Compensation and Rewards

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Compensation and Rewards

• Business 158
• Spring Semester 2007
• Tim Brown

Session 6
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Agenda

• Guest speaker
• Break
• Quiz
• Project check in
• To this point in the course
• Job Analysis, summarized
• External competitiveness, summarized
• Job Evaluation, part 1

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To This Point in the Discussion

• To value a job you must know why it exists
• What purpose does it serve/role does it play?
• What are the qualifications to do it?
• What are the requirements for success?
• You can analyze the job itself or the people who
  perform the work
• Must guard against bias toward a person
• Must separate performance from the job

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Determining Internal Job Structure
JOB
Identify, define, and describe the job that is
actually performed
Order jobs based on content or relative value
Compare jobs within the organization
Collect information about specific jobs

• Some Major Issues in Job Analysis
• Why collect information?
• What information is needed?

• How to collect the information?
• Who should be involved?
• How useful are the results?

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Data Collection for Job Analysis

• Data Related to Job
• Job Identification
• Job Content
• Data Related to Employee
• Employee Characteristics
• Internal Relationships
• External Relationships

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Characteristics of Job Descriptions

• It is a written record of the duties and
  responsibilities
• Identifies and describes scope and contents of a
  job
• Outlines essential functions and major duties
• Revised periodically (new hire, reorganization,
  job redesign, technology or business change)

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Determining Internal Job Structure
Identify, define, and describe the job that is
actually performed
Order jobs based on content or relative value
Compare jobs within the organization
Collect information about specific jobs

• Major Issues in Job Evaluation
• How much data to collect?
• Which jobs are the benchmarks?

• Balancing internal/external issues
• Which evaluation method to use?
• How useful are the results?

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Job Evaluation Topics

• Content, Value, and External Market Links
• Ranking
• Classification
• Point Method
• Who Should be Involved?
• The Final Result Structure

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What Is Job Evaluation?
Process of systematically determining the
relative worth of jobs to create a job structure
for the organization. Evaluation is based on a
combination of job content, skills required,
value to the organization, organizational culture
and the external market.
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Alternative Internal Evaluation Methods
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Major Decisions

• Establish purpose
• Supports organization strategy
• Supports work flow the business
• Supports fairness for employees
• Single vs. multiple plans
• Choose among methods
• Obtain involvement of relevant stakeholders
• Evaluate plans usefulness

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Characteristics of Benchmark Job

• Contents are well-known andrelatively stable
  over time
• Job is common across severaldifferent employers
• Sizable proportion of workforce employed in job

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Ranking Method

• Orders job descriptions from highest to lowest
  based on a global definition of relative value or
  contribution to the organizations success
• Compare jobs one to another
• Also called slotting

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Point Method

• Three common characteristics of point methods
• Compensable factors
• Factor degrees numerically scaled
• Weights reflect relativeimportance of each
  factor
• Most commonly used approachto establish pay
  structures in U.S.
• Differ from other methods by making explicit the
  criteria for evaluating jobs -- compensable
  factors

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Designing a Point PlanSix Steps

• Conduct job analysis
• Determine compensable factors
• Scale the factors
• Weight the factors according to importance
• Communicate the plan, train users, prepare manual
• Apply to non-benchmark jobs

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Step 1 Conduct Job Analysis

• Point plans begin with job analysis
• A representative sample of jobs - benchmark jobs
  - is drawn for analysis
• Content of these jobs is basis for
• Defining compensable factors
• Scaling compensable factors
• Weighting compensable factors

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Step 2 Determine Compensable Factors

• Compensable factors play a pivotal role
• Reflect how work adds value to organization
• Characteristics of compensable factors
• Based on strategy and values of organization
• Based on work performed
• Acceptable to stakeholders affected by resulting
  pay structure

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Generic Compensable Factors
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The Hay System

• Know-How
• Scope
• Depth
• Human relations skills
• Problem Solving
• Environment
• Challenge
• Accountability
• Freedom to Act
• Scope
• Impact

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Step 3 Scale the Factors

• Construct scales reflecting different degrees
  within each factor
• Most factor scales consist of 4 to 8 degrees
• Criteria for scaling factors
• Limit to a number allowing meaningful
  distinctions
• Use understandable terminology
• Anchor degree definitions with benchmark job
  titles
• Make it apparent how degree applies to job

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Step 4 Weight the Factors

• Different weights reflect differences in
  importance attached to each factor
• Determination of factor weights
• Must tie back to business
• Key to know role of HR, line mgmt, top mgmt

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Exhibit 5.14 Job Evaluation Form
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Overview of the Point System
ability
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Final Result Structure

