Which is the fundamental principle of internally consistent compensation systems

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6 Building Internally Consistent Compensation Systems

Learning Objectives

When you �inish studying this chapter, you should be able to:

6-1. Explain the concept of internal consistency. 6-2. Summarize the practice of job analysis.

6-3. Describe the practice of job evaluation. 6-4. Summarize various job evaluation techniques.

6-5. Explain how internally consistent compensation systems and competitive strategy relate to each other.

CHAPTER WARM-UP!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Warm-Up! and see what you already know. After reading the chapter, you’ll have a chance to take the Chapter Quiz! and see what you’ve learned.

Job descriptions serve as a cornerstone in the development of internally consistent compensation systems as well as in describing selection standards and performance criteria in performance evaluation systems. Well-written job descriptions provide compensation professionals with suf�iciently well-speci�ied information about job duties and worker requirements upon where to begin making judgments about the relative worth of jobs based on differences in job content. With these judgments in hand, compensation professionals will be well positioned to survey market pay rates to establish competitive pay levels (Chapter 7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch07#ch07) ) to attract and retain talented employees.

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6.1 INTERNAL CONSISTENCY

6-1 Explain the concept of internal consistency.

Internally consistent compensation systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss226) clearly de�ine the relative value of each job among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy. Companies rely on a simple, yet fundamental principle for building internally consistent compensation systems: Jobs that require higher quali�ications, more responsibilities, and more complex job duties should be paid more than jobs that require lower quali�ications, fewer responsibilities, and less-complex job duties. Internally consistent job structures formally recognize differences in job characteristics that enable compensation managers to set pay accordingly. Figure 6-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06lev1sec1#ch06�ig01) illustrates an internally consistent job structure for employee bene�its professionals. As Figure 6-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06lev1sec1#ch06�ig01) indicates, a bene�its manager should earn substantially more than a bene�its counselor I. Bene�its managers have far greater responsibility for ensuring effective bene�its practices than does the entry-level counselor. The difference in average pay rates between bene�its counselor II and bene�its counselor I jobs should be far less than that between bene�its manager and bene�its counselor I jobs because the differences in responsibility between bene�its counselor II and bene�its counselor I are far less than the differences between bene�its manager and bene�its counselor I.

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FIGURE 6-1 Internally Consistent Compensation Structure

Compensation experts and HR professionals create internally consistent job structures through two processes—job analysis followed by job evaluation. Job analysis (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss229) is almost purely a descriptive procedure; job evaluation re�lects value judgments. Effective job analysis identi�ies and de�ines job content (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss231) . Job content describes job duties and tasks as well as such pertinent factors as the skill and effort (i.e., compensable factors) needed to perform the job adequately.

Human resource specialists lead the job analysis process. As we will discuss shortly, they solicit the involvement of employees and supervisors, who offer their perspectives on the nature of the jobs being analyzed. Based on this information, HR specialists write job descriptions that describe the job duties and minimum quali�ications required of individuals to perform their jobs effectively.

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Job evaluation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss236) is key for casting internally consistent compensation systems as strategic tools. Compensation professionals use job evaluation to establish pay differentials among employees within a company. The descriptive job analysis results directly aid compensation professionals in their pay-setting decisions by quantifying the key similarities and differences between jobs based on job content identi�ied in the job analysis process.

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6.2 JOB ANALYSIS

6-2 Summarize the practice of job analysis.

Competent compensation professionals are familiar with job analysis concepts, the process of conducting job analysis, and fundamental job analysis techniques. Job analysis is a systematic process for gathering, documenting, and analyzing information in order to describe jobs. Job analyses describe content or job duties, worker requirements or job speci�ications, and, sometimes, the job context or working conditions.

Job content refers to the actual activities that employees must perform on the job. Job-content descriptions may be broad, general statements of job activities or detailed descriptions of duties and tasks performed on the job. Greeting clients is common to receptionist jobs. The job activity of greeting clients represents a broad statement. Describing the particular activities associated with greeting clients (e.g., saying “hello,” asking the clients’ names, using the telephone to notify the employees of their clients’ arrivals, and offering beverages) represents a detailed statement.

