26 Job Analysis, Job Evaluation and Compensation Management
26.1 Job Analysis — Recap
Job analysis (JA) — covered in detail in Topic 24 — is the foundation of compensation management. Without an accurate Job Description (JD) and Job Specification (JS), every downstream HR system (selection, training, appraisal, pay) rests on guesswork.
| Output | What it captures |
|---|---|
| Job Description (JD) | What the job involves — duties, responsibilities, working conditions |
| Job Specification (JS) | What the job requires — qualifications, skills, experience |
Job analysis is the input to job evaluation. Job evaluation determines what the job is worth; job analysis determines what the job is.
26.2 Job Design
Job design is the process of arranging work content, methods and relationships of a job to satisfy organisational and individual requirements. Four classical approaches:
| Approach | Lens | Anchor |
|---|---|---|
| Engineering / Scientific Management | Efficiency through specialisation | Taylor — time and motion |
| Human Relations | Worker as social being | Mayo — Hawthorne |
| Job Characteristics | Match job to person | Hackman-Oldham |
| Socio-technical | Social + technical sub-systems jointly | Tavistock Institute — Eric Trist |
26.2.1 Job Enrichment vs Job Enlargement vs Job Rotation
| Approach | Mechanism | Example |
|---|---|---|
| Job Rotation | Move worker periodically between similar jobs | Trainee rotated across marketing, finance, operations |
| Job Enlargement | Horizontal expansion — more tasks of the same level | Salesperson also handles minor service queries |
| Job Enrichment | Vertical expansion — more autonomy, decision-making, responsibility | Salesperson can decide discounts, manage customer accounts |
Frederick Herzberg argued that job enrichment is the only sustainable way to build motivators into work — adding autonomy, achievement, recognition. Enlargement is “horizontal job loading”; enrichment is vertical loading.
26.2.2 Hackman-Oldham Job Characteristics Model (JCM, 1976)
The dominant modern job-design framework. Five core job dimensions affect three critical psychological states which drive four outcomes:
- Skill variety — degree to which the job requires a variety of skills.
- Task identity — degree to which the job involves a whole, identifiable piece of work.
- Task significance — degree to which the job impacts the lives of others.
- Autonomy — freedom in scheduling and methods.
- Feedback — direct information from the job about performance.
The Motivating Potential Score (MPS) combines these:
\[\text{MPS} = \frac{\text{Skill Variety} + \text{Task Identity} + \text{Task Significance}}{3} \times \text{Autonomy} \times \text{Feedback}\]
- Experienced meaningfulness (from skill variety + task identity + task significance).
- Experienced responsibility (from autonomy).
- Knowledge of results (from feedback).
26.2.3 Other Job-Design Frameworks
- Job sharing — two part-time workers cover one full-time role.
- Telecommuting / Remote work — work from elsewhere.
- Compressed work-week — same hours in fewer days.
- Flextime — flexible start / finish times.
- Job Crafting (Wrzesniewski & Dutton, 2001) — employees redesign their own job within constraints.
- Sociotechnical Systems (Tavistock) — autonomous work groups; British coal-mining studies by Eric Trist & Ken Bamforth (1951).
26.3 Job Evaluation
Job evaluation (JE) is the systematic process of determining the relative worth of jobs in an organisation. It establishes internal equity — the basis for an equitable pay structure.
| Author | Definition |
|---|---|
| Wendell French | “A process of determining the relative worth of various jobs within the organisation.” |
| ILO (1986) | “An attempt to determine and compare the demands which the normal performance of a particular job makes on normal workers, without taking into account the individual abilities or performance of the workers concerned.” |
| Kimball & Kimball | “An effort to determine the relative value of every job in a plant to determine what the fair basic wage for such a job should be.” |
A foundational tenet: JE establishes what the job is worth. Performance is a separate exercise (Topic 29). Two people in the same job have the same evaluation; their pay may differ by performance, seniority, etc.
26.3.1 Objectives of Job Evaluation
- Establish a rational and equitable pay structure.
- Provide a basis for wage negotiations with unions.
- Compare internal pay with external market rates.
- Reduce grievances about pay anomalies.
- Provide a basis for promotions and transfers.
- Comply with equal-pay-for-equal-work laws.
