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DEVELOPING A BASE PAY SYSTEM

Selecting the right compensation for the right job

BY SAMIR YOUNIS
Partner,
Top Business

Compensation and benefits are the main motivators to attracting talented and skilled employees from the market. But how can we ensure that the compensation system is in line with what the organization is trying to accomplish? In other words, are we paying the jobs according to their relative worth within the organization? The answer lies in developing a base pay system, or more specifically, job evaluation.

Job evaluation is a systematic determination of the relative worth of jobs within an organization. It establishes the relative worth of each job by establishing a hierarchy of jobs within the organization. Job evaluation is an output of job analysis, which focuses on job descriptions, specifications and profiles.

Job evaluation methods can either be quantitative or non-quantitative. Quantitative methods establish how much more one job is worth compared to another by using a scaling system. Non-quantitative methods try to establish a relative order of jobs.

Non-quantitative methods
These are often referred to as whole-job methods as they evaluate the entire job and place different jobs in order without a numeric value being assigned to each. As a result, one can tell that Job A is more important than Job B, but not how much more important.

Job ranking:
Establishes a hierarchy of jobs from lowest to highest based on each job’s importance to the organization. Job ranking evaluates the job as a whole and compares one job to another.

Job classification:
Involves grouping jobs into a predetermined number of classifications, each having a class description to use for job comparisons. Classes may be described by naming benchmark jobs that fall into each class and are defined as reference points. Benchmark jobs represent the entire range of jobs to be evaluated. Their contents are well known and a sizable portion of the work force is employed in these jobs. This is a good method to group a large number of jobs together and is easily understandable to employers.

Quantitative methods:
These evaluate specific factors, use a scale and provide a score that indicates the value of one job compared to another.

Factor comparison method:
This involves the ranking of each job by each selected compensable factor and then identifying a monetary value for each level of each factor to develop a pay rate for an evaluated job. Figure 2 shows how the compensable factors are related to monetary values to determine an hourly rate for jobs A and B.

Job evaluation is complemented through market-based evaluation, i.e. evaluating jobs on the basis of their market value. The evaluation is done through either in-house or third party market surveys, which collect information on prevailing market rates that can be used to develop a job-worth hierarchy or a salary scale. This in turn can be used to develop a salary structure based on the job worth of each position and its relative importance to the organization.

Point-factor method:
This is the most commonly used method. It uses specific “compensable factors” to evaluate the relative worth of a job. Compensable factors reflect the dimensions along which jobs add value to the organization. The most commonly used methods are the “Guide Chart-Profile” or “Hay Plan.”
Compensable factors that are usually used are skill, responsibility, effort, working conditions and supervision of others. Each factor has different degrees of mastery which are reflected by points once an analysis has been completed for all factors. The result is a table similar to figure 3 that gives the complete range of points related to all factors. By circling the points of each factor and adding them up you get the relative worth of a job that can be compared to the other jobs in its range.

The importance of a good compensation system cannot be understated. As all HR activities are inter-related and complement each other, a good compensation system will allow the organization to recruit, select and retain the best available candidates, motivate them to achieve organizational objectives and continually develop them through the performance management process.

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