Term Paper: Compensation System. A Brief Discussion

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¶ … compensation system. A brief discussion of each follows, as well as our conclusion about which plan to use.

Ranking

The ranking method gives numbers to the job description based on relative values or contributions to the company from highest to the lowest. This plan is easy, fast and the most inexpensive. However, ranking can cause problems by not telling what it is about that jobs that is important to the employees and managers. There are two common methods of ranking; the first is alternative ranking and the other is paired comparison.

Alternative ranking orders job descriptions alternately at each extreme. The paired comparison method uses a matrix to compare all possible pairs of jobs. These two methods are more reliable than simple ranking. However, it is very difficult to be objective and knowledgeable about all the jobs. In the long run, ranking is difficult to defend and costly solutions are often required to overcome the problems its simplistic structure can create.

2. Classification

Under the classification method, a job description is compared to established class descriptions and each job is then slotted into the class it best fits. The job descriptions not only are compared to the class descriptions and the identified benchmark jobs, but also can be compared to each other to ensure that jobs in a same class are similar. The ultimate result is a job structure made up of a series of classes with a number of jobs in each. In the same class, jobs are considered to be composed of similar work duties, therefore they will be paid equally.

3. Point Method

For the point method, there are three common characteristics to all techniques. The first similarity is the use of compensable factors, the second is the determination of factor degrees that are numerically scaled and the last is weights for the factors reflecting the relative importance of each. Compensable factors are based on the strategic direction of the business and how the work contributes to objectives and strategy. There are six steps in the design of a point plan which are discussed below.

Compensation factors need to be based on the strategy and values of the organization and work performance. Also those factors should be acceptable to the stake holders affected by the resulting pay structure. Once the factors are determined, scales reflecting the different degrees within each factor are constructed. For the scales, these criteria need to be considered: (1) Ensure that the number of degrees is necessary to distinguish among jobs, (2) use understandable terminology, (3) anchor degree definitions with benchmark-job title and/or work behaviors and (4) make it apparent how the degree applies to the job. Factor weights reflect the relative importance of each factor to the overall value of the job. Weights are often determined through an advisory committee that allocates 100% of the value among the factors. Overall, the point method uses the sum of the compensable factor score to determine the job's value and in turn, what the pay rate should be.

2. Before progressing to the actual design of the point plan, certain structural elements must be in place to ensure success. Organizational and human resource objectives and strategies must be adequately defined and clarified so that compensation objectives and strategies will sufficiently support their execution. These objectives help to establish direction and provide standards for evaluating the eventual success of the overall compensation system. This information collected is used to decide relationships among the jobs and where a job fits into the organizational structure, which jobs are to be supervised by the job holder and which job supervise a particular job holder and also the nature of any internal and external relationships.

Data related to both the employee and the job is collected. Job data includes job identification and job content categories. Identification is basic information such as title, department and number of incumbents, whereas content includes the tasks, activities, performance, critical incidents and working conditions. Employee information collected informs the analyzer of employee characteristics, internal relationships within the company and external relationships necessary to the job. All are important to defining the job. The role between analysis and data is illustrated in the Appendix pg vii.

This is achieved by interviewing and surveying job incumbents, supervisors, co-workers and relevant others who are knowledgeable about the job in question. Once the data is gathered, job descriptions, complete with a summary of job duties, reporting relationships, qualifications and essential responsibilities are produced, which help with a compensation survey.

3. Pay-for-knowledge program is where employees cover for other employees during the time they are not there. "Cross-trained employees benefit themselves and the company they work for, which is the main rationale for using a pay-for-knowledge compensation program. The company benefits because cross-training enables employees to cover for one another during absences from work or in case of temporary vacancies. In addition, employees who have been cross-trained often present fresh perspectives, offering ideas for improving work flow and productivity. For the employees themselves, pay-for-knowledge creates a more interesting and challenging work environment, reducing turnover and absenteeism. One department in a 5,000-employee U.S. manufacturing firm agreed to implement pay-for-knowledge compensation to test this provisional work design. Particular attention was given to specific skill blocks, which were required for a particular position. Peer and management ratings were used for feedback on employee training and guidelines were written on those training and evaluation procedures. Any ratings, either negative or positive, had to be supported with information in order to alleviate workers' anxieties about subjective judgements. Issues raised by the new system were largely related to skill mastery, including the problems of unlimited learning opportunities and establishing equitable distribution of training opportunities. This case study demonstrates the potential of pay-for-knowledge" (a Pay-for-Knowledge Compensation Program that Works).

4. Payment for doctor bills- "Some employers have a list of "company doctors." If a list of doctors is posted at your workplace, you must use one of these doctors for the first 90 days of medical care. Using a "company doctor" will make sure that all of your medical expenses are paid under Pennsylvania work comp. After the first 90 days, you can go to your own doctor" (PA Work Comp for Medical Bills).

Payment for loss wages-" the law allows you to collect 2/3 of what your gross weekly wages were before your injury. There is a limit to how much you can collect while on workers comp. The maximum work comp payment amount is set each year. In 2004, you could collect up to $690 weekly (PA Work Comp for Lost Wages).

Payment of lump sum-" Lump sum payment. This is a one-time payment for workers who have been off of work for at least 4 months. Before agreeing to this payment, you should talk with a work comp lawyer" (Types of PA Workers Comp Payments).

5. The choice between the two plans presented above hinges on several factors. First, one should consider benchmarking similar jobs in other comparable organizations to capture the diversity of the work performed within each job domain. This ensures the accuracy of the decisions based upon the job descriptions. The degree of detail in a job evaluation that is required to make compensation decisions must be examined, and consequently, the cost of such decisions incurred by the organization. The internal alignment of the organization should be considered and evaluated to determine which plan is more suitable, as well as considering the plan which best supports organizational performance based on the company's business objectives and the nature of work flow within the organization. The plan must support internal equity and fairness among the employees within the organization. Finally, the selected plan should ensure that pay influences employee's attitudes and work behaviors, while directing and motivating them towards the achievement of organizational business objectives.

Basic IRAs: "An IRA is an individual retirement account, it is not started through a business. A taxpayer can contribute up to $4,000 per year in an IRA ($5,000 for year 2008, and after 2008, the contribution limit will adjust annually for inflation in $500 increments. For persons age 50 and over, the law provides an increase in the contribution limits applicable to IRAs). This contribution is tax deferred until an individual withdraws this money at retirement" (Types of Retirement Plans).

Defined Benefit Plans (DB): A defined benefit plan promises the participant a specific monthly benefit at retirement. This monthly benefit can be an exact dollar amount, or be calculated through a formula that considers a participants salary and years of service. Investment risk and portfolio management are entirely under the control of the company. There are restrictions on when and how you can withdraw these funds without penalties (Types of Retirement Plans).

6. When designing a discretionary benefits program, one must consider who it will benefit the most because that audience will need it to survive. For example, Discretionary benefits may be issued only to persons in receipt of assistance due to lack of funding.… [END OF PREVIEW]

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