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This document contains Chapters 5 to 6 CHAPTER 5 Person-Focused Pay Learning Objectives 1. Explain the concept and practice of person-focused pay. 2. Describe the type of setting in which person-focused pay is most likely to be used. 3. Name and explain the reasons companies adopt person-focused pay programs. 4. Summarize the varieties of person-focused pay programs. 5. Contrast person-focused pay with job-based pay. 6. Provide an explanation of the advantages and disadvantages of person-focused pay plans. Outline I. Defining Person-Focused Pay: Competency-Based, Pay-for-Knowledge, and Skill-Based A. Person-Focused Pay Plans B. Pay-for-Knowledge Plans C. Skill-Based Pay D. What Is a “Competency”? II. Usage of Person-Focused Pay Programs III. Reasons to Adopt Person-Focused Pay Programs A. Overarching Reasons B. Technological Innovation C. Increased Global Competition IV. Varieties of Person-Focused Pay Programs A. Four Main Types B. Stair-Step Model C. Skill-Blocks Model D. Job-Point Accrual Model E. Cross-Departmental Models V. Contrasting Person-Focused Pay with Job-Based Pay A. Person-Focused Pay B. Job-Based Pay VI. Advantages of Person-Focused Pay Programs A. To Employees B. To Employers VII. Disadvantages of Pay-for-Knowledge Pay Programs VIII. Discussion Questions and Suggested Answers IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses X. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses Lecture Outline I. Defining Person-Focused Pay: Competency-Based, Pay-for-Knowledge, and Skill-Based A. Person-Focused Pay Plans 1. Rewards employees for acquiring job-related: a. Competencies b. Knowledge c. Skills 2. Not compensated for demonstrating successful job performance 3. Competency-based pay programs a. Pay-for-knowledge pay b. Skill-based pay c. A combination of both 4. When combined with merit-pay programs, base pay increases are tied to how well employees demonstrate the competencies 5. Since the 1990s, person-focused pay has been adopted in a variety of work settings in a variety of company departments such as back-office operations, call centers, retail, and managerial and professional settings 6. Reward employees for acquiring: a. Horizontal skills b. Vertical skills c. Greater depth of knowledge or skills 7. Horizontal skills (knowledge) a. Similar skills b. Like clerical employees learning several kinds of record-keeping tasks 8. Vertical skills (knowledge) a. Traditionally considered supervisory, like: i. Scheduling ii. Coordinating iii. Training iv. Leading others b. Often emphasized in self-managed work teams c. Self-managed work teams i. Also known as semi-autonomous work groups ii. Brings employees together from various functional areas to plan, design, and complete one product or service 9. Greater depth of knowledge (skills) a. Refers to level of specialization or expertise an employee brings to a particular job b. Like an HR professional specializing in: i. Compensation ii. Benefits iii. Administration iv. Training v. Evaluation vi. New employee orientation B. Pay-for-Knowledge Plans 1. Rewards certain employees for increasing and applying job related knowledge, like: a. Managers b. Service employees c. Professionals C. Skill-Based Pay 1. Mainly for employees who perform manual labor 2. Pay increase based on mastery and use of new job skills
Example: Food Processing Plant Requiring Vertical Skills • In this plant, good hiring systems and excellent training systems were critical, including systems for training operators in maintenance skills • All training materials were put on their intranet, making it accessible to employees at any time • Several plants also invested heavily in documentation of training and required practical skills demonstration
D. What Is a “Competency”? 1. Two definitions a. Uniquely combined characteristics that enable an employee to fulfill job requirements, including: i. Personality ii. Attitudes iii. Knowledge iv. Skills v. Behaviors b. Synonymous with skills and knowledge 2. Core competencies are often derived from companies’ strategic statements 3. Competency-based-pay programs are for employees for whom it is hard to define job performance according to observable or concrete behaviors, like: a. Technicians b. Managers c. Service personnel d. Professionals
Example: Competency-Based-Pay Program • General Electric • Three strategic goals for corporate growth • Globalization • Product Services • Six Sigma (quality improvement) • Four core competencies “Four Es” • Energy (high) • Energizing (others) • Edge (ability to make touch calls) • Execute (ability to turn vision into results) • Offers comprehensive training for entry-level professionals
• II. Usage of Person-Focused Pay Programs 1. No systematic survey data available on actual number 2. No evaluative data to determine whether the size of the company is related to the success of these programs 3. The lack of data is due, in part, to the fact that person-focused pay systems did not become popular until the 1990s, giving little opportunity to determine their long-term effectiveness 4. One study found that a skilled-based pay plan in a manufacturing setting increased plant productivity by 58 percent 5. More than half of the companies that use them employ between 150–2,000 employees 6. Mostly found in continuous process settings, like manufacturing in which a. Assembly lines are used b. One employee’s job depends on the work of at least one other worker 7. Vertical skills programs a. Work well in manufacturing companies that organize work flow around high-performance work teams where employees are expected to: i. Learn functional tasks ii. Perform managerial tasks like: Work scheduling Budgeting Quality control b. Examples i. Motorola (cell phone division) ii. Steelcase (office furniture) 8. Adopted most widely in: a. Service companies b. Manufacturing companies c. For: i. Professional employees ii. Clerical employees iii. Skilled trade employees like: Carpenters Electricians
• Example: Pay-for-Knowledge Program Bell Sports Manufacturer of motorcycle safety helmets Assembly process includes enameling the helmets and attaching visors Enameling requires The ability to use automated sprayers Strong literacy skills to interpret read-outs from the sprayers and suggest possible problems Attaching visors requires: Proficient motor skills Good eye-hand coordination Employees are cross-trained to provide flexibility
