MGMT 434 Exam 2

What is job evaluation?

Process of systematically determining the relative worth of jobs to create a job structure for the organization

What information is a job evaluation based on?

• Job content

• Skills Required

• Value to the organization

• Organizational culture

• External market

What is the purpose of a job evaluation?

1. Supports organization strategy

   1. “How does this job/work add value?

2. Is fair to employees

   1. Establishes a workable, agreed-upon structure that reduces role of chance, favoritism and bias

3. Supports Work flow

   1. integrates each job’s pay with relative contributions

   2. Helps set pay for new/unique jobs

4. Motivates behavior toward organization objectives

   1. Can help employees adapt to organization changes

   2. Job evaluation helps create the network of rewards that motivates employees

Why not just go “external” or totally market-based?

5 Assumptions of underlying job evaluation

1. Content has intrinsic value outside external market

2. Stakeholders can reach consensus on value

3. Value cannot be determined without external market

4. Honing instruments will provide objectives measures

5. Negotiating brings rationality to social/political process; establishes rules of the game and invites participation

Should we use single or multiple plans? Why?

Multiple; employers believe that the work content is too diverse to be usefully evaluated by one plan

ex: production jobs may vary in terms of manipulative skills, knowledge of statistical quality control, working conditions

What methods do we have for conducting a job evaluation?

1. Ranking

2. Classification

3. Point Method

What is a benchmark job and what is it used for?

• one that has a standard and consistent set of responsibilities from one organization to another and for which data is available in valid and reliable salary surveys

• They are used to compare similar jobs across various organizations

Characteristics of a Benchmark Job

1. Contents are well-known and relatively stable over time

2. Job is not unique to a specific employer

3. A reasonable number of employees are involved in the job

What is Ranking?

Orders the job descriptions from highest to lowest based on global definition of relative value or contribution to organization

• Advantage: Simple, fast easy to understand and explain to employees

• Disadvantage: requires difficult and potentially expensive solutions because it doesn’t tell employees and managers what it is about their jobs that is important. Since criteria is poorly defined, evaluations become subjective

Two ways of ranking:

1. Alternation ranking: orders job descriptions alternately at each extreme

2. Paired Comparison- uses a matrix to compare all possible pairs of jobs

What is classification?

Jobs are grouped together based on similarities in terms of the work they involve and the skills and knowledge needed to do them

Information to writing class descriptions can come from managers, job incumbents, job descriptions, and career progression considerations

• Advantage: Can group a wide range of work together in one system

• Disadvantage: Descriptions may leave too much room for manipulation

What is the Point Method?

Most commonly used approach to establish pay structures in U.S

Differ from other methods by making explicit the criteria for evaluating jobs-Compensable Factors

Three Common Characteristics:

1. Compensable Factors

2. Factor degrees numerically scaled

3. Weights reflect relative importance of each factor

Advantages: Compensable factors call out basis for comparisons. Compensable factors communicate what is valued

Disadvantages: Can become bureaucratic and rule-bound

Determining an Internally Aligned Job Structure

Work relationships within the organization

>Job Analysis > Job Description > Job Evaluation > Job Structure

Major Decisions in Job Evaluation:

• Establish purpose of evaluation

• Decide whether to use single or multiple plans

• Choose song alternative approaches

• Obtain involvement of relevant stakeholders

• Evaluate plan’s usefulness

Steps to design Point Plan

1. Conduct Job Analysis- representative sample is drawn for analysis

2. Determine compensable factors- should be based on strategy and values of organization, based on work performed, acceptable to stakeholders

3. Scale the factors- usually 1-5

4. Weight the factors according to ihzmportance-diff weight reflects differences in importance by employer

5. Communicate the plan, train users; prepare manual-involves development of manual containing info to allow users to apply plan, involves training users on total pay system, includes appeals process for employees

6. Apply to non benchmark jobs-becomes tool for managers and HR specialists once plan is developed and accepted, trained

What are Compensable Factors?

Characteristics in the work that the organization values, that help pursue its strategy and achieve its objectives

How many factors should we use and why?

