Tuesday, April 25, 2006

Paying the right salary....

If we increase salaries across the organisation, would we be able to reduce our attrition? Can we build a robust team at minimal cost? How should our salary structure be to attract the best talent in the market? What is more important— internal pay parity or external competitiveness?

Anita Bhatia ateempts to answer the questions.......

In a job market driven by knowledge-workers, fluctuating pay scales and rising attrition, HR heads and experts are breaking their heads trying to find answers to these vexing questions. Developing a salary structure for an organisation or revising the existing structure is not as easy as it seems. For HR policy makers, the most complex exercise is to find a compromise between ‘Internal Parity' (paying people in proportion to the relative value of their job) and ‘External Competitiveness' (paying people in proportion to the market price for the job), and also ensure that the salary is a source of motivating the individual employee. The final a im is to achieve a perfect balance between the three. And, alas, this is easier said than done.

Job Evaluation

For HR managers, it is always better to get the internal compensation structure right before trying to make the pay-slips externally competitive. Whether developing a salary structure from scratch or a revising it completely, it is best to start with a job evaluation. In a job evaluation, the company

• Looks inside, comparing worth of jobs in terms of their internal value.

• Uses the concept of comparable worth and compares all jobs, like and unlike, within

• Works on the principle that jobs requiring comparable skills and accountabilities are paid the same

• Assigns ranking, classifications or points, depending on the specificity of the approach (there are a great many approaches to job evaluation or work compensation)

• Compares its own jobs with those at other companies in setting base pay (if points are used, they become the universal yardstick)

In any case, the better the company describes the work, the better the results that are likely to be achieved from any one these methods—be it ranking of jobs, classification of jobs or giving points to the jobs on the basis of their worth. A job evaluation exercise should typically be attempted when all jobs/ roles in the organisation are defined to the level of minimum ambiguity.

Market Pricing

After having completed the job-evaluation exercise, the next step is to look at the market pricing of similar jobs within the industry. This will help in make the salary structure externally competitive. This is based on one of the simpler notions in economics: supply and demand. You want to pay what the market will bear. This means exploring what the market is paying for the same or similar work and set your scale accordingly. But it is certainly not as simple as it sounds. Policymakers will have to answer a few critical questions like ‘what is our market?', ‘Is it your immediate community? Your region? Is it the competition in your industry, anywhere in the country?' How they answer would depends on the level of job that they are trying to price.

• If they are pricing the jobs of lower skilled employees, who tend to work close to home and who have skills that are readily transferable within the immediate area (with a radius of 10-25 kms from your facility), they may define their market narrowly.

• In that case, district or state data on comparable jobs or a survey of large employees in their area will give the policy makers the going rates.

• That formula is fine, as long as the company is in the low-wage area.

• If local wages are higher than those of the competition in your industry, however, you will have to under-price your jobs (this could hurt your ability to compete for workers), seek additional productivity gains, provide greater employment security or benefits (for example, daycare centre, flexi-time) or settle for lower profitability and take the consequences.

• If, on the other hand, you are pricing higher-level jobs, you need to redefine your notion of your market.

• If you are pricing a professional job, such as an accountant, your market may be the region.

• Or, if you are competing with other companies in the country, for a talented plant manager or marketing manager, your market is national.

The more skilled or industry-specific the job, the closer you must pay to regional or national, rather than local or community going wage. In pricing jobs, companies need a hybrid approach.

Job Slotting

Market pricing is relatively simple as long as there are other companies whose work force is organised in the same way as your own. If that is not the case, your have to use ‘job slotting'—comparing those ‘benchmark' jobs that your can compare and slotting the other jobs in between. For instance, secretaries with a specialised grasp of computer technology may represent a new category to be slotted somewhere above secretaries doing more traditional work.

But that approach becomes more problematic when organisations have no comparable jobs in their market, or when a company is using teams in a market where most employers are organised along functional lines. In such a case, one way to estimate market pay is to evaluate several jobs that represent the mix of work the member does and weigh the result for these narrowly defined jobs or roles according to the mix of responsibilities in the position.

It is always best to have a certain ‘range' of compensation in which you pay people in the same job/role in order to make room for the personal aspirations and motivation quotient of the employee.

Will life become better for HR managers if they resorted to market pricing, job evaluation and job pricing in an effort to build a salary structure for their organisations? At best, it's a beginning. At worst, it's better than drifting without a policy and vision. Naysayers might say that it's hard to imagine a situation where all the employees in a company happily accept the remuneration that is offered to them. Or, that there is nothing close to an ideal salary structure. But that is no excuse to stop trying to evolve a system—where the process of fixing salaries becomes less unpredictable and more logical in nature.

Anita Bhatia is a management post-graduate from the Symbiosis Centre for Management & Human Resource Development (SCMHRD), Pune. She currently works with Polaris Software Lab Ltd. This article is picked from businessworldindia.com.


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