UNIT 4

Compensation & JE
 Factors affecting the total
compensation mix

Internal Comp External

Factors Mix Factors

Benefit
Costs
 Factors affecting the total
compensation mix

Internal Comp External

Factors Mix Factors

Comp policy
Worth of job
Employee’s
relative worth Benefit
Costs
Employer’s
ability to pay
Components of employee’s salary
• Salary/Wages
• Incentives
• Fringe benefits
• Perks
Job Evaluation
Job Evaluation

• Technique for comparing JOBS

rather than employees.

• “system for comparing different jobs

systematically to assess their
relative worth, so providing a basis
for a grading and reward structure”.
Job Evaluation

Job evaluation is, by definition,

subjective. Subjectivity reduces
effectiveness. However, analytical
systems try to reduce subjectivity.

Effectiveness of job evaluation can also

be affected by external forces (eg market
shortages) and ‘tinkering’ (eg using perks)
Job Evaluation

Good remuneration systems must be

seen as fair – especially by employees!
The law also demands that jobs of equal
worth should attract equal pay. A key
factor in fairness will be linking the
degree of difficulty of the job with the
reward. Job evaluation can be used to
assess the relative difficulty of the job.
Process Of JE
Objective of JE

JOB ANALYSIS

Job Description Job Specification

JE Program
Fig :: JOB EVALUATION
Process
Methods of Job Evaluation
• Job-evaluation methods are of two
categories:

(1)Non-analytical and
(2) Analytical
Non-Analytical Method

• Ranking Method

• Job-Grading Method
Analytical Method

• Point- Ranking Method

• Factor Comparison Method

Job Evaluation Methods
A. Ranking method: The job ranking method arranges jobs in
numerical order on the basis of the importance of the job's
duties and responsibilities to the organization. This method,
though easy to understand, is highly subjective in nature.
B. Classification method: The job classification method slots
jobs into . pre established grades. Higher-rated grades demand
more responsibilities, tougher working conditions and varied job
duties. This method is easy to understand and takes care of all
relevant factors affecting the performance of a job. However, it
is not easy to write all inclusive descriptions of a grade.
Further, the method oversimplifies sharp differences between
different jobs and different grades.
C. Factor comparison method: In this method, jobs are ranked
according to a series of factors such as mental effort, physical
effort, skill needed, responsibility, supervisory responsibility,
working conditions, etc. pay will be assigned in this method by
comparing the weights of the factors required for each job.
 Job Evaluation Methods
D. Point method: The point system of job evaluation uses a point
scheme based on the compensable job factors of skill, effort,
responsibility and working conditions. The more compensable factors a
job possesses, the more points are assigned to it. Jobs with higher
accumulated points are considered more valuable to the organization.

 Select key jobs

 Identify the factors to all identified jobs such as skill, effort,
responsibility etc.
 Divide each major factor into a number of sub factors. Each
sub factor is defined and expressed in order of importance.
 Find the maximum number of points assigned to each job
 Once the worth of a job in terms of total points is known, the
points are converted into money values, keeping the wage rates in
mind.
 Figure 11.3 Job Evaluation
Procedures

Source: John M. Ivancevich, “Job Evaluation Procedures,” Foundations of Personnel, Copyright 1992 by Richard D. Irwin.
Advantages and Disadvantages

• Job Ranking
1. Advantages:
• Easy to understand and easy to administer
• Sets better rate than the rate based on pure
judgments.
2. Disadvantages:
• Classification is in general terms.
• In a complex org. may be a tough task.
• Grading is influenced by existing wage
structure.
Job Classification

• ADVANTAGES:
1. Comparatively simple and easy to
administer
2. Evaluation of jobs is more accurate than
under ranking method.

• DISADVANTAGES:
1.Classification is in general terms.
2. Placing of jobs in classes is influenced by
existing wage structure.
POINT RATING:

• Advantages:
1. The graphic or descriptive type of rating scales
have been accepted as most reliable and valid.

• DISADVANTAGES:
1. It is difficult to develop a point rating scheme.
2. Assigning proper weightage to each factor and
assigning point value to each degree without
being unfair is a matter of concern.
3. Difficult to explain.
4. Time consuming process.
FACTOR COMPARISON METHOD

• ADVANTAGES:
1. More systematic.
2. Evaluation is simpler than by point method.
3. Analysis of bench-mark jobs is very
comprehensive.

