Chapter Seven

Building Internally Consistent Compensation Systems

Parcel Plus Case

Company strategy and strategy change Current employees: - 8 customer service reps (5.50 - $6.50/hour) - Asst. manager ($8.50) Manager ($10) New position: Driver/customer service rep Applicant thinks $6.50 is too low Manager, customer service reps object

Internal Consistency

Establishes equal pay for work of equal worth and acceptable pay differentials for work of unequal worth Includes fairness of procedures used to establish pay structure, organizational design, and flow of work

Goals of Internal Consistency

Design procedures and establish pay structures that:

Assist to achieve organizational objectives Are acceptable to employees and managers Comply with laws and regulations

Pay Structure

Array of pay rates for different work or skills within a single organization: levels, differentials, criteria. Number of levels Pay differentials among levels Criteria used to support the structure Egalitarian vs. Hierarchical

Consequences of Structures

Undertake training Increase experience Reduce turnover Facilitate career progression Facilitate performance Reduce pay-related grievances Reduce pay-related work stoppages

Exhibit 7-1 Internally Consistent Compensation Structure

$60,000

Manager of Benefits ($58,000)

Average Annual Salary

$50,000 $40,000 $30,000 $20,000

Benefits Counselor III ($40,000) Benefits Counselor II ($26,000) Benefits Counselor I ($20,000)

Degree of Responsibility

Exhibit 7-1 Internally Consistent Compensation Structure

Benefits Counselor I Provides basic counseling services to employees and assistance to higher-level personnel in more-complex benefits activities. Works under general supervision of higher-level counselors or other personnel. Benefits Counselor II Provides skilled counseling services to employees concerning specialized benefits programs or complex areas of other programs. Also completes special projects or carries out assigned phases of the benefits counseling service operations. Works under general supervision from Benefits Counselor IIIs or other personnel.

Exhibit 7-1 Internally Consistent Compensation Structure

Benefits Counselor III Coordinates the daily activities of an employee benefits counseling service and supervises its staff. Works under direction from higher-level personnel. Manager of Benefits Responsible for managing the entire benefits function from evaluating benefits programs to ensuring that Benefits Counselors are adequately trained. Reports to the Director of Compensation and Benefits.

Job Analysis
n

The systematic process of collecting relevant, work-related information related to the nature of a specific job. Why? Internal consistency Compensation Other reasons

Job Analysis - What Info?

n n

n
n n

n
n n n

For compensation: INFO TO DECIDE VALUE Job info: to ID, define, describe Job title, importance, place in organization Task or work data Methods and techniques Products, services that result Worker data Behavioral data Abilities data

Job Analysis - Formats

n n

Standardized Functional Job Analysis Data, people, things Methods and techniques employed Materials, products, services Position Analysis Questionnaire Info input, mental processes, work output, relationships with others, job context, job characteristics, general dimensions

Job Analysis - Formats

n n

Non-standardized Task Lists or Inventories Lists of tasks Frequency and importance Usually self-report Abilities data Psychomotor Physical proficiency abilities Cognitive abilities

Job Analysis - How?

n n n n n n n

Questionnaire Checklist Diary Observation Activity sampling Activity matrix Critical incidents

Job Description
n

Summary of job analysis

Job title, description, purpose Job tasks, responsibilities, duties Essential functions, non-essential functions

Includes: Job Specifications (KSAOs)

Knowledge, skills, abilities, other qualifications necessary for the job Used to determine entry level skills Minimum for compensation purposes

Exhibit 7-2 Units of Analysis in the Job Analysis Process (1 of 3)

1. An element is the smallest step into which it is practical to subdivide any work activity without analyzing separate motions, movements, and mental processes involved. Inserting a diskette into floppy disk drive is an example of a job element. 2. A task is one or more elements and is one of the distinct activities that constitute logical and necessary steps in the performance of work by the worker. A task is created whenever human effort, physical or mental, is exerted to accomplish a specific purpose. Keyboarding text into memo format represents a job task.

Source: US Dept. of Labor, The revised handbook for analyzing jobs (Washington, DC: US Government Printing Office, 1991).

Exhibit 7-2 Units of Analysis in the Job Analysis Process (2 of 3)

3. A position is a collection of tasks constituting the total work assignment of a single worker. There are as many positions as there are workers. John Smiths position in the company is clerk typist. His tasks, which include keyboarding text into memo format, running a spell check on the text, and printing the text on company letterhead, combine to represent John Smiths position. 4. A job is a group of positions within a company that are identical with respect to their major or significant tasks and sufficiently alike to justify their being covered by a single analysis. There may be one or many persons employed in the same job. For example, Bob Arnold, John Smith, and Jason Colbert are clerk typists. With minor variations, they essentially perform the same tasks.

Source: US Dept. of Labor, The revised handbook for analyzing jobs (Washington, DC: US Government Printing Office, 1991).

Exhibit 7-2 Units of Analysis in the Job Analysis Process (3 of 3)

5. A job family is a group of two or more jobs that call for either similar worker characteristics or similar work tasks. File clerk, clerk typist, and administrative clerk represent a clerical job family because each job mainly requires employees to perform clerical tasks. 6. An occupation is a group of jobs, found at more than one establishment, in which a common set of tasks are performed or are related in terms of similar objectives, methodologies, materials, products, worker actions, or worker characteristics. File clerk, clerk typist, administrative clerk, staff secretary, and administrative secretary represent an office support occupation. Compensation analyst, training and development specialist, recruiter, and benefits counselor represent jobs from the human resources management occupation.

Source: US Dept. of Labor, The revised handbook for analyzing jobs (Washington, DC: US Government Printing Office, 1991).

Exhibit 7-5 EEOC Interpretive Guidelines for Essential Job Functions under the Americans with Disabilities Act

The reason the position exists is to perform the function. The function is essential or possibly essential. If other employees are available to perform the function, the function probably is not essential. A high degree of expertise or skill is required to perform the function. The function is probably essential; and, Whether a particular job function is essential is a determination that must be made on a case-by-case basis and should be addressed during job analysis. Any job functions that are not essential are determined to be marginal. Marginal job functions could be traded to another position or not done at all.

Source: From the text of the Americans with Disabilities Act, Federal Register 35734 (July 26, 1991).

Exhibit 7-6

Department of Labor Worker Functions

REF NO. DATA 0 1 2 3 4 5 6 Synthesizing Coordinating Analyzing Compiling Computing Copying Comparing REF NO. PEOPLE 0 1 2 3 4 5 6 7 8 Mentoring Negotiating Instructing Supervising Diverting Persuading Speakingsignaling Serving Taking instructionshelping REF NO. THINGS 0 1 2 3 4 5 6 7 Setting up Precision working Operatingcontrolling Drivingoperating Manipulating Tending Feedingoffbearing Handling

Exhibit 7-11 Department of Labor Aptitudes

G General learning ability V Verbal aptitude N Numerical aptitude S Spatial aptitude P Form perception Q Clerical perception K Motor coordination F Finger dexterity M Manual dexterity E Eye-hand-foot coordination C Color discrimination
Source: U.S. Dept. of Labor, The revised handbook for analyzing jobs (Washington, D.C.: U.S. Government Printing Office, 1991).

Exhibit 7-18 Characteristics of Benchmark Jobs

The contents are well known, relatively stable over time, and agreed upon by the employees involved. The jobs are common across a number of different employers. The jobs represent the entire range of jobs that are being evaluated within a company. The jobs are generally accepted in the labor market for the purposes of setting pay levels.

Source: G.T. Milkovich and J.M. Newman, Compensation 5th ed. (Homewood, IL: Richard D. Irwin, 1996).

Exhibit 7-21 Federal Government Factor Evaluation System (1 of 2)

1. Knowledge required by the position a. Nature or kind of knowledge and skills needed b. How the skills and knowledge are used in doing the work 2. Supervisory controls a. How the work is assigned b. The employees responsibility for carrying out the work c. How the work is reviewed 3. Guidelines a. The nature of guidelines for performing the work b. The judgment needed to apply the guidelines or develop new guides

Source: US Civil Service Commission, Instructions for the factor evaluation system ( Washington, D.C.: US Government Printing Office, 1977).

Exhibit 7-21 Federal Government Factor Evaluation System (2 of 2)

4. Complexity a. The nature of the assignment b. The difficulty in identifying what needs to be done c. The difficulty and originality involved in performing the work 5. Scope and effect a. The purpose of the work b. The impact of the work product or service 6. Personal contacts 7. Purpose of contacts 8. Physical demands 9. Work environment

Source: US Civil Service Commission, Instructions for the factor evaluation system ( Washington, D.C.: US Government Printing Office, 1977).

Exhibit 7-4 FLSA Exemption Criteria for Executive, Administrative, and Professional Employees (1 of 2)

Executive Employees Primary duties include managing the organization Regularly supervise the work of two or more full-time employees Authority to hire, promote, and discharge employees Regularly use discretion as part of typical work duties Devote at least 80 percent of work time to fulfilling the previous activities

Source: 29 Code of Federal Regulations, Sec. 541.3 29; Sec. 541.1.

Exhibit 7-4 FLSA Exemption Criteria for Executive, Administrative, and Professional Employees (2 of 2)

Administrative Employees Perform non-manual work directly related to management operations Regularly use discretion beyond clerical duties Perform specialized or technical work, or perform special assignments with only general supervision Devote at least 80 percent of work time to fulfilling the previous activities Professional Employees Primary work requires advanced knowledge in a field of science or learning, including work that requires regular use of discretion and independent judgment, or Primary work requires inventiveness, imagination, or talent in a recognized field or artistic endeavor

Source: 29 Code of Federal Regulations, Sec. 541.3 29; Sec. 541.1.

JOB EVALUATION

That part of a compensation system where a firm determines the relative value of one job compared to another

Steps in Job Evaluation

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Preliminary Planning Select Method - Point Plan - Classification -Market pricing - Ranking - Knowledge/skill-based plan Develop Plan Implement Plan - Evaluate Jobs

Point Method

Parts-of-job technique Uses Compensable Factors Those aspects of job we plan to pay for Choose and weight compensable factors to suit jobs, organization, and strategy Points assigned determine value of job Example of one completed factor:

Example Job Factor

Education: Measures the basic trades, training, or knowledge, or scholastic contact essential as background or training preliminar to learning the job duties. This job knowledge or background may have been acquired either by formal education or by training on jobs of lesser degree or by combination of these approaches. Total points = 200 Level 1 50 Technical degree of two years Level 2 100 Bachelor of Science degree Level 3 150 Masters degree Level 4 200 Ph.D.

Point Method Steps

1. Choose and define compensable factors 2. Build levels within factors--definitions, anchors 3. Determine total points for plan 4. Weight and assign points to factors by their importance. 5. Determine points for levels in factors 6. Apply to each job, add up points 7. Array jobs according to total points

Examples of Compensable Factors

Accountability Communication Contacts: Internal, External Decision Making Effort Required Experience Hazards Impact on Companys Objectives

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Initiative & Ingenuity Job Complexity Knowledge Latitude Mental Demands Multinational Responsibilities No. Subordinates Physical Demand

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Problem solving Responsibility for material, product, equipment Specialized Skills Teamwork reqd Type of supervision Visual Demands Working

Other Job Evaluation Types

Ranking

Classification

Market Pricing

Knowledge-based plan

Ranking

Whole job technique Rank jobs high to low Easy, inexpensive, informal Effective when: few, similar jobs Popular with small companies Subjective, non-specific May be hard to defend Simple, Alternative, Paired Comparison

Classification

Whole job technique Slot jobs into labeled classes Classify jobs by similarity to prototypical/benchmark job, label, and factor evaluation Common in public sector Used for wide variety of dissimilar jobs Inexpensive, simple, flexible Difficult to build classes, generic classes, vague descriptions Difficult to justify, lawsuits

Job Classification Schedule

GS 9 Includes all classes of positions the duties of which are (1) to perform, under general supervision, very difficult and responsible work along special technical supervisory, or administrative experience which has (A) demonstrated capacity for sound independent work, (B) thorough and fundamental knowledge of a special and complex subject matter, or of the professional, art, or science involved, and (C) considerable latitude for the exercise of independent judgment; (2) with considerable latitude for the exercise of independent judgment, to perform moderately difficult work requiring (A)...College degree... (B)...additional training or experience...; or (3) to perform other work of equal importance, difficulty, and responsibility, and requiring comparable qualifications.

Market Pricing

Determines market rate for each job Pays market rate Ignores internal consistency in favor of external competitiveness Rates may be unrelated to relative value of skills, responsibility, value within the firm

Person-Based Evaluation Knowledge/Skill Based Pay

Pay based on knowledge or skill, not the job performed Employee carries the wage, regardless of the tasks performed Pay increases are linked to knowledge/skills, not promotions Assess and values skills, not jobs Advantages include flexibility, reduced work force Disadvantages include topping out, pay unrelated to work performed

KBP--Multi-Skill System
$7.00 Base Rate Mastery of 1 job $7.35 Level 2 Rate Mastery of 2 jobs $7.70 $8.05 Level 4 Rate Mastery of 4 jobs

Level 3 Rate Mastery of 3 jobs

Filter Assembly

Filter Assembly Material Handling

Filter Assembly Material Handling Final assembly

Filter Assembly Material handling Final assembly Polish/QC

KBP--Increased Knowledge Systems:

$7.00 Base Rate $7.35 Level 2 Rate $7.70 $8.05 Level 4 Rate Level 3 Rate

1Job Function 1 Job Function 1 Job Function 1 Job Function +1 know. cell +2 know. cells +3 know. cells +know. cells
Safety/ Housekeeping Safety/ Housekeeping Preventive Maintenance Safety/ Housekeeping Preventive Maintenance Product Knowledge Safety/ Housekeeping Preventive Maintenance Product Knowledge SPC

Borg Warner Auto Assembly Classifications

CURRENT
nChain

FUTURE

measurer nChain checker nUltrasonic tester nInspect/repair nChain cleaner/oiler nChain Packer
nRiveter
nAssembler

nCell

Operator C

hand machine nAuto assembler

nCell

Operator B

nCell

Operator A