One of the considerations when developing an organizational pay system is equity. External equity is instrumental in ensuring an in-depth understanding of the qualification and responsibilities necessary for a given position. It is also necessary to understand the fair market value for the particular potion compared to others in the same market niche and knowing where one wants to pay, for example, paying for market value or above or below current market value. In essence, this entails benchmarking with other organizations to ensure a competitive pay structure that makes the organization competitive for talent and top-notch skills (Shaw et al., 2017). Internal equity involves the comparison of positions within the organization and structuring pay according to the level of an employee within a given department. This is closely related to the classification of jobs into job groups based on individual skills, performance, and other metrics that influence human resources output. The law might impact equity because there are minimum federal pay requirements that employers are required to meet.
The payroll budget is another primary consideration in deciding a pay system. This is instrumental in ensuring payment agreements with employees are met. Without strategizing around the budget, it is impossible to diversify employee compensation while ensuring workplace benefits are provided. Inability to act within the budget could cause costly financial risks that affect the entity in general. There are also elements that affect the budget and eventually influence the ability to compensate employees, such as statutory obligations and incentives provided to the employees. Since they have to be part of the budget, they help in capping the amount of pay employees can receive without negatively straining the financial resources within the organization. The budget might have elements that have to meet Governmental Accounting Standards Board (GASB) standards, hence, the need to consider some benefits while acting according to the acceptable standards.
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Variable pay is another major consideration. Employees might be eligible for extra payment such as commission, bonuses, or profit-sharing from a given project they are part of in an organization. In some instances, such variables influence the competitiveness of the organization by positively reinforcing output and motivation among employees. They mostly have to be considered even when the base pay has been strategized around. Strategizing around this entails considering the eligibility of employees to such payments and how performance levels influence the amount of pay (Shaw et al., 2017). There are also labor laws that require individuals to receive extra compensation based on their activities, for example, working overtime.
References
Shaw, J. D., & Gupta, N. (2007). Pay system characteristics and quit patterns of good, average, and poor performers. Personnel Psychology , 60 (4), 903-928.
Peer Response 1
Hello. I strongly agree that pay grades are instrumental in setting the pay scale for a particular job. This is because the employees at lower tiers of the organization cannot be compensated in the same way those on the management level or those who perform better are. Just as you say, I also think the demand for the job will influence the pay structure. However, my biggest question is how about if this is a new position for the organization and the market. Considering such a situation, I believe the coming up with a pay system should be based on the value the individuals bring to the organization and the extent to which the organization competitively develops. This, however, should also take into consideration other constraints such as the budget.
Peer Response 2
Hello. I agree with you that one of the considerations in designing a pay grade system is the level of motivation it has on the employees. To be more specific, however, I believe that the suggestion should be about employee benefits and incentives. Another factor that you discuss that I agree with is the consideration of external factors such as the pay scale in the market. This is important because of the need to pay for the value the employees bring into the organization in terms of their skills and talents. Without a competitive pay structure, it is impossible to attract innovative and progressive human resources. I do not, however, fully agree with you that communication to employees about their views on the pay system should be a consideration in designing one. This is because even when their suggestions are desirable when the company cannot compensate them based on their desires, their views will not influence the pay system.
