How to Design Pay Structure

Fri, 08/12/2011 - 11:24 -- Umar Farooq

Basic Way to Develop Pay Structure

Developing pay structure help those involved in the development process to apply their judgments in a systematic manner. The hallmarks of success in compensation management as in other areas are understandability workability and acceptability. The broad objective in developing pay structure is to assign a monetary value to each job in the organization and to develop an orderly procedure for increasing the base rate. To develop such system we need for basic tools.

  • Updated Job Descriptions
  • Methods of Job Evaluation
  • A Pay Structure

Job Description

Job descriptions are key tools in the design of structure, there are two purposes of job descriptions

  • Job descriptions are important characteristics of each job so that the relative worth of jobs can be determined.
  • From Job descriptions we can identif, define and weight compassable factors common job characteristics that an organization is willing to pay for such as skill effort responsibility and working condition

Methods of Job Evaluation

Job evaluation systematically determines the value of each job in relation to all jobs within the organizations. It places them in hierarchy that will reflect the relative worth of each. There are three methods of job evaluation which help in devising the pay structure and can make the employee satisfied.

  1. Ordering Method. The ordering or ranking method is the ranking of job worth from highest to lowest. It requires a committee composed of both management and employee represents, to arrange jobs in simple rank order from highest to lowest.
  2. Classification Method. The classification method is also called Office of Personnel Management (OPM). The OPM requires that classification grades be established and published in what they call general schedule. Identifying some common denominators such as skills, knowledge and responsibilities creates these classifications.
  3. Point Method. Point method is the breaking down jobs based on identifiable criteria such as skill, effort and responsibility and degree to which these criteria exist on the job. Depending on the importance of each criterion to performing the job, appropriate weights are given points are summed and jobs with similar points are placed in similar pay.

A Pay Structure

Additional consideration while making the pay structure

  1. Market based pay
  2. Competency based pay
  3. Legislation
  4. Labor market conditions
  5. The inflation rate in the country