Compensation Management

Chapter 3: Job Analysis & Compensation

 HUMAN RESOURCE MANAGEMENT
Employer/Organizational Objectives
Organizational Structure
Job Identification, Analysis & Design
Job Specification (Before Joining)

Job Description (After Joining)

Tasks, Activities, Responsibilities, Accountabilities
Power (Financial/Administrative)

Reporting Structure
Manpower Planning, Recruitment, Induction
Training & Development

Employee Objectives JOB Employer Objectives

Work (Scope & Depth) Growth in
Growth in Services
Goods & Services
Family & Self
Customer Satisfaction
Profession Employee Employer
EMPLOYER
EMPLOYEE Revenue Generation
Career Relationship
Profits
Security
Performance Return on Equity (ROE)
Social Status Compensation &
Management Expansion of Business
Rewards
Corporate Reputation

Performance Evaluation Salary

Increments Benefits
Bonus Facilities and Perks
Incentives Allowances
Career Development Professional, Career, Societal
Ultimate Potential Recognition
Internal + External (Mkt) Equity

Human Resource Management by Shah M Saad Husain

Human Resource Management by Shah M Saad Husain
 Job Analysis

Job Analysis is the process of determining and reporting pertinent

information relating to the nature of a specific job

It is the determination of tasks which comprise the job and of the

skills, knowledge, abilities, and responsibilities required of the
holder for successful job performance

It is a process of determining through observation and study, the

pertinent information relating to the nature of a specific job

The job analysis should report the job as it exists at the time
of the analysis, not as it should exist, not as it existed in the
past, and not as it exists in similar establishments.

Human Resource Management by Shah M Saad Husain

Human Resource Management by Shah M Saad Husain
Human Resource Management by Shah M Saad Husain
Human Resource Management by Shah M Saad Husain
Products of Job Analysis
Job Description:

1. Concentrates on describing the job as it is currently being

performed

2. It explains in written form, what the job is called, what is to

be done, where it is to be done, and how it is to be done

3. Most job descriptions contain sections that include the

following: the job name, a brief summary description of
the job, a listing of jobs and duties and responsibilities,
and explanation of organizational relationships pertinent
to the job

Human Resource Management by Shah M Saad Husain

Products of Job Analysis

Job Specification:

1. Concentrates on characteristics needed to

perform the job

2. It describes the competency, education, and

experience qualifications the incumbent must
posses to perform the job

Human Resource Management by Shah M Saad Husain

Human Resource Management by Shah M Saad Husain
Human Resource Management by Shah M Saad Husain
Problems faced in Job Descriptions

A potential problem with all job descriptions is that

they become outdated.

Often the job description is not updated to reflect

any changes that have occurred in the job

A good practice is to have the job holder and

supervisor periodically review the most current job
description and determine whether the description
needs updating

Human Resource Management by Shah M Saad Husain

Job Analysis Methods

Four of the most frequently used methods

for conducting a job analysis are:

1. Observation

2. Interviews

3. Questionnaires

4. Functional Job Analyses

Human Resource Management by Shah M Saad Husain

Job Analysis Methods

1. Observation

This method is used to analyze jobs that are relatively

simple and straight forward

Individual/s performing the job are observed and notes

describing the work are taken

This information includes details about what was done,

how it was done, how long it took, what the job
environment was like, what equipment was used, etc.

Human Resource Management by Shah M Saad Husain

Job Analysis Methods

2. Interviews

The person conducting the job analysis meets and interviews

the jobholder

Interviews can be structured with pre-designed formats or

unstructured

Structured interviews ensure that all pertinent aspects of the job

are covered

They make it easier to compare information obtained from

different people holding the same job

Time consuming method

Human Resource Management by Shah M Saad Husain

Job Analysis Methods
3. Questionnaires

Job analysis questionnaires contain both objective and open-

ended questions

For existing jobs, the jobholder completes the questionnaire with

feedback from supervisor, and returns to the job analyst

For new jobs, questionnaire is sent to the supervisor of the new job

If the job being analyzed is vacant but duplicated in another

department, questionnaire is completed by the incumbent in the
duplicate job

One questionnaire method is to have the incumbent write an actual

description of the job, subject to the approval of the immediate
supervisor. The incumbent is the most knowledgeable person
about the job and this method also brings out any difference in
perception between the incumbent and the supervisor
Human Resource Management by Shah M Saad Husain
Job Analysis Methods

