Job evaluation - compensation management - Manu Melwin Joy

Job EvaluationCompensation Management

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – [email protected]

Job Evaluation - IntroductionCompensation Management

Job Evaluation

• A job evaluation is a

systematic way of

determining the

value/worth of a job in

relation to other jobs in

an organization.

Job Evaluation

• It tries to make a

systematic comparison

between jobs to assess

their relative worth for the

purpose of establishing a

rational pay structure.

Job Evaluation

• Job evaluation needs to

be differentiated from

job analysis. Job analysis

is a systematic way of

gathering information

about a job.

Job Evaluation

• Every job evaluation

method requires at least

some basic job analysis in

order to provide factual

information about the

jobs concerned.

Job Evaluation

• Thus, job evaluation

begins with job analysis

and ends at that point

where the worth of a job is

ascertained for achieving

pay equity between jobs.

Job Evaluation ProcessCompensation Management

Job Evaluation Process

• The process of job evaluation

involves the following steps:

– Gaining acceptance.

– Creating job evaluation committee.

– Finding the jobs to be evaluated.

– Analyzing and preparing job

description.

– Selecting the method of evaluation.

– Classifying jobs.


• Gaining acceptance:

– Before undertaking job evaluation,

top management must explain the

aims) and uses of the programme to

the employees and unions. To

elaborate the program further, oral

presentations could be made. Letters,

booklets could be used to classify all

relevant aspects of the job evaluation

programme.


• Creating job evaluation

committee:

– It is not possible for a single

person to evaluate all the key jobs

in an organization. Usually a job

evaluation committee consisting

of experienced employees, union

representatives and HR experts is

created to set the ball rolling.


• Finding the jobs to be evaluated:

– Every job need not be evaluated.

This may be too taxing and costly.

Certain key jobs in each

department may be identified.

While picking up the jobs, care

must be taken to ensure that they

represent the type of work

performed in that department.


• Analyzing and preparing

job description:

– This requires the

preparation of a job

description and also an

analysis of job needs for

successful performance .


• Selecting the method of

evaluation:

– The most important method

of evaluating the jobs must be

identified now, keeping the

job factors as well as

organizational demands in

mind.


• Classifying jobs:

– The relative worth of various jobs in an

organisation may be found out after

arranging jobs in order of importance

using criteria such as skill requirements,

experience needed, under which

conditions job is performed, type of

responsibilities to be shouldered,

degree of supervision needed, the

amount of stress caused by the job, etc.


• Classifying jobs:

– Weights can be assigned to

each such factor. When we

finally add all the weights, the

worth of a job is determined.

The points may then be

converted into monetary

values.

Benefits of Job Evaluation Compensation Management

Benefits of Job Evaluation

• It tries to link

pay with the

requirements

of the job.


• It offers a systematic procedure

for determining the relative

worth of jobs. Jobs are ranked

on the basis of rational criteria

such as skill, education,

experience, responsibilities,

hazards, etc., and are priced

accordingly.


• An equitable wage structure is

a natural outcome of job

evaluation. An unbiased job

evaluation tends to eliminate

salary inequities by placing jobs

having similar requirements in

the same salary range.


• Employees as well as unions

participate as members of

job evaluation committees,

while determining rate

grades for different jobs.

This helps in solving wage

related grievances quickly.


• Job evaluation, when

conducted properly and

with care, helps in the

evaluation of new jobs.


• It points out possibilities of

more appropriate use of the

plant's labour force by

indicating jobs that need

more or less skilled workers

than those who are manning

these jobs currently.

Methods of Job Evaluation Compensation Management

Methods of Job Evaluation

• There are primarily

three methods of job

evaluation:

– (1) ranking.

– (2) classification.

– (3) Factor comparison

method or Point

method.

Ranking Method of Job Evaluation Compensation Management

Ranking method

• Perhaps the simplest method

of job evaluation is the

ranking method. According to

this method, jobs are

arranged from highest to

lowest, in order of their value

or merit to the organization.

obs can also be arranged

according to the relative

difficulty in performing them.

Ranking method

• The jobs are examined as a

whole rather than on the

basis of important factors in

the job; the job at the top of

the list has the highest value

and obviously the job at the

bottom of the list will have

the lowest value.

Ranking method

• Jobs are usually

ranked in each

department and then

the department

rankings are combined

to develop an

organizational ranking.

Ranking method

• The variation in payment of

salaries depends on the

variation of the nature of the

job performed by the

employees. The ranking

method is simple to

understand and practice and

it is best suited for a small

organization.

Ranking method

• Its simplicity however

works to its

disadvantage in big

organizations because

rankings are difficult

to develop in a large,

complex organization.

