25  Job Analysis, Evaluation and Compensation Management

25.1 Job Analysis

Job analysis is the systematic process of collecting and analysing information about a job — its duties, responsibilities, working conditions, and the qualifications required to perform it well. The output of job analysis feeds almost every other HR system: recruitment, selection, training, performance appraisal, compensation and safety (dessler2020?).

Edwin B. Flippo’s working definition: “the process of studying and collecting information relating to the operations and responsibilities of a specific job” (flippo1984?). Aswathappa adds that job analysis is “the foundation of HRM — without it, every other HR activity rests on guesswork” (aswathappa2020?).

TipTwo Outputs of Job Analysis
Output What it is Used for
Job Description (JD) Statement of what the job involves — duties, working conditions, reporting relationships Recruitment, performance appraisal
Job Specification (JS) Statement of what kind of person is required — qualifications, skills, experience, traits Selection, training-needs analysis

25.1.1 Methods of job analysis

TipSix Common Job-Analysis Methods
Method How it works Strength Weakness
Observation Analyst watches the worker Direct, objective Unsuitable for mental jobs
Interview Talk to job-holder and supervisor Detailed insight Time-consuming; subjective
Questionnaire Structured form Covers many people quickly Quality depends on form design
Diary / log Worker records daily activities Accurate timing data Burdensome
Critical incidents Effective and ineffective behaviours catalogued Behaviourally anchored Uneven coverage
Checklist / structured Position Analysis Questionnaire (PAQ — McCormick) Standardised, comparable Can miss qualitative nuance

The Position Analysis Questionnaire (PAQ) developed by Ernest McCormick is a quantitative, standardised instrument with around 195 elements grouped into six divisions — information input, mental processes, work output, relationships, job context, other (mccormick1979?).

25.1.2 Job design

Job analysis describes the job as it is; job design asks how the job should be arranged. Four classical approaches:

TipFour Approaches to Job Design
Approach What it does Anchor
Job rotation Move workers across jobs —
Job enlargement Add tasks at the same level (horizontal loading) —
Job enrichment Add depth, autonomy, decision rights (vertical loading) Frederick Herzberg
Job characteristics model Five core dimensions affect motivation Hackman & Oldham (1976)

Hackman and Oldham’s Job Characteristics Model is the most-tested job-design framework. The five core dimensions — Skill Variety, Task Identity, Task Significance, Autonomy, Feedback — combine into a Motivating Potential Score (MPS):

\[MPS = \frac{(SV + TI + TS)}{3} \times A \times F\]

Where the three dimensions of meaningfulness (SV, TI, TS) are averaged, and Autonomy and Feedback enter multiplicatively (hackmanoldham1976?).

25.2 Job Evaluation

Job evaluation is the systematic process of determining the relative worth of jobs in an organisation. It is the bridge between job analysis (what the job is) and compensation (what the job pays). Wendell French: job evaluation is “a process of determining the relative worth of various jobs of the organisation, so that differential wages may be paid to jobs of different worth” (frenchwendell1990?).

25.2.1 Four classical methods

Job-evaluation methods divide neatly into non-quantitative and quantitative.

TipFour Classical Methods of Job Evaluation
Method Type How it works Strength Weakness
Ranking Non-quantitative Jobs ranked from highest to lowest by overall worth Simple, cheap Subjective; impractical for many jobs
Job grading / classification Non-quantitative Each job placed in a pre-defined grade with a description Used in government (Pay Commission, US GS scale) Borderline jobs hard to place
Factor comparison Quantitative Jobs compared factor by factor (skill, mental effort, physical effort, responsibility, working conditions); ranked on each Detailed; pay-rate-based Complex to administer
Point method Quantitative Compensable factors identified, each given a weight in points; jobs scored on each factor Most defensible; most widely used Setting up the system is laborious 

flowchart LR
  A[Job Analysis<br/>What the job is] --> JE[Job Evaluation<br/>Relative worth of jobs]
  JE --> WS[Wage Structure<br/>Pay grades + ranges]
  WS --> C[Compensation<br/>Individual pay decisions]
  M[(Compensable factors:<br/>Skill · Effort ·<br/>Responsibility ·<br/>Working conditions)] -. inputs to .-> JE
  style A fill:#E3F2FD,stroke:#1565C0
  style JE fill:#FFF3E0,stroke:#EF6C00
  style C fill:#E8F5E9,stroke:#1B5E20

