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  1. 1. Compensation Management Module 2 1
  2. 2. Pay Structure Pay Structure is refers to an array of pay rates for different works or skills within a single organisation Pay structure provides a framework for managing pay. It provides a structure within which the organisation’s pay policy can be implemented. A pay structure is a medium through which the organisation conveys the career & pay opportunities available to the employees. 2
  3. 3. Pay Structure Pay structures may be designed to achieve several important objectives: to align reward strategy with the business strategy of the organisation, such as the encouragement of high performance levels to bring order and clarity to an organisation and its employees in managing pay increases and career progression to help ensure fairness and lawfulness, for example by adopting an approach that avoids gender discrimination in pay.
  4. 4. Pay Structure Types of Pay structures 1) Narrow banded Structure:- This structure consists of a sequence of job grades into which jobs of broadly equivalent value are placed. A pay range is attached to each grade. There may be some 8 or more grades in the structure. Pay ranges provide scope for pay progression, related to performance, competence & contribution 4
  5. 5. Pay Structure Advantages Ensures equal jobs are paid equally Allows for better control over pay fixation & pay progression Easy to comprehend Disadvantages Sometimes too rigid to function 5
  6. 6. Pay Structure Broadbanded Pay Structures Broadbanding means that the number of grades is compressed into a relatively small number of much wider bands in which pay is managed more flexibly than in conventional structure & increased attention is paid to market relativities The range of pay in each band is wider. Only 4 – 6 bands in the structure 6
  7. 7. Pay Structure Jobs may be placed in the bands purely by reference to market rates or by a combination of job evaluation & market rate analysis. Reference point refers to the normal rate for a job and are aligned to market rates. Advantages 1.Flexible : This refers to the scope given to adapt rates of pay more readily to market rate changes 7
  8. 8. Pay Structure 2. Lateral development is rewarded as no restriction of narrow grades. 3.More jobs in same bands. Hence cost of implementation is also less Disadvantages 1. Reliance on market rates can produce inequalities in the labour market 2.Can create unrealistic employee expectations for pay rises 3. Difficult to understand & explain to employees 8
  9. 9. Pay Structure 3. Career family structures This consists of jobs that are linked with each other in terms of functions they perform such as marketing, Administration, Support services etc. These are related through the activities that are carried out & the basic knowledge , skill required and the extent of responsibility. Here only at each level,the knowledge & skill levels differ. The successive levels are defined by reference to the key activities & the knowledge, skill & competencies required to perform them effectively.
  10. 10. Pay Structure Within each career family, specific career paths for progressing to higher levels and routes for pursuing careers in other families are defined Advantages 1.Defines career paths within career families & hence facilitates career planning
  11. 11. Pay Structure 2. It identifies routes for career progression between career families by clarifying what individuals should know & be able to do if they wish to move to a new path. 3. Disadvantages 1.Highly divisive
  12. 12. Pay Structure 4. Job Family Structure Job family refers to a group of jobs that are essentially similar in nature & purpose of work, but differ in the levels at which work is carried out It can be a)Generic ie covering similar jobs across functional areasadministrators, managers, Executives b)Functioal ie work groups within a domain ie personnel, -marketing etc.
