Professional Documents
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The Equity Equation: Company Confidential
The Equity Equation: Company Confidential
Performance
Relevance of strategy
Ownership
Company Confidential
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Company Confidential
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Figure 127
Company Confidential
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Job Evaluation
Company Confidential
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Job Evaluation
Process of systematically determining the relative worth of jobs to create a job structure for the organization The evaluation is based on a combination of job content, skills required, value to the organization, organizational culture, and the external market This potential to blend internal forces and external market forces is both a strength and a challenge to job evaluation
Company Confidential
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Key Steps
Job evaluation is a systematic process for determining how big jobs is, primarily to decide how much to pay. For example, typically an engineering job is seen as being a bigger job than a clerk and a CFO is seen as bigger job than an engineer. The key steps in the job evaluation process are:
Gather information about the jobs: Typically done by writing job descriptions. Select people (or a person) to evaluate the jobs: This is critical as the skill of these people determines the success of the project. Evaluate the jobs using a job evaluation system: Each job is given some kind of point score or ranking based on the understanding of the evaluators
Review the results: Once all the jobs have been evaluated, the whole result is reviewed for consistency and reasonableness.
Company Confidential
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Company Confidential
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Compensable factors are paid-for, measurable qualities, features, requirements or constructs that are common to many different kinds of jobs These factors are qualities intrinsic to the job and must be addressed in an acceptable manner if the job is to be performed satisfactorily These are:
Skill Responsibility Effort Work Conditions
Company Confidential
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Technical know-how
Specialized knowledge Organizational awareness Educational levels Specialized training Years of experience required Interpersonal skills Degree of supervisory skills required
Company Confidential
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Diversity of task
Complexity of task Creativity of thinking
Company Confidential
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Company Confidential
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Company Confidential
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Company Confidential
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In actual application, most systems deal with the same things in roughly the same way. The exception is the classification system. The central element in job evaluation is some list of factors defining job size
Company Confidential
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1: Ranking
This method is one of the simplest to administer. Jobs are compared to each other based on the overall worth of the job to the organization. The 'worth' of a job is usually based on judgements of skill, effort (physical and mental), responsibility (supervisory and fiscal), and working conditions.
Advantages
Simple. Very effective when there are relatively few jobs to be evaluated (less than 30).
Disadvantages
Difficult to administer as the number of jobs increases. Rank judgments are subjective.
Company Confidential
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Since there is no standard used for comparison, new jobs would have to be compared with the existing jobs to determine its appropriate rank. Therefore, the ranking process would have to be repeated each time a new job is added to the organization.
2: Classification
Jobs are classified into an existing grade/category structure or hierarchy. Each level in the grade/category structure has a description and associated job titles. Each job is assigned to the grade/category providing the closest match to the job. The classification of a position is decided by comparing the whole job with the appropriate job grading standard.
To ensure equity in job grading and wage rates, a common set of job grading standards and instructions are used. Because of differences in duties, skills and knowledge, and other aspects of trades and labor jobs, job grading standards are developed mainly along occupational lines. The standards do not attempt to describe every work assignment of each position in the occupation covered. They identify and describe those key characteristics of occupations which are significant for distinguishing different levels of work.
Company Confidential
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Company Confidential
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3: Factor Comparison
A set of compensable factors are identified as determining the worth of jobs. Typically the number of compensable factors is small (4 or 5). Examples (as discussed) are:
Skill
Responsibilities
Effort Working Conditions
Next, benchmark jobs are identified. Benchmark jobs should be selected as having certain characteristics.
equitable pay (not overpaid or underpaid) range of the factors (for each factor, some jobs would be at the low end of the factor while others would be at the high end of the factor).
The jobs are then priced and the total pay for each job is divided into pay for each factor. Example matrix next:
Company Confidential
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Job
4,500 5500
2,000 2500
Rs.15,000 Rs.21,000
6,000 9,000
3,500 3,500
4,000 7,000
1,500 1,500
This process establishes the rate of pay for each factor for each benchmark job. Slight adjustments may need to be made to the matrix to ensure equitable rupee weighting of the factors. The other jobs in the organization are then compared with the benchmark jobs and rates of pay for each factor are summed to determine the rates of pay for each of the other jobs.
