Session 16 - Pay Structure Design

Pay Ranges

-Build upon pay grades -Pay grades represent horizontal dimension -Pay ranges represent vertical dimension

Sales Compensation Plans: Salary-Plus-Commission Plans

-Commissions based on percentage of price -Spreads risks -Designed to attract quality sellers -Allows employees to do other tasks Example: Pharmaceutical sales

Sales Compensation Plans: Commission-Plus Draw Plans

-Draw -Advance pay for living expenses -Charged against future commissions -Recoverable or non-recoverable -Provides strong incentive to excel Example: Car Salesperson

Sales Compensation Plans: Salary-Only Plans

-Fixed base compensation -From the employees' perspective - risk-free -From a company's perspective - not linked to performance Example: Sale of high-priced products

Sales Compensation Plans

-Salary-only -Salary-plus-bonus -Salary-plus-commission -Commission-plus-draw -Commission-only

Sales Compensation Plans: Salary-Plus-Bonus Plans

-Set salary coupled with a bonus -Bonuses usually are single payment Example: Real Estate Agent achieving a yearly goal

Pay Grades

Based on compensable factors, values, management philosophy -Widths -Narrow or wide -Affects hierarchy and social distance -Absolute or percentage-based job evaluation points

Calculating Salary Range Minimum & Maximum

Calculating the Minimum: Divide the desired range spread percentage in half Take the midpoint and divide it by 1.xx (xx = half the desired range spread) Example: $25,000/1.25% = $20,000 Calculating the Maximum: Multiply the minimum by the full range spread (Minimum x 1.xx (full desired range spread)) Example: $20,000 x 1.5% = $30,000

Range Width Considerations

Considerations: -No Hard and Fast Rules -Generally, the taller (vertical)the salary ranges the more opportunity for employees to move up in salary. -May want wider salary range width if there are employees with a lot of longevity or want to encourage employees to stay in their positions for a long time. -Typically want to consider wider ranges for higher level positions -How long it takes the typical new person to reach full proficiency in the position - Pay ranges overlap, making it possible for an experienced person in a lower grade to be paid more than an experienced person in a higher graded position -The size of the organization and the number of jobs

Green & Red Circle Rates

Green Circle Rates Employee pay rates that are below the pay range minimum Examples: Employee not meeting the minimum Job requirements Adjustment of pay range minimum Red Circle Rates Employee pay rates that are above the pay range maximum Examples: Exemplary performers (not granted a higher range) Employee receiving a job demotion

Compa-Ratios

Part of pay structure evaluation -Index competitiveness of internal pay rates based on midpoints -Calculation - Divide pay rates by pay range midpoint Compa-ratio meanings 1 = market match rate (or midpoint) < 1 = market lag rate (or midpoint) > 1 = market lead rate (or midpoint

Person-Focused Structures

Skill Blocks -Include job descriptions -Skills needed -Training required -Accurate evaluation process -Organize jobs into family/group -List similar skills and tasks per job -Group skills into blocks Certification - ensures that employees possess at least a minimally acceptable level of skill proficiency upon completion of the training. Example: Certified Licensed Electrician Recertification - employees periodically must Demonstrate mastery of all they have learned. Example: Teacher Recertification or Senior Professional in Human Resources (SPHR) by Society for Human Resources Management (SHRM)

Impact of Alternative Range Spreads

The higher the range spread percentage, the larger the difference between midpoint and minimum/maximum values.

Pay Compression

When pay for newly hired or less qualified employee and pay for a more qualified incumbent is small -Threatens competitive advantages Caused by: -Failure to raise pay range limits - Scarcity of qualified applicants