Base Wage and Salary Systems Chapter 13
Learning Objectives Define base wages and salaries and state the objective of any base wage and salary system. Define job evaluation. Name and briefly discuss the four basic conventional methods of job evaluation. Explain the concepts of key jobs and compensable factors. Differentiate between subfactors and degrees.
Learning Objectives (cont.) Explain the purpose of wage and salary surveys. Discuss wage and salary curves. Define pay grades and pay ranges. Explain the concepts of broadbanding, skill-based pay, competency-based pay, market-based pay, and total rewards.
Base Wage and Salaries • Base wages and salaries • Hourly, weekly, and monthly pay that employees receive for their work. • make up the largest portion of an employee’s total compensation
Specific Policy Issues in Developing and Implementing a Base Wage and Salary Structure Figure 13.1
Objective of the Base Wage and Salary System • Primary objective • To establish a structure for equitable compensation of employees, depending on their jobs and level of performance in their jobs
Objective of the Base Wage and Salary System Establishing pay ranges involves two basic phases: • Determining relative worth of different jobs to the organization (ensuring internal equity) • Pricing the different jobs (ensuring external equity)
Conventional Job Evaluation • Job evaluation • Systematic determination of value of each job in relation to other jobs in the organization • Used for designing a pay structure
Conventional Job Evaluation • Gather information on the jobs being evaluated • Identify factor or factors to be used in determining worth of different jobs to the organization • Develop and implement a plan using chosen factors for evaluating relative worth of different jobs to the organization
Potential Uses of Job Evaluations Figure 13.2
Job Ranking Method • Job ranking method • Job evaluation method that ranks jobs in order of their difficulty from simplest to most complex.
Job Classification Method • Job classification method • method that determines the relative worth of a job 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
Point Method • Point method • method in which a quantitative point scale is used to evaluate jobs on a factor-by-factor basis. • simple to use and reasonably objective.
Selection of Key Jobs Key jobs (benchmark) represent jobs that are common throughout the industry or in general locale under study Content of key jobs should be commonly understood General idea is to select a limited number of key jobs that are representative of entire pay structure and the major kinds of work being evaluated
Selection of Key Jobs • Selection of key jobs should adequately represent • Span of responsibilities • Duties • Work requirements
Selecting Compensable Factors • Compensable factors • Characteristics of jobs that the organization deems important to the extent that it is willing to pay for them.
Selecting Compensable Factors • Job subfactor • Detailed breakdown of a single compensable factor of a job. • Degree statements • Written statements used as a part of the point method of job evaluation to further break down job subfactors.
Possible Subfactors and Degrees for the Compensable Factors of Responsibility, with Sample Jobs Table 13.1
Assigning Weights to Factors • Weights are assigned to each of the factors, subfactors, and degrees to reflect their relative importance • Weight assigned varies from job to job
Assigning Weights to Factors Weights are assigned on basis of maximum number of points for any job Points are then assigned to compensable factors, subfactors, and degrees based on their relative importance
Sample Point Values Table 13.2
Assigning Points to Specific Jobs After point scale has been agreed on, point values are derived for key jobs using the following steps: • Examine the job descriptions • Determine degree statement that best describes each subfactor for each compensable factor • Add total number of points
Possible Point Totals for Key Banking Jobs Table 13.3
Factor Comparison Method • Factor comparison method • Job evaluation technique that uses a monetary scale for evaluating jobs on a factor-by-factor basis.
Factor Comparison Method • Each compensable factor is ranked according to its importance in each key job • Done by assigning a rank to every key job on one factor at a time rather than ranking one job at a time on all factors • After each key job has been ranked on a factor-by-factor basis allocate wage or salary for each job according to ranking of factors • Monetary scale is prepared for each compensable factor
Factor-by-Factor Ranking of Key Banking Jobs Table 13.4
Sample Allocation Pay for Key Banking Jobs Table 13.5
Monetary Scale for Responsibility Requirements in Banking Jobs Table 13.6
Advantages and Disadvantages of Different Job Evaluation Methods Table 13.7
Wage and Salary Surveys • Wage and salary survey • Survey of selected organizations within a geographical area or industry designed to provide a comparison of reliable information on policies, practices, and methods of payment.
Wage and Salary Surveys • Advantages • Provides knowledge of market and ensure external equity • Corrects employee misconceptions about certain jobs • Has a positive impact on employee motivation
Wage and Salary Surveys Wage or salary survey information can be obtained in two basic ways: Conducting your own survey Purchasing or accessing a wage/salary survey undertaken by another party
Conducting a Wage/Salary Survey • Personal interview • Most reliable and most expensive method • Mailed questionnaires • Probably used most frequently • Used only to survey jobs having uniform meaning all over industry • Can be answered by someone not fully familiar with wage structure
Conducting a Wage/Salary Survey • Telephone method • Quick but yields incomplete information • May be used to clarify responses to mailed questionnaires • Internet • Inexpensive and quick • All companies are not reachable on Internet
Possible Topics in a Wage Survey Figure 13.3
Purchasing or Accessing Wage/Salary Surveys Potential sources for relatively inexpensive wage/salary surveys include • The Bureau of Labor Statistics of U.S. Department of Labor • State and local governments • Trade associations • Chambers of commerce • Internet
Purchasing or Accessing Wage/Salary Surveys Surveys available on the Internet fall into two broad categories: Surveys conducted by federal government Surveys conducted by private research organizations, professional associations, employees’ associations, and consulting firms
Sample of Web Sites for Wage/Salary Survey Data Figure 13.4
Guidelines to Avoid Problems during Wage and Salary Surveys Assess the participating companies for comparability Compare more than base wage or salary Consider variations in job descriptions Correlate survey data with adjustment periods
Wage and Salary Curves • Wage and salary curves • Graphical depiction of the relationship between the relative worth of jobs and their wage rates • can be used to indicate pay classes and ranges for the jobs
Wage Curve Using thePoint Method Figure 13.6
Wage and Salary Curves • Points of graph not following general trend indicate • Wage rate for that job is too low or too high • The job has been inaccurately evaluated • Green-circle jobs • Underpaid jobs • Red-circle jobs • Wages are overly high
Pay Grades and Ranges • Pay grades • Classes or grades of jobs that for pay purposes are grouped on the basis of their worth to an organization. • Pay range • Range of permissible pay, with a minimum and a maximum, that is assigned to a given pay grade.
Pay Grades and Ranges Two approaches for establishing pay grades and ranges • To have a relatively large number of grades with identical rates of pay for all jobs within each grade • To have a small number of grades with a relatively wide dollar range for each grade
Establishment of Pay Grades with Ranges Figure 13.7
Developing the Base Wage Salary Structure Figure 13.8