III. Reasons to Adopt Person-Focused Pay Programs A. Overarching Reasons 1. Remove the view of pay as an entitlement 2. Establish the view of pay as a reward for acquiring and implementing job-relevant knowledge and skills B. Technological Innovation 1. Making some jobs obsolete, because of: a. Robots b. Telecommunications c. Artificial intelligence d. Software e. Lasers 2. Fostering increased autonomy and team-oriented work places where: a. Employees must learn to manage themselves and their time b. Teams require members with technical and interpersonal skills c. Teams are responsible for determining client needs and providing customer service
• Example: Technological Innovations Changing Job Responsibilities Automobile industry Auto mechanics Used to assemble and repair carburetors Now must know how to use computerized diagnostic systems to repair electronic fuel injection systems Assembly line workers Employees used to work as laborers, material handlers, operator-assemblers, or maintenance persons Now, all job responsibilities grouped into one position titled “manufacturing technician” Job demands higher levels of reading, writing, and computation skills

• Example: Technological Advancements Long distance providers AT&T and Verizon Seek competitive advantage by serving clients’ needs and anticipating possible changes in customers’ needs Must adapt to cellular phone services that include free long distance Now offer programs designed to meet the specific needs of customers Customer service associates must remain current on services available and be able to match service plans to customers’ needs
C. Increased Global Competition 1. To sustain competitive advantage, companies must: a. Provide employees with leading-edge skills b. Encourage employees to apply their skills proficiently 2. European Common Market and Pacific Rim a. Employers emphasize learning, therefore their employees are better skilled and more productive b. Cultures emphasize and provide better learning and workplace instruction for non-college-bound students 3. Western European employers emphasize apprenticeship programs that mix academic and applied learning to instruct employees 4. HR managers must tailor compensation programs to the particular skills they wish to foster 5. Training is at the heart of person-focused programs IV. Varieties of Person-Focused Pay Programs A. Four Main Types 1. Stair-step model 2. Skill-block model 3. Job-point accrual model 4. Cross-departmental model B. Stair-Step Model 1. Each step represents jobs from a particular job family that differ in terms of complexity 2. Each position differs according to the number of skills needed to perform the job 3. Each “step-up” requires more skills than the position “below” it
Examples: Stair-Step Models • Assembly technician (AT) steps • AT 1 requires employees to have two skills: • Line restocking • Pallet breakdown • AT 3 requires six skills: • Line restocking • Pallet breakdown • Burr removal • Line jockey • Major assembly • Soldering • Assembly technician pay increases • ABC Manufacturing Company hires AT trainees at $8.00 • After successfully completing three core AT 1 training workshops, pay increases to $8.50, and the employee is promoted to an AT 2 • Company orientation • Safety workshop • Quality workshop • After successfully completing two core elective AT training courses, pay increases to $9.15, and the employee is promoted to an AT 1 • Line restocking • Pallet breakdown • Employees can continue to receive training to earn “steps” up to AT 2 and AT 3, and earn more pay
4. Training can be conducted either: a. In-house by the company’s own training department i. Specialized courses ii. Work that bears upon company’s competitive advantage b. Outsourced to such organizations as: community colleges, vocational schools, four-year universities, training consulting firms, or suppliers’ client training programs for: i. Common skills ii. Skills that do not bear upon competitive advantage C. Skill-Blocks Model 1. Applies to jobs within one job family per model 2. Employees progress to increasingly complex jobs 3. Skills do not necessarily build on each other 4. Emphasizes the development of both horizontal and vertical knowledge and/or skill depth
Example: Skill-Based Model • Pro Company • Offers a pay-for-knowledge program • Bobby Smith hired as a Clerk 1, because of test proficiency in filing, typing, and word processing, all Clerk 1 core requirements • Taking Clerk 2, 3, or 4 curricula would enhance Bobby’s horizontal skills • Taking Clerk 5 curriculum, Bobby would increase her vertical skills
D. Job-Point Accrual Model 1. Encourages employees to develop skills and learn to perform jobs from different job families a. The number of jobs they can be trained to do is limited b. Companies want to avoid “jack of all trades” employees 2. Creates organizational flexibility and promotes company goals by assigning a relatively greater number of points to skills that address key company concerns 3. The more points an employee accrues, the higher that employee’s compensation level will be
• Example: Job-Point Accrual Model ZIP-MAIL, an express mail delivery service company Hopes to benefit from a person-focused pay program To differentiate themselves from competition (Fed Ex, UPS), they: Promise delivery by 7:30 a.m. Train couriers in customer relations skills to convey a professional image and establish an open rapport with clients Award couriers with points and pay increases for completing training
E. Cross-Departmental Models 1. Promote staffing flexibility by training employees in one department with some of the critical skills they would need to perform effectively in other departments 2. Can help production companies manage sporadic, short-term staffing shortages 3. Can help companies meet seasonal fluctuations in demands for their products or services 4. Similar to the job-point accrual model, except for their intent a. Job-point accrual models encourage employees to learn skills and acquire knowledge that bears directly on the competitive advantages of companies b. Cross-departmental models promote staffing flexibility by training employees in one department with critical skills they would need to perform effectively in other departments
