Chap 005

McGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Milkovich/Newman: Compensation, Ninth EditionMilkovich/Newman: Compensation, Ninth Edition

Chapter 5Chapter 5Evaluating Work:Evaluating Work:

Job EvaluationJob Evaluation

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Chapter TopicsChapter Topics

Job-Based Structures: Job EvaluationJob-Based Structures: Job Evaluation Defining Job Evaluation: Content, Value, and Defining Job Evaluation: Content, Value, and

External Market LinksExternal Market Links ““How-to”: Major DecisionsHow-to”: Major Decisions RankingRanking ClassificationClassification Point MethodPoint Method

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Chapter Topics (cont.)Chapter Topics (cont.) Who Should be Involved?Who Should be Involved? The Final Result: StructureThe Final Result: Structure Balancing Chaos and ControlBalancing Chaos and Control

Your Turn: Job Evaluation at Whole FoodsYour Turn: Job Evaluation at Whole Foods

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Job-Based Structures: Job EvaluationJob-Based Structures: Job Evaluation Job evaluationJob evaluation – process of systematically – process of systematically

determining the relative worth of jobs to create a determining the relative worth of jobs to create a job structure for the organization job structure for the organization

The evaluation is based on a combination of:The evaluation is based on a combination of:– Job contentJob content– Skills requiredSkills required– Value to the organizationValue to the organization– Organizational cultureOrganizational culture– External marketExternal market

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Exhibit 5.1: Many Ways to Create Internal StructureExhibit 5.1: Many Ways to Create Internal Structure

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Defining Job Evaluation: Content, Defining Job Evaluation: Content, Value, and External Market LinksValue, and External Market Links

Content and valueContent and value– Exchange valueExchange value

Linking content with the external marketLinking content with the external market– Value of job content is based on what it can Value of job content is based on what it can

command in the external marketcommand in the external market

““Measure for measure” vs. “Much ado Measure for measure” vs. “Much ado about nothing”about nothing”

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Exhibit 5.2: Assumptions UnderlyingExhibit 5.2: Assumptions UnderlyingDifferent Views of Job EvaluationDifferent Views of Job Evaluation

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Defining Job Evaluation: Content, Value, Defining Job Evaluation: Content, Value, and External Market Links (cont.)and External Market Links (cont.)

““How-To”: Major decisionsHow-To”: Major decisions– Establish the purposeEstablish the purpose

Supports organization strategySupports organization strategy

Supports work flowSupports work flow

Is fair to employeesIs fair to employees

Motivates behavior toward organization objectivesMotivates behavior toward organization objectives

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Exhibit 5.3: Determining an InternallyExhibit 5.3: Determining an InternallyAligned Job StructureAligned Job Structure

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Defining Job Evaluation: Content, Value, Defining Job Evaluation: Content, Value, and External Market Links (cont.)and External Market Links (cont.)

““How-To”: Major decisions (cont.)How-To”: Major decisions (cont.)– Single versus multiple plansSingle versus multiple plans

Characteristics of a benchmark job:Characteristics of a benchmark job:– Contents are well-known and relatively stable over timeContents are well-known and relatively stable over time

– Job not unique to one employeeJob not unique to one employee

– A reasonable number of employees are involved in the jobA reasonable number of employees are involved in the job

Depth and breadth of jobDepth and breadth of job

Refer Exhibit 5.4 Refer Exhibit 5.4

– Choose among methodsChoose among methods

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Exhibit 5.4: Benchmark JobsExhibit 5.4: Benchmark Jobs

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Exhibit 5.5: Comparison of Job Exhibit 5.5: Comparison of Job Evaluation MethodsEvaluation Methods

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RankingRanking

Orders job descriptions from highest to lowest Orders job descriptions from highest to lowest based on a global definition of relative value or based on a global definition of relative value or contribution to the organization’s successcontribution to the organization’s success– Simple, fast, and easy to understand and explainSimple, fast, and easy to understand and explain– Initially, the least expensive methodInitially, the least expensive method– Can be misleadingCan be misleading

