Building Internally Consistent Compensation Systems

Example of Internally Consistent Compensation Structure

Av

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$60,000

$50,000

$40,000

$30,000

$20,000

Job Worth (skill, effort, responsibility, working conditions)

Benefits Counselor I($20,000)

Benefits Counselor II($26,000)

Benefits Counselor III($40,000)

Manager of Benefits ($58,000)

There is a positive relationship between job worth and salaries!

Example of Internally IN-Consistent Compensation Structure

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ge

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$60,000

$50,000

$40,000

$30,000

$20,000

Job Worth (skill, effort, responsibility, working conditions)

Benefits Counselor I($32,000)

Benefits Counselor II($45,000)

Benefits Counselor III($28,000)

Manager of Benefits ($39,000)

There is no relationship between job worth and salaries!

Figure 7-1

Internally Consistent Compensation Structure (2 of 3)

• Benefits Counselor I– Provides basic counseling services to employees and

assistance to higher-level personnel in more-complex benefits activities. Works under general supervision of higher-level counselors or other personnel.

• Benefits Counselor II– Provides skilled counseling services to employees

concerning specialized benefits programs or complex areas of other programs. Also completes special projects or carries out assigned phases of the benefits counseling service operations. Works under general supervision from Benefits Counselor IIIs or other personnel.

Figure 7-1

Internally Consistent Compensation Structure (3 of 3)

• Benefits Counselor III– Coordinates the daily activities of an employee benefits

counseling service and supervises its staff. Works under direction from higher-level personnel.

• Manager of Benefits– Responsible for managing the entire benefits function from

evaluating benefits programs to ensuring that Benefits Counselors are adequately trained. Reports to the Director of Compensation and Benefits.

Aspects of Job EvaluationJob Evaluation is: Assumption

A measure of job Content has an innate value outside of external market. content

A measure of relative Relevant groups can reach consensus on relative value value.

Link with external Job worth cannot be specified without external market market information.

Measurement device Honing instruments will provide objective measures.Negotiation Puts face of rationality to a social / political process. Establishes rules of the game.

Invites participation.

Figure 7-1

Phases of the Job Evaluation Process

• Choose & train the job evaluation committee.• Select benchmark jobs.• Choose compensable factors.• Define factor degrees.• Determine point values for each factor.• Validate factor degrees and point values.• Evaluate all jobs.

Table 7-10

Characteristics of Benchmark Jobs

• The contents are well known, relatively stable over time, and agreed upon by the employees involved.

• The jobs are common across a number of different employers.

• The jobs represent the entire range of jobs that are being evaluated within a company.

• The jobs are generally accepted in the labor market for the purposes of setting pay levels.

Source: G.T. Milkovich and J.M. Newman, Compensation 5th ed. (Homewood, IL: Richard D. Irwin, 1996).

Table 7-13

Federal Government Factor Evaluation System (1 of 2)

• 1. Knowledge required by the position– a. Nature or kind of knowledge and skills needed– b. How the skills and knowledge are used in doing the work

• 2. Supervisory controls– a. How the work is assigned– b. The employee’s responsibility for carrying out the work– c. How the work is reviewed

• 3. Guidelines– a. The nature of guidelines for performing the work– b. The judgment needed to apply the guidelines or develop

new guides

Compensable Factors - A Definition (1 of 2)

• Compensable factors are paid-for, measurable qualities, features, requirements, or constructs that are common to many different kinds of jobs.

• These factors are qualities intrinsic to the job and must be addressed in an acceptable manner if the job is to be performed satisfactorily.

Compensable Factors -A Definition (2 of 2)

• In addition to being quantifiable, compensable factors should be relatively easy to describe and document.

• Those involved in using compensable factors to measure job worth should consistently arrive at similar results.

Universal Compensable Factors

• Skill: the experience, training, ability, and education required to perform a job under consideration - not with the skills an employee may possess

Universal Factor - Skill

• Technical Know-how• Specialized Knowledge• Organizational Awareness• Educational Levels• Specialized Training• Years of Experience Required• Interpersonal Skills• Degree of Supervisory Skills

Universal Compensable Factors

• Effort: the measurement of the physical or mental exertion needed for performance of a job

Universal Factor - Effort

• Diversity of Tasks

• Complexity of Tasks

• Creativity of Thinking

• Analytical Problem Solving

• Physical Application of Skills

• Degree of Assistance Available

Universal Compensable Factors

• Responsibility: the extent to which an employer depends on the employee to perform the job as expected, with emphasis on the importance of job obligation.

Universal Factor - Responsibility

• Decision-making Authority

• Scope of the organization under control

• Scope of the organization impacted

• Degree of integration of work with others

• Impact of failure or risk of job

• Ability to perform tasks without supervision

Universal Compensable Factors

Working Conditions:

• hazards

• physical surroundings

of the job.

Universal Factor - Working Conditions

• Potential Hazards Inherent in Job• Degree of Danger Which Can be Exposed to

Others• Impact of Specialized Motor or Concentration

Skills• Degree of Discomfort, Exposure, or Dirtiness in

Doing Job

Table 7-13

Federal Government Factor Evaluation System (2 of 2)

• 4. Complexity

– a. The nature of the assignment

– b. The difficulty in identifying what needs to be done

– c. The difficulty and originality involved in performing the work

• 5. Scope and effect

– a. The purpose of the work

– b. The impact of the work product or service

• 6. Personal contacts

• 7. Purpose of contacts

• 8. Physical demands

• 9. Work environment

Source: US Civil Service Commission, Instructions for the factor evaluation system ( Washington, D.C.: US Government Printing Office, 1977).

Example of pay structure

Salary

$80

$40

200 4000

Points

Job title Points Salary

Computer Programmer

240 $60k

Computer Service

180 $30k

Systems Analyst

330 $70k

Computer Operator

210 $37k

Data Entry Clerk

150 $33k