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  • 1. 1. The Factor Comparison MethodThis method is a combination of the ranking and point system. Thomas E. Hitten was thefirst to originate factor comparison method of job evaluation. As originally developed thismethod involves ranking of jobs in respect of certain factors and usually involves theassigning of money wages to the job depending upon the ranking. This is more systematicand scientific method. Under this method, jobs are evaluated by some standards. In thismethod, instead of ranking complete jobs, each job is ranked according to series of factors.All jobs are compared to each other for the purpose of determining their relative importanceby selecting four or five major job elements which are more common or less common to alljobs. These elements are not pre-determined. These are chosen on the basis of job analysis.The five factors which are commonly used are(i) mental requirement(ii) skill(iii) physical requirement(iv) responsibilities and(v) working conditions.The number of factors may be more than five. Pay will be assigned in this method bycomparing the weights of the factor required for each job, i.e., the present wages paid forkey jobs may be divided among the factors weighted by importance. So the wages areassigned to the job in comparison to its ranking on each job factor.The major steps in this system consist of the following:Selection of factors: They may be skill, mental and educational requirements, physicalrequirements and responsibility, working conditions. The persons writing job specificationsare generally provided with a set of dimensions within which they have to perform thisimportant work.Selection of key jobs: Key jobs serve as a standard against which all other jobs arecompared. Generally a key job is one whose contents has become stabilized over a period oftime and whose wage rate is considered to satisfactory and acceptable by the managementand union. The key jobs should be a good sample representing the entire range. It issuggested that 15 to 20 jobs should be picked. All of these should be clearly describable andcapable of analysis in terms of factors.Ranking of Key jobs: Rank the selected jobs under each factor (by each and everymember of the job evaluation committee) independently. Ranking is made individually andthen a meeting is held to develop a consensus.Assign money value: Money value is assigned to each factor so as to determine the wagerate for each key job. The basic pay for each key job is allocated to each factor. Thisshould reflect a range from the lowest to the highest.Comparing all jobs with key jobs: All other jobs are compared with the list of key jobs.This is done to know their relative importance and position in the scale of jobs.An illustration of how the factor comparison method works is given below: Table: Ranking Jobs by Factor Comparison Job Skill Mental Physical Responsibility Working Requirement Requirements Requirements Conditions
  • 2. Toolmaker 1 1 2 1 4 Mechanist 2 2 3 2 3 Electrician 3 3 4 3 5 Assembler 4 4 5 5 2 Janitor 5 5 1 4 1Table: Allocation of Money Value to the different factors and Ranking of Jobs under theFactor Comparison MethodFor example, if tool making is a benchmark job and its wage rate is 20 money units; it maybe decided to assign nine of these to skill, five to mental requirements, two to physicalrequirements, three to responsibility and one to working conditions. Similarly, if the wagerate for another benchmark job. for example that of a machinist, amounts to 18 moneyunits, eight of these may be allotted to skill, three to working conditions and so on.Advantages: 1. Factor comparison method permits a more systematic comparison of jobs than the non-analytical methods. It is a systematic, quantifiable method for which detailed step by step instructions are available. 2. The system results in more accurate job evaluation as it is more objective because weights are not selected arbitrarily. 3. It is flexible as it has no upper limit on rating that a job may receive on a factor. 4. The reliability and validity of the system are greater than the same statistical measures obtained from group standardised job analysis plans. 5. The procedure of rating new jobs by comparing with other standards or key job is logical and not too difficult to accomplish. 6. It utilizes few factors and thereby reduces the likelihood of overlapping. 7. t is a scheme that in corporate money value, determination of wage rates is automatic.Disadvantages: 1. This method is comparatively complicated to apply and it is difficult to explain to workers. 2. It is costly to install, and somewhat difficult to operate for anyone who is not acquainted with the general nature of job-evaluation techniques. 3. The use of present wages for the key jobs may initially create errors into the plan. The contents and the value of these jobs may change over a period of time and they will lead to future errors.