– Two approachesTwo approaches Alternation ranking Alternation ranking Paired comparison methodPaired comparison method

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ExhibitExhibit 5.6: Paired Comparison Ranking 5.6: Paired Comparison Ranking

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Uses class descriptions that serve as the Uses class descriptions that serve as the standard for comparing job descriptionsstandard for comparing job descriptions

Classes include benchmark jobsClasses include benchmark jobs

Outcome: Series of classes with a number of Outcome: Series of classes with a number of jobs in eachjobs in each

ClassificationClassification

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Exhibit 5.7: Classifications for Engineering Exhibit 5.7: Classifications for Engineering Work Used by Clark ConsultingWork Used by Clark Consulting

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Point MethodPoint Method Three common characteristics of point Three common characteristics of point

methods:methods:– Compensable factorsCompensable factors– Factor degrees numerically scaledFactor degrees numerically scaled– Weights reflect relativeWeights reflect relative

importance of each factorimportance of each factor Most commonly used approach to establish pay Most commonly used approach to establish pay

structures in U.S.structures in U.S. Differ from other methods by making explicit Differ from other methods by making explicit

the criteria for evaluating jobs – the criteria for evaluating jobs – compensable compensable factorsfactors

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Conduct job analysis Conduct job analysis Determine compensable factorsDetermine compensable factors Scale the factorsScale the factors Weight the factors according to importanceWeight the factors according to importance Communicate the plan, train users; prepare Communicate the plan, train users; prepare

manualmanual Apply to nonbenchmark jobsApply to nonbenchmark jobs

Designing a Point Plan: Six StepsDesigning a Point Plan: Six Steps

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Step 1: Conduct Job AnalysisStep 1: Conduct Job Analysis Point plans begin with job analysisPoint plans begin with job analysis

A representative sample of jobs (benchmark A representative sample of jobs (benchmark jobs) is drawn for analysisjobs) is drawn for analysis

Content of these jobs is basis for:Content of these jobs is basis for:

– Defining compensable factorsDefining compensable factors

– Scaling compensable factorsScaling compensable factors

– Weighting compensable factorsWeighting compensable factors

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Step 2: Determine Compensable FactorsStep 2: Determine Compensable Factors Compensable factors – characteristics in the Compensable factors – characteristics in the

work that the organization values, that help it work that the organization values, that help it pursue its strategy and achieve its objectivespursue its strategy and achieve its objectives

Compensable factors play a pivotal roleCompensable factors play a pivotal role– Reflect how work adds value to organizationReflect how work adds value to organization– Decision making is three-dimensional:Decision making is three-dimensional:

Risk and complexityRisk and complexity Impact of decisionImpact of decision Time that must pass before evidence of impactTime that must pass before evidence of impact

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Exhibit 5.9: Compensable Factor Definition: Decision MakingExhibit 5.9: Compensable Factor Definition: Decision Making

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Step 2: Determine Compensable Factors Step 2: Determine Compensable Factors (cont.)(cont.)

To be effective, compensable factors should be:To be effective, compensable factors should be:– Based on strategy and values of organizationBased on strategy and values of organization

– Based on work performed Based on work performed Documentation is importantDocumentation is important

– Acceptable to the stakeholdersAcceptable to the stakeholders

– Adapting factors from existing plansAdapting factors from existing plans Skills, and effort required; responsibility, and working Skills, and effort required; responsibility, and working

conditionsconditions

NEMA, NMTA, Equal Pay Act (1963), and Steel planNEMA, NMTA, Equal Pay Act (1963), and Steel plan

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Compensable Factors - How Many Compensable Factors - How Many Factors?Factors?

