COMPENSATION AND JOB EVALUATION 10

10 OBJECTIVES Understand the Factors that Play a Role in Compensation Decisions Evaluate Jobs for Determining Compensation Distinguish between Various Methods of Job Evaluation Determinants of Basic Compensation

1.Attract competent employees to the organization. 2.Motivate employees towards superior performance. 3. Retain employees. Objective of employees’ compensation package is to–10 COMPENSATION AND JOB EVALUATION

1. Supply and demand of employee skills 2. Unions 3. Organizations’ ability to pay 4. Productivity of the organization and economy 5. Cost of living 6. Government legislation and policy The factors that play an important bearing on the final money decision are–10 COMPENSATION AND JOB EVALUATION

Law of Equity and Compensation Table 10.2 Equity Theory10 COMPENSATION AND JOB EVALUATION Equity Theory Equity Op/Ip = Oo/Io Under-Reward Inequity Op/Ip< Oo/Io Over- Reward Inequity Op/Ip>Oo/Io p = personal, o = comparison with others I = Inputs O = Outcome Effort, Ability, Experience Pay, Benefits, Perks

Table 10.1 Types of Equity EquityComparison External EquityOutside Organization – Employees are paid salaries comparable to workers who perform similar jobs in other Internal EquityInside Organization among Jobs – Employees are paid according to relative value of jobs within the same organization. Employee EquityIndividuals doing the same job for similar organizations – Employees’ perception of fair treatment for employees’ Team EquityInternal teams – Productive teams are rewarded more than less productive teams.10 COMPENSATION AND JOB EVALUATION

Law of Equity and Compensation Figure 10.3 Elements of the Rate Range10 COMPENSATION AND JOB EVALUATION

(a) Non-analytical (b)Analytical Non analytical methods are mainly: 1.The Ranking method and paired comparison 2.Job classification 3.Internal benchmarking Analytical methods are: 1.Point System 2.Factor Comparison JOB EVALUATION SYSTEMS10 COMPENSATION AND JOB EVALUATION The job evaluation system can be divided into two:

1. It is inexpensive. Little or no cost is involved in designing a system. 2. It does not require outside specialists/consultants. 3. Ranking is easy to use; evaluators do not need specific training. 4.People have a natural tendency to rank jobs; ranking makes it legitimized. 5.Ranking can be implemented by operational managers, as no special knowledge of HRM or compensation is needed. 6. It is easy to explain to employers. 7.It is an improvement over a totally subjective approach of determining job worth. 8.It is suitable to small organizations with limited number of jobs, requiring an inexpensive, fast and uncomplicated means of determining the relative value of the organizations’ jobs. The Ranking Method10 COMPENSATION AND JOB EVALUATION Advantages

1. There is no back up information or data to justify results of ranking. 2. It is somewhat inflexible. 3. Evaluators may be biased. 4. Lack of factual support data leads to low acceptance of the method. 5.There is no clear identification between jobs, equal differential is often assumed to exist between adjacently ranked jobs. 6.It does not recognize subtle differences between jobs that may be important in a particular organization. 7.It works only when a few jobs are involved and the differences between jobs are fairly easy to recognize 8.Ranking is a useable approach when jobs are less than twenty and organizations are small. The Raning Method 10 COMPENSATION AND JOB EVALUATION Disadvantages

1.It promotes standards for making grading decisions in the form of grading definitions. 2.It leads to the explicit account of training experience, responsibility level and specific duties demanded by one job in comparison to other. 3. It quickly slots the jobs into structure. 4. It is easy and inexpensive to develop, implement and maintain. 5. It is simple, therefore, can be easily understood. Job Classification10 COMPENSATION AND JOB EVALUATION Advantages

1.It cannot cope with complex jobs that do not fit neatly into one grade. 2.The grade definitions are so generalized that they may not be of much help in evaluating border line cases, especially at more senior levels. 3.It fails to deal with jobs in dissimilar occupations or job families where the demands made on job holders are different, e.g. technical and administrative job families. 4. It perpetuates inappropriate hierarchies. 5.It is non-analytical, therefore, ineffective in establishing comparable worth and is unacceptable in equal-value cases. Job Classification 10 COMPENSATION AND JOB EVALUATION Disadvantages

1.It is simple and quick. 2.It is a natural way of valuing a job, therefore, more realistic. 3.It is based on the comparison of accurate job/role description, therefore, can produce reasonable results. Internal Benchmarking10 COMPENSATION AND JOB EVALUATION Advantages

1.It is dependent upon subjective judgment, could be tough to justify. 2.It may perpetuate existing inequities as the whole approach is dependent upon internal comparisons and benchmarking. 3. It is not acceptable generally in equal-value cases. Internal Benchmarking 10 COMPENSATION AND JOB EVALUATION Disadvantages

1.It takes into account a number of defined factors, which are present in the job thereby reducing the risk of simplification. 2.It defines yardsticks to achieve a reasonable objectivity and consistency. 3. It appears objective and encourages people to accept. 4. Its rational approach helps in designing grades of pay structure. 5. It can be computerized. 6. It facilitates equal pay for equal value of work. POINT SYSTEM10 COMPENSATION AND JOB EVALUATION Advantages

1.It is judgmental. 2.The yardsticks are decided by the evaluators who are not measured by any yardstick. 3.Employees may feel dissatisfied if there is a difference in pay structure some get much more and some get much less in comparison to their previous wage structure. POINT SYSTEM 10 COMPENSATION AND JOB EVALUATION Disadvantages

1. Customized to the organization. 2. Relatively easy to use once it is set up. 3.Results in ranking of jobs and a specific value for each job, based on allocation part of the jobs’ total wage to each factor. 4. Analytical and objective. 5. Flexible as there is no upper limit on rating a factor. Factor Comparison System10 COMPENSATION AND JOB EVALUATION Advantages

1.Using values may bias evaluators by assigning more money to a factor than a job is worth. 2. Difficult to understand, explain and operate. 3. Time consuming and costly. 4. Every time wage rates change, the schedule becomes obsolete. 5.Its use of the same criteria to assess all jobs is questionable as jobs differ across and within organizations. Factor Comparison System 10 COMPENSATION AND JOB EVALUATION Disadvantages

Exhibit 10.1 Standard for Comparison Unit of ComparisonOther JobsFixed Criteria Whole JobRanking and Paired Comparison Job classification Internal Benchmarking Job FactorsFactor ComparisonPoint System SkillsResponsibilitiesEffortWorking conditions ABEC BACD CEED DCCB EEBB10 COMPENSATION AND JOB EVALUATION