Establishing Strategic Pay Plans
中国经济管理大学
MBA课堂笔记
Establishing Strategic Pay Plans
中国经济管理大学/中國經濟管理大學
Establishing Strategic Pay Plans
Lecture Outline:
Basic Factors in Determining Pay Rates
Aligning Total Rewards with Strategy
Equity and Its Impact on Pay Rates
Legal Considerations in Compensation
Union Influences on Compensation Decisions
Pay Policies
Job Evaluation Methods
Compensable Factors
Preparing for the Job Evaluation
Job Evaluation Methods: Ranking
Job Evaluation Methods: Job Classification
Job Evaluation Methods: Point Method
Computerized Job Evaluations
How to Create a Market-Competitive Pay Plan
Choose Benchmark Jobs
Select Compensable Factors
Assign Weights to Compensable Factors
Convert Percentages to Points for Each Factor
Define Each Factor’s Degrees
Determine for Each Factor Its Factor Degree’s Points
Review Job Descriptions and Job Specifications
Evaluate the Jobs
Draw the Current (Internal) Wage Curve
Conduct a Market Analysis: Salary Surveys
Draw the Market (External) Wage Curve
Compare and Adjust Current and Market Wage Rates for Jobs
Developing Pay Grades
Establish Rate Ranges
Address Remaining Jobs
Correcting Out-of-Line Rates
Pricing Managerial and Professional Jobs
What Determines Executive Pay?
Compensating Executives and Managers
Compensating Professional Employees
Improving Performance through HRIS
Contemporary Topics in Compensation
Competency-Based Pay
Broadbanding
Talent Management and Actively Managing Compensation Allocations
Comparable Worth
Diversity Counts: The Pay Gap
Board Oversight of Executive Pay
Total Rewards, Recognition, and Employee Performance
In Brief:
This chapter covers the basics of compensation. Included are basic considerations in determining pay rates, establishing pay rates, current trends in compensation, pricing managerial and professional jobs, and current issues in compensation management.
Interesting Issues:
Employees are guided to do what they are paid to do. Compensation plans are evolving from more generic, impersonal methods to programs that recognize and reward the specific competencies an organization needs in order to accomplish its strategic objectives.
Learning Objectives:
1. List the basic factors determining pay rates.
2. Define and give an example of how to conduct a job evaluation.
3. Explain in detail how to establish a market-competitive pay plan.
4. Explain how to price managerial and professional jobs.
5. Explain the difference between competency-based and traditional pay plans.
Annotated Outline:
I. Basic Factors in Determining Pay Rates - Employee compensation refers to all forms of pay or rewards going to employees, which include direct financial payments and indirect payments. Direct financial payments include wages, salaries, incentives, commissions, and bonuses. Indirect payments include financial benefits like employer-paid insurance and vacations
A. Aligning Total Rewards with Strategy - The basic thrust in pay plans today is to produce an aligned reward strategy to create compensation plans that guide employee behaviors in the desired, strategic direction. Distinguishing between high and low performers is a policy issue, as is seniority-based pay.
B. Equity and Its Impact on Pay Rates - External and internal equity are crucial in pay rates. External equity refers to how pay compares with rates in other organizations. Internal equity refers to employees viewing their pay as equitable given other pay rates in the organization. Individual equity refers to the fairness of an individual’s pay as compared with what his/her coworkers are earning for the same or very similar jobs in the company. Last, procedural equity refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.
C. Legal Considerations in Compensation - There are many laws that govern compensation. For example, the Fair Labor Standards Act (FLSA) regulates the minimum wage and requires that overtime be paid at a rate of one and one half times the normal rate of pay for hours worked over 40 in a workweek. Employees are categorized as exempt from the act or non-exempt from its provisions. Other compensation laws include the Equal Pay Act, the Employee Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Family Medical Leave Act (FMLA).
D. Union Influences on Compensation Decisions - Unions and labor relations laws influence pay plan design. The rulings of the National Labor Relations Act underscored the need for employers to involve union officials in developing the compensation package.
E. Pay Policies - To raise salaries, employers can give raises based on longevity (plus skills), install a more aggressive merit pay program, or authorize supervisors to recommend equity adjustments for selected employees who are both highly valued and victims of pay compression. Cost of living differences may also be taken into account.
II. Job Evaluation Methods - Employers use two basic approaches for setting pay rates: market-based approaches and job evaluation approaches.
