market based pay system the market based pay system project

Market Based Pay System

The Market Based Pay System

Project

Objective:Wages and Salaries are a very large part of the business expense.

• Excessive costs jeopardize the business.

• Employees need to believe they are paid for their contribution.

Process Outline:Part 1: Job Descriptions

Part 2: Market Data Collection

Part 3: Market Data to Current Pay Analysis

Part 4: Develop Pay Structure

Part 1: Job Descriptions

• Without a Job Description, any pay plan is “rational”.

• No Job Description? Then look at the process to develop them.

• Job Descriptions identify the following:• Reason for the position• Key duties• Qualifications• Knowledge, skills, and abilities

Part 2: Market Data Collection

• Published Market Data is obtained for the Job Description.• Generally at least two sources are used.• Data should represent same labor area, current time period.

Process… Market Data Sheet

10 - Sales/Marketing AsstOregon

25th Percentile

Annual Median

75th Percentile

ERI Advertising Supervisor - Madison, 2 yr $51.2 $56.0 $62.3ERI Web Developer - Madison, 2 yr $53.3 $57.0 $61.9ERI Market Research Analyst - Madison, 4 yr $46.2 $49.7 $54.2ERI Marketing Specialist - Madison, 4 yr $42.0 $45.9 $51.1GMA SHRM 2007 Market Research Analyst, All respondents, calculated) $43.3 $50.7 $56.0GMA SHRM 2007 Web Developer 1, All respondents, calculated) $46.7 $54.2 $62.6GMA SHRM 2007 Advertising Manager, All respondents, calculated) $56.0 $68.4 $96.4Averages $47.1 $52.2 $58.0Trachte, Inc. Overall Incumbent Average $58.0 $58.0 $58.0

Number of incumbents 1

Market Survey Base Compensation

This position has multiple components, as a result several different sets of market data are used.

Part 3: Market Data to Current Pay

Collect:

Market data presents a picture of the existing “job-worth hierarchy”.

Comparisons will determine whether the company is currently paying above or below market for each job and allow calculation of projected costs to implement any proposed new pay structure.


Since there is one incumbent, the actual compensation 25 th and 75th are same. Otherwise, these would be lowest and highest reported compensation for the job.

Part 4: Develop Pay StructurePay structure has multiple pay or salary ranges. Each pay range has a minimum, maximum and

midpoint value. The difference between minimum and maximum is range spread.

Range spread does not have to be uniform throughout the pay structure. Typically positions quickly mastered skills that are have narrower pay ranges than supervisory, managerial or high level technical positions.

Job Grades should be designed to provide midpoints that reflect market rate and minimum and maximums that are reasonably close to the minimum and maximum rates paid in the market. Job (pay) grades are groups of jobs that have been determined to be approximately equal in difficulty or importance.

Number of Job Grades typically ranges from 10 to 16. The grades can be established by number of job evaluation points or by the points on a trend line that represents the midpoints of the market averages.

Part 4: Develop Pay StructureJob (Pay) Grades: Cluster Create a scatter diagram from the set of compensation and market averages. Freehand

the groups that appear similar.

Equal Spread Using the same basic set of data, divide the x-axis into equal divisions based on the number of grades to be used.

Midpoint Progression should be designed to provide midpoints that reflect market rate and minimum and maximums that are reasonably close to the minimum and maximum rates paid in the market.

Continuous typically ranges from 10 to 16. The grades can be established by number of job evaluation points or by the points on a trend line that represents the midpoints of the market averages.

Rate Ranges typically ranges from 10 to 16. The grades can be established by number of job evaluation points or by the points on a trend line that represents the midpoints of the market averages.

Trachte, Inc. Relationship between Current Job Grades and

Incumbents' Current Average Actual PayJanuary, 2009

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Incumbents' Actual Average Lowest actual pay in job grade Highest actual pay in job grade

This structure does not require the grades be equal in width. It tends to be used with ranking or slotting methods of job evaluation.

Cluster


Done…for now.

