Compensation, Job Evaluation, and Salary Structure

A set of flashcards covering key concepts from the lecture on Compensation, Job Evaluation, and Salary Structure.

Job description

Outlines the requirements, duties, and responsibilities of a specific role or position. includes clear and specific title reflecting the role.

Compensation

impacts an employer’s ability to attract and retain employees and ensures optimal levels of employee performance in meeting organization’s strategic objectives. refers to the form of wages or salary.

Title VII of Civil Rights Act of 1964

The is a federal law that protects workers’ rights to fair treatment.

Equal Pay Act of 1963

The is a law that protects workers’ rights to equal pay for equal work.

The is a systematic process of determining the relative worth of jobs within an organization to establish a fair and equitable compensation structure.

Job Evaluation

is defined as fairness of pay differentials among individuals in the same job.

Individual Equity

compares levels of fairness in compensation for different jobs within an organization.

Internal Equity

Pay transparency can consist of making public individual salaries and/or the process by which salaries are set. This concept is contrasted with .

Secrecy

In the context of compensation, the outlines the classification system used by federal government jobs.

GS System

The three Hay Compensable Factors include Know-How, Accountability, and .

Problem-Solving

Equity Theory suggests that an individual senses inequity when perceiving ratios are not equal concerning and of contributions and rewards.

Inputs/Outputs

The defines a framework that determines how salaries are structured and distributed within an organization.

Job Salary Structure

Job description

outlines the requirements, duties, and responsibilities of a specific role or position

 Job Title

• clear and specific title reflecting the role

Job Summary

• highlights main purpose of the role and how it fits within the organization, 

• captures interest of potential candidates

Key Responsibilities

list of duties and tasks the candidate will perform

Required Qualifications and Skills

• Education

• Experience

• Technical Skills

• Soft Skills

• Certifications

Compensation

impacts an employer’s ability to attract and retain employees and ensures optimal levels of employee performance in meeting organization’s strategic objectives

Direct compensation

• wages or salary

  • Base pay (hourly, weekly, monthly)

  • Incentive Pay (sales bonuses and/or commissions)

Indirect compensation

• form of benefits

  • Legally required benefits (e.g Social Security)

  • Optional (e.g group health benefits)

Title VII of Civil Rights Act of 1964

• Protects workers’ rights to fair treatment

Equal Pay Act of 1963

• Protects workers’ rights to fair treatment and prohibits wage discrimination based on sex.

• Comparable Worth

• standards of equal pay for equal work should be replaced with equal pay for equal value

• objective, measurable data to support assessment of value of different jobs is lacking

• there is no basis in current law for arguments of comparable worth.

Fair Labor Standards Act of 1938

• regulates minimum wage

• sets overtime policy

• establishes exempt classes for managers and other professional employees

• “duties” test ultimately determines whether a position is exempt

• delineates independent contractor versus employee status

• Inquiries of current salaries as a means of determining salary offers are coming under increased scrutiny

• States and cities have passed laws which prohibit employers from making such inquiries

Massachusetts Pay Equity Act

• first prohibited inquiries of both job applicants and their employers regarding current salaries of applicants until after a job offer is made, and then only with written permission of the applicant

EXECUTIVE COMPENSATION

• No real average or standard

• Protects workers’ rights to fair treatment

• Typical annual compensation for senior executives:

• 20% salary

• 30% annual incentives

• 50% long-term incentives

• Stock Grants

• require organization to meet specific financial goals

• Stock Options

• provide opportunity to purchase shares at some future date, at price determined when options are awarded

• focus employee attention on creating shareholder value

• do not have to be reported as expenses

• can create culture obsessed with improving stock performance at expense of other concerns

• can prompt executives to engage in creative accounting practices

KEY STRATEGIC ISSUES IN COMPENSATION

• Determining compensation relative to market

• Striking balance between fixed and variable compensation

• Deciding whether or not to utilize team-based versus individual pay

• Creating appropriate mix of financial and non-financial compensation

• Developing cost-effective compensation program resulting in high performance

EQUITY

provides fair and equal opportunities and resources while also recognizing that different individuals need different levels of support to succeed, allowing for inclusivity. 

