Setting Up a Pay System

Pay administration is a management tool that enables you to control personnel cost, increase employee morale, and reduce workforce turnover. A formal pay system provides a means of rewarding individuals for their contributions to the success of your firm, while making sure that your organization receives a fair return on its investment in employee pay.

this guide provides time-tested concepts for determining competitive pay levels and for maintaining fair pay relationships among the jobs comprised by a small company.

Who needs a pay administration plan?

Pay administration may just be a fancy term for something you are already doing but haven't bothered to name. Or, perhaps your organization has not been paying employees according to any system, but waiting until unrest shows up to make pay adjustments - using payroll to put out fires, so to speak.

A formal pay plan, one that lets employees know where they stand and where they can go as far as take home money are concerned, won't solve all your employee relations problems. It will, however, remove one of those areas of doubt and rumor that may keep your workforce anxious and unhappy and less loyal and more mobile than you'd like them to be.

What's in it for you? Let's face it, in business - particularly small business - it's good people who can make the difference between go and no go. Many people like a mystery, but not when it's about how their pay is set. Employees under a pay plan they know and understand can see that it's equitable (fair) and equable (uniform) that pay isn't set by whim. They know what to expect and what they can hope to shoot for. In the long run such a plan can help you:

recruit employees

keep employees

motivate employees

It can help you build a solid foundation for a successful business.

Developing and Installing the plan

A formal pay plan doesn't have to cost you a lot of time and money. Formal doesn't mean complex. In fact, the more elaborate the plan is, the more difficult it is to put into practice, communicate, and carry out.

the foremost concern in setting up a formal pay administration plan is to get the acceptance, understanding, and support of your management and supervisory employees. A well-defined, thoroughly discussed, and properly-understood plan is a prerequisite for success.

the steps in setting up a pay plan are:1) define the jobs, 2) evaluate the jobs, 3) price the jobs. 4) install the plan, communicate the plan to employees, and 6) appraise employee performance under the plan.

Defining the Jobs

Unless you know each job's specifications and requirements, you can't compare them for pay purposes.

It's no surprise, therefore, that the initial step in installing a formal plan is preparing a job description for each position.

You may be able to write these descriptions yourself, since in many small businesses the owner-manager at one time or another has worked at just about every job. However, the best and easiest way to put together such job information is simply to ask employees to describe their jobs. Supervisors should be asked to review these descriptions.

Your best bet here is to prepare a simple form to be filled out by the employee (or someone interviewing the employee). This is the time to begin explaining to employees what you are doing. They need to know that their help is needed to develop the pay plan - that you are not trying to find out how well they are doing their jobs - just what they do. The form should contain the following categories:

Job Title

Reporting Relationship

Specifications

Primary function (What is the main responsibility of the job?)

Main Duties (List main duties in order of importance and estimate the percentage of time spent on each)

Other Duties (List of duties not performed on a regular basis.)

Job Requirements:

Formal Education or Training Required

Experience or Background Required

Technical/Administrative Complexity

Responsibility for Results

Responsibility for Supervision

Unusual Working Conditions

It will probably take some time to prepare job descriptions from the information you get from your employees, but what you learn may have other uses besides comparing jobs for pay purposes. For one thing, you may discover that some employees are not doing what you though they were, or what they were hired to do. You may find you want to make some changes in their work routines. The information may also be useful for:

Hiring, training, and developing employees;

Realigning duties in the organization;

Comparing job data for salary surveys;

Assuring compliance with various employment practice and pay rate laws; and

Evaluating job performance based on assigned duties.

Evaluating the Jobs

Nobody knows a scientific, precise way of deciding exactly how much a particular job is worth to a company. Human judgment is the only way to put a dollar value on work. A good job evaluation method for firms with 100 or fewer employees is simple-ranking. It's a guess, too, but a pretty well controlled guess.

Under the simple-ranking system, job descriptions are compared against each other. They are ranked according to difficulty and responsibility. Using your judgment, you end up with an array of jobs that shows the relative value of each position to the company.

After you have ranked the job descriptions by value to the firm, the next step is to group jobs that are similar in scope and responsibility into the same pay grade. Then you arrange these groups in a series of pay levels from highest to lowest. The number of pay levels depends on the total number of jobs and types of work in your organization, but for a company with 100 or fewer jobs,10 or 12 pay levels is usually about right.

Pricing the Jobs

So far in establishing a pay system, you've had to look only inside the company itself. To put a dollar value on each of your pay levels, you should look outside at the going rates for similar work in your area. Since you have ranked and grouped jobs in pay levels, you won't have to survey each job. Survey those in each level that are easiest to describe and are most common in local industry. Do try, however, to survey those jobs that have more than one level, for example junior and senior typists.

