Chapter 3- Performance Management

Job Evaluation,
Pay Structures
and Rewards
Chapter 3

Value of job
• In this era of globalisation, where the concept of global
village has emerged, a great deal of care and attention is
paid to the value of job.
• What a job has to be paid is greatly influenced by the
value of judgement about the worth of a job.
• Orgs have different jobs which are of different worth.
• Job evaluation is a systematic technique which aims at
determining the worth of a job.

Job Evaluation
• “The process of analysis and assessment of jobs to
ascertain reliably their relative worth using the
assessment as a basis for balanced wage structure”.
• The basic objective of job evaluation is to ascertain the
relative worth of each job through an objective evaluation
so that relative remuneration may be fixed for different
jobs.

Process of Job Evaluation
• Analyse and prepare job
description
• Select and prepare job
evaluation plan
• Classify jobs into
different categories
• Install the job evaluation
programme
• Maintain the
programme.
Job Analysis
Job Description Job Specification
Appointment of
Committee
Training
Defining Criteria Selecting methods Job classification

1. Job Analysis
• First step in job evaluation
• It includes job description and job specification
• Job description: responsibilities involved in the
performance of the job
• Job Specification: Attributes required in the job
performer.

2. Appointment of committee
• Members are from different departments of the
organisation, outside experts etc.
• HR person generally acts as the chairman of the
committee.

3. Training for Job Evaluation
• Following issues are generally discussed and doubts
cleared:
1. What is job evaluation
2. Why does the company need job evaluation
3. How well it work? Etc.

4. Defining criteria
• Identification of crucial factors like:
Responsibility
Skill
Effort
Working conditions etc.
• Criteria means a standard of judgement is to be fixed.

5. Selecting Methods
• Select a suitable method of evaluation
• Different methods include, ranking method, grading
method, point method and factor comparison method

6. Job Classification
• Various jobs are classified into different grades.
• According to this classification, a job hierarchy is made,
which shows the relative worth of the job.

Methods of job evaluation
• Four methods are: Ranking method, job grading method,
point method and factor comparison method.
• First two are non-quantitative, traditional or non-
analytical methods
• Next two are quantitative or analytical methods
• The basic difference between qualitative and quantitative
method is in terms of consideration of job as a whole
versus consideration of different components of a job.

1. Ranking Method
• The whole job is compared with others and rank is
provided on the basis of this comparison.
• Each member ranks each job independently on the basis
of comparison based on job analysis.
• Repeat the procedure for the reliability of the method.
• If any difference in opinion among the members, the
matter is settled by mutual consultation or by working out
the average.

2. Grading Method
• Also known as job classification method.
• It establishes various grades for different categories of
jobs
• A number job classes or grades is decided on the basis of
job analysis
• Job class is prepared covering all jobs fall in a class
• A job is placed in the class with which it matches the best
according to its characteristics.

3. Point method
• Widely used and is a quantitative as well as analytical method.
• It determines the relative worth of the job on the basis of points allotted
to each specific factor of a job.
• The sum total of the point is taken and determines the relative worth of
the job.
• Steps:
1. Jobs are broken into different components. These components are the
factors like skill, responsibility, effort required.
2. Major components are further broken into minor factors like skill into
education, experience, initiative etc.
3. Total number of points allotted to each job factor is divided into points
to different minor job factors.
4. Each minor factors is scaled on degree is assigned a particular point
depending on the importance of the degree in minor factor.
5. Evaluation is done on the basis of comparing the various degrees of job
factors and is aggregated to find out the total points scored by a job.

4. Factor comparison method
• Also known as key job method
• Five standard factors usually used for the comparison are
mental requirement, skills, physical requirement,
responsibility and working conditions.
• Each factor of a job is compared with the same factor of
the key job and rank is awarded and is repeated for all
other factors.
• The relative worth of a job is determined by adding the
ranks obtained by different factors of a job.

Pay Structure
• The usual outcome of a formal job evaluation programme
is a new or revised grade structure, which together with
market rate intelligence provides the basis for designing
and managing pay structures.
• Pay structures provide a framework for managing pay.

Graded pay structures
• A grade structure provides hierarchy of grades, bands or
levels into which groups of jobs that are broadly
comparable in size are placed.
• It is used as a part of non-financial reward processes.
• A grade structure becomes a pay structure when pay
ranges or brackets are defined for each grade, band or
level, or when grades are attached to a pay spine.
• Pay spines consists of a hierarchy of pay or spinal column
points between which there are many increments and to
which are attached grades.

• Graded, broad banded or family structures:
Contain the orgs pay ranges or scales for jobs grouped
into grades, bands or job family levels.
Define the different levels of pay for jobs or groups of
jobs by reference to their relative internal value as
determined by job evaluation, to external relatives as
established by market rate surveys and, where
appropriate, negotiated rates for jobs.
Provide scope for progression in accordance with
performance, competence, contribution or service.

Spot rates
• Often used to jobs at senior management levels or those
not covered by the pay structure.
• May also be called the “rate for the job”, more typically
for manual jobs where there is a defined skilled or semi-
skilled market rate.

Individual job grades
• Are attached to jobs and not to person.
• Individual job grades may be restricted to certain job, for
e.g. more senior managers, were flexibility in fixing and
increasing rates of pay is felt to be desirable

Rationale for grade and pay structures
• Grade and pay structures are needs to provide a logical
designed frame work within which an organisation’s pay
policies can be implemented.
• A grade and pay structure is also a medium through
which the Org can communicate the career and pay
opportunities available to employees.