Trachte, Inc. Relationship between Current Job Grades and

Incumbents' Current Average Actual PayJanuary, 2009

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This structure uses equal widths. The x-axis is job evaluation points.

Equal Divisions



Trend of midpoints for Schedule I

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Mid Pts Linear (Mid Pts)

This structure uses pay grades that are percentage increases of each grade (starting at 8% and increasing to 20%) The trend line indicates a linear relationship. This structure perhaps should be split into two structures.

8 - Electrician 2OregonMultiple

25th Percentile

Hourly Median

75th Percentile

ERI Electrician Journeyman - Madison, 3 yr $20.32 $22.28 $24.78

Averages $20.32 $22.28 $24.78Trachte, Inc. Overall Incumbent Average $20.00 $21.57 $24.00

Number of incumbents 7

Note: 1) Incumbent actual average base reported in "median" columns above

Market Survey Base Compensation


This position has multiple incumbents. The minimum and maximum differ significantly. This situation should be reviewed for incumbents mis-graded or perhaps otherwise mis-classifed.


Position Title Loc A/H25th

PercentileAnnual Median

75th Percentile

25th Percentile

Annual Median

75th Percentile

Director of Supply Chain Mgmnt 1 A 17 $85.3 $97.3 $112.7 $85.3 $97.3 $112.7 $78.0

Design Manager 1 A 16 $79.3 $87.2 $97.5 $79.3 $87.2 $97.5 $75.5

Accounting Manager 1 A 15 $61.3 $71.8 $85.6 $61.3 $71.8 $85.6 $62.0

Electrical Manager 1 A 14 $67.6 $75.1 $84.6 $67.6 $75.1 $84.6 $67.2

Sales/Marketing Asst 1 A 10 $47.1 $52.2 $58.0 $47.1 $52.2 $58.0 $58.0

Materials Manager 1 A 9 $37.0 $40.1 $44.1 $37.0 $40.1 $44.1 $38.6

Purchasing Manager 1 A 9 $39.7 $43.3 $47.8 $39.7 $43.3 $47.8 $38.5

Regional Sales Coordinator 1 A 4 $31.4 $34.0 $37.4 $31.4 $34.0 $37.4 $36.4

Market Survey Base CompensationCompanyAvg Base

Compensation

Total Compensation

This is a report that compares market survey data with the company under evaluation.


Position Title Loc A/H25th

PercentileAnnual Median

75th Percentile

Director of Supply Chain Mgmnt 1 A 17 $85.3 $97.3 $112.7 $78.0

Design Manager 1 A 16 $79.3 $87.2 $97.5 $75.5

Accounting Manager 1 A 15 $61.3 $71.8 $85.6 $62.0

Electrical Manager 1 A 14 $67.6 $75.1 $84.6 $67.2

Sales/Marketing Asst 1 A 10 $47.1 $52.2 $58.0 $58.0

Materials Manager 1 A 9 $37.0 $40.1 $44.1 $38.6

Purchasing Manager 1 A 9 $39.7 $43.3 $47.8 $38.5

Regional Sales Coordinator 1 A 4 $31.4 $34.0 $37.4 $36.4


Compensation

This table compares market compensation to company actual compensation. The existing “grade structure” is shown.


(A) (B) (A/C) (B/C) (A/B) (C)

Job titleCurrent ($/Yr)

$000Market ($/Yr)

$000Compa-

ratio

Market Compa-

ratioMarket Index

Current Grade

Min ($000)

Mid($000)

Max($000)

Director of Supply Chain Mgmnt $78.0 $97.3 80.2% 100% 80% 17 $85.3 $97.3 $112.7

Design Manager $75.5 $87.2 86.6% 100% 87% 16 $79.3 $87.2 $97.5

Accounting Manager $62.0 $71.8 86.4% 100% 86% 15 $61.3 $71.8 $85.6

Electrical Manager $67.2 $75.1 89.5% 100% 90% 14 $67.6 $75.1 $84.6

Sales/Marketing Asst $58.0 $52.2 111.0% 100% 111% 10 $47.1 $52.2 $58.0

Materials Manager $38.6 $40.1 96.2% 100% 96% 9 $37.0 $40.1 $44.1

Purchasing Manager $38.5 $43.3 89.0% 100% 89% 9 $39.7 $43.3 $47.8

Regional Sales Coordinator $36.4 $34.0 106.9% 100% 107% 4 $31.4 $34.0 $37.4

This table presents “Compa-ratio” that analyzes the expresses the relationship between base salary and the midpoint.


