Who Gets Paid What?

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 organisation relative to others we firstly have to define it and document it. Writing a job description is covered in the article, "Do They Know What You Want - Job Descriptions & How To Make Them Work".

Job evaluation

There are several systems available for evaluating jobs and selecting the right system will depend on the size of your organisation and the amount of resources available for support and maintenance. For smaller organisations 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 organisation. 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 then 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 organisation 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 others there will be a list of jobs from the biggest, or of most value to the organisation 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 contain 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.

Salary System - Principles

Designing a salary system based on sound theory will remove many problems that occur when salaries are determined on a reactive basis. An effective salary system should be based on the following principles.

1. Based on correct internal relativities
   
   This will ensure the potential rewards correlate with the value of the position to the organisation. In short, this is getting the “pecking order” right. Most salary issues are internal and result from inadequate attention being paid to this factor. Job evaluation systems can resolve this if applied correctly and there are a range of methods available from the highly sophisticated to simple and practical. The key issue here is to compare jobs, not the people in the jobs - that is taken into account when looking at individual employee performance.
2. Based on correct external relativities
   
   This will ensure that the salaries are competitive with the market in which you are competing for people. This doesn’t mean you have to pay the highest. It just means knowing what the market rates are so you can pitch your salaries at the most appropriate level. Employees who have confidence this is taken into account systematically, are less likely to spend time making inappropriate comparisons themselves.
3. Performance based
   
   A salary system should result in salaries for individuals that relate to their performance, so ensuring that rewards are fair and will be perceived as motivating. Problems typically occur if the increases given are similar for both high performers and low performers. Organisations must also take into account their own performance and their ability to pay salaries at a particular level. Links with any performance based incentive plans must also be considered.
4. Fair and equitable
   
   The salary system should been seen by employees as being based on sound principles and being applied fairly and consistently. Although they may not be totally happy with the level of salary paid, they should believe that it is fair within the context in which they work and can discuss it with their manager.
5. Easy to administer
   
   The salary system should be logical and easy to administer – and this includes any employee benefits which may be incorporated as part of the system. It should be understood by all employees and be able to be implemented by line managers in a consistent way without it being complex or onerous and should include a regular review date. How the system is communicated and managed can have a significant impact on its success.

The business benefits

By using a system such as this it will reduce much of the 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.