As many as we want, based on the work being done and how valuable it is to us

Similarities and Differences of Job and Person-Based pay structures

Similarities

• Both create value

• Both aim to attract, retain, and motivate employees

• Both consider market rates to remain competitive

• Both seek to maintain fairness and equity among employees

Differences

Job Based

• Pay increases are gained via promotion

• Emphasis on putting the right people in the right job (emphasis on role over individual characteristics)

• Costs are controlled by paying what the job is worth

• Less flexible to individual performance, follows standardized approach

• ex: government jobs or large corps

Person Based

• Focus is on assigning the right work to the right person (focus on unique contributions and qualifications of employee)

• Pay is based on highest level of skill/competency

• Can cause employees to “top out”-need to control costs by controlling cert. process

• More flexible to individual contributions and reward ongoing skill development

• ex: tech or creative fields

What is the impetus behind/potential value of person-based pay?

Enhanced Motivation, Attract/Retain top talent, encourage skill development, flexibility and adaptability, promote a collaborative culture, equity and fairness, improved performance

Advantages of Skill-Based pay

• people can be deployed in a way that matches the flow of work, to avoid bottlenecks

• Supports Organization strategy

• Supports work flow

• Is fair to employees

• Directs their behavior toward organization objectives

Types of Skill Based pay

Can focus on depth or breadth

Depth has specialists in law corporate law, finance, welding and hydraulic

• ex: a teachers pay is based on the knowledge of the individual doing the job rather than the job content or output.

• presumption is that more knowledge will translate into higher teaching effectiveness

Breadth

• Generalist/ multi-skilled based

• Pay is based on certification of new skills

• Employees can be assigned to jobs they are certified for and responsibilities may change regularly

Limitations or Potential Problems with skill-based pay

Can be very complex to implement, accurately assessing/valuing skills can be difficult which could lead to potential biases, if not managed carefully skill based pay can lead to increased labor costs if employees acquire skills fast/at the same time, can lead to employee dissatisfaction if they feel structure is unfair, employees may become resistant to change

What is Competency-based pay and why is it used?

A compensation structure that links pay to an employee's competencies—such as skills, knowledge, behaviors, and abilities—that contribute to their performance and the organization's success

Used to align with the organization’s mission and values, ensuring that employee development supports broader business objectives.

Advantages or purpose of competency based pay

Organization Strategy

• direct link to orgs strategy

• company leadership decides what will be successful for company

Work Flow

• competencies are chosen to ensure all critical needs of organization are met

Fair to Employees

• can empower employees to take charge of their own development

Motivate Behavior toward organization objectives

• provide guidelines for behavior and keep people focused

• can also provide a common basis for communicating and working together

Limitations/Problems with Competency-Based Pay

What is External Competitiveness?

Refers to pay relationships among organizations- an organization’s pay relative to its competitors

What shapes external competitiveness?

1. Competition in the labor market for people with various skills

2. Competition in the product and service markets, which affects the financial condition of the organization

3. Characteristics unique to each organization and its employees, such as its business strategy, technology, and the productivity and experience of its workforce

How is external competitiveness expressed in practice and why do different companies offer different pay for the same job?

• Setting away level that is above, below, or equal to that of competitors (size of the “pie)

• Determining mix of pay forms relative to those of competitors(pieces of the “pie”)

What are pay level and pay mix? How does pay level affect costs?

Pay level refers to the average of the array of rates paid by an employer: (base + bonuses + benefits + value of stocks)/ number of employees

Pay Mix (Forms) are the various types of payments, that make up total compensation

• The higher the pay level, the higher the labor costs OR the higher the pay level relative to what competitors pay, the greater the relative cots to provide similar products/services

• Focus on : controlling costs, attracting and retaining employees, maximizing productivity

What is the rationale behind having different pay levels for different groups/types of employees?

