MGMT 472 Chapter 8 Designing Pay Levels, Mix, & Pay Structures

What is a compensation survey?

(pay level and pay mix) the systematic process of collecting and making judgements about the compensation pay by other employers

Interpret Survey Results and Construct a Market Line Verify data

-Check accuracy of job matches -Check for anomalies in data --individual firm data is more useful than minimums & maximums & whether bonuses are offered (far better to know to what percent of workforce & at what level) --Questions to ask about data: -Does any one company dominate? (have larger number of employees; what effect will this have on results?) -Do all employers show similar patterns? (if any are exceptions, consider dropping them from analysis) -Outliers? (if one company's pay or benefits are far out of alignment rest of companies, consider dropping them from analysis)

Broad banding purposes

-Provide flexibility to define job responsibilities more broadly -Foster cross-functional growth and development -Ease mergers and acquisitions

Market Pricing Issues

-Validity of market data -Use of competitors' pay decisions as primary determinant of pay structure -Lack of value added via internal alignment -Difficult-to-imitate aspects of pay structure are deemphasized -Fairness

What 3 types of data are typically requested in a pay survey?

1. info. about the organization 2. info. about the total compensation system 3. specific pay data on each incumbent in the jobs under study.

Some major decisions in pay-level determination

1. specify pay-level policy 2. define purpose of survey 3. specify relevant market 4. design and conduct survey 5. interpret and apply result 6. design grades and ranges or bands

A relevant labor market for an organization must be defined that includes employers who compete on one ore more of the following areas:

1.The same occupations or skills 2. Employees within the same geographic area. 3. The same products and services

Pay Grades are classes, levels, or groups into which jobs of the same or similar values are grouped for compensation purposes

All jobs in a pay grade have the same pay range, minimum, maximum, and midpoint

Custom developed/Existing survey?

Compensation specialist needed to custom-develop survey -Release of compensation data can violate Sherman Antitrust Act -Survey reports should not report company names -Competitors may be reluctant to provide information to rivals -Information may be inaccurate or incomplete

Pay grades/ranges offer flexibility to deal with pressures from external markets and differences among firms

Differences in quality among individuals applying for work Differences in the productivity or value of these quality variations Differences in the mix of pay forms competitors use

What about if a company is using skill/competency based pay structures, how would they determine which jobs to include?

Identify the lowest and highest paid benchmark jobs for the relevant skills in the relevant market and to use the wages for these jobs as anchors for the skill-based structures.

Two parts of the total pay model have merged

Internally aligned structure - Horizontal axis External competitive data - Vertical axis

Pay ranges are the range of pay rate from minimum to maximum set for a pay grade or class

It puts limits on the rates an employer will pay for a particular job

What does market pricing sets pay structure almost exclusively on?

Market rates

Involves collapsing salary grades into a few broad bands, each with a sizable range

One minimum and one maximum Range midpoint often not used

Market line can be written as:

Pay for Job A= a+ (b * job evaluation points for Job A) Pay for Job B= a+ (b * job evaluation points for Job B)

Each grade will have its own

Pay range

Two aspects of pay structure

Pay-policy line (paying 10% above average) Pay ranges

Pay Range exists whenever two or more rates are paid to employees in the same job. This allows flexibility to:

Recognize individual performance differences with pay Meet employees' expectations that their pay will increase over time, even in the same job Encourage employees to remain with the organization

Establish range midpoints, minimums, and maximums

Size of range based on judgment about how ranges support : -Career paths -Promotions -Other organization systems

Measures of variation: which of the following is the most common in salary survey analysis?

Standard deviation Quartiles and percentiles

Measures of central tendency

What is a mode? appears most often What is a mean? average of numbers What is a median? midpoint What is a weighted mean? some values contribute more than others.

Y=a+bx, where

Y=dollars X=job evaluation points a = y value (in dollars) at which x = 0 (i.e., where the straight line crosses the y axis)

If the objective of the survey is to price the entire organization's job structure, which jobs should be included in the survey?

all key functions and all levels

Grades enhance

an organization's ability to move people among jobs with no change in pay.

What is the objective for market pricing?

base most, if not all, of the internal pay structure on external rates, breaking down the boundaries between the internal organization and the external market forces

What is a fuzzy market?

don't know who to hire for job. (odd positions)

What are some reasons for the differences?

evaluation and pricing a particular job shortage of a particular skill has driven up the market rate internal/external pressures

What is the benchmark conversion approach?

if an organization uses job evaluation, then its job evaluation system can be applied to the survey jobs.

What is market pay line?

lines a company's benchmark jobs on the horizontal axis with market rates paid by competitors (market survey) on the vertical axis. It summarizes the distribution of going rates pay by competitors in the market.

What is Market pricing?

sets pay structures almost-exclusively on external market rates

Why do employers conduct or participate in surveys?

share information

All the jobs within a single grade will have

the same pay