Examples: Cross-Departmental Model • A custom-made shoe manufacturer and distributor • Prior to the Chanukah and Christmas holiday season, production and sales employees are busy • As Chanukah and Christmas Day draw near, sales and production drops off, and distribution increases • Company trained production and sales employees in distribution-related skills
V. Contrasting Person-Focused Pay with Job-Based Pay A. Person-Focused Pay 1. Compensates employees for developing the flexibility and skills to perform a number of jobs effectively 2. Rewards employees on their potential to make positive contributions to the workplace, based on the successful acquisition of work-related skills or knowledge 3. Person-focused pay plans apply in limited contexts, because not all jobs can be assessed based on skill or knowledge B. Job-Based Pay 1. Compensates employees for jobs they currently perform 2. Pay levels are set depending on the job a. Merit pay i. Managers evaluate employees’ performances based on how well they fulfilled their designated roles as specified in their job descriptions and periodic objectives ii. Managers then award a permanent addition to base pay, based on performance b. Incentive pay i. Managers award one-time additions to base pay ii. Pay raise amounts based on the attainment of predefined work goals 3. Apply in an organization-wide context since employees earn base pay rates for the jobs they perform
Example: Comparison between Skill-Based and Job-Based Pay Programs
• Feature Person-focused Job-based
• Level determination Market-based for skill valuation Market based for job valuation
• Base pay Based on skills or knowledge level Based on value of compensable factors
• Pay raises Based on gains in skills or knowledge Based on attaining job-defined goal or seniority
• Job promotion Based on skills base and proficiency on past work Based on exceeding job performance standards
• Advantages to employees Job variety and enrichment Perform work and receive pay for a defined job
• Advantage to employers Work schedule flexibility Easy pay administration

Example: Incentive Pay • Acme Manufacturing Company • Makes disk drives for computers • Has unacceptably high defect rate • Wants rates lower than Do-Rite • 6,500 defects compared to 3,000 • Manufacturing, their competitor • Employees receive bonus based on their monthly defect rate
VI. Advantages of Person-Focused Pay Programs A. To Employees 1. Two main benefits a. Job enrichment b. Job security 2. Job enrichment a. Refers to a job design approach that creates more intrinsically motivating and interesting work environments
• Example: Pay-for-Knowledge Pay Programs Volvo Uddevalla manufacturing facility in Sweden uses teams of 7–10 hourly workers Workers produce entire vehicles which expands the horizontal dimensions (skill variety) of workers’ jobs Some teams are empowered to manage themselves, managing duties that represent the vertical dimensions (autonomy) of work and include: Controlling schedules Dividing up tasks Learning multiple jobs Training one another
b. Can be accomplished by combining narrowly designed tasks to allow employees to produce an entire product or service i. Contributing to all aspects of the manufacturing process expands the horizontal dimensions (skill variety) of the workers’ jobs ii. When teams are allowed to manage themselves by controlling schedules, dividing up tasks, learning multiple jobs, or training one another it represents the vertical dimensions (autonomy) of work
• Description: Job Characteristics Theory Employees will be motivated to perform jobs that contain a high degree of four core characteristics Skill variety: the degree to which the job requires the person to do different tasks and involves the use of a number of different skills, abilities, and talents Task identity: the degree to which the job enables an employee to complete the entire job from start to finish Autonomy: the amount of freedom, independence, and discretion the employee enjoys in determining how to do the job Feedback: the degree to which the job or employer provides the employee with clear and direct information about job outcomes and performance
c. Expand both horizontal and vertical work dimensions d. Promote skill variety and autonomy 3. Job security a. Creates more flexible workers who can work another position in case of: i. Low product demand ii. Slow sales periods iii. Layoffs b. Makes workers more attractive to other employers B. To Employers 1. Can lead to enhanced job performance a. Better quality work b. More productive workers 2. Can lead to reduced staffing 3. Can lead to greater flexibility a. Develop employees’ horizontal skills b. Develop employees’ vertical skills VII. Disadvantages of Person-Focused Pay Programs 1. Increased Costs a. Hourly labor b. Training i. Training programs ii. Regular pay during training iii. Increase in base pay when completed c. Overhead 2. May not mesh well with existing incentive pay programs a. Employees may not want to learn new skills if increase for new skills is less than incentive award earned for existing skills i. A short-term focus on employees’ part: may have to be laid-off instead of transferred during slow period ii. Example: an assembly line worker makes more than the inventory controller position for which she is training b. Time taken to learn new skills may take time away from time to meet production goals needed to receive incentive pay 3. Depend in large part on well-designed training programs a. Person-focused pay systems include costly training programs b. Require that employers bear the price of base pay and benefits while employees attend training during regular work hours c. Companies must wait patiently before realizing a return on investment for training 4. Companies struggle with determining the monetary value of skill and knowledge sets a. Knowledge and skill sets are usually company-specific making comparability difficult CHAPTER 6 Building Internally Consistent Compensation Systems Learning Objectives 1. Explain the concept of internally consistent compensation systems. 2. Summarize the practice of job analysis. 3. Describe the practice of job evaluation. 