Compensation Management : Tools and Techniques

1. Compensation Management : Tools and Techniques Lee Kok Wai Lectures 4 and 5

2. Future/Strategic Focus HR’s 4 Roles & Key Accountabilities Organizational Design HR as Business Partner Staffing Culture and Image Performance Measurement Training & Development Strategic HR Planning Succession Planning Processes People Employee Relations Compensation VOW Survey Action Plan Benefits Labor Relations Compliance HR Information Systems Environment, Health, Safety & Security Day-to-Day Operational Focus Strategic Partner Change Agent Employee Relations Expert Administrative Expert

3. Managing Human Resources in COMPAQ • Manpower Mgt. • Headcount management • Recruitment strategies • Sources of labor supply • Selection process & tools • Retention strategies & plans • Staff deployment • Staff orientation • Employee Relations Mgt. • Benefits administration • Code of conduct & ethics • Employee discipline • Employee communications • Staff social, sports & recreation • Community services & relations • Human Resource Admin. • Records & information mgt. • Personnel research • HR policy review • HR process improvements • HR performance stds & audit • Legal compliance • Document control • Performance Mgt. (HRD) • Staff training & development • Succession planning • Career planning • Coaching & counseling • Appraisal review/ranking • Organization development • Leadership development • Compensation Mgt. • T-Comp philosophy & design • T-Comp planning & admin. • Incentive plans (MIPs/LTB) • Profit-sharing scheme • Reward & recognition prog. • Expatriate mgt. • Culture/Values Mgt. • Corporate vision • Corporate mission • Culture building • Teambuilding • Habits building • EHS&S Mgt. • Environment mgt. • Employee wellness • Employee health services • Loss prevention • Asset management • Safety mgt.

4. Strategic Components of Human Resources COMPENSATION MANAGEMENT We believe in paying competitive wages that commensurate with job size and individual performance WELFARE MANAGEMENT We believe in being a firm, fair and caring employer. We strive to make employees value their jobs and want to remain in the organization based on their abilities to contribute and grow. PERFORMANCE MANAGEMENT We believe in equipping employees with the necessary skills to do a good job, providing them with the tools, the environment, the support and the information needed to excel in their jobs. CAREER MANAGEMENT We believe in matching employees’ strengths and aptitudes to available jobs, developing them to their highest potential and offering them opportunities to advance in their careers. CULTURE/VALUE MANAGEMENT We believe in instilling our corporate core values and promoting a corporate culture that emphasizes results, teamwork, learning, sharing, service quality and work excellence.

5. The Strategic Compensation Model Concepts Compensation Objectives Compensation Techniques Role clarity and accountability. Facilitates administration and performance management. Competitive wage policies and practices. Influence employees’ work attitudes and behaviour. Attract talents. Retain talents. Motivate employees. Comply with regulations. Consistency in policy administration. Internal equity Job Analysis Job Description Job Evaluation Job Grades External equity Market Definitions Salary Surveys Policy Lines Pay Structures Employee equity Seniority Increases Performance Evaluation Increase Guidelines Administration Planning, Budgeting, Monitoring, Evaluating

6. What is Job Evaluation? Job evaluation is a decision process of comparing one job with another job with the aim of establishing the relative importance of jobs within the organization. Job evaluation will provide an internally logical ranking of all jobs which will form the basis of the company’s salary structure

7. Principles For Job Evaluation • Evaluating the job, not the job-holder • Evaluating the present job, not the future job • Job is being carried out in a fully acceptable and competent manner • Process of evaluation is based on given facts in the job descriptions. • Evaluate the job based on the “primary responsibilities” and ignore the “special personal-to-holder responsibilities.”

8. Job Evaluation : 3 Main Methods • Qualitative Method (an example is the Job Classification Method and the Job Comparison Method) • Quantifying the Qualitative Method (an example is the Point Method) • Quantitative Method (an example is the Guide Chart Profile Method)

9. Job Classification Method adopted by Academic Institutions such as Universities • Job Class A : Doctorate Degree with at least 10 years post doctoral experience plus relevant management experience (Faculty Head) • Job Class B : Doctoral Degree with at least 5 to 10 years post doctoral experience (Full Professor) • Job Class C : Doctoral Degree with less than 5 years post doctoral experience or Masters Degree with over 10 years post graduate experience (Associate Professor and Senior Lecturer) • Job Class D : Masters Degree with 5 to 10 years post graduate experience (Lecturer) • Job Class E : Masters Degree with 3 to 5 years experience (Assistant Lecturer) • Job Class F : Masters Degree with less than 3 years experience (Teaching or Research Assistant)

