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Designing Compensation System: Part IDr. G C Mohanta, BE(Mech), MSc(Engg), MBA,
PhD(Mgt)
Professor
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Components of Compensation System
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Types of Equity
Internal Equity - Fairness of the pay structure, relationship among jobs within a single organization
External Equity - Comparisons of similar jobs in different organizations
Individual Equity - Comparisons among individuals in the same job within the same organization
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Equity Theory
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Building Internal Consistent Compensation System through
Job Evaluation
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Job Evaluation - Concept
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Job Evaluation Methods
Job RankingJob Grading or ClassificationFactor ComparisonPoint Method
Compensable FactorsApplication to JobsHay Plan
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Internal Equity in PracticeJob analysis
Collecting data about jobs
Job evaluationValuing jobs
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Job Evaluation Process
Job evaluation
process
Job description
Job analysis
Job evaluation
Job specification
Wage survey
Employee classification
Creating Internal Equity through Job Analysis and
Job Valuation
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Job Analysis The systematic, formal study of the duties and responsibilities that comprise job content
The process seeks to obtain important and relevant information about the nature and level of the work performed
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Job AnalysisProcess to identify and determine particular job
duties and requirements & relative importance of duties
Judgments made on data collected from job analysisCan be used in compensation to identify/determine:
• Skill levels • Compensable job factors • Work environment (e.g., hazards; attention; physical
effort) • Responsibilities (e.g., fiscal; supervisory) • Required level of education (indirectly related to
salary level)
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Tasks Responsibilities Duties
Job Analysis
Job Descriptions
Job Specifications
Knowledge Skills Abilities
Human Resource Planning
Recruitment
Selection
Training and Development
Performance Appraisal
Compensation and Benefits
Safety and Health
Employee and Labor Relations
Legal Considerations
Job Analysis for Teams
Job Analysis Result• Job Description
– Job based– Tasks– Work performed
• Job Specification– Employee based– Knowledge, skills & abilities– Experience
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Job DescriptionOutput from job analysis used to develop job
description and job specification A critical component of both compensation
and selection systemsIt defines the responsibilities, requirements,
functions, duties, location, environment, conditions and other aspects of jobs
It may be developed for jobs individually or for entire job families
It describes and focuses on job itself and not on any specific individual who might do the job
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Job Specification
It defines worker characteristics (i.e., knowledge, skills and abilities) required to perform the job competently
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Types Of Job Analysis Information Considerable information is needed, such
as:Worker-oriented activitiesMachines, tools, equipment, and work aids
usedJob-related tangibles and intangiblesWork performanceJob contentPersonal requirements for the job
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Types of Data Collected Through Job Analysis
Work Activities – work activities and processes; activity records; procedures used; personal responsibility
Worker-oriented activities – human behaviours, such as, physical actions and communications on the job; elemental motions for methods analysis; personal job demands, such as, energy expenditure
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Types of Data Collected Through Job Analysis
Machines, tools, equipment, and work aids used
Job-related tangibles & intangibles – knowledge dealt with or applied; materials processed; products made or services performed
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Types of Data Collected Through Job Analysis
Work performance – error analysis; work standards; work measurements, such as, time taken for a task
Job context – work schedule; financial and nonfinancial incentives; physical working conditions; organizational and social contexts
Personal requirements for the job – personal attributes, such as, personality and interests; education and training required; work experience
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Job Evaluation - ObjectivesJob evaluation - used to determine relative
value of each job in relation to all jobs within the organization
Immediate objective - to obtain internal and external consistency in wages and salaries
Ultimate objective - employee and employer satisfaction with wages and salaries paid
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Job Evaluation
Methods and practices for ordering jobs or positions with respect to their value or worth to the organization
A system for comparing jobs for purpose of determining appropriate compensation levels for individual jobs or job elements
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Building Market Competitive
Compensation System
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Establishing External Equity – Compensation Surveys
Wage and Salary Surveys (Compensation Surveys)Identifying Key JobsSelecting Organizations to SurveyCollecting Data
Self-Surveys Online Surveys Government Surveys Interpreting the Data Avoiding Antitrust
Pay Level PolicyMatching the CompetitionAdapting a Lead PolicyFollowing a Lag Approach 24
Wage Surveys (Compensation Surveys)
Goal of wage surveys is to find data from employers with whom the organization competes for employees
Collected data should be analyzed Analysis involves comparing going market
rate and approximating this rate within organization's own pay structure
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Methods of Wage Surveys
Generally three methods are employed for wage surveys:• Personal Interviews• Mailed Questionnaires• Telephone Inquiries
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Establishing Individual EquityDesigning Pay Ranges
Establishing Pay Ranges Wage Ranges
BroadbandingAbove- and Below-Range Employees
Setting Individual PaySeniorityMerit PaySkill Based Pay
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