Compensation & Reward Management

1. Compensation & Reward Management

2. Pay Model • ConceptsCompensation techniques Compensation objectives • Internal equity Job Analysis  Job Description  Job Evaluation • External equity Market definitions  Surveys Policy lines  Pay structures • Employee equity Seniority Increases  Performance Evaluation  Increase Guidelines • Administration Planning  Budgeting  Monitoring  Evaluation

3. Forms of Compensation

4. Strategic Issues related to Pay • Pay decisions to be guided by strategic stages of an organization • Pay design to reconcile employee difference

5. Equity : Conceptual Foundation • Internal equity • Comparisons inside an organization – among jobs • Weighs jobs in terms of relative value of their contributions to the organization’s objectives • 2 aspects: • Relative similarities & differences in the work content of jobs • Relative value / contribution of the work to the organization’s objectives • How much do you wish to pay accountants in comparison with purchase clerk within the same organization?

6. Equity : Conceptual Foundation • External equity • Comparisons outside an organization • Several options regarding external equity: • Some employers may set their pay levels higher than their competition hoping to attract best applicants • Another employer may offer lower base pay but greater opportunity to work overtime, greater job security or better benefits than other employers • How much do you wish to pay accountants in comparison with what other employers would pay them?

7. Equity : Conceptual Foundation • Employee equity • Comparisons among individuals doing the same job for the same organization • Should all such employees receive the same pay? Or should one programmer be paid differently from another if one has better performance & / or greater seniority? • How much do you wish to pay accountant A in comparison with accountant B based on their performance and length of their service, etc., within the same organization?

8. Job Evaluation : Perspective & Design • Results of Job Analysis & Job Description serve as input for evaluating jobs & establishing job structure • Job Evaluation involves the systematic evaluation of the Job Description based on many factors: • Content of the work • Relative value of the work to the organization • Culture of the work place • External market forces

9. Job Evaluation : Methods • 4 fundamental JE methods: • Ranking – whole job is compared against other whole jobs on some general notion of value / job content • Classification – concepts of value / work content are divided into categories / classes & jobs are slotted into these categories • Factor comparison – content & value are broken down into factors & jobs are evaluated by the degree of each factor the job possesses. • Point plan – content and value are broken down into factors and jobs and evaluated by the degree of each factor the job possesses

10. Job Evaluation : Ranking Method • Rankings of jobs according to relative value • Involves ordering of Job Descriptions from highest to lowest in value • 2 ways of ranking usually considered • Alternation ranking • Paired comparison • Disadvantages: • Criteria / factors on which jobs are ranked are usually so crudely defined that evaluations become subjective • Evaluator(s) using this method must be knowledgeable about every single job under study • Number alone can make this task formidable (50 jobs will require 1225 paired comparison!!)

11. Job Evaluation : Alternation Ranking • Ordering the job descriptions alternatively at each extreme (all jobs are considered) • Eg. of alternation ranking

12. Job Evaluation : Paired Comparison • Comparing all possible pairs of jobs • No. of pairs to compare = [n (n-1)] / 2 • Eg. If you have 5 jobs then there are 10 paired comparisons • Jobs with highest total no. of “Most Valuable” ranking becomes the highest-ranked job. A = Better B = Worse

13. Job Evaluation : Classification Method • Slotting Job Descriptions into a series of classes / grades that cover the range of jobs • Classes: a series of carefully labeled slots / pigeon holes • Labels are the class descriptions that serve as the standard against which the Job Descriptions are compared • Steps: • Determine jobs / units to be included in study • Conduct Job Analysis / prepare Job Descriptions • Select evaluators • Define classes • Identify & slot benchmarks • Prepare classification manual • Apply system to non-benchmark jobs

14. Job Evaluation : Factor Comparison Method • Jobs are evaluated based upon 2 criteria: • A set of compensable factors • Wages for a select set of jobs • More sophisticated than the previous 2 methods, however, its complexity often limits its usefulness • Basic Steps: • Conduct Job Analysis • Select benchmark jobs • Rank benchmark jobs on each factor • Allocate benchmark wages across factors • Compare factor & wage allocation ranks • Conduct the job comparison scale • Applying the scale

