human resource management compensation management chapter no. 8
TRANSCRIPT
HUMAN RESOURCEMANAGEMENT
COMPENSATIONMANAGEMENT
CHAPTER NO. 8
AFTER STUDYING THIS CHAPTER YOU SHOULD BE ABLE TO:
Understand and differentiate between performance management and performance appraisal.
Identify the factors that effect performance.
Narrate performance management cycle.
Describe two major purposes of performance management.
Understand three job criteria and information types.
Discuss the pros and cons of using different raters to appraise a person’s performance .
Develop, Evaluate, and administer at least four appraisal methods to measure performance
Explain several rater errors by giving examples of them.
Perform an effective appraisal interview.
Design Appraisal form to measure employee performance effectively.
WHAT IS COMPENSATION
COMPENSATION
Compensation is what employee receives in exchange for their contribution to the organization.
WHAT IS COMPENSATIONMANAGEMENT
Compensation management help the organization to obtain,
maintain and retain a productive Workforce.
COMPENSATION
MANAGEMENT
OBJECTIVES OFCOMPENSATION MANAGEMENT
Legal compliance with all appropriate laws and regulations.
Cost effectiveness for the organization.
Internal, external, and individual equity for employees.
Performance enhancement for the organization.
TYPES OF COMPENSATION
Types of Compensation
1. Intrinsic Compensation
2. Extrinsic Compensation
TYPES OF COMPENSATION Cont . . .
Rewards once receives from job itself such as pride in One’s work, a
feeling of accomplishment, or being
a part of a team.
Rewards one gets from employer usually money, a promotion or benefits
1. INTRINSIC COMPENSATION
2. EXTRINSIC COMPENSATION
FINANCIAL Vs. NON FINANCIAL REWARDS
Financial Rewards
Non Financial Rewards
Individual
Group
Organization Wide
Fringe Benefits
TYPES OF VARIABLE PAY PLANS
INDIVIDUAL
GROUPORGANIZATIONWIDE
Piece Rate Sales Commissions Bonuses Special Recognition
Gain Sharing Labor Cost Reduction
Profit Sharing Employee Stock Options Executive Stock Options
PHASE WISE MODEL OFCOMPENSATION MANAGEMENT
Job Analysis
Job Evaluation
Salary & Wages Survey
Pricing Job
Phase 1Identity and Study
jobs
Position Description Job Description Job Standard
Phase 2Internal Equity
Phase 3External Equity
Phase 4Matching Internal and
External Work
Job Ranking Job Grading Factor Comparison Point System
Dept. Of Labor Employee AssociationsProfessional AssociationSelf Conducted Survey
Job Evaluation WorthMatch Rate & Range for Each JobLabor Market Worth
PHASE WISE MODEL OFCOMPENSATION MANAGEMENT
Phase 1Identity
and Study jobs
Job Analysis
PositionDescription
JobDescription
JobStandard
JOB ANALYSIS
JOB ANALYSIS
A Systematic way of gathering and analyzing information about the Content, Context, and the Human Requirements of
jobs for the purpose of developing Job description, Job specification & Job
evaluation.
PHASE WISE MODEL OFCOMPENSATION MANAGEMENT
Phase 2Internal Equity
Job Evaluation
JobRanking
JobGrading
FactorComparison
PointSystem
JOB EVALUATION
Systematically determining the relative worth of the jobs to create job
structure.
Determining the worth of job for reward, benefits & compensation
system.
Or
JOB EVALUATION METHODS
1. Job Ranking Method
2. Job Grading / Classification
Method
3. Factor Comparison
Method
4. Point System
1. JOB RANKING METHOD
Arrangement of job in a simple rank order form highest to lowest or form lowest to
highest.
DEFINITION
Raters examine the JD of the each job.
Arrange in order according to value. e.g. starting from lowestto highest
Janitor ranked 1 Secretary gets 2 Office manager gets 3
2. JOB GRADING METHOD • These
classification are created by identifying a number of job related factors such as, education, experience and responsibilities with the goal to determine classes or grades of Job.
Step 1
•After classifications, jobs are ranked in an overall order of importance according to criteria chosen and each job is placed in its appropriate grade
Step 2
•The standard description that most nearly matches the JD determines the job’s grading/classification.
Step 3
Assigned a grade or class for each job.