A survey of who's paying how much for what in your Locality is the best way of finding out how much you ought to pay for each of your jobs. You probably have neither the time nor the money to spend on making such a survey yourself. That shouldn't be a problem; you should be able to get all the data you need from sources such as your local Chamber of Commerce, major firms located in your area, or from government agencies. If you belong to a trade association, you may be able to get its help to find out what the going rate is for one or more jobs in each pay level.

Compare your financial plan occasionally with real operations statistics. With powerful records you can do this. Then, where
discrepancies show up you can take corrective action before it's too late. The proper decisions for the right corrective action
will depend upon your own knowledge of management methods in buying, pricing, selling, selecting and training personnel, and
tackling other management problems.

You're thinking you are able to employ a bookkeeper or an Accountant to handle the record keeping for you. Yes, you can. But
remember two very important details:

1. Provide the accountant with accurate input. If You Purchase something And don't record the amount in your business checkbook,
the accountant can not enter it. Should you sell something for money and don't record it, then the accountant will not know about
it. The records the accountant prepares will probably be no greater than the info that you provide.

2. Use the documents to make conclusions. If you moved to a physician And he told you you were ill and needed certain medicine to
get well, you'd follow his advice. If you pay an accountant and he tells you your sales are down this year, do not hide your head
in the sand and pretend the problem will go away. It won't.

Business Management Roll in Personnel Selection. If your Small Business Will be big enough to require external assistance, an
important duty will be the choice and training of one or more workers. You may begin with family members or business partners to
help you. But if the company develops - as you hope it will - the time will come when you have to select and train personnel.

Careful selection of employees is essential. To Pick the right Employees decide beforehand what you need each one to do.

Then search for applicants to fulfill these particular needs. In a small Business you may need flexible employees who can shift
from task to task as needed. Include this in the outline of all those tasks you wish to fill. At precisely the exact same time,
look ahead and organize your hiring to guarantee an organization of people capable of performing every crucial role. At a retail
store, a salesperson might likewise do stock-keeping or bookkeeping at the outset, but as the business grows you will need sales
people, stock-keepers and bookkeepers.

Once the job descriptions are composed, line up applicants whom To make a selection. Don't be swayed by clients who may suggest
relatives. In the event the candidate doesn't succeed, you might lose a client as well as a worker. Some sources of possible new
employees are:

1. Tips by friends, business acquaintances. 2. Employment agencies. 3. Placement bureaus of top schools, business schools, and
schools. 4. Trade and industrial institutions. 5. Help-wanted ads in neighborhood papers.

Your next job is to display want ad answers or application Forms delivered by employment agencies. Some applicants will be
eliminated sight unseen. For each of the others, the application form or letter will serve as a basis for the interview that ought
to be conducted privately. Put the applicant at ease by describing your company in general and the job particularly. Once you have
done this, encourage the applicant to talk. Selecting the right person is extremely important. Consult your questions carefully to
find out everything about the applicant that's pertinent to the job.

References are crucial, and should be checked before making a final decision. Check through a personal visit or a phone call
directly to the applicant's immediate previous supervisor, whenever possible. Confirm that the advice given you is accurate.
Consider, with judgment, any negative comments you hear and what isn't said.

Checking references can bring to light important Details Which may help save you money and future inconvenience.

Personnel Training. A well-selected employee is only a possible Asset to your organization. Whether he or she becomes a true
advantage is dependent upon your own training. Recall:

To allow adequate time for training. Not to anticipate too much from The trainee in too brief a time. To allow the worker learn by
performing under real working conditions, together with close oversight. To follow along with your training.

Examine the worker's operation after he or she has been in work For a time. Re-explain key points and short cuts; bring the
employee current on new developments and invite questions. Training is a continuous process which becomes constructive
supervision.

Personnel Supervision. Supervision is the third crucial of personnel control. Fantastic oversight will reduce the cost of
operating your company by cutting down on the amount of worker mistakes. When mistakes are corrected early, employees will find
more satisfaction from their jobs and perform better.

Motivating Employees. Small businesses occasionally face particular Issues in motivating employees. In a large business, a
Fantastic employee can see An opportunity to advance into management. In a small business, You're the management. 1 thing you
Might Wish to Think about is to provide good workers a Small share of the profits, either via part-ownership or even a
profit-sharing plan. Somebody Who has a"share of this activity" will be more Concerned about helping to make a success of the
business.

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