1. Base Wage and Salary Systems
Chapter 13

2. Learning Objectives
Define base wages and salaries and state the objective of any base wage and salary system.
Define job evaluation.
Name and briefly discuss the four basic conventional methods of job evaluation.
Explain the concepts of key jobs and compensable factors.
Differentiate between subfactors and degrees.

3. Learning Objectives (cont.)
Explain the purpose of wage and salary surveys.
Discuss wage and salary curves.
Define pay grades and pay ranges.
Explain the concepts of broadbanding, skill-based pay, competency-based pay, market-based pay, and total rewards.

4. 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

5. Specific Policy Issues in Developing and Implementing a Base Wage and Salary Structure
Figure 13.1

6. 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

7. 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)

8. Conventional Job Evaluation
Systematic determination of value of each job in relation to other jobs in the organization
Used for designing a pay structure
General idea is to
Enumerate requirements of a job
Job’s contribution to organization
Classify it according to its importance
While overriding purpose of job evaluation is to establish relative worth of jobs, it can serve several other purposes

9. Conventional Job Evaluation
Gather information on the jobs being evaluated
Identify factor or factors to be used in determining worth of different jobs to the organization
Develop and implement a plan using chosen factors for evaluating relative worth of different jobs to the organization
Gather information on the jobs being evaluated
Information is obtained from current job descriptions
If not, it is necessary to analyze jobs and create up-to-date descriptions
Identify factor or factors to be used in determining worth of different jobs to the organization
Frequently used factors are
Knowledge
Responsibility
Working conditions
Develop and implement a plan using chosen factors for evaluating relative worth of different jobs to the organization
Should consistently place jobs requiring more of the factors at a higher level in job hierarchy than jobs requiring fewer of the factors

10. Job Evaluation Methods
Job ranking
Job classification
Point comparison
Factor comparison

11. Potential Uses of Job Evaluations
Figure 13.2

12. Job Ranking Method Job ranking method
Job evaluation method that ranks jobs in order of their difficulty from simplest to most complex.
Often, evaluator prepares cards with basic information about jobs and then arranges the cards in order of importance of positions
Produces only an ordering of jobs and does not indicate relative degree of difference among them
For example, a job with a ranking of four is not necessarily twice as difficult as a job with a ranking of two

13. 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

14. 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.

15. 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

16. Selection of Key Jobs
Selection of key jobs should adequately represent
Span of responsibilities
Duties
Work requirements

17. Selecting Compensable Factors
Characteristics of jobs that the organization deems important to the extent that it is willing to pay for them.

18. 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.

19. Possible Subfactors and Degrees for the Compensable Factors of Responsibility, with Sample Jobs
Table 13.1

20. 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

21. 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

22. Sample Point Values
Table 13.2

23. 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
Point totals should present same general relationships that actual pay scales show for key jobs
Rank ordering of key jobs according to point totals should be approximately equivalent to rank ordering of key jobs according to pay
Serves as a check on appropriateness of points that have been assigned to degrees, subfactors, and factors
Nonkey jobs can be evaluated in the same manner
By determining appropriate points for each factor from the scale and then totaling points

24. Possible Point Totals for Key Banking Jobs
Table 13.3

25. Factor Comparison Method
Job evaluation technique that uses a monetary scale for evaluating jobs on a factor-by-factor basis.

26. 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

27. Factor-by-Factor Ranking of Key Banking Jobs
Table 13.4

28. Sample Allocation Pay for Key Banking Jobs
Table 13.5

29. Monetary Scale for Responsibility Requirements in Banking Jobs
Table 13.6

30. Advantages and Disadvantages of Different Job Evaluation Methods
Table 13.7

31. Labor market conditions
Pricing the Job
Labor market conditions
Prevailing wage rates
Living costs
Information should be gathered to ensure external factors are recognized in wage scale
They include
Labor market conditions
Prevailing wage rates
Living costs

32. Wage and Salary Surveys
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.

33. 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

34. 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

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

36. 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

37. 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

38. Possible Topics in a Wage Survey
Figure 13.3

39. 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

40. 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

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

42. 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
1. Assess the participating companies for comparability. Not only should factors such as
size and type of business be considered, but intangibles, such as prestige, security, growth
opportunity, and location, are also important.
2. Compare more than base wage or salary. The total compensation package, including
incentives and benefi ts, should be considered. For example, a company might provide few
benefi ts but compensate for this with high base wages and salaries.
3. Consider variations in job descriptions. The most widely acknowledged shortcoming of
wage and salary surveys is that it is difficult to find jobs that are directly comparable.
Usually more information than a brief job description is needed to properly match jobs in
a survey.
4. Correlate survey data with adjustment periods. How recently wages and salaries were
adjusted before the survey affects the accuracy of the data. Some companies may have just
made adjustments, whereas others may not.9

43. Problems Encountered When Using Salary Survey Data
Figure 13.5

44. 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

45. Wage Curve Using the Point Method
Figure 13.6

46. 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

47. Pay Grades and Ranges Pay grades Pay range
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.

48. 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

49. Establishment of Pay Grades with Ranges
Figure 13.7

50. Developing the Base Wage Salary Structure
Figure 13.8 illustrates how the various segments of the compensation process fi t together to establish
the base wage or salary structure for an organization. Compensation policies are shown
on all sides of the figure to emphasize the fact that each step in the process is influenced by the
organization’s current compensation policies. Ideally, an organization’s compensation system
should produce a base wage/salary structure that is both internally and externally equitable.
The job evaluation process should ensure internal equity, while wage surveys should ensure
external equity.
Figure 13.8

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

52. 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

53. 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

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

55. 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

56. Skill-Based Pay – Potential Concerns
Increased labor costs
Topped-out employees
False expectations
Union agreements
Increased labor costs – Direct labor and training costs do often rise
Usually offset by a reduced labor force and therefore lower total labor costs
Topped-out employees – Those who have nowhere else to go
Not new to managers and arises in most organizations regardless of pay system used
Expose topped-out employees to broader jobs in other departments
False expectations – Occur when no vacancies in the job areas for which employees have been newly trained exist
Key is be realistic about current or near-term future needs of organization
Unrealistic expectations can lead to increased turnover due to disillusioned employees
Union agreements – Pay systems are based largely on seniority

57. Potential Benefits of a Skill-Based Pay System

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

59. Designing Competency-Based Pay
Figure 13.9

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

61. 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

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