This document outlines the process of establishing compensation plans. It discusses:
1. Types of reward plans including intrinsic/extrinsic and financial/non-financial rewards.
2. The process of establishing pay rates including conducting salary surveys, job evaluation methods to group jobs into pay grades, and setting pay ranges based on a wage curve.
3. Fine-tuning pay rates to ensure they are competitive based on market data for benchmark jobs in each pay grade.
This document outlines the process of establishing compensation plans. It discusses:
1. Types of reward plans including intrinsic/extrinsic and financial/non-financial rewards.
2. The process of establishing pay rates including conducting salary surveys, job evaluation methods to group jobs into pay grades, and setting pay ranges based on a wage curve.
3. Fine-tuning pay rates to ensure they are competitive based on market data for benchmark jobs in each pay grade.
This document outlines the process of establishing compensation plans. It discusses:
1. Types of reward plans including intrinsic/extrinsic and financial/non-financial rewards.
2. The process of establishing pay rates including conducting salary surveys, job evaluation methods to group jobs into pay grades, and setting pay ranges based on a wage curve.
3. Fine-tuning pay rates to ensure they are competitive based on market data for benchmark jobs in each pay grade.
1: Outline of the Lecture 2:Types of Reward Plans 3:Process of establishing pay rates Job Evaluation Methods 4:Formulating Salary Sheets Rewards Review
bonuses piecework commission incentive plans merit pay plans cost of living increase labor market adjustment profit sharing protection Program pay for time not worked services/ perks assigned parking space preferred assignments business cards own secretary impressive title participation in decision making greater job freedom more responsibility opportunities for growth diversity of activities Financial Non-financial Extrinsic Implied membership-based Performance based Explicit membership-based Intrinsic Types of Reward Plans Intrinsic versus Extrinsic Rewards Intrinsic rewards (personal satisfactions) come from the job itself, such as:
pride in ones work feelings of accomplishment being part of a work team Extrinsic rewards come from a source outside the job, mainly by management: Money Promotions Benefits
Types of Extrinsic Rewards Financial versus Non-financial Rewards Financial rewards: wages bonuses profit sharing pension plans paid leaves purchase discounts Non-financial rewards: make life on the job more attractive; employees vary greatly on what types they like
Types of Financial Rewards Performance-based versus Membership-Based Performance-based rewards are tied to specific job performance criteria Bonuses (Individual or Group) Piecework Pay based on number of items processed by each individual worker in a unit of time e.g. no. of cans per hour Commissions Pay plans normally designed for sales people. Pay is based on results merit pay Salary increase awarded by firm to an employee based on his/her performance. Common method in the form of lump sum once a year
Membership-based rewards such as cost-of-living increases, benefits, and salary increases are offered to all employees
Membership Based Programs Profit Sharing plans Various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses
Benefits Membership based indirect financial rewards offered to attract and keep employees Protection Programs Health insurance, Life Insurance, Disability Protection Pay for time not worked Also called supplemental pay benefits includes holidays, vacations, funeral leave, personal days, sick leave, maternity leave, sabbatical leave, unemployment insurance benefits for laid-off or terminated employees Services/Perks Company cars, free refreshments, allowances
Process of Establishing Pay Rates
Step 1:Compensation Surveys - Many industry and employee associations conduct surveys and make their results available - Data is broken down by geographic area, industry and occupation - - Private consulting and executive recruiting companies publish data or share information after the organization obtains their membership 1.Conduct a Salary Survey of what other employers are paying for comparable jobs 2. Conduct Job Evaluation Helps determine worth of each job in your organization 3. Group similar job into pay grades 4. Price each pay grade using wage curves Enter Text Here 5. Fine tune pay rates Step 2:Job Evaluation Methods
1. Ranking Method/Ordering Method Ranks each job relative to all other jobs, usually based on some overall factor like job difficulty Usual procedure is to rank jobs by department or in clusters (such as clerical jobs, teaching staff etc) Example give each rater a set of index cards, each containing a brief description of the job. Then they rank these cards from lowest to highest.
Advantages Simplest to use Appropriate for smaller organizations DISADVANTAGES Tendency to rely to heavily on guess work No yardstick for quantifying the value of one job relative to other Job Evaluation Method 2. Job Classification/Job Grading Method Raters categorize jobs into groups. Groups are called classes if they contain similar jobs, or grades if they contain jobs similar in difficulty but otherwise different. Choose compensable factors (e.g. difficulty/variety of work, supervision exercised, experience etc) Develop class/grade descriptions for each class/grade in terms of amount or level of compensable factors in those jobs Slot each job into its appropriate grade/class by comparing each job description to the factors in each grade description
Advantages Avoid having to price separately dozens or hundreds of jobs disadvantages Difficult to write class or grade description Considerable judgment is required Grade Descriptions for clerical and assistant work
Job Evaluation Method 3. Point Method .1 Identify compensable factors e.g. i) Nature of assignment ii) Responsibility 2. Against each factor identify number of levels or degrees and number of points
Factors that are assigned more points will have greater weight in the evaluation than will factors with fewer points.
Job Evaluation Method . Point Method (continued) 3. Calculate points for each factor and each level
The actual number of points for each level of each factor will be computed by dividing the number of points by the number of levels. [e.g. 80/3= 26.77, 26.77+26.77=53.3]
4. Enter job descriptions or task statements for each level of each factor. These will be used to compare to the jobs to determine at which level a given job matches the questionnaire. The level with the higher points should have a description that is higher than a lower level.
Job Evaluation Method 3. Point Method (continued Nature of Assignment
Job Responsibility Job Responsibility 5. Compare jobs based on their job descriptions factor by factor to determine the number of points that should be assigned to it. 6. Add up the points for all factors, arriving at a total point value for the job
50 25 53.3 26.7 7. Jobs with similar point totals are placed in similar pay grades advantages The value of the job is expressed in monetary terms. Can be applied to a wide range of jobs. Can be applied to newly created jobs. disadvantages The pay for each factor is based on judgments that are subjective. The standard used for determining the pay for each factor may have built-in biases that would affect certain groups of employees (females or minorities).
Step 3 Group similar jobs All jobs that fall within two or three ranks Classification automatically categorizes jobs into classes or grade Point Method-job falling within a range of points Step.4 Next step is to assign pay rates to your pay grades.
Wage curve shows pay rates currently paid for jobs in each pay grade, relative to the points or ranks assigned to each job or grade by the job evaluation Find average pay for each pay grade Plot the average pay rate for each pay grade Draw a line through the points plotted, called wage line Finally price the jobs. For this the wages along the wage line are target wages for the jobs in each pay grade If current rates being paid for any of the job grades fall above or below the wage line, raises or a pay freeze for that job may be in order.
1. Developing pay ranges 2. Correcting out-of line rates Pay Ranges 3. Correcting out-of line rate Step 5:Fine-Tune Pay Rates Pay rates on the wage curve are those now paid by the employer.
However, if pay rates are out of step with the market rates, choose benchmark jobs within each pay grade, and price them via compensation survey. These market basic pay rates are then on the wage curve. Slot in your jobs and the pay rates around the benchmark jobs