4. Give two examples of job evaluation techniques and briefly summarize each one. 5. Explain how internally consistent compensation systems and competitive strategy relate to each other. Outline I. Internal Consistency II. Job Analysis A. Definition B. Steps in Job Analysis Process C. Legal Considerations D. Job Analysis Techniques E. O*NET III. Job Evaluation A. Definition B. Compensable Factors C. The Job Evaluation Process IV. Job Evaluation Techniques A. Two General Types B. The Point Method C. Alternative Job-Content Evaluation Approaches D. Alternatives to Job Evaluation V. Internally Consistent Compensation Systems and Competitive Strategy VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses VIII. Additional Case from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses. Lecture Outline I. Internal Consistency 1. Clearly define the relative value of each job among all jobs within a company to represent the job structure or hierarchy 2. Based on a fundamental principle that states jobs that require greater qualifications, more responsibilities, and more complex job duties should offer more pay than those jobs that require less 3. Internally consistent job structures a. Recognize differences in job characteristics b. Enable compensation managers to set pay 4. Developed using two processes a. Job analysis i. Mostly a descriptive procedure ii. Highlight the key similarities and differences between jobs b. Job evaluation i. The key for casting internally consistent compensation systems as strategic tools ii. Is used to establish pay differentials among employees within a company 5. Process lead by HR specialists who a. Solicit involvement of employees and supervisors b. Use the information to write job descriptions that: i. Describe job duties ii. Set minimum qualifications for employees II. Job Analysis A. Definition 1. A systematic process for gathering, documenting, and analyzing information in order to describe jobs 2. Identifies and defines job content a. Job duties that employees must perform b. Worker requirements (compensable factors) needed to perform the job like: i. Knowledge, skills, and abilities (KSAs) ii. Education iii. Experience iv. Licenses v. Permits vi. Specific abilities
Example: Worker Requirements for HR Managers • Knowledge of principles and procedures for: • Recruitment • Selection • Training • Compensation and benefits • Labor relations and negotiations • Human resource information systems • Active listening and critical thinking • Oral and written comprehension
3. Job context or working conditions, like: a. Social context b. Physical environment i. Noise level ii. Exposure to hazardous conditions or chemicals iii. Work equipment B. Steps in the Job Analysis Process 1. Five main activities a. Determine a job analysis program b. Select and train analysts c. Job analyst orientation d. Conduct the study: data collection methods and sources of data e. Summarize the results: writing job descriptions 2. Determine a job analysis program a. Decide between using an established system or developing its own b. Decide which data gathering method to use i. Questionnaires ii. Interviews iii. Observation iv. Participation c. Administrative costs usually a determining factor 3. Select and train analysts a. Select someone who will be able to: i. Collect job-related information through various methods ii. Relate to a wide variety of employees iii. Analyze the information iv. Write clearly and succinctly b. Ideally, a task force of representatives from throughout the company conducts the analysis, while HR staff members coordinate it c. Training employees to be analysts should include: i. Learning the basic assumptions of the model and the procedures ii. Details of a study’s objectives iii. How the information will be used iv. Methodology overviews v. Discussions and demonstrations of the information-gathering techniques vi. Learning to minimize the chance they will conduct ineffective job analyses vii. Familiarization of the structure of pertinent job data
• Example: Units of Analysis in the Job Analysis Process Element: the smallest step (e.g., inserting a diskette into a floppy disk drive) Task: one or more elements (e.g., keyboarding text into memo format) Position: a collection of tasks constituting a total work assignment (e.g., clerk typist) Job: a group of positions with similar tasks (e.g., several clerk typists) Job family: a group of two or more jobs with similar worker characteristics or work tasks (e.g., clerical job family) Occupation: a group of jobs, at different companies, with common sets of tasks with similar objectives, methodologies, materials, products, worker actions, or worker characteristics (e.g., office support occupation)
d. Analysts need to know how to use and understand the Standard Occupational Classification System (SOC) i. Published by the U.S. Office of Management and Budget ii. Replaces the Dictionary of Occupational Titles (DOT) iii. Lists 23 major occupational groups based on the 2010 edition iv. Available at e. Units of analysis may influence judgments about job similarities and differences
• Example: Job Similarities/Differences Dissimilar HR managers, purchasing managers, and payroll clerks all perform different duties Similar HR managers and purchasing managers are both management HR manager and payroll clerk are both in HR
4. Direct job analysts orientation a. Before starting job analysis techniques the analyst must analyze the context in which employees perform their work b. Analysts should obtain and review: i. Organizational charts ii. Listings of job titles iii. Classifications of each position iv. Job incumbent names and pay rates v. Instructional booklets or handbooks for operating equipment vi. Job information from SOC, trade associations, professional societies, and trade unions 5. Conduct the study: data collection methods and sources of data a. Gather and record information for each job i. Using appropriate methods ii. Using appropriate sources b. The most common methods of data collection are: i. Questionnaires ii. Observation
• Example: Common Questionnaire Questions and Statements Describe the task you perform most frequently. How often do you perform this task? List any licenses, permits, or certifications required to perform duties assigned to your position. List any equipment, machines, or tools you normally operate as part of your position’s duties. Does your job require any contacts with other department personnel, other departments, outside companies, or agencies? If so, please describe. Does your job require supervisory responsibilities? If yes, for which jobs and for how many employees?
