Wage and Salary

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MB 584

Strategic Compensation and Employee Benefits

(Week 1)

Lecturer: MOSES T. MACALINAOProfessor

[email protected]

4/6/2010 1M.T.Macalinao,SLSU-TNU

WAGE AND SALARY ADMINISTRATION

Expected Learning Activities:

1. Learn the theories

2. Apply the theories

3. Create a Job Evaluation Plan

4. Create a Performance Rating Form


Four kinds of employee compensation:

1. Salary or wage is the basic compensation.

2. Incentive pay is designed to encourage the employee to render extra effort over normal production.

3. Allowances are given to meet employee needs during temporary situations.

4. Benefits are rewards for belonging to an organization.


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IMPORTANCE OF PAY

1. He works to earn a living. His pay provides him with a strong incentive to do his job well.

2. The employee’s rate of pay often p y p yindicates his status in the company.

3. His wages determine his standard of living and the comforts that he and his family can have.


IMPORTANCE OF PAY

4. The wage determines his standing in the community. It also determines what he can contribute to community development and social welfare.

5. His pay determines his purchasing power. With higher wages he can acquire moreWith higher wages he can acquire more goods and services for his family.

6. High purchasing power for the workers stimulates the production of more goods and increases the need for more services. Hence, higher pay may lead to greater production.


Definition

• Salary refers to the compensation covering weekly, monthly, or yearly period for services rendered. A salary is based on a stated minimum number of days per week or hours per day or week. The term salary applies to the pay of higher levels of personnel such as white‐collar employees or persons in positions of responsibility and authority in the firmauthority in the firm.

• Wages refers to compensation for manual labor‐skilled or unskilled – for work done by so‐called “blue‐collar” workers. Wages are measured by the hour, day, or week, unlike salaries which are paid at stated intervals, such as every week or every fifteen days. Wages also refers to payment for a specified volume or production, i.e., on piece rate.


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Definition

• A merit increase is a raise in the salary or wage of an employee on the basis of performance or merit. It is granted after a review of his performance and service in accordance with company policy or the firm’s performance appraisal program.

• A union rate refers to an hourly or daily rate of pay, y y p yusually a single rate for an occupation or trade, set up by an agreement reached through collective bargaining. It is generally the base rate that can be paid to qualified workers on the job. There is usually no rule barring the employer from paying higher rates.


BASIC DETERMINANTS OF SALARY1. The relationship between jobs and wage

rates.

2. The recognition of individual differences.

3. The level of pay existing in the community.

4 The company’s ability to pay4. The company s ability to pay.

5. Labor costs.

6. Cost of living.

7. Collective bargaining.

8. Minimum Wage Fixing


BASIC DETERMINANTS OF SALARY

1. The relationship between jobs and wage rates.

Salaries paid for jobs vary because of differences among jobs and in the way people do their work. The relationship between jobs and wages rates involves three considerations:and wages rates involves three considerations:

a. The qualifications required for the job.

b. Worker supply and demand.

c. The duties and responsibilities of the job.


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2. The recognition of individual differences. Individuals doing the same job differ in ability, experience, skill, and efficiency. Some individuals are more capable of handling mental tasks than others. Some are more efficient in general than their co‐workers. These differences should be recognized through a merit rating systems and provided for in a salary structure embodying a pay scale for each job. In this way an employee who starts at the base rate for the job can aspire for pay increases as he gains greater proficiency and experience.



3. The level of pay existing in the community.

Workers with high qualifications are relatively few. Efficient workers are in demand. One way to attract and retain

t t d hi hl lifi d k i tcompetent and highly qualified workers is to maintain salaries at a level reasonably equal to the prevailing rates for similar jobs in the industry or with other firms in the community. This is best accomplished through wage surveys.



4. The company’s ability to pay.

Employers generally pay their employees according to their financial ability. Firms that are marginal cannot pay as much wages as companies with bigger earning power, without endangering their continued existence.


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5. Labor costs.

Certain types of industry or business have greater earning power than others. In a highly competitive industry, a company

h b l d l fwith a bigger capital and greater volume of production and sales is in a better position to pay higher wages.



6. Cost of living.

The purchasing power of the money that the employee receives from his employer determines the amount of essential needs for decent living that the employee could provide himself and his family.


BASIC DETERMINANTS OF SALARY7. Collective bargaining.

In unionized firms, wages and salaries are largely determined through collective bargaining negotiations. The bargaining positions are based on prevailing wage rate, the cost of living and other relevant factors. The salary rates that are finally agreed upon is often the result of the skill which the parties are able to effectively employ in their bargaining strategies.


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BASIC DETERMINANTS OF SALARY1. Minimum Wage Fixing.

The Labor Code in prescribing the criteria for establishing the minimum wage, state that said wage must be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and generally well‐being of the employees within the framework of the national economic and social development program.


DIFFICULTIES IN WAGE ADMINISTRATION

1. Difficulty in determining what is an adequate and fair pay for a particular job.

2. Desire of workers to earn more money and of management to operate at greater profit.

3. Dissatisfaction of employees owing to inequality in pay.

4. Lack of measuring device which can establish to the satisfaction of all concerned what a man’s services are worth in pesos.

