The University of the West Indies, Mona DEPARTMENT OF SOCIOLOGY, PSYCHOLOGY

1
The University of the West Indies,
MonaDEPARTMENT OF SOCIOLOGY, PSYCHOLOGY
SOCIAL WORK

• M.Sc. in Human Resource Development (HRD)
• HR66B Compensation Employee Assistance
• September 4 November 27, 2007
• Benthan H. Hussey
• Lecturer/Presenter

2
Course Objectives

• 1. To provide participants with a strategic focus
  to compensation and benefits, based on an
  understanding of the importance of compensation
  management to human resource management and
  development in general, to the employee and the
  employer as well as to the wider economy

3
Course Objectives

• 2.To present participants with an understanding
  of the social, economic and environmental
  influences (internal and external) on the
  compensation policy and practice of the enterprise

4
Course Objectives

• 3. To explore with participants an understanding
  of a relationship between compensation policy and
  practice, employee motivation, satisfaction and
  performance, on the one hand, and efficiency of
  the enterprise, on the other hand

5
Course Objectives

• 4.To present participants with an understanding
  of the basic principles, techniques and
  approaches in designing, implementing and
  managing a compensation system

6
Course Objectives

• 5.To highlight and explore special interest areas
  in compensation development and management, which
  have gained currency over the years. These
  include

7
Course Objectives (5 Contd.)

• A.  Objectives and principles governing executive
  compensation
• B.  Performance-based compensation systems, and
• C.  Person-based as against job-based pay
  systems

8
Strategic Importance of Compensation

• It is the principal basis or rationale for the
  employer and employee to forge an association
• In a significant way, it influences the
  consummation or optimization of the relationship
• Influences employee turnover, organization/industr
  ial stability, performance and productivity, etc.
• It influences the alignment of employee
  behaviour and organizations strategic goals.

9
Impact of Compensation

• Employee
• Employer (Company, shareholders, etc.)
• Industry
• Economy

10
Compensation Issues

• Method and System
• Adequacy
• Equity, internal and external
• Distribution
• Efficiency and Competitiveness

11
Compensation

• Compensation is the monetary and/or non-monetary
  reward offered by an employer to an employee in
  exchange for services rendered or performance of
  previously agreed tasks.

12
Compensation

• Monetary reward can be direct as well as
  indirect. Direct pay relates to the actual
  amounts an employee receives on his/her pay
  cheque or in their pay envelope.

13
Compensation

• Indirect reward relates to the benefits and
  support assistance received, but which is not
  immediately quantifiable. Examples include health
  insurance, pension, child care, personal
  development, etc.

14
Factors and Issues In Fashioning Compensation
Policy And SystemInternal factors

• 1. The company/organisation must decide where it
  wishes to be in the market place, at the top,
  near the top, in the middle or at the lower end
  of the market. The market may be the local
  segment of which it is a part or otherwise.

15
Internal factors

• 2. The decision will depend on the nature of its
  business, the availability of persons with the
  skills and competencies to do the job, the skills
  and competencies of the incumbents, the market
  share of its products and or services, and, most
  of all, how it regards its workers.

16
Internal Factors

• 3. Avoiding anomalies and unnecessarily extended
  bands and categories of employees. The crucial
  issue of equity has to be dealt with properly
• 4. STANDARDISATION of job requirements,
  qualifications, experience, etc.

17
Internal factors

• 5. Recruitment, probation, promotion, retirement
  and succession should be done objectively
  (measured) and according to the demands of the
  situation.

18
Internal Factors

• 6. Due consideration must be given to the short,
  medium and long term interest of the enterprise.
  Compensation policy and practice must support the
  strategic direction and objectives.

19
Internal Factors

• 7. Consideration must also be given to the
  interests and needs of the employees. Pay is the
  means by which workers provide for their needs
  (current and DEFFERED) and those of their
  dependents.

20
Internal factors

• 8. Budgets and actuals should be done for all
  aspects of the process. These should accord with
  the strategic direction and plans of the
  enterprise and of its HRM strategies.

21
Internal Factors

• 9. Mental/psychic wage considerations should be
  factored in the reward scheme.

22
External Factors

• Market
• Government regulations (wage guidelines,
  legislation, etc.)
• Trade unionism
• Economic factors, i.e., inflation, etc.

23
Other Factors

• Organisational subjectivism
• Gender
• Size of enterprise
• Personal relationships

24
Important Considerations

• The Labour Market
• Pay equity
• Government Policies/Regulations
• Trade Unionism

25
Trade Unionism Compensation Policy Practice

• Trade Unions form part of the environment,
  internal and external, to the development and
  implementation of Compensation Policy
• The influence goes beyond the immediate
  membership and collective bargaining system,
  affecting unionised as well as non-unionised
  employees.

