© 2010 Towers Watson. All rights reserved. Market Pricing vs Job Evaluation Presented by Theresa Lynch To Prince William SHRM April 4, 2012

© 2010 Towers Watson. All rights reserved.

Market Pricing vs Job Evaluation

Presented by Theresa LynchTo Prince William SHRM

April 4, 2012

© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

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Table of Contents

Introduction Market Pricing Overview Job Evaluation The Intersection of Market Pricing and Job Evaluation

Market Pricing Overview

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The critical role of market pricing

Compensation plays a critical role in organizations’ ongoing — and increasingly challenging — efforts to attract, retain and motivate a talented workforce It is an important component of an organization’s Reward, Talent and Engagement strategy

Compensation design and management play a vital role in aligning employee behavior with business objectives

Human capital costs represent a significant part of most organizations’ cost bases; they need to spend their limited resources as effectively as possible

Market pricing provides the vital external market perspective and data needed to develop cost-effective, market-relevant compensation designs and manage pay effectively

Market pricing supports a range of pay program designs (base pay, short-term incentives and long-term incentives)

Market pricing is the process of determining the "market rates" for a representative sample of jobs in a specific talent market, based on data for jobs with similar functions and comparable scope of responsibility.


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Market pricing overview

Market pricing provides information to support decisions about “how much” and “how to” pay

The goal is to keep from: Underpaying, and losing talent to competitors or being unable to attract the talent it

needs

Overpaying, and wasting organizational resources or impeding desirable turnover

Market pricing is a descriptive, not a prescriptive activity. Market data are not “the answer” — there’s often more to the story

It’s an imperfect way to make sense of incomplete data The secret is the ability to spot the imperfections and either eliminate them or work

around them

A combination of “art” and “science”


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Why do we market price?

Market pricing helps us understand the influence of supply and demand on the cost of labor Where is the market shifting, how quickly, and by how much?

How competitive is our pay? Are our attraction and retention issues a result of pay or something else?

Talent Readily Available

Reduced Labor Cost

$

Increased Cost

Limited Available Talent

$$$$


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Why do we market price?

It provides us with data for informed decision making: How should we allocate resources?

How do we value an acquisition target?

Is the way we deliver pay consistent with the mix other companies deliver?

How does the market reward employee development? Are we keeping up?

How well are we delivering against our compensation philosophy? Can we afford to bridge gaps between where we are now and our target competitive position?

What do market practices suggest for ongoing compensation management?

It’s essential to developing market-based reward programs Based on detailed understanding of business and HR objectives

Anchored in a company’s HR strategy and compensation philosophy


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Market pricing: One of the many supporting elements of all pay decisions

Communicate with Employee

Final Pay Decision

Performance Information

Informal/Formal

Individual/Team/Business Unit/Organization

Incumbent’s Current Pay Levels

Compensation Information

External

Surveys and other analyses

Recruiting feedback

Trends and prospective changes

Internal equity


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The limitations of market pricing

Numbers imply a precision that is not necessarily accurate

Only as valid as the salary survey data being referenced

Data not always available in sufficient detail — especially for narrowly defined talent markets or small/developing countries

Published compensation surveys do not have every position, and often do not include “hot skills” roles

Cannot provide insights into value of non-benchmark jobs

May cloud the organization’s judgment about taking internal equity into account

Cannot be the only input for making individual pay decisions

Cannot replace business rationale and sound decision making


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Addressing non-benchmark positions

Each organization is unique, and the jobs in those organizations are often also unique In some organizations, as work becomes defined more broadly and where

job tasks may be combined in non-traditional ways, you may not be able to find a “perfect” match for a job in any of your available salary surveys

Not all jobs will be able to be matched to survey data because they are: Specific to an organization

Jobs for which survey data is not collected and/or reported

Do not force non-benchmark jobs to be benchmarks Non-benchmark roles present an additional opportunity to discuss how to

manage pay


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Job Evaluation

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Job Leveling overview

Job leveling is…A systematic process of determining the relative value of jobs in an

organizationA system for analysing and comparing different jobs according to the overall

responsibilities and scope of each jobIt is not concerned with the volume of work, or with the person doing it, or with

current pay Purpose

Establish a framework for:— Defining jobs and hierarchy — Providing a foundation for reward and talent management decisions including base

pay, incentives, career management, workforce planning, learning and development— Creating a flexible, adaptable means of communicating career paths and facilitating

talent mobilityGoal

A consistent, internally relevant and market-supported approach that can be understood by everyone involved

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Examples of Job Leveling SolutionsReflect different methods of analyzing jobs

Job Mapping:

Comparing a job against pre-defined leveling criteria, and assigning the job to a career level based on a holistic view of how the job is expected to

contribute (Career Map)

Job Evaluation:

Analyzing a job against a number of factors where each factor is measured separately and the resulting evaluation is based on a calculation of the

weighted factor scores (GGS)