5. Individual and group pressure for higher pay.

6. Lack of sound pay policy.

7. Lack of communication on the salary program.



1. Difficulty in determining what is an adequate and fair pay for a particular job.

A salary can be said to be fair when it is well related to the salaries paid for other jobs in the company and to rates paid for similar work incompany and to rates paid for similar work in the community. While job evaluation has satisfactorily met many ticklish problems involving wages for some firms, it has not yet gained wide acceptance by both management and labor.


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2. Desire of workers to earn more money and of management to operate at greater profit.

Employers want to pay as low a wage as possible, in order to lower the cost of production and earn more profit while workers continuously agitate for higher wages and shorter hours of work On one hand there iswages and shorter hours of work. On one hand, there is individual and group pressure for higher wages to improve the worker’s living standard. On the other, there is management’s concern to keep its costs as low as possible so that its good and services can be offered at prices within and reach of consumers and still allow a reasonable return for its investment.



3. Dissatisfaction of employees owing to inequality in pay.

One of the main roots of dissatisfaction among employees is the payment of salaries not commensurate with the responsibilities of their job. Workers and management

th i i l f “ l f l k ”may agree on the principle of “equal pay for equal work,” but there is bound to be disagreement in its implementation. The most common problem is how to determine what jobs are “equal” and how the various factors in evaluating jobs should be rated to arrive at an equitable scale.



4. Lack of measuring device which can establish to the satisfaction of all concerned what a man’s services are worth (Pesos/Vietnam Dong).The worth of a man’s services in terms of pesos and centavos is hard to determine. Individuals differ in the way they evaluate the worth of their services. Some consider such factors as their social standing in theconsider such factors as their social standing in the community, family background, personality, and educational attainment. Job evaluation and merit rating have been found so far to be the best methods of meeting this problem but they still need a great deal of selling before they are fully accepted by both management and the workers.


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5. Individual and group pressure for higher pay.

The worth of a man’s services in terms of pesos and centavos is hard to determine. Individuals differ in the way they evaluate the worth of their services. Some consider such factors as their social standing in the community family background personality andcommunity, family background, personality, and educational attainment. Job evaluation and merit rating have been found so far to be the best methods of meeting this problem but they still need a great deal of selling before they are fully accepted by both management and the workers.



6. Lack of sound pay policy.

When a firm has no written policy on wages, and salaries, inequalities in pay occur, resulting in employees grievances, frequent turnover and low employee morale Without a soundand low employee morale. Without a sound pay policy, the supervisors meet difficulties in wage and salary administration, since they have no clear guide in determining the wage levels for each job, the pay raises, and the promotions.



7. Lack of communication on the salary program.

If each employee fully understands the policies and procedures in determining his salary, he will better appreciate the salary program of thebetter appreciate the salary program of the company. Communicating the company’s salary program to the employee will minimize complaints concerning salaries. Such understanding is important for his morale.


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CAUSES OF WAGE INEQUITIES

A salary is said to be equitable when it has a sound relationship with the salaries paid for other jobs in the company. Such relationship is based on the complexity of the job, the responsibilities involved and the rates being paid in the community for similar work.

Definitions

An inequitable salary is one which is either higher or lower than the accepted range of pay for the job within the firm. Inequities in pay, real or imagined, cause employee dissatisfaction, low employee morale, and create friction not only but also between management and the employees, and even within the ranks of management itself.



1. Pressure of aggressive employees or supervisors.

2. Favoritism among supervisors.

3. Seniority.

4. The feeling of being important.

5. Union pressure.

6. Faulty classification of jobs.

7. Absence of job evaluation.

8. Compensation plan not kept up‐to‐date.



1. Pressure of aggressive employees or supervisors.

Some employees and supervisors use pressure on their superiors for higher pay or for more frequent salary raises regardless of merit. If such pressure is not resisted, there is bound to be an increase in the payroll of the firm beyond the budget or thethe payroll of the firm beyond the budget or the company’s available funds. This also results in glaring injustices, since the increases that should go to deserving workers go to those who exert the harder pressure instead.


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2. Favoritism among supervisors.

A supervisor who is partial to some of his workers is likely to grant wage increases to the latter irrespective of merit to the prejudice of the more d i Th i it bl lt ideserving ones. The inevitably results in pay inequities.



3. Seniority.

Some companies grant extra pay to their employees for the length of the service they have rendered to the firm. Since this extra pay bears no l ti hi t th “ i f th j b ” th tirelationship to the “price of the job,” the practice

results in putting the wage out of line with the established rates.



4. The feeling of being important.

Some zealous department heads and supervisors sometimes erroneously put their respective departments and functions as the most important in the company. Hence, they feel that their employees should receive higher pay than those inemployees should receive higher pay than those in the other departments and do all they can to achieve this. A sound company‐wide pay policy however should not permit such inequalities in pay for similar jobs in different departments.


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5. Faulty classification of jobs.

By applying pressure on management, union leaders sometimes obtain underserved wage raises or undue upgrading of jobs for themselves and their favorites Unless resisted this practiceand their favorites. Unless resisted, this practice results in the payment of some wages above the real worth of the jobs involved. Since the other workers are not similar favored, wage inequities will inevitably follow.



