You are on page 1of 14

Job Pricing

Job Pricing
Chapter 1: Internal vs. External Equity
Chapter 2: Analyzing Survey Data
The completion of job evaluation does not signal the end of the wage and salary determination
process. The next step is “job pricing”—setting a dollar amount for the job—and it’s not as simple as
it may sound.
Chapter 1: Internal vs. External Equity
What you have as a result of your job evaluation program is a hierarchy of jobs based on (for exam-
ple) point values. In other words, you can be assured of internal equity when it comes to matching up
the various evaluation “scores” with actual wage levels because all of the jobs in the organization have
been compared with each other and have been evaluated accordingly. But internal equity alone can’t
guarantee employee satisfaction or protect your firm from a legal challenge. You must be aware of
what other firms in your area or industry are paying for similar jobs. Once this information has been
obtained and you have determined that your wage and salary structure compares favorably, you have
achieved external equity as well.
The most common means of obtaining this information is through wage and salary surveys.
Although conducting such a survey or even trying to make sense of the hundreds that are available
might seem like an overwhelming and probably unnecessary task to the small or medium-sized
employer, it should be remembered that almost every company does take surveys, even though they
may only do so informally. For example, most employers pay attention to the salaries that job appli-
cants are demanding, to the rates that departing employees say they will be receiving from their new
employers, to the information about wages that is passed around at seminars and business meetings,
and to what is said about wages in the news media. This informal survey activity is going on all the
time, and from the fragments of information that are collected emerge decisions concerning pay
increases, fringe benefits, and overall pay policies.
If your company isn’t in the habit of consulting or conducting wage and salary surveys and yet has
always managed to attract and maintain a sufficient number of qualified employees, you may not see
the need for any kind of formal survey activity. But consider the following: A $1.00 per hour over-
payment in a labor-intensive firm can have a drastic effect on its ability to compete and even on its eco-
nomic survival; while a $1.00 per hour underpayment can lead to higher recruitment costs, the hiring
of less skilled employees, increased training costs, and more turnover—not to mention lower morale
and motivation throughout the organization. In short, you may think you’re surviving just fine with-
out all this concern about what other companies are paying their employees, but you have no way of
knowing just how much your lack of concern is costing your firm in other, less obvious ways.
How Compensation Surveys Are Used
Most employers that do utilize wage and salary surveys on a regular basis have found them to be an
invaluable planning tool. Among other things, wage and salary surveys can be used to:
• Determine where your company’s pay rates for certain jobs or groups of jobs stand in relation
to the labor market.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 1
compensation.blr.com

• Double-check the results of the company’s evaluation program.


• Determine how competitive your company’s starting salaries are in relation to those elsewhere.
• Determine the need for (and the amount of) an across-the-board increase.
• Prepare for wage negotiations with union representatives.
However, surveys should never be regarded as a cure-all for the company’s wage and salary problems.
Many human and technical factors come into play that can undermine the usefulness of survey data and
the conclusions or recommendations based on them. Incomplete data, for example, can do more harm
than good. A wage and salary analyst who is not really up to the task may simply chart the company’s
pay rates against the rates obtained in a survey, and submit this chart to management without analyz-
ing the company’s position and recommending an appropriate course of action. Similarly, an analyst
who doesn’t really understand the purpose of the survey may end up pursuing the wrong objective.
Despite the evidence that wage and salary surveys can and do serve a number of valuable purposes,
they have fallen into disfavor in a number of circles because of the ways in which they have been
abused or misused in the past. Most of these abuses can be traced to the individual(s) who either con-
ducted the survey or analyzed its findings. This is why a thorough grounding in the basics of survey
selection and survey analysis is essential before the resulting data can be put to use.
Using Professionally Prepared Surveys
One of the first decisions you’ll have to make is whether to use one (or more) of the many profes-
sionally prepared surveys that are available or to conduct a survey of your own. Because conducting
your own survey is a considerable undertaking, we will deal with prepared surveys first.
Obtaining these surveys is usually just a matter of calling associations, government agencies, and
other organizations to find out what surveys are available. However, don’t let the ease with which sur-
veys may be obtained fool you into thinking that all available survey data is useful. You should screen
the information carefully before taking any action on it.
In deciding what survey information to use, one of your primary concerns should be the “market”
from which you wish to obtain data. For example, each work group within the company draws job
applicants from its own market. For clerical employees, this market is probably defined by a reason-
able commuting distance from your company’s doors. Craft and semiskilled workers may be willing to
commute a bit further, but they would be unlikely to relocate for a new job. However, higher-level
employees—such as executives, engineers, and sales professionals—are drawn from a market that is at
least regional and possibly national or international in scope.
It is obvious, then, that the market concept will limit the usefulness of some of the surveys that are
available to you. If your firm is geographically centralized, you won’t find a nationwide survey of cleri-
cal salaries very meaningful. So you will have to exercise judgment in determining which surveys to
use. If 90 percent of your clerical employees live within 30 minutes commuting time from the compa-
ny, it would make sense to seek out surveys that include salary data from firms located within this
range. But don’t overlook the fact that employees who commute 30 minutes to work could just as eas-
ily travel 30 minutes in another direction if pay scales at another firm were more advantageous. So
you’ll want to find surveys that cover firms beyond this 30-minute radius if you want to be certain
you’re getting data from the appropriate market. One other important point: don’t forget that 30
minutes on a highway doesn’t represent the same distance as 30 minutes on busy city streets.
What other considerations might influence your choice of a wage and salary survey? Here are some
questions to ask yourself:

