compensation course sharing 401-20100328

8/8/2019 Compensation Course Sharing 401-20100328

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CompensationManagement

Basic Introduction


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Tuesday, December 14, 2010 2

Module 1 - Introduction To CompensationA. Definition of CompensationB. The Pay ModelC. Strategic Pay Policies

Module 2 - Strategic Perspectives in Compensation ManagementA. Strategic Perspectives of PayB. Strategic Pay DecisionsC. Best Practices vs. Best Fit Options

Module 3 - Defining Internal AlignmentA. Definition of Internal AlignmentB. Internal Pay StructuresC. Strategic Choices In Internal Alignment DesignD. Which Internal Structure Fits Best?

Module 4 - Job AnalysisA. Why Perform Job Analysis?B. Job Analysis ProceduresC. Job Analysis Data Collection ProcessD. Job Descriptions


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Module 5 - Job EvaluationA. Definition of Job EvaluationB. Major Decisions In Job EvaluationC. Job Evaluation MethodsD. Final Result Pay Structure

Module 6 - Determining External CompetitivenessA. Definition of CompetitivenessB. Pay Policy AlternativesC. Wage Surveys

D. Interpreting Survey ResultsE. Pay Policy LineF. Pay Grades

Module 7 - Employee Contributions: Pay For Performance (PFP)A. Rewarding Desired BehaviorsB. Does Compensation Motivate Performance?C. Designing PFP PlansD. Merit Pay/Variable PayE. Individual vs. Group IncentivesF. Long Term Incentives

Module 8 - Pay and Performance AppraisalsA. Role of Performance Appraisal In CompensationB. Common Errors In Performance AppraisalC. Measuring Job PerformanceD. Training RatersE. Contextual Issues In Appraisal


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Module 9 - BenefitsA. Benefits Determination ProcessB. Value of BenefitsC. Legally Required BenefitsD. Retirement, Medical , & Other Benefits

Module 10 - Legal & Administrative Issues in Compensation

A. Legal IssuesB. Pay DiscriminationC. Comparable WorthD. Budgets and Administration


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Grading Structure

Grading % of Final Grade

2 Quiz 30%

Case Analysis/Project 30%

Class Presentations 10%

Attendance 20%

Class Participation 10%

100%


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Purpose of Compensation

Motivate &

Retain Staff

Attract talent

Contribution based

Remuneration

Administratively

Efficient

Reward Valued

Behavior

Effective

Compensation

Ensure Equity

Institutionalized

Processes

Legal

Compliance


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Business GoalsBusiness Goals

BusinessStrategy

BusinessStrategy

CEO

CEO

Compensation

Philosophy/ activities

serve BusinessObjectives

Compensation

Philosophy/ activities

serve BusinessObjectives

The Pay Model

Business Strategy This defines the direction in

which organization is going in relation to itsenvironment in order to achieve its objectives.

Compensation Philosophy Consists of a set of

beliefs which underpin the reward/compensationstrategy of the organization and govern the rewardpolicies that determine how reward processesoperate


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BusinessStrategy

BusinessStrategy

Compensation

Plan

Compensation

Plan

Compensation

Strategy

Compensation

Strategy

Non-Financial

Rewards

Non-Financial

RewardsOrg.StructureOrg.Structure

CEO

CEO

HRHead

HRHead

Compensation

activities serve

Business Objectives

Compensation

activities serve

Business Objectives

Compensation strategy

is periodically

reevaluated and the

Compensation plan

periodically developed


is periodically

reevaluated and the

Compensation plan


The Pay Model

Compensation Strategy defines the intentions ofthe organization on reward policies, processes and

practices required to ensure that it has the skilled,competent and well-motivated workforce it needs

to achieve its business goals


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BusinessStrategy

BusinessStrategy

Compensation

Plan

Compensation

Plan

Compensation

Strategy

Compensation

Strategy

Non-Financial

Rewards

Non-Financial

RewardsOrg.StructureOrg.Structure

CEO

CEO

HRHead

HRHead

Compensation

activities serve

Business Objectives

Compensation

activities serve

Business Objectives


is periodically

reevaluated and the

Compensation plan



is periodically

reevaluated and the

Compensation plan


The Pay Model

A strategic perspective on compensationtakes the position that how employees are

compensated can be a source of sustainablecompetitive advantage


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Employment Relationship

TRANSACTIONAL Emphasizing the Cash &Benefit Forms

RELATIONAL Emphasizing the Family /culture / Bonding Aspects


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Employment RelationshipHIGH PAY LOW

COMMITMENT

Hired Guns(Lehman Brothers)

HIGH PAY HIGHCOMMITMENT

Cult Like (Microsoft)

LOW PAY LOWCOMMITMENT

Workers as commodity

LOW PAY HIGHCOMMITMENT

Family (Starbucks)TRA

NSA

CTIO

NAL

Low

----

-H

igh

RELATIONAL

Low ----- High


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End of Part I Module 1 & 2


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Definitions

Job -Consists of a group of tasks that must beperformed for an organization to achieve itsgoals

Position - Collection of tasks andresponsibilities performed by one person; thereis a position for every individual in an

organization


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o na ys s: as cTool

Tasks Responsibilities Duties

Job

Analysis

JobDescriptions

Job

Specifications

Knowledge Skills Abilities

Human Resource

Planning

Recruitment

Selection

Training and

Development

Performance Appraisal

Compensation and

Benefits

Safety and Health

Employee and Labor

Relations

Legal Considerations

Job Analysis for Teams


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Job Analysis

The systematic, formal study of theduties and responsibilities that

comprise job content.

The process seeks to obtain importantand relevant information about the

nature and level of the work performed


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Job Description A summary of the most important features of

a job, including the general nature of the workperformed (duties and responsibilities) andlevel (i.e., skill, effort, responsibility and

working conditions) of the work performed.

Typically includes job specifications thatinclude employee characteristics required forcompetent performance of the job.

Should describe and focus on the job itself andnot on any specific individual who might do thejob.


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Job Specification

A section of the job description thatdefines what worker characteristics(i.e., the knowledge, skills and abilities)are required to perform the job for it tobe carried out competently.


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Types Of Job AnalysisInformation

Considerable information is needed,such as:

Worker-oriented activities

Machines, tools, equipment, and workaids used

Job-related tangibles and intangibles

Work performance Job content

Personal requirements for the job


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Types of Data Collected ThroughJob Analysis

Work Activities work activities andprocesses; activity records (in film form,for example); procedures used; personalresponsibility

Worker-oriented activities humanbehaviors, such as physical actions andcommunicating on the job; elemental

motions for methods analysis; personaljob demands, such as energy expenditure


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Types of Data Collected ThroughJob Analysis

Machines, tools, equipment, andwork aids used

Job-related tangibles andintangibles knowledge dealt with orapplied (as in accounting); materials

processed; products made or servicesperformed


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Work performance error analysis; workstandards; work measurements, such as timetaken for a task

Job context work schedule; financial andnonfinancial incentives; physical workingconditions; organizational and social contexts

Personal requirements for the job personal attributes such as personality andinterests; education and training required;work experience

Types of Data CollectedThrough Job Analysis


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Job Evaluation

Methods


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Job Evaluation Methods

Comparison Method Analysis Method

Entire Job Job Factors

Job Against Scale

Job Against Job

Classification Point Method

RankingFactor

Comparison


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Ranking Method

Straight ranking

Alternation Ranking

Paired Comparison


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Paired Comparison


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Classification Method

Advantages

Uses jobfamilies/groupsinstead of individual

jobs

May produce sameresults as PointMethod, but is less

costly

Disadvantages

Not useful when jobsare very different fromeach other

May be confusing toemployees about whyjobs are included in aclass


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Compensable Factors

Must be present in all jobs

Factor must vary in degree

Should not overlap in meaning

All stakeholders viewpoints must bereflected

Should be demonstrable by the actual

work


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Factor Comparison

Compensable Factors used

Mental requirements,

Physical requirements,

Skill requirements,

Responsibility, and

Working conditions


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Factor Comparison Method

Analyze Jobs

Select Key/Jobs

Rank Key Jobs

Distribute Wage Rates Across Factors

Compare Vertical and HorizontalJudgments.

Construct the Job-Comparison Scale Use the Job-Comparison Scale to Evaluate

the Remainder of the Jobs


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Hay Profiling Know How

procedures and techniques

breadth of management skills

person-to-person skills

problem solving thinking environment

thinking challenge

Accountability freedom to act impact on results

magnitude


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Factor Comparison MethodAdvantages

Customized to theorganization

Relatively easy to use

once its set up Results in ranking of

jobs and a specificrupee value for eachjob, based on

allocating part of thejobs total wage toeach factor

Disadvantages Using rupee values

may bias evaluatorsby assigning more

money to a factorthan a job is worth Hard to set up Not easily explained to

employees


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Point Method

Advantages

Highly stable overtime

Perceived as valid byusers and employees

Likely to be reliableamong committee thatassesses the jobs

Provides good data toprepare a response toan appeal

Disadvantages

Time, money, andeffort required to setup

Relies heavily on key(benchmark) jobs, soif key jobs and correctpay rates dont exist,

the point method maynot be valid


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What is a Degree Level? It is ascale that reflects differing quantity or

quality of the factor

It is used to differentiate jobs on the

factor It is a definition that is clear and

unambiguous

It contains explicit language thatspells out

the behaviors, skills, or performanceexpectations for that factor at differentlevels of the factor


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Degrees?from Otis and Leukarts (1948) Rules

1. Degrees should be selected so that each job falls at only onelevel. Note:

1. you can include some degrees that do not apply to the currentjobs if you feel there is too much of a jump between levels.

2. Another reason to create "empty" levels is if you think new jobswill be created that will require that level in the factor.

3. The number of degrees selected should be no more than areneeded to differentiate adequately and fairly between all thejobs being rated.

2. Each degree should be clearly defined in terms the workerscan understand.

3. Avoid the use of ambiguous terms, e.g., strong skills,excellent.

4. Definitions of degrees should be written in objective terms.

5. In writing degree definitions, use examples as much aspossible.

Values to the Entire


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Values to the EntireSystem?1. The maximum number of points assigned is a fairly

arbitrary judgment (500-3000 is common)

2. The number must be large enough to allow sufficientdifferentiation among the jobs to be evaluated.

3. If there is a very wide spread between the currentwages of the highest paid job and the lowest paid job,the maximum number of points will need to be higher

4. If you choose more than one pay system, the numberof points or the actual factors themselves do not haveto be the same in each one.

5. SUGGESTION /THUMB RULE: Have no fewer than1000 points and no more than 2000.

Values to the Degree


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Values to the DegreeLevels? First, determine the number of points for

each main factor (e.g., 2000 total pointsfor the system would result in 200 pointsfor a factor weighted at 10%). Then use The straight-line method, which simply

takes the maximum points for a given factorand divides it by the number of degrees. Note:this method assumes that the degrees should

be viewed as equidistant from each other


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Position: Engineering Manager

Grade: 7

MAXIMUMFACTOR

POINTS FACTOR JE Points

DEGREE

LEVEL

FACTOR

WEIGHTS

250 Communication & Interpersonal Skills 250 4 10%

250 Education & Training 250 5 10%

500 Problem Solving & Decision Making 400 4 20%500 Responsibility & Accountability 500 4 20%

250 Specialized Knowledge & Application 200 4 10%

250 Supervision & Leadership 250 4 10%

125 Internal Impact 125 3 5%

125 External Impact 75 1 5%

125 Planning & Organizing 125 4 5%125 Innovation 90 2 5%

2500 2265 100%

Values to the Degree


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Values to the DegreeLevels?

Or the accelerating method, where differences indegrees are seen as greater as you move up in thatfactor, and so the point differences reflect that jump,e.g., 27, 80, 160, 267, 400

Or the decelerating method,where differences indegrees are seen as smaller as you move up in thatfactor, and so the point differences reflect it, e.g., 133,240, 320, 373, 400

Rememberthe highest level of a factor is alwaysassigned the full number of points allocated to thatfactor, and the lowest level of a factor has to have somepoints assigned to it, i.e., 0 points is not permitted!


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Anatomy of a PayStructure

Pay Grades, elements,width

Factors Affecting Pay


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Factors Affecting PayStructures

Corporate culture and value

Management Philosophy

External Economic Environment

External Socio-political environment

(Unions)

Anatomy of a Pay


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Anatomy of a Paystructure Pay Structure consists of a series of

Pay Ranges, or grades, each with aminimum and maximum pay rate

Pay Range - Has a minimum pay value,maximum pay value and a midpoint

Midpoint of a range represents thecompetitive market value for the job orgroup of jobs.


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Market Pricing Comparing salaries w.r.t the market salaries

for the same role/s


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Range Spread

Difference between maximum and

minimum pay value

- Usually expressed as a % of the diff. betthe max and min divided by the minimum


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Anatomy of a Pay structure

Spread on either side of midpoint :

Midpoint Minimum Maximum Midpoint Minimum Midpoint

Midpoint = Max + Min

2


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Minimum Midpoint Maximum

200000 350000 612500

Range Spread (Width) = 206 %

-75%

75%

Example Use 50% Range


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Example Use 50% RangeSpread

Using A 50% Range Spread :

Maximum = Minimum*(1+Range Spread)

Midpoint = Max + Min

2


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Range Spread

Vary based on level and sophistication of

skills required for a given position

Entry level positions (skills that are quickly

mastered) have narrower pay ranges

Managerial positions will have broader pay

ranges


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Typical Range Spreads

20 25 % - Lower-level service, production

30 40 % - clerical, technical

40 50 % - professional, administrative,

middle management

These range spreads have reached 300% ormore with Broad banding


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Compa - Ratios A Statistic that expresses the

relationship between base salary andthe midpoint, or between the midpointand the market average

Compa-Ratio = Base Salary

Midpoint

Most companies strive to have the overallworkforce paid at or around a compa-ratioof 100 %


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Compa - Ratios

Individual C-R vary according to

how long the individual has been in the

job Previous work experience

Job performance


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Compa - Ratios

22500

25000

90%

25000

25000

100%

27500

25000

110%

25000

25000

100%

24500

Mkt Av

25000

Mkt Av

98%

Person 1 Person 3AveragePerson 2Base Salary

Midpoint

Compa-Ratio

Base SalaryMidpoint

Base SalaryMidpoint


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Market Saurveys

Standard vs. Custom

Apples to Apples comparison


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Range Penetration

Range Penetration = Incumbent salary Range Minimum

Range Maximum Range Minimum

Refers to how far into the range aparticular individuals salary haspenetrated

It is a measure of penetration in the range


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Tuesday December 14 2010 57

ReviewMercersJob-MatchingGuide

Reviewall JobDescriptions astheyrelate toRB

Match eachcore job of RBwith the jobsgiven in theMercer list.

Determine thecore levelusing thevariationsfrom corelevel table ortheaccompanyingdecision tree

Establish AllCore levels

Matchremainingroles in RBwith theadditional joblist provided

by Mercer.

Determine thecore levelusing the

variations fromcore level tableor theaccompanyingdecision tree

Preparation

Match CoreJobs

Match AddlMercer Jobs

Submit Data

Complete thedata inputsheet.

Instead of a

representativeposition foreach job,provide a minof 5-10 jobholder data.

Submit the jobdata sheet toMercer

compensation course sharing 401-20100328

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