6. Faulty classification of jobs.Inconsistencies in the classification and assignments of jobs within and between organizational units are other causes of wage inequities. The errors of inexperienced job classifiers or job evaluators result wage administration problems. In describing their jobs, some employees make them appear more difficult than they really are. Other employees who aremore difficult than they really are. Other employees who are less articulate, fail to describe their jobs with enough clarity to give a true picture of their worth. On this basis, the jobs in the company cannot be properly classified. Such deficiencies can be avoided by employing competent job analysts and job evaluators.



7. Absence of job evaluation.

In the absence of a job evaluation system, the company find no guide in the classification and pricing of jobs. With no rules to go by, pay is often d t i d l th b i fdetermined only on the basis of mere guess or opinion, thereby causing pay inequities even among jobs that are clearly similar.


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8. Compensation plan not kept up‐to‐date.

Deviations in pay of like jobs are likely to happen when a compensation plan is not kept up‐to‐date. To be realistic, a compensation plan must be kept up‐to‐date. Employee compensation is a dynamic activity; therefore, it must be periodically reviewed. Flat‐ratetherefore, it must be periodically reviewed. Flat rate salary increases due to collective bargaining negotiations or the setting of minimum wages by the government may also disturb the relationship of salaries to job difficulties and responsibilities.


INTER-COMPANY INEQUALITIES IN PAY

1. Differences in the nature of the business or industry, company size, and geographical location.

2 Collective bargaining2. Collective bargaining.

3. Company ability to pay.

4. Management’s generosity.



Inequalities in pay rates among different companies further complicate the difficulties involved in wage administration. Employees often compare their pay with that received by other employees in the same firm and also with what is paid by other firms for similar work. When an employee learns that his pay is lower than h h fi f h i il j b hwhat another firm pays for the same or a similar job, he

becomes dissatisfied with his pay and gets demoralized. He starts thinking of transferring to a better‐paying firm and spends much time looking for another job to the neglect of his present work.


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1. Differences in the nature of the business or industry, company size, and geographical location.

Some types of industries have greater earning power than others. Many banking and insurance firms, the more stable industries today can afford to give their managerialindustries today, can afford to give their managerial personnel higher pay. Skilled technical workers are generally among the highest paid workers today. Since generally, large well‐established firms make larger profits than small firms, the former can afford to give their employees higher pay.



2. Collective bargaining.

In a collective bargaining negotiation, the employee’s pay rates are often determined by the p y p y yunion’s strength and bargaining power. Hence a company with a strong union generally pays higher wages than one that is either non‐unionized or has a weaker or less aggressive labor union in the same industry.



3. Company ability to pay.

A firm can often pay good wages because of management’s ability to run the businessmanagement s ability to run the business efficiently through improved or better methods, the installation of better equipment or machine, well‐selected and well‐trained personnel, and the managerial ability of the people running the enterprise.


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4. Management’s generosity.Some companies are more generous in granting wage and benefits to their employees than others because of their ability to run the business profitably. Such firms are generally owned orprofitably. Such firms are generally owned or managed by employers who believe that they are mere stewards of the enterprise and that the firm exists for the service of their fellowmen. Other firms are managed by men who believe that a contented worker is a productive worker.


OTHER PROBLEMS IN SALARY ADMINISTRATION

“Equal pay for equal work” means that the same rate of compensation should be paid to all employees in a company who do similar work regardless of age, sex, or other personal circumstances of the individual employee. The principle of equal pay for work of equal value within a firm’s wage structure is a sound wage policy. The law upholds this i i l d id th t th l h ld lprinciple and provides that the employer should pay equal

remuneration for work or equal value for both men and women employees. This is based on the principle that the job should be paid the standard rate of pay in accordance with its classification and salary range and not because of the person on the job.



The principles of a “a fair day’s pay for a fair day’s pay for a fair day’s work” is an old rule governing the relations between labor and capital. It means that if no work is performed by an employee, he receives no wage or pay. It also means that from each employee the company has a right to expect” an hour of work for each hour of pay.” Since employers are willing to pay fair wages, workers must give a fair day’s accomplishment in return. What is “fair” is not subject to any quantitative measurement but is the willing acceptance of obligation by both employer and worker.


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• A flexible time is a working hour arrangement in which the working hours during the day may vary among employees but the total number of hours worked within the period is not less than the number of hours for which straight time wages are paid. Under this arrangement, an employee may report to office or leave the office at any time provided he completes the total number of working hours required for the day and provided f th th t h i i th ffi d i th “ ti i d” Afurther that he is in the office during the “core time period”. A “core time period” is a specific office time in each given work day where all employees should be in the office to allow for proper coordination. This is usually between 9:00 A.M. to 12:00 noon and from 1:00 P.M. to 3:00 P.M. The optional time is allowed in the arrival time in the morning and in the dismissal time in the afternoon but all the employees must complete the required total number of hours of work for the day.


PROGRAM FOR WAGE AND SALARY ADMINISTRATION

A salary program that is well‐conceived, basically simple, well‐administered and controlled, and clearly explained to the employees is important in establishing good employee‐employer relationsestablishing good employee employer relations. Without such a program, the determination of pay rates will be hit‐and‐miss affair. Decisions are bound to be haphazard and this situation often generates employee unrest, dissatisfaction, frustration, and turnover.


