Wage and Salary

4/6/2010
MB 584
Strategic Compensation
and Employee Benefits
(Week 1)
Lecturer: MOSES T. MACALINAO
Professor
macalinaomt@yahoo.com.ph
4/6/2010 M.T.Macalinao,SLSU-TNU 1
WAGE AND SALARY ADMINISTRATION
Expected Learning Activities:
1. Learn the theories
2. Apply the theories
3. Create a Job Evaluation Plan
4. Create a Performance Rating Form
Four kinds of employee compensation:
1. Salary or wage is the basic compensation.
2. Incentive pay is designed to encourage
the employee to render extra effort over
normal production.
3. Allowances are given to meet employee
needs during temporary situations.
4. Benefits are rewards for belonging to an
organization.
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IMPORTANCE OF PAY
1. He works to earn a living. His pay
provides him with a strong incentive to
do his job well.
2. The employee’s rate of pay often
p y p y
indicates his status in the company.
3. His wages determine his standard of
living and the comforts that he and his
family can have.
IMPORTANCE OF PAY
4. The wage determines his standing in the
community. It also determines what he can
contribute to community development and
social welfare.
5. His pay determines his purchasing power.
With higher wages he can acquire more
With higher wages he can acquire more
goods and services for his family.
6. High purchasing power for the workers
stimulates the production of more goods
and increases the need for more services.
Hence, higher pay may lead to greater
production.
Definition
• Salary refers to the compensation covering weekly,
monthly, or yearly period for services rendered. A salary is
based on a stated minimum number of days per week or
hours per day or week. The term salary applies to the pay
of higher levels of personnel such as white‐collar
employees or persons in positions of responsibility and
authority in the firm
authority in the firm.
• Wages refers to compensation for manual labor‐skilled or
unskilled – for work done by so‐called “blue‐collar”
workers. Wages are measured by the hour, day, or week,
unlike salaries which are paid at stated intervals, such as
every week or every fifteen days. Wages also refers to
payment for a specified volume or production, i.e., on piece
rate.
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Definition
• A merit increase is a raise in the salary or wage of an
employee on the basis of performance or merit. It is
granted after a review of his performance and service in
accordance with company policy or the firm’s
performance appraisal program.
y y p y
• A union rate refers to an hourly or daily rate of pay,
usually a single rate for an occupation or trade, set up by
an agreement reached through collective bargaining. It is
generally the base rate that can be paid to qualified
workers on the job. There is usually no rule barring the
employer from paying higher rates.
BASIC DETERMINANTS OF SALARY
1. The relationship between jobs and wage
rates.
2. The recognition of individual differences.
3. The level of pay existing in the community.
4 The company
4. The company’ss ability to pay.
ability to pay
5. Labor costs.
6. Cost of living.
7. Collective bargaining.
8. Minimum Wage Fixing
1. The relationship between jobs and wage rates.
Salaries paid for jobs vary because of
differences among jobs and in the way people
do their work. The relationship between jobs
and wages rates involves three considerations:
and wages rates involves three considerations:
a. The qualifications required for the job.
b. Worker supply and demand.
c. The duties and responsibilities of the job.
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2. The recognition of individual differences.
Individuals doing the same job differ in ability,
experience, skill, and efficiency. Some individuals are
more capable of handling mental tasks than others.
Some are more efficient in general than their co‐
workers. These differences should be recognized
through a merit rating systems and provided for in a
salary structure embodying a pay scale for each job.
In this way an employee who starts at the base rate
for the job can aspire for pay increases as he gains
greater proficiency and experience.
3. The level of pay existing in the community.
Workers with high qualifications are
relatively few. Efficient workers are in
demand. One way to attract and retain
competent and highly qualified workers is to
t t d hi hl lifi d k i t
maintain salaries at a level reasonably equal
to the prevailing rates for similar jobs in the
industry or with other firms in the
community. This is best accomplished
through wage surveys.
4. The company’s ability to pay.
Employers generally pay their
employees according to their financial
ability. Firms that are marginal cannot pay
as much wages as companies with bigger
earning power, without endangering their
continued existence.
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5. Labor costs.
Certain types of industry or business have
greater earning power than others. In a
highly competitive industry, a company
with a bigger capital and greater volume of
h b l d l f
production and sales is in a better position
to pay higher wages.
6. Cost of living.
The purchasing power of the money that
the employee receives from his employer
determines the amount of essential needs
for decent living that the employee could
provide himself and his family.
In unionized firms, wages and salaries are
largely determined through collective
bargaining negotiations. The bargaining
positions are based on prevailing wage rate,
the cost of living and other relevant factors.
The salary rates that are finally agreed upon is
often the result of the skill which the parties
are able to effectively employ in their
bargaining strategies.
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1. Minimum Wage Fixing.
The Labor Code in prescribing the criteria
for establishing the minimum wage, state
that said wage must be as nearly adequate
as is economically feasible to maintain the
minimum standards of living necessary for
the health, efficiency and generally well‐
being of the employees within the
framework of the national economic and
social development program.
DIFFICULTIES IN WAGE ADMINISTRATION
1. Difficulty in determining what is an adequate and fair
pay for a particular job.
2. Desire of workers to earn more money and of
management to operate at greater profit.
3. Dissatisfaction of employees owing to inequality in pay.
4. Lack of measuring device which can establish to the
satisfaction of all concerned what a man’s services are
worth in pesos.
5. Individual and group pressure for higher pay.
6. Lack of sound pay policy.
7. Lack of communication on the salary program.
1. Difficulty in determining what is an adequate
and fair pay for a particular job.
A salary can be said to be fair when it is well
related to the salaries paid for other jobs in the
company and to rates paid for similar work in
company and to rates paid for similar work in
the community. While job evaluation has
satisfactorily met many ticklish problems
involving wages for some firms, it has not yet
gained wide acceptance by both management
and labor.
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2. Desire of workers to earn more money and of
management to operate at greater profit.
Employers want to pay as low a wage as possible, in
order to lower the cost of production and earn more
profit while workers continuously agitate for higher
wages and shorter hours of work On one hand there is
wages and shorter hours of work. On one hand, there is
individual and group pressure for higher wages to
improve the worker’s living standard. On the other,
there is management’s concern to keep its costs as low
as possible so that its good and services can be offered
at prices within and reach of consumers and still allow
a reasonable return for its investment.
3. Dissatisfaction of employees owing to inequality in pay.
One of the main roots of dissatisfaction among employees
is the payment of salaries not commensurate with the
responsibilities of their job. Workers and management
may agree on the principle of “equal pay for equal work,”
th i i l f“ l f l k”
but there is bound to be disagreement in its
implementation. The most common problem is how to
determine what jobs are “equal” and how the various
factors in evaluating jobs should be rated to arrive at an
equitable scale.
4. Lack of measuring device which can establish to the
satisfaction of all concerned what a man’s services are
worth (Pesos/Vietnam Dong).
The worth of a man’s services in terms of pesos and
centavos is hard to determine. Individuals differ in the
way they evaluate the worth of their services. Some
consider such factors as their social standing in the
community, family background, personality, and
educational attainment. Job evaluation and merit rating
have been found so far to be the best methods of meeting
this problem but they still need a great deal of selling
before they are fully accepted by both management and
the workers.
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5. Individual and group pressure for higher pay.
The worth of a man’s services in terms of pesos and
centavos is hard to determine. Individuals differ in the
way they evaluate the worth of their services. Some
community family background personality and
community, family background, personality, and
educational attainment. Job evaluation and merit
rating have been found so far to be the best methods
of meeting this problem but they still need a great deal
of selling before they are fully accepted by both
management and the workers.
6. Lack of sound pay policy.
When a firm has no written policy on wages,
and salaries, inequalities in pay occur, resulting
in employees grievances, frequent turnover
and low employee morale Without a sound
and low employee morale. Without a sound
pay policy, the supervisors meet difficulties in
wage and salary administration, since they have
no clear guide in determining the wage levels
for each job, the pay raises, and the
promotions.
7. Lack of communication on the salary program.
If each employee fully understands the policies
and procedures in determining his salary, he will
better appreciate the salary program of the
better appreciate the salary program of the
company. Communicating the company’s salary
program to the employee will minimize
complaints concerning salaries. Such
understanding is important for his morale.
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CAUSES OF WAGE INEQUITIES
Definitions
A salary is said to be equitable when it has a sound
relationship with the salaries paid for other jobs in the
company. Such relationship is based on the complexity of the
job, the responsibilities involved and the rates being paid in
the community for similar work.
An inequitable salary is one which is either higher or lower
than the accepted range of pay for the job within the firm.
Inequities in pay, real or imagined, cause employee
dissatisfaction, low employee morale, and create friction not
only but also between management and the employees, and
even within the ranks of management itself.
1. Pressure of aggressive employees or supervisors.
2. Favoritism among supervisors.
3. Seniority.
4. The feeling of being important.
5. Union pressure.
6. Faulty classification of jobs.
7. Absence of job evaluation.
8. Compensation plan not kept up‐to‐date.
1. Pressure of aggressive employees or supervisors.
Some employees and supervisors use pressure on
their superiors for higher pay or for more frequent
salary raises regardless of merit. If such pressure is
not resisted, there is bound to be an increase in
the payroll of the firm beyond the budget or the
the payroll of the firm beyond the budget or the
company’s available funds. This also results in
glaring injustices, since the increases that should
go to deserving workers go to those who exert the
harder pressure instead.
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2. Favoritism among supervisors.
A supervisor who is partial to some of his workers
is likely to grant wage increases to the latter
irrespective of merit to the prejudice of the more
d
deserving ones. The inevitably results in pay
i Th i it bl lt i
inequities.
3. Seniority.
Some companies grant extra pay to their
employees for the length of the service they have
rendered to the firm. Since this extra pay bears no
relationship to the “price of the job,” the practice
l ti hi t th “ i f th j b ” th ti
results in putting the wage out of line with the
established rates.
4. The feeling of being important.
Some zealous department heads and supervisors
sometimes erroneously put their respective
departments and functions as the most important
in the company. Hence, they feel that their
employees should receive higher pay than those in
employees should receive higher pay than those in
the other departments and do all they can to
achieve this. A sound company‐wide pay policy
however should not permit such inequalities in
pay for similar jobs in different departments.
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By applying pressure on management, union
leaders sometimes obtain underserved wage
raises or undue upgrading of jobs for themselves
and their favorites Unless resisted this practice
and their favorites. Unless resisted, this practice
results in the payment of some wages above the
real worth of the jobs involved. Since the other
workers are not similar favored, wage inequities
will inevitably follow.
Inconsistencies in the classification and assignments of jobs
within and between organizational units are other causes of
wage inequities. The errors of inexperienced job classifiers or
job evaluators result wage administration problems. In
describing their jobs, some employees make them appear
more difficult than they really are. Other employees who are
more difficult than they really are. Other employees who are
less articulate, fail to describe their jobs with enough clarity
to give a true picture of their worth. On this basis, the jobs in
the company cannot be properly classified. Such deficiencies
can be avoided by employing competent job analysts and job
evaluators.
7. Absence of job evaluation.
In the absence of a job evaluation system, the
company find no guide in the classification and
pricing of jobs. With no rules to go by, pay is often
d t
determined only on the basis of mere guess or
i d l th b i f
opinion, thereby causing pay inequities even
among jobs that are clearly similar.
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8. Compensation plan not kept up‐to‐date.
Deviations in pay of like jobs are likely to happen when
a compensation plan is not kept up‐to‐date. To be
realistic, a compensation plan must be kept up‐to‐date.
Employee compensation is a dynamic activity;
therefore, it must be periodically reviewed. Flat‐rate
therefore, it must be periodically reviewed. Flat rate
salary increases due to collective bargaining
negotiations or the setting of minimum wages by the
government may also disturb the relationship of
salaries to job difficulties and responsibilities.
INTER-COMPANY INEQUALITIES IN PAY
1. Differences in the nature of the business or
industry, company size, and geographical
location.
2 Collective bargaining.
2. Collective bargaining
3. Company ability to pay.
4. Management’s generosity.