– ““Illusion of validity” - Belief that factors are Illusion of validity” - Belief that factors are capturing divergent aspects of a job and are both capturing divergent aspects of a job and are both importantimportant

– ““Small numbers” - If even one job has a certain Small numbers” - If even one job has a certain characteristic, it must be a compensable factorcharacteristic, it must be a compensable factor

– ““Accepted and doing the job” – 21 factor, 7 Accepted and doing the job” – 21 factor, 7 factors, 3 factorsfactors, 3 factors

– Research resultsResearch results Skills explain 90% or more of varianceSkills explain 90% or more of variance

Three factors account for 98 - 99% of varianceThree factors account for 98 - 99% of variance

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Exhibit 5.10: Compensable Factor Exhibit 5.10: Compensable Factor Definition: Multinational ResponsibilitiesDefinition: Multinational Responsibilities

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Exhibit 5.11: Factors in Hay PlanExhibit 5.11: Factors in Hay Plan

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Exhibit 5.12: Hay Guide Chart – Profile Method of Job Exhibit 5.12: Hay Guide Chart – Profile Method of Job EvaluationEvaluation

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Step 3: Scale the FactorsStep 3: Scale the Factors Construct scales reflecting different degrees Construct scales reflecting different degrees

within each factorwithin each factor– Most factor scales consist of four to eight degreesMost factor scales consist of four to eight degrees

IssueIssue– Whether to make each degree equidistant from Whether to make each degree equidistant from

adjacent degrees (interval scaling)adjacent degrees (interval scaling)

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Step 3: Scale the Factors (cont.)Step 3: Scale the Factors (cont.) Criteria for scaling factorsCriteria for scaling factors

Ensure number of degrees is necessary to distinguish Ensure number of degrees is necessary to distinguish among jobsamong jobs

Use understandable terminologyUse understandable terminology

Anchor degree definitions with benchmark-job titles Anchor degree definitions with benchmark-job titles and/or work behaviorsand/or work behaviors

Make it apparent how degree applies to jobMake it apparent how degree applies to job

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Exhibit 5.13: Factor Scaling – National Metal Trades Exhibit 5.13: Factor Scaling – National Metal Trades AssociationAssociation

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Step 4: Weight the Factors According to Step 4: Weight the Factors According to ImportanceImportance

– Different weights reflect differences in Different weights reflect differences in importance attached to each factor by the importance attached to each factor by the employeremployer

– Determination of factor weightsDetermination of factor weights Advisory committee allocates 100 percent of the Advisory committee allocates 100 percent of the

value among factorsvalue among factors

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Step 4: Weight the Factors According to Step 4: Weight the Factors According to Importance (cont.)Importance (cont.)

Select criterion pay structureSelect criterion pay structure– Committee members recommend the Committee members recommend the criterion pay criterion pay

structurestructure

– Statistical approach is termed Statistical approach is termed policy capturing to policy capturing to differentiate it from the committee differentiate it from the committee a priori judgment a priori judgment approachapproach

– Weights also influence pay structureWeights also influence pay structure

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Exhibit 5.14: Job Evaluation FormExhibit 5.14: Job Evaluation Form

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Overview of the Point SystemOverview of the Point System

Job Factor Weight

1

2

3

4

5

1. Education 50% 100 200 300 400 500

2. Respons-ibility

30% 75 150 225 300

3. Physical effort

12% 24 48 72 96 120

4. Working conditions

8% 25 51 80

Degree of Factor

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AAIM National Position Evaluation PlanAAIM National Position Evaluation Plan

1st Degree

Skill1. Knowledge2. Experience3. Initiative and IngenuityEffort4. Physical Demand5. Mental or Visual DemandResponsibility6. Equipment or Process7. Material or Product8. Safety of Others9. Work of OthersJob Conditions10. Working Conditions11. Hazards

142214

105

5555

105

Factor2nd

Degree

284428

2010

10101010

2010

3rd Degree

426642

3015

15151515

3015

4thDegree

568856

4020

20202020

4020

5thDegree

70110

70

5025

25252525

5025

Points Assigned to Factor Degrees

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Job Evaluation ExampleJob Evaluation Example

JobJob PointsPoints Reference Reference WageWage

A ClerkA Clerk 45 45 $12/hour$12/hour

B Acct ClerkB Acct Clerk 55 55 $16$16

C AccountantC Accountant 75 75 $22$22

D HR MgrD HR Mgr 85 85 $25$25

E Ass’t AdmE Ass’t Adm 80 80 $26$26

F Office MgrF Office Mgr 85 85 $28$28

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Step 5: Communicate the Plan and Train Step 5: Communicate the Plan and Train UsersUsers

