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COMPENSATING EMPLOYEES
SEMESTER RECAP
• Context– SHRM– Legal environment– International
• Procuring– Planning– Recruiting– Selection
• Utilizing & Maximizing– Training– Appraisal–
Compensation Defined
• The package of quantifiable rewards an employee receives for his/her labors.
• Three components:– Base compensation– Pay incentives– Indirect compensation
TODAY’S TOPIC
• Compensation
EQUITY THEORY
• People compare their outcome/input ratio to that of others
• Conclusions– Ratios are equal
(equity exists)
– Ratios are unequal (inequity exists)
RESPONSES TO EQUITY/INEQUITY
• Equity: Maintenance
RESPONSES TO EQUITY/INEQUITY
• Equity: Maintenance
• Inequity:– Change Inputs– Change Outcomes– Quit
Traditional Approach to Compensation
• Objective of traditional approaches to compensation is to achieve both internal & external equity
• Internal equity is accomplished through job evaluation– Systematic process of assessing the value of each job
in relation to other jobs in the organization– Results in a hierarchy of jobs ranked in order of their
relative worth
• External equity through market analysis
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Job Rating Survey
Conduct
Create Job Survey
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
Three Job Rating Methods
Method Procedure Advantages Disadvantages
Ranking (paired comparison) Rank-order whole Simplest method; -Subjective
jobs for worth or inexpensive, easily -not very reliable compare pairs of understandable. -doesn’t measure
jobs. differences between jobs.
Three Job Rating Methods
Method Procedure Advantages Disadvantages
Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of
jobs for worth or inexpensive, easily - not very reliable
compare pairs of understandable. doesn’t measure
jobs. differences between jobs.
Classification Compare job de- Simple, easy to Ambiguous, overlapping
scriptions to grade use for large num- grade descriptions
descriptions. ber of jobs; one
rating scale.
Grade Description Pay
5 •Cook existing menu items following recipe
•Supervise kitchen help
•Prepare payroll
•Ensure quality of food and adherence to standards
$14.00-$19.00
3 •Greet customers and organize tables
•Take orders from customers
•Bring food to tables
•Assist with food preparation
•Help with delivery
$10.00-$12.00
1 •Use dishwashing equipment
•Use chemicals to clean premises
•Use vacuum cleaner, mop, waxer
•Clean and set up tables
•Perform routine kitchen chores
$8.25-$9.00
Job Classification for Restaurant
Grade Jobs # Positions
5 •Assistant Manager
•Lead Cook
•Office Manager
•2
•2
•1
3 •Server
•Hostess
•Cashier
•45
•4
•4
1 •Kitchen Helper
•Dishwasher
•Janitor
•Busser
•Security Guard
•2
•3
•2
•6
•2
Job Classification for Restaurant
Three Job Rating Methods
Method Procedure Advantages Disadvantages
Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of
jobs for worth of inexpensive, easily - not very reliable
compare pairs of understandable. doesn’t measure
jobs. differences between jobs.
Classification Compare job de- Simple, easy to Ambiguous, overlapping
scriptions to grade use for large num- grade descriptions
descriptions. ber of jobs; one
rating scale.
Three Job Rating MethodsMethod Procedure Advantages DisadvantagesRanking (paired comparison) Rank-order whole Simplest method; Only general rating of
jobs for worth of inexpensive, easily - not very reliable
compare pairs of understandable. doesn’t measure
jobs. differences between jobs.
Classification Compare job de- Simple, easy to Ambiguous, overlapping
scriptions to grade use for large num- grade descriptions
descriptions. ber of jobs; one
rating scale.
Point factor Reduce general More specific and Time-consuming processfactors to sub- larger number of more difficult to under-
factors: give each factors; off-the- stand; greater opportun-
factor weights and shelf plans available ity to disagree.
points; use points more precise
to determine measurements.
grades.
Point Factor Method
1 Identify specific characteristics (factors) of jobs that will be measured
Major Factors of the Hay PlanKnow-How Problem Solving AccountabilitySum total of every kind Original, “self-starting” thinking Answerability for action
kind of skill, however required by the job for analyzing, and for the consequen-
acquired, required for evaluating, creating, reasoning. ces of the action; the
acceptable job perfor- Problem solving has two sub- measured effect of the
mance. Know-how hasfactors: the job. Accountability
three subfactors: has three subfactors:
(1) Practical procedures, (1) The thinking environment (1) Freedom to act
specialized techni- in which problems are (personal control).
ques. solved.
(2) Ability to integrate (2) The thinking challenge of (2) The impact of the
and harmonize the the problem. job on end results
diversified functions (direct, indirect).
of management.
(3) Interpersonal skills. (3) Magnitude - general
dollar size of areas
most affected by job.
Point Factor Method
1 Identify specific characteristics (factors) of jobs that will be measured
2 Weigh the factors3 Score each job on each factor using factor
scales and degree statementsStatement of the degree to which the factor is
present in the job Scoring system
Degree Statements for the Factor “Physical Requirements””
Factor: Physical Requirements
This factor appraises the physical effort required by a job, including its intensity and degree of continuity. Analysis of this factor may be incorrect unless a sufficiently broad view of the work is considered.
Degree
1. Light work involving a minimum of physical effort.
Requires only intermittent sitting, standing, and walking.
2. Repetitive work of a mechanical nature. Small amount of lifting and carrying. Occasional difficult working positions. Almost continuous
sitting or considerable moving around.
3. Continuous standing or walking, or difficult working positions. Working with average weight or heavy materials and supplies. Fast manipulative
skill in almost continuous use of machine or office equipment on paced work.
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Job Rating Survey
Conduct
Create Job Survey
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Job Rating Survey
Conduct
Create Job Survey
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
Market Pricing
• Identify benchmark positions– What type?
• Select information sources– Public– Consulting firm– Self-administered survey
• Choose comparators– What are your options?– How do you choose?
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Job Rating Survey
Conduct
Create Job Survey
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
Develop Pay Structure
• Pay level relative to market• Performance vs. membership?
• Single rate
• Time progression
• Time progression and merit
• Productivity
• Salary Range
• Job vs. Individual • Pay Mix
– Fixed vs. variable
Emerging Approaches to Compensation
• Broadbanding– replaces traditional narrow salary ranges to fewer wider bands
– +consistent w/flatter organizations, empowerment, teamwork
– -cost control is difficult
– most appropriate for higher level positions
• Team based pay– Advantages?
– Disadvantages?
• Skill-based pay
Skill-based Pay
• Advantages?– motivation, flexibility, reduced absenteeism and turnover costs
(can cover), flatter
• Disadvantages?– Labor costs; Rusty skills, loss of labor specialization
• When?– Expertise and innovation are sources of CA
– Technology changes frequently
– Upward mobility is limited
– Developmental opportunities are present