Building blocks
In an organization the management compensates employees as a way of attracting, recruiting and also reducing employees’ turnover (Berger. A. & Berger, D., 2008, p. 63). A competitive market pay system can either be internal or external. In External competitiveness payments made to employees are compared with those of the other organizations especially competitors. On the other hand internal competitiveness is where compensation made to employees in the same organization is compared. Internal equity is the fairness in payments that can be comparable to other employees in the same organisation. On the other hand external equity is the fairness in compensation within an organization that can be compared to the same positions in similar firms or organisation. The internal and external equity helps to develop market competitiveness.
According to Berger, A. & Berger, D (2008 p.64) the salary structure is one of the basic building blocks. Salary structure is determined by ranking jobs or the roles according to an organization’s internal environment. Job clustering which is mainly based on internal equity and the market levels also influences the salary structure. Salary structures show how much a particular job should be paid for according to the organization’s compensation strategy. There are four types of salary structures which include; traditional, flexible, career-based and global. A traditional structure has many grades and it is always technically driven.
The other basic building block of developing a competitive market system is job evaluation. Job evaluation is the process used to ascertain internal equity. There are three sequential steps involved in job evaluation and they include; job analysis, job description and job rating.
Job evaluation process
According to Berger, A., & Berger, D., (2008, p.95) job evaluation is a process that hierarchically orders jobs according to ranks or their value. It involves three sequential processes which are, job analysis; converting the analysis into a job description and job rating. Job analyzing is the first process and it involves establishing and evaluating the characteristics used to define a certain job rank or position. After job analysis is completed the results or the findings are prepared as a rank or position description. This helps the management to understand the various job are positions in the organization. Finally, each position is put in a certain class and then a class specification is documented.
Compensable factors
The compensable factors are acquired through formal education and are developed through experience. They include; mental, skill and physical requirements; working conditions and responsibilities. Compensable factors are used in job descriptions (Henderson, n.d, p.220). A senior manager is a very coveted position in an organization. This position requires one to have knowledge, skills, responsibilities and mental requirements. That is, the individual should be able to make critical decisions. Therefore in this position the individual has a higher salary because he has more responsibilities and skills. According to job evaluation, a senior manager’s skill has to be analyzed so that the position can be described and hence ranked as either senior or executive.
If the job evaluation process is not well followed it might lead to the following effects to an organisation; the management might promote those workers who are not competent; it might also not be able to formulate a strategy of compensating the workers. In addition, the organisation may end up lacking a good leadership style.
The workers may become de-motivated because they are not well compensated.
Reference list
- Berger, A.L. & Berger, D. (2008). The compensation handbook. U.K: McGraw Hill professional
- Henderson, I.R. (n.d). Compensation management in a knowledge-based World. New Jersey: Printice hall.