Job Evaluation, Market Pricing, and Pay Structures - Term Paper Example

?Pay structures Analysis of difference in job evaluation and market pricing approaches to setting pay ranges and the strengths and drawbacks of each approach: Pay is an important aspect for every employee and the organization. For employees it is the return of their efforts whereas for organizations it is about paying for the required efforts. Pay is actually very crucial for organizations to decide, giving sufficient, desirable and competitive pay is a key decision to make. There are different approaches to set pay ranges which are used by organizations, of which two major are job evaluation approach and market pricing approach (Laabs, 1997). Job evaluation approach Job evaluation approach to set pay range ranks the job on the basis of responsibilities and duties expected by the position to perform. This evaluation technique helps the organization to select a pay grade that is a pay range with minimum and maximum rate. This approach evaluates a job on the basis of four factors which are skills possessed by the individual, efforts made by the individual, responsibilities performed by the individual and working conditions of the individual (Armstrong, 2007). (Jenss & Associates) On the basis of above factors organizations design pay structures, although there are many variations in this process but all organizations using this techniques follow the same approach which is to define each job in the group on the basis of above discussed generic factors. The first step in this approach is to decide which job to be covered in the evaluation and what factors are to be used to evaluate, second step is to gather information about each job to be evaluated, third step is to rate each job evaluation factors of the job, and the step four in the process is to select the benchmark jobs among jobs selected for evaluation which connects internal pay structure with external labor market (Armstrong, 2007). This systematic process helps the organization to evaluate a job description and pay accordingly; this is a commonly used method by organizations since around last 75years. Well this approach provides a base to evaluate a job for setting pay grade according to the job description but this is suitable for large organizations which have stable job structure and where market data is less available. This method is quite expensive, complex and hard to understandable for employees. The major drawback of this approach is that it rewards tenure and efforts rather than outcomes and performances which are quite unjustifiable (Armstrong and Brown, 2001). Market pricing approach Market pricing approach sets pay scale according to the prevailing market rate of the pay for similar job, this approach is the most dominant and common way organizations use to determine pay scales. Evolution of this method to sets pay scale has shifted the organization’s focus from internal methods to use market data to sets pay scale. This approach place jobs in grades based on the level of competitive pay for different jobs, in this way it also decreases the level of grades and makes the job and pay structure simple (Armstrong, 2007). This method sets pay scale for selected job position and its description on the prevailing market rate. In this way organizations stay competitive and are able to retain their employees for long. This approach is comparatively less expensive and easily understandable for employees, this approach also reduces disputes between employees regarding pay scale. It evaluates jobs on results and accountability rather than efforts and tenure (Heneman and LeBlanc, 2002). There is a major drawback with this approach; if the market data is not available for the job position for which pay scale needed to be set than it becomes very hard and complicated for the organizations to set pay scale; Secondly this approach can result in statistical errors such as to place the job in wrong grade; thirdly this approach is highly dependent upon market survey, any lacking or error in the survey can result in disaster and wrong placement of jobs. Reasons Behind the push today in many organizations (for example, JCPenney) for pay to be determined by job accountabilities and results, not effort and tenure: Organizations today are more decentralized than before, they encourage their employees to take part in decision making and make them responsible for their acts. This is a quite common practice in organizations adopted since past few years, in this way organizations divides the work and responsibilities (Graebner and Seaweard, 2004). This changed trend has pushed many organizations to change their criteria to set pay scales. Today organizations are more towards setting the pay scale on the basis of job accountabilities and results rather than efforts and tenure. This approach is gaining more and more popularity with spreading awareness of benefits attached to this approach (Graebner and Seaweard, 2004). There are many reasons which have pushed many organizations to determine pay by job accountabilities and outcomes which are discussed below (Graebner and Seaweard, 2004): This approach allows organizations to remove injustice in regards to pay scale. This approach reduces the job grading and makes the structure simple and less costly This approach of to set pay scales is more justifiable and efficient than job evaluation approach to set pay scale. This approach makes the employees accountable for their actions and divides the work and risk By paying according to accountabilities and results, employees get motivated to work hard to achieve targets. As a whole this approach increases organizational performance as it increases employees’ motivation to work effectively which is directly linked organizational performance. This approach makes the work environment more productive and helps the organization to compete in this technologically advanced competitive era. This approach helps the organization to develop an efficient work force which can create competitive advantage for the organization. This approach protects the organization from paying more to less worthy worker. Due to all above reasons many companies are paying their employees according to the job accountabilities and results, as these two things are directly related to the organizational performance and market position (Armstrong, 2007). Research-based recommendations about whether or not the job evaluation approach to setting pay is outdated and whether or not it should be replaced:  Job evaluation approach to setting pay is still used by many companies but most of them have replaced this approach from market pricing approach. This approach doesn’t cater many rising demands in macro environment and is a hindrance in organizational growth. Rewarding a person on skills, efforts, responsibilities and working conditions rather than accountabilities and results seems unfair and inefficient way, as this avoids the importance of direct link between employees’ outcome and organizational profit growth in this competitive environment where human resource should be efficient enough to meet organization’s goals and objectives (Hilling, 2003). In this competitive and technologically advanced surroundings, human resource plays an important role to sustain and improve market position and market share, therefore to make the work force efficient and more productive, organizations should link their performances with their pay and rewards rather than rewarding them on their skills, efforts, responsibilities and working conditions. today the benefits of job evaluation approach to set pay scale seems to be fading therefore this approach to set pay scale seems to be outdated and should be replaced completely as organizations should find effective ways to motivate employees to work well and to cut unnecessary cost by rewarding the right person at right job (Dufetel, 1991). REFERENCES Armstrong, M. (2007). A handbook of employer reward management and practice. London, UK: Kogan Page. Armstrong, M., and Brown, D. (2001). New Dimensions in Pay Management. London: Chartered Institute of Personnel and Development. Dufetel, L. (1991). ‘Job evaluation: still at the frontier.’ Compensation and Benefits Review, 23(4): 53-67. Graebner, D., and Seaweard, K. (2004). ‘Bringing it all insides: job evaluation and market pricing at JCPenney.’ Workspan, 47(8): 30-35. Heneman, R., and LeBlanc, P. (2002). ‘Developing a more relevant and competitive approach for valuing knowledge work.’ Compensation and Benefits Review, 34(4): 43-47. Hilling, F. (2003). ‘Job evaluation is here to stay.’ WorldatWork Journal, 12(3): 14-21. Jenss & Associates. An overview of the Job Evaluation Process. Retrieved, May 28, 2012, from http://jenss.com/Job%20Evaluation.pdf Laabs, J. L.  (1997, May). Rating jobs against new values. Workforce, 76(5), 38-49 Read More