3. Questionnaires

This method can obtain information from a large

number of people in a short time, is usually used when
a large input is need in limited time and cost

Possibility exists that either the respondent or job

analyst will misinterpret the information

Human Resource Management by Shah M Saad Husain

Job Analysis Methods
3. Questionnaires

Position Analysis Question ( PAQ)

It is a highly specialized instrument for analyzing any job in terms of

employee capabilities

It uses six major categories of employee activities

194 descriptors, called job elements, describe the six categories in detail

Using a 5-point scale, one can analyze each description for the degree to
which it applies to the job

It can be used to analyze almost any kind of job, and is relatively easy to
use but very lengthy

Human Resource Management by Shah M Saad Husain

Human Resource Management by Shah M Saad Husain
Human Resource Management by Shah M Saad Husain
 Job Analysis Methods

3. Questionnaires

Management Position Description Questionnaire (MPDQ)

It is a highly structured questionnaire designed for

analyzing managerial jobs

It contains 208 items grouped under 13 categories

relating to managerial responsibilities, restrictions,
demands, and other miscellaneous position
characteristics
Human Resource Management by Shah M Saad Husain
Human Resource Management by Shah M Saad Husain
Problems with Job Analysis
Some of the most frequently problems associated with job
analyses are:

1. Top management support is missing

2. Only a single means and source are used for gathering data

3. The supervisor and the job holder do not participate in the design
of the job analyses procedure

4. Employees are not allowed sufficient time to complete the

analyses

5. Activities may be distorted

6. There is a failure to critique the job

Human Resource Management by Shah M Saad Husain

Job Design
Job design is the process of structuring work and designing the
specific work activities of an individual or group of individuals to
achieve certain organizational objectives

It address the basic question of how the job is to be performed,

who is to perform it, and where it is to be performed

The overall goal of job design is to develop work assignments

that :

1. Meet the requirements of the organization and the technology

2. Satisfy the personal and individual requirements of the job holder

Human Resource Management by Shah M Saad Husain

Human Resource Management by Shah M Saad Husain
Job Scope and Job Depth

Job Scope: refers to the number and variety

of different tasks performed by the jobholder

In job with narrow scope, the job holder

performs a few different and repetitive tasks

Jobs with narrow scope can result in more

error and less quality

Human Resource Management by Shah M Saad Husain

Job Scope and Job Depth

Job Depth: refers to the freedom of jobholders to

plan and organize their own work, work at their
own pace, and move around and communicate.

A lack of job depth can result in job dissatisfaction

It can in turn lead to tardiness, absenteeism, and

even sabotage

Human Resource Management by Shah M Saad Husain

Job Scope and Job Depth

Job Scope

Automobile Secretarial
Assembly Work
Job Depth

Line

Newspaper Advertising
Delivery

Human Resource Management by Shah M Saad Husain

Six approaches to Job Design

1. Socio-technical approach

2. Work Simplification

3. Job Enlargement

4. Job Rotation

5. Job Enrichment

6. Team-Based Job Designs

Human Resource Management by Shah M Saad Husain

Socio-technical approach to Job Design

As the name suggests, both the technical system,

and the accompanying social system should be
considered when designing jobs

According to this approach, employers should

design jobs by taking a holistic, or systems, view of
the entire job situation

This approach integrates the technical needs of the

organization with the social needs of the employees
involved in decision making

Human Resource Management by Shah M Saad Husain

 Socio-technical approach to Job Design

The following guidelines use the socio-technical approach to designing jobs

1. A job needs to be reasonably demanding for the individual in terms other

than sheer endurance, yet provide some variety (not necessarily novelty)

2. Employees need to be able to learn on the job and continue learning

3. Employees need some minimum decision area that they call their own

4. Employees need some minimal degree of social support and recognition

in the workplace

5. Employees need to be able to relate to what they do, and what they
produce to their social lives

6. Employees need to believe that the job leads to some sort of desirable
future

Human Resource Management by Shah M Saad Husain

Work Simplification

This approach assumes that work can be broken

down into simple, repetitive tasks that maximize
efficiency

Work simplification can utilize labor effectively to

produce a large amount of a standardized product
Example: The automobile industry

