What is the best way to develop pay systems that are understandable, workable,

What is the best way to develop pay systems that are understandable, workable, and acceptable to em..

Answer / adeel

Pay administration is a management tool that enables you to
control personnel cost, increase employee morale, and
reduce work force turnover. A formal pay system provides a
means of rewarding individuals for their contributions to
the success of your firm, while making sure that your
organization receives a fair return on its investment in
employee pay. This publication provides time-tested
concepts for determining competitive pay levels and for
maintaining fair pay relationships among the jobs
comprising a small company.

Who Needs a Pay Administration Plan?
Pay administration may just be a fancy term for something
you are already doing but haven't bothered to name. Or,
perhaps your organization has not been paying employees
According to any system, but waiting until unrest shows up
to make pay adjustments—using payroll dollars to put out
fires so to speak.
A formal pay plan, one that lets employees know where they
stand and where they can go as far as take home dollars are
concerned, won't solve all your employee relation problems.
It will, however, remove one of those areas of doubt and
rumour that may keep your work force anxious and unhappy—
and less loyal and more mobile than you'd like them to be.
What's in it for you? Let's face it, in business—
particularly small business—it's good people who can make
the difference between go and no go. Many people like a
Mystery, but not when it's about how their pay is set.
Employees under a pay plan they know and understand can see
that it's equitable (fair) and equable (uniform) - that pay
Isn’t set by whim. They know what to expect and what they
can hope to shoot for.
In the long run such a plan can help you:

Recruit employees;
Keep employees;
Motivate employees;
It can help build a solid foundation for a successful
business.
Developing and Installing the Plan
A formal pay plan doesn't have to cost you a lot of time
and money. Formal doesn't mean complex. In fact, the more
elaborate the plan is, the more difficult it is to put into
practice, communicate, and carry out.

The foremost concern in setting up a formal pay
Administration plan is to get the acceptance,
Understanding, and support of your management and
Supervisory employees. A well-defined, thoroughly-
Discussed and properly-understood plan is a prerequisite
for success.

The steps in setting up a pay plan are:

