The document discusses concepts related to compensation and reward management including pay models, internal equity, external equity, and employee equity. It covers forms of compensation including base pay, incentives, and cost of living adjustments. Key aspects of designing pay structures are also outlined such as determining pay level policies by leading, meeting, or following competition. Methods for evaluating jobs like ranking, classification, factor comparison, and point plans are explained. The importance of conducting pay surveys and using the data to construct policy lines and design pay ranges is also highlighted.

1. Compensation & RewardCompensation & Reward
ManagementManagement

2. Pay ModelPay Model
1.1. ConceptsConcepts Compensation techniques Compensation objectives
2.2. Internal equityInternal equity  Job Analysis  Job Description  Job Evaluation
3.3. External equityExternal equity  Market definitions  Surveys Policy lines  Pay
structures
4.4. Employee equityEmployee equity  Seniority Increases  Performance Evaluation 
Increase Guidelines
5.5. AdministrationAdministration  Planning  Budgeting  Monitoring  Evaluation

3. Forms of CompensationForms of Compensation
COMPENSATIONCOMPENSATION
IndirectIndirect DirectDirect
Protection
Programs
Employee
Services
&
Perquisites
Pay for
time
not
worked
Base Pay
Merit Pay
(Reward)
Incentives
– Short
& Long
Term
Cost of
living
Adjust
ments

4. Strategic Issues related to PayStrategic Issues related to Pay
1. Pay decisions to be guided by strategicstrategic
stagesstages of an organization
2. Pay design to reconcile employeeemployee
differencedifference

5. Equity : Conceptual FoundationEquity : Conceptual Foundation
• Internal equityInternal equity
– Comparisons inside an organization – among jobs
– Weighs jobs in terms of relative value of their contributions to the
organization’s objectives
– 2 aspects2 aspects:
• Relative similarities & differences in the work content of jobs
• Relative value / contribution of the work to the organization’s
objectives
– How much do you wish to pay accountants in comparison with
purchase clerk within the same organization?

6. Equity : Conceptual FoundationEquity : Conceptual Foundation
• External equityExternal equity
– Comparisons outside an organization
– Several options regarding external equity:
• Some employers may set their pay levels higher than their
competition hoping to attract best applicants
• Another employer may offer lower base pay but greater opportunity
to work overtime, greater job security or better benefits than other
employers
– How much do you wish to pay accountants in comparison with
what other employers would pay them?

7. Equity : Conceptual FoundationEquity : Conceptual Foundation
• Employee equityEmployee equity
– Comparisons among individuals doing the same job for the
same organization
– Should all such employees receive the same pay? Or should
one programmer be paid differently from another if one has
better performance & / or greater seniority?
– How much do you wish to pay accountant A in comparison with
accountant B based on their performance and length of their
service, etc., within the same organization?

8. Job Evaluation : Perspective & DesignJob Evaluation : Perspective & Design
• Results of Job Analysis & Job Description serve
as inputinput for evaluating jobs & establishing job
structure
• Job Evaluation involves the systematic
evaluation of the Job Description based on many
factors:
– Content of the work
– Relative value of the work to the organization
– Culture of the work place
– External market forces

9. Job Evaluation : MethodsJob Evaluation : Methods
• 4 fundamental JE methods4 fundamental JE methods:
1.1. RankingRanking – whole job is compared against other whole jobs on
some general notion of value / job content
2.2. ClassificationClassification – concepts of value / work content are divided
into categories / classes & jobs are slotted into these
categories
3.3. Factor comparisonFactor comparison – content & value are broken down into
factors & jobs are evaluated by the degree of each factor the
job possesses.
4.4. Point planPoint plan – content and value are broken down into factors
and jobs and evaluated by the degree of each factor the job
possesses

10. Job Evaluation :Job Evaluation : Ranking MethodRanking Method
• Rankings of jobs according to relative valuerelative value
• Involves ordering of Job Descriptionsordering of Job Descriptions from highest to lowest in
value
• 2 ways of ranking usually considered
1.1. Alternation rankingAlternation ranking
2.2. Paired comparisonPaired comparison
• DisadvantagesDisadvantages:
– Criteria / factors on which jobs are ranked are usually so crudely
defined that evaluations become subjective
– Evaluator(s) using this method must be knowledgeable about every
single job under study
– Number alone can make this task formidable (50 jobs will require 1225
paired comparison!!)

11. Job Evaluation :Job Evaluation : Alternation RankingAlternation Ranking
• Ordering
the job
descriptions
alternatively
at eachat each
extremeextreme (all
jobs are
considered)
• Eg.Eg. of
alternation
ranking
JobsJobs RankRank
No.No. TitleTitle Most ValuedMost Valued
11 Welder √ Tool maker
22 Machine operator Welder
33 Packer √
44 Grinder √
55 Unit assembler
66 Janitor
77 Tool maker √
88 Spray painter √ Spray painter
99 Engine operator Grinder
1010 Inspector Packer
Least Valued

12. Job Evaluation :Job Evaluation : Paired ComparisonPaired Comparison
• Comparing all
possible pairs of
jobs
• No. of pairs to
compare =
[n (n-1)] / 2
• Eg.Eg. If you have 5
jobs then there are
10 paired
comparisons
• Jobs with highest
total no. of “MostMost
ValuableValuable” ranking
becomes the
highest-ranked job.
Job NumbersJob Numbers
11 22 33 44 55 66 77 88 99
11 AA AA BB AA BB BB AA AA
22 BB
33 BB AA
44 AA
55 BB
66 AA BB
77 AA
88 BB
99 BB
A = Better B = Worse

13. Job Evaluation :Job Evaluation : Classification MethodClassification Method
• Slotting Job Descriptions into a series of classes /series of classes /
gradesgrades that cover the range of jobs
– ClassesClasses: a series of carefully labeled slots / pigeon holes
– Labels are the class descriptions that serve as the standard
against which the Job Descriptions are compared
• Steps:Steps:
1. Determine jobs / units to be included in study
2. Conduct Job Analysis / prepare Job Descriptions
3. Select evaluators
4. Define classes
5. Identify & slot benchmarksbenchmarks
6. Prepare classification manual
7. Apply system to non-benchmark jobsnon-benchmark jobs

14. Job Evaluation :Job Evaluation : Factor Comparison MethodFactor Comparison Method
• Jobs are evaluated based upon 2 criteria2 criteria:
a.a. A set of compensable factorsA set of compensable factors
b.b. Wages for a select set of jobsWages for a select set of jobs
• More sophisticatedsophisticated than the previous 2 methods, however, its
complexity often limits its usefulness
• Basic Steps:Basic Steps:
1. Conduct Job Analysis
2. Select benchmark jobsbenchmark jobs
3. Rank benchmark jobsbenchmark jobs on each factor
4. Allocate benchmark wages across factors
5. Compare factor & wage allocation ranks
6. Conduct the job comparison scale
7. Applying the scale

15. What is a Benchmark Job?What is a Benchmark Job?
• Benchmark jobs (also called key jobskey jobs) serve as a
reference pointsreference points & must possess certain characteristicscharacteristics:
a. Content are well knownwell known & agreed uponagreed upon by the parties involved
b. Contents changechange very little over time
c. Current pay rates are generally acceptableacceptable & differentials
among jobs relatively stablestable
d. Taken together, they contain the entire rangeentire range of each
compensable factor
e.e. AcceptedAccepted in the external labour market for setting wages
• 15 – 2515 – 25, however number depends on range & diversity
of work to be evaluated

16. Job Evaluation :Job Evaluation : Point MethodPoint Method
• 3 common chs:3 common chs:
1.1. Compensable factorsCompensable factors
2. Factor degrees numerically scales
3. Weights reflecting relative importance of each factor
• StepsSteps in designing the point plan:
a. Conduct Job Analysis
b. Choose compensable factors
c. Establish factor scales
d. Derive factor weights
e. Prepare evaluation manual
f. Apply to benchmark jobs

17. Job Evaluation :Job Evaluation : Point MethodPoint Method
• Example – Characteristics of Point Job Evaluation method, Factors,
Scaled Degrees, Weights -
WeightsWeights Compensable FactorsCompensable Factors DegreesDegrees
(3)(3) (1)(1) (2)(2)
40%40% Skills RequiredSkills Required 11 22 33 44 55
30%30% Effort RequiredEffort Required 11 22 33 44 55
20%20% ResponsibilityResponsibility 11 22 33 44 55
10%10% Working ConditionsWorking Conditions 11 22 33 44 55
Here in this example, a Job ‘X’’s 240240 total points may result from:
• 2 degrees of skills required = 22 XX 4040 = 80
• 3 degrees of effort required = 33 XX 3030 = 90
• 3 degrees of responsibility required = 33 XX 2020 = 60
• 1 degree of working conditions = 11 XX 1010 = 10
•
• TOTAL = 240240

18. Designing Pay level &Designing Pay level &
StructureStructure

19. Major DecisionsMajor Decisions
• Major StepsMajor Steps:
1. Determine the pay level policy
2. Design, conduct, & analyze surveys
3. Update the data
4. Construct the policy lines
5. Design ranges, flat rates, & / or incentives

20. Determine Pay Level PoliciesDetermine Pay Level Policies
• 3 classes of pay level policies:
1. To leadlead
2. To meetmeet
3. To follow competitionfollow competition
• Relative importance of pay level factors (ranked by
importance)
a. Rates paid by other employersother employers in the industry or area
b.b. UnionUnion strength
c.c. Cost of livingCost of living changes
d.d. Surplus / shortageSurplus / shortage of qualified workers
e. Employee unrestunrest
f. Employer’s overall financial positionfinancial position
g. Firm’s profitsprofits

21. Determine Pay Level PoliciesDetermine Pay Level Policies
POLICY EFFECTS : What difference does the pay policy make?
1.1. PAY WITH COMPETITIONPAY WITH COMPETITION
– Labour Costs = its Competitors (Market Rate)Labour Costs = its Competitors (Market Rate)
2. LEAD POLICYLEAD POLICY
– Labour Costs > Market RateLabour Costs > Market Rate
– Rationale is to maximize ability to attract & retain quality employeesmaximize ability to attract & retain quality employees & to
minimize employee dissatisfaction with pay
– Some employers are able to pass higher pay rates on to consumers in form ofpass higher pay rates on to consumers in form of
higher product priceshigher product prices
– Sometimes an entire industry can pass high pay rates on to consumers if pay is
relatively low proportion to total operating
3. LAG policyLAG policy
– Labour Costs < Market RateLabour Costs < Market Rate
– Lower pay levels probably contribute to turnoverturnover

22. Design & Conduct SurveysDesign & Conduct Surveys
• Systematic process of collecting informationcollecting information &
making judgments about the compensationabout the compensation
paid by other employerspaid by other employers
• Surveys have 3 basic purposes3 basic purposes:
1. To establishestablish the pay level & structure or to updateupdate
them in response to changing external pay rates
2. To analyzeanalyze personnel problems that may be pay
related
3. To participate as “good citizensgood citizens” in response to
requests from other employers / public agencies

23. Design & conduct surveysDesign & conduct surveys
WHAT INFORMATION TO COLLECT?WHAT INFORMATION TO COLLECT?
1. NATURE OF ORGANIZATIONNATURE OF ORGANIZATION
– To assess similarities & differences among organizations in the survey
– include financial information, size, & organization structure
2. NATURE OF TOTAL PAY SYSTEMNATURE OF TOTAL PAY SYSTEM
– All the basic forms of pay included to assess similarities & differences
in the pay packages offered
– Sometimes benchmark benefit package to including only the most
expensive & variable benefits
3. INCUMBENT DATAINCUMBENT DATA
– Actual rates paid to incumbent which include total earnings, hours
worked, date, & amount of last increase, bonus, incentive, & so on

24. Design & conduct surveysDesign & conduct surveys
TYPES OF ANALYSISTYPES OF ANALYSIS?
• 2 components of the pay system
models are emerging
– An internally equitable job structure based
upon job analysis & job evaluation has
been developed – Internal EquityInternal Equity
(horizontal axishorizontal axis)
– Key jobs from that structure were selected
& the rates paid for those jobs by
competitors in the external market have
been surveyed – purpose is to establish
external equityexternal equity (vertical axisvertical axis)
Constructing
Pay Policy
Lines

25. Construct Pay Policy LineConstruct Pay Policy Line
• ‘Quick’ analyses help check usefulness of survey datausefulness of survey data
– Note down the illustration
• Construct market pay linesmarket pay lines
– Note down the illustration
• Updating survey dataUpdating survey data
• Set the employer’s pay policy lineemployer’s pay policy line
– Note down the illustration

26. Design Pay RangesDesign Pay Ranges
• Design pay ranges for jobs inside the organization
• Why bother with ranges?
– Wide variation of rates paid for similar jobs & skills reflects two
external pressures:
1. Existence of quality variations (skills, abilities, experience) among
individuals in the external market
2. Recognition of differences in the productivity-related value to employers of
these quality variations
– Ranges reflect the following org.al pressures:
1. Intention to recognize individual quality & performance variations with pay
2. Intention to meet employees’ expectations that pay increases will occur
over time

27. Design Pay RangesDesign Pay Ranges
• Construction of rangesConstruction of ranges
– Develop classesDevelop classes or grades
• Note down the illustration
– Set midpoints, maximums, and minimumsmidpoints, maximums, and minimums
• Note down the illustration
– Degree of overlapoverlap