Designing Compensation System: Part IIDr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)

Professor

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Job Valuation

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Job Evaluation Methods

There are four major Methods

Ranking Classification Point Method Factor Comparison

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Job Evaluation Procedures

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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 firmsUses subjective ratings on single criterion

(e.g., job complexity)

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Classification MethodClasses or grades are defined to describe a

group of jobsMainly for government jobs

18 factors may be used to score jobs General, Professional and Executive Schedules

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 defendHay System most well known and most

complex

Advantages & Disadvantages of Ranking, Classificatin & Point Methods

1/5/2008

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Advantage Disadvantage

RankingRanking Fast, simple, easy to Fast, simple, easy to explain.explain.

Cumbersome as Cumbersome as number of jobs number of jobs increases. Basis for increases. Basis for comparisons is not comparisons is not always acceptable.always acceptable.

ClassificationClassification Can group a wide range of Can group a wide range of job together in one system.job together in one system.

Descriptions may Descriptions may leave too much room leave too much room for manipulation.for manipulation.

PointPoint Compensable factors call out basis for comparisons. Compensable factors communicate what is valued.

Can become Can become bureaucratic and rule-bureaucratic and rule-bound.bound.

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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Ranking Method

Straight ranking

Alternation Ranking

Paired Comparison

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Advantages & Disadvantages Ranking Method

AdvantagesSimple

“Straight” method ranks “highest”, then next “highest”, then next “highest” and so on

“Alternation” method ranks “highest” then “lowest,” then next “highest,” then next “lowest” and so on

“Paired comparisons” method picks highest out of each pair

FastMost commonly used

DisadvantagesComparisons can

be problematic depending on number and complexity of jobs

May appear arbitrary to employees

Can be legally challenged

UnreliableSunday, April 9, 2023 11

Paired Comparison

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ClassificationLike library

classification system

Define categories and then compare job against categories

Class ISimple work, no supervisory

responsibility, no public contact

Class IISimple work, no supervisory

responsibility, public contact

Class IIIMedium work complexity, no

supervisory responsibility, public contact

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Advantages & Disadvantages of Classification Method

AdvantagesUses job

families/groups instead of individual jobs

May produce same results as Point Method, but is less costly

DisadvantagesNot useful when jobs

are very different from each other

May be confusing to employees about why jobs are included in a class

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Factor ComparisonCompensable Factors are identified

as determining worth of jobs

Mental requirements, Physical requirements,Skill requirements,Responsibility and Working conditions

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Steps in Factor Comparison Method

Analyze JobsSelect 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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Factor Comparison Method

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Hourly rate is divided into pay for each of the following factors:

Job

Hourly Rate (Rs.)

Pay for Skill

Pay for Effort

Pay for Responsibility

Pay for Working Conditions

Secretary 9.00 4.50 2.00 2.00 0.50

Admin Assistant

11.00 5.50 2.50 2.50 0.50

Supervisor 15.00 6.00 3.50 4.00 1.50

Manager 21.00 9.00 3.50 7.00 1.50

Advantages & Disadvantages of Factor Comparison Method

AdvantagesCustomized to the

organizationRelatively easy to use

once it’s set upResults in ranking of

jobs and a specific rupee value for each job, based on allocating part of the job’s total wage to each factor

DisadvantagesUsing Rupee values

may bias evaluators by assigning more money to a factor than a job is worth

Hard to set upNot easily explained to

employees

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Steps in Point Method

1. Select Benchmark Jobs2. Choose Compensable Factors3. Define Factor Degrees4. Determine Weight of each Factor5. Determine Point Values6. Verify Factor Degrees and Point Values7. Evaluate All Jobs

Benchmark Jobs

“Generic” jobs with similar and agreed upon characteristics

Relatively stable Represent entire range of jobs in

companyGenerally accepted in the labour market

for purposes of setting pay levels

Compensable Factors

Compensable factors are identified as determining worth of jobs

Major compensable factors- Skill- Responsibilities - Effort - Working Conditions

Custom factorsSub-Factors

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Compensable FactorsSkilllExperience Education Ability

ResponsibilitiesFiscal Supervisory

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Compensable FactorsEffort

Mental Physical

Working ConditionLocation Hazards Extremes in Environment

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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

Factor Degrees/LevelsScale that reflects differing quantity or

quality of the factorUsed to differentiate jobs on the factorClear 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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Responsibility at Various Levels

Employee responsibility for conserving company’s equipment and material

Level-1Employee reports malfunctioning of equipment or

defective materials to immediate superior

Level-2Employee maintains appearance of equipment or

order of material and has responsibility for security of such equipment or material

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Responsibility at Various Levels

Level-3Employee perform preventive maintenance and

minor repairs on equipment or corrects minor defects in material

Level-4Employee perform major maintenance or overhauls

of equipment or responsible for deciding type, quality and quantity of material to be used

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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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Point Values to Factors Working Conditions1. Hazardous work:

deals with dangerous materials or working conditions

2. Uncomfortable work:loud, hot, cold or dirty

3. Good working conditions:office environment -

air conditioned, good lighting

Education

1. Job requires post graduate degree

2. Job requires bachelors degree

3. Job requires high school education

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Effect of Error1. Major mistake-more than Rs.500,0002. Major mistake-more than Rs.100,0003. Major mistake-less than Rs.99,999

1=10 points, 2=8 points, 3=5 points

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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A Typical Point Plan

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Application of Point System to Two Jobs

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Position: Engineering ManagerGrade: 7

MAXIMUM FACTOR POINTS FACTOR JE Points

DEGREE LEVEL

FACTOR 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%

Advantages & Disadvantages of

POINT METHOD

AdvantagesDisadvantages

Highly stable over time Perceived as valid by users

and employees Likely to be reliable among

committee that assesses the jobs

Provides good data to prepare a response to an appeal

Time, money, and effort required to set up

Relies heavily on key (benchmark) jobs, so if key jobs and correct pay rates don’t exist, the point method may not be applicable

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Hay’s Method - Process35

Depth & Rangeof Know-How

Planning &Organising

Communicating &Influencing

Freedomto Act

Nature of Impact

Area ofImpact

(Magnitude)

ThinkingEnvironment

ThinkingChallenge

KNOW-HOW

KNOW-HOW

PROBLEMSOLVING

PROBLEMSOLVING ACCOUNTABILITYACCOUNTABILITY+ + =

Job Size

Hay’s Method – 3 Factors36

Jobs exist to achieve an end

result

Accountability Accountability

Job holder requires a level of knowledge and

experience commensurate with scale and complexity

of the result

Problem Solving

To achieve this endresult, job holders

must address problems, create, analyse and apply

judgement

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Accountability

Problem Solving

Know-How