Compensation Management

Module 2
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 Pay Structure
Pay Structure is refers to an array of pay rates for
different works or skills within a single organisation

Pay structure provides a framework for managing pay.

It provides a structure within which the organisation’s

pay policy can be implemented.

A pay structure is a medium through which the

organisation conveys the career & pay opportunities
available to the employees.
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 Pay Structure
Pay structures may be designed to achieve several
important objectives:
to align reward strategy with the business strategy of
the organisation, such as the encouragement of high
performance levels
to bring order and clarity to an organisation and its
employees in managing pay increases and career
progression
to help ensure fairness and lawfulness, for example by
adopting an approach that avoids gender
discrimination in pay.
 Pay Structure
Types of Pay structures

1) Narrow banded Structure:-

This structure consists of a sequence of job grades into
which jobs of broadly equivalent value are placed. A
pay range is attached to each grade.
There may be some 8 or more grades in the structure.
Pay ranges provide scope for pay progression, related to
performance, competence & contribution

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Pay Structure
Advantages
Ensures equal jobs are paid equally
Allows for better control over pay fixation & pay
progression
Easy to comprehend
Disadvantages
Sometimes too rigid to function

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 Pay Structure
Broadbanded Pay Structures

Broadbanding means that the number of grades is

compressed into a relatively small number of much
wider bands in which pay is managed more flexibly
than in conventional structure & increased attention
is paid to market relativities

The range of pay in each band is wider.

Only 4 – 6 bands in the structure
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 Pay Structure
Jobs may be placed in the bands purely by reference to
market rates or by a combination of job evaluation &
market rate analysis.

Reference point refers to the normal rate for a job and

are aligned to market rates.
Advantages

1.Flexible : This refers to the scope given to adapt rates

of pay more readily to market rate changes
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 Pay Structure
2. Lateral development is rewarded as no restriction of
narrow grades.
3.More jobs in same bands. Hence cost of
implementation is also less
Disadvantages
1. Reliance on market rates can produce inequalities in
the labour market
2.Can create unrealistic employee expectations for pay
rises

3. Difficult to understand & explain to employees 8

 Pay Structure
3. Career family structures

This consists of jobs that are linked with each other in terms of
functions they perform such as marketing, Administration,
Support services etc.
These are related through the activities that are carried out & the
basic knowledge , skill required and the extent of responsibility.
Here only at each level,the knowledge & skill levels differ.

The successive levels are defined by reference to the key activities

& the knowledge, skill & competencies required to perform
them effectively.
 Pay Structure
Within each career family, specific career paths for
progressing to higher levels and routes for pursuing
careers in other families are defined

Advantages

1.Defines career paths within career families & hence

facilitates career planning
 Pay Structure
2. It identifies routes for career progression between
career families by clarifying what individuals should
know & be able to do if they wish to move to a new
path.
3. Disadvantages

1.Highly divisive
 Pay Structure
4. Job Family Structure

Job family refers to a group of jobs that are essentially similar in

nature & purpose of work, but differ in the levels at which work
is carried out

It can be

a)Generic ie covering similar jobs across functional areas-

administrators, managers, Executives
b)Functioal ie work groups within a domain ie personnel,
-marketing etc.
Designing a Broadbanded structure
1.Decide on Objectives

2. Decide on the number of bands

3.Decide on Band infrastructure

4. Define the bands

5.Prepare the role profile for benchmark jobs

Designing a Broadbanded structure
6. Match the benchmark roles to the bands

7.Obtain Market rates

8.Evaluate Benchmark Jobs

9.Decide on reference points & Zones

10.Decide pay ranges of bands

 Job Evaluation
It is the systematic process for defining the relative
worth of jobs within an organisation, in order to
establish internal relativities & provide the basis
for designing an equitable pay structure.