Company Confidential
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The pay for each factor is based on judgements that are subjective. The standard used for determining the pay for each factor may have build in biases that would affect certain groups of employees
Company Confidential
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4: Point Method
A set of compensable factors are identified as determining the worth of jobs. (Skill, Responsibilities, Effort & Working Conditions
The point method is an extension of the factor comparison method. Each factor is then divided into levels or degrees which are then assigned points. Each job is rated using the job evaluation instrument. The points for each factor are summed to form a total point score for the job. Jobs are then grouped by total point scores and assigned to wage/salary grades so that similarly rated jobs would be placed in the same wage/salary grade.
Company Confidential
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The pay for each factor is based on judgements that are subjective. The standard used for determining the pay for each factor may have build in biases that would affect certain groups of employees
Company Confidential
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2.PROBLEM SOLVING: The amount and nature of the thinking required in the job in the form of analyzing, reasoning, evaluating, creating, using judgment, forming hypotheses, drawing inferences, arriving at conclusions, and the like. It measures the degree to which thinking processes must be applied to the required knowledge in order to obtain the results expected of the job. Problem Solving has two dimensions: Thinking Environment Thinking Challenge
3.ACCOUNTABILITY : This is related to the opportunity a job has to bring about some results and the importance of those results to the organization. Tied closely to the amount of opportunity is the degree to which the person in the job must answer for (is accountable for) the results. There are three (3) components in Accountability: Freedom to Act Impact (Remote/ Contributory/ Shared/ Primary) Magnitude
Company Confidential
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Weightages
These compensable factors are weighted. Generally,
Know-How - 50% of the total points Problem-Solving 20% Accountability - 20% Working Conditions - 10%.
This weighting is indicative of the common balance but it may not be the same in a customized application. Also, the Working Conditions factor is not used in every installation.
In other words, debating at length your working conditions points for a typical white-collar librarian job will make very little difference in your overall ranking. Focusing on the fairness of the evaluation of your position's requirement for know-how and problem solving will potentially achieve more.
Company Confidential
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Next
Finally, the points in and of themselves don't mean much. When enough of the evaluations are done, all jobs in the enterprise are listed from end to end by their simple total points and profile. This creates the ranking. At this point various analyses are done and decisions made to create bands or pay grades. Research suggests there should be at least a 15% difference between jobs for there to be a noticeable difference. Market factors (external salary surveys) are reviewed in the context of the enterprise's market competitiveness. The enterprise determines if they want to pay at, above or below market and for what positions. Positions may be "red-circled" due to market anomalies or business needs (like specialized, programmers in high demand).
Company Confidential
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The sum total of every kind of knowledge and skill, however acquired, needed for acceptable job performance.
Practical procedures, specialized techniques and knowledge within occupational fields, commercial functions, and professional or scientific disciplines. Planning, organizing, coordinating, integrating, staffing, directing and/or controlling the activities and resources within an organizational unit or function. Can be exercised directly or consultatively.
Management Know-How
Active face-to-face skills needed for various relationships with other people.
The amount and nature of thinking required in the job in the firm of analyzing, reasoning, evaluating, creating, using judgment, forming hypotheses, drawing inferences, arriving at conclusions, etc.
The environment in which the thinking takes place. The challenge of the thinking to be done
ACCOUNTABILITY (3 dimensions)
Freedom to Act
The answerability for action and its consequences. It is the measured effect of the job on the end results of the enterprise.
The extent to which personal or procedural control exists. What controls affect the job
The degree to which the job affects or brings about the results expected of the unit or function being considered.
Magnitude
The size of the function or unit measured in the most appropriate fashion (like revenue, production, etc.)
Company Confidential
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Company Confidential
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The output is an ordered listing of jobs based on their value to the organization The hierarchy not only provides information about which jobs are most and least valued, but also provides the relative amount of difference between jobs
Company Confidential
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Company Confidential
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Company Confidential
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The issue is
Talent shortage is a real problem Salary increases of Inflation+10% are not sustainable when productivity and performance are nowhere close to that number A strategic view on compensation will become a survival pre-requisite soon
Company Confidential
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Company Confidential
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Gather Data
Company Confidential
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Analyse Data
Steps Involved
A. Plan the survey
Determine the purpose of the survey Determine the jobs to include Determine the markets to survey Determine the firms to survey Determine the information to be obtained Make the schedules Determine the survey method
Company Confidential
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3. Job Matching
Matching roles/jobs to an external compensation database is the next step. For positions that do not easily match the database, a position description questionnaire is used to collect job content information.
