Internal Wage Structure

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Personal notes - Internal Wage Structure 1 | P a g e

Job Evaluation - What is it ?

Job evaluation is a practical technique, designed to enable trained and experienced staff to judge the size of one

job relative to others. It does not directly determine pay levels, but will establish the basis for an internal ranking

of jobs.

Job evaluation can be defined as a method of determining on a systematic basis the relative importance of anumber of different jobs'. It's a useful process because job titles can often be misleading - either unclear orunspecific - and in large organizations it's impossible for those in HR to know each job in detail. As a rough guide,job evaluation, like many pay management techniques, tends to be desirable in organizations once the number ofemployees exceeds around 50. It usually becomes essential once employee numbers increase to more than 250.But each organization is different and the use of job evaluation techniques will depend on individual circumstances.

By sector and size, job evaluation is far more prevalent in the public and voluntary sectors and among largeremployers.

When to use job evaluation?

Job evaluation is often used when:

determining pay and grading structures ensuring a fair and equal pay system deciding on benefits provision - for example, bonuses and cars comparing rates against the external market undergoing organizational development in times of change undertaking career management and succession planning reviewing all jobs post-large-scale change, especially if roles have also changed.

It is essential to have clear, detailed and up-to-date job descriptions on which to base the job evaluation.

Some Principles of Job Evaluation

Clearly defined and identifiable jobs must exist. These jobs will be accurately described in an agreed jobdescription.

All jobs in an organization will be evaluated using an agreed job evaluation scheme. Job evaluators will need to gain a thorough understanding of the job Job evaluation is concerned with jobs, not people. It is not the person that is being evaluated. The job is assessed as if it were being carried out in a fully competent and acceptable manner. Job evaluation is based on judgment and is not scientific. However if applied correctly it can enable

objective judgments to be made.

It is possible to make a judgment about a job's contribution relative to other jobs in an organization. The real test of the evaluation results is their acceptability to all participants. Job evaluation can aid organizational problem solving as it highlights duplication of tasks and gaps

between jobs and functions.

Job Evaluation - The Future

As organizations constantly evolve and new organizations emerge there will be challenges to existing principles of

job evaluation. Whether existing job evaluation techniques and accompanying schemes remain relevant in a faster

moving and constantly changing world, where new jobs and roles are invented on a regular basis, remains to be

seen. The formal points systems, used by so many organizations is often already seen to be inflexible. Sticking

rigidly to an existing scheme may impose barriers to change. Constantly updating and writing new jobs together

with the time that has to be spent administering the job evaluation schemes may become too cumbersome and

time consuming for the benefits that are derived.


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Does this mean that we will see existing schemes abandoned or left to fall into disrepute ? Will providers of job

evaluation schemes examine and, where necessary, modify them to ensure they are up to date and relevant ?

Simply sticking rigidly to what is already in place may not be enough to ensure their survival.

Job Evaluation - More

Job evaluation is essentially one part of a tripartite subject, which is collectively referred to as Job Study (othernames exist).

The three parts are:

1: Job Analysis;

2: Job Evaluation - the information collected is evaluated using a numerical scale or ranking and rating

methodology; and

3: Merit Rating.

Job evaluation evaluates selected job factors, which are regarded as important for the effective performance of the

job, according to one of several alternative methods. The resulting numerical gradings can form the basis of an

equitable structure of job gradings. The job grades may or may not be used for status or payment purposes.

Explanation:

Job Evaluation is concerned with measuring the demands the job places on its holder. Most factors that contribute

to this job pressure, e.g. physical strength required, knowledge of mathematics required, are assessed and the

result is a numerical estimate of the total job pressure. When evaluations are carried out on all hourly paid

personnel the techniques uses include establishing relative wage rates for different tasks. It is possible to use it for

all grades of personnel, even senior management.

Illustration:

The Time Span of Discretion is an interesting and unusual method of job evaluation developed by Elliot Jaques for

the Glacier Metal Company. In this method the job pressure is assessed according to the length of time over which

managers decisions commit the company. A machine operative, for example, is at any moment committing the

company only for the period needed to make one product unit or component. The manager who buys the machineis committing the company for ten years.

Job Evaluation: Methods:

The two most common methods of job evaluation that have been used are first, whole job ranking, where jobs are

taken as a whole and ranked against each other. The second method is one of awarding points for various aspects

of the job. In the points system various aspects or parts of the job such as education and experience required to

perform the job are assessed and a points value awarded - the higher the educational requirements of the job the

higher the points scored.

There are two main types of job evaluation: analytical schemes, where jobs are broken down into their corecomponents, and non-analytical schemes, where jobs are viewed as a whole. The use of an analytical scheme

offers a better defence if a claim is made to an employment tribunal for equal pay for work of equal value.

The most well known points scheme was introduced by Hay management consultants in 1951. This schemeevaluates job responsibilities in the light of three major factors - know how, problem solving and accountability.

Non-analytical schemes

These are less objective than analytical schemes, but are often simpler and cheaper to introduce. Methods includejob ranking, paired comparisons and job classification.
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Job EvaluationMethods: Job Ranking

This method is one of the simplest to administer. It is done by putting the jobs in an organization in order of theirimportance, or the level of difficulty involved in performing them, or their value to the organization. Judgments aremade about the roles based on aspects such as the jobs' scope and impact, their level of autonomy, the complexityof their tasks and the knowledge and skills needed. Once this analysis is done, the jobs together form a hierarchywhich indicates the different levels, or ranks, within the organization.

Organizations often divide the ranks into grades. The number of grades chosen will depend on the organization'sneeds. This process is easily understood by employees and is relatively cheap to undertake.

Jobs are compared to each other based on the overall worth of the job to the organization. The 'worth' of a job isusually based on judgments of skill, effort (physical and mental), responsibility (supervisory and fiscal), andworking conditions.

Advantages

Simple. Very effective when there are relatively few jobs

to /be evaluated (less than 30).

Disadvantages

Difficult to administer as the number of jobsincreases.

Rank judgments are subjective. Since there is no standard used for comparison,

new jobs would have to be compared with theexisting jobs to determine its appropriate rank.In essence, the ranking process would have to berepeated each time a new job is added to theorganization.

Job Evaluation Methods: Paired comparisons

This is a statistical technique used to compare each job with others in an organization. Using a ranking form, pointsare allocated to the job:

two points if it is considered to be of higher value one point if it is regarded as equal worth no points if it is less important.

The scores are added up and then the final overall ranking can be given. Paired comparisons gives greaterconsistency, but takes longer than job ranking as each job is considered separately.

Job EvaluationMethods: Job Classification

This method is also known as job grading. Before classification, an agreed number of grades are determined,usually between four and eight, based on tasks performed, skills, competencies, experience, initiative andresponsibility. Clear distinctions are made between grades. The jobs in the organization are then allocated to thedetermined grades.

Jobs are classified into an existing grade/category structure or hierarchy. Each level in the grade/categorystructure has a description and associated job titles. Each job is assigned to the grade/category providing theclosest match to the job. The classification of a position is decided by comparing the whole job with the appropriatejob grading standard. To ensure equity in job grading and wage rates, a common set of job grading standards andinstructions are used. Because of differences in duties, skills and knowledge, and other aspects of trades and laborjobs, job grading standards are developed mainly along occupational lines.

The standards do not attempt to describe every work assignment of each position in the occupation covered. Thestandards identify and describe those key characteristics of occupations which are significant for distinguishing
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different levels of work. They define these key characteristics in such a way as to provide a basis for assigning theappropriate grade level to all positions in the occupation to which the standards apply.

Advantages

Simple. The grade/category structure existsindependent of the jobs. Therefore, new jobs

can be classified more easily than the RankingMethod.

