Saturday, October 1, 2011

Is Your Pay Structure On The Level?

Internal pay equity - and gender pay equity in particular - is a really hot issue right now. I'm sure you know that within a particular job title or job group, pay rates should be equitable and consistent. You may already be examining your pay data to make sure that it is equitable and consistent.

But have you looked at whether your pay structures are equitable and consistent across job titles and job groups?

Do you know if the difference in hourly rates between your production workers and production supervisors is equitable? What's a reasonable difference? $0.50 per hour? $2.50 per hour?

What about the difference between the annual compensation of your Chief Information Officer and your Chief Financial Officer - is it reasonable? Is it equitable?

We're somewhat used to looking for internal pay equity within a job title or job group, but rarely do we look at it across job title or job group. Making comparisons across job titles or job groups is not easy - there are a variety of factors that come into play. Things like job complexity, required skills and abilities, and even (perceived) value to the organization have to be considered.

It can seem like an overwhelming - if not impossible - task. But the Bureau of Labor Statistics does it every day. They compare wage data across occupations all the time. How do they do it? Leveling.

BLS uses the leveling process in their estimates of pay published in the National Compensation Survey. Even though you won't be publishing your own version of the National Compensation Survey, the techniques used by BLS can help you look at whether your pay structure is equitable and consistent across job titles or job groups.

The first step in the leveling process is to assign each job to a job level. Assignments are based on the duties and responsibilities of the position at the full performance level of the job, not the qualifications of the person who currently holds the job.

The jobs are leveled using four factors: (1) knowledge, (2) job controls and complexity, (3) contacts, and (4) physical environment. Each of these four factors are subdivided into components. For example, job controls and complexity is broken down into (a) the amount and type of work directions received, (b) variations in and difficulty of the work performed, and (c) the nature of the work within the organization. Each of these sub-components are assigned point values; the higher the level of responsibility or difficulty, the higher the number of points assigned.

Figuring out how to assign point values is the tricky part. Typically, job descriptions are reviewed; discussions with supervisors and the individuals performing those jobs may also take place.

BLS uses the same set of criteria (and points) for evaluating job controls and complexity, contacts, and physical environment for every job. Knowledge is a little bit different - each group of occupations has a specialized set of criteria. You can find a listing of the occupational groups and the criteria used here.

If it seems like it's a complicated process to assess your pay structure for equity and consistency across job titles or job groups, it is. Is it worth it? It could be a very valuable exercise that will give you even deeper insights into your pay structure. Is it something you should run right out and do? Not before you have a handle on equity and consistency within your job titles or job groups...

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap.

Thanks to Stephanie R. Thomas / Compensation Café

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