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CHAPTER 9 Compensation Management 337

Figure 9-5 Point Manual Description of “Responsibility: Equipment and Materials”

1. Responsibility …

b. Equipment and Materials. Each employee is responsible for conserving the company’s equipment and materials. This includes reporting malfunctioning equipment or defective materials, keeping equipment and materials cleaned or in proper order, and maintaining, repairing, or modifying equipment and materials according to individual job duties. The company recognizes that the degree of responsibility for equipment and materials varies widely throughout the organization.

Level I. Employee reports malfunctioning equipment or defective materials to immediate superior.

Level II. Employee maintains the appearance of equipment or order of materials and has responsibility for the security of such equipment or materials.

Level III. Employee performs preventive maintenance and repairs on equipment or corrects defects in materials.

Level IV. Employee makes replacement and purchasing decisions and is in control of the “equipment and materials” factor.

Wage and Salary Surveys

All job evaluation techniques result in a ranking of jobs based upon their perceived relative worth. This assures internal equity; that is, jobs that are worth more will be paid more. But how much should be paid? What constitutes external equity?

To determine a fair rate of compensation, most firms rely on wage and salary surveys, which discover what other employers in the same labour market are paying for specific key jobs. The labour market—the area from which the employer recruits—is generally the local community; how- ever, firms may have to compete for some workers in a wider market. Consider how the president of one large university viewed the market:

Our labour market depends on the type of position we are trying to fill. For the hourly paid jobs such as janitor, data entry clerk, and secretary, the labour market is the surrounding metropolitan community.

LO2

internal equity Perceived equity of a pay system in an organization.

external equity Perceived fairness in pay relative to what other employers are paying for the same type of work.

wage and salary surveys Studies made of wages and salaries paid by other organizations within the employer’s labour market.

SpOTlIGHT On ETHICS Job evaluation

You are the human resource director of a large grocery chain. As part of a restructuring of its compensation system, and to comply with pay equity legislation, the company has recently switched from the job ranking system to the point system. You are chairing the Job Evaluation Committee, which is ready to allocate points to the cashier job category, the largest category in the company. The discussion so far has focused on how many points to allocate to the responsibility factor, and the committee is essentially split 50–50 on the numbers. As it so happened, there are three women and three men on the committee. The women argue that cashiers have the same responsibility as the accounting clerks, who are all male, in the office. The male members of the committee, on the other hand, disagreed, suggesting that a cashier’s responsibility is

to balance the cash register, not accounts, a more difficult task. You seem to have the deciding vote. The dilemma from your point of view is that all the cashiers are women while the three accounting clerks are all male. In your assessment you agree that the accounting clerks carry a higher responsibility and deserve more points. If you support the male members of the committee you are pretty sure that the cashiers will launch a pay equity grievance, usually a costly and time-consuming affair. If you agree with the female members it means cashiers will fall into a higher pay category, increasing payroll expenses significantly. You know very well that the competition in the food market is fierce, with low profit margins (2 to 3 percent). A pay increase would have a direct impact on the bottom line. What do you do?

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338 PART 5 Motivating and Rewarding Human Resources

When we hire professors, our labour market is Canada. We have to compete with universities in other provinces to get the type of faculty member we seek. When we have the funds to hire a distinguished professor, our labour market is the whole world.

Sources of Compensation Data Wage and salary data are benchmarks against which analysts compare compensation levels. Sources for this information include the following:

• Human Resources and Skills Development Canada

• Canadian Human Resource Centres

• Employee associations

• Professional associations

• Private consultants

The major problem with all these published surveys is their varying comparability. Analysts cannot always be sure that their jobs match those reported in the survey. Just matching job titles may be misleading; federal, provincial, and association job descriptions using the same title may be considerably different. Since most government-published surveys rely on the National Occupational Classification (NOC), any job description should be compared with descriptions in the NOC.

At this point, all jobs are ranked according to their relative worth, as a result of the job evaluation process. Through wage and salary surveys, the rate for key jobs in the labour market is also known. This leaves the last phase of wage and salary management, pricing the jobs.

Pricing jobs includes two activities: establishing the appropriate pay level for each job and grouping the different pay levels into a structure that can be managed effectively.