Worker requirements (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss482) represent the minimum quali�ications and the knowledge, skills, and abilities (KSAs) that people must have to perform a particular job. Such requirements usually include education; experience; licenses; permits; and speci�ic abilities and skills such as typing, drafting, or editing. For example, HR managers must have knowledge of principles and procedures for recruitment, selection, training, compensation and bene�its, labor relations and negotiations, and HR information systems. Active listening and critical thinking are two examples of many necessary skills for effective HR managers. Human resource managers must possess abilities such as oral comprehension and written comprehension.

Working conditions (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss487) are the social context or physical environment where work will be performed. For instance, social context is a key factor for jobs in the hospitality industry. Hospitality industry managers emphasize the importance of employees’ interactions with guests. Hotel registration desk clerks should convey an air of enthusiasm toward guests and be willing to accommodate each guest’s speci�ic requests for a nonsmoking room or an early check-in time.

Physical environments vary along several dimensions, based on the level of noise and possible exposure to hazardous factors, including hazardous chemicals. Work equipment also de�ines the character of the physical environment. Nuclear power plant employees work in rather hazardous physical environments because of possible exposure to dangerous radiation levels. Accountants perform their jobs in relatively safe working environments because of�ice buildings must meet local building safety standards.

Steps in the Job Analysis Process

The job analysis process has �ive main activities:

Determine a job analysis program.

Select and train analysts.

Direct job analyst orientation.

Conduct the study: data collection methods and sources of data.

Summarize the results: writing job descriptions.

DETERMINE A JOB ANALYSIS PROGRAM

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A company must decide between using an established system or developing its own system tailored to speci�ic requirements. Both established and custom job analysis programs vary in the method of gathering data. The most typical methods for collecting job analysis information are questionnaires, interviews, observation, and participation. Administrative costs often represent a major consideration in selecting a job analysis method.

SELECT AND TRAIN ANALYSTS

Job analysts generally must be able to collect job-related information through various methods, relate to a wide variety of employees, analyze the information, and write clearly and succinctly. A task force of representatives from throughout the company ideally conducts the analysis, and HR staff members coordinate it. Although some companies rely on HR professionals to coordinate and conduct job analysis, many use teams to represent varying perspectives on work because virtually all employees interact with coworkers and supervisors.

Before the task force embarks on a job analysis, members need to be taught about the basic assumptions of the model and the procedures they must follow. The training should include discussions of the study’s objectives, how the information will be used, methodology overviews, and discussions and demonstrations of the information-gathering techniques. Analysts also should be trained to minimize the chance that they will conduct ineffective job analyses. For example, analysts should involve as many job incumbents as possible within the constraints of staff time to have representative samples of job incumbents’ perceptions.

TABLE 6-1 Units of Analysis in the Job Analysis Process

1. An element is the smallest step into which it is practical to subdivide any work activity without analyzing separate motions, movements, and mental processes involved. Connecting a �lash drive into a USB port is an example of a job element.

2. A task is one or more elements and is one of the distinct activities that constitute logical and necessary steps in the performance of work by the worker. A task is created whenever human effort, physical or mental, is exerted to accomplish a speci�ic purpose. Keyboarding text into memo format represents a job task.

3. A position is a collection of tasks constituting the total work assignment of a single worker. There are as many positions as there are workers. John Smith’s position in the company is clerk typist. His tasks, which include keyboarding text into memo format, running a spell check on the text, and printing the text on company letterhead, combine to represent John Smith’s position.

4. A job is a group of positions within a company that are identical, with respect to their major or signi�icant tasks, and suf�iciently alike to justify their being covered by a single analysis. There may be one or many persons employed in the same job. For example, Bob Arnold, John Smith, and Jason Colbert are clerk typists. With minor variations, they essentially perform the same tasks.

5. A job family is a group of two or more jobs that call for either similar worker characteristics or similar work tasks. File clerk, clerk typist, and administrative clerk represent a clerical job family because each job mainly requires employees to perform clerical tasks.

6. An occupation is a group of jobs, found at more than one establishment, in which a common set of tasks are performed or are related in terms of similar objectives, methodologies, materials, products, worker actions, or worker characteristics. File clerk, clerk typist, administrative clerk, staff secretary, and administrative secretary represent an of�ice support occupation. Compensation analyst, training and development specialist, recruiter, and bene�its counselor represent jobs from the human resources management occupation.

