Definitions

Job evaluation is the process of

determining the worth of one job in
relation to that of the other jobs in a
company.
Is a process of determining the
relative worth of a job.
An effort to determine the relative
value of every job in an organization.
ILO definition
an attempt to determine and
compare demands which the
normal performance of a particular
job makes on normal workers
without taking into account the
individual abilities or performance of
the workers concerned.
It simply means.
Studying / analyzing the value,
importance, and necessity of a particular
job
Key factors considered for Job evaluation
are:
Volume of Responsibilities
Output
Decision makers
Emerging needs of the company
Principles of Job evaluation
Rate the job but not the employee.
Elements / tasks selected should be easily
understood, defined clearly and properly selected.
Employee concerned and supervisors should be
educated and convinced about the program.
Supervisors should be encouraged to participate
in rating the jobs.
Encourage employee cooperation to participate in
the rating program.
Consensus with the supervisors and employees on
rating.
Should be a collective effort, chance for equal
representation from all departments.
 PAY
A pay is a statement of an employees worth
by an employer.
An employee is given compensation based
upon the contribution of that particular
employee to the organization.
Pay is a perception of worth by an employee.
The employee shall also feel his worth thanks
to his pay.
It is also a way to motivate employees
through compensation.
 Employees are
compensated because of
the following reasons.
To reward the past performance of the
employee.
To remain competitive in the labor market.
To maintain salary equity among
employees.
To mesh employees future performance
with organizational goals.
To attract new work force.
To reduce unnecessary turnover.
 Compensation that an organization
provides can be either above the
industry standard.
Equal to that of industry standard or
below to that of the industry
standard.
The ability of the compensation must
be such that the employees must be
motivated to perform to the best of
their abilities.
 The level of compensation also determines
the differential between recruiting new
employees or working with senior
employees.
The pay scale raise and revision is of
significant importance in an organization
and will be subjected to the merit and
seniority of the employees.
The pay levels needed to facilitate the
achievement of a sound financial position
in relation to the products and services
offered.
The basis for compensation

Hourly work: Work paid on an

hourly basis.
Piece work: Work paid on the
number of units produced.
Salary workers: Employees whose
compensation is computed on the
basis of weekly, biweekly or monthly
pay periods.
 Pay for performance
Refers to a wide range of
compensation options.
Including merit-based pay, bonuses,
salary commissions, job and pay
banding, team/group incentives and
various gain sharing programs.
Where managers tie compensation to
employee effort and performance.
 Motivating Employees
through compensation
Pay Equity: An employees
perception about the compensation
received is equal to the value of work
performed.
Motivation theory explains that an
employee under situations will
respond to the compensation they
have received by thinking over paid,
or under paid.
 Expectancy Theory: A theory of
motivation, this theory thinks that an
employee in order to receive a good
compensation must work hard to
achieve it.
They must also believe that good
performance is valued by the
employer will reward by providing
expected compensation.
 Pay Secrecy: It is an organizational
policy prohibiting employees from
revealing their compensation
information to anyone.
This creates misconceptions and
creates distrust in the employees
about fairness pay and pay for
performance standards.
 Individual Incentives:
Commissions
A commission is compensation
based on a percentage of sales in
units or dollars
Straight commission is the equivalent of
straight piecework and is typically a
percentage of the
price of the item
A variation pays the salesperson a small
salary plus a commission or bonus when
the sales goal is exceeded
Gain-sharing Incentive Plans
Gain-sharing plans are companywide
group incentive plans that use a financial
formula to:
Distribute organization-wide gains, and
Unite diverse organizational elements in the common
pursuit of improved organizational effectiveness

Through cash bonuses, these systems

share the benefits of:
Improved productivity
Reduced costs
Improved quality
 Profit-Sharing Plans
Profit-sharing plans distribute a fixed
percentage of total profit to employees
in cash or deferred bonuses
Profit sharing is not dominant in other industrialized
countries

Profit-sharing plans are typically found

in three combinations:
Cash or current distribution plans
Deferred plans
A combination of both
 People-Based Pay
The bureaucratic job-based method of
determining pay will not be used in the
future
The new designs will be people-based

Variants of people-based pay:

Skill-based
Knowledge-based
Credential-based
Feedback
Competency-based
 Skill-Based Pay
Skill-based pay sets pay levels on the
basis of:
skills employees have, or
How many jobs they can do

Expected positive outcomes include:

Increased quality
Higher productivity
A more flexible workforce
Improved morale
Decreased absenteeism and turnover
 Methods for defining individual
skills:
Direct observation
Testing
Measurable results