Human Resource Management by Shah M Saad Husain

Job Enlargement and Job Rotation

Both of these approaches are used reduce fatigue and

boredom among workers performing simplified and
highly specialized work

Job Enlargement is the process of expanding a jobs

duties
Example: Auto workers installing carpets on the car floor also install car
seats and instrument panel

Job Rotation is the process of rotating workers among

narrowly defined tasks without disrupting the flow of work
Example: Same auto workers rotated to install tires

Human Resource Management by Shah M Saad Husain

Job Enrichment

Job enrichment is the process of putting specialized tasks

back together so that one person is responsible for producing
the whole unit or the entire service

This expands both the horizontal and vertical dimensions of a

job

It gives employees more opportunities for autonomy and

feedback

It gives them responsibilities that require decision making,

scheduling work, determining work methods, and judging
quality

Human Resource Management by Shah M Saad Husain

Job Design and the physical work environment

The physical work environment; temperature,

humidity, ventilation, noise, light, color can have an
impact on the design of jobs.

Adverse physical conditions have a negative effect

on performance. The degree of effect varies from
individual to individual

If employees must be exposed to less than ideal

conditions, the time of exposure should be
minimized

Human Resource Management by Shah M Saad Husain

Job Design and Alternative work schedules

Alternative work schedules are being used by many firms to

increase productivity and decrease cost

This does not alter the work to be done, but its allocation

The most common work schedules are:

1. Flexitime: allows employees to choose, within certain limits,

their work hours

2. Job Sharing: where two or more part-time individuals perform a

job that would normally be performed by on full-time employee

3. Condensed workweek: where the no. of hours per day is

increased and no. of days a week is decreased
Human Resource Management by Shah M Saad Husain
Relationship between Job Analysis and Job Design

Job Analysis and Job Design are directly linked to one

another

In practice, most Job Analyses are performed on existing jobs

that have previously been designed

Existing jobs are also redesigned as a result of Job Analyses.

Example: A job analysis might reveal that the current method of performing
a job (the job design) is inefficient or contains unnecessary tasks.

Human Resource Management by Shah M Saad Husain

Human Resource Management by Shah M Saad Husain
Compensation

Definition : Used to attract, retain, and motivate competent

employees to support organizational objectives

Effectiveness and allocation of compensation can make a

significant difference in gaining or losing a competitive edge.

Mishandling compensation issues leads to negative impact

on employees

An employees total compensation has three components:

Base Compensation
Pay Incentives
Indirect Compensation/Benefits
Compensation and Strategy

Critical strategic issues for any firm are:

How much is paid

Who gets paid what

These issues affect the cost side of

financial statements, and determine the
extent to which the firm realizes a low or
high return on its payroll.
Model of the Consequences of Pay Dissatisfaction
Model of Determinants of Pay Satisfaction
Designing a Compensation System

The challenge is to design a compensation system

that:

Enables the firm to achieve its strategic

objectives

Is molded to the firms unique characteristics,

environment and affordability
 9 Criteria for Developing a Compensation Plan

1. Internal Vs External Equity: Will the compensation plan be perceived as fair within the
company, or will it be perceived as fair relative to what other employees are paying for the same
type of labor ?
2. Fixed Vs Variable Pay: Will compensation be paid monthly on a fixed basis through base
salaries or will it fluctuate depending on such pre-established criteria as performance and
company profits ?
3. Performance Vs Membership: Will compensation emphasize performance and the pay to
individual or group contributions, or will it emphasize membership in the organization logging in
a prescribed number of hours each week and progressing up the organizational ladder ?
4. Job Vs Individual Pay: Is compensation be based on how the company values a particular job,
or is it assessed on how much skill and knowledge an employee brings to that job ?
5. Egalitarianism Vs Elitism: Will the compensation plan place most employees under the same
compensation system (egalitarianism), or will it establish different plans by organizational level
and/or employee group (elitism) ?
6. Below-Market Vs Above-Market Compensation: Will employees be compensated or below-
market levels, at market levels, or at above-market levels ?
7. Monetary Vs Non-monetary Awards: Will the compensation plan emphasize motivating
employees through monetary rewards like pay and stock options, or will it stress non-monetary
rewards such as interesting work and job security ?
8. Open Vs Secret Pay: Will employee have access to information about other workers
compensation levels and how compensation decisions are made (open pay), or will this
knowledge be withheld from employees (secret pay) ?
9. Centralization Vs Decentralization of Pay Decisions: Will compensation decisions be made in
a tightly controlled central location, or will they be delegated to managers of the firms units ?
 Labor Market Model