Company Confidential
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Tables and graphs that summarize the comparative data with respect to agreed-upon peer groups are used as tools. Provide the organization with the information required to make effective decisions regarding compensation levels and overall attraction and retention strategies.
5. Provide Recommendations and Cost Modeling Based on the understanding of both the marketplace and the organization's compensation philosophy and business strategy, recommendations are made which may include
Modifications to the salary structure, Adjustments to your competitive positioning Adjustments for certain positions or groups.
This process also provides current industry best practices for compensation
Company Confidential
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Job Pricing
Job pricing involves the establishment of wage rates for jobs within an organization, by using a job evaluation method (Internal/ External).
Internal Job Evaluation Methods Slotting - establishing a value for a job based on its similarity to another job or jobs. Ranking - a job to job comparison resulting in an ordering of jobs from highest value to lowest value. Paired Comparison - each job in an organization is compared to every other job and the job of most value in each pairing is noted. Jobs are then ranked based on the number of times they were found to be more valuable in the comparison. Point Factor - involves three basic steps:
Compensable factors are chosen by the organization based on what is valued for its jobs (such as education, experience, and responsibility requirements), Each compensable factor is weighted and scaled (e.g. no experience required, two years experience required, five years experience required, etc.), Each job is measured against each compensable factor and a total score is derived and compared with the scores of other jobs
Company Confidential
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Market Pricing
Under a market-based pay system, compensation offered to employees for internal jobs is priced to the various labor markets where the employer competes for talent.
Actual pay ranges for internal positions determined using compensation data for similar positions offered by other companies in the market
Company Confidential
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Ensure job comparabilitydetermine which jobs have market equivalents Ensure company factors match surveyuse data relevant to company size and industry Price the jobbased on annual salary increases (gleaned from surveys)
Company Confidential
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Communicate
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2.
Company Confidential
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Company Confidential
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Figure 125
Compensation Strategies
Above-Market Middle-Market Below-Market Paying for higher qualified, more productive workers. Attempting to balance of employer costs and need to attract and retain employees. Paying all that the firm can afford Taking advantage of the abundant supply of potential employees in a loose labor market.
Company Confidential
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A low compensation level may attract only less efficient workers, with the result that labor costs per unit of output rise.
Company Confidential
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The Results
Ability to manage compensation and ensure alignment to business strategies and goals
Company Confidential
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Automobiles/ Ancillaries
9.1
8.1
Chemicals/ Petrochemicals
9.1
9.4
Software Development
11.9
13.0
Telecommunications
9.4
13.5
Others
11.3
11.2
Company Confidential
48 2005 Nokia V1-Filename.ppt / yyyy-mm-dd / Initials Mercer Salary Increase Survey 2004
Company Confidential
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In the past, practices have often been made by top management, based on their own judgement about how they feel about the program. Today, more effective compensation programs are designed by:
Starting with a coherent philosophy, Considering sound fiscal practices and the broad range of alternatives available, and Involving employees at all levels to identify the most effective programs
Company Confidential
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Company Confidential
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Economic factors
Sharing of risks Limits of ability to pay
Company Confidential
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Compensation Approaches
Company Confidential
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Figure 124
pay system.
Supporting these are three other decisions, concerning pay form, pay treatment for special groups, pay administration. All these decisions are influenced by a number of environmental and organizational variables. (the economic, social/cultural, and legal environments; and the organization's structure and work force. )
Company Confidential
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Rs.
Pay level refers to the average pay for jobs, for departments, or for the entire enterprise. An average pay must be set that will secure and keep a productive work force.
Major considerations in the pay level decision are
public policy, pay for comparable work in the community or industry company response to economic, political, and social issues.
These considerations may be weighed unilaterally or together with the unions representing employees. Some of these decisions end with personal interactions (salaries), some are provided on a group basis (medical insurance, etc.)