Instead of job descriptions, "person" and

"skill block" descriptions are developed
 Skill-based pay:
Is difficult to design
Does not fit all situations
Involves a time-consuming process of
constructing skill blocks, mapping pay
progressions, and assigning dollar
values to skills
It works best when built on a
broad base of skills
in a stable but expanding work
environment
 Knowledge-based Pay
Knowledge-based pay rewards
employees for acquiring
additional knowledge
Applies to both the current and new job
Stretches the skill-based model to
professionals, managers, and some
technical personnel
 Credential-based Pay
Credential-based pay rests on the
fact that an individual must have:
A diploma or license, or
Pass one or more examinations from
a third-party professional or regulatory
agency
Credential-based pay is more cut-
and-dried than skill-based or
knowledge-based pay.
 Feedback Pay
Feedback pay is based on:
Aligning pay with strategic business
objectives
Establishing a direct connection
between the jobholder and his/her part
in accomplishing goals
Competency-Based Pay System Design
Issues
Identification of the required
competencies

Progression and compensation

of employees

Competency-
Limitations on who can acquire Based Pay
more competencies Systems

Training in the appropriate

competencies

Certification and maintenance

of competencies
 Base pay structures

Grading structures
Core building-blocks of an organisations
HRM system
Not just about pay but also about
conditions and career development
Grading closely linked to the desired
shape of the organisation
Grading normally reflects the value of
jobs in terms of skill, difficulty or
responsibility
Criteria for grading structures
Equity, fairness and consistency
Internal structure versus external market
Degree of operational flexibility and
continuous development
Capacity for individual growth within the
structure
The clarity of reward and career paths
Ease of communication
Degree of control over pay growth given to
management
(Armstrong, 2002)
 Types of pay structure
Individual spot rate or rate for the
job
Individual pay ranges
Narrow-graded structures
Pay spines
Broad-banded structures
Job or career families
 Job families
The objectives of job families:
to map out career paths
to achieve more flexibility in
grading
to identify market groups
to provide for rewards to be
based on personal contribution
and progress
IPD (2000)
 Job or role analysis
A job description typically provides an overview
of the job and its place in the organisational
structure, a detailed description of the duties and
responsibilities, and a commentary matching the
various job evaluation factors.
A role profile is more flexible, describes the type
of personality required for the task, and is more
focused on inputs and outputs, knowledge and
skills required, and expected behaviours.
Aligning pay with the market
The immediate local labour market
surrounding the workplace (the town
or suburb)
The regional labour market (the
geographical or travel-to-work zone)
The national (or international) market
 Differentiating between groups
Interim ad hoc payments for specific groups
Market supplements
Separate pay structures for different groups
of staff
Job or career family structures
Skills-based approaches (internal
development)
Using grading structures and/or actively
encouraging grade drift
IDS (2006)
 Profit Sharing
Giving out a share of the companys
profits to all the employees
The more money the company makes,
the more money the employees get
Usually based on a target
i.e. our target for this quarter is $1 million
in profit. If we exceed that target, 20% of
any amounts beyond that will be divided
among the employees
 Gain Sharing
Provide an incentive for savings
Example: If we cut costs by 10% (saving
us $500,000), we will distribute half of the
savings ($250,000) among the employees
Usually the savings are shared with the
employees who are responsible for
producing those results
i.e. if the assembly line workers develop a cost
saving measure, they get the gain sharing
benefit (not employees in other departments)
PERFORMANCE MEASURES -
PERFORMANCE MEASURES
Chapter 11 -
Chapter 11
"We want to change the
competitive landscape by
being not just better than our
competitors, but by taking
quality to a whole new level.
Jack Welch

Performance measures should

aim at the long-term and should
be forward-thinking initiative
designed to fundamentally
change the way corporations do
business. It is not a post-mortem
of what happened but a step
towards how we do better in the
Why measure performance?
Objectives for for-profit organizations:
Measure changes to stakeholders
wealth; put in simple terms, the value of
a firm.
Reward an employee for contributing to
increase in firm value
Issue: How would a firm measure an individuals
contribution to value creation and what purpose
does it serve?
 The value concept
(Results control)
The performance measurement
concept indicates that employees
can increase the value of the firm by
Increasing the size of a firms future
cash flows,
By accelerating the receipt of those cash
flows, or
If you are a CEO or CFO, how would you
By making
increase the cashthem
flows? more certain or less
risky.
 Measure the right things
An ideal performance management
system is one that energizes the people in
an organization to focus effort on
Improving things that really matter
One that gives people the information and
freedom that they need to realize
Their potential within their own roles and
that aligns their contribution with the
success of the enterprise.
 Then, why do performance
measures fail?
Root cause: complexity - details,
details, details
Staff who collect data get frustrated.
Follow: What has to be done"
(WHTBD).
 Measure What Matters
Easy to say but difficult to do.
Find out what is valued both by customers
and stakeholders
Examples: process: new product
development, measure: time to market.
process: customer service, measure:
customer retention.
process: treasury management, measure:
cost of service vs. value created.
 Keep it simple
Performance Measures must be
simple to operate
simple to understand
simple to action
Ex: If a sales person spends too
much time on call reporting, they
have less time for making calls.
Let us now examine how real
world firms measure performance
and we will, later, find out
whether these measures conform
to the concepts we just
discussed.
Most organization measure
performance using
accounting measures Net
profits, gross margin, ROA,
ROE, etc.
 Why do organizations choose
accounting data as measures of
performance?
Accounting profits and returns can be
measured on a timely basis relatively
precisely and objectively.
Because they are timely, precise, and
objective, employees would react
positively.
The short term measures keep
employees on check.
 Why accounting measures of
performance
are not adequate?
Accounting measures are lagged
indicators.
Dependent on the choice of
measurement method.
 Accounting can create management
myopia
Accounting is short term earnings or
returns.
Why focusing on the short term is
inappropriate?
Why would this short-term focus
affect long-term relationships?
The Changing Business
Environment

