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How Pay is determined?

Compensation Decision
• Pay for a particular position is set relative to three groups
PAY-LEVEL DECISION
Employees working on similar jobs in other organizations
OBJECTIVE: to keep the organization competitive in labour mkt TOOL: Pay Survey

PAY-STRUCTURE DECISION
Employees working on different jobs within the organization
INVOLVES: valuing each job in the orgn. relative to other jobs APPROACH: Job Evaluation

INDIVIDUAL PAY DETERMINATION
Employees working on the same job within the organization
ISSUES: same level same pay, or different DIFFERENTIATOR: experience, skills, performance, seniority

Job Evaluation • A formal process to determine the relative worth of various jobs in the organization for pay purpose • A systematic comparison of the worth of one job with that of another job, resulting in the creation of a wage or salary hierarchy unique to the organization

Job Evaluation • Relates the amount of pay for each job to the extent it contributes to organizational effectiveness • Forms the basis for designing the compensation management system in an organization

Objectives of Job Evaluation • Some of the objectives are • determine place & position of a job in the organizational hierarchy • manage internal and external consistency in the compensations • ensure employee satisfaction w.t.r. compensation • avoid discrimination in wage administration .

• Finding the jobs to be evaluated. . • Analysing and preparing job description. • Creating job evaluation committee.Process of Job evaluation • Gaining acceptance.

. • Classifying jobs. • Installing the programme. • Reviewing periodically.Process of Job evaluation • Selecting the method of evaluation.

not people. • The basic information on which job evaluations are made is obtained from job analysis.Features of Job Evaluation • It tries to assess jobs. . not absolute. • The standards of job evaluation are relative.

• Some degree of subjectivity is always present in job evaluation. not by individuals. • Job evaluation does not fix pay scales. but merely provides a basis for evaluating a rational wage structure. .Features of Job Evaluation • Job evaluations are carried out by groups.

• It offers a systematic procedure for determining the relative worth of jobs. .Benefits of job evaluation • It tries to link pay with the requirements of the job. • An equitable wage structure is a natural outcome of job evaluation • An unbiased job evaluation tends to eliminate salary inequalities by placing jobs having similar requirements in the same salary range.

.Benefits of job evaluation • Employees as well as unions participate as members of job evaluation committee. when conducted properly and with care. helps in the evaluation of new jobs. • It points out possibilities of more appropriate use of the plant’s labour force by indicating jobs that need more or less skilled workers than those who are manning these jobs currently. • Job evaluation.

attaching monetary value Classification of Jobs based on monetary values attached Implementation of Evaluation educate employees. implement results JOB E V A L U A T I O N PRO CESS Maintenance Update & modify results with time . methods Job Analysis Job description and specification Selection of Job Dimensions basis for evaluating jobs.Preparation of JE Plan need for JE. how to go about.

p. Newman. . and Jerry M. 1990. 103. BPI/Irwin.Job Evaluation System • What is job evaluation? Job evaluation can be defined as “a systematic procedure designed to aid in establishing pay differentials among jobs…”1 __________ 1 Compensation: Milkovich. George T.

and point plans. classification.Job Evaluation System There are four major methods of job evaluation: ranking. . factor comparison.

Job Evaluation Methods Non-Quantitative Methods Quantitative Methods Ranking Method Job Classification/ Grading Point Rating Method Factor Comparison Method .

effort & other dimensions – involves preparation of JD and then assigning ranks that commensurate its worth in the organization – the evaluator rank-order whole jobs. simpler organizations – assessment of jobs based on knowledge. skills.Non-Quantitative Techniques • Ranking – used primarily in smaller. from the simplest to the most challenging .

Techniques of Ranking • Relative Ranking – a key or representative job is identified and its worth is determined – other jobs are ranked according to relative importance in comparison to the representative job • Paired Comparison – each job is compared with every other job and then ranked • Single Factor Ranking – the single most important factor of a job is identified and compared with the single most dimension of jobs .

What are the Advantages and Disadvantages of Ranking? ADVANTAGES simple method of evaluation -appropriate for small organizations -quick and inexpensive method - DISADVANTAGES suitable for large organizations -no definite standard is used for ranking -JS are not considered -does not indicate the extent of difference between jobs -not .

Non-Quantitative Techniques • Job Classification/Grading – groups a set of jobs together into a grade or classification – grades are formulated based on nature of tasks. and knowledge and skills required – these sets of jobs are ranked by levels of difficulty or sophistication – the jobs are classified and graded based on their significance and their worth to the organization . responsibilities.

etc) Classify Jobs Under Different Grades Feedback Freezing the grades & assigning monetary values to the grades .Analyze Organizational Structure Determine Job Dimensions for grading Job Classification Or Job Grading Define Job Grades (Grade I. III. II.

mental effort needed • degree of dangerous working conditions • amount of responsibility .Quantitative Techniques • Point Rating Method – requires evaluators to quantify the value of the elements of a job – different scales are might be required to evaluate different jobs – points are assigned to the degree of various compensable factors required to do the job • skills required • physical.