c. Observations require analysts to record perceptions formed while watching employees perform d. Most common sources of data are: i. Job incumbents, for extensive and detailed information about how the job is performed ii. Supervisors, for the interrelationship among jobs and employees iii. Job analysts, for perceptions from past and current analyses e. Job analysts i. Use observations, to write descriptions ii. Use questionnaires, to ask follow-up questions for clarification iii. Strive to provide reliable and valid job evaluation results iv. Strive to obtain reliable job evaluation results that would yield consistent results under similar conditions f. A valid job analysis method accurately assesses each job’s duties i. From multiple sources ii. Using multiple methods g. Reliable and valid job analyses are essential because: i. Inadequate pay may lead to dysfunctional turnover ii. Excessive pay represents a cost burden to the company iii. Basing pay on factors that do not relate to job duties leaves the company vulnerable to allegations of illegal discrimination h. Including multiple data collection methods and sources minimizes the inherent biases associated with any particular method or source 6. Summarize the results: writing job descriptions a. Should include: i. The job’s purpose ii. A list of a job’s tasks, duties, and responsibilities iii. A list of the skills, knowledge, and abilities necessary to perform the job at a minimal level b. Should explain: i. What the employee must do to perform the job ii. How the employee performs the job iii. Why the employee performs the job, in terms of its contribution to the functioning of the company iv. Supervisory responsibilities, if any v. Contacts (and purpose of these contacts) with other employees inside or outside the company vi. The skills, knowledge, and abilities the employee should have or must have to perform the job duties vii. The physical and social conditions under which the employee must perform the job c. Should contain: i. Job title to indicate the job designation ii. Job summary with two to four concise, descriptive statements
• Example: Equal Employment Opportunity Commission (EEOC) Guidelines Concise, descriptive writing guidelines Education: refers to formal training; GED and high school diploma through Ph.D. Skill: refers to an observable competence to perform a learned psychomotor act Ability: refers to a present competence to perform an observable behavior or a behavior that results in an observable product Knowledge: refers to a body of information applied directly to the performance of a function
iii. Job duties to describe the major work activities and supervisory responsibilities iv. Worker specification to list the education, skills, abilities, knowledge, and other qualifications needed to perform the job C. Legal Considerations for Job Analysis 1. Job analyses are not required by the government, but can increase the chance that employment decisions are based on pertinent job requirements 2. The Equal Pay Act requires that companies justify pay differences between men and women who perform equal work a. A different job title alone is not a legal justification (refer to Chapter 3) b. Job analysis helps discern if substantive differences between job functions exist 3. Can be used to determine if a job is exempt or nonexempt under the Fair Labor Standards Act (more in Chapter 2) 4. Can be used to insure compliance with the American with Disabilities Act a. As long as disabled applicants can perform the essential functions of a job with reasonable accommodation, companies may not discriminate against these applicants by paying them less than nondisabled employees performing the same job b. Can be used to systematically define job functions and consult the EEOC interpretive guidelines to determine if they are essential
Americans with Disabilities Act “Guidelines for Essential Job Functions” Based on the original Act passed in 1990 • The reason the position exists is to perform the function • The function is essential or possibly essential. If other employees are available to perform the function, the function probably is not essential • A high degree of expertise or skill is required to perform the function • Whether a particular job function is essential is a determination that must be made on a case-by-case basis and should be addressed during job analysis. Any job functions that are not essential are determined to be marginal. Marginal job functions could be traded to another position or not done at all

• New Effects Based on Revisions to the Original Act passed in 2008 It is now easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the ADA Directs EEOC to revise that portion of its regulations defining the term “substantially limits” Expands the definition of “major life activities” by including two nonexhaustive lists: one which includes activities such as reading and bending that were not formally recognized before; and one including major body functions States that mitigating measures other than “ordinary eyeglasses or contact lenses” shall not be considered in assessing whether an individual has a disability Clarifies that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active Changes the definition of “regarded as” so that it no longer requires a showing that the employer perceived the individual to be substantially limited in a major life activity Provides that individuals covered only under the “regarded as” prong are not entitled to reasonable accommodation
D. Job Analysis Techniques 1. Two main types a. Established job analysis techniques b. Custom designed techniques 2. Established job analysis techniques a. Are less expensive than custom designed techniques b. Choosing one depends on: i. Applicability ii. Cost c. Applicability i. Some apply only to a particular job family ii. Others apply to a broad range iii. Most are already tested and refined d. Costs i. Some are proprietary ii. Some are available to the public at no charge iii. Private consultants charge high fees for using their methods iv. The U.S. Department of Labor does not charge for using its methods E. The U.S. Department of Labor’s Occupational Information Network (O*NET) 1. O*NET a. Developed by the U.S. Department of Labor’s Employment and Training Administration during the 1990s 2. Is a database created for two reasons a. To describe jobs in the relatively new service sector b. To more accurately describe jobs that evolved as the result of technological advances 3. Content Model a. Was developed using research on job and organizational analyses b. Reflects the character of occupations by using job-oriented descriptors c. Reflects the character of employees by using worker-oriented descriptors d. Allows occupational information to be applied across: i. Jobs ii. Sectors iii. Industries (cross-occupational descriptors) iv. Within occupations 4. O*NET is comprehensive a. It incorporates information about both jobs and workers b. The O*NET content model lists six categories of job and worker information
O*NET Categories • Experience requirements • Occupational requirements • Occupation specific requirements • Worker requirements • Worker characteristics • Labor market characteristics
