Base Wage and Salary Systems

8/3/2019 Base Wage and Salary Systems

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Selecting

Employees

Chapter 7

Base Wage

and Salary

Systems

Chapter 13


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Learning Objectives

1. Define base wages and salaries and state the

objective of any base wage and salary system.

2. Define job evaluation.

3. Name and briefly discuss the four basic

conventional methods of job evaluation.

4. Explain the concepts of key jobs and compensable

factors.5. Differentiate between subfactors and degrees.

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Learning Objectives (cont.)

6. Explain the purpose of wage and salary surveys.

7. Discuss wage and salary curves.

8. Define pay grades and pay ranges.9. Explain the concepts of broadbanding, skill-

based pay, competency-based pay, market-

based pay, and total rewards.

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Base Wage and Salaries

hBase wages and salaries

Hourly, weekly, and monthly pay that employeesreceive for their work.

make up the largest portion of an employeestotal compensation

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Specific Policy Issues in Developing and

Implementing a Base Wage and Salary Structure

13-5Figure 13.1


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Objective of the Base Wage

and Salary System

hPrimary objective

To establish a structure for equitablecompensation of employees, depending on their

jobs and level of performance in their jobs

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Objective of the Base Wage

and Salary System

Establishing pay ranges involves two basic

phases:

hDetermining relative worth of different jobs tothe organization (ensuring internal equity)

hPricing the different jobs (ensuring external

equity)

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Conventional Job Evaluation

hJob evaluation

Systematic determination of value of each job inrelation to other jobs in the organization

Used for designing a pay structure

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Conventional Job Evaluation

1. Gather information on the jobs being evaluated

2. Identify factor or factors to be used in

determining worth of different jobs to the

organization

3. Develop and implement a plan using chosen

factors for evaluating relative worth of different

jobs to the organization

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Job Evaluation Methods

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Job rankingJob ranking

Job classificationJob classification

Point comparisonPoint comparison

Factor comparisonFactor comparison


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Potential Uses of Job Evaluations

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Figure 13.2


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Job Ranking Method

hJob ranking method

Job evaluation methodthat ranks jobs in order

of their difficulty fromsimplest to most

complex.

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Job Classification Method

hJob classification method

method that determines the relative worth of ajob by comparing it to a predetermined scale of

classes or grades of jobs

Also called job grading

defined on basis of differences in duties,

responsibilities, skills, working conditions

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Point Method

hPoint method

method in which a quantitative point scale is usedto evaluate jobs on a factor-by-factor basis.

simple to use and reasonably objective.

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Selection of Key Jobs

hKey jobs (benchmark) represent jobs that are

common throughout the industry or in general

locale under study

hContent of key jobs should be commonly

understood

hGeneral idea is to select a limited number of key

jobs that are representative of entire paystructure and the major kinds of work being

evaluated

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Selection of Key Jobs

hSelection of key jobs should adequately

represent

Span of responsibilities

Duties

Work requirements

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Selecting Compensable Factors

hCompensable factors

Characteristics of jobs that the organizationdeems important to the extent that it is willing to

pay for them.

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Selecting Compensable Factors

hJob subfactor

Detailed breakdown ofa single compensable

factor of a job.

hDegree statements

Written statementsused as a part of the

point method of jobevaluation to further

break down job

subfactors.

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Possible Subfactors and Degrees for the

Compensable Factors of Responsibility, with

Sample Jobs

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Table 13.1


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Assigning Weights to Factors

hWeights are assigned to each of the factors,

subfactors, and degrees to reflect their

relative importance

hWeight assigned varies from job to job

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Assigning Weights to Factors

hWeights are assigned on basis ofmaximum

number of points for any job

hPoints are then assigned to compensablefactors, subfactors, and degrees based on

their relative importance

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Sample Point Values

13-22Table 13.2


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Assigning Points to Specific Jobs

After point scale has been agreed on, point

values are derived for key jobs using the

following steps:

1. Examine the job descriptions

2. Determine degree statement that best describes

each subfactor for each compensable factor

3. Add total number of points

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Possible Point Totals for Key

Banking Jobs

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Table 13.3


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Factor Comparison Method

hFactor comparison

method

Job evaluationtechnique that uses amonetary scale for

evaluating jobs on a

factor-by-factor basis.

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Factor Comparison Method

hEach compensable factor is ranked according to its

importance in each key job

hDone by assigning a rank to every key job on one

factor at a time rather than ranking one job at a timeon all factors

hAfter each key job has been ranked on a factor-by-

factor basis allocate wage or salary for each job

according to ranking of factors

hMonetary scale is prepared for each compensable

factor

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Factor-by-Factor Ranking of

Key Banking Jobs

Table 13.4

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Sample Allocation Pay for

Key Banking Jobs

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Table 13.5


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Monetary Scale for Responsibility

Requirements in Banking Jobs

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Table 13.6


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Advantages and Disadvantages of

Different Job Evaluation Methods

13-30Table 13.7


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Pricing the Job

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Labor marketLabor market

conditionsconditions

PrevailingPrevailing

wage rateswage rates

Living costsLiving costs


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Wage and Salary Surveys

hWage and salary survey

Survey of selected organizations within ageographical area or industry designed to provide

a comparison of reliable information on policies,

practices, and methods of payment.

