HRM 6305 III

HRM 6305, Compensation Management 1

Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:

7. Categorize workers by the type of pay and benefits received. 7.1 Describe the purpose of internally consistent compensation systems. 7.2 Outline the process used to create internally consistent compensation systems.

Required Unit Resources Chapter 6: Building Internally Consistent Compensation Systems Unit Lesson In any organization, it is important to develop internally consistent compensation systems. This means that those employees who have higher qualifications, more responsibilities, and complete more complex work tasks are paid more money than those employees with less responsibilities and less qualifications. Pay structures are developed and are based on consistently developed and applied structures. All pay systems need to have internal equity, which means that employees working similar jobs are paid similarly. Pay systems need to demonstrate a perception of fairness to all employees. If the employees perceive the pay structure as fair, the employees are likely to perceive the organization’s leaders are fair as well. Internal equity can also protect against discrimination. Laws such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Lilly Ledbetter Fair Pay Act of 2009 are major considerations when addressing differences in wages for workers doing the same jobs. When the organization establishes internal consistency, the organization mitigates the risk to the organization. In addition to internal equity, the organization needs to pay employees consistently. A part of the process of developing an internally consistent pay structure includes conducting a job analysis to determine the worth of each job and the components of a job. A job description establishes the knowledge, skills, abilities, and responsibilities required for a positon. The job description then determines the job worth and the amount of pay for that positon. The more clearly the job analysis can determine the job description, the easier it is for the organization to justify the pay. Clear pay structures limit allegations of unfair treatment or inequitable pay for the same job. Job evaluations play an important role in determining how individuals are compensated. The biggest problem with job evaluations are the subjectivity with which they are conducted and the rate at which jobs fundamentally change. Both the subjectivity and the rate of change can cause inaccurate and unreliable ratings unless rating scales are clearly defined and job evaluators are trained and consistent. Those performing the job evaluations must be provided with complete and accurate information. The job evaluation process consists of the following six steps:

• determining whether a single or a multiple job evaluation should be utilized, • choosing individuals to serve on a job evaluation committee, • training individuals to perform job evaluations, • ensuring that the job evaluation plan has been documented, • communicating the job evaluation result to employees, and

UNIT III STUDY GUIDE Consistent Compensation Systems

HRM 6305, Compensation Management 2

UNIT x STUDY GUIDE Title

• setting up a process by which employees can appeal the job evaluation results (Martocchio, 2020). Job evaluation methods can be categorized as market-based evaluation or job-content evaluation. In market- based evaluation, market data within the industry that the organization is a part of is used to determine how much a particular job is worth. That data is then used to determine whether or not the organization is paying employees too little or too much relative to what other organizations in the industry are paying. When pay is too low, the organization will have a hard time recruiting high-quality applicants, and when pay is too high, the organization will not remain profitable (Martocchio, 2020). Job-content evaluation plans, on the other hand, place more emphasis on the internal workings of the organization and how each particular job fits into it. The most common approach to job-content evaluations is the point-factor rating scale. The following steps are used to develop a point-factor scale:

• Define the compensable factors that will be used to determine job worth. • Determine the number of levels for each factor. • Define each degree level. • Weight each compensable factor in relative importance for determining job worth. • Assign point values to the degrees associated with each compensable factor (Martocchio, 2020).

Evaluators use job descriptions to rate each job and then calculate a total point value for a job by adding up the points earned for each compensable factor. Compensable factors include things such as education, experience, knowledge, physical effort, mental effort, decision-making, consequences or errors, degree of influence, supervisory responsibilities, responsibilities for independent action, fiscal responsibility, risks, and physical and personal demands. The overall score for each job should reflect that job’s relative worth to the organization. If done correctly, the job evaluation method should establish internal consistency for the organization. This consistency is essential for a successful organization.

Reference Martocchio, J. J. (2020). Strategic compensation: A human resource management approach (10th ed.).

Pearson. https://online.vitalsource.com/#/books/9780135201930 Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Each chapter of your textbook contains a case study related to the main theory or concept within the chapter. Review the case studies to gain a better understanding of the course materials as they relate to compensation considerations. Feel free to discuss the chapter case studies with your classmates in the Student Break Room forum.

