compensation course sharing 401

7/31/2019 Compensation Course Sharing 401

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CompensationManagement

Basic Introduction


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Module 1 - Introduction To CompensationA. Definition of CompensationB. The Pay ModelC. Strategic Pay Policies

Module 2 - Strategic Perspectives in Compensation ManagementA. Strategic Perspectives of PayB. Strategic Pay DecisionsC. Best Practices vs. Best Fit Options

Module 3 - Defining Internal AlignmentA. Definition of Internal AlignmentB. Internal Pay StructuresC. Strategic Choices In Internal Alignment DesignD. Which Internal Structure Fits Best?

Module 4 - Job AnalysisA. Why Perform Job Analysis?B. Job Analysis ProceduresC. Job Analysis Data Collection ProcessD. Job Descriptions


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Module 5 - Job EvaluationA. Definition of Job EvaluationB. Major Decisions In Job EvaluationC. Job Evaluation MethodsD. Final Result Pay Structure

Module 6 - Determining External CompetitivenessA. Definition of CompetitivenessB. Pay Policy AlternativesC. Wage Surveys

D. Interpreting Survey ResultsE. Pay Policy LineF. Pay Grades

Module 7 - Employee Contributions: Pay For Performance (PFP)A. Rewarding Desired BehaviorsB. Does Compensation Motivate Performance?C. Designing PFP PlansD. Merit Pay/Variable PayE. Individual vs. Group IncentivesF. Long Term Incentives

Module 8 - Pay and Performance AppraisalsA. Role of Performance Appraisal In CompensationB. Common Errors In Performance AppraisalC. Measuring Job PerformanceD. Training RatersE. Contextual Issues In Appraisal


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Module 9 - Benefits

A. Benefits Determination ProcessB. Value of BenefitsC. Legally Required BenefitsD. Retirement, Medical , & Other Benefits

Module 10 - Legal & Administrative Issues in CompensationA. Legal IssuesB. Pay DiscriminationC. Comparable WorthD. Budgets and Administration


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Grading Structure

Grading % of Final Grade

2 Quiz 30%

Case Analysis/Project 30%

Class Presentations 10%

Attendance 20%

Class Participation 10%

100%


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Purpose of Compensation

Motivate &

Retain Staff

Attract talent

Contribution based

Remuneration

Administratively

Efficient

Reward Valued

Behavior

Effective

Compensation

Ensure Equity

Institutionalized

Processes

Legal

Compliance


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Business GoalsBusiness Goals

BusinessStrategy

BusinessStrategy

CEO

CEO

Compensation

Philosophy/ activities

serve BusinessObjectives

Compensation

Philosophy/ activities

serve BusinessObjectives

The Pay Model

Business Strategy This defines the direction in

which organization is going in relation to itsenvironment in order to achieve its objectives.

Compensation Philosophy Consists of a set of

beliefs which underpin the reward/compensationstrategy of the organization and govern the rewardpolicies that determine how reward processesoperate


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BusinessStrategy

BusinessStrategy

Compensation

Plan

Compensation

Plan

Compensation

Strategy

Compensation

Strategy

Non-Financial

Rewards

Non-Financial

RewardsOrg.StructureOrg.Structure

CEO

CEO

HRHead

HRHead

Compensation activities

serve Business

Objectives


serve Business

Objectives

Compensation strategy

is periodically

reevaluated and the

Compensation plan

periodically developed


is periodically

reevaluated and the

Compensation plan


The Pay Model

Compensation Strategy defines the intentions of theorganization on reward policies, processes and

practices required to ensure that it has the skilled,competent and well-motivated workforce it needs

