HRMT 316 Midterm 2

Statistical/policy capturing method

-Most complex method of job evaluation -This method uses questionnaires to gather information about the task elements of each job to be evaluated, as well as the typical time spent on each task and the relative importance of each task -Information is also collected regarding the level of skill or education required for each job, and possibly data on the quantity and quality of output expected for each job

3. Weighting the Factors

-The compensable factors that have been selected are not likely to be equal in importance to the firm -To recognize this variation in importance, each factor needs to be weighted according to its relative importance -For example, in one firm, "education" may be viewed as the most important factor, followed by "experience," then "customer contact" and "mental complexity," with "physical environment" considered the least important factor

Methods for Determining Base Pay

1. Market Pricing 2. Job Evaluation 3. Pay-for-Knowledge Systems (PKS)

Job Evaluation Methods

1. Ranking 2.Paired 3.Classification/Grading 4.Factor Comparison 5.Point Method 6.Statistical/Policy

Reasons for Updating Job Evaluations

1. The job itself has changed significantly 2. The strategy of the organization changes 3. Signs that the job evaluation system is no longer working effectively 4. Legislative conditions require it

Functional Job Analysis

1. Who performs what? 2.To whom or what do they perform? 3.With what tools, equipment, or processes do they use to perform? 4.To achieve what purpose or outcome?

Determining Base Pay

1.Establishing pay grades 2.Establishing pay ranges 3.Dealing with possible overlaps 4.Establishing policy for movement through the pay ranges

Developing a Point System of Job Evaluation

1.Identify key characteristics (compensable factors) that differentiate the value of various jobs 2.Develop a measuring scale for each factor (scaling) 3.Weight each factor according to its importance 4.Apply to every job & rank list the jobs 5.Test resulting jobs hierarchy for reliability, validity and market fit (adjust where necessary)

Calculating Proposed Pay

A more precise way to calculate proposed pay for a given job is to use the equation for the regression (market/pay policy) line that is generated by the computer -which is in the y = mx + b format -where "y" is the dollar value of the job -"m" is the slope of the market/pay policy line -"x" is the job evaluation points total for that job and -"b" is a constant (the constant "b" could be a minus or a plus, depending on where the regression line intercepts the vertical axis).

Job Descriptions

A summary of the duties, responsibilities, and reporting relationships pertaining to a particular job. -Up to date and accurate job descriptions can provide all the necessary information for job evaluation. It's relatively rare for this to be the case. Basic Elements: 1.Job title, department, location, reporting relationships 2.Brief statement of job purpose 3.List of major duties of the job, in order of priority or importance 4.Indication of responsibilities 5.Mental and physical effort demanded by the job 6.Conditions under which the work is performed 7.Qualifications needed to perform the job

Point Method

-Most common system for job evaluation -This method identifies key job characteristics (known as "compensable factors") that differentiate the value of various jobs, weights these factors, and then determines how much of each factor is present in a given job by assigning a certain number of points to each job for that factor

1.Identifying Compensable Factors

Characteristics of jobs that are valued by the organization and differentiate jobs from one another. -Skill -Effort -Responsibility -Working conditions

Market Pricing

Determining the average amount of pay other employers are offering for a given job Advantages: -Simplicity and cost -Keeps jobs aligned with market conditions Disadvantages: -Going rate not always easy to identify -Job definitions may vary from the market data -Does not address internal equity -Lack of control of compensation strategy -May violate pay equity legislation

1. Establishing Pay Grades

Equal interval approach: -Method to establish pay grade widths, in which the points are spread equally for all pay grades Equal increase approach: -Method to establish pay grade sizes, in which each pay grade increases in width by a constant number of points form the preceding pay grade Equal percentage approach: -Method to establish pay grade sizes, in which each pay grade increases in width by an equal percentage from the preceding pay grade Broadbanding: -Practice of reducing the number of pay grades by creating large or "fat" grades, sometimes known as "bands"

Job Evaluation

Establishing base pay by ranking all jobs in the firm according to their value to that firm. Involves analyzing job descriptions and then comparing all jobs in the organization in a systematic manner Advantages: -Centralized control of compensation costs -Signals importance of different jobs -Promotes internal equity -Makes calibration to the market easier -Systematic way to determine pay for new jobs -Availability of packaged plans and consultants -Fits well with classical and human relations -Low discontinuation rate Disadvantages: -Many impede high involvement -More costly to develop than market pricing -Need for job descriptions -May become an adversarial process -Costly to maintain -Can inhibit flexibility and skill development

2. Establishing Pay Ranges

Four main questions about pay ranges: a.How are the midpoints of the ranges (in $ terms) decided? b.How should the range spreads be determined (i.e. min and max pay rates for each grade)? c.Should range overlaps be permitted? d.How should movement through the range take place?

