Pay determination Flashcards
What is pay determination?
Pay determination is the process of deciding on the level of pay for jobs and people
What are the aims of pay determination?
They often conflict
- To be externally competitive to attract, engage and retain people required by the organization
- To be internally equitable (rates reflect relatively between jobs)
These aims are achieved by market pricing and job evaluation
What is internally equitable pay?
It is fair pay.
Provide equal pay for work of equal value
Internal relativities are established by job evaluations
What is base pay management?
Base pay is the amount of pay that is the rate for the job
What are grade and pay structures?
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
What are grade structures?
Sequence or hierarchy of grades, bands.
What are pay structures?
Number of grades they contain, width and span of pay ranges for each grade
What is span?
Scope that a grades provides for pay progression
What is contingent pay?
Provides financial rewards related to performance or service
What are the different payment systems?
- Narrow graded
- Broad graded
- Broad banded
- Job Family
- Career families
- Pay spine
What is narrow graded payment system?
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
What is broad-graded pay system?
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
What is broad banded pay system?
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
What is job family?
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
What are career families?
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
What is pay spine?
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
What are merit pay schemes? PCCS
- Performance related pay
- Competence related pay
- Contribution related pay
- Skill related pay
What is pay for organizational performance?
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
What are the types of formal business performance schemes?
- Profit sharing: Payment of sums in cash or shares related to profits of the business
- Share schemes: Employees are given opportunity to take out share options or participate in a save-as-you-earn scheme or share incentive plan
- Gain sharing: Payment of cash sums to employees related to the financial gains made by the company because of its improved performance
What are the sources of pay data?
- Published data from pay surveys
(limited usefulness, helps with periodic reality checks) - Pay clubs: employer groups that regularly exchange pay info
(limited to only members) - Special surveys funded by individual organizations
(access limited as data is between contractor and participant) - 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
What is job evaluation?
A systematic and formal process for defining relative worth or size of jobs within an organization in order to establish internal relativities
What are the uses of job evaluation?
Determining pay grades
Ensuring a fair pay system
Compare pay roles against internal/external job market
What are the objectives of job evaluation?
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
What are the 2 methods of job evaluation?
Qualitative:
- Factor comparison
- Point factor
Quantitative:
- Job ranking
- Job classification or grading
What is factor comparison?
Combination of job ranking and point factor method
Starts by ranking jobs based on factors/skills
Assigns factor points
Total points determine job ranks
What is point factor?
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
What is job ranking?
Rank each role in a hierarchy based on value brought
Good for small companies
What is job classification?
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
What are the limitations of job evaluation?
- 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.