Disadvantages

Classification judgments are subjective. The standard used for comparison (thegrade/category structure) may have built in

biases that would affect certain groups ofemployees (females or minorities).

Some jobs may appear to fit within more thanone grade/category.

Analytical schemes

These offer greater objectivity in assessment as the jobs are broken down in detail, and are the ones most oftenused by organizations. Examples of analytical schemes include Points Rating and Factor Comparison.

Job Evaluation Methods: Factor Comparison

A set of compensable (interchangeable) factors are identified as determining the worth of jobs. Typically thenumber of compensable factors is small (4 or 5). Examples of compensable factors are:

1. Skill 2. Responsibilities 3. Effort 4. Working ConditionsNext, benchmark jobs are identified. Benchmark jobs should be selected as having certain characteristics.

1. equitable pay (not overpaid or underpaid)2. range of the factors (for each factor, some jobs would be at the low end of the factor while others would

be at the high end of the factor).

The jobs are then priced and the total pay for each job is divided into payfor each factor.See example matrix below:

Job Evaluation: Factor Comparison

The hourly rate is divided into pay for each of the following factors:

Job Hourly Rate . Pay for Skill Pay for Effort Pay for Responsibility Pay for Working Conditions

Secretary $9.00 4.50 2.00 2.00 0.50Admin Assistant $11.00 5.50 2.50 2.50 0.50Supervisor $15.00 6.00 3.50 4.00 1.50Manager $21.00 9.00 3.50 7.00 1.50

This process establishes the rate of pay for each factor for each benchmark job. Slight adjustments may need to bemade to the matrix to ensure equitable dollar weighting of the factors.

The other jobs in the organization are then compared with the benchmark jobs and rates of pay for each factor aresummed to determine the rates of pay for each of the other jobs.
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Advantages

The value of the job is expressed in monetaryterms.

Can be applied to a wide range of jobs. Can be applied to newly created jobs.

Disadvantages

The pay for each factor is based on judgmentsthat are subjective.

The standard used for determining the pay foreach factor may have build in biases that wouldaffect certain groups of employees (females orminorities).

Factor Comparison is similar to Points Rating, being based on an assessment of factors, though no points are

allocated. Use of the Factor Comparison method is not as widespread as the Points Rating systems, because the

use of points enables a large number of jobs to be ranked at one time.

Job Evaluation: Methods: Point rating Method

This is the most commonly used method. The key elements of each job, which are known as 'factors', are identifiedby the organization and then broken down into components. Each factor is assessed separately and pointsallocated according to the level needed for the job. The more demanding the job, the higher the points value.

Each factor is then divided into levels or degrees which are then assigned points. Each job is rated using the jobevaluation instrument. The points for each factor are summed to form a total point score for the job.

Jobs are then grouped by total point score and assigned to wage/salary grades so that similarly rated jobs wouldbe placed in the same wage/salary grade.

Factors usually assessed include:

Knowledge and skills

work experience qualifications external qualifications specialist training

People management

human relations skills ability to deal with work pressure supervisory responsibility

Communication and networking

social skills presentation skills diplomacy

Freedom to act

depth of control supervision received

Decision-making

judgment initiative analytical ability

Working environment

knowledge of special working practices breadth of management skill required

Impact and influence

efficiency impact on customers responsibility results of errors

Financial responsibility

budgeting

Effort

mental physical

This list is not meant to be exhaustive, but gives examples of the characteristics that are frequently measured.
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The point method is an extension of the factor comparison method.

Advantages

1. The value of the job is expressed in monetaryterms.

2. Can be applied to a wide range of jobs.3. Can be applied to newly created jobs.

Disadvantages

The pay for each factor is based on judgmentsthat are subjective.

The standard used for determining the pay foreach factor may have built-in biases that wouldaffect certain groups of employees (females or

minorities).

Hay Evaluation Method

The Hay System is a job performance evaluation method that is widely used in North America and Europe. Trainingin the use of the system takes several days, followed by several months organizational experience to becomeproficient in its evaluation style. All jobs are evaluated not only by the interpretation of the factor descriptions butwithin the context of all other jobs in the organization.

Four factors are used in job evaluation: Skill, Effort, Responsibility and Working Conditions, which Hay translatesinto Knowledge, Problem Solving, Accountability and Working Conditions. The system works on an integration of allthe factors. A job is evaluated by looking at the knowledge required to do the job (whether practical orintellectual), the kind of thinking required to solve the problems which the job commonly faces, the responsibilities(accountabilities) assigned, and the work environment in which the work is performed.

In each of the following factors there are a series of descriptions and variables with points assigned to each.

1- Know howKnow How is defined as the "sum total of every kind of knowledge and skill, however, acquired, needed for

acceptable job performance."

There are three dimensions in know how:

1. Practical procedures, specialized techniques and knowledge within occupational fields, commercialfunctions, and professional and scientific disciplines.

2. Planning, organizing, coordinating, integrating, staffing, directing and or controlling the activities andresources associated with the function of the unit, position, section, etc.

3. Face to face skills needed for various relationships with other people.2- Problem Solving

Problem Solving is "the amount and nature of the thinking required in the job in the form of analyzing, reasoning,evaluating, creating, using judgment, forming hypotheses, drawing inferences, arriving at conclusions, etc."

There are two dimensions in problem solving:

1. The environment in which the thinking takes place.2. The challenge of the thinking to be done; the novelty and complexity of the thinking required.

Problem Solving is always expressed as a percentage of Know How since it directly relates to how one uses the

knowledge which he or she must have in the job to solve the problems which are encountered as part of that job.

3- AccountabilityAccountability is "the answerability for action and its consequences. The measured effect of the job on end results

in the organization." There are three dimensions in accountability:

1. "Freedom to Act" which is the extent of personal, procedural or systematic guidance and control on thejob.
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2. "Job Impact on End Results" which is the degree to which the job affects or brings about the resultsexpected of the unit or function being considered.

3. "Magnitude" is the size of the function or unit measured in the most appropriate fashion.4- Working Condition

Working Conditions assess the environment in which the job is performed. Working Conditions are made up of

four dimensions:

1. "Physical Effort" - jobs, which may require levels of physical activity, which may produce physical, stressor fatigue.

2. "Physical Environment" - jobs which may include exposure to unavoidable physical and environmentalfactors which increase the risk of accident, ill health or discomfort to the employee.

3. "Sensory Attention" - jobs which may require concentrated levels of sensory attention (i.e. seeing,hearing, smelling, tasting, touching) during the work process.

4. "Mental Stress" - refers to exposure to factors inherent in the work process or environment, whichincrease the risk of such things as tension or anxiety.

Each of these four dimensions is measured according to duration, intensity and frequency.

All of these factors are evaluated in each job evaluation and the cumulative total is a total point factor for the

position. Because jobs have so many different variables it is possible that a job without a high score in Know Howbut with severe Working Conditions could result in the same number of points with a job that has the oppositecomponents.

For example, an insurance clerk and a bus driver have few job responsibilities that are similar, but might beevaluated in total at the same point level. Please note that the following example do not represent any job and areused only as an explanation of the Hay system.

Intermediate Insurance Clerk School Bus Driver

Know How 100 87

Problem Solving 19 16

Accountability 25 22

Working Conditions:

Physical Effort 2 9

Physical Environment 1 7

Sensory Attention 6 9

Mental Stress 2 5

Total Points 155 155

Although these jobs have little in common and differ in the Hay Points for individual factors their total points arethe same and therefore the jobs are considered to be of equal value.

Obviously the trained evaluator must consider the ratings awarded to a Senior Insurance Clerk and JuniorInsurance Clerk to maintain the integrity of the rating within job families when evaluating the IntermediateInsurance Clerk.

