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Designing compensation system Part I


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Designing Compensation System Part I

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Designing compensation system Part I

  1. 1. Designing Compensation System: Part IDr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor 1
  2. 2. Components of Compensation System 2
  3. 3. Types of EquityInternal Equity - Fairness of the pay structure, relationship among jobs within a single organizationExternal Equity - Comparisons of similar jobs in different organizationsIndividual Equity - Comparisons among individuals in the same job within the same organization 3
  4. 4. Equity Theory 4
  5. 5. Building Internal ConsistentCompensation System through Job Evaluation 5
  6. 6. Job Evaluation - Concept 6
  7. 7. Job Evaluation MethodsJob RankingJob Grading or ClassificationFactor ComparisonPoint Method Compensable Factors Application to Jobs Hay Plan 7
  8. 8. Internal Equity in PracticeJob analysis Collecting data about jobsJob evaluation Valuing jobs 8
  9. 9. Job Evaluation Process Job evaluation process Job analysis Jobdescription Job specification Job evaluation Wage survey Employee classification
  10. 10. Creating Internal Equity through Job Analysis and Job Valuation 10
  11. 11. Job AnalysisThe systematic, formal study of the duties and responsibilities that comprise job contentThe process seeks to obtain important and relevant information about the nature and level of the work performedThursday, September 20, 2012 11
  12. 12. Job AnalysisProcess to identify and determine particular job duties and requirements & relative importance of dutiesJudgments made on data collected from job analysisCan be used in compensation to identify/determine: • Skill levels • Compensable job factors • Work environment (e.g., hazards; attention; physical effort) • Responsibilities (e.g., fiscal; supervisory) • Required level of education (indirectly related to salary level) 12
  13. 13. Human Resource Tasks Responsibilities Duties Planning Recruitment Selection Training and Job Development Descriptions Job Performance AppraisalAnalysis Compensation and Job Specifications Benefits Safety and Health Employee and Labor RelationsKnowledge Skills Abilities Legal Considerations Job Analysis for Teams Thursday, September 20, 2012 13
  14. 14. Job Analysis Result• Job Description – Job based – Tasks – Work performed• Job Specification – Employee based – Knowledge, skills & abilities – Experience 14
  15. 15. Job DescriptionOutput from job analysis used to develop job description and job specificationA critical component of both compensation and selection systemsIt defines the responsibilities, requirements, functions, duties, location, environment, conditions and other aspects of jobsIt may be developed for jobs individually or for entire job familiesIt describes and focuses on job itself and not on any specific individual who might do the jobThursday, September 20, 2012 15
  16. 16. Job SpecificationIt defines worker characteristics (i.e., knowledge, skills and abilities) required to perform the job competentlyThursday, September 20, 2012 16
  17. 17. Types Of Job Analysis Information Considerable information is needed, such as: Worker-oriented activities Machines, tools, equipment, and work aids used Job-related tangibles and intangibles Work performance Job content Personal requirements for the jobThursday, September 20, 2012 17
  18. 18. Types of Data Collected Through Job AnalysisWork Activities – work activities and processes; activity records; procedures used; personal responsibilityWorker-oriented activities – human behaviours, such as, physical actions and communications on the job; elemental motions for methods analysis; personal job demands, such as, energy expenditureThursday, September 20, 2012 18
  19. 19. Types of Data Collected Through Job AnalysisMachines, tools, equipment, and work aids usedJob-related tangibles & intangibles – knowledge dealt with or applied; materials processed; products made or services performed Thursday, September 20, 2012 19
  20. 20. Types of Data Collected Through Job AnalysisWork performance – error analysis; work standards; work measurements, such as, time taken for a taskJob context – work schedule; financial and nonfinancial incentives; physical working conditions; organizational and social contextsPersonal requirements for the job – personal attributes, such as, personality and interests; education and training required; work experienceThursday, September 20, 2012 20
  21. 21. Job Evaluation - ObjectivesJob evaluation - used to determine relative value of each job in relation to all jobs within the organizationImmediate objective - to obtain internal and external consistency in wages and salariesUltimate objective - employee and employer satisfaction with wages and salaries paid 21
  22. 22. Job EvaluationMethods and practices for ordering jobs or positions with respect to their value or worth to the organizationA system for comparing jobs for purpose of determining appropriate compensation levels for individual jobs or job elements 22
  23. 23. Building Market Competitive Compensation System 23
  24. 24. Establishing External Equity – Compensation SurveysWage and Salary Surveys (Compensation Surveys) Identifying Key Jobs Selecting Organizations to Survey Collecting Data  Self-Surveys  Online Surveys  Government Surveys  Interpreting the Data  Avoiding AntitrustPay Level Policy Matching the Competition Adapting a Lead Policy Following a Lag Approach 24
  25. 25. Wage Surveys (Compensation Surveys)Goal of wage surveys is to find data from employers with whom the organization competes for employeesCollected data should be analyzedAnalysis involves comparing going market rate and approximating this rate within organizations own pay structure 25
  26. 26. Methods of Wage SurveysGenerally three methods are employed for wage surveys: • Personal Interviews • Mailed Questionnaires • Telephone Inquiries 26
  27. 27. Establishing Individual EquityDesigning Pay Ranges Establishing Pay Ranges  Wage Ranges Broadbanding Above- and Below-Range EmployeesSetting Individual Pay Seniority Merit Pay Skill Based Pay 27