A. Compensable Factors - Factors that jobs have in common can be used to establish how the jobs compare to one another.
B. Preparing for the Job Evaluation - Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, employees, and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation.
C. Job Evaluation Methods: Ranking - The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.” There are several steps in the job ranking method: obtain job information, select and group jobs, select compensable factors, rank jobs, and combine ratings.
D. Job Evaluation Methods: Job Classification - This is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different.
E. Job Evaluation Methods: Point Method - It involves identifying several compensable factors for the jobs, as well as the degree to which each factor is present in each job. Assume there are five degrees of the compensable factor “responsibility” a job could contain. Further, assume you assign a different number of points to each degree of each compensable factor. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, the committee can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job.
F. Computerized Job Evaluations - Using quantitative job evaluation methods such as the point method can be time-consuming. Computer-aided job evaluation streamlines this process. Most computerized systems have two main components: structured questionnaires and statistical models. These elements allow the computer program to price jobs more or less automatically by assigning points.
III. How to Create a Market-Competitive Pay Plan
A. Choose Benchmark Jobs – These are representative of the entire range of jobs the organization needs to evaluate.
B. Select Compensable Factors - The choice of compensable factors depends on tradition (as noted, the Equal Pay Act of 1963 uses four compensable factors − skill, effort, responsibility and working conditions) and on strategic and practical considerations. The employer should carefully define each factor to ensure that the evaluation committee members apply the factors with consistency.
C. Assign Weights to Compensable Factors – This determines the relative amount of each compensable factor the job contains. Assume there is a total of 100 percentage points for each job that needs to be allocated among those compensable factors selected.
D. Convert Percentages to Points for Each Factor – Using the provided formula, percentages are converted to points.
E. Define Each Factor’s Degrees – Next, define each of several degrees for each factor so that raters may judge the amount or degree of a factor existing in a job. The number of degrees usually does not exceed five or six, and the actual number depends mostly on judgment.
F. Determine for Each Factor Its Factor Degrees’ Points – The evaluation committee must be able to determine the number of points each job contains. To do this, the committee must be able to examine each job and (from the degree definitions) determine what degree of each compensable factor that job has. The committee then needs to know how many points each degree of each compensable factor is worth. To do this, we must first assign points to each degree of each compensable factor.
G. Review Job Descriptions and Job Specifications – The heart of job evaluation involves determining the amount or degree to which the job contains the selected compensable factors such as skill, effort, responsibility, and working conditions. Those conducting the job evaluation will frequently do so by reviewing each job’s job description and job specification.
H. Evaluate the Jobs – The committee determines the degree to which each compensable factor is present in each job. Knowing the skill, effort, responsibility, and conditions degrees for each job, and knowing the number of points we previously assigned to each degree of each compensable factor, we can now determine how many skill, effort, responsibility, and conditions points each benchmark job should contain. Finally, we can then add up these degree points to get a total point value for each benchmark job.
I. Draw the Current (Internal) Wage Curve - Plotting each job’s points and wage rate produces a scatter plot. A wage curve can be drawn through these plots to show how point values relate to current wage rates.
J. Conduct a Market Analysis: Salary Surveys - Virtually all employers conduct at least an informal telephone, newspaper, or Internet salary survey to price benchmark jobs and benefits.
1. Commercial, Professional, and Government Salary Surveys – Many employers use surveys published by consulting firms, professional associations, or government agencies. The Bureau of Labor Statistics (BLS) annually conducts area wage surveys, industry wage surveys, and professional, administrative, technical, and clerical (PATC) surveys for the National Compensation Survey.
2. Using the Internet to Do Compensation Surveys – A rapidly expanding array of Internet-based options makes it fairly easy for anyone to access published compensation survey information.
K. Draw the Market (External) Wage Curve - The current (internal) wage curve does not reveal whether our pay rates are too high, or too low, or just right, relative to what other firms are paying. For this, we need to draw a market or external wage curve. The market/external wage curve compares our jobs’ points with market pay rates for these jobs.
L. Compare and Adjust Current and Market Wage Rates for Jobs - Next, combine both the current/internal and market/external wage curves on one graph. The market wage curve might be higher than our current wage curve or below our current wage curve. Based on comparing the current/internal wage curve and market/external wage curve the company must decide whether to adjust the current pay rates for our jobs, and if so how.