to achieve its business goals


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BusinessStrategy

BusinessStrategy

Compensation

Plan

Compensation

Plan

Compensation

Strategy

Compensation

Strategy

Non-Financial

Rewards

Non-Financial


CEO

CEO

HRHead

HRHead


serve Business

Objectives


serve Business

Objectives


is periodically

reevaluated and the

Compensation plan



is periodically

reevaluated and the

Compensation plan


The Pay Model

A strategic perspective on compensationtakes the position that how employees are

compensated can be a source of sustainablecompetitive advantage


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BusinessStrategy

BusinessStrategy

Compensation

Plan

Compensation

Plan

Market SurveysMarket Surveys

Compensation

Strategy

Compensation

Strategy

Job EvaluationJob Evaluation

Unit InputsUnit Inputs

Total

remuneration

Total

remuneration

Performance

Management

Performance

Management

Non-Financial

Rewards

Non-Financial


Performance

linked Pay

Performance

linked PayIndividual PayIndividual Pay

Contribution

/outputs

Contribution

/outputs

Internal EquityInternal Equity External EquityExternal Equity

CEO

CEO

HRHead

HRHead

Employee

Employee

C&B/SM

C&B/SM

Pay levels /

structures

Pay levels /

structures


serve Business

Objectives


serve Business

Objectives


is periodically

reevaluated and the

Compensation plan



is periodically

reevaluated and the

Compensation plan


Compensation

Manager, along with

team is responsible for

carrying out

compensation related

activities

CompensationManager, along with

team is responsible for

carrying out

compensation related

activities

The Pay Model


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End of Part I Module 1 & 2


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Definitions

Job -Consists of a group of tasks thatmust be performed for an organizationto achieve its goals

Position - Collection of tasks andresponsibilities performed by oneperson; there is a position for everyindividual in an organization


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y :Tool

Tasks Responsibilities Duties

Job

Analysis

JobDescriptions

Job

Specifications

Knowledge Skills Abilities

Human Resource

Planning

Recruitment

Selection

Training and

Development

Performance Appraisal

Compensation and

Benefits

Safety and Health

Employee and Labor

Relations

Legal Considerations

Job Analysis for Teams


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Job Analysis

The systematic, formal study of theduties and responsibilities that

comprise job content.

The process seeks to obtain importantand relevant information about the

nature and level of the work performed


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Job Description A summary of the most important features of

a job, including the general nature of thework performed (duties and responsibilities)and level (i.e., skill, effort, responsibility and

working conditions) of the work performed.

Typically includes job specifications thatinclude employee characteristics required forcompetent performance of the job.

Should describe and focus on the job itselfand not on any specific individual who mightdo the job.


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Job Specification

A section of the job description thatdefines what worker characteristics(i.e., the knowledge, skills and abilities)are required to perform the job for it tobe carried out competently.


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Types Of Job AnalysisInformation

Considerable information is needed,such as:

Worker-oriented activities

Machines, tools, equipment, and workaids used

Job-related tangibles and intangibles

Work performance Job content

Personal requirements for the job


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Work performance error analysis; workstandards; work measurements, such astime taken for a task

Job context work schedule; financial andnonfinancial incentives; physical workingconditions; organizational and social contexts

Personal requirements for the job personal attributes such as personality andinterests; education and training required;work experience

Types of Data CollectedThrough Job Analysis


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Job Evaluation

Methods


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Job Evaluation

Four major methods used in job evaluationand the advantages/ disadvantages of each

Job Ranking Method Job Classification Method

Point Method

Factor Comparison Method


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Job Evaluation Methods

Comparison Method Analysis MethodEntire Job Job Factors

Job Against Scale

Job Against Job

Classification Point Method

RankingFactor

Comparison


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Ranking Method

Straight ranking

Alternation Ranking

Paired Comparison


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Ranking MethodAdvantages

Simple Alternation method ranks

highest then lowest,then next highest, then

next lowest

Paired comparisonsmethod picks highest outof each pair

Fast

Most commonly used

Disadvantages

Comparisons can beproblematic depending onnumber and complexity ofjobs

May appear arbitrary toemployees

Can be legally challenged

Unreliable


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Paired Comparison


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Classification Method

Advantages

Uses jobfamilies/groupsinstead of individual

jobs

May produce sameresults as PointMethod, but is less

costly

Disadvantages

Not useful when jobsare very different fromeach other

May be confusing toemployees about why

jobs are included in aclass


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Compensable Factors

Must be present in all jobs

Factor must vary in degree

Should not overlap in meaning

All stakeholders viewpoints must bereflected

Should be demonstrable by the actual

work


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Factor Comparison

Compensable Factors used

Mental requirements,

Physical requirements,

Skill requirements,

Responsibility, and

Working conditions


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Hay Profiling Know How

procedures and techniques

breadth of management skills

person-to-person skills

problem solving thinking environment

thinking challenge

Accountability freedom to act impact on results

magnitude


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Factor Comparison MethodAdvantages