Inequalities in pay rates among different companies
further complicate the difficulties involved in wage
administration. Employees often compare their pay with
that received by other employees in the same firm and
also with what is paid by other firms for similar work.
When an employee learns that his pay is lower than
what another firm pays for the same or a similar job, he
h h fi f h i il j b h
becomes dissatisfied with his pay and gets demoralized.
He starts thinking of transferring to a better‐paying firm
and spends much time looking for another job to the
neglect of his present work.
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1. Differences in the nature of the business or industry,
company size, and geographical location.
Some types of industries have greater earning power than
others. Many banking and insurance firms, the more stable
industries today can afford to give their managerial
industries today, can afford to give their managerial
personnel higher pay. Skilled technical workers are generally
among the highest paid workers today. Since generally, large
well‐established firms make larger profits than small firms,
the former can afford to give their employees higher pay.
In a collective bargaining negotiation, the
p y p y y
employee’s pay rates are often determined by the
union’s strength and bargaining power. Hence a
company with a strong union generally pays higher
wages than one that is either non‐unionized or has
a weaker or less aggressive labor union in the
same industry.
3. Company ability to pay.
A firm can often pay good wages because of
management s ability to run the business
management’s ability to run the business
efficiently through improved or better methods,
the installation of better equipment or machine,
well‐selected and well‐trained personnel, and the
managerial ability of the people running the
enterprise.
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4. Management’s generosity.
Some companies are more generous in granting
wage and benefits to their employees than others
because of their ability to run the business
profitably. Such firms are generally owned or
profitably. Such firms are generally owned or
managed by employers who believe that they are
mere stewards of the enterprise and that the firm
exists for the service of their fellowmen. Other
firms are managed by men who believe that a
contented worker is a productive worker.
OTHER PROBLEMS IN SALARY ADMINISTRATION
“Equal pay for equal work” means that the same rate of
compensation should be paid to all employees in a company
who do similar work regardless of age, sex, or other
personal circumstances of the individual employee. The
principle of equal pay for work of equal value within a firm’s
wage structure is a sound wage policy. The law upholds this
principle and provides that the employer should pay equal
i i l d id th t th l h ld l
remuneration for work or equal value for both men and
women employees. This is based on the principle that the
job should be paid the standard rate of pay in accordance
with its classification and salary range and not because of
the person on the job.
The principles of a “a fair day’s pay for a fair day’s pay for
a fair day’s work” is an old rule governing the relations
between labor and capital. It means that if no work is
performed by an employee, he receives no wage or pay. It
also means that from each employee the company has a
right to expect” an hour of work for each hour of pay.”
Since employers are willing to pay fair wages, workers
must give a fair day’s accomplishment in return. What is
“fair” is not subject to any quantitative measurement but
is the willing acceptance of obligation by both employer
and worker.
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• A flexible time is a working hour arrangement in which the
working hours during the day may vary among employees but the
total number of hours worked within the period is not less than
the number of hours for which straight time wages are paid.
Under this arrangement, an employee may report to office or
leave the office at any time provided he completes the total
number of working hours required for the day and provided
f th th t h i i th ffi d i th “
further that he is in the office during the “core time period”. A
ti i d” A
“core time period” is a specific office time in each given work day
where all employees should be in the office to allow for proper
coordination. This is usually between 9:00 A.M. to 12:00 noon
and from 1:00 P.M. to 3:00 P.M. The optional time is allowed in
the arrival time in the morning and in the dismissal time in the
afternoon but all the employees must complete the required total
number of hours of work for the day.
PROGRAM FOR WAGE AND SALARY
ADMINISTRATION
A salary program that is well‐conceived, basically
simple, well‐administered and controlled, and
clearly explained to the employees is important in
establishing good employee‐employer
establishing good employee employer relations.
relations
Without such a program, the determination of pay
rates will be hit‐and‐miss affair. Decisions are
bound to be haphazard and this situation often
generates employee unrest, dissatisfaction,
frustration, and turnover.
PROGRAM FOR WAGE AND SALARY ADMINISTRATION
Elements of a Formal Wage and Salary Program
Technique Used Objective of Technique
Company Policy To provide guidance to operating managers.
Job Analysis: To gather and record job facts, duties, responsibilities and work
Job Description and in conditions and job requirements. The back bone of job
Specification evaluation
evaluation.
Job Evaluation To determine relative job worth.
Job Grading To classify evaluated jobs into pay grades or pay classes. This
series of pay grades is called the job classification plan.
Job Pricing To translate relative job worth into money values.
Wage and Salary To determine the wages and salaries of comparable jobs in other
Survey firms.
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PROGRAM FOR WAGE AND SALARY ADMINISTRATION
Elements of a Formal Wage and Salary Program (continuation)
Technique Used Objective of Technique
Wage and Salary To provide a specific rate schedule of all jobs in the company.
Structure
Merit Plans: To reward employees for better performance on the job.
Performance Appraisal
Incentive Plans To reward employees for output higher than the usual standard rate of
p
production
Fringe Benefits To provide supplemental compensation as added incentives, and
promote morale.
Administrative To solve individual problems, keep the program current and operating
Procedures and Practices efficiently, review and provide general guidance to supervisors and
managers.
Communications To give supervisors and managers the information they need to know
in order to carry out the program and to gain acceptance of the
program
Controls To insure reasonably consistent and current application of the program
and to maintain control over cost.
PLANNING THE PROGRAM