  • 3. 4. It goes against the common belief that the procedure of evaluating jobs and fixing their wages should be kept separate. 5. The use of five factors is a growth of the technique developed by its organisations. And using the same five factors for all organisation and for all jobs in an organisation may not always be appropriate. 6. It is a very expensive method/system of job evaluation because experts have to be appointed particularly in selecting weights which are based in actual analysis.2. Point Rating MethodThis is the most widely used method for job evaluation. It along with factor comparisonmethod, involves a more detailed, quantitative and analytical approach to the measurementof job worth. This method is widely used currently. In this method jobs are expressed interms of key factors. Then various points are assigned to each factor in order of theirimportance. Then points are summed up to determine the wage rate for the job. Jobs withsimilar point totals are placed in similar pay grades. The point rating procedure has toclearly define from very start. By and large, its steps fall into two distinct stages, namelypreparing and evaluation plan and schedule (by defining and weighting factors) and gradingjobs by reference to this schedule. This involves the following steps: Listing of Jobs: The jobs have to be determined first which are to be evaluated. They are usually clustered. This should cover all the categories of jobs: skilled, unskilled, semi-skilled, professional, executives etc. Selecting and defining factors: Identify the factors common to all the identified jobs such as skill, effort, responsibility, job conditions etc. There should be sufficient number of factors to evaluate all aspects of the jobs. The number of factors will depend upon the nature of the jobs. Dividing the factors into degree: Once the factors are selected they must be divided into degrees to make them operational. The point method generally uses from four to six degrees for each factor. It is advisable to an even number of degrees in the development of point method and the same number of degrees should be used for each factor in order to maintain consistency in the job evaluation plan. Weighting the factors: The relative importance of each factor selected has to be determined. In other words, the factors must be weighted. There is no scientific or readymade method for weighting factors. It is generally done pragmatically and will depend upon the knowledge of the work of the enterprise. Weighting will also depend on the firms objectives and policies. Allocations points to each degree: Once the relative importance of the factors has been determined in a preliminary way and the factors suitably divided into degrees, each degree must be assigned a numerical value. These are the values that will be used in determining the total point values of jobs.
  • 4. Evaluation of Jobs: Once the factor plan is adopted, it is usual to prepare an evaluation handbook explaining the procedure to be followed and summarising all the elements required for evaluation. Assign money value points: For this purpose points are added to give the total value of a job: its value of a job; its value is then translated into terms of money with a pre-determined formula.Advantages: The point method is a superior and widely used method of evaluating jobs. It gives us a numerical basis for wage differentials. By analysing a job by factors it is usually possible to obtain a high measure of agreements on job value. Once the scales are developed, they can be used for a long time. It accounts for differences in wage rates for various jobs on the strength of job factors. Jobs may change over time, but the rating scale established under the point method remain unaffected. It has the ability of handling a large number of jobs and enjoys stability as long as the factor remains relevant.Disadvantages This method is a costly affair. The development and installation of the system calls of heavy expenditure. This is a complex method. Adoption of the whole procedure is a very difficult and time-consuming process. There may be wide fluctuations in the compensable factors with the change in technology, values of employees etc. Employees, trade union representatives, management and other interest parties may perceive differently in selecting a compensable factors, in giving weightage etcJob analysisJob analysis is a systematic process of collecting all information about the job for preparingof job description and job specification meant toselection of employee, satisfaction in job,and motivation etc.Job AnalysisJob Analysis
  • 5. Job analysis o Job Descriptions and Job Specifications Job Analysis and HR Activities Job Analysis Methods Stages in the Job Analysis ProcessJob Design Job designMethods or Techniques of Job Design o Job Rotation o Job Enrichment o Job Enlargement Job Evaluation o Qualitative Methods of Job Evaluation o Quantitative Methods of Job EvaluationWhat Is a Job?A group of homogeneous tasks related by similarity of functions.When performed by an employee in an exchange for pay, a job consists of duties,responsibilities, and tasks (performance elements) that are (1) defined and specific, and (2)can be accomplished, quantified, measured, and rated. From a wider perspective, a job issynonymous with a role and includes the physical and social aspects of a work environment.Often, individuals identify themselves with their job or role (foreman, supervisor, engineer,etc.) and derive motivation from its uniqueness or usefulness.Job AnalysisJob Analysis is the SYSTEMATIC process of collecting and making judgments about all theimportant information related to a job. Job analysis is the procedure through which youdetermine the duties and nature of the jobs and the kinds of people who should be hired forthem. You can utilize the information it provides to write job descriptions and jobspecifications that are utilized in recruitment and selection, compensation, performanceappraisal, and training.Job analysis is a detailed examination of the(1) tasks (performance elements) that make up a job (employee role),(2) conditions under which they are performed, and(3) what the job requires in terms of aptitudes (potential for achievement), attitudes(behavior characteristics), knowledge, skills, and the physical condition of the employee.