Position TitleCurrent Job

GradeProposed Job Grade

MinAnnual

MidpointMax Spread (%)

25th Percentile

Annual Median

75th Percentile

Director of Supply Chain Mgmnt 17 17 $73.8 $96.0 $118.1 60% $85.3 $97.3 $112.7 $78.0

Design Manager 16 16 $68.6 $89.2 $109.8 60% $79.3 $87.2 $97.5 $75.5

Quality Assurance Manager 15 15 $63.4 $82.4 $101.4 60% $70.9 $80.3 $87.9 $78.0

Electrical Manager 14 15 $63.4 $82.4 $101.4 60% $67.6 $75.1 $84.6 $67.2

Accounting Manager 15 14 $60.5 $75.6 $90.8 50% $61.3 $71.8 $85.6 $62.0

Electrical Operations Supervisor (Oregon)

12 12 $49.7 $62.1 $74.5 50% $52.8 $58.2 $65.2

Structural Production Superintendent 11 12 $49.7 $62.1 $74.5 50% $55.8 $63.0 $70.8 $52.5

Sales/Marketing Asst 10 11 $44.3 $55.3 $66.4 50% $47.1 $52.2 $58.0 $58.0

Materials Manager 9 10 $38.8 $48.5 $58.3 50% $37.0 $40.1 $44.1 $38.6

Purchasing Manager 9 10 $38.8 $48.5 $58.3 50% $39.7 $43.3 $47.8 $38.5

Regional Sales Coordinator 4 8 $28.0 $35.0 $42.0 50% $31.4 $34.0 $37.4 $36.4

Proposed 2009 Ranges for EXEMPT Positions(Market Median Suggested Rates - $000's)


Compensation

This table now uses revised grades and computes new ratios. Revised grades are highlighted.

Process… Market Data SheetCompany

Relationship between Current Job Grades and Incumbents' Current Average Actual Pay

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This graph depicts the “first cut” for the relationship of actual compensation and grades. The relationship is poor. Incumbents may be misclassified (job description is faulty), paid inconsistently, or placed in an incorrect grade.

Process… Market Data SheetCompany - EXEMPT

Proposed 2009 Job Grades and Pay Ranges (Midpoint = Market Median Suggested Rates)January, 2009

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Proposed Midpoint Range Minimum Range Maximum Current Compensation

Linear (Proposed Midpoint) Linear (Range Minimum) Linear (Range Maximum)

This graph depicts a “second cut” for the relationship of actual compensation and grades after an initial re-grading. The relationship is improved, but this schedule considers both exempt and non-exempt personnel.


Relationship between Incumbents' Current Average Actual Payand Market Median Rates

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Incumbents' Average Actual Market Median Linear (Incumbents' Average Actual) Linear (Market Median)

This graph depicts relationship of actual compensation, market compensation, and grades. The relationship is not good, suggesting that the grading structure can be improved.


Relationship between Incumbents' Actual Average Pay and Proposed Ranges (All Employees)

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Incumbent's Actual Average Suggested Lower Range Suggested Upper Range

This graph depicts a “second cut” for the relationship of actual compensation and grades after an second re-grading. The relationship is improved, but this schedule considers both exempt and non-exempt personnel.

Process…Market Data Sheet

CompanyRelationship between Exempt Incumbents' Current Pay and

Proposed RangesJanuary, 2009

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Incumbent's Actual Average Suggested Lower Range Suggested Upper RangeThis graph depicts the results when only exempt employees are considered. The relationship of actual compensation and grades.

Done…for now.

market based pay system the market based pay system project

Documents

market rate

market averages

market data collection

structure job

process market data

multiple pay

number of job grades

pay plan