  13. 13. Designing a Broadbanded structure 1.Decide on Objectives 2. Decide on the number of bands 3.Decide on Band infrastructure 4. Define the bands 5.Prepare the role profile for benchmark jobs
  14. 14. Designing a Broadbanded structure 6. Match the benchmark roles to the bands 7.Obtain Market rates 8.Evaluate Benchmark Jobs 9.Decide on reference points & Zones 10.Decide pay ranges of bands
  15. 15. Job Evaluation It is the systematic process for defining the relative worth of jobs within an organisation, in order to establish internal relativities & provide the basis for designing an equitable pay structure. It is the evaluation or rating of jobs to determine their position in the job hierarchy in an organisation. This method is widely used for elimination of wage inequities 15
  16. 16. Job Evaluation Features of job evaluation 1. Systematic: - Here the relative size or value of jobs is determined on the basis of factual evidence.The evidence is analysed within a structured framework of criteria 2. Judgemental:- The facts collected need to be interpreted. Human judgement is required to make the final decisions based on clear evidence & sound reasoning 16
  17. 17. Job Evaluation 3. Concerned with the job & not the person:- While evaluating a job, the concern is for the content of that job in terms of its demand on the job holder. It does not take into consideration the performance of the individual in relation to the job 4.Concerned with internal relativities:- It is only concerned with the worth of a job within the organisation & not concerned about the external relativitieslike market rates 17
  18. 18. Objectives Major objectives of Job evaluation are:1. Equitability in the wage structure within an organisation 2. Consistency of the firm’s wage structure with that of the industry in which it operates 3. Establishment of a sound scheme for incentives & bonuses. 4. Provide a framework for periodic review of wages 18
  19. 19. Objectives 5. Classify functions,authority & responsibility which in turn aids in work simplification & elimination of duplicate tasks. 6. Reduce grievances & employee tturnover, thusincreasing employee morale & managementemployee relationships. 7.Serves as a basis for negotiation with the unions 19
  20. 20. Job Evaluation Process Job evaluation process involves the following steps:1. A thorough examination of jobs 2. Preparation of Job descriptions 3.Comparison of one job with another 4. Arrangement of jobs in their correct sequence 5.Relating the sequence to the money scale 20
  21. 21. Methods of Job Evaluation There are different types of job evaluation methods. Non Quantitative methods a)Ranking method b)Grading method Quantitative methods a)Points Rating method b)Factor Comparison method 21
  22. 22. Methods of Job Evaluation Ranking method All the jobs in a organisation are checked & are rated in the order of complexity ,responsibility & the demands they make on the respective employees Ranking is made easier by identifying those that come at the extreme ends of the scale & locating the rest in the middle region. In the Ranking system, jobs are not split up into component parts but the comparison is made on the whole jobs. 22
  23. 23. Ranking method Advantages Disadvantages Simple Difficult to adminster as the no: of jobs increases Rank judgements are subjective Very effective when number of jobs are large It is less time consuming Ranking process will have to be repeated each time a new job is added to the organisation 23
  24. 24. Methods of Job Evaluation Job Grading method Also called predetermined grading method. Jobs are classified into the grade/category structure. Each of the grades are defined in terms of general functions & qualifications required.Jobs are assigned to the grade/category providing closest match to it. 24
  25. 25. Job grading method This method involves a)Establishment of Grades or Classes b)Definition of each class c) Classification of individual jobs according to how well their characteristics match the different grade descriptions. 25
  26. 26. Classification Method Sl No Advantages 1 Simple method which is easy to use Less time consiming 2. 3. Disadvantages Classification os judgemental The judgement may be biASED which would affect certain groups of employees Grades are independent Some jobs seem to fit in of the jobs.Therefore new more than one category jobs can be easily classified 26
  27. 27. Methods of Job Evaluation Point rating method This is the most widely used method of job evaluation & is a Quantitative method of job evaluation It uses a more analytical & systematic approach to the measurement of a job’s worth. The whole job is divided to different job factors & maximum point values are assigned for each of the factors. Each job is awarded points for each of the factors considered. 27
  28. 28. Point rating method This method measures jobs as the overall position over the various job factors and not as a whole job. These points are later converted to money value A Job factor is a specific requirement levied upon the job holder which he must contribute for the proper functioning of the job Eg:- skill,effort,responsibility etc. 28
