Posted by Large companies create complex compensation systems. Their most important task is to value the work of each employee and fairly determine the most appropriate pay for the job.
Money has always been the main reason for doing business. For centuries, it has been used to believe that the most important goal of a business is profit, and the goal of an employee is to be paid for work done. And although since the beginning of the 20th century psychologists and management specialists have been studying other factors influencing employee motivation, such as job satisfaction, opportunities for professional development or interpersonal contacts, money has remained the main driver of human activity in the labor market. It has become not only a means, but also the goal of efforts. It has also become a symbol of the employer’s fair treatment of employees, and thus a source of conflict and clashes within the company.
In order to avoid problems in the operation of the company resulting from conflicts and lack of motivation of employees, large companies create complex compensation systems. Their most important task is to value the work of each employee and fairly determine the most appropriate salary for a given position. The lack of such consistency in the remuneration system also creates unjustified costs for the employer due to inflated wages for some employees. Creating a pay system requires valuing work, which in practice means using pay appropriate to the tasks performed.
Many methods of valuing work are used, but two of them are the most common. These methods are:
- summative, which focus on evaluating the total work of a given position without a detailed analysis of the difficulty of its performance,
- analytical, which involve valuing the difficulty of tasks included in the duties of a given position according to predetermined criteria.
Both methods have the same goal – to determine the relationship of base salaries in the company. However, the rates in such a company’s wage map are determined not by theoretical calculations, but by the financial condition of the company, the situation in the labor market and the level of wages in a particular industry or profession. The physical result of the application of labor valuation is a labor tariff, most often found in state institutions or in companies with clearly defined personnel policies. Tariffs provide information on education, seniority, skills, personality traits and the associated base pay for a given position.
Analytical methods have two advantages. First, they take into account more factors affecting the difficulty of the job, and second, they provide a flexible relationship between the job and the salary. However, they are very labor-intensive and require more knowledge of the people setting up the pay system about the job, position and tasks. In small companies, the valuation procedure is often not used at all, or summative methods are used, requiring only a general assessment of the work of the position. Wages are then set by the owner on the basis of wage data from the labor market or on the basis of a contract negotiated together with the prospective employee.
In my next post I will describe other methods and recommendations of the International Labor Organization in this regard.