PROGRAM FOR WAGE AND SALARY ADMINISTRATION

Elements of a Formal Wage and Salary Program

Technique Used Objective of Technique

Company Policy To provide guidance to operating managers.

Job Analysis:Job Description and Specification

To gather and record job facts, duties, responsibilities and work in conditions and job requirements. The back bone of job evaluationSpecification evaluation.

Job Evaluation To determine relative job worth.

Job Grading To classify evaluated jobs into pay grades or pay classes. This series of pay grades is called the job classification plan.

Job Pricing To translate relative job worth into money values.

Wage and Salary Survey

To determine the wages and salaries of comparable jobs in other firms.


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PROGRAM FOR WAGE AND SALARY ADMINISTRATIONElements of a Formal Wage and Salary Program (continuation)

Technique Used Objective of Technique

Wage and Salary Structure

To provide a specific rate schedule of all jobs in the company.

Merit Plans: Performance Appraisal

To reward employees for better performance on the job.

Incentive Plans To reward employees for output higher than the usual standard rate of productionp

Fringe Benefits To provide supplemental compensation as added incentives, and promote morale.

Administrative Procedures and Practices

To solve individual problems, keep the program current and operating efficiently, review and provide general guidance to supervisors and managers.

Communications To give supervisors and managers the information they need to know in order to carry out the program and to gain acceptance of the program

Controls To insure reasonably consistent and current application of the program and to maintain control over cost.


PLANNING THE PROGRAM1. Job Analysis: Job Description and Specification

2. Evaluating Jobs

3. Wage Survey

4. Wage and Salary Structure

5. Maximum Pay Level

6. Grading the Jobs and Positions

7 Job Pricing7. Job Pricing

8. Provision for Performance Rating

9. Performance Level Ranking in Wage Setting

10.Responsibility for Salary Administration

11.Selling the Compensation Program to Management and Employees

12.Salary Review


WAGE PAYMENT PLANS

1. Time Unit Plans

2. Incentive Plans

3. Piece Rate or Payment by Results 3. Piece Rate or Payment by Results

4. Group Incentives

5. Wage or Salary Plus Premium or Bonus


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WAGE PAYMENT PLANS

1. Time Unit Plans A day work wage plan is a method in which the worker’s earnings are based upon time on the job. When the time unit is the day, wage rates are stated in terms of per day of so many hours. If by the hour, the wage rates are given in hourly wage rates. In the latter case, the worker’s earnings are computed by multiplying the number of hours worked by the rate per hour.y p

A straight salary plan is used when an employee is paid for the time he spends on the job. The day, week or month is commonly used as the basis for the time unit.

Under the time unit plans, wages are not determined directly by output so management has to depend upon the worker to produce in return for his wages. His productivity depends upon the foreman or supervisor who must maintain constant surveillance over the worker’s operations.


WAGE PAYMENT PLANS

2. Incentive Plans This is a method of compensating workers in direct proportion to the amount of production above pre‐established minimum requirements or standards. Its objective is to reward and encourage higher than the standard rate of production.

Incentive plans are means of motivating workers to achieveIncentive plans are means of motivating workers to achieve greater production. They are a form of reward for performance on the job. The worker has the incentive to exert greater effort to produce as much as possible because his production level determines his earnings; whereas, in the time work system, it is essential that the foreman maintain constant supervision over his operations in order to attain the acceptable production levels.


WAGE PAYMENT PLANS

3. Piece Rate or Payment by Results • A worker is paid proportion to the quantity of work he finished or for

performing some definite task with time. Each unit is given a fixed amount or price to be paid the worker. This plan is very easy to apply, and therefore very popular in industry. It has the advantage of having a direct relation between what a worker produces and what he earns. There is no difficulty is calculating the worker’s earnings because he is paid for what he produces according to his own speed. It provides a strong incentive for the worker to accomplish more.

• Piece rate may be on either an individual or group basis. It combines output quantity which in turn is divided by a time rate in money. The piece rate, therefore, relies on the manner in which the output and/or the money has been determined among the workers. If either of these elements change, each piece rate must be recalculated, otherwise the differentials will be upset.


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WAGE PAYMENT PLANS

4. Group Incentives

In some situations, a group of workers work together as a team in such a way that it would be difficult to reward individuals for their specific contribution. In this case, the total production of the group is measured and each member of the team is given his share either equally among them regardless of individual production or in accordance with the agreement of the members of the group.


WAGE PAYMENT PLANS

5. Wage or Salary Plus Premium or BonusThe bonus plan consists of two elements:

a. Standard or Minimum Requirement, and

b. Bonus or Premium

The predetermined amount of output during a given period of time is established as the minimum requirement or the standard. The worker is paid a bonus if his output is in excess of or above the minimum requirement or standard which, therefore, is a production in less time per unit. The bonus is usually given on either a fixed amount basis or on percentage of the amount of output in excess of minimum requirements, or of time saved below standard.


