ww w. te x- ce te ra .co m CHAPTER 9 Compensation Management 337 Figure 9-5 Point Manual Description of “Responsibility: Equipment and Materials” 1. Responsibility … b. Equipment and Materials. Each employee is responsible for conserving the company’s equipment and materials. This includes reporting malfunctioning equipment or defective materials, keeping equipment and materials cleaned or in proper order, and maintaining, repairing, or modifying equipment and materials according to individual job duties. The company recognizes that the degree of responsibility for equipment and materials varies widely throughout the organization. Level I. Employee reports malfunctioning equipment or defective materials to immediate superior. Level II. Employee maintains the appearance of equipment or order of materials and has responsibility for the security of such equipment or materials. Level III. Employee performs preventive maintenance and repairs on equipment or corrects defects in materials. Level IV. Employee makes replacement and purchasing decisions and is in control of the “equipment and materials” factor. Wage and Salary Surveys All job evaluation techniques result in a ranking of jobs based upon their perceived relative worth. This assures internal equity; that is, jobs that are worth more will be paid more. But how much should be paid? What constitutes external equity? To determine a fair rate of compensation, most firms rely on wage and salary surveys, which discover what other employers in the same labour market are paying for specific key jobs. The labour market—the area from which the employer recruits—is generally the local community; how- ever, firms may have to compete for some workers in a wider market. Consider how the president of one large university viewed the market: Our labour market depends on the type of position we are trying to fill. For the hourly paid jobs such as janitor, data entry clerk, and secretary, the labour market is the surrounding metropolitan community. LO2 internal equity Perceived equity of a pay system in an organization. external equity Perceived fairness in pay relative to what other employers are paying for the same type of work. wage and salary surveys Studies made of wages and salaries paid by other organizations within the employer’s labour market. SpOTlIGHT On ETHICS Job evaluation You are the human resource director of a large grocery chain. As part of a restructuring of its compensation system, and to comply with pay equity legislation, the company has recently switched from the job ranking system to the point system. You are chairing the Job Evaluation Committee, which is ready to allocate points to the cashier job category, the largest category in the company. The discussion so far has focused on how many points to allocate to the responsibility factor, and the committee is essentially split 50–50 on the numbers. As it so happened, there .

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CHAPTER 9 Compensation Management 337
Figure 9-5 Point Manual Description of “Responsibility:
Equipment and Materials”
1. Responsibility …
b. Equipment and Materials. Each employee is responsible for
conserving the company’s
equipment and materials. This includes reporting
malfunctioning equipment or defective
materials, keeping equipment and materials cleaned or in proper
order, and maintaining,
repairing, or modifying equipment and materials according to
individual job duties.
The company recognizes that the degree of responsibility for
equipment and materials
varies widely throughout the organization.

2. Level I. Employee reports malfunctioning equipment or
defective materials to
immediate superior.
Level II. Employee maintains the appearance of equipment or
order of materials
and has responsibility for the security of such equipment or
materials.
Level III. Employee performs preventive maintenance and
repairs on equipment or
corrects defects in materials.
Level IV. Employee makes replacement and purchasing
decisions and is in control
of the “equipment and materials” factor.
Wage and Salary Surveys
All job evaluation techniques result in a ranking of jobs based
upon their perceived relative worth.
This assures internal equity; that is, jobs that are worth more
will be paid more. But how much
should be paid? What constitutes external equity?
To determine a fair rate of compensation, most firms rely on
wage and salary surveys, which
discover what other employers in the same labour market are
paying for specific key jobs. The
labour market—the area from which the employer recruits—is
generally the local community; how-
ever, firms may have to compete for some workers in a wider
market. Consider how the president
of one large university viewed the market:

3. Our labour market depends on the type of position we are trying
to fill. For the hourly paid jobs such as
janitor, data entry clerk, and secretary, the labour market is the
surrounding metropolitan community.
LO2
internal equity
Perceived equity of a pay
system in an organization.
external equity
Perceived fairness in pay
relative to what other
employers are paying for
the same type of work.
wage and salary surveys
Studies made of wages
and salaries paid by other
organizations within the
employer’s labour market.
SpOTlIGHT On ETHICS
Job evaluation
You are the human resource director of a large grocery chain.
As part of a restructuring of its compensation system, and to
comply with pay equity legislation, the company has recently
switched from the job ranking system to the point system.
You are chairing the Job Evaluation Committee, which is
ready to allocate points to the cashier job category, the largest
category in the company. The discussion so far has focused
on how many points to allocate to the responsibility factor,
and the committee is essentially split 50–50 on the numbers.
As it so happened, there are three women and three men on