3. FACTOR COMPARISON METHOD
The each compensable factor such as responsibility, skill, mental effort, physically effort and working conditions is compared one at time with the same factor for other key job and then
evaluated.
i. Determine the Compensable Factor
ii. Determine Key Jobs
iii. Apportion Present Wages for Key Jobs
iv. Place Key Jobs on a Factor Comparison Chart
v. Evaluate Other Jobs
Steps Of Factor
Comparison Method
4. POINT SYSTEM METHOD
An approach to job evaluation in which numerical values are assigned to specific job factors and the sum of those values
provides a quantitative assessment of a job’s relative worth.
Determine Sub-factor
Determine the levels of factors
Allocate points to factorunder each level
Develop a point manual
Apply the point system
2
3
4
5
6
Determine the Critical factor 1
Steps Of Point
System Method
Factors 1st Degree
2nd Degre
e
3rd
Degree
4th
Degree
5th
Degree
SKILL
• Education 15 30 45 60 75
• Experience 20 40 60 80 100
• Initiative and Ingenuity 15 30 45 60 75
EFFORT
• Physical demand 10 20 30 40 50
• Mental or visual demand 5 10 15 20 25
RESPONSIBILITY
• Equipment or process 5 10 15 20 25
• Material or product 5 10 15 20 25
• Safety of others 5 10 15 20 25
• Work of other job conditions 5 10 15 20 25
JOB CONDITIONS
• Working conditions 10 20 30 40 50
• Unavoidable hazards 5 10 15 20 25
A Point Manual Description of “Responsibility:Equipment and Material”
1. RESPONSIBILITY
b. Equipment and materials: each employee is responsible for conserving the company’s equipment and material. This includes reporting mal functioning, equipment or defected material, keeping equipment and material clean or in proper order, and maintaining , repairing, or modifying equipment and materials according to individual job duty. The company recognizes that the degree of responsibility for equipment and material varies widely
through out the organization Level1: Employee reports mal functioning equipment or defective materials to
immediate superior.Level 2: Employee maintain the appearance of equipment or order of materials and has responsibilities for the security of such equipments and materialsLevel 3: Employee performs preventive maintenance and minor repairs on equipment or
corrects minor defects in materials Level 4: Employee performs major maintenance or overhauls of equipment or is responsible for deciding type, quantity, and quality of material to be used.
Phase 3External Equity
Wage & Salary Survey
Department ofLabor
EmployeeAssociations
ProfessionalAssociation
Self-ConductedSurveys
PHASE WISE MODEL OFCOMPENSATION MANAGEMENT
WAGE AND SALARY SURVEY
A collection of data on existing compensation rates for workers performing similar jobs in other organizations.
i. Identifying Key Jobs
ii. Selecting the Organizations to Survey
Steps in Wage And Salary Survey
iii. Data Collection Sources
iv. Interpreting the Data
Department of Labor
Employee Associations
Professional Association
Self-Conducted Surveys
On live Surveys
PRICING JOB
Allocate the Value to the job After matching the job evaluation worth with the market worth.
Establishing Pay Structure
Establishment of Pay Grades
Establishment of Pay Ranges
Phase 4Matching
Internal and External
Work
• Used for tying pay survey information to job evaluation data.
• The line on a graph showing the relationship between job value, as determined by job evaluation points, and pay survey rates.
• A grouping of individual jobs having approximately the same job worth.
• It involves collapsing multiple salary grades and ranges into a few wide levels known as
bands.
• Using the market line as a starting point, the employer can determine maximum and minimum
pay levels for each pay grade by making the market line the midpoint line of the new pay
structure.
WageCurve
MarketLine
PayGrades
BroadBanding
PayRanges
ESTABLISHING PAY STRUCTURE
ESTABLISHING PAY STRUCTURE
EstablishingPay Structure
Pay ScatterGram
Pay Grades &Pay Ranges
INCENTIVE SYSTEMS & GAIN SHARING• links compensation and performance
by rewarding performance instead of seniority or hours being worked.
• Incentive system could be individual based
Incentive System
• Matches an improvement (gain) in performance with a
distribution (sharing) of the benefits with employees.