Are historical accounting

measures adequate for
todays business environment
that transcend global
boundaries?
 Performance Measurements
for the new era
In the global, technology-driven,
decentralized environment, measuring
Financial performance, while
important, is not adequate.
Even if less than precise, other
measures of performance are required.
These measures should be capable of
measuring multiple attributes of an
organization.
 We need a balanced set of
Performance Measures
We need both lead and lag indicators
 Lead indicators as value
drivers
Many non-financial indicators can serve
as lead indicators in certain settings.
Common examples are:
Market share, backlog (book-to-bill ratio),
new product introductions, new product
development lead times, product quality,
customer satisfaction, employee morale,
personnel development, inventory
turnover, bad debt ratio, or safety
 Lag Indicators
In contrast to lead indicators, lag indicators
are measures that point to earlier plans and
their execution.
Financial performances are lag indicators.
Many times, financial performances are too
late to affect future products and services.
Therefore, we need multiple measures that
include both financial and non-financial
measures.
Comprehensive Performance Measures
must address
1. Financial performance
2. Customer satisfaction
3. Internal business process
developments and
4. Allow an organization to learn and
grow.
Financial Performance can be
measured by
ROA ROE, EPS etc. These measure
are essential to summarize the
economic consequences of strategy.
Customer-related measures
Managers must identify the customer
and market segments in which the
business desires to compete.
Develop measures to track the
business units ability to create
satisfied and loyal customers.
Customer-based measures

Customer Customer
Satisfaction Retention

Customer Product and

Loyalty Service Attributes

Image and
Reputation
 Internal Business Process
Measures
Identify the critical internal processes for
which the organization must excel in
implementing its strategy.
IBP dimension enable the business unit
to
deliver the value propositions that will
attract and retain customers in targeted
market segments, and
satisfy shareholder expectations regarding
financial returns.
 Internal Business Process
Measures

Innovation Operation
processes Processes

Quality Cycle Time

Measures Measures

Cost Measures
 Learning and Growth
measures
Learning and growth identifies the
infrastructure an organization
must build to create long-term
growth and improvement.
Growth comes from: people,
systems and organizational
procedures.
A performance concept that
combines everything that we
discusses so far is

Six Sigma
 The Six Sigma
Is a business process that enables
companies to increase profits dramatically
by streamlining operations,
improving quality, and eliminating defects
or mistakes in everything a company does.

The objective is change the process so
that defects are never produced in the first
place.
The objectives of Six Sigma
To satisfy the customer by changing
internal performance and processes.
To enable better performance by
better design
To improve the quality of
supplies and other operational proces
ses.
Manage the costs
 Six Sigma points out
You don't know what you don't know
You can't do what you don't know
You don't know until you measure
You don't measure what you don't
value
You don't value what you don't
measure
 Difference between TQM and Six
Sigma
TQM focuses on improvement in
individual operations with unrelated
processes; takes many years before
all operations within a given process
are improved.
Six Sigma focuses on making
improvements in all operations within
a process, producing results more
rapidly and effectively.
 Topic 17 :
HR management: Financial Rewards

Lecturer: Zhu Wenzhong

 LEARNING GOALS
Define the term financial rewards
Explain the five payment schemes for
rewarding employees
Explain the five types of incentive
schemes used by businesses to
motivate workers
Explain the incentive schemes for
employees and those for managers
and directors
State some problems with these
incentive schemes
 Compensation

Financial rewards:
Wagecompensation based on an
hourly pay rate or the amount of output
produced.
Salarycompensation calculated on a
periodic basis, such as weekly or
monthly.
Benefits
 Compensation

Most firms base their compensation

policies on five factors:
Salaries and wages paid by others
Government legislation
Cost of living
Firms ability to pay
Worker productivity
 Payment schemes
Time rates: paid for the time spent at work ,
weekly or monthly
Annualized hours: paid on the basis of
certain hours a year
Piece rates: paid for each item produced
Commission: paid by a percentage of
the value of each good sold
Fringe benefits: extra pay for
insurance, car or training

PhotoDisc
 Question for critical
thinking
What are the objectives of
employees for the payment
they receive?

