Wage and Salary Management Chapter Fourteen Wage and Salary Management

Learning Objectives Identify the goals of an equitable wage and salary program Outline three methods of job evaluation Describe how wage and salary surveys are used to make pay decisions Describe a procedure for developing a pay structure using a graph Describe the features of a merit-pay plan

The Wage and Salary Program Definition of Terms Wage: (or hourly pay) refers to an hourly rate of pay and is the pay basis used most frequently for production and maintenance employees. Salary: refers to a weekly, monthly, or yearly rate of pay and is the pay basis commonly used for clerical, professional, sales, and managerial employees.

The Wage and Salary Program (cont’d) Goals To meet needs of employees To motivate workers To be cost effective To be competitive To comply with labor contract and laws To be fair

The Wage and Salary Program (cont’d) Important Considerations Worth of the Job Prevailing Wages and Salaries Collective Bargaining Economic Realities Perceptions of Equity

Figure 14.1 Relationship of job analysis, job descriptions and job evaluation

Job Evaluation It is the systematic determination of the relative value of jobs, or job worth, in a particular organization.

Job Evaluation Methods Problems The Point-Factor Method The Classification Method The Ranking Method Problems Inaccurate Job Descriptions Union Reactions Supervisory and Employee Participation and Acceptance

The Point-Factor Method It is the most widely used job evaluation procedure. a. Scales measure the degree to which several given job factors are present in a particular job. b. The points chosen for each scale are added to provide a point total designating the job’s relative worth.

The Classification Method It is based on one‑paragraph descriptions of a predetermined number of “classes” of jobs, each of which corresponds to a pay grade or range. a. This method requires a decision at the outset on the number of pay grades to be included in the wage and salary program. b. Most public employees fall under the classification method. c. Actual amounts to be assigned to pay grades may be determined after job evaluation is completed.

The Ranking method Raters simply use their judgment to rank various jobs in order of relative worth. a. The chief disadvantage of this method is that there are no agreed-upon guides as to which job factors are considered valuable. b. This method differs from others in that job factors cannot be discussed and modified as part of the job evaluation process.

Wage and Salary Surveys -To be competitive in its compensation, an organization typically relies on data from wage and salary surveys, which collect information on pay in other organizations. - Most firms either conduct their own surveys or participate in those conducted by consulting firms or professional associations.

Determining Pay Rates Once the relative worth of jobs has been established by job evaluation, the actual rates to be paid for particular jobs are determined, often through the use of a two-dimensional graph.

Key Jobs Job evaluation points for key jobs (jobs found in many organizations and having fairly stable content) are plotted against actual or desired pay rates. 2. A line drawn through the plotted key jobs suggests the approximate contour the other jobs should follow. 3. Plotting the remaining jobs reveals which jobs seem to be improperly paid with respect to the key jobs and to each other. a. Jobs above the line that are considered to be excessively overpaid are called red‑circle jobs, whereas those below the line and underpaid are called green-circle jobs.

Job evaluation points plotted against pay, showing “overpaid” and “underpaid” jobs

Rate ranges They are defined in terms of a minimum, average (midpoint), and maximum amount, are commonly used for salaried employees, allowing them to receive pay increases for the same job on the basis of merit, seniority, or both.

Adjusting the Pay Structure Environmental pressures and economic conditions are likely to lead to adjustments in the pay structure: pay reductions, or wage cuts, are sometimes necessary because of governmental deregulation and a general economic downturn in many industries. Competition and inflation may necessitate an upward adjustment in all wages and salaries.

Rules of Administration Merit-Pay Plans Skill-Based Pay Controlling Wage and Salary Expenditures Pay Increases Plans The Pay-for-Performance Concept

Figure 14.6 Variables likely to affect pay increase decisions

Government Regulation Has impact on basic wage payments Minimum-wage laws Overtime regulations Equal Employments Laws

Current Issues Performance Evaluation Comparable Worth Benefits Politics Contingent Work

Role of Human Resources Department Develops job evaluation system Coordinates and manages system Conducts surveys of wages and salaries Participates in surveys used to revise pay structure Monitors compliance with pay structure

Key Terms Wage or hourly pay Salary Nonexempt employee Exempt employee Salary compression Job evaluation Job factors Job worth Point-factor method Classification method Pay grade Ranking method Wage and salary survey Peer group survey Key job Red-circle job Green-circle job Rate ranges Merit-pay plan Skill-based pay Pay for performance Compa ratio Comparable worth Pay equity Pay dispersion