DIFFERENT TYPES OF WAGE AND SALARY ADJUSTMENTS

1. CBA General Wage Increase.

2. Cost of Living Allowance (COLA).

3. Merit Increase.

4. Promotional Increase

5. Level Adjustment.

6. Reclassification Increase.


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DIFFERENT TYPES OF WAGE AND SALARY ADJUSTMENTS

1. CBA General Wage Increase.

These increases are usually given to all eligible bargain able staff in accordance with the wage settlement contained in the collective bargaining agreement.

2. Cost of Living Allowance (COLA)This increase takes into account the cost of living which is determined on the basis of generally accepted official government statistics (ex., the Consumer Price Index). Such an increase may be given when a more‐than‐nominal increase in prices is registered within a period of time. The cost of living allowances may either be integrated with the base pay or granted as a separate allowance, depending on the provisions of the CBA or the discretion of management.


DIFFERENT TYPES OF WAGE AND SALARY ADJUSTMENTS3. Merit Increase.

This refers to a salary increase granted to an employee for a very satisfactory performance of his job. The amount of merit increase may be directly pegged to the performance rating but in some firms, performance appraisals are further translated into performance level rankings which stratify merit increases into maximum percentagesrankings, which stratify merit increases into maximum percentages and restricting them to above average and outstanding performers.

4. Promotional IncreaseThis increase is given because of a promotion in position and is granted either upon assumption of the position or upon confirmation of the promotion. A promotion involves a movement to a position with higher responsibility.


DIFFERENT TYPES OF WAGE AND SALARY ADJUSTMENTS5. Level Adjustment.

In order to maintain salaries on a competitive level, level adjustments may be necessary if differences are noted in salary alignments with respect to certain professional groups or with industry rates. In most cases, level adjustments are resorted to when findings reveal that rates are below or are lagging behind the industry rates.

6. Reclassification IncreaseThis increase is recommended for or granted to an employee upon the reclassification or his current position to a higher salary level. A reclassification may be necessary when, because of a reorganization or consolidation of operations, introduction of new methods, etc., an employee’s position increases in scope and responsibility sufficient to warrant placement in a higher classification group or salary level


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JOB EVALUATION

• It is the process of determining the worth of one job in relation to that of the other jobs in the company so that a fair and equitable wage and salary system can be established. Its main objective is to determine the relative positions or levels of the job in the company.

• The principle behind is that jobs should be paid in accordance with difficulty and importance of the job – the more difficult and important jobs being rated higher than the less difficult ones.

• Job evaluation is the answer to the critical problem of pay inequities. This involves the task of determining the relative values or worth of jobs and of paying the workers according to the level of the difficulties and responsibilities of the jobs they do.


JOB EVALUATIONPurpose of job evaluation is to consider these questions:

1. How would you determine whether a filing clerk should be paid more or less than a typist?

2. Should this decision be made on the basis of the physical appearance and particular ability of the employees who now occupy the position?occupy the position?

3. Should seniority or individual performance serve as basis?

4. Should rates prevailing in the community for these particular types of jobs be considered?

5. Should the complexity of each job in terms of the duties and responsibilities inherent in it and the qualifications required be the basis?


Factors in Determining Job Values

Job evaluation is a means of determining the relative values of jobs. the following are the more commonly used :

1. Skill, knowledge of the trade, and requirements of the job in terms of the worker’s education and experience before he can qualify

a. Education

b. Mental ability

c. Experience and training

2. Effort

a. Mental effort or concentration

b. Physical or manual


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Factors in Determining Job Values

Job evaluation is a means of determining the relative values of jobs. the following are the more commonly used :

3. Responsibilities

a. Responsibility for money and

materials

b. Responsibility for supervision

d Responsibility for confidentiald. Responsibility for confidential

data

d. Responsibility for relations

with others

4. Working conditions or factors of the job that make it dangerous or unhealthy

a. Hazards

b. Job surroundings


BASIC PRINCIPLES IN JOB EVALUATION

1. Equal pay for equal job. The employees doing essentially the same work must receive the same pay. The pay is based on the type or nature of their work rather than on their personal qualifications which may not necessarily be required in their particular job.

2. Differences in pay must be based on differences in2. Differences in pay must be based on differences in work; i.e., complexity of duties and responsibilities and the degree of skill required for the job. If a job requires a higher degree of skill and involves greater responsibility as compared to another job, it should be given a higher rate of pay.


BASIC PRINCIPLES IN JOB EVALUATION

3. The pay must be related to existing community pay scales. This principle means paying the wage which other employers in the community pay for similar work. This prevents unfair competition for employee skills which results in the costly “pirating” of employees. It reduces turnover due to inferior pay rates and permits competition on a equal basis.

4. The employee is concerned with the general wage level4. The employee is concerned with the general wage level and the relative position of his pay. Even if an employee is highly paid compared to workers doing similar jobs elsewhere in the locality, he will not be happy if he feels that his ability is being wasted on a job not suited to him. Nor will he be happy to continue in his job if he man beside him is paid more for work that is not more difficult than his.


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JOB EVALUATION METHODS

Several methods of evaluating have been evolved in an effort to establish a satisfactory system of pricing jobs so that each worker gets the pay commensurate with the duties and responsibilities of the work he performs.

