1. McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Milkovich/Newman: Compensation, Ninth Edition Chapter 5 Evaluating Work: Job Evaluation

2. 5-2 Chapter Topics Job-Based Structures: Job Evaluation Job-Based Structures: Job Evaluation Defining Job Evaluation: Content, Value, and External Market Links Defining Job Evaluation: Content, Value, and External Market Links “How-to”: Major Decisions “How-to”: Major Decisions Ranking Ranking Classification Classification Point Method Point Method

3. 5-3 Chapter Topics (cont.) Who Should be Involved? Who Should be Involved? The Final Result: Structure The Final Result: Structure Balancing Chaos and Control Balancing Chaos and Control Your Turn: Job Evaluation at Whole Foods Your Turn: Job Evaluation at Whole Foods

4. 5-4 Job-Based Structures: Job Evaluation Job evaluation – process of systematically determining the relative worth of jobs to create a job structure for the organization Job evaluation – process of systematically determining the relative worth of jobs to create a job structure for the organization The evaluation is based on a combination of: The evaluation is based on a combination of: –Job content –Skills required –Value to the organization –Organizational culture –External market

5. 5-5 Exhibit 5.1: Many Ways to Create Internal Structure

6. 5-6 Defining Job Evaluation: Content, Value, and External Market Links Content and value Content and value –Exchange value Linking content with the external market Linking content with the external market –Value of job content is based on what it can command in the external market “Measure for measure” vs. “Much ado about nothing” “Measure for measure” vs. “Much ado about nothing”

7. 5-7 Exhibit 5.2: Assumptions Underlying Different Views of Job Evaluation

8. 5-8 Defining Job Evaluation: Content, Value, and External Market Links (cont.) “How-To”: Major decisions “How-To”: Major decisions –Establish the purpose  Supports organization strategy  Supports work flow  Is fair to employees  Motivates behavior toward organization objectives

9. 5-9 Exhibit 5.3: Determining an Internally Aligned Job Structure

10. 5-10 Defining Job Evaluation: Content, Value, and External Market Links (cont.) “How-To”: Major decisions (cont.) “How-To”: Major decisions (cont.) –Single versus multiple plans  Characteristics of a benchmark job: –Contents are well-known and relatively stable over time –Job not unique to one employee –A reasonable number of employees are involved in the job  Depth and breadth of job  Refer Exhibit 5.4 –Choose among methods

11. 5-11 Exhibit 5.4: Benchmark Jobs

12. 5-12 Exhibit 5.5: Comparison of Job Evaluation Methods

13. 5-13 Ranking Orders job descriptions from highest to lowest based on a global definition of relative value or contribution to the organization’s success Orders job descriptions from highest to lowest based on a global definition of relative value or contribution to the organization’s success –Simple, fast, and easy to understand and explain –Initially, the least expensive method –Can be misleading –Two approaches  Alternation ranking  Paired comparison method

14. 5-14 Exhibit 5.6: Paired Comparison Ranking

15. 5-15 Uses class descriptions that serve as the standard for comparing job descriptions Uses class descriptions that serve as the standard for comparing job descriptions Classes include benchmark jobs Classes include benchmark jobs Outcome: Series of classes with a number of jobs in each Outcome: Series of classes with a number of jobs in each Classification

16. 5-16 Exhibit 5.7: Classifications for Engineering Work Used by Clark Consulting

17. 5-17 Point Method Three common characteristics of point methods: Three common characteristics of point methods: –Compensable factors –Factor degrees numerically scaled –Weights reflect relative importance of each factor Most commonly used approach to establish pay structures in U.S. 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 Differ from other methods by making explicit the criteria for evaluating jobs – compensable factors

18. 5-18 Conduct job analysis Conduct job analysis Determine compensable factors Determine compensable factors Scale the factors Scale the factors Weight the factors according to importance Weight the factors according to importance Communicate the plan, train users; prepare manual Communicate the plan, train users; prepare manual Apply to nonbenchmark jobs Apply to nonbenchmark jobs Designing a Point Plan: Six Steps

19. 5-19 Step 1: Conduct Job Analysis Point plans begin with job analysis Point plans begin with job analysis A representative sample of jobs (benchmark jobs) is drawn for analysis A representative sample of jobs (benchmark jobs) is drawn for analysis Content of these jobs is basis for: Content of these jobs is basis for: –Defining compensable factors –Scaling compensable factors –Weighting compensable factors

20. 5-20 Step 2: Determine Compensable Factors Compensable factors – characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives Compensable factors – characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives Compensable factors play a pivotal role Compensable factors play a pivotal role –Reflect how work adds value to organization –Decision making is three-dimensional:  Risk and complexity  Impact of decision  Time that must pass before evidence of impact

21. 5-21 Exhibit 5.9: Compensable Factor Definition: Decision Making

22. 5-22 Step 2: Determine Compensable Factors (cont.) To be effective, compensable factors should be: To be effective, compensable factors should be: –Based on strategy and values of organization –Based on work performed  Documentation is important –Acceptable to the stakeholders –Adapting factors from existing plans  Skills, and effort required; responsibility, and working conditions  NEMA, NMTA, Equal Pay Act (1963), and Steel plan

23. 5-23 Compensable Factors - How Many Factors? –“Illusion of validity” - Belief that factors are capturing divergent aspects of a job and are both important –“Small numbers” - If even one job has a certain characteristic, it must be a compensable factor –“Accepted and doing the job” – 21 factor, 7 factors, 3 factors –Research results  Skills explain 90% or more of variance  Three factors account for 98 - 99% of variance

24. 5-24 Exhibit 5.10: Compensable Factor Definition: Multinational Responsibilities

