Designing Compensation Systems and Employee Benefits - Term Paper Example

? Designing Compensation Systems and Employee Benefits Job analysis describes the major responsibilities associated with any job title and is the actual reason the specific job exists. Job analysis identifies the particular abilities, knowledge, education level, and requirements needed to perform the job responsibilities. Knowledge, skills and abilities are usually measurable in some way, specific and are easily documentable. Knowledge, skills and abilities are usually demonstrated through education, previous experience, and training (National…). Job analysis documents and establishes the job relatedness of procedures used in employment such as training, compensation, performance reviews, and the initial hiring process. Job analysis will include determining what physical as well as mental abilities are needed to meet job responsibilities. The analysis will also include how the job will be completed and outline any equipment, material and tools necessary to complete the job. The job description will describe how the particular position fits into the company and works with other jobs in the same department and the chain of command should be well defined. The analysis will include employee policy, compensation, job hazards, expected schedule and any additional terms of employment. Job evaluation is the technique that is used to assign specific jobs to certain pay grades and levels in the company hierarchy. This technique usually ranks jobs in order of technicality or difficulty and responsibility. Job evaluation factors will include skill, effort, responsibility and working conditions (Jenns…). Responsibility can include factors such as decision making ability required, financial responsibility, ability to take initiative and act alone, contact with others and latitude in job performance. Effort will outline mental effort, concentration, complexity or difficulty and problem solving ability. Skill will include education, experience, training, communication, technical ability’s in the usage of any needed tools, applications or materials. Working conditions can include climate conditions, mental demand, physical effort required, and sensory abilities. These four factors were defined in the Equal Pay Act of 1963. The Equal Pay Act determined that jobs need to be substantially equal though not identical (The Wage…) and that an employer cannot change job titles in order to pay one employee less than the other. Responsibilities are to be outlined which differentiate jobs from each other. It is strictly prohibited to pay one employee less whose position requires the same responsibilities as another position when an employee has equal length of time on the job and is equal in every other aspect. The job evaluation process includes collecting factors about each job that needs evaluation, which can be completed using job analysis surveys, questionnaires, observations, interviews and job descriptions. Once this has been completed jobs are systematically rated according to the specific evaluation factors selected such as by skill, effort, responsibility or working conditions. Points can be assigned for each factor and factors can then be further divided into smaller groups. Job evaluation points can be used to visualize on a graph the relationship between the internal structure of the company and the market. The job description is the basis from which a job evaluation can be performed. External factors that are used in job evaluations include salary information that is gathered and compiled by consulting agencies whose primary function is to provide accurate information for comparison by those in human resources assigning salary and pay grades to job positions. Survey information will consider job match, the size of the company, the job industry, geography and ownership. Internal job factors which are used in job evaluation analyze job documentation to determine the scope and complexity of the position, potential impact the job has on the company and those factors already discussed such as skill, working condition’s etc. Aside from the points method job evaluations can also be complete using comparison where jobs are taken as a whole and ranked against each other (Job…). It is important to note that jobs, not people, are what are being evaluated. Job evaluation is part of a process known as job study, which includes job analysis and job merit rating. Compensation is an important element in any human resource department. Compensation plans that are designed to reward employees at strategic marks in their career path increase probability that employees understand and strive for the goals that the company plans. Compensations acts as support in the overall human resources strategy (Milkovich). Internal structure determines the base pay of different jobs and skill sets. Depending on the type of business salary levels will have various differentiation levels, those jobs that are labor intensive may have more salary levels with smaller differentials while business’s that are less labor intensive will have fewer levels and wider differentials. Internal structures that are in place let employees know the value of their job position and job skills. When employees view their compensation