Lecture Notes
Okay this is the pre-recorded session for week 3. In particular, building internally consistent compensation systems, please refer to chapter. In the way of overview for weeks 3 and 4 we will be considering the building blocks. Compensation system design. These are the fundamental structural elements that you will see in most compensation systems across a variety of organizations. There are three structural elements that we will consider this week and next week, that is week 4. This week we will consider building internally consistent compensation systems. Then we will look at building market competitive compensation systems.
Next week, week 4, we will continue, if needed, with building market competitive compensation systems and then we will look at the third element and that is building pay structures that recognize employee contributions. Also in the way of overview, these structural elements in the order in which we will consider them, is based on logic. Building pay structures that recognize employee contributions does depend in large part on what we accomplish in building market competitive compensation systems. And being able to build market competitive compensation systems does depend upon what we achieve in building internally consistent compensations.
Now, through the years, students have often asked me whether they will encounter compensation systems in the manner in which we will discuss them this week and next week, that is will they actually be developing the structural elements and I tell them it depends if you're going into a relatively new organization that’s small yet growing. You could be leading the development of these elements but in more cases than not, students, and you as most of you are currently working, already see compensation systems that have been developed well. So you won't be going through the process of building, but you'll be in the process of implementation and evaluation. By understanding how the structural elements unfold and the logical sequence of these, you will be in a very good position to work with existing compensation systems and to modify them as necessary. And finally in the way of overview, when we talk about building internally consistent compensation systems and building market competitive compensation systems, we are referring to jobs as the primary unit. At this point in designing the system, we are not considering employees in jobs. It isn't until we get to building pay structures that recognize employee contributions, that we will break job applicants and employees into the discussion and I think you'll see how that unfolds in this week and next week, week 4.
Now let's turn to building internally consistent compensation systems. In chapter 6 we have 5 learning objectives to address. The first learning objective is to explain the concept of internal consistency. The second objective is to summarize the practice of job analysis. The third objective is to describe the practice of job evaluation. The fourth objective is to summarize the various job evaluation techniques. And the fifth objective is to explain how internally consistent compensation systems and competitive strategy relate to each other.
The material for the first learning objective can be found on slides 3 through 6. So let’s start off with a definition or description of what we mean by internally consistent compensation systems. Internal consistency compares the value of each job within the same company against the rest of the jobs found within that company. So this is an internal comparison of jobs. This approach leads us to develop the job structure or hierarchy based on the comparison of jobs against each other within the company. Job descriptions are the cornerstone of developing job structures and we have to recognize differences in job characteristics. So when we talk about job descriptions as the cornerstone, this points to one activity that we’ll talk about and that's job analysis.
And the second, recognizing differences in job characteristics points us to job evaluation. Well you can visualize what a job structure looks like and an illustration of what we mean by internal consistency by looking at what is in slide 6-4. What we have here is a job structure for benefits professionals and we can see that the axle horizontal axis represents a characteristic of this job and many jobs for that matter and that's degree of responsibility. Moving from left to right we can see increasing degrees or levels of responsibility. The vertical axis shows us the Annual pay rates for these jobs. Now for internal consistency our interest is mainly with the horizontal axis and what we're doing is to get to an internally consistent job structure is we start by describing the work through job analysis. And therefore we will have job descriptions for each of the jobs listed on slide 6-4. And then with job evaluation we will compare each job against the others in terms of degree of responsibility, and we do it against other factors as well, such as knowledge, skills and ability, but this is just to make the illustration as simple and straightforward as possible. So we use job analysis to describe the jobs which allows us to drop them into this figure. And then job evaluation allows us to rank them in terms of differences in job characteristics. In this figure you can see the salaries. And this is important but this comes into play later in the development of compensation systems and that is when we get to market competitive systems but I just wanted to show you a fuller picture of what ultimately we’ll call pay structure but again ignoring the vertical axis and just looking at the horizontal axis, that's what gives us and shows us internal consistency.