10. Job Evaluation: The Point Method Job Evaluation Process 1. Form a Job Evaluation Steering Committee 2. Draw up a workplan for the exercise 3. Decide on the benchmark jobs 4. Decide on the job factors for the evaluation 5. Determine number of degrees for each factor 6. Prepare job descriptions based on job-factor format 7. Analyse each benchmark job in terms of factors and degrees 8. Decide on the weights of each factor 9. Determine the weighted score for each benchmark job 10. Slot in all other jobs into the job grades

11. The Point Method Form the Job Evaluation (JE) Steering Committee a. The Steering Committee should be chaired by the CEO with functional Managers/ Heads as members. The HR Manager should be the Secretary of the JE Steering Committee. b. If an external consultant is employed to assist in the exercise, then he should be designated as the advisor to the Steering Committee. The HR Manager should then double-up as the counterpart for internal skills transfer.

12. Job Factor Score Sheet : Job # 12 Total Score = 440 points

13. The Point Method Slot all other jobs into the job grades a. From the clusters, decide on the number of job grades to adopt. b. Slot in all other jobs into the job grades adopted.

14. The Guide-Chart Profile : Hay Method This method, first developed by Dr Edward N. Hay in the early 1950s, is essentially concerned with decision making and responsibility. Guide Charts were created in 1951 in client situations. Emphasis was placed on answerability for the consequences of decisions, the degree of freedom to take decisions and bring them to fruition, the degree to which there is prime accountability, as compared to shared or contributory accountability in a job.

15. The Guide-Chart Profile : 4 Critical Observations • The most significant factor could be grouped as representing the knowledge required to do a job, the kind of thinking needed to solve the problems commonly faced, and the responsibilities assigned. • Jobs could be ranked not only in the order of importance within the organization, but the distances between the ranks could be determined. • The factors appeared in certain kinds of patterns that seemed to be inherent to certain kinds of jobs • The focus of the process of job evaluation must be on the nature and requirements of the job itself, not on the skills or background or characteristics or pay of the job holder.

16. The Guide-Chart Profile : Hay Method There are Three Factors with a total of eight elements which determine the value of different jobs. They are: 1. Know-How 2. Problem-Solving 3. Accountability

17. The Guide-Chart Profile Method : Know-How What is Know-How • Know-How is the total of every kind of skill required for average acceptable job performance. It is knowledge and experience in professional, managerial and human Relations activities necessary to fulfill the job. • Know-How is measured in depth by eight degrees and in breadth by five degrees

18. The Guide-Chart Profile Method : Know-How The three dimensions of Know-How are: • Practical procedures, specialized techniques and knowledge within occupational fields, commercial functions, and professional or scientific disciplines. This is commonly referred to as the Depth of Know- How. • Integrating and harmonizing simultaneous achievements of diversified functions within managerial situations occurring in operating, technical, support or administrative fields. This is referred to as the Breadth of Know-How • Active, practicing person-to-person skills in work with other people. This is referred to as the Human Relations Skill.

19. The Guide-Chart Profile Method : Know-How Depth Of Know-How A. Education to post –primary level B. Practiced in standard work routines and /or use of simple equipment and machines C. Procedural or systematic efficiency and use of specialized equipment D. Specialized skill gained by on-the-job experience or through part professional qualification E. Understanding of theoretical principles normally gained through professional qualification or through a detailed group of involved practices and procedures F. Seasoned proficiency in a highly specialized field, gained through experience built on theories or a broad and deep understanding of complex practices G. Mastery of principles, practices and theories gained through wide experience and/or special development H. Unique command of principles, theories and practices

20. The Guide-Chart Profile Method : Know-How Breadth Of Know-How I. Non or minimal – Performance or supervision of jobs which have closely specified objectives II. Homogeneous – Integration of operations which are homogeneous in nature and objective, and coordination with associated functions III. Heterogeneous – Integration or coordination of diverse functions or sub-functions in a company; or inter-company coordination of a tactical function IV. Broad – Integration of the major functions in an operating company; or group-wide coordination of a strategic function affecting policy formation V. Total – The management of strategic functions and policy formation

21. The Guide-Chart Profile Method : Know-How Human Relations Skills 1. Basic – Ordinary courtesy and effectiveness in dealing with others 2. Important – Understanding and influencing people, important but not over-riding considerations 3. Over-riding – Skills in developing and motivating people are over-riding considerations