26.3.2 Methods of Job Evaluation
Job evaluation methods fall into two broad families — non-quantitative (whole-job comparison) and quantitative (point-based).
| Method | Type | Basis | Strength | Weakness |
|---|---|---|---|---|
| Ranking | Non-quantitative | Whole-job comparison; jobs ranked top to bottom | Simple, quick, cheap | Subjective; weak basis for very different jobs; not useful for large firms |
| Job Classification / Grading | Non-quantitative | Jobs grouped into pre-defined grades | Easy to administer; used in government (India CPC, US GS) | Loose; hard to fit new or hybrid jobs |
| Point / Factor-Point Method | Quantitative | Jobs scored on multiple compensable factors; points totalled | Objective, defensible, widely used | Time-consuming, complex; needs JE committee |
| Factor Comparison | Quantitative | Jobs ranked on each of 5 factors; monetary values assigned | More precise than ranking | Complex; benchmark jobs must be stable |
26.3.3 Point / Factor-Point Method (Most Common)
The most widely used method, originating from Merrill R. Lott (1925) and refined by Eugene Benge.
- Skill — education, experience, training.
- Effort — physical and mental.
- Responsibility — for people, equipment, materials, safety.
- Working conditions — physical environment, hazards.
These are the four “Equal Pay Act compensable factors” (US 1963). Process:
- Select benchmark / key jobs.
- Decide compensable factors and their weights.
- Define degrees within each factor.
- Score each job on each factor × degree.
- Sum points → job grade → pay range.
26.3.4 Factor Comparison Method — Eugene Benge (1926)
Combines ranking and point methods. Jobs are ranked on each of typically five factors:
- Mental requirements
- Skill requirements
- Physical requirements
- Responsibilities
- Working conditions
A monetary value is assigned to each factor, and jobs are placed on each factor’s scale.
26.3.5 Modern / Proprietary Systems
| System | Owner | Factors |
|---|---|---|
| Hay Method (Hay Guide-Chart Profile Method) | Hay Group (1951) | Know-how · Problem-solving · Accountability + Working conditions |
| Mercer IPE (International Position Evaluation) | Mercer | Impact · Communication · Innovation · Knowledge · Risk |
| Towers Watson Global Grading System | WTW | Functional knowledge · Business expertise · Leadership · Problem solving · Nature of impact · Area of impact · Interpersonal skills |
| Edward N. Hay’s 1951 system | — | Industry standard for executive roles |
The Hay Method is the dominant JE system globally for managerial and professional jobs. Its three primary factors (Know-how, Problem-Solving, Accountability) plus Working Conditions yield a “Hay Point” total that benchmarks job worth.
26.4 Compensation Management
Compensation is the total package of monetary and non-monetary rewards an employee receives in exchange for services. Compensation management is the planning, administering and evaluating of this package.
| Author | Definition |
|---|---|
| Edwin B. Flippo | “Compensation is the adequate and equitable remuneration of personnel for their contributions to organisational objectives.” |
| Gary Dessler | “All forms of pay or rewards going to employees and arising from their employment.” |
| Milkovich & Newman | “All forms of financial returns, tangible services and benefits employees receive as part of an employment relationship.” |
26.4.1 Types / Components of Compensation
| Category | Sub-component | Example |
|---|---|---|
| Direct Financial | Basic pay | Salary, wages |
| Variable pay | Performance bonus, commission, profit-sharing, incentives | |
| Equity / Stock | ESOP, RSU, performance shares | |
| Indirect Financial | Benefits | Pension, gratuity, PF, insurance |
| Allowances | DA, HRA, conveyance | |
| Time-off | Paid leave, sick leave, sabbatical | |
| Premium pay | Overtime, shift differential | |
| Non-Financial (Intrinsic) | Recognition · Career growth · Job content · Work environment | Awards, learning, autonomy |
26.4.2 Wages vs Salary
- Wage — typically hourly or piece-rate, paid weekly to operative employees.
- Salary — typically monthly or annual, paid to white-collar or managerial employees.
