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The PROCESS OF WAGE DETERMINATION

The wage determination process involves 7 interrelated steps: 1) job analysis to define duties and skills, 2) job evaluation to assign relative worth, 3) salary surveys to set pay levels, 4) grouping similar jobs into pay grades, 5) establishing a wage structure with pay ranges for each grade, 6) developing rules for wage administration, and 7) explaining the system to employees and assigning wages. The goal is to create a fair and competitive pay system through analyzing jobs, setting relative values, benchmarking against market rates, and developing internal alignment of pay levels and administration policies.

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757 views13 pages

The PROCESS OF WAGE DETERMINATION

The wage determination process involves 7 interrelated steps: 1) job analysis to define duties and skills, 2) job evaluation to assign relative worth, 3) salary surveys to set pay levels, 4) grouping similar jobs into pay grades, 5) establishing a wage structure with pay ranges for each grade, 6) developing rules for wage administration, and 7) explaining the system to employees and assigning wages. The goal is to create a fair and competitive pay system through analyzing jobs, setting relative values, benchmarking against market rates, and developing internal alignment of pay levels and administration policies.

Uploaded by

Daniel Peter
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© © All Rights Reserved
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THE PROCESS OF WAGE

DETERMINATION
WAGE DETERMINATION

• Wage determination is a complex process.

• The steps involved in determining wage rates involves performing job


analysis, wage surveys, analysis of relevant organizational problems, forming
wage structure, framing rules of wage administration, explaining these to
employees, assigning grades and price to each job and paying the guaranteed
wage.
• The process of determining wages involves a series of interrelated steps.
“7” PROCESS OF WAGE DETERMINATION

1) Job Analysis
2) Job Evaluation
3) Conduct the Salary Survey
4) Grouping of Similar Jobs into Similar Grades – Pay Grades
5) Preparation of Wage Structure – Wage Curves
6) Developing Pay Ranges – (Wage Structure)
7) Wage Administration Rules
1) JOB ANALYSIS

It involves the identification and precisely identifying the required tasks,


the knowledge and skills necessary for performing them and the conditions
under which they must be performed. It is the basic technical procedure that is
used to define the duties, responsibilities and accountabilities of a job. It
involves determination of methods and equipment used and the skills and
attitude required for successful performance of the job.
2) JOB EVALUATION

It is the formal process used to assign wage and salary rates to job. A
variety of systems and products exist to guide this process, each different
from the other in packaging, pricing, philosophy, procedures and utility.
It is a systematic technique determining the worth of a job. Once the
worth is determined, it becomes easier to fix the wage structure that will
be fair and remunerative.
3) CONDUCT THE SALARY SURVEY

Once the process of job evaluation has determined the relative worth of jobs, the actual amounts
to be paid must be determined. This is done by making wage or salary surveys in the area
concerned.
Employers use these surveys in three ways:
(i) They use survey data to price ‘benchmark jobs’, which are usually known as good indicators on
the basis of this, the firm then slots its other jobs, based on their relative worth to the firm.
(ii) The employers typically price 20% or more of their positions directly in the market place
based on a formal or informal survey of what comparable firms are paying for comparable jobs.
(iii) The surveys also collect data on benefits like insurance, sick leave and vacations to provide a
basis for decisions regarding employee benefits.
4) GROUPING OF SIMILAR JOBS INTO SIMILAR GRADES – PAY GRADES

Once the relative worth of each job is determined, the task of assigning
pay rate to each job is done which is possible only by first grouping jobs
into pay grades. It comprises of jobs of approximately equal nature or
importance, as established by job evaluation. The committee used various
techniques for pay grades such as point method (Job falling within a range
of points), Ranking method, where the grade consists of all jobs that fall
within two or three ranks and the classification method categorises jobs into
classes or grades.
5) PREPARATION OF WAGE STRUCTURE – WAGE CURVES

The next step is to determine the wage structure.


For this, several decisions need to be taken, such as:
(a) Whether wage ranges should provide for merit increases or whether there should be single rates.
(b) Whether the organization pays around above, below or equal to the averages in the community or
industry.
(c) The number and width of the ‘pay grades” and the extent of overlap.
(d) The jobs placed in each of the pay grade and the actual money value to be assigned to various
pay grades.
(e) Differentials between pay plans.
For this purpose, ‘wage curve’ is used to help assign pay rates to each pay grade (or to each job). It shows the
relationship between the value of the job and the average wage paid for this job. It is a two- dimensional graph on
which job evaluation points for key jobs are plotted against actual amounts paid or against desired level. It shows pay
rates on the vertical axis, and pay grades (in terms of points) along the horizontal axis.
The purpose of the wage curve is to show the relationship between:

(i) The value of the job.


(ii) The current average pay rates for your grades.
There are various steps involved in drawing a wage curve:
(i) Find the average pay for each pay grades, since each pay grade may have several jobs.
(ii) Plotting the wage rate for each pay grade.
(iii) Drawing ‘wage lines’ through the points plotted. This can be done freehand or by using a statistical
method.
(iv) Finally, price the jobs. Wages along the ‘Wage line’ are target wages or salary rates for the jobs in each
pay grade. It is possible that some of the plotted points may fall off the wage line i.e., average for that grade is
too high or too low.
6) DEVELOPING PAY RANGES – (WAGE STRUCTURE)

 Itis only a short step from plotting a wage curve to developing the
organization wage structure. Jobs that are similar in terms of classes, grades
or points are grouped together. Most employers do not pay just one rate for all
jobs in a particular pay grade. Instead, they develop vertical pay range (rate
range) for each horizontal pay grade.
 These pay range makes it easier to attract experienced employees from other
organization and allow the management to provide for performance
differences between employees. These pay ranges may appear as vertical
boxes within each grade, showing minimum, maximum and mid-point pay
rates for that grade.
 ‘Rate ranges’ can be developed in various ways. A maximum and minimum
range for each grade, such as 15% above and below the wage line, may be
arbitrarily decided. The maximum and minimum lines may then be drawn on
the curve. The ‘range’ may be allowed to become wider for the higher pay
grades, reflecting the greater demands and performance variability inherent in
more complex jobs.
 While deterring pay ranges it is important to keep in mind that there is an
adequate difference between superiors and subordinates and regional
differences should be maintained. The existing pay structure should be
regularly reviewed and revised to make the process more acceptable to
employees.
7) WAGE ADMINISTRATION RULES

Once the pay ranges have been determined, the development of rules of wage
administration has to be done.
The rules developed should determine:
(i) Whether degree of advancement of service be based on seniority or merit.
(ii) How control over wage and salary costs can be maintained.
(iii) Frequency of pay increase.
The employees are to be informed of the details of wage and salary program. Finally, the
employee is appraised and the wage fixed for the grade he is found fit.
THANK YOU

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