SAIMA ASGHAR.

Chapter 11

Part 4 Compensation

Establishing Strategic Pay Plans

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Presented to: Sir Ahmad Tisman pasha

Presented by: Saima Asghar Roll no: 07-20(bsit 3rd) Department of Computer science. Bahuddin Zakariya University Multan.
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Establishing Pay Rates

Step 1. The salary survey
Aimed at determining prevailing wage rates.
A good salary survey provides specific wage rates for specific jobs.

Formal written questionnaire surveys are the most comprehensive, but telephone surveys and newspaper ads are also sources of information.
Benchmark job: A job that is used to anchor the employers pay scale and around which other jobs are arranged in order of relative worth.

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Benchmarks jobs.
A job that is used to anchor the employee pay scale and around which other jobs are arranged in order of relative worth. Standard positions that are commonly defined among different organizations.

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Sources for Salary Surveys

Consulting firms Its difficult to set pay rates if you dont know what others are paying, so salary surveys, surveys of what others are paying, play a big role in pricing jobs. virtually every employer conducts an informal telephone, newspaper or internet salary surveys.

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Professional associations.
Many employers use surveys published by consulting firms, professional associations, or government agencies. For example the U.S department of Labor's Bureau of Labor Static's conducts three annual surveys: (1)area wage surveys; (2) industry surveys and;(3)professional,administrative,technical,a nd clerical surveys.

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Area wage surveys.

The 200 or so Area wage survey provide salary data for clerical and manual occupations ranging from secretary to manager. Area wage survey also provide data on weekly work schedules, paid holidays and vacations pracities,health insurance and pension plans.

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Industry wage surveys.

Industry wage surveys provide similar data, but by industry. they also provide national pay data for workers in selected jobs for industries like building,truckig and printing.

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Internet.
A rapidly expanding array of internet-based options makes it easy for anyone to access published compensation survey information. Salary.com Wageweb.com Cnnmoney.com

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Salary Surveys(Tokyo)
National Sales Executive Professional ServicesConsultant Mgmnt IV Senior Sales Rep. SoftwareEngineer IV (Sys) SystemsEngineer IV (App)
14,214,103 Yen

8,695,082 Yen

6,118,262 Yen 7,148,783 Yen

6,448,857 Yen

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Establishing Pay Rates (contd)

Step 2. Job evaluation
A systematic comparison done in order to determine the worth of one job relative to another.

Compensable factor
A fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.

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Preparing for the Job Evaluation

Identifying the need for the job evaluation Getting the cooperation of employees Choosing an evaluation committee. Performing the actual evaluation.

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Preparing for job evaluation (countd)

Identifying the job evaluation is not difficult. For example, dissatisfaction in high turnover, workstopages or arguments may result from paying employees different rates from similar jobs. Employee may fear that a systematic evaluation of their jobs may actually reduce their pay rates, getting employee to cooperate in the evaluation is important.

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Job evaluation committee

Choose a job evaluation committee, there are two reasons for doing so. First the committee should include several people who are familiar with the job in question, each of whom may have a different perspective regarding to the nature of job. Second if the committee is composed at least partly of empolyees,the committee approach can help greater employee acceptance of the job evaluation results.
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Job Evaluation Methods: Ranking

Ranking each job relative to all other jobs, usually based on some overall factor.

Steps in job ranking:

Obtain job information. Select and group jobs. Select compensable factors. Rank jobs. Combine ratings.

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Obtain job information.

Job analysis is first step: job descriptions for each job are prepared, and the information they contain about the jobs duties is usually the basis for ranking jobs.

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Select and group jobs.

It is often not practical to make a single ranking for all jobs in an aorganization.The usual procedure is to rank jobs by department or in clusters (such as factory workers or clerical workers).

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Select compensable factors.

In the ranking method it is common to use just one factor (such as job difficulty) and to rank jobs based on the whole job. Regardless of the number of factors you choose, it's advisable to explain factor's) to evaluators carefully so that they evaluate job consistency.

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Rank jobs.
For example, give each rater a set of index cards from lowest to highest. some managers use an alteration method" for making procedure more accurately.

