Pay determination

Question 1

What is pay determination?

Answer 1

Pay determination is the process of deciding on the level of pay for jobs and people

Question 2

What are the aims of pay determination?

Answer 2

They often conflict

1. To be externally competitive to attract, engage and retain people required by the organization
2. To be internally equitable (rates reflect relatively between jobs)

These aims are achieved by market pricing and job evaluation

Question 3

What is internally equitable pay?

Answer 3

It is fair pay.
Provide equal pay for work of equal value

Internal relativities are established by job evaluations

Question 4

What is base pay management?

Answer 4

Base pay is the amount of pay that is the rate for the job

Question 5

What are grade and pay structures?

Answer 5

It provides the framework for base pay management

They enable the organization to determine where jobs should be placed in the hierarchy, define pay levels and scope for pay progression

It enables organizations to communicate career and pay opportunities to prospective employees

Question 6

What are grade structures?

Answer 6

Sequence or hierarchy of grades, bands.

Question 7

What are pay structures?

Answer 7

Number of grades they contain, width and span of pay ranges for each grade

Question 8

What is span?

Answer 8

Scope that a grades provides for pay progression

Question 9

What is contingent pay?

Answer 9

Provides financial rewards related to performance or service

Question 10

What are the different payment systems?

Answer 10

1. Narrow graded
2. Broad graded
3. Broad banded
4. Job Family
5. Career families
6. Pay spine

Question 11

What is narrow graded payment system?

Answer 11

Sequence of job grades - 10 or more
Narrow pay ranges - 20% - 40%
Progression linked to service and service increments

Pros:
Clearly indicate pay relativities
Facilitate control
Easy to understand

Cons:
Create hierarchal rigidity
Prone to grade drift
Inappropriate in a de-layered organization

Question 12

What is broad-graded pay system?

Answer 12

Sequence of job grades - between 6-9 grades
Fairly broad pay ranges - 40% - 50%
Progression linked to contribution and maybe controlled thresholds

Pros:
Broader grades can be defined more clearly
Better control over grade drift

Cons:
Too much scope for pay progression
Control mechanisms can be provided but they can be difficult to manage
Maybe costly

Question 13

What is broad banded pay system?

Answer 13

Series of 5-6 broad bands
Wide pay bands = 50% to 80%
Progression linked to contributions and competence

Pros:
More flexible
Reward lateral development
Fit new style organizations

Cons:
Create unrealistic expectations of scope for pay rises
Restrict scope for promotions
Difficult to understand
Equal pay problems

Question 14

What is job family?

Answer 14

Separate grade and pay structures for job families containing similar jobs
Progression linked to competence and contribution

Pros:
Facilitates pay differentiation between market groups
Define career paths against clear criteria

Cons:
Can appear to be divisive
May inhibit lateral career development
Difficult to maintain internal equity between job families

Question 15

What are career families?

Answer 15

Defined career paths for each family in terms of key activities and competence requirements
Same grade/pay structure for each family

Pros:
Clarify career paths within and between families
Facilitate achievement of equity between families
Leads to equal pay
Facilitates level decisions

Cons: Could be difficult to manage
May appear to be divisive is “silos” appear

Question 16

What is pay spine?

Answer 16

Series of incremental pay points covering all jobs
Grades maybe superimposed
Progression is linked to service

Pros
Easy to manage
Pay progression not based on managerial judgement

Cons
No scope for differentiating rewards according to performance
Maybe costly as staff drift up the spine

Question 17

What are merit pay schemes? PCCS

Answer 17

1. Performance related pay
2. Competence related pay
3. Contribution related pay
4. Skill related pay

Question 18

What is pay for organizational performance?

Answer 18

Belief that financial reward system should extend beyond individual merit pay to team pay

Solution: Offer financial rewards which are company wide or factory wide

Question 19

What are the types of formal business performance schemes?

Answer 19

1. Profit sharing: Payment of sums in cash or shares related to profits of the business
2. Share schemes: Employees are given opportunity to take out share options or participate in a save-as-you-earn scheme or share incentive plan
3. Gain sharing: Payment of cash sums to employees related to the financial gains made by the company because of its improved performance

Question 20

What are the sources of pay data?

Answer 20

1. Published data from pay surveys
   (limited usefulness, helps with periodic reality checks)
2. Pay clubs: employer groups that regularly exchange pay info
   (limited to only members)
3. Special surveys funded by individual organizations
   (access limited as data is between contractor and participant)
4. Consultants pay databases (results of job evaluation)
   to be viable:
   - factors must measure common roles
   - adequate sample is required
   - job analyses should be carried out systematically and conscientously

Question 21

What is job evaluation?

Answer 21

A systematic and formal process for defining relative worth or size of jobs within an organization in order to establish internal relativities

Question 22

What are the uses of job evaluation?

Answer 22

Determining pay grades
Ensuring a fair pay system
Compare pay roles against internal/external job market

Question 23

What are the objectives of job evaluation?

Answer 23

Establish rational and systematic structure of jobs based on worth

Justify existing pay rates

Develop pay rate that provides internal equity

Provide rational basis for negotiating pay rates when bargaining collectively

Ensure fair and equitable compensation of employees

To ensure equity in pay for jobs with similar skills, effort, responsibility and working conditions

To establish a framework of procedures to determine grade level

Identify a ladder of progression for future staff movement

Comply with equal pay laws and regulations

Develop a base for merit or pay for performance

Question 24

What are the 2 methods of job evaluation?

Answer 24

Qualitative:
- Factor comparison
- Point factor

Quantitative:
- Job ranking
- Job classification or grading

Question 25

What is factor comparison?

Answer 25

Combination of job ranking and point factor method
Starts by ranking jobs based on factors/skills
Assigns factor points
Total points determine job ranks

Question 26

What is point factor?

Answer 26

Evaluate jobs by assigning role points and rank them
Point system should include skills, responsibilities
After setting points go through role and assign points
Rank jobs from highest to lowest to determine salary

Question 27

What is job ranking?

Answer 27

Rank each role in a hierarchy based on value brought
Good for small companies

Question 28

What is job classification?

Answer 28

Requires development of a grading/classification system
eg: executive, skilled, semi-skilled, unskilled

Sort each role into a category

Subjective
Hard to fit every unique role

Question 29

What are the limitations of job evaluation?

Answer 29

• Rapid changes in technology and in the supply of and demand for particular skills, create problems of adjustment that may need further study.​

​- When job evaluation results in substantial changes in the existing wage structure, the possibility of implementing these changes in a relatively short period may be restricted by the financial limits within which the firm has to operate.​

• When there are a large proportion of incentive workers, it may be difficult to maintain a reasonable and acceptable structure of relative earnings.​
• The process of job rating is, to some extent, inexact because some of the factors and degrees can be measured with accuracy.​
• Job evaluation takes a long time to complete, requires specialized technical personnel and is quite expensive.​