1. Job Analysis: Job Description and Specification
2. Evaluating Jobs
3. Wage Survey
4. Wage and Salary Structure
5. Maximum Pay Level
6. Grading the Jobs and Positions
7 Job Pricing
7. Job Pricing
8. Provision for Performance Rating
9. Performance Level Ranking in Wage Setting
10.Responsibility for Salary Administration
11.Selling the Compensation Program to Management and
Employees
12.Salary Review
WAGE PAYMENT PLANS
1. Time Unit Plans
2. Incentive Plans
3. Piece Rate or Payment by Results
Piece Rate or Payment by Results
4. Group Incentives
5. Wage or Salary Plus Premium or Bonus
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WAGE PAYMENT PLANS
1. Time Unit Plans
A day work wage plan is a method in which the worker’s earnings are
based upon time on the job. When the time unit is the day, wage rates
are stated in terms of per day of so many hours. If by the hour, the
wage rates are given in hourly wage rates. In the latter case, the
worker’s earnings are computed by multiplying the number of hours
y p
worked by the rate per hour.
A straight salary plan is used when an employee is paid for the time he
spends on the job. The day, week or month is commonly used as the
basis for the time unit.
Under the time unit plans, wages are not determined directly by output
so management has to depend upon the worker to produce in return
for his wages. His productivity depends upon the foreman or supervisor
who must maintain constant surveillance over the worker’s operations.
WAGE PAYMENT PLANS
2. Incentive Plans
This is a method of compensating workers in direct proportion
to the amount of production above pre‐established minimum
requirements or standards. Its objective is to reward and
encourage higher than the standard rate of production.
Incentive plans are means of motivating workers to achieve