4. the committee. The women argue that cashiers have the same
responsibility as the accounting clerks, who are all male, in
the office. The male members of the committee, on the other
hand, disagreed, suggesting that a cashier’s responsibility is
to balance the cash register, not accounts, a more difficult task.
You seem to have the deciding vote. The dilemma from your
point of view is that all the cashiers are women while the three
accounting clerks are all male. In your assessment you agree
that the accounting clerks carry a higher responsibility and
deserve more points. If you support the male members of the
committee you are pretty sure that the cashiers will launch a
pay equity grievance, usually a costly and time-consuming
affair. If you agree with the female members it means cashiers
will fall into a higher pay category, increasing payroll expenses
significantly. You know very well that the competition in the
food market is fierce, with low profit margins (2 to 3 percent).
A pay increase would have a direct impact on the bottom line.
What do you do?
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338 PART 5 Motivating and Rewarding Human
Resources
When we hire professors, our labour market is Canada. We have
to compete with universities in other
provinces to get the type of faculty member we seek. When we
have the funds to hire a distinguished
professor, our labour market is the whole world.
Sources of Compensation Data
Wage and salary data are benchmarks against which analysts
compare compensation levels. Sources
for this information include the following:
• Human Resources and Skills Development Canada
• Canadian Human Resource Centres
• Employee associations
• Professional associations
• Private consultants
The major problem with all these published surveys is their
varying comparability. Analysts
cannot always be sure that their jobs match those reported in the
survey. Just matching job titles
may be misleading; federal, provincial, and association job
descriptions using the same title may be
considerably different. Since most government-published

6. surveys rely on the National Occupational
Classification (NOC), any job description should be compared
with descriptions in the NOC.
At this point, all jobs are ranked according to their relative
worth, as a result of the job evaluation
process. Through wage and salary surveys, the rate for key jobs
in the labour market is also known.
This leaves the last phase of wage and salary management,
pricing the jobs.
Pricing jobs includes two activities: establishing the appropriate
pay level for each job and grouping
the different pay levels into a structure that can be managed
effectively.
Pay Levels
The appropriate pay level for any job reflects its relative and
absolute worth. A job’s relative worth
is determined by its ranking through the job evaluation process.
The absolute worth of a job is
Pricing Jobs
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9. m
CHAPTER 9 Compensation Management 339
influenced by what the labour market pays similar jobs. To set
the right pay level means combining
the job evaluation rankings and the survey wage rates. Of
course, many other considerations will
determine the final pay level—for example the organization’s
pay policy.
This information is combined through the use of a graph called
a scattergram. As Figure 9-6
illustrates, its vertical axis shows the pay rates. If the point
system is used to determine the ranking
of jobs, the horizontal axis is in points. The scattergram is
created by plotting the total points and
wage level for each key job. Thus, each dot represents the
intersection of the point value and the
wage rate for a particular key job. For example, Key Job A in
Figure 9-6 is worth 500 points and is
paid $16 an hour.
Through the dots that represent key jobs, a wage-trend line is
drawn as close to as many points
as possible. (This line can be done freehand or, more accurately,
by a statistical technique called the
least squares method.5) The wage-trend line uses two steps to
help determine the wage rates for non-
key jobs. First, the point value for the nonkey job is located on
the horizontal axis. Second, a line is
traced vertically to the wage-trend line, then horizontally to the
dollar scale. The amount on the
vertical scale is the appropriate wage rate for the nonkey job.
For example, nonkey Job B is worth

