Establishing Pay rates

This process consists of five steps:

Step 1: The Salary Survey

In this first step we conduct a survey to determine what the current wage rates are in the market. These
surveys can be Formal or Informal. Formal surveys include questionnaire surveys. Informal surveys
include telephone surveys or newspaper ads as a source of information.

Step 2: Job Evaluation

It is the process of determining the worth of one job relative to another. The basic principle here is ‘ The
job that requires greater qualification, responsibility and more complex duties should be paid more than
jobs with lesser requirements ‘.

Several methods such as job ranking, job grading, job Classification and factor comparison are employed
in job evaluation.

Job Ranking

The job ranking method is the simplest and easiest job evaluation method. In this method jobs are
ranked from highest to lowest usually depending on their overall difficulty. The jobs are examined as a
whole rather than on the basis of important factors in the job.

Job Classification

This method places jobs into job classes or job grades. Separate classes may include office, clerical,
managerial, personnel, etc.

Factor Comparison

The factor comparison method is more scientific and complex than any other method. Under this
method, instead of ranking complete jobs, each job is ranked according to the series of factors, such as
physical effort, mental effort, responsibility, or working conditions.

Point Method

Here, jobs are expressed in terms of key factors. Points are assigned to each factor after prioritizing each
factor in the order of importance. The points are summed up to determine the wage rate for the job.
Step 3: Group Similar Jobs into Pay Grade

After determining the worth of each job you then group these jobs into different pay grades. A pay
grades is comprised of jobs of approximately equal difficulty or importance as established by the job
evaluation.

Step 4: Price Each Pay Grade

In this step you assign pay rates to your pay grades and to do so you typically use a wage curve which
shows the relationship between the value of the job and the average wage paid for that job.

Step 5: Fine-Tune Pay Rates

Suppose there are two managers working in an organization, both of them have exactly same jobs. One
has been working in the organization for 2 years and the other, for 5 years, so it is oblivious that the
second manager will be paid more based on the number of years he has served the organization. This is
what fine-tuning is about.