of a lower base rate.
2. 2. Bonuses: One-time or semi-regular payments are given to workers or groups of workers based on their performance. Bonuses can be periodic and based on overall performance (e.g., a year-end bonus), or they can be given to reward a specific achievement (e.g., landing an important client). The key quality of bonuses is that they are an after-the-fact recognition of achievement.
3. 3. Incentive pay: This form of variable pay provides workers or groups of workers with supplemental compensation when agreed-on performance standards are met. Often these standards take the form of targets or quotas, such as reaching specific sales or production figures. Sometimes they can be tied to other aspects of performance, such as the number of days without a workplace injury or a reduction in product waste.
4. 4. Merit increases: Some employers link increases to base pay to workers’ performance. For example, a raise might be provided, or the amount adjusted, only if a worker meets performance criteria. Often merit pay is granted after a formal review of performance over the past year.
5. 5. Profit sharing: Some employers create programs in which workers receive a share of the organization’s profits each year. This form of pay ties compensation to the overall health of the organization without the need for complicated performance assessments.
6. 6. Stock purchase: Variable pay can take the form of offering shares in a private company to workers as part of their compensation. This practice is most common for senior executives, but some organizations have established employee stock ownership plans in which a portion of the organization’s shares are allocated to workers based on years of service or some other formula. The financial benefit for workers occurs only when they sell their shares and is highly dependent on the price at the time of sale.

Employers like variable pay because it links compensation to performance, to a greater or lesser degree. They believe that this incentivizes workers to improve their performance either individually or collectively. Variable pay can also be more sensitive to external considerations, such as the organization’s financial situation. Workers’ reactions to variable pay are mixed. Some workers appreciate the opportunity to earn more by working harder, and profit sharing and stock purchase can make them feel like they share in the organization’s prosperity. Other workers resent the contingent nature of payment (i.e., the employer has shifted risk onto them) and that their pay is dependent on things beyond their control (e.g., they do not control economic conditions). The lack of a predictable wage is also a downside for workers.

A further concern for them is that it is usually the employer who sets the criteria and establishes the target. There are opportunities for the employer to set bonus targets at unachievable levels or to construct an incentive pay scale that undervalues workers’ performance. If variable pay is part of the employment contract, then the criteria cannot be easily changed, for the same reasons that base pay cannot be reduced. Many employers construct variable pay as a discretionary payment that provides greater latitude in changing the rules of how or when the pay is awarded.

Variable pay has pitfalls for employers as well. They need to take care in selecting the measures to which they index variable pay because those measures can create unexpected outcomes. For example, if workers are rewarded for increasing production, then they might shift their focus from quality to quantity. The structure of sales commissions can trigger similar gaming behaviour from salespeople, who might target their efforts on customers whom they think will be big buyers, ignoring other customers and potentially damaging the organization’s reputation. Safety incentives (in which rewards are provided for remaining accident free) are more likely to reduce the reporting of incidents than the occurrence of incidents.14 Incentive pay, ironically, can also decrease performance: once a worker reaches the reward target, the motivation to keep working can decline since there is no additional reward for extra effort.

Benefits

Benefits are indirect forms of pay provided to employees as part of the overall compensation package. They commonly include supplementary health insurance, pension plans, vacation and other forms of leave, and other monetary and non-monetary allocations. Benefits offset the cost of expenses that normally would come out of workers’ pockets (e.g., prescription drug and eyewear costs, time away from work) and thus are a form of compensation that can be attractive to workers. A good benefit package can also increase productivity. Workers who can access dental care, supplementary health care, reasonable vacation time, and so on are healthier workers who will miss less time because of illness and be more productive because of lower levels of stress and better mental health.

When establishing an overall compensation package, organizations must consider which benefits they have to provide by law as well as the cost of providing and administering benefits. Mandatory benefits are indirect forms of pay mandated by the government. Unless legally exempted, all employers are required to provide or participate in mandatory benefit programs. In Canada, there are four basic mandatory benefits.

• • Employment Insurance (EI) is a federal program that provides temporary income and training support to workers who experience an interruption of employment income. EI is funded by employer and worker premiums collected by employers. EI also provides income support for workers on parental and compassionate care leave. Over time, changes to the eligibility rules have made it more difficult for unemployed workers to collect these benefits. In 2017, only 42% of unemployed Canadians and 28% of low-wage (under $15 per hour) unemployed workers received EI payments.15
• • The Canada/Québec Pension Plan (CPP/QPP) is a federal program that provides retirement income support to workers as well as disability income support and benefits to surviving dependants of a deceased worker. Like EI, CPP/QPP is funded by employer and worker premiums collected by the employer. Upon reaching retirement age (65 years for full benefits), workers receive a monthly pension calculated based on their contributions.
• • As explained in Chapter 2, each province and territory operates a workers’ compensation board (WCB) that provides wage loss and medical benefits and vocational rehabilitation support to workers who have been injured or become sick because of work. Workers’ compensation is funded by employers’ premiums calculated based on an employer’s payroll and injury costs. In exchange, employers are indemnified (i.e., cannot be sued) when workers are injured or killed on the job. WCB eligibility and benefit levels are ongoing sites of contention between employers and workers. Employers’ premiums are driven, in part, by the costs of injuries incurred by their workers. Some employers seek to minimize these costs by encouraging workers not to file claims and/or disputing whether injuries are compensable.16
• • As shown in Chapter 2, governments mandate paid forms of leave for workers. They include statutory holidays (i.e., government-assigned days off with pay), paid vacation, and daily rest breaks. The required leaves as well as the rules on entitlement and methods of payment vary between jurisdictions.