• DISADVANTAGES:
1. Complicated to apply and explain to workers.
2. The wage rates for bench-mark jobs are
presumed to be correct and all other raes are
determined by reference to them.
Benefits of Job Evaluation
• It offers a systematic procedure for
determining the relative worth of jobs.
• An equitable wage structure is a natural
outcome of job evaluation.
• Helps resolve wage related grievances.
• It links the pay with the requirements of
the job.
• It points out possibilities of more
appropriate use of the plant’s labor force
by indicating jobs that need more or less
skilled workers than those who are
manning these jobs currently.
Method What facet of How is job Type of Major Major
job is evaluated evaluated method advanta disadvanta
ges ges
Ranking Whole Jobs are subjectively Non- Relative Entirely
job( compensab ordered according to quantitati ly quick subjectiv
le factors are relative worth ve and in- e
implicit) expensi
ve

Classificati Whole job Compare job to Non- Readily Cumberso

on description of job quantitati available me
grades ve and in- system
expensiv
e

Factor compensable Compare job to key Quantitati Easy to Hard to

compariso factors of job jobs on scales of ve use construct ;
n compensable factors Inaccurate
over time

Point compensable Compare job to Quantitati Accurat May be

Method factors of job standardized ve e and costly
descriptions of stable
degrees of universal
overtim
compensable factors
e
Job Evaluation Advantages

• Provides a systematic and rational procedure

for valuing each job
• Ensures a degree of equity and objectiveness
in remuneration
• Job descriptions generated are useful for
other activities
• Helps motivation and morale
• Both employee and employer needs are
addressed
• Scope for union/employee involvement
Job Evaluation Disadvantages

• Lack of allowance for differences in

performance
• Assessment can be costly & time-
consuming especially at the start
• Assessment can be inaccurate or
approximate
• It’s still subjective!
The HRM Functions

maintenance

 safety and health: has a big effect on their commitment

 communications and employee relations: keep employees
well-informed; provide a means of venting frustrations

Job loyalty has declined over the past decade.

 Benefits

• Benefit
– An indirect compensation given to an employee or group of
employees as a part of organizational membership.
– Health benefits in the U.S. are provided by employers
 This is unique
 Benefit costs are being shifted even more on employers by
state and federal governments
• Strategic Perspectives on Benefits
– Benefits vs. Salaries- which is preferred for addition or
subtraction?
– Benefits influence employee decisions about employers
 Retention
 Absenteeism
 Recruitment
– Benefits are increasingly seen as entitlements.
– Benefit costs average over 40% of total payroll costs.
 Benefit Design

• HR Decisions Affecting Benefit Design:

– How much total compensation?
 Lag, Meet or Lead the Market

– What part of total compensation should benefits comprise?

– What expense levels are acceptable for each benefit?
– Which employees should get which benefits?
 Legal, Ethical and Business reasons for decisions

– What are we getting in return for the benefit? (ROI)

– How will offering benefits affect turnover, recruiting, and
retention of employees?
– How flexible should the benefits package be?
 Flexibility is high today due to the different familial structure in U.S.
families than has been historically prevalent
 What happens to ROI when the plan is more flexible?
Types of Benefits
 Security Benefits
• WARN- 60 days announcement during mass
layoffs pending egregious shocks to the
company
• Worker’s Compensation
– Benefits provided to persons injured on the job.
• Unemployment Compensation
– A Federal/state payroll tax that funds state
unemployment systems.
– Involuntary unemployment and actively seeking
work is required for persons to claim benefit.
• Supplemental Unemployment Benefits
(SUB)
– A union-negotiated benefit provision that pays a
supplemental amount to laid-off employees who are
drawing unemployment compensation.
 Security Benefits (cont’d)
• Severance Pay
– A security benefit voluntarily offered by
employer to employees who lose their jobs.
– Payments are determined by the
employee’s level within the organization
and years of employment.
– Other benefits (e.g., outplacement and
continued health insurance) may be offered
in lieu of cash severance payments.
 Other Benefits

Credit
CreditUnions
Unions
Purchase Discounts
Purchase Discounts
Stock
StockInvestment
Investment

Family-Care
Family-Care Relocation
Relocation
Benefits
Benefits Expenses
Expenses

Family-Oriented
Benefits
Benefits Life,
Family-Oriented Life,Disability,
Disability,
Benefits
Benefits Legal Insurances
Legal Insurances

Social
Socialand
and Educational
Educational
Recreational
Recreational Assistance
Assistance
 Flexible Benefits
• Flexible Benefit Plan
– A plan (flex or cafeteria plan) that allows
employees to select the benefits they
prefer from groups of benefits established
by the employer.
• Problems with Flexible Plans
– Inappropriate benefits package choices
– Adverse selection and use of specific
benefits by higher-risk employees
– Higher administrative cost