The Process of establishing pay structure consists of five steps and it will also take care of

external, internal and procedural equity.

Conduct a salary survey of what other employers are paying for comparable jobs (to ensure
external equity)

It is difficult to set pay rates if you dont know what others are paying, so salary surveys
surveys of what others are paying play a big role in designing pay structure

Salary survey aimed at determining prevailing specific salary rates for specific job.

Employer can use salary survey data to price or rate benchmark jobs. Benchmark jobs are the
anchor jobs around which they slot their other jobs, based on each jobs relative worth to the
organization.

Depends on clients need we can do surveys through;

Informal way i.e. by using internet salary survey, on telephone or through newspaper etc.

Formal way i.e. by appointing representative or external agencies like hay group, Aon Hewitt
etc. to do the survey of what other employers are paying.

Determine the worth of each job in your organization through job evaluations (to ensure
internal equity)

Job Evaluations

Job Evaluations is aimed at determining a jobs relative worth. It is a formal and systematic
comparison of jobs to determine the worth of one job relative to another, and eventually result
in a wage or salary structure or hierarchy.

The basic principal of job evaluation is: Jobs that require greater qualifications, more
responsibilities, and more complex job duties should be paid more highly than jobs with lesser
requirements.

Defining Compensable Factors According to Clients Requirements

Compensable factors are the factors that establish how the jobs compare to one another, and
that determine the pay for each job

A fundamental compensable elements of a job are skill, efforts, responsibility, and working
conditions.

Compensable factors may differ from client to client as their requirement are differ from each
other. We can help our client to define their compensable factors according to their
requirements like Wal-Mart bases its salary structure on knowledge, problem solving skills, and
accountability requirements.

Methods for Job Evaluations

Job ranking method - The job ranking method places all the jobs in order, ranging from
highest to lowest using a constant factor such as education specification or the overall value to
the organization.

Job classification method - In this approach, various jobs are classified into different groups
and each group has relative ranks assigned to the jobs. An instance of the classification method
could be the grading structure that clubs similar ranked jobs in one grade.
 Point factor method

This method actually breaks jobs down into compensable factors and places weights, or
points, on them.

A set of compensable factors are identified as determining the worth of jobs. Typically the
compensable factors include the major categories of:

Skill

Responsibilities

Effort

Working Conditions

These factors can then be further defined.

Skill

Experience

Education

Ability
 Responsibilities

Fiscal

Supervisory

Effort

Mental

Physical

Working Conditions

Location

Hazards

Extremes in Environment

Each factor is then divided into levels or degrees which are then assigned points. Each job is
rated using the job evaluation instrument. The points for each factor are summed to form a total
point score for the job.

Factor comparison method

 The factor comparison method is a quantitative job evaluation method and represents a
combination of the ranking and point methods.

The first step in this process involves identifying benchmark jobs (i.e., jobs that can be found
in many organizations and are normally performed by several individuals who have similar duties
within the organization: secretary, stock clerk, security guard, accountant, sales representative,
supervisor and manager).

The second step involves the selection of compensable factors and the ranking of all
benchmark jobs after factor analysis is completed.

Third, a comparison of jobs to market rates for benchmarking purposes takes place which
results in the assignment of monetary values for each compensable factor.

Finally, all jobs in the organization are evaluated by comparing them with their respective
benchmark jobs.

Create pay grades by grouping similar jobs to particular pay grade

A pay grade is comprised of the jobs of approximately equal importance, for example;

If you used point factor method, then the pay grade consists of jobs falling within a range of
equal points.

With job ranking method, the pay grade consists of all the jobs that fall within two or three
ranks.

The classification method automatically categorized jobs into classes or grades

 With the factor comparison method, the pay grade consists of a specified range of pay rates

Assign pay rate or price to each pay grade

Now we assign pay rates or prices to your pay grades (Of course, if you have choose not to
slot jobs into pay grades, you would have to assign individual pay rates to each individual job)

We use Salary or wage curve method to help assign pay rates to each pay grade (or each job).
Salary or Wage curve shows the pay rates currently paid for jobs in each pay grade, relative to
the points or rankings assigned to each job or grade by the job evaluation.

The purpose of the wage curve is to show the relationships between;

The value of the job as determined by one of the job evaluation methods and

The current average pay rates for your pay grades (or each job)

Steps to assign pay rates to pay grades (or each job)

First, find the average pay for each pay grade, since each of the pay grades consists of several
jobs.

Next, plot the average pay rates for each pay grade.

Then, fit a line, called salary or wage line, through the points just plotted.
 Finally, price or rate the jobs. For this salary along with salary or wage line are the target
wages or salary rates for the jobs in each pay grade

Create pay structure through generating pay ranges

Pay ranges are series of steps or levels within a pay grade, usually based upon years of service.

The salary or wage line or curve usually anchors the pay rate for each pay range. The
organization might then arbitrarily decide on a maximum and minimum rate for each grade, such
as 15% above or below the wage line.

Most employers do not pay just one rate for all jobs in a particular pay grade. For Example
Sofitel wont want to pay all its accounting clerks, from beginners to long tenure, at the same
rate. Instead, employers develop vertical pay (or rate) ranges for each of the horizontal pay
grades (or classes).

These pay ranges often appear as vertical boxes within each grade, showing minimum,
maximum, and midpoint (average) pay rates for that particular pay grade.