Compensation

Employee’s Perspective
 What compensation do you seek?

Direct Indirect
Money Benefits
 Employer’s Perspective
 What do you compensate?
Individual
Job: Characteristics:
• Responsibility • Ability
• Critical function • Training
• Job content • Education
 Employer’s Perspective
 What factors influence your
compensation policy?
• Supply and demand skills
• Unions
• Ability to pay
• Cost of living increases
• Government (FLSA, min. wage)
• Strategy
Influence of Equity

External
Market
wages Internal
Perceived
equity
 Develop a Job Hierarchy
A. Job Evaluation

1. Preliminary planning

2. Select a plan

3. Develop the plan

4. Evaluate jobs, NOT PEOPLE

 Factor 8: Decision Making /
Supervision Required
1st Degree (36 points)
Limited decision making by the incumbent. Progress of work is checked by others most of
the time, and/or 60-90 percent of activities are defined by other than incumbent.

2nd Degree (89 points)

Routine decision making bases on specific criteria. Progress of work is often checked by
others, and/or 40-60 percent of activities are defined by other than incumbent.

3rd Degree (112 points)

Significant decision making based on established guidelines and experience. Progress of
work is check by others some of the time, and/or 25-40 percent of activities are defined by
others than the incumbent.

4th Degree (180 points)

Extensive decision making based on broad policies, procedures, and guidelines. Progress of
work is seldom checked by others, and/or less than 25 percent of activities are defined by
other than the incumbent.
 Example of One Factor in a Point Factor
System (Complexity/Problem Solving)
The mental capacity required to perform the given job as expressed in
resourcefulness in dealing with unfamiliar problems, interpretation of data,
initiation of new ideas, complex data analysis, creative or developmental work.

Level Point Value Description of Characteristics and Measures

0 0 Seldom confronts problems not covered by job

routine or organizational policy; analysis of data is
negligible. Benchmark: General secretary,
switchboard / receptionist.

1 40 Follows clearly prescribed standard practice and

demonstrates straightforward application of readily
understood rules and procedures. Analyzes
noncomplicated data by established routine.
Benchmark: Statistical clerk, billing clerk.
 Example of One Factor in a Point Factor
System (Complexity/Problem Solving)
(cont’d)
Level Point Value Description of Characteristics and Measures

2 80 Frequently confronts problems not covered by job

routine. Independent judgment exercised in making
minor decision where alternatives are limited and
standard policies established. Analysis of standardized
data for information of or use by others. Benchmark:
Social worker, executive secretary

3 120 Exercises independent judgment in making decision

involving nonroutine problems with general guidance
only from higher supervision. Analyzes and evaluates
data pertaining to nonroutine problems for solution in
conjunction with others. Benchmark: Nurse,
accountant, team leader
 Example of One Factor in a Point Factor
System (Complexity/Problem Solving)
(cont’d)
Level Point Value Description of Characteristics and Measures

4 160 Uses independent judgment in making decisions that

are subject to review in the final stages only. Analyzes
and solves nonroutine problems involving evaluation of
a wide variety of data as a regular part of job duties.
Benchmark: Associate director, business manager,
park services director.

5 200 Uses independent judgment in making decisions that

are not subject to review. Regularly exercises
developmental or creative abilities in policy
development. Benchmark: Executive director.
Pricing Jobs

"The acceptability of job evaluation

hinges in large part on whether the
results are consistent with the ranking
of the same jobs in the external labor
market."
 Pricing Jobs
A. Use key or benchmark jobs
 Jobs that are relatively stable in content and found in
many organizations

 Compare your internal analysis to

external wages

B. Conduct wage survey to

examine external wages
 Pricing Jobs

C. Use points from job evaluation

as a predictor
 Use predictor to determine wages for
non-key positions
 Non-key positions: jobs that have no
similar “comparison job” outside of
the organization
 Develop a Pay
Structure

A. Pay on the basis of individual

jobs or grades?

B. Utilize single rates or a rate

range?
Inequities

 Comparable worth
 Salary compression
 Pricing Managerial and
Professional Jobs

 Not easy because there are fewer

quantifiable factors
 Managers are often compensated for
long term performance

 Are executives overpaid?

 Evaluate People Not Jobs

 Skill Based Pay

 Skill-Based Compared to Job-Based
StructuresJob-Based Knowledge-Based

Pay Structure Based on job performed Based on skills possessed

by the employee
Manager’s focus Job carries wage Employee carries wage
Employee linked to job Employee linked to skill
Employee focus Job promotion to earn Skill acquisition to earn
greater pay greater pay
Procedures required Assess job content Assess skills
Value jobs Value skills
Advantages Pay based on the value Flexibility
performed Reduced work force
Limitations Potential personnel Potential personnel
bureaucracy bureaucracy
Inflexibilities Cost controls
 Financial Incentives

"The basic aim of an incentive should be

to encourage good performance by
linking performance and rewards, and
this in turn requires valid, accurate
performance appraisals.”
 Incentives for Production
Employees

 Piecework
 Group incentive plans

 Attendance

 Annual bonus
 Other Incentives for
Mangers, Executives and
Other Employees

 Stock options

 Long-term incentives
 Organization Incentive
Plans
 Profit sharing plans
• ESOP – Employee Stock Options Plan
• Cost savings plan

 SCANLON and Gainsharing

 Potential Incentive Plan
Problems

 Worker doesn’t believe that plan will

lead to rewards.
 Unfair standards – too high or unattainable

 Changing standards – obtain top

management commitment to
maintain standards
 Recommendations
1. Ensure that efforts and rewards are
directly related.
2. Incentive rewards are
understandable and calculable.
3. Use accurate and effective standards.

4. Guarantee those standards.

Performance
Evaluation
 Performance
Measurement Purposes

A. Administrative decisions
• Promotion

• Training

• Compensation

• Transfer, demotion, and separation

 Performance
Measurement Purposes
B. Employee feedback and development

• Roles

• Strengthens E  P and P  O
relationships
• Allows behavior change
 Performance
Measurement Purposes
C. Evaluations of policies and programs

• Selection and promotion decisions

• Aiding in validation of selection tools
• Helping to determine if programs are
effective
(e.g. training)
D. Defense of policies
• Use to show job relatedness
(performance)
 Performance
Measurement Issues
A. Identifying performance dimensions

• Most jobs are multi-dimensional

• Use job analysis to assess performance
• Errors similar to job analysis

B. Establish performance standards

• Determine legitimate standards

• Don’t set standards too high or low
 Performance Measures
A. Comparative methods
1. Ranking

2. Forced distribution

3. Problems with comparative evaluations:

• No indication of potential performance
• Little specific feedback
• No feedback about where to improve
 Performance Measures
B. Absolute methods
1. Trait rating scale
• Central tendency problems
• Doesn’t capture specific behaviors
2. BARS (Behaviorally Anchored Rating
Scales)
• Complex and costly
• Not applicable to a broad group of jobs
• Avoids contamination and deficiency
errors
3. MBO – set for individuals, not jobs
Measures of Physical
Output
 Administrative
Challenges
A. Components that influence the
performance appraisal process
1. Appraiser (rater)
2. Appraisee (ratee)
3. Method
4. Purpose of evaluation
5. Motivation to appraise
 Administrative
Challenges
B. Rater errors
1. Unreliability
2. Leniency
3. Severity
4. Central tendency
5. Recency
6. Halo
 Administrative
Challenges
C. EEO
• Not only for your selection
• Show that method isn’t discriminating

• Validate performance appraisal

procedures
 Trends in PA Research

1. Focused on the accuracy of appraisal

and improving method.

2. Focused on rater errors and

reduction of errors.

3. Current focus: cognitive processes

and interpretation and evaluation of
performance.