Compensation

Part 1. Job Evaluation
 
A. The Ranking Technique. 
 
   This is one of the simplest techniques for determining the relative worth or 
   value of jobs in relation to each other. This procedure requires jobs to be 
   compared in global, overall terms. The jobs are then ranked on the basis of 
   this comparison, from the job with the greatest overall worth to the job with 
   the least worth. Although this method is attractive because of its simplicity 
   and low cost, the final results may be difficult to defend because of the lack 
   of formalized and detailed criteria. The ranks may also be difficult to 
   translate into salaries, since ranks do not indicate the degree of difference 
   between two jobs. After reading the following job descriptions, use Form 1 to 
   rank the ten jobs, from the one with the highest value or worth (rank it l) to 
   the one of the lowest value (rank it 10). These ranks are to be assigned on the 
   basis of the overall value or worth of the job in relation to the other nine 
   jobs.
 
                                 Form 1. Job Ranks
                                                 
   
  Job Title                        Rank
 
    Director of Finance             ______
 
    Secretary                       ______
 
    Data-Processing Supervisor      ______
 
    Accounting Supervisor           ______
 
    Computer Operator               ______
 
    Data-Entry Operator             ______      
 
    Accountant                      ______
 
    Senior Account Clerk            ______
 
    Junior Account Clerk            ______
 
    Typist Clerk                    ______
 
Director of Finance
Job description: Supervises accounting functions. including payrolls, accounts 
receivable and payable, billing, and related activities; supervises the maintenance 
of accounting records in the administration of budgeting activities and is 
responsible for preparing the annual budget; reviews financial records and 
procedures, and advises on financial recordkeeping procedures; supervises and 
trains personnel; prepares financial reports and fiscal analyses; establishes and 
administers fiscal controls; and administers policies regarding the investment of 
company funds. 
Job specification: Requires knowledge of accounting principles and practices, 
budget preparation and administration, investment practices, and the application of 
federal and state laws and regulations to specific accounting situations; ability 
to establish, maintain, analyze, and revise financial records; and ability to 
supervise clerical staff. Requires college degree with a major in business 
administration or a related field and five years of experience in budget 
administration and fiscal operations.
Supervision received: Works under the_ administrative direction of the executive 
comminee.
Supervision exercised: Supervises the accounting supervlsor, data-processing 
supervisor, and other clerical staff.
 
Secretary
Job description: Performs a variety of administrative tasks with a minimum of 
supervision in addition to the usual clerical and stenographic duties required of a 
secretary. Screens a variety of visitors and telephone calls; gives out 
authoritative information on established programs and policies; relieves the 
administrator of routine office details; maintains confidential and administrative 
files; may supervise the work of clerical assistants; composes correspondence on a 
wide range of subjects requiring a thorough knowledge of the procedures and 
policies of the office. 
Job specification: Requires knowledge of office methods, procedures, and machines, 
including filing systems, reception and telephone techniques, and letter and report 
writing; knowledge of correct English usage and statistical and recordkeeping 
methods; ability to conduct correspondence without review, employing good judgment 
and making decisions according to established policies and procedures; ability to 
take dictation at a speed of at least 115 words per minute and to type at least 50 
words per minute; and ability to supervise the work of clerical assistants. 
Requires graduation from high school or equivalent and at least two years of 
progressively responsible experience. 
Supervision recieved: Works under the general supervision of an executive-level 
director or manager. 
Supervision exercised: May supervise one or more clerical assistants.
 
Data-Processing Supervisor
Job description: Prepares work schedules to meet production deadlines; directs 
maintenance and revision of programs and operating procedures; gathers and analyzes 
data to determine system requirements of departments requesting dataprocessing 
service; consults with department representatives in developing new programs and 
maintaining existing programs; reviews reports and data being processed for 
completeness and accuracy; assigns, supervises, and reviews work of subordinates; 
and investigates new operational techniques and equipment to improve performance. 
Job specification: Requires knowledge of the principles and techniques of program 
planning and analysis, coding operations, machine scheduling, and equipment 
operation and maintenance; knowledge of accounting principles, statistical methods, 
symbolic logic, and supervisory techniques and methods. Ability to analyze complex 
procedures and data; ability to express ideas clearly, orally and in writing; 
ability to plan, organize, and supervise the operation of a dataprocessing center. 
Requires a college degree with a major in electronic data processing, accounting, 
mathematics, business administration, or related field and three years' experience 
in data-processing work. 
Supervision recieved: Works under the direction of the director of finance. 
Supervision exercised: Supervises the programmer analyst, computer operator, 
keypunch operators, and other personnel as assigned.
 
