DEVELOPING A PAY

STRUCTURE
Rules of development of a pay structure :

a. Jobs of the same general value should be

clustered into the same pay grade
b. Jobs that clearly differ in value should be in
different pay grades
c. There should be a smooth progression of
point groupings
d. The new system should fit realistically into the
existing allocation of pay within a company
e. The pay grades should conform reasonably
well to pay patterns in the relevant labor
markets.
ALTERNATIVES TO PAY SYSTEMS BASED ON JOB
EVALUATION
• Market Based Pay
• uses direct market pricing approach for all of a firm’s job
• Competency-Based Pay
• workers are paid based on their skill or depth of knowledges
POLICY ISSUES IN PAY PLANNING AND
ADMINISTRATION

Pay Secrecy Inflation

Pay Secrecy
• Sulit untuk dipertahankan karena keterbukaan informasi
• Terdapat perdebatan mana yang lebih baik antara kerahasiaan
nominal gaji v keterbukaan nominal gaji. Sistem mana yang lebih baik
bergantung pada jenis perusahaan
Pay Compression and Pay Raises as Effect of
Inflation
• Pay compression : difference in pay between newly hired or less qualified
employees and more experienced ones is small
• Forms of pay compression : hourly pay increases for unionized employees
that exceed those of salaried and nonunion employees, recruitment of new
college graduates salaried above current jobholders, excessive overtime
payments to some employees
• Failure of company to address this issue could led long serving employees
to rethink their commitment
• Solution : pay compression set to maximum rates of pay that are close to
the maximum paid by other companies for similar jobs, grant sign-on
bonuses, provide benefits that increase gradually to more senior
employees.
Pay Compression and Pay Raises as Effect of
Inflation
• most effective way to deal with inflation in terms of pay raises is
merit pay system
Employee Percent Increase
Performance
Distinguished 12% 10% 9% 8% 7%

Commendable 9% 8% 7% 6% Ceiling

Competent 7% 6% 5% Ceiling

Adequate 4% 0 Ceiling

Provisional 0 Ceiling

Salary : 80% -> 88% -> 96% -> 104% -> 112% -> 120%
Performance Incentive & Requirements of
Effective Incentive Systems
• To this day, incentives comprises 12 % of payroll
• Financial incentives are not related to performance quality, but to
quantity
• Incentives : one time supplements to base pay
• Requirements of effective incentive systems