designing pay structure, levels, and mix
DESCRIPTION
Steps to designing pay structure , levels and mixTRANSCRIPT
Designing Pay Levels, Designing Pay Levels, Mix and Pay StructuresMix and Pay Structures
STRATEGIC
POLICIESTECHNIQUES
STRATEGIC
OBJECTIVES
EFFICIENCY Performance Quality Customers Stockholders CostsFAIRNESSCOMPLIANCE
ALIGNMENTALIGNMENT
COMPETITIVENESCOMPETITIVENESSS
CONTRIBUTORSCONTRIBUTORS
ADMINISTRATIONADMINISTRATION
Work Descriptions Evaluation/ INTERNAL Analysis Certification STRUCTURE
Market Surveys Policy PAY Definitions Lines STRUCTURE
Seniority Performance Merit INCENTIVE Based Based Guidelines PROGRAMS
Planning Budgeting Communication EVALUATION
Determining Externally Determining Externally Competitive Pay Levels and Competitive Pay Levels and
StructuresStructuresExternal External competitivecompetitiveness: Pay ness: Pay relationshiprelationships among s among organizatioorganizationsns
Set Set PolicyPolicy
Define Define MarketMarket
ConducConduct t SurveySurvey
Draw Draw Policy Policy LinesLines
Merge Merge Internal Internal & & External External PressurePressuress
CompetitivCompetitive Pay e Pay Levels, Levels, Mix and Mix and StructuresStructures
Some Major Decisions in Pay Level Some Major Decisions in Pay Level DeterminationDetermination
Determine pay level policyDetermine pay level policy Define purpose of surveyDefine purpose of survey Define relevant labor marketDefine relevant labor market Design and conduct surveyDesign and conduct survey Interpret and apply resultsInterpret and apply results Design grades and ranges or bandsDesign grades and ranges or bands
Pre Survey - Compensation versus Total Pre Survey - Compensation versus Total Rewards ….Rewards ….Common Examples Reward Elements Definition
• Stock• Cash
R
E
W
A
R
D
• Quality-of-Work & -Life
• Affiliation• Development• Security of
Employment
Other Non-Cash Rewards T O T A L
REMUNERATION
• Cars• Clubs• Company Housing
• Retirement• Health & Welfare• Time off w/Pay• Statutory Programs
Perquisites
Benefits
T O T A L
Intrinsic
Extrinsic:All things onto which we can
assign a rupee value
• Annual Incentive
• Basic Salary• Reimbursement +
Allow.• Insurance premiums
Annual Variable
Base Cash
TOTAL
CASH
LTATOTAL
DIRECT
PAY
• Stock
Salary SurveySalary SurveyA A surveysurvey is the systematic process of is the systematic process of
collecting and making judgements collecting and making judgements about the compensation paid by other about the compensation paid by other employers.employers.
Surveys provide the data for setting the Surveys provide the data for setting the pay policy relative to competition and pay policy relative to competition and translating that policy into pay levels translating that policy into pay levels and structures.and structures.
Set Competitive Pay PolicySet Competitive Pay PolicyAdjust Pay Level – How Much to Pay?Adjust Pay Level – How Much to Pay?Adjust Pay Mix – What Forms?Adjust Pay Mix – What Forms?Adjust Pay Structure?Adjust Pay Structure?Special SituationsSpecial SituationsEstimate Competitors’ Labour CostsEstimate Competitors’ Labour Costs
Define Relevant Market Define Relevant Market CompetitorsCompetitors
Employers who compete for the same Employers who compete for the same occupations or skills required.occupations or skills required.
Employers who compete for Employers who compete for employees within the same employees within the same geographic area.geographic area.
Employers who compete with the Employers who compete with the same products and services.same products and services.