Define the jobs;
Evaluate the jobs;
Price the jobs;
Install the plan;
Communicate the plan to employees;
Appraise employee performance under the plan.
Defining the Jobs
Unless you know each job's specifications and requirements,
you can't compare them for pay purposes. It's no surprise,
therefore, that the initial step in installing a formal
plan is preparing a job description for each position.
You may be able to write these descriptions yourself, since
in many small businesses the owner-manager at one time or
another has worked at just about every job. However, the
best and easiest way to put together such job information
is simply to ask employees to describe their jobs.
Supervisors should be asked to review these descriptions.
Your best bet here is to prepare a simple form to be filled
out by the employee (or someone interviewing the employee).
This is the time to begin explaining to employees what you
are doing. They need to know that their help is needed to
develop the pay plan - that you are not trying to find out
how well they are doing their jobs - just what they do. The
form should contain the following categories:
Job title;
Reporting relationship;
Specifications;
Primary function (What is the main responsibility of the
job?).
Main Duties - (List main duties in order of importance and
Estimate the percentage of time spent on each.)
Other Duties - (List of duties not performed on a regular
basis.)
Job Requirements
Formal education or training required;
Experience or background required;
Technical/administrative complexity;
Responsibility for dollar results;
Responsibility for supervision;
Unusual working conditions.
It will probably take some time to prepare job descriptions
from the information you get from your employees, but what
you learn may have other uses besides comparing jobs for
pay purposes. For one thing, you may discover that some
employees are not doing what you thought they were, or what
they were hired to do. You may find you want to make some
changes in their work routines.
The information may also be useful for:
Hiring, training and developing employees;
Realigning duties in the organization;
Comparing job data for salary surveys;
Assuring compliance with various employment practice and
Pay rate laws;
Evaluating job performance based on assigned duties.
Evaluating the Jobs
Nobody knows a scientific, precise way of deciding exactly
how much a particular job is worth to a company. Human
judgment is the only way to put a dollar value on work. A
good job evaluation method for firms with 100 or fewer
employees is simple-ranking. It's a guess, too, but a
pretty well controlled guess.
Under the simple-ranking system, job descriptions are
compared against each other. They are ranked according to
difficulty and responsibility. Using your judgment, you end
up with an array of jobs that show the relative value of
each position to the company.
After you have ranked the job descriptions by value to the
firm, the next step is to group jobs that are similar in
scope and responsibility into the same pay grade. Then
youarrange these groups in a series of pay levels from the
highest to lowest. The number of pay levels depends on the
total number of jobs and types of work in your
organization, but for a company with 100 or fewer jobs, 10
or 12 pay levels is usually about right.
Pricing the Jobs
So far in establishing a pay system, you've had to look
only inside the company itself. To put a dollar value on
each of your pay levels, you should look outside at the
going rates for similar work in your area. Since you have
ranked and grouped jobs in pay levels, you won't have to
survey each job. Survey those in each level that are
easiest to describe and are most common in local industry.
Do try, however, to survey those jobs that have more than
one level, for example, junior and senior typists.
A survey of who's paying how much for what in your locality
is the best way of finding out how much you ought to pay
for each of your jobs. You probably have neither the time
nor the money to spend on making such a survey yourself.
That shouldn't be a problem; you should be able to get all
the data you need from sources such as your local chamber
of commerce, major firms located in your area, or from such
national sources as Human Resources Development Canada. If
you belong to a trade association, you may be able to get
its help to find out what the going rate is for one or more
jobs in each pay level.
In studying pay in your area and applying what you learn to
your own jobs, make sure you compare job descriptions, not
just job titles. Job titles can be misleading; there can be
great differences between what one organization and another
call their jobs. One firm’s janitor may be somebody else's
environmental control engineer. After you are satisfied
that you are comparing apples and apples, you can compute
an average rate (the averages in the publications are
purely arbitrary) for each job and enter it on a worksheet
as follows:
Pay Level Position Average Rate
1 Clerk-Typist $574
2 Stenographer $635
3 Payroll Clerk $687
4 Secretary $723
5 Accounting Clerk $741
6 Computer Operator $815 (and so on)
You may need to adjust the average rates somewhat to keep a
sufficient difference between pay levels to separate them.
The going rates you find for each pay level can then become
the midpoints of your pay level ranges. (You can, of
course, set your company's ability to pay, the length of
your work week, and the type and value of your company's
benefit programs.)
Typically, the minimum rate in a level is 85 percent of the
midpoint rate, and the maximum rate is 115 percent of the
midpoint. With the arrangement, a new employee can increase
his or her earnings by 35 percent without a job change,
thus having performance incentives even if he or she is not
promoted.
You now have a pay range for each position in your
Organization. It will resemble the following example:
Pay Range Minimum Midpoint Maximum
1 $490 $575 $660
2 $530 $625 $720
3 $580 $685 $785
4 $615 $725 $835
5 $690 $815 $935 (and so on)
Such a pay range will enable you to tell where your
employees' pay and pay potential stand in relation to the
market rates for their kinds of work. It should show you at
a glance where you need to make changes to achieve rates
that are fair within your organization and pay that's
competitive with similar businesses in your community.
In general, with a planned pay structure you should be able
to tie individual rates of pay to job performance and
contribution to company goals. It should also provide
enough flexibility to handle special situations.
Installing the Plan
At this point you have the general plan, but you don't of
course, pay in general. You must pay each employee
individually. You must now consider how the plan will be
administered to provide for individual pay increases.
In administering the pay increase feature of the plan, you
can use several approaches:
Merit increases, granted to recognize performance and
contribution; promotion increases for employees assigned to
different jobs in higher pay levels; progression to minimum
for employees who are below the minimum or hiring rate for
the pay level; probationary increases of newer employees
who have attained the necessary skills and experience to
function
Effectively;
Tenure increases for time with the company; general
increases, granted employees to maintain real earnings as
economic factors require and to keep pay competitive.
These approaches are the most common, but there are many
variations. Most annual increases are made for cost of
living, tenure, or employment market reasons. Obviously,
you might use several, all, or combinations of the various
increase methods.
You may find that a form for documenting salary increases
and recording the reasons for them can be quite useful. You
will probably find that records such as these are useful
references for pay administration purposes.
Telling Employees about the Plan
After you have set your pay administration plan into place,
you have to consider how to tell employees about it. If
setting up a good program is number one in importance, a
close number two is explaining that plan to employees.
How to tell them is your decision. Some of the more
successful methods include personal letters to each
employee and meetings to explain the plan and answer
questions.
However you tell employees, you must clearly, honestly, and
openly explain the way the plan works. This is a prime
opportunity for you to build goodwill and good relations
with your employees. Be sure your supervisors understand
and can explain the plan to their people. Explaining the
plan to new employees is also essential, and it's a good
idea to review the plan periodically with all employees.
Employee Performance Appraisal
The majority of employees in the Canadian labour force are
under merit increase pay system, though most of their pay
increases result from other factors. This approach involves
periodic review and appraisal of how well employees perform
their assigned duties. An effective employee appraisal plan:
Achieves better two-way communications between the manager
and the employee; relates pay to work performance and
results; provides a standardized approach to evaluating
performance; helps employees see how they can improve by
helping them understand job responsibilities and
expectations; sets targets for employees to aim towards.
Such a performance review helps not only the employee whose
work is being appraised, but also helps the manager doing
the appraising to gain insight into the organization. An
open exchange between employee and manager can show the
manager where improvements in equipment, procedures, or
other factors might improve employee performance. Try to
foster a climate in which employees can discuss progress
and problems informally at any time throughout the
year.Again, to get the best results it's a good idea to use
a form for appraisal.
A typical form includes such job performance factors as:
Results achieved;
Quality of performance;
Volume of work;
Effectiveness in working with others in firm;
Effectiveness in dealing with customers, suppliers, etc;
Initiative;
Job knowledge;
Dependability.
You can design your own form, using examples you can find
in books on personnel administration, if necessary. Your
forms should be tailored to the jobs and should follow from
your job analyses.
How Can the Plan Help You?
The best pay plan in the world for employees won't be of
any use if it doesn't help your business. What's in it for
you?
Again, the answer is getting, keeping and encouraging good
employees. Your pay plan will help you:
Recruit—The pay ranges will provide competitive hiring
rates for attracting high calibre employees.
Retain—the performance appraisal plan and pay increase
feature will encourage performance plus growth and
development within your organization.
Motivate— the pay plan will provide something to shoot for
to keep employees interested in and enthusiastic about
their present assignments and also provide the incentive to
seek greater opportunity within your company.
Having capable employees who are interested and
enthusiastic will help you win the battle for business
survival and growth.
Updating the Plan
To keep your pay administration plan in tune with the
times, you should review it at least annually. Make
adjustments where necessary and don't forget to retrain
supervisory personnel. This isn't the kind of plan that can
be set up and then forgotten. During your annual review,
ask yourself if the plan is working for you. That's the
most important question. Are you getting the kind of
employees you want or are you just making do? What's the
turnover rate? Do employees seem to care about the
business? In the last analysis, it's not how elegant the
plan is or how beautiful the forms and administration. What
matters is how the plan helps you to achieve the objectives
of your business

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