Company Confidential
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Company Confidential
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Pay structures may be set up by management judgment or constructed through collective bargaining. The technique traditionally used in the mid 1900s in the U.S. was formal or informal job evaluation (discussed later.)
Company Confidential
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Pay level is the height of the line above the x-axis. Pay structure is the slope of the line. (Line b represents a higher pay level than line a, but its structure is the same.)
Together the pay level and pay structure decisions determine the pay for jobs. They also involve external and internal standards. Pay level decisions ensure that the organization is in line with the requirements of the external environment, and pay structure decisions ensure Company Confidential that the pay for jobs is internally consistent.
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Company Confidential
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Company Confidential
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3: Pay Administration
Ensuring that pay achieves organization and individual objectives and meets public policy goals. Those responsible for compensation planning and control seek answers to questions of efficiency, effectiveness, and legality.
Company Confidential
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Pay Assessment
Pay Form
Pay Philosophy
Pay Delivery
Company Confidential
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Summary: Checklist
Pay Philosophy Internal Vs External Equity Lead Vs Lag Market Attraction Vs Retention
Pay Assessment
Job Vs Person Results Vs Behaviors Seniority Vs Performance Education Vs Skills
Pay Delivery
Narrow Vs Broad Pay Bands Small Vs Large Pay Band Overlap Open Vs Closed Pay Communications
Pay Form
Monetary Vs Non Monetary Fixed Vs Variable Individual Vs Team
Lead Vs Lag
Company Confidential
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Company Confidential
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Company Confidential
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Company Confidential
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Company Confidential
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Company Confidential
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Company Confidential
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pricing a job structure involves a series of techniques and decisions regarding the vertical, horizontal, and regression-line dimensions of the scatter diagram. Company Confidential
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Thus,
If the average pay is used, the pay for the job may be overstated or understated depending on how long the incumbents have been on the job or what their performance has been.
The alternative is to use the midpoint of the pay range. This gives a good indication of the relative value of the job and not the incumbents.
Company Confidential
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When survey data are used, the figures need to be adjusted in a number of ways. Since the wage data does not provide a single rate but a range of figures, therefore the best single figure to use, such as the mean or median, needs to be determined. Second, any data collected in the wage survey predate the effective date of the wage structure presently being built. Thus, the data needs to be updated to the effective date of the new wage structure.
Company Confidential
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Lag the Market: The organization updates the wage survey data to the current date and then installs the new wage structure. If a change in the labor market of 10 percent is assumed for the next year, then the only time the organization will be competitive with the market is at the beginning of the year. By the end of the year any decisions based upon the wage structure will be 10 percent behind the market.
Company Confidential
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Company Confidential
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Company Confidential
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Negotiated Rates.
Where there is a union, the hierarchy of jobs may be a negotiated ranking based upon custom or the relative power of a group of unions.
Company Confidential
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Each organization must develop its own pay policy line, the trend line or line of best fit that best represents the middle value of jobs that have been evaluated or classified to have particular worth. Many organizations use the pay policy line to set midpoint values for all their jobs.
Pay policy lines are useful when plotting survey data and comparing them with the internal pay structure. From the pay policy line, organizations establish the minimum and maximum pay levels, the relationship between pay grades, and the range of a pay grade.
Company Confidential
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Company Confidential
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Company Confidential
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Freehand line. After the points have been plotted the trend of the data can often be easily visualized. In this case it is possible to draw a freehand line that best describes the plotted points. In drawing such a line, vertical deviations from the line are minimized if the line follows the obvious slope of the data. Although the line may be straight or curved, its advantages are greatest when it is straight. The obvious advantages of using a freehand line are that it is easy to plot and simple to explain.
Company Confidential
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Company Confidential
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Multiple Structures
While we have considered only a single wage structure, an organization may have several wage structures one for each broad job cluster.
It is not unusual for large organizations to have at least three pay structure lines:
Blue collar manual labor, craft, and trade workers.
Nonexempt white collar salaried workers. Managerial, administrative, and professional exempt employees
Some organizations have a fourth pay structure for their highly paid executives.
Company Confidential
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A major reason for using multiple pay structures is that rates of pay for more advanced jobs increase geometrically rather than linearly.
Company Confidential
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A pay grade is defined as a group of jobs that have been determined by job evaluation to be approximately equal in difficulty or importance.