22. The Guide-Chart Profile Method : Know-How

23. Guide-Chart Profile Method : Problem Solving What is Problem Solving • The use of Know-How required by the job to identify, define, and resolve problems. “You think with what you know.” This is even true for the most creative work. The raw material of any thinking is knowledge of facts, principles and means. For that reason, Problem Solving is measured as a percentage of Know-How. • Problem Solving has two dimensions: • The environment in which the thinking takes place • The challenge presented by the thinking to be done

24. The Guide-Chart Profile Method – Problem-Solving Thinking Environment A. Detailed rules and/or rigid supervision B. Standard instructions and/or continuous close supervision C. Well-defined procedures, somewhat diversified and/or supervised D. Substantially diversified established company procedures, and general supervision E. Clearly defined company policies, principles and specific objectives under readily available direction F. Broad policies and objectives, under general direction G. General policies, principles and goals under guidance H. Business philosophy and/or principles controlling human affairs

25. Thinking Challenge I. Repetitive – Identical situations requiring solution by simple choice of things learned II. Patterned – Similar situations requiring solution by discriminating choice of things learned III. Variable – Differing situations requiring searching, finding and selecting solutions within the area of things learned IV. Adaptive – Situations requiring analytical interpretive and/or constructive thinking. Judgment is required V. Creative – Novel or non-recurring path-finding situations requiring the development of new concepts and imaginative approaches The Guide-Chart Profile Method – Problem-Solving

26. Guide-Chart Profile Method : Accountability What is Accountability? • The answerability for action and for the consequences thereof. It is the measured effect of the job on end results of the organization. It has three dimensions: • Freedom to Act - is the extent of personal, procedural, or systematic guidance or control of actions in relation to the primary emphasis of the job • Job Impact on End Results – is the extent to which job can directly affects actions necessary to produce results within its primary emphasis. • Magnitude – is the portion of the total organization encompassed by the primary emphasis of the job. This is usually but not necessarily, reflected by the annual revenue or expense dollars associated with the area in which the job has its primary emphasis.

27. The Guide-Chart Profile Method - Accountability Freedom To Act A. Prescribed – Direct and detailed instructions, and close supervision B. Controlled – Established work routines and close supervision C. Standardised – Standardised practices and procedures, general work instructions and supervision of progress and results D. Generally regulated – Practices and procedures which have clear precedents E. Directed – Broad practice and procedures covered by functional precedents and policies and managerial direction F. Oriented Direction – Functional policies and goals, and general managerial direction G. Senior Guidance – Inherently and primarily to direct top management guidance H. Ownership Guidance – Only to ownership review and public recreation

28. The Guide-Chart Profile Method - Accountability Impact I. Very Small (under US$1M) II. Small (Between US$1M to US$10M) III. Medium (Between US$10M to US$100M) IV. Large (More than US$100M)

29. The Guide-Chart Profile Method - Accountability Environment 1. Remote – Giving information on other incidental services for use by others involved in the action 2. Contributory – Interpreter, advisory or facilitating services to those involved in the action 3. Shared – Participating with others (except superiors and subordinates) in taking action 4. Prime – Wholly responsible, with little or no shared responsibility

30. Salary Survey based on Hay Method

31. Salary Survey based on Hay Method

32. The Strategic Compensation Model Concepts Compensation Objectives Compensation Techniques Role clarity and accountability. Facilitates administration and performance management. Competitive wage policies and practices. Influence employees’ work attitudes and behaviour. Attract talents. Retain talents. Motivate employees. Comply with regulations. Consistency in policy administration. Internal equity Job Analysis Job Description Job Evaluation Job Grades External equity Market Definitions Salary Surveys Policy Lines Pay Structures Employee equity Seniority Increases Performance Evaluation Increase Guidelines Administration Planning, Budgeting, Monitoring, Evaluating

33. Compensation Management The fundamentals of salary administration Salary administration is concerned with deciding how and what staff should be paid and with the techniques and procedures for designing and maintaining salary structures, rewarding staff and exercising salary control.