Supply of
Qualified
Employees
Wages

W1

Demand for
Employees

N1
Number of Qualified Workers
Compensation Tools

Compensation tools can be grouped into

two broad categories:

1. Job- based approach

2. Skill-based approach
 Job-based Approach
This system assumes that work gets done by people
who are paid to perform well-defined jobs (e.g.
secretary, accountant)

Each job is designed to accomplish specific task

(e.g. typing, record keeping), and performed by
several people

The primary objective is to allocate pay so that the

most important jobs or the jobs that give the most
value addition have the most pay.
Job-based Approach

Three key components of developing Job-based

Compensation Plans are:

1. Achieving Internal Equity

2. Achieving External Equity

3. Achieving Individual Equity

he Key Steps in Creating Job-Based Compensation Plans
 Jobs Number of Positions Pay

GRADE 6 Chef 2 Rs 2000 ~ 2700 / hr

GRADE 5 Manager 1 Rs, 1100 ~ 1900 / hr

Sous-Chef 1

GRADE 4 Assistant Manager 2 Rs.700 ~ 1100 / hr

Lead Cook 2

Office Manager 1

GRADE 3 General Cook 5 Rs. 600 ~ 700 / hr

Short-Order Cook 2

Assistant to Lead Cook 2

Clerk 1

GRADE 2 Server 45 Rs.600 ~ Rs. 700 / hr

Hostess 4

Cashier 4

GRADE 1 Kitchen Helper 2 Rs 550 ~ 600 / hr

Dishwasher 3

Janitor 2

Busser 6

Security Guard 2
Achieving Internal Equity : Job Evaluation

An internal procedure

Does not take into account the wage

rates in the market place or what other
firms are doing.

It focuses only on the value of the tasks

that make up each job, not the people
performing it.
Job Evaluation

Definition : Job evaluation (JE) is a systematic

process for defining the worth of a job

Advantages:

JE helps establish internal relativities

It enables sound market comparisons

Allows transparency in the system

Performance & Compensation Management by Shah M Saad Husain

Job Evaluation

It forms a basis for:

designing an equitable grade and pay

structure;

grading jobs in the structure;

managing job and pay relativities;

guiding the achievement of equal pay for work

of equal value

Performance & Compensation Management by Shah M Saad Husain

Main features of Job Evaluation

It is based on factual evidence

Human judgment has to exercised at a

number of points

It is concerned with the job, not the job holder

It is concerned with internal relativities

Performance & Compensation Management by Shah M Saad Husain

About Hay Group

Used by an estimated 8,000 organizations, including half

of the Fortune 50 companies

It evaluates jobs against a set of common factors that

measure inputs (required knowledge, skills, and
capabilities), throughputs (processing of inputs to
achieve results), and outputs (end result expectations
from applying inputs constructively)
About Hay Group

Each jobs content is analyzed relative to each

factor and represented by a numerical value

These factor values are then totaled to

determine the overall job size.

The input-throughput-output model is reflected in

the Hay Method as Know-How, Problem Solving,
and Accountability
Accountability

Accountability measures the type and level of

value a job can add

It has three dimensions:

Freedom to Act (degree of empowerment)
Scope (positive impact of the job on the business
measure)
Impact ( influence on business result)
Know - How

It is the sum total of every capability or skill,

however acquired, needed for fully competent
job performance.