Source: U.S. Department of Labor (1991). The Revised Handbook for Analyzing Jobs. Washington, DC: U.S. Government Printing Of�ice.

Finally, job analysts must be familiar with the structure of pertinent job data. Job analysis data are con�igured in levels, hierarchically from speci�ic bits of information to progressively broader categories that include the prior

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speci�ic pieces. Table 6-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06lev1sec2#ch06tab01) de�ines representative analysis levels and lists examples of each one. The most speci�ic information is a job element, and the broadest element is an occupation.

The U.S. Of�ice of Management and Budget published The Standard Occupational Classi�ication System (SOC), which identi�ies 840 detailed occupations. These detailed occupations are subdivided into 461 broad occupational groups. The broad occupational groups are subdivided into 97 minor groups. These minor groups are subdivided into the broadest category of 23 major occupational groups. Table 6-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06lev1sec2#ch06tab02) lists the 23 major occupational groups based. The following is an example:

• Major occupational group:

Architecture and Engineering Occupations

• Minor group: Engineers

• Broad occupational group:

Industrial Engineers

• Detailed occupation: Health and Safety Engineers1

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These occupational group concepts are relevant for making compensation decisions. As we will see shortly, this classi�ication system links to the Occupational Information Network (O*NET), which contains detailed information to facilitate compensation professionals making precise comparisons for pay-setting purposes.

DIRECT JOB ANALYST ORIENTATION

TABLE 6-2 Major Occupational Groups of the Standard Occupational Classi�ication

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Management occupations Business and �inancial operations occupations Computer and mathematical occupations Architecture and engineering occupations Life, physical, and social science occupations Community and social service occupations Legal occupations Education, training, and library occupations Arts, design, entertainment, sports, and media occupations Health care practitioners and technical occupations Health care support occupations Protective service occupations Food preparation and serving-related occupations Building and grounds cleaning and maintenance occupations Personal care and service occupations Sales and related occupations Of�ice and administrative support occupations Farming, �ishing, and forestry occupations Construction and extraction occupations Installation, maintenance, and repair occupations Production occupations Transportation and material-moving occupations Military-speci�ic occupations

Source: U.S. Bureau of Labor Statistics (2010). 2010 SOC User Guide. Available: www.bls.gov/soc/ (http://www.bls.gov/soc/) , accessed August 25, 2013.

Before analysts start speci�ic job analysis techniques, they must analyze the context in which employees perform their work to better understand in�luencing factors. In addition, analysts should obtain and review such internal information as organizational charts, listings of job titles, classi�ications of each position to be analyzed, job incumbent names and pay rates, and any instructional booklets or handbooks for operating equipment. Job analysts may also �ind pertinent job information in such external sources as The Standard Occupational Classi�ication System, trade associations, professional societies, and trade unions.

CONDUCT THE STUDY: DATA COLLECTION METHODS AND SOURCES OF DATA

Once analysts have gathered and made sense of these preliminary data, they can begin gathering and recording information for each job in the company. Analysts should carefully choose the method of data collection and the sources of data. The most common methods are questionnaires and observation. Questionnaires direct job incumbents’ and supervisors’ descriptions of the incumbents’ work through a series of questions and statements, for example:

Describe the task you perform most frequently.

How often do you perform this task?

List any licenses, permits, or certi�ications required to perform duties assigned to your position.

List any equipment, machines, or tools you normally operate as part of your position’s duties.

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Does your job require any contacts with other department personnel, other departments, outside companies, or agencies? If yes, please describe.

Does your job require supervisory responsibilities? If yes, for which jobs and for how many employees?

Observation requires job analysts to record perceptions they form while watching employees perform their jobs.

The most common sources of job analysis data are job incumbents, supervisors, and the job analysts. Job incumbents should provide the most extensive and detailed information about how they perform job duties. Experienced job incumbents will probably offer the most details and insights. Supervisors also should provide extensive and detailed information, but with a different focus. Supervisors speci�ically are most familiar with the interrelationships among jobs within their departments. They are probably in the best position to describe how employees performing different jobs interact. Job analysts also should involve as many job incumbents and supervisors as possible because employees with the same job titles may have different experiences.