Criteria for grade and pay structure
• Grade and pay structure should:
 Be appropriate to the culture, characteristics and needs of the Org and
its employees.
 Facilitate the management of relative jobs, and the achievement of
equity, fairness, consistency and transparency in managing grading
and pay.
 Be capable of adapting to pressures arising from market rate changes
and skill shortages.
 Facilitate operational flexibility and continuous development.
 Provide scope as required for regarding performance, contribution
and increase in skills and competence.
 Clarifying reward, lateral development and career opportunities.
 Be constructed logically and clearly so that the basis upon which they
operate can readily be communicated to employees.
 Enable the org to exercise control over the implementation of pay
policies and budgets.

Types of grade and pay structures
1. Narrow graded structures (Single-graded)
 Universal type of structure in private sector
 Pay range is attached to each grade (Between 20%-50%
above minimum)
 “Reference Point or Target Salary” is referred to the fully
competent individual
 Provide Scope for Pay Progression

2. Broad-banded pay structures
Broad-banding means that the number of grades is compressed
into a relatively small number of much wider bands in which pay
is managed more flexibly than in a conventional graded structure,
and increased attention is paid to market relatives.
There are four or six bands in such structures.
Jobs may be placed in the bands purely by reference to market
rates or by a combination of job evaluation and market rate
analysis.
The bands can span the opportunities previously covered by a
number of separate grades and pay ranges.

3. Career family structures
 Consist of jobs in a function or occupation (Ex. marketing,
operations, finance, IT)
 Jobs are related through the activities carried out and the basic
knowledge and skills required.
 But the levels are differentiated through responsibility,
knowledge, skill or competence needed.
 In effect, a career structure is a single – graded structure in
which each grade has been divided into families.
 Job evaluation indicates the same range of scores. Similarly,
the pay ranges in corresponding levels across the career
families are the same.

4. Job Family Structures
 Based on common processes (ex. IT, finance, HR)
 Divided into 3-5 families and again sub-divided into
levels (5-7)
 Levels are defined in terms of accountability, skills and
knowledge
 No commonality (each job family has its own grade and
pay structure)

Performance management and Pay
• Contingent and differential pay is an important element in
many performance management schemes. This is because
paying for performance or for competence, or both is
regarded by many organisation as desirable for three
reasons:
• It motivates people to perform better
• It delivers the message that performance and competence
are important
• It is fair to reward people for their competence.

Performance Related Pay (PRP)
• Individual PRP relates pay progression or bonuses to the
assessed performance of the individuals
• Methods of operating PRP varies considerably..
• A pay structure is designed to provide scope for pay
progression within pay brackets attached to job grades.

• Criteria for PRP
 Individuals and teams should be clear about the targets and standards
of performance required.
 They should be able to track the performance against those targets
and standards.
 They must be in a position to influence the performance by changing
their behaviour and decisions.
 They should understand what rewards they will receive for achieving
end results.
 The reward should follow as closely as possible the accomplishment
that generated it.
 The reward should be worthwhile.
 The results required to generate the reward should be attainable,
although not too easily.
 The basics upon which rewards are made should be communicated
positively and should be easy to understand.

Competence Related Pay
• Provides for pay progression to be linked to assessment of the
levels of competence that people have achieved.
• Features:
 Basis of Scheme
People receive financial rewards in the shape of increases to their
base pay by reference to the level of competence they
demonstrate in carrying out their roles. It is a method of paying
people for the ability to perform now and in future.
 Consolidated pay Increases
 Pay Progression:
The rate and limits of progression through the pay brackets can
be based on ratings of competence using PRP- type matrix, but
they may be governed by more general assessment of
competence development

Team Based Pay
• Provides rewards to teams or groups of employees
carrying out similar and related work linked to the
performance of the team.
• Performance may be measured in terms of outputs or the
achievement of service delivery standards or both.
• The quality of the output and the opinion of customers
about service levels are also taken into account.
• Team pay is usually paid in the form of bonus shared
among team members in proportion to their base rate of
pay. Individual team members are eligible for competence
related or skill-based pay

Contribution Related Pay
• It is the process for making pay decisions that are based
on assessment of both the outcomes of the work carried
out by individuals and the levels of competence and the
competency that have influenced the outcomes.
• It is focused on what people in organisations are there to
do, that is to contribute by their skills and efforts to the
achievement of the purpose of their Org

Skill Based Pay
• Provides employees with a direct link between their pay
progression and the skills they have acquired and can use
effectively.
• It focuses on what skills the business wants to pay for and
what employees must do to demonstrate them.

Gain Sharing
• Also known as production incentives.
• The basic objective of any gain sharing programme is to
provide incentives to employees on achievement of unit/
organisational level targets in terms of production
schedules, project executions, customer satisfaction,
improvements in quality standards, better safe records,
optimisation of company resources, cost saving measures
etc.

Profit Sharing
• A realisation that workers contribute significantly to the
increase in profits has encouraged this system.
• The workers are integral part of any org and their
contribution to its prosperity should also be rewarded by
making them recipients of profits.
• It is a method of remuneration under which an employer
undertakes to pay his employees a share in the net profits
in addition to their regular wages.

Chapter 3- Performance Management

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Chapter 3- Performance Management