Wage determination

process

22 july 2014

1. Job Analysis
Job description job duties,
responsibilities, working conditions,
inter-relationship between jobs.
Job Specification Training, skill
required, effort required,
qualifications, abilities, experience.

2. Job Evaluation
Job Evaluation process of grading,
rating or evaluating a job to
determine its value relative to all
other jobs in an organization that are
to be evaluated
provides job with a price
monetary values calculated.

3. Wage surveys
For a firm to be competitive

it has to check the price of

wage prevailing in the market

wage & salary survey in area

concerned
What other firms are paying?
Level of pay offered by other firms for
same occupation?
Is our pay offer capable to retain talented
employees?

Types of wage surveys'

Packaged- conducted by research
bodies, government labor bureaus
etc.
Firm can conduct own research
through R&D.
Mailed questionnaires, personal
interviews, telephonic interviews with
other managers or HR agencies.

Points to be kept in mind while

conducting surveys:
1. frequency: once a year
2. scope: no. of firms, no. of units
competing, willingness of
organization to participate.
3. accuracy: job titles & specific job
duties are vast, job description &
specification should be done
carefully.
person-to-person survey : more
accuracy

Relevant organization problems:

In addition to job analysis & description: other problems
exists:
Jobs to be compared does there exists actual relation or
similarity.
Whether organization would recruit new employees after
revised pay structure.
Are prevailing wage rates in industry, consistent with
results of job evaluation.
What will be the result of paying high or low compensation.
What ll be the wage & compensation structure.
BELCHER 108 variables that affect compensation &
wage structure.

Preparation of pay structure

Decisions need to be taken: (NO
HARD & FAST RULE)
Whether
organization
wishes to pay
ABOVE/BELOW/E
QUAL AVERAGE
in industry

Wage rate
should provide
MERIT INCREASE
or SINGLE RATE

Which job to be
placed in pay
grade: actual
money value to
be assigned

No. & width of

pay grade

Differentials in
the pay band

Developing pay structure

based on 5 steps

1. Deciding number of pay structure

Firm may have more than one pay
structure depending on market rate
& company job structure.
Common pay structures are:
1.exempt & non-exempt
2. pay structure based on job family
3. pay structure based on geography

Exempt & non-exempt pay structure

Exempt

Not subject to
overtime pay
provisions

Annual salary
Jobs include:
supervisory,
managerial,
executive jobs
.jobs include wide
variety of duties

Non-exempt

Subject to overtime
pay provisions

hourly pay rate

non supervisory in
nature
duties on job tend to
be narrowly defined,
routine tasks

Pay structure based on job

family
job family:
MANAGEME
NT
EXECUTIVE
PROFESSIO
NAL
TECHNICAL
ENGINEER

Pay structure based on

geography
Companies with multiple geographical
locations, such as;
Sales office
Manufacturing plants
Service centers
& corporate offices
May establish pay structure based on going
rate in different geographical location:
as local conditions may influence
cost of living also affect

2. Determining pay line

MARKET PAY
LINE

REPRESENTATION
OF TYPICAL
MARKET RATES
RELATIVE TO JOB
STRUCTURE

COMPETETI
VE PAY
RATES

MARKETCOMPETETI
VE PAY
RATES
PAY LEVELS
THAT
CORRESPOND
S WITH
MARKET PAY
LINE.

PAY LEVELS
THAT FALL
ALONG
MARKET PAY
LINE

3. DEFINING PAY GRADES

PAY GRADES GROUP JOBS FOR PAY
POLICY APPLICATION.
HR professionals group jobs into pay
grades based on similar compensable
values & factors.
CRITERIA IS NOT PRECISE
NO ONE FORMULA DETERMINE WHAT IS
SUFFICIENTLY SIMILAR IN TERMS &
CONTENT OF A JOB TO WARRANT
GROUPING OF JOBS INTO A PAY GRADE.

WIDER PAY
GRADES

MINIMIZE
HIERARCHY &
SOCIAL DISTANCE
BETWEEN
EMPLOYEES

NARROW PAY
GRADES

PROMOTE
HEIRARCHY &
SOCIAL DISTANCE

4. CALCULATING PAY RANGE FOR

EACH PAY GRADE
PAY GRADES HORIZONTAL DIMENSIONS
OF PAY STRUCTURE (JOB EVALUATION
POINTS)
PAY RANGE VERTICAL DIMENSIONS OF PAY
STRUCTURE. (PAY RATES)
Includes midpoint, minimum & maximum pay rates.

MINIMUM VALUE ACCEPTABLE LOWER

BOUND OF PAY
MAXIMUM VALUE ACCEPTABLE UPPER
BOUND OF PAY

STEPS
HR professionals establish mid-points
first, then followed by minimum &
maximum values.

Midpoints market average/ median

Midpoint generally match values

along market pay line competitive
market rate
competitive market rate determined
by wage survey data

Calculation of minimum &

maximum rates
Green
circle
pay
rates

Below
minimum pay
range
It should be
brought
within
normal pay
range, by
eliminating
need of
skill/experien
ce

Red
circle
pay
rates

Employee is
paid greater
than
maximum
for their pay
range.
Higher pay rates
help to retain
valued
employees who
may have
lucrative job
offers from
competitors.
For generating
exceptional
performance

Evaluating the result

After establishing pay structure
according to previous steps, HR
professionals must evaluate the
result.
1. analyze the companys internal
value for job & market value for
same job.
2. if significant difference occurs
company must reconsider its internal
value.

 If valuation of job>market value of

same job:
it must be decided whether
paying higher than market rate will
help to attain competitive
advantage.

If valuation of job<market value of

job:
it must be decided whether this
difference will limit the companys

To check employee pay level relative to midpoint of

pay grade

COMPA-RATIO INDEX
Helps to index the relative competitiveness
of internal pay rates based on pay range
mid-points.
Employee pay rate
Pay range mid points
=1 employee pay rate=pay range midpoint
>1 employee pay rate exceeds pay range
midpoint
<1 employee pay rate falls below
competitive pay range midpoint