Incentive plans are means of motivating workers to achieve
greater production. They are a form of reward for performance
on the job. The worker has the incentive to exert greater effort
to produce as much as possible because his production level
determines his earnings; whereas, in the time work system, it
is essential that the foreman maintain constant supervision
over his operations in order to attain the acceptable
production levels.
WAGE PAYMENT PLANS
3. Piece Rate or Payment by Results
• A worker is paid proportion to the quantity of work he finished or for
performing some definite task with time. Each unit is given a fixed
amount or price to be paid the worker. This plan is very easy to apply,
and therefore very popular in industry. It has the advantage of having a
direct relation between what a worker produces and what he earns.
There is no difficulty is calculating the worker’s earnings because he is
paid for what he produces according to his own speed. It provides a
strong incentive for the worker to accomplish more.
• Piece rate may be on either an individual or group basis. It
combines output quantity which in turn is divided by a time rate in
money. The piece rate, therefore, relies on the manner in which the
output and/or the money has been determined among the workers. If
either of these elements change, each piece rate must be recalculated,
otherwise the differentials will be upset.
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WAGE PAYMENT PLANS
4. Group Incentives
In some situations, a group of workers work
together as a team in such a way that it would
be difficult to reward individuals for their
specific contribution. In this case, the total
production of the group is measured and each
member of the team is given his share either
equally among them regardless of individual
production or in accordance with the
agreement of the members of the group.
WAGE PAYMENT PLANS
5. Wage or Salary Plus Premium or Bonus
The bonus plan consists of two elements:
a. Standard or Minimum Requirement, and
b. Bonus or Premium
The predetermined amount of output during a given period of
time is established as the minimum requirement or the
standard. The worker is paid a bonus if his output is in excess of
or above the minimum requirement or standard which,
therefore, is a production in less time per unit. The bonus is
usually given on either a fixed amount basis or on percentage of
the amount of output in excess of minimum requirements, or
of time saved below standard.
DIFFERENT TYPES OF WAGE AND SALARY
ADJUSTMENTS
1. CBA General Wage Increase.
2. Cost of Living Allowance (COLA).
3. Merit Increase.
4. Promotional Increase
5. Level Adjustment.
6. Reclassification Increase.
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ADJUSTMENTS
1. CBA General Wage Increase.
These increases are usually given to all eligible bargain
able staff in accordance with the wage settlement
contained in the collective bargaining agreement.
2. Cost of Living Allowance (COLA)
This increase takes into account the cost of living which is determined on the
basis of generally accepted official government statistics (ex., the Consumer
Price Index). Such an increase may be given when a more‐than‐nominal
increase in prices is registered within a period of time. The cost of living
allowances may either be integrated with the base pay or granted as a
separate allowance, depending on the provisions of the CBA or the
discretion of management.
ADJUSTMENTS
3. Merit Increase.
This refers to a salary increase granted to an employee for a very
satisfactory performance of his job. The amount of merit increase
may be directly pegged to the performance rating but in some firms,
performance appraisals are further translated into performance level
rankings which stratify merit increases into maximum percentages
rankings, which stratify merit increases into maximum percentages
and restricting them to above average and outstanding performers.
4. Promotional Increase
This increase is given because of a promotion in position and is
granted either upon assumption of the position or upon
confirmation of the promotion. A promotion involves a movement
to a position with higher responsibility.
ADJUSTMENTS
5. Level Adjustment.
In order to maintain salaries on a competitive level, level adjustments may
be necessary if differences are noted in salary alignments with respect to
certain professional groups or with industry rates. In most cases, level
adjustments are resorted to when findings reveal that rates are below or
are lagging behind the industry rates.
6. Reclassification Increase
This increase is recommended for or granted to an employee upon the
reclassification or his current position to a higher salary level. A
reclassification may be necessary when, because of a reorganization or
consolidation of operations, introduction of new methods, etc., an
employee’s position increases in scope and responsibility sufficient to
warrant placement in a higher classification group or salary level
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JOB EVALUATION
• It is the process of determining the worth of one job in relation
to that of the other jobs in the company so that a fair and
equitable wage and salary system can be established. Its main
objective is to determine the relative positions or levels of the
job in the company.
• The principle behind is that jobs should be paid in accordance
with difficulty and importance of the job – the more difficult and
important jobs being rated higher than the less difficult ones.
• Job evaluation is the answer to the critical problem of pay
inequities. This involves the task of determining the relative
values or worth of jobs and of paying the workers according to
the level of the difficulties and responsibilities of the jobs they
do.
JOB EVALUATION
Purpose of job evaluation is to consider these questions:
1. How would you determine whether a filing clerk should be
paid more or less than a typist?
2. Should this decision be made on the basis of the physical
appearance and particular ability of the employees who now
occupy the position?
occupy the position?
3. Should seniority or individual performance serve as basis?
4. Should rates prevailing in the community for these particular
types of jobs be considered?
5. Should the complexity of each job in terms of the duties and
responsibilities inherent in it and the qualifications required be
the basis?
Factors in Determining Job Values
Job evaluation is a means of determining the relative values of
jobs. the following are the more commonly used :
1. Skill, knowledge of the trade, and requirements of the job
in terms of the worker’s education and experience before
he can qualify
a. Education
b. Mental ability
c. Experience and training
2. Effort
a. Mental effort or concentration
b. Physical or manual
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Factors in Determining Job Values
Job evaluation is a means of determining the relative values of jobs. the
following are the more commonly used :
3. Responsibilities
a. Responsibility for money and
materials
b. Responsibility for supervision
d Responsibility for confidential
d. Responsibility for confidential
data
d. Responsibility for relations
with others
4. Working conditions or factors of the job that make it dangerous or
unhealthy
a. Hazards
b. Job surroundings
BASIC PRINCIPLES IN JOB EVALUATION
1. Equal pay for equal job. The employees doing
essentially the same work must receive the same pay.
The pay is based on the type or nature of their work
rather than on their personal qualifications which may
not necessarily be required in their particular job.
2. Differences in pay must be based on differences in
Differences in pay must be based on differences in
work; i.e., complexity of duties and responsibilities
and the degree of skill required for the job. If a job
requires a higher degree of skill and involves greater
responsibility as compared to another job, it should be
given a higher rate of pay.
BASIC PRINCIPLES IN JOB EVALUATION
3. The pay must be related to existing community pay scales.
This principle means paying the wage which other employers
in the community pay for similar work. This prevents unfair
competition for employee skills which results in the costly
“pirating” of employees. It reduces turnover due to inferior
pay rates and permits competition on a equal basis.
4. The employee is concerned with the general wage level
4. The employee is concerned with the general wage level
and the relative position of his pay. Even if an employee is
highly paid compared to workers doing similar jobs
elsewhere in the locality, he will not be happy if he feels that
his ability is being wasted on a job not suited to him. Nor will
he be happy to continue in his job if he man beside him is
paid more for work that is not more difficult than his.
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JOB EVALUATION METHODS