25. 5-25 Exhibit 5.11: Factors in Hay Plan

26. 5-26 Exhibit 5.12: Hay Guide Chart – Profile Method of Job Evaluation

27. 5-27 Step 3: Scale the Factors Construct scales reflecting different degrees within each factor Construct scales reflecting different degrees within each factor –Most factor scales consist of four to eight degrees Issue Issue –Whether to make each degree equidistant from adjacent degrees (interval scaling)

28. 5-28 Step 3: Scale the Factors (cont.) Criteria for scaling factors Criteria for scaling factors Ensure number of degrees is necessary to distinguish among jobs Ensure number of degrees is necessary to distinguish among jobs Use understandable terminology Use understandable terminology Anchor degree definitions with benchmark-job titles and/or work behaviors Anchor degree definitions with benchmark-job titles and/or work behaviors Make it apparent how degree applies to job Make it apparent how degree applies to job

29. 5-29 Exhibit 5.13: Factor Scaling – National Metal Trades Association

30. 5-30 Step 4: Weight the Factors According to Importance –Different weights reflect differences in importance attached to each factor by the employer –Determination of factor weights  Advisory committee allocates 100 percent of the value among factors

31. 5-31 Step 4: Weight the Factors According to Importance (cont.) Select criterion pay structure Select criterion pay structure –Committee members recommend the criterion pay structure –Statistical approach is termed policy capturing to differentiate it from the committee a priori judgment approach –Weights also influence pay structure

32. 5-32 Exhibit 5.14: Job Evaluation Form

33. 5-33 Overview of the Point System Job Factor Weight 1 2 3 4 5 1. Education 50% 100 200 300 400 500 2. Respons- ibility 30% 75 150 225 300 3. Physical effort 12% 24 48 72 96 120 4. Working conditions 8% 25 51 80 Degree of Factor

34. 5-34 AAIM National Position Evaluation Plan 1st Degree Skill 1. Knowledge 2. Experience 3. Initiative and Ingenuity Effort 4. Physical Demand 5. Mental or Visual Demand Responsibility 6. Equipment or Process 7. Material or Product 8. Safety of Others 9. Work of Others Job Conditions 10. Working Conditions 11. Hazards 14 22 14 10 5 10 5 Factor 2nd Degree 28 44 28 20 10 20 10 3rd Degree 42 66 42 30 15 30 15 4th Degree 56 88 56 40 20 40 20 5th Degree 70 110 70 50 25 50 25 Points Assigned to Factor Degrees

35. 5-35 Job Evaluation Example JobPointsReference Wage A Clerk 45$12/hour B Acct Clerk 55$16 C Accountant 75$22 D HR Mgr 85$25 E Ass’t Adm 80$26 F Office Mgr 85$28

36. 5-36

37. 5-37

38. 5-38 Step 5: Communicate the Plan and Train Users Involves development of manual containing information to allow users to apply plan Involves development of manual containing information to allow users to apply plan –Describes job evaluation method –Defines compensable factors –Provides information to permit users to distinguish varying degrees of each factor Involves training users on total pay system Involves training users on total pay system Includes appeals process for employees Includes appeals process for employees –Employee acceptance is imperative  Communication

39. 5-39 Step 6: Apply to Nonbenchmark Jobs Final step involves applying plan to remaining jobs Final step involves applying plan to remaining jobs –Could involve both designers and/or employees trained in applying the plan Tool for managers and HR specialists once plan is developed and accepted Tool for managers and HR specialists once plan is developed and accepted Trained evaluators will evaluate new jobs or reevaluate jobs whose work content has changed Trained evaluators will evaluate new jobs or reevaluate jobs whose work content has changed –May also be part of appeals process

40. 5-40 Step 7: Develop Online Software Support Online job evaluation is widely used in larger organizations Online job evaluation is widely used in larger organizations Becomes part of a Total Compensation Service Center for managers and HR generalists to use Becomes part of a Total Compensation Service Center for managers and HR generalists to use

41. 5-41 Who Should be Involved? Managers and employees with a stake in the results should be involved Managers and employees with a stake in the results should be involved –Can include representatives from key operating functions, including nonmanagerial employees Organizations with unions find including union representatives helps gain acceptance Organizations with unions find including union representatives helps gain acceptance –Extent of union participation varies

42. 5-42 Who Should be Involved? (cont.) Design process matters Design process matters –Attending to fairness of design process and approach chosen likely to achieve employee and management commitment, trust, and acceptance of results Appeals/review procedures Appeals/review procedures –Inevitable that some jobs are incorrectly evaluated –Requires review procedures for handling such cases and helping to ensure procedural fairness

43. 5-43 Who Should be Involved? (cont.) “I know I speak for all of us when I say I speak for all of us” “I know I speak for all of us when I say I speak for all of us” –Procedures should be judged for their susceptibility to political influences

44. 5-44 The Final Result: Structure The final result of the job analysis – job description – job evaluation process is a structure, a hierarchy of work The final result of the job analysis – job description – job evaluation process is a structure, a hierarchy of work Managerial, technical, manufacturing, and administrative Managerial, technical, manufacturing, and administrative

45. 5-45 Exhibit 5.15: Resulting Internal Structures – Job, Skill, and Competency Based

46. 5-46 Balancing Chaos and Control Job evaluation changed the legacy of decentralization and uncoordinated wage-setting practices left from the 1930s and ’40s Job evaluation changed the legacy of decentralization and uncoordinated wage-setting practices left from the 1930s and ’40s It must afford flexibility to adapt to changing conditions It must afford flexibility to adapt to changing conditions –Avoids bureaucracy and increases freedom to manage –Reduces control and guidelines, making enforcement of fairness difficult