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 2
Job Pricing

• Are the companies that have participated in the survey about the same size as our company?
(You don’t want to end up comparing yourself to a few corporate giants.)
• Does the survey cover jobs that are similar to those in our firm?
• Are the survey findings affected by a few particularly high- or low-paying firms, or has the
average company been given sufficient weight?
• Do the participants have formal job evaluation and wage and salary administration programs,
or do they set their rates arbitrarily?
• Have any of our employees left the firm to go to work for other companies that have partici-
pated in the survey?
• Have we hired many employees from these participating companies?
• Does the survey cover at least some firms that we regard as competitors?
Your aim should be to select surveys of competitive companies within a relevant geographic area.
The participants should all have sound wage and salary programs, and survey data should not be undu-
ly influenced by a few large, progressive companies that can afford to pay more.
Professional surveys are conducted regularly by large employers, professional and consulting organi-
zations, trade associations, and the government.
BLR, the publisher of this reference, conducts annual surveys of exempt and nonexempt compensa-
tion, consisting of rates for over 100 benchmark positions in several hundred geographic and demo-
graphic categories. The Survey of Exempt Compensation is published in five regional editions. The Survey
of Nonexempt Compensation is published in separate state editions. The surveys are sent free of charge to
participants and subscribers to BLR’s loose-leaf services, What to Do About Personnel Problems in [Your
State] and Employee Compensation in [Your State]. BLR also conducts an annual survey of employee bene-
fits. For additional information, contact BLR’s Response Center at (800) 727-5257 or go to
www.blr.com.
Conducting Your Own Survey
The other approach, of course, is to design and conduct your own compensation survey. The big
advantage here is that you can pick the companies who will participate in the survey, and thus you
can be more certain of getting the type of data you want. But the collection and analysis of survey
data is an expensive undertaking, and you should be sure that the benefits will outweigh the costs
involved. If a “canned” survey developed by another organization will supply the data you need for
decision-making purposes, there is little to be gained by going to all the trouble yourself—and possibly
much to be lost through your lack of experience.
Most companies who perform their own surveys do so in order to remain competitive within the
local area where they recruit their employees. A compensation survey of the area enables the company
to know what rates of pay the local market demands, and to direct its efforts toward recruiting and
retaining the best possible workers.
While this isn’t the place to get involved in a detailed discussion of survey design and implementa-
tion, mention should be made of the fact that a good compensation survey requires both planning and
expertise. A human resources manager with no experience in conducting such surveys cannot expect to
elicit the needed information without doing a great deal of research and preferably obtaining some out-
side help. It is difficult enough to be sure you’re getting accurate, unbiased information without hav-
ing to worry that you’ve inadvertently undermined your own objectives. Your goal should be to obtain

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 3
compensation.blr.com

a true picture of the rewards being offered by all organizations competing in the labor market. A sur-
vey that limits itself to a particular industry, to companies of a certain size, to a sector of the economy
(public or private), or to only a portion of the actual labor market will result in biased data that may
cause compensation problems instead of clarifying or solving them.
There are legal pitfalls involved in collecting survey data yourself. Contacting local firms in your
industry for salary information on specific employee categories may be seen as being anticompetitive.
Ask yourself whether your inquiries are likely to have that effect as they could amount to illegal wage
fixing in violation of antitrust laws. If you do contact other employers, you probably ought to consult
competent legal counsel before making the first call.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 4
Job Pricing