Several methods of evaluating have been evolved in an effort to establish a
satisfactory system of pricing jobs so that each worker gets the pay
commensurate with the duties and responsibilities of the work he performs.
1. Non‐Quantitative Methods
a. The Ranking Method
b The Position Classification or Grade Description Method
b. The Position Classification or Grade Description Method
2. Quantitative Methods
a. The Point System
b. The Factor Comparison System
c. The Hay Method
d. The Paterson Method
1.a THE RANKING METHOD
• The process of evaluating a job is by comparing it with
others to determine whether it is higher, lower, or of the
same rank. Based on overall judgment of the skill, effort,
responsibility, and working conditions relative to the job.
• The first formal method developed in evaluating jobs. It is
the simplest method in classifying jobs, is easy to
understand, requires no technical knowledge and it takes a
little time to complete. Its simplicity however, is no
guarantee of accuracy. It considers each job as a whole in
evaluating job against job. The evaluators rank jobs in each
department in the order of their importance or value.
• Procedure
1. Each job is ranked or compared with the other jobs in
terms of the duties and responsibilities inherent in the
job. The ranking aims to determine whether a job is
higher or lower or of the same rank as another It does
higher or lower or of the same rank as another. It does
not determine the degree of rank difference. The
importance of value of the job to the company may also
be considered. This must be done without being
influence by the personality, efficiency, or qualifications
of the present worker or employee on the job.
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Procedure
2. Since the jobs are compared as a whole, the jobs to be
evaluated in a department or firm are arranged in some order,
either from the simplest to the most complex or vice versa.
This ranking is done through a mental valuation of the job as a
whole Raters are asked to consider in a general way certain
whole. Raters are asked to consider in a general way certain
requirements of the job, such as education, experience, skill,
responsibilities, and effort, and working conditions. Jobs are
thus classified according to rank from the most important to
the least important.
3. This work is preceded by a careful job analysis and the writing
of accurate job descriptions. The ranking of jobs may be done
by an individual, by several individuals, or by a committee.
1.b POSITION CLASSIFICATION OF GRADE DESCRIPTION
METHOD
The method is by grouping of jobs and comparing each job against a
rating scale comprising several job grades, to ascertain the grade to
which each job appropriately belongs. Jobs are compared to a
predetermined standard.
Procedure
This method requires the preparation of guides in classifying the
jobs:
1. A well‐prepared job description and job specification which
shows the duties, responsibilities, and working conditions
relative to each job.
1.b POSITION CLASSIFICATION OF GRADE DESCRIPTION METHOD
2. A rating scale made up of several classes or grades in ascending
steps, from the least valued to the higher valued jobs and
describing for each grade the degree of the skills, efforts,
responsibilities, working conditions, and personal qualifications for
an acceptable job performance together with examples of the
an acceptable job performance together with examples of the
type of work for each grade. This rating guide is used as the basis
for determining to what grade each job must be assigned.
3. The duties, responsibilities, and working conditions inherent in
each job, as given in the proper job description and specification,
are evaluated and the individual positions assigned to their
appropriate grades. Each grade is assigned the corresponding
salary rate in the salary structure of the firm.
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(GUIDE TO CLASSIFICATION OF POSITIONS)
Job Grade Job Description and Job Specification
Positions in this class embrace the simplest and least difficult types of work, requiring very
little or no previous experience or special training. Incumbents of this class of positions work
Grade 1 under immediate supervisions. A small amount of judgment, responsibility, and dependability
is involved in these positions. In most cases, the work is preponderantly manual, such as those
is involved in these positions. In most cases, the work is preponderantly manual, such as those
of janitor, laborer, messenger, elevator operator, greaseman, helper.
This class includes positions which may be under the immediate or general supervision of a
higher grade employee, depending on the character of the work performed. More jobs and
variety of work are generally present in this class. Incumbents of this class level of positions
are required to have some knowledge of the work performed, by way of a little experience and
Grade 2 training along the particular line of work assigned. The educational background required in
this class should be at least two years of high school or its equivalent. This is the lowest class
in the clerical positions. Characteristic of this level is semi‐skill in general, semi‐mechanical
repair work, and maintenance of simple machines and equipment or the operation of office
appliances.
• Incumbents of positions in this class are under immediate or general
supervision, depending on the character of the assignment. The exercise of
independent judgment or the assumption of individual responsibility starts in
this level.
Grade 3 • This class usually requires some knowledge of the work of the whole section
or department in which the position is located. This is often used as a trainee
position in the trades and in clerical positions.
• In this level, a certain degree of individual skills is required, plus the ability to
work independently of a supervision’s close guidance or supervision, on
specialized work for which the employee is trained. Grade 3 positions have
some responsibility for initiating action, such as preparing form letters and
company routine correspondence, setting up small files, and conducting
routine interviews or periodic checks which do not need close review.
• For non‐clerical work or trade crafts, experience, skill and proven ability are
necessary in the particular filed of work, subject to little or no supervision.
• In general, this is the journeyman level in the clerical type of work, where
incumbent to the position is capable, by training and/or by experience, with
little guidance or supervision in performing substantially all the assignments
given him in his particular field of work. Positions in this class demand a high
Grade 4 degree of skill that may be acquired from one of the three years of experience
or training in the preceding class.
g p g
• Incumbents in this class of positions do not require close supervision or
technical instructions from higher supervisions as they are capable in
independently following plans, procedures, or methods already established.
They have responsibility for results of minor projects or for one phase of a
major project.
• The level of the crafts type of work is considered that of highly skilled worker.
The most difficult and expert work in a craft, involving more precision skill, and
responsibility than that of a journeyman level, or involving supervision over a
variety of skilled tradesmen, is found in this level.
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• Only jobs requiring a high degree of skill are in this class. On all of
these, both the experience and responsibility demands of the jobs
are high. As a general rule, from four to six years of experience is
required on these jobs. An ability to work independently with only a
Grade 5
small amount of supervision is characteristic of most of these jobs.
• It is generally speaking, a supervisory class involving supervision over
I i ll ki i l i l i ii
a group of clerk, mechanics, and other engaged in the custody,
maintenance, and protection of a building.
• This level involves a higher degree of initiative and planning than
those found in Grade 4 positions. The work is important and
sufficiency difficult and specialized to require very wide professional,
technical, or scientific training and experience.
• This class covers jobs similar to those in Grade 5 except that these are a little more
exacting. Four to seven years of experience or training is required. This class represents
the highest level of clerical difficulty and responsibility. The clerical group comprises
those employees who work by following rules, precedents, and/or established
Grade 6 methods, regulations, or practices. In general, it may be stated that assignments
below the grade level may interpret rules, regulations, etc., but they seldom, if ever,
should be called upon to establish them or to question them
should be called upon to establish them or to question them.
