Compensation

Compensation

Employee’s Perspective 

What compensation do you seek?

Direct

Indirect

Money

Benefits

Employer’s Perspective 

What do you compensate? Job:

Individual Characteristics:

• Responsibility

• Ability

• Critical function

• Training

• Job content

• Education

Employer’s Perspective 

What factors influence your compensation policy? • Supply and demand skills • Unions • Ability to pay • Cost of living increases • Government (FLSA, min. wage) • Strategy

Influence of Equity External Market wages

Internal Perceived equity

Develop a Job Hierarchy A. Job Evaluation

1. Preliminary planning 2. Select a plan 3. Develop the plan 4. Evaluate jobs, NOT PEOPLE

Factor 8: Decision Making / Supervision Required 1st Degree (36 points) Limited decision making by the incumbent. Progress of work is checked by others most of the time, and/or 60-90 percent of activities are defined by other than incumbent. 2nd Degree (89 points) Routine decision making bases on specific criteria. Progress of work is often checked by others, and/or 40-60 percent of activities are defined by other than incumbent. 3rd Degree (112 points) Significant decision making based on established guidelines and experience. Progress of work is check by others some of the time, and/or 25-40 percent of activities are defined by others than the incumbent. 4th Degree (180 points) Extensive decision making based on broad policies, procedures, and guidelines. Progress of work is seldom checked by others, and/or less than 25 percent of activities are defined by other than the incumbent.

Example of One Factor in a Point Factor System (Complexity/Problem Solving) The mental capacity required to perform the given job as expressed in resourcefulness in dealing with unfamiliar problems, interpretation of data, initiation of new ideas, complex data analysis, creative or developmental work. Level

Point Value

Description of Characteristics and Measures

0

0

Seldom confronts problems not covered by job routine or organizational policy; analysis of data is negligible. Benchmark: General secretary, switchboard / receptionist.

1

40

Follows clearly prescribed standard practice and demonstrates straightforward application of readily understood rules and procedures. Analyzes noncomplicated data by established routine. Benchmark: Statistical clerk, billing clerk.

Example of One Factor in a Point Factor System (Complexity/Problem Solving) (cont’d) Level

Point Value

2

80

3

120

Description of Characteristics and Measures Frequently confronts problems not covered by job routine. Independent judgment exercised in making minor decision where alternatives are limited and standard policies established. Analysis of standardized data for information of or use by others. Benchmark: Social worker, executive secretary

Exercises independent judgment in making decision involving nonroutine problems with general guidance only from higher supervision. Analyzes and evaluates data pertaining to nonroutine problems for solution in conjunction with others. Benchmark: Nurse, accountant, team leader

Example of One Factor in a Point Factor System (Complexity/Problem Solving) (cont’d) Level

Point Value

Description of Characteristics and Measures

4

160

Uses independent judgment in making decisions that are subject to review in the final stages only. Analyzes and solves nonroutine problems involving evaluation of a wide variety of data as a regular part of job duties. Benchmark: Associate director, business manager, park services director.

5

200

Uses independent judgment in making decisions that are not subject to review. Regularly exercises developmental or creative abilities in policy development. Benchmark: Executive director.

Pricing Jobs "The acceptability of job evaluation hinges in large part on whether the results are consistent with the ranking of the same jobs in the external labor market."

Pricing Jobs A. Use key or benchmark jobs 

Jobs that are relatively stable in content and found in many organizations 

Compare your internal analysis to external wages

B. Conduct wage survey to examine external wages

Pricing Jobs C. Use points from job evaluation as a predictor 



Use predictor to determine wages for non-key positions

Non-key positions: jobs that have no similar “comparison job” outside of the organization

Develop a Pay Structure A. Pay on the basis of individual jobs or grades? B. Utilize single rates or a rate range?

Inequities 

Comparable worth



Salary compression

Pricing Managerial and Professional Jobs 

Not easy because there are fewer quantifiable factors



Managers are often compensated for long term performance



Are executives overpaid?

Evaluate People Not Jobs 

Skill Based Pay

Skill-Based Compared to Job-Based StructuresJob-Based Knowledge-Based Pay Structure

Based on job performed Based on skills possessed by the employee

Manager’s focus

Job carries wage Employee linked to job

Employee carries wage Employee linked to skill

Employee focus

Job promotion to earn greater pay

Skill acquisition to earn greater pay

Procedures required

Assess job content Value jobs

Assess skills Value skills

Advantages

Pay based on the value performed

Flexibility Reduced work force

Limitations

Potential personnel bureaucracy Inflexibilities

Potential personnel bureaucracy Cost controls

Financial Incentives "The basic aim of an incentive should be to encourage good performance by linking performance and rewards, and this in turn requires valid, accurate performance appraisals.”

Incentives for Production Employees 

Piecework



Group incentive plans



Attendance



Annual bonus

Other Incentives for Mangers, Executives and Other Employees 

Stock options



Long-term incentives

Organization Incentive Plans 

Profit sharing plans • •



ESOP – Employee Stock Options Plan Cost savings plan

SCANLON and Gainsharing

Potential Incentive Plan Problems 





Worker doesn’t believe that plan will lead to rewards. Unfair standards – too high or unattainable

Changing standards – obtain top management commitment to maintain standards

Recommendations 1. Ensure that efforts and rewards are directly related. 2. Incentive rewards are understandable and calculable. 3. Use accurate and effective standards.

4. Guarantee those standards.

Performance Evaluation

Performance Measurement Purposes A. Administrative decisions • Promotion • Training • Compensation • Transfer, demotion, and separation

Performance Measurement Purposes B. Employee feedback and development

• Roles • Strengthens E  P and P  O relationships • Allows behavior change

Performance Measurement Purposes C. Evaluations of policies and programs

• Selection and promotion decisions • Aiding in validation of selection tools • Helping to determine if programs are effective (e.g. training)

D. Defense of policies • Use to show job relatedness (performance)

Performance Measurement Issues A. Identifying performance dimensions

• Most jobs are multi-dimensional • Use job analysis to assess performance • Errors similar to job analysis B. Establish performance standards

• Determine legitimate standards • Don’t set standards too high or low

Performance Measures A. Comparative methods 1. Ranking 2. Forced distribution 3. Problems with comparative evaluations: • No indication of potential performance • Little specific feedback • No feedback about where to improve

Performance Measures B. Absolute methods 1. Trait rating scale • Central tendency problems • Doesn’t capture specific behaviors 2. BARS (Behaviorally Anchored Rating Scales) • Complex and costly • Not applicable to a broad group of jobs • Avoids contamination and deficiency errors 3. MBO – set for individuals, not jobs

Measures of Physical Output

Administrative Challenges A. Components that influence the performance appraisal process 1. Appraiser (rater) 2. Appraisee (ratee) 3. Method 4. Purpose of evaluation 5. Motivation to appraise

Administrative Challenges B. Rater errors 1. Unreliability 2. Leniency 3. Severity 4. Central tendency 5. Recency 6. Halo

Administrative Challenges C. EEO • Not only for your selection • Show that method isn’t discriminating • Validate performance appraisal procedures

Trends in PA Research 1. Focused on the accuracy of appraisal and improving method. 2. Focused on rater errors and reduction of errors.

3. Current focus: cognitive processes and interpretation and evaluation of performance.