Advantages and Disadvantages of Advantages and Disadvantages of Measures of CompensationMeasures of Compensation
All employees may not receive all All employees may not receive all the forms. Be careful; don’t set the forms. Be careful; don’t set base equal to competitors’ total base equal to competitors’ total compensation. Risks high fixed compensation. Risks high fixed costs.costs.
Tells the total value Tells the total value competitors place on competitors place on this workthis work
Total Total CompensatioCompensationn(base + (base + bonus + bonus + stock options stock options + benefits)+ benefits)
All employees may not receive All employees may not receive incentives, so it may overstate incentives, so it may overstate the competitors’ pay; plus, it does the competitors’ pay; plus, it does not include long-term incentives.not include long-term incentives.
Tells how competitors Tells how competitors are valuing work; also are valuing work; also tells the cash pay for tells the cash pay for performance performance opportunity in the job.opportunity in the job.
Total CashTotal Cash(base + (base + bonus)bonus)
Fails to include performance Fails to include performance incentives and other forms, so incentives and other forms, so will not give true picture if will not give true picture if competitors offer low base but competitors offer low base but high incentives high incentives
Tells how competitors Tells how competitors are valuing the work are valuing the work in similar jobsin similar jobs
Base PayBase Pay
Combine Job Evaluation and Combine Job Evaluation and Market Survey Data Market Survey Data (1 of 2)(1 of 2)
Scatterplots: for each benchmark job Scatterplots: for each benchmark job there is a distribution of salaries paid there is a distribution of salaries paid by survey companies.by survey companies.
Scatterplots are useful to see what the Scatterplots are useful to see what the data look like.data look like.
PAY
Our Job Evaluation Points
ScatterplotScatterplot
120 160 200 240 280 320 360
surveymonthlysalary
(Rs.0000)
7654321
80
PAY
Our Job Evaluation Points
Scatterplot with Linear Scatterplot with Linear CurveCurve
120 160 200 240 280 320 360
surveymonthlysalary
(Rs. 0000)
7654321
80
Line of Best Fit
Adjust The Data to Reflect Adjust The Data to Reflect Organization’s Pay Policy Organization’s Pay Policy
Lead the Market:Lead the Market:pay level should be above the market pay level should be above the market
for the year and equal at year endfor the year and equal at year endupdate factor will be update factor will be equalequal to the to the
projected market increaseprojected market increase
Adjust The Data to Reflect Adjust The Data to Reflect Organization’s Pay Policy Organization’s Pay Policy (2 of 3)(2 of 3)
Match the Market:Match the Market:pay level will be above the market for pay level will be above the market for
the first half of the year and below for the first half of the year and below for the second halfthe second half
update factor will be update factor will be half half of the of the projected market increaseprojected market increase
Adjust The Data to Reflect Adjust The Data to Reflect Organization’s Pay Policy Organization’s Pay Policy (3 of 3)(3 of 3)
Lag the Market:Lag the Market:pay level should be below the market pay level should be below the market
for the entire yearfor the entire yearno adjustmentno adjustment will be made to account will be made to account
for the projected market increasefor the projected market increase
PAY
Our Job Evaluation Points
Developing a Pay Policy Developing a Pay Policy LineLine
120 160 200 240 280 320 360
surveymonthlysalary
(Rs. 0000)
7654321
80
Line of Best Fit :using market-survey data(updated and aged to reflectpay policy)
Why Bother with Ranges?Why Bother with Ranges? External Pressures:External Pressures:
a.a. Quality variations (KRAs) among individuals in Quality variations (KRAs) among individuals in the external marketthe external market
b.b. Recognition of differences in the productivity-Recognition of differences in the productivity-related value to employers of these quality related value to employers of these quality variationsvariations
Internal Pressures:Internal Pressures:a.a. The intention to recognize individual The intention to recognize individual
performance variations with payperformance variations with payb.b. Employees’ expectations that their pay will Employees’ expectations that their pay will
increase over timeincrease over time
Constructing Ranges:Constructing Ranges:Develop Grades Develop Grades
A A gradegrade is a is a horizontalhorizontal grouping of grouping of different jobs that are considered different jobs that are considered substantially equal for pay purposes.substantially equal for pay purposes.
