Imagine that we want to figure out how to pay a set of administrative assistants in an organization. Should we just let the “market” tell us what to do? That certainly is one way to go, but it turns out that most organizations do not do that entirely. Consider Figure 6.1. In this figure, the vertical axis is dollars and the horizontal axis is “stuff that people do at work.” It seems perfectly natural to have an upward-sloping relationship between stuff the person does and how much he gets paid. But how do we measure the “stuff that people do at work?” And why is Assistant I paid so much less than Assistant III? And why is the difference in pay between Assistant II and Assistant III smaller than the difference in pay between Assistant III and Assistant IV? The next few chapters begin to show us the answers to these kinds of questions. And if you think that we are going to immediately see how pay fits into this, you are wrong. It turns out that most organizations do tons of work thinking about internal comparisons and the contributions of specific jobs before thinking at all about pay.

This is the first of two chapters that present the basic technical details of how many organizations throughout the world design compensation systems for their employees. In this chapter, we begin with discussing what is known as job analysis and job evaluation and a discussion of internal comparisons, the market and the right data, and matching the two together to form the basis of a system in Chapter 7. Let's get started with job analysis.