The History Of Internal Equity Accounting Essay

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Productivity of an organisation to a large extent depends on the morale and motivation of its employees. One of the principal factors affecting is the pay policy and "pay structure "of the organisation. If we pay the employees less than the work they perform, it generates dissatisfaction which leads to low morale. On the other hand, the hidden cost of paying employees more than necessary also is not desirable. It is wasteful on a common-sense level, but it is even more harmful because of its impact on employees who see other employees doing jobs with less responsibility and being paid more than what is perceived as fair. This feeling could lead to frustration and lowering of morale and hence loss of productivity. An organisation needs a system, which will attempt to prevent such situations when developed and to resolve them to the satisfaction of all concerned.

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In general, Equity means "justice or fairness". Internal Equity defines the balanced relationship between the wages and salaries of various positions within the enterprise. For pay inequities, job evaluation is the solution.

STRUCTURE OF JOB

Job

Job evaluation

Measuring

relative worth of a

Job

Job Analysis

Process of

Collecting job

related data

Job Description Statement of a job duties and responsibilities

J

Job specification Statement of minimum acceptable Human qualities

Human qualities

INTRODUCTION TO JOB EVALUATION

Job evaluation is a chronological process of deriving the worth of a job in relation to other jobs in an organisation. It is process of establishing the values of the job. Some people mistakenly say that performance appraisal and job evaluation are the same thing but it is wrong.

DIFINATION OF JOB EVALUATION

Job evaluation is defined as "an attempt to determine and compare 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."

ILO

Job evaluation is defined as "a systematic and orderly process of determining the worth of a job in relation to other jobs".

- EDWIN B.FLIPPO

"Job evaluation as the process of analysis and assessment of jobs to ascertain reliably their negative worth using the assessment as the basis for a balanced wages structure".

- BRITISH INSTITUTE OF MANAGEMENT

"Job evaluation is effort to determine the relative value of every job in a plant to determine what the fair wage for a job should be."

-KIMBALL

CHARACTERISTIC OF JOB EVALUATION

The main goal of job evaluation is to produce a protective ranking of jobs on which a logical and satisfactory compensations structure policy should be prepared. Essential characteristics of job evaluation discussed as:

1. Job evaluation appraises the job, not the manpower.

2. The job evaluation criteria is comparative, not absolute.

3. Information which helps to complete the job evaluations are incur from

Job analysis.

4. Job evaluations are executed by groups, not by single people.

5. Job evaluation also depends on the subjectivity of job.

6. Job evaluation does not prepare the compensation structure, but simply provides a base for evaluating a logical wage structure.

OBJECTIVES OF JOB EVALUATION

The significant objective of job evaluation is to provide surety regarding equitable remuneration for relative worth of a job. The objectives of job evaluation are to:

1. Provide a standard procedure for ascertain the relative value of every job in an organization.

2. Ensure equitable compensation for a job and reasonable wage differentials between different jobs in a hierarchical organization.

3. Specify the rate of remuneration for each job which is reasonable and impartial with relation to other jobs in the organisation and industry

4. Terminate compensation imbalances.

5. Job evaluation is used as a base for setting out the incentives and other non-monetary benefits

6. Rendering information regarding work organization, employee's selection, placement, training and development programme.

7. Provide a standard to stimulate career planning for the employees in the organization and.

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8. Make sure that same wages are provided to all skilled workers for same work.

PRINCIPLES OF JOB EVALUATION

The principle on which job evaluation system are based is that of identify and evaluate the worth of all jobs in the organisation in terms of a number of factors, the relative importance of which varies from job to job". The job evaluation has definite principles. These principles should to be kept in the mind of evaluator at the time of job evaluation. According to Kress, these principles are:

1. Rate the job and the employer. Each component should be rated on the basis of what the job itself expects.

2. The elements should be clearly explained and properly elected.

3. A job rating plan must be sold to foremen and employees. The success in selling it will depend on a clear-cut description and illustration of the plan.

4. Foreman provides rates to the jobs in their own departments.

5. Employees can provide maximum co-operation when they themselves have an opportunity to discuss job ratings.

PROCESS OF JOB EVALUATION

The process of job evaluation involves the following steps:

1. Preliminary Stage This is the first stage for setting the job evaluation programme. Current functioning of the organisation is measured, after that decision is taken about the need for change, reorganize the existing programmes and a choice is made for performing the job evaluation.