26.4.3 Concepts of Wage
Under Indian wage policy, four “wage” concepts are distinguished:
| Concept | Meaning | Authority |
|---|---|---|
| Minimum Wage | Below which it would be unethical to pay; bare subsistence | Minimum Wages Act 1948 |
| Statutory Minimum Wage | Notified by Government | Minimum Wages Act |
| Fair Wage | Between minimum and living wage; based on industry’s capacity to pay | Committee on Fair Wages, 1948 |
| Living Wage | Standard of living that affords reasonable comfort | ILO; aspirational |
| Need-based Minimum Wage | Based on the 15th Indian Labour Conference (1957) — Aykroyd formula | 15th ILC, 1957 |
The 15th ILC adopted the Aykroyd formula for need-based minimum wage based on:
- 3 consumption units per earner (worker + spouse + 2 children equiv.).
- 2 700 calories per adult per day.
- 65 metres of cloth per family per year.
- Rent equal to minimum area provided.
- Fuel, light, miscellaneous = 20 % of total minimum wage.
Reptakos Brett & Co. case (1992) added: children’s education, medical, recreation, festivals (25 %).
26.4.4 Theories of Wages
| Theory | Proponent | Core idea |
|---|---|---|
| Subsistence Theory | David Ricardo (1817) | “Iron Law of Wages” — wages tend to bare subsistence level |
| Wages-Fund Theory | J.S. Mill | Wages depend on a fixed wage-fund and number of workers |
| Surplus-Value Theory | Karl Marx | Wages are below the value workers create; capitalists capture the surplus |
| Residual-Claimant Theory | Francis Walker | Workers get what is left after rent, interest and profit |
| Marginal Productivity Theory | J.B. Clark (1899) | Wages = marginal revenue product of labour |
| Bargaining Theory | John Davidson | Wages set by relative bargaining strength of labour and capital |
| Behavioural Theory | March & Simon | Wages set by attraction-retention behaviour |
26.4.5 Equity in Compensation — Three Tests
| Equity | Question | Tool |
|---|---|---|
| Internal equity | Are pay levels fair within the firm? | Job evaluation |
| External equity | Are pay levels fair vs the labour market? | Salary surveys |
| Individual equity | Are individuals paid fairly relative to peers in same job? | Merit pay, performance appraisal |
26.4.6 Pay-Level Strategy
Three classical pay-level strategies (Milkovich):
- Lead the market — pay above market average.
- Match the market — pay at average.
- Lag the market — pay below market average.
- Hybrid — lead in critical jobs, lag elsewhere.
26.4.7 Pay Structure / Pay Bands
- Pay grade — group of jobs of similar worth.
- Pay range — minimum, midpoint, maximum for each grade.
- Compa-ratio = Employee’s actual salary / Midpoint of pay range.
- Range spread — (Max − Min) / Min.
- Broadbanding — collapsing many narrow pay grades into a few wide bands.
26.4.8 Incentive Plans
| Level | Plan | Description |
|---|---|---|
| Individual | Piece-rate (straight) | Pay per unit produced |
| Taylor’s differential piece-rate | Two rates; higher above standard | |
| Halsey plan | 50 % of time saved as bonus | |
| Rowan plan | Bonus = (time saved / time allowed) × time taken × rate | |
| Gantt task and bonus | Standard wage + bonus for over-standard | |
| Bedaux plan | “B” point system | |
| Group | Profit sharing | Share of company profit |
| Gain sharing (Scanlon, Rucker, Improshare) | Productivity gains shared | |
| Group piece-rate | Group’s output basis | |
| Organisation-wide | ESOPs | Stock ownership |
| Co-partnership | Workers buy shares; participate in management |
26.4.9 Executive Compensation
- Base salary.
- Annual bonus — tied to short-term performance.
- Long-term incentives (LTI) — stock options, restricted stock units (RSU), performance shares.
- Perks / Perquisites — car, club, housing.
- Severance / Golden parachute — exit packages.
- Pension / Retirement plan.
- Deferred compensation.
Under Section 197 of Companies Act 2013, total managerial remuneration of a public company is capped at 11 % of net profit. Within this, MD/WTD/Manager — max 5 %; one such position — max 5 %; other directors — max 1 % (with profits) or 3 % (without).
26.4.10 Pay Disparity / CEO-Worker Pay Ratio
US Dodd-Frank Act (2010, Section 953(b)) mandates US listed firms to disclose CEO-to-median-worker pay ratio. India’s Section 197(12) of Companies Act + Rule 5(1) requires listed companies to disclose ratio of director remuneration to median employee remuneration.