Pay Levels The appropriate pay level for any job reflects its relative and absolute worth. A job’s relative worth is determined by its ranking through the job evaluation process. The absolute worth of a job is

Pricing Jobs

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CHAPTER 9 Compensation Management 339

influenced by what the labour market pays similar jobs. To set the right pay level means combining the job evaluation rankings and the survey wage rates. Of course, many other considerations will determine the final pay level—for example the organization’s pay policy.

This information is combined through the use of a graph called a scattergram. As Figure 9-6 illustrates, its vertical axis shows the pay rates. If the point system is used to determine the ranking of jobs, the horizontal axis is in points. The scattergram is created by plotting the total points and wage level for each key job. Thus, each dot represents the intersection of the point value and the wage rate for a particular key job. For example, Key Job A in Figure 9-6 is worth 500 points and is paid $16 an hour.

Through the dots that represent key jobs, a wage-trend line is drawn as close to as many points as possible. (This line can be done freehand or, more accurately, by a statistical technique called the least squares method.5) The wage-trend line uses two steps to help determine the wage rates for non- key jobs. First, the point value for the nonkey job is located on the horizontal axis. Second, a line is traced vertically to the wage-trend line, then horizontally to the dollar scale. The amount on the vertical scale is the appropriate wage rate for the nonkey job. For example, nonkey Job B is worth 700 points. By tracing a vertical line up to the wage-trend line and then horizontally to the vertical (dollar) scale, it can be seen in Figure 9-6 that the appropriate wage rate for Job B is $18 per hour.

The Compensation Structure A medium-sized organization with 2,000 workers and 325 separately identifiable jobs would present the wage and salary analyst with complex problems. The existence of 325 separate wage rates would be meaningless, because the differences in wages between each job might be no more than a few cents.

Compensation analysts find it more convenient to lump jobs together into job classes. In the job grade approach, jobs are already grouped into predetermined categories. With other methods, the grouping is done by creating job grades based on the previous ranking, pay, or points. In the point system, for example, classifications are based on point ranges: 0 to 100, 101 to 150, 151 to 200, and so forth. This grouping causes the wage-trend line to be replaced with a series of ascending dashes, as shown in Figure 9-7. Thus, all jobs in the same class receive the same wage rate. A job valued at 105 points, for example, is paid the same as a job with 145 points. Having too many grades defeats the purpose of grouping; having too few groupings results in workers with jobs of widely varying importance receiving the same pay.

The problem with flat rates for each job class is that exceptional performance cannot be rewarded. To give a worker a merit increase requires moving the employee into a higher job class. This upsets the entire balance of internal equity developed through job evaluations. To solve these problems, most firms use rate ranges for each class. A rate range is simply a pay range for each job class.

Figure 9-6 The Development of a Wage-Trend Line

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Key Job A

Nonkey Job B

Wage-Trend Line

key job A job that is similar and common in the organization and its labour market—for example, accountant, tool-and-die maker.

rate range A pay range for each job class.

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340 PART 5 Motivating and Rewarding Human Resources

Figure 9-7 The Impact of Job Classes on the Wage-Trend Line

0– 101– 151– 201– 251– 301– 351– 401– 451– 501– 100 150 200 250 300 350 400 450 500 550

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Figure 9-8 Varying Wage Ranges for Job Classes

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Red-Circled Rate

Top of Rate Range

Midpoint

Bottom of Rate Range

21.00

18.00

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Silver-Circled Rate

Gold-Circled Rate

Green-Circled Rate

For example, suppose that the wage-trend line indicates $18 is the average hourly rate for a par- ticular job class. Every employee in that class gets $18, if a flat rate is paid. With a rate range of $3 for each class, a marginal performer can be paid $15 at the bottom of the range, as indicated in Figure 9-8. Then an average performer is placed at midpoint in the rate range, or $18. When performance appraisals indicate above-average performance, the employee may be given a merit raise of, say, $1.00 per hour for the exceptional performance. If this performance continues, another merit raise of $1.00 can be granted. Once the employee reaches the top of the rate range, no more wage increases will be forth- coming. Either a promotion or a general across-the-board pay raise needs to occur for this worker’s wage to exceed $21. An across-the-board increase moves the entire wage-trend line upward.

As new jobs are created, the wage and salary section performs a job evaluation. From this evaluation, the new job is assigned to an appropriate job class. If the rate ranges are used, the new employee will start at the bottom of the range and receive raises, where appropriate, to the top of the rate range.

merit raise A pay increase given to individual workers according to an evaluation of their performance.

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