2. Programme planning After identifying the need for job evaluation, a evaluator group drawn up a programme for the evaluation of the specific job. Before it starts all the job holder is to be informed regarding this plan and its contents

Preliminary Stage

Plan the programme

Internal Factor

Analyse Job

External Factor

Design structure

Grading the jobs

Develop maintenance procedure

Implementing the programme

Reviewing periodically

3. Analyse job Job analysis is based upon the information which are collected from two factors i.e. internal factor and external factor

Internal Factor: Job evaluation is based on the designations (G.M, Supervisor, Officer, and Clerk) and provides the ranks as per the designations like level 1 to G.M and level 2 to superior and so on.

External Factor: Job evaluation is done on the basis of market rate. The organization will analyse the same kind of unit and will check the salary and wages policy of the other organization and try to implement the same kind of evaluation programme in its own organization.

4. Design Structure After studying the internal and external factor of job evaluation, evaluators drafts the structure of job evaluation having lots if benchmarks and compensation structure on the basis of requirements for the jobs in the organization.

5. Grading the jobs As per the fixed benchmarks grades are provided to the jobs after evaluating. In this individual evaluation also done on the basis of individual performance, and their performances are matched with the benchmarks for providing grade to job and employee.

6. Develop maintenance procedure Before implementation, a final checking is done in the programme and some maintenance and modifications is to be done if necessary

7. Installing the programme: Once the evaluation process is completed and a intervention is ready, management must describe it to employees and put it into operation.

8. Reviewing periodically: with reference to changes in environmental conditions (technology, products, services, etc.) jobs need to be examined closely. For example, the traditional clerical functions have undergone a rapid change in sectors like banking, insurance and railways, after computerisation. New job descriptions need to be written and the skill needs of new jobs need to be duly incorporated in the evaluation process. Otherwise, employees may feel that all the relevant job factors - based on which their pay has been determined - have not been evaluated properly.

BENEFITS

The pay offs from job evaluation may be stated thus:

i. It tries to establish relation between compensation and the requirements of the job.

ii. It offers a chronological system for determining the relative value of jobs. Jobs are ranked on the basis of rational criteria such as skill, education, experience, responsibilities, hazards, etc., and are priced accordingly.

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iii. An impartial compensation structure is a natural result of job evaluation. An unbiased job evaluation tends to reduce salary inequities by placing jobs having similar requirements in the same salary range.

iv. Employees as well as trade unions members works as an evaluator of job evaluation committee while deciding rate grades for different jobs. This helps in solving compensation related disputes quickly.

v. when Job evaluation, conducted properly and in rational manner with perfection helps to evaluate and provides the opportunity of new jobs.

.

METHODS OF JOB EVALUATION

Factor Comparison Method

Point Rate Method

Job grading

Method

Ranking Method

In the ranking method, a whole job is compared with others and rank is provided on the basis of this comparison. The usual process followed in this method is as under:

1. On the basis of job analysis, each member of the job evaluation committee ranks each job independently either against the benchmark job or against all other jobs. The ranking is provided to the job on the basis of this comparison.

2. In order to increase the reliability of ranking, this exercise is undertaken twice or thrice by the members.

3. If there are significant differences of opinions among the members about the ranking of a particular job, the matter is settled by mutual consultation, or by working out the average.

Merits

Ranking method has certain facial merits. Some of these merits are as follows:

1. The method is comparatively simple, easily understandable, and mostly acceptable by labour unions. It is suitable for comparatively smaller organisations which may not like to undertake more laborious exercises.

2. The method is less costly to undertake and maintain as compared to other systems.

Demerits

Since ranking method of job evaluation is qualitative and non-analytical. it suffers from the following limitations:

1. Ranking method is judgemental and, therefore, it is affected by personal preferences of job evaluators.

2. This method ranks various jobs in order of their relative worth. It does not specify the real difference between two jobs.. For example, the exact difference between job ranked at first and the job ranked at second cannot be specified.

V

Ranking Method

Non-quantitative/ Non-analytical

Quantitative/ Analytical

Job Evaluation Method

There are four essential methods of job evaluation:

ranking method

job grading method

point rate method and

factor comparison method

Out of these four, first ranking method and grading method are comes under the non-quantitative techniques and also known as traditional, non-analytical or summary methods/techniques. The point rate and factor comparison method comes under the quantitative, also known as analytical methods/techniques. The basic difference between qualitative and quantitative methods is in terms of

(1) Consideration of the job as a whole versus consideration of different components of a job; and

(2) Judging and comparing jobs with each other versus assigning numerical scores on a rating scale.