Ranking method

• Moreover, this kind of

ranking is highly

subjective in nature and

may offend many

employees. Therefore, a

more scientific and

fruitful way of job

evaluation is called for.

Classification/Grading Method of Job Evaluation Compensation Management

Classification/Grading Method of Job Evaluation

• According to this

method, a

predetermined

number of job groups

or job classes are

established and jobs

are assigned to these

classifications.


• This method places

groups of jobs into job

classes or job grades.

Separate classes may

include office, clerical,

managerial,

personnel, etc.


• Following is a brief description of such a classification in an office.– Class I - Executives:

Further classification under this category may be Office Manager, Deputy office manager, Office superintendent, Departmental supervisor, etc.


• Following is a brief description of such a classification in an office.– Class II - Skilled

workers: Under this category may come the Purchasing assistant, Cashier, Receipts clerk, etc.


• Following is a brief description of such a classification in an office.– Class III - Semiskilled

workers: Under this category may come Stenotypists, Machine-operators, Switchboard operator etc.


• Following is a brief description of such a classification in an office.– Class IV - Unskilled

workers: This category may comprise peons, messengers, house keeping staff, File clerks, Office boys, etc.


• The job grading method is less subjective when compared to the earlier ranking method. The system is very easy to understand and acceptable to almost all employees without hesitation.


• One strong point in

favour of the method is

that it takes into account

all the factors that a job

comprises. This system

can be effectively used

for a variety of jobs.


• The weaknesses of the Grading method are:– Even when the

requirements of different jobs differ, they may be combined into a single category, depending on the status a job carries.

– It is difficult to write all-inclusive descriptions of a grade.


• The weaknesses of the Grading method are:– The method oversimplifies

sharp differences between different jobs and different grades.

– When individual job descriptions and grade descriptions do not match well, the evaluators have the tendency to classify the job using their subjective judgements.

Factor Comparison/Point Method of Job Evaluation Compensation Management

Factor Comparison/Point Method of Job Evaluation

• This method is widely

used and is considered

to be one of the

reliable and systematic

approach for job

evaluation in mid and

large size

organisations.


• Most consulting

firms adopt this

method, which was

pioneered by Edward

Hay in 1943. Here,

jobs are expressed in

terms of key factors.


• Points are assigned to each

factor after prioritizing each

factor in order of

importance. The points are

summed up to determine

the wage rate for the job.

Jobs with similar point totals

are placed in similar pay

grades.


• The procedure involved may be explained thus:–1. Select key jobs.

Identify the factors common to all the identified jobs such as skill, effort, responsibility, etc.


• The procedure involved may be explained thus:– 2. Divide each major

factor into a number of sub factors. Each sub factor is defined and expressed clearly in the order of importance, preferably along a scale.


• The procedure involved may be explained thus:– 4. Once the worth of

a job in terms of total points is expressed, the points are converted into money values keeping in view the hourly/daily wage rates.

Merits and demerits - Method of Job Evaluation Compensation Management

Merits and demerits

• The point method is a

superior and widely

used method of

evaluating jobs. It

forces raters to look

into all key factors and

sub-factors of a job.

Merits and demerits

• Point values are assigned

to all factors in a

systematic way,

eliminating bias at every

stage. It is reliable because

raters using similar criteria

would get more or less

similar answers.

Merits and demerits

• The methodology

underlying the approach

contributes to a

minimum of rating error.

It accounts for

differences in wage rates

for various jobs on the

strength of job factors.

Merits and demerits

• Jobs may change over

time, but the rating

scales established under

the point method remain

unaffected.

Merits and demerits

• On the negative side, the

point method is complex.

Preparing a manual for

various jobs, fixing values

for key and sub-factors,

establishing wage rates for

different grades, etc., is a

time consuming process.

Limitations of Method of Job Evaluation Compensation Management

Limitations of Method of Job Evaluation

• Job evaluation is not

completely scientific.

• The most of the

techniques are

difficult to understand,

even for the

supervisors.


• The factors taken by the

programme are not

exhaustive.

• There may be wide

fluctuations in compensable

factors in view of changes in

technology, values and

aspirations of employers, etc.


• Employees, trade union

leaders, management

and the programme

operators may assign

different weight to

different factors, thus

creating grounds for

dispute.

Computer Aided Job Evaluation Compensation Management

Computer Aided Job Evaluation

• Job evaluation has come

a long way. Today,

computer aided job

evaluation is the state of

art.


• The advantages of computer

aided job evaluation (CAJE)

include simplification of job

analysis, ability to keep job

description up to date,

increased objectivity of the

evaluation, less time spend in

committee meeting etc.


• An additional advantage

of the use of a

computerized system is

the increased reliability

that can be obtained.


• Computer aided job

evaluation features

computerized checking of

questionnaire answers and

automated output of both

job evaluation and relevant

compensation reports.


• CAJE is not an expert

system. It makes no

decisions. It records,

processes and calculates

data relevant to job

evaluation.


• CAJE simplifies and

streamlines the routine work

in job evaluation. Even though

CAJE allow us to capture and

use information about job in

new ways, they are only as

good as their designers.


• There are three main reasons

why expert system technology

should be used for a

Computerized job evaluation

system.

– Decision of this kind require

expert input and compensation

expertise is scarce.


• There are three main reasons why

expert system technology should

be used for a Computerized job

evaluation system.

– A high degree of uncertainty is

present in job evaluation

because job tasks, compensation

policies, laws and regulations are

constantly changing.


• There are three main reasons why

expert system technology should

be used for a Computerized job

evaluation system.

– Conventional programming

techniques cannot adequately

handle job evaluation because of

programming difficulty and

development costs.

Pay StructuresCompensation Management

Pay Structures

• Once job analysis has

been done organizations

need to decide upon the

pay structures.

Pay Structures

• Pay structure refers to

the process of setting up

the pay for a job in an

organization.

Pay Structures

• The process deals with

internal and external

analysis to estimate the

compensation package

for a job profile.

Pay Structures

• Internal equity, External equity

and Individual equity are the

most popular pay structures.

Job description provides the in

depth knowledge about the

job profile and its worth.

Internal EquityPay Structures

Internal Equity

• The internal equity

method undertakes the

job position in the

organizational hierarchy.

Internal Equity

• The process aims at balancing

the compensation provided to

a job profile in comparison to

the compensation provided to

its senior and junior level in the

hierarchy.

Internal Equity

• “Internal equity exists when

employees in an organization

perceive that they are being

rewarded fairly according to

the relative value of their jobs

within an organization”.

Internal Equity

• Another way of stating this is to say

that a person’s perception of their

responsibilities, rewards and work

conditions is seen as fair or

equitable when compared with

those of other employees in similar

positions in the same organization.

Internal Equity

• An internal equity study can

determine if there is pay

equity between like-

positions and if all roles in

the organization are

governed by the same

compensation guidelines.

Internal Equity

• Usually each role is assigned

a pay range with

corresponding criteria that

outlines how to determine

where an employee should

be placed in the range.

Internal Equity

• The fairness is ensured

using job ranking, job

classification, level of

management, level of

status and factor

comparison.

Internal Equity

Example

• An agency may employ a number of social workers to work with similar client groups. By reviewing the salary of each employee and comparing it with others in the same role, you will be able to determine if internal equity exists.

Example

• This does not mean that all employees are paid the same; it means that they are paid fairly in relation to other staff in the same role. Differences in salary may be based on education, experience, years of service, or responsibility level.

External EquityPay Structures

External Equity

• “External equity exists when

employees in an

organization perceive that

they are being rewarded

fairly in relation to those

who perform similar jobs in

other organizations”.

External Equity

• External equity exists when

an organization's pay rates

are at least equal to the

average rates in the

organization’s market or

sector.

External Equity

• Employers want to ensure that they are able to pay what is necessary to find, keep and motivate an adequate number of qualified employees. Creating a compensation structure that starts with competitive base pay is critical.

External Equity

• Employees also compare

their roles and pay to roles

and pay in other

organizations. Unfortunately

they do not always compare

with similar types of

organizations or even in the

same sector.

External Equity

• Generally, employees consider much more than base pay in determining external equity. For some more emphasis may be placed on employee benefits, job security, physical work environment or the opportunity for advancement in deciding if external equity exists.

External Equity

• The use of salary surveys is

critical in your ability to

determine if your

compensation and benefits

are comparable to similar

roles in other organizations.

External Equity

• It is important to ensure that

the key responsibilities and

goals of the roles being

compared are similar; as is

the sector the organization is

aligned with.

External Equity

Example

• A number of nonprofit organizations have tried to address quality of life concerns by only requiring full-time employees to work a 35-hour week, while many other organizations require their employees to work 37.5 or even 40 hours per week.

Example

• It is important that if the

base pay for a specific role

from group one was to be

compared to the same role

in group two, that the

difference in hours is

understood and accounted

for.

Example

• While the difference in hours may seem small, if a person who worked a 37.5 hour week made $40,000/year, they would be making $20.51/hour. If the person working the 35-hour week were also being paid $20.51/hour, their annual salary would only be $37,328 per year. This could seem inequitable unless the difference in hours was clear.

Salary SurveysCompensation Management

Salary Surveys

• Surveys collecting

information about employee

compensation, including

salary and benefits, are

commonly called salary

surveys.