Dimensions :
Technical/Specialized Skills
Managerial Skills
Human Relations Skills
Problem Solving

It is viewed as utilization of Know-How

Dimensions :
Thinking Environment (job content and degree of
solutions and problems defined)
Thinking Challenge (nature of problems and
identification of valuable solutions)
Hay Compensable Factors
Hay Guide Charts

The Guide Charts enable consistent work

evaluations

Each factor has its own Guide Charts containing

its own sub-elements

Each Guide Chart scale is expandable to

account for the complexity and size of the
organization to which it is applied, and the scale
descriptions can be modified when appropriate.
Job Size and Shape

They serve as starting points for many job

evaluation applications.
Job size : It is determined by the total of the
factor point values for Accountability, Know-
How, and Problem Solving, and reflects the jobs
relative value to the organization.
Job shape: The relative proportions of
Accountability, Know-How, and Problem Solving
that make up the job
Job Sizes and Shapes at Different Levels
Hierarchy of Clerical Jobs, Pay Grades, Weekly Pay for a Hypothetical Office
1 2 3
Points Grade Weekly pay Range

Customer Service Representative 300 5 Rs42000 ~ 55000

Executive Secretary/Administrative Assistant 298

Senior Secretary 290

Secretary 230 4 Rs 40000 ~ 47000

Senior General Clerk 225

Credit and Collection Clerk 220

Accounting Clerk 175 3 Rs 35000 ~ 40000

General Clerk 170

Legal Secretary / Assistant 165

Senior Word Processing Operator 160

Word Processing Operator 125 2 Rs 33000 ~ 37000

Punching Clerk 120

Payroll Clerk 120

Clerk-Typist 115

File Clerk 95 1 Rs. 30000 ~ 35000

Mail Clerk 80
Personnel Clerk 80
Receptionist 60
Achieving External Equity: Market Surveys

Purpose : To determine the pay ranges for each

grade level.
Why do firms conduct internal evaluation when market
data can be to used to determined the values of the
job?
Most companies have jobs that are unique to the
firm, and therefore, can not be easily matched to
the market data
The importance, scope and depth of a job can vary
from firm to firm
Linking Job-Evaluation results to External Wage /
Salary data

Step 1: Identify Benchmark or Key Jobs

Links the internal job-evaluation
hierarchy or grade level
classification to market salaries
Rates for non-key jobs (for
which market data are not
Salary surveys determine how
available) are set by assigning
much these key jobs are worth
them the same pay range as
to other employers
key jobs that fall into the same
grade level

Step 2: Establish a Pay Policy

A pay policy is determined by how an organization chooses to

position itself in the pay market: lead, lag, or pay the going rate
Performance & Compensation Management by Shah M Saad Husain
 Market Salary Data for Selected Benchmark Office Jobs
WEEKLY PAY PERCENTILE

Benchmark Jobs Weekly pay

25TH 50TH 75TH Average

1 Customer Service Representative Rs 35000 Rs 43000 Rs 55000 Rs 42000

2 Credit and Collection Clerk Rs.35000 $ 450 $ 550 $ 445

3 Accounting Clerk Rs 31000 Rs 36000 Rs 41000 Rs 36000

4 Word Processing Operator Rs 32000 Rs 33000 Rs 36000 Rs 34500

5 Clerk-Typist Rs 30000 Rs 32000 Rs 34000 Rs.32000

Achieving Individual Equity: Within-Pay-Range
Positioning

Individual equity refers to fairness in pay

decisions for employees holding the same job.
After finalizing the pay structure, and
determining pay ranges for each job, each
employee is assigned a pay rate within the
range established for his/her job.
Previous experience, seniority, and
performance appraisal ratings determine how
much an employee is to be paid within the
stipulated range for his/her job.
Establishment of Pay Grades with Ranges
Drawbacks of Job-Based Compensation Plans

Do not consider the nature of business, its unique problems

Process is subjective and arbitrary

Less appropriate at higher level as here it is difficult to

separate individual contributions from the job

General job descriptions make it difficult to evaluate relative

importance of jobs

Bureaucratic, mechanistic, and inflexible

Process is biased against occupations traditionally filled by

women

Wage and salary data from market surveys are not definitive

In determining internal and external equity, it is the

employees perceptions of equity that counts, not the
assessments of job-evaluation committees and consultants.
Implementing a Job-Based Compensation Plan

To reduce the potential problems associated with job-based

compensation plans:

