Chapter 11: Establishing Strategic Pay Plans

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Basic Factors in Determining Pay Rates

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations).There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Corporate Policies, Competitive Strategy,and CompensationAligned Reward Strategy

The employers basic task:To create a bundle of rewardsa total reward packagethat specifically elicits the employee behaviors that the firm needs to support and achieve its competitive strategy.The HR or compensation manager along with top management creates pay policies that are consistent with the firms strategic aims.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The compensation plan should advance the firms strategic aimsmanagement should produce an aligned reward strategy. This means creating a bundle of rewardsa total reward package including wages, incentives, and benefitsthat aims to produce the employee behaviors the firm needs to support and achieve its competitive strategy.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*TABLE 111Developing an Aligned Reward StrategyQuestions to Ask:What must our company do, (for instance in terms of improving customer service), to be successful in fulfilling its mission or achieving its desired competitive position?What are the employee behaviors or actions necessary to successfully implement this competitive strategy?What compensation programs should we use to reinforce those behaviors? What should be the purpose of each program in reinforcing each desired behavior?What measurable requirements should each compensation program meet to be deemed successful in fulfilling its purpose?How well do our current compensation programs match these requirements?

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Table 11-1 lists the sorts of questions to ask when developing an aligned reward strategy.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Compensation Policy IssuesPay for performancePay for seniorityThe pay cycleSalary increases and promotionsOvertime and shift payProbationary payPaid and unpaid leavesPaid holidaysSalary compressionGeographic costs of living differences

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Managers need to formulate pay policies covering a range of issues.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Equity and Its Impact on Pay Rates

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*With respect to compensation, managers should address four forms of equity: external, internal, individual, and procedural.External equity refers to how a jobs pay rate in one company compares to the jobs pay rate in other companies.Internal equity refers to how fair the jobs pay rate is when compared to other jobs within the same company (for instance, is the sales managers pay fair, when compared to what the production manager is earning?).Individual equity refers to the fairness of an individuals pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individuals performance.Procedural equity refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Addressing Equity Issues

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Managers can use various methods to address equity issues. For example, they use salary surveys (surveys of what other employers are paying) to monitor and maintain external equity. They use job analysis and job evaluation comparisons of each job to maintain internal equity. They use performance appraisal and incentive pay to maintain individual equity. And they use communications, grievance mechanisms, and employees participation in developing the companys pay plan to help ensure that employees view the pay process as transparent and procedurally fair.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Establishing Pay RatesSteps in Establishing Pay RatesDetermine the worth of each job in your organization through job evaluation (to ensure internal equity).Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity).Group similar jobs into pay grades.Price each pay grade by using wave curves.Fine-tune pay rates.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Step1: The Salary Survey

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Its difficult to set pay rates if you dont know what others are paying, so salary surveys of what others are paying play a big role in pricing jobs. Virtually every employer conducts at least an informal telephone, newspaper, or Internet salary survey.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Sources for Salary Surveys

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Step 2: Job Evaluation

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization.Compensable factors are certain basic factors the jobs have in common that are used to establish how the jobs compare to one another, and that determine the pay for each job.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The Job Evaluation ProcessPerforming the actual evaluationGetting the cooperation of employeesPreparing for the Job EvaluationIdentifying the need for the job evaluationChoosing an evaluation committee

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, and employees and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*How to Evaluate Jobs

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job Evaluation Methods: RankingRanking each job relative to all other jobs, usually based on some overall factor.Steps in job ranking:

Obtain job information.Select and group jobs.Select compensable factors.Rank jobs.Combine ratings.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like job difficulty.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*TABLE 113Job Ranking by Olympia Health Care

Ranking Order Annual Pay Scale 1. Office manager $43,000 2. Chief nurse 42,5003. Bookkeeper 34,0004. Nurse 32,5005. Cook 31,0006. Nurses aide 28,5007. Orderly 25,500

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Table 11-3 illustrates a job ranking. Jobs in this small health facility rank from orderly up to office manager. The corresponding pay scales are on the right. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job Evaluation Methods: Job ClassificationRaters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes.