M. Developing Pay Grades – The committee will probably group similar jobs into grades for pay purposes, instead of having to deal with hundreds of pay rates. A pay (or wage) grade is comprised of jobs of approximately equal difficulty or importance as determined by job evaluation.
N. Establish Rate Ranges – Most employers develop vertical pay (rate) ranges for each horizontal pay grade. These pay ranges may appear as vertical boxes within each grade, showing minimum, maximum, and midpoint pay rates for that pay grade. You may depict the pay ranges as steps or levels, with specific corresponding pay rates for each step within each pay grade.
O. Address Remaining Jobs – Once the job evaluation of the benchmark jobs is complete, the remaining jobs must be added either through a formal process (like the one described for benchmark jobs) or informally where the company feels they fit.
P. Correcting Out-of-Line Rates – The wage rate for a job may fall well off the wage line or well outside the rate range for its grade. Which means that, the average pay for the job is currently too high or too low, relative to other jobs in the firm. If the point falls well below the line, a pay raise for the job may be required. If the point falls well above the wage line, a pay cut or freeze may be required.
IV. Pricing Managerial and Professional Jobs
A. What Determines Executive Pay? Executive Compensation emphasizes performance incentives more than do other employees’ pay plans, since organizational results are likely to reflect executives’ contributions more directly.
B. Compensating Executives and Managers – Basic compensation elements for top executives include: base pay, short-term incentives, long-term incentives, and executive benefits and perks. Shareholder activism has tightened the restrictions on what companies pay top executives.
C. Compensating Professional Employees – Most employers use a market-pricing approach instead of job evaluation, since it’s not easy to identify factors and degrees of factors which meaningfully differentiate among the values of professional work.
D. Improving Performance through HRIS: Payroll administration is one of the first functions most employers computerize or outsource, and for good reason. Administering the payroll system—keeping track of each employee’s worker status, wage rate, dependents, benefits, overtime, tax status, and so on; computing each paycheck; and then directing the actual printing of checks or direct deposits is a time-consuming task, one complicated by the need to comply with many federal, state, and local wage, hour, and other laws.
V. Contemporary Topics in Compensation
A. Competency-Based Pay
1. What Is Competency-Based Pay? The company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds.
2. Why Use Competency-Based Pay? Three reasons are given: 1) in a high performance work system, you want employees to be enthusiastic about learning and moving among other jobs; 2) you can enhance your strategic plans by paying for skills that are critical for those plans; and 3) measurable skills, knowledge, and competencies are at the heart of performance management processes.
3. Competency-Based Pay in Practice – These contain four main components: 1) a system that defines skills and processes for tying those skills to pay; 2) a training system for acquiring skills; 3) a competency testing system; and 4) a work design that allows employees to move among jobs.
4. The Bottom Line on Competency-Based Pay – There are a variety of pros and cons that are discussed, as well as implementation pitfalls.
B. Broadbanding – This method involves collapsing salary grades and ranges into just a few wide levels or bands.
1. Pros and Cons – Broadbanding injects greater flexibility into employee assignments, and it allows an employee to move up or down along the pay scale without changing pay ranges. Broadbanding can, however, eliminate a sense of permanence in a set of job responsibilities. This is particularly difficult for new employees.
C. Talent Management and Actively Managing Compensation Allocations – Employers are increasingly segmenting their employees and actively assigning more resources to those they deem “mission-critical” in terms of the firm’s strategy.
D. Comparable Worth – The concept refers to the requirement to pay equal wages for jobs of comparable value to the employer rather than strictly equal value. The Gunther Supreme Court Case involved Washington County, Oregon, prison matrons who claimed sex discrimination. Washington County finally agreed to pay 35,000 employees in female-dominated jobs almost $500 million in pay raises over 7 years to settle the suit.
E. Diversity Counts: The Pay Gap – Although the gap is narrowing a bit, women still earn only about 77% as much as men. Education may reduce the wage gap.
F. Board Oversight of Executive Pay – Boards are clamping down on executive pay. Since 2005, the Financial Accounting Standards Board (FASB) has required that companies recognize as an expense the fair value of the stock options they grant. The Sarbanes-Oxley Act makes executives personally liable for lapses in corporate financial oversight.
