1. Wage and Salary Management
Chapter Fourteen
Wage and Salary Management

2. 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

3. 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.

4. 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

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

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

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

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

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

16. 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.

17. 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.

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

19. Figure 14.6 Variables likely to affect pay increase decisions

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

21. Current Issues Performance Evaluation Comparable Worth
Benefits Politics
Contingent Work

22. 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

23. 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