Job Analysis and

Compensation System

Prof. Jann Hidajat Tjakratmadja

YP 55C
9 SEPT 2016
 OBJECTIVES

1. Understand the need to link compensation

policies and practices with an organisation’s
strategic business objectives.

2. Identify the key objectives of employee

compensation.

3. Explain the components of a systematic

compensation program.

4. Understand the mechanics of common job

evaluation systems.
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 Introduction
1. Compensation is the hearth of any business.
 Financial function must be punctual and
accurate
 Great potential for assisting in other areas of
business
2. A slight delay in paying staff can trigger a range of
consequences from staff discontent through the
industrial action
3. Compensation is an area that is vulnerable to
security risk.
 Underpaying or overpaying
 Legal aspects
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 STRATEGIC COMPENSATION
1. Compensation is one of the most important
HCM functions.
2. It can help to reinforce the organisation’s
culture and key values and facilitate the
achievement of its strategic business
objectives.
3. If there is any significant mismatch
between compensation and organisational
strategy, it is likely to result in major
barriers to the achievement of strategic
business objectives.
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 TYPES OF EMPLOYMENT REWARDS

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 COMPENSATION PHILOSOPHY ... (1)

The HC manager must change the

emphasis from immediate questions:
1. How much do we need to pay?
2. How should it be packaged?

to more strategic questions:

1. What does the organisation want in return
for its pay?
2. How can compensation policies and practices
achieve these objectives?
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 COMPENSATION PHILOSOPHY ... (2)
A formal compensation policy should:
1. Reflect the organisation’s strategic business
objectives and culture
2. Articulate the objectives that an
organisation wants to achieve via its
compensation programs
3. Be communicated to all employees
4. Provide the foundation for designing and
implementing compensation and benefit
programs.
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Performance
COMPENSATION PROGRAM OBJECTIVES:
ORGANISATION ... (1)
Attract and keep the desired quality and mix of
employees
Motivate employees to continually improve their
performance and to strive to achieve the
organisation’s strategic business objectives

Reinforce the key values and the desired

organisational culture

Drive and reinforce desired employee behaviour

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COMPENSATION PROGRAM OBJECTIVES:
ORGANISATION ... (2)

Ensure compensation is maintained at the

desired competitive level

Ensure optimum value for each salary dollar

spent

Comply with legal requirements

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COMPENSATION PROGRAM OBJECTIVES:
EMPLOYEE

Give the employee equitable treatment (fair)

Accurately measure and appropriately
reward the employee’s performance and
contribution
Provide appropriate compensation changes
Provide regular compensation and
performance reviews
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COMPENSATION PROGRAM COMPONENTS

1. Job description and job specification in

Job analysis process
2. Job evaluation

3. Salary/Pay survey

4. Performance evaluation

5. Pay for performance

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Performance
 1. JOB DESCRIPTION

• A necessary prerequisite to the

introduction of any job evaluation
scheme is a comprehensive job
description.
• They are used as pseudo-scientific means
of saying that this job is worth relatively
more than that job.

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Performance
 2. JOB EVALUATION

• Job evaluation is a systematic method of

determining the worth to the
organisation of each job in relation to the
worth of other jobs.
• It is concerned with ‘how big’ or ‘how
small’ a job is.
• The aim is to ensure that jobs of different
sizes are paid proportionately different
salaries.
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Performance
 2.D. The Point System
• WHAT
1. The point method is a more quantitative technique.
2.The objective of the point method is to award points
for various aspects of the job.

• HOW
1. Select KEY JOBS.
2.Identify the factors common to all the identified jobs
such as skill, effort, responsibility, and working
condition.
3.Divide each major factor into a number of sub
factors. Each sub factor is defined and expressed
clearly in the order of importance, preferably along
a scale.
 HOW
4. Find the maximum number of points assigned to each
job (after adding up the point values of all sub-factors
of such a job). This would help in finding the relative
worth of a job. For instance, the maximum points
assigned to an officer’s job in a bank come to 540.
5. The manager’s job, after adding up key factors + sub
factors’ points, may be getting a point value of, say
650 from the job evaluation committee. This job is now
priced at a higher level.
6. Once the worth of a job in terms of total points is
expressed, the points are converted into money values
keeping in view the hourly/daily wage rates. A wage
survey, usually, is undertaken to collect wage rates of
certain key jobs in the organization.
 THE MOST FREQUENT FACTORS EMPLOYED IN
POINT SYSTEMS ARE:
 Skill (key factor)
Education and training required, experience required, social
skills required, problem-solving skills, degree of discretion/use
of judgment, creative thinking
 Effort
Mental demands of a job, physical demands of a job, degree of
potential stress.
 Responsibility/Accountability
Specialized responsibility, complexity of the work, degree of
freedom to act, number and nature of subordinate staff,
extent of accountability for equipment/plant, extent of
accountability for product/materials
 Working Conditions
Location, hazards, extremes in environment
DEGREE SUB FACTOR
1 Able to carry out simple calculations
2 Does all the clerical operations
3 Handle mail, develop contacts, make initiative & does
work independently
4 Etc…

POINT VALUES TO FACTOR ALONG A SCALE

FACTOR 1 2 3 4 5 TOTAL
Skill 10 20 30 40 50 150
Physical Effort 8 16 24 32 40 120
Mental Effort 5 10 15 20 25 75
Responsibility 7 14 21 28 35 105
Working Conditions 6 12 18 24 30 90
MAXIMUM TOTAL POINTS OF ALL FACTORS DEPENDING ON THEIR 540
IMPORTANCE TO JOB
CONVERSION OF JOB GRADE POINT INTO
MONEY VALUE