G. Total Rewards, Recognition, and Employee Performance – total rewards encompass the traditional financial compensation components. However, they also include recognition programs and redesigned jobs (discussed in Chapter 4), telecommuting programs, health and well-being programs, and training and career development. Some employers distribute annual total rewards statements to employees to help them appreciate the full range of rewards that they are receiving.
Improving Performance Questions:
11-1: If Wegmans does so well with a high-pay policy, why don’t more employers do this as well?
11-2: Why do you think most employers opt for the home-based salary plan?
11-3: What type of job evaluation method would you use in a company with 15 employees? Why?
11-4: Review our discussion of competencies in Chapter 4; then write three competency statements for one job you believe they would have at a company such as JLG. A useful competency statement includes three elements: the name and a brief description of the competency, a description of the observable behaviors that represent proficiency in the competency, and proficiency levels.
Discussion Questions:
11-5: What is the difference between exempt and nonexempt jobs?
Under the Fair Labor Standards Act, certain categories of employees are exempt from the act or certain provisions of the act. Those categories of employees that are exempted from provisions of the act are called "exempt" while those covered by the act are called "non-exempt." Generally executives, administrative, managerial, and professional employees are exempt from minimum wage and overtime provisions.
11-6: Should the job evaluation depend on an appraisal of the jobholder’s performance? Why? Why not?
No. Job evaluation involves comparing jobs to one another based on their content. Individual performance is covered under performance evaluation and does not affect the content of the job.
11-7: What is the relationship between compensable factors and job specifications?
Compensable factors include skill, effort, responsibility, working conditions, problem solving, know-how, accountability, and the like. Many of these factors are obtainable from job specifications that are part of the job analysis.
11-8: Define and give an example of how to conduct a job evaluation.
Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to another. Job evaluation aims to determine a job’s relative worth. Job evaluation eventually results in a wage or salary structure or hierarchy (this shows the pay rate for various jobs or groups of jobs). The basic principle of job evaluation is this: Jobs that require greater qualifications, more responsibilities, and more complex job duties should receive more pay than jobs with lesser requirements.
11-9: The average pay for most university presidents is around $300,000 per year, but many earn much more. For example, the president of NYU received about $1 million in 1 year. Discuss why you would (or would not) pay university presidents as much or more than many corporate CEOs.
Student’s answers will vary but should use the information found in the text to explain and defend their answers.
11-10: Do small companies need to develop a pay plan? Why or why not?
Yes, small companies need to develop a pay plan. Students should use information learned in the chapter to justify their responses.
Individual and Group Activities:
11-11: Working individually or in groups, conduct salary surveys for the following positions: entry-level accountant and entry-level chemical engineer. What sources did you use, and what conclusions did you reach? If you were the HR manager for a local engineering firm, what would you recommend that you pay for each job?
Students should be expected to use several of the resources indicated in the chapter for gathering this information. Results should be checked for bias or contamination such as only surveying the largest firms in the area, or the unwillingness of some firms to provide this information. Student recommendations should be based on sound logic and conclusions from the data they collect.
11-12: Working individually or in groups, develop compensation policies for the teller position at a local bank. Assume that there are four tellers: two were hired in May and the other two were hired in December. The compensation policies should address the following: appraisals, raises, holidays, vacation pay, overtime pay, method of pay, garnishments, and time cards.
Student answers will vary but look for responses to incorporate material from the chapter.
11-13: Working individually or in groups, access relevant Web sites to determine what equitable pay ranges are for these jobs: chemical engineer, marketing manager, and HR manager, all with a bachelor’s degree and 5 years’ experience. Do so for the following cities: New York, New York; San Francisco, California; Houston, Texas; Denver, Colorado; Miami, Florida; Atlanta, Georgia; Chicago, Illinois; Birmingham, Alabama; Detroit, Michigan; and Washington, D.C. For each position in each city, what are the pay ranges and the average pay? Does geographical location impact the salaries of the different positions? If so, how?
The students should use resources and Internet sites discussed in the chapter to determine the pay ranges and average pay in each city.
11-14: Appendix A, PHR and SPHR Knowledge Base at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review Appendix A; (2) identify the material in this chapter that relates to the required knowledge Appendix A lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so that students in all teams can answer the exam questions created by the other teams.
Material from this chapter that relates to the test would include: determining pay rates, corporate policies and competitive strategy, equity and its impact on pay rates, the salary survey, job evaluation, pay grades, wage curves, fine-tuning pay rates, compensating managers, compensating professional employees, competency-based pay, strategic compensation, and comparable worth. Virtually everything in this chapter applies. Look for questions that have more than one plausible answer.
