Now that the cost of living is rising dramatically in Addis Ababa and throughout Ethiopia employers are being forced to pay attention to the challenges their employees face. Many organizations now must revise salary scales or develop them due to pressure from employees to raise salaries. The competition for competent employees is also becoming stiff for skilled labor especially in the financial industry.
To retain good employees companies need not only to revise salary scales but fringe benefits as well. Many people feel that increasing salary improves performance but its most important function is retaining and attracting competent employees. To improve performance organizations must have incentives for individuals, groups and organizations.
Salary scales make payment fair, predictable and free from graft which benefits employees and employers.
Human resource professionals have come up with five major steps for developing a salary scale. The major way companies do this is by comparing skills, responsibilities and requirements of jobs; known as compensable factors.
These are the stages that companies use to evaluate salary scales:
Analyze and prepare job descriptions: A job description describes the duties and responsibilities of the job holder where as specifications describe the qualities they need to have such as education and experience.
Select and Prepare a Job Evaluation Plan: This means that a job must be broken down into component parts, i.e., it should involve the selection of factors, elements needed for performance of all jobs.
Classify Jobs: This requires grouping or arranging jobs in a correct sequence in terms of value to the organization. The result of this step is job grade.
Install the Program: This involves explaining it to employees and putting it into operation.
Maintain the Program: Since the dynamic nature of jobs, there is a need to periodically review jobs and revise job descriptions and job specifications. At minimum, job descriptions and specifications must be revised when new employees are hired for such positions.
On the market side, the pay of the competitors must be surveyed to maintain the external equity. For this purpose, organizations can identify 20 to 30 benchmark jobs and collect data about the minimum and maximum salaries for such jobs. Theoretically, it is also possible to gather data from non-competing organizations operating in the same locality.
After grading jobs for internal equity and reviewing the market for external equity, experts can construct salary scales. The parameters for development of these scales can be very technical so it is best to use a professional because a carefully designed salary scale will remain relevant for a long time.
Finally, the organization must have guidelines for consistent implementation. Poor implementation can create grievances from the employees which defeats the purpose of creating the scale.
Large organizations can afford to hire experts in compensation systems. But, for medium size organizations, it is good to get expert advice in the form of coaching and training before one starts constructing salary scale.