• Companies often set different pay level policies for different job families

• How a company compares to the market depends on what competitors it compares to and what pay forms are included

• Companies can offer about the same for total compensation, but percentages allocated to base, bonuses, benefits, and options can be very different

Labor Demand

Focuses on the actions of the employers - (how many new hires they seek and what they are willing and able to pay new employees)

An employer cannot change any factor of production except Human Resources, can only change if level of HR changes

Employers demand coincides with the marginal product of labor

Marginal Product of Labor

The additional output associated with the employment of one additional person, with other production factors held constant

• Decreases with increasing new hires; each new hires has less utilization of fixed resources

Marginal Revenue of Labor

The additional revenue generated when the firm employs additional person, with other production factors held constant

• Also decreases with each additional new hire

• Will keep hiring until benefit (income) equals cost (wage)

Modifications to the Demand Side

1. Compensating Differentials

   ex: necessary training is expensive (medical school), job security is strenuous ( stockbrokers, CEO) working conditions are disagreeable (highway construction)— then employers must offer higher wages to compensate for negative features

2. Efficiency Wage

   High wages may increase efficiency and lower labor costs if:

   1. Attract higher-quality applicants

   2. Lower turnover

   3. Increase worker effort

   4. Reduce shirking (“screwing around”)

   5. Reduce the need to supervise employees

3. Sorting & Signaling

   The effect the pay strategy has on the composition of the workforce (“who is attracted/who is retained”)

   Employers deliberately design pay levels and mix as part of a strategy that signals to both prospective and current employees the kinds of behaviors that are sought after

Labor Supply

Looks at potential employees qualifications and the pay they are willing to accept for their services

ex: assuming that many people are seeking a job, they posses accurate information about all job openings and no barriers exist to mobility among jobs

—> Then the upward sloping supply curve means more people would be willing to take job as pay increases

—> but if unemployment rates are low, offers of higher pay my not increase supply (bc everyone who wants to work is already working)

Relevant Labor Markets

Employers choose their relevant market based on three factors:

1. Occupation (skill/knowledge required)

2. Geography ( willingness to relocate, commute, or become virtual employees)

3. Competitors ( other employers in the same product/service and labor markets)

Managers look at both competitors (product, location,size) and the jobs (skills/knowledge required and their importance to orgs success)

*Depending on location/size, an org can be viewed as a competitor for labor even if it is not a product market competitor

Segmented Labor Markets

People flow to the work— multiple sources of employees from multiple locations with multiple employment relationships

Requires understanding market conditions in different/worldwide locations

Ex: St. Luke’s Hospital using regular employees, pool nurses, registry nurses and travel nurses

Product Market Factors & ability to pay

• Degree of Competition- In highly competitive markets, employers are less able to raise prices without loss of revenues

• Level of Product Demand-puts a lid on maximum pay level an employer can set

Identify & explain pay policy alternatives

1. Pay Above Market (Lead)

   Advantage: maximizes ability to attract and retain quality employees/minimize employee dissatisfaction with pay

   Disadvantage: may force employer to increase wages of current employers to avoid internal conflicts

2. Pay with Market (Match) *Most Common*

   Advantage: Tries to ensure an orgs wage costs are approx. equal to product competitors, has ability to attract applicants approx equal to labor market competitors

   Disadvantage: May not provide competitive advantage in labor markets

3. Pay below Market (Lag)

   Advantage: If promise of higher future returns, it can increase employee commitment and foster teamwork → possibly increase productivity

   Disadvantage: may hinder ability to attract potential employees

4. Hybrid Policy

5. Employer of Choice

Which pay policies achieve competitive advantage? What is the evidence?

Lead Pay Policy, number of researchers have linked wages to ease of attraction, reduced vacancy rates and training time, better quality employees, high levels reduce turnover and absenteeism.

What data do compensation surveys offer and what are the considerations we face when using them?

What are relevant labor markets, how many companies do we involve and what are the standards as related to pay surveys?

Relevant labor markets are the fields potentially qualified candidates for particular jobs

Who to involve?

• Large firms with lead policy may pick few top competitors

• Small companies choose geographical competition

Companies use three or more surveys (design/statistical analysis/validity), others use cross-checking or “validation” to assess results

What is a benchmark job and why is this useful for pay surveys?

A standard and consistent set of responsibilities from one organization to another and for which data is available in valid and reliable salary surveys

They provide valuable insights into how compensation packages compare to industry standards

Once we have pay survey data, what do we do with it?