• Outcome
• Ordered list of jobs based ontheir value to
  organization
• Hierarchy of work
• Structure supporting apolicy of internal
  alignment
• Information provided by hierarchy
• Which jobs are most and least valued?
• Relative difference between job value

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Sample of Internal Structures --Job, Skill, and
Competency Based
Manufacturing Group
Administrative Group
Technical Group
Managerial Group
Vice Presidents
Head / Chief Scientist
Packer
Administrative Assistant
Division General Managers
Senior Associate Scientist
Material Handler Inspector
Principal Admin Secretary
Managers
Assoc Scientist
Assembler
Administrative Secretary
Project Leaders
Scientist
Drill Press Oper Rough Grinder
Word Processor
Supervisors
Technician
Machinist I Coremaker
Clerk / Messenger
Job Evaluation
Job Evaluation
Competency- Based
Skill Based
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Break

• Time check

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Chapter Topics

• Compensation Strategy External Competitiveness
• What Shapes External Competitiveness?
• Labor Market Factors
• Modifications to Demand Side
• Modifications to Supply Side
• Product Market Factors and Ability to Pay
• Organization Factors
• Relevant Markets
• Competitive Pay Policy Alternatives
• Consequences of Pay-Level and Mix Decisions

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What About External Competitiveness?
External competitiveness refers to pay
relationships among organizations - pay relative
to other firms - usually competitors
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How Is External Competitiveness Expressed?

• Setting a pay level
• Above,
• Below, or
• Equal to competitors, and
• Determining mix of payforms relative to thoseof
  competitors

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What Is Pay Level? Pay Forms?
Pay level refers to comparing average rates paid
by employers
Pay forms refer to the mix of various forms of
pay/rewards used in total compensation package
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Economic Theory

• Labor market assumptions
• Labor demand assumptions
• Elasticity of the labor market
• Product demand assumptions
• Competitive assumptions
• Efficiency assumptions

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Lets look at practical applications

• Employers market versus employees market
• Location
• Economy
• Talent pool
• Companys ability to pay
• Job requirements
• Level of technical knowledge required
• Attractiveness factors (Google café vs chemical
  plant)

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Organization Factors

• Industry
• Company size
• Peoples preferences
• Organization strategy

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Relevant Markets

• Three factors determine labor markets
• Occupation
• Geography
• Competitors
• Issues related to defining the market
• Competitors Products, location, and size
• Jobs Skills and knowledge required and their
  importance to organizational success

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Pay Policy Options Match the Competition

• Ensure an organizations
• Wage costs approximate those of product
  competitors
• Ability to attract potential employees
  approximates those of labor market competitors
• Avoids placing employer at a disadvantage in
  pricing products or in maintaining a qualified
  work force
• May not provide an employer with a competitive
  advantage in its labor markets

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Pay Policy Options Lead Policy

• Maximizes ability to attract and retain quality
  employees
• Minimizes employee dissatisfaction with pay
• May offset less attractive features of work
• If used only to hire new employees, may lead to
  dissatisfaction of current employees
• Expensive, may lead to cost/profitability issues

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Pay Policy Options Lag Policy

• Hinders ability to attract potential employees
• Risk higher turnover, emp-relations costs
• If pay comes later on delivered promise of future
  returns
• May increase employee commitment
• Foster teamwork
• May possibly increase productivity

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Pay Policy Options Flexible Policies

• Employers can have multiple pay policies
• Vary by job, location/country, product line
• Above market for critical skill groups
• Below or at market for others
• Vary by pay element
• Above market in total compensation
• Below market in base pay
• Above market in incentives and rewards
• At or above market in benefits

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Pay-Mix Policy Alternatives
Performance - Driven
Benefits 17
Base 50
Options 16
Work - Life Balance
Bonus 17
Security
Benefits 30
Benefits 20
Base 50
Options 10
Base 80
Bonus 10
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How do you know if youre comparable?

• In a wordBENCHMARK!
• Market data surveys
• Market position analysis
• Cost of labor analysis
• Distribution of employees by level
• Measure your successinternal metrics

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Policy Options Employer of Choice

• Compete based on their overall reputation as a
  place to work
• Define compensation more broadly to focus on all
  returns from employment
• Approach corresponds to brand or image a company
  projects as an employer
• Market company as great place to work

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Pay Mix Varies Within the Structure
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Consequences of Pay Competitiveness
Contain operating expenses (labor cost)
Increase pool of qualified applicants
Increase quality and experience
Competitiveness of total compensation
Reduce voluntary turnover
Increase probability of union-free status
Reduce pay-related work stoppages
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Consequences of Pay Level Decisions

• Efficiency
• Fairness
• Compliance