Chapter 2: Analyzing Survey Data


Analysis of survey data first requires the selection of jobs in the survey that are similar to those in
the firm. Therefore, it is necessary to study the brief job descriptions provided with the survey, com-
pare these to the firm’s job descriptions, and reject those that are not well-related. For example, if the
machinists in the survey are really machine operators while those in the firm both set up and operate,
the jobs are not comparable. Some organizations that conduct wage and salary surveys will require that
a wage analyst visit each participating company to assure that the data reported is for truly similar
work, but the time and expense of this process precludes its use in most surveys. Nevertheless, brief,
accurate job descriptions should be included in both the original survey questionnaire and the final
survey results because comparison based on job titles alone is likely to be highly unreliable.
Once comparable jobs have been selected it is essential to be certain that the rates of pay reported in
the survey are clearly defined. Base rates, as an illustration, should not include shift differentials, over-
time rates, or other premium payments; also, comparison of incentive rates to regular rates should be
avoided. The intention here is to eliminate as fully as possible the extraneous variables that will
reduce the accuracy of the comparison.
From among the comparable jobs in the survey select a set of key or “benchmark” jobs for detailed
analysis. These jobs should meet a number of criteria. In addition to being similar to jobs in the firm,
the key jobs should be relatively stable in terms of job content and should be performed relatively sim-
ilarly in surveyed firms—jobs such as clerk, bookkeeper, plant guard, custodian, and truck driver tend
to meet these criteria. Again, such careful job selection reduces extraneous variables that may cause
wide fluctuations in rates of pay from one organization to the next.
Lastly, select surveyed jobs that are representative of the full range of work being performed in the
firm. As an example, if the purpose of analyzing the survey is to review rates paid to nonexempt
employees, jobs should be selected that cover a broad range of pay grades—as from clerk at the lowest
level to executive secretary at the highest, with a representative sampling of those in between. They
should also be selected from a number of different nonexempt job families, such as clerical, accounting,
drafting, and data processing. Selection based on these criteria will assure the availability of data for
comparison to most, if not all, nonexempt pay grades, and further assumes that the data will not be
overly biased by labor shortages in one particular job family.
Making Sense of the Numbers
Once the surveys have been selected and the benchmark jobs picked out, it becomes necessary to
choose the statistical measure upon which the comparisons will be based. Surveys typically report the
following measures:
Mean: The average rate. The mean is the most sensitive measure of the central tendency of data
because any variation in the data, especially any unusually high or low numbers, tends to be reflected
in the resulting mean. The mean may be calculated for an entire population of employees in a particu-
lar job or for a subgroup, such as the middle 50 percent of the sample.
Median: That number which, when the data are arrayed from high to low, splits the data in half; in
other words, that number that is larger than half the data and smaller than half the data. The median
is a good measure of central tendency that is not greatly influenced by a few high or low numbers.
Mode: The number that appears most frequently. This measure is usually not of much use in wage
survey analysis.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 5
compensation.blr.com

