Canadian HR Reporter

CANADIAN HR REPORTER October 5, 2015 INSIGHT 19 Brian Kreissl TOUgHeST HR QUeSTiON Tips for effective compensation planning Having a compensation philosophy, good data are important fi rst steps Ah, 'tis the season. No, not the holiday season — the salary planning season. Many organizations tackle com- pensation planning in the fall. It's when the latest batch of compen- sation surveys are typically pub- lished and many companies set budgets for the next round of pay increases. Here are seven considerations to help you make the most in- formed decisions around pay ad- justments and related matters. Start with a compensation philosophy — or develop one. A compensation philosophy defi nes how an organization seeks to po- sition itself against competitive market practice and lays out other key principles for compensation management. Do you want to lead, lag or match the market? Knowing how you want to be positioned is es- sential as it provides a frame of reference for interpreting market data and assessing to what extent there are internal pay gaps. Obtain good data sources. Reference relevant compensation surveys to assess how your or- ganization aligns with competi- tive market practice. Ideally, you should use multiple data sources that cover a good cross-section of jobs at the organization — with consideration to the different functions and levels there are in place. Try to ensure you have data for your most populated jobs, as well as strategically sensitive jobs and jobs that represent hot skills and may be carrying a premium in the market. Understand market trends regarding budgets for pay in- creases. Before finalizing the budget, take a look at what other organizations are doing. Various consulting fi rms publish research results indicating what organiza- tions are budgeting for pay in- creases for the coming year, typi- cally expressed as a percentage of payroll, including variances by geography and job category. By monitoring market trends, you'll be able to see if the orga- nization is keeping pace with competitive market practice. Remember, though, if pay levels are falling short, you may need more than the typical budget for pay increases to make up for lost ground. Don't forget about salary structure adjustments. e same data sources that report on bud- gets for pay increases typically also report on market trends with respect to salary structure adjust- ments. Salary ranges need to be regularly updated to ensure they keep pace with competitive mar- ket practice. If you adjust salaries but not structure, there will be employ- ees artifi cially high in their range. Over time, this will give a distort- ed picture of how competitive your internal pay levels really are relative to market. Be clear on where you stand regarding pay for performance and develop guidelines, if ap- plicable. Many organizations seek to connect pay and perfor- mance. at means top perform- ers should get bigger pay increases than average or low performers at the same point in their salary range. To help support pay decisions, many organizations will develop some sort of merit matrix that defi nes a value or range of values for pay increases based on an em- ployee's performance rating and position in range. Have clear communication guidelines. To ensure the ap- proach to pay-related commu- nication is clear and consistent, be sure to set some ground rules about what information can be shared. Can employees access information about their own sal- ary range? e next pay band up? e entire pay structure? Organi- zations are becoming more open about what they share regarding compensation programs and how they operate — it's important to have clear guidelines and apply them consistently. Equip managers to have meaningful pay discussions. To support eff ective — and consis- tent — communication around compensation, it's important to provide managers with train- ing and tools to help them share information appropriately with employees. Managers need to understand how programs oper- ate — such as the criteria used to determine salary increases — as well as the types of information they can share with their people. Ideally, managers should know how to recognize employee con- tributions as well as have the diffi - cult conversations, where needed. Ideally, managers should play a role in both making pay recom- mendations and communicat- ing pay increases to their people. Significant opportunities for performance-related communi- cation and acknowledgement are lost when employees learn about pay increases from their pay stub instead of their manager. A well-considered approach to compensation planning and delivery can help you make in- formed budget and pay decisions — which can help you derive the maximum value from your com- pensation programs. Based in Toronto, Claudine Kapel is principal at Kapel and Associates, an HR consulting fi rm specializing in compensation design, performance management and employee commu- nications. She can be reached at (416) 422-1636. Ah, 'tis the season. No, not the holiday season Claudine Kapel GUeST COMMeNTaRY Enforcing employee handbooks A look at whether extraneous documents can form part of a contract of employment Question: Do employment policies have contractual force? Answer: Particularly in a non- union context, an employer gen- erally has a much easier time en- forcing the terms of an employ- ment policy if the policy is found to have contractual force (mean- ing the policy has been incorpo- rated into an employee's contract of employment). While every employee has an employment contract, some contracts are written, some are verbal and many are a combina- tion of the two, while others