Designing compensation system Part II

1. Designing Compensation System: Part II
Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor
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2. Job Valuation
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3. Job Evaluation Methods
There are four major Methods
 Ranking
 Classification
 Point Method
 Factor Comparison
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4. Job Evaluation Procedures
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5. Ranking Method
 Examines job description and arrange jobs according to
value to company e.g. highest to lowest
 Ranks each job relative to all other jobs, based on some
overall factor
 Most basic method; used for small firms
 Uses subjective ratings on single criterion (e.g., job
complexity)
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6. Classification Method
 Classes or grades are defined to describe a group of jobs
 Mainly for government jobs
 18 factors may be used to score jobs
 General, Professional and Executive Schedules

7. Point Method
Breaking down jobs on identifiable criteria and the
degree to which these criteria exist on the job
More complex - points assigned to compensable factors
and sub-factors
More structured, thus easier to defend
Hay System most well known and most complex

8. Advantages & Disadvantages of Ranking,
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Classificatin & Point Methods
Advantage Disadvantage
Ranking Fast, simple, easy to Cumbersome as
explain. number of jobs
increases. Basis for
comparisons is not
always acceptable.
Classification Can group a wide range of Descriptions may
job together in one system. leave too much room
for manipulation.
Point Compensable factors call Can become
out basis for comparisons. bureaucratic and rule-
Compensable factors bound.
communicate what is
valued. 1/5/2008

9. Steps in Ranking Methods
• Steps in job ranking:
– Obtain job information
– Select and group jobs
– Select compensable factors
– Rank jobs
– Combine ratings
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10. Ranking Method
Straight ranking
Alternation Ranking
Paired Comparison
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11. Advantages & Disadvantages Ranking
Method
Advantages Disadvantages
Simple Comparisons can
“Straight” method ranks be problematic
“highest”, then next “highest”, depending on
then next “highest” and so on number and
“Alternation” method ranks complexity of jobs
“highest” then “lowest,” then May appear
next “highest,” then next arbitrary to
“lowest” and so on employees
“Paired comparisons” method Can be legally
picks highest out of each pair challenged
Fast Unreliable
Most commonly used
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12. Paired Comparison
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13. Classification
Like library Class I
classification Simple work, no supervisory
system responsibility, no public
Define categories contact
and then compare Class II
job against Simple work, no supervisory
categories responsibility, public contact
Class III
Medium work complexity, no
supervisory responsibility,
public contact
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14. Advantages & Disadvantages of
Classification Method
Advantages Disadvantages
Uses job families/groups Not useful when jobs are
instead of individual jobs very different from each
May produce same results other
as Point Method, but is May be confusing to
less costly employees about why jobs
are included in a class
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15. Factor Comparison
Compensable Factors are identified as
determining worth of jobs
Mental requirements,
Physical requirements,
Skill requirements,
Responsibility and
Working conditions
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16. Steps in Factor Comparison
Method
Analyze Jobs
Select Key Jobs
Rank Key Jobs
Distribute Wage Rates Across Factors
Compare Vertical and Horizontal Judgments
Construct the Job-Comparison Scale
Use the Job-Comparison Scale to Evaluate the
Remainder of the Jobs
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17. Factor Comparison Method
Hourly rate is divided into pay for each of
the following factors:
Hourly Pay for
Pay for Pay for Pay for
Rate Working
Skill Effort Responsibility
Job (Rs.) Conditions
Secretary 9.00 4.50 2.00 2.00 0.50
Admin
11.00 5.50 2.50 2.50 0.50
Assistant
Supervisor 15.00 6.00 3.50 4.00 1.50
Manager 21.00 9.00 3.50 7.00 1.50
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18. Advantages & Disadvantages of Factor
Comparison Method
Advantages Disadvantages
Customized to the Using Rupee values may
organization bias evaluators by
Relatively easy to use once assigning more money to a
it’s set up factor than a job is worth
Results in ranking of jobs Hard to set up
and a specific rupee value Not easily explained to
for each job, based on employees
allocating part of the job’s
total wage to each factor
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19. Steps in Point Method
1. Select Benchmark Jobs
2. Choose Compensable Factors
3. Define Factor Degrees
4. Determine Weight of each Factor
5. Determine Point Values
6. Verify Factor Degrees and Point Values
7. Evaluate All Jobs

20. Benchmark Jobs
“Generic” jobs with similar and agreed upon
characteristics
Relatively stable
Represent entire range of jobs in company
Generally accepted in the labour market for
purposes of setting pay levels