• Incumbents in this class are responsible for supervising a group of employees. The
include section chiefs, cashiers, assistants to highly technical jobs. They may be
required to initiate and prepare responsible and important special reports, such as
those requested by high ranking officials or by certain committee. They are usually
given considerable latitude or independent planning for laying out, working details
and procedures in affecting efficiency in their respective sections.
• Incumbents in this class are responsible for the supervision of the work of skilled
mechanics in one or more types of work such as plumbing, carpentry, and painting.
They also supervise the craft “specialist” in Grade 5.
Jobs in this class are the most difficult and require the most skill of
any job in the organization. They are highly technical in nature, with
responsibility for accuracy and initiative in carrying out these
technical duties. Persons placed in this level are usually heads of
Grade 7
departments. They are expected to be able to plan and carry out their
own work with little supervision. Responsibility is assumed for the
k i h li l ii R ibili i df h
results of work undertaken. Most of these include responsibility for a
group of operations with some considerable latitude for individual
action. These jobs usually require from five to eight years of
professional training or experience covering both general and specific
knowledge. Positions in this class entail complex planning, devising,
designing, and other creative work.
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2.a The Point System
• The method evaluates the job by appraising it separately against each of the
factors of characteristics, such as skill, effort, responsibility and working
conditions and adding up the corresponding point values to arrive at a
single point score for each job. This method uses a series of rating scales,
one for each of the major factors with their subdivision which have been
chosen as important in terms of the position.
• The chief characteristic of the point‐rating
The chief characteristic of the point rating method is the construction of a
method is the construction of a
rating scale or guide consisting of selected elements or factors required by
the job, to be evaluated, with their corresponding weights or point values.
Each job is then rated according to this established guide. At the completion
of the process, the ratings on the individual evaluation by factors are
summed up to arrive at the total evaluation for each job. Since one rating
guide is used to evaluate all jobs, consistency in evaluating each job can be
achieved.
Factors Used in the Point System
1. Skill. In most plans, this factor is further subdivided into:
a. Schooling
b. Experience
c. Manual Dexterity
d. Supervision Received
e. Complexity of Duties
2. Responsibility. This factor may also be further subdivided into:
a. Accuracy
b. Company Funds and Materials
c. Contact with Others
d. Confidential Data
e. Supervision Given to Others
3. Effort
a. Mental
b. Physical
4. Working Conditions or Factors Affecting the Performance of the Job
JOB EVALUATION METHOD
2.b The Factor‐Comparison Method
• This method was developed out of knowledge of the strengths
and weaknesses of the other methods already described. This
method requires that each job be compared and ranked with the
other jobs under each separate factor. Since the evaluation is
done on a factor‐by‐factor basis.
• The first step to use this method is to select an evaluation
The first step to use this method is to select an evaluation
committee composed of senior executives with the personnel
manager as coordinator, assisted by a management consultant
who is to evaluate the jobs. The committee should be furnished
with an analysis of the job and written job descriptions and
specifications of the jobs to be evaluated. The factors upon which
jobs should be compared are then selected and carefully defined.
26
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There are usually five factors used in comparing jobs:
1. Skill Requirement
2. Mental Requirements
3. Physical Effort
4. Working Conditions
5. Responsibility
• The factors are subdivided into degrees like they are in the Point‐Rating
Method. On the basis of these factors, several key jobs, usually twenty
to thirty, are chosen. The most striking trait of the factor‐comparison
method is its reliance on “key jobs” as the “reference points” or
“anchor points” for all the other jobs. A key job is one generally
accepted by employees and managers as being a standard type of job,
correctly priced, and representative of major factors in most jobs in the
organization.
• The ranking of jobs is established by analyzing the description and
specification of each job and then comparing the factors present in the
job against the factors in the key jobs, one factor at a time, and then
arranging the jobs from the highest to the lowest or the other way
around, as the evaluators may choose. Since the evaluation is done by
pooling the judgments of a group of trained persons, it is claimed to be
more accurate than other methods.
2.c The Hay‐Method
• Hay and Associates, a consulting firm, has developed a type of
factor‐comparison method, using three factors: know‐how,
problem‐solving, and accountability.
• This method requires that the organization develop its own key
jobs, called benchmark, selected from among the positions within
the company The factors and the quantitative weights must be
the company. The factors and the quantitative weights must be
established by the organization. It works similar to the point
system. The evaluator makes specific comparative identification
of the weights assigned for each factor so that it tells which job is
worth more and how much more. The factor values are then
converted to monetary wages. Briefly, the Hay method includes
the following stages:
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2.c The Hay‐Method
1. Benchmark Selection
The selection of a representative cross section of
p
positions .
2. Position Analysis
Position descriptions are written for each of these
benchmark positions based on information
gathered by interviewing the current incumbents in
the job.
2.c The Hay‐Method (continuation)
3. Position Evaluation
Each position is evaluated against measurements contained in a set of
guide charts developed by Hay. A committee of top level executives
performs the evaluation and assigns the forms the evaluation and
assigns the point values which reflect the position’s importance to the
Company. The categories for evaluation are restricted to the following
factors:
a. Degree of Know‐how. The sum total of every kind of skill.
f h h l f ki d f kill
b. Degree of Problem‐Solving. The original, self‐starting thinking
required by the job for analyzing, creating, reasoning, arriving at and
making conclusions.
c. Degree of Accountability. The answerability for action, and for the
consequences thereof. It is the impact of the job on the end results.
The f actor, working condition is sometimes used for jobs whose
hazards, environment or physical demands are deemed important.
2.c The Hay‐Method (continuation)
4. Compensation Survey
• Current salary practices are explained internally to be sure
employees are being paid fairly for the impact they make on the
company’s performance. In addition, the company’s salary
structure is compared with those of companies similarly situated
in the same industry, as well as with a sample of comparison on a
multi‐industry basis in order to establish external
competitiveness.
5. Policies and Procedure
Finally, specific policies and procedures are developed to allow for
performance growth for individuals, to ensure equitable and
effective administration of salaries and to maintain internal
equity.
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2.d The Paterson Method
Thomas T. Paterson proposed this job evaluation
scheme on the assumption that it is equally
attractive and acceptable to all members of the
firm. The claim rests on
a. Simplicity
b. Justice and fairness, and
c. Participation.
2.d The Paterson Method (continuation)
• It is a method of analyzing jobs according to the kinds of decisions
made, and assessing them, according to the universal pattern and
the amount of the total payroll available. It postulates that “jobs
have one thing in common: they all require decisions to be made”
hence; they can be compared on the basis of the kinds and
numbers of decisions Six kinds of decisions called “Bands”
numbers of decisions. Six kinds of decisions called Bands are
are
distinguished.
• Two grades each are assigned for each band, excepting Band O
correspondingly assigned grade 0, while Band E has grades 9 and
10. Decisions which are progressively more difficult and
progressively more important for firm survival and growth and
are rewarded accordingly.
2.d The Paterson Method
Band Kind of Decision Grade
E Policy Making ‐ On the broad direction of the firm 9‐10