While these jobs have been evaluated individually important concepts are consistency of application and theestablishment of benchmark positions. All positions within an organization are evaluated in comparison to thebenchmarks using a consistently applied evaluation tool.

This factsheet gives introductory guidance. It:

offers a definition of job evaluation comments on when it is used looks at the two main types of scheme - analytical and non-analytical highlights some of the major schemes and providers suggests an implementation process

Designing job evaluation schemes


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Both analytical and non-analytical schemes can be developed. Organizations can develop a system themselves, useconsultants, buy a consultancy's off-the-shelf package, or employ the consultancy to tailor the package to suit theorganization.

The Hay Guide Chart-Profile Method is the most widely used scheme, but there are many other schemes developedby other consultancies. What is chosen will depend on the size of the organization and the aim of the job evaluationexercise. It is possible to use different schemes for different types of employee.

The following big consultancies offer off-the-shelf or tailor-made schemes:

HayGroup Hewitt Mercer PricewaterhouseCoopers SHL Group Towers Perrin Watson Wyatt.

Implementing a scheme

When introducing job evaluation for the first time, it's important to communicate with employees. A suggestedprocess is:

Other factors to consider

the process is often as important as the results large-scale evaluation can potentially involve all roles in an organization

job evaluation should be an ongoing process a decision should be made at the beginning on how results will be communicated an appeals procedure should be established before the evaluation begins the more complex the scheme, the more detailed the job description needs to be accurate records of decisions should be kept the results should be tested to see if there are any pay anomalies.

Viewpoint


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Job evaluation is an evaluation of the role, not the person doing it. A job evaluation scheme should be a fairsystem, understood by and communicated to employees. It should be transparent, and reviewed regularly toensure business needs continue to be met.

The type of scheme chosen will depend on the organization needs. But any staff making decisions on job roles willneed training in the chosen system. Involving employees in the process can increase their commitment and furtherengagement with the organization, but they must remain impartial at all times in the process.

JOB EVALUATION

Organizations usually begin the process of designing a wave structure by determining their job structure. Two often-cited

principles of compensation are (1) equal pay for equal work and (2) more pay for more important work. Both imply that

organizations pay employees for contributions required by jobs.

Most organizations utilize job assignment as a major determinant of employee contributions. A formal wage structure, defined

as a rate or range of rates established for job classifications, seems to be standard organization practice, except in very small

organizations. Formal job evaluation or informal comparison of job content is the almost universal base of pay rates.

Job evaluation is the process of methodically establishing a structure of jobs within an organization based on a systematic

consideration of job content and requirements. The purpose of the job structure or hierarchy is to provide a basis for the pay

structure. The job structure, as seen in previous sections of this chapter, is only one of the determinants of the wage structure.

But it is an important one, often used.

Job evaluation is concerned with jobs, not people. A job is a grouping of work tasks. It is an arbitrary concept requiring careful

definition in the organization. Job evaluation determines the relative position of the job in the organization hierarchy. It is

assumed that as long as job content remains unchanged, it may be performed by individuals of varying ability and proficiency.

The Job Evaluation Process

The first step is a study of the jobs in the organization. Through job analysis, information on job content is obtained, together

with an appreciation of worker requirements for successful performance of the job. This information is recorded in the precise,

consistent language of a job description.

The next step is deciding what the organization "is paying for" -- that is, what factor or factors place one job at a higher level in

the job hierarchy than another. These compensable factors are the yardsticks used to determine the relative position of jobs. In

a sense, choosing compensable factors is the heart of job evaluation. Not only do these factors place jobs in the organization's

job hierarchy, but they also serve to inform job incumbents which contributions are rewarded.

The third step in job evaluation is to select a method of appraising the organization's jobs according to the factor(s) chosen. The

method should permit consistent placement of jobs containing more of the factors higher in the job hierarchy than jobs

involving lesser amounts.

The fourth step is comparing jobs to develop a job structure. This involves choosing and assigning decision makers, reaching

and recording decisions, and setting up the job hierarchy.

The final step is pricing the job structure to arrive at a wage structure. Strictly speaking, this step is not part of job evaluation.As seen earlier in this chapter, many wage structure determinants are used by organizations. The job structure is only one of

these.

This view of job evaluation implies that its major purpose is to classify jobs and establish a job hierarchy based on job content.

Other perspectives are that job evaluation

(1) links external and internal markets, and


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(2) is a process used to gain consensus and acceptance of a pay structure. Perhaps these views could all be accommodated by

the recognition that job structures and wage structures are separate concepts and that the relationship between them is a

decision that varies among organizations.

Objectives of Job Evaluation

The general purpose of job evaluation may include a number of more specific goals, including to provide a/an:

1. basis for a simpler, more rational wage structure2. agreed-upon means of classifying new or changed jobs3. means of comparing jobs and pay rates with those of other organizations4. base for individual performance measurements5. way to reduce pay grievances by reducing their scope and providing an agreed-upon means of resolving disputes6. incentive for employees to strive for higher-level jobs7. source of information for wage negotiations8. data source on job relationships for use in internal and external selection, personnel planning, career management,

and other personnel functions

Background of Job Evaluation

Job evaluation developed out of civil service classification practices. Job analysis applied to time study and selection, and some

early employer job and pay classification systems. Whether formal job evaluation began with the United States Civil Service

Commission in 1871 or with Frederick W. Taylor in 1881, it is about 100 years old. The first point system was developed in the

1920s. Employer associations have contributed greatly to the adoption of certain plans. The spread of unionism has influenced

the installation of job evaluation in that employers gave more attention to rationalized wage structures as unionism advanced.

The War Labor Board during World War II encouraged the expansion of job evaluation as a method of reducing wage inequities.

Job evaluation has received a good deal of attention in recent years as a result of social concern regarding discrimination. A

study of job evaluation as a potential source of and/or a potential solution to sex discrimination in pay was made by the

National Research Council under a contract from the Equal Employment Opportunity Commission. The study suggested thatjobs held predominantly by women and minorities may be undervalued. Such discrimination may result from the use of

different plans for different employee groups, from the compensable factors employed, from the weights assigned to factors,

and from the stereotypes associated with jobs. Although the preliminary report failed to take a position on job evaluation, the

final report concluded that job evaluation holds some potential for solving problems of discrimination.

Prevalence of Job Evaluation

Job evaluation is used throughout the world. Although recent evidence is not available, it appears that job evaluation is more

prevalent in the United States than elsewhere. However, a 1982 International Labor Office publication states that in centrally

controlled economies or in economies where wage or income controls exist, job evaluation is frequently used.

Holland has had a national job evaluation plan since 1948 as a basis for its national wages and incomes policy. Sweden and

Germany have a number of industry-wide plans. Great Britain, like the United States, usually employs job evaluation at the

plant or company level. Australia and some Asian countries have installed some forms of job evaluation. Russia and some of theEastern European countries make wide use of job classification.

The evidence on use of job evaluation in the United States shows that smaller companies are somewhat less likely to use job

evaluation. Almost all government jurisdictions, however, employ some form of job evaluation.

In the past twenty years job evaluation has come under attack in the United States. This has come about from a change in the

American economy and the type of organizations that dominate the new economy of today. Job evaluation works best in large

bureaucratic organizations. In the past twenty years these behemoths of the American economy have faced increasing

problems remaining competitive. The result is that they have downsized greatly and removed many layers of organization.


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Vertical movement within organizations has slowed down and employees increasingly move to jobs in other organizations

rather than stay with their current employer. The new companies gaining a foothold in the economy are smaller and

organizationally flexible. There has also been a demise of unions; individuals now bargain for their own wages. Lastly,

organizations are putting more emphasis on employee skills and performance, as opposed to the job.

