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Compensation & JE

Factors affecting the total compensation mix

Internal Factors

Comp Mix

External Factors

Benefit Costs

Factors affecting the total compensation mix

Internal Factors
Comp policy Worth of job Employees relative worth Employers ability to pay

Comp Mix

External Factors

Benefit Costs

Components of employees 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 Description

Job Specification

JE Program


ethods 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


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

1. 2. Job Ranking Advantages: Easy to understand and easy to administer Sets better rate than the rate based on pure judgments. 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.

1. Advantages: The graphic or descriptive type of rating scales have been accepted as most reliable and valid. DISADVANTAGES: It is difficult to develop a point rating scheme. Assigning proper weightage to each factor and assigning point value to each degree without being unfair is a matter of concern. Difficult to explain. Time consuming process.

1. 2.

3. 4.


1. 2. 3. ADVANTAGES: More systematic. Evaluation is simpler than by point method. Analysis of bench-mark jobs is very comprehensive. DISADVANTAGES: Complicated to apply and explain to workers. The wage rates for bench-mark jobs are presumed to be correct and all other raes are determined by reference to them.

1. 2.

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 plants labor force by indicating jobs that need more or less skilled workers than those who are manning these jobs currently.


What facet of job is evaluated Whole job( compensable factors are implicit)

How is job evaluated

Type of method

Major advanta ges

Major disadvant ages


Jobs are subjectively Nonordered according to quantitati relative worth ve

Relative Entirely ly quick subjectiv and in- e expensi ve

Readily available and inexpensiv e

Classificati Whole job on

Compare job to description of job grades

Nonquantitati ve

Cumberso me system

Factor compariso n Point Method

compensable factors of job

Compare job to key jobs on scales of compensable factors

Quantitati Easy to ve use

Hard to construct ; Inaccurate over time

compensable factors of job

Compare job to standardized descriptions of degrees of universal compensable factors

Quantitati Accurat ve e and stable overtim e

May be costly

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 & timeconsuming especially at the start Assessment can be inaccurate or approximate Its still subjective!

The HRM Functions

 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.

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 Workers 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 (contd)

Severance Pay
A security benefit voluntarily offered by employer to employees who lose their jobs. Payments are determined by the employees 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 Unions Purchase Discounts Stock Investment

FamilyFamily-Care Benefits

Relocation Expenses

FamilyFamily-Oriented Benefits


Life, Disability, Legal Insurances

Social and Recreational

Educational 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