Chapter 8 - Designing Pay Levels

Which jobs should be included for a survey?

Benchmark jobs - Apply job evaluation system to the survey jobs - When jobs do not match survey jobs, quantify the difference stable job content, are common across different employers, and include sizable numbers of employees.

There are several ways to translate external competitiveness policy into practice. Competitive strategy can vary based on the different forms of pay:

Choice of measure - A company can use a specific percentile for base pay and another percentile for total compensation. Policy line as percent of market line - Specific a percent above or below the regression line an employer intends to match and draw a new line at this level

broad banding

Consolidates multiple traditional grades into a single band with a minimum and maximum. May be combined with traditional practices by using midpoints, zones, or other control points

How do we construct the market line?

Constructing the pay policy line that reflects external pay policy Balance competitiveness with internal alignment through the use of ranges, flat rates, and/or bands

We may need to adjust/update the pay structure due to the following reasons:

Difference between market structures and rates and job evaluation rankings Survey data may be discarded Benchmark-job matches may be changed

Grades and ranges offer flexibility to deal with pressures from external markets and differences among organizations. They include:

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

What information should be collected?

Information about the organization Information about the total compensation system Specific pay data on each incumbent in the jobs under study

What are some ways a consulting group design a survey?

Look for communication from survey vendor Focus on specific business needs Look for easy access to data Avoid time-consuming data input Stretch salary budget Antitrust issues - use caution Look for added value

Distinguish between pay grades and banding.

Pay grades - one of the classes, levels, or groups to which jobs of the same or similar values are grouped for compensation purposes. Broad banding - collapses a number of salary grades in to a smaller number of broad grades with wide ranges.

The major decisions in setting externally competitive pay are:

Specifying the employer's competitive pay policy Defining the purpose of the survey Selecting relevant market competitors Designing the survey Interpreting survey results and construct the market line

A relevant labor market must be defined that includes employers who compete in one or more of the following areas:

The same occupations or skills Employees within the same geographic area The same products and services

How many employers should be included in a survey?

There is no real limit. There are no firm rules on how many employers to include in a survey. National surveys conducted by consulting firms often include more than 100 employers. Clients of these consultants often stipulate special analyses that report pay rates by selected industry groups, geographic region, and/or pay levels.

Who should be involved in the survey design?

Usually the compensation manager, other managers, some employees

How do we interpret survey results?

Verify data by checking accuracy of job matches Check for anomalies, age of data, nature of the organizations - If a company job is similar, but not identical, use the benchmark conversion / survey leveling approach

A range has three salient features:

a midpoint, a minimum, and a maximum.

How is a pay structure different from a job structure?

anchored by the organization's external competitive position and reflected in its pay-policy line

Mode Mean = sum/number of companies Median Weighted mean - Rate for each company is multiplied by the number of employees in the company / total number of employees

central tendency

offer a wide choice of ongoing surveys covering almost every job family and industry. Most employers don't create their own survey.

consulting firms

The SIZE of the range is a judgement about...

how the range supports career paths, promotions, and other systems.

orders jobs on the basis of internal factors (reflected in job evaluation or skill certification)

job structure

can be constructed using key/benchmark jobs that shows external market pay survey data as a function of internal job evaluation points. Usually obtained by using regression analysis

market pay line

Usually done with base data, since base pay reflect the basic value of the work rather than performance levels of the employees Really difficult to design :(

pay grades

one of the classes, levels, or groups to which jobs of the same or similar values are grouped for compensation purposes.

pay grades

They exist whenever two or more rates are paid to employees in the same job Recognizes: - Individual performance differences with pay - Meets employees' expectations that their pay will increase over time - Encourages employees to remain with the organization

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.

pay ranges

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

regression

Different statistical measures to analyze survey data are:

regression, central tendency, variation

what does the market line summarize?

the distribution of going rates paid by competitors in the market. (As the number of jobs in the survey increases, the advantages of the straight line regression provides becomes clear.)

T or F: All jobs in a pay grade have the same pay range - maximum, minimum, and midpoint.

true

T or F: Pay grades can enhance an organization's ability to move people among jobs with no change in pay.

true

Measure of dispersion Standard deviation Quartiles and percentiles

variation

T or F: Pay grades group job evaluation data on the horizontal axis; ranges group salary data on the vertical axis. Ranges set upper and lower pay limits for all jobs in each grade.

true

Pay data is usually updated, a process called aging or trending, to forecast rates for when pay decisions are implemented. If a company chooses a "match" policy, they will be lagging the market. Aging the market data to a point halfway through the plan year is called lead / lag. If they want to lead, then age the data to end of the plan year and pay at this rate the whole plan year. The amount to update is based on several factors.

Historical trends in the labor market. Prospects for the economy where the employer is operating. The manager's judgment.

If an organization is using skill-competency-based structures or generic job descriptions, it may not have benchmark jobs to match with jobs at competitors who use a traditional job-based approach. Market data must be converted to fit the skill or competency structure. The simplest way to do this is to....

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. Convert market data to fit the skill - or competency based structure Use the lowest- and highest-paid benchmark jobs as anchors