  • 6. Its objectives include(a) determination of the most efficient methods of doing a job,(b) enhancement of the employees job satisfaction,(c) improvement in training methods,(d) development of performance measurement systems, and(e) matching of job-specifications with the person-specifications in employee selection.Definitions of Job AnalysisSome important definitions of job-analysis are as under :Harry L. Wylie. "Job analysis deals with the anatomy of the job.....This is the completestudy of the job embodying every known and determinable factor, including the duties andresponsibilities involved in its performance; the conditions under which performance iscarried on; the nature of the task; the qualifications required in the worker; and theconditions of employment such as pay, hours, opportunities and privileges"In the words of Dale Yoder. "A Job is a collection of duties, tasks and responsibilities whichare assigned to an individual and which is different from other assignment"According to Michael J. Jucius, "Job analysis refers to the process of studying theoperations, duties and organisational aspects of jobs in order to derive specification or, asthey are called by some job description"In the words of Edwin B. Flippo, "Job analysis is the process of studying and collectinginformation relating to the operations and responsibilities of a specific job "According to Blum, "A job analysis is an accurate study of the various components of ajob. It is concerned not only with an analysis of the duties and conditions of work, but alsowith the individual qualifications of the worker."According to John A Shubin "Job analysis is the methodical compilation and study of workdata in order to define and characterise each occupation in such a manner as to distinguishit from all others."In the words of Scott, Clothier and Spriegel, "Job analysis is the process of criticallyevaluating the operations, duties and relationship of the job."In simple words Job analysis is a formal programme which examines the tasks, duties andresponsibilities contained in an individual unit of work.Before the recruitment process, job analysis takes place.Job Descriptions and Job Specifications >>Facts [+]
  • 7. The U.S. Department of Labor publishes The Occupational Outlook Handbook every twoyears. The handbook is a nationally recognized source of career information for hundreds ofvarious jobs. Information subjects include required job training and education, earnings,expected job prospects, what workers do on the job, and working conditions.Importance of Job AnalysisJob analysis helps in analyzing the resources and establishing the strategies to accomplishthe business goals and strategic objectives. Effectively developed, employee jobdescriptions are communication tools that are significant in an organizations success.The main purpose of conducting job analysis is to prepare job description and jobspecification which helps to hire right quality of workforce.Job Analysis can be used in training to identify or develop, training content, and assessmenttests to measure effectiveness of training, equipment to be used in delivering the trainingand methods of training.Job Analysis can be used in compensation to identify or determine: skill levels, compensablejob factors, work environment, responsibilities and required level of education.Job Analysis can be used in selection procedures to identify or develop job duties thatshould be included in advertisements of vacant positions, appropriate salary level for theposition to help determine what salary should be offered to a candidate, minimumrequirements for screening applicants, interview questions, selection tests/instruments(e.g., written tests; oral tests; job simulations), applicant appraisal forms and orientationmaterials for new hiresJob Analysis can be used in performance review to identify or develop goals and objectives,performance standards, evaluation criteria, length of probationary periods, and duties to beevaluated An ideal job analysis should include Duties and Tasks: The basic unit of a job is the performance of specific tasks and duties. This segment should include frequency, duration, effort, skill, complexity, equipment, standards, etc. Environment: This segment identifies the working environment of a particular job. This may have a significant impact on the physical requirements to be able to perform a job. Tools and Equipment: Some duties and tasks are performed using specific equipment and tools. These items need to be specified in a Job Analysis. Relationships: The hierarchy of the organization must be clearly laid out. The employees should know who is under them and who they have to report to.
  • 8. Requirements: The knowledge, skills, and abilities required to perform the job should be clearly listed. There are several ways to conduct a job analysis, including: interviews with incumbents and supervisors, questionnaires (structured, open-ended, or both), observation, critical incident investigations, and gathering background information such as duty statements or classification specifications.The following are the benefits of job analysis. 1. Organizational structure and design :- Job analysis helps the organization to make suitable changes in the organizational structure, so that it matches the needs and requirements of the organization. Duties are either added or deleted from the job. 2. Recruitment and selection :-Job analysis provides information about what the job entails and what human characteristics are required to perform these activities. This information, in the form of job descriptions and specifications, helps management decide what sort of people to recruit and hire. 3. Performance appraisal and training/development :- Based on the job requirements identified in the job analysis, the company decides a training program. Training is given in those areas which will help to improve the performance on the job. Similarly when appraisal is conducted we check whether the employee is able to work in a manner in which we require him to do the job. 4. Job evaluation :- Job evaluation refers to studying in detail the job performance by all individual. The difficulty levels, skills required and on that basis the salary is fixed. Information regarding qualities required, skilled levels, difficulty levels are obtained from job analysis. 5. Promotions and transfer :- When we give a promotion to an employee we need to promote him on the basis of the skill and talent required for the future job. Similarly when we transfer an employee to another branch the job must be very similar to what he has done before. To take these decisions we collect information from job analysis. 6. Career path planning :- Many companies have not taken up career planning for their employees. This is done to prevent the employee from leaving the company. When we plan the future career of the employee, information will be collected from job analysis. Hence job analysis becomes important or advantageous. 7. Labour relations :- When companies plan to add extra duties or delete certain duties from a job, they require the help of job analysis, when this activity is systematically done using job analysis the number of problems with union members reduce and labour relations will improve. 8. Health and safety :- Most companies prepare their own health and safety, plans and programs based on job analysis. From the job analysis company identifies the risk factor on the job and based on the risk factor safety equipments are provided. 9. Acceptance of job offer :- When a person is given an offer/appointment letter the duties to be performed by him are clearly mentioned in it, this information is collected from job analysis, which is why job analysis becomes important.
  • 9. Compensation ManagementBefore reading the compensation management topic, one should know the impact ofcompensation system on the organisation and its gravity if it is not managed effectively.First and last word on compensation management is that, it is core and direct influencingfactor on employee motivation and other factors succeeds.Compensation Management Compensation Management Compensation and Employee Motivation Direct Employee Compensation Indirect Employee CompensationVariable pay Plans >> Compensation for Individual Performance o Piecework Rates o Standard Hour Plan o Merit Pay o Performance Bonus o Sales Commission Pay For Team Performance o Gainsharing o Team Awards and Bonus Pay for Organizational Performance o Profit Sharing o Employee Share Option Plan (ESOP) o Stock Option Skill Based Pay Executive Compensation Factors Influencing Employee Compensation Determining Employee Compensation Compensation for Loss Suffered Physical or Mentally Compensation Vs Remuneration[USA]Broadbanding
  • 10. Employees, in exchange of their work, generally expect some appreciation. Money isconsidered as the most important motivating factor for employees, though non-financialincentives work efficiently. The goals of compensation management are to design thelowest-cost pay structure that will attract, motivate and retain competent employees. Herethe term compensation and salary of employee are one and same.Before knowing about Compensation management one must know the labor laws of thecountry which are governing employees compensation or remuneration system.International Labour Organisation (ILO) made conventions on labour welfare especially onregularly in payment of wages & salaries with minimum pay for stipulated working hours. Inaccordance with the conventions & recommendations of ILO every country has establishedlabour laws and enforced, who ever contravene them shall be liable for penalty orpunishment under serious cases both may be awarded. Naturally judiciary of the concerncountry is watchdog for dealing labour issues.India is one of the countries with very high population and stands second in place followedby china. In the India, parliament has enforced four key laws on wages of workers that arePayment of wages act 1936 and Minimum wages act 1948 for the purpose of ensuringminimum payment for particular type of jobs in different sectors and industries according tostipulated working hours prescribed by the law. Normally eight hours is stipulated workingtime in almost all countries, above stipulated time if any worker is made to work, hisemployers has to compulsory pay overtime, if not it shall be treated as unlawful by thecourt of law for which it may impose penalty. Other side of coin it may create seriousdissatisfaction among workers and make them feel that they are being exploited which maylead to agitations eventually may lead strikes which is ultimate weapon in hands ofworkers, ultimately organisations may chose for lockout which is the weapon in hands ofemployers altogether may create industrial disputes. On this law may support workeragitation for not complying payment of wages by their employer in accordance with wagelaws and in some cases law may support employer if workers agitation causes seriousdamages to