designing compensation system part ii
DESCRIPTION
Designing compensation system Part IITRANSCRIPT
Designing Compensation System: Part IIDr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor
1
Job Valuation
2
Job Evaluation Methods
There are four major Methods
Ranking Classification Point Method Factor Comparison
3
Job Evaluation Procedures
4
Ranking Method
Examines job description and arrange jobs according to value to company e.g. highest to lowest
Ranks each job relative to all other jobs, based on some overall factor
Most basic method; used for small firmsUses subjective ratings on single criterion
(e.g., job complexity)
5
Classification MethodClasses or grades are defined to describe a
group of jobsMainly for government jobs
18 factors may be used to score jobs General, Professional and Executive Schedules
Point Method
Breaking down jobs on identifiable criteria and the degree to which these criteria exist on the job
More complex - points assigned to compensable factors and sub-factors
More structured, thus easier to defendHay System most well known and most
complex
Advantages & Disadvantages of Ranking, Classificatin & Point Methods
1/5/2008
8
Advantage Disadvantage
RankingRanking Fast, simple, easy to Fast, simple, easy to explain.explain.
Cumbersome as Cumbersome as number of jobs number of jobs increases. Basis for increases. Basis for comparisons is not comparisons is not always acceptable.always acceptable.
ClassificationClassification Can group a wide range of Can group a wide range of job together in one system.job together in one system.
Descriptions may Descriptions may leave too much room leave too much room for manipulation.for manipulation.
PointPoint Compensable factors call out basis for comparisons. Compensable factors communicate what is valued.
Can become Can become bureaucratic and rule-bureaucratic and rule-bound.bound.
Steps in Ranking Methods
• Steps in job ranking:– Obtain job information– Select and group jobs– Select compensable factors– Rank jobs– Combine ratings
9
Ranking Method
Straight ranking
Alternation Ranking
Paired Comparison
Sunday, April 9, 2023 10
Advantages & Disadvantages Ranking Method
AdvantagesSimple
“Straight” method ranks “highest”, then next “highest”, then next “highest” and so on
“Alternation” method ranks “highest” then “lowest,” then next “highest,” then next “lowest” and so on
“Paired comparisons” method picks highest out of each pair
FastMost commonly used
DisadvantagesComparisons can
be problematic depending on number and complexity of jobs
May appear arbitrary to employees
Can be legally challenged
UnreliableSunday, April 9, 2023 11
Paired Comparison
Sunday, April 9, 2023 12
ClassificationLike library
classification system
Define categories and then compare job against categories
Class ISimple work, no supervisory
responsibility, no public contact
Class IISimple work, no supervisory
responsibility, public contact
Class IIIMedium work complexity, no
supervisory responsibility, public contact
13
Advantages & Disadvantages of Classification Method
AdvantagesUses job
families/groups instead of individual jobs
May produce same results as Point Method, but is less costly
DisadvantagesNot useful when jobs
are very different from each other
May be confusing to employees about why jobs are included in a class
Sunday, April 9, 2023 14
Factor ComparisonCompensable Factors are identified
as determining worth of jobs
Mental requirements, Physical requirements,Skill requirements,Responsibility and Working conditions
Sunday, April 9, 2023 15
Steps in Factor Comparison Method
Analyze JobsSelect Key Jobs Rank Key Jobs Distribute Wage Rates Across Factors Compare Vertical and Horizontal Judgments Construct the Job-Comparison Scale Use the Job-Comparison Scale to Evaluate
the Remainder of the Jobs
Sunday, April 9, 2023 16
Factor Comparison Method
17
Hourly rate is divided into pay for each of the following factors:
Job
Hourly Rate (Rs.)
