The Importance of Appropriate Salaries
Grading positions within an organisation and then assigning salaries based upon said positions is one of the key roles of human resource management. Adequate grading and hence salaries are extremely important to an organisations competitiveness as the level of salary offered to employees affects both what employees are attracted to joining the organisation and how valued present employees feel and hence the likelihood that they will remain at the company. Without adequate salaries being offered, good employee-employer relations are impossible and without such an organisation cannot prosper.
The Three Key Issues to Consider in Setting Salaries
When considering the salary level most appropriate for a particular position, there are three key things issues that need to be considered. The first is that salaries across the organisation must be consistent. By this I mean, that it must be in line with the companies overall grading structure. If an employee has a higher grade than another than that employees salary must be higher. This ensures that equal work is given equal pay.
The next issue that needs to be considered is that of fairness. This is industry wide as opposed to organisation wide in that an employee working at your organisation must be on a similar salary to those at other organisations doing similar work.
The last issue is that of transparency and by this I mean the grading structure should not be overly complex and hence prevent employees from understanding how their salary compares with that of others. By ensuring transparency, not only does the organisation become accountable but employees will understand where there salary stands in regards to those below and under them grade wise.
Steps in Setting an Appropriate Salary
There are four key points in deciding upon the salary that is offered for a particular position.
Before any decisions can be made about the grade or salary of a position, it must be understood exactly what the position will entail. There are many different ways to illustrate an exact job profile but one of the most common ways is to simply write a description of exactly what the person that fills the position will do on a daily basis and also a specification of what requirement the person that fills the position must meet.
Before an adequate salary can be set, a grade must be assigned to the position. They key aspect to establishing a grade for a position is that grade must be consistent with the grading structure across the entire company. As such each organisation must have a specific system which is used when grading all positions within an organisation. This allows all positions to be compared to each other ensuring consistency across the board. There are many different systems used by various organisations but an example of a very simple yet relatively effective system is as follows. Every position in an organisation is given a score in three different areas. The three areas are:
- Skills Required: This is simply the level of skills/experience/qualifications required by an employee to adequately handle the position.
- Responsibility Level: The level of responsibility of a position refers to how responsible the employee would be for other employees/budgets/sales levels. Basically how much impact the right or wrong employee could have on the organisation within this position is.
- Representation Level: This simply refers to whether or not the employee would ever become a face of the company to stakeholders or other organisations.
These three different areas would then be given a weighting depending on what the organisation considers to be the most important aspect in all positions. For example, a company that cares a lot about its image would obviously give a higher weighting to the representation level of a position.
Assigning a Grade
In order to assign a grade to a particular position, both the positions points according to the above system must be used as well as a grading structure. A grading structure will take account of the above system and will contain various grades, the points that a position belonging to a grade should have and the type of positions that generally belong to each grade. Ideally the grade of a position will then be given according to the points.
However, as the grading structure also highlights the positions generally within the grade, it may turn out that the points given to the position are inconsistent with the grade of that position generally. This allows the organisation to ensure fairness and equal work for equal pay because any inconsistencies are immediately obvious. To avoid inconsistency, a position may be given a slightly higher or lower grade than the points dictate to in order to keep employees in similar positions on similar grades.
Setting the Salary
Once a grade has been assigned to a position, establishing the salary is relatively straightforward. Because the grade has been calculated using the same points system as all positions and because additional consistency checks using the grade system have been performed, it is very easy to set a salary that is both consistent and fair.