Businesses can use a variety of pay structures to compensate employees. The job-based pay structure has been widely used by businesses because it links the job position directly to pay. However, this structure has disadvantages because employers are limited in considering other factors that more accurately measures a worker's value.
Job-based Pay Defined
Job-based pay has traditionally been the main structure companies have used in determining how much to pay workers. Employers that use this structure pay workers according to the employee's position and job duties. An employer may also consider the employee's work experience and seniority as part of the job evaluation. The implicit message to employers who use the job-based pay structure conduct performance appraisals to measure the employee's contributions to the company.
Some business owners are finding that job-based pay structures do not suit their organizational strategies. They are seeking pay structures that align with their work environments. As companies have changed their work environments they are basing salaries on other structures that are more useful. For example, as more emphasis is placed on working as a team, companies are basing salaries of the efforts workers make as a member of a team.
Increased Operating Costs
Job-based pay structures can increase a company's operating costs, which is another disadvantage. For example, the company may have to hire a consulting firm to conduct compensation audits. The business may also have to revise its pay grades every year, which requires more administrative staff.
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If job-based pay does not reward the best employees for their work, this can affect how employees are evaluated. When evaluating employee performance, employers that have job-based pay structures are limited in giving pay raises that take the worker's skills and experience into account. The fact that an employee's performance may be superb carries less weight in such structures.
Employees who are not rewarded for their job performance may quit because they feel that their contributions are not valuable to the company. For example, an employee whose contributions result in an increase in earnings or new clients will want to be rewarded. Employees can be rewarded with pay raises or bonuses. If the employee receives neither, he may seek employment with other companies.