If a point plan is employed in job evaluation, a pay grade consists of jobs falling within a range of points; if factor comparison is used, a range of evaluated rates; if ranking is used, a number of ranks. In the classification method of job evaluation, a pay grade consists of all jobs that are comparable to the level description.
Pay grades are nothing more than convenient groupings of a wide variety of jobs or classes similar in work difficulty and complexity requirements but possibly having nothing else in common. Company Confidential
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Pay Grades
There appears to be no optimum number of pay grades for a particular wage structure. In practice, pay grades vary from as few as 4 to as many as 60. If there are few grades, the number of jobs in each will be relatively large, as will the increments from one grade to another. If, on the other hand, there are many pay grades, the number of jobs in each grade and the increments between grades will be relatively small. Although organization practice varies greatly, there has been a tendency to reduce the number of pay grades.
Company Confidential
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ensure that jobs of significantly different value are in different pay grades
Provide a smooth progression, and ensure that the grades fit the organization and the labor market.
Because jobs in a pay grade are treated as identical for pay purposes, it is extremely important that grade boundaries be accepted. For this reason, it is often useful to move jobs that are very close to the maximum cutoff point into the next higher grade
There are a number of ways of grouping jobs into a limited number of grades. Let's examine four of them
Company Confidential
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The distance between minimum and maximum recognizes the range of performance and experience of incumbents in the assigned job(s).
Company Confidential
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Each grade provides for a range of pay. Within a pay grade range there is a minimum, a midpoint, and a maximum pay. The range from the minimum to the maximum within a single pay grade may vary from 20 to 100 percent. The most common range is from 30 to 50 percent.
The number of steps within a grade may also vary. Grades having steps will normally have from 3 to 10 steps, with 6 to 7 in-grade steps most common.
There is a direct relationship between the rate of increase per step and the number of steps within a grade.
Company Confidential
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The requirements of the organization will provide answers to the correct number of grades, the number of steps within grades, and their rates of progression within and between grades.
The number of pay grades to be included within a pay structure varies with the circumstances--there is no right number.
Company Confidential
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Company Confidential
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2: Division Approach
Use the horizontal dimension of the wage structure the job evaluation points to determine the number of pay grades.
This is done by determining a set number of points for each pay grade and, starting with the least number of points, marking off the lines between adjacent grades. In the figure, each pay grade is 40 points "wide." The job rate for each grade should be set by placing the range midpoint at the point where a vertical line from the point value in the middle of the grade, say 200 points for level 3 in the figure meets the pay-policy line.
Company Confidential
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It focuses on the pay-policy line and the vertical axis of the wage structure.
The number of pay grades is obtained by determining a standard distance between the midpoints of adjoining grades. (10% is the distance decided upon between grades in the e.g.) Starting at the midpoint of the lowest grade, we place the midpoint for each succeeding grade 10 percent higher than the lower one.
The dividing line between grades is halfway between the two midpoints. As can be seen, the horizontal dimension of job evaluation points widens with each higher grade.
This approach is often combined with increasingly broad rate ranges to make the wage structure balloon out at the higher levels. The rationale is that at higher levels, positions are harder to define and evaluate accurately, and Company Confidential greater variation in performance is possible.
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4: Continuum Approach
Each job evaluation point on the horizontal axis has its own rate range; there is no grouping of jobs. The pay-policy line constitutes the midpoints. A standard maximum and minimum which are a set percentage above and below the midpoint are defined.
These lines widen as the wage level rises, making the range broader at the top than at the bottom.
A system like this requires a lot of confidence in the job evaluation system; it has gained popularity with the Hays plan
Company Confidential
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Pay Ranges
A range of pay allows an organization to move beyond pay for the job to pay for the person. Since a pay grade incorporates a range of job evaluation points, it is useful to have some range of pay for the grade.
Ordinarily, the midpoint of the range will be the job rate, the mean or median of the compensation survey data.
The other points to define are the minimum and maximum of the range. The range spread (the distance from minimum to maximum) varies greatly but is usually within a 25 to 60 percent range. Many large wage structures with a variety of jobs are narrow at the bottom and spread out at the higher levels. Once pay grades and rate ranges are designed, the wage structure is complete (see figure)
Company Confidential
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Broad banding
The practice of using fewer pay grades having broader pay ranges that in traditional systems.
