Introduction
There are certain steps an employer must take when determining the pay scale within an organization. When considering employee compensation, one must consider all forms of pay given from the employment. This includes both direct financial payments, meaning wages, salaries, incentives, commissions, and bonus, and indirect financial payments, meaning benefits like insurance and vacation bonuses.
Payscale Reform
It is also imporant for the employer to consider the behavoir and reactions from its employees if the payscale determination is reforming a current pay structure. According to a study done in the Journal of Occupational and Organizational Psychology, when reforming a current pay scale, employers often overlook how the change can impact the behavior of their employees. The following is an excerpt from the study:
“Although organizations often hope that a pay system reform will be beneficial, the results are often mixed, and researchers have increasingly sought to understand when and why reforming a pay system will promote desired outcomes However, prior research has largely ignored how emotional reactions towards a new pay system impacts attitudes and behaviors in the workplace. This omission is striking given that employee affect has been found to be (1) sensitive to organizational change and (2) an important predictor of several of the desired outcomes that employers seek to encourage by implementing a new pay system.”
When reforming a pay scale, not everyone within the organization will be happy. But fortunately, according to the study, a positive reaction from an employee during a pay scale change can predict the longevity of the employee. Those who will leave may have already had turnover intentions.
“In addition to shedding light on the relation between affective reactions and future affect-driven behaviours, this work demonstrates that affective reactions predict judgment-driven behaviours such as turnover. Although prior work has shown that positive mood was negatively related to turnover intentions, the current findings show that positive affective reactions were negatively related to actual turnover behaviour. Thus, those employees with high positive affective reaction to the pay reform were more likely to stay with the organization 2 years later than those with low positive affective reaction.”
Action Steps to Invent/Reform a Payscale
The employer should take the following steps and make the following considerations:
1. Define each position within the company. Determine the core competencies required to perform the job tasks at hand. Decide skills and education required to perform at an adequate level. The employee committee should determine the worth of each job within the organization.
2. Research wages at other companies for similar positions within your geographical and demographic areas. Conducting a salary survey of what other employers pay for comparable jobs will help set a benchmark since your prospective employees may also be applying for these positions. If you need highly qualified employees to be competitive, set your pay scales higher to attract top talent. If you need to save money to be competitive, offer lower pay ranges.
3. Group similarly paid jobs into pay grades.Confidentiality is one of the most important aspects of conducting a compensation analysis, but the information will need to be gathered from the HR department with a specialist who knows how to be compliant with the private information.
4. Develop rate ranges. Set your wage scale based on how competitive you want to be. The organization's overall competitiveness will depend on elements such as employee pay, expected growth, ability to attract and retain employees and the industry forecast.
5. Create pay scale incentives. Creating a method for giving pay raises can offer employees incentive to do their job well, for example, based on time on the job or factors such as whether employees obtain the core competencies needed for their jobs. You can also assign pay raises based on performance or on whether employees acquire certain skills.
Creating a pay scale from scratch can present its challenges, but overall, after doing some research, a strategic pay scale can give employees incentive and motivation to perform their best and strive for more than average or satisfactory. A strong pay scale can increase the organization's overall quality grade of work environment, encouraging the employees to be motivated.
References
Balkin, D. B., & Gomez‐Mejia, L. R. (1990). Matching compensation and organizational strategies. Strategic management journal, 11(2), 153-169.
Busines Inc. (n.d.). INC. Retrieved January 30, 2013, from www.inc.com/creating-a-salary-pay-scale
Mayhew, R. (n.d.). How to Conduct a Compensation Analysis | eHow.com. eHow | How to Videos, Articles & More - Discover the expert in you. | eHow.com. Retrieved January 16, 2013, from http://www.ehow.com/how_8033747_conduct-compensation-analysis.html
Media, D. (n.d.). How to Create a Competitive Wage Scale | Chron.com. Small Business - Chron.com. Retrieved January 16, 2013, from http://smallbusiness.chron.com/create-competitive-wage-scale-11626.html
Tenhiälä, A., & Lount, R. B. (2013). Affective reactions to a pay system reform and their impact on employee behaviour. Journal of Occupational and Organizational Psychology, 86(1), 100-118.
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