D Programming ‐ In planning how to carry out the policy 7‐8
C C Interpretive
C Interpretive ‐ In deciding within plan limits, what is to be
In deciding within plan limits, what is to be 5‐6
5 6
done
B Routine ‐ On process, how to do what has been decided 3‐4
upon by an interpretative decision
A Automatic ‐ On the operations that go on to form a process 1‐2
O Defined ‐ On the elements that go to make up an operation,
made by people who have already been taught precisely 0
what their operations are, and how to carry them out. The
kind of decisions that can be learned in a very short time
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2.d The Paterson Method (continuation)
Steps in following the Paterson Method:
1. The analyst goes around the departments to find out the structure of
operations
2. A job sampling is derived.
3. The job incumbent is sent a Job Sheet Form which identifies: the job title,
immediate superior, immediate juniors and tasks carried out (in numerical
order).
d )
4. The interview. Starting with the first task, the analyst asks the incumbent to
describe in chronological order precisely what he does. He then asks
questions related to: frequency of decision making, complexity and
specialist difficulty. Personal notes are taken and summarized in the Task
Analysis Form.
• Job grading is done by a grading committee whose members are chosen
because of their “sapiental authority” alone, their knowledge of methods of
job grading and of the jobs being graded.
FIGURE 1. Task Analysis Form Sample for Chief Invoice Clerk
Dept: Head Office Section: Invoicing

