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Who Gets Paid What? – Getting The Internal Relativities Right

Setting up a workable salary system requires a logical approach and the first step is one of the most important.

Establishing which jobs are where in the “pecking order” is one of the fundamentals in building an effective salary system. While this is not an exact science, having some form of evaluation in place to achieve it can remove a number of potential problems and avoid time consuming and costly decisions made “on the run” in the future.

Defining the job
To assess the value of a job to the organization relative to others we firstly have to define it and document it. A good job description should be succinct, define key results areas and measures of success.

Job Evaluation
There are several systems available for evaluating jobs and selecting the right system will depend on the size of your organization and the amount of resources available for support and maintenance.

For smaller organizations it is important to keep the system simple to avoid launching into a program that will not be maintained and, consequently, the initial investment in time and effort wasted.

The overall objective of a job evaluation system is to measure the relative worth of each job to the organization. The more complex systems will do this by looking at various factors within the job and allocating points to each factor. The total points will then establish the “worth” of the job.

A simpler system will look at the whole job, take into account similar factors and the rank the job against the others. The end result is a list of jobs from the highest value to the lowest. Some will have broadly equal values to each other.

It is important to note here that we are talking about worth of the job to the organization not the worth of the person – we can, and should, assess that separately.

The factors
While each system will vary, the factors will normally cover such areas as:
The level of knowledge and experience required to do the job
The impact of any decision making made by the job
The level and complexity of problem solving required
The amount of control over resources
Overall accountability

When a job is evaluated, it is important to ignore the person that may currently be in the job. Any perceived salary that may go with the job must also be ignored.

When each job is compared to other there will be a list of jobs from the biggest, or of most value to the organization to the smallest. In between there will be jobs where little differentiation can be made. Now the whole list can be divided into bands or grades that each contains jobs of similar value. This aids the administration of the system and is also recognition that job evaluation is not an exact science.

There may end up being between 4 and 15 grades. Small and medium size businesses may only have 4 to 8. The criteria for separating these grades should be that there is a perceived step or promotional level between them. Small differences between grades will only lead to added administration and very little financial differentiation.

The business benefits
By using system such as this it will reduce much of time taken on reactive and ad hoc decision making often made by managers and also convey to employees that there is a professional and systematic way of determining their remuneration. This will allow them to concentrate on the things that matter and increasing their rewards by increasing the “worth” of their job and their level of performance in it.

Paul Phillips is a Director of Horizon Management Group; a specialist human resource management consulting firm. He has over 30 years experience in HR and, while based in Australia, has worked in a number of overseas locations.