White-collar pay determination under range-of-rate systems Essay

Administrators of company pay policy face three fundamental issues:
(1) setting their companies’ overal pay levels in relation to those
of other companies; (2) evaluating individual company jobs and
determining pay relationships among them; and (3) determining pay
relationships among individual workers within the same job. The last of
these functions–and the subject of this article–is often accomplished
by establishing minimum and maximum pay rates for a given job or
grouping of comparable jobs, and providing for adjustments of individual
workers’ pay within this range of rates based on performance,
seniority, or both.



Special tabulations developed from the Bureau of Labor Statistics 1983 an 1984 national surveys of professional, administrative,
technical, and clerical pay (PATC), which cover white-collar employees
in merdium and large establishments, show that:

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* Most white-collar workers are under rate range systems providing
for periodic merit (performance) reviews of their pay.



* Sizable rate ranges are often established for individual company
jobs, especially at the higher professional and administrative levels.



* In practice, however, differences between the highest and the
lowest rates actually paid are generally much smaller than differences
between the maximum and the minimum rates specified for a range. The
data base



Information for this article comes from (1) internal work-sheets
prepared by BLS field staff in the 1983 survey to record job titles,
formal rate ranges, durites, and responsibilities of company positions
matching surveyed occupations and (2) answers to questions on pay plan
characteristic from the 1984 survey. Approximately 3,100 establishments
were studied in the 1983 PATC survey. For some 1,400 establishments
providing rate range data, the internal work-sheets contained the
minimum and maximum pay rates for individual company jobs matching one
of the 101 occupational work levels in the survey.


Each of these work levels, ranging from entry-level to managerial
positions, is covered by a written job description. Where several work
levels are surveyed within a single occupation, they are identified by
Roman numerals–the higher the numeral, the greater the duties and
responsibilities. Each of the narrowly defined work levels represents
fairly homogeneous work duties and responsibilities. Thus,
classification of employees in accordance with these descriptions
permits summary and analysis of rate range characteristics for employees
performing similar work, regardless of company job title or grade.



Exhibit 1 provides a hypothetical example of this job matching
process in a large headquarters establishment. In most cases, a
one-to-one relationship exists between a company job and a PATC survey
work level; for example, only the company’s project engineer has
duties comparable to those in the PATC survey engineer V definition.
Less frequently, one company job spans two PATC survey levels; some
engineering associates better match PATC survey engineer I, while others
generally perform engineer II duties. Also, two company jobs at
different grade levels may at times equate to one PATC survey level, as
in the case of the engineer and the nuclear engineer positions in the
example, which both match engineer III. For purposes of this study,
matches similar to the engineer III illustration were excluded because
they spanned more than one company rate range. These excluded
situations accounted for fewer than 10 percent of the 22,000 matches in
establishments reporting rate ranges.



The study focused on the width of company rate ranges–that is, the
spread between minimum and maximum rates–and the relationship of actual
salaries to points within the ranges. In exhibit 1, the maximum rate is
50 percent above the minimum rate in company grades 2 through 8, and
slightly higher in grades 11 through 17. Such patterns, as found in
surveyed establishments, will be discussed later in the article.



Respondents to the 1984 PATC survey answered the following
questions separately for the professional-administrative and the
technical-clerical worker groups; (1) What types of pay plans cover
employees in white-collar jobs? and (2) if workers are covered by rate
ranges, what boundaries are specified for the ranges; how frequently are
rate ranges adjusted; what formal provisions, if any, cover normal
hiring rates within rate ranges; and what point within the rate range
equates to a job’s market value? Following is a description of the
general characteristics of rate ranges as revealed by the answers to
those questions. Rate range profiles


Formal salary payment plans incorporating a range of rats for each
job classification applied to about four-fifths of the white-collar
workers covered by the 1984 PATC survey. (See table 1.) In contrast,
single rates for a given job–an important formal system for setting
blue-collar pay–were virtually nonexistent for white-collar workers.
Informal systems, which base salaries primarily on an individual’s
qualificiations, accounted for almost all of the remaining white-collar
workers. Informal plans covered about 5 percent of such workers in the
largest establishments (those employing at least 2,500 employees),
compared with about one-fourth of those in establishments with fewer
workers.



With few exceptions, a minimum and maximum were specified for each
rate range reported. Within the range, an individual’s pay
increases typically were based on periodic merit (performance) reviews.
This approach covered more than four-fifths of the professional and
administrative workers and two-thirds of the technical-clerical group
who were under rate ranges. Pay progression for the remaining workers
under rate ranges either was automatic, determined by their length of
service in the job, or depended on a combination of job tenure and merit
ratings.



Rate ranges are typically adjusted once a year–a practice covering
about four-fifths of each worker group studied. Less commonly,
provision call for range changes at some other interval or on an ad hoc basis. After an upward adjustment in the rate range, some workers’
rates fall below the new minimum. Employers reported that such
“subminimum” rates are usually raised at the employee’s
next performance review or anniversary date.