Job No. Title: Chief Invoice Clerk
Analyst: Date:
PROCESSES/OPERATIONS Band Grade
“Organizations and supervises all jobs connected with Invoicing Section.”
1. Changes procedures and practices as required (very infrequent) B 3
2. Devices procedures for providing computer information B 3
3. Prepares reports required by Senior Management B 3
4. Assists in selection of Invoicing Section staff B 3
5. Attends meetings with Senior Management, Salesman and Computing Department B 3
6. Recommends to management changes in Company Policy re invoicing B 3

3
7. Within company policy operates price agreements, price determination and related schedules B
8. Responsible for discipline, promotion and remuneration of staff B 3

(no more than A)
Comments: Office Manager

1. 0 office Manager? B 4,5. 0 Office
8. Cannot hire-fire, recommends 6.0 Office Manager
Promotion and remuneration
0 Office Manager (Clerks all)
0 and A)
30

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4/6/2010

INTER-COMPANY INEQUALITIES IN PAY

INTER-COMPANY INEQUALITIES IN PAY

INTER-COMPANY INEQUALITIES IN PAY

INTER-COMPANY INEQUALITIES IN PAY

INTER-COMPANY INEQUALITIES IN PAY

INTER-COMPANY INEQUALITIES IN PAY

PLANNING THE PROGRAM

Incentive plans are means of motivating workers to achieve

Band Kind of Decision Grade

E Policy Making ‐ On the broad direction of the firm 9‐10

Dept: Head Office Section: Invoicing

1. Changes procedures and practices as required (very infrequent) B 3

2. Devices procedures for providing computer information B 3

3. Prepares reports required by Senior Management B 3

4. Assists in selection of Invoicing Section staff B 3

5. Attends meetings with Senior Management, Salesman and Computing Department B 3

6. Recommends to management changes in Company Policy re invoicing B 3

8. Responsible for discipline, promotion and remuneration of staff B 3

Comments: Office Manager

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