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Pay is a scalable way to determine productivity.
If you’re a growing small business and need help, there are a number of non-employee options available to help you staff your business (explained here), but if you do choose to move forward with part- or full-time employees, what should you pay them? The general rule of thumb is to pay a salary based on experience, location and the available talent pool. But how do you bring all these factors together and come up with a number that potential candidates will find attractive (and you can afford)? Have a solid job description If you don’t know what you’re looking for, it’s going to be really hard to find it. In particular, when you’re looking at pricing a job there is often a wide range of jobs that have the same title. So you need to be really specific about the range of duties and responsibilities of the job. The problem for many small businesses, as Farris explains, is that they are often piecing together jobs based on the work that needs to be done in the organization, which means that these job descriptions are often for jobs that don’t exist in the real world – which makes it hard to figure out what that job is worth. Farris suggests trying to build a job description that aligns as closely as possible with what other organizations advertise (search online for job description templates). This will make it easier to price the job. Look around – What is the industry paying for that job? Do an online search for the job you’re looking to create to try and gauge how the market is pricing that job. For example, search for “social media and content management specialist salary range.” Then narrow your search to your region or city: “social media and content management specialist salary range Boston.” What you’re looking for are local guides or salary surveys that can help you better understand the market for this job in your area. Next, search trade magazines or sites potential candidates might visit. These often publish their own salary surveys. Ask around – talk to other business owners what they pay for jobs like the one you’re trying to hire for. Try to compare apples to apples, so get into the specifics of the duties involved. Conduct advanced searches on job sites Even after completing this type of research, you may just find you still haven’t found the market guide price that fits your job description. One way to drill down a little more is to query online job sites like CareerBuilder, Monster or Jobs.com. Using the advanced search tool, you can really drill down into specific job keywords, categories, (exclude location for now, you’ll come back to that later) that match your needs – and if you can, exclude jobs that don’t show salary information in your search. Your search results will give you a good picture of the current market – what employees are paying, right now, for jobs like yours. Browse the results and search for the job descriptions that best match yours; print these out and narrow down your list to the ones that are the closest. What you should see start to emerge is a salary range – some jobs may have more responsibility, some less – but keep that range in mind. Do a cost of living comparison Farris next recommends using a salary relocation calculator (easily found online) to further narrow your search. So, say your printed list of comparable job descriptions includes a good fit but is for a job based across the other side of the country. The cost of living calculator will give you a good indication of what an equivalent job commands in salary in your city or neighborhood, further narrowing the salary range that you had earlier. Advertise a salary range Instead of picking a number and sticking with it, Farris recommends keeping that narrowed down salary range in mind, and even including it in your job advertisement (for example, “salary range - $25-30,000 commensurate with experience). Then take a look at some candidates at both the low and high end of the range. Ask yourself if you’d be able to pay $5,000 more to get a candidate with greater skill or experience. If you don’t see the value, then go ahead and hire them at the low end of the range. The key is to remember that having a salary range gives you the flexibility to bring in a solid pool of talent; then assess individually where
I see how this could be a positive alternative.
Job analysis is systematic method of discovering and describing the job and job similarities and job evaluation is placing a value on a job.
In order to determine staff pay it is best to set pay levels as all other competitors in order to match the market, by so doing talent quality is maximized, along side with labor cost.
Would the best option for determining staff pay than not be best to just combine the internal and external equity from the start to establish just the right pay for your staff as both has great benefits to gain information?
I think it's a wise idea to lead the market, though the company costs will high, the company can attract the best applicants that will in return yield high productivity leading to high profits.
It is always good to do research on what your industry pays but then determine your own company's pay levels according to your company objectives.
1.organisation calculate the wages per day/month for an employee 2.all the employees do receive the same amount of wages per day/month? 3.why they must be a disparity in the wages 4.do they have the same pay rate 5.
Have you ever wondered how a company decides how much to pay for a particular job? Imagine that you have seen a job posted on the Internet. It reads,
“Office Assistant Wanted. Will answer the phone and greet visitors. Some word processing duties. Other duties as assigned. Start at USD 8.00 an hour”.
How did the manager decide to pay USD 8.00 per hour? Why did she decide that was fair?
In this section, we will cover the two types of “fairness” important in designing a base pay system - Internal equity, and External equity.
