Devising a Remuneration Plan

Any remuneration plan must be understandable, workable and acceptable. The remuneration scheme must have two components- a base rate and the scope for increasing the base rate. The remuneration plan must be determined keeping in mind the requisites and the components.
The persons responsible for determining a remuneration plan are advised to employ sequential steps described as follows:-

i) Job Description

ii) Job Evaluation

iii) Job Hierarchy

iv) Pay Survey

v) Pricing Jobs

Job Description

Job descriptions are crucial in designing pay systems, for, they help to identify important job characteristics. They also help determine, define and weigh compensable factors (factors for which an organization is willing to pay- skill, experience, effort and working environment).

Job Evaluation

The next step in pay fixation is to establish relative worth of jobs by employing job evaluation. A number of techniques are available to evaluate jobs. For example, in the point-ranking method of job evaluation, each job is analyzed and defined in terms of the compensable factors an organization has agreed to adopt. Points are assigned to each .degree of a compensable factor, such as responsibility.

Job Hierarchy

The points assigned to all compensable factors are aggregated. The total points scored will help establish the hierarchy of job worth, starting from the highest point total to the lowest point total.

Pay Survey

Job hierarchy being established, the next step is to establish pay differentials. Before fixing wage and salary differentials, prevailing wage and salary rates in the labour market need to be ascertained. Hence the relevance of pay surveys.

One way of collecting pay details is to conduct a survey. This requires that a sample of key jobs
and a sample of companies need to be selected. Questionnaires could be mailed to select companies, requesting them to furnish pay details relating to key jobs. Information can also be collected over the telephone.

There are also other sources of collecting pay details. Labour departments of the government, trade unions, and professional bodies, and consulting firms provide copious amount of information about the prevailing wage and salary rates.

Business magazines also carry data on salaries prevailing in different industries. Business Today, dated September 12, 2009, for example, carried a story on salary raises from 2009 to 2011 in different industries. The magazine reported that in high-growth and high-attrition industries such as IT, IT enabled services, telecom, and banking and financial services have registered highest increase in salaries. An increase in salaries translates into a corresponding increase in discretionary spending.

Job evaluation helps establish job hierarchy. Through surveys, the rate for key jobs in the labour
market is also known. The next logical step is to determine pay structures.

Pricing Jobs

In pricing jobs, the job evaluation worth is matched with the labour-market worth. Two activities need to be performed: (i) establishing the appropriate pay level for each job, and (ii) grouping the different pay levels into pay grades.

Pay Levels: In order to set a pay level, the points assigned and the survey wage rates are combined through the use of graph called scattergram. The vertical axis represents pay rates and the horizontal axis is used for points. The total points and the wage rates for each key job are plotted to obtain the scattergram.

The dots that represent key jobs can be used to draw a wage-trend line as, close to as many points as possible, employing a statistical technique called least squares method of regression. This method relates point values to wage rates in the labour market. If the employer wants to lead or lag behind the market rate by a given percentage, the wage-trend line can be moved up or down by the same percentage.

Determining Pay Grades: A pay grade comprises jobs of approximately equal difficulty or importance. Where point-ranking method of job evaluation is used, the grade consists of jobs falling within a range of points. It is convenient to organize jobs into groups, also called job classes that there are limited number of wage rates.

Where individual jobs are retained, an organization will have hundreds of remuneration rates. The existence of hundreds of separate wage rates would be meaningless as differences between jobs might be just a few rupees.