26.5 Indian Compensation Legal Framework
| Act | Year | Covers |
|---|---|---|
| Payment of Wages Act | 1936 | Timely and full payment of wages; deductions |
| Minimum Wages Act | 1948 | Statutory minimum wage |
| Equal Remuneration Act | 1976 | Equal pay for men and women |
| Payment of Bonus Act | 1965 | Statutory bonus 8.33 % – 20 % |
| Payment of Gratuity Act | 1972 | Gratuity = 15 days × last drawn × years (subject to cap) |
| Employees’ Provident Funds Act | 1952 | EPF; 12 % employer + 12 % employee contribution |
| ESI Act | 1948 | Health insurance for workers up to ₹21 000/month wage |
| Maternity Benefit Act | 1961 (Amended 2017) | 26 weeks paid maternity leave |
26.5.1 Four New Labour Codes (2019-20)
India consolidated 29 central labour laws into four labour codes:
| Code | Year | Subsumes | Key provisions |
|---|---|---|---|
| Code on Wages | 2019 | Payment of Wages, Minimum Wages, Equal Remuneration, Payment of Bonus | Universal minimum wage; floor wage by Centre |
| Industrial Relations Code | 2020 | Industrial Disputes, Trade Unions, Industrial Employment | Standing orders for 300+ workers; recognition of negotiating union |
| Code on Social Security | 2020 | PF, ESI, Maternity, Gratuity, Compensation, Unorganised Workers etc. | Gig & platform workers covered; portable benefits |
| Code on OSH | 2020 | Factories Act, Mines Act, Plantation Labour, etc. | Universal OSH standards; threshold raised to 20 (with power) / 40 (without) |
Implementation has been delayed; states are framing rules.
26.5.2 Other Indian Mandates
- Provident Fund — EPF Act 1952: 12 % employer + 12 % employee on basic + DA up to ₹15 000.
- Gratuity — 5+ years service; 15 days × monthly wages × years; cap ₹20 lakh tax-free.
- Bonus — Payment of Bonus Act 1965: minimum 8.33 %, maximum 20 % of salary; for those drawing ≤ ₹21 000/month.
- ESI — for workers earning ≤ ₹21 000/month; 3.25 % employer + 0.75 % employee contribution.
- NPS — National Pension System — defined contribution scheme.
- LTA — Leave Travel Allowance — tax-exempt subject to conditions.
- Tax Regime — Old vs New regime (post-2020); slabs and surcharge by income.
26.6 Modern Compensation Trends
- Total Rewards — beyond pay: career, well-being, recognition (WorldatWork model).
- Pay for performance — variable pay tied to PMS.
- Skill-based / Competency-based pay — pay tied to demonstrated skills/competencies.
- Pay transparency — public salary bands; California, EU pay-transparency laws.
- Pay equity audits — gender, race, caste gap analysis.
- Equity / ESOPs — common in start-ups.
- Flexi-benefits / Cafeteria plans — employee chooses benefits mix.
- Wellness benefits — gym, mental health, financial planning.
- Living-wage benchmarks — global movement.
- Real-time / On-demand pay — earned wage access.
- AI-driven compensation analytics — Mercer, Aon proprietary platforms.
- Sustainability-linked pay — ESG metrics in executive comp.
26.6.1 Total Rewards Model — WorldatWork (2006, revised 2020)
- Compensation — fixed + variable.
- Benefits — health, retirement, time-off.
- Well-being — physical, emotional, financial well-being.
- Recognition — formal + informal.
- Development — learning, career.
- Work-life effectiveness — flexibility, balance.
26.7 Practice Questions
*Vertical* expansion of a job — adding autonomy, decision-making, responsibility — is called:
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The Job Characteristics Model (JCM) identifies how many core job dimensions?
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In Hackman-Oldham's Motivating Potential Score (MPS), if Autonomy = 0, the MPS:
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Job evaluation is concerned with determining the relative worth of:
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Which of the following is a *non-quantitative* job evaluation method?