On slide 6-5 I've included some very brief job descriptions for each of the benefits counselor jobs and then the manager benefits job that appear in slide 6-4. And they characterize the differences in degree of responsibility. So we built internally consistent job structures by relying on two practices. The first is job analysis which comes under learning objectives 6-2. And job evaluation which comes under learning objective 6-3. For job analysis this is the descriptive procedure that identifies and defines job content. The outcome of the job analysis process is the job description. So let me emphasize, descriptive and description. Job analysis does not really bring in judgment or actually should not and does not bring in judgment about the relative worth of jobs to the company. It's simply defining the building blocks that we will use as a basis for conducting job evaluation. There we're using value judgments to look at and determine the relative difference of jobs within the company.
Let’s turn to the second learning objective which is job analysis. This information can be found on slides 7 through 22. As we move through this learning objective I will then take us to an appendix that I've created for the second learning objective and that's about Onet, but more to come on that in just a bit. So job analysis when we talk about describing work, we are breaking, we are trying to describe a variety of information. Job content is the first. So these are actual job activities. So in the case of a receptionist, greeting clients, saying hello and so forth. The second type of information that we're working with and describing are worker requirements. Worker requirements refer to minimum qualifications and KSA’s, that is knowledge, skills and abilities. And then the third type of information we're working to describe is the working condition variable. And working conditions refer to social context or physical environment. So we can look at worker requirements now and talk about this starting with knowledge, skills and abilities. Also factored in is education experience, any licensing that is required to perform the work, special abilities for example HR managers must have knowledge of the recruitment selection training compensation and benefits labor relations in negotiations, HR information systems and so forth. Also those are a combination of abilities that help to distinguish HR managers from other jobs.
Working conditions focus on social context and physical environment. For social content this is where looking at interpersonal relationships, interdependence we're considering, so we might call those horizontal types of aspects and then vertical aspects would be things such as supervisory responsibility that creates that social context for working condition. Physical environment will vary along different dimensions such as the level of noise and possible exposure to hazardous factors. In many organizations today, in service oriented organizations and professional offices, we really don't see much variation on working conditions but when we talk about people working out in the field for example, people who are climbing a cell towers to repair them. Or people working with heavy equipment in a manufacturing facility or somebody who is working with chemicals in the chemical processing plant, these are where we can find important elements of the physical environment that we need to take account of for describing work. For many decades when we refer to the job analysis process, we typically discussed a set of sequenced activities, starting with determining the job analysis program, selecting and training analysts through summarizing results and writing job descriptions. Again that fundamental element or one of the fundamental elements in creating internally consistent job structures. You can review the slides for the rest of this learning objective and it will more or less take you through that job analysis process and it's a very logical one.
Let me point out one slide or two slides, slides 12 and 13, that describe the job analysis units. Starting with the smallest or most micro, such as an element, and moving through broader characteristics or units such as a job which is a group of positions within similar tasks, all the way up to the broadest which is an occupation, a group of jobs. These are the technical language that goes along with job analysis. The traditional approach to job analysis is highly structured and when done correctly it really produces well-defined jobs that help us to make decisions later about employee status and certainly for our purposes, to build an internally consistent job structure. We need to rely on experts who have been trained in conducting job analysis, to perform this. And those individuals are trained n industrial organizational psychology at the masters or PhD levels. There are many consulting firms out there that specialize in job analysis. They're very expensive but they give you what you need. A lot of companies tend to shy away from doing traditional job analysis because their job structures change rapidly as business pressures and opportunities change. And they feel like in a very short period of time, the job structures that have been created and the job descriptions themselves may not be perfectly accurate anymore. And there's been a lot of time and expense that has gone into something that may be increasingly less relevant.
