The different models of pay

The grading structure of employees has evolved since the concept came into existence. A grading or classification is a logical grouping of jobs according to their relative job weight. Weight is the value that a job has for the organization; it is basically how important that position and the work performed by the employee who fills that position is to the organization. Grading is a basis on which employees are evaluated, at each grade an employee is supposed to be able to perform certain tasks and functions.

It can be referred to as a framework that enables the organization to recognize and reward appropriately. Grade and pay structures provide the framework for managing pay although grade structures are increasingly used as part of non-financial reward processes by mapping career paths without any direct reference to pay implications. When a grading structure has been organized in such a way that it is at its optimum level then certain characteristics are present which enable it to be effective.

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These characteristics are: that the structure should be such that it is applicable to every department and area of the organization, it should be able to change as the company grows and accomplishes more and more, everyone in the company should be able to understand the grades and most of all it should be practical, it should be cost effective, the system should be such that it identifies the job description and allocates a grade accordingly and finally it should be coherent with the other systems present in the human resource department. The grading structure is closely linked to the pay policies.

Once a grade is allocated to an employee, he is paid accordingly, the higher the grade the higher the pay. Different organization have different grading structures and pay policies. Every structure and policy is specific to that organization only. The grading structure should support the goals and the mission statement of the organization. Also, it should be a reflection of the organizational structure present in the firm. The value of work which is present within the company, i. e. amongst the employees should live up to the structure and vice versa.

The difference between each grade is decided by the company and is company specific. In this process benchmarking can not be adopted as each organization has a different atmosphere and environment and that needs to be substituted in the grading structure. One major reason why the structure differs is because every company decides for itself what it wants, i. e. what type of policies and grades would they prefer. Before a grading structure is adopted many things need to be taken into consideration, whether the grades are overlapping, how many grades should there be, how will a job be determined according to the grading structure.

A classification exercise should start from the organization requirements what do we need? What is acceptable? Committees should be set up which will look at this matter in detail and decide whether an employee’s grade should be changed with higher responsibilities and a higher pay or whether it is counted as a bonus. One thing that is common in many organizations is that as we move up the corporate ladder the grades tend to overlap and the gap between them becomes very narrow. Thus it becomes difficult to differentiate between grades, especially concerning job responsibilities.

The National Framework Agreement embodies the learning drawn from elsewhere and contains underpinning principles, particularly in the Appendices, developed to suit the particular needs of Higher Education. (www. unison. org. uk/file/A2337. doc). In this agreement there are 51 points on which the structure can be based. Organizations sometimes prefer to use the ten grade structure present in this agreements appendix while, sometimes they would rather come up with their own structure based on these 51 points.

Models of pay require the decision makers to review how an employee can move from one pay scale to another or from one grade to another. To use different models for different jobs is unadvisable because it will create difficulties in determining grades and pay scales for any employee that has been hired. Employees can be paid on the number of hours they put in, the number of goods they produce, on their performance which is evaluated on a monthly or annual basis. Most employees get annual increments which have been incorporated in their contract of employment.

Pay can be controlled in three ways, through performance management, through grades and pay scales and through pay increase budgets. When one of these three areas lacks then it increases the stress upon the other two. Performance Management arrangements must be robust enough to cope with. Some organizations are network based, some are functional based, some are time-based and some are process based. For all these different types of organizations, there are different models of pay.

The grading system is also personalized according to their functions. For instance, in a process based organization, the grading system will be wider, with wider pay ranges to enable focus on performance and competence. In process based work culture the performance is mainly team based and the process is not an event. The processes are customer driven. On the other hand, we have functional organizations where the emphasis is on job size and the grading structure is relatively narrow also, the increase or decrease of pay is based on performance.

In a functional work culture, the performance management is goal oriented; it is a specialized job where a certain expertise is required. The network based work culture is about individual competency and skill, it is based on individual contracts and there are very few broad rules. Here, the performance management is based on personal input and the overall successfulness of the firm. The pay is based on market rates and individual contracts. This type of culture is venture driven and wants to change with time and incorporate new policies very quickly.

The time based organization uses broad band categories and there is not much emphasis on job size while the focus is still on individual skill and competency. The performance management of a time based work culture depends upon the critical contributions, the star system and the drive to achieve. Salaries and increases are based on proficiencies and competencies while high-leverage incentives are based upon program success. In the end we can say that grading is a means to group jobs according to the assessments of various criteria, it is not an end.

It is a system which provides recommendations regarding the pay but it does not give the final decision on how much a person should be paid, in other words it is not a manager. It is a different representation of the organizational structure, the higher a person is paid the higher up the hierarchy he works, it is not replacing the organizational structure. It is a framework to define different levels/ ranges of pay based on relative internal value and external relativities, it is not a set of rigid rules that support leveling and abolition of uniqueness.