For example, parts assembler John Smith reports that a higher level of manual dexterity is required than parts assembler Barbara Bleen reports. Parts assembler supervisor Jan Johnson indicates that assemblers interact several times a day to help each other solve unexpected problems, and supervisor Bill Black reports no interaction among parts assemblers. Including as many job incumbents and supervisors as possible will provide a truer assessment of the parts assembler job duties.

Of course, job analysts represent a source of information. In the case of observation, job analysts write descriptions. Job analysts, when using questionnaires, often ask follow-up questions to clarify job incumbents’ and supervisors’ answers. In either case, job analysts’ HR expertise should guide the selection of pertinent follow-up questions.

Companies ultimately strive to conduct job analyses that meet reliability and validity criteria. A reliable job analysis method (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss375) yields consistent results under similar conditions. For example, let’s assume that two job analysts independently observe John Smith perform his job as a retail store manager. The method is reliable if the two analysts reach similar conclusions about the duties that constitute the retail store manager job. Although important, reliable job analysis methods are not enough. Job analyses also must be valid.

A valid job analysis method (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss460) accurately assesses each job’s duties or content. In this regard, we are referring to a particular type of validity – content validity. Unfortunately, neither researchers nor practitioners can demonstrate whether job analysis results are de�initively accurate or content valid. At present, the best approach to producing valid job descriptions requires that results among multiple sources of job data (e.g., job incumbents, analysts, supervisors, and customers) and multiple methods (e.g., interview, questionnaire, and observation) converge.2

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Reliable and valid job analysis methods are essential to building internally consistent compensation systems. The factors that describe a particular job should indeed re�lect the actual work. Failure to match accurately compensable factors with the work employees perform may result in either inadequate or excessive pay rates. Both cases are detrimental to the company. Inadequate pay may lead to dysfunctional turnover (i.e., the departure of high-quality employees). Excessive pay represents a cost burden to the company that can ultimately undermine its competitive position. Moreover, basing pay on factors that do not relate to job duties leaves a company vulnerable to allegations of illegal discrimination.

What can compensation professionals do to increase the likelihood that they will use reliable and valid job analysis methods? Whenever time and budgetary constraints permit, job analysts should use more than one data collection method, and they should collect data from more than one source. Including multiple data collection methods and sources minimizes the inherent biases associated with any particular one. For example, job incumbents may view their work as having greater impact on the effectiveness of the company than does the incumbents’ supervisor.

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Observation techniques do not readily indicate why an employee performs a task in a speci�ic way, but the interview method provides analysts with an opportunity to make probing inquiries.

SUMMARIZE THE RESULTS: WRITING JOB DESCRIPTIONS

Job descriptions (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss234) summarize a job’s purpose and list its tasks, duties, and responsibilities, as well as the KSAs necessary to perform the job at a minimum level. Effective job descriptions generally explain:

What the employee must do to perform the job

How the employee performs the job

Why the employee performs the job in terms of its contribution to the functioning of the company

Supervisory responsibilities, if any

Contacts (and purpose of these contacts) with other employees inside or outside the company

The skills, knowledge, and abilities the employee should have or must have to perform the job duties

The physical and social conditions under which the employee must perform the job

Job descriptions usually contain four sections:

Job title

Job summary

Job duties

Worker speci�ications

Table 6-3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06lev1sec2#ch06tab03) contains a job description for a training and development specialist.

Job titles (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss241) indicate the name of each job within a company’s job structure. In Table 6-3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06lev1sec2#ch06tab03) , the job title is training and development specialist. The job summary (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss240) statement concisely summarizes the job with two to four descriptive statements. This section usually indicates whether the job incumbent receives supervision and by whom. The training and development specialist works under general supervision from higher-level training and development professionals or other designated administrators.

The job duties (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss235) section describes the major work activities and, if pertinent, supervisory responsibilities. For instance, the training and development specialist evaluates training needs of employees and departments by conducting personal interviews, questionnaires, and statistical studies.

The worker speci�ications (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss483) section lists the education, KSAs, and other quali�ications individuals must possess to perform the job adequately. Education (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss122) refers to formal training. Minimum educational levels can be a high school diploma or a general equivalency diploma (GED) through such advanced levels as masters’ or doctoral degrees.

TABLE 6-3 Job Description: Training and Development Specialist

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