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Selecting

Employees

Chapter 7

Base Wage

and Salary

Systems

Chapter 13

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Learning Objectives

1. Define base wages and salaries and state the

objective of any base wage and salary system.

2. Define job evaluation.

3. Name and briefly discuss the four basicconventional methods of job evaluation.

4. Explain the concepts of key jobs and compensable

factors.5. Differentiate between subfactors and degrees.

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Learning Objectives (cont.)

6. Explain the purpose of wage and salary surveys.

7. Discuss wage and salary curves.

8. Define pay grades and pay ranges.

9. Explain the concepts of broadbanding, skill-

based pay, competency-based pay, market-

based pay, and total rewards.

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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 employees

total compensation

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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

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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)

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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

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Conventional Job Evaluation

1. Gather informationon the jobs being evaluated

2. Identifyfactor or factors to be used in

determining worth of different jobs to the

organization

3. Developand implementa plan using chosen

factors for evaluating relative worth of different

jobs to the organization

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Job Evaluation Methods

13-10

Job ranking

Job classification

Point comparison

Factor comparison

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Potential Uses of Job Evaluations

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Figure 13.2

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Job Ranking Method

Job ranking method

Job evaluation method

that ranks jobs in order

of their difficulty fromsimplest to most

complex.

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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

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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.

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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 commonlyunderstood

General idea is to select a limited number of key

jobs that are representativeof entire paystructure and the major kinds of work being

evaluated

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Selection of Key Jobs

Selection of key jobs should adequately

represent

Span of responsibilities

Duties

Work requirements

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Selecting Compensable Factors

Compensable factors

Characteristics of jobs that the organization

deems important to the extent that it is willing to

pay for them.

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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 jobevaluation to further

break down job

subfactors.

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Possible Subfactors and Degrees for the

Compensable Factors of Responsibility, with

Sample Jobs

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Table 13.1

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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

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Assigning Weights to Factors

Weights are assigned on basis of maximum

number of points for any job

Pointsare then assigned to compensable

factors, subfactors, and degrees based on

their relative importance

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Sample Point Values

13-22Table 13.2

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Assigning Points to Specific Jobs

After point scale has been agreed on, point

values are derived for key jobs using the

following steps:

1. Examine the job descriptions

2. Determine degree statement that best describes

each subfactor for each compensable factor

3. Add total number of points

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Possible Point Totals for Key

Banking Jobs

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Table 13.3

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Factor Comparison Method

Factor comparison

method

Job evaluation

technique that uses amonetary scale for

evaluating jobs on a

factor-by-factor basis.

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Factor Comparison Method

Each compensable factor is rankedaccording to its

importance in each key job

Done by assigning a rank to everykey job on one

factor at a time rather than ranking one job at a timeon all factors

After each key job has been ranked on a factor-by-

factorbasis allocate wage or salary for each job

according to ranking of factors

Monetary scale is prepared for each compensable

factor

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Factor-by-Factor Ranking of

Key Banking Jobs

Table 13.4

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Sample Allocation Pay for

Key Banking Jobs

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Table 13.5

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Monetary Scale for Responsibility

Requirements in Banking Jobs

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Table 13.6

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Advantages and Disadvantages of

Different Job Evaluation Methods

13-30Table 13.7

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Pricing the Job

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Labor market

conditions

Prevailing

wage rates

Living costs

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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.

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Wage and Salary Surveys

Advantages

Provides knowledge of market and ensure

external equity

Corrects employee misconceptions about certainjobs

Has a positive impact on employee motivation

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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

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Conducting a Wage/Salary Survey

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Personal

interviews

Telephone

interviews

Mailed

questionnairesInternet

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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 familiarwith wage structure

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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

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Possible Topics in a Wage Survey

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Figure 13.3

P rchasing or Accessing

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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

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Purchasing or Accessing

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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

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l f b f

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Sample of Web Sites for

Wage/Salary Survey Data

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Figure 13.4

Guidelines to Avoid Problems

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Guidelines to Avoid Problems

during Wage and Salary Surveys

1. Assess the participatingcompanies for

comparability

2. Compare more than base wage or salary

3. Consider variations in job descriptions

4. Correlate survey data with adjustment

periods

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P bl E d Wh U i

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Problems Encountered When Using

Salary Survey Data

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Figure 13.5

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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 forthe jobs

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W C U i h

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Wage Curve Using the

Point Method

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Figure 13.6

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Wage and Salary Curves

Points of graph not

following general

trend indicate

Wage rate for that jobis too low or too high

The job has been

inaccurately evaluated

Green-circle jobs

Underpaid jobs

Red-circle jobs

Wages are overly high

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Pay Grades and Ranges

Pay grades

Classes or grades of

jobs that for pay

purposes are groupedon the basis of their

worth to an

organization.

Pay range

Range of permissible

pay, with a minimum

and a maximum, thatis assigned to a given

pay grade.

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Pay Grades and Ranges

Two approaches for establishing pay grades and

ranges

1. To have a relatively large number of grades with

identical rates of pay for all jobs within eachgrade

2. To have a small number of grades with a

relatively wide dollar range for each grade

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Establishment of Pay Grades with

Ranges

13-49Figure 13.7

D l i th B W

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Developing the Base Wage

Salary Structure

13-50

Figure 13.8

N A h t th

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New Approaches to the

Base Wage/Salary Structure

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Broadbanding

Skills-based pay

Competency-based pay

Market-based pay

Total rewards

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Broadbanding

Broadbanding

Collapsing job clusters or tiers of positions into a

few wide bands to manage career growth and

deliver paybands usually have minimum and maximum

dollar amounts that overlap

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Broadbanding

Advantages

Managers have more autonomy in setting pay

rates

Easier to move employees around

Encourages lateral moves or downgrading in flat

organizations

Helps improve communication teamwork

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Skill-based Pay

Skill-based pay

systems

Systems that

compensateemployees for the

skills they bring to the

job.

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Skill-Based Pay

Employeesare paid for

Range of knowledge

Number of business-related skills mastered

Level of those skills or knowledge

Some combination of level and range

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Skill-Based Pay Potential

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Skill Based Pay Potential

Concerns

1. Increased labor costs

2. Topped-out employees

3. False expectations

4. Union agreements

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Potential Benefits of a

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Potential Benefits of a

Skill-Based Pay System

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Competency-Based Pay

Competency-based pay system

Rewarding employees based on knowledge, skills,

and behaviors that result in performance.

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Designing Competency-Based Pay

13-59

Figure 13.9

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Market-Based Pay

Market-based pay

systems

Systems that focus on

external rather thaninternal equity and

operate without

traditional pay ranges.

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Total Rewards

Total Rewards

include everything the employee perceives to be

of value resulting from the employment

relationship.basic idea is to consider all aspects of the work

experience

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Total Rewards

Compensation,

Benefits

Worklife

balance

Performance

and recognition

Developmentand career

opportunities