1. Managing Employee Performance and Reward
Concepts, Practices, Strategies
2nd edition

2. Job-based base pay What is ‘base pay’?
Options for base pay: pay the position or pay the person?
Job-based pay structures
Market pricing (for ‘external competitiveness’)
Job evaluation (for ‘internal equity’)
Job-based pay – pros and cons

3. What is ‘base pay’? Base pay is:
The foundational and generally largest component of total remuneration
The ‘fixed’ or ‘guaranteed’ portion of pay
Time-based wage or salary
Advantages:
Compliance with minimum pay requirements
Attraction and retention; membership behaviour
Demonstrates employer commitment to meeting basic human needs
Relational psychological contract elicits organisational citizenship behaviour (OCB)
‘Efficiency wage’
Can be integrated with performance pay

4. What is ‘base pay’? Drawbacks:
Commits employer to fixed payments irrespective of performance contributed
Unlikely to motivate task behaviour
Unlikely to discourage underperformers from remaining with the organisation
Roles without base pay:
Commission-only sales roles
Pure payment by results

5. Options for base pay Competency zones/levels Competency assessment
Broad bands
Competency-based/related pay
Seniority and/or ‘merit’ based increments and promotion
Market surveys and/or
job evaluation
Job-based/position-based pay
Modes of pay progression
Evaluation techniques
Structures
Options:
Position-based systems:
Person-based systems:
Skill sets
Skill assessment
Broad grades/job families
Skill-based pay
1. Pay spine/ladders
2. Narrow grades

6. Position-based base pay
Position or person?
Rewards performance capacities rather than results
Reinforces KSA development
Pay progression based on KSA development
Evaluation methods: skill and/or competency assessment
Indirect external market pricing (disaggregated job pay rates)
Time-based payment according to KSA levels
Different rates of pay depending on assessed capacity (KSAs)
Pay for each individual’s capacity to perform (i.e. KSAs)
Pay for individual worth
Individuals add value
Person-based base pay
Rewards job ownership not (primarily) performance in the job
Reinforces promotional hierarchy
Pay progression and promotion based on seniority or merit
Evaluation method: job evaluation
Direct external market pricing
Time-based payment according to time on the job
Standard rate for the job, irrespective of KSA differences between job holders
Pay for the ‘size’ of the job occupied
Pay for job worth
Jobs add value
Position-based base pay

7. Pay scale (or spine) ladderB C D E
Level
(promotion)
1 ↑
2 ↑
3 ↑
4 ↑ 5
Step
(increment for seniority, service and/or ‘merit’)
Pay scale (or spine) ladder

8. Narrow graded structures
‘Job size’

9. Narrow graded structures
Range maximum
Payment for performance/experience above the mid-
point standard
Midpoint (= Market-related pay level for proficient job performance)
Developing job competence and performance proficiency
Range minimum
20–30%
pay range
or ‘spread’

10. Market pricing/‘salary surveys’
Focus is on external competitiveness.
Six steps:
Deciding which jobs to survey
Determining which organisations to survey:
Labour markets
Industry
Size
Locality
Determining what information to collect on each job:
Base wage or salary
Superannuation
Benefits
Performance pay
Total remuneration
Determining the method of data collection:
Interviews
Questionnaires
Telephone interviews

11. Market pricing/‘salary surveys’
Summarising and analysing the data obtained:
Deciding a policy on pay level relative to external market rates:
Pay at range midpoint/median
Pay over range median
Pay under range median
Market pricing/‘salary surveys’
4th quartile
Top 25% of range
3rd quartile
Third 25% of range
2nd quartile
Second 25% of range
1st quartile
Bottom 25% of range
75th percentile 
50th percentile
(= range median)
25th percentile

12. Example of market data presentation format: sample aggregates

13. Market pricing Advantages:
Neither costly nor administratively complex (compared to job evaluation)
Automatic means of keeping job rates in line with market conditions
Supports focus on competitive external recruitment

14. Market pricing Disadvantages:
Surveys are necessarily selective and susceptible to sampling error
Pay surveys do not capture the full range of rewards offered by organisations and may give a false reading of competitor strategies
Jobs are rarely perfectly matched between organisations, so still need some form of job evaluation to establish comparability
Market pricing involves a ‘surrender’ of control to external forces
Market rates are rarely a pure reflection of job worth. They usually reflect both job value and job-holder characteristics and contribution

15. Market pricing Disadvantages:
External markets do not always value jobs fairly. ‘Going rates’ are usually ‘contaminated’ by historical value judgements about the worth of the ‘person’ holding the job
Market pricing does not address the issue of internal fairness. It rules out the possibility of building a base pay system which prices jobs according to their specific value to the organisation
There are no market rates for new or changed jobs
There is no such thing as a single market rate; surveys only capture the range of rates for the same job; still have to choose a price point in the range (= strategic choice)

16. What is job evaluation?
Job evaluation involves determining pay rates by measuring the content or ‘size’ of
each job within the organisation with a view to rewarding each job according to its
‘value’ or importance to the organisation.
Job evaluation focuses on:
1. Measuring job content/size/value:
Inputs: skill, knowledge, education, training, experience
Throughputs: mental effort, physical effort, decision-making, accountability, communication, planning, innovation, supervision
Outputs: accuracy, consequences of error, responsibility for cash, assets, people
Conditions: work environment, hazards, stress
2. Maintaining ‘internal equity’, i.e. equal pay for jobs of equal size/value

17. What is job evaluation? Four main steps: Undertake a job analysis
Produce job descriptions
Choose and apply evaluation method
Create a base pay structure base on job evaluation scores

18. Job evaluation methods
Non-analytical:
Ranking
Job classification/grading
Single-factor (e.g. Elliot Jacques’ ‘time span of discretion’)
Analytical/multifactor:
Points-factor method
Hay Group guide chart profile method:
1. ‘Know-how’
2. ‘Problem-solving’
3. ‘Accountability’
4. ‘Working context’

19. Points-factor job evaluation
Main steps:
Factors: identifying ‘compensable’ factors and sub-factors
Degrees: developing ‘degrees’ or levels (i.e. rating scales) for these factors
Points: assigning numerical values to each factor level. Progression – arithmetic or geometric?
Weights: assigning weights to the factors (i.e. ‘capturing’ policy priorities)

20. Points-factor job evaluation
1000
800
600
400
200 25 20 15 10 5
Interpersonal relations
100
Hazards/risks 50 40 30
Work environment
WORKING CONDITIONS: 16 12 8 4
Security
Record keeping 60 48 36 24
Decision-making
Care of materials and equipment 80 64 32
Supervision of others
RESPONSIBILITY: 18 6
Hours
300
Mental demands 70 56 42 28 14
Physical demands
Complexity
WORK CONTENT:
Initiative
Education
Qualifications
160
120
Work experience
SKILL: E D C B A
Factor
weights
(total points)
Degrees
Factors
Difficulty of work
Points-factor job evaluation

21. Developing job grades using points-factor scores
1. Plotting point scores and existing pay practice line

22. 2. Developing a new pay policy line

23. 3. Establishing grade boundaries and pay ranges

24. Points-factor job evaluation: strengths
Provides clearly defined absolute and relative measures of job size (i.e. common standards); hence has high reliability
Has the appearance of objectivity, rationality and consistency and helps to create pay relationships between jobs which employees perceive as being fair
Useful in valuing new and changed jobs (for which no direct market rates are available)
Can help to identify and eliminate inequities in the existing pay structure
Lends itself to employee involvement in system design and the evaluation process itself

25. Points-factor job evaluation: weaknesses
May be too inflexible to cope with rapid changes in technology and job content
Reinforces bureaucracy and hierarchy and is incompatible with the trend to ‘flat’ organisational structures
Emphasises job size over job-holder contribution
Does not take account of external market situation (e.g. scarcity)
One set of factors may not fit all jobs
Ritualised impression management: ‘pay equity’ a social construct (Townley; Quaid)
Bias and politics may still intrude – in factor selection, in enumerating the degrees of factor presence, in establishing weightings between factors, and in interpretation of job descriptions in relation to factors and factor levels

26. Job-based pay: for and against
Advantages:
Allows direct comparison with pay rates in external labour market
Offers considerable certainty as to future labour costs because actual costs per job are known in advance
A formula for fair pay based on the equality norm, i.e. ‘equal pay for equal work’
Minimises interpersonal conflict over minor differences in personal contribution which can be a major source of employee dissatisfaction
Is supported by unions because it allows for the maintenance of common pay standards both within and between organisations; hence supports industrial harmony

27. Job-based pay: for and against
Disadvantages:
No direct incentive to improve individual contribution or performance
Downplays skill development. Employees pursue promotion rather than personal skill enhancement
Reinforces organisational hierarchy
Incompatible with task interdependence and teamwork
Is too inflexible to accommodate rapid changes in technology, work processes and product/service market requirements