05-11-2017

Wage and Salary Administration Job Evaluation

 Process of systematically determining the relative worth of

1. Job evaluation, jobs to create a job structure for the organization.
2. Merit rating,
 The evaluation is based on a combination of job content,
WELCOME 3. Wage incentive plans (time-based plans, piece rate plans, gain skills required, value to the organization, organizational
sharing or burns plans, indirect payment and other participate culture, and the external market.
plans)
 This potential to blend internal forces and external market
forces is both a strength and a challenge to job evaluation.
Dr. A. K. Sharma
Associate Professor,
Mechanical and Industrial Engineering Dept
I. I. T. Roorkee, Roorkee

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

Def: Job Evaluation Aspects of Job Evaluation Internally aligned Job Structure
• The process of determining how much a job should Job Evaluation is: Assumption
A measure of job Content has an innate value outside of external market.
be paid, balancing two goals content
– Internal Equity: Paying different jobs differently, based on Internal
what the job entails A measure of relative Relevant groups can reach consensus on relative value alignment Job analysis Job description Job evaluation Job structure
value.
– External Competitiveness: Paying satisfactory performers
Link with external Job worth cannot be specified without external market
what the market is paying market information.

Measurement device Honing instruments will provide objective measures. Work relationships within the
Negotiation Puts face of rationality to a social / political process. organization
Establishes rules of the game.
Some Major Decisions in Job Evaluation
• Establish purpose of evaluation
Invites participation.
• Decide whether to use single or multiple plans
• Choose among alternative approaches
• Obtain involvement of relevant stakeholders
• Evaluate plan’s usefulness

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

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Merit Rating Merit Rating: Plans

To facilitate the orderly determination of a worker’s worth to the 1. Ranking Plan

firm of which he/she is an employee.
2. Man-to-Man Comparison Plan
Also known as Employee Ratings, Employee Appraisals,
Merit Rating ... Efficiency rating, Service rating. 3. Check Lists

Both job analysis and Merit rating help systematically 4. Scales.

determining the wage/salary for the employee. The former rates
the Job and sets the limit for compensation for it, while the later
rates the man and determines what his compensation will be
within this limit.

Minimises arbitrariness in promotion etc, and increases

employee awareness indirectly help enhancing productivity.

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

Wage and Salary Wage and Salary Theory Wage and Salary Theory

Wage / Salary Theories : Subsistence Theory :

Criticism of Subsistence Theory :
 Economic Theories  The theory relies on ‘Malthusian Law of Population’.
 The assumption that the supply of labour is perfectly elastic
 Subsistence Theory  If supply of labour falls short of the demand for it, the
at the subsistence wage level is incorrect.
workers are paid higher than the subsistence level, which
 The Surplus Value Theory would induce the workers to have more children. This will  It does not consider wage differentials across regions.
 Wage-Fund Theory increase labour supply, and the wage rate would inevitably
 It ignores the importance of the role of demand for labour
fall to the subsistence level.
 Marginal Productivity Theory and the role of trade unions in wage determination.

 Bargaining Theory
 Demand and Supply theory
 Purchasing Power Theory

SOURCE::http://cdn.economicsdiscussion.net/wp
-content/uploads/2015/05/clip_image00248.jpg

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

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Wage and Salary Theory Wage and Salary Theory Modern Theory
Modern Theory of Wages:
Marginal Productivity Theory: Strength of Marginal Productivity Theory:
 J. B Clark developed the Marginal Productivity theory of • This theory regards wages as a price of labour and all other
1. This theory is not as rigid as the subsistence level theory prices determined by the usual supply and demand analysis.
Distribution. and other classical theories.
 The reward for a factor of production for its services was • According to this approach, wages are determined by the
determined by the marginal revenue productivity of that factor. 2. It takes into consideration the demand for labour by the interaction of market forces of demand and supply.
employers and the supply of labour, although in an indirect
 In Fig. , ARP and MRP are average form.
revenue productivity and marginal
revenue productivity curves, respectively. 3. It shows why there are differences in wage rate. Wages
according to this theory vary because of marginal
 The equilibrium wage rate will be productivity differences of different workers.
determined at a point where both the SOURCE::http://w
ww.economicsdisc
ARP and MRP are equal to each other. 4. It gives importance to the productivity of labour. ussion.net/wages/t
op-3-theories-of-
wages-with-
diagram/7446
SOURCE::http://www.economicsdiscussion.net/wages/top-3-theories-of-wages-with-diagram/7446

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

Incentive Plans Incentive Plans

Wage Incentive Plan Why Incentive Pay ?

The focus is on the motivational content, that of  Incentive pay can soften the necessity to lay off large
obtaining more effort from the employee. numbers of workers by lowering the wage bill for all workers
to some degree.
Wage Incentive Plans…  A second reason is contained in the payment for results or
performance concept. If the company relates pay to the
desired outcome then this will increase the probability of
obtaining that outcome. This may be through the employee
working smarter, faster, or longer.
 As union influence has declined and the ideas of
participative management has spread, some incentive pay
plans focus mainly on trying to get the employee to join with
management to create a successful company.

