compensating employees

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

Job Rating Survey

Conduct

Create Job Survey

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.



Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of

jobs for worth or inexpensive, easily - not very reliable

compare pairs of understandable. doesn’t measure


Classification Compare job de- Simple, easy to Ambiguous, overlapping

scriptions to grade use for large num- grade descriptions

descriptions. ber of jobs; one

rating scale.

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

Job Classification for Restaurant



Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of

jobs for worth of inexpensive, easily - not very reliable






rating scale.

Three Job Rating MethodsMethod Procedure Advantages DisadvantagesRanking (paired comparison) Rank-order whole Simplest method; Only general rating of

jobs for worth of inexpensive, easily - not very reliable






rating scale.

Point factor Reduce general More specific and Time-consuming processfactors to sub- larger number of more difficult to under-

factors: give each factors; off-the- stand; greater opportun-

factor weights and shelf plans available ity to disagree.

points; use points more precise

to determine measurements.

grades.

Point Factor Method

1 Identify specific characteristics (factors) of jobs that will be measured

Major Factors of the Hay PlanKnow-How Problem Solving AccountabilitySum total of every kind Original, “self-starting” thinking Answerability for action

kind of skill, however required by the job for analyzing, and for the consequen-

acquired, required for evaluating, creating, reasoning. ces of the action; the

acceptable job perfor- Problem solving has two sub- measured effect of the

mance. Know-how hasfactors: the job. Accountability

three subfactors: has three subfactors:

(1) Practical procedures, (1) The thinking environment (1) Freedom to act

specialized techni- in which problems are (personal control).

ques. solved.

(2) Ability to integrate (2) The thinking challenge of (2) The impact of the

and harmonize the the problem. job on end results

diversified functions (direct, indirect).

of management.

(3) Interpersonal skills. (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 factors3 Score each job on each factor using factor

scales and degree statementsStatement 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.

Degree

1. Light work involving a minimum of physical effort.

Requires only intermittent sitting, standing, and walking.

2. Repetitive work of a mechanical nature. Small amount of lifting and carrying. Occasional difficult working positions. Almost continuous

sitting or considerable moving around.

3. 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.


Job Analysis

Job Documentation

Prepare to

Job Rating Survey

Conduct

Create Job Survey

Worth Hierarchy

Analyze

Market Data

Reconcile


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?


Job Analysis

Job Documentation

Prepare to

Job Rating Survey

Conduct

Create Job Survey

Worth Hierarchy

Analyze

Market Data

Reconcile


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

compensating employees

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