Classes contain similar jobs.Administrative assistantsGrades are jobs similar in difficulty but otherwise different.Mechanics, welders, electricians, and machinistsJobs are classed by the amount or level of compensable factors they contain.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job classification (or job grading) is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*FIGURE 114Example of a Grade Level DefinitionThis is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Web-based chart.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Based on certain compensable factors, raters write a grade definition like that in Figure 11-4. This one shows one grade description (GS-7) for the federal governments pay grade system.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job Evaluation Methods: Point MethodA quantitative technique that involves:

Identifying the degree to which each compensable factor is present in the job.Awarding points for each degree of each factor.Calculating a total point value for the job by adding up the corresponding points for each factor.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The point method is a quantitative technique. It involves identifying (1) several compensable factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor.Once the evaluation committee determines the degree to which each compensable factor (like responsibility and effort) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Step 3: Grouping Jobs

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Once the committee has used job evaluation to determine the relative worth of each job, it can turn to the task of assigning pay rates to each job; however, it will usually want to first group jobs into pay grades using one of these three methods. A pay grade is comprised of jobs of approximately equal in difficulty or importance as established by job evaluation.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Step 4: Price Each Pay GradeThe Wage Curve

Shows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*FIGURE 115Plotting a Wage Curve

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the relationships between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for graded jobs.Figure 11-5 presents an example. Note that it shows pay rates on the vertical axis, and pay grades (in terms of points) along the horizontal axis. The pay rates on the wage curve are traditionally those now paid by the employer. However, if there is reason to believe the current pay rates are out of step with the market rates for these jobs, choose benchmark jobs within each pay grade, and price them via a compensation survey. These new market-based pay rates then replace the current rates on the wage curve. Then slot in your other jobs (and their pay rates) around the benchmark job.Current pay rates falling above the rate range are red circle, flagged, or overrates which will require either freezing the rate, transfer or promotion of employees, or reevaluation of the job.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Step 5: Fine-Tune Pay RatesDeveloping Pay Ranges

Flexibility in meeting external job market ratesEasier for employees to move into higher pay gradesAllows for rewarding performance differences and seniorityCorrecting Out-of-Line Rates

Raising underpaid jobs to the minimum of the rate range for their pay gradeFreezing rates or cutting pay rates for overpaid (red circle) jobs to maximum in the pay range for their pay grade

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Fine-tuning involves (1) developing pay ranges and (2) correcting out-of-line rates.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*FIGURE 116Wage Structure

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Most employers do not pay just one rate for all jobs in a particular pay grade. Figure 11-6 depicts how most employers create a wage structure such that their pay ranges somewhat overlap, so an employee in one grade who has more experience or seniority may earn more than an entry-level position in the next higher pay grade.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Pricing Managerial and Professional Jobs

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Compensation for a companys top executives usually consists of four main elements: base pay, short-term incentives, long-term incentives, and executive benefits/perquisites or perks.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Pricing Managerial and Professional JobsWhat Determines Executive Pay?

CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in the short and long term.CEOs can have considerable influence over the boards that determine their pay.Firms pay CEOs based on the complexity of the jobs they fill.Shareholder activism and government oversight have tightened the restrictions on what companies pay top executives.Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent study concluded that three main factors, job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the employers ability to pay (total profit and rate of return), and the executives human capital (educational level, field of study, work experience) accounted for about two-thirds of executive compensation variance.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Compensating Professional EmployeesEmployers can use job evaluation for professional jobs.Compensable factors focus on problem solving, creativity, job scope, and technical knowledge and expertise. Firms use the point method and factor comparison methods, although job classification is most popular.Professional jobs are market-priced to establish the values for benchmark jobs.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Compensating professional employees, like engineers and scientists, presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Determining professional compensation presents another questionhow is performance to be defined and measured?

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-Based PayCompetencies

Demonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performanceWhat is Competency-Based Pay?

Paying for the employees range, depth, and types of skills and knowledge, rather than for the job title he or she holds

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-based pay means the company pays for the employees range, depth, and types of skills and knowledge, rather than for the job title he or she holds. Experts variously call this competency-, knowledge-, or skill-based pay.Competency-based pay ties the workers pay to his or her competenciespay is more person oriented. Employees here are paid based on what they know or can doeven if, at the moment, they dont have to do it.Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Why Use Competency-Based Pay?

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-based pay ties the workers pay to his or her competenciespay is more person oriented. Employees here are paid based on what they know or can doeven if, at the moment, they dont have to do it.Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs.Paying for competencies encourages employees to develop the competencies the companies require to achieve their strategic aims.Paying for measurable and influence-able competencies provides a focus for the employers performance management process.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-Based Pay in PracticeMain elements of skill/competency/knowledgebased pay programs:

A system that defines specific skillsA process for tying the persons pay to his or her skillA training system that lets employees seek and acquire skillsA formal competency testing systemA work design that lets employees move among jobs to permit work assignment flexibility

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*In practice, any skill/competency/knowledge-based pay program generally contains these five main elements.

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-Based Pay: Pros and ConsPros

Higher qualityLower absenteeismFewer accidentsCons

Pay program implementation problemsCosts of paying for unused knowledge, skills, and behaviorsComplexity of programUncertainty that the program improves productivity

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-based pay has adherents and its detractors. Competency-based pay increases compensation costs in paying employees for unused or outdated knowledge, skills and behaviors.