All this does not mean that organizations ignore the job as a determinant of wages. What has happened is that wage systems

have become more flexible and weight skill and performance more heavily. The use of market wage data for more and more

jobs is increasing and made more practical as data has become readily available on the Internet. A useful source iswww.salariesreview.com. Within organizations, job evaluation systems have become simpler, less formal and have reduced

their complexity.

A major trend in this direction has been broadbanding. In broadbanding, the number of levels in the job evaluation plan is

reduced, and the width of the grade levels increased dramatically. This allows employees to receive wage increases without

having to move up to a new grade level that is tied to a higher organizational level.

Responsibility for Job Evaluation

The installation and operation of job evaluation involves certain responsibilities. Several possibilities for implementing the

process are apparent. One or more committees may be selected, a department may be set up or an existing one assigned, or a

consulting organization may be brought in. These possibilities are not mutually exclusive.

Support for the program is essential because installation of it involves commitments of time, effort, and money. Such support isusually obtained by securing top management approval and the collaboration of other managers and organization members.

Often this approval is obtained through a committee set up for this purpose.


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The Committee Approach

This committee is given an explanation of job evaluation, the purposes it is expected to accomplish, a rough time schedule, and

perhaps an estimate of the cost of the program. The committee makes the decision to install job evaluation, decides on the scope of

the project, and assigns responsibility for the work.

The actual work of job evaluation is usually done in committee in both large and small organizations, whether the task is

accomplished by organization members alone or with the help of a consultant. Committees have the advantage of being able to pool

the judgment of several individuals. The committee usually selects the compensable factors, determines weighting, chooses the

method of comparing jobs, and evaluates jobs.

The chair of the committee is usually a compensation professional, although a consultant, if employed, may assume the chair for part

of the work. Other members are typically other managers selected for their analytical ability, fairness, and commitment to the

project. Representation of broad areas of the organization aids in communication and in gaining acceptance. But job evaluation

committees should be kept small to facilitate decision making. Five members may be optimum, ten a maximum. A common

procedure is to invite supervisors to committee meetings when jobs in their department are under study.

In union-management installations, union members are regular members of the committee. Where the union is not involved

employee representation is often rotated. Employee representation in committees seems to aid in securing acceptance and in

communication.

Committee job ratings are a result of pooled judgments. This usually means either that ratings made individually are averaged or a

consensus is reached as a result of discussion.

Committee members must be trained. Much of this training involves following the steps in the process. But it is advisable to train

committee members how to guard against personal bias and the common rating errors.

Consultants

Consultants are sometimes employed to install job evaluation plans. Successful consultants are careful to ensure that organization

members are deeply involved in installing the plan and are able to operate the plan on their own.

Consultants are most likely to be employed in small organizations where no member has the necessary expertise. They are also more

likely to be employed when a complex rather than a simple plan is to be installed. Consultants often have their own ready-made

plans. Sometimes consultants are brought in to insure objectivity in union-management installations. It is also common to hire

consultants to evaluate management jobs, because the objectivity of committee members rating jobs at levels higher than their own

may be questioned.

Compensation Department Involvement

It is quite possible for the organization to assign installation and operation of a job evaluation plan to the compensation department.

Sometimes the compensation professional heading the unit and a number of job analysts carry out the task. Those who favor this last

approach emphasize the technical nature of the task. They may also be reacting to the difficulty of getting operating managers to

devote the time that the program requires. While they may recognize the education and communication advantages of committees,

they believe these advantages can be provided in other ways. It is doubtful that this position can be justified, though. Input by

operating managers and perhaps employees during job evaluation installation is probably essential to acceptance of the results. Once

the program is installed, however, there seems to be no reason why a department cannot operate it with proper provision for settling

grievances.

Union Involvement in Job Evaluation

Union involvement has the same rationale as that offered in our discussion of job evaluation committees. Acceptance and

understanding are the expected results of involvement.

In practice, union participation in job evaluation has varied greatly. Some unions profess to formally evaluate an organization's jobs

independently and then use the information as an aid in collective bargaining. Some job evaluation plans have been installed and

maintained as a joint venture. A well-known union-management job evaluation plan exists in the steel industry. Less well-known is

the joint plan in the West Coast paper industry. There is evidence that joint plans are more successful than unilateral plans. But this is

not always the case.


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Many unions in organizations with job evaluation plans review the findings after installation by management and either present

grievances on individual jobs or insist on bargaining the wage structure. In the latter case, the bargained wage structure may follow

the job structure resulting from job evaluation or represent a compromise.

Some unions have ignored job evaluation plans installed unilaterally by management. Some employers prefer this response, believing

that job design and evaluation are management prerogatives. Other employers invite union participation in the hopes of obtaining

understanding and acceptance of the plan.

If a union rejects an invitation to participate in job evaluation and ignores the plan, the employer installs the plan unilaterally,

recognizing the need for a logical hierarchy of jobs. The findings are used in negotiating the wage structure.

Unions have criticized job evaluation on several grounds:

(1) that it restricts collective bargaining on wages,

(2) that wages shouldn't be based solely on job content,

(3) that supervisors do not or cannot explain the plan to employees,

(4) that management doesn't administer the plan the way it explained it, and

(5) that it is subjective.

Employee Acceptance

Job evaluation is usually judged successful when employees, unions, and organizations report satisfaction with it. Most surveys report

organization satisfaction levels at 90 percent or better. Employee acceptance is the primary criterion organizations use in d etermining

the success of a job evaluation plan. This is reflected in the increasing use of employees on job evaluation committees and in the

communication steps accompanying job evaluation installations.

SUMMARY

The discussion in this chapter showed that the development of a wage structure is the result of a number of influences. These factors

vary from ones over which management has a great deal of control to ones in which management must simply be responsive. Given

the variety of influences, it is also not likely that organizations will always be able to develop optimum structures and that current

structures will need adapting in the future.

While the economics of the labor market is a major consideration, it is not the only determinant to influence the design of wage

structures. Most organizations also must consider labor-cost ratios, product market competition, and union demands, when

determining their wage structure. Furthermore, many labor markets are abstractions that do not provide a close fit for an

organization's jobs or wage-paying ability.

Wage structures have to do with the internal alignment of jobs in a wage hierarchy. To do this there must be a hierarchy or structure

of jobs within the organization. Determining the internal job structure is the task of job evaluation. This process compares jobs, not

people, in terms of a set of criteria, called compensable factors, to establish the job hierarchy. Job evaluation is a major tool that

organizations use to make job comparisons when determining the relative equity of jobs within the organization. In job evaluation

there is an interesting conflict. On one hand, like wage surveys, this process requires technical expertise of a compensation

professional. On the other hand, acceptability of job evaluation results relies on the perceptions of management and workers so that

their participation would seem to be a necessity in job evaluation.

Internal Wage Structure

Jobs that call for creativity, autonomy, analysis, and personal growth may provide the best motivator of all: intrinsic rewards. Such

satisfaction originates from within the worker. An intrinsically motivated worker does not obtain his motivation from external

stimulation provided by the employer. An overemphasis on external rewards may be responsible for elimination of internally

originated ones. There are personal and organizational objectives that simply cannot be realized through pay.

On the down side, intrinsic motivators, as wonderful as they may appear, are not equally found among all workers, nor do they

always motivate the type of performance you may desire. Pay can be a powerful management tool and a compelling motivator.


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Employees often consider pay as a measure of individual achievement and social status. The importance of pay, then, ought neither

be over or underrated.

To be effective, pay must be tied to performance. While incentives (Chapter 8) can yield the clearest link between performance and

pay, they are not suitable to all jobs. In this chapter we will look at wage structures, or time-based pay. Even though its relationship to

performance may not be as salient as incentive pay, time-based pay can also motivate increased worker performance.

