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Compensation - PowerPoint PPT Presentation

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Compensation. Employee’s Perspective. What compensation do you seek?. Direct Money. Indirect Benefits. Employer’s Perspective. What do you compensate?. Individual Characteristics: Ability Training Education. Job: Responsibility Critical function Job content.

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Employee s perspective l.jpg
Employee’s Perspective

  • What compensation do you seek?





Employer s perspective l.jpg
Employer’s Perspective

  • What do you compensate?

  • Individual Characteristics:

  • Ability

  • Training

  • Education

  • Job:

  • Responsibility

  • Critical function

  • Job content

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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

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Influence of Equity


Market wages


Perceived equity

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Develop a Job Hierarchy

A. Job Evaluation

1. Preliminary planning

2. Select a plan

3. Develop the plan

4. Evaluate jobs, NOT PEOPLE

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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.

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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.

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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

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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.

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Pricing Jobs (Complexity/Problem Solving) (cont’d)

"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


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Pricing Jobs (Complexity/Problem Solving) (cont’d)

  • Jobs that are relatively stable in content and found in many organizations

A. Use key or benchmark jobs

  • Compare your internal analysis to external wages

B. Conduct wage survey to examine external wages

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Pricing Jobs (Complexity/Problem Solving) (cont’d)

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

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Develop a Pay Structure (Complexity/Problem Solving) (cont’d)

A. Pay on the basis of individual jobs or grades?

B. Utilize single rates or a rate range?

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Inequities (Complexity/Problem Solving) (cont’d)

  • Comparable worth

  • Salary compression

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Pricing Managerial and Professional Jobs (Complexity/Problem Solving) (cont’d)

  • Not easy because there are fewer quantifiable factors

  • Managers are often compensated for long term performance

  • Are executives overpaid?

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Evaluate People Not Jobs (Complexity/Problem Solving) (cont’d)

  • Skill Based Pay

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Skill-Based Compared to Job-Based Structures (Complexity/Problem Solving) (cont’d)

Job-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

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Financial Incentives (Complexity/Problem Solving) (cont’d)

"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.”

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Incentives for Production Employees (Complexity/Problem Solving) (cont’d)

  • Piecework

  • Group incentive plans

  • Attendance

  • Annual bonus

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Other Incentives for Mangers, Executives and Other Employees (Complexity/Problem Solving) (cont’d)

  • Stock options

  • Long-term incentives

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Organization Incentive Plans (Complexity/Problem Solving) (cont’d)

  • Profit sharing plans

  • ESOP – Employee Stock Options Plan

  • Cost savings plan

  • SCANLON and Gainsharing

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Potential Incentive Plan Problems (Complexity/Problem Solving) (cont’d)

  • 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

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Recommendations (Complexity/Problem Solving) (cont’d)

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.

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Performance Evaluation (Complexity/Problem Solving) (cont’d)

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Performance Measurement Purposes (Complexity/Problem Solving) (cont’d)

A. Administrative decisions

  • Promotion

  • Training

  • Compensation

  • Transfer, demotion, and separation

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Performance Measurement Purposes (Complexity/Problem Solving) (cont’d)

B. Employee feedback and development

  • Roles

  • Strengthens E  P and P  O relationships

  • Allows behavior change

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Performance Measurement Purposes (Complexity/Problem Solving) (cont’d)

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)

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Performance Measurement Issues (Complexity/Problem Solving) (cont’d)

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

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Performance Measures (Complexity/Problem Solving) (cont’d)

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

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Performance Measures (Complexity/Problem Solving) (cont’d)

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

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Measures of Physical Output (Complexity/Problem Solving) (cont’d)

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Administrative Challenges (Complexity/Problem Solving) (cont’d)

A. Components that influence the performance appraisal process

1. Appraiser (rater)

2. Appraisee (ratee)

3. Method

4. Purpose of evaluation

5. Motivation to appraise

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Administrative Challenges (Complexity/Problem Solving) (cont’d)

B. Rater errors

1. Unreliability

2. Leniency

3. Severity

4. Central tendency

5. Recency

6. Halo

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Administrative Challenges (Complexity/Problem Solving) (cont’d)


  • Not only for your selection

  • Show that method isn’t discriminating

  • Validate performance appraisal procedures

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Trends in PA Research (Complexity/Problem Solving) (cont’d)

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.