Most establishments pay new employees at a specified point or
withing a specified portion of the range. The 1984 PATC survey found
wide use of three distinct approaches, where by new hires were paid at
the range minimum, at some point between the minimum and the lower
fourth, or between the lower fourth and the middle of the range. Each
approach covered 20 to 25 percent of the professional-administrative
worker group. For the technical-clerical group, hiring at the minimum
of the range pertained to 42 percent of the workers, and was at least
twice as common as the other two hiring approaches. (See Table 1.)



The pace of advancement within a rate range is influenced in part
by an employer’s perception of the market value of a job when fully
and competently performed. Three-fifths of the white-collar workers
were employed by establishments that regarded the midpoint of the rate
range as representative of a job’s market value. These employers
used the midpoint for controlling salary costs, that is, by filtering
through that point only highly rated employees or the most experienced
employees. About 15 percent of the workers were in establishments in
which advancement would be expected to be faster because the midpoint
was set below the market value of a job. (It should be noted that
another 15 to 20 percent of the workers were in establishments that did
not recognize this concept of a job’s market value.e Range width



As mentioned earlier, rate ranges make it possible for individuals
in the same job and establishment to be paid at different rates. The
1983 PATC survey looked at the potential for such differences in the
approximately 1,400 establishments reporting rate range information.
Although these establishments are not statistically representative of
the full PATC survey scope, they do span all of its covered industries
and varying workd force size groups. Furthermore, the results are
consistent with findings from earlier Federal studies of salary
structure characteristics in the private sector.



Employers generally agree on the basic rationale for rate ranges,
but commonly vary the percent by which the maximum salary rate exceeds
the minimum salary rate in a range (its width). Ideally, rate minimums
should attract qualified job candidates while rate maximums should be
set to reward and retain high achievers. In practice, however,
employers see these as flexible boundaries that at times allow for rates
below the specified minimum, for hiring above the minimum rate, and for
progression beyond the maximum rate in the range. Thus, the prescribed width of the range may differ from the spread in rates actually paid.



Among the PATC respondents, the maximum of a rate range most
commonly exceeded the minimum by 50 percent, as shown in table 2.
Nevertheless, many establishments had wider or narrower ranges. For the
89 survey work levels compared, the average spread ranged from 37
percent for stenographers II to 57 percent for accountants V and
attorneys V. In general, rate spread for professional-administrative
jobs exceeded those for technical-clerical occupations.



Few employers maintained a constant range width for all their
white-collar jobs. Among the 1,338 establishments reporting two or more
rate ranges, more than four-fifths varied their range widths by at least
5 percentage points, and differences of 20 percent or more were common.
This largely reflects the tendency of companies to establish separate
salary schedules for major groups of white-collar jobs, such as
professional-administrative and technical-clerical occupations. As
shown in table 3, the proportion of establishments with uniform range
widths (a zero or 1-percentage-point difference between the widest and
narrowest widths) was much larger for similar types of jobs.
Nevertheless, even within a grouping of professional-administrative or
technical-clerical occupations, a majority of establishments had varying
range widths. Actual salaries within rate ranges



How widely do actual salaries vary within rate ranges? Are there
clusterings of salaries within ranges? To anwer these questions, actual
salaries were compared to several points in the corresponding rate
ranges–the minimum, the midpoint, and the maximum–and to the spread
between the minimum and maximum. These comparisons, it must be
stressed, were limited to salaries of workers in company jobs matching
PATC survey definitions; a company’s rate range for a labor grade
normally would cover a number of jobs, some within, and some excluded
from, survey converage.



As might be expected, clustering at or near the minimum of the rate
range was most pronounced at the lowest work levels–the
“entry” levels–of an occupation, where job skills are
developed in preparation for advancement to more responsible positions.
The following tabulation illustrates this point by showing, for three
occupations and two work levels, the percent of white-collar workers
paid within 10 percent of their rate range minimums:



Because workers do not reamin in entry level positions for lengthy
periods, they normally do not advance far into their rate ranges.
Conversely, because fully experienced workers are less often promoted to
higher work levels, they tend to be granted more within-grate wage
adjustments.



Unlike the minimum rate, the midpoint of the rate range was
typically an establishment’s focal point for controlling overall
salary levels of company jobs. One measure of cost control used by
employers is the average salary of employees in a rate range expressed
as a percent of the midpoint of the range. Values of about 100 or less
indicate that, on average, salary costs do not exceed the
employer’s market value of the job.



Using this measure, 80 of the worklevels came in at 102 or less,
while the remaining 9 topped out at 108. The latter comprised
experienced drafters, engineering technicians, photographers,
secretaries, and stenographers–groups that include many long-service
workers, some of whom were paid above the maximum of their rate ranges.
not unexpectedly, some establishments allowed average salaries to rise
well beyond the midpoint of the range.



Most establishments, however, paid only salaries falling within the
associated rate ranges. Moreover, it was common for substantial
portions of these ranges to be unused at a given time, in part because
os use of the midpoint as a salary control, or hiring at rates above the
minimum, or both. To illustrate this point, the spread between the
highest and the lowest salaries actually paid was computed as a percent
of the rate range spread for the job. On average, these ratios,
indicating the proportion of the rate range being used, fell between
one-third and one-half for professional-administrative work levels
studies, and between two-fifths and two-thirds for techniccal-clerical
classifications.

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