Compensation Theory, Job Evaluation and Pay Administration

Final OutputChiang Kai ShekCollege

Group Final Output

Introduction: • Profile of the company• Size of the company• Products and Services of the Company• Current policy on compensation• Point of View of the Group to the current

position of the company and its policy on compensation

OUTLINE:

I. THE GROUP MUST DEFINE THE IMPORTANCE OF COMPENSATION IN THE ORGANIZATION.

– Need to control costs to remain solvent and competitive– Need to remain competitive with internal and external

labor markets– Need to use pay to motivate employees

Ask an entrepreneur

Related Topics:

A.) Need to control costs to remain solvent and competitive

• Best Practice (- these are a set of compensation practices that are good for all firms.

• Contingency: – organizations will have pay systems that fit

with their business strategy– organizations that have “fit” will outperform

those without “fit”

Best Practice Examples*

• High wages• Guarantee of Employment Security• Use incentives; share gains• Employee Ownership• Participation & Empowerment• Teams• Smaller pay differences

Related topicsB. Need to remain competitive with internal and

external labor markets.

Data to be gathered for internal labor market: (must have at least two companies with the same nature of business)

• Comparison of Jobs• Jobs worth to the Employer– Similarities and differences in work content– Relative contribution to organization objectives• Accomplished through job evaluation

Related topics

Data to be gathered for external labor market: (must have at least two companies with the same nature of business)

• Value of the job to the labor market (Know more about the scope of duties and responsibilities of each each position through further research.

• Assessed through wage surveys

Related topicsc.) Need to use pay to motivate employees• The most obvious reward is pay, but

there are many others, including:– promotions– desirable work assignments– peer recognition– work freedom– (the group must be able identify how the owner

of the firm motivates its employee with the pay they give)

OUTLINE

II. DETERMINE THE COMPENSATION COST PER HOUR

• Market price; willing EMPLOYEE and willing EMPLOYER

• Issues of justice and equity

To somehow analyze the job worth

Job Evaluation and the Pay Structure

•Job analysis information determines the relative value, or rank, of each job in the organization.

Research wage information at the Bureau of Labor Statistics

http://www.bls.gov/bls/blswage.htm

Job evaluation helps set pay structure.

Other pay structure factors:labor market conditionscollective bargainingindividual skill differences

Job Evaluation and the Pay Structure

Job Evaluation Methods

A committee places jobs in a simple rank order from highest (worth highest pay) to lowest.

Jobs placed in grades to compare their descriptions to the benchmarked jobs. Look for a common denominator (skills, knowledge, responsibility).

Jobs are rated and allocated points on several criteria. Jobs with similar point totals are placed in similar pay grades. Offers the greatest stability.

orderingmethod

classificationmethod

pointmethod

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 11, slide 12

Job Evaluation and the Pay Structure

Establishing the Pay Structure

compensationsurveys

Used to gather factual data on pay rates for other organizations. Information is often collected on associated employee benefits as well.

Designates pay ranges for jobs of similar value. Results in a logical hierarchy of wages, in overlapping ranges.

wagecurves

wagestructure

Drawn by plotting job evaluation data (such as job points or grades) against pay rates (actual or from survey data).Indicates whether pay structure is logical.

Job Evaluation and the Pay Structure

External factors also influence pay structure.

geographic differences (local supply and demand)

labor supply (low supply = higher wages and vice versa)

competition (HR can match, lead, or lag)

cost of living as determined by the CPI

collective bargaining (unions)

employees must know how the pay structure is derived

III. THE BASIC PAY MODEL• Compensation plan efficiency based on:

– Internal consistency– External competitiveness– Employee contributions to the firm

Compensation:– “All forms of financial returns and tangible

services and benefits employees receive as part of an employment relationship”

Basic Question• Can we satisfy everybody?• Perceptions of fairness come from:

– Actual pay amounts– Relative pay amounts on internal basis– Relative pay amounts on external basis– Pay administration

Determining the relative value of jobs within the organization.

General basis:EffortSkillResponsibilityWorking conditions

Compensable Factors• “Characteristics in the work that

the organization values, that help it pursue its strategy and achieve its objectives”

The steps to follow:Job analysisDetermine compensable factorsScale the factorsWeight the factorsCommunications and documentationApply the plan

• Information on compensable factors to be researched by the group:

a. The Hay Plan by Hay Associatesb. J.C. Penney

IV. THE CONCEPT OF EQUAL PAY ACT• JOB EVALUATION• RANKING• CLASSIFICATION

Job Evaluation

• Determining the relative value of jobs within the organization

• General basis:– Effort– Skill– Responsibility– Working conditions

• Approaches– Whole job (ranking, classification)– Decomposed (point factor)

Ranking

• How to:– Order the jobs from highest to lowest

• Pro and con– Easy to use and to explain to employees– Burdensome for any but the small organization– Very difficult to add jobs / re-evaluate jobs– Very subjective; it is difficult to say what criteria are being

used, so difficult to justify/explain to employees

CLASSIFICATION

• How to:– Set up grades or categories with descriptions of the

necessary responsibility, skill, effort and working conditions (or other factors as desired)

– Include benchmark or representative jobs to serve as anchors; these should be

• Common and well-known• Stable content• Truly representative of grade• Can be priced on external market (RECENTLY DONE)

v. GOVERNMENT SCHEDULEREVENUE REGULATION 10-2011OR OTHER RELATED LAWS AND REGULATION OF

THE RP GOVERNMENTON COMPENSATION(FOR FUTURE RESEARCH)

GOVERNMENT SCHEDULE FACTORS

• Knowledge required by the position– Nature or kind of knowledge and

skills needed– How the knowledge and skills are

used in doing the work• Supervisory controls

– How the work is assigned– The employee’s responsibility for

carrying out the work– How the work is reviewed

• Guidelines– The nature of guidelines for

performing the work– The judgement needed to apply

the guidelines or develop new guides

• Complexity– The nature of the assignment– The difficulty in identifying what

needs to be done– The difficulty and originality

involved in performing the work• Scope and effort

– The purpose of the work– The impact of the work product

or service• Personal contacts• Purpose of contacts• Physical demands• Work environment

TO BE CONTINUED

POINT FACTOR PLAN:HOW IT WORKSWEIGHING COMPENSABLE FACTORSDEVELOPING PAY GRADESOTHER ISSUES

Point Factor Plan

• The most commonly used type of job evaluation method

• Make the criteria for comparisons explicit, unlike ranking and classification

• The criteria for classification (the compensable factors) are related to the strategy of the business; they are the factors valued by or of high worth to the firm

Selecting Compensable Factors• These should be:

– Based on the work performed– Based on the strategy and values of the organization– Acceptable and considered to be fair by all concerned

parties• As a result, compensable factors should be developed by each

organization, rather than using an off-the-shelf plan• Basic group of compensable factors:

– Skill– Effort– Responsibility– Working conditions

Basic group of compensable factors:

SkillEffortResponsibilityWorking conditions