Preparation of Wage Structure
The next step is to determine the wage structure. For this, several decisions need be taken, such as:
A. whether the organization wishes, or is able, to pay amounts above, below, or equal to the average in the community or industry;
B. whether wage ranges should provide for merit increases or whether there should be single rates;
C. the number and width of the ‘pay grades’ and the extent of overlap;
D. which jobs are to be placed in each of the pay grades;
E. the actual money value to be assigned to various pay grades
F. differentials between pay plans; and
G. what to do with salaries that are out of line once these decisions have been made.
There are though no hard and fast rules for making such decisions, and procedure commonly used is the two dimensional graph on which job evaluation points for key jobs are plotted against actual amounts paid or against desired levels. Plotting the remaining jobs then reveals which jobs seem to be improperly paid with respect to the key jobs and to each other.
The ‘wage curve’ shows the relationship between:
I. The “value” of the job; and
II. The “average wage rates” of these grades (or jobs).
What is a Wage Rate?
A wage is an amount of money paid to a worker for some specified quantity of labor. When expressed with respect to time, it is typically called the wage rate. The wage rate is the pre-tax amount of payment, usually monetary, paid per unit of labor. It is the main monetary item that the worker and the employer focus on.
Rate Ranges
‘Rate ranges’ can be developed in various ways. The one usually adopted approach is to use the “Wage Curve.” A maximum and minimum rate for each grade, such as 15% above and below the wage line, may be arbitrarily decided.
Setting of Rate Ranges
The major way in which organizations allow for factors other than the job to enter into the determination of an individual’s pay is to develop a range of pay for each job or grade of jobs. A
rate range is a range of pay determined by the organization to be appropriate for anyone who occupies a particular job. A rate range consists of a minimum pay rate (the beginning hire rate), a midpoint (the market or job rate), and a maximum (the highest rate the organization is willing to pay for the job).
Single-Rate Wage Systems
Before discussing various aspects of rate ranges we should first consider situation in which there is no range. There a single rate is paid for the job and the individual receives just that rate. This pay rate is the market rate and may be paid to either a job or a pay grade. If a job rate is used, the wage line provides the job rate. The individual is paid in accordance with the number of points assigned the job by the job evaluation system, by the competitive value discovered in a review, a salary survey, or by the competitive value provided by a research analysis product.
Where the grade rate prevails, the individual is paid in accordance with the grade level assigned to the job. This type of system is useful where performance variation and/ or other personal characteristics are nonexistent or unimportant. Not all jobs allow for a significant difference in performance.
Dimensions of Ranges
Any wage structure has a number of rate ranges and pay grades. This number can be a matter of the policy of the organization. Small organizations tend to have a small number of pay grades
accompanied by wide pay ranges, broad definition of job titles, a great deal of movement within pay grades, little overlap between grades and limited promotion to higher grades. Some
organizations have many grades, which tends to create an opposite set of characteristics.
When examining pay ranges we can determine the total wage structure with the help of three characteristics: the breadth of the rate range, the number of pay grades and the overlap.
If one knows the bottom and top of the wage structure, the slope of the pay line, and any two of the three characteristics just cited, the third will be determined.
Range Breadth
It is the vertical dimension of the range. The breadth may be stated in dollar amounts or in percentages. The latter is more common and will be used here. The breadth of the range should vary with the criteria for movement within the range. Assuming that performance is the criterion, the breadth would represent the opportunity for performance differences in the job. Where ranges are narrow, the assumption is that performance differences are narrow and vice versa. In practice, hourly jobs have ranges of 10 to 20 percent, office jobs 15 to 35 percent, and managerial jobs 25 to 100 percent.
A WAGE STRUCTURE
What is a Wage Level?
The ‘wage levels’ represent the money an average worker makes in a geographic area or in his organization. It is only an average; specific markets or firms and individual wages can vary widely from the average.
How are Wage Levels are Set?
Wage levels are calculated using position importance and skill required as criteria. Consult your trade association and accountant to learn the most current practices, cost ratios and profit margins in your business field. While there is a minimum wage set by federal law for most jobs, the actual wage paid is entirely between you and your prospective employee.