26
Why Consider Trade Unions?

• The historical influence is beyond doubt
• However, this influence is now in doubt,
  particularly because of the fall in membership
• The negotiation of social contracts is seen both
  as an indication of the weakening of trade
  unionism and as their having to play to new rules.

27
Two seemingly contending views from North America

• (The Effect of Right-to-work Laws on Economic
  Development, William T Wilson, PhD MacKinac
  Centre for Public Policy), 2001

28
Two seemingly contending views from North America

• Oren M. Levin-Waldmans Do Institutions Affect
  the Wage Structure? Right-to-Work Laws,
  Unionization, and the Minimum Wage (Public
  Policy Brief, The Jerome Levy Economics Institute
  of Bard College, 57, 1999)

29
USAs Right-to-Work Scenario(The Effect of
Right-to-work Laws on Economic Development,
William T Wilson, PhD MacKinac Centre for
Public Policy)

• "Right-to-work" laws are state statutes or
  constitutional provisions that ban the practice
  of requiring union membership or financial
  support as a condition of employment.
  (Taft-Hartley amendments to the National Labor
  Relations Act in 1947.)

30
Right-to-Work Scenario

• From 1970 through 2000 RTW
  states' economies grew one-half percent faster
  annually.
• RTW states created 1.43 million manufacturing
  jobs non-RTW states lost 2.18 million
  manufacturing jobs.

31
Right-to-Work Scenario

• RTW states have greater disposable income growth.
  
• RTW states have lower unit labor costs.
• RTW states' poverty rates are falling faster.

32
Do Institutions affect the wage structure?
(Levin-Waldman)

• Over recent decades the strength of unions has
  declined and the minimum wage has fallen relative
  to purchasing power and to average wages
• States with relatively high union density and no
  right-to-work laws have the lowest percentage of
  heads of household earning near the minimum wage

33
Reconciliation

• Both positions are compatible economic growth
  and productivity is correlated to lower labour
  cost.

34
Pay Equity

• EQUITY IS GENERALLY DEFINED AS ANYTHING OF VALUE
  EARNED THROUGH THE PROVISION OR INVESTMENT OF
  VALUE...IN COMPENSATION, A WORKER EARNS EQUITY
  INTEREST BY PROVIDING LABOUR ON A JOB.

35
Pay Equity

• FAIRNESS IS ACHIEVED WHEN THE RETURN ON EQUITY
  IS EQUIVALENT TO THE INVESTMENT MADE...FOR
  COMPENSATION, THEN, WE WOULD DEFINE FAIRNESS AS
  BEING ACHIEVED WHEN THE VALUE OF COMPENSATION
  RECEIVED IS EQUIVALENT TO THE VALUE OF THE LABOUR
  PERFORMED.
• UNFAIRNESS OR INEQUITY OCCURS WHEN THE VALUE OF
  THE COMPENSATION RECEIVED DOES NOT CORRESPOND TO
  THE VALUE OF THE LABOUR PERFORMED.
• (WALLACE, MARC J. AND FAY, CHARLES H.,
  COMPENSATION THEORY AND PRACTICE, SECOND EDITION,
  PG.14)

36
Pay Equity

• WALLACE AND FAY REPRESENT EQUITY AS FOLLOWS
• OP / IP OO / IO EQUITY
• OP / IP gt OO / IO INEQUITY, OVER-REWARD
• OP / IP lt OO / IO INEQUITY, UNDER-REWARD

37
Equity Considerations

• LIVING WAGE - Between the employees needs and
  income
• WORK HIERARCHY AND STATUS Between employees in
  different occupations
• RATE FOR THE JOB Between employees carrying out
  the same work
• COMPARABILITY Between employees carrying out
  the same work within different organisations

38
Equity Considerations

• DIFFERENTIAL Between employees carrying out
  different work within the same organisation
• SENIORITY Between employees with different
  length of service
• EDUCATION AND TRAINING Between employees
  different ability and potential
• RESPONSIBILITY Between employees at different
  levels within the same organisation

39
Equity Considerations

• INDIVIDUAL PERFORMANCE Between employees
  carrying out the same work within the same
  organisation, but performing at different rates
• ORGANISATIONAL PERFORMANCE Between employees
  wages and the profitability, productivity or
  performance of their organisation
• SUPPLY AND DEMAND Between organisations
  ability to pay and its need to recruit labour

40
Job Valuation and Pay Structures Striving for
Internal Equity

• A mix of measures and strategies is usually used
  to determine job worth and pay structures.
• The mix depends on the degree of
  formality/informality of the enterprise and the
  absence/presence of a compensation policy.