Most employers also choose voluntarily to provide other benefits to their workers. These benefits are often detailed in an employment contract, employer policy, or collective agreement. Benefit packages are often purchased from and administered through insurance providers. Some employers offer a standard package to all workers, whereas others might offer workers some degree of choice in the benefits that they receive.

The most common forms of voluntarily provided benefits include the following.

• • Supplementary health benefits provide paid or subsidized access to a range of health services not covered by government health plans, including dental care, prescription medication, optical care and eyewear, counselling and therapy, and other paramedical services, such as physiotherapy and therapeutic massage.
• • Life insurance provides a set payment to family members in the event that a worker dies. This is often set as a percentage of the annual salary.
• • Sick leave provisions allow workers to be absent a set number of days per year without losing pay.
• • Short-term disability plans provide part or all of a worker’s pay when that worker cannot work because of illness or disability unrelated to work (a work-related injury would be covered by workers’ compensation). Most often short-term disability starts after any sick leave days are exhausted and continue for a set period of time, such as two to six weeks.
• • Long-term disability plans provide income support for workers who cannot work because of disability for a long period of time. Long-term disability benefits typically begin when short-term disability benefits are exhausted and can last until retirement. They usually provide a reduced payment to the recipient, ranging from 50% to 75% of pre-disability wages.
• • Top-up benefits supplement existing mandatory benefits. A common example is parental leave top-up, in which the employer pays the difference between EI payments for parental leave and the worker’s existing salary. Employers can also provide additional time away from work beyond what is required under law (e.g., additional vacation leave).
• • Wellness programs are benefits designed to assist workers to improve their physical and mental health. Such programs can be as simple as providing a subsidy for a gym membership to elaborate incentives for healthy living. Feature Box 8.5 discusses the dynamics of wellness programs.
• • Employee and family assistance programs (EFAPs) provide access to counselling services and referrals to workers who experience mental health or other difficulties, including substance abuse, marital conflict, and financial difficulty. Employers’ willingness to bear the cost of such a program is based on the business case that it minimizes loss of productivity.
• • Dependant-care benefits provide support to workers in addressing their specific family needs, including child care and compassionate care. These benefits can include providing extended time off (with or without pay) to workers who have a sick or dying loved one to care for. Employers can also accommodate child-care needs by altering work schedules, subsidizing child-care expenses, or providing workplace child care.
• • Work arrangement accommodations alter standard work arrangements, such as hours and days of work or locations of work, to accommodate workers’ needs. Examples include flextime (i.e., varying start and end times), compressed work weeks (i.e., working longer hours per day but fewer days per week), and working from a remote location, such as home (sometimes called teleworking). Since the COVID-19 pandemic, working from home has become a hot topic with workers calling for more flexibility in terms of where they perform their work. Although working from home is popular with workers, the benefits of doing so are not evenly distributed.17 Women and workers with children experience more negative impacts from working at home,18 and the gains from working there are often offset by increased work hours, greater stress, and struggles to create boundaries between work life and home life.19
• • Education assistance entails subsidizing tuition and/or paid time off. Often these benefits will be linked to the worker’s job responsibilities and contingent on the worker’s achievement of a certain minimum grade in the course. Employers might also require workers to agree to maintain their employment for a period of time following the training. Quitting during this period of service might require the worker to reimburse the employer for the training costs.
• • Personal benefits are small amenities provided to workers to boost morale or increase productivity. They might include employer-sponsored meals or social events and worksite amenities (e.g., recreational spaces and equipment and refreshments).

Benefits are often expensive. Employers typically offer them for two reasons: to attract and retain qualified workers and because there can be a positive rate of return on some benefits. For example, research has found that, for every dollar spent on EFAPs, employers earn $8.70 in productivity gains and reductions in time away from work.20 Employers might seek to reduce the costs of benefits by limiting claim values (e.g., setting annual maximum benefit values, such as $700 every two years in vision care costs) and/or having workers pay some portion of the premiums associated with their benefits. In estimating the costs of benefits, it is important to be mindful that workers might not access all of the benefits available to them. For example, only 7% of eligible workers access EFAP services.21

Retirement Benefits

Retirement benefits are an arrangement to provide post-retirement income support to workers. These benefits are often highly valued by workers because they provide financial security in old age. For employers, retirement benefits can be expensive to administer and entail commitments that extend significantly beyond the duration of the employment relationship. The most commonly discussed form of retirement benefit is a pension plan. In Canada, employment-based pension plans are structured as supplements to the universal pension payment that every citizen receives—called Old Age Security—and the government-administered CPP/QPP (governments also provide income-tested supplementary benefits to seniors). Some employers offer additional retirement benefits in the form of a pension plan. There are three main types of employer-offered pension plans.