10. 700 points. By tracing a vertical line up to the wage-trend line
and then horizontally to the vertical
(dollar) scale, it can be seen in Figure 9-6 that the appropriate
wage rate for Job B is $18 per hour.
The Compensation Structure
A medium-sized organization with 2,000 workers and 325
separately identifiable jobs would present
the wage and salary analyst with complex problems. The
existence of 325 separate wage rates would be
meaningless, because the differences in wages between each job
might be no more than a few cents.
Compensation analysts find it more convenient to lump jobs
together into job classes. In the
job grade approach, jobs are already grouped into predetermined
categories. With other methods,
the grouping is done by creating job grades based on the
previous ranking, pay, or points. In the
point system, for example, classifications are based on point
ranges: 0 to 100, 101 to 150, 151 to 200,
and so forth. This grouping causes the wage-trend line to be
replaced with a series of ascending
dashes, as shown in Figure 9-7. Thus, all jobs in the same class
receive the same wage rate. A job
valued at 105 points, for example, is paid the same as a job with
145 points. Having too many grades
defeats the purpose of grouping; having too few groupings
results in workers with jobs of widely
varying importance receiving the same pay.
The problem with flat rates for each job class is that exceptional
performance cannot be rewarded.
To give a worker a merit increase requires moving the employee
into a higher job class. This upsets
the entire balance of internal equity developed through job

11. evaluations. To solve these problems,
most firms use rate ranges for each class. A rate range is simply
a pay range for each job class.
Figure 9-6 The Development of a Wage-Trend Line
24
22
20
18
16
14
12
100 200 300 400 500 600 700 800 900 1000
Point Values
W
ag
es
o
r
Sa
la
ri
es

12. , $
Key Job A
Nonkey Job B
Wage-Trend
Line
key job
A job that is similar
and common in the
organization and its
labour market—for
example, accountant,
tool-and-die maker.
rate range
A pay range for each
job class.
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340 PART 5 Motivating and Rewarding Human
Resources
Figure 9-7 The Impact of Job Classes on the Wage-Trend Line
0– 101– 151– 201– 251– 301– 351– 401– 451– 501–
100 150 200 250 300 350 400 450 500 550
Am
ou
nt
, $
Figure 9-8 Varying Wage Ranges for Job Classes
I II III IV V VI VII VIII IX X
Am
ou
nt
, $
Red-Circled Rate
Top of Rate Range
Midpoint

14. Bottom of
Rate Range
21.00
18.00
15.00
Silver-Circled Rate
Gold-Circled Rate
Green-Circled Rate
For example, suppose that the wage-trend line indicates $18 is
the average hourly rate for a par-
ticular job class. Every employee in that class gets $18, if a flat
rate is paid. With a rate range of $3 for
each class, a marginal performer can be paid $15 at the bottom
of the range, as indicated in Figure 9-8.
Then an average performer is placed at midpoint in the rate
range, or $18. When performance appraisals
indicate above-average performance, the employee may be
given a merit raise of, say, $1.00 per hour
for the exceptional performance. If this performance continues,
another merit raise of $1.00 can be
granted. Once the employee reaches the top of the rate range, no
more wage increases will be forth-
coming. Either a promotion or a general across-the-board pay
raise needs to occur for this worker’s
wage to exceed $21. An across-the-board increase moves the
entire wage-trend line upward.
As new jobs are created, the wage and salary section performs a
job evaluation. From this

15. evaluation, the new job is assigned to an appropriate job class.
If the rate ranges are used, the new
employee will start at the bottom of the range and receive
raises, where appropriate, to the top of
the rate range.
merit raise
A pay increase given
to individual workers
according to an evaluation
of their performance.
sch51554_ch09.indd 340 12-12-17 11:29 AM
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Sheet1See comments at the right of the data
set.IDSalaryCompaMidpointAgePerformance
RatingServiceGenderRaiseDegreeGender1Grade8231.000233290
915.80FAThe ongoing question that the weekly assignments
will focus on is: Are males and females paid the same for equal
work (under the Equal Pay Act)?
10220.956233080714.70FANote: to simplfy the analysis, we
will assume that jobs within each grade comprise equal
work.11231.00023411001914.80FA14241.04323329012160FAT
he column labels in the table
mean:15241.043233280814.90FAID – Employee sample number
Salary – Salary in thousands 23231.000233665613.31FAAge
– Age in yearsPerformance Rating – Appraisal rating
(Employee evaluation score)26241.043232295216.21FAService
– Years of service (rounded)Gender: 0 = male, 1 = female
31241.043232960413.90FAMidpoint – salary grade midpoint
Raise – percent of last raise35241.043232390415.31FAGrade –