It is the evaluation or rating of jobs to determine

their position in the job hierarchy in an
organisation. This method is widely used for
elimination of wage inequities

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 Job Evaluation
Features of job evaluation
1. Systematic: - Here the relative size or value of
jobs is determined on the basis of factual
evidence.The evidence is analysed within a
structured framework of criteria
2. Judgemental:- The facts collected need to be
interpreted. Human judgement is required to
make the final decisions based on clear evidence
& sound reasoning

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 Job Evaluation
3. Concerned with the job & not the person:- While
evaluating a job, the concern is for the content of that
job in terms of its demand on the job holder.
It does not take into consideration the performance of
the individual in relation to the job
4.Concerned with internal relativities:- It is only
concerned with the worth of a job within the
organisation & not concerned about the external
relativitieslike market rates

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 Objectives
Major objectives of Job evaluation are:-
1. Equitability in the wage structure within an
organisation
2. Consistency of the firm’s wage structure with that of
the industry in which it operates
3. Establishment of a sound scheme for incentives &
bonuses.
4. Provide a framework for periodic review of wages

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 Objectives
5. Classify functions,authority & responsibility which in
turn aids in work simplification & elimination of
duplicate tasks.
6. Reduce grievances & employee tturnover,
thusincreasing employee morale & management-
employee relationships.
7.Serves as a basis for negotiation with the unions

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 Job Evaluation Process
Job evaluation process involves the following steps:-

1. A thorough examination of jobs

2. Preparation of Job descriptions

3.Comparison of one job with another

4. Arrangement of jobs in their correct sequence

5.Relating the sequence to the money scale

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 Methods of Job Evaluation
There are different types of job evaluation methods.
Non Quantitative methods
a)Ranking method
b)Grading method

Quantitative methods
a)Points Rating method
b)Factor Comparison method

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 Methods of Job Evaluation
Ranking method

All the jobs in a organisation are checked & are rated

in the order of complexity ,responsibility & the
demands they make on the respective employees
Ranking is made easier by identifying those that come
at the extreme ends of the scale & locating the rest in
the middle region.
In the Ranking system, jobs are not split up into
component parts but the comparison is made on the
whole jobs.
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 Ranking method
Advantages Disadvantages
Simple Difficult to adminster as
the no: of jobs increases
Very effective when Rank judgements are
number of jobs are subjective
large
It is less time Ranking process will have
consuming to be repeated each time a
new job is added to the
organisation 23
 Methods of Job Evaluation
Job Grading method

Also called predetermined grading method. Jobs are

classified into the grade/category structure.

Each of the grades are defined in terms of general

functions & qualifications required.Jobs are assigned
to the grade/category providing closest match to it.

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 Job grading method
This method involves
a)Establishment of Grades or Classes

b)Definition of each class

c) Classification of individual jobs according to how well

their characteristics match the different grade
descriptions.

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Classification Method
Sl No Advantages Disadvantages
1 Simple method which is Classification os
easy to use judgemental
2. Less time consiming The judgement may be
biASED which would
affect certain groups of
employees
3. Grades are independent Some jobs seem to fit in
of the jobs.Therefore new more than one category
jobs can be easily
classified
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 Methods of Job Evaluation
Point rating method
This is the most widely used method of job evaluation &
is a Quantitative method of job evaluation

It uses a more analytical & systematic approach to the

measurement of a job’s worth.
The whole job is divided to different job factors &
maximum point values are assigned for each of the
factors. Each job is awarded points for each of the
factors considered.
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 Point rating method
This method measures jobs as the overall position over
the various job factors and not as a whole job. These
points are later converted to money value

A Job factor is a specific requirement levied upon the

job holder which he must contribute for the proper
functioning of the job
Eg:- skill,effort,responsibility etc.

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 Point rating method
The steps involved in the system are as follows:-

1.List the jobs to be evaluated:-All the jobs to be

evaluated have to be listed out ,with their clear job
description & job specification

2. Number of factors

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 Other Methods
There are methods used for evaluating the subtler
aspects of management like decision making & is
used to evaluate managerial types of jobs.

