Module 9 (Chapter 8): Designing Pay Levels, Mix, and Pay Structures

Major decisions involved in setting externally competitive pay and designing corresponding pay structures:

- Specify competitive pay policy. - Define purpose of the survey. - Select relevant market competitors. - Design the survey. - Interpret survey results and construct the market line. - Construct a pay policy line that reflects the external pay policy. - Balance competitiveness with internal alignment through ranges, flat rates, and/or bands

Central tendency

A midpoint in a group of measures.

Regression

A statistical technique for relating present-pay differentials to some criterion, that is, pay rates in the external market, rates for jobs held predominantly by men, or factor weights that duplicate present rates for all jobs in the organization.

Broad banding

Collapsing a number of salary grades into a smaller number of broad grades with wide ranges.

Variation

Distribution of rates around the central tendency.

Market line

Links a company's benchmark job evaluation points on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis. It summarizes the distribution of going rates paid by competitors in the market.

Weighted mean

Measure of central tendency; when pertaining to pay, is calculated by adding base wages for all employees and dividing by the number of employees.

Mean

Measure of central tendency; when pertaining to pay, is calculated by adding each company's base wage and dividing by the number of companies.

Consumer Price Index

Measure of the changes in prices in a fixed market basket of goods and services purchased by a hypothetical average family. Not an absolute measure of living costs; rather, a measure of how fast costs are changing; not advisable to use for updating pay data, as it measures the rate of change in prices, not wages.

Lead/lag

Method of updating survey data which involves aging the market data to a point halfway through the plan year.

Pay grade

One of the 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—maximum, minimum, and midpoint.

Market pricing

Pay strategy that emphasizes external competitiveness and deemphasizes internal alignment.

Benchmark conversion

Process of matching survey jobs by applying the employer's plan to the external jobs and then comparing the worth of the external job with its internal "match."

Zones

Ranges of pay used as controls or guidelines within pay bands that can keep the systems more structurally intact. Maximums, midpoints, and minimums provide guides to appropriate pay for certain levels of work. Without zones employees may float to the maximum pay, which for many jobs in the band is higher than market value

Pay-policy line

Representation of the organization's pay-level policy relative to what competitors pay for similar jobs.

Pay structure

The array of pay rates for different jobs within a single organization; they focus on differential compensation paid for work of unequal worth.

Competitive intelligence

The collection and analysis of information about external conditions and competitors that will enable an organization to be more competitive.

Bureau of Labor Statistics (BLS)

The major source of publicly available compensation (cash, bonus, and benefits but not stock ownership) data.

Range maximums

The maximum values to be paid for a job grade, representing the top value the organization places on the output of the work.

Range minimums

The minimum values to be paid for a job grade, representing the minimum value the organization places on the work.

Pay ranges

The range of pay rates 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.

Range midpoint

The salary midway between the minimum and maximum rates of a salary range. The midpoint rate for each range is usually set to correspond to the pay-policy line and represents the rate paid for satisfactory performance on the job.

Survey

The systematic process of collecting and making judgments about the compensation paid by other employers.

Relevant labor markets include:

· Employers who compete in the same occupation or skills. · Employers who compete in hiring employees within the same geographic area. · Employers who compete in hiring the same products and services.

Advantages of broad banding:

· Provides flexibility to broadly define job responsibilities.​ · Supports organizations that have eliminated layers of managerial jobs.​ · Fosters cross-functional growth and development.​ · Helps manage the reality of fewer promotions in flat organizations.​ · Flexibility eases mergers and acquisitions.​

Purposes of a pay survey:

· To adjust the pay level in response to changing rates paid by competitors.​ · To set the mix of pay forms relative to that paid by competitors.​ · To establish or price a pay structure. · To analyze pay-related problems. · To estimate the labor costs of product or service market competitors.​

Designing a survey requires answering the following questions:

· Who should be involved in the survey design?​ · How many employers should be included?​ · Which jobs should be included?​ · What information should be collected?