organisation.The third key law is workmens compensation act 1923, the primary objective of this law isto have any compensation by an employee from his employer if any accident occurs, whichmake permanent are partial disablement. This law defines under schedules various types ofaccidents certain to happen to worker and percentage of compensation paid to him inaccordance with his age.The fourth key law is Equal Remuneration Act, 1976, according to the section 4 it is the DUTY OF EMPLOYER TO PAY EQUAL REMUNERATION TO MEN AND WOMEN WORKERS FORSAME WORK OR WORK OF A SIMILAR NATURE. According to Section 3, a settlement arrivedat between the management and the employees cannot be a valid ground for effectingdiscrimination in payment of remuneration between male and female employees performingthe same work or work of a similar nature; Mackinnon Mackenzie and Co. v. Audrey D’Costa, (1987) 2 SCC 469."The most important thing is to note that compensation plays a major role in attractingtalent from the market and compensation system of the organisation is Key factor forcreating employer brand, which is most important factor for attracting talent people. Havingtalent people for the organisation is a major asset for the organisation development"Importance of employees compensation or reward system
  • 11. Compensation or reward system of the organisation is most influencing factor for employee motivation, must remember. If we observe history of causes of industrial disputes, employee compensation a reward system issues were the main reason in most cases. good compensation system of rewards system in the organisation will minimise industrial disputes and helps in maintaining peace and harmony within the organisation. Compensation system plays a key role in employee attrition. Compensation system mostly influences retention of employee in the organisation. Most of employee satisfaction depends upon compensation a reward system of organisation. Effective compensation system builds employer brand, which plays a key role in attracting talent. Effective compensation system makes employee to put his full efforts for achievement of organisations goals and objectives. Effective compensation system builds initiative towards work, which in turn enhances the productivity of organisation. Effective compensation makes employees feel belongingness towards the organisation.Companies in allegations on employees salary issuesEspecially on crux matter of compensation system in the year 2012- September, law suitswere filed on well known giant companies like Walmart Stores for not paying overtime to itsworkers and less payment of wages without following the United States federal laws.Apple incorporations electronic components supplier Foxconn Electronics from China hadfaced same allegations on less payment of wages and also no payment foradditional Working hours to its workers. Kingfisher airlines in India succumbed into lossesby various reasons eventually failed to pay salaries to its employees for nearly a period ofseven months which lead to strike by its employees. Due to no salary payment for monthsto its employees created severe financial crisis to one of its employees family,which abetted his wife to commit suicide out of depression. Extremely disappointedKingfisher airlines employees resorted to road demonstration against company, whichultimately lead to companys reputation down.Recent example as Walmart claims to giant retail stores dipped in serious allegationsaccompanied by lawsuit filed for not paying overtime wages at least minimum wages inaccordance with federal laws. Opposite to united states federal labour laws, Walmart storesinsisting workers to appear for work early hours working during lunch breaks and leavingworkplace at late hours.Compensation and remuneration are grammatically synonym but in the context of laborlaws both have different meaning and purpose for which it is paid. Remuneration is paid forwork done by a worker or employee whereas compensation is paid for loss sufferedphysically, mentally or disabled worker or employee.The HR Compensation Analyst assists with producing the organizations compensationprogram. Their primary responsibility is the research and study to determine appropriateemployee compensation. In addition, they evaluate predicted market trends, recommendrevisions to company compensation plans, review job descriptions, and assist theCompensation Manager.The HR Compensation Manager directs the organizations compensation program. Their
  • 12. responsibilities include developing job descriptions,analyzing jobs, conducting salary surveysand job evaluations, and establishing a salary structure. They suggest revisions to thecompensation plan and procedures, administer bonus and incentive programs, and managethe performance appraisal system.Facts [+]A recent WorldatWork survey of more than 6,000 managers and employees in 26organizations in North America found that many employees and managers do notunderstand why they get paid what they do. 40% reported as knowing what to do toincrease their base pay. Only 38% percent reported knowing how to increase the size oftheir cash bonus.The 2011 Nielsen survey also showed that the top five dimensions students consideredwhen it comes to seeking employment were high degree of independence at work, salarypackage, learning on the job, growth prospects and standing of the company in the marketrespectively.-----------------------------------------------------------------------------------------------------------------------------Mercer Human Resource Consulting, a subsidiary of Marsh and McLennan, is a global leader in HR andfinancial services. Mercer Human Resource Consulting provides expertise in human resource areas,ranging from compensation and benefits to operational effectiveness and employee performance andengagement. Mercer has over 15,000 employees serving clients in 41 countries.