Having a workable salary system is important and there are many aspects
to designing and implementing it effectively. After the fundamentals
have been covered, defining jobs, evaluating them in terms of value to
the organization and building a structure, it is time to determine the
levels of payment for each position.
As a result of the job evaluation stage we have grades or groups of
jobs we decided were of similar value to the organization. It is now
necessary to look at the market and establish what financial value this
might be.
Sources of salary data
There are a number of ways of obtaining salary data but it is important
to make sure you are matching with similar jobs and with similar sized
organizations. The samples also have to be of a reasonable size to
ensure the validity of the data.
Purchasing a survey
There are several surveys available from consulting organizations that
can be purchased. If you also contribute to them it often reduces the
costs. Checking the size of the survey, the types of jobs matched and
the type of contributors is important.
Employer or professional organizations
Surveys are often conducted among members by these organizations and
these can be particularly good for industry specific or specialist
positions.
Commissioning a survey
You can always conduct your own survey or have a third party do it for
you. A third party often gets a better response from those invited to
take part as they may provide a level of confidentiality for
contributors. Involving local businesses or other organizations in your
industry can be very useful, mutually beneficial and can be done every
year or two to ensure your rewards are not out of line with the
competition.
Informal networks
These can be very useful but you must be careful to ask the right
questions. Is the job really similar or is it just the job title? Is
the amount base pay or total package? Are there other benefits or
incentives paid? These are often suitable for wages or hourly paid jobs
but with more complex packages, care needs to taken.
Job advertisements
Looking at job advertisements may be helpful but can often be
misleading. Again, for wages level jobs this may be adequate but for
higher levels of pay, packages advertised may not be the ones that are
finally paid.
Also, one needs to know what is included in the package and how it was
costed. A $200K package may be $80,000 base plus car plus
superannuation plus incentive. The car may be costed in a number of
ways, the super may have restrictions on it and the incentive may be
very difficult to earn!
Keep in mind that job advertisements are for people changing jobs. The
salaries shown are not necessarily that of the general market - people
who are remaining in their jobs.
Using the data
Salary strategy
Before starting work on the salary structure an idea of the strategy
you are going to use is important. This will depend on a number of
factors:
What type of business are you in?
How difficult it is to attract good people?
Do you need the best people?
How attractive is your business to potential employees?
How much can you afford?
At what stage of the business cycle is your organization at e.g. growth, mature, decline
Most organizations aim to be in the middle of the market, that is, the50th percentile where half the market would pay higher and half lower.
However there are many variations on this which may include some job
grades in different parts of the market or using some variable pay in
addition to the fixed rate.
The calculations
Once job matches have been made and the data obtained it is necessary
to group and analyse the data for the jobs in each grade, looking at
how each grade relates to the others and calculating a salary range for
each grade. These ranges will allow individuals within each grade to be
rewarded competitively and in line with their performance.
Implementation
Once this structure has been developed we have our internal
relativities and market established and now need to turn to the actual
salaries being paid to existing people within the organization.
By plotting their actual salaries against our ideal structure we can
see who falls within the ranges and who falls outside. Decisions then
need to be made as to what steps to take.
They are either going to be within the range, over it, ie overpaid, or
under it, ie underpaid. If there is a good reason for them being over
or under that's fine. If not, then some action needs to be taken. Those
over the range can be slowly brought back into line by holding their
salary at the same level over a period as the ranges are reviewed each
year.
Those underpaid can be put on a program of accelerated increases linked
to performance objectives. The possible scenarios are endless, so some
creativity and fairness needs to be applied but being clear on your end
objectives is absolutely necessary.
Sharing with staff your objectives for the overall salary system is an
important step in setting expectations and managing the process in a
positive way.
The business benefits
By having this systematic link to the market there will be no need to
make ad hoc and reactive decisions on salaries when recruiting or when
individual employees raise pay issues. You will be able to refer to a
salary range that you know is competitive, internally equitable and is
applicable in a consistent way across your organization.
Source: About the Author -Paul Phillips is a Director of Horizon
Management Group; a consulting firm which assists businesses manage
their people more effectively. He has over 30 years experience in human
resources and, while based in Australia, has worked in a number of
overseas locations. http://www.horizonmg.com