How does a company implement a salary administration system?

PUBLISHER: ABSOLUTE HR SOLUTIONS

Determination Compensation Philosophy
The company first needs to identify the competition. Second, the company must determine what the competition pays equivalent jobs or talent. Third, the company needs to decide where its level of pay will be relative to the industry average for each job or level of talent. In other words, the company must decide if it wants to lead the industry, keep pace with the industry, pay under the industry average, or ignore the market altogether and pay people based solely on internal relativity.

Choose a System of Job Evaluation

• Point Factor System - Jobs are evaluated based on the skills/knowledge/responsibilities demanded by each job. Points are assigned to skills/knowledge/responsibilities for each job. Points allocated for each criterion for each job are totaled and a job hierarchy is developed based on number of points per position. Pay levels are then based on each job's ranking.
• Market Pricing - Pay levels for each job are determined by survey data from the market (the market is the competition) where the company's jobs have an equivalent job in the market.
• Broadbanding - The salary structure consists of "bands" where each band represents a range of points and/or a salary range that is allocated to a job. Jobs are slotted into the bands based either on points (point factor) or by pay levels (market pricing).

Create Job Descriptions
Describe the "job content " as it currently exists through the job responsibilities, reporting relationships, knowledge, skills and abilities required to perform the job.

Develop Salary/Point Structures
Done by creating pay grades or pay bands. Each grade or band contains a minimum, midpoint and maximum salary and/or point value.

Assign Grade Levels
Utilizing the chosen system of job evaluation, assign a pay grade to each job description based on the either the external market, internal relativity or a combination of both (this is determined by your compensation philosophy).

Develop a System Merit Increases
Create guidelines and procedures for merit increases based on pay-for-performance criteria. An analysis of your external market may be required. Again, the decision to consider the market when developing a pay-for- performance system is dictated by the compensation philosophy.

Salary Administration Policy & Procedures
Develop a company salary administration policy that incorporates the company compensation philosophy and objectives, the job evaluation method, the pay-for-performance system and the general policy and procedures used to administer salaries.

Administration of the salary administration system requires the following:

• Current Job Descriptions that reflect current reporting relationships and job content.
• Annual review of the pay grades to ensure they "make sense" given the external market and general economic trends (i.e. inflation).
• Annual adjustment of the pay grades based on market and economic trends when applicable.
• Annual completion of performance evaluations in order to document performance and determine the amount of salary increases under the terms of the Policy

Contact Absolute HR Solutions for additional information about the services we provide in this area:

• Job description writing
• Job description evaluation