1. Non‐Quantitative Methods

a. The Ranking Method

b The Position Classification or Grade Description Methodb. The Position Classification or Grade Description Method

2. Quantitative Methods

a. The Point System

b. The Factor Comparison System

c. The Hay Method

d. The Paterson Method



1.a THE RANKING METHOD

• The process of evaluating a job is by comparing it with others to determine whether it is higher, lower, or of the same rank. Based on overall judgment of the skill, effort, responsibility, and working conditions relative to the job.

• The first formal method developed in evaluating jobs. It is the simplest method in classifying jobs, is easy to understand, requires no technical knowledge and it takes a little time to complete. Its simplicity however, is no guarantee of accuracy. It considers each job as a whole in evaluating job against job. The evaluators rank jobs in each department in the order of their importance or value.




• Procedure

1. Each job is ranked or compared with the other jobs in terms of the duties and responsibilities inherent in the job. The ranking aims to determine whether a job is higher or lower or of the same rank as another It doeshigher or lower or of the same rank as another. It does not determine the degree of rank difference. The importance of value of the job to the company may also be considered. This must be done without being influence by the personality, efficiency, or qualifications of the present worker or employee on the job.


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Procedure

2. Since the jobs are compared as a whole, the jobs to be evaluated in a department or firm are arranged in some order, either from the simplest to the most complex or vice versa. This ranking is done through a mental valuation of the job as a whole Raters are asked to consider in a general way certainwhole. Raters are asked to consider in a general way certain requirements of the job, such as education, experience, skill, responsibilities, and effort, and working conditions. Jobs are thus classified according to rank from the most important to the least important.

3. This work is preceded by a careful job analysis and the writing of accurate job descriptions. The ranking of jobs may be done by an individual, by several individuals, or by a committee.



1.b POSITION CLASSIFICATION OF GRADE DESCRIPTION METHOD

The method is by grouping of jobs and comparing each job against a rating scale comprising several job grades, to ascertain the grade to which each job appropriately belongs. Jobs are compared to a predetermined standard.

Procedure

This method requires the preparation of guides in classifying the jobs:

1. A well‐prepared job description and job specification which shows the duties, responsibilities, and working conditions relative to each job.




2. A rating scale made up of several classes or grades in ascending steps, from the least valued to the higher valued jobs and describing for each grade the degree of the skills, efforts, responsibilities, working conditions, and personal qualifications for an acceptable job performance together with examples of thean acceptable job performance together with examples of the type of work for each grade. This rating guide is used as the basis for determining to what grade each job must be assigned.

3. The duties, responsibilities, and working conditions inherent in each job, as given in the proper job description and specification, are evaluated and the individual positions assigned to their appropriate grades. Each grade is assigned the corresponding salary rate in the salary structure of the firm.


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JOB EVALUATION METHODS1.b POSITION CLASSIFICATION OF GRADE DESCRIPTION METHOD

(GUIDE TO CLASSIFICATION OF POSITIONS)

Job Grade Job Description and Job Specification

Grade 1

Positions in this class embrace the simplest and least difficult types of work, requiring very little or no previous experience or special training. Incumbents of this class of positions work under immediate supervisions. A small amount of judgment, responsibility, and dependability is involved in these positions. In most cases, the work is preponderantly manual, such as thoseis involved in these positions. In most cases, the work is preponderantly manual, such as those of janitor, laborer, messenger, elevator operator, greaseman, helper.

Grade 2

This class includes positions which may be under the immediate or general supervision of a higher grade employee, depending on the character of the work performed. More jobs and variety of work are generally present in this class. Incumbents of this class level of positions are required to have some knowledge of the work performed, by way of a little experience and training along the particular line of work assigned. The educational background required in this class should be at least two years of high school or its equivalent. This is the lowest class in the clerical positions. Characteristic of this level is semi‐skill in general, semi‐mechanical repair work, and maintenance of simple machines and equipment or the operation of office appliances.





Grade 3

• Incumbents of positions in this class are under immediate or general supervision, depending on the character of the assignment. The exercise of independent judgment or the assumption of individual responsibility starts in this level.

• This class usually requires some knowledge of the work of the whole sectionor department in which the position is located. This is often used as a trainee position in the trades and in clerical positions.

• In this level, a certain degree of individual skills is required, plus the ability to work independently of a supervision’s close guidance or supervision, on specialized work for which the employee is trained. Grade 3 positions have some responsibility for initiating action, such as preparing form letters and company routine correspondence, setting up small files, and conducting routine interviews or periodic checks which do not need close review.

• For non‐clerical work or trade crafts, experience, skill and proven ability are necessary in the particular filed of work, subject to little or no supervision.





Grade 4

• In general, this is the journeyman level in the clerical type of work, where incumbent to the position is capable, by training and/or by experience, with little guidance or supervision in performing substantially all the assignments given him in his particular field of work. Positions in this class demand a high degree of skill that may be acquired from one of the three years of experience or training in the preceding class.g p g

• Incumbents in this class of positions do not require close supervision or technical instructions from higher supervisions as they are capable in independently following plans, procedures, or methods already established. They have responsibility for results of minor projects or for one phase of a major project.