Benefits
Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization Encourages competency development Emphasizes career development
Company Confidential
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Rs. 56,000
Rs. 40,000
Rs. 30,000
Company Confidential
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Figure 1213
Pay Rate
= narrow = broad
Pay Grade
Company Confidential
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Company Confidential
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Figure 1215
Maturity Curve
A curve that depicts the relationship between experience and pay rates. Assumption is that as experience increases, proficiency and performance increase.
Company Confidential
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Adjustments are tied to changes in an economic measure (e.g., the Consumer Price Index).
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Figure 1217
Pay plan characteristics that differentiate pay plans between more and less uncertain environments Firms in less uncertain environments show: Greater use of market- lag pay-level policy Greater emphasis on seniority awards Greater use of lump-sum pay adjustments
Firms in more uncertain environments show: Greater use of market-match pay-level policy
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Forms of Compensation
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Cost to Company The cost of every employee to the company. In any given structure, it indicates the entire financial expenditure that the company incurs for the particular employee including future provisions and expenses incurred.
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Direct Compensation
Compensation Type
Base Pay The basic monetary compensation that an employee receives, usually as a wage or salary. It is direct cash compensation. Payments calculated on the amount of time worked. Consistent payments made each period regardless of the number of hours worked in the period. Compensation linked to individual, team, or organizational performance. An indirect reward given to an employee or group of employees as a part of organizational membership.
Wages Salary
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dont mind overpaying for an initial hire. This can create wage compression, as veteran employees see new hires earning more than they do.
have less divergent salaries and wages among their staff pay higher salaries to producers key software programmers and sales personnel. These salaries may be as much as 20% above what the market pays. give seniority increases and general across-the-board increases more commonly than merit increases. move production jobs off-shore whenever possible.
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2. House Maintenance- A percentage of the non-cash perquisites is allotted for house maintenance. This again is a non-cash perquisite for individual who receive accommodation from the company and where the maintenance expenditure is borne by the company. Employees who do not receive accommodation from the company will receive it as cash
3. Leave Travel Allowance- A portion the non- cash perquisites is allotted for leave travel allowance. LTA depends on rules of the income tax Department. As of now, employees can utilise this benefit in a block of four years (The Government of India decides slabs of 4 years). Two LTA payments are free of tax subject to the submission of the evidence of travel.
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5.
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Benefits:
Total compensation consists partly of the pay of the employee and partly of a set of other rewards that are loosely called benefits.
Benefits are unlike base pay in that they are awarded for different objectives, they are not periodically given, they are oftentimes deferred rather than current, and they require different types of administration
Benefits are ordinarily given to employees on the basis of being members of the organization, not on the basis of the job held or performance on that job There is no common definition of what is included in the benefit package. For instance, some will include legally required benefits, and others only the ones that are voluntary Unlike the paycheck, many of these benefits are hidden from the employee, especially if they are deferred for long periods. This suggests that benefit administration requires a large component of communication.
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Why Benefits?
They are required by law They are desired by employees. They increase the satisfaction of employees or at least reduce dissatisfaction. They are demanded by unions.
They help to develop an atmosphere of trust in the organization. Taking care of employees through benefit programs increases the feeling that the relationship between the organization and the individual goes beyond an economic transaction.
The more that benefits are oriented toward reduction of insecurity among employees, the more stable is the economic environment.
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Examples of Benefits
1. Extra payments for time worked: (Holiday premiums or Shift premiums) 2. Non-production awards and bonuses: (Anniversary awards/ Attendance bonus/ Quality bonus/ Safety awards/ Service bonus/ Suggestion awards) 3. Payments for time not worked: (Family allowances, Paid Holidays, Paid Sick Leave, Severance Pay) 4. Payments for employee security: (Contributions toward accident insurance, hospitalization & life insurance) 5. Payments for employee services: (Canteen service, Company Housing, Educational assistance, employee discounts for purchases, voluntary medical examination, festival gifts)
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Retirement Benefits
Retirement benefits, which is a benefit/final salary arrangement where the employees retirement benefits are based on a formula linked to his/her earnings near retirement. The employee pays an agreed level of contributions and the Company meets the balance of the costs. Provident Fund Provident fund is a defined contribution/money purchase arrangement, where the employee and the Company pay contributions into an individual account that earns investment returns over time. A contribution of 12% of the basic salary of every employee credited in the employees the provident fund account. The companys contribution towards the provident fund is another 12%. Superannuation Is a retirement benefit and is paid annually to the Super annuation fund. Once member enter into employment and is paid more than 1500 he is entitled to Super annuation. 15% of his annual salary is deducted and accumulated with interest on the investment that the company makes on his behalf. Gratuity An individual is entitled for gratuity under the Gratuity Act after completion of 5 years of service. The sum that an employee receives is the last drawn basic salary multiplied by the number of years in service.