HRM 6305, Compensation Management 1

Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:

7. Categorize workers by the type of pay and benefits received. 7.1 Describe the purpose of internally consistent compensation systems. 7.2 Outline the process used to create internally consistent compensation systems.

Required Unit Resources Chapter 6: Building Internally Consistent Compensation Systems Unit Lesson In any organization, it is important to develop internally consistent compensation systems. This means that those employees who have higher qualifications, more responsibilities, and complete more complex work tasks are paid more money than those employees with less responsibilities and less qualifications. Pay structures are developed and are based on consistently developed and applied structures. All pay systems need to have internal equity, which means that employees working similar jobs are paid similarly. Pay systems need to demonstrate a perception of fairness to all employees. If the employees perceive the pay structure as fair, the employees are likely to perceive the organization’s leaders are fair as well. Internal equity can also protect against discrimination. Laws such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Lilly Ledbetter Fair Pay Act of 2009 are major considerations when addressing differences in wages for workers doing the same jobs. When the organization establishes internal consistency, the organization mitigates the risk to the organization. In addition to internal equity, the organization needs to pay employees consistently. A part of the process of developing an internally consistent pay structure includes conducting a job analysis to determine the worth of each job and the components of a job. A job description establishes the knowledge, skills, abilities, and responsibilities required for a positon. The job description then determines the job worth and the amount of pay for that positon. The more clearly the job analysis can determine the job description, the easier it is for the organization to justify the pay. Clear pay structures limit allegations of unfair treatment or inequitable pay for the same job. Job evaluations play an important role in determining how individuals are compensated. The biggest problem with job evaluations are the subjectivity with which they are conducted and the rate at which jobs fundamentally change. Both the subjectivity and the rate of change can cause inaccurate and unreliable ratings unless rating scales are clearly defined and job evaluators are trained and consistent. Those performing the job evaluations must be provided with complete and accurate information. The job evaluation process consists of the following six steps:

• determining whether a single or a multiple job evaluation should be utilized, • choosing individuals to serve on a job evaluation committee, • training individuals to perform job evaluations, • ensuring that the job evaluation plan has been documented, • communicating the job evaluation result to employees, and

UNIT III STUDY GUIDE Consistent Compensation Systems

HRM 6305, Compensation Management 2

UNIT x STUDY GUIDE Title

• setting up a process by which employees can appeal the job evaluation results (Martocchio, 2020). Job evaluation methods can be categorized as market-based evaluation or job-content evaluation. In market- based evaluation, market data within the industry that the organization is a part of is used to determine how much a particular job is worth. That data is then used to determine whether or not the organization is paying employees too little or too much relative to what other organizations in the industry are paying. When pay is too low, the organization will have a hard time recruiting high-quality applicants, and when pay is too high, the organization will not remain profitable (Martocchio, 2020). Job-content evaluation plans, on the other hand, place more emphasis on the internal workings of the organization and how each particular job fits into it. The most common approach to job-content evaluations is the point-factor rating scale. The following steps are used to develop a point-factor scale:

• Define the compensable factors that will be used to determine job worth. • Determine the number of levels for each factor. • Define each degree level. • Weight each compensable factor in relative importance for determining job worth. • Assign point values to the degrees associated with each compensable factor (Martocchio, 2020).

Evaluators use job descriptions to rate each job and then calculate a total point value for a job by adding up the points earned for each compensable factor. Compensable factors include things such as education, experience, knowledge, physical effort, mental effort, decision-making, consequences or errors, degree of influence, supervisory responsibilities, responsibilities for independent action, fiscal responsibility, risks, and physical and personal demands. The overall score for each job should reflect that job’s relative worth to the organization. If done correctly, the job evaluation method should establish internal consistency for the organization. This consistency is essential for a successful organization.

Reference Martocchio, J. J. (2020). Strategic compensation: A human resource management approach (10th ed.).

Pearson. https://online.vitalsource.com/#/books/9780135201930 Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Each chapter of your textbook contains a case study related to the main theory or concept within the chapter. Review the case studies to gain a better understanding of the course materials as they relate to compensation considerations. Feel free to discuss the chapter case studies with your classmates in the Student Break Room forum.