In this session'''

1
In this session...

• Well look at the ways to gather data to make
  good compensation decisions
• Well examine the most popular method to
  construct a pay structure

2
How to Design Compensation Systems

• The compensation system in your firm is only as
  good as the data that its based on
• Three kinds of compensation data and their
  decisions
• Top Management makes strategic decisions about
  Pay Policy
• External--wage and salary surveys provide
  information to make Pay Level decisions
• Internal--job evaluation data provide information
  to make Pay Structure decisions

3
Pay Policy Decisions

• Top management usually decides the organizations
  pay policy
• Lead strategies tend to attract more workers,
  but dont lead to less turnover or less
  unionization or higher productivity
• Lag strategies are often chosen to keep labor
  costs low and profits high, but often result in
  attracting lower-quality workers wholl leave for
  .05/hr increase
• Competitive strategies (pay at market rate) are
  usually the most effective at attracting and
  retaining employees

4
Pay Level Decisions

• Once the pay policy decision is made, the going
  rate for certain key jobs in the organization
  has to be decided
• Most people accept these wages as equitable if
  they come from a published source
• Wage and Salary Surveys can be purchased from the
  government, professional organizations (like the
  Employers Association), or private companies
• You can conduct your own quick and dirty
  telephone survey for unique jobs

5
Pay Level Objectives

• Be in legal compliance with federal, state, and
  local laws
• Be adequate to attract and retain employees
• Be motivating to employees
• Be equitable relative to other internal and
  external employees doing similar work
• Provide security to employees, insulating their
  pay from changes in profitability and performance

6
Pay Structure Decisions

• By far the more complicated pay decisions involve
  establishing the equity within the firms own pay
  structure
• Job Evaluations provide a means of assessing the
  relative worth/value of each job by looking at
  the requirements of the job and the
  characteristics we want to pay for (Compensable
  Factors)

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Point Method

• Most frequently used job evaluation method
  because its defensible, yet flexible
• Procedure
• Identify benchmark jobs that are stable and
  well-defined, as well as equitably paid (refer to
  wage surveys to pick these)
• Identify compensable factors that represent the
  critical dimensions that justify pay differences
  between jobs

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Example of Compensable Factor

• Communication and Interpersonal Skills
• This factor measures the extent to which the job
  requires employees to explain, describe,
  persuade, negotiate, and generally convey
  intended meanings and information to others.
  Both the media to be used and the type of
  messages or information to be conveyed should be
  considered when assigning degree ratings.

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Job Evaluation Steps

• Next, weight the compensable factors according to
  their contribution to the overall worth of the
  job (total 100)
• Example
• Communication Skill (40)
• Technical Skill (30)
• Job Knowledge (20)
• Working Conditions (10)

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Job Evaluation Steps

• The next step is to assign points to each degree
  level that corresponds with the weighting of the
  factor.
• The final step involves summing all points across
  factors, developing the pay line using regression
  analysis, and then establishing pay grades and
  pay ranges
• Broadbanding is one means to reduce the number
  of pay grades but increase the pay range

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Example of Point Assignments for Benchmark Jobs
Regression Line
100 400 700
1000
Point Totals
12
Pay Grades in Bands
Pay Grades