Pay for Skill
Pay for Effort
Pay for Responsibility
Pay for Working Conditions
Secretary 9.00 4.50 2.00 2.00 0.50
Admin Assistant
11.00 5.50 2.50 2.50 0.50
Supervisor 15.00 6.00 3.50 4.00 1.50
Manager 21.00 9.00 3.50 7.00 1.50
Advantages & Disadvantages of Factor Comparison Method
AdvantagesCustomized to the
organizationRelatively easy to use
once it’s set upResults in ranking of
jobs and a specific rupee value for each job, based on allocating part of the job’s total wage to each factor
DisadvantagesUsing Rupee values
may bias evaluators by assigning more money to a factor than a job is worth
Hard to set upNot easily explained to
employees
Sunday, April 9, 2023 18
Steps in Point Method
1. Select Benchmark Jobs2. Choose Compensable Factors3. Define Factor Degrees4. Determine Weight of each Factor5. Determine Point Values6. Verify Factor Degrees and Point Values7. Evaluate All Jobs
Benchmark Jobs
“Generic” jobs with similar and agreed upon characteristics
Relatively stable Represent entire range of jobs in
companyGenerally accepted in the labour market
for purposes of setting pay levels
Compensable Factors
Compensable factors are identified as determining worth of jobs
Major compensable factors- Skill- Responsibilities - Effort - Working Conditions
Custom factorsSub-Factors
21
Compensable FactorsSkilllExperience Education Ability
ResponsibilitiesFiscal Supervisory
22
Compensable FactorsEffort
Mental Physical
Working ConditionLocation Hazards Extremes in Environment
23
Factor Degrees/Levels
Provides levels within each factor or sub-factor
Best to define each level in job-specific terms
Fewer degrees required if system only needs to cover a smaller range of jobs
Weight of each Factor to be determined
Factor Degrees/LevelsScale that reflects differing quantity or
quality of the factorUsed to differentiate jobs on the factorClear and unambiguous definition Contains explicit language that spells out
the behaviours, skills, or performance expectations for the factor at different levels
25
Responsibility at Various Levels
Employee responsibility for conserving company’s equipment and material
Level-1Employee reports malfunctioning of equipment or
defective materials to immediate superior
Level-2Employee maintains appearance of equipment or
order of material and has responsibility for security of such equipment or material
26
Responsibility at Various Levels
Level-3Employee perform preventive maintenance and
minor repairs on equipment or corrects minor defects in material
Level-4Employee perform major maintenance or overhauls
of equipment or responsible for deciding type, quality and quantity of material to be used
27
POINT VALUES
1. Maximum number of points may be assigned: 500-3000
2. Number must be large enough to allow sufficient differentiation among jobs
3. In case of wide spread between current wages of highest paid & lowest paid job, the maximum number of points need to be higher
4. If more than one pay system chosen, number of points or actual factors do not have to be same in each one
28
Point Values to Factors Working Conditions1. Hazardous work:
deals with dangerous materials or working conditions
2. Uncomfortable work:loud, hot, cold or dirty
3. Good working conditions:office environment -
air conditioned, good lighting
Education
1. Job requires post graduate degree
2. Job requires bachelors degree
3. Job requires high school education
29
Effect of Error1. Major mistake-more than Rs.500,0002. Major mistake-more than Rs.100,0003. Major mistake-less than Rs.99,999
1=10 points, 2=8 points, 3=5 points
POINT VALUES TO FACTORS
Factor Point values for Degrees Total 1 2 3 4
Skill 45 90 135 180 450
Physical effort 25 50 75 100 250 Mental effort 35 70 105 150 360 Responsibility 25 50 75 100 250 Working conditions 20 40 60 80 200
Maximum total points of all factors depending on their importance to job=1510
30
A Typical Point Plan
31
Application of Point System to Two Jobs
32
Sunday, April 9, 2023 33
Position: Engineering ManagerGrade: 7
MAXIMUM FACTOR 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%
Advantages & Disadvantages of
POINT METHOD
AdvantagesDisadvantages
Highly stable over time Perceived as valid by users
and employees Likely to be reliable among
committee that assesses the jobs
Provides good data to prepare a response to an appeal
Time, money, and effort required to set up
Relies heavily on key (benchmark) jobs, so if key jobs and correct pay rates don’t exist, the point method may not be applicable
34
Hay’s Method - Process35
Depth & Rangeof Know-How
Planning &Organising
Communicating &Influencing
Freedomto Act
Nature of Impact
Area ofImpact
(Magnitude)
ThinkingEnvironment
ThinkingChallenge
KNOW-HOW
KNOW-HOW
PROBLEMSOLVING
PROBLEMSOLVING ACCOUNTABILITYACCOUNTABILITY+ + =
Job Size
Hay’s Method – 3 Factors36
Jobs exist to achieve an end
result
Accountability Accountability
Job holder requires a level of knowledge and
experience commensurate with scale and complexity
of the result
Problem Solving
To achieve this endresult, job holders
must address problems, create, analyse and apply
judgement
11 3322
Accountability
Problem Solving
Know-How