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Professional/Expert

Entry Intermed Career Specialist Master Expert

Business Support

Entry Intermed Senior Lead Supv

Management

Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr

Executive

VP SVP EVP CEO

Production

Entry Intermed Senior Lead

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Business Support


Business Support

Entry Intermed Senior Lead SupvEntry Intermed Senior Lead Supv

Management


Management

Supv Mgr Sr Mgr Grp Mgr Sr Grp MgrSupv Mgr Sr Mgr Grp Mgr Sr Grp Mgr

Executive

VP SVP EVP CEO

Executive

VP SVP EVP CEO

Production


Production


BUSINESS STRATEGY5BS

GRADE

BAND

TASKS1

SKILLS2

LEADERSHIP4M

EXPERTISE3M

MA

NA

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ME

NT

CA

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PA

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'ROLE' CONTRIBUTES (THROUGH)

CEO

2 3IC1 4IC

SUPERVISOR

PROFESSIONAL

TECHNICIAN

CLERICAL / ADMINISTRATIVE

MANUALMANUAL

FUNCTIONAL STRATEGY5FS

SUBJECT MATTEREXPERT

MIDDLEMANAGEMENT

TOPMANAGEMENT

1 2 3 4 5 6 7 8 9 10

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1st. LINE TOP MANAGEMENT

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Job Leveling Solutions Aligning tools to support the rewards and career framework

The best job leveling approach will vary based on: Business and cultural needs and

The reward and talent management programs the leveling outcomes are intended to support

Key questions for consideration: What is the primary objective of the job leveling process?

— Create or confirm job family architecture?

— Support compensation design?

— Link to performance management or additional talent management programs?

— Desired degree of transparency of leveling outcomes

What process is envisioned for leveling jobs; who will be involved?

What is the organizational context of the business?

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Towers Watson’s Reward and Career Framework

Supporting the Employee Life Cycle

Workforce Analytics & Planning Staffing & Selection

Development and Career

Management

Performance Management

Compensation & Benefits

Succession Management

Competency Model

Inputs

Business Context Reward andTalent Strategy Job Content Employee Data Market Data

Job Family ArchitectureThe infrastructure for organizing jobs

(job codes, job titles, functions, disciplines)

Job LevelingA systematic process of determining the relative value of jobs in an organization

Reward and Career Architecture

DRAFT

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The Intersection of Market Pricing and Job Evaluation

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The critical role of salary structures

Salary structures help organizations manage compensation by aligning pay with the competitive marketplace, recognizing the relative internal value of different jobs, and maintaining the cost-effectiveness of pay programs

They provide a framework for rewarding performance, making consistent pay decisions, and linking career paths and pay opportunities, and can provide a framework for total rewards design and delivery

Salary structures are sets of pay ranges that define the minimum and maximum pay rates for jobs. They provide guidance to managers in administering pay, recruiting and retaining employees, and fostering

employee growth and development


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Salary Structure Design:Historical Perspective on Market Practice

Narrow grade structures are the most traditional, reflecting a historical emphasis on employees as inputs and costs, as opposed to strategic assets (personnel vs. human capital)

Broad-band structures became popular in the early 1990’s Existing grade hierarchies no longer reflected flatter organizations that resulted from down-sizing

activities Work became more broadly defined – careers were perceived to grow laterally through experience

and cross-functional experience Broad-bands were seen as a tool to ensure talent mobility across functions

Increasing demand for labor brought a greater focus on pure market pricing and deemphasized the need for talent mobility, requiring: Administrative rigor – stringent market analysis and credible market info Ongoing manager training to effectively use the ranges, pure market data and reference points

Today the focus is increasingly on achieving balance to support: Internal consistency, employee development and external competitiveness Differentiated pay for performance, manager flexibility and overall cost management tools

As a result, many organizations have adopted wide grade structures to better balance changing organizational structures, evolving views of human resources, and the continued need to manage costs


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Employee Value Proposition

A Reward and Career Architecture serves as a foundation for critical talent and reward programs and applications

Workforce Analytics and

Planning

Staffing and Selection

Development & Career

Management

Performance Management

Compensation & Benefits

Succession Management

Reward and Career Architecture


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Integrated Reward and Career Framework: Using Leveling Results to Develop a Global Salary Structure

$125,000 – $225,000

$100,000 – $200,000

$85,000 – $175,000

$60,000 – $115,000

$40,000 – $85,000

$25,000 – $50,000

$125,000 – $225,000

$100,000 – $200,000

$85,000 – $175,000

$60,000 – $115,000

$40,000 – $85,000

$25,000 – $50,000

$180k$180k

$155k$155k

$120k$120k

$95k$95k

$35k$35k

$60k$60k

£95,000 – £150,000

£85,000 – £125,000

£60,000 – £100,000

£40,000 – £80,000

£22,000 – £52,000

£18,000 – £32,000

£95,000 – £150,000

£85,000 – £125,000

£60,000 – £100,000

£40,000 – £80,000

£22,000 – £52,000

£18,000 – £32,000

£125k£125k

£102k£102k

£85k£85k

£65k£65k

£15k£15k

£35k£35k

Common Leveling

Framework

IndividualContributor

Manager

Local MarketData

Local MarketData

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Integrated Reward and Career Framework Sample Pay Delivery Model