Human Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations).There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The compensation plan should advance the firms strategic aimsmanagement should produce an aligned reward strategy. This means creating a bundle of rewardsa total reward package including wages, incentives, and benefitsthat aims to produce the employee behaviors the firm needs to support and achieve its competitive strategy.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Table 11-1 lists the sorts of questions to ask when developing an aligned reward strategy.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Managers need to formulate pay policies covering a range of issues.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*With respect to compensation, managers should address four forms of equity: external, internal, individual, and procedural.External equity refers to how a jobs pay rate in one company compares to the jobs pay rate in other companies.Internal equity refers to how fair the jobs pay rate is when compared to other jobs within the same company (for instance, is the sales managers pay fair, when compared to what the production manager is earning?).Individual equity refers to the fairness of an individuals pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individuals performance.Procedural equity refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.

Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Managers can use various methods to address equity issues. For example, they use salary surveys (surveys of what other employers are paying) to monitor and maintain external equity. They use job analysis and job evaluation comparisons of each job to maintain internal equity. They use performance appraisal and incentive pay to maintain individual equity. And they use communications, grievance mechanisms, and employees participation in developing the companys pay plan to help ensure that employees view the pay process as transparent and procedurally fair.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Its difficult to set pay rates if you dont know what others are paying, so salary surveys of what others are paying play a big role in pricing jobs. Virtually every employer conducts at least an informal telephone, newspaper, or Internet salary survey.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization.Compensable factors are certain basic factors the jobs have in common that are used to establish how the jobs compare to one another, and that determine the pay for each job.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, and employees and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like job difficulty.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Table 11-3 illustrates a job ranking. Jobs in this small health facility rank from orderly up to office manager. The corresponding pay scales are on the right. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Job classification (or job grading) is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Based on certain compensable factors, raters write a grade definition like that in Figure 11-4. This one shows one grade description (GS-7) for the federal governments pay grade system.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The point method is a quantitative technique. It involves identifying (1) several compensable factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor.Once the evaluation committee determines the degree to which each compensable factor (like responsibility and effort) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Once the committee has used job evaluation to determine the relative worth of each job, it can turn to the task of assigning pay rates to each job; however, it will usually want to first group jobs into pay grades using one of these three methods. A pay grade is comprised of jobs of approximately equal in difficulty or importance as established by job evaluation.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the relationships between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for graded jobs.Figure 11-5 presents an example. Note that it shows pay rates on the vertical axis, and pay grades (in terms of points) along the horizontal axis. The pay rates on the wage curve are traditionally those now paid by the employer. However, if there is reason to believe the current pay rates are out of step with the market rates for these jobs, choose benchmark jobs within each pay grade, and price them via a compensation survey. These new market-based pay rates then replace the current rates on the wage curve. Then slot in your other jobs (and their pay rates) around the benchmark job.Current pay rates falling above the rate range are red circle, flagged, or overrates which will require either freezing the rate, transfer or promotion of employees, or reevaluation of the job.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Fine-tuning involves (1) developing pay ranges and (2) correcting out-of-line rates.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Most employers do not pay just one rate for all jobs in a particular pay grade. Figure 11-6 depicts how most employers create a wage structure such that their pay ranges somewhat overlap, so an employee in one grade who has more experience or seniority may earn more than an entry-level position in the next higher pay grade.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Compensation for a companys top executives usually consists of four main elements: base pay, short-term incentives, long-term incentives, and executive benefits/perquisites or perks.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent study concluded that three main factors, job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the employers ability to pay (total profit and rate of return), and the executives human capital (educational level, field of study, work experience) accounted for about two-thirds of executive compensation variance.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Compensating professional employees, like engineers and scientists, presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Determining professional compensation presents another questionhow is performance to be defined and measured?Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-based pay means the company pays for the employees range, depth, and types of skills and knowledge, rather than for the job title he or she holds. Experts variously call this competency-, knowledge-, or skill-based pay.Competency-based pay ties the workers pay to his or her competenciespay is more person oriented. Employees here are paid based on what they know or can doeven if, at the moment, they dont have to do it.Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-based pay ties the workers pay to his or her competenciespay is more person oriented. Employees here are paid based on what they know or can doeven if, at the moment, they dont have to do it.Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs.Paying for competencies encourages employees to develop the competencies the companies require to achieve their strategic aims.Paying for measurable and influence-able competencies provides a focus for the employers performance management process. Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*In practice, any skill/competency/knowledge-based pay program generally contains these five main elements.Copyright 2011 Pearson Education, Inc. publishing as Prentice HallHuman Resources Management 12e Gary DesslerHuman Resources Management 12eGary DesslerCopyright 2011 Pearson Education, Inc. publishing as Prentice Hall11*Competency-based pay has adherents and its detractors. Competency-based pay increases compensation costs in paying employees for unused or outdated knowledge, skills and behaviors.Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall