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The Concept Of Value In Compensation Practice

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  • 1. The Concept of Value in Compensation Practice Presented by Ted Turnasella
  • 2. The Concept of Value in Compensation Practice  274. If any one hire a skilled artisan…, he shall pay as wages of the potter five gerahs, of a tailor five gerahs, of a carpenter four gerahs, of a rope-maker four gerahs…  275. If any one hire a ferryboat, he shall pay three gerahs in money per day.  276. If he hire a freight-boat, he shall pay two and one- half gerahs per day. Code of Hammurab: 2250 BC
  • 3. The Concept of Value in Compensation Practice  277. If any one hire a ship of sixty gur, he shall pay one- sixth of a shekel in money as its hire per day.  278. If any one buy a male or female slave, and before a month has elapsed the benu-disease be developed, he shall return the slave to the seller, and receive the money which he had paid. Code of Hammurab: 2250 BC
  • 4. The Concept of Value in Compensation Practice  Extrinsic Value The prevailing value for a job in the external market.  Intrinsic Value The relative value of a job in relation to other jobs based on the nature of the work itself. IDEALLY, THESE TWO NEED TO BE IN BALANCE
  • 5. The Concept of Value in Compensation Practice Thoughts to Keep in Mind  The job evaluation process converts culture into cash.  Job evaluation points are intended to be representations of market value and the value of a particular job within a company.  Salary range midpoints are representations of your company’s desired position in the market.
  • 6. The Concept of Value in Compensation Practice  How will you know if you have a strong relationship between internal and external values? By statistically comparing the following relationships…  Market Median Values to Evaluation Points  Evaluation Points to Range Midpoints  Existing Pay Levels to Market Median Values  Existing Pay Levels to Evaluation Points
  • 7. The Concept of Value in Compensation Practice Total Market Proposed FUNCTIONAL JOB TITLE Grade Points Median Midpoint Operator/Lead/Mailroom 1 905 20,427 18,847 Clerk/ File/ Accts Payable 1 953 20,427 18,847 OPERATOR/ DATA ENTRY 2 969 19,704 21,109 Operator I/ Computer 2 969 21,827 21,109 Courier I 2 971 18,847 21,109 Clerk, Intermediate 2 1,010 21,217 21,109 Receptionist 2 1,021 20,991 21,109 Clerk/ Control I 2 1,041 21,499 21,109 Switchboard Operator 2 1,051 20,314 21,109 Clerk I/ Credit 2 1,066 22,120 21,109 Clerk Typist 2 1,066 20,427 21,109 Receptionist/ S/B Operator 3 1,081 20,878 23,642 Operator/ Data Entry/ Senior 3 1,093 22,372 23,642 Clerk/ Purchasing 3 1,111 22,345 23,642 ADMINISTRATOR/ A/P 3 1,117 24,151 23,642
  • 8. The Concept of Value in Compensation Practice ABC Company Correlation of Mark et Median to Evaluation Points 120,000 100,000 0.0136x y = 19547e 2 80,000 R = 0.9675 Market Value 60,000 40,000 20,000 - 1,021 1,093 1,216 1,364 1,464 1,576 1,767 1,911 1,961 2,085 2,163 2,369 2,597 2,972 3,287 3,456 3,761 4,854 905 Evaluation Points Market Median Expon. (Market Median)
  • 9. The Concept of Value in Compensation Practice How can you balance internal and external job value?
  • 10. The Concept of Value in Compensation Practice  Step #1: Complete a market analysis to establish the market value for a group of benchmark jobs that represent the entire spectrum of value in your company.  Step #2: Using market values, calculate salary range midpoints, minimums, and maximums.  Step #3: Select and define appropriate job evaluation factors.
  • 11. The Concept of Value in Compensation Practice Appropriate Job Evaluation Factors  Are Recognized As Adding to the Value of a Job  Can Be Defined  Can Be Defined in Levels  Exist in All Jobs to be Evaluated Hint: Appropriate job evaluation factors usually fall under the general heading of… KNOWLEDGE, THE APPLICATION OF KNOWLEDGE, AND WORKING CONDITIONS
  • 12. The Concept of Value in Compensation Practice  Step #4: Determine the weight (%) for each evaluation factor.  Step #5: Determine the minimum and maximum number of job evaluation points, based on the relationship of the Range Minimum of the lowest grade and the Range Maximum of the highest grade.  FOR EXAMPLE…
  • 13. The Concept of Value in Compensation Practice Grade Minimum Midpoint Maximum 1 15,077 18,846 22,616 20 129,859 162,324 194,788 15,077 100 194,788 = X X = 1,292
  • 14. The Concept of Value in Compensation Practice Step #6: Apply the weight percentages to the high and low evaluation point values. Available Points 100 1292 Knowledge 30.0% 30 388 Decision Making 30.0% 30 388 Autonomy 20.0% 20 258 Working Cond. 10.0% 10 129 Contacts 10.0% 10 129
  • 15. The Concept of Value in Compensation Practice Step #7: : Calculate the evaluation points to apply to each level of evaluation factor. KNOWLEDGE LEVEL SCORE POINTS Grade School A 30 A+ 39 High School B 50 B+ 65 Associate's C 83 C+ 108 Bachelor's D 139 D+ 180 Master's E 232 E+ 300 Doctorate F 388
  • 16. The Concept of Value in Compensation Practice =10^(1/Steps*(LOG10(High Value/Low Value)))
  • 17. The Concept of Value in Compensation Practice  Step #8: : Evaluate every benchmark job and enter the results into a table.  Step #9: : Graph your results.
  • 18. The Concept of Value in Compensation Practice ABC Company Correlation of Mark et Median to Evaluation Points 120,000 100,000 0.0136x y = 19547e 2 80,000 R = 0.9675 Market Value 60,000 40,000 20,000 - 1,464 1,021 1,093 1,216 1,364 1,576 1,767 1,911 1,961 2,085 2,163 2,369 2,597 2,972 3,287 3,456 3,761 4,854 905 Evaluation Points Market Median Expon. (Market Median)
  • 19. The Concept of Value in Compensation Practice  Step #10: : Check results and circle back to make adjustments to factor weights or evaluation points as necessary.  Step #11: : Drink a lot… you’ve earned it!

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