Accounting Supervisor
Job description: Plans and coordinates the activities of the accounting division; 
responsible for the completion of all required reports by due dates; makes work 
area assignments and plans office layout; interprets and applies auditor's 
instructions and policy; directs the development, preparations and justification of 
the department's annual budget; confers with other personnel on matters related to 
accounting procedures; trains and evaluates the work performance of principal 
subordinates.
Job specification: Requires knowledge of double-entry bookkeeping methods and 
practices; knowledge of office management practices; ability to prepare financial 
statements; ability to prepare journal entries affecting revenue and expenditure 
accounts; ability to supervise the work of other accounting and clerical personnel. 
Requires a college degree with a major in accounting and four years of responsible 
administrative experience in accounting or auditing work. 
Supervision recieved: Works under the direction of the director of finance. 
Supervision exercised:  Supervises a small staff of accountants and account clerks.
                                               
Computer Operator
Job description: Monitors and operates electronic computer; loads reels of tape, 
loads card hoppers, loads printout equipment with appropriate forms, and switches 
peripheral equipment into the system; performs diagnostic routines to determine the 
cause of machine or program difficulties; refers problems that canot be solved 
through normal routines to supervisor.
Job specification: Requires knowledge of electronic computer systems and 
specialized input and output devices. Must be able to operate a variety of 
data-processing equipment; monitor a complex computer and take action to correct 
machine problems; follow written instructions; perform arithmetical computations 
and check and verify report totals and format. Requires graduation from high school 
or equivalent and two years of experience in the operation of electronic computers. 
Supervision recieved: Works under supervision of employees in higher technical and 
supervisory positions, such as the data-processing supervisor. 
Supervision exercised:  None.
                                               
Data-Entry Operator
Job description: Keys information from accounting and statistical documents or from 
coded work sheets using data-entry equipment, such as a keypunch or direct key to 
tape/disc; verifies correctness of entry data; assists in the coding of documents; 
performs routine clerical tasks related to computer data entry; and does related 
work as required. 
Job specification: Requires the ability to key data from averaqe copy at the rate 
of 8,000 keystrokes or more per hour with no more than a 3 percent error rate; 
ability to perform routine clerical tasks; and ability to follow oral and written 
instructions. Requires graduation from high school or equivalent and one year's 
experience in operating data-entry machines . 
Supervision recieved: Works under the immediate supervision of employees in higher 
clerical, technical, or supervisory positions . 
Supervision exercised: None.
 
Accountant
Accountant Job description: Screens and verifies purchase orders, requisitions, and 
other inventory-related documents; aids in maintaining an inventory of fixed 
assets; aids in preparation of journal entries, trial balances, fiscal and 
statistical reports; aids in establishing financial records and procedures and 
fiscal controls; and answers inquiries and provides technical information regarding 
the status of budget accounts. 
Job specification: Requires knowledge of accounting principles, practices, and 
procedures; ability to devise and install accounting methods, forms. and 
procedures; ability to communicate accounting information to others. Requires a 
college degree with a major in accounting or business administration with a minimum 
of 18 semester units in accounting. No prior experience required. 
Supervision recieved: Works under the supervision of the accounting supervisor. S
Supervision exercised: None.
 
Senior Account Clerk
Job description: Prepares and processes accounts payable; schedules and checks the 
routine work of junior account clerks as directed by the accounting supervisor; 
verifies, approves, and screens fiscal documents; verifies salary claims and 
computes payroll deductions; prepares and processes the billing and maintenance of 
accounts including the settlement of delinquent accounts; prepares analysis and 
breakdown of billing computations. 
Job specification: Requires knowledge of methods, practices, and terminology used 
in financial record-keeping work, including accounts payable; ability to post 
financial data and make arithmetical computations rapidly and accurately; ability 
to prepare and verify financial statements, payroll transactions, invoices, and 
reports. Requires graduation from high school or equivalent and two years of 
increasingly responsible financial record-keeping work.
Supervision recieved: Works under general supervision of accounting supervisor. 
Supervision exercised: Limited supervision of routine work of junior account clerks 
as directed by accounting supervisor.
 
Junior Account Clerk
Job description: Verifies, balances, or adjusts accounts; posts, checks, assembles, 
tabulates, and compares statistical or financial data; prepares or checks invoices 
and purchase orders; makes arithmetical calculations; operates calculating and 
bookkeeping machines; and does related work as required. 
Job specipcation: Requires a knowledge of financial record-keeping methods and 
procedures and office methods and practices; ability to post financial data and to 
make arithmetical computations rapidly and accurately; ability to operate office 
machines and to learn the operation of bookkeeping machines; ability to follow oral 
and written instructions. Requires graduation from high school or equivalent and 
one year of experience in financial record keeping. 
Supervision recieved: Works under the supervision of the accounting supervisor and 
senior account clerks. 
Supervision exercised: None.
 
Typist Clerk
Job description: Types letters and statistical and financial reports; operates 
duplicating equipment and other standard office equipment; receives, distributes, 
and dispatches mail; performs varied clerical work such as indexing and filing; and 
does related work as required. 
Job specipcation: Requires knowledge of basic arithmetic and correct English usage, 
spelling, and punctuation; ability to perform routine clerical work; satisfactory 
ability to follow oral and written instructions; ability to type at least 45 words 
per minute. Requires graduation from high school or its equivalent. 
Supervision recieved: Works under the immediate supervision of employees in higher 
clerical, technical, or supervisory positions. 
Supervision exercised: None.
 
                           Administering Employee Equity
B. The Point Method.  The point method is one of the most widely used 
   job-evaluation techniques. This method involves the selection of a number of 
   dimensions or factors to be used in evaluating the relative worth of a set of 
   jobs. The decision as to which factors to use is a critical one, since 
   different sets of factors can result in differences in judgment on the relative 
   worth of a job. For example, such factors as education, experience, complexity, 
   physical effort, and working conditions may or may not be included. The worth 
   of a welder relative to a typist could depend heavily on which factors were 
   included and which were excluded.
   
   After the factors are selected, the next step is to break these factors down 
   into degrees. The degrees describe different levels of a factor. For example, 
   education can be broken down into levels from less than a high school education 
   to graduation from college. The degrees are then assigned points, according to 
   their relative worth to the organization. The organization can also decide on 
   the number of points to be assigned to each factor, so that some factors can be 
   weighted more heavily than others.
   
   The rater examines each job for each of the factors and determines the points 
   that should be assigned to that job. The total points for all factors for a job 
   determine the relative worth of that job in relation to other jobs in the 
   organization. The point method provides a job-evaluation system that allows for 
   more detailed explanations to employees concerning the relative worth of their 
   jobs on the basis of these factors. The assignment of points to the jobs also 
   allows a quantitative approach to determining the relative worth of jobs, as 
   compared to the qualitative approach of the ranking technique. It is easier to 
   assign relative dollar amounts to the internal job structure by this 
   quantitative approach than by the simple ranking technique.
   
   This exercise on the point method uses nine factors, each divided into five 
   degrees. The dimensions used are similar to those found in the American 
   Association of Industrial Management's job evaluation plan (formerly known as 
   the National Metal Trades Plan). The number of points assigned to the factors 
   and the definitions have been specifically developed for this exercise. After 
   reading through the nine job evaluation factors, use Form 2 to assign points 
   for each of the factors to each of the ten occupations described in Part lA.
   
                              Job Factor Definitions
To the Student:  Using the job descriptions/specifications above, and the information 
below, fill in Form 2.
 
1. Education: the number of years of formal education required for the job
 
Degree          Points                       Definition
1                10      Less than two years of high school
2                20      Two years or more of high school
3                40      Graduation from high school
4                70      Two years or more of college
5               100      College degree
 
2. Experience: the number of years of relevant work experience required for the job
 
Degree          Points                       Definition
1                25      Less than one year
2                40      One year to less than two years
3                60      Two years to less than three years
4                80      Three years to less than five years
5               120      Five years or more
 
3. Complexity of duties: the independent analysis, judgment, and problem-solving 
   activities required by the job
 
Degree          Points                       Definition
1                5       Tasks are very simple and routine
2               30       Duties involve occasional minor routine problems
3               45       Frequent routine decisions required, usually within well-established
                         guidelines
4               60       Many situations not covered by standard guidelines requiring analysis and
                         problem solving
5               80       Most situations nonroutine, requiring highest level of initiative and
                         judgment, including the development of new approaches and procedures
 
4. Supervision received: the amount of supervision required and the frequency with 
   which work is monitored and checked by a supervisor
 
Degree          Points                         Definition
 
5                 5      Under continuous immediate  supervision
2                15      Under immediate supervision, work checked at frequent
                         intervals on daily or weekly basis
3                30      Moderately general supervision, work checked at infrequent intervals
4                60      Under general supervision, major monroutine decisions not checked for
                         periods of time up to several months
5               100      Extremely general supervision, major nonroutine decisions checked at
                         infrequent intervals by president or executive committee
 
 
5. Errors in judgment: impact of potential errors on other functions in the 
   organization
 
Degree          Points                         Definition
 
1               5        Errors have only very minor short-term impact, and little impact outside
                         individual job
2               10       Minor short-term impact on immediate job and one or two others
3               20       Moderate impact, with short-term problems created for other jobs
4               40       Moderate to major impact, with extended problems created for several
                         other parts of the organization
5               80       Major costs, with extensive long-term negative impact on many other
                         functions
 
6. Contact with others: the required interaction with personnel outside of the 
   immediate work group
 
Degree          Points                         Definition
 
1                5       Little or no contact outside of a few co-workers and supervisor
2               10       Infrequent contacts outside immediate work group involving minor
                         communications
3               20       Moderate levels of contacts involving routine information
4               40       Moderate to frequent levels of contacts involving explaining, problem
                         solving, and making adjustments
5               60       Very frequent levels of contacts involing explaining, persuading, and
                         problem solving
 
7. Mental or visual demands: the mental and/or visual demands of the job, in terms 
   of constant monitoring of equipment, gauges, or written materials in copy work
 
Degree          Points                         Definition
 
1                5       Little or no direct monitoring of equipment or written materials required
2               10       Limited effort required, with repetitive operations requiring moderate
                         levels of attention
3               15       Close work with frequent mental and visual concentration required
4               20       Very close work with constant mental or visual concentration
5               30       Requires extremely accurate mental and visual effort with constant
                         monitoring of equipment, materials, or written data
 
8. Working conditions: the levels of noise, temperature, and other factors related 
   to uncomfortable working conditions
 
Degree          Points                         Definition
 
1                5       Surroundings are very pleasant
2               10       Infrequent noise or temperature extremes
3               15       Occasional moderate noise levels and/or temperature extremes
4               20       Moderately high levels of noise or temperature extremes on regular basis
5               25       Extreme noise or temperature levels
 
 
9. Supervision exercised: the extent and level of required supervisory activities
 
Degree          Points                   Definition
 
1               10       No supervision of others required
2               20       Supervision of one or more individuals
3               45       Supervision of several workers involving moderately difficult and complex
                         tasks on a continuous basis
4               80       Supervision of several workers involving planning and directing moderately
                         to highly skilled personnel performing complex tasks
5              120       Supervision of several workers requiring substantial planning and
                         coordination of managerial or professional personnel
 
 
 
Form 2. Job Points
 
 

 
C. Comparison of Job Evaluation Techniques. This exercise provides a comparison of 
   the results of Parts A and B. Fill in Column 1 of Form 3 with the points from 
   Form 2. Then rank these points, from 1 for the job with the most points to 10 
   for the job with the least points. Next, transfer the ranks from Form 1 to 
   Column 3 of Form 3. Finally, calculate the differences between the ranks from 
   the ranking technique in Column 3, and place the results in Column 4. How can 
   you explain any differences in the ranks resulting from the two techniques?
   Examine the points in Column 1 in relation to the ranks in Column 3. What 
   information does the point method give about the relative internal worth of the 
   jobs not found with the ranking technique?
   
             
 
Form 3. Comparison of Ranking Technique and Point Method
                                                rank       rank        rank 
  Job Title                        points      based       from        difference
                                               points      form 1
    Director of Finance             ______     ______      ______      ______
 
    Secretary                       ______     ______      ______      ______
 
    Data-Processing Supervisor      ______     ______      ______      ______
 
    Accounting Supervisor           ______     ______      ______      ______
 
    Computer Operator               ______     ______      ______      ______
 
    Data-Entry Operator             ______     ______      ______      ______
 
    Accountant                      ______     ______      ______      ______
 
    Senior Account Clerk            ______     ______      ______      ______
 
    Junior Account Clerk            ______     ______      ______      ______
 
    Typist Clerk                    ______     ______      ______      ______
 
Part 2. Pricing the Internal Job Structure
 
The point method of job evaluation establishes the relative worth of jobs in terms 
of the total points assigned to each job. However, the task of assigning dollar 
amounts to these points still remains. One method of determining salaries is to 
examine the current pay for similar positions in other organizations in relation to 
the points assigned to these jobs. A general assumption is that the jobs used in 
this comparison process have current market salaries that are related to their 
relative worth to the organization. For this reason, the organization will want to 
examine the jobs used in pricing the internal job structure and exclude jobs 
associated with salaries that are excessively high or low because of labor-market 
pressures resulting from a shortage or an overabundance of available personnel. 
After the relationship between the market rates for these jobs and the points 
assigned in the job evaluation is determined, the same formula can be used for 
other jobs in the organization, even for jobs that are specific to the organization 
and not commonly found in other organizations.
 
Use Exhibit 10-1 to determine the current market reference rate for each of the ten 
jobs. This survey gives the midpoints of the annual salary ranges for each job in 
five organizations. It is common to find variations in the salaries paid by 
different organizations because of differences in the specific tasks assigned to 
these jobs and differences in job evaluation methods, among other factors. A single 
reference salary for each job can be determined by means of medians or arithmetical 
averages. One or more organizations with extreme salary levels that are not 
representative of the real worth of a particular job may sometimes be excluded to 
determine the reference salary.
 
Enter this maket reference salary in the first column of Form 4 for each of the ten 
jobs. Transfer the total number of job evaluation points for each job from Form 2 
to the second column of Form 4.
 
 
 
Exhibit lO.l: Use this data to determine a reference MKT salary
Exhibit 10.2: Example
 

 
 
Form 4. Pricing the Internal Wage Structure
 
 
                               Reference Mkt Salary     Total Points
    Director of Finance             ____________        ____________
 
    Secretary                       ____________        ____________
 
    Data-Processing Supervisor      ____________        ____________
 
    Accounting Supervisor           ____________        ____________
 
    Computer Operator               ____________        ____________
 
    Data-Entry Operator             ____________        ____________
 
    Accountant                      ____________        ____________
 
    Senior Account Clerk            ____________        ____________
 
    Junior Account Clerk            ____________        ____________
 
    Typist Clerk                    ____________        ____________
 
The next step is to determine the relationship between the reference salaries and 
job evaluation points. One common method is to plot these points and the reference 
salary for each job on a scatter diagram. In the example shown in Exhibit 10-2, job 
A has been assigned 100 points and has a current reference salary of $10,000, job B 
is assigned 200 points and has a reference salary of $20,000, and job C is assigned 
300 points and has a reference salary of $30,000.
 
The relationship between total points and reference salaries can then be 
established by determining the line that best fits the plotted values on the 
scatter diagram. The simplest way to make this determination is the "eyeball" 
approach, drawing a line that appears to fit the values most closely. A more 
complex approach is to use linear regression to calculate the formula for the 
best-fitting straight line. Salaries for other jobs can then be calculated by 
reference to this line (or linear regression equation). For example, a job 
evaluated at 250 points would have a calculated salary of $25,000 in reference to 
Exhibit 10-1.
 
Plot the values corresponding to the reference market salaries and job evaluation 
points for each of the jobs on Form 5. Then determine the best-fitting straight 
line in relation to these points by the- "eyeball" approach (or linear regression 
if your instructor so directs). Price the structure by calculating the salary for 
each job with reference to this line and entering the results in the third column 
of Form 4.
 
Form 5. Scatter Plot Analysis

 
Are there any major differences between the salaries calculated by means of the 
scatter diagram and the reference salaries based on the market rates? If so, how 
can you explain such differences?
 
 
Part 3. Wage Levels and Individual Wage Determination         Discussion