Building Internally Consistent Compensation Systems

Example of Internally Consistent Compensation Structure $60,000 Manager of Benefits ($58,000) There is a positive relationship between job worth and salaries! $50,000 $40,000 Benefits Counselor III ($40,000) Average Annual Salary $30,000 Benefits Counselor II ($26,000) $20,000 Benefits Counselor I ($20,000) Job Worth (skill, effort, responsibility, working conditions)

Example of Internally IN-Consistent Compensation Structure $60,000 There is no relationship between job worth and salaries! $50,000 Benefits Counselor II ($45,000) Manager of Benefits ($39,000) $40,000 Average Annual Salary Benefits Counselor I ($32,000) $30,000 Benefits Counselor III ($28,000) $20,000 Job Worth (skill, effort, responsibility, working conditions)

Figure 7-1 Internally Consistent Compensation Structure (2 of 3) Benefits Counselor I Provides basic counseling services to employees and assistance to higher-level personnel in more-complex benefits activities. Works under general supervision of higher-level counselors or other personnel. Benefits Counselor II Provides skilled counseling services to employees concerning specialized benefits programs or complex areas of other programs. Also completes special projects or carries out assigned phases of the benefits counseling service operations. Works under general supervision from Benefits Counselor IIIs or other personnel.

Figure 7-1 Internally Consistent Compensation Structure (3 of 3) Benefits Counselor III Coordinates the daily activities of an employee benefits counseling service and supervises its staff. Works under direction from higher-level personnel. Manager of Benefits Responsible for managing the entire benefits function from evaluating benefits programs to ensuring that Benefits Counselors are adequately trained. Reports to the Director of Compensation and Benefits.

Aspects of Job Evaluation Job Evaluation is: Assumption A measure of job Content has an innate value outside of external market. content A measure of relative Relevant groups can reach consensus on relative value value. Link with external Job worth cannot be specified without external market market information. Measurement device Honing instruments will provide objective measures. Negotiation Puts face of rationality to a social / political process. Establishes rules of the game. Invites participation.

Figure 7-1 Phases of the Job Evaluation Process Choose & train the job evaluation committee. Select benchmark jobs. Choose compensable factors. Define factor degrees. Determine point values for each factor. Validate factor degrees and point values. Evaluate all jobs.

Table 7-10 Characteristics of Benchmark Jobs The contents are well known, relatively stable over time, and agreed upon by the employees involved. The jobs are common across a number of different employers. The jobs represent the entire range of jobs that are being evaluated within a company. The jobs are generally accepted in the labor market for the purposes of setting pay levels. Source: G.T. Milkovich and J.M. Newman, Compensation 5th ed. (Homewood, IL: Richard D. Irwin, 1996).

Table 7-13 Federal Government Factor Evaluation System (1 of 2) 1. Knowledge required by the position a. Nature or kind of knowledge and skills needed b. How the skills and knowledge are used in doing the work 2. Supervisory controls a. How the work is assigned b. The employee’s responsibility for carrying out the work c. How the work is reviewed 3. Guidelines a. The nature of guidelines for performing the work b. The judgment needed to apply the guidelines or develop new guides

Compensable Factors - A Definition (1 of 2) Compensable factors are paid-for, measurable qualities, features, requirements, or constructs that are common to many different kinds of jobs. These factors are qualities intrinsic to the job and must be addressed in an acceptable manner if the job is to be performed satisfactorily.

Compensable Factors - A Definition (2 of 2) In addition to being quantifiable, compensable factors should be relatively easy to describe and document. Those involved in using compensable factors to measure job worth should consistently arrive at similar results.

Universal Compensable Factors Skill: the experience, training, ability, and education required to perform a job under consideration - not with the skills an employee may possess

Universal Factor - Skill Technical Know-how Specialized Knowledge Organizational Awareness Educational Levels Specialized Training Years of Experience Required Interpersonal Skills Degree of Supervisory Skills

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

Universal Factor - Effort Diversity of Tasks Complexity of Tasks Creativity of Thinking Analytical Problem Solving Physical Application of Skills Degree of Assistance Available

Universal Compensable Factors 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.

Universal Factor - Responsibility Decision-making Authority Scope of the organization under control Scope of the organization impacted Degree of integration of work with others Impact of failure or risk of job Ability to perform tasks without supervision

Universal Compensable Factors Working Conditions: hazards physical surroundings of the job.

Universal Factor - Working Conditions Potential Hazards Inherent in Job Degree of Danger Which Can be Exposed to Others Impact of Specialized Motor or Concentration Skills Degree of Discomfort, Exposure, or Dirtiness in Doing Job

Table 7-13 Federal Government Factor Evaluation System (2 of 2) 4. Complexity a. The nature of the assignment b. The difficulty in identifying what needs to be done c. The difficulty and originality involved in performing the work 5. Scope and effect a. The purpose of the work b. The impact of the work product or service 6. Personal contacts 7. Purpose of contacts 8. Physical demands 9. Work environment Source: US Civil Service Commission, Instructions for the factor evaluation system ( Washington, D.C.: US Government Printing Office, 1977).

Example of pay structure $80 Job title Points Salary Computer Programmer 240 $60k Computer Service 180 $30k Systems Analyst 330 $70k Computer Operator 210 $37k Data Entry Clerk 150 $33k $40 Salary 200 400 Points