| The most important factor affecting the ability of a wage and salary program to meet its objectives is the establishment of competitive rates. External competitiveness refers to how an employer positions its pay relative to what competitors are paying. Given the high degree of mobility of today's workforce, understanding competitor's rates is of particularly importance. The objective is to ensure that the pay rates are sufficient to attract and retain employees and also at a level, which controls cost so that the organization's services can remain competitive. The most efficient means of determining competitive rates is with a thorough salary survey.
The key to formulating comparisons with other employers in regards to external competitiveness is relative in nature. Although the level of pay is the primary component in salary surveys, one must also address the use of bonuses, training, benefits, and career opportunities for advancement. An organization's compensation program must focus on two primary objectives. The first is to control labor costs and secondly to attract and retain the best, most productive employees for the position.
There are a variety of practices and methodologies for delivering pay to employees. These practices are evaluated for their appropriate application for each specific situation.
Skill/Competency Based Structure: With this method, internal pay structures are not based on jobs, but are rather based on skill or competency. In this practice, employee compensation is based upon required competency or skills rather than the specific job they perform.
Market Pricing: Market pricing involves setting pay structures almost exclusively by relying on rates paid in the external market. Depending on the compensation philosophy, market pricing may adopt a match, lead, or lag policy.
Pay Grades: Jobs with the same or similar values are grouped into levels for the purpose of compensation. All jobs in a pay grade have the same pay range. Grades enhance an organization's ability to move people among jobs and provide more efficient and equable compensation administration.
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