Job analysis is an important activity for the reasons we’re describing here in building compensation systems. But also it's a very helpful technique having done it and written job descriptions that's based on a reliable and valid job analysis technique, can help a company defend itself against claims of illegal discrimination. In general courts will look to what is the job description and how were they derived. Keep in mind while a useful process, job analysis is not a requirement by the federal or state governments. On slides 17 and 18, you can see the basic organization of sections in job descriptions. And nowadays there are so many resources available online that help companies write job descriptions and those are excellent are as well. But as an alternative to the traditional job analysis process, we can take advantage of something called the Occupational Information Network or ONet. ONet is the result of years of collaboration among the Occupational information network or own that. O. net is the result of years of collaboration among the federal government, academic researchers and practitioners like yourself. It's a database that is constantly being updated to capture what is typical jobs and occupational groupings in the US economy. This is a good point for looking at the appendix which starts on slide 31.
If when you get there look at slide 33. This is the ONet content model. Look at the outer band of this content model and you will see 6 categories starting at the top ad then we'll move toward the right until we come full circle. We start with worker oriented information. And you could see that there are 3 types of worker information. Within each type you will see particular examples. Moving on we have occupational specific characteristics. As we continue up moving, we come to job oriented characteristics such as occupational requirements in workforce characteristics. And the last part of this, we're looking at cross occupational characteristics, that is characteristics that we could see spanned across occupational groups. Onet is wonderful resource and I know that I've mentioned this in an earlier pre-recorded session. You should take advantage of this resource because of its relevance, it's free, and especially if your company is not one that is investing in traditional job analysis activities. The textbook indicates the link to ONet. And it is onetonline.org where onetonline is one word. Unfortunately, with the system we use to conduct online classes I am unable to easily take you there for us to look at examples together and I apologize for that. But when you have a chance and hopefully before the next live session, you can go through some of the examples in ONet. They will generate job descriptions for you that are in extensive detail. In the content model you see all of these variables. You will find an extensive detailed job description based on each and every factor that you see in the ONet content model. And that's probably a lot more information than you need. There are other uses for ONet and that's why you might see things like worker values.
When you are in onet and you've selected a job and you have all of the information for the job, you can prepare a custom job description. To do that you will select the factors that you were interested in including. And then you could go so far as to limit the number of items within each factor based on importance ratings that have come up through the collaboration that I discussed earlier. otherwise you might find15 or 20 task statements and that may be more than you need and as you move down the line there may be ones that are just peripheral. ONet will do a great job telling you what the core characteristics are. So when you can, take a look at ONet. and generate some job descriptions of interest and go through it and generate custom reports for yourself and try different parameters to see what you get. I think you will find this useful. Now not to say that ONet is there to write the final job descriptions for you, but it's a great way when you're trying to define work for new positions or jobs and trying to make revisions to existing jobs, ONet becomes a great source of information.
To summarize learning objective two, we've been interested in describing job analysis and job analysis techniques. At the beginning of the pre-recorded session, I indicated that our goal is to create internally consistent job structures. In that there were 2 activities. Job analysis which is a descriptive process and then job evaluation which is a judgment process. We are now going to turn our attention to job evaluation. That information can be found on slides 23 through 25.
Job evaluation systematically recognizes differences in the relative worth among a set of jobs. These evaluations help us to establish pay differentials accordingly. Often times job evaluation and may reflect impart the values and priorities that management places on various jobs. When we talk about establishing the relative worth of jobs, we consider compensable factors. Now compensable factors is a term used in compensation, and refers to skill, effort, responsibility and working conditions. Or in modern times, to the factors that we see in the job content model, put forth by ONet. Differences in levels of skill, effort, responsibility and working conditions helps us to set pay differences between and among jobs that vary on these dimensions. But again we will probably use ONet and the compensable factors that are described there because they're more representative of the complexity of work today. But it's important just to emphasize that on slide 24 the universal compensable factors were generated out of the Equal Pay Act of 1963. That is, it's illegal to pay women less than men for performing equal work. And there are some exceptions to that but that's in general, it's a legal to pay women less than men for performing equal work. The courts decided that the definition of equal work would be based on four factors and those are skill, effort, responsibility, and working conditions. And those represent the foundation elements for making determinations of possible violations of the Equal Pay Act. The fundamental steps in job evaluation are described on slide 25. These steps are more representative of what companies actually do when planning for and conducting job evaluation.
