Selecting Employees Chapter 7 Understanding Base Wage and Salary Systems Review

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. 13-2

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. 13-3

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 13-4

Specific Policy Issues in Developing and Implementing a Base Wage and Salary Structure 13-5 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 13-6

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) 13-7

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 13-8

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 13-9

Job Evaluation Methods Job ranking Job classification Point comparison Factor comparison

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 13-13

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 13-15

Selection of Key Jobs  Selection of key jobs should adequately represent └ Span of responsibilities └ Duties └ Work requirements 13-16

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 13-20

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 13-21

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: 1.Examine the job descriptions 2.Determine degree statement that best describes each subfactor for each compensable factor 3.Add total number of points 13-23

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 13-26

Factor-by-Factor Ranking of Key Banking Jobs Table

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

Pricing the Job Labor market conditions Prevailing wage rates Living costs

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 13-33

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 13-34

Conducting a Wage/Salary Survey Personal interviews Telephone interviews Mailed questionnaires Internet

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 13-36

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 13-37

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 13-39

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 13-40

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

Guidelines to Avoid Problems during Wage and Salary Surveys 1.Assess the participating companies for comparability 2.Compare more than base wage or salary 3.Consider variations in job descriptions 4.Correlate survey data with adjustment periods 13-42

Problems Encountered When Using Salary Survey Data Figure 13.5

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 13-44

Wage Curve Using the Point 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 13-46

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 1.To have a relatively large number of grades with identical rates of pay for all jobs within each grade 2.To have a small number of grades with a relatively wide dollar range for each grade 13-48

Establishment of Pay Grades with Ranges Figure 13.7

Developing the Base Wage Salary Structure Figure 13.8

New Approaches to the Base Wage/Salary Structure Broadbanding Skills-based pay Competency-based pay Market-based pay Total rewards

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 13-52

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 13-53

Skill-based Pay  Skill-based pay systems └ Systems that compensate employees for the skills they bring to the job

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 13-55

Skill-Based Pay – Potential Concerns 1.Increased labor costs 2.Topped-out employees 3.False expectations 4.Union agreements 13-56

Potential Benefits of a Skill-Based Pay System 13-57

Competency-Based Pay  Competency-based pay system └ Rewarding employees based on knowledge, skills, and behaviors that result in performance

Designing Competency-Based Pay Figure 13.9

Market-Based Pay  Market-based pay systems └ Systems that focus on external rather than internal equity and operate without traditional pay ranges

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 13-61

Total Rewards Compensation Compensation, Benefits Work–life balance Performance and recognition Development and career opportunities