The first consideration is that the base pay system needs to be internally equitable. This means that the pay differentials between jobs need to be appropriate. The amount of base pay assigned to jobs needs to reflect the relative contribution of each job to the company’s business objectives.
In determining this, the manager should ask herself, “How does the work of the office assistant described compare with the work of the office manager?”
Another question to be asked is, “Does one contribute to solutions for customers more than another?”
Internal equity implies that pay rates should be the same for jobs where the work is similar and different for jobs where the work is dissimilar. Determining the appropriate differential in pay for people performing different work is a key challenge. Compensation specialists use two tools to help make these decisions: job analysis and job evaluation.
Job analysis is a systematic method to discover and describe the differences and similarities among jobs. A good job analysis collects sufficient information to adequately identify, define, and describe the content of a job. Since job titles may in and of themselves be misleading, for example, “systems analyst” does not reveal much about the job, the content of the job is more important to the analysis than the title.
In general, a typical job analysis attempts to describe the skill, effort, responsibility, and working conditions of each job.
• Skill refers to the experience, training, education, and ability required by the job.
• Effort refers to the mental or physical degree of effort actually expended in the performance of the job.
• Responsibility refers to the degree of accountability required in the performance of a job.
• Working conditions refer to the physical surroundings and hazards of a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation.
Job evaluation is a process that takes the information gathered by the job analysis and places a value on the job. Job evaluation is the process of systematically determining the relative worth of jobs based on a judgment of each job’s value to the organization.
The most commonly used method of job evaluation in the United States and Europe is the “point method”. The point method consists of three steps:
(1) defining a set of compensable factors,
(2) creating a numerical scale for each compensable factor, and
(3) weighting each compensable factor.
Each job’s relative value is determined by the total points assigned to it.
External equity refers to the relationship between one company’s pay levels in comparison to what other employers pay.
Some employers set their pay levels higher than their competition, hoping to attract the best applicants. This is called “leading the market”. The risk in leading the market is that a company’s costs will generally be higher than its competitors’ costs.
Other employers set their pay levels lower than their competition, hoping to save labor costs. This is called “lagging the market”. The risk in lagging the market is that the company will be unable to attract the best applicants.
Most employers set their pay levels the same as their competition. This is called “matching the market”. Matching the market maximizes the quality of talent while minimizing labor costs.
Defining your market: An important question in external equity is how you define your market. Traditionally, markets can be defined in one of three ways.
One way to define your market is by identifying companies who hire employees with the same occupations or skills. For example, if a company hires electrical engineers, it may define its market as all companies that hire electrical engineers.
Another way to define a market is by identifying companies who operate in the same geographic area. For example, if the company is in Denver, Colorado, the market would be defined as all companies in Denver, Colorado.
A third way to define a company’s market is by identifying direct competitors, that is, those companies who produce the same products and services. For example, Shady Acres Veterinary Clinic may define its market as all other veterinary clinics.
Notice that these three characterizations can interact, that is, Shady Acres might define its market as all veterinary clinics in Denver, Colorado that employ veterinary technicians.
Surveying compensation paid: Once you have defined your market, the next step is to survey the compensation paid by employers in your market. Surveys can be done in a variety of ways.
1. There are salary data publicly available through the Bureau of Labor Statistics in the United States.
2. There are salary data publicly available through the Internet.
3. Salary information can be obtained from a third party source, such as an industry group or employer organization, which has collected general information for a geographic region or industry.
4. The company can hire a consulting organization to custom design a survey.
5. A company can conduct their own survey.
A company that has performed appropriate research has two sets of data:
The first is pay structure, the output from the job evaluation.
The second is market data, the output from the market survey.
The next step will be to combine these two sets of data, to create a pay policy line.
The pay policy line can be drawn freehand, by graphing actual salaries and connecting the dots. Alternatively, statistical techniques such as regression analysis are used to create a pay policy line. Regression generates a straight line that best fits the data by minimizing the variance around the line. In other words, the straight line generated by the regression analysis will be the line that best combines the internal value of a job (from job evaluation points) and the external value of a job (from the market survey).
You can also enact a policy of “leading” the market by raising the line, and the policy of “lagging” the market by lowering the line.
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