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External Equity: External Equity:
Building Market-Competitive Building Market-Competitive Compensation SystemsCompensation Systems
Compensation TechniquesCompensation Techniques
INTERNAL: INTERNAL: Job Analysis, Job Descriptions, Job Evaluation, Job Analysis, Job Descriptions, Job Evaluation, Internal Work StructureInternal Work Structure
EXTERNAL: EXTERNAL: Market definitions, Market surveys, Policy lines, Market definitions, Market surveys, Policy lines, Pay structuresPay structures
INDIVIDUAL: INDIVIDUAL: Seniority based, Performance based, Incentive Seniority based, Performance based, Incentive guidelines, Incentive programsguidelines, Incentive programs
ADMINISTRATION: ADMINISTRATION: Planning, Budgeting, Communicating, EvaluatingPlanning, Budgeting, Communicating, Evaluating
External Equity/CompetitivenessExternal Equity/Competitiveness
““Refers to the pay relationships among Refers to the pay relationships among organizations. The organization’s pay relative organizations. The organization’s pay relative to its competitors.”to its competitors.”
Market-competitive pay systems Market-competitive pay systems represent companies’ compensation represent companies’ compensation policies that fit the imperatives of policies that fit the imperatives of competitive advantagecompetitive advantage– Attract and retain qualified employeesAttract and retain qualified employees
Competitive Pay Policy OptionsCompetitive Pay Policy Options
LeadLead LagLag MatchMatch
Match Pay PolicyMatch Pay Policy
Determine average market rateDetermine average market rate Pay WITH market rate/competitorsPay WITH market rate/competitors Similar ability to attract and retainSimilar ability to attract and retain Match industry/product market costsMatch industry/product market costs
Lead Pay PolicyLead Pay Policy
Determine market ratesDetermine market rates Pay ABOVE the average market ratePay ABOVE the average market rate Maximizes ability to attract and retain quality employeesMaximizes ability to attract and retain quality employees Minimizes employee dissatisfaction with payMinimizes employee dissatisfaction with pay Offsets less attractive features of workOffsets less attractive features of work
Lag Pay Policy Lag Pay Policy
Determine market ratesDetermine market rates Pay BELOW the average market ratePay BELOW the average market rate Hinders ability to attract and retainHinders ability to attract and retain Promise of higher future returnsPromise of higher future returns Lead on other aspectsLead on other aspects
Consequences of Pay Level Consequences of Pay Level DecisionsDecisions
Labor CostsLabor Costs AttractionAttraction
– Numbers, quality, Numbers, quality, experienceexperience
RetentionRetention– Voluntary TurnoverVoluntary Turnover
Pay SatisfactionPay Satisfaction Work stoppages, Work stoppages,
UnionizationUnionization
Competitiveness of Competitiveness of Pay PolicyPay Policy
Turnover RatesTurnover Rates
1991 AVG0
2
4
6
8
10
12
14
16
18
1991 AVG
Manufacturing
Nonmanufact
Finance
Nonbusiness
Health Care
Salary SurveySalary Survey
““The systematic process of collecting and The systematic process of collecting and making judgments about the compensation making judgments about the compensation paid by other employers.”paid by other employers.”
The Overpaid The Overpaid
Bank Tellers caseBank Tellers case
Salary Survey StepsSalary Survey Steps
Define the relevant marketDefine the relevant market Include jobs--Benchmark approachInclude jobs--Benchmark approach Collect informationCollect information Interpret & apply survey resultsInterpret & apply survey results
– Job matchesJob matches
Build grades and ranges withBuild grades and ranges withminimums, maximums andminimums, maximums andmidpoints.midpoints.– Regression lineRegression line
– Apply competitive pay policyApply competitive pay policy
– Design pay grades and rangesDesign pay grades and ranges
Define the Relevant MarketDefine the Relevant Market
The fields of potentially qualified The fields of potentially qualified candidates for particular jobs.candidates for particular jobs.– Occupations/skillsOccupations/skills– Geographic distanceGeographic distance– Same industry, productSame industry, product– Size of competitorsSize of competitors– Number of competitorsNumber of competitors– For project: at least 10 companiesFor project: at least 10 companies
Industry Weekly EarningsIndustry Weekly Earnings
WklyEarn
0
100
200
300
400
500
600
WklyEarn
Total Private
Mining
Construction
Manufacturing
Trans. & Util
Whls Trade
Retail Trade
Fin, Ins, RE
Services
Industry Hourly EarningsIndustry Hourly Earnings
Hrly Earn0
2
4
6
8
10
12
14
Hrly Earn
Total Private
Mining
Construction
Manufacturing
Trans. & Util
Whls Trade
Retail Trade
Fin, Ins, RE
Services
Include Jobs: Benchmark ApproachInclude Jobs: Benchmark Approach
Characteristics of Benchmark Jobs:Characteristics of Benchmark Jobs: Job contents well-known, stable over time, Job contents well-known, stable over time,
agreed upon by employees involvedagreed upon by employees involved Common across a number of different Common across a number of different
employersemployers Generally accepted for Generally accepted for
setting pay levelssetting pay levels Represent entire job Represent entire job
structure under studystructure under study
Benchmark JobsBenchmark Jobs
A B C D E F G H I J K L M N O P120 235 370 450 600
B
F IL
O
**
**
800
1000
1200
13001450
1800 *
Collect Info: Survey SourcesCollect Info: Survey Sources
Bureau of Labor StatisticsBureau of Labor Statistics– Area and industry surveys Area and industry surveys
(Local Area Wage Survey --(Local Area Wage Survey --AWS)AWS)
– National Survey of National Survey of Professional, Administrative, Professional, Administrative, Technical, and Clerical Technical, and Clerical Workers (PACT)Workers (PACT)
– Employee Benefit SurveysEmployee Benefit Surveys
– Current employment Current employment statistics surveystatistics survey
– Current population surveyