Compensation ManagementBasic Introduction

**Module 1 - Introduction To Compensation A. Definition of Compensation B. The Pay Model C. Strategic Pay Policies Module 2 - Strategic Perspectives in Compensation Management A. Strategic Perspectives of Pay B. Strategic Pay DecisionsC. Best Practices vs. Best Fit Options

Module 3 - Defining Internal Alignment A. Definition of Internal Alignment B. Internal Pay Structures C. Strategic Choices In Internal Alignment Design D. Which Internal Structure Fits Best? Module 4 - Job Analysis A. Why Perform Job Analysis? B. Job Analysis Procedures C. Job Analysis Data Collection Process D. Job Descriptions

**Module 5 - Job Evaluation A. Definition of Job Evaluation B. Major Decisions In Job Evaluation C. Job Evaluation Methods D. Final Result Pay Structure Module 6 - Determining External Competitiveness A. Definition of Competitiveness B. Pay Policy Alternatives C. Wage Surveys D. Interpreting Survey Results E. Pay Policy Line F. Pay Grades Module 7 - Employee Contributions: Pay For Performance (PFP) A. Rewarding Desired Behaviors B. Does Compensation Motivate Performance? C. Designing PFP Plans D. Merit Pay/Variable Pay E. Individual vs. Group Incentives F. Long Term Incentives Module 8 - Pay and Performance Appraisals A. Role of Performance Appraisal In Compensation B. Common Errors In Performance Appraisal C. Measuring Job Performance D. Training Raters E. Contextual Issues In Appraisal

**Module 9 - Benefits A. Benefits Determination Process B. Value of Benefits C. Legally Required Benefits D. Retirement, Medical , & Other Benefits Module 10 - Legal & Administrative Issues in Compensation A. Legal Issues B. Pay Discrimination C. Comparable Worth D. Budgets and Administration

**Grading Structure

Grading% of Final Grade2 Quiz 30%Case Analysis/Project 30%Class Presentations 10%Attendance 20%Class Participation 10%100%

**Purpose of CompensationMotivate & Retain StaffAttract talentAdministratively Efficient

**Business GoalsBusiness StrategyCEOCompensation Philosophy/ activities serve Business ObjectivesThe Pay ModelBusiness Strategy This defines the direction in which organization is going in relation to its environment in order to achieve its objectives.Compensation Philosophy Consists of a set of beliefs which underpin the reward/compensation strategy of the organization and govern the reward policies that determine how reward processes operate

**Business GoalsBusiness StrategyCompensation PlanCompensationStrategyNon-FinancialRewardsOrg.StructureCEOHR HeadCompensation activities serve Business ObjectivesCompensation strategy is periodically reevaluated and the Compensation plan periodically developedThe Pay ModelCompensation Strategy defines the intentions of the 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

**Business GoalsBusiness StrategyCompensation PlanCompensationStrategyNon-FinancialRewardsOrg.StructureCEOHR HeadCompensation activities serve Business ObjectivesCompensation strategy is periodically reevaluated and the Compensation plan periodically developedThe Pay ModelA strategic perspective on compensation takes the position that how employees are compensated can be a source of sustainable competitive advantage

**Business GoalsBusiness StrategyCompensation PlanMarket SurveysCompensationStrategyJob EvaluationUnit InputsTotal remunerationPerformance ManagementNon-FinancialRewardsOrg.StructurePerformance linked PayIndividual PayContribution/outputsInternal EquityExternal EquityCEOHR HeadEmployeeC & B/S MPay levels /structuresCompensation activities serve Business ObjectivesCompensation strategy is periodically reevaluated and the Compensation plan periodically developedCompensation Manager, along with team is responsible for carrying out compensation related activitiesThe Pay Model

**Employment RelationshipTRANSACTIONAL Emphasizing the Cash & Benefit Forms

RELATIONAL Emphasizing the Family / culture / Bonding Aspects

**Employment RelationshipTRANSACTIONALLow ----- HighRELATIONALLow ----- High

HIGH PAY LOW COMMITMENT

Hired Guns (Lehman Brothers)HIGH PAY HIGH COMMITMENT

Cult Like (Microsoft)LOW PAY LOW COMMITMENT

Workers as commodityLOW PAY HIGH COMMITMENT

Family (Starbucks)

**End of Part I Module 1 & 2

**DefinitionsJob - Consists of a group of tasks that must be performed for an organization to achieve its goals

Position - Collection of tasks and responsibilities performed by one person; there is a position for every individual in an organization

**Job Analysis: A Basic H R M ToolTasksResponsibilitiesDutiesJob AnalysisJob DescriptionsJob SpecificationsKnowledgeSkillsAbilitiesHuman Resource PlanningRecruitmentSelectionTraining and DevelopmentPerformance AppraisalCompensation and BenefitsSafety and HealthEmployee and Labor RelationsLegal ConsiderationsJob Analysis for Teams

**Job Analysis

The systematic, formal study of the duties and responsibilities that comprise job content.

The process seeks to obtain important and relevant information about the nature and level of the work performed

**Job DescriptionA summary of the most important features of a job, including the general nature of the work performed (duties and responsibilities) and level (i.e., skill, effort, responsibility and working conditions) of the work performed.

Typically includes job specifications that include employee characteristics required for competent performance of the job.

Should describe and focus on the job itself and not on any specific individual who might do the job.

**Job Specification

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

**Types Of Job Analysis Information Considerable information is needed, such as:Worker-oriented activitiesMachines, tools, equipment, and work aids usedJob-related tangibles and intangiblesWork performanceJob contentPersonal requirements for the job

**Types of Data Collected Through Job Analysis

Work Activities work activities and processes; activity records (in film form, for example); procedures used; personal responsibility

Worker-oriented activities human behaviors, such as physical actions and communicating on the job; elemental motions for methods analysis; personal job demands, such as energy expenditure

**Types of Data Collected Through Job Analysis

Machines, tools, equipment, and work aids used

Job-related tangibles and intangibles knowledge dealt with or applied (as in accounting); materials processed; products made or services performed

**Work performance error analysis; work standards; work measurements, such as time taken for a task

Job context work schedule; financial and nonfinancial incentives; physical working conditions; organizational and social contexts

Personal requirements for the job personal attributes such as personality and interests; education and training required; work experienceTypes of Data Collected Through Job Analysis

Job EvaluationMethods

**Job EvaluationFour major methods used in job evaluation and the advantages/ disadvantages of each

Job Ranking MethodJob Classification MethodPoint MethodFactor Comparison Method

**Job Evaluation Methods

**Ranking MethodStraight rankingAlternation RankingPaired Comparison

**Ranking MethodAdvantagesSimpleAlternation method ranks highest then lowest, then next highest, then next lowestPaired comparisons method picks highest out of each pairFastMost commonly usedDisadvantagesComparisons can be problematic depending on number and complexity of jobsMay appear arbitrary to employeesCan be legally challengedUnreliable

**Paired Comparison

**Classification MethodAdvantagesUses job families/groups instead of individual jobsMay produce same results as Point Method, but is less costlyDisadvantagesNot useful when jobs are very different from each otherMay be confusing to employees about why jobs are included in a class

**Compensable FactorsMust be present in all jobsFactor must vary in degreeShould not overlap in meaningAll stakeholders viewpoints must be reflectedShould be demonstrable by the actual work

**Factor ComparisonCompensable Factors used

Mental requirements, Physical requirements,Skill requirements,Responsibility, and Working conditions

**Factor Comparison MethodAnalyze JobsSelect Key/Jobs Rank Key Jobs Distribute Wage Rates Across Factors Compare Vertical and Horizontal Judgments. Construct the Job-Comparison Scale Use the Job-Comparison Scale to Evaluate the Remainder of the Jobs

**Hay ProfilingKnow Howprocedures and techniques breadth of management skills person-to-person skills problem solving thinking environment thinking challenge Accountabilityfreedom to act impact on results magnitude

**Factor Comparison MethodAdvantagesCustomized to the organizationRelatively easy to use once its set upResults in ranking of jobs and a specific rupee value for each job, based on allocating part of the jobs total wage to each factorDisadvantagesUsing rupee values may bias evaluators by assigning more money to a factor than a job is worthHard to set upNot easily explained to employees

**Point MethodAdvantagesHighly stable over timePerceived as valid by users and employeesLikely to be reliable among committee that assesses the jobsProvides good data to prepare a response to an appealDisadvantagesTime, money, and effort required to set upRelies heavily on key (benchmark) jobs, so if key jobs and correct pay rates dont exist, the point method may not be valid

**What is a Degree Level?It is a scale that reflects differing quantity or quality of the factorIt is used to differentiate jobs on the factorIt is a definition that is clear and unambiguousIt contains explicit language that spells out the behaviors, skills, or performance expectations for that factor at different levels of the factor

**How Do You Develop Degrees?from Otis and Leukarts (1948) Rules

Degrees should be selected so that each job falls at only one level. Note: you can include some degrees that do not apply to the current jobs if you feel there is too much of a jump between levels. Another reason to create "empty" levels is if you think new jobs will be created that will require that level in the factor.The number of degrees selected should be no more than are needed to differentiate adequately and fairly between all the jobs being rated.Each degree should be clearly defined in terms the workers can understand.Avoid the use of ambiguous terms, e.g., strong skills, excellent.Definitions of degrees should be written in objective terms.In writing degree definitions, use examples as much as possible.

**How Do You Assign Point Values to the Entire System?The maximum number of points assigned is a fairly arbitrary judgment (500-3000 is common)The number must be large enough to allow sufficient differentiation among the jobs to be evaluated.If there is a very wide spread between the current wages of the highest paid job and the lowest paid job, the maximum number of points will need to be higherIf you choose more than one pay system, the number of points or the actual factors themselves do not have to be the same in each one.SUGGESTION /THUMB RULE: Have no fewer than 1000 points and no more than 2000.

**How Do You Assign Point Values to the Degree Levels?First, determine the number of points for each main factor (e.g., 2000 total points for the system would result in 200 points for a factor weighted at 10%). Then useThe straight-line method, which simply takes the maximum points for a given factor and divides it by the number of degrees. Note: this method assumes that the degrees should be viewed as equidistant from each other

**

**How Do You Assign Point Values to the Degree Levels?Or the accelerating method, where differences in degrees are seen as greater as you move up in that factor, and so the point differences reflect that jump, e.g., 27, 80, 160, 267, 400

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

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

Anatomy of a Pay StructurePay Grades, elements,width

**Factors Affecting Pay StructuresCorporate culture and valueManagement PhilosophyExternal Economic EnvironmentExternal Socio-political environment (Unions)

**Anatomy of a Pay structurePay Structure consists of a series of Pay Ranges, or grades, each with a minimum and maximum pay rate

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

Midpoint of a range represents the competitive market value for the job or group of jobs.

**Market PricingComparing salaries w.r.t the market salaries for the same role/s

**Range Spread

Difference between maximum and minimum pay value

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

**Anatomy of a Pay structureSpread on either side of midpoint :

Midpoint Minimum Maximum Midpoint Minimum Midpoint

Midpoint = Max + Min 2

**MinimumMidpointMaximum

200000350000612500 Range Spread (Width) = 206 % -75%75%

**Example Use 50% Range SpreadUsing A 50% Range Spread :

Maximum = Minimum*(1+Range Spread)

Midpoint = Max + Min 2

**Range Spread Vary based on level and sophistication of skills required for a given positionEntry level positions (skills that are quickly mastered) have narrower pay rangesManagerial positions will have broader pay ranges

**Typical Range Spreads 20 25 % - Lower-level service, production30 40 % - clerical, technical40 50 % - professional, administrative, middle management

These range spreads have reached 300% or more with Broad banding

**Compa - RatiosA Statistic that expresses the relationship between base salary and the midpoint, or between the midpoint and the market average

Compa-Ratio = Base Salary MidpointMost companies strive to have the overall workforce paid at or around a compa-ratio of 100 %

**Compa - RatiosIndividual C-R vary according to how long the individual has been in the jobPrevious work experienceJob performance

**Compa - Ratios22500

25000

90%25000

25000

100%27500

25000

110%25000

25000

100%24500Mkt Avg

25000Mkt Avg

98%Person 1Person 3AveragePerson 2Base SalaryMidpointCompa-RatioBase SalaryMidpoint

**Market Saurveys

Standard vs. CustomApples to Apples comparison

**Range PenetrationRange Penetration = Incumbent salary Range Minimum Range Maximum Range MinimumRefers to how far into the range a particular individuals salary has penetratedIt is a measure of penetration in the range

**Review Mercers Job-Matching Guide

Review all Job Descriptions as they relate to RBMatch each core job of RB with the jobs given in the Mercer list.

Determine the core level using the variations from core level table or the accompanying decision tree

Establish All Core levelsMatch remaining roles in RB with the additional job list provided by Mercer.

Determine the core level using the variations from core level table or the accompanying decision tree

Complete the data input sheet.

Instead of a representative position for each job, provide a min of 5-10 job holder data.

Submit the job data sheet to Mercer

*****************************Uses minimum amount of factors from benchmark jobsMatch rest of jobs to these factors based on fitOnce all jobs are fitted into categories they are ranked by difficulty.Method assumes equivalency within categories and equal distances between categories

EXAMPLE: Grade IV includes all positions that involve computerized functions and that require basic knowledge and skill in written communication. Grade V includes all positions that require some independent judgment, confidentiality, interpersonal skills, but that has no direct supervisory responsibility.

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