16. job/pay gradeDegree (0= BSBA 1 =
MS)36231.000232775314.31FAGender1 (Male or
Female)Compa - salary divided by
midpoint37220.956232295216.21FA42241.0432332100815.70F
A3341.096313075513.60FB18361.1613131801115.61FB20341.0
963144701614.81FB39351.129312790615.51FB7411.025403210
0815.70FC13421.0504030100214.71FC22571.187484865613.80
FD24501.041483075913.81FD45551.145483695815.20FD17691
.2105727553130FE48651.1405734901115.31FE28751.11967449
5914.41FF43771.1496742952015.51FF19241.043233285104.61
MA25241.0432341704040MA40251.086232490206.30MA2270.
870315280703.90MB32280.903312595405.60MB34280.903312
680204.91MB16471.175404490405.70MC27401.000403580703.
91MC41431.075402580504.30MC5470.9794836901605.71MD3
0491.0204845901804.30MD1581.017573485805.70ME4661.157
57421001605.51ME12601.0525752952204.50ME33641.1225735
90905.51ME38560.9825745951104.50ME44601.0525745901605
.21ME46651.1405739752003.91ME47621.087573795505.51ME
49601.0525741952106.60ME50661.1575738801204.60ME6761.
1346736701204.51MF9771.149674910010041MF21761.134674
3951306.31MF29721.074675295505.40MF
Sheet2
Sheet3
Sheet1Week 2Testing means with the t-test<Note: use right
click on row numbers to insert rows to perform analysis below
any question>For questions 2 and 3 below, be sure to list the
null and alternate hypothesis statements. Use .05 for your
significance level in making your decisions.For full credit, you
need to also show the statistical outcomes - either the Excel test
result or the calculations you performed.1Below are 2 one-
sample t-tests comparing male and female average salaries to
the overall sample mean. Based on our sample, how do you
interpret the results and what do these results suggest about the
population means for male and female
salaries?MalesFemalesHo: Mean salary = 45Ho: Mean salary =

17. 45Ha: Mean salary =/= 45Ha: Mean salary =/= 45Note when
performing a one sample test with ANOVA, the second variable
(Ho) is listed as the same value for every corresponding value
in the data set.t-Test: Two-Sample Assuming Unequal
Variancest-Test: Two-Sample Assuming Unequal
VariancesSince the Ho variable has Var = 0, variances are
unequal; this test defaults to 1 sample t in this
situationMaleHoFemaleHoMean5245Mean3845Variance3160Va
riance334.66666666670Observations2525Observations2525Hyp
othesized Mean Difference0Hypothesized Mean
Difference0df24df24t Stat1.9689038266t Stat-
1.9132063573P(T<=t) one-tail0.0303078503P(T<=t) one-
tail0.0338621184t Critical one-tail1.7108820799t Critical one-
tail1.7108820799P(T<=t) two-tail0.0606157006P(T<=t) two-
tail0.0677242369t Critical two-tail2.0638985616t Critical two-
tail2.0638985616Conclusion: Do not reject Ho Conclusion: Do
not reject HoInterpretation:(include comments on why the
conclusion was made, what the conclusion means about pay
levels in English, what the conclusions mean for our question
about equal pay.)2Based on our sample results, perform a 2-
sample t-test to see if the population male and female salaries
could be equal to each other.Include hypothesis pair of claims,
and intepretation of result3Based on our sample results, can the
male and female compas in the population be equal to each
other? (Another 2-sample t-test.)Include hypothesis pair of
claims, and intepretation of result4What other information
about our variables would you like to know to answer the
question about salary equality between the genders? Why - how
do these variables influce pay?5If the salary and compa mean
tests in questions 3 and 4 provide different results about male
and female salary equality, which would be more appropriate
to use in answering the question about salary equity?
Why?What are your conclusions about the tests performed to
determine if equal pay exists between the genders at this point?
Sheet2
Sheet3