Pay issues covered in this chapter include (1) pay fairness; (2) what is behind pay differences; (3) job evaluations and market

considerations; (4) elements of a wage structure; and (5) maintaining a pay structure.

Pay Fairness (pay equity)

In a casual survey I conducted, workers said that they expected wages to: (1) cover basic living expenses, (2) keep up with inflation,

(3) leave some money for savings or recreation, and (4) increase over time.

Workers also become concerned later in their careers about supporting themselves during their retirement years. Personnel who

have lived in farm-provided housing will find it especially difficult to afford payments on a new home after they retire. Although

beyond the scope of this work, farmers may want to look into retirement and tax deferred plans to cover some of these future needs.

Even if a farmer devises a wage structure to satisfy these expectations, worker dissatisfaction may arise if either internal or externalequity principles are violated. Simply put, internal equity refers to the relative fairness of wages received by other employees in the

same organization. External equity is fairness relative to wages outside the organization. Depending on the type of work and location,

tests of external equity may involve comparisons with other farms or even nonfarm corporations.

Employees will act to restore equity if they perceive an imbalance. In evaluating the fairness of their pay, employees balance inputs

(e.g., work effort, skills) against outcomes (e.g., pay, privileges). Workers may experience guilt or anger if they feel over or

undercompensated. The greater the perceived disparity, the greater the tension.2Employees may seek balance in the following six

ways:

1. modify input or output (e.g., if underpaid, a person may reduce his effort or try to obtain a raise; if overpaid, a person mayincrease efforts or work longer hours without additional compensation);

2. adjust the notion of what is fair (e.g., if underpaid, a worker may think himself the recipient of other benefits such asdoing interesting work; if overpaid, an employee may come to believe he deserves it);

3. change source of equity comparison (e.g., an employee who has compared himself with a promoted co-worker may beginto compare himself with another worker);

4. attempt to change the input or output of others (e.g., asking others not to work so hard or to work harder);5. withdraw (e.g., through increased absenteeism, mental withdrawal or quitting);6. forcing others to withdraw (e.g., trying to obtain a transfer for a co-worker or force him to quit).

The issue of fairness is critical to compensation administration and most every phase of labor management. Generally, workers and

managers agree, in principle, that wages should take into account a jobs (1) required preparation, responsibility, and even

unpleasantness, and (2) performance differences and/or seniority. Less agreement exists about the relative importance of each of

these factors. Challenges in applying differential payment stem from subjectivity in the evaluations of both jobs and workers.

Equity considerations influence the satisfaction of the workforce. Within a broader view, the stability of a nation may be affectedwhen the contributions of any segment of society are either greatly exaggerated or undervalued.

What Is Behind Pay Differences?

Alan, a former Farm Bureau president, was asked by his workers hy irrigators were paid less than tractor drivers. After

considering the question, Alan concluded these wage differences among his workers were rather arbitrary. He decided

to start paying everybody the same hourly rate. Another grower, Cecilia, increases wage rates as employees move up the
http://www.cnr.berkeley.edu/ucce50/ag-labor/7labor/07.htm#2http://www.cnr.berkeley.edu/ucce50/ag-labor/7labor/07.htm#2http://www.cnr.berkeley.edu/ucce50/ag-labor/7labor/07.htm#2http://www.cnr.berkeley.edu/ucce50/ag-labor/7labor/07.htm#2


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job ladder from general laborer to irrigator, to supervisor, and so on.

Philosophical differences affect judgments employers make about their wage structures. Some think all members of a society should

receive enough income to meet their necessities. Such employers may base pay more on the needs than on the contributions of the

individual worker. To some, all jobs contribute equally to farm productivity and, therefore, all employees should be compensated

equally. By this standard, pay differences are based on how well a job is performed rather than what job is performed. In acontrasting system the nature of the jobbesides the quality of performanceis an important part of how pay differences are set at

the ranch.

In making pay decisions at the farm, you have much flexibility within the constraints of the law, labor market, and local norms. The

choices you make will affect employee recruitment, retention, satisfaction and performance.

What do Alan and Cecilia gain or lose from their respective approaches? The single rate Alan has settled on is fairly high. He has raised

lower wage jobs to the level of better paying positions, rather than the reverse. His total wage bill is probably higher than it need be,

but it is buying him a relatively content work force. Simplicity is one advantage of this approach. Alan does not have to adjust rates for

employees when they work outside of their usual assignmentswhich is often.

Most farmers require flexibility in employee assignments. Individuals are called on to wear several hats and use a variety of tools in

their jobs. On a livestock ranch, a worker who is digging fence post holes and fixing corrals today, might be herding cattle tomorrow,pouring cement the next day, and entering herd data into a computer next winter.

Despite the practical advantages of paying everyone identical rates, more skilled workers may resent being paid the same as others.

Cecilia forgoes the simplicity of Alans method in hopes of using pay as a tool to attract, retain, and motivate qualified employees.

Paying different wages for different jobs, however, tends to make people more sensitive to job boundaries. Workers may resist taking

on tasks outside their normal routine. On her ranch, Cecilia handles this by paying her workers their regular rates when they perform

lower paid jobs. When employees perform more highly classified taskswhich is not oftenshe pays them extra.

When several positions receive a similar assessment, they can be combined to create a pay grade. To simplify, we will mostly speak of

pay grades, but it is understood that pay grades may sometimes consist of a single position.

Of course, pay is not the only factor that affects workers resistance to taking on tasks outside their normal duties. Employ ees quicklysense when lower paid jobs are not as valued by management. An occasional chance for a manager to milk the cows may underscore

the importance of the job, and also serves as a good reminder of what the employee does.

Once you decide whether persons holding different jobs should be paid different rates, the next question is whether pay rates should

vary for workers performing the same job (e.g., tractor driver). If so, what factors could determine pay differences within a job?

Since abilities and actual performance vary remarkably among individuals, even in the same type of job, individual differences can be

acknowledged if each job has a rate range (as in Figure 7-1). Higher rates or "upper steps" in the range could be given to employees

with longer seniority, merit (i.e., better performance evaluations), or a combination of the two.

Figure: Pay grades can have rate ranges


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Job importance (increases to the right) -->

Each pay grade is represented by a rectangle; rate ranges by the height of the rectangle.

Establishing rate ranges requires careful consideration. The relationships between grades and ranges have symbolic and practical

consequences. A person at a top range within a pay grade, for example, may earn more than a person in a higher pay grade, but at a

lower range (Figure 7-1). Whether and how much overlap to build into a pay structure is discussed later.

While not recognizing differences in the importance of positions, Alan could also establish rate ranges (not pictured here) within his

flat wage line. Like Cecilia, he would need to consider the basis for pay differences with a given job.

Job Evaluations & Market Considerations

You can arrive at appropriate wages for positions on your farm on the basis of two main management tools:

(1) job evaluations (based on compensable factors such as education, skill, experience, and responsibility), and

(2) the going rate (or market value) of a job.

Illegal pay differences

It is illegal to base pay differences on such protected personal characteristics as sex, race, color and marital status. The term

"protected" is used because employees are safeguarded by law against discriminatory practices based on these personal

characteristics. Federal law, established in the Equal Pay Act of 1963, explicitly requires men and women performing the same work

to be paid the samewith four key exceptions:

. . . [when] payment is made pursuant to

(i) a seniority system;(ii) a merit system;(iii) a system which measures earnings by quantity or quality of production; or(iv) a differential based on any other factor other than sex. . .

Blatant cases of sex-based discrimination include instances where men and women hold the same jobs yet are paid differently with

none of the defensible reasons applying. Somewhat veiled, but no less illegal, are cases where sex-segregated jobs are equal, except

for their titles, and yet are paid differently.