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The four classical compensable factors in the point method (and US Equal Pay Act 1963) are:
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The Hay Method's three primary factors (with working conditions added for some jobs) are:
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The "Iron Law of Wages" — wages tend to subsistence level — was given by:
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The marginal productivity theory of wages was developed by:
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The need-based minimum wage formula was adopted at the **15th Indian Labour Conference** in:
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India's Minimum Wages Act was passed in:
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Under the Payment of Bonus Act 1965, the minimum and maximum statutory bonus is:
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The Code on Wages 2019 consolidates how many earlier acts?
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India has consolidated 29 central labour laws into how many Labour Codes?
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Under the Payment of Gratuity Act, the tax-free gratuity ceiling for employees of private sector (post-2018 amendment) is:
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Under the EPF Act 1952, employer and employee contribute what percentage of (basic + DA)?
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Under Section 197 of the Companies Act 2013, total managerial remuneration of a public company is capped at:
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Under the Halsey incentive plan, a worker who finishes early earns:
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"Compa-ratio" is calculated as:
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Match the wage theory with its proponent:
| (i) | Subsistence Theory | (a) | J.S. Mill |
| (ii) | Wages-Fund Theory | (b) | Karl Marx |
| (iii) | Surplus-Value Theory | (c) | J.B. Clark |
| (iv) | Marginal Productivity | (d) | David Ricardo |
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26.7.1 Advanced Format Questions
A: Job evaluation determines relative worth of jobs.
R: Hay's point method is most widely used globally.
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A: Pay Commissions in India revise central-govt salaries.
R: The 7th Pay Commission report came in 2015.
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Job evaluation methods: (i) Ranking. (ii) Classification. (iii) Point. (iv) Factor comparison.
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Compensation components: (i) Base pay. (ii) Variable pay. (iii) Allowances (HRA, DA). (iv) Long-term incentives (ESOP).
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26.8 Quick Recall
- Job Analysis → JD (duties) + JS (qualifications) — foundation of JE.
- Job Design approaches: Engineering (Taylor) · Human Relations (Mayo) · Job Characteristics (Hackman-Oldham) · Socio-technical (Tavistock — Trist & Bamforth 1951).
- Job Rotation · Enlargement (horizontal) · Enrichment (vertical, Herzberg).
- JCM (Hackman-Oldham 1976) — 5 core dimensions: Skill variety · Task identity · Task significance · Autonomy · Feedback → MPS = avg(SV+TI+TS) × Autonomy × Feedback → meaningfulness · responsibility · knowledge of results.
- Job Crafting (Wrzesniewski-Dutton 2001).
- Job Evaluation — evaluates job, not worker.
- JE methods: Non-quantitative (Ranking · Classification) vs Quantitative (Point — Lott 1925 · Factor Comparison — Benge 1926).
- Compensable factors (Equal Pay Act 1963): Skill · Effort · Responsibility · Working conditions.
- Hay Method (1951): Know-how · Problem-solving · Accountability + Working conditions.
- Theories of wages: Subsistence (Ricardo) · Wages-Fund (Mill) · Surplus-Value (Marx) · Residual-Claimant (Walker) · Marginal Productivity (J.B. Clark 1899) · Bargaining (Davidson) · Behavioural (March-Simon).
- Indian wage concepts: Minimum · Statutory Minimum · Fair · Living · Need-based (15th ILC 1957 — Aykroyd formula).
- Equity tests: Internal (JE) · External (surveys) · Individual (PMS).
- Indian wage laws: Payment of Wages 1936 · Minimum Wages 1948 · Equal Remuneration 1976 · Payment of Bonus 1965 (8.33-20 %) · Gratuity 1972 (15 days × LDS × years; cap ₹20 lakh) · EPF 1952 (12 % each) · ESI 1948 · Maternity Benefit 1961 (2017 amend — 26 weeks).
- Four Labour Codes (2019-20): Wages · Industrial Relations · Social Security · OSH.
- Section 197 Companies Act — managerial remuneration cap 11 % of net profit.
- Incentive plans: Piece-rate · Taylor differential · Halsey (50 % saved) · Rowan · Gantt · Bedaux · Scanlon · Rucker · Improshare · ESOP.
- Compa-ratio = salary / midpoint. Broadbanding = collapse pay grades. Pay-level strategy: lead / match / lag.
- WorldatWork Total Rewards (6): Compensation · Benefits · Well-being · Recognition · Development · Work-life.