Middle 50 percent: Also termed the interquartile range, this measure is the range of data resulting
from discarding the highest 25 percent and lowest 25 percent of the reported data.
For several reasons, the ideal measure for survey comparison is the mean of the middle 50 percent of
reported rates. The exclusion of the high and low quartiles eliminates from the data the trainees and
persons who are grossly overpaid and with whom comparison is not desired anyway; this reduces the
main drawback of the mean—its sensitivity to extremes—and yields the most accurate possible meas-
ure of central tendency for survey analysis.
By way of illustration, consider the following hypothetical array of reported survey data: $340,
$340, $340, $350, $350, $350, $360, $360, $360, $360, $370, $380, $380, $380, $390, $420. The
mean reported rate in this array is $364.38, which is somewhat higher than either the median of $360
or the mode, also $360. This discrepancy between the mean and the median results from the inclusion
of a few very high rates, especially the one at $420. By excluding the highest and lowest 25 percent of
the data, we reduce the range of the array, which was $340 to $420, down to $350 to $380; the mean
of this middle 50 percent range then becomes $361.25, which is considerably closer to the median,
because of the elimination of the extreme rates.
If the mean of the middle 50 percent is not provided, then the mean of the total range of data
should be used. The exception to this would be when the reported mean and median for the same job
are quite different, indicating that a number of extreme rates are skewing the mean; in such case it is
reasonable to use the median.
An additional point: It should be recognized that survey data are often published months after
being collected. In some surveys, for instance, the survey may not be made available until as long as
nine months after the data were collected, and rates of pay in the market will of course have changed in
that time. One way to deal with this lag for the short period is to update the survey data in proportion
to the change in the cost of living, as measured by the Consumer Price Index (CPI). In this way, sur-
vey data several months old may be made usable, as increases in rates of pay tend to be fairly closely
correlated to increases in the CPI.
A final consideration is the possible impact of the firm’s participation in the survey on the reported
statistical measure. The firm obviously desires not to compare itself to itself, but rather to other firms;
therefore, if the firm participated in the survey, its rates should be deleted from the reported survey
data before a comparison is made. This can be done in several ways; a simplified approach is demon-
strated in the following example.
Assume the survey reports a mean weekly salary for 121 clerks of $314; also assume that included in
those 121 clerks are 13 from your firm, for whom a mean rate of $306 was reported at the time the sur-
vey was taken. The mean salary for the companies excluding your firm may be calculated as follows:
121($314) – 13($306) = $315 The total number of employees times their mean, divided by the
108 number of employees reported by the other companies.
In the example given, the mean of the rates reported by companies not including your firm would
thus be $315. Where the number of employees reported by a particular firm is a small proportion of
the total, the impact of the firm’s rates will be minimal. Nevertheless, this potential impact should be
considered and dealt with if necessary.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 6
Job Pricing

Summarizing the Survey Data


Generally speaking, a good place to begin a detailed statistical analysis would be a simple summary,
as shown in the table below, which reflects the figures resulting from abstracting data from the survey.

Labor Firm’s Job Benchmark Weekly Pay


Grade Evaluation Points Job Title (Survey Data)
21 320 Clerk $381
24 550 Junior Accounting Clerk $428
565 Payroll Clerk $470
25 675 Drafter $473
745 Secretary B $478
26 850 Buyer $486
27 1000 Secretary A $490
1090 Senior Clerk $498
1120 Senior Accounting Clerk $502
28 1250 Senior Drafter $542
29 1350 Executive Secretary $569

From this summary you can prepare a “scatter chart” or “scattergram” that shows job evaluation
points and labor grades along the bottom axis and survey dollar values on the vertical axis. Dots repre-
senting various benchmark jobs are plotted on the chart by finding the proper number of evaluation
points along the bottom or x-axis and then moving vertically up the y-axis to the appropriate survey
wage. Each dot, as can be seen in the scattergram below, can be said to represent the relationship
between what the company feels the job is worth internally (job evaluation points) and what is being
paid for similar work in the labor market (survey dollar values).

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 7
compensation.blr.com

Scattergram 1
Survey
Dollar
Values
575
575

550
550

525
525

500
500

475
475

450
450

425
425

400
400

375
375

350
350

Points 200
200 400
400 600
600 800
800 1000
1000 1200
1200 1400
1400
Grade 21 22 23 24 25 26 27 28 29

It can be observed from the scattergram above that the higher the internal job evaluation points are,
the higher the surveyed dollar rate tends to be. Such a relationship is to be expected and is a means of
verifying the accuracy of the evaluation process. If the points got higher as the survey dollar values got
lower, this would certainly be an indication that something was wrong. Even more clearly than the
summary table, however, the scattergram demonstrates that as the evaluation points rise, so do the dol-
lar values in the labor market, but with some variance.
The next objective is to find the one, single straight line that when drawn through the dots will be
the average of all the data. This form of analysis can best be done using a statistical procedure known
as a “least-squares conversion.” The exact steps to be followed are described in most books on statis-
tics. However, a high degree of accuracy can be obtained simply by looking at the data and fitting a
line through the dots carefully with a ruler, as shown in the following scattergram.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 8
Job Pricing

Scattergram 2
Survey
Dollar
Values
575
575

550
550

525
525

500
500

475
475

450
450

425
425

400
400

375
375

350
350

Points 200
200 400
400 600
600 800
800 1000
1000 1200
1200 1400
1400
Grade 21 22 23 24 25 26 27 28 29