Customized to theorganization

Relatively easy to use

once its set up Results in ranking of

jobs and a specificrupee value for each

job, based on

allocating part of thejobs total wage toeach factor

Disadvantages Using rupee values

may bias evaluators byassigning more money

to a factor than a jobis worth Hard to set up Not easily explained to

employees


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Point Method

Advantages

Highly stable over time

Perceived as valid byusers and employees

Likely to be reliableamong committee thatassesses the jobs

Provides good data toprepare a response toan appeal

Disadvantages

Time, money, andeffort required to setup

Relies heavily on key(benchmark) jobs, soif key jobs and correctpay rates dont exist,

the point method maynot be valid


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What is a Degree Level? It is ascale that reflects differing quantity or

quality of the factor

It is used to differentiate jobs on the factor

It is a definition that is clear andunambiguous

It contains explicit language thatspells outthe behaviors, skills, or performance

expectations for that factor at differentlevels of the factor


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Values to the Degree


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Values to the DegreeLevels? First, determine the number of points for

each main factor (e.g., 2000 total pointsfor the system would result in 200 pointsfor a factor weighted at 10%). Then use The straight-line method, which simply

takes the maximum points for a given factorand divides it by the number of degrees. Note:this method assumes that the degrees should

be viewed as equidistant from each other


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Position: Engineering Manager

Grade: 7

MAXIMUMFACTOR

POINTS FACTOR JE Points

DEGREE

LEVEL

FACTOR

WEIGHTS

250 Communication & Interpersonal Skills 250 4 10%

250 Education & Training 250 5 10%

500 Problem Solving & Decision Making 400 4 20%500 Responsibility & Accountability 500 4 20%

250 Specialized Knowledge & Application 200 4 10%

250 Supervision & Leadership 250 4 10%

125 Internal Impact 125 3 5%

125 External Impact 75 1 5%

125 Planning & Organizing 125 4 5%125 Innovation 90 2 5%

2500 2265 100%


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Anatomy of a PayStructure

Pay Grades, elements,width

Factors Affecting Pay


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Factors Affecting PayStructures

Corporate culture and value

Management Philosophy

External Economic Environment

External Socio-political

environment (Unions)

Anatomy of a Pay


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Anatomy of a Paystructure Pay Structure consists of a series of

Pay Ranges, or grades, each with aminimum and maximum pay rate

Pay Range - Has a minimum pay value,maximum pay value and a midpoint

Midpoint of a range represents thecompetitive market value for the job orgroup of jobs.


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Anatomy of a Pay structure

Spread on either side of midpoint :

Midpoint Minimum Maximum Midpoint Minimum Midpoint

Midpoint = Max + Min

2


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Minimum Midpoint Maximum

200000 350000 612500

Range Spread (Width) = 206 %

-75%

75%


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Typical Range Spreads

20 25 % - Lower-level service, production

30 40 % - clerical, technical

40 50 % - professional, administrative,middle management

These range spreads have reached 300% ormore with Broad banding


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Compa - Ratios A Statistic that expresses the

relationship between base salary andthe midpoint, or between the midpointand the market average

Compa-Ratio = Base Salary

Midpoint

Most companies strive to have the overallworkforce paid at or around a compa-ratioof 100 %


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Market Saurveys

Standard vs. Custom

Apples to Apples comparison


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ReviewMercersJob-MatchingGuide

Reviewall JobDescriptions astheyrelate toRB

Match eachcore job of RBwith the jobsgiven in theMercer list.

Determine thecore levelusing thevariationsfrom corelevel table ortheaccompanyingdecision tree

Establish AllCore levels

Matchremaining rolesin RB with theadditional joblist provided byMercer.

Determine thecore levelusing thevariations from

core level tableor theaccompanyingdecision tree

Complete thedata inputsheet.

Instead of a

representativeposition foreach job,provide a minof 5-10 jobholder data.

Submit the jobdata sheet toMercer

compensation course sharing 401

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