41
Job Valuation and Pay Structures (Contd.)

• The principal means of establishing job worth are
  job evaluation and salary surveys.

42
Job Evaluation

• Job evaluation is a composite process of
• 1. Job analysis
• 2. Establishing the relative rather than the
  absolute values of jobs
• 3. Grouping/classifying jobs hierarchically and
  establishing minimum and maximum wages/salaries
  for them

43
Job Analysis

• Job analysis is central to the whole job
  evaluation exercise It is the basis on which the
  respective jobs are ascribed numerical and
  relational values

44
Job Analysis

• The process of determining reporting
  pertinent information relating to the nature of a
  specific job. It is the determination of the
  tasks which comprise the job and the skills,
  knowledge, abilities and responsibilities
  required of the worker for successful job
  performance

45
Job Evaluation

• Job evaluation is the systematic determination of
  the relative worth of the jobs in an organisation
  based on their demands on the job holders. The
  result is a rank order of jobs, providing the
  basis of an equitable wage structure, which is
  acceptable to both the individuals and groups
  concerned and the organisation as a whole.

46
Objective of Job Evaluation

• Although interviews with incumbents are used to
  obtain the facts about the jobs, it should be
  recognised that the evaluation is absolutely
  concerned with the job and not with the
  incumbents skills, qualifications or performance
  on the job.

47
The Job Evaluation

• There are two (2) broad types of job evaluations
• 1. Non-quantitative
• A) ranking system
• B) grade description system

48
The Job Evaluation

• There are two (2) broad types of job evaluations
• 2. Quantitative
• a) point system
• b) factor comparison system

49
Job Evaluation

• Must receive the commitment support of senior
  management for it to be accepted by others
• Must receive the necessary resources, technical
  and material, in order for it to be done properly
• Must be done for the right reasons and not simply
  to satisfy personal, group or political
  objectives
• Must point employees in the direction of the
  organisations objectives and values
  Performance, productivity, efficiency, quality,
  etc
• Must gain the support of important groups

50
Job Evaluation

• If nothing else, the Job Evaluation exercise is
  perhaps the single most important factor or
  process which ensures internal equity
• In doing so, it also lays the basis for external
  equity, through market surveys and references

51
Job Evaluation

• It is the decision-making process, rather than
  the instrument itself that seems to have the
  greatest influence on pay outcomes discuss.
• An example

52
Salary Surveys Method Approach (External
Equity)

• The social survey method is the chief means used
  in the conduct of salary surveys. This entails
  the completion of standardised, structured
  questionnaire(s) by each participating company
• Where feasible, the questionnaire(s) is/are
  administered through direct interviews to the
  representative(s) of the companies

53
Salary Surveys

• This approach ensures that the data collected
  conforms to expectations and are therefore
  comparable across the participating companies

54
Salary Surveys

• The process culminates with standard statistical
  analyses of the data and a narrated reporting of
  the results

55
Salary Surveys Essential Steps

• 1. Job profiles. The job profiles of the client
  are used to establish job match or equivalence
  across participating companies

56
Salary Surveys Job Match Considerations

• The client's job description and related
  information on job level, reporting
  relationship(s), level of supervision received
  and requisite educational qualifications, are
  used as the criteria for matching positions
  across the companies surveyed

57
Salary Surveys Job Match Considerations

• Where a match is identified, additional
  information on the incumbent(s) is collected to
  assist with the comparative process. This
  information spans sex, age, tenure or length of
  time in the particular job, highest levels of
  academic/professional qualification and number of
  persons directly supervised by incumbents

58
Salary Surveys Essential Steps

• 2. Given the vagaries of the market place, care
  must be taken to ensure that the reporting
  relationships and scope of the jobs match the
  clients as best as possible.

59
Salary Surveys Essential Steps

• 3. Design of the survey instrument/questionnaire.
  A standardised survey questionnaire is the
  principal instrument used in collecting the data.
  It should be designed to reflect the
  requirements of the survey and, where feasible,
  is administered to the respondents through direct
  interviews

60
Salary Surveys Essential Steps

• 4. Data collection. Each participating company
  is visited and its representative(s) interviewed
  for the relevant data. This process aids the
  data standardisation effort

61
Salary Surveys Essential Steps

• 5. Data analysis. Structured and standardised
  statistical analysis is carried out on the data,
  establishing relationships, data spread and
  central tendencies, as necessary

62
Salary Surveys Essential Steps

• 6. Reporting. The report should represent the
  findings and conclusions of the survey. However,
  in view of the express confidential nature of the
  data and information, the tables may be
  separated into management and non-management
  categories to allow for their discretionary use

