Base Wage and Salary Systems

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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 basic
   conventional 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.)

1. Explain the purpose of wage and salary surveys.
2. Discuss wage and salary curves.
3. Define pay grades and pay ranges.
4. 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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Specific Policy Issues in Developing and
Implementing a Base Wage and Salary Structure
Figure 13.1
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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 information on the jobs being evaluated
2. Identify factor or factors to be used in
   determining worth of different jobs to the
   organization
3. Develop and implement a plan using chosen factors
   for evaluating relative worth of different jobs
   to the organization

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Job Evaluation Methods
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Potential Uses of Job Evaluations
Figure 13.2
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Job Ranking Method

• Job ranking method
• Job evaluation method that ranks jobs in order of
  their difficulty from simplest 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 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

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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 job evaluation to further break down
  job subfactors.

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Possible Subfactors and Degrees for the
Compensable Factors of Responsibility, with
Sample Jobs
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
• Points are then assigned to compensable factors,
  subfactors, and degrees based on their relative
  importance

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Sample Point Values
Table 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
• Examine the job descriptions
• Determine degree statement that best describes
  each subfactor for each compensable factor
• Add total number of points

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Possible Point Totals for Key Banking Jobs
Table 13.3
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Factor Comparison Method

• Factor comparison method
• Job evaluation technique that uses a monetary
  scale for evaluating jobs on a factor-by-factor
  basis.

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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

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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
Table 13.5
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Monetary Scale for Responsibility Requirements in
Banking Jobs
Table 13.6
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Advantages and Disadvantages of Different Job
Evaluation Methods
Table 13.7
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Pricing the Job
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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 certain
  jobs
• 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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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

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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
Figure 13.3
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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 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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Sample of Web Sites for Wage/Salary Survey Data
Figure 13.4
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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

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Problems Encountered When Using Salary Survey Data
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
  for the jobs

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Wage Curve Using thePoint Method
Figure 13.6
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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

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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.

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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

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Establishment of Pay Grades with Ranges
Figure 13.7
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Developing the Base Wage Salary Structure
Figure 13.8
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New Approaches to the Base Wage/Salary Structure
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Broadbanding

• Broadbanding
• Collapsing job clusters or tiers of positions
  into a few wide bands to manage career growth and
  deliver pay
• bands 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 compensate employees for the skills
  they bring to the job.

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Skill-Based Pay

• Employees are 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 Concerns

1. Increased labor costs
2. Topped-out employees
3. False expectations
4. Union agreements

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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
Figure 13.9
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Market-Based Pay

• Market-based pay systems
• Systems that focus on external rather than
  internal 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