Compensation
Employee’s Perspective

What compensation do you seek?
Direct
Indirect
Money
Benefits
Employer’s Perspective

What do you compensate?
Job:
Individual
Characteristics:
• Responsibility
• Ability
• Critical function
• Training
• Job content
• Education
Employer’s Perspective

What factors influence your
compensation policy?
• Supply and demand skills
• Unions
• Ability to pay
• Cost of living increases
• Government (FLSA, min. wage)
• Strategy
Influence of Equity
External
Market
wages
Internal
Perceived
equity
Develop a Job Hierarchy
A. Job Evaluation
1. Preliminary planning
2. Select a plan
3. Develop the plan
4. Evaluate jobs, NOT PEOPLE
Factor 8: Decision Making /
Supervision Required
1st Degree (36 points)
Limited decision making by the incumbent. Progress of work is checked by others most of
the time, and/or 60-90 percent of activities are defined by other than incumbent.
2nd Degree (89 points)
Routine decision making bases on specific criteria. Progress of work is often checked by
others, and/or 40-60 percent of activities are defined by other than incumbent.
3rd Degree (112 points)
Significant decision making based on established guidelines and experience. Progress of
work is check by others some of the time, and/or 25-40 percent of activities are defined by
others than the incumbent.
4th Degree (180 points)
Extensive decision making based on broad policies, procedures, and guidelines. Progress of
work is seldom checked by others, and/or less than 25 percent of activities are defined by
other than the incumbent.
Example of One Factor in a Point Factor System
(Complexity/Problem Solving)
The mental capacity required to perform the given job as expressed in
resourcefulness in dealing with unfamiliar problems, interpretation of data,
initiation of new ideas, complex data analysis, creative or developmental work.
Level
Point Value
Description of Characteristics and Measures
0
0
Seldom confronts problems not covered by job
routine or organizational policy; analysis of data is
negligible. Benchmark: General secretary,
switchboard / receptionist.
1
40
Follows clearly prescribed standard practice and
demonstrates straightforward application of readily
understood rules and procedures. Analyzes
noncomplicated data by established routine.
Benchmark: Statistical clerk, billing clerk.
Example of One Factor in a Point Factor System
(Complexity/Problem Solving) (cont’d)
Level
Point Value
Description of Characteristics and Measures
2
80
Frequently confronts problems not covered by job
routine. Independent judgment exercised in making
minor decision where alternatives are limited and
standard policies established. Analysis of standardized
data for information of or use by others. Benchmark:
Social worker, executive secretary
3
120
Exercises independent judgment in making decision
involving nonroutine problems with general guidance
only from higher supervision. Analyzes and evaluates
data pertaining to nonroutine problems for solution in
conjunction with others. Benchmark: Nurse,
accountant, team leader
Example of One Factor in a Point Factor System
(Complexity/Problem Solving) (cont’d)
Level
Point Value
Description of Characteristics and Measures
4
160
Uses independent judgment in making decisions that
are subject to review in the final stages only. Analyzes
and solves nonroutine problems involving evaluation of
a wide variety of data as a regular part of job duties.
Benchmark: Associate director, business manager,
park services director.
5
200
Uses independent judgment in making decisions that
are not subject to review. Regularly exercises
developmental or creative abilities in policy
development. Benchmark: Executive director.
Pricing Jobs
"The acceptability of job evaluation
hinges in large part on whether the
results are consistent with the ranking
of the same jobs in the external labor
market."
Pricing Jobs
A. Use key or benchmark jobs


Jobs that are relatively stable in content
and found in many organizations
Compare your internal analysis to
external wages
B. Conduct wage survey to examine
external wages
Pricing Jobs
C. Use points from job evaluation as a
predictor


Use predictor to determine wages for
non-key positions
Non-key positions: jobs that have no
similar “comparison job” outside of the
organization
Develop a Pay Structure
A. Pay on the basis of individual jobs
or grades?
B. Utilize single rates or a rate range?
Inequities

Comparable worth

Salary compression
Pricing Managerial and
Professional Jobs



Not easy because there are fewer
quantifiable factors
Managers are often compensated for long
term performance
Are executives overpaid?
Evaluate People Not Jobs

Skill Based Pay
Skill-Based Compared to Job-Based
Structures Job-Based
Knowledge-Based
Pay Structure
Based on job performed
Based on skills possessed
by the employee
Manager’s focus
Job carries wage
Employee linked to job
Employee carries wage
Employee linked to skill
Employee focus
Job promotion to earn
greater pay
Skill acquisition to earn
greater pay
Procedures required
Assess job content
Value jobs
Assess skills
Value skills
Advantages
Pay based on the value
performed
Flexibility
Reduced work force
Limitations
Potential personnel
bureaucracy
Inflexibilities
Potential personnel
bureaucracy
Cost controls
Financial Incentives
"The basic aim of an incentive should be
to encourage good performance by
linking performance and rewards, and
this in turn requires valid, accurate
performance appraisals.”
Incentives for Production
Employees

Piecework

Group incentive plans

Attendance

Annual bonus
Other Incentives for
Mangers, Executives and
Other Employees

Stock options

Long-term incentives
Organization Incentive Plans


Profit sharing plans
•
ESOP – Employee Stock Options Plan
•
Cost savings plan
SCANLON and Gainsharing
Potential Incentive Plan
Problems



Worker doesn’t believe that plan will lead
to rewards.
Unfair standards – too high or unattainable
Changing standards – obtain top
management commitment to maintain
standards
Recommendations
1. Ensure that efforts and rewards are
directly related.
2. Incentive rewards are understandable and
calculable.
3. Use accurate and effective standards.
4. Guarantee those standards.
Performance Evaluation
Performance Measurement
Purposes
A. Administrative decisions
• Promotion
• Training
• Compensation
• Transfer, demotion, and separation
Performance Measurement
Purposes
B. Employee feedback and development
• Roles
• Strengthens E  P and P  O relationships
• Allows behavior change
Performance Measurement
Purposes
C. Evaluations of policies and programs
• Selection and promotion decisions
• Aiding in validation of selection tools
• Helping to determine if programs are effective
(e.g. training)
D. Defense of policies
• Use to show job relatedness (performance)
Performance Measurement
Issues
A. Identifying performance dimensions
• Most jobs are multi-dimensional
• Use job analysis to assess performance
• Errors similar to job analysis
B. Establish performance standards
• Determine legitimate standards
• Don’t set standards too high or low
Performance Measures
A. Comparative methods
1. Ranking
2. Forced distribution
3. Problems with comparative evaluations:
• No indication of potential performance
• Little specific feedback
• No feedback about where to improve
Performance Measures
B. Absolute methods
1. Trait rating scale
• Central tendency problems
• Doesn’t capture specific behaviors
2. BARS (Behaviorally Anchored Rating Scales)
• Complex and costly
• Not applicable to a broad group of jobs
• Avoids contamination and deficiency errors
3. MBO – set for individuals, not jobs
Measures of Physical Output
Administrative Challenges
A. Components that influence the
performance appraisal process
1. Appraiser (rater)
2. Appraisee (ratee)
3. Method
4. Purpose of evaluation
5. Motivation to appraise
Administrative Challenges
B. Rater errors
1. Unreliability
2. Leniency
3. Severity
4. Central tendency
5. Recency
6. Halo
Administrative Challenges
C. EEO
• Not only for your selection
• Show that method isn’t discriminating
• Validate performance appraisal procedures
Trends in PA Research
1. Focused on the accuracy of appraisal and
improving method.
2. Focused on rater errors and reduction of
errors.
3. Current focus: cognitive processes and
interpretation and evaluation of
performance.