Grades enhance an organization’s Grades enhance an organization’s ability to move people among jobs ability to move people among jobs within a grade with no change in pay.within a grade with no change in pay.
Constructing Ranges:Constructing Ranges:Develop GradesDevelop Grades
The objective is for all the jobs that The objective is for all the jobs that are similar for pay purposes to be are similar for pay purposes to be placed within the same grade.placed within the same grade.
How many pay grades?How many pay grades?a. number of jobsa. number of jobsb. organization hierarchyb. organization hierarchyc. reporting relationshipsc. reporting relationships
Constructing Ranges: Constructing Ranges: Establishing Midpoint, Establishing Midpoint,
Minimum, and MaximumMinimum, and MaximumPay ranges refer to the Pay ranges refer to the vertical vertical
dimensiondimension of the pay structure. of the pay structure.Each pay grade will have associated Each pay grade will have associated
with it a pay range consisting of a with it a pay range consisting of a midpoint and a specified minimum and midpoint and a specified minimum and maximum.maximum.
Constructing Ranges: Constructing Ranges: Establishing Midpoint, Establishing Midpoint,
Minimum, and MaximumMinimum, and MaximumMidpoints correspond to the Midpoints correspond to the competitive pay policycompetitive pay policy
The point where the pay policy line The point where the pay policy line crosses each grade becomes the crosses each grade becomes the midpoint of the pay range for that midpoint of the pay range for that gradegrade
Midpoints are the control point of the Midpoints are the control point of the rangerange
PAY
Our Job Evaluation Points
PAY GRADE STRUCTUREPAY GRADE STRUCTURE
100 150 200 250 300 350
ourmonthlysalary(0000)
87654321
Pay Policy LinePay Policy LineI
II
III
IV
V
Broad Bands
Jobs
Rs
Multiple Grades
Jobs
Rsx
Spot Salaries
x xx
x
x
xx x
x
Jobs
Rs
30%-50% 100%Range Width
20% - 40% 50%Overlap
6 or more Grades 4-5 BandsNumber Bands
Midpoints based on market rates
Job Evaluation
Market Anchors Pay Zones
Control Market Anchors Pay Zones
DIFFERENT PAY DIFFERENT PAY STRUCTURESTRUCTURE
Broad Bands
Jobs
Rs
Multiple Grades
Jobs
Rs
x
Spot Salaries
x xx
xx
xx xx
Jobs
Rs
Clearly indicates internal relativities
Control pay policy and budgets
Can be used to determine benefits eligibility
Enhances organisational flexibility
Framework for managing pay and career development
Allows for reward for growth within band
Emphasis on individual contribution and market
Can be used to determine benefits eligibility
Advantages Flexible Responsive to the
market
Risks Could lead to issues with internal relativities
Less control over cost Requires accurate
benchmarking and data management
Issues with flexibility Pay progression only
possible through job promotion
Promotion culture
FlexibilityMarket Sensitive
ControlInternal Equity
Could lead to issues with internal relativities
Employees may perceive lack of promotional opportunities
DIFFERENT PAY DIFFERENT PAY STRUCTURESTRUCTURE
Pay level and mix focus Pay level and mix focus attention on two objectives:attention on two objectives:
Control Labour Control Labour CostsCosts
Attract and Attract and Retain Retain
EmployeesEmployees
Pay Mix Policy AlternativesPay Mix Policy Alternatives
Base 50%
Bonus 17%
Options 16%
Benefits 17%
Performance - Driven
Base 70%Bonus
6%
Options 4%
Benefits 20%
Market Match
Base 50%
Bonus 10%
Options 10%
Benefits 30%
Work - Life Balance
Base 80%
Benefits 20%
Security (Commitment)