Explain the Design of a Remuneration Plan

Design a Remuneration Plan:

Any remuneration plan must be understandable, workable and acceptable. The remuneration scheme must have two components- a base rate and the scope for increasing the base rate. The remuneration plan must be determined keeping in mind the requisites and the component. The persons responsible for determining a remuneration plan are advised to employ sequential step described as follows:

Job design: Job descriptions are crucial in designing pay systems, for they help to identify important job characteristics. They also help determine, define and weigh compensable factors (factors for which an organization is willing to pay-skill, experience, effort and working environment).

Job Evaluation: The next step in pay fixation is to establish relative worth of jobs employing job evaluation. For example, in the point-ranking method of job evaluation, each job is analyzed and defined in terms of the compensable factors an organization has agreed to adopt. Points are assigned to each degree of compensable factors, such as responsibility.

Job Hierarchy: The points assigned to all compensable factors are aggregated. The total points scored will help establish the hierarchy of job worth, starting from the highest point total to the lowest point total.

Pay Surveys: Job hierarchy being established; the next step is to establish pay differentials. Before fixing wage and salary differentials, prevailing wage and salary rates in the labor market need to be ascertained. Hence the relevance of pay surveys.

One way of collecting pay details is to conduct a survey. This requires that a sample of key jobs and a sample of companies need to be selected. Questionnaires could be mailed to select companies, requesting them to furnish pay details relating to key jobs. Information can also be collected over the telephone.

There are also other sources of collecting pay details. Labor departments of the government, trade unions, and professional bodies, and consulting firms provide copious amount of information about the prevailing wage and salary rates.

Business magazines also carry data on salaries prevailing in different industries. Business Today, dated September 12, 2004, for   example, carried a story on salary raises from 2003 to 2004 in different industries, as shown in table. The magazine reported that in high-growth and high-attrition such as IT, IT enabled services, telecom, and banking and financial services have registered highest increase in salaries. An increase in salaries translates into a corresponding increase in discretionary spending.


Job evaluation helps establish job hierarchy. Through surveys, the rate for key jobs in the labor market is also known. The next logical step is to determine pay structures.

Pricing Jobs : In pricing jobs, the job evaluation worth is matched with the labor-market worth. Two activities need to be performed:

  1. Establishing the appropriate pay level for each job.
  2. Grouping the different pay levels into pay grades.


HR-Professionals 12 Compensation 12


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