Paired comparison method

In which each job is compared with every other job, one pair at a time -The number of times each job is ranked above another job is recorded, and these pair rankings are used as the basis for ranking the entire set of jobs

Organizational Performance Pay Plans

Include employee profit sharing plans, employee stock plans, and other organizational pay plans

Individual Performance Pay Plans

Include piece rates, commissions, merit pay, and targeted incentives

Group Performance Pay Plans

Include productivity gain-sharing plans, goal-sharing plans, and other types of team-based pay

2(a). Establishing the Range Midpoints

Intergrade differentials: -Difference between the range midpoints of adjacent pay grades in a pay structure, expressed in dollars Intergrade differential percentage: -Calculated by dividing the intergrade differential of each pay grade by the midpoint of the previous pay grade

Ranking method

Involves asking a group of "judges" (e.g., managers, human resource specialists) to examine a set of job descriptions and to rank jobs according to their overall worth to the organization

Observation

Involves watching the employee as the job is performed and noting the kinds of activities performed, with whom they are performed, and with what tools or equipment

Pricing Skill Blocks

Lead/Lag/Match -Entry-level pay has to at least match the market in order to attract employees -Pay levels should lead the market more as the value of the employee increases to insure retention

2. Scaling the Factors

-After the compensable factors have been selected and defined, a number of "degrees" (sometimes called "levels") are established for each factor -These degrees represent gradations in the extent to which a certain factor is present in a particular job being rated -For example, it may be decided that there should be five possible "degrees" or levels for the factor of "consequences of error" -Each degree needs to be carefully defined and arranged so that degree 2 always contains more of that factor than degree 1

Interviews

-Can be conducted with a sample of employees, or their supervisors, or both -Interviewing only one or the other of these groups has drawbacks -The employee perspective on the importance of various job duties may be different from that of the supervisor

Classification/grading method

-Establishes and defines general classes of jobs (e.g., managerial, professional, technical, clerical) and then creates series of grade descriptions for each class -Different grades possess different levels of knowledge and skills, complexity of duties, supervision, and other key characteristics -Organizations compare jobs using these grade descriptions within the appropriate job class and then select the pay grade that best matches them

Factor comparison method

-Highly complex compared to other methods and thus used less frequently -This method identifies several major factors against which all jobs in a job class can be assessed and then rates the extent to which each factor is present in each of a large set of "key jobs" thought to be properly compensated at the present time

4. Applying the Job Evaluation System

-Job evaluation system is then applied to all the jobs covered by that system -A "hierarchy of jobs" is generated -Good way to summarize the results of the job evaluation is by developing a table

Pay-for-Knowledge System (PKS)

According to the total value of the skills and competencies an employee has acquired Advantages: -Incentive for employee skill development -No disincentive to movement -High workforce flexibility -Does not require job descriptions -Jobs are broader with more intrinsic rewards -May improve customer service -Supports high involvement management Disadvantages: -May raise labour costs -"Topping out" problem -Resistance by senior employees to rotation -Higher training costs -Complex to develop and administer -May also need to maintain job-based system -May be difficult to calibrate system to market -Not all employees may have desire or capability -Unions may resist because not based on seniority -High discontinuation rate

Indirect Pay

Any type of employer provided reward (or "benefit") that serves an employee need but is not part of base or performance pay. -15 percent of total compensation in medium to large private-sector firms -This ranged from 17 percent in the manufacturing sector down to 10 percent in the accommodation/food industry, where many employers don't provide any benefits beyond the statutory minimum -Another researcher found that, in a sample consisting mainly of large employers, benefits constituted an average of 19.7 percent of total compensation Advantages: -Can help attract employees -Matches unionized firms -Favourable tax treatment -Economies of scale in purchasing -Can provide valued rewards for no cash -Provide employee peace of mind -Can support managerial strategy Disadvantages: -Cost can be substantial -Difficult to develop efficient benefits package -Administration and communication costly -Does not motivate task behaviour -May cause excessive employee stability -May encourage undesirable behaviour

Performance Pay

Any type of financial reward provided only when certain specified performance results occur. These results may be based on the performance of individual employees, a group or team of employees, or the entire organization. Types: -Individual performance pay plans -Group performance pay plans -Organizational performance pay plans Advantages: -Signal key behaviour and motivate employees -Can reduce the need for other types of mechanisms for controlling employee behaviour -Set performance standards -Support specific managerial strategies -Make pay more variable Disadvantages: -Employees prefer predictability -May require higher compensation -May cause focus only on reward behaviours -May cause unanticipated consequences -Usually more complex than base pay