c. Job information contains the components that relate to the actual work activities of a job that should be included in: i. The job summary ii. The job duties sections of job descriptions b. Worker information represent characteristics of employees that contribute to successful job performance 5. Experience requirements a. Experience and training i. Related work experience ii. On-site or in-plant training iii. On-the-job training b. Licensing i. License, certificate, or registration required ii. Education, training, examination, or other requirements for license, certificate, or registration iii. Post-secondary degree, graduate degree, on-the-job training iv. Organization and agency requirements v. Additional education and training c. Organizational and agency requirements i. Legal requirements ii. Employer requirements iii. Union, guild, or professional association requirements 6. Occupation requirements a. Generalized work activities - describes general types of job behaviors on multiple jobs b. Organizational context - indicates the characteristics of the organization that influence how people do their work c. Work context - describes physical and social factors that influence the nature of work 7. Occupation specific requirements a. Describe the characteristics of a particular occupation b. Seven categories of particular requirements i. Occupational skills ii. Occupational knowledge iii. Tasks iv. Duties v. Machines vi. Tools vii. Equipment 8. Workforce characteristics a. Describe: i. Labor market information ii. Occupational outlook iii. Wages b. Data available from other sources such as: i. The U.S. Bureau of Labor Statistics ii. The Department of Commerce iii. Career One Stop iv. The U.S. Bureau of Census 9. Worker characteristics a. Abilities - the enduring attributes of an individual that influence performance b. Interests - describe preferences for work environments and outcomes c. Work styles - personal characteristics that describe important interpersonal and work style requirements in jobs and occupations 10. Worker requirements a. Basic skills - describe developed capacities that facilitate learning or the more rapid acquisition of knowledge b. Cross-functional skills - indicates developed capacities that facilitate performance of activities that occur across jobs c. Knowledge - describes organized sets of principles and facts applying in general domains d. Education - details prior educational experience required to perform the job 11. Using O*NET a. HR professionals consult the O*NET User’s Guide and most current O*NET Database b. Get the information on the Web, from the U.S. Department of Labor Employment and Training Administration at III. Job Evaluation A. Definition 1. It is a technique used to systematically recognize differences in the relative worth among a set of jobs, and establish differentials accordingly 2. It reflects the values and priorities that management places on various positions 3. It is based on job content and the firm’s priorities, managers establish pay differentials for virtually all positions within the company B. Compensable Factors 1. Defined as salient job characteristics by which companies establish relative pay rates 2. Universal compensable factors a. Skill b. Effort c. Responsibility d. Working conditions e. Are derived from the Equal Pay Act f. Are used to determine whether dissimilar jobs are “equal” g. Considered universal because virtually every job contains these factors i. Most jobs can be described broadly in terms of these factors given the evolution of jobs that require greater cognitive skills and mental effort ii. A working conditions compensable factor is most helpful when a company expects a substantial difference in working conditions for similar jobs 3. Two considerations when selecting which factors to use when evaluating a job a. Which factors are job-related? b. Which factors further the company’s strategies? C. The Job Evaluation Process 1. Six steps a. Determining single versus multiple job evaluation techniques b. Choosing the job evaluation committee c. Training employees to conduct job evaluation d. Documenting the job evaluation plan e. Communicating with employees f. Setting up an appeals process 2. Determining single versus multiple job evaluation techniques a. Determine how many techniques are sufficiently broad to assess a diverse set of jobs b. It is not reasonable to expect that a single job evaluation technique based on a single set of compensable factors can adequately assess diverse sets of jobs 3. Choosing the job evaluation committee a. Usually chosen by the HR professional b. Consists of rank and file employees, supervisors, managers, and union representatives, each with their own motivations i. Employees want fair compensation for contributions ii. Supervisors and managers want to control costs iii. Union representatives want union members to enjoy a quality standard of living c. Purpose is to review job descriptions and analyses and then evaluate jobs d. Helps ensure commitment from employees e. Provides a check and balance system f. A committee allows for a consensus of human judgments g. Functions, duties, responsibilities, and authority vary by company h. In large companies, separate committees are established to evaluate particular job classifications such as: i. Exempt jobs ii. Nonexempt jobs iii. Managerial positions iv. Executive positions 4. Training employees to conduct job evaluations, by ensuring that they: a. Understand the process objectives b. Know company objectives c. Know job evaluation procedures d. Understand that their decisions must be based on sound job and business-related rationales to make sure their decisions are legal 5. Documenting the job evaluation plan a. Important for legal and training purposes b. Should clearly specify the job and business-related criteria used to evaluate the jobs c. Should clearly describe how the jobs were evaluated and how the outcomes were derived d. Should provide guidelines for clarifying ambiguities in the event of employee appeals or legal challenges 6. Communicating with employees a. Should be done formally and personally throughout the process about: i. How the process works ii. The results b. Employees should have a chance to respond positively and negatively 7. Appeals process: a. Appeals procedures should allow reviews on a case-by-case basis to provide a check on the process through reexamination and such appeals may reduce charges of illegal discrimination b. Compensation professionals usually review employee appeals c. Committee decisions should reflect the varied perspectives of participants rather than the judgment of one individual
Practitioner’s Note: Even though much of what is described in the job analysis and job evaluation section is formalized, there is still a tremendous amount of subjectivity on the part of the compensation manager. The compensation manager should carefully weigh the costs and benefits presented, and make his or her decisions based upon what best helps the firm to achieve a competitive advantage.