---------------------------------------------------------------------------------------------------------------------------------The Adamson Act was signed by President Woodrow Wilson in 1916. The law establishedfor railroad workers an eight-hour workday with additional pay for overtime work. This wasthe first federal law that regulated the hours of workers in private companies inthe U.S. The 1938 Fair Labor Standards Act made the eight-hour work day a "legal workday" work throughout the nation.The Fair Labor Standards Act was passed in June 1938. The main objective of the law was toestablish minimum standards of living necessary for health, efficiency, and well being of workers. A majorprovision of the act was the establishment of a minimum wage, initially 25 cents an hour, along with amaximum workweek of 44 hours.Employee pay raises have averaged a little less than four percent for the past several yearsaccording to data compiled by WorldatWork.The two main reasons cited for the relativelylow pay raises are: lower rates of inflation and cost-of-living increments, and the increasinguse of bonus and variable pay to reward high performing employees.In India, The Payment Wages Act was enacted in the year 1936 for the purpose of payment of wagesregularly to the workers within time limit not exceeding wage period of one month with out anydeduction by his employer. Deduction form salary or wages can be done in case of absence, loss ordamage, fines and advances.etc. Deductions shouldnt exceed 50% from wage.Compensation: an overviewCompensation management is one of the most challenging human resource areas because itcontains many elements and has a far-reaching effect on the organisations goals. The
  • 13. purpose of providing compensation is to attract, retain and motivate employees. There aretwo main types of financial compensation. 1. Direct financial compensation - the pay that a worker receives as wages, salaries, commissions and bonuses, and 2. Indirect financial compensation - all financial rewards that are not included in direct compensation (i.e. benefits).An example of direct financial compensation is the money the worker receives as wagesat the end of the week, or as a salary paid at the end of the month. Many companies paysalaries straight into the employees bank account.An example of indirect financial compensation is when the company contributes to anemployees housing subsidy or a pension plan.Not all compensation is financial. A worker can get great satisfaction from his work andenjoy the environment in which he works. This is called non-financial compensation andcannot be counted in terms of money. For example, a veterinarian might enjoy workingoutside, going to farms to treat animals and deliver calves. A publisher might enjoy thechallenge of producing books that will enrich peoples lives.It is not always possible to provide a perfect pay package (the agreement between theorganisation and the employee about how much money and other benefits the employee willreceive). Because of this, some companies allow their employees to work out their owncompensation packages.India: Central government employees draw more salary along with benefits than stategovernment employees, compared with private sector employees. There is a particular paystructure fixed for every government employee in India which is not in private companies.The pay structure of government employees in India is as followsEmployee salary : Basic pay + Grade pay + Dearness Allowance (DA) + House RentAllowance (HRA) + City Compensatory Allowance (CCA)The details of above said components of salary of government employees are as follows. Basic pay: The primary component of employee salary which is bases for calculation of other components in the employee salary. Grade pay: An amount which is fixed by the government on the range of employee in government hierarchy. (for example; Group A officers have high grade pay than Group B officers.) Dearness Allowance: Certain percentage of the amount on basic pay. This percentage varies from state government to Central government employees. An allowance paid to employees on the basis of consumer Price index. Consumer price index denotes the cost of the products which influences by the inflation. (in simple terms cost of living) At present, 41% is for state government employees and 72 % is for Central government employees as dearness allowance on their basic pay.
  • 14. House Rent Allowance (HRA): Certain percentage of the amount on basic pay. This percentage varies from state government to Central government employees. This allowance is paid to employees are meeting house rent expenditure. City Compensatory Allowance (CCA): An allowance paid according to the city or town where employee do the job and the purpose of this allowance is to compensate high cost of living especially in cities like Mumbai, Delhi, Calcutta and Hyderabad et cetera . Government decides the amount of allowance to be paid to employees on basis of city or town.Facts [+]An estimated twenty-five million American employees without bank accounts are unable tobe paid via direct deposit. Increasing numbers of organizations are offering employeeswithout bank accounts payroll cards, similar to debit cards. Electronically transferring fundsto employees is estimated to be up to 75% cheaper than issuing traditional paychecks."Red-circling" refers to freezing a highly tenured or highly skilled employees base pay inthe event that the pay rate is above the established range maximum assigned to the jobgrade or classification. A red-circled employee is usually not eligible for further base payincreases until the top pay rate for their job grade/classification is increased.Objective of CompensationThe objective of the compensation function is to create a system of rewards that isequitable to the employer and employee alike. The desired outcome is an employee who isattracted to the work and motivated to do a good job for the employer. Patton suggests thatin compensation policy there are seven criteria for effectiveness. Compensation should be: 1. Adequate Minimal governmental, union, and managerial levels should be met. 2. Equitable Each person should be paid fairly, in line with his or her effort, abilities, and training. 3. Balanced Pay, benefits, and other rewards should provide a reasonable total reward package. 4. Cost-effective Pay should not be excessive, considering what the organization can afford to pay. 5. Secure Pay should be enough to help an employee feel secure and aid him or her in satisfying basic needs. 6. Incentive-providing Pay should motivate effective and productive work. 7. Acceptable to the employee The employee should understand the pay system and feel it is a reasonable system for the enterprise and himself or herself.