This line represents the average relationship between internal job worth as measured in job evalua-
tion points, and external job worth as measured by labor market surveys. In the jargon of wage and
salary administration, it is called the “community wage curve.” When an employer states that it pays
wages “equal to or better than the going rate in the community,” this line represents that promise. To
be more precise, if the organization wants to pay its employees the going rate, it will use this line,
which represents the average pay in other firms for similar work, to determine how much its “average”
employees will be paid.
Scattergram 3 shows how this is done. A line is drawn horizontally at the point where each labor
grade intersects the community wage curve. This line will become the midpoint of the rate range for
each grade. Now for some definitions:
Midpoint is the going rate in the salary survey sample and the rate that will be established for the
employee performing 100 percent of the job duties at 100 percent efficiency under normal supervision.
It should be halfway between the minimum and the maximum.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 9
compensation.blr.com

Minimum rate is the level of pay to which an employee who meets the minimum qualifications for
the job is entitled (depending on company policy, this may mean the ability to perform 75 percent of
the job duties at 75 percent efficiency, under normal supervision).
Maximum rate is the highest rate to be paid for work in the labor grade. Normally this would be
paid only to a person who performs duties well beyond those called for in the job description, at the
highest possible efficiency under little supervision.

Scattergram 3
Survey
Dollar
Values
575

550

525

500

475

450

425

400

400375
400 600
600 800
800 1000
1000 1200
1200 1400
1400

350

Grade 20 21 22 23 24 25 26 27 28 29

Spread is the distance between the minimum rate and the maximum rate, expressed as a percentage
of the midpoint. In other words,

Spread = Maximum – Minimum


Midpoint

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 10
Job Pricing

If you want a 30 percent spread for a grade with a midpoint of $400, then .30 x $400 = $120, thus
the minimum rate will be $340 and the maximum rate $460. There is no rule as to how great the
spread must be; however, these guidelines may be of help: First, there is probably no job that requires a
spread of more than 50 percent. Second, as a starting point, use this formula as a guide to setting the
spreads: Convert the midpoint to a weekly rate, add 100 to it, divide by 1,000, and multiply that
amount times the midpoint to get the spread. For example, with a grade that has a midpoint of $360,
add 100 to it ($460), divide by 1,000 (.46), and multiply that times the midpoint (.46 x $360 = $166).
This amount is the distance between the minimum and the maximum, resulting in a rate range that
looks like this:
Minimum Midpoint Maximum
$277 $360 $443

At first this may appear to be a complicated procedure, but it gets easier with experience and it
works well.
Taking the midpoints from each of our 10 labor grades in Scattergram 3, we can apply this approach
to create a rate structure:
Grade Minimum Midpoint Maximum
20 $303 $357 $411
21 $323 $380 $437
22 $343 $403 $463
23 $362 $426 $490
24 $382 $449 $516
25 $401 $472 $543
26 $421 $495 $569
27 $440 $518 $596
28 $460 $541 $622
29 $479 $564 $649

This rate structure can also be expressed in chart form as shown in the following Rate Structure
Chart, with the bottom of each column representing the minimum rate for the grade, the top of each
representing the maximum, and midpoint represented by the line dividing the shaded sections:

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 11
compensation.blr.com

Rate Structure Chart


Survey
Dollar
Values
700

650

600

550

500

450

400

350

300
Grade Grade Grade Grade Grade Grade Grade Grade Grade Grade
20 21 22 23 24 25 26 27 28 29

As you can see, the spread increases for each labor grade, making a longer “box” on the chart. This
greater distance between the minimum and the maximum is necessary because promotions come less
often to persons in higher grades, and a wider spread is needed to offer these individuals incentives over
a longer period of time. Also, there is a wider range of performance exhibited in the upper grades; to
illustrate, the difference between the worst performance of a clerk and the best performance is not real-
ly all that great but the difference between the best and worst executive secretary is significant, and the
rewards for varying levels of performance must be built into the rate structure.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 12
Job Pricing

