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# Autumn, 2011

Monzoor Morshed

## Pay Policy Line

To create a smooth progression between pay grades, a pay-policy line is fitted to the plotted points. The line may be straight or curved and may be fitted by a number of different methods.

Freehand line
After the points have been plotted the trend of the data can often be easily visualized. In this case it is possible to draw a freehand line that best describes the plotted points. In drawing such a line, it is useful to follow the principle that vertical deviations from the line are minimized if the line follows the obvious slope of the data. Although the line may be straight or curved, its advantages are greatest when it is straight. The obvious advantages of using a freehand line are that it is easy to plot and simple to explain.

Least-squares line
The least-squares line follows the principles specified for the freehand line but is determined mathematically. It may be fitted by calculating the equation for the line and plotting the line obtained from the solution.

Division Approach
Another relatively simple approach is to use the horizontal dimension of the wage structure, usually the job evaluation points, to determine the number of pay grades. This is done most

easily by determining a set number of points for each pay grade and, starting with the least number of points, marking off the lines between adjacent grades. In figure, each pay grade is 40 points "wide."

Continuum Approach
In this approach each job evaluation point on the horizontal axis has its own rate range; there is no grouping of jobs. The pay-policy line constitutes the midpoints. A standard maximum and minimum which are a set percentage above and below the midpoint are defined. As shown in figure, these lines widen as the wage level rises, making the range broader at the top than at the bottom.

The continuum approach has gained popularity with the Hay Plan, which uses it. As noted, a system such as this requires a lot of confidence in the job evaluation system. It is likely to engender considerable argument over small differences in the number of points assigned to jobs. Small, technically oriented organizations are most likely to use this method. The pay-policy line is the starting point for creating the wage structure. The values of both dimensions need to be grouped in order to make compensation administration more manageable.