63
Problems Pitfalls in Conducting Salary Surveys
in the Caribbean

• 1. Varied nomenclature 2. Lack of equivalence
  in job descriptions and functions

64
Problems Pitfalls in Conducting Salary Surveys
in the Caribbean

• 3. Structural and operational variations (various
  layers of operation and reporting relationships),
  across industries and level within the
  Organisation

65
Problems Pitfalls in Conducting Salary Surveys
in the Caribbean

• 4. Reliability of data 5. Interpretation and
  analysis of the data

66
Statistical Component

• Statistics are normal and natural to everyday
  work and life in general
• Weather, accidents, production, productivity,
  attendance, absenteeism, salaries/wages, crime,
  birth death reports all utilise statistics to
  convey and illustrate the information presented
• Used wisely, statistics can be very powerful
  tools for decision making. They can also be
  misleading, depending on intention and usage

67
Sources of Statistical Data

• Secondary and primary sources
• Secondary sources are published/unpublished
  documents
• Primary sources are original data gathered and
  used for a specific purposes

68
The Social Survey Method

• The most widely used method in the social
  sciences and considered superior to others
• Its superiority resides with
• 1. It covering a wider spread of
  respondents/target population than other methods

69
The Social Survey Method

• 2. Is relatively inexpensive, considering its
  coverage and potential quality of data
• 3. Allows for generalisation about the target
  population based on a representative sample
• 4. Data can de gathered in relatively short
  periods of time

70
Social Survey Process

• No real order, a circular overlapping and
  correcting set of processes
• It starts with an idea or a motivation
• Researcher develops requisite variables and
  formulate tentative hypotheses
• A pilot study is recommended to test the wording
  of questions and answers

71
Survey Population and Sampling

• The survey population is the social group or
  target audience to be surveyed
• Where it is not feasible, a survey sample is
  selected to represent the population

72
Sampling

• Sampling is equivalent to tasting the contents of
  a drink to judge the whole drink. A
  representative sample is part of the population,
  which looks like and has similar characteristics
  to the population

73
Types of Samples

• Simple random samples. A sample in which every
  element of the population has an equal chance of
  being selected
• Systematic random samples. Approximates the
  simple random sample method. Elements are named
  and/or numbered, every tenth or eight, as
  desired, and selected

74
Types of Samples

• Stratified samples. More often than not, the
  population is heterogeneous. As such, sampling
  would require that all strata/groups are
  represented in proportion to their representation
  in the population, except where it is expedient
  not to do so
• Other types include quota, availability or
  convenient samples

75
Descriptive Statistics Summarizing Data

• Measures of location mean, median and mode
• These are measures of central location or
  central tendency of a data set. They, in effect,
  provide summaries of the data, describing the
  average situation or condition represented by the
  data set

76
The Mean

• By far the best known and used measure of central
  location/tendency is the mean, sometimes called
  the arithmetic mean
• Mean sum of values/number of values (n)
• Sample mean vs. Population mean

77
The Mean

• Can be calculated for any set of numerical data,
  therefore, it always exists
• Any set of numerical data has one and only one
  mean, therefore, it is always unique

78
The Mean

• Lends itself to further statistical treatment
  (e.g. Means of means, etc.)
• Relatively reliable in the sense that the means
  of many samples drawn from the same population
  usually do not, or vary, as widely as other
  statistics used to estimate the population mean
• It takes into account every item of the data,
  which is not always favourable

79
Median

• Is the value of the middle item (or mean of the
  values of the two middle items) when the data are
  arrayed or ordered in an increasing/decreasing
  manner
• The median is typical in that it splits the data
  into two parts so that the values of half the
  items are less than or equal to the median, and
  the values of the other half are greater than or
  equal to the median

80
Median

• Is unique for any set of data
• The medians of many samples of the same
  population usually vary more widely than the
  corresponding sample means

81
Mode

• Is simply the value that occurs most frequently.
  
• Its two main advantages are that it requires no
  calculations, only counting, and that it can be
  determined for qualitative as well as
  quantitative data.

82
Weighted Mean

• In order to give quantities being averaged their
  proper degree of importance, it is necessary to
  assign them relative importance (weights), and
  then calculate their weighted mean.

83
Measures of Variation Quartiles, Percentiles,
Deciles, Etc.

• Quartiles divide data set into quarters,
  percentiles divide it into hundredths, deciles
  into tenths
• These have the advantage of looking closer at
  variations in the data set

84
Measures of Variation Quartiles, Percentiles,
Deciles, Etc.

• They also allow for computations between segments
  of the data set. For example, inter-quartile
  range
• Interquartile range upper quartile lower
  quartile