Hrm Compensation

Compensation: Establishing strategic pay plans

The enemy of the best is good

By,Farah Naqvi

2005 Prentice Hall Inc. All rights reserved.

Corporate Policies, Competitive Strategy,and Compensation11*Aligned reward strategyThe employers basic task is to create a bundle of rewardsa total reward packagespecifically aimed at eliciting the employee behaviors the firm needs to support and achieve its competitive strategy.The HR or compensation manager will write the policies in conjunction with top management, in a manner such that the policies are consistent with the firms strategic aims.

Developing an Aligned Reward Strategy11*Table 111 Questions to Ask:1. What are our companys key success factors? What must our company do to be successful in fulfilling its mission or achieving its desired competitive position?2. What are the employee behaviors or actions necessary to successfully implement this competitive strategy?3. What compensation programs should we use to reinforce those behaviors? What should be the purpose of each program in reinforcing each desired behavior?4. What measurable requirements should each compensation program meet to be deemed successful in fulfilling its purpose?5. How well do our current compensation programs match these requirements?Source: Jack Dolmat-Connell, Developing a Reward Strategy that Delivers Shareholder and Employee Value, Compensation and Benefits Review, MarchApril 1999, p. 51.

Forms of Equity11*External equityHow a jobs pay rate in one company compares to the jobs pay rate in other companies. Internal equityHow fair the jobs pay rate is, when compared to other jobs within the same companyIndividual equityHow fair an individuals pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company.Procedural equityThe perceived fairness of the process and procedures to make decisions regarding the allocation of pay.

Methods to Address Equity Issues11*Salary surveysTo monitor and maintain external equity.Job analysis and job evaluationTo maintain internal equity,Performance appraisal and incentive payTo maintain individual equity.Communications, grievance mechanisms, and employees participation To help ensure that employees view the pay process as transparent and fair.

Establishing Pay Rates11*Step 1:Salary SurveyStep 2. Job evaluationA systematic comparison done in order to determine the worth of one job relative to another. Compensable factor: A fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.Step 3:Group similar jobs into pay gradesStep 4:Price each pay Grade-Wage curvesStep 5:Fine tune pay rates

Sources for Salary Surveys11*Consulting firmsProfessional associationsGovernment agenciesU.S. Department of Labors Bureau of Labor Statistics (BLS) conducts three annual surveys:Area wage surveysIndustry wage surveysProfessional, administrative, technical, and clerical (PATC) surveys.

What is a job???

Job, task and position

A task exists whenever human effort must be exerted for a specific purpose. When sufficient tasks accumulate to justify the employment of a worker a position has been created.

A job has been defined as a group of positions which are identical to their major or significant tasks.(The war manpower commission 1944)


What is job evaluation?????

Def: The systematic determination of the relative worth of jobs in a particular organization to be used as a means for rationalizing pay structures, through the removal of anomalies.

Understanding:Job evaluation is a technique that entails the evaluation of jobs on a set of factors that are usually a combination of :Know how required for the jobAccountability and contribution of the job to the organization

Often confused withJob analysis, performance appraisal and employee evaluation


Job evaluation why???

In this company marketing is a pampered department. We in accounts are responsible for everything and the finance people only play in money markets and earn fat salaries.We in marketing have to face so many problems ,yet this company values only manufacturingThis is an engineering company yet those MBAS..


Need for job evaluation

To provide a basis for more objective and rational wage structureTo correct wage inequalities resulting from personal acquaintance, bargaining pressures, chance customs etc.To provide the means for ranking of new and changing jobsTo provide information for promotion purposes regarding lines of promotion within job seriesTo provide basic information for job negotiation and wage determinationFor employee satisfaction and fostering organizational values

Methods of job evaluationPoint plan:

Has a predetermined manual rating scale.Scale lists factors or traits common to jobsFactors are subdivided into degrees and points assigned to each degreeTotal points determine its relative position in the job structure.After all jobs are evaluated the entire jobs are broken into job families. (eg all jobs in point value from 100-130-grp1,150-200-group 2)

Positives: Objectivity, simplicity, short time and comparabilityNeg: Assumes that job are composed of certain fixed factors.No special credit given to a imp factor that may be unique to a job. Assignment of weights is arbitrary

Overview of the Point SystemDegree of Factor

Job

Factor

Weight

1

2

3

4

5

1. Education

50%

100

200

300

400

500

2. Respon-sibility

30%

75

150

225

300

3. Physical effort

12%

24

48

72

96

120

4. Working conditions

8%

25

51

80

(ii) Ranking or grading systemMaking an array in terms of ranks of jobs from most to least imp. Jobs are rated as a whole. Comparison is made of one whole job against the other.System should be preceded by accurate job analysis and job descriptionSuits smaller organizations which ranks jobs on the basis of overall impression of the ratersRanking is in terms of jobs (difficulty level, responsibilities ,work load, supervision required, conditions of work and knowledge /experience required). Pos: Simplicity and takes less timeNeg: Does not indicate the degree of diff among jobs. Ratings suffer sometimes owing to inadequate knowledge of raters. May reflect current salary structure.

(iii) Factor comparison system Conceived by Edward N. Hay and Samuel Burk.The method begins by defining fundamental or basic job factors. Generally these are: mental/physical requirement, skill req, physical conditions, responsibility.It then provides for a rating of each job on these factorsWeighing of the factorsComposite job rating based on weighted factors.