INDIVIDUAL EQUITY

• Defined as fairness of pay differentials among individuals in the same job

INTERNAL EQUITY

• Defined as fairness of pay differentials between different jobs in organization

• Methods of establishing internal equity: (1) job ranking, (2) job classification, (3) point method, or (4) factor comparisons 

PAY TRANSPARENCY VERSUS SECRECY

• Local governments require pay transparency for public employees but private employers generally have discretion

• Transparency can consist of making public individual salaries and/or the process by which salaries are set

GS 1

• perform, under immediate supervision, with little or no latitude for the exercise of independent judgment

  • jobs:  typist, messenger

GS 2

• perform, under immediate supervision, with limited latitude for the exercise of of independent judgment

  • jobs: engineering aide

GS 5

•  perform, under general supervision, difficult and responsible work; exercises judgment in a limited field

  • jobs: chemist, accountant, civil engineer, statistical clerk  

HAY COMPENSABLE FACTORS

Used as a basis for determining the value of a position has three factors: Know-How, Accountability, and Problem-Solving

Know-how

the sum total of every kind of skill, however required, necessary for acceptable job performance; it comprises overall “fund of knowledge” and has three elements:

1. Knowledge of practical procedures, specialized techniques, and learned disciplines.

2. The ability to integrate and harmonize the diversified functions involved in managerial situations (operating, supporting, and administrative)

3. Active, practicing skills in the area of human relationships

Accountability

the answerability for an action and for the consequences thereof. It has three dimensions:

1. Freedom to act: degree of personal or procedural control and guidance

2. Job impact on end results

3. Magnitude: indicated by the general dollar size of the area(s) most clearly or primarily affected by the job

Problem-Solving

 the original “self-starting” thinking required by the job for analyzing, evaluating, creating, reasoning, and arriving at conclusions. It has two dimensions:

1. The environment in which the thinking takes place

2. The challenge presented by the thinking to be done

EXTERNAL EQUITY

• Fairness of organizational compensation levels relative to external compensation; 

  • in other words, comparing how different companies pay for the same job/position

• Assessed by collecting wage and salary information to guide in setting organization’s pay strategy to lead, meet, or lag labor market wages

• Lag Policy

EQUITY THEORY

An individual senses inequity when perceiving ratios are not equal

JOB EVALUATION

• Job evaluation is a systematic process of determining the relative worth of jobs within an organization to establish a fair and equitable compensation structure.

• It helps in comparing different jobs based on factors like skills, responsibilities, effort, and working conditions to ensure that employees are fairly compensated for their contributions.

5 PURPOSE OF JOB EVALUATION

1. Ensures Internal Equity

• Helps maintain fairness in pay among employees

2. Guides Compensation Decisions

• Provides a basis for salary structures

3. Supports HR Planning

• Helps in workforce planning, promotions, and career progression

4. Improves Organizational Efficiency

• Aligns job roles with business goals

5. Enhances Employee Motivation

• Ensures employees feel valued and fairly rewarded

4 COMMON JOB EVALUATION METHODS

1. Ranking Method

• jobs are ranked from highest to lowest based on overall importance
  
  

2. Classification Method

• jobs are grouped into predefined categories or levels
  
  

3. Point Rating Method (most common)

• jobs are scored based on compensable factors like skill, responsibility, effort, and working conditions

• assigns numerical values based on compensable factors
  
  

4. Factor Comparison Method

• jobs are compared based on key job factors with benchmark jobs and assigned monetary value

STEPS IN CONDUCTING JOB EVALUATION

Step 1: Job Analysis

• Gather job descriptions, responsibilities, qualifications, and working conditions through interviews, questionnaires, observations, and reviewing existing documents
  
  

Step 2: Selecting the Job Evaluation Method

• Choose method based on organizational needs (e.g: ranking, classification, point rating, factor comparison method)
  
  

Step 3: Identifying Compensable Factors

• define key job attributes used to assess job worth. 

• Skill – Education, experience, technical knowledge.

• Effort – Physical and mental workload.

• Responsibility – Level of decision-making, financial accountability. 

• Working Conditions – Physical environment, hazards, stress levels
  
  

Step 4: Assigning Weights & Scores (Point Rating Method)

• allocate points to compensable factors based on their importance

*Score of last level = given weight x 10

*Score of level 2 - 4 = score in level 5 - score in level 1 4 then add to prior level

Step 5: Evaluating Jobs and Creating a Job Hierarchy

• compare the scores of each job and rank them accordingly

• group similar jobs into pay grades for fair compensation
  
  

Step 6: Implementing & Reviewing the Evaluation

• validate the results with management and employees

• adjust and update job evaluations periodically to reflect changes in roles

JOB SALARY STRUCTURE

• is a framework that defines how salaries are determined and distributed within an organization

• establishes pay grades, salary ranges, and compensation levels based on factors like job evaluation, market rates, experience, and organizational policies

KEY ELEMENTS OF A SALARY STRUCTURE

1. Pay Grades

• Helps maintain fairness in pay among employees

2. Salary Ranges

• The minimum, midpoint, and maximum pay assigned to each pay grade

3. Broadbanding

• flexible pay structure with wider salary bands

4. Market-based Pay

• aligning salaries with industry benchmarks

5. Internal Equity & External Competitiveness

• balancing fair pay within the organization while remaining competitive externally