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Job Ranking by Olympia Health Care

Ranking Order
Office manager Chief nurse Bookkeeper Nurse Cook Nurses aide Orderly

Annual Pay Scale

$43,000 $42,500 $34,000 $32,500 $31,000 $28,500 $25,500

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Job Evaluation Methods: Job Classification

Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes.
Classes contain similar jobs.

Grades are jobs that are similar in difficulty but otherwise different. such as secetaries,mechanics.
Jobs are classed by the amount or level of compensable factors they contain.

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Grade definition.
Written descriptions of the level of say,resposibilty & knowledge required by jobs in each grade. similar jobs can then combined into grades or classes.

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Example of A Grade Level Definition

This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Webbased chart.

Source: http://www.opm.gov/fedclass. gscler.pdf. August 29, 2001.

Figure 113
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Job Evaluation Methods: Point Method

A quantitative technique that involves:
Identifying the degree to which each compensable factors are present in the job. Awarding points for each degree of each factor. Calculating a total point value for the job by adding up the corresponding points for each factor.

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Point System (500-point system)

Degree of Factor
Job Factor
1 Education 2 Responsibility 3 Physical effort 4 Working conditions

Weight
50 % 30 % 12 % 8%

1
50 30 12 8

2
100 70 24 24

3
150 110 36 40

4
200 150 48

5
250
60

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Job Evaluation Methods: Factor Comparison

Each job is ranked several timesonce for each of several compensable factors. The rankings for each job are combined into an overall numerical rating for the job.

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Establishing Pay Rates (contd)

Step 3. Group Similar Jobs into Pay Grades
A pay grade is comprised of jobs of approximately equal difficulty or importance as established by job evaluation.
Point method: the pay grade consists of jobs falling within a range of points. Ranking method: the grade consists of all jobs that fall within two or three ranks. Classification method: automatically categorizes jobs into classes or grades.

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Establishing Pay Rates (contd)

Step 4. Price Each Pay Grade Wage Curve
Shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.
Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades.

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Plotting a Wage Curve

Figure 114

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Establishing Pay Rates (contd)

Step 5. Fine-tune pay rates
Developing pay ranges
Flexibility in meeting external job market rates Easier for employees to move into higher pay grades Allows for rewarding performance differences and seniority

Correcting out-of-line rates

Raising underpaid jobs to the minimum of the rate range for their pay grade. Freezing rates or cutting pay rates for overpaid (red circle) jobs to maximum in the pay range for their pay grade.

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Wage Structure

Note: This shows overlapping wage classes and maximumminimum wage ranges.

Figure 115

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Federal Government Pay Schedule: Grades GS-8GS-10, New York, Northern New Jersey, Long Island, January 2000

Source: info@fedamerica.com.

Table 114
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Pricing Managerial and Professional Jobs

Compensating managers Base pay: fixed salary, guaranteed bonuses. Short-term incentives: cash or stock bonuses Long-term incentives: stock options Executive benefits and perks: retirement plans, life insurance, and health insurance without a deductible or coinsurance.

Total Compensation

Base Pay

Short-term incentives

Long-term incentive

Executive benefits & perks

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What determine executives pay

The traditional wisdom is that company size and performance significantly affect top managers salaries. Ceo salary set by board taking into account a variety of factors, such as business stratgey,corporate trends, and most important where they want to be in short and long term.

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Pricing Managerial and Professional Jobs

What Really Determines Executive Pay?
CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in a short and long term. Firms pay CEOs based on the complexity of the jobs they filled. Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay.

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Compensating Professional Employees

Employers can use job evaluation for professional jobs.

Compensable factors focus on problem solving, creativity, job scope, and technical knowledge and expertise. Firms use the point method and factor comparison methods, although job classification seems most popular. Professional jobs are market-priced to establish the values for benchmark jobs.
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Experiential Exercise
Ranking these jobs
Data EntryOperator Web master VicePresident, Information System ApplicationsProgrammer Chief Programming Analyst Help Desk Operator Database Manager Information System Manager Software Engineer

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Ranking
Data Entry Operator$17,053 $21,894 $26,385 Help Desk Operator$25,042 $34,713 $43,830 Applications Programmer$31,890 $43,482 $54,378 Webmaster$50,140 $71,646 $92,004 Chief Programming Analyst$57,315 $77,007 $95,466

Database Manager$58,265 $80,314 $101,078 Software Engineer$63,954 $86,374 $107,413

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