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

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Incentive Plans Incentive Plans Incentive Pay Plans

Incentive Contributions Factors in Determining Pay Plans Types of Incentives

(1) measurability of output; 1. Financial (e.g. wage, overtime etc.), and

(2) the relationship between effort and output; 2. Non-Financial (e.g. competitive environment, stable employment,
good management, interest and pride in the work etc)
(3) the degree of standardization;
(4) requirements for quality as well as quantity; and
(5) competitive conditions, which make it imperative that unit
Figure: A Continuum of Time and Output Systems labor costs be definitely known and fixed before production.

Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

Incentive Pay Plans Incentive Pay Plans Incentive Pay Plans

Individual Level Incentive Pay Plans:
Different Incentive Plans The Performance-Motivation Model

 According to this model, for an compensation plan to motivate  This is the most popular form of incentive pay plan.
1. Straight-Day work,
performance, employees must  In this type of plan each person's output or performance is
2. Piece Work 1. believe that good performance will lead to more pay,
2. want more pay, measured and the rewards the person receives are based
3. Profit Sharing
3. not believe that good performance will lead to negative upon this measurement.
4. Gain Sharing consequences,
4. see that other desired rewards besides pay result from good
 In this plan a clear performance-reward relationship is
performance, and established in the mind of the employee.
5. believe that their efforts do lead to improved performance.  The purpose of the plan is to increase the pace of work in
Although the model specifies that the relationship among order to receive higher rewards.
these variables is multiplicative (anything multiplied by a  The classic example of this type of plan is a piecework
zero yields a zero), the first variable is clearly the most system, wherein the employee is paid a set amount for each
important.
unit of production.
Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

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Incentive Pay Plans Incentive Pay Plans Incentive Pay Plans

Profit Sharing. Gain sharing. Plant and Organization-Wide Incentive Pay Plans:
 This approach, broader than the use of output and time standards,  Organization-wide plans are expanding under the name of
 Profit sharing is another popular organization-wide program that is rewards outcomes that are direct measures of the success of the gainsharing.
often classified as a gain sharing plan. organization as opposed to the success of the individual employee.  Most organization-wide plans, reward an increase in
 Gain sharing plans are more appropriate to organization-wide organization-wide outcomes that directly affect the cost and/or profit
 With profit sharing, management hopes to change employee
incentive pay plans. picture of the organization.
attitudes toward the organization without a concomitant change in
 The purpose of gain sharing is to tie the employee to the  Usually these plans reward increases in productivity of the plant
managerial attitudes toward the employee.
performance measures by which top management is judged and by or organization as measured by reduction of organizational costs, in
 The idea behind profit sharing is to instill in the employee a sense which society defines a successful organization. comparison with some measured normal cost. Or they may reward
of partnership with the organization. But most plans go beyond this  Although clear performance-reward connections can be made in increased output with the same or fewer inputs.
and use profit sharing as a way to keep valuable employees and these circumstances, it is difficult to make a performance-effort  A major feature of organization-wide incentive pay plans is a
to encourage thrift in employees. connection. change in the relationship between management on the one hand
 A number of different performance measures can be used in gain and employees on the other.
sharing, but all share a common dimension: a baseline standard must Rather than the traditional adversarial relationship between the
be established to determine where the organization is at the present two, most organization-wide plans require a high degree of
time. cooperation.
Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

Incentive Pay Plans Incentive Pay Plans Incentive Pay Plans

 Results of Incentive Pay Plans
 Group Level Incentive Pay Plans.  Results of Incentive Pay Plans
 Interdependence of work, then, is a major reason for choosing a
 Although this implies that the observed results are attributable
group plan over an individual one.  Most reports of experience with incentive pay plans suggest to the incentive pay plan, no attempt was made to determine
 A group incentive plan can reward things that are very different that wage incentives result in greater output per hour worked, whether the source of improvement was better management,
from what an individual plan rewards, in particular: cooperation, lower unit costs, and higher employee earnings. increased employee effort, or other changes accompanying
teamwork, and coordination of activities.
installation.
 As organizations become more complex and the production  It is quite possible, that the results obtained are attributable to
process more continuous, group incentive pay plans can be changed management practices employed as a prerequisite to  Some authors conservatively estimates that individual incentive
expected to become more popular. installation of an incentive pay plan. plans result in a productivity increase of 10 to 20 percent.
 Group plans are also useful where performance standards and
measures cannot be defined objectively. In a group setting,  Reports of incentive pay plan results often cite employee  Locke and associates examined the average increase in
variations tend to average out, so no one gets as hurt by random earnings increases of 10 to 70 percent and cost decreases of performance was 30 percent, with a range of 3 to 49 percent.
variation or lack of continuity. 25 to 65 percent.
 The primary disadvantage of the group plan is that it weakens
 Under an incentive pay, increased productivity should result in
the relationship between the individual's effort and performance.
higher wages for employees.
Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee Dr. A. K. Sharma, MIED, IIT Roorkee

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Thank you…
akshafme@iitr.ernet.in

Dr. A. K. Sharma, MIED, IIT Roorkee