IV. Job Evaluation Techniques A. Two general types 1. Market-based evaluations 2. Job-content evaluations 3. Market-based evaluations (more in Chapter 7) a. Use market data to determine differences in job worth b. Allow companies to assign pay rates that are neither too low nor too high relative to the market c. Compensation professionals use compensation surveys to determine the prevailing pay rates in the relevant job markets 4. Job-content evaluations a. Emphasize the company’s internal value system to establish a hierarchy of internal job worth based on each job’s role in the company strategy b. Compensation professionals i. Review preliminary structures for consistency with market pay rates on a representative sample of jobs (benchmark jobs) ii. Judge the adequacy of pay differentials by comparing market rates with in-house rates iii. Consult with an HR official and chief financial officer, especially if their rates are lower 5. Must balance external market considerations with internal consistency objectives B. The Point Method (more in Chapter 7) 1. The most popular job-content method because it gives compensation professionals better control over balancing internal and market considerations 2. A quantitative method that assigns numerical values to compensable factors which are summed to indicate the overall value of the job 3. The relative worth of the job is established by the magnitude of its overall numeric value 4. Evaluates jobs by comparing compensable factors a. Each factor is defined and assigned a range of points based on the factor’s relative value to the company b. Compensable factors are weighted to represent the relative importance of each factor to the job 5. The seven-step process a. Select benchmark jobs b. Choose compensable factors based on benchmark jobs c. Define factor degrees d. Determine the weight of each factor e. Determine point values for each compensable factor f. Verify factor degrees and point values g. Evaluate all jobs
• Benchmark Jobs Characteristics The contents are well-known, relatively stable over time, and agreed upon by the employees involved The jobs are common across a number of different employers The jobs represent the entire range of jobs that are being evaluated within a company The jobs are generally accepted in the labor market for the purposes of setting pay levels
6. Step 1: Select benchmark jobs a. Used to develop factors and their definitions to select jobs to represent the entire range of jobs in the company b. Benchmark jobs found outside the company, provide reference points against which jobs within the company are judged 7. Step 2: Choose compensable factors based on benchmark jobs a. Managers must define compensable factors that adequately represent the scope of jobs slated for evaluation b. Each benchmark job should be described by these factors that help distinguish it from the value of all other jobs c. Universal factors may be broken down d. Additional factors may be developed to the extent that they are job or business related
• Example: Compensable Factor Breakdowns Skill may include job knowledge, education, mental ability, physical ability, accuracy, and dexterity Effort may include factors relating to physical and mental exertion Responsibility may include considerations related to fiscal, material, or personnel responsibilities Working conditions may be unpleasant because of extreme temperatures or possible exposure to hazardous chemicals
8. Step 3: Define factor degrees a. Used to identify the level of a factor present in each job b. Definitions should set forth and limit the meaning of each degree c. The number of degrees will vary depending on the comprehensiveness of the plan d. Most analyses anchor minimum and maximum degrees, with specific jobs representing these points
• Example: Factor Degrees Educational levels For clerical positions, a high school diploma or equivalent and an associate’s degree For administrative, production managerial, and professional jobs, it might be a high school diploma or equivalent, associate’s degree, bachelor’s degree, master’s degree, or doctorate
9. Step 4: Determine the weight of each factor a. Represents the importance of the factor to the overall value of the job b. Weighting often done by management or by a job evaluation committee c. Usually expressed as percentages d. All factors are ranked according to their relative importance and final weights are assigned after discussion and consensus
Example: Weighted Factors • Working at ABC Manufacturing Corporation • Skills . . . . . . . . . . . . . 60% • Responsibility . . . . . . 25% • Effort . . . . . . . . . . . . .10% • Working conditions . . 5%
10. Step 5: Determine point values for each compensable factor in three stages a. Establish the maximum possible point values (generally the number of factors times 250) b. Determine point value by multiplying point total by percentage c. Distribute these points across degree statements within each compensable factor for use in a regression analysis (more in Chapter 7)
Example: Weighing and assigning points to compensable factors (see page 30) • ABC Manufacturing Corporation 4 factors X 250 points = 1000 points • Skill is the most highly valued at 60% (1000 pts) = 600 points • Responsibility is the next important at 25% (1000 pts) = 250 points • Effort is weighted at 10% (1000 pts) = 100 points • Working conditions at 5% (1000 pts) = 50 points Example: Assigning degree point values • Skill has 5 degree statements, with l being the most basic skill and 5 representing the most advanced • 600 point maximum/5 degree statements = 120 points per degree • Degree 1 = 120 points Degree 3 = 360 points • Degree 2 = 240 points Degree 4 = 480 points Degree 5 = 600 points