The point method is the dominant approach in modern compensation practice. Hay Group’s Hay Plan — used by tens of thousands of organisations globally — is a celebrated point system with three universal factors: know-how, problem-solving, accountability (hay1984?).

25.3 Compensation Management

Compensation management is the design and administration of what employees are paid — in cash, kind and benefits — for the work they do.

25.3.1 Components of compensation

TipComponents of a Modern Compensation Package
Component What it is
Direct compensation Cash — basic pay, allowances (DA, HRA), variable / incentive pay, bonuses
Indirect compensation (benefits) Provident fund, gratuity, ESI, medical insurance, leave encashment, retirement
Long-term incentives ESOPs, RSUs, deferred bonus, performance shares
Non-financial Recognition, status, career growth, flexibility, work-life balance

25.3.2 Pay-determination factors

Robbins lists six families of factors that drive pay decisions (robbinsjudge2018?):

TipSix Families of Pay-Determination Factors
Family Examples
Internal equity Job evaluation; relative worth within firm
External equity Market salary surveys; competitive position
Individual equity Performance, seniority, skill
Organisational Ability to pay, business strategy, life-cycle stage
Labour-market Demand–supply, scarcity premiums
Statutory and regulatory Minimum wage, payment of bonus, equal remuneration

25.3.3 Compensation strategies

TipThree Compensation Posture Choices
Posture Description Trade-off
Lead the market Pay above the median Attracts top talent; raises cost
Match the market Pay at the median Standard, balanced
Lag the market Pay below the median, often with high variable Lower cost; risk of attrition

25.3.4 Performance-linked / variable pay

The shift from fixed to variable compensation has been a major trend over the past two decades. Common forms — individual incentives, team bonuses, gain-sharing (Scanlon, Rucker plans), profit-sharing, ESOPs and RSUs.

25.3.5 Compensation in India — the statutory backbone

TipIndian Compensation Statutes — Consolidated under the Code on Wages, 2019
Earlier Act What it covered
Minimum Wages Act, 1948 Statutory minimum wage; floor wage
Payment of Wages Act, 1936 Timely, full payment of wages; permitted deductions
Equal Remuneration Act, 1976 Equal pay for equal work, irrespective of sex
Payment of Bonus Act, 1965 Annual bonus for eligible employees

The Code on Wages, 2019 consolidates the four into a single statute. Other India-specific items: Payment of Gratuity Act 1972 (now in Code on Social Security), Provident Fund (EPF) under EPF & MP Act 1952, ESI Act 1948 — most consolidated into the Code on Social Security 2020.

The Pay Commissions of the Government of India set salaries for central-government employees. The 7th Pay Commission (Justice A.K. Mathur) is the latest implemented (effective from 1 January 2016); the 8th Pay Commission has been announced but its recommendations are not yet implemented as of 2026.

25.4 Practice Questions

Q 01 JD vs JS Easy

A "Job Specification" describes:

  • AThe duties and working conditions of the job
  • BThe qualifications, skills and traits required of the person
  • CThe salary range
  • DThe reporting structure
View solution
Correct Option: B
Job Description = job's duties, conditions. Job Specification = the person's required qualifications, skills, experience.
Q 02 PAQ Medium

The Position Analysis Questionnaire (PAQ) — a structured, quantitative job-analysis instrument — was developed by:

  • AFrederick Herzberg
  • BEdwin Flippo
  • CErnest McCormick
  • DWendell French
View solution
Correct Option: C
Ernest McCormick's PAQ has ~195 elements in six divisions and is the textbook standardised job-analysis instrument.
Q 03 Job Design Medium

Hackman & Oldham's Job Characteristics Model identifies how many core job dimensions?