15. What is a Benchmark Job? • Benchmark jobs (also called key jobs) serve as a reference points & must possess certain characteristics: • Content are well known & agreed upon by the parties involved • Contents change very little over time • Current pay rates are generally acceptable & differentials among jobs relatively stable • Taken together, they contain the entire range of each compensable factor • Accepted in the external labour market for setting wages • 15 – 25, however number depends on range & diversity of work to be evaluated

16. Job Evaluation : Point Method • 3 common chs: • Compensable factors • Factor degrees numerically scales • Weights reflecting relative importance of each factor • Steps in designing the point plan: • Conduct Job Analysis • Choose compensable factors • Establish factor scales • Derive factor weights • Prepare evaluation manual • Apply to benchmark jobs

17. Job Evaluation : Point Method • Example – Characteristics of Point Job Evaluation method, Factors, Scaled Degrees, Weights - • Here in this example, a Job ‘X’’s 240 total points may result from: • 2 degrees of skills required = 2 X 40 = 80 • 3 degrees of effort required = 3 X 30 = 90 • 3 degrees of responsibility required = 3 X 20 = 60 • 1 degree of working conditions = 1 X 10 = 10 • TOTAL = 240

18. Designing Pay level & Structure

19. Major Decisions • Major Steps: • Determine the pay level policy • Design, conduct, & analyze surveys • Update the data • Construct the policy lines • Design ranges, flat rates, & / or incentives

20. Determine Pay Level Policies • 3 classes of pay level policies: • To lead • To meet • To follow competition • Relative importance of pay level factors (ranked by importance) • Rates paid by other employers in the industry or area • Union strength • Cost of living changes • Surplus / shortage of qualified workers • Employee unrest • Employer’s overall financial position • Firm’s profits

21. Determine Pay Level Policies POLICY EFFECTS : What difference does the pay policy make? • PAY WITH COMPETITION • Labour Costs = its Competitors (Market Rate) 2. LEAD POLICY • Labour Costs > Market Rate • Rationale is to maximize ability to attract & retain quality employees & to minimize employee dissatisfaction with pay • Some employers are able to pass higher pay rates on to consumers in form of higher product prices • Sometimes an entire industry can pass high pay rates on to consumers if pay is relatively low proportion to total operating 3. LAG policy • Labour Costs < Market Rate • Lower pay levels probably contribute to turnover

22. Design & Conduct Surveys • Systematic process of collecting information & making judgments about the compensation paid by other employers • Surveys have 3 basic purposes: • To establish the pay level & structure or to update them in response to changing external pay rates • To analyze personnel problems that may be pay related • To participate as “good citizens” in response to requests from other employers / public agencies

23. Design & conduct surveys WHAT INFORMATION TO COLLECT? • NATURE OF ORGANIZATION • To assess similarities & differences among organizations in the survey – include financial information, size, & organization structure 2. NATURE OF TOTAL PAY SYSTEM • All the basic forms of pay included to assess similarities & differences in the pay packages offered • Sometimes benchmark benefit package to including only the most expensive & variable benefits 3. INCUMBENT DATA • Actual rates paid to incumbent which include total earnings, hours worked, date, & amount of last increase, bonus, incentive, & so on

24. Design & conduct surveys TYPES OF ANALYSIS? • 2 components of the pay system models are emerging • An internally equitable job structure based upon job analysis & job evaluation has been developed – Internal Equity (horizontal axis) • Key jobs from that structure were selected & the rates paid for those jobs by competitors in the external market have been surveyed – purpose is to establish external equity (vertical axis) Constructing Pay Policy Lines

25. Construct Pay Policy Line • ‘Quick’ analyses help check usefulness of survey data • Note down the illustration • Construct market pay lines • Note down the illustration • Updating survey data • Set the employer’s pay policy line • Note down the illustration

26. Design Pay Ranges • Design pay ranges for jobs inside the organization • Why bother with ranges? • Wide variation of rates paid for similar jobs & skills reflects two external pressures: • Existence of quality variations (skills, abilities, experience) among individuals in the external market • Recognition of differences in the productivity-related value to employers of these quality variations • Ranges reflect the following org.al pressures: • Intention to recognize individual quality & performance variations with pay • Intention to meet employees’ expectations that pay increases will occur over time

27. Design Pay Ranges • Construction of ranges • Develop classes or grades • Note down the illustration • Set midpoints, maximums, and minimums • Note down the illustration • Degree of overlap