Compensation Management Essay

1122 WordsOct 19, 20145 Pages
Introduction As noted in Martocchio’s textbook Strategic Compensation text, there are five steps to constructing a pay structure. Those five steps include - Deciding on the number of pay structures. Determining the market pay line. Defining pay grades. Calculating pay ranges for each pay grade. Evaluating the results (Martocchio, 2011). This paper will provide a brief overview of each of these five steps. For the purpose of illustration, let us assume that we are attempting to construct a pay structure for a small civil engineering firm based in Orlando, Florida. Step 1 – Deciding on the number of pay structures The initial stage is to classify the employees into different structures. This is helpful in determining their pay grade and whether they are in exempt or nonexempt pay classifications. In the article “Implementing a Small Business Pay Structure,” they comment on the importance of this step - “A company needs job descriptions for all its positions so that people know where they fall within the organization. A pay structure helps answer questions about who’s who, what each person’s role is, and why people are compensated differently. It also helps human resources personnel to fairly administer any given pay philosophy” (, 2011). For the purpose of our example of the civil engineering firm, the pay structures would be based on job family. The administrative would be hourly nonexempt, the drafters would be hourly nonexempt, and the civil engineers would be salaried exempt. Because the civil engineering firm is not working with federal contracts, the Davis-Bacon Act regarding prevailing wage would not be relevant. Step 2 – Determining the market pay line To move forward on deciding the market pay line, it is necessary to understand the range that would be paid for these specific classifications. Looking at the
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