Manoj Mathew, RSOM

JOB EVALUATION

Manoj Mathew, RSOM

Job Evaluation

• Job Evaluation– The systematic process of determining the

relative worth of jobs in order to establish which jobs should be paid more than others within an organization.

Manoj Mathew, RSOM

Different Job Evaluation Systems

JOB AS JOB PARTSBASIS FOR A WHOLE OR FACTORSCOMPARISON (NONQUANTITATIVE) (QUANTITATIVE)

Job vs. job Job ranking Factor comparison system system

Job vs. scale Job classification Point system system

SCOPE OF COMPARISON

Manoj Mathew, RSOM

Job Evaluation Systems

• Job Ranking System– Oldest system of job evaluation by which jobs

are arrayed on the basis of their relative worth.– Disadvantages

• Does not provide a precise measure of each job’s worth.

• Final job rankings indicate the relative importance of jobs, not extent of differences between jobs.

• Method can used to consider only a reasonably small number of jobs.

Manoj Mathew, RSOM

Paired-Comparison Job Ranking Table

Directions: Place an X in the cell where the value of a row job is higher than that of a column job.

Manoj Mathew, RSOM

Job Evaluation Systems

• Job Classification system– A system of job evaluation in which jobs are

classified and grouped according to a series of predetermined wage grades.

– Successive grades require increasing amounts of job responsibility, skill, knowledge, ability, or other factors selected to compare jobs.

Manoj Mathew, RSOM

Point System• Point System

– A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.

– Permits jobs to be evaluated quantitatively on the basis of factors or elements—compensable factors—that constitute the job.

• Point Manual– A handbook that contains a description of the

compensable factors and the degrees to which these factors may exist within the jobs.

Manoj Mathew, RSOM

Point Values for Job Factors of The American Association of Industrial Management

1ST 2ND 3RD 4TH 5THFACTORS DEGREE DEGREE DEGREE DEGREE DEGREE

Skill1. Education 14 28 42 56 702. Experience 22 44 66 88 1103. Initiative and ingenuity 14 28 42 56 70

Effort4. Physical demand 10 20 30 40 505. Mental or visual demand 5 10 15 20 25

Responsibility6. Equipment or process 5 10 15 20 257. Material or product 5 10 15 20 258. Safety of others 5 10 15 20 259. Work of others 5 10 15 20 25

Job Conditions10. Working conditions 10 20 30 40 5011. Hazards 5 10 15 20 25

Manoj Mathew, RSOM

Factor Comparison System

• Factor Comparison System– A job evaluation system that permits the

evaluation process to be accomplished on a factor-by-factor basis by developing a factor comparison scale.

– The compensable factors of a job evaluated are compared against the compensable factors of key jobs within the organization that serve as the job evaluation scale.

Manoj Mathew, RSOM

Characteristics of Key Jobs• Key Jobs

– Jobs that are important for wage-setting purposes and are widely known in the labor market.

• Characteristics of Key Jobs– They are important to employees and the

organization.– They vary in terms of job requirements.– They have relatively stable job content.– They are used in salary surveys for wage

determination.

Manoj Mathew, RSOM

Job Evaluation for Management Positions

• Hay Profile Method– Job evaluation technique using three factors—

knowledge, mental activity, and accountability—to evaluate executive and managerial positions.

Manoj Mathew, RSOM

The Compensation Structure

• Wage and Salary survey– A survey of the wages paid to employees of

other employers in the surveying organization’s relevant labor market.

– Helps maintain internal and external pay equity for employees.

Manoj Mathew, RSOM

Compensation

• Pay is a statement of an employee’s worth by an employer.

• Pay is a perception of worth by an employee.

Manoj Mathew, RSOM

Total CompensationThe package of quantifiable rewards an employee receives for his or her labours. Includes three components: base compensation, pay incentives, and indirect compensation/benefits

Important Compensation Related Acts in India

•Minimum Wages Act, 1948•Payment of Wages Act, 1936•Equal Remuneration Act, 1976•Companies Act, 1956

Manoj Mathew, RSOM

Total CompensationTotal Compensation

DirectDirect IndirectIndirect

BonusesBonuses

GainsharingGainsharing Security Plans• Pensions

Employee Services• Educational assistance• Recreational programs

CommissionsCommissions

Wages / SalariesWages / Salaries

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

Manoj Mathew, RSOM

Common Strategic Compensation Goals

• To reward employees’ past performance• To remain competitive in the labor market• To maintain salary equity among employees• To mesh employees’ future performance with

organizational goals• To control the compensation budget• To attract new employees• To reduce unnecessary turnover

Equity and Its Impact on Pay Rates

External Equity

Procedural Equity

Internal Equity

Individual Equity

Forms of Equity

Manoj Mathew, RSOM

Relationship between Pay Equity and Motivation

The greater the perceived disparity between my input/output ratio and the comparison person’s input/output ratio, the greater my motivation to reduce the inequity.