21. Compensable Factors
Compensable factors are identified as
determining worth of jobs
Major compensable factors
- Skill
- Responsibilities
- Effort
- Working Conditions
Custom factors
Sub-Factors
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22. Compensable Factors
Skilll
Experience
Education
Ability
Responsibilities
Fiscal
Supervisory
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23. Compensable Factors
Effort
Mental
Physical
Working Condition
Location
Hazards
Extremes in Environment
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24. Factor Degrees/Levels
Provides levels within each factor or sub-factor
Best to define each level in job-specific terms
Fewer degrees required if system only needs to
cover a smaller range of jobs
Weight of each Factor to be determined

25. Factor Degrees/Levels
Scale that reflects differing quantity or quality of the
factor
Used to differentiate jobs on the factor
Clear and unambiguous definition
Contains explicit language that spells out the
behaviours, skills, or performance expectations
for the factor at different levels
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26. Responsibility at Various
Levels
Employee responsibility for conserving
company’s equipment and material
Level-1
Employee reports malfunctioning of equipment or defective
materials to immediate superior
Level-2
Employee maintains appearance of equipment or order of
material and has responsibility for security of such
equipment or material
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27. Responsibility at Various
Levels
Level-3
Employee perform preventive maintenance and minor
repairs on equipment or corrects minor defects in material
Level-4
Employee perform major maintenance or overhauls of
equipment or responsible for deciding type, quality and
quantity of material to be used
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28. POINT VALUES
1. Maximum number of points may be assigned:
500-3000
2. Number must be large enough to allow
sufficient differentiation among jobs
3. In case of wide spread between current wages of
highest paid & lowest paid job, the maximum
number of points need to be higher
4. If more than one pay system chosen, number of
points or actual factors do not have to be same
in each one
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29. Point Values to Factors
Education
Working Conditions
1. Job requires post graduate degree
1. Hazardous work: 2. Job requires bachelors degree
deals with dangerous 3. Job requires high school
materials or working education
conditions Effect of Error
2. Uncomfortable work: 1. Major mistake-more than
loud, hot, cold or dirty Rs.500,000
2. Major mistake-more than
3. Good working Rs.100,000
conditions: 3. Major mistake-less than
Rs.99,999
office environment - air
conditioned, good 1=10 points, 2=8 points, 3=5 points
lighting 29

30. POINT VALUES TO FACTORS
Factor Point values for Degrees
Total 1 2 3 4
Skill 45 90 135 180
450
Physical effort 25 50 75 100 250
Mental effort 35 70 105 150 360
Responsibility 25 50 75 100 250
Working conditions 20 40 60 80 200
Maximum total points of all factors depending on their importance to
job=1510
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31. A Typical Point Plan
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32. Application of Point System to Two Jobs
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33. Position: Engineering Manager
Grade: 7
MAXIMUM
FACTOR DEGREE FACTOR
POINTS FACTOR JE Points LEVEL WEIGHTS
250 Communication & Interpersonal Skills 250 4 10%
250 Education & Training 250 5 10%
500 Problem Solving & Decision Making 400 4 20%
500 Responsibility & Accountability 500 4 20%
250 Specialized Knowledge & Application 200 4 10%
250 Supervision & Leadership 250 4 10%
125 Internal Impact 125 3 5%
125 External Impact 75 1 5%
125 Planning & Organizing 125 4 5%
125 Innovation 90 2 5%
2500 2265 100%
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34. Advantages & Disadvantages
of
POINT METHOD
Advantages Disadvantages
 Highly stable over time  Time, money, and effort
 Perceived as valid by users required to set up
and employees  Relies heavily on key
 Likely to be reliable among (benchmark) jobs, so if key
committee that assesses the jobs and correct pay rates
jobs don’t exist, the point method
may not be applicable
 Provides good data to prepare
a response to an appeal
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35. 35
Hay’s Method - Process
KNOW-
KNOW- PROBLEM
PROBLEM Job
+ + ACCOUNTABILITY
ACCOUNTABILITY =
HOW
HOW SOLVING
SOLVING Size
Depth & Range Thinking Freedom
of Know-How Environment to Act
Planning & Thinking Nature of
Organising Challenge Impact
Area of
Communicating &
Impact
Influencing
(Magnitude)

36. Hay’s Method – 3 Factors
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1
1 2
2 3
3
Jobs exist to To achieve this end Job holder requires a level
result, job holders of knowledge and
achieve an end
must address experience commensurate
result
problems, create, with scale and complexity
analyse and apply of the result
judgement Know-How
Problem Solving Problem Solving
Accountability Accountability Accountability