Implementing the Structure


To implement the structure, all existing employees can be plotted in on the rate range chart. That
is, for each employee, a dot is placed on the chart that corresponds to the evaluation point score of the
job he or she is performing and the actual rate of pay received. This will inevitably result in two prob-
lems: Blue-circle rates, or dots representing employees paid below the minimums just established, and
red-circle rates, or dots showing employees paid above the maximum. Blue-circle rates are easy to deal
with; over a period of time, the employee’s pay is raised to the point where it equals the position in the
rate range that corresponds to the employee’s actual performance.
Red-circle rates are another story. Obviously, cutting the pay of an employee will not do much to
gain acceptance for the new wage program, so other alternatives have to be considered. One is to
“grandfather” the employee; this means allowing the employee to stay above the maximum until the
person is promoted, terminated, or retired. Another approach is to freeze the employee at that red-
circle rate until adjustments to the rate range finally capture the employee’s rate back into the struc-
ture. Still another approach is to increase the employee’s wage by only half of the adjustments made
to the range, again until the rate is recaptured.
A similar problem exists with employees who are under- or overpaid in relation to actual perform-
ance. As defined above, the minimum, midpoint, and maximum rates are each definitions of pay for
specific levels of performance. So if an employee who performs 100 percent of the job duties at 100
percent efficiency under normal supervision is paid above the midpoint, this is similar to a red-circle
rate except that it is within the rate range. In this case, counseling and performance evaluation feed-
back are needed to bring performance in line with pay.
A final consideration in job pricing is maintenance of the rate structure. When the inflation rate is
high, rate ranges go out of date very quickly. The range that was established a year ago may no longer
be effective in recruiting and retaining employees, and it must therefore be updated. This should be
done by analyzing wage surveys on a continuous basis; when the community wage curve described
above starts to move above the established midpoints of the rate ranges, it’s time to think about adjust-
ing the structure. Another item to watch is the cost of living. This is usually monitored through the
Consumer Price Index (CPI) published monthly by the Bureau of Labor Statistics of the U.S.
Department of Labor; figures are made available on the United States as a whole and for certain geo-
graphic areas within the country. Two other measures that may be even more directly related to the
actual impact of inflation on employees are the Producer Price Index and the Gross Domestic Product
Chain-Weighted Index. Each of these measures has its pros and cons, but the CPI is the most univer-
sally recognized and widely used.
Adjustments made to rate ranges should be done on a percentage basis rather than by adding a cer-
tain number of dollars to each range. This is because the percentage approach maintains the original
relationship between grades. For example, if the midpoint of grade 21 is $385 and that of grade 22 is
$410, this is a difference of about 6.5 percent. If we increase these midpoints over time by $18 this
year, $20 the next year, and so on, eventually the midpoint of grade 21 will be, say, $445 and grade
22, $470. The difference will have shrunken to only 5.6 percent. This is called “wage compression.”
Eventually there will be so little difference between grades that there will be no incentive for employ-
ees to seek promotion. On the other hand, if instead of adding dollars to the ranges we increase them
by percentage points, then when the midpoint of grade 22 has reached $470, that of grade 21 will be
$436, thus retaining the 6.5 percent differential we established in the beginning.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 13
compensation.blr.com

Job Pricing and Pay Equity


Even from this brief explanation of how most employers decide what to pay for certain jobs, it can
be seen that “market rates” play a major role in wage determination. Some people believe that this
process of comparing jobs in the company to the community wage structure imports community biases—
most commonly, biases against women and members of racial minorities—into the wage structure of
the company. Conversely, if an employer who has allowed discriminatory attitudes to creep into the
wage determination process participates in a compensation survey, this bias will in turn become part of
the community wage structure. In other words, by using local wage and salary surveys in calculating
wages and by contributing to them regularly, employers in some communities are simply reinforcing
existing biases in the labor market.
While this view may have some validity, the fact remains that wage and salary surveys are among
the most reliable methods of pricing jobs. And since no one has yet come up with a means of elimi-
nating the bias that appears to be built into much of our economic system, it seems likely that market
rates will continue to play a significant role in job pricing. What, then, is the concerned and perhaps
even legally vulnerable employer to do about it?
One strategy is to go beyond market studies in establishing internal wage structures. Most employ-
ers have some form of job evaluation, and this has emerged as an effective defense against pay bias.
Focused efforts in this area can avoid complaints of pay inequity and prove to employees who may have
suffered disadvantages in the marketplace that you are sincere in wanting to pay them what they’re
really worth. If you choose your compensable factors in a nondiscriminatory way, and if you evaluate
jobs in the same way regardless of the predominant sex or race of the jobholders, you will bring about a
degree of pay equity that employees can recognize and respect.
Activists in this area hope that by concentrating employers’ attention on job analysis and job evalua-
tion programs, much of the existing bias can be removed from corporate wage structures And they
hope that eventually this trend will be picked up by community or industry wage surveys. In fact, this
has been happening gradually as the pay equity movement has matured, and the gap between the pay
rates of men and women, on the one hand, and whites and nonwhites, on the other, seems to be nar-
rowing with each passing year.

©2003 Business & Legal Reports, Inc.


1-55645-222-3-4/03/$.50+$.50 (410) 14

You might also like