Pos: Essentially a ranking system but gives space to any unique or rare factors Neg: Complex, difficult to install an maintain and hard to explain to non professionals.

PositionMentalP.SkillRespPhysicalWorking ConditionsBook-keeping operator11113Telephone operator22224Mail clerk34432


(iv)Job Classification11*Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes in grades.Classes contain similar jobs.Grades are jobs that are similar in difficulty but otherwise different.Jobs are classed by the amount or level of compensable factors they contain.Comp factdevelop grade descriptions for each gradeplace jobspay for each group or class is roughly the same

Example of A Grade Level Definition11*Figure 113 This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work.

Case for job evaluation..It makes the criteria against which jobs are valued explicit and provides a basis for judgement processFor providing an equitable and defensible pay structureCan be aligned with the organization value system and competency framework ,reinforcing them as an approach to people management besides assisting in crucial HR decisionsCase againstIt can be bureaucratic ,inflexible, time consuming and inappropriate in todays organizations.Priori judjement on the part of evaluatorsSchemes can decay over time Grade drift (People learn how to manipulate them to achieve a higher grade without a sufficient increase in responsibility)

Threats to validity of job evaluationTraining of ratersSelection of factors and assigning of weightsSubjectivity on the part of the ratersMisuse of statistical procedures

To conclude.Clearly defined and identifiable jobs must exist. These jobs will be accurately described in an agreed job description. Job evaluators will need to gain a thorough understanding of the job Job evaluation is concerned with jobs, not people. It is not the person that is being evaluated. Job evaluation is based on judgement and is not scientific. However if applied correctly it can enable objective judgements to be made. It is possible to make a judgement about a job's contribution relative to other jobs in an organization. The real test of the evaluation results is their acceptability to all participants. Job evaluation can aid organizational problem solving as it highlights duplication of tasks and gaps between jobs and functions.

Establishing Pay Rates (contd)11*Step 3. Group Similar Jobs into Pay GradesA pay grade is comprised of jobs of approximately equal difficulty or importance as established by job evaluation(factory jobs, clerical jobs and other clusters).

Establishing Pay Rates (contd)11*Step 4. Price Each Pay Grade Wage Curve Shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades.

Plotting a Wage Curve11*Step4:Price each Pay grade

Establishing Pay Rates (contd)11*Step 5. Fine-tune pay ratesDeveloping pay rangesFlexibility in meeting external job market ratesEasier for employees to move into higher pay gradesAllows for rewarding performance differences and seniorityCorrecting out-of-line ratesRaising underpaid jobs to the minimum of the rate range for their pay grade.Freezing rates or cutting pay rates for overpaid (red circle) jobs to maximum in the pay range for their pay grade.

Wage Curves11*Step 5:Fine tune pay ratesNote: This shows overlapping wage classes and maximumminimum wage ranges.

Pricing Managerial and Professional Jobs11*Compensating managersBase pay: fixed salary, guaranteed bonuses.Short-term incentives: cash bonusesLong-term incentives: stock optionsExecutive benefits and perks: retirement plans, life insurance, and health insurance

Pricing Managerial and Professional Jobs11*What Really Determines Executive Pay?CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in a short and long term.Firms pay CEOs based on the complexity of the jobs they filled.Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay.

Compensating Professional Employees11*Employers can use job evaluation for professional jobs.Compensable factors focus on problem solving, creativity, job scope, and technical knowledge and expertise. Firms use the point method and factor comparison methods, although job classification seems most popular.Professional jobs are market-priced to establish the values for benchmark jobs.

What Is Competency-based Pay?11*Competency-based payWhere the company pays for the employees range, depth, and types of skills and knowledge, rather than for the job title he or she holds. CompetenciesDemonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performance.

Why Use Competency-Based Pay?11*Traditional pay plans may actually backfire if a high-performance work system is the goal.Paying for skills, knowledge, and competencies is more strategic.Measurable skills, knowledge, and competencies are the heart of any companys performance management process.

Competency-Based Pay in Practice11*Main components of skill/competency/ knowledgebased pay programs:A system that defines specific skills, and a process for tying the persons pay to his or her skillA training system that lets employees seek and acquire skillsA formal competency testing systemA work design that lets employees move among jobs to permit work assignment flexibility.

Comparable Worth11*Comparable worthRefers to the requirement to pay men and women equal wages for jobs that are of comparable (rather than strictly equal) value to the employer.

References:

Michael Armstrong. A handbook of Human resource management,10th edition,2006Noe Hollenbeck Gerhart Wright. Fundamentals of Human Resource Management. Tata Mc Graw Hill,2007Vivek Bhatia, How to evaluate job content, Business Today. Vol 5,Jan 7-21;1996Meera Seth, Manpower Muddle. Case Study. Business Today, Sept 6.1994C.S Damle. Spin off benefits of managerial job evaluation.Indian management Oct 1993.vol32.No6Nazimuddin Ahmed .The making of job evaluation plan. Vikalpa. Vol 7No.2 April- June,1982Philip G.Bensen,Jeffrey S.Hornsby. The politics of pay, the use of influence tactics on J.E Committees. Group and Organization studies. Vol 13.No2,June1988Jeffrey Hornsby, Brien N.Smith. Group and Organization Management. The impact of decision making methodology on J.E Outcomes. Group and Organization Management.Vol19.No1,March 1994Dov Elizur. Job evaluation, A systematic approach. Gower Publishing company.Ltd.1981 Wendell French. Human Resource Management. All India Publishers and Distributors

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Hrm Compensation