For learning objective 6-4, slide 26 through 29 contain that information. There are two broad approaches to job evaluation. The first is a market based evaluation, chooses market data to determine differences in job worth. So that means going out and conducting salary surveys and using that as a basis t0 determine differences in the relative worth of jobs in the metric of dollars. We will look at this when we discuss market competitive pay systems in the next pre-recorded session. However, what we're doing here initially is taking on the job content valuation approach. This approach emphasizes companies internal value systems by creating a hierarchy of internal job worth.
One of the most common techniques for evaluating jobs is the point method. Slides 27 and 28 provide a broad overview of the point method system. Please refer to the text book for a detailed step by step discussion of how you build, implement and evaluate a point method system. There are also exhibits to illustrate the outcome of each step along the way. It's simply not feasible for me to run through those steps in detail in a pre-recorded session. Given the complexity of that work, it's much more feasible to have you read this in the textbook and please remember that the way this is written represents my experience with this technique through the years. If we were to meet face to face, I would be working with you to go through the steps and actually build a sample job evaluation system, but that's simply and unfortunately doesn't lend itself well to the online format. Naturally, after you read the material if you have any question, please do feel free to ask me. What I can say about the point method system is it's the most detailed approach for evaluating jobs based on that job content message. It allows us to break down all of the compensable factors into degrees and we are able to use a point system to rate each and every job. And at the end of the process of comparing each and every job against every compensable factor. We will have a system that will tell us the relative worth of jobs based on differences and content. It isn't until we get to market competitive pay systems that we bring in the external market and start to assign pay rates to these jobs. The goal was for us to assign pay rates based on the market that correspond to differences in job structure.
There are alternative job evaluation techniques that help us to judge the relative difference in jobs. These are qualitative approaches because we do not introduce any numerical system to help capture the differences in value between jobs. These plans are listed on slide 29 and are described in the textbook. The simple ranking plan for example requires that an individual take a set of jobs and to rank them a based on some set of criteria. It's not as detailed and actually it's for being far from detailed as the point method system because we are making the ranking more or less on global impressions of the jobs relative to each other. And by looking at the global impressions, we're certainly missing the fine elements that make up our jobs and help us to establish differences between jobs. I also think if a job evaluation system is ever challenged in a court of law, or even if employees are asking HR to explain the job evaluation system plans like the simple ranking system, simply don't hold up very well. It's hard to explain the global judgments that individuals have used to rank jobs.
And finally we have wording objective number 6 which is stated on slide 30. This is internally consistent compensation systems and competitive strategy. One of the concerns about establishing job structures is possible inflexibility that it creates for companies. If we follow the structure starting with job descriptions, it gives management relatively little flexibility and having workers do other kinds of activities not described in those documents. When we get to pay structure development you'll see that there will be pay ranges for groups of similar jobs. There's flexibility that comes as a result of very well specified job structures in terms of limits to pay. If you have an exceptional employee who has done amazing work over a period of time, it's possible that they will hit the top of their pay range and there's inflexibility if the company truly wants to stay in line with that system and limits the ability to pay that employee more. We also have to be careful with developing internally consistent job structures by not narrowly defining jobs. If you were to look at job descriptions in the union setting you will find them very narrowly defined in terms of tasks, duties and responsibilities and according to collective bargaining agreements, it is it really possible for management to have employees work outside the scope. In a nonunion setting, if a company has similar narrow job descriptions, and that does happen from time to time, they could find themselves experiencing constraints and being able to flexibly deploy individuals to take on other assignments.