Gain Sharing
INCENTIVE SYSTEMS & GAIN SHARING
INCENTIVES DESCRIPTION
Piece Work Compensates the worker for each unit of output
Production Bonuses
Paid to workers for exceeding output goals
Commissions The seller may be paid a percentage of selling price or a flat amount for each unit sold
Merit Raises Pay increases given after an evaluation of performance
Pay for knowledge/pay for Skills Compensation
Rewarding employees with higher pay as an incentive for increased knowledge or skills they acquire.
Non Monetary Incentive
e.g. recognition programs in which employee receives certificates, time off, vacations etc
Executive Incentive
Stock option: the right to purchase the company’s stock at a predetermined price.Weighted incentive systems: reward executives on the basis of improvements in the multiple areas of business
INCENTIVE SYSTEMS & GAIN SHARING
GAIN SHARING
DESCRIPTION
Employee Ownership
Many company have stock purchase plans that allow workers to buy shares in the company, so owing the fractional part of the firm and sharing its success
Production Sharing Plans
Allow groups of workers to receive bonuses for exceeding predetermined levels of output.
Profit Sharing Plans
Share profits with the employees
Cost Reduction plans
Scanlon Plan: Employees aim to reduce costs and then share in the savings that result.Bonuses on improvements in quality of labor costs compared with the historical norms
EQUITY FACTOR APPROACH
The perceived fairness of the relation between what a person does (inputs) and what the
person receives (outcomes).
EQUITY FACTOR APPROACH Cont . . .
My Rewards (Outcomes)
My Contributions (Inputs)
My Rewards
My Contributions
My Rewards
My Contributions
PERSONCOMPARISON
OTHER
Other’s Rewards
Other's Contributions
Other’s Rewards
Other's Contributions
Other’s Rewards
Other's Contributions
Equity
Inequity(Under-
Rewarded)
Inequity(Over-
Rewarded)
EQUITY FACTOR APPROACH Cont . . .
PROCEDURAL JUSTICE
The perceived fairness of the process used to determine the distribution of rewards.
DISTRIBUTIVE JUSTICE
Perceived fairness of the amount and allocation of rewards among individuals.
Pricing Job
Pay above theMarket Rate
Pay Market Rate
Pay below theMarket Rate
PHASE WISE MODEL OFCOMPENSATION MANAGEMENT
MARKET RATE & COMPENSATIONPLANS
1. Pay Above the Market Rate
Advantages Disadvantages Attracts better employees. Additional Compensation
Cost
Minimize voluntary
turnover.
Sense of entitlement
Fosters Strong culture &
competitive Superiority
MARKET RATE & COMPENSATIONPLANS
1. Pay Market Rate
Advantages Disadvantages Higher quality of Human
Resource at midrange of
market-driven Compensation.
Does not attract huge
factor forever
Turnover will vary with
labor demand of
competitively firms.
MARKET RATE & COMPENSATIONPLANS
1. Pay Below Market Rate
Advantages Disadvantages Lower Compensation Costs Lower Quality Employee
Useful in labor Market
where Unemployment rate
large
Low Moral / Job Satisfaction
High Turnover, Especially
wage
COMPENSATION MANAGEMENT
Types of Compensation
Intrinsic Compensation
Extrinsic compensation
Financial Rewards
Non Financial Rewards
Wages & Salaries Incentives Gain
Sharing
Fringe Benefits
Scientific Management
PHASE 1Job Analysis
(Identify & Study the Job)
Scientific Management• Position
Description• Job Description• Job Standard
Scientific Management
PHASE 2Job Evaluation(Internal Equity)
Scientific Management
PHASE 3External Equity
(Salary & Wages Survey)
Scientific Management
PHASE 4Pricing Job
(Matching Internal & External Equity)
Scientific Management• Job Ranking
• Job Grading• Factor Comparison• Point System
Scientific Management
• Department of Labor• Employee Associations• Professional Associations• Self Conducted Survey
Scientific Management
• Job Evaluation Worth• Match Rate & Range for each Job• Labor Market Worth
Phases of Compensatio
n Management
Market Rate & Compensation
Plans
• Pay Above the Market Rate• Pay Market Rate• Pay Below the Market Rate
Financial Rewards Vs. Non Financial
Rewards
CHAPTER 8
Management Quality Circle
THOUGHT OF THE DAY
If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don't have to manage them.
“Jack Welch”