Lecture 4: Payment Structures
Dr. Maria Koumenta
1. From previous weeks
Key factors in pay determination
Performance: does pay relate to the performance of the individual?
Job: does it relate to the job and the time worked?
Person: does it relate to the qualifications, experience, tacit skills of the employee?
2. Other key considerations
Internal Compatibility: equity, fairness, a process that requires comparisons
How? Job evaluation, grading or internal pay structures
(b) External Compatibility: But actual pay setting usually done with reference to the external market (external compatibility/benchmarking)
Key HR challenge: manage tensions between concerns for internal equity & external compatibility (White 2009)
3. Internal Compatibility
Job evaluation: A systematic process for establishing the relative worth of jobs within an organisation (Armstrong 2002)
Provide info to design & maintain grade and pay structures
Provide basis for grading jobs
Ensure that ethical and legal requirements are met
Aim for ‘objective’ judgements, as far as this is possible
Evaluate the role or job, not person and performance
Internal relativities, not the market
Job ranking: compare jobs to produce a rank order or hierarchy
– Relative value of jobs depends on whether certain elements are present in a job.
e.g. mental requirements, skill requirements, physical requirements, responsibilities, working conditions
– Entire jobs are compared to other jobs or against some form of scale.
e.g. Comparing jobs e.g. responsibility, ranking (compare a secretary to a receptionist)
6. Problems with Job evaluation
Change and developments within the organisation means that JE systems are difficult to maintain: needs to be a continuous process
Certain competences are so broad that they are relevant to all roles so can become meaningless
A lot of subjectivity and biases (different results depending in the organisation)
7. Job evaluation in practice
Factors used in Job Evaluation Schemes
Inputs: what are the contributions that jobholders are required to make?
Processes: how are jobs done?
Accountabilities: for whom is the job holder responsible?
Impact: what is the job’s overall influence on the organisation’s activities?
8. Common Factors used in JE
Knowledge, skills, expertise and experience
Decision-making, problem solving and complexity
Impact and accountability
People management, leadership and teamworking
Examples: see handouts
9. External compatibility
Jobs have to demonstrable inherent value so external comparisons inevitable
Enables candidates to compare employers
Supply and demand
What competitors do
11. Pay & benefit surveys: objectives
Maintain competitive pay & benefit position in the market
Determine levels of pay for individual jobs and pay scales for grades
Provide guidance on internal differentials by looking at differentials in the external labour market
Provide info for pay adjustment
12. Types of Data available
Basic pay (excludes bonuses etc)
Total earnings per annum
Other allowances (car mileage, location)
Total remuneration: cash & benefits
Pay scales for specific jobs
Levels: immediate local labour market, regional labour market, national and international labour market
13. Sources of Data
Incomes Data Services and IRS Employment Review
Labour Force Survey and Annual Survey of Hours and Earnings
Management consultants (Hay, Towers Perrin)
14. The concept of a ‘market rate’
Myth: can be accurately and scientifically determined
Individuals have their own rate, depending on their skills, ability, performance
Certain firms need to pay more for same jobs (competition in the market, size)
Surveys provide info on market rates but there are time-lags
Accuracy of market rate depending on effective ‘job-matching’ amongst companies
Question: do employees compare their pay to that of others within the organisation or similar others in the occupation/labour market?