Job evaluation

A farmer such as Cecilia who pays different rates for different jobs usually first classifies the jobs on her ranch. Through a job

evaluation she rates the jobs on the farm according to their relative "importance." Each job might be given its own rate, or jobs of

comparable importance may be grouped or banded into a single wage classification, or pay grade.

Job evaluations compare positions in an organization with respect to such factors as education, responsibility, experience and physical

effort. Figure 7-2 shows a sample job evaluation. In it, for instance, much more value is given to responsibility and education than to

physical requirements. The supervisor in this example would earn about twice what an equipment operator would.


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Figure uses education as a compensable factor. You may prefer to think in terms of what combination of experience and education

would qualify a person for the job. This is an important step for determining the value of the position to be filled. However, when it

comes time to hire someone, you may not care what combination of education or experience an applicant has as long as he can do

the job.

If education is used as a compensable factor, a bachelors degree might be worth 200 points, a junior college degree 150, a h igh

school diploma 100, and an elementary diploma 50 points. Some of the jobs in the ranch might require a high school diploma, thusearning 100 points in this category, while others might have no education requirement (0 points allotted) regardless of the

educational qualifications of the person who may actually apply. Similar ratings of jobs would be made for responsibility and other

factors worth compensating.

You decide how much weight to allot various compensable factors and how to distribute points within each job. For the job

evaluation to be useful, a detailed list of compensable factors needs to be articulated. (The job analysis created during the selection

process can help.) You can test the job evaluation by comparing a few jobs you value differently. Does the tentative evaluation match

your expectations? If not, are there any job factors missing or given too much or too little value?

Workers may also participate in the process of evaluating jobs and can add valuable insight into the essential job attributes for

various positions. Personnel involved in evaluating their own jobs, nevertheless, are likely to experience conflict of interest.

Although supervisors will normally make more than those they supervise, this is not always the case. A very skillful welder or

veterinarian will probably make more than her farm supervisor. Some workers harvesting at a piece rate often make more than the

crew leaders supervising them. Supervisors may be offered additional pay during labor-intensive periods.

Job evaluations, then, reflect the relative value or contribution of different jobs to an organization. Once a job evaluation has been

completed, market comparisons for a few key jobs need to be used as anchors for market reality. In theory, other jobs in the job

evaluation can be adjusted correspondingly.

Market considerations

In practice, results of job evaluations are often compromisedor even overshadowedby market considerations. Labor market

supply and demand forces are strong influences in the setting of wages. No matter what your job evaluation results may indicate, it is

unlikely you will be able to pay wages drastically lower or higher than the going rate.

Supply and demand factors often control wages. When there are many more pickers than available jobs, for instance, the going wage

decreases. If few good livestock nutrition specialists are available for hire, they become more expensive in a free market. The market

may also influence the migratory patterns of farm workers, for example, whether a worker stays in Mexico or travels to Texas, Florida

or Oregon.

Of course, the market is not totally free. Legal constraints affect wages (e.g., equal pay, minimum wage). Labor groups, in the form of

unions, can combine forces to protect their earnings. They may prevent employers from taking advantage of a large supply of

workers. At times wages are driven so high they disable corporations who cannot compete in a broader international market. Some


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professional groups can also impact the market. By limiting acceptance to universities, a limited supply of available professionals is

set.

To establish external equity, employers need information about what other employers pay in the same labor market. While some

employers are content to lean over the fence and simply ask their neighbors what they pay, others conduct systematic wage and

salary surveys.

Wage surveys need to describe jobs accurately as positions may vary widely even for jobs with the same title. Surveys should seek

information about benefits given employees (e.g., farm products, housing). Of course, there are other intangible benefits su ch as

stability, the prestige of the position or the institution *and+ the possibility of professional development. Surveys need to consider

the number of workers per farm in a given classification. Wages on a farm employing many employees affect the going rate more

than one with few. In some cases, farmers may compete for labor within a broader labor market. When compensating mechanics or

welders, for instance, you may have to check what those in industry are paid.

An important pay decision is whether one will pay the going market rate. Those who pay at or below the market may have difficulty

attracting workers. Further, they may find themselves training people who leave for higher paid positions. Merely paying more than

another farm enterprise, however, does not automatically result in higher performance and lower labor costs. Even when well paid,

workers may not see the connection between wages and their performance. Farmers who pay too much may find it difficult to

remain competitive. Furthermore, there are other factors valued by employees besides pay, such as working for an organization that

values their ideas and allows them to grow on the job.

Reconciling market & job evaluations

In wage setting, it is usually more beneficial to reconcile market information and job evaluation results than to singly rely on either.

Unique jobs are more appropriately priced on the basis of job evaluations. You may depend more heavily on the job market for

common jobs.

In most cases, farmers have freedom to satisfy both job evaluation and the market. Where the market pays a job substantially less

than a job evaluation does, however, you can either pay the higher wage, reconsider job evaluation factors, or pay the reduced wage.

The farmer has fewer viable options when the market would pay a higher wage than the job evaluation.

Elements of a Wage Structure

Wage structures, we have said, help illustrate many of the decisions you can make about pay. We have already introduced most of

the elements of a wage structure (review Figure 7-1) and will revisit them here.

Wage lines reflect wage differentials between jobs. The steeper the wage line slope, the greater the differences in pay between jobs.

In Figure 7-3, two farm enterprises pay their lowest level job the same. From this point on, wages for one farm rise at a sharper rate.

Figure 7-3: Wages may begin at the same level but rise sharper at one company


Wage lines also reflect the overall pay level of the organization. Figure 7-4 illustrates two farms whose differential between the


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highest and lowest paid job are the same despite the differences in the total wages paid.

Figure 7-4: Pay differential maintained


The number of pay grades (job groupings sharing the same wage levels) and the scope of rate ranges may vary. Rate ranges are

represented by the height of a pay grade, that is, the difference between the lowest and highest pay within the grade. For example,

the minimum and maximum salaries for tractor drivers might be $10 and $14 per hour, with a potential $4 pay range.

The more pay grades, the finer the distinctions between jobs. Alternatively, broadbanding is the use of fewer pay grades with largerrate ranges. Broadbanding allows employees to step out of very narrow or rigid job descriptions. When taken to an extreme,

broadbanding may result in significant differences in jobs going unrecognized, and pay equity concerns may arise. In organizations

with only a few pay grades, it may be that there are taller rate ranges within each pay grade (Figure 7-5). This allows room for pay

increases within a grade. Where many grades exist (Figure 7-6) workers are just as likely to obtain a pay increase by moving from one

pay grade to another (i.e., being promoted) as they are by getting a raise within their grade. In your farm operation, of course, there

may be few grades and short rate ranges, also.

Figure 7-5: Few pay grades (broad banding), with taller rate ranges


Figure 7-6: Many pay grades with shorter rate ranges


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There tends to be more overlap where a pay grade slope is flatter (Figure 7-7), or with larger rate ranges. We shall return to

overlapping rate ranges once more, as we discuss pay as a function of employee promotions.

Figure 7-7: Flatter slopes lead to increased overlap


Note: Wage Line II is flatter than Wage Line I, and thus contains more overlap.

Up to herefor simplicity in illustrationwe have depicted wage structures containing equal rate ranges for all pay grades (i.e., the

differential between the starting and top wages within each pay grade are equal). A fan structure is closer to reality (Figure 7-8). Inthis kind of structure the rate ranges are comparatively taller for jobs at higher pay grade classifications. To someone earning $9 an

hour, an increase of 50 cents an hour would be significant. To someone making $40 an hour, the 50 cent raise would not be nearly as

meaningful.

Figure 7-8: A fan type structure


When asked how large pay raises should be, consistent with this principle, employees at the lower end of the pay scale often respond


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in terms of specific dollar amounts (for example, $0.50 per hour), while those at middle and higher levels tend to speak in terms of

percentage increases.

