Establishing Rewards and Pay Plans

Introduction
• People do what they do to satisfy needs and they look for a payoff or reward.
• The most obvious reward is pay, but there are many others, including:
– promotions
– desirable work assignments
– peer recognition
– work freedom

Types of Rewards
• Intrinsic rewards are the personal satisfactions one derive from doing the job, such as:
– pride in one’s work
– feelings of accomplishment
– being part of a work team
• Extrinsic rewards come from a source outside the job. They are external to the job
and come from outside source, mainly management. It includes:
– Money
– Promotions
– Benefits
• Financial rewards include:
– wages
– bonuses
– profit sharing
– pension plans
– paid leaves
– purchase discounts
• Non-financial rewards emphasize making life on the job more attractive; employees
vary greatly on what types they find desirable.
• Performance-based rewards are tied to specific job performance criteria.
– commissions
– piecework pay plans
– incentive systems
– group bonuses
– merit pay
• Membership-based rewards such as cost-of-living increases, benefits, and salary
increases are offered to all employees.

Compensation Administration
• The process of managing a compensation program so that the organization can attract,
motivate and retain competent employees who perceive that the program is fair.
• The search for fairness is pursued by both employers and employees.
• Organizations establishes compensation programs through job evaluation.
Job Evaluation Methods
The four most frequently used job evaluation methods are:
1. Job ranking
2. Factor comparison
3. Classification
 4. Point system

1. Job Ranking
This is the simplest, the most inexpensive and the most convenient method of evaluation. The
ranking method requires a committee typically composed of both management and employee
representative to arrange jobs in a simple rank order, from highest to lowest. They assess the
worth of each job on the basis of its title or on its contents, if the later are available. No
attempt is made to break the jobs down by specific weighted criteria.
Two ways of ranking are common: alternation ranking and paired comparison. Alternation
ranking orders job descriptions alternately at each extreme. Agreement is reached among
evaluators on which jobs are the most and least valuable (i.e., which is a 10, which is a 1)
then the next most and least valued (i.e., which is a 9, which is a 2), and so on, until all the
jobs have been ordered. The paired comparison method uses a matrix to compare all possible
pairs of jobs. Exibit-1 shows that the higher-ranked job is entered in the cell of the matrix.
When all comparisons have been completed, the job most frequently judged “more valuable”
becomes the highest-ranked job, and so on.
Punch press operator

Total favorable Resulting rank:

comparisons:
Receiving clerk
Master welder

Share operator: 3 Master welder

Electrician: 4 Electrician
Electrician

Punch press operator: Shear operator

Grinder

2 Punch press
Master welder: 5 operator
Grinder: 1 Grinder
Shear operator E S M S S Receiving clerk: 0 Receiving clerk
Electrician E M E E
Punch press operator M P P
Master welder M M
Exibit-1: Paired Comparison Ranking
Grinder G

The method has several drawbacks. Job evaluation may be subjective as the jobs are not
broken into factors. It is hard to measure whole jobs.

2. Classification or Grading System

As in the ranking method, the job classification method does not call for a detailed or
quantitative analysis of job factors. It is based on the job as a whole. The difference between
the two is that in the ranking method, there is no yardstick for evaluation, while in the
classification method, there is such an yardstick in the form of job classes or grades. Under
the classification method the number of grades is first decided upon, and the factors
corresponding to these grades are then determined. These classifications are created by
identifying some common denominator – skills, knowledge, responsibilities.
Once the classifications are established, they are ranked in an overall order of importance
according to the criteria chosen, and each job is placed in its appropriate classification. This
later action is generally done by comparing each position’s job description against the
classification description. In the Civil Service, for example, evaluators have classified both
medical officer and engineer position in grade 6.
Job Classification Schedule

Level of Definition
grade

1 Very simple tasks of a largely physical nature.

2 Simple tasks carried out I accordance with a small number of clearly defined
rules, tasks which can be carried out after a short period of training of up to two
or three weeks. The work is checked and closely supervised.
3
Straight-forward tasks, but involving more complicated routines and requiring
some knowledge and alertness on the part of the worker because the job is
subject to occasional checks.

4 Tasks calling for independent arrangement of work, the exercise of some

initiative, and those which require little supervision. Detailed familiarity with
one or more branches of established procedures is required.
5 Routine work but those involving an individual degree of responsibility for
answering non-routine queries and/or exercising some measure of control over
a small group staff.
6
Non-routing work, involving the coordination of several lower-grade functions,
possibly some measure of control over a small group of staff. Also, non-routine
work involving recognized individual knowledge and some responsibility
without follow-up.
7
Work necessitating responsibility for sections involved in routing tasks and/or
where individual tasks are undertaken, calling for a specialist’s knowledge.

4. The Point System

The point system starts with the selection of job factors, construction of degrees for each
factor, and assignment of points to each degree. Different factors are selected for different
jobs, with accompanying differences in degrees and points. The National Electrical
Manufacturer’s Association, USA has given the factors degrees and points for hourly rated
and salaried jobs.

Factors, Degrees and Points for Hourly rated Jobs

Factors I II III IV V
Degree Degree Degree Degree Degree

Skill

1.Education 14 28 42 56 70

2.Experience 22 44 66 88 110

3.Ingenuity 14 28 42 56 70

Effort

4.Physical demand 10 20 30 40 50

5.Mental and /or visual demand 5 10 15 20 25

Responsibility

6.Responsibility for equipment 5 10 15 20 25

7. Responsibility for material 5 10 15 20 25

8. Responsibility for safety of others 5 10 15 20 25

9. Responsibility for work of others 5 10 15 20 25

Job Conditions

10.Working conditions 10 20 30 40 50

11.Hazards 5 10 15 20 25

Factors, Degrees and Points for Salaried Jobs

Factors I II III IV V VI VII VIII
Degree Degree Degree Degree Degree Degree Degree Degree

1.Education 20 40 60 80 100 120

2.Experience 25 50 75 100 125 150 175 200

3.Complexity 20 40 60 80 100

4.Monetary 5 10 20 40 60
Responsibility

5.Contacts 5 10 20 40 60

6.Working 5 10 15 20 25
conditions

7.Types of 5 10 20 40 60
Supervision

8.Extent of 5 10 20 40 60
Supervision

On the basis of the job description or interviews with job occupants, points are assigned to
the degree of various factors. When these are summed, the job has been evaluated. The range
of score and grades is also predetermined – for example, from 210 to 230 points, the 5 th
grade; from 231 to 250 points, the 6th grade; and so forth. A given job is placed in a particular
grade, depending on the number of points it scores.