Pros and cons of Salary Administration

by on June 25, 2009 · 0 Comment POSTED IN: HR Info Center

Salary Administration Can Be easy to implement and maintain

The pros of this salary administration system for the most part far outweigh the cons. But the con is an important one to consider. We want to insure that salary administration matches the market competitively, that we have an external focus that we’re paying fairly, and similar to what other organizations are if we’re going to attract and retain quality employees.

Salary adminstration tends to be fairly simple.
It’s one of those things where it can be developed in one year and very, very minor administrative burden associated with it for the next four or five years before we tend to do it again.

Some organizations choose the benchmark a quarter of their jobs every year so that everybody get look at on quarterly cycle. For long story short, the administrative burden is pretty limited.

It also helps us focus on limited budgets. Our budgets for salary administration in today’s day and age are oftentimes being cut. Focus on where they’re most needed. That helps us make sure that we aren’t overpaying some positions and underpaying other positions. On the downside, it may cause the shift in our historical hierarchy by way of far extreme example, but it is a real world example.

Some organizations they have internally base systems. A job evaluation system where jobs get points based on things like education and knowledge in problem solving and decision-making. And it’s the total number of points that determine a salary administration grade.

Think about a job like a social worker which has very high education, and oftentimes the Master’s Degree, high problem solving, high decision-making. Sometimes it’s a supervisory role. They can score very high in those types of systems and cause you to overpay relative to the market.

The social workers end up getting paid $80,000 a year when the market was $40,000. When a social worker retired, they literally had 20,000 applications from all across the country because they’re paying so well.

If the opposite into that spectrum, if you think about a lot of IT people back in 1999, they may not have a high school degree even. You know, they’re young enough that you think that they’re still in diapers. Very low points, but the market was paying them $60,000, $70,000, $80,000 a year based on the skills that they had.

So the point is that they can cause the shift in your hierarchy if historically it would pay their IT people dirt, and our social workers exceptionally well, a market-based salary administration system is going to bring those things more in line with market. And so, it’s going to recommend that we lower the compensation of the social workers and increase that of the IT people.

Those are arguably legitimate changes, but from a cultural perspective there are changes that should be anticipated.

Edited Remarks from “How to Set Pay Ranges That Are Fair and Effective” by Ed Rataj

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