  29. 29. Point rating method The steps involved in the system are as follows:1.List the jobs to be evaluated:-All the jobs to be evaluated have to be listed out ,with their clear job description & job specification 2. Number of factors 29
  30. 30. Other Methods There are methods used for evaluating the subtler aspects of management like decision making & is used to evaluate managerial types of jobs. 1.Time span of discretion method The longest period of time for which discretion could be exercised without direct management review is the key factor in determining the levels 30
  31. 31. Other Methods 2.Decision Band method: Depending on the type of decision that is to be taken by the job,the jobs are placed in the applicable band. Band E :- Policy making decisions Band D:-Programming decisions by Senior Managers Band C: Decisions by Middle Managers Band B Routine decisions by skilled operators Band A:Automatic decisions by semi-skilled operators Band O:Decisions by Unskilled workers 31
  32. 32. Other Methods 3.Hay Plan or Hay Group Guide Chart Profile method:This method for deciding Managerial pay emphasizes 3 critical factors 1.Know How 2.Problem Solving 3.Accountability 32
  33. 33. Computer based JE Systems LINK This software operates on the basis of the answers given to structured questionnaire by the job holders & supervisors • Gauge In this process, the job holder & the line manager with the help of the facilitator answers a series of interrelated questions that are presented on the screen
  34. 34. Job evaluation External equity is the comparison of intra and inter – industry pay rates The wage structure though taking into consideration ,the performance of the individuals should compare with the prevailing rates in the area. Pay survey is a costly , time consuming & complex exercise of comparing the wages of different companies within the same industry in the same area. 34
  35. 35. Requirements for a good Job evaluation 1. Create a team :- Create a cross-functional team to work on job evaluation. The team should represent various levels and jobs within the organization. 2. Select the job evaluation method:- Train team members in the requirements needed for selecting a job evaluation method for your organization.  Communicate with employees This helps employees feel a sense of ownership from the results of the job evaluation results. 35
  36. 36. Implementation of job evaluation The concept of job evaluation often can be intimidating to employees in an established organization. Employees might worry about losing their jobs, and pay might be decreased after job comparisons and evaluations are completed. To help employees accept and understand your job evaluation system, approach job evaluation from an organizational development perspective. 36
  37. 37. Steps in Job Evaluation implementation Introduce the concept of job evaluation. Obtain management approval for the evaluation. Train the job evaluation selection team. Review and select the job evaluation method. Gather information on all internal jobs. 37
  38. 38. Steps in Job Evaluation implementation Use information to fully expand job descriptions. Use the selected job evaluation method to rank jobs hierarchically or in groups. Link the ranked jobs with your compensation system or develop a new system. Implement the job evaluation and compensation systems. 38
  39. 39. Steps in Job Evaluation implementation Periodically review your job evaluation system and the resulting compensation decisions. Make necessary updations & modifications where required. 39
  40. 40. Criteria for choice of a method 1.Suited for thorough analysis & impartial application 2.Appropriate for the demands of particular jobs 3.Comprehensive to assess relativities across different occupations 4.Transparent & clear to all concerned 5.Non-discriminatory in that it should meet the equal pay for work of equal value policy 40
  41. 41. Evaluation Reviews The situations where a review of the evaluation can be requested are :1.When the job is first allocated to a grade & the grade is made known to the parties concerned. 2.When the content of the job changes sufficiently to place doubt on the existing grading 41
  42. 42. Evaluation Reviews A formal evaluation review procedure should be prepared. Review by a special committee composed of 2 members of the original panel& 2 additional trained evaluators & an independent chair. 42
  43. 43. Maintaining Job Evaluation Job evaluation should be carefully managed,otherwise it would decay & become discredited. 1.Regular reviews of the schemes are built in 2.Adequate training for the operators of the scheme 3.Periodical training for evaluators 4.Maintain good communication at all levels 5.Device a less time consuming way to managge the programme 6.Use IT in a feasible way 43
  44. 44. Pay Survey Types of pay Survey 1.Informal 2.External 1.Informal Surveys:- These are conducted in an informal way & can vary from personal contacts to specific exchange programmes with a number of local companies 44
  45. 45. Pay Survey 2. External survey is done in different methods. 1.Job Title method 2. Job Description method 45