11-15: Working individually or in groups, use the point system described in steps 1 to 16 in this chapter. Do so for a job description that you find online—the list at http://hiring.monster.com/hr/hr-best-practices/recruiting-hiringadvice/ job-descriptions/sample-job-descriptions.aspx is useful. To simplify things, assume there is only one factor you have to use, and that it is Job Complexity, so that you can use Figure 11-5.
Student answers will vary.
Experiential Exercises: Ranking the College’s Administrators
Purpose: The purpose of this exercise is to give you experience in performing a job evaluation using the ranking method.
Required Understanding: You should be thoroughly familiar with the ranking method of job evaluation and obtain job descriptions for your college’s dean, department chairperson, director of admissions, library director, registrar, and your professor.
How to Set up the Exercise/Instructions: Divide the class into groups of four or five students. The groups will perform a job evaluation of the positions of dean, department chairperson, and professor using the ranking method.
Perform a job evaluation by ranking the jobs. You may use one or more compensable factors.
11-16: If time permits, a spokesperson from each group can put his or her group’s rankings on the board. Did the groups end up with about the same results? How did they differ? Why do you think they differed?
Video Case Appendix:
Video Title: Planning (TWZ Role-Play)
Synopsis:
This video details a team meeting at Eco Threads, a company that is facing a financial challenge of cutting $2 million out of their budget over 2 years. This meeting is between some of the management of the company and how they are approaching the budget-planning process and weighing the pros and cons of cutting jobs versus cutting hours worked. Susan and Dean share their ideas for trimming the budget with Mitch. Susan is for cutting jobs and potentially investigating outsourcing jobs to other countries. Dean would prefer not to cut jobs or outsource, but rather cut employees’ hours and institute job sharing. Mitch then explains the sensitive nature of budgetary planning and the conflicts that may arise during this process.
Discussion Questions:
11-17: Although cutting jobs, cutting hours, and/or outsourcing are traditional ways to deal with budgetary crises, they’re not the only ways. Some employers (and even many employees) prefer maintaining “full employment” and instead cutting pay rates to make up the financial shortfall. Would this be a sensible alternative for Eco Threads to consider? Why?
11-18: Suppose Eco Threads does decide to keep everyone fully employed and instead cuts pay rates to obtain the required budget savings. Based on what you learned here, specifically what concerns would you have about cutting pay rates? What steps would you suggest they take to make sure that the resulting post-cut pay rates are equitable?
Application Case: Salary Inequities at AstraZeneca
11-19: Although the case with OFCCP is closed, we wonder if there are any less discriminatory explanations possible for why our women sales reps on average earned less than men. If so, what are they?
Student’s answers will vary. Some responses may include: hours worked, sales closed, education or KSA’s.
11-20: Our own company now uses a point method to evaluate jobs for pay purposes, and each resulting job class also has a rate range associated with it. Sales associates are now paid a salary that is not based on incentive pay. List three specific things we can do to ensure that a similar problem (inequitable pay based on gender) does not arise again, assuming they continue using the point plan.
· Make sure that job analysis is completed and tasks that are not needed to do the job, are not listed as part of the job requirements.
· Make sure that bias is left out of the selection process.
· Provide training on diversity in the work place to recruiters, and selection or hiring managers.
11-21: What sort of compensation plan would you recommend for us, and why?
Student’s answers will vary depending on which type of compensation plan that they choose.
Continuing Case: Carter Cleaning Company – The New Pay Plan
11-22: Is the company at the point where it should be setting up a formal salary structure based on a complete job evaluation? Why?
Yes, the company should set up a formal salary structure complete with job evaluations. The students should reference points in the chapter to justify their responses
11-23: Is Jack Carter’s policy of paying 10% more than the prevailing rates a sound one, and how could that be determined?
The students should use their judgment based on information presented in the chapter in giving their responses.
11-24: Similarly, is Carter’s male–female differential wise? If not, why not?
The salesperson’s male-female differential is not wise. The students should reference the Equal Pay Act of 1963 when providing their rationale.
11-25: Specifically, what would you suggest Jennifer do now with respect to her company’s pay plan?