Determining the Base Pay Structure

Base pay structure: -The structure of pay grades and pay ranges, along with the criteria for movement within pay ranges, that applies to base pay Pay grade: -A grouping of jobs of similar value to the organization, typically grouped by point totals Pay range: -The minimum and maximum pay rates (in dollars) for jobs in a particular pay grade

Competency based pay

Based on the characteristics, rather than the performance, of individual employees; usually applied to managerial or professional employees

Skill based pay

Based on the specific skills and capabilities of individual employees, rather than on the specific tasks they are carrying out; usually applied to operational-level employees Advantages: -Provide a major incentive for employees to learn a variety of skills -Avoids the disincentive to movement caused by traditional job evaluation systems -Does not need job descriptions -Broader and provide more intrinsic rewards -Allows individuals and teams to be more self-managing -Supports behaviours needed by high-involvement firms -Helps promote change to high-involvement practices Disadvantages: -Can give rise to situations where employees are "overpaid" relative to competitors -Workers "top out" -If employees are not rotated through jobs regularly, then this skills atrophy -Lead to increased training costs

4. Movement Through the Pay Range

Once the pay range is defined for each pay grade, criteria must be established to determine how placement and movement within the range will occur The three most common criteria are: -Experience -Seniority -Performance A person's initial placement in the pay range may be determined by previous experience -For example, seniority (years in the job) or performance (or both) can be used to determine future increases within the pay range Just noticeable difference (JND): The amount of pay increase necessary to be considered significant by employees receiving the increase

2(b). Establishing the Range Spreads

Range Spread: -The difference between the maximum and the minimum pay level, in dollars, for a given pay range Range spread percentage: -A percentage calculated by dividing the range spread for a given pay range by the minimum for that pay range

Compensation Mix

The Mix of Base Pay, Performance Pay, and Indirect Pay Three Key Decisions: 1. Which method(s) should be used for establishing base pay? 2. What type(s) of performance pay (if any) should be provided? 3.Which elements (ie mandatory benefits, pension, health, insurance, vacation, employee services etc.) of indirect pay should be included? -Base pay accounts for about 75 percent to 80 percent of the compensation for a typical employee -Performance pay for 5 percent to 10 percent -Indirect pay for about 15 percent of total compensation -However, some firms can provide 100 percent of base or performance pay

Job Specifications

The employee qualifications deemed necessary to successfully perform the duties for a given job.

Job Analysis

The process of collecting information on which job descriptions are based Uses: -Job Descriptions -Job Specifications Methods: -Observations -Interviews -Questionnaires -Functional job analysis Pitfalls: 1.Risk of analysing the job holder instead of the job -The job holder being interviewed may go above and beyond the call of duty, doing much more than the job calls for 2.Job descriptions have been subject to gender bias -eg. men 'manage' employees, women 'supervise' 3.Dynamic nature of work -Information can become outdated almost as quickly as it's collected

Questionnaires

They may be open-ended or closed-ended, and they may be firm-specific or proprietary(Purchased) An open-ended questionnaire: asks the respondent a series of questions, such as the purpose and main duties of the job A closed ended questionnaire: asks the respondent to select from a list the phrases that best describe the job

5. Testing the Job Evaluation System

Validity: -The extent to which a measuring instrument actually measures what we intend it to Reliability: -The extent to which a measuring instrument consistently produces the same measurement result when measuring the same thing Benchmark Job: -A job in the firm's job evaluation system for which there is a good match in the labour market data Market comparator job: -A job in the market data that matches a benchmark job within the firm's job evaluation system Market line: -A regression line that relates job evaluation points to market pay (in dollars) for the benchmark jobs Pay policy line: -The intended pay policy for the organization, generated by adjusting the market line for the intended pay level strategy of the organization Correlation coefficient: -A statistic that measures the extent to which plots of two variables on a graph fall in a straight line

Base Pay

Wages and Salary Why Use: -Easy to measure -Easy to price in terms of its value to the employer -Easy to attribute to individual employees -Controllable by the individual employee -Relatively stable Advantages: -Flexible -Encourage job behaviours -Signal relative importance of jobs -Demonstrates a commitment -Support a particular managerial strategy -Simplistic Disadvantages: -Linked to variability in an employer's ability to pay -Does not directly motivate task behaviour -Does not directly contribute to citizenship behaviour -Is not self-correcting