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hAdvantages

Provides knowledge of market and ensureexternal equity

Corrects employee misconceptions about certainjobs

Has a positive impact on employee motivation

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Wage or salary survey information can be

obtained in two basic ways:

hConducting your own survey

hPurchasing or accessing a wage/salary survey

undertaken by another party

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Conducting a Wage/Salary Survey

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PersonalPersonal

interviewsinterviews

TelephoneTelephone

interviewsinterviews

MailedMailed

questionnairesquestionnairesInternetInternet


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hPersonal interview

Most reliable and most expensive method

hMailed questionnairesProbably used most frequently

Used only to survey jobs having uniform meaningall over industry

Can be answered by someone not fully familiarwith wage structure

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hTelephone method

Quick but yields incomplete information

May be used to clarify responses to mailedquestionnaires

hInternet

Inexpensive and quick

All companies are not reachable on Internet

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Possible Topics in a Wage Survey

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Figure 13.3


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Purchasing or Accessing

Wage/Salary Surveys

Potential sources for relatively inexpensive

wage/salary surveys include

hThe Bureau ofLabor Statistics of U.S. Department

ofLabor

hState and local governments

hTrade associations

hChambers of commerce

hInternet

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Purchasing or Accessing

Wage/Salary Surveys

Surveys available on the Internet fall into two

broad categories:

hSurveys conducted by federal government

hSurveys conducted by private research

organizations, professional associations,

employees associations, and consulting firms

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Sample of Web Sites for

Wage/Salary Survey Data

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Figure 13.4


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Guidelines to Avoid Problems

during Wage and Salary Surveys

1. Assess the participating companies for

comparability

2. Compare more than base wage or salary

3. Consider variations in job descriptions

4. Correlate survey data with adjustment

periods

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Problems Encountered When Using

Salary Survey Data

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Figure 13.5


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Wage and Salary Curves

hWage and salary curves

Graphical depiction of the relationship betweenthe relative worth of jobs and their wage rates

can be used to indicate pay classes and ranges forthe jobs

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Wage Curve Using the

Point Method

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Figure 13.6


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Wage and Salary Curves

hPoints of graph not

following general

trend indicate

Wage rate for that jobis too low or too high

The job has beeninaccurately evaluated

hGreen-circle jobs

Underpaid jobs

hRed-circle jobs

Wages are overly high

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Pay Grades and Ranges

hPay grades

Classes or grades ofjobs that for pay

purposes are groupedon the basis of their

worth to an

organization.

hPay range

Range of permissiblepay, with a minimum

and a maximum, thatis assigned to a given

pay grade.

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Pay Grades and Ranges

Two approaches for establishing pay grades and

ranges

1. To have a relatively large number of grades with

identical rates of pay for all jobs within each

grade

2. To have a small number of grades with a

relatively wide dollar range for each grade

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Establishment of Pay Grades with

Ranges

13-49Figure 13.7


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Developing the Base Wage

Salary Structure

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Figure 13.8


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New Approaches to the

Base Wage/Salary Structure

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BroadbandingBroadbanding

SkillsSkills--based paybased pay

CompetencyCompetency--based paybased pay

MarketMarket--based paybased pay

Total rewardsTotal rewards


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Broadbanding

hBroadbanding

Collapsing job clusters or tiers of positions into afew wide bands to manage career growth and

deliver pay

bands usually have minimum and maximumdollar amounts that overlap

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Broadbanding

hAdvantages

Managers have more autonomy in setting payrates

Easier to move employees around

Encourages lateral moves or downgrading in flatorganizations

Helps improve communication teamwork

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Skill-based Pay

hSkill-based pay

systems

Systems that

compensateemployees for the

skills they bring to the

job.

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Skill-Based Pay

hEmployees are paid for

Range of knowledge

Number of business-related skills mastered

Level of those skills or knowledge

Some combination of level and range

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Skill B d P P i l


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Skill-Based Pay Potential

Concerns

1. Increased labor costs

2. Topped-out employees

3. False expectations4. Union agreements

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Potential Benefits of a

Skill-Based Pay System

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Competency-Based Pay

hCompetency-based pay system

Rewarding employees based on knowledge, skills,and behaviors that result in performance.

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Designing Competency-Based Pay

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Figure 13.9


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Market-Based Pay

hMarket-based pay

systems

Systems that focus on

external rather thaninternal equity and

operate without

traditional pay ranges.

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Total Rewards

hTotal Rewards

include everything the employee perceives to beof value resulting from the employment

relationship.

basic idea is to consider all aspects of the workexperience

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Total Rewards

CompensationCompensation,

BenefitsBenefits

WorkWorklifelife

balancebalance

PerformancePerformance

and recognitionand recognition

DevelopmentDevelopmentand careerand career

opportunitiesopportunities

Documents

Base Wage and Salary Systems