may consist of one or more documents in addition to a basic employ- ment off er letter. e question is whether or not extraneous docu- ments such as an employee hand- book form part of the contract of employment. It is doubtful that simply pro- viding employees with a copy of an employee handbook would be suffi cient to give it contractual force. Having an employee sign a statement stating she received the handbook and agrees to the terms and conditions is a good start, but on its own is still unlikely to give the policies contractual force. Incorporating policies Specifically incorporating the handbook into the employee's contract by stating right in the written agreement that the em- ployee handbook forms part of the contract and providing the employee with a copy of the em- ployee handbook at the time of hire is one way of ensuring the handbook has contractual force. Including a statement right in the handbook stating that the policies form part of an employ- ee's contract of employment can also help. However, that is prob- ably insuffi cient on its own to give the policies contractual validity. While giving policies con- tractual force makes it easier for employers to enforce policies from a disciplinary perspective, it becomes more diffi cult for em- ployers to make changes to poli- cies in the future without risking constructive dismissal. While em- ployers probably retain discretion to make minor policy changes from time to time, some policy changes could easily be argued to be fundamental in nature. ere are some ways around this, including having a clause in employees' written contracts to the eff ect that the organization re- serves the right to make changes to employment policies at its sole discretion. While including such a statement in an employment contract (especially at the time of hire) is likely to be eff ective, sim- ply including the statement in a handbook is a good practice but is unlikely to be eff ective in avoiding constructive dismissal on its own. Another option is to provide long advance written notice, of two years or more, of an impending change to an employment policy. In light of the Ontario Court of Appeal's 2008 decision in Wronko v. Western Inventory Service Ltd., however, employers should exer- cise caution when udoing this, par- ticularly if one or more employees objects to the changes. In such a case, it would make sense to provide the worker with written notice along with a new contract to take eff ect the day the reasonable notice period expires. Contractual force of manuals e 1984 British Columbia Su- preme Court case of Rahemtulla v. Vanfed Credit Union dealt with the contractual force of a policy manual (although this decision was not followed in subsequent cases for other reasons). e judge commented that if the contents of the handbook were to be binding, the document would need to have contractual force. For that to apply, there would need to be: a concluded agree- ment; consideration (something of value); and contractual inten- tion. With regard to the require- ment for a concluded agreement, the judge commented that the parties had not "expressed a com- mon intention to be bound by the terms of the policy manual" by way of a signature or implied assent. In terms of the need for addi- tional consideration, the simple continuation of employment by the defendant did not constitute valid consideration (although ad- ditional consideration would not have been required if the hand- book were presented to the em- ployee prior to entering into the contract on the fi rst day of em- ployment). While the general law of contract requires an exchange of "consideration," the value does not have to be very high. In the case of a contractual change, additional or "fresh" con- sideration should be provided to an employee in order to make the change valid. Examples might include a small bonus, a minor bump in salary or a slightly en- hanced benefits package (but clearly the mere continuation of employment wouldn't count). Finally, the question of whether the parties intended to enter into a legally binding agreement was an- swered by the "tone" of the man- ual, which was "informational" at best. e manual only covered certain aspects of the organiza- tion's history, policies, working conditions and employee ben- efi ts. It was not meant to be com- prehensive and was only given to the employee with some vague instruction to read it. In the 2010 case of Nishina v. Azuma Foods (Canada) Co., the B.C. Supreme Court again had an opportunity to examine the contractual force of an employee handbook. Citing Rahemtulla, the court determined there was no evidence the handbook in question was familiar to the em- ployee, in spite of the fact she had been with her employer for over four years and had signed an ac- knowledgement she had received the handbook. In spite of the fact a handbook may be found not to have contrac- tual force, it is still important to have such a document (though it may be more diffi cult to rely on it to uphold just cause for termina- tion). In all cases, it is a good idea to ensure employees read and un- derstand the contents of the hand- book and sign a letter to that eff ect and that they agree to be bound by the handbook. It is also advisable to obtain legal advice before mak- ing major changes to a handbook — particularly if the organization would like the document to have contractual force. Brian Kreissl is the Toronto-based product development manager for Carswell's human resources, OH&S, payroll and records retention products and solutions. Some policy changes could easily be argued to be fundamental in nature.

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