During your negotiation for a raise, your supervisor may frequently refer to "company policy about salaries." Since salary administration will certainly affect the outcome of the negotiation, this article deals with the topic in detail so that you can include this important element in your planning.
It is no surprise that organizations assign salaries according to the difficulty and importance of job categories. Compensation for these job-related factors usually falls into two categories:
- equal pay for equal work, and
- more pay for jobs requiring more responsibilities.
Job evaluations and appraisals may measure managerial performance, but without adequate raises, they are meaningless.
The objectives of a job-evaluation and performance-appraisal system include:
- Providing workable wage structures in a systematic way.
- Setting up rates for new or revised job classifications.
- Providing a means to compare wage and salary rates within departmental groupings.
- Providing a base against which individual performance can be measured.
- Providing incentives for employees to strive for higher-level positions.
The amount of a particular raise may be selected from within pre established salary ranges and may depend greatly on future business plans (or projected revenues). A company may decide to improve its salary levels in order to acquire managers who are considered the "cream of the crop" in the labor market. The company may expect to obtain or retain better leadership by paying more than its competitors. However, the reality of corporate economics may force a company to pay employees the minimum and dilute their responsibilities. In this case, upward adjustment of wage levels may occur only in response to excessive labor turnover and absenteeism.
To help determine salaries, companies may refer to information on labor markets and review current economic conditions, recent union settlements, and future prospective revenues. A factor of lesser importance may be cost-of-living standards versus community location.
1. Job Standards and Salary Administration
For skilled workers the salary ranges and wage increases established will depend on the types of workers to be recruited, differentials between labor categories, and employee demands. The number of steps within a range and its bandwidth (i.e., low to high value) will depend on the period of time allowed for an employee to achieve proficiency in the skills required for the job.
Determining a manager's market value may be more difficult since job requirements may not be as well defined as those for lower- echelon positions. Professionals often have staff positions, and many in-line managers believe that they function like professionals. Since the work of a professional involves tasks few others can perform, evaluation (by the company) of a professional can be most difficult. Duties may be identified by employing generic job descriptions. Maturity curves, which show age (usually in terms of years since receiving the first degree) versus monthly salary, may be used in addition to job-evaluation or performance-appraisal methods to provide recognition to those with more years of excellence and proven loyalty. (See next page for a typical maturity curve.)
Salary levels often depend on salary surveys of an overall industry; here, the basis of compensation is the job market. Also, salaries of managers may be influenced by the relationship of their pay to that of their subordinates. Professional organizations can provide salary information obtained from surveys that may be categorized by age, years of experience since attainment of a degree, and rated job performance. In some cases private salary surveys, conducted by a company or a consulting firm, may be required to determine regional versus global salary differences.
As stated above, job evaluation (or standards) relates all job categories in a company to each other and provides wage scales. This rational but complex system of compensation requires administrators with good judgment skills. A job-evaluation system is concerned primarily with job categories and secondarily with the people who fill the positions in these categories.
Creating job standards may involve the following steps:
- Conducting a job study or analysis of required work output.
- Deciding on the criteria that make one job more valuable than another to management.
- Choosing a job-evaluation system that correlates jobs.
- Using a committee (drawn from management) to review and approve a program and to price each job level.
Perhaps your company employs a performance-rating system that evaluates an employee's performance and can influence the size of a raise. The system may include a performance appraisal that is initiated by the supervisor, reviewed by both the employee and the supervisor, emended to resolve disagreements, and signed by both parties before its submittal to the human resources department. A performance appraisal, which excludes any discussion of raises, precedes a merit review, the latter depending on results of the appraisal. The appraisal may be designed to highlight your assets and liabilities. Perhaps you may gain time to improve your deficiencies and to demonstrate superior performance; then, at the salary review meeting, the improvements may influence the size of the raise you can negotiate.
Implementing a "pay for performance" standard is difficult. Although annual or periodic raises may be expected, top managers will be rewarded with better than normal raises if the company considers them valuable and not expendable in case of downsizing and layoffs. The employee with written evidence of outstanding performance is in a better position for now and the future. He or she should make sure that the supervisor is apprised of this. A monthly progress report, whether required as a company policy or not, is highly recommended.
Watch out for the company that hires persons with equal skills to yours but pays them higher salaries or bonuses as new recruits. Be careful in obtaining information about these people, especially if the company considers disclosures about salary and personnel as proprietary. Having this knowledge could lead to dismissal. Also, be prepared to face the company that prefers to hire personnel with fewer years of experience than you if it may be contemplating laying off the higher paid employee and using the new employee as a replacement. In this case, worrying about a raise becomes secondary. Instead, either concentrate on resigning from the company and finding a new employer or finding another job while waiting for the other shoe to drop. Any action you take must be carefully planned. Use a checklist by dividing a paper into three columns: benefit, yes, and no. For every fact you notate about leaving, check off a yes or no. If there are more checks in the yes column than in the no column, it's time to seek new employment. If the opposite is true, bite the bullet and stay where you are.
Both the performance appraisal and the merit review should be conducted on a regular basis. If they fall behind schedule, this is cause for concern; any delinquency can affect your salary adversely since all future increases are based on percentages of your current salary. With the effects compounded over a number of years, continual late reviews will be reflected in a salary lower than you deserve.
3. Results of a Survey of Managers' Compensation
In a survey conducted by the author, directors and managers of human resources departments were asked for their opinions, as salary administrators, on the importance of six factors in determining raises for managers of their organizations. The personnel queried included representatives from both large and small firms. As might be anticipated, they unanimously ranked performance on the job as the top factor. The others-seniority/tenure, outside market value, size of firm, location of firm, and profitability of firm- received inconsistent rankings. The administrators were also asked to name any other factor(s) that they thought should be considered. The gamut ran from the individual (skill) needs of a firm-education and specialty-to compensating for inequities within salary levels. In reply to a question regarding the most influential factor in granting a manager a higher than average raise, the answer was again unanimous: outstanding performance!
Most companies in the survey preferred to adapt maturity curves or other industrial-standard methods for determining salary structures or to create custom-made point-factor systems or to establish their own systems for market comparisons and employee appraisals. However, whatever systems were employed, the companies considered them proprietary and would not reveal details.
