the process for establishing pay rates for different positions within an human resource organization.
I. Job Analysis
The first step in determining a base pay program is to understand the jobs and their requirements. This process requires writing job descriptions which require supervisory input. [ Job descriptions are written statements that describe reporting relationships, duties, responsibilities, and qualifications for positions. Job descriptions have many purposes and are used in
recruitment, staffing, training, performance management, and compensation decisions.
II. Job Evaluation
After defining jobs, the second step is determining the worth of the positions. There are two major schools of thought regarding job evaluation: market-driven and job worth. In a market-driven compensation system, the “market-rate” for the position is the primary determinate of pay. The ‘market-rate’ is the best estimate of the wage rate that is prevailing in the external labor market for a given job or occupation. The quality of external comparisons is critical.
Not all positions exist in all organizations; in these cases, determining job worth is difficult and slotting may be required. Since pay levels can jump substantially in a particular year due to labor shortages, most organizations prefer to wait out these changes rather than immediately increasing pay. Market-driven systems should be monitored closely to track changes in pay.
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