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Chapter
Fourteen
Wage and Salary
Management
Learning Objectives
• Identify the goals of an equitable wage and
salary program
• Outline three methods of job evaluation
• Describe how wage and salary surveys are
used to make pay decisions
• Describe a procedure for developing a pay
structure using a graph
• Describe the features of a merit-pay plan
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The Wage and Salary Program
• Definition of Terms
– Wage: (or hourly pay) refers to an hourly
rate of pay and is the pay basis used most
frequently for production and
maintenance employees.
– Salary: refers to a weekly, monthly, or
yearly rate of pay and is the pay basis
commonly used for clerical, professional,
sales, and managerial employees.
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The Wage and Salary Program (cont’d)
• Goals
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To meet needs of employees
To motivate workers
To be cost effective
To be competitive
To comply with labor contract and laws
To be fair
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The Wage and Salary Program (cont’d)
• Important Considerations
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Worth of the Job
Prevailing Wages and Salaries
Collective Bargaining
Economic Realities
Perceptions of Equity
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Figure 14.1 Relationship of job analysis,
job descriptions and job evaluation
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Job Evaluation
It is the systematic determination of the
relative value of jobs, or job worth, in a
particular organization.
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Job Evaluation
• Methods
– The Point-Factor Method
– The Classification Method
– The Ranking Method
• Problems
– Inaccurate Job Descriptions
– Union Reactions
– Supervisory and Employee Participation and
Acceptance
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The Point-Factor Method
It is the most widely used job evaluation
procedure.
• a. Scales measure the degree to which
several given job factors are present in a
particular job.
• b. The points chosen for each scale are
added to provide a point total designating the
job’s relative worth.
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The Classification Method
It is based on one-paragraph descriptions of a predetermined
number of “classes” of jobs, each of which corresponds to a pay
grade or range.
• a. This method requires a decision at the outset on the
number of pay grades to be included in the wage and salary
program.
• b. Most public
employees fall under the classification
method.
• c. Actual amounts to be assigned to pay grades may be
determined after job evaluation is completed.
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The Ranking method
Raters simply use their judgment to rank
various jobs in order of relative worth.
• a. The chief disadvantage of this method is
that there are no agreed-upon guides as to
which job factors are considered valuable.
• b. This method differs from others in that job
factors cannot be discussed and modified as
part of the job evaluation process.
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Wage and Salary Surveys
-To be competitive in its compensation, an
organization typically relies on data from
wage and salary surveys, which collect
information on pay in other organizations.
- Most firms either conduct their own
surveys or participate in those conducted
by consulting firms or professional
associations.
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Determining Pay Rates
Once the relative worth of jobs has been
established by job evaluation, the actual
rates to be paid for particular jobs are
determined, often through the use of a
two-dimensional graph.
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Key Jobs
Job evaluation points for key jobs (jobs found in many
organizations and having fairly stable content) are plotted against
actual or desired pay rates.
• 2. A line drawn through the plotted key jobs suggests the
approximate contour the other jobs should follow.
• 3. Plotting the remaining jobs reveals which jobs seem to be
improperly paid with respect to the key jobs and to each other.
• a. Jobs above the line that are considered to be excessively
overpaid are called red-circle jobs, whereas those below the
line and underpaid are called green-circle jobs.
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Job evaluation points plotted against pay,
showing “overpaid” and “underpaid” jobs
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Rate ranges
They are defined in terms of a minimum,
average (midpoint), and maximum
amount, are commonly used for salaried
employees, allowing them to receive pay
increases for the same job on the basis of
merit, seniority, or both.
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Adjusting the Pay Structure
Environmental pressures and economic conditions are
likely to lead to adjustments in the pay structure: pay
reductions, or wage cuts, are sometimes necessary
because of governmental deregulation and a general
economic downturn in many industries.
Competition and inflation may necessitate an upward
adjustment in all wages and salaries.
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Rules of Administration
• Merit-Pay Plans
• Skill-Based Pay
• Controlling Wage and Salary
Expenditures
• Pay Increases Plans
• The Pay-for-Performance Concept
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Figure 14.6 Variables likely to affect pay
increase decisions
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Government Regulation
• Has impact on basic wage payments
– Minimum-wage laws
– Overtime regulations
– Equal Employments Laws
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Current Issues
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Performance Evaluation
Comparable Worth
Benefits Politics
Contingent Work
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Role of Human Resources Department
• Develops job evaluation system
• Coordinates and manages system
• Conducts surveys of wages and
salaries
• Participates in surveys used to revise
pay structure
• Monitors compliance with pay structure
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Key Terms
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Wage or hourly pay
Salary
Nonexempt employee
Exempt employee
Salary compression
Job evaluation
Job factors
Job worth
Point-factor method
Classification method
Pay grade
Ranking method
Wage and salary survey
Peer group survey
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Key job
Red-circle job
Green-circle job
Rate ranges
Merit-pay plan
Skill-based pay
Pay for performance
Compa ratio
Comparable worth
Pay equity
Pay dispersion
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