Chapter (9):
Establishing a Pay Structure
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CH (9): Establishing a Pay Structure
(Part 6 – After Mid)
1. JOB STRUCTURE: RELATIVE VALUE OF JOBS.
Job Evaluation.
is an administrative procedure for measuring the relative internal worth of the
organization’s jobs.
To conduct job evaluation, the organization forms a committee which
identifies each job’s compensable factors.
❖ Compensable Factors: Characteristics organization values and is willing to
pay for.
o Examples for compensable factors: experience, education,
complexity, working conditions, or responsibility.
o Jobs are rated for each factor.
Example:
Table 12.1 Job Evaluation of Three Jobs with Three Factors
In this Example, the job of systems analyst is worth almost twice as much to this
organization as the job of computer operator. Therefore, the organization would be
willing to pay almost twice as much for the work of a systems analyst as it would for the
work of a computer operator.
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Key Jobs.
Organizations define key jobs to help create pay structures.
Key jobs have relatively stable content and are common among many
organizations.
Pay for key jobs can be based on survey data. (about what people earn in these jobs)
2. PAY STRUCTURE: PUTTING IT ALL TOGETHER.
Organization may state the pay as:
1. Hourly Wage: rate of pay per each hour worked.
2. Piecework Rate: rate of pay per each unit produced.
3. Salary: rate of pay per week, month, or year worked.
We will discuss 4 topics about pay:
1. Pay Rates.
2. Pay Grades.
3. Pay Ranges.
4. Pay Differentials.
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(1) Pay Rates:
Rates of key jobs can be based on market research (survey data).
Non key jobs often have no survey data available; professionals must base rate
off job evaluation by plotting data on graph.
Pay Policy Line on graph shows relationship between job evaluation points and
pay rates. (slops upward)
Reflects the pay structure in the market, which does not always match rates in
the organization.
Popular actors, such as Dwayne Johnson, are evaluated by
their impact on box office receipts and other revenues and
then compensated based on these evaluations.
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(2) Pay Grades:
Pay Grades: Sets of jobs having similar worth or content grouped together to
establish rates of pay.
Drawback: May not match market rate.
o Example: An organization groups together its senior accountants (with a job evaluation
of 255 points) and its senior systems analysts (with a job evaluation of 270 points).
Also, market rate for analyst is higher than it’s for accountants BUT … since the
organization put them in the same grade, they will get the same pay rate!
(3) Pay Ranges:
Pay Ranges: Set of possible pay rates defined by a minimum, maximum, and
midpoint of pay for employees holding a particular job or a job within a
particular pay grade.
Pay Ranges gives the organization some flexibility where employees holding the
same job may receive somewhat different pay.
This flexibility helps organizations balance conflicting information from job
evaluations and market surveys.
Usually pay ranges overlap somewhat.
Notice that:
• The jobs are grouped into five
pay grades, each with its own
pay range.
• Range is widest for employees
who are at higher levels.
• Overlap means that in some
cases the highest pay in one
grade is somewhat higher than
the lowest pay in the next
grade.
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(4) Pay Differentials:
Pay Differentials: Adjustment to pay rate to reflect differences in working
conditions or labor markets.
o For example, an organization may pay extra to employees who work the night shift
because night hours are less desirable for most workers.
Differentials often offered in U.S. by geographic location.
o Common approach is to move employee higher in pay structure to
compensate for higher cost of living.
3. ALTERNATIVES TO JOB-BASED PAY.
(1) Delayering:
Reducing the number of levels in an
organization’s job structure.
Combining more assignments into a
single layer called a broad band.
More emphasis on acquiring
experience, not promotions.
(2) Skill-Based Pay Systems:
Pay set according to employees’ levels of skill or knowledge.
Appropriate where changing technology requires employees to continually
widen and deepen their knowledge.