Maintaining a Pay Structure

Maintaining pay equity within a compensation structure after it has been developed is an ongoing challenge. Here we will look at:

(i) Seniority-based raises(ii) Merit-based raises(iii) Promotion pay(iv) Out-of-line or color rates(v) Cost of living adjustments (COLAs)(vi) Flat vs. percentage COLAs(vii) Wage compression & minimum wage

Employees traditionally progress within a grade on the basis of merit and/or seniority. Decisions about pay increases should be fair,

sound, and well communicated to workers.

Seniority-based raises

Systems providing periodic raises regardless of evaluated merit may be based on the assumption that ability grows with time on the

ob, which simply is not always true. Many companies use pay increases to reward workers for "belonging" and for their length of

employment with the farm. As long as worker performance meets minimum standards, they continue to receive periodic raises.

Personnel value the certainty of seniority-based pay, and workers needs for increases in pay through time are served well. Seniority -

based pay also promotes continuous service and may reduce turnover.

Employers who give raises on the basis of seniority value the maturity and experience of senior workers, but they are sometimes

relieved when senior workers leave. In some instances, senior workers cost organizations disproportionately higher wages and

benefits (e.g., longer vacations) than their contribution to the organization. This is not a reflection on the senior employee, but rather,

on a system that undervalues the new employee with the promise that in due time, new personnel will be able to earn greater

amounts.

In order to avoid having employees climb the pay scale too quickly, smaller but more frequent pay increases may be given early in an

employees career. Increases later on are given at a slower pace. These increases, without being overpaid, must be large enough to

motivate employees to stay.

Merit-based raises

Merit wage increases are designed to recognize and reward improved worker performance and contribution to the organization. In

theory, in a merit system workers earn wage increments proportional to their performance. As with the seniority system, however,

once someone climbs to a given wage level his wages are rarely reduced. Incentive pay plans can solve the problem of giving

"permanent" raises based on present and past performance.

Incentive pay, however, can have a disrupting effect on the internal wage structure. Employers who use incentive pay systems for

some jobs and not others may find workers in some lower "value" jobs earn more than those in higher level ones. Companies

sometimes may abandon their incentive pay programs or expand them to cover more jobs.

Where pass/fail merit reviews are conducted at specified time-service intervalsand where employees tend to passthe process

may be viewed as a "glorified seniority system." Length of employment and wages are closely correlated within each job category. In

such a system workers would experience the same positive and negative benefits of a seniority system.

Managers may feel unduly constrained when given a choice between recommending a worker for a full step raise or nothing. To

deserve no raise an employee must have performed quite poorly. If the choices were even slightly expanded to include half or quarter


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steps (e.g., half step, step and a quarter), managers may be more likely to reward workers commensurate with their performance.

Whenever performance reviews affecting raises are given at specified time intervals, merit systems automatically include a seniority

factor. Alternatively, performance reviews for raises could be triggered by other events, such as specific performance

accomplishments, or skill acquisition (skill-based pay).

Some workers may merit faster advances to the top of the pay scale than others. Unfortunately, employees who advance too quickly

may not have any further economic increase to look forward to, and experience a feeling of stagnation. The only growth may mean

trying for a promotionor a job elsewhere.

In order to avoid having employees climb a merit scale too quickly, upper levels of the scale must be harder to achieve. Also, if the

merit system incorporates seniority (i.e., performance reviews are triggered by time spent on a given pay step) reviews need to take

place less frequently as people move up the pay scale.

Promotion pay

How much of a pay increase should accompany a promotion? If there is a pay structure policy, the boundaries of such a decision

already exist. A tall rate range or steep wage structure may permit room for larger wage increases after raises or promotions. The

wage differential will also depend on the height of rate range occupied by the employee within the present pay grade, as compared

to the height in the grade promoted to. Obviously, a greater pay increase will accompany those promotions where the employeemoves up more than one pay grade.

Any time there is an overlap between jobs, some workers in a lower grade may earn more than some workers on the adjacent higher

grade. If workers are seldom promoted from one grade to another, this structural characteristic rarely creates a dilemma.

When workers move from one grade to another, difficulties may arise. There might be some pay overlap between the jobs of

"assistant mechanic" and "mechanic." Consider an assistant mechanic who, because of many years of work, has reached the top of his

scale and makes more than a journeyman mechanic who has been working for a couple of years. The journeyman mechanic is likely

to tolerate the wage discrepancy because even though the assistant is earning more temporarily, due to seniority, in time the wages

of the journeyman are likely to surpass those of the assistant, due to the higher potential earnings in the journeymans pay grade.

The challenge arises when this assistant mechanic, who has topped out in his grade, decides to seek a promotion to mechanic. The

assistant is unlikely to want to start at the bottom step of the mechanic scale where he would be making less than in his previous job.

One solution would be to start the assistant mechanic at a higher step level in the mechanic grade. But if the newly promoted

mechanic ended up with higher pay than the more experienced journeymen, questions of internal equity may be raised. Both

employees are now performing exactly the same job but the one with less experience (although more overall seniority) is earning the

same as or more than the other. This pay equity situation may become even more pronounced when the accomplished mechanic has

to help train the one who just obtained the promotion.

You may help employees manage career and development plans to avoid losing pay when obtaining a promotion. They will have to

apply for promotions early enough in their careers as not to loose the potential economic advantage. Another possibility is to give the

promoted employee a one-time lump sum, or pay adder, to make the transition into the temporarily lower paying job more palatable.

Another promotion pay consideration is the inherent risk of failure in the new position. In Chapter 4 we spoke of a farm where those

promoted to supervisory positions immediately lost their seniority. The greater the risk of failure a promoted employee faces in a new

position, the larger the wage increase should be.

Out-of-line or color rates

Sooner or later you will encounter situations where jobs are paid more or less than their actual worth in the labor market. Different

"color rates" are commonly used by compensation specialists to indicate particular out-of-line pay relationships (Figure 7-9): red and

green illustrate either over or under compensated jobswhen compared to current worth.


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Although the colors imply the farmer loses money with the first and gains with the latter, both situations can be quite costly. If out-of-

line rates are not corrected speedily, both internal and external equity will be disturbed.

Figure 7-9: Red and green rates


Red rates (overpaid jobs). If rates are allowed to stay out of proportion to the rest of the farm jobs, other workers may feel

mistreated. Also, the wage bill will likely be higher than it need be. When red-grade rates are cut abruptly, workers may experience

difficulty meeting their financial obligations. Smoother alternatives include combinations of freezing raises until internal equity is

reached; exerting efforts to transfer workers to higher paid jobs consistent with present wages; or even adjusting rates downward

immediately while giving workers a lump sum (or several) to offset the downward adjustment.

Green rates (underpaid jobs). Green-grade rates can be brought up into line immediately in one or two steps. A grower may attempt

to cut labor costs with green rates, but the benefits may be short term as it will be difficult to retain valuable workers.

Two likely green-grade indicators are:

(1) increases in turnover (with employees seeking better paying jobs); and

(2) feeling forced to start inexperienced new workers up near the middle of a pay grade.

If the latter approach is taken, no sound basis for pay differences among workers may remain.

Figure 7-10: Current wages have failed to keep up with market reality


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Job importance (increases to the right)-->

Of course, it is possible an employer does not have a green-grade rate problem, but rather, her whole wage structure may have failed

to keep up with the market (Figure 7-10).

Cost of living adjustments (COLAs)

Inflation can have especially devastating effects on a workers ability to make ends meet. We have seen how farmers whose pay

structures fall below market values may have difficulty attracting and retaining personnel. Some corporations (and often union

contracts) stipulate a COLA based on the Consumer Price Index (CPI). The index is supposed to reflect cost-of-living changes. The

prices of common commodities purchased by most consumers are observed and compared.

