BUSM049: International Reward Management

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

4. Features

Aim for ‘objective’ judgements, as far as this is possible

Evaluate the role or job, not person and performance

Internal relativities, not the market

5. Examples

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)

Variable pay

Total earnings per annum

Employee benefits

Other allowances (car mileage, location)

Total remuneration: cash & benefits

Pay scales for specific jobs

Pay increases

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

Job advertisements

Management consultants (Hay, Towers Perrin)

CIPD surveys

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?