Usually, in practice; a combination of different methods is followed.

NON-QUANTITATIVE METHODS

The major types of non-quantitative job evaluation techniques are ranking and job grading.

1. RANKING METHOD

In the ranking method, a whole job is compared with others and rank is provided on the basis of this comparison. The usual process followed in this method is as under:

1. On the basis of job analysis, each member of the job evaluation committee ranks each job independently either against the benchmark job or against all other jobs. The ranking is provided to the job on the basis of this comparison.

2. In order to increase the reliability of ranking, this exercise is undertaken twice or thrice by the members.

3. If there are significant differences of opinions among the members about the ranking of a particular job, the matter is settled by mutual consultation, or by working out the average.

Jobs are usually ranked in each department and then the department rankings are combined to develop an organisational ranking. The following table is a hypothetical example of ranking of jobs.

Jobs according to the Ranking Method

Rank Monthly salaries

1. Accountant Rs 3000

2. Accounts clerk Rs 1800

3. Purchase assistant Rs 1700

4. Machine-operator Rs 1400

5. Typist Rs 900

6. Office boy Rs 600

Merits

Ranking method has certain merits. Some of these merits are as follows:

1. The method is comparatively simple, easily understandable, and mostly acceptable by labour unions. It is suitable for comparatively smaller organisations which may not like to undertake more laborious exercises.

2. The method is less costly to undertake and maintain as compared to other systems.

Demerits

Since ranking method of job evaluation is qualitative and non-analytical. It has following limitations:

1. Ranking method is judgemental and, therefore, it is affected by personal preferences of job evaluators.

2. This method ranks various jobs in order of their relative worth. It does not specify the real difference between two jobs. For example, the exact difference between job ranked at first and the job ranked at second cannot be specified.

2. GRADING METHOD

Job grading method also known as job classification method establishes various grades for different categories of jobs. The process followed in this method is as under:

1. At the initial stage a number of job classes or grades are decided on the basis of job analysis. Job grades can be determined on either of two bases. First, all jobs may first be ranked and their natural classes may be determined. The description of each job class is prepared covering all jobs falling in a class.

Second, the job evaluation committee may prepare a series of job class description in advance on the basis of which various jobs may be graded.

2. Different characteristics of each job are matched with description of job class and a job is placed in the class with which it matches best.

For example, jobs of an operative may be classified as unskilled, semi-skilled, skilled and highly-skilled.

i. Class I - Executives: Office Manager, Deputy Office manager, Office superintendent, Departmental supervisor, etc.

ii. Class II - Skilled workers: Cashier, Receipts clerk, etc.

iii.Class III - Semiskilled workers: Stenotypists, Machine-operators, Switchboard operator etc.

iv. Class IV - Unskilled workers: Draftaris, Office boys, etc.

Merits

Grading system of job evaluation particularly in government jobs is quite popular as this has certain merits over the ranking method. These are as follows:

1. It is quite simple to operate and understand as the relevant information is provided by job analysis which serves other purposes too.

2. Job evaluation done on grading method makes wage and salary determination easier as these are fixed in terms of various grades of jobs.

Demerits

This system of job evaluation suffers with the following limitations:

1. Job grade description is vague and personal biases may distort job grading as the method is not based on any scientific analysis.

2. There are chances of employees' resistance when new clusters of jobs are prepared. This is evident by the fad that government employees agitate when recommendations of a new pay commission come.

QUANTITATIVE METHODS

Quantitative methods divide jobs into component parts and require absolute or relative value judgements about how much of a component part a particular job requires. The two most popular types of quantitative systems are the point rating and factor comparison methods.

