Principles of compensation

Flexible Scientific Consistent with organisational programs Conformant with social & economic objectives of the country Responsive to changing conditions Simplify and expedite other administrative processes

Determinants (factors) of compensation

External factors
Labour market Cost of living Labour unions Labour Laws: Society Economy

Determinants (factors) of compensation

Internal factors
Business Strategy Job Evaluation & Performance Appraisal Employee

Job Evaluation
Job evaluation is the systematic scoring and comparison of jobs along organizationally determined dimensions of job worth such as in the effort, responsibility, complexity, importance, skills and the working conditions of a job. One possible end product of job evaluation is a job classification structure in which jobs of similar value to the organization, no matter how different in other respects, are located at the same level on the job pay hierarchy. This job pay hierarchy provides the foundation for the development of pay grades and pay ranges. Job evaluation is a tool to compare jobs consistently and classify them into appropriate pay ranges. The process can ensure that an organizations pay system is equitable, understandable, legally defensible, and externally competitive. Job evaluations can be used to help to attract desirable job candidates and retain high performance employees due to fair and equitable pay scales

Steps in the Job Evaluation Process

Review the choices of job evaluation methods such as job ranking, classification, factor comparison and point factor analysis and select the method most appropriate to meet the organizations needs. Gather information on each job within the organization, analyzing job content to make sure it is clear and understandable; job content can be revealed utilizing job questionnaires, job descriptions, interviews and/or work site visits. Ensure that each job description lists pertinent accountabilities and responsibilities; revise or expand job descriptions using the information collected. Evaluate each position utilizing the chosen method and link the ranked job to the organizations existing compensation system or to a newly developed pay structure. The point system evaluates the skill, effort, responsibility and working conditions involved in the job; here, each of these factors is subdivided into sub factors to provide standards against which each job is rated to determine its relative worth. Create the appropriate pay grades and pay ranges in the pay structure and along with policies and procedures setting out employee progress within the range. Periodically review the job evaluation system itself, developing procedures for evaluating and modifying the system and the resulting compensation decisions.

Job evaluation
Methods of job evaluation:
Ranking involves creating a hierarchy of jobs by comparing jobs on global factors that presumably are common to all the jobs being evaluated. The Classification method defines categories of jobs and slots jobs into these classes. Factor Comparison involves job-to-job comparisons on several specific factors. The Point Method compares jobs on rating scales which are comprised of specified factors.

Ranking
Ranking is a relatively easy, uncomplicated and inexpensive method of job evaluation. Jobs are placed in order from highest to lowest based on the overall value of the job to the organization. The jobs value is usually assessed by a group of human resources and managers in terms of skill, effort (physical and mental), responsibility (supervisory and fiscal), and working conditions

Ranking

Classification
In classification, jobs are categorized by class descriptions such as managerial, professional, and clerical Jobs are classified by comparing each job to the existing job classes and selecting the pay grade that best matches them

Classification

Compensable factors
Compensable Factors are the most important characteristics of a given job, on which pay rates are established and relative worth evaluated. They are determined by their ability to further an organizations strategy and relate directly to the work itself. The four major criteria most often used to measure jobs are skill, effort, responsibility and working conditions.

Factor Comparison
Used less frequently than other methods because of its complexity, factor comparison is a quantitative method in which evaluators identify and determine the worth of several major factors against which all jobs in a job class can be assessed. Job evaluators rank jobs that have similar responsibilities and tasks according to points assigned to compensable factors. Jobs across the organization are then compared to the benchmark jobs and rates of pay for each factor to determine job salaries

Factor Comparison
Determine compensable factors Determine key jobs Apportion present wages for key jobs Place key jobs on a factor comparison chart Evaluate other jobs

Factor Comparison

Point Method
Most widely used method Evaluates the compensable factors of each job More precise than the factor comparison method as it can handle critical, compensable factors in more detail

Steps in point method

Determine critical factors
Break down factors into sub-factors Responsibility can be broken down into:
Safety of others Equipment and materials Assisting trainees Production or service quality

Steps in point method

Determine the level of factors
Create levels for each factor

Allocate points for sub-factors

Point matrix system Assign maximum possible points to each sub-factor

Allocate points to levels

Depending on the maximum point, allocate points to reflect the importance of each level

Steps in point method

Develop the point manual
Written explanation of each job element Defines what is expected for the various levels of each sub-factor

Apply the point system

Compare job descriptions with the point manual Add points for each sub-factor Jobs are ranked as per their score

Point method
Advantages
It forces raters to look into all keys factors and subfactors of a job. Point values are assigned to all factors in a systematic way, eliminating bias at every stage. It is reliable because raters using similar criteria would get more or less similar answers. It accounts for differences in wage rates for various jobs on the strength of job factors. Jobs may change over time, but the rating scales established under the point method remain unaffected.

Point method
Disadvantages
The point method is complex. Preparing a manual for various jobs, fixing values for key and sub-factors, establishing wage rates for different grades, etc., is a time consuming process. This may be too taxing, especially while evaluating managerial jobs where the nature of work (varied, complex, novel) is such that it cannot be expressed in quantifiable numbers.