• The level of the crafts type of work is considered that of highly skilled worker. The most difficult and expert work in a craft, involving more precision skill, and responsibility than that of a journeyman level, or involving supervision over a variety of skilled tradesmen, is found in this level.


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Grade 5

• Only jobs requiring a high degree of skill are in this class. On all of these, both the experience and responsibility demands of the jobs are high. As a general rule, from four to six years of experience is required on these jobs. An ability to work independently with only a small amount of supervision is characteristic of most of these jobs.I i ll ki i l i l i i i• It is generally speaking, a supervisory class involving supervision over a group of clerk, mechanics, and other engaged in the custody, maintenance, and protection of a building.

• This level involves a higher degree of initiative and planning than those found in Grade 4 positions. The work is important and sufficiency difficult and specialized to require very wide professional, technical, or scientific training and experience.





Grade 6

• This class covers jobs similar to those in Grade 5 except that these are a little more exacting. Four to seven years of experience or training is required. This class represents the highest level of clerical difficulty and responsibility. The clerical group comprises those employees who work by following rules, precedents, and/or established methods, regulations, or practices. In general, it may be stated that assignments below the grade level may interpret rules, regulations, etc., but they seldom, if ever, should be called upon to establish them or to question themshould be called upon to establish them or to question them.

• Incumbents in this class are responsible for supervising a group of employees. The include section chiefs, cashiers, assistants to highly technical jobs. They may be required to initiate and prepare responsible and important special reports, such as those requested by high ranking officials or by certain committee. They are usually given considerable latitude or independent planning for laying out, working details and procedures in affecting efficiency in their respective sections.

• Incumbents in this class are responsible for the supervision of the work of skilled mechanics in one or more types of work such as plumbing, carpentry, and painting. They also supervise the craft “specialist” in Grade 5.





Grade 7

Jobs in this class are the most difficult and require the most skill of any job in the organization. They are highly technical in nature, with responsibility for accuracy and initiative in carrying out these technical duties. Persons placed in this level are usually heads of departments. They are expected to be able to plan and carry out their

k i h li l i i R ibili i d f hown work with little supervision. Responsibility is assumed for the results of work undertaken. Most of these include responsibility for a group of operations with some considerable latitude for individual action. These jobs usually require from five to eight years of professional training or experience covering both general and specific knowledge. Positions in this class entail complex planning, devising, designing, and other creative work.


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2.a The Point System• The method evaluates the job by appraising it separately against each of the

factors of characteristics, such as skill, effort, responsibility and working conditions and adding up the corresponding point values to arrive at a single point score for each job. This method uses a series of rating scales, one for each of the major factors with their subdivision which have been chosen as important in terms of the position.

• The chief characteristic of the point‐rating method is the construction of aThe chief characteristic of the point rating method is the construction of a rating scale or guide consisting of selected elements or factors required by the job, to be evaluated, with their corresponding weights or point values. Each job is then rated according to this established guide. At the completion of the process, the ratings on the individual evaluation by factors are summed up to arrive at the total evaluation for each job. Since one rating guide is used to evaluate all jobs, consistency in evaluating each job can be achieved.



Factors Used in the Point System

1. Skill. In most plans, this factor is further subdivided into:

a. Schooling

b. Experience

c. Manual Dexterity

d. Supervision Received

e. Complexity of Duties

2. Responsibility. This factor may also be further subdivided into:

a. Accuracy

b. Company Funds and Materials

c. Contact with Others

d. Confidential Data

e. Supervision Given to Others

3. Effort

a. Mental

b. Physical

4. Working Conditions or Factors Affecting the Performance of the Job


JOB EVALUATION METHOD

2.b The Factor‐Comparison Method

• This method was developed out of knowledge of the strengths and weaknesses of the other methods already described. This method requires that each job be compared and ranked with the other jobs under each separate factor. Since the evaluation is done on a factor‐by‐factor basis.

• The first step to use this method is to select an evaluation• The first step to use this method is to select an evaluation committee composed of senior executives with the personnel manager as coordinator, assisted by a management consultant who is to evaluate the jobs. The committee should be furnished with an analysis of the job and written job descriptions and specifications of the jobs to be evaluated. The factors upon which jobs should be compared are then selected and carefully defined.


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2.b The Factor‐Comparison Method

There are usually five factors used in comparing jobs:

1. Skill Requirement

2. Mental Requirements

3. Physical Effort

4. Working Conditions

5. Responsibility



2.b The Factor‐Comparison Method• The factors are subdivided into degrees like they are in the Point‐Rating

Method. On the basis of these factors, several key jobs, usually twenty to thirty, are chosen. The most striking trait of the factor‐comparison method is its reliance on “key jobs” as the “reference points” or “anchor points” for all the other jobs. A key job is one generally accepted by employees and managers as being a standard type of job, correctly priced, and representative of major factors in most jobs in the organization.

• The ranking of jobs is established by analyzing the description and specification of each job and then comparing the factors present in the job against the factors in the key jobs, one factor at a time, and then arranging the jobs from the highest to the lowest or the other way around, as the evaluators may choose. Since the evaluation is done by pooling the judgments of a group of trained persons, it is claimed to be more accurate than other methods.