as fair and equitable in the market they will be more motivated to perform well. Pay increases are powerful contributors to employee satisfaction and motivation and ensuring that increases reflect market trends is important in retaining worthwhile employees. Pay increase plans should be chosen that best match the organizational structure and compete well with similar businesses. Developing internal compensation packages that are also competitive in the employment sector requires market analysis and a strong human resources leader able to implement a compensation plan that is agreeable, equitable, competitive, and fair as well as suitable to the internal structure of the organization. Fairness can be accomplished through decentralization, participation and communication (Milkovich). While benefits are best managed corporate wide, incentive pay is best managed within the various organizational levels. Developing a good compensation strategy will require establishing objectives, comparing costs with objectives to identify gaps and develop actions to close gaps. In a situation where two employees perform the same job and each receive excellent performance evaluations it is fair for one employee to receive a larger pay increase when his pay falls within the 3st quartile and a smaller merit increase to the employee whose pay falls within the 1st quartile because the employee in the first quartile are typically entry level employees. They generally have less time and experience on the job and are beginning to develop skills. Employees in the third quartile are employees who have consistently been outstanding performers over a period of several years. Many company’s reduce pay raises when an employee reaches a certain level and rate increases tend to be smaller while employees who are fairly new on the job may be receiving 90 day and 6 month increases whereas an employee who has been on the job for a longer length of time may be receiving only annual raises. The actual rate of increase is less significant than the value of the merit increase and the increase rate is often lower in higher quartiles though the value of the increase is greater due to differences in salary (Services…). Health Insurance All types of insurance are designed in essence to spread risk. The concept behind insurance is that your actual risk of becoming ill will be spread out therefore incurring less expense on each party. Risk is determined by numerous factors such as geographical location, age, health, health care costs and amount of coverage. The concept of spreading out risk is intended to be a preventative measure though an individual may not need insurance there is always a possibility of a medical condition that would otherwise be overwhelming to treat without insurance. Premiums that are paid to health insurance are always in transit covering the costs of other member’s health care. Health care reform created in 2009 by President Obama was intended to create health insurance for 46 million people. This reform requires insurers to insure individuals with preexisting conditions and requires all people to purchase health insurance or be taxed should they decline. Changes in the business environment such as a weakening economy, increased fuel prices, and much higher health care costs contributed to the necessity of this Act. The role of the federal government in private health care has never before been so clearly evidenced though public health care costs have been a long running issue within the United States. The act has the potential to improve the population’s health in all income groups. A provision of the act states that those who are without access to private health insurance will be more easily eligible for Medicaid programs and Medicare, with standards much more lenient to allow more individuals access. References National Business Center. (1998). Job Analysis. U.S. Department of the Interior. Retrieved February 11, 2012, from http://www.doi.gov/hrm/pmanager/st12d.html Jenns and Associates. (n.d.). An Overview of the Job Evaluation Process. Retrieved February 11, 2012, from http://www.jenss.com/Job%20Evaluation.pdf The Wage Gap: A History of Pay Inequity and the Equal Pay Act — Infoplease.com. (2007). Infoplease: Encyclopedia, Almanac, Atlas, Biographies, Dictionary, Thesaurus. Free Online Reference, Research & Homework Help. — Infoplease.com. Retrieved February 11, 2012, from http://www.infoplease.com/spot/equalpayact1.html Job Evaluation. (n.d.). Managers-Net Management Themes - Alphabetic Index. Retrieved February 11, 2012, from http://www.managers-net.com/job_evaluation.html Milkovich, G., & Broderick, R. (1989). Developing a Compensation Strategy. Cornell University IRL School. Retrieved February 11, 2012, from http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1416&context=cahrswp&sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Fsearch%3Fhl%3Den%26site%3D%26q%3Ddeveloping%2Bcompensation%26oq%3Ddeveloping%2Bcompensation%26aq%3Df%26aqi%3Dg3g-v2%26aql%3D%26gs_sm%3D3%26gs_upl%3D2643l7000l0l7313l24l23l0l12l12l0l135l1020l9.2l11l0#search=%22developing%20compensation%22 Services, H. R. (n.d.). Human Resource Services MeritIncreases. Admin Portal Index Home. Retrieved February 12, 2012, from http://admin.utep.edu/DesktopDefault.aspx?tabid=6896 Read More