Point Rating Method • Determine the Job Factors – JD & JS of a significant sample of jobs are taken up to determine compensable factors • Determine the sub-factors – job factors are sub-divided into sub-factors • Define the degree/profile statements – describes the specific requirements of each subfactor – written phrases that determine the degree of importance associated with each sub-factor – usually five degrees associated with each sub-factor .

sub-factor and degree in the job – maximum points that can be allotted to each job factor fixed and are distributed across different job factors • Preparation of a Chart • Applying the Point System – comparing the JD of each job with the standard point manual. final points are determined – these point help in determining the pay scale for each job .Point Rating Method • Assign Points – on the basis of importance of each factor.

although Hay itself does not define the guide chart-profile method as a variation of the point method.2 __________ 2 Milkovich. p. 125. .Job Evaluation System The Hay method of job evaluation is generally understood to be a point plan.

this system utilizes three factors to arrive at a job’s evaluation. . The job’s content is the sole basis for the job evaluation.Job Evaluation System • What is Hay? Officially known as the Hay Guide ChartProfile Method of Job Evaluation©.

Job Evaluation System The three factors are: – Know-How – Problem Solving – Accountability .

responsibility.Job Evaluation System The Hay guide charts have been in existence since 1951 and have been used in over 5. and working conditions” as the factors upon which equal work should be determined. effort. Interestingly. 1984. McGraw-Hill.4 __________ 4Excerpted from Handbook of Wage and Salary Administration. the Equal Pay Act of 1963 uses “skill.000 different organizations worldwide. in materials presented by Hay. .

the supervisor. . 2.Job Evaluation System • How are jobs evaluated using the Hay System? Job description questionnaires are completed and signed by the jobholder. and other managerial staff who have responsibility for the position. The job description questionnaire is given to each member of the job evaluation committee for his/her initial evaluation. 1.

3. . The committee members then compare their individual evaluations and resolve differences that might exist. 4.Job Evaluation System • How are jobs evaluated using the Hay System? The committee meets with the jobholder and supervisor to explore questions and clarify content.

Hay System Factors • KNOW-HOW The sum total of every kind of skill. however acquired. . needed for acceptable job performance.

. practicing skills in the area of human relationships.Hay System Factors • KNOW-HOW This sum total which comprises the overall “fund of knowledge” has three dimensions – the requirements for: – Practical procedures. – Active. specialized techniques. and learned disciplines.

controlling. and administrative). This know-how may be exercised consultatively as well as executively and involves in some combination the areas of organizing. executing. planning. and evaluating. . supporting.Hay System Factors • KNOW-HOW – Know-how of integrating and harmonizing the diversified functions involved in managerial situations (operating.

evaluating. or referred to others. covered by precedents. reasoning. arriving at and making conclusions. problem solving is diminished and the emphasis correspondingly is on know-how. . creating.Hay System Factors • PROBLEM SOLVING The original “self starting” thinking required by the job for analyzing. To the extent that thinking is circumscribed by standards.

– The challenge presented by the thinking to be done. .Hay System Factors • PROBLEM SOLVING Problem solving has two dimensions: – The environment in which the thinking takes place.

It is the measured effect of the job on end results. . It has three dimensions in the following order of importance: – Freedom to Act – the degree of personal or procedural control and guidance the jobholder has.Hay System Factors • ACCOUNTABILITY The answerability for an action and for the consequences thereof.

shared. – Magnitude – indicated by the general dynamic dollar size or accountability area(s) most clearly affected by the job.Hay System Factors • ACCOUNTABILITY – Job Impact on End Results – ranges from direct to indirect impact on end results by auxiliary. or primary effects. . contributory.

the Hay points represent our link to the salary information developed through survey responses. .Job Evaluation System • What role does Hay play in determining salaries? The role of the Hay job points is to provide the relative comparisons about which the salary policy line can be constructed. In essence.

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Intrinsic Rewards – centers on the work itself 2. recognition.Strategic Reward Systems : Pay for Performance Reward Systems consist of the following elements: Financial Rewards – Compensation 1. time off and other rewards given to the employee by peers or superiors. Pay Incentives 3. Employee Benefits Non-financial Rewards 1. Base Salary 2. Praise. .

The Reward System is a key driver of: • HR Strategy • Business Strategy • Organization Culture .Strategic Reward Systems : Pay for Performance Reward Systems in most cases should be consistent with other HR systems.