COMPENSATION Third Canadian Edition Milkovich, Newman, Cole

© 2010 McGraw Hill Ryerson

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COMPENSATIONThird Canadian Edition

Milkovich, Newman, Cole


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Many Ways to Create Internal Structure

Business and Work-Business and Work-Related Internal StructureRelated Internal Structure

Person-basedJob-based

Job analysisJob descriptions

Job evaluation: classes or compensable factors

Factor degrees and weighting

Job-based structure

PURPOSEPURPOSE

Collect, summarize work information

Determine what to value

Assess value

Translate into structure

(Chapter 5)(Chapter 5)



Skill Skill (Chapter 6)(Chapter 6)

CompetenciesCompetencies(Chapter 6)(Chapter 6)



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Job Evaluation

process of systematically determining the relative worth of jobs to create a job structure for the organization

a process that helps gain acceptance of pay differences between jobs

job evaluation based on job content and internal job value


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Determining an Internally Aligned Job Structure

Job analysis Job description Job evaluation Job structure

Some Major Decisions in Job Evaluation• Establish purpose of evaluation• Decide whether to use single or multiple plans• Choose among alternative approaches• Obtain involvement of relevant stakeholders• Evaluate plan’s usefulness


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Major Decisions

Establish purposeSupports organization strategySupports work flowFair to employeesMotivates behavior toward

organization objectivesSingle vs. multiple plansBenchmark jobsChoose between methods


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Job Evaluation MethodsJob Ranking

Raters examine job description and arrange jobs according to their value to the company

Job ClassificationClasses or grades are defined to describe a

group of jobsPoint Method

Numerical values are assigned to specific job components; sum of values provides quantitative assessment of the job’s worth


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Comparison of Job Evaluation Methods

Advantage Disadvantage

Ranking Fast, simple, easy to explain.

Cumbersome as number of jobs increases. Basis for comparisons is not called out.

Classification Can group a wide range of work together in one system.

Descriptions may leave too much room for manipulation.

Point Compensable factors give basis for comparisons; communicate what is valued.

Can become bureaucratic and rule-bound.


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The Point Plan Process (1 of 2)

Step One: Conduct Job Analysis A representative sample of benchmark jobs The content of these jobs is basis for

compensable factorsStep Two: Determine Compensable Factors Based on the work performed (what is done) Based on strategy and values of the organization

(what is valued) Acceptable to those affected by resulting pay

structure (what is acceptable)


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The Point Plan Process (2 of 2)

Step Three: Scale the Factors Use examples to anchorStep Four: Weight the Factors Can reflect judgment of organization leaders,

committee Can reflect a negotiated structure Can reflect a market-based structureStep Five: Communicate the Plan Step Six: Apply to Non-benchmark Jobs


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Characteristics of Benchmark Jobs

Contents are well-known andrelatively stable over time

Job is common across severaldifferent employers


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Compensable Factors

characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives

Useful factors are:Based on the strategy and values of the

organizationBased on the work performedAcceptable to the stakeholders affected by

the resulting pay structure


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Categories of Factors

break down the factors into three major categories:

1. Universal Factors2. Sub-Factors3. Degrees or Levels


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Universal Compensable Factors

SkillEffortResponsibilityWorking Conditions


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Skill: the experience, training, ability, and education required to perform a job under consideration


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Sub-Factors: Skill

Educational levels Years of experience required Technical knowledge Specialized knowledge Specialized training Interpersonal skills


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Effort: the measurement of the physical or mental exertion needed for performance of a job


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Sub-Factors: Effort

Diversity of tasksComplexity of tasksCreativity of thinkingAnalytical problem solvingPhysical application of skillsDegree of assistance available


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Responsibility: the extent to which an employer depends on the employee to perform the job as expected, with emphasis on the importance of job obligation


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Sub-Factors: Responsibility

Decision-making authorityScope of the organization under controlScope of the organization impactedDegree of integration of work with

others Impact of failure or risk of jobAbility to perform tasks without

supervision


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Working Conditions: difficult or unhealthy aspects of the conditions in which the work is done


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Sub-Factors: Working Conditions

Hazards: Exposure to dangerous chemicals Stress

Physical surroundings of the jobCramped quartersOutdoor location


Degrees/Levels of Sub-factors

Description of several different degrees or levels of a sub-factor in jobs

A different number of points is associated with each degree/level

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Points for Different Degrees of One Sub-Factor

Factor: Problem SolvingSub-Factor: Scope for Initiative and JudgmentDegree PointsA some degree of judgment and initiative required 80-

188

B moderate degree of judgment and initiative required 133-295

C significant degree of judgment and initiative required 186-348

D high degree of judgment and initiative required 293-400


Factor Weights

Weighting assigned to each factor to reflect differences in importance attached to each factor by the employer; for example:Skill 40%Effort 30%Responsibility 20%Working Conditions 10%

100%

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Overview of the Point System

Factor Weight 1 2 3 4 5Skill

Education 20% 4 8 12 16 20 Experience 20% 4 8 12 16 20

Effort Physical10% 2 4 6 8 10 Mental 10% 2 4 6 8 10

Responsibility For safety 15% 3 6 9 12 15 For budget 15% 3 6 9 12 15

Working Conditions Hazards5% 1 2 3 4 5 Weather5% 1 2 3 4 5

Degree of FactorDegree of Factor


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Who Should Be Involved?

The Design Process Matters Attention to fairness can help achieve

employee and management commitment, trust, and acceptance of the results

Appeals / Review Procedures Procedural fairness

Political Influence Minimize susceptibility to political influences


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Resulting Internal Structures:Job, Skill, and Competency Based

Supervisors

Project Leaders

Managers

Division GeneralManagers

Vice Presidents

Job EvaluationJob Evaluation

Technician Machinist ICoremaker Clerk / Messenger

Scientist

Associate Scientist

Senior AssociateScientist

Head / ChiefScientist

Drill Press OperatorRough Grinder

Assembler II

Materials HandlerInspector II

Packer

Assembler IInspector I I

Word Processor

AdministrativeSecretary

Principal Adminis-trative Secretary

AdministrativeAssistant

Job EvaluationJob EvaluationCompetency- BasedCompetency- Based Skill–BasedSkill–Based

Manufacturing Manufacturing GroupGroup

Administrative Administrative GroupGroup

Technical Technical GroupGroup

Managerial Managerial GroupGroup

High Value (points)

LowValue (points)


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Conclusiondifferences in the rates paid for different jobs

and skills matter: affects ability of managers to achieve business objectives; influences employees’ perceptions of fair treatment

job evaluation has evolved into many different forms and methods; consequently, wide variations exist in its use and how it is perceived

no matter how job evaluation is designed, its ultimate use is to help design and manage work-related, business-focused, and agreed-upon pay structure

Documents

COMPENSATION Third Canadian Edition Milkovich, Newman, Cole