Managing Employee Performance and Reward Concepts, Practices, Strategies

In this chapter, we consider the main evaluation techniques associated with position-based pay, as well as the key steps in developing and implementing position-based systems, with particular emphasis on the design of narrow-grades structures, as these are the more common of the two position-based structures. We begin with an examination of the two main techniques associated with pricing job positions, namely market pricing and job evaluation. The key difference between these two methods is that market surveys focus on maintaining an organisation’s competitiveness prevailing in external labour markets whereas job evaluation methods are concerned primarily with establishing ‘internal equity’; that is, with determining felt-fair job rates and rate differences within an organisation. Once we have a solid understanding of these evaluation techniques, we can proceed to consider how they may be applied to develop a position-based pay structure. Then, in chapter 9, we consider the techniques and processes involved in developing person-based systems.

Market surveys

Market surveys involve setting pay rates for particular jobs and positions according to what other employers are paying for the same or similar jobs in external labour markets. This typically entails some form of multi-employer survey to ascertain the ‘going rate’ for each job type. The organisation ascertains what other employers are paying for jobs similar to its own, then makes a strategic choice about whether it will pay the median rate, a lower rate or a higher rate. Regular market surveys also allow organisations to monitor changes in market rates and adjust their own pay rates accordingly. An organisation can either conduct its own market surveys or purchase survey data generated by an external provider, such as a remuneration consultancy firm or an industry or professional association.