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Improving longevity
Absence of social security
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High
Talents Retenti on VRS Skilled labor VRS Skilled labour Labour intensiv e
Low
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Defined Contribution
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From the viewpoint of the employee, the end product of any compensation program is a paycheck. The wage determination must be personalized by making a further set of decisions.
the wage level, is an external organizational decision that determines the organization's competitive posture internal organizational decision involving the structuring of the jobs within the organization Although pay rates are determined for jobs, it is people who receive paychecks - the next decision is whether all people on a particular job are to receive the same pay or different pay; and if different, on what basis and how?
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compensation inputs can be classified into three general areas job, performance and personal. Pay system decisions must incorporate the performance and personal factors into compensation, in order to provide a regular paycheck perceived as equitable to the employee The major way in which organizations allow for factors other than the job to enter into the determination of an individual's pay is to develop a range of pay for each job or grade of jobs. Pay range is a range determined by the organization to be appropriate for anyone who occupies a particular job. A pay range consists of a minimum pay rate (the beginning hire rate), a midpoint (the market or job rate), and a maximum (the highest rate the organization is willing to pay for the job).
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Collective bargaining: In contract negotiation, the organization may agree to rate ranges or to an expansion of rate ranges as an alternative to a general increase.
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A job rate is used, the wage line provides the job rate.
The individual is paid in accordance with the number of points assigned to the job by the job evaluation system, This type of system is useful where performance variation and/or other personal characteristics are nonexistent or unimportant
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2: Step Ranges
Consists of a series of steps, usually a specified distance apart, either in percentages or flat amounts. Step ranges may vary considerably in number of steps and the total range the steps cover.
The first consists of a starting rate & a job (market) rate New employees brought in at the starting rate and then moved up to the job rate in a series of steps.
This system places the market rate not at the top of the range but in the center of it. Employees are hired at the starting rate, and progress to the midpoint over time on the basis of learning job Thus, a person at the midpoint of the range is assumed to be a satisfactory performer. Movement above the midpoint is assumed to be for performance, or other characteristics beyond the normal or average. (Option [c])
If done properly, this movement corresponds with the learning curve of the job.
The market rate is the maximum, since it is assumed that once the person has learned the job, performance differentials are minimal (Option [b])
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3: Open Ranges
In this system organization defines the midpoint, the maximum and the minimum of the range. An employee may be paid anywhere within this defined range
This helps focus more clearly on performance The average performer would be paid at the midpoint. New employees would start at the bottom and move to the midpoint as they learn the job and become average performers. Payment above the midpoint reserved for above-average performance.
The person's pay is not automatically adjusted when the pay structure is adjusted. At this point, the person's performance is reviewed and adjustment is made in relation to that performance
Option d has a series of steps up to the midpoint and an open range above the midpoint; option e has an open range from minimum to maximum.
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The breadth may be stated in rupee amounts or in percentages. The latter is more common .
Assuming that performance is the criterion, the breadth would represent the opportunity for performance differences in the job. Where ranges are narrow, the assumption is that performance differences are narrow and vice versa.
Organizations that promote intentionally fast encourage narrow ranges, since people do not stay within one grade very long. A wide range is encouraged if adjustments need to be large to be noticed by employees
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Range Maximums
Establishing range maximums is particularly difficult There is some logical maximum value for any job, regardless of how well it is performed. Ideally when this point is reached the person is promoted, either to a new job or by upgrading the tasks of the present job. Some organizations provide steps beyond the maximum of the range. There are usually two rationales for this
seniority long term employees who are solid performers but ill never be promoted recruiting and retaining mission critical employees
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Dimension 3: Overlap
The final pay range determinant is the degree of overlap between any one pay grade and the adjacent grade (c to d in figure).