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Professional/Expert


Business Support


Management


Executive

VP SVP EVP CEO

Production


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Professional/Expert


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Business Support


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Management


Executive

VP SVP EVP CEO

Executive

VP SVP EVP CEO

Production


Production


Low High

10% 10% 10% 15% 20% 20% 25% 30% 40%

30% 35% 40% 50%

Salary Grade

STI Target

LTI Target

Spot Award Eligible

Annual Incentive Eligible

Long-term Incentive Eligible

Global Job Level


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Linking Competencies to the Reward and Career Framework:A robust structure to enable other talent programs and applications

Uses career bands (e.g., professional, manager) and career levels (e.g. entry,

intermediate) to organize and align roles across the organization

Includes criteria to clearly describe each career level

Clarifies the knowledge, skills and abilities required for successful performance

Supports link to performance management, career development, succession planning

CompetenciesGlobal Career Framework+

Scaled competencies, aligned with each level of the career framework, describe the behavioral requirements associated with the job

Professional/Expert

SpecialistCareer ExpertMasterIntermediateEntry SpecialistCareer ExpertMasterIntermediateEntry

Analytical Thinking — Applies processes of analysis and synthesis to examine information in a thorough and thoughtful way

Sees relationships in seemingly unrelated data to identify unlikely root causes and potential implications in complex situations

Challenges all to think creatively about approaches and conclusions when collecting, analyzing and organizing relevant data

Encourages and rewards development of breakthrough methods or tools for analyzing complex problems, situations or issues and discerning patterns within the business context

Maintains a broad perspective to identify interdependencies and relevance of information to uncover subtle or hidden implications and risks

Guides others in analytical thinking skills, data gathering and logical analysis

Standardizes methods and tools for analyzing complex problems, situations or issues and discerning patterns within the business context

Extrapolates from past experience and facilitates input from others to determine probable outcomes

Recognizes and anticipates areas where data may be missing or incomplete and collects all necessary information to analyze a complex problem, situation or issue

Uses advanced tools to integrate and assess complex data or information and models effective data synthesis and analysis skills so that others can learn them

Logically synthesizes information to uncover patterns, issues, errors and potential implications

Breaks down information from multiple sources to analyze a problem, situation or issue from a variety of perspectives

Leverages methods and approaches for data collection from other internal/external sources and best practices to address problems, situations or issues

Identifies basic implications/conclusions from the logical analysis of a routine situation or issue

Collects basic information necessary to analyze a problem, situation or issue

Performs routine or basic analysis, following the correct steps and using the appropriate, established tools, observing and seeking guidance from senior staff when necessary

ApplyingSupporting ShapingLeadingDeveloping

Sees relationships in seemingly unrelated data to identify unlikely root causes and potential implications in complex situations

Challenges all to think creatively about approaches and conclusions when collecting, analyzing and organizing relevant data

Encourages and rewards development of breakthrough methods or tools for analyzing complex problems, situations or issues and discerning patterns within the business context

Maintains a broad perspective to identify interdependencies and relevance of information to uncover subtle or hidden implications and risks

Guides others in analytical thinking skills, data gathering and logical analysis

Standardizes methods and tools for analyzing complex problems, situations or issues and discerning patterns within the business context

Extrapolates from past experience and facilitates input from others to determine probable outcomes

Recognizes and anticipates areas where data may be missing or incomplete and collects all necessary information to analyze a complex problem, situation or issue

Uses advanced tools to integrate and assess complex data or information and models effective data synthesis and analysis skills so that others can learn them

Logically synthesizes information to uncover patterns, issues, errors and potential implications

Breaks down information from multiple sources to analyze a problem, situation or issue from a variety of perspectives

Leverages methods and approaches for data collection from other internal/external sources and best practices to address problems, situations or issues

Identifies basic implications/conclusions from the logical analysis of a routine situation or issue

Collects basic information necessary to analyze a problem, situation or issue

Performs routine or basic analysis, following the correct steps and using the appropriate, established tools, observing and seeking guidance from senior staff when necessary

ApplyingSupporting ShapingLeadingDeveloping

Global Career Framework + Competencies

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Professional/Expert


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Business Support


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Management


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VP SVP EVP

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Production



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Questions?

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Documents

© 2010 Towers Watson. All rights reserved. Market Pricing vs Job Evaluation Presented by Theresa Lynch To Prince William SHRM April 4, 2012