1.Time span of discretion method

The longest period of time for which discretion
could be exercised without direct management
review is the key factor in determining the levels

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 Other Methods
2.Decision Band method:
Depending on the type of decision that is to be taken by
the job,the jobs are placed in the applicable band.
Band E :- Policy making decisions
Band D:-Programming decisions by Senior Managers
Band C: Decisions by Middle Managers
Band B Routine decisions by skilled operators
Band A:Automatic decisions by semi-skilled operators
Band O:Decisions by Unskilled workers
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 Other Methods
3.Hay Plan or Hay Group Guide Chart Profile
method:-
This method for deciding Managerial pay emphasizes 3
critical factors
1.Know How
2.Problem Solving
3.Accountability

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Computer based JE Systems
LINK
This software operates on the basis of the answers given
to structured questionnaire by the job holders &
supervisors
• Gauge
In this process, the job holder & the line manager with
the help of the facilitator answers a series of inter-
related questions that are presented on the screen
 Job evaluation
External equity is the comparison of intra and inter –
industry pay rates
The wage structure though taking into consideration
,the performance of the individuals should compare
with the prevailing rates in the area.

Pay survey is a costly , time consuming & complex

exercise of comparing the wages of different
companies within the same industry in the same area.

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 Requirements for a good Job
evaluation
1. Create a team :- Create a cross-functional team to
work on job evaluation. The team should represent
various levels and jobs within the organization.
2. Select the job evaluation method:- Train team
members in the requirements needed for selecting
a job evaluation method for your organization.
 Communicate with employees
This helps employees feel a sense of ownership from
the results of the job evaluation results.

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 Implementation of job
evaluation
The concept of job evaluation often can be intimidating
to employees in an established organization.
Employees might worry about losing their jobs, and pay
might be decreased after job comparisons and
evaluations are completed.
To help employees accept and understand your job
evaluation system, approach job evaluation from an
organizational development perspective.

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 Steps in Job Evaluation
implementation
Introduce the concept of job evaluation.

Obtain management approval for the evaluation.

Train the job evaluation selection team.

Review and select the job evaluation method.

Gather information on all internal jobs.

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 Steps in Job Evaluation
implementation
Use information to fully expand job descriptions.

Use the selected job evaluation method to rank jobs

hierarchically or in groups.

Link the ranked jobs with your compensation system

or develop a new system.

Implement the job evaluation and compensation

systems.
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 Steps in Job Evaluation
implementation
Periodically review your job evaluation system and
the resulting compensation decisions.

Make necessary updations & modifications where

required.

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Criteria for choice of a method
1.Suited for thorough analysis & impartial application
2.Appropriate for the demands of particular jobs
3.Comprehensive to assess relativities across different
occupations
4.Transparent & clear to all concerned
5.Non-discriminatory in that it should meet the equal
pay for work of equal value policy

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 Evaluation Reviews
The situations where a review of the evaluation can be
requested are :-

1.When the job is first allocated to a grade & the grade is

made known to the parties concerned.
2.When the content of the job changes sufficiently to
place doubt on the existing grading

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 Evaluation Reviews
A formal evaluation review procedure should be
prepared.

Review by a special committee composed of 2 members

of the original panel& 2 additional trained evaluators
& an independent chair.

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Maintaining Job Evaluation
Job evaluation should be carefully managed,otherwise it
would decay & become discredited.
1.Regular reviews of the schemes are built in
2.Adequate training for the operators of the scheme
3.Periodical training for evaluators
4.Maintain good communication at all levels
5.Device a less time consuming way to managge the
programme
6.Use IT in a feasible way

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 Pay Survey
Types of pay Survey

1.Informal
2.External

1.Informal Surveys:- These are conducted in an informal

way & can vary from personal contacts to specific
exchange programmes with a number of local
companies

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 Pay Survey
2. External survey is done in different methods.

1.Job Title method

2. Job Description method

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