There are many things that students could reasonably suggest – among them: eliminate the gender pay differential, establish performance or competency-based pay, and establish a formal pay structure.
Hotel Paris: Improving Performance at the Hotel Paris: The New Compensation Plan
11-26: Lisa knew little about setting up a new compensation plan. What would you tell her if she asked, “How do I set up a new compensation plan for the Hotel Paris?”
Answers will vary widely. Look for examples with good tie-in between policies, behaviors, and proposed outcomes.
11-27: Would you suggest that Hotel Paris implement a competency based pay plan for its non-managerial staff? Why or why not? If so, outline what they need to do.
The current plan is not linked to Hotel Paris’ strategic goals, and the link between pay and performance is weak and sometimes counterproductive. Competency-based pay would enable management to reward employees for exhibiting the skills Hotel Paris values.
11-28: Devise a ranking job evaluation system for the Hotel Paris’s non-managerial employees (housekeepers, valets, front-desk clerks, phone operators, wait staff, groundskeepers, and security guards) and use it to show the worth of these jobs relative to one another.
Answers will, again, vary. It is important to discuss how frequently each job interacts with the customer, what competencies are needed in each position, how students believe these jobs are paid in the local market, and whether assumptions are appropriate in light of what Hotel Paris is trying to do strategically.
Key Terms:
Employee Compensation - All forms of pay or rewards going to employees and arising from their employment.
Direct Financial Payments - Pay in the form of wages, salaries, incentives, commissions, and bonuses.
Indirect Financial Payments - Pay in the form of financial benefits, such as insurance.
Davis-Bacon Act - A law passed in 1931 that sets wage rates for laborers employed by contractors working for the federal government.
Walsh-Healey Public Contract Act - A law enacted in 1936 that requires minimum wage and working conditions for employees working on any government contract amounting to more than $10,000.
Title VII of the 1964 Civil Rights Act - This act makes it unlawful for employers to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin.
Fair Labor Standards Act - Congress passed this act in 1938 to provide for minimum wages, maximum hours, overtime pay, and child labor protection. The law has been amended many times and covers most employees.
Equal Pay Act of 1963 - An amendment to the Fair Labor Standards Act designed to require equal pay for women doing the same work as men.
Employee Retirement Income Security Act (ERISA) - The law that provides government protection of pensions for all employees with company pension plans. It also regulates vesting rights (employees who leave before retirement may claim compensation from the pension plan).
Job Evaluation - A systematic comparison done in order to determine the worth of one job relative to another.
Compensable Factor - A fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.
Benchmark Job - A job that is used to anchor the employer's pay scale and around which other jobs are arranged in order of relative worth.
Ranking Method - The simplest method of job evaluation that involves ranking each job relative to all other jobs, usually based on overall difficulty.
Job Classification (or grading) Method - A method for categorizing jobs into groups.
Classes - Grouping jobs based on a set of rules for each group or class, such as amount of independent judgment, skill, physical effort, and so forth, required for each class of jobs. Classes usually contain similar jobs.
Grades - A job classification system like the class system, although grades often contain dissimilar jobs, such as secretaries, mechanics, and firefighters. Grade descriptions are written based on compensable factors listed in classification systems.
Grade Definition - Written descriptions of the level of, say, responsibility and knowledge required by jobs in each grade. Similar jobs can then be combined into grades or classes.
Point Method - The job evaluation method in which a number of compensable factors are identified and then the degree to which each of these factors is present on the job is determined.
Market Competitive Pay System - A pay system in which the employer’s actual pay rates are competitive with those in the relevant labor market.
Wage Curve - Shows the relationship between the value of the job and the average wage paid for this job.
Salary Survey - A survey aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for specific jobs. Formal written questionnaire surveys are the most comprehensive, but telephone surveys and newspaper ads are also sources of information.
Pay (or wage) Grade - A pay grade is comprised of jobs of approximately equal difficulty.
Pay (or rate) Range - A series of steps or levels within a pay grade, usually based upon years of service.
Compa-Ratio - Equals an employee’s pay rate divided by the pay range midpoint for his or her pay grade.
Competency-Based Pay - Where the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds-
Broadbanding - Consolidating salary grades and ranges into just a few levels or “bands,” each of which contains a relatively wide range of jobs and salary levels.
Comparable Worth - The concept, by which women who are usually paid less than men, can claim that men in comparable rather than strictly equal jobs are paid more.
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