Methods Of Establishing Employee's Compensation

The main purpose of establishing employee compensation system is to value and price each job. The methods to be followed for the establishment of compensation are as follows:

1. Job Analysis
Job analysis is known as a process of collecting necessary information relating to job and its specifications. The required information can be collected through different methods such as surveys, observation, discussions, and so on. The information is collected for the preparation of job description and job specification statements.

2. Job Evaluation
Job evaluation is a systematic approach of evaluating or rating or valuing the job in terms of its worthiness, It puts jobs in a hierarchy and assign a relative worth of each job so that a pay structure can be determined. It means a systematic comparison of job is done in order to determine the worth of one job relative to another. Job evaluation provides an objective ranking of jobs so that an equitable and appropriate rate of pay can be determined for each job.This provides a basic ground for the determination of an efficient pay structure through the identification of compensation factors.

3. Compensation surveys
Compensation surveys refer to collecting information on prevailing market rates through different channels. The information can be collected through formal or informal surveys. Most employers in a small scale operation use informal telephone calls to collect data on a relatively small number of easily identified jobs. This informal telephone call is also a good technique for checking discrepancies in the wage rate. Under this method, the data and information relating to other's pay structure are obtained so that the collected data can serve a standard benchmark for formulating compensation plans and policies. The required data and information are collected through different sources such as published surveys, consultants and agencies, advertisements, informal communication etc.


4. Pricing Jobs
Under pricing jobs method, different pay levels are determined based on the grade of each job. Firstly the jobs are grouped into pay grades, than, the pay rates are assigned to each individual pay grade, rather than assigning rate to each individual job. A pay grade comprises of jobs of approximately equal difficulty or importance. It means, the jobs having similar nature can be grouped under a job grade as determined by job evaluation. If we use a point method in it, a particular grade falls within a range of certain points. Fir instance 0-50 points, 50-100 points, and so on.