1. POINT METHOD

Point method of job evaluation is widely used in business organisations. It is an analytical and quantitative method which determines the relative worth of a job on the basis of points allotted to each specific factor of a job. The sum total to these points allotted to various job factors is the worth of the job. This total is compared with that of other jobs and relative worth of various jobs is determined. The procedure involved may be explained thus:

i. Select key jobs. Identify the factors common to all the identified jobs such as skill, effort, responsibility, etc.

ii. Divide each major factor into a number of sub factors. Each sub factor is defined and expressed clearly in the order of importance, preferably along a scale. The most frequent factors employed in point systems are (i) Skill (key factor); Education and training required, Breadth/depth of experience required, Social skills required, Problem-solving skills, Degree of discretion/use of judgement, Creative thinking (ii) Responsibility/Accountability: Breadth of responsibility, Specialised responsibility, Complexity of the work, Degree of freedom to act, Number and nature of subordinate staff, Extent of accountability for equipment/plant, Extent of accountability for product/materials; (iii) Effort: Mental demands of a job, Physical demands of a job, Degree of potential stress.

The educational requirements (sub factor) under the skill (key factor) may be expressed thus in the order of importance.

Degree Define

1 Able to carry out simple calculations; High School educated

2 Does all the clerical operations; computer literate; graduate

3 Handles mail, develops contacts, takes initiative and does work

independently; post graduate

Assign point values to degrees after fixing a relative value for each key factor.

Point Values to Factors along a Scale

Factor

Point values for Degrees

Total

1

2

3

4

5

Skill

10

20

30

40

50

150

Physical effort

8

16

24

32

40

120

Mental effort

5

10

15

20

25

75

Responsibility

7

14

21

28

35

105

Working conditions

6

12

18

24

30

90

Maximum total points of all factors depending on their importance to job = 540

iii. Find the maximum number of points assigned to each job (after adding up the point values of all sub-factors of such a job). This would help in finding the relative worth of a job. For instance, the maximum points assigned to an officer's job in a bank come to 540. The manager's job, after adding up key factors + sub factors points, may be getting a point value of say 650 from the job evaluation committee. This job is now priced at a higher level.

iv. Once the worth of a job in terms of total points is expressed, the points are converted into money values keeping in view the hourly/daily wage rates. A wage survey is usually undertaken to collect wage rates of certain key jobs in the organisation.

Conversion of Job Grade Points into Money Value

Point range

Daily Wage rate (Rs)

Job grades of key bank officials

500-600

300-400

1 Officer

600-700

400-500

2 Accountant

700-800

500-600

3 Manager I Scale

800-900

600-700

4 Manager II Scale

900-1000

700-800

5 Manager III Scale

Merits

The point rating has several advantages. The major merits of the method are:

1. It is the most comprehensive and accurate method of job evaluation

2. Prejudice and human judgement are minimised. The method can not be manipulated.

3. Being the systematic method, workers of the organization favour this method.

4. The scales developed in this method can be used for long time.

5. Jobs can be easily placed in distinct categories.

Demerits

The points rating method also has some disadvantages. The major demerits of the method are:

1. It is both time-consuming and expensive method.

2. It is difficult to understand for an average worker.

3. A lot of clerical work is involved in recording rating scales.

4. it is not suitable for managerial jobs wherein the work content is not measurable in quantitative terms.

FACTOR COMPARISON METHOD

This method, also known as key job method, was originally developed at the Philadelphia Rapid Transit Company; USA by Eugene J.Benge in 1926 to overcome two major problems faced in point method of job evaluation viz. determining the relative importance of factors and describing their degrees. In this method, each factor of a job is compared with the same factor of the other jobs or the key job either defined or existing one. When all factors are compared, the final rating is arrived at by adding the value received at each comparison. For this purpose, Benge identified five factors-mental effort, skill, physical effort, responsibility and working conditions. The procedure for factor comparison method of job evaluation is as follows:

1. At the initial stage, some key jobs which are well recognised are selected. These jobs, numbering about 15-20, should be from a cross-section of departments. These should represent all levels of wages and salaries which are considered fair, both internally as well as externally.

2. Various factors of the jobs which are to be considered for comparison should be identified. These factors may be mental requirement skills, physical requirement, responsibility and working conditions.

3. Each factor of a job is compared with the same factor of the key job and rank is awarded. This exercise is repeated for all other factors.

4. The relative worth of a job is determined by adding the ranks obtained by different factors of a job. Sometimes, the rank is expressed in terms of monetary values and these values are added together to get the correct wage rate for the job.