  • AThree
  • BFour
  • CFive
  • DSeven
View solution
Correct Option: C
Five: Skill Variety, Task Identity, Task Significance, Autonomy, Feedback. The first three drive meaningfulness; the last two drive responsibility and knowledge of results.
Q 04 Job Evaluation Medium

Match the job-evaluation method with its type:

(i) Ranking (a) Quantitative
(ii) Job grading / classification (b) Quantitative
(iii) Factor comparison (c) Non-quantitative
(iv) Point method (d) Non-quantitative
  • A(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
  • B(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)
  • C(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • D(i)-(b), (ii)-(a), (iii)-(d), (iv)-(c)
View solution
Correct Option: A
Ranking and grading are non-quantitative; factor comparison and the point method are quantitative.
Q 05 Hay Plan Medium

The Hay Plan, a widely used point-based job-evaluation system, uses three universal factors. They are:

  • ASkill, Effort, Responsibility
  • BKnow-how, Problem-solving, Accountability
  • CEducation, Experience, Expertise
  • DMental, Physical, Social
View solution
Correct Option: B
Edward Hay's plan uses Know-how, Problem-solving, Accountability — the "Hay Triangle".
Q 06 Compensation Posture Easy

A firm that consciously pays above the market median to attract top talent is following which compensation posture?

  • ALag the market
  • BMatch the market
  • CLead the market
  • DRandom pay
View solution
Correct Option: C
Lead the market — premium pay to win and retain the best.
Q 07 Code on Wages Medium

India's Code on Wages, 2019 consolidates which of the following older statutes?

  • AIndustrial Disputes Act and Trade Unions Act
  • BMinimum Wages Act, Payment of Wages Act, Equal Remuneration Act, Payment of Bonus Act
  • CFactories Act and Mines Act
  • DEPF and ESI Acts
View solution
Correct Option: B
The Code on Wages, 2019 consolidates the four wage-related statutes into one. The IR Code 2020 consolidates the IR-related ones; OSH Code consolidates Factories/Mines; Code on Social Security consolidates EPF/ESI/Gratuity.
Q 08 Pay Commission Medium

The latest Pay Commission whose recommendations have been implemented for central-government employees in India is the:

  • A5th Pay Commission
  • B6th Pay Commission
  • C7th Pay Commission
  • D8th Pay Commission
View solution
Correct Option: C
The 7th Pay Commission (Justice A.K. Mathur) recommendations took effect from 1 January 2016. The 8th Pay Commission has been announced but its recommendations are not yet implemented.
ImportantQuick recall
  • Job analysis = systematic study of a job. Two outputs: Job Description (what the job is) + Job Specification (what the person needs).
  • Methods: Observation, Interview, Questionnaire, Diary, Critical incidents, PAQ (McCormick).
  • Job design approaches: Rotation, Enlargement (horizontal), Enrichment (vertical — Herzberg), Job Characteristics Model (Hackman & Oldham). Five core dimensions: SV, TI, TS, A, F.
  • Job evaluation = relative worth of jobs. Four classical methods: Ranking, Grading (non-quantitative); Factor Comparison, Point method (quantitative).
  • Hay Plan’s three universal factors: Know-how, Problem-solving, Accountability.
  • Compensation components: direct (cash) + indirect (benefits) + LTI + non-financial.
  • Three pay-strategy postures: lead, match, lag the market.
  • India: Code on Wages, 2019 consolidates Minimum Wages, Payment of Wages, Equal Remuneration, Payment of Bonus. Latest implemented Pay Commission: 7th (Mathur, 2016).