A 5-Step Process for Constructing a Pay Structure

Step 1: Job Analysis

Objective: To gather detailed information about the specific duties, responsibilities, and qualifications required for each job within the organization.

Key Considerations:

• Job Description: Create a clear and concise job description outlining the essential tasks, responsibilities, and required qualifications.
• Job Specifications: Identify the knowledge, skills, abilities, and other competencies needed to perform the job effectively.
• Performance Indicators: Establish measurable performance standards to evaluate job performance.

Step 2: Job Evaluation

Objective: To determine the relative value of each job within the organization.

Key Considerations:

• Job Evaluation Methods: Select appropriate job evaluation methods, such as the point factor method, ranking method, or factor comparison method.
• Job Factors: Identify key factors that contribute to the value of a job, such as skill, effort, responsibility, working conditions, and education.
• Weighting: Assign weights to each job factor based on its relative importance to the organization.

Step 3: Salary Surveys

Objective: To gather information about prevailing market rates for similar jobs in the industry and region.

Key Considerations:

• Data Sources: Identify reliable sources of salary data, such as government surveys, industry associations, and compensation consulting firms.
• Benchmarking: Compare the results of the salary survey to the job evaluation data to determine the appropriate pay level for each job.
• Cost of Living: Consider the cost of living in the local area when setting salary levels.

Step 4: Pay Structure Development

Objective: To create a pay structure that aligns with the organization’s compensation philosophy and market rates.

Key Considerations:

• Pay Ranges: Establish pay ranges for each job grade or classification.
• Pay Grades: Group jobs with similar value into pay grades.
• Compa-Ratio: Calculate the compa-ratio for each job to assess its pay position relative to the market rate.

Step 5: Pay Structure Maintenance

Objective: To ensure that the pay structure remains competitive and equitable over time.

Key Considerations:

• Regular Reviews: Conduct regular reviews of the pay structure to ensure it aligns with market rates and the organization’s goals.
• Pay Adjustments: Make necessary adjustments to pay ranges or individual salaries to maintain competitiveness and fairness.
• Communication: Communicate changes to the pay structure effectively to employees to ensure understanding and acceptance.

By following these five steps, organizations can develop a pay structure that is fair, equitable, and aligned with their strategic objectives.