• • A defined-benefit pension plan (DBPP) provides a predetermined benefit to retirees, usually calculated based on years of service, age, and income. The worker is “guaranteed” a certain monthly or annual amount for the pension until death. Contributions to a DBPP are calculated to ensure that the plan is fully funded overall.
• • A defined-contribution pension plan (DCPP) entails fixed contributions to an employer-managed pension fund or a Registered Retirement Savings Plan (RRSP) controlled by the worker. Upon retirement, the worker receives a benefit determined by the value of the fund at that time. Either the DCPP administrator will calculate the amount to be paid out, or, in the case of RRSPs, the worker will make decisions about how much to withdraw each year.
• • A hybrid pension plan (HPP) (sometimes called composite plans) possess characteristics of both DBPPs and DCPPs and take a range of forms. For example, they might stipulate a stable contribution rate and allow benefit levels to fluctuate within a range based on the financial health of the plan. Or they might provide a core defined benefit with a supplementary benefit based on defined contributions.

All pension funds have three potential funding sources: employer contributions, worker contributions, and returns earned from investing the employer and worker contributions (usually in the stock market). All pension funds also have a single recipient of benefits—retired workers (and their families if they pass away). The revenue sources must meet the financial obligations to current and future recipients (and administrative expenses, which make up a small percentage of plan obligations). Complex actuarial calculations involving life expectancy, inflation, and payroll estimates tell plan managers how much money the plan needs to have available to pay for all of its obligations. If there is a calculated shortfall, then the plan is said to have an unfunded liability: the present shortfall in funds in the plan (accounting for future investment growth) necessary to meet the expected future cost of the plan’s obligations.

A key difference among the three types of plans is how they manage to balance funding and financial obligations. DBPPs opt to allow contribution rates to vary to ensure a stable and guaranteed level of benefit. DCPPs vary benefit levels to match the funds available from stable contributions. HPPs offer a bit of each option. This difference leads to a shift in who carries most of the risk associated with the third funding source (i.e., investment returns, which can be volatile). In DBPPs, employers and current/future workers share the risk of investment volatility through variable contributions to ensure a stable benefit. Workers’ risk is pooled across all workers who pay into the fund. Also, for most private sector pension plans, the employer bears legal responsibility for ensuring the solvency of the pension fund, meaning that they are responsible for any shortfall (often in the public sector plans are jointly managed, meaning that both parties carry that fiduciary responsibility).

With DCPPs, the risk lies with individual workers. Since only contributions are predetermined, the value of the worker’s benefit can be determined only at retirement. If the worker retires at a time when investment income is low, for example during a stock market crash, then the retirement fund will be valued substantially less than if the worker retired when investment income was good. In particularly bad times, it is possible for workers to receive less than the sums of what they and their employers contributed. This means that two workers in a DCPP with the same pre-retirement income and years of service could receive wildly different pension payouts if they retire at different points in the economic cycle.

The difference in risk is why debates over retirement benefits are some of the most heated. In recent years, employers in many industries have pushed to transform DBPPs into DCPPs. Employers have a preference for DCPPs since they shift the risk of financial instability entirely onto workers. Most workers prefer DBPPs for the income security that they provide. However, some workers believe that a DCPP might be preferable since they have more control over how the money is invested. In most cases, institutional pension investors perform better than individual members because they have access to greater pools of money (creating investment opportunities not available to individuals) and better access to information. A worker who advocates for a DCPP might be considered an example of a worker who argues against their own self-interest.

The percentage of Canadian workers who have pension plans as part of their compensation has been shrinking over the past 30 years, as has the share of DBPPs. One growing trend is toward hybrid or composite plans, which adopt elements of both types of pension. Feature Box 8.7 provides some facts about pension coverage in Canada.

Conclusion

Wages and benefits are a crucial element of any organization’s human resources strategy. Compensation affects competitiveness, productivity, worker morale, employee recruitment and retention, and many other aspects of organizational effectiveness. Careful planning is required to ensure that the overall compensation package fits both specific positions and workers and the organization’s strategic goals. Wages and benefits, however, are not a simple cost-benefit calculation. Determining the optimal wage level or benefit offering is not just about offering the required package at the lowest cost. The dynamic between costs and outcomes is complex. Minimizing compensation costs can lead to additional costs elsewhere, including turnover and poor performance. Implementing initiatives in a non-strategic way might not result in intended outcomes.

Finally, compensation decisions entail a tension between the positive intentions of wages and benefits and their financial costs. Employers are engaged in a never-ending struggle to ensure that workers are paid adequately (and perceive themselves to be paid fairly) and to keep costs controlled. In recent years, employers have focused increasingly on cost containment and sought reductions in pay and benefits. This shift leads to increased conflict in the workplace as workers resist the reductions. The Page the Cleaner vignette at the beginning of this chapter shows us that too much focus on cost, and not enough attention to the long-term consequences of a low wage and benefit strategy, can be an unsuccessful business strategy.