What are the rationales for and against Job-Based Pay?
From the employer’s point of view, pay is a powerful tool to further the organization’s strategic goals. First, pay has a huge impact on employee attitudes and behaviors. It influences the employees and it can be a powerful tool for aligning current employee’s interests with those of the broader organization.
Pay decision is made by the company where it can be divided into two categories : Pay Structure and Individual Pay. The main focus is on Pay structure whereby it is the relative pay of different job and how much they are paid. this can be related to pay level (the average pay including wages, salaries, and bonuses of the jobs in an organization) and job structure (the relative pay of jobs in an organization).Because of this decision, the company has created one of the pay decision structures, that is Job-Based Pay.
Job-based pay refers to pay structures based on any form of job evaluation methods , focusing on job contents and/or job specifications. Job-based pay systems may be contrasted with knowledge-based or skill-based pay systems that use knowledge, skills, abilities, and other characteristics of each incumbent to determine pay ( skill-based pay design ).
In addition, Job-based pay establishes a link between a employee’s salary and the job they do. Such a system is most effective in the circumstance where jobs are clearly defined. Job-based pay relies on two basic components, job evaluation and job performance appraisal. Job evaluation seeks to assess the value of the tasks the employee is asked to perform to the business, and bears no necessary relationship to wages as determined by the labor market.
Hence, job evaluation does not seek to assess the people performing those tasks, but only the tasks themselves. Job performance appraisal, on the other hand, seeks to evaluate the employee’s performance of designated tasks. Companies often use a combination of performance assessments, level of employee experience and seniority to establish an individual’s position within the pay range as determined by the job evaluation.
Therefore, the rationales for Job-based pay (advantages of Job-based pay) are (1)Enhance performance and commitment. Job-based pay can establish a clear link between the value of the job performed to the company and the level of pay. If the company designs it correctly, they can enhance employee’s performance and commitment, while minimizing employee’s complaints and boosting morale by acting as an objective, rational, and fair basis for enumeration.
Enhancing performance and commitment of the employees can improve the communication between employees and the company. The study has found that an organization that has communicated to pay cuts to its employees can bring some effects on their rates and perceived quality.
secondly, Pay based on value of work performed. Basically, the company will pay their employees based on their value of work that have been performed to help the company generate profit. this is a good way for the company to attract their employees to be loyal and make some good deeds for the company. For example, most of the salesperson will be given their payment based on their performance instead of their fixed salaries.
It’s actually good for the employees because the money can be higher than for a salaried job where it’s requiring the same level of education, experience, and training. According to a writer of the Business week column talking about Job assessment,The more you sell, the more you make. for example, if you have a talent for sales, give yourself a pay bump simply by working harder. How much you take home is largely up to you. As a commission-based worker, you generally don’t face a lot of employer hassles about your work style, so long as you’re generating profits for the company. If you make record sales while wearing a clown nose and knee britches, the boss is not likely to complain much.
Another advantage of Job-based pay is Centralized control. This gives an organization criteria with which to evaluate whether individual physicians or managers are paying their staff too much. It also makes budgeting relatively easy and makes salary expenditures predictable. This is because, each position is slotted into a grade level and weighted based on the education and experience the job requires and the number of staff who report directly to the person in the position.
In order to centralize the paying method, the company should have known to develop and maintain a salary schedule to look fair. it’s for reward execellence and keep the salary costs under control. the company on the other hands, they should start with the job description to centralize their control on paying.
According to American Academy Family Physicians (AAFP), under their topic, Family Management Practice, Published in 2000, you can’t know how much someone should be paid without knowing what that person does. So start by creating job descriptions for all your staff positions. Rather than merely stating what tasks each staff member performs, a job description should outline what you need and expect from the person who fills a position.
Therefore, the company can develop salary schedule by weighting each position and assigning it a grade. The weighting should be based on two factors outlined in the job description: the minimum education and experience necessary to perform the job and the number of staff who report directly to the person in the position. Based on that information, you might decide, for example, that a file clerk’s grade.
Nevertheless, Job-based pay also has quite number of disadvantages. There are Bureucracy, Hierarchical structure, and not reward in the right way. Job-based pay reinforces hierarchy and bureaucracy. By assigning value to jobs in terms of their hierarchical position and level of control, the traditional model fosters unnecessary and undesirable pecking orders and power relationships.
Based on the discussion in the textbook, Human Resource Management, Gaining A Competitive Advantage, by Noe, Hollenbeck, Gerhart, Wrigh (seventh edition), The bureucracy required to generate and update job descriptions and job evaluations can become a barrier to change because wholesale changes to job descriptions can involve a tremendous amount of time and cost.
Meanwhile, the hierarchy structure nature reinforces a top-down decision making and information flow as well as status differentials, which do not tend themselves to take advantage of the skills and knowledge of those closest to production.
Job-based pay also will effect the rewards to employees in an organization. It sometimes rewards the wrong behavior where it’s sometimes giving a person more money simply for taking on new responsibilities rewards job changes rather than outstanding performance or development of needed skills. This is unfair to employees in an organization because it would definitley affect their benefits or rewards toward their job. according to the textbook, Human Resource Management (same text book as mentioned before), Job-based pay structure may not reward desired behaviors, particularly in a rapidly changing environment where the knowledge, skills, and abilities needed may not be very helpful today and tomorrow.
In fact, according to AAFP, Job-based pay sometimes doesn’t accurately reward the performance of talented staff. Because compensation is determined by an employee’s level and the job’s rating, the model limits your flexibility to reward people based on their individual performance. For example, no matter how well a first-year billing clerk performs, he or she will earn less than someone who has been doing an average job for the last four years. This can hurt the motivation of the company’s best performers and encourage them to look for jobs elsewhere.
In conclusion, Job-based pay structure can be pros and cons to employees to be paying by the company. For the pros or advantages, it can still remain the same for the company to maintain their structure. But, for disadvantages or cons of Job-based pay structure, it can be avoided by taking a few responses towards the problems. In order to respond towards the problems, the company can do a few steps such as delayering and banding, that is reducing the number of job levels to achieve more flexibility in job assignments and in assigning merit increases. Then, the company can link pay to job and toward building structures based on individual characteristic such as skills and knowledge which is known as paying person for their skills, knowledge and competency.