1. Think strategically in making policy decisions concerning pay

2. Secure employee input

3. Increase each jobs range of pay while expanding its scope of

responsibility

4. Examine statistical evidence periodically to ensure that the job-

evaluation system is doing what it is supposed to

5. Expand the proportion of employees pay that is variable

(bonuses, stock plans, etc)

1. Establish dual-career ladders for different types of employees

so that moving into management ranks or up the organizational
hierarchy is not the only way to receive a substantial increase
in pay
Example of a Dual-Career Ladder
Brand Managerial Individual Contributor

13 President
12 Executive Vice President Vice President for Research

11 Vice President Executive Consultant

10 Assistant Vice President Senior Consultant

9 Director Consultant

8 Senior Manager Senior Adviser

7 Manager Adviser

6 Senior Specialist

5 Specialist

4 Senior Technician

3 Senior Administrative Support, Technician

2 Administrative Support Senior Manufacturing

Associate

1 Clerical Support, Manufacturing Associate

Incentive and Reward Systems
Organizational rewards are those that result from
employment with the organization, and includes all types
of rewards, both Intrinsic and Extrinsic

Intrinsic Rewards Extrinsic Rewards

Achievement Formal recognition
Feelings of accomplishment Fringe benefits
Informal recognition Incentive payments
Job satisfaction Pay
Status Promotion
Social relationships
Work environment
 Pre-conditions for implementing a Pay-for-Performance System

1. Trust in management

2. Absence of performance constraints

3. Trained supervisors and managers

4. Good measurement systems, flexible reward schedule

and well-communicated total pay policy

5. Ability to pay and wants to retain high potential

employees

6. Clear distinction among cost of living, seniority, and merit

7. Firms performance depends on employee performance

8. Individual employees and work teams differ in how much

they contribute to the firm
Challenges to implementing a Pay-for-Performance System

1. The Do Only What You Get Paid For Syndrome

2. Negative Effects on the Spirit of Cooperation
3. Lack of Control
4. Difficulties in Measuring Performance
5. Psychological Contracts
6. The Credibility Gap
7. Job Dissatisfaction and Distress
8. Potential Reduction of Intrinsic Drives
Meeting the Challenges for Pay-for-Performance Systems

1. Link Pay and Performance Appropriately, by using

systems like piece-rate systems

2. Use Pay for Performance as part of a broader HRM

System

3. Build Employee Trust

4. Promote the Belief That Performance Makes a

Difference

5. Use Multiple Layers of Rewards

6. Increase Employee Involvement

7. Use Motivation and Non-financial Incentives

Types of Pay-for-Performance Plans

A firm may design incentive systems at the micro-level

and/or macro-level
Unit of Analysis

Micro Level Macro Level

Individual Team Business Unit/Plant Organization

Merit Pay Bonuses Gain Sharing Profit Sharing

Bonuses Awards Bonuses Stock plans

Awards Awards

Piece rate
Advantages/Disadvantages of Individual and Team Based Pay-for-Performance Plans

Individual-Based Plans Team-Based Plans

Advantages Rewarded performance is likely to be repeated Fosters group cohesiveness

Financial incentives can shape a persons goals Aids performance measurement
Can help the firm attain individual equity
Fit an individualistic culture

Disadvantages Can promote single-mindedness individualistic Possible lack of fit with

culture
May lead to free-riding effect
Disbelief that pay and performance are linked
Group may pressure members to limit
May work against achieving quality goals performance
May promote inflexibility Hard to define a team
Intergroup competition
 Conditions That Favor Various Pay-for-Performance plans
Type of Plan Favorable Conditions

Individual-Based Plans The contributions of individual employees can be accurately isolated

The job demands autonomy
Successful performance does not depend on cooperation, or competition should be
encouraged

Team-Based Plans Work tasks are so intertwined that it is difficult to single out who did what
The firms organization supports the implementation of team-based incentives
The firms objective is to foster entrepreneurship in self-managed work groups

Plantwide Plans Firm size is small to midsize

Technology does not limit efficiency improvements
Clear records of historical performance are available
Corporate culture supports participative management
A stable product market is present

Corporatewide Plans Firm size is large

Different parts of the business are interdependent
A relatively unstable (cyclical) product market is present
Other incentive are present