2.c The Hay‐Method

• Hay and Associates, a consulting firm, has developed a type of factor‐comparison method, using three factors: know‐how, problem‐solving, and accountability.

• This method requires that the organization develop its own key jobs, called benchmark, selected from among the positions within the company The factors and the quantitative weights must bethe company. The factors and the quantitative weights must be established by the organization. It works similar to the point system. The evaluator makes specific comparative identification of the weights assigned for each factor so that it tells which job is worth more and how much more. The factor values are then converted to monetary wages. Briefly, the Hay method includes the following stages:


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2.c The Hay‐Method

1. Benchmark Selection

The selection of a representative cross section of positions .p

2. Position Analysis

Position descriptions are written for each of these benchmark positions based on information gathered by interviewing the current incumbents in the job.



2.c The Hay‐Method (continuation)3. Position Evaluation

Each position is evaluated against measurements contained in a set of guide charts developed by Hay. A committee of top level executives performs the evaluation and assigns the forms the evaluation and assigns the point values which reflect the position’s importance to the Company. The categories for evaluation are restricted to the following factors:

f h h l f ki d f killa. Degree of Know‐how. The sum total of every kind of skill.b. Degree of Problem‐Solving. The original, self‐starting thinking required by the job for analyzing, creating, reasoning, arriving at and making conclusions.c. Degree of Accountability. The answerability for action, and for the consequences thereof. It is the impact of the job on the end results.

The f actor, working condition is sometimes used for jobs whose hazards, environment or physical demands are deemed important.



2.c The Hay‐Method (continuation)

4. Compensation Survey• Current salary practices are explained internally to be sure

employees are being paid fairly for the impact they make on the company’s performance. In addition, the company’s salary structure is compared with those of companies similarly situated in the same industry, as well as with a sample of comparison on a multi‐industry basis in order to establish external competitiveness.

5. Policies and ProcedureFinally, specific policies and procedures are developed to allow for performance growth for individuals, to ensure equitable and effective administration of salaries and to maintain internal equity.


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2.d The Paterson Method

Thomas T. Paterson proposed this job evaluation scheme on the assumption that it is equally attractive and acceptable to all members of the firm. The claim rests on

a. Simplicity

b. Justice and fairness, and

c. Participation.



2.d The Paterson Method (continuation)

• It is a method of analyzing jobs according to the kinds of decisions made, and assessing them, according to the universal pattern and the amount of the total payroll available. It postulates that “jobs have one thing in common: they all require decisions to be made”hence; they can be compared on the basis of the kinds and numbers of decisions Six kinds of decisions called “Bands” arenumbers of decisions. Six kinds of decisions called Bands are distinguished.

• Two grades each are assigned for each band, excepting Band O correspondingly assigned grade 0, while Band E has grades 9 and 10. Decisions which are progressively more difficult and progressively more important for firm survival and growth and are rewarded accordingly.



2.d The Paterson Method

Band Kind of Decision Grade

E Policy Making ‐ On the broad direction of the firm 9‐10

D Programming ‐ In planning how to carry out the policy 7‐8

C C Interpretive ‐ In deciding within plan limits, what is to be 5‐6C C Interpretive In deciding within plan limits, what is to be done

5 6

B Routine ‐ On process, how to do what has been decided upon by an interpretative decision

3‐4

A Automatic ‐ On the operations that go on to form a process 1‐2

O Defined ‐ On the elements that go to make up an operation, made by people who have already been taught precisely what their operations are, and how to carry them out. The kind of decisions that can be learned in a very short time

0


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2.d The Paterson Method (continuation)Steps in following the Paterson Method:

1. The analyst goes around the departments to find out the structure of operations

2. A job sampling is derived. 3. The job incumbent is sent a Job Sheet Form which identifies: the job title,

immediate superior, immediate juniors and tasks carried out (in numerical d )order).

4. The interview. Starting with the first task, the analyst asks the incumbent to describe in chronological order precisely what he does. He then asks questions related to: frequency of decision making, complexity and specialist difficulty. Personal notes are taken and summarized in the Task Analysis Form.

• Job grading is done by a grading committee whose members are chosen because of their “sapiental authority” alone, their knowledge of methods of job grading and of the jobs being graded.


FIGURE 1. Task Analysis Form Sample for Chief Invoice Clerk

Dept: Head Office Section: Invoicing

Job No. Title: Chief Invoice Clerk

Analyst: Date:

PROCESSES/OPERATIONS Band Grade

“Organizations and supervises all jobs connected with Invoicing Section.”

1. Changes procedures and practices as required (very infrequent)

2. Devices procedures for providing computer information

3. Prepares reports required by Senior Management

4. Assists in selection of Invoicing Section staff

5. Attends meetings with Senior Management, Salesman and Computing Department

B

B

B

B

B

3

3

3

3

3

6. Recommends to management changes in Company Policy re invoicing

7. Within company policy operates price agreements, price determination and related schedules

8. Responsible for discipline, promotion and remuneration of staff(no more than A)

B

B

B

33

3

Comments: Office Manager1. 0 office Manager? B 4,5. 0 Office

8. Cannot hire-fire, recommends 6.0 Office ManagerPromotion and remuneration0 Office Manager (Clerks all)0 and A)


Documents

Wage and Salary