Steps in Setting Pay / Compensation
Organizations establish pay rates taking into account all above-mentioned issues and follow five steps :
1) Conduct a pay survey of what other employees are paying for comparable jobs (to help ensure external equity).
2) Determine the worth of each job in own organization through job evaluation (to ensure internal equity).
3) Group similar jobs into pay grades.
4) Price each pay grade by using wage curve / Set Pay structure
5) Fine-tune pay rates.
1. Conduct Pay Survey
Pay survey in order to collect valid and reliable data about compensation paid to employees by employers in a geographical area, an industry, or an occupational group to gauge the exact market rates for various positions. Price each job to determine the rate of pay based on internal and external equity.
2. Determine the worth of each job in own organization through job evaluation (to ensure internal equity).
The most critical stage of pay determination is job evaluation that is determining relative worth of jobs in the organization to ensure internal equity among jobs of an organisation.
3. Group similar jobs into pay grades.
Pay structure decision that ensures a systematic comparison of the worth of one job with that of another using job evaluation eventually results in the creation of a wage or salary hierarchy unique to the organization. A pay grade /class is a grouping of a variety of jobs that are similar in terms of difficulty and responsibility.
4. Price each pay grade by using wage curve / Set Pay structure
A pay grade is developed by assigning similar jobs in terms of their ranking or number of points. Then assign pay rates to each of pay grades to develop a wage line to identify the target wages or salary rates for the jobs in each pay grade. Although, it is possible for a pay class to have a single pay rate, the more likely condition is a pay range (Ivancevich, 2001: 309) as stated below:
Pay Range ( $ Monthly)
Grade 1 Tk. 37,801———–$59,500
Grade 2 Tk. 25901————$37,800
Grade 3 Tk. 17,801 ———-$25,900
Grade 4 Tk. 13,500 ———$ 17,800
Various pay rates may be fixed within each pay grade too. Wage structure in another way to depict the pay ranges for each grade (Dessler 2002: 485). Such pay /wage structure would look like: Tk. 13,500 – Tk. 500 —Tk. 17,800. Here, Tk. 500 is yearly increment. Individual pay decision that encompasses issues relating to recognition of individual differences and separations to be incorporated into individual pay rate.
5. Fine-tune pay rates.
Fine tuning is the mechanism to adjust the pay structure with make it well accepted, rational and logical under any unique situation. This adjustment is made to eliminate unwanted distortions and to maintain adequate pay differentials between jobs at different levels in the organizational hierarchy.
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