11. Step 6: Verify factor degrees and point values a. Committee members should review the point totals for each job b. Determine whether the hierarchy of jobs makes sense in the context of the company’s strategy plan as well as the inherent content of the jobs
• Example: Factor Degrees and Point Values Sales jobs should rank high in the pharmaceutical industry Research scientist jobs ought to rank high in a company that pursues a differentiation strategy Claims analyst rank higher than messengers in the insurance industry
12. Step 7: Evaluate all jobs a. Once the evaluation system has been tested and refined b. By determining which degree definition best fits the job and assigning the corresponding point factors c. By totaling the points for each job, which are then ranked according to their point values 13. Balancing internal and market considerations using the point method a. By converting point values into the market value of jobs through regression analysis (more in Chapter 7) i. Regression analyses enable compensation professionals to set base pay rates in line with market rates for benchmark or representative jobs ii. Companies get market pay rates through compensation surveys iii. A company’s value structure for jobs based on the point method will probably differ from the market rates b. Results of the regression analysis will indicate base pay rates that minimize the differences between the company’s point method results and the market pay rates C. Alternative Job-Content Evaluation Approaches 1. Qualitative methods a. Qualitative methods evaluate the entire job and typically compare jobs to one another or some general criteria b. Four main types i. Simple ranking plan ii. Paired comparisons iii. Alternation ranking iv. Classification plans 2. Simple ranking plan a. This plan orders all jobs from lowest to highest according to a single criterion, such as: i. Job complexity ii. The centrality of the job to the company’s competitive strategy b. In small companies, this approach considers each job in its entirety c. In large companies, jobs are ranked on a departmental basis i. Different rankings may result ii. Committees resolve differences by consensus d. Three limitations i. Ranking results rely on purely subjective data The process lacks objective standards, guidelines, and principles that might aid in resolving differences of opinion among committee members Companies do not always fully define their ranking criteria ii. Ranking methods use neither job analyses nor job descriptions, making them difficult to legally defend iii. Ranking methods do not incorporate objective scales that indicate how different in value one job is from another 3. Paired comparison ranking a. Useful when there are many (20 or more) jobs to rate b. Every job is paired with every other job i. The job with the highest value is given a point ii. The other job gets nothing c. After all pairs are rated, the jobs are ranked by total points received i. The job with the most points is the most valuable ii. The jobs with the least points is the least valuable 4. Alternation ranking a. Orders jobs by extremes b. The relative value of each job is judged by a single criterion, such as: i. Job complexity ii. Centrality of the job to the company’s competitive strategy c. Ranking begins by determining which job is the most then least valuable d. The ranking then goes from second most and least valuable, to third, fourth, and so on, until all jobs are evaluated
• Example: Alternation Ranking Training and development professional Listed most valuable to least Director of training and development Manager of training and development Senior training and development specialist Training and development specialist Training and development assistant Not knowing “how much different” the values are makes it difficult to establish pay levels according to job content differences
5. Classification plans a. Place jobs into categories based on compensable factors b. Public sector organizations, such as the civil service systems, use this plan c. The federal government uses the General Schedule (GS) classification plan (refer to Chapter 3) i. 15 classifications GS-1 through GS-15, based on: Skills Education Experience ii. Jobs that require high levels of specialized education, or executive decision making are classified differently Senior Level Scientific and Professional Senior Executive Service iii. Enables the federal government to set pay rates for thousands of unique jobs based on 18 classes, based on: GS level Relevant work seniority D. Alternatives to Job Evaluation 1. Market pay rates (more in Chapter 7) 2. Pay incentives (more in Chapter 4) 3. Individual rates 4. Collective bargaining (refer to Chapter 2) V. Internally Consistent Compensation Systems and Competitive Strategy 1. Reduce a company’s inflexibility: a. In responding to changes in competitor’s pay practices b. Because job analysis leads to structured job descriptions and job structures 2. Relative worth a. Job evaluation establishes the relative worth of jobs within the company b. However, responding to the competition may necessitate that employees engage in duties that extend beyond what’s written in their job descriptions 3. Bureaucracy a. Establishing job hierarchies tends to create narrowly defined jobs, which leads to great numbers of: i. Jobs ii. Staffing levels b. Such structures promote heavy compensation burdens i. Core compensation depends on: The job employees perform How well employees perform Skills employees possess ii. Employee benefits which are fixed cost Instructor Manual for Strategic Compensation: A Human Resource Management Approach Joseph J. Martocchio 9780133457100, 9780135192146

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