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It Pays To Pays

November 27, 2009

The completion of a major corporate acquisition was recently delayed for several weeks. When it was finally announced, the chairman of the acquiring company was asked the reason for the delay. He replied that there was just one matter that kept the parties apart. Money! Its always the money.!

When you look at your relationship with your employees don’t underestimate the impact of the money. It may seem obvious, but all too often the obvious is given insufficient attention.

The money you pay to your employees is one of the single largest expenditures in your business and it is most likely your employee’s primary source of income. Your wage and salary structure has an enormous impact on your business. You must recognize its importance and manage it to your advantage.

The proper development of a wage and salary structure is dependent upon a number of differing factors peculiar to each business. However, there are certain fundamentals that must be included in all well administered programs.

All consistently successful programs need a firm philosophical foundation for support. Any number of philosophies on compensation can be successful depending on the type of business involved. What is essential is that you articulate a philosophy and develop policies that are consistent with your objectives and appropriate for your type of business.

With a well thought out philosophy as the foundation of the program, attention must be given to four issues; internal equity, external equity, justification and motivation. Internal equity means that employees are compensated fairly as compared with their fellow employees. External equity implies that your employees are paid competitively as compared to others doing similar jobs in the same industry within your area. Justification means that each employee’s compensation is a worth-while expenditure for the business. And finally the program should be constructed so as to have a positive impact on the motivation of the employees.

The employee’s assessment of the fairness of the structure is important. Pay inequities within a business, whether real or imagined, have a negative impact. The establishment of equitable internal relationships can be obtained through a process of job evaluation. This process measures the relative value of each job to the business. These measurements are then used to establish the salary structure with the highest valued jobs receiving the greatest compensation and the lower rated jobs receiving the least.

It is important to recognize that the job evaluation process measures the worth of the job and not the individual that does the job. The process begins with a job analysis requiring that the content of each job be defined. Using factors such as the required knowledge and skills, complexity of assigned tasks and the scope and impact of the position, the various positions are ranked or grouped in grades. The result of the process will be a ranking of the jobs upon which equitable compensation decisions can be made.

To insure external equity, you now must “price” certain key jobs with wage and salary scales used outside your business. The jobs chosen for comparison should have job content that can be easily compared with outside positions, represent different levels in your internal ranking and include heavily populated positions within your business.

Comparisons can be made with surveys that have been conducted by business organizations, government agencies and other private groups. More than one survey should be reviewed. Caution should be given to comparing job titles. A good survey will include a job content description for each position.

You should be certain that your business is justified in creating each position and employing the individuals in those positions. Aside from the obvious wasting of resources, the continued existence of any unnecessary positions will cause problems.

The subject of motivation goes well beyond the bounds of a wage and salary program. However, incentives should be incorporated into the structure. This is done by establishing salary ranges for each position. This provides an opportunity to recognize individual performance within a particular job classification.

The size of the range will increase with the higher rated jobs. This will permit the largest incentives for those individuals that potentially have the greatest impact on the business. In addition to a salary structure that provides incentive, a good compensation program will provide additional incentives designed to meet the specific needs of the business.

Because it’s your business, don’t forget to pay a lot of attention to that one little issue, money! A well thought out and properly communicated wage and salary program will prevent problems and provide results.

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