Overlap allows people in a lower pay grade to be paid the same as or more than those at a higher grade.
The rationale for such a phenomenon is that a person at a lower pay grade whose performance is very good is worth more to the organization than a new person at the higher pay grade who is not yet performing effectively. Overlap will work well where there are many wide pay grades.
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Rate ranges make possible different pay rates for individuals in the same job and/or grade level.
All methods of progression specify how a person moves from the bottom of the range to the top of the range.
The major methods are
automatic progression, a combination of merit and automatic progression and merit progression.
An organization does not have to restrict itself to only one method; it may use different methods for different jobs or even different methods for a single job at different parts of the rate range
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Automatic Progression
Consists of pay increases based automatically on length of service. Sometimes referred to as scheduled increases In some situations, such as basic industries, there are a small number of increases often in rapid succession (every three months) to the maximum rate for the job. These are jobs in which proficiency can be gained in a short time. This is used when organizations are interested in encouraging learning on the job. On the other hand, some organizations may have many steps (five or more) and grant increases once a year. In these situations longevity on the job leads to higher proficiency, and the organization wishes to reward continuity of employment
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If all employees can expect to reach the maximum of the pay range after a given period on the job, the assumption is that the maximum is the real rate for the job
Variation can be introduced in two ways.
First the time period may vary from step to step. Eg. some systems move people rapidly to the midpoint and then much more slowly; the extended steps beyond the midpoint are clearly tied to longevity.
The second variation introduces a little merit into the system by either denying movement to the next step for poor performance, giving good performers a double-step jump, or shortening the time period between step increases.
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It is important to do a good job of matching time taken to reach the midpoint with time taken to reach proficiency in the job. Only then are the labor costs equalized; if these are out of balance, then labor costs are higher or lower than is optimum.
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Merit Progression
A pure merit progression employs an open pay range with only the minimum, maximum, and midpoint defined Movement within the range is based strictly on performance, and there are no adjustments for general increases. This pay-for-performance system requires an integration of performance appraisal with pay determination In practice, a merit progression is usually a combination of merit and longevity.
In this method, the good performer should get to the top of the pay range faster than the average or poor performer
The Rationale The movement to proficiency is actually an improvement in performance and should be treated as such; people differ in their rate of improvement to proficiency, and this should be taken into account; it is performance that the organization wants and should pay for Company Confidential
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A person who is then expected to stay in the grade for three or more years before promotion can only look forward to general increases.
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It refers to the case in which a person is paid less than the minimum of a grade. This occurs, for example, when a person is promoted into a position in a higher pay grade, but not given a pay increase Red Circle Pay:
Refers to the case where a person is paid above the maximum of the range for his or her job. Other names for this situation are ringed, flagged, or personal pays, red allowances, overrates, and personal out-of-line differentials . Company Confidential
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Eliminate the differential after a period such as a year or gradually over time.
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The employee is given 100 percent of the differential the first year, 75 percent the next year, and so on until there is no differential.
Advantage: The top rate for the job is made clear and both the person and the organization are aware of the exceptional and temporary character of the differential.
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Labor-market conditions;
The financial condition of the company; Previous decisions regarding wage level and structure.
The interaction of these forces determines whether a person receives an increase, and if so the amount of that increase
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Pay Compression
A situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small This occurs when new people are brought into a pay grade at the same, a higher, or even a somewhat lower rate than people currently in it. This is most obvious in the case of new hires who are brought in at pay rates almost the same as those of employees who have been there a year.
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Current employees have their wages set by the internal labor market, which is an administrative decision.
The result is that new hires make too much in relation to those already working Compression is also likely to occur with
first-line supervisors of nonexempt employees who are paid overtime; with sales managers, whose sales staff can make more selling on commission than the manager; and with middle management, who are squeezed between top management and the increases given to lower-level employees
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Summary
Organizations wish to pay for more than just the job that the employee does. Employees contribute both in terms of membership (staying on the job) and being productive while on the job. Both of these sets of contributions need to be rewarded by the organization.
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