An example of how the factor comparison method works is given below:

An Example of Factor Comparison Method

Factors

Daily Wage Rate

Physical effort

Mental effort

Skill

Responsibility

Working conditions

Electrician

60

11(3)

14(1)

15(1)

12(1)

8(2)

Fitter

50

14(1)

10(2)

9(2)

8(2)

9(1)

Welder

40

12(2)

7(3)

8(3)

7(3)

6(3)

Cleaner

30

9(4)

6(4)

4(5)

6(4)

5(4)

Labourer

25

8(5)

4(5)

6(4)

3(5)

4(5)

After the wage rate for a job is distributed along the identified and ranked factors, all other jobs in the department are compared in terms of each factor. Suppose the job of a 'painter' is found to be similar to electrician in skill (15), fitter in mental effort (10), welder in physical effort (12) cleaner in responsibility (6) and labourer in working conditions (4). The wage rate for this job would be (15+10+12+6+4) is 47.

Merits

The factor comparison method is more systematic and analytical as compared to any other method and offers following merits:

1. It provides more accurate information about the relative worth of a job as different comparable factors are compared with key jobs.

2. Since only limited numbers of factors relevant for the effective job performance are compared, there are reduced chances of overlapping.

3. Since the evaluation is more systematic and analytical, its logic can be accepted by trade unions and workers.

Demerits

However, factor rating method has its own opera4onal problems which restrict its adaptability. The major problems are as follows:

1. This method is quite costly and time consuming to install and difficult to understand by those not fully conversant with job evaluation process.

2. If wage rates are adopted for making comparison the system may become obsolete very soon as there may not be proportionate increase in wages \sfor all jobs.

3. This system considers only limited factors of job for comparison. This may be a positive point so far as avoidance of duplication and simplicity of procedure are concerned, but may ignore other factors which may be important for the performance of the job.

ADVANTAGES OF JOB EVALUATION

According to the International Labour Organization, job evaluation offers the following advantages:

1. Job evaluation being a logical process and objective technique helps in developing an equitable and consistent wage and salary structure based on the relative worth of jobs in an organization.

2. By eliminating wage differentials within the organization, job evaluation helps in minimizing conflict between labour unions and management and, in turn, helps in promoting harmonious relations between them.

3. Job evaluation simplifies wage administration by establishing uniformity in wage rates.

4. It provides a logical basis for wage negotiations and collective bargaining.

5. In the case new jobs, job evaluation facilitates spotting them into the existing wage and salary structure.

6. In the modern times of mechanisation, performance depends much on the machines than on the worker himself/herself. In such cases, job evaluation provides the realistic basis for determination of wages.

7. The information generated by job evaluation may also be used for improvement of selection, transfer and promotion procedures on the basis of comparative job requirements.

8. Job evaluation rates the job, not the workers. Organizations have large number of jobs with specialisations. It is job evaluation here again which helps in rating all these jobs and determining the wages and salary and also removing ambiguity in them.

LIMITATIONS OF JOB EVALUATION

In spite of many advantages, job evaluation suffers from the following drawbacks/limitations:-

1. Job evaluation is susceptible because of human error and subjective judgement. While there is no standard list of factors to be considered for job evaluation, there are some factors that cannot be measured accurately.

2. There is a variation between wages fixated through job evaluation and market forces.

3. When job evaluation is applied for the first time in an organization, it creates doubts in the minds of workers whose jobs are evaluated and trade unions that it may do away with collective bargaining for fixing wage rates.

4. Job evaluation methods being lacking in scientific basis are often looked upon as suspicious about the efficacy of methods of job evaluation.

5. Job evaluation is a time-consuming process requiring specialised technical personnel to undertake it and, thus, is likely to be costly also.

6. Job evaluation is not found suitable for establishing the relative worth of the managerial jobs which are skill-oriented. But, these skills cannot be measured in quantitative terms.

7. Given the changes in job contents and work conditions, frequent evaluation of jobs is essential. This is not always so easy and simple.

8. Job evaluation leads to frequent and substantial changes in wage and salary structures. This, in turn, creates financial burden on organization.

QUESTIONS:-

Q1.What is internal equity? Explain its meaning, features and objectives?

Q2. "Job evaluation is not a Scientific but a Systematic procedure". Explain it?

Q3. What are the principles of job evaluation?

Q4. Explain the different methods of job evaluation along with their merits and demerits?

Q5. The best method of job evaluation is "Factor comparison method". Explain why?

Q6. List the advantages and disadvantages of job evaluation?