Manoj Mathew, RSOM

Components of the Wage Mix

WAGEWAGEMIXMIX

Labor MarketConditions

Area WageRates

Cost ofLiving

CollectiveBargaining

LegalRequirements

Compensation Strategyof the Organization

Worth ofthe Job

Employee’sRelativeWorth

Employer’sAbilityto Pay

Manoj Mathew, RSOM

Factors Affecting the Wage Mix

Manoj Mathew, RSOM

The Key Steps in Creating Compensation Plans

© 1998 by Prentice Hall

1. Job AnalysisJob Evaluation for Internal Equity

2. Job Descriptions

IdentifyCompensable Factors

3. Job Specifications

4. Rate Worth of All JobsUsing a PredeterminedSystem

5. Job Hierarchy

7. Establish Final PayPolicy

Individual Pay Assignment

6. Classify Jobs byGrade Levels

1. Check Market Value Using Benchmark or Key Jobs

Market Surveys forExternal Equity

Within-Pay-Range Positioning Criteria for Individual Equity

Criteria for Pay Positioning Within Range for Each Job• Experience• Seniority• Performance

Manoj Mathew, RSOM

Pay for Performance Systems / Incentive Systems

• Pay-for-performance systems, also called incentive systems, reward employee performance on the basis of three assumptions:– Individual employees and work teams differ in how much

they contribute to the firm—not only in what they do, but also in how well they do it.

– The firm’s overall performance depends to a large degree on the performance of individuals and groups within the firm.

– To attract, retain, and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance.

Manoj Mathew, RSOM

Pay-for-Performance Programs

Microlevel

Merit pay

Bonuses

Awards

Piece rate

Individual TeamMacrolevel

Business Unit/Plant Organization

Bonuses

Awards

Gainsharing

Bonuses

Awards

Profit sharing

Stock plans

Unit of Analysis

Manoj Mathew, RSOM

Gainsharing – is a plant wide incentive plan in which a portion of the company’s cost savings is returned to workers, usually in the form of a lump-sum bonus.

Profit sharing is a corporate wide incentive plan that uses a formula to allocate a portion of declared profits to employees.

Manoj Mathew, RSOM

Key Strategic Pay Policy Questions in the Design of Executive Long-Term Income Programs

1. How long should the time horizon be for dispensing rewards?

2. Should length of service be considered in determining the amount of the awards?

3. Should the executive be asked to share part of the costs and, therefore, increase his or her personal risk?

4. What criteria should be used to trigger the award?5. Should there be a limit on how much executives can earn or

a formula to prevent large unexpected gains?6. How often should the awards be provided?7. How easy should it be for the executive to convert the award

into cash?

Manoj Mathew, RSOM

Advantages of Individual-Based Pay-for-Performance Plans

• Performance that is rewarded is likely to be repeated.

• Individuals are goal-oriented and financial incentives can shape an individual’s goals over time.

• Assessing the performance of each employee individually helps the firm achieve individual equity.

• Individual-based plans fit in with an individualistic culture.

Manoj Mathew, RSOM

Disadvantages…

• Tying pay to goals may promote singe-mindedness.

• Many employees do not believe that pay and performance are linked.

• Individual pay plans may work against achieving quality goals.

• Individual-based programs promote inflexibility in some organizations.

Manoj Mathew, RSOM

Conditions Under Which Individual-Based Plans Are Most Likely to Succeed

• When the contributions of individual employees can be accurately isolated.

• When the job demands autonomy.• When cooperation is less critical to successful

performance or when competition is to be encouraged.

• They foster group cohesiveness.• They aid performance measurement.

Manoj Mathew, RSOM

Advantages of Team-Based Pay-for-Performance Plans

• They foster group cohesiveness.• They aid performance

measurement.

Manoj Mathew, RSOM

Disadvantages of Team-Based Pay-for-Performance Plans

• Possible lack of fit with individualistic cultural values.

• The free-riding effect.• Social pressures to limit performance.• Difficulties in identifying meaningful

groups.• Intergroup competition leading to a

decline in overall performance.

Manoj Mathew, RSOM

Report of the Committee on Fair Wages…

• Minimum wage “the wage which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the worker. For this purpose the minimum wage must provide for some measure of education, medical reimbursements and amenities”

Manoj Mathew, RSOM

Living wage

• Living wage is one which should enable the earner to provide for himself and his family not only the bare essentials of food, clothing and shelter but a measure of frugal comfort, including education for his children, protection against ill health, requirements of essential social needs and a measure of insurance against the more important misfortunes, including old age.

Manoj Mathew, RSOM

Fair wage

• It is the wage which is above the minimum wage but below the living wage..

Manoj Mathew, RSOM

The Nine Criteria for Developing a Compensation Plan

1. Internal versus External Equity 2. Fixed versus Variable Pay 3. Performance versus Membership4. Job versus Individual Pay 5. Egalitarianism versus Elitism 6. Below-Market versus Above-Market Compensation7. Monetary versus Nonmonetary Awards 8. Open versus Secret Pay 9. Centralization versus Decentralization of Pay Decisions