Salary Surveys

• Salary surveys are conducted

with numerous employers to

determine pay levels for

specific job categories and

are generally conducted

either by region, sector or

job classification for the

purposes of comparability.

Salary Surveys

• In conjunction with other

tools, salary surveys can

provide useful information

to attract, support and retain

employees within the

context of an overall HR and

organizational plan.

Salary Surveys

• When designed and used

properly, salary surveys can

provide useful benchmarking

information for comparing

salaries and benefits.

Salary Surveys• A salary survey is a standard

method of finding out what other organizations are paying for specific jobs or job classes. Large organizations in particular, routinely conduct compensation surveys to determine prevailing pay rates and benefits.

Salary Surveys• These surveys not only determine

the low, high and average salaries for a given position, but also provide a sense of what other organizations are paying. Organizations may purchase results of surveys conducted by a variety of organizations proficient in the collection, analysis and distribution of salary data, or they may choose to conduct their own salary survey.

Assessing Salary SurveysCompensation Management

Salary Surveys

• A key to successfully using

the data contained in a

salary survey is to

understand the assumptions

and criteria used to collect

the information.

Salary Surveys

• Finding surveys that clearly

report the basis for

collection and dissemination

of information will help you

to ensure that you are

referencing a survey that is

relevant for your

organization.

Salary Surveys• Review job descriptions or

position profiles in the survey report– It is important to look at job

duties and responsibilities not just job title when deciding if salary survey information is comparable. To be comparable the jobs must have a similar level of responsibility and range of duties.

Salary Surveys• Note province and region.

– Appropriate salary comparisons will come from agencies with a similar geographic focus: local, regional, provincial or national. At the local level, the best salary comparisons will come from other organizations in the same city or town. Good salary comparison may come from a different city or town with similar labor market characteristics and a similar cost of living.

Salary Surveys• Note operating budgets of

respondent organizations– As a general rule larger

operating budgets mean higher salaries. Comparable salaries come from organizations of a comparable size. Size is usually estimated by using the operating budget or looking at the number of paid full-time staff.

Salary Surveys• Note the types and descriptions

of respondent organizations– Are the functions, services offered,

clientele, and sources of funding of the organizations in the salary survey comparable to your organization? For example, an organization providing childcare services through provincial funding may have very different salaries than an organization providing parent/child resources through its own fundraising.

Salary Surveys• Note the education level and

(full/part-time/union/contract) status of respondents

– The level of education

required for a job and the type

of employment arrangement

can have an impact on

salaries.

Salary Surveys• Note the year of data collection

and the date of the report

– Labor market forces can result

in significant changes in

salaries in a short period of

time. More recent data will be

more useful in establishing

current salaries.

Salary Surveys• Note if the survey is a one-time

event or if it's repeated

– Surveys that have been

repeated provide an added

advantage of showing trends

in salaries over the years of

the survey.

Evaluate its validity• It’s important to ensure that

the salary survey was conducted in an objective, valid and reliable manner. What are the sampling frame, sample size and response rate? What is the margin of error? Is it reported?

Evaluate its validity• For information to be valid it

has to come from a large enough sample size. For example, if you collected just three salaries for the same position and one salary is high, one is low, and one is in the middle, you wouldn't be able to conclude much because your sample is too small to provide valid and useful information.

Evaluate its validity

• You also want to be sure that

the information is reliable.

Reliability means that the

survey gives consistent results.

You should therefore carefully

consider how the information

is gathered and decide if it

makes sense to you.

Evaluate its validity

• For example, if the survey

instrument is included in the

report, assess if it would be

easy for you to give accurate

answers to the questions.

Rate its usability • A good salary survey will

define terms and provide the user with enough information to help him or her easily understand the data. Technical terms should be explained or defined and the report should be comprehensible to non-specialists.

Look at all of the numbers• The actual salary paid to an

individual will be influenced in part by the person's years of experience and qualifications. Therefore, the salary range for a position provides more useful information than the actual salary an individual is being paid.

Look at all of the numbers

• Other statistical information

such as median - the value in

the middle when all the

values are arranged from

lowest to highest - will also

help make sense of the data.

Consider the total compensation package

• Having information on the total compensation package - retirement plan (pension or RRSP), bonuses, benefits and salary - allows for better comparisons. Without this information you might make wrong assumptions about salary level and not have the full picture.

Consider the total compensation package

• For example, in a situation where no benefits are provided, many people (particularly those in higher positions) will negotiate for higher salaries. Without seeing the whole compensation package, you might not understand that the high salary compensates for no benefits.

Education

Job evaluation - compensation management - Manu Melwin Joy