Chapter Four: The Rewarding of HR

Introduction

 This chapter deals with

– Job Evaluation
– Method of Job Evaluation
– Compensation such as Salary, Wage
and Incentive Packages
4.1 Terminologies

 Compensation: Direct (salary/wages) + Indirect

pay (benefits)
 Pay level - average pay for a given job (job as
unit of analysis)
 Pay structure - relationship between jobs and
pay levels
 Key jobs (benchmark jobs) - primary or most
common job within a given job cluster or job
family
Terminologies
 Job cluster or job family -jobs that are related by
technology or service or social custom
 External equity (or External competitiveness) -pay equity
between similar jobs in different organizations
 Internal equity - pay equity between/among different
jobs within same organization
 Personal equity - equity of individual employee’s
outcomes relative to his/her inputs (compared to that of
referent others) -- see Adams Equity Theory
 Market wage survey - survey of competing organizations
(wage contour) to determine pay levels of jobs similar to
those in own organization (used to determine external
equity)
4.1 Job Evaluation

 Job Evaluation is the process by which the relative

contribution of various jobs is determined for pay
purpose. That is to rationalize pay structure decision
 Job Evaluation: evaluation of jobs within organization (&
within job cluster) to determine relative “worth” of each
position based on compensable factors (e.g. skill, effort,
responsibility, working conditions)
 Job evaluation is a practical technique, designed to
enable trained and experienced staff to judge the size
of one job relative to others. It does not directly
determine pay levels, but will establish the basis for an
internal ranking of jobs.
Importance of Job Evaluation

 To develop a fair and equitable scale of salary

 To determine the relative value of each job to
the organization
 To provide information for determining the
qualifications needed in decision making
selection, promotion, job change ---
 others
Steps in Job Evaluation

 Step 1 :Job Analysis: getting job

facts
 Step 2: Job Grading: Rating the
relative importance/value to the
other jobs in the organization.
 Step 3: Job Pricing: establishing
salary for each job
Methods of Job Evaluation
1. Non-Quantitative Method
A. Ranking: jobs are compared one with another and valued in the
order of their importance or value to the firm. It is highly
subjective and depends on the people doing the ranking
B. Job classification: description of job families, assign a job to an
appropriate family, each job family has a labor grade
2. Quantitative Methods
A. Factor comparison (multiple job factors/relative standard) -
rank order jobs on identified compensable factors (factors may
be weighted in terms of importance in compensation), average
rankings for each job
B. Point factor system (multiple job factors/absolute standard) -
evaluate each job (use job analysis & job description) based on
compensable factors such as skill, effort, responsibility and
condition (factors may be weighted) -- more points, higher pay
Methods of Job Evaluation

 In the points system various aspects or parts of the job

such as education and experience required to perform
the job are assessed and a points value awarded - the
higher the educational requirements of the job the
higher the points scored.
 The most well known points scheme was introduced by
Hay management consultants in 1951. This scheme
evaluates job responsibilities in the light of three major
factors - know how, problem solving and accountability.
Principles of Job Evaluation

 Clearly defined and identifiable jobs must exist. These

jobs will be accurately described in an agreed job
description.
 All jobs in an organisation will be evaluated using an
agreed job evaluation scheme.
 Job evaluators will need to gain a thorough
understanding of the job
 Job evaluation is concerned with jobs, not people. It is
not the person that is being evaluated.
 The job is assessed as if it were being carried out in a
fully competent and acceptable manner.
Principles of Job Evaluation

 Job evaluation is based on judgement and is not

scientific. However if applied correctly it can enable
objective judgements to be made.
 It is possible to make a judgement about a job's
contribution relative to other jobs in an organisation.
 The real test of the evaluation results is their
acceptability to all participants.
 Job evaluation can aid organisational problem solving
as it highlights duplication of tasks and gaps between
jobs and functions.
Job Evaluation: Future

 As organisations constantly evolve and new

organisations emerge there will be challenges to
existing principles of job evaluation. Whether existing
job evaluation techniques and accompanying schemes
remain relevant in a faster moving and constantly
changing world, where new jobs and roles are invented
on a regular basis, remains to be seen.
 The formal points systems, used by so many organisations is
often already seen to be inflexible. Sticking rigidly to an existing
scheme may impose barriers to change. Constantly updating and
writing new jobs together with the time that has to be spent
administering the job evaluation schemes may become too
cumbersome and time consuming for the benefits that are derived.
Cont’d

 Job evaluation evaluates selected job factors,

which are regarded as important for the
effective performance of the job, according to
one of several alternative methods. The
resulting numerical gradings can form the basis
of an equitable structure of job gradings. The
job grades may or may not be used for status
or payment purposes.
 4.2 Compensation

 Compensation: is defined as the adequate and

equitable remuneration of employees for their
contribution to organizational goal.
 Objective of Compensation
– To attract and retain qualified Human Resource
– To ensure Equity
– To benefit employee, organization and the country
economy
 It includes both Direct (salary/wages) and Indirect
pay (benefits)
Direct Compensation

 Salary: Payment based on hours to employees

output which can’t be quantified.
 Wages: payment based on output produced.
 Bonus: Payment offered to employees in
recognition of successful performance
 Commission: incentive given to salesperson on
percentage basis.
Indirect Compensation/Fringe Benefits

 Retirement Pay
 Social security
 Health coverage
 Life insurance
 Long-term disability
 Provision Fund
 Severance pay
 Tax-sheltered annuity
 Professional liability insurance
Indirect Compensation/Fringe Benefits

 Allowances
 Educational Assistance
 Stock Purchase and discount purchase
 Pay for time not worked such as
– Sick leave,
– Personal/emergency leave,
– Vacation,
– Sabbatical,
– Religious leave,
– Civic & jury duty,
– Professional leave and
– Military leave
Compensation Policies & Pay Systems

 Should reveal basis of organization’s

decisions/values (e.g. pay for performance (merit)
versus pay for employee inputs such as education,
experience, etc)
 Explains way pay system works -- e.g. salary
ranges, salary steps, etc.
 May describe ways to monitor internal & external
equity of system; methods & timelines for
modification, etc
 Includes benefits package information
Determinants of Compensation
levels & pay system policies

A. Supply & demand of labor pool

B. Organization’s ability to pay
C. Cost of living
D. Prevailing wage rate
E. Unionization/union contract
F. Government regulations -- e.g. minimum wage
laws, etc
4.4 Incentives

 Incentive is financial and non-financial remuneration

to motivation and performance improvement
through the use of incentive programs and
consumer promotions.
 Includes Salaries, wages, Pension,
illness/health/life insurance; allowances,
subsidies, gain sharing, subsidized meals/clothing/
accommodation/ transport, scholarships, tax
breaks; sabbatical, study leave, holidays, vacation,
Work environment/conditions, occupational health,
safety, recreational facilities, Amenities, school
access, infrastructure, transport, etc.
Incentive Programs
 Incentive programs are used to drive behaviors
conducive to practically any business objective.
Recognition programs are used to recognize individuals
whose accomplishments were particularly noteworthy.
The following provides an overview and key planning
considerations for the most common types of non-sales
employee incentive and recognition programs.
– Internal Branding Programs: high quality, quick response,
friendliness, dedication
– Idea (Suggestion) Systems
– Customer Retention Programs
– Safety Programs
– Employee Recognition Programs