While the CPI can be a useful tool, some observers feel the list of common articles used to come up with the index is not so common.

The greatest challenge posed by the CPI is that it acts independently from labor market wages. In doing so, it may exaggerate and

perpetuate inflation. Instead of using the CPI, farmers may prefer to monitor changes in the labor market through periodic wage

surveys. Geographical transfersespecially international onesmay involve upward or downward COLAs to reflect substantial

differences in cost-of-living requirements.

Flat vs. percentage COLAs

COLAs may be given in terms of flat dollar amounts or percentage increases. Those who argue in favor of flat increases feel workers at

the lower end of the earning scale need the COLA increases more than those at the higher end. Across-the-board percentage

increases, they contend, have the effect of "further widening the gap in already disparate incomes" between the haves and have-

nots. Some even feel it would be fair to give greater increases to those who make less.

Those who favor percentage across-the-board increases allege flat increases cause wage compression. Wage compression means

differentials between higher and lower paying jobs decrease. For instance, if workers making $8 an hour and workers making $18 an

hour both get a $2 an hour increase, the first group obtained a 25 percent increase while the second group only a 11 percent

increase. If such a trend continues, proportional differentials between occupational wages can be all but eliminated. A conceivable

compromise may mean alternating between giving straight and percentage increases.

Wage compression & minimum wage

Increases in the minimum wage can also cause pay compression in agricultural enterprises paying at, or near, the legal minimum. For

instance, if starting hourly wages for irrigators and hoers are $8.15 and $7.20, respectively, a new minimum wage of $8.00 would

bring both to essentially the same starting wage (Figure 7-11).

In order to avoid raising the complete wage structure a farmer may, without raising the top wage, make minor adjustments all along

the wage structure. Although one pay grade would not take the brunt of the wage compression, this approach may create pay

compression throughout the organization.

Figure 7-11: Sample wage compression


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Comparable worth doctrine

We will first distinguish between comparable worth and equal pay for equal work, and then briefly review arguments in favor of and

against comparable worth.

Some types of jobs are held mostly by women, such as sorting tomatoes and peaches. Others are filled mostly by men, such as picking

peaches and grapes, and driving tractors. This is slowly changing with fewer jobs being categorized as "mens work" or "womens

work." But it is not changing fast enough for those who feel "womens work" is underpaid in comparison with different but

comparable "mens work." The move to correct such pay differences is based on the "comparable worth doctrine." While the debate

has dealt mostly with jobs segregated by sex, discussion can also focus on jobs held mostly by minority groups, as is so common in

farm work.

Earnings gap

Both advocates and critics of the comparable worth doctrine agree some jobs are dominated by women and some by men, and that

women often earn less than men. Solutions and reasons offered by advocates and critics are different.

The earnings gap between men and women has been cited by comparable worth advocates as clear evidence of sex discrimination.

When men and women who do the same type of work and bring similar experience and skill to the job are compared, their present

wages and future pay outlooks appear more even.

Many reasons have been offered to explain why men earn more than women. The results of one study suggest gender-differentiated

values and preferences are a factor. Males may choose higher paying occupations more frequently while women may place greater

value on more stimulating jobs.

Some believe women in the past did not invest as much time as men in higher education, resulting in higher wages for men. This

argument does not hold up today, however, when a greater percentage of women are pursuing professional occupations. Another

reason given for the higher earnings of males is their longer work experience in general as well as greater seniority with a givenemployer. It is more common for women to leave the labor force to raise a family or to leave a job to follow a spouse who has been

transferred.

Market vs. job evaluation

Advocates of comparable worth feel market values used in wage settings perpetuate inequities: "Were talking about fundamenta lly

altering the marketplace because the marketplace is inherently discriminatory." Though advocates acknowledge the subjectivity of

ob evaluations, they favor basing wages on job evaluations rather than on market comparisons.


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BENEFIT AND SALARY STRUCTURE CONCEPTS

Overview: An examination of how wage structures are set: by committee, job evaluation, society, the labor market, and

organization tradition.

THE WAGE STRUCTURE DECISION

"How many different jobs do we have?"

"How can they decide to pay that job over there more than our job?"

"What criteria should we use to decide what different jobs are worth to us?"

"How do we decide what to pay this job when there is no market rate?"

"How many and what kinds of pay grades should we have, considering the kind of organization this is?"

"I have a lot more responsibility than she does. Why aren't I making as much as she is?"

The wage structure decision has to do with determining the wage rates for jobs. It combines the external marketplace

considered in the pay level decision with the relative value that different jobs have to the organization. The organizational value

of a job is determined through job evaluation, which in turn relies on job analysis to provide the information required for the

evaluation. The organizational and market values of jobs are integrated through the development of a wage structure, which

defines job levels or grades, and assigns wage rates to those grades by reference to market rates.

Critics of comparable worth feel that as long as women have a choice of jobs, there is no need for the comparable worth doctrine.

Today, women are free to choose work in male-dominated jobs and obtain higher wages. The law already requires that women

holding the same jobs as men be paid the same wages. Assuring widespread education and opportunities to all who desire them can

help reduce inequities between the sexes and races.

Instituting comparable worth would result in massive government intervention. This may mean either setting a national comparable

worth policy or requiring the validation of job evaluations within organizations. If governmentrather than individual employerswould determine the value of compensable factors, the farmers prerogative to manage would be substantially curtailed. Finall y, in a

growing world-market economy, a nation that ignores market forces would certainly be at a competitive disadvantage.

Summary

This chapter focused on internal wage structures, the framework for establishing and maintaining pay relationships in a farm

organization. An important feature of a well-designed pay system is the provision for rewarding performance achievements with

increased pay, either within the present job or through a promotion.

Pay is an important work reward for most people. Workers expect their wages will:

(1) cover their basic living expenses,

(2) keep up with inflation,

(3) leave some money for savings or recreation, and

(4) increase over time.

Wages can set based on (1) job evaluations, and (2) market values.

In practice, results of job evaluations must often defer to market considerations. Once wages are set, pay structures must be

continually evaluated to assure competitiveness in attracting, retaining, and motivating personnel. In Chapter 8 we will consider pay

based on worker output rather than time on the job.


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The concepts of the wage structure decision are covered in this chapter. Chapter 14 covers job analysis and job evaluation.

Chapter 15 describes how all the information and decisions collected thus far are combined into a wage structure that sets the

wage rate or range for each organizational job.

Wage Structure Concepts

In most organizations wage and salary rates are still assigned to jobs. The relationships between the pay for jobs involve pay

structure decisions. Although organizations often make pay level decisions (how much to pay) and pay structure decisions (payrelationship) at the same time, these decisions and the process by which they are reached require separate treatment.

Actually, wage structures represent wage relationships of all kinds. Analysis of wage differentials of any kind (geographic,

industry, community, or occupation) deals with wage structure issues. But because our primary focus is on pay decisions in

organizations, our concern is with pay differences between jobs. In fact, determining the pay structure of an organization may

be usefully described as putting dollar signs on jobs. Decisions on wage relationships among jobs within an organization are

largely within the control of its decision makers. Wage level decisions are usually influenced more by forces external to the

organization than are wage structure decisions.

Some organizations pay for skills possessed by employees rather than for the jobs employees hold. The rationale is usually

serious and continual skill shortages experienced by the organization. But most organizations measure employee contributions

first in terms of the jobs employees hold. One interesting analysis of organizational compensation decisions is that pay

structure decisions are intended to achieve retention of employees through prevention of dissatisfaction and encouragement

of employee cooperation.1

Pay level decisions, in this analysis, are intended to attract employees. To this analysis could beadded the statement that wage structure decisions are intended to encourage employees to make a career with the

organization and to accept tra

Internal Wage Structure

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