PhotoDisc
Types of incentive scheme

Piece rate
Profit sharing
Profit-related pay
Share-related pay
Performance-related pay
Types of incentive scheme
Each unit produced over the
Piece
Piecerate
ratescheme
scheme target is rewarded with a
bonus or commission
payment.
Types of incentive scheme
Profits are shared
Piece equally or as
Piecerate
rate
agreed by
partners.
Profit-sharing
Profit-sharing
 Types of incentive scheme
Piece rate Employees are
paid a bonus as
a percentage of
Profit-sharing
the profit amount
made by a
Profit-related pay company.

PhotoDisc
 Types of incentive scheme

Piece rate
Employees are
offered some
shares or the
Profit sharing
possibility of
purchasing some
Profit-related pay shares as an
incentive
Share-ownership

PhotoDisc
 Types of incentive scheme
Piece rate
Employees annual
Profit sharing salary is linked to
their performance
Profit-related pay in the job. The size
of payment is
Share-ownership determined by the
achievement of the
Performance-related pay set target.
PhotoDisc
 Question for critical
thinking
Why do companies encourage the
use of share ownership as an
incentive scheme?
Incentive schemes may differ for
employees and managers and
directors. What are the different
incentive schemes between them?

PhotoDisc
 Problems with the incentive
schemes in practice
Operating problems
Product quality problems
Quality of working life
Jealous problems

PhotoDisc
 Four Forms of Incentive Compensation
 Compensation

Employee Benefitsrewards such

as retirement plans, health
insurance, vacation, and tuition
reimbursement provided for
employees either entirely or in part
at the companys expense.
Some benefits, e.g. Social Security
contributions, are required by law
 Compensation
Flexible benefit plan (cafeteria plan)
benefit system that offers employees a
range of options from which they can
choose they types of benefits they receive
Flexible work planemployment that
allows personnel to adjust their working
hours and places of work to accommodate
their personal lives
Flextime
Compressed workweek
Job Sharing
Home-based work program
Supervised by:
Dr. Maha Hafez
Introduced by :
Abeer F. Agami
Amira M. Ali
Hanan Seif
It is any type of financial reward that is provided only when certain
specified performance results occur.

AKA : Variable Pay or Contingent Pay.

Motivation.

Increase the commitment.

Reinforce cultures and values.

Alignment with company

performance.

Discriminate equitably between

employees based on performance.
Payment method

Frequency of payout

Ways of measuring performance

Choice of which employees are covered

Pay based on individual performance
differences.

Ability to finance performance reward.

Use SMART performance standards.

Communicate the payout formula.

Keep administrative costs reasonable.

Individual

Group

Organizational
Merit pay

Incentive pay

Profit sharing

Ownership

Gain sharing
 Annual pay increases are
usually linked to performance
appraisal ratings.

Merit increase grid combines an

employees performance rating
with his/her position in a pay
range, to determine the size and
frequency of his/her pay increases.
Develop employee confidence and
trust in performance appraisal.
Establish job-related performance
criteria.
Separate merit pay from regular pay.
Distinguish merit raises from cost-
of-living raises.
Withhold merit payments when
performance declines.
Depends on reliable and accepted
performance measures.
Cause poor relationships between
supervisors and their
subordinates, and among
subordinates.
Not suitable for work depending
on collaboration and cooperation.
Setting the total available bonus
pool is an arbitrary decision by
top management and can cause
dissatisfaction.
How to define behavior that will
be rewarded? is a tough question.
 Straight piece-work
Payment of a uniform price / unit of
production.
Forms:
Money piecework
Time piecework

Sales Commissions
Basic commission on sales volume
One-third of salary
Satisfy all the criteria listed for bonus
schemes
 Gainsharing
A form of group compensation based on
group or plant performance (rather than
organisation-wide profits) that does not
become part of the employees base
salary.

Group incentives
Tend to measure performance in terms
of physical output.

 Profit Sharing
Any procedure by which an
employer pays, or makes available
to all regular employees, in
addition to their base pay, current
or deferred sums based upon the
profits of the enterprise.

Challenges:
Agreement over division of profits
between company and employees.
Possibility of no payout due to financial
condition of company.
Ownership
Stock option
An employee ownership plan that gives employees the
opportunity to buy
the companys stock at a previously fixed price.

Employee stock ownership plan (ESOP).

An employee ownership plan that provides employers certain tax
and financial advantages when stock is granted to employees.
Thank U