Daily Wage Rate

Point Range Job Grades
(IDR in 000)
500-600 100-200 Officer
600-700 200-300 Accountant
700-800 300-400 Manager 1 Scale
800-900 400-500 Manager 2 Scale
900-1000 500-600 Manager 3 Scale
 3. SALARY/PAY SURVEYS
Salary surveys are a key plank in the design of
an organisation’s compensation program.
Does the organisation want to compare itself
with:
1. Organisations in the same or related
industries?
2. Organisations in the same geographic area?
3. ‘Best practice’ companies?
4. Domestic companies?
5. Multinationals?
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Performance
Job Evaluation and the Pay Survey

1. Job evaluation determines the

relative worth of each job to the
organisation

2. The pay survey makes it possible to

assign appropriate salary ranges to
each job

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Performance
 3.A. Pay Structure

1. Job size is established by job

evaluation and performance is
measured by employee appraisal.

2. Once job sizes have been established,

each job level is given a pay range
showing the minimum and
maximum salary to be paid.

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Performance
 3.B. Pay Line or Curve

The purpose of the pay line is

to show the relationship
between the size of a job and
the average salary paid for it.

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Performance
3.c. Price Each Pay Grade -Wage Curves
• Developing a wage curve involves the
following:
– Find the average pay for each pay grade
– Plot the pay rates for each pay grade
– Fit the line called a wage line through the
points just plotted
– Price the jobs

Wage curve
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Performance
 Pay Trend Line

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Compensation & Pay for Performance
 Fine Tune Pay Rates

• Pay ranges are a series of

steps or levels in a pay
grade, usually based on
years of service
Sample pay grade schedule

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Performance
 Pay Ranges

STANDARD RANGE
• The most generally accepted pay range
for professional and managerial positions
is plus or minus 20 per cent from the
midpoint.
• Sets the minimum and maximum
scheduled amounts paid for a job at a
particular job size.
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Performance
 Pay Ranges

MARKET POSTURE

An organisation can adopt one of the

three market postures:
• Pay above market average
• Pay market average
• Pay below market average

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Performance
 Selecting A Pay Policy Line

• A graphical representation of the

organisation’s predicted pay midpoints
for 12-month period ahead.
• Its purpose is to ensure that the
organisation’s stated market position is
achieved and maintained.

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Performance
 Selecting A Pay Policy Line

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Performance
 Equitable Compensation
Pay Secrecy
1. Where inequities are perceived to exist,
the impact on morale and motivation
can be devastating.
2. Management can try to avoid this
problem by maintaining pay secrecy
3. Can generate mistrust of the
compensation program
4. Reduce employee motivation
5. Inhibit the organisation’s effectiveness
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Performance
 Pay Compression

1. Pay compression occurs when

employees feel that the difference is too
small between their pay and that of
other employees in jobs above or below
them.

2. Generates dissatisfaction and makes

employees reluctant to acquire new
skills, competencies or knowledge or to
strive for promotion.
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Performance
 Senior Executive Pay Rates

1. Global concern about the levels of

senior executive compensation.

2. Senior managers may be able to distort

the goals and indicators of
performance-based pay.

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Performance
 Setting Pay Rates

SENIORITY BASED
1. Pay increases based on seniority are
determined not by performance but by
the employee’s length of time on the
job.

2. Organisational membership, not

individual achievement, is the prime
criterion for the allocation of pay
increases.
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 5. PAY FOR PERFORMANCE

a) The objective of merit pay is to develop a

productive, efficient, effective
organisation that enhances employee
motivation and performance.

b) A problem is that merit increases

for outstanding performance
traditionally have not been much
greater than those for poor performance.
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 Merit Pay vs. Incentive Pay

Merit Pay Incentive Pay

1. Annual salary 1. One time bonus.
increase. 2. Based on objective
2. Based on supervisor outcomes.
ratings.
3. Rewards are directly
3. Rewards are indirectly linked to targeted
linked to organization outcomes through a
success. bonus formula.
4. Employees compete for
a share of the merit 4. Employees receive
pool. equal percentage
bonuses.
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Performance
 Factors Affecting Merit Pay

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Performance
 Pay Reviews

There are three main types of salary review:

Fixed-date reviews

Anniversary reviews

Flexible-date reviews

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Performance
 Blue and Red Circle Pay Rates
1. Blue circle salaries are individual
anomalies which are adjusted because
the salary is below the minimum of the
salary range
2. Red circle salaries are those above the
range maximum for the job.
3. Generally, organisations do not cut such
salaries but rather freeze them until the
salary range moves up and can
accommodate them.
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Performance
 Correcting Out-of-Line Rates

Red

Correct
pay for Too low – raise pay Too high – lower by
grade
Blue Freezing
wages,
transferring or
promoting
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Performance
 If pay for performance is a
General compensation objective, then
adjustments across-the-board increases
should be avoided.

Automatic progression or
incremental salary scales are
Automatic not concerned with relating
Progression salary increases to
performance and should be
avoided.
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 SUMMARY
1. Compensation is a critical part of
strategic HCM.
2. Compensation policies and practices
should reinforce employee behaviours
that help achieve the organisation’s
strategic business objectives and reinforce
its desired culture. In short, money must
match the message.
3. No system for compensating employees is
perfect.
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