Involves development of manual containing Involves development of manual containing information to allow users to apply planinformation to allow users to apply plan– Describes job evaluation methodDescribes job evaluation method– Defines compensable factorsDefines compensable factors– Provides information to permit users to distinguish Provides information to permit users to distinguish

varying degrees of each factorvarying degrees of each factor Involves training users on total pay systemInvolves training users on total pay system Includes appeals process for employeesIncludes appeals process for employees

– Employee acceptance is imperativeEmployee acceptance is imperative CommunicationCommunication

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Step 6: Apply to Nonbenchmark JobsStep 6: Apply to Nonbenchmark Jobs Final step involves applying plan to remaining Final step involves applying plan to remaining

jobsjobs– Could involve both designers and/or employees Could involve both designers and/or employees

trained in applying the plantrained in applying the plan Tool for managers and HR specialists once plan Tool for managers and HR specialists once plan

is developed and accepted is developed and accepted Trained evaluators will evaluate new jobs or Trained evaluators will evaluate new jobs or

reevaluate jobs whose work content has reevaluate jobs whose work content has changedchanged– May also be part of appeals processMay also be part of appeals process

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Step 7: Step 7: Develop Online Software Develop Online Software SupportSupport

Online job evaluation is widely used in larger Online job evaluation is widely used in larger organizationsorganizations

Becomes part of a Total Compensation Service Becomes part of a Total Compensation Service Center for managers and HR generalists to useCenter for managers and HR generalists to use

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Who Should be Involved?Who Should be Involved? Managers and employees with a stake in the Managers and employees with a stake in the

results should be involvedresults should be involved– Can include representatives from key operating Can include representatives from key operating

functions, including nonmanagerial employeesfunctions, including nonmanagerial employees Organizations with unions find including union Organizations with unions find including union

representatives helps gain acceptancerepresentatives helps gain acceptance– Extent of union participation variesExtent of union participation varies

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Who Should be Involved? (cont.)Who Should be Involved? (cont.) Design process mattersDesign process matters

– Attending to fairness of design process and approach Attending to fairness of design process and approach chosen likely to achieve employee and management chosen likely to achieve employee and management commitment, trust, and acceptance of resultscommitment, trust, and acceptance of results

Appeals/review proceduresAppeals/review procedures

– Inevitable that some jobs are incorrectly evaluatedInevitable that some jobs are incorrectly evaluated

– Requires review procedures for handling such cases Requires review procedures for handling such cases and helping to ensure procedural fairnessand helping to ensure procedural fairness

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Who Should be Involved? (cont.)Who Should be Involved? (cont.) ““I know I speak for all of us when I say I speak I know I speak for all of us when I say I speak

for all of us”for all of us”

– Procedures should be judged for their susceptibility Procedures should be judged for their susceptibility to political influencesto political influences

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The Final Result: StructureThe Final Result: Structure

The final result of the job analysis – job The final result of the job analysis – job description – job evaluation process is a description – job evaluation process is a structurestructure, a hierarchy of work, a hierarchy of work

Managerial, technical, manufacturing, and Managerial, technical, manufacturing, and administrativeadministrative

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Exhibit 5.15: Resulting Internal Structures – Job, Skill, and Exhibit 5.15: Resulting Internal Structures – Job, Skill, and Competency BasedCompetency Based

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Balancing Chaos and ControlBalancing Chaos and Control Job evaluation changed the legacy of Job evaluation changed the legacy of

decentralization and uncoordinated wage-setting decentralization and uncoordinated wage-setting practices left from the 1930s and ’40spractices left from the 1930s and ’40s

It must afford flexibility to adapt to changing It must afford flexibility to adapt to changing conditionsconditions– Avoids bureaucracy and increases freedom to Avoids bureaucracy and increases freedom to

managemanage

– Reduces control and guidelines, making Reduces control and guidelines, making enforcement of fairness difficultenforcement of fairness difficult