Compensation

Establishing the pay rate

1)Salary survey
2)conducting job evaluation
3)Grouping the similar jobs into pay grades
4)Price each grade by using wave curves
5)Fine tune pay rates

1)Salary survey:
A survey aimed to determining prevailing wage rates. A good salary survey

provides specific wages rates for specific jobs. Formal written questionnaire

surveys are the most comprehensive but telephone surveys and newspaper ads are

also sources of information. Benchmark job A job that is used to anchor the

employer’s pay scale and around which other jobs are arranged in order of relative

worth.

Employers use these surveys in three ways. First, they use survey data to price

benchmark jobs. Benchmark jobs are the anchor jobs around which they slot their

other job, based on each job’s relative worth to the firm. (Job evaluation, explained

next, helps determine the relative worth of each job). Second, employers typically

price 20% or more of their positions directly in the marketplace (rather than

relative to the firm’s benchmark jobs), based on a formal or informal survey of

what comparable firms are paying for comparable jobs. (Google might do this for
jobs like Web programmer whose salaries fluctuate widely and often). Third,

surveys also collect data on benefits like insurance, sick leave, and vacations to

provide a basis for decisions regarding employee benefits. Salary surveys can be

formal or informal. Informal phone or Internet surveys are good for checking

specific issues, such as when a bank wants to confirm the salary at which to

advertise a newly open teller’s job, or if some banks are really paying tellers an

incentive. Some large employers can afford to send out their own formal surveys to

collect compensation information from other employers. Most of these ask about

things like number of employee, overtime policies starting salaries and paid

vacation

Job evaluation aims to determin a job’s relative worth. The basic principle of job evaluation is this:
Jobs that require greater qualifications, more responsibilities, and more complex job duties should
receive more pay than jobs with lesser requirements.
Compensable Factors A fundamental, compensable element of a job, such as skills, effort,
responsibility, and working conditions. For example, Hay consulting firm emphasizes three factors:
know-how, problem solving, and accountability. Walmart bases its wage structure on knowledge,
problem-sovling skills, and accountability requirements.
Preparing for the Job Evaluation The main steps include identifying the need for the program,
getting cooperation, and then choosing an evaluation committee.
Job Evaluation Methods: Ranking There are several steps in the job ranking method.

1. Obtain job information.

2. Select and group jobs.
3. Select compensable factors.
4. Rank jobs.
5. Combine ratings.

Job Evaluation Methods: Job Classification Job classification (or job grading) is a simple, widely
used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the
same value for pay purposes.
The most popular procedure is to choose compensable factors and then develop class or grade
descriptions for each class or grade in terms of the amount or level of the compensable factor(s) in
those jobs.
Job Evaluation Methods: Point Method The point method is a quantitative technique. It involves
identifying (1) several compensable factors, each having several degrees, as well as (2) the degree
to which each of these factors is present in the job.
Job Evaluation Methods: Factor Comparison is a refinement of the ranking method.
Computerized Job Evaluations have two main componets: a structured questionnaire, and use
statistical models.

Step 3. Group Similar Jobs into Pay Grades

A pay grade is comprised of jobs of approximately equal difficulty or importance as established by
job evaluation.

Step 4. Price Each Pay Grade–Wage Curves

The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points
or rankings assigned to each job or grade by the job evaluation.
Here is how to price jobs with a wage curve. First, find the average pay for each pay grade, since
each of the pay grades consists of several jobs. Next, plot the average pay rates for each pay grade.
Then fit a line, called a wage curve, through the points just plotted. Finally, price the jobs.

Step 5. Fine-Tune Pay Rates

Fine-tuning involves (1) developing pay ranges and (2) correcting out-of-line rates.
Developing Pay Ranges Pay ranges often appear as vertical boxes within each grade, showing
minimum, maximum, and midpoint pay rates for that grade.
Correcting Out-of-Line Rates