34. Aims Of Salary Administration The basic aims of salary administration are to attract,retain and motivate staff by developing and maintaining a competitive and equitable salary structure. • To ensure that a sufficient number of suitable staff is attracted to join the organization; • To encourage suitable staff to remain with the organization; • To develop and maintain a logical salary structure which achieves equity in the pay for jobs of similar responsibility and consistency in the differentials between jobs in accordance with their relative values; • To ensure that salary levels match market rates; • To keep the salary levels adjusted in line with increases in the cost of living;

35. Aims Of Salary Administration • To maintain consistency in methods used to fix and review salary levels and differentials; • To provide for progression within the salary structure in accordance with performance and level of responsibility; • To operate the salary system fairly and convince the staff that the system is fair; • To maintain a flexible salary system which will accommodate changes in the market rates for different skills and in the company’s organization structure; • To achieve simplicity in operations as an aid to staff understanding and to minimize administrative effort; • To operate effective systems of controlling salary costs and the administrative procedures required to achieve the above aims at the least cost to the organization.

36. Components Of Salary Administration The starting point of salary administration is the determination of salary levels by job evaluation. Thereafter, salary administration is concerned with: • The design and maintenance of salary structures; • The operation of salary progression systems; • The administration and control of salary reviews; • The design and operation of bonus schemes; • The provision of employee benefits and other allowances; • The development of a total remuneration policy.

37. Compensation Tools and Techniques • Pay Structure • Salary Structure • Performance Related Pay • Merit Payment Scheme • Incentive Scheme • Benefit Policies • Salary Review Guidelines • Compa-ratio • Salary Problems

38. Criteria for Pay Structures • Be appropriate to the needs of the organization, in terms of its: - culture, size and the degree in which changes take place - need for flexibility - type and level of employees to be covered • Be flexible in response to internal and external pressures, especially those related to market rates and skill shortages. • Provide scope for rewarding high-flyers while still providing appropriate rewards for the majority of employees. • Ensure that rewards are given in line with performances and achievements. • Provide a basis for career planning which will motivate ambitious employees with high potential. • Facilitate consistency in the treatment of varying levels of responsibility and performance.

39. Graded Salary Structures • All jobs are allocated into salary grade within the structure on the basis of an assessment of their internal and external value to the organization. • Each salary grade consists of a salary range or band. • The jobs allocated to a salary grade are assumed to be broadly of the same level – normally the same minimum and maximum rates, which correspond with grade boundaries.

40. Graded Salary Structures A typical graded structure consists of a sequence of salary grades or ranges, each of which has a definedminimum and maximum. It is assumed that all the jobs allocated into a grade are broadly of the same value, although actual salaries earned by individuals will depend on their performance or length of service. Across the board cost of living or market rate increases will usually result in an increase to the minima and maxima of each grade. All the jobs in an organization may be covered by the same structure of salary ranges or there may be different structures for different levels or categories of jobs.

41. Make-up of a Salary Grade • A basic principle of a salary structure is that individuals advance through the structure either by progressing within the salary grade for the job as they improve their performance, or by promotion. • In the simplest structure, people move more or less steadily from the entry point of the grade (with might be above the minimum if they have already gained relevant experience elsewhere or within the firm) to the upper limit, unless they move to a higher grade. It is possible, however, to distinguish three stages into which this progression is divided, and for salary administration purposes it is helpful to divide the grade into three zones which correspond to these stages.

42. Salary Structure : Ratio Method

43. Salary Structure : Ratio Method

44. Salary Structure : Dispersion Method

45. Salary Structure : Dispersion Method

46. The Learning Zone The learning zone covers the period when a person is on his ‘learning curve’, familiarizing himself with the knowledge and skills required if he is to become fully competent. The length of time to go through this zone will vary according to the individual’s experience, competence and ability to learn. It would be accepted that someone might enter the range at any point in this zone, from bottom to top, depending on experience.

47. The Qualified Zone The qualified zone covers the period when the job holder continues to increase his capacity to do the work and to improve his performance. The minimum salary in this zone should be the market rate for the job, so far as this can be ascertained, the assumption being that the market rate is the salary level required to attract a competent individual from another job to join the company.The mid-point in this zone, which is also the mid-point of the grade, is the salary level which all competent employees would be expected to achieve. This is above the market rate in order to retain these individuals. An employee who is no more than competent could stop at this point, but most would continue to advance until they reach the top of the qualified zone, which would be regarded as the normal maximum for the job. Many such employees would in any case be promoted to a higher grade before they reach the upper limit of this zone.

48. The Premium Zone Thepremium zone is reserved for those employees, especially in the higher grade jobs, who achieve exceptional results but for whom suitable promotion opportunities do not exist. This zone enables outstanding staff to be given additional rewards and encouragement. In some salary structures, the published salary grades for each job only cover the learning and qualified zones, the premium zone being reserved for use in special cases. Progression through that zone would not be regarded as normal by management or staff.

49. Make-up of a Salary Range

50. Relationships Between Grades 20% 20%