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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
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