Establishing Pay rates

The process of establishing pay rates while ensuring external, internal and (to some extent) procedural equity consist of five steps:

1) Conduct a salary survey of what other employer are paying for comparable jobs (to help ensure external equity).
2) Determine the worth of each job in your organizations through job evaluation (to ensure internal equity).
3) Group similar jobs into pay grades.
4) Price each pay grade by using wave curves.
5) Fine tune pay rates

Salary Survey

A survey aimed to determining prevailing wage rates. A good salary survey provides specific wages rates for specific jobs. Formal written questionnaire surveys are the most comprehensive but telephone surveys and newspaper ads are also sources of information.

It’s difficult to set pay rates if you don’t know what others are paying so salary surveys – surveys of what others are paying – play a big role in pricing jobs. Virtually every employer conducts at least informal telephone, newspaper, or internet salary survey.

Benchmark job

A job that is used to anchor the employer’s pay scale and around which other jobs are arranged in order of relative worth.

Employers use these surveys in three ways. First, they use survey data to price benchmark jobs. Benchmark jobs are the anchor jobs around which they slot their other job, based on each job’s relative worth to the firm. (Job evaluation, explained next, helps determine the relative worth of each job). Second, employers typically price 20% or more of their positions directly in the marketplace (rather than relative to the firm’s benchmark jobs), based on a formal or informal survey of what comparable firms are paying for comparable jobs. (Google might do this for jobs like Web programmer whose salaries fluctuate widely and often). Third, surveys also collect data on benefits like insurance, sick leave, and vacations to provide a basis for decisions regarding employee benefits.

Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues, such as when a bank wants to confirm the salary at which to advertise a newly open teller’s job, or if some banks are really paying tellers an incentive. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Most of these ask about things like number of employee, overtime policies starting salaries and paid vacations.

Commercial, Professional, and Government Salary surveys

Many employers use surveys published by consulting firms, professional associations, or government agencies. For example, the US Department of Labor’s Bureau of Labor Statistics (BLS) conducts three annual surveys: (1) area wage surveys; (2) industry wage surveys; and (3) professional administrative, technical and clerical (PATC) surveys.

Private consulting and /or executive recruiting companies like Hay associates, Heidrick and Struggles, and Hewitt Associates publish data covering compensation for top and middle management and members of board of directors. Professional organizations like the Society for Human Resource Management and the financial executives Institute publish surveys of compensation practices among members of their associations.

Watson Wyatt Data services of Rochelle Park, New Jersey, publish several compensation surveys. Its top management compensation surveys cover dozens of top positions, including chief executive officer, top real estate executive to top financial executive top sales executive and top claims executive, all categorized by function and industry. Watson Wyatt also offers middle management compensation surveys, supervisory management compensations surveys sales and marketing personnel surveys, professional and scientific personnel surveys, and survey of technician trades, skilled trades and office personnel, among others. The surveys generally cost about $700 each, but can help employers avoid the dual hazards of (1) paying too much or (2) suffering turnover due to uncompetitive pay.

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