The Concept Of Value In Compensation Practice

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The Concept Of Value In Compensation Practice

  1. 1. The Concept of Value in Compensation Practice Presented by Ted Turnasella
  2. 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. 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. 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. 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. 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. 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. 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. 9. The Concept of Value in Compensation Practice How can you balance internal and external job value?
  10. 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. 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. 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. 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. 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. 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. 16. The Concept of Value in Compensation Practice =10^(1/Steps*(LOG10(High Value/Low Value)))
  17. 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. 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. 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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