Process of Salary and Wage Fixation

Steps involved in determining wage and salary rates are as follows :

1. Job Analysis:

A job analysis describes the duties, responsibilities, working conditions and interrelationships between the job as it is and the other jobs with which it is associated. Job descriptions are crucial in designing pay systems, for they help to identify important job characteristics. They also help determine, define and weigh compensate factors (factors for which an organization is willing to pay-skill, experience, effort and working environment). After determining the job specifications, the actual process of grading, rating or evaluating the job occurs. A job is rated in order to determine its value in relation to all the other jobs in the organization which are subject to evaluation. The next step is that of providing the job with a price. This involves converting the relative job values into specific monetary values or translating the job classes into rate ranges.

2. Conduct the Salary Survey:

Compensation or salary surveys play a central role in pricing jobs. Virtually every employer, therefore, conduct at least an informal survey. Employers use salary surveys in three ways (i) Survey data are used to price bench mark jobs that anchor the employer’s pay scale and around which the other jobs are slotted, based on their relative worth to the firm (ii) Some Jobs (generally 20% or more) of an employer’s position are usually priced directly in the market place (rather than relative to the firm’s benchmark jobs), based on a formal or informal survey of what competitive firms are paying for comparable jobs (iii) Surveys also collect data on benefits like insurance, sick leave and vacations to provide a basis for decisions regarding employee benefits.

Salary surveys can be formal or informal. Informal telephone surveys are good for quickly checking on a relatively small number of easily identified and quickly recognized jobs. Such as when a company’s HR manager wants to confirm the salary at which to advertise a newly open cashier’s job. In formal surveys, most firms either use the results of packaged surveys available from the research bodies, employer’s associations, government labor bureaus etc. or they participate in wage surveys and receive copies of results or else they conduct their own. These surveys may be carried out by mailed questionnaire, telephone, or personal interviews with other managers and personnel agencies. Wage and salary surveys provide many kinds of useful information about differences in wage levels for particular kinds of occupations. This can have a great influence on an organizations compensation policy.

3. Group Similar Jobs into Pay Grades:

After the results of job analysis and salary surveys have been received, the committee can turn to the task of assigning pay rates to each job, but it will usually want to first group jobs into pay grades. A pay grade is comprised of jobs of approximately equal difficulty or importance as determined by job evaluation. Pay grading is essential for pay purposes because instead of having to deal with hundreds of pay rates, the committee might only have to focus on say 8 or 12.

4. Price Each Pay Grade:

The next step is to assign pay rates to pay grades. Assigning pay rates to each pay grade is usually accomplished with a wage curve. The wage curve depicts graphically the pay rates currently being paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. The purpose of wage curve is to show the relationship between (i) the value of the job as determined by one of the job evaluation methods and (ii) the current average pay rates for the grades. If there is reason to believe that the present pay rates are substantially out of step with the prevailing market pay rates for those jobs, bench mark jobs within each grade are chosen and priced via a salary survey. The new market based pay rates are then plotted on the wage curve. The steps involved in pricing jobs with a wage curve are:

  1. Find the average pay for each pay grade, since each of the pay grades consists of several jobs.
  2. Plot the pay rates for each pay grade. Then fit a line, called a wage line through the points just plotted. This can be done either free hand or by using a statistical method.
  3. Price the jobs. Wages along the wage line are the target wages or salary rates for the jobs in each pay grade.

5. Fine-Tune Pay Rates :

Fine tuning involves correcting out of line rates and developing rate ranges.

  1. Developing Rate Ranges : Most employers do not pay just one rate for all jobs in a particular pay grade. Instead, they develop rate ranges for each grade so that there might be different levels and corresponding pay rates within each pay grade. The rate range is usually built around the wage line or curve. One alternative is to arbitrarily decide on a maximum and minimum rate for each grade. As an alternative, some employers allow the rate range for each grade to become wider for the higher pay ranges reflecting the greater demands and performance variability inherent in these more complex jobs. There are several benefits of using rate ranges for each pay grade. Firstly, the employer can take a more flexible stance with respect to the labor market. It becomes easier to attract experienced, higher paid employees into a pay grade where the starting salary for the lowest step may be too low to attract such experienced personnel. Secondly, Rate ranges can also allow the employer to provide for performance differences among employees within the same grade or between those with different seniorities.
  2. Correcting out of Line Rates : The average current pay for a job may be too high or too low, relative to other jobs in the firm. If a rate falls well below the line, a pay rise for that job may be required. If the rate falls well above the wage line, pay cuts or a pay freeze may be required. Underpaid employees should have their wages raided to the minimum of the rate range for their pay grade, assuming the organization wants to retain those employees and has the funds to do so. This can be done immediately or in one or two steps.

There are several ways to cope with the over paid employees :

  1. To freeze the rate paid to employees in this grade unless general salary increases bring the other jobs into line with it.
  2. To transfer or promote some or all of the employees involved to jobs for which they can legitimately be paid their current pay rates.
  3. To freeze the rate for some time, during which time the overpaid employees should be transferred or promoted. If it cannot be done, then the rate at which these employees are paid is cut to the maximum in the pay range for their pay grade.

6. Wage Administration Rules :

The development of rules of wage administration has to be done in the next step. It is considered advisable in the interests of the concern and the employees that the information about average salaries and ranges in the salaries of group should be made known to the employees concerned; for secrecy in this matter may create dissatisfaction and it may also vitiate the potential motivating effects of disclosure. Finally, the employee is appraised and the wage fixed for the grade he is found fit.

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