COMPENSATING EMPLOYEES
SEMESTER RECAP
• Context
– SHRM
– Legal environment
– International
• Procuring
– Planning
– Recruiting
– Selection
• Utilizing & Maximizing
– Training
– Appraisal
–
Compensation Defined
• The package of quantifiable rewards an
employee receives for his/her labors.
• Three components:
– Base compensation
– Pay incentives
– Indirect compensation
TODAY’S TOPIC
• Compensation
EQUITY THEORY
• People compare their
outcome/input ratio to
that of others
• Conclusions
– Ratios are equal
(equity exists)
– Ratios are unequal
(inequity exists)
RESPONSES TO EQUITY/INEQUITY
• Equity: Maintenance
RESPONSES TO EQUITY/INEQUITY
• Equity: Maintenance
• Inequity:
– Change Inputs
– Change Outcomes
– Quit
Traditional Approach to
Compensation
•
•
Objective of traditional approaches to
compensation is to achieve both internal &
external equity
Internal equity is accomplished through job
evaluation
– Systematic process of assessing the value of each job
in relation to other jobs in the organization
– Results in a hierarchy of jobs ranked in order of their
relative worth
•
External equity through market analysis
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Survey
Job Rating
Conduct
Survey
Create Job
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
Three Job Rating Methods
Method
Procedure
Advantages
Disadvantages
Ranking (paired comparison) Rank-order whole Simplest method;
-Subjective
jobs for worth or
inexpensive, easily -not very reliable
compare pairs of
understandable.
-doesn’t measure
jobs.
differences between jobs.
Three Job Rating Methods
Method
Procedure
Ranking (paired comparison) Rank-order whole
jobs for worth or
compare pairs of
jobs.
Classification
Advantages
Disadvantages
Simplest method; Only general rating of
inexpensive, easily - not very reliable
understandable.
doesn’t measure
differences between jobs.
Compare job de- Simple, easy to
scriptions to grade use for large numdescriptions.
ber of jobs; one
rating scale.
Ambiguous, overlapping
grade descriptions
Job Classification for Restaurant
Grade Description
Pay
5
•Cook existing menu items following recipe
•Supervise kitchen help
•Prepare payroll
•Ensure quality of food and adherence to standards
$14.00-$19.00
3
•Greet customers and organize tables
•Take orders from customers
•Bring food to tables
•Assist with food preparation
•Help with delivery
$10.00-$12.00
1
•Use dishwashing equipment
•Use chemicals to clean premises
•Use vacuum cleaner, mop, waxer
•Clean and set up tables
•Perform routine kitchen chores
$8.25-$9.00
Job Classification for Restaurant
Grade Jobs
# Positions
5
•Assistant Manager
•Lead Cook
•Office Manager
•2
•2
•1
3
•Server
•Hostess
•Cashier
•45
•4
•4
1
•Kitchen Helper
•Dishwasher
•Janitor
•Busser
•Security Guard
•2
•3
•2
•6
•2
Three Job Rating Methods
Method
Procedure
Ranking (paired comparison) Rank-order whole
jobs for worth of
compare pairs of
jobs.
Classification
Advantages
Disadvantages
Simplest method; Only general rating of
inexpensive, easily - not very reliable
understandable.
doesn’t measure
differences between jobs.
Compare job de- Simple, easy to
scriptions to grade use for large numdescriptions.
ber of jobs; one
rating scale.
Ambiguous, overlapping
grade descriptions
Three Job Rating Methods
Method
Procedure
Advantages
Disadvantages
Ranking (paired comparison) Rank-order whole Simplest method;
Only general rating of
jobs for worth of
inexpensive, easily - not very reliable
compare pairs of
understandable.
doesn’t measure
jobs.
differences between jobs.
Classification
Compare job de- Simple, easy to
scriptions to grade use for large numdescriptions.
ber of jobs; one
rating scale.
Ambiguous, overlapping
grade descriptions
Point factor
Reduce general
factors to subfactors: give each
factor weights and
points; use points
to determine
grades.
Time-consuming process
more difficult to understand; greater opportunity to disagree.
More specific and
larger number of
factors; off-theshelf plans available
more precise
measurements.
Point Factor Method
1 Identify specific characteristics (factors)
of jobs that will be measured
Major Factors of the Hay Plan
Know-How
Problem Solving
Accountability
Sum total of every kind
kind of skill, however
acquired, required for
acceptable job performance. Know-how has
three subfactors:
(1) Practical procedures,
specialized techniques.
(2) Ability to integrate
and harmonize the
diversified functions
of management.
(3) Interpersonal skills.
Original, “self-starting” thinking
required by the job for analyzing,
evaluating, creating, reasoning.
Problem solving has two subfactors:
Answerability for action
and for the consequences of the action; the
measured effect of the
the job. Accountability
has three subfactors:
(1) Freedom to act
(personal control).
(1) The thinking environment
in which problems are
solved.
(2) The thinking challenge of
the problem.
(2) The impact of the
job on end results
(direct, indirect).
(3) Magnitude - general
dollar size of areas
most affected by job.
Point Factor Method
1 Identify specific characteristics (factors)
of jobs that will be measured
2 Weigh the factors
3 Score each job on each factor using factor
scales and degree statements
Statement of the degree to which the factor is
present in the job
Scoring system
Degree Statements for the Factor
“Physical Requirements””
Factor: Physical Requirements
This factor appraises the physical effort required by a job, including its intensity and
degree of continuity. Analysis of this factor may be incorrect unless a sufficiently
broad view of the work is considered.
1.
2.
3.
Degree
Light work involving a minimum of physical effort.
Requires only intermittent sitting, standing, and walking.
Repetitive work of a mechanical nature. Small amount of lifting and
carrying. Occasional difficult working positions. Almost continuous sitting
or considerable moving around.
Continuous standing or walking, or difficult working positions. Working
with average weight or heavy materials and supplies. Fast manipulative skill
in almost continuous use of machine or office equipment on paced work.
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Survey
Job Rating
Conduct
Survey
Create Job
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Survey
Job Rating
Conduct
Survey
Create Job
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
Market Pricing
• Identify benchmark positions
– What type?
• Select information sources
– Public
– Consulting firm
– Self-administered survey
• Choose comparators
– What are your options?
– How do you choose?
The Traditional Approach to Compensation
Job Analysis
Job Documentation
Prepare to
Survey
Job Rating
Conduct
Survey
Create Job
Worth Hierarchy
Analyze
Market Data
Reconcile
Internal and External
Considerations
Develop Pay
Structure
Develop Pay Structure
• Pay level relative to market
• Performance vs. membership?
•
•
•
•
•
Single rate
Time progression
Time progression and merit
Productivity
Salary Range
• Job vs. Individual
• Pay Mix
– Fixed vs. variable
Emerging Approaches to
Compensation
• Broadbanding
–
–
–
–
replaces traditional narrow salary ranges to fewer wider bands
+consistent w/flatter organizations, empowerment, teamwork
-cost control is difficult
most appropriate for higher level positions
• Team based pay
– Advantages?
– Disadvantages?
• Skill-based pay
Skill-based Pay
• Advantages?
– motivation, flexibility, reduced absenteeism and
turnover costs (can cover), flatter
• Disadvantages?
– Labor costs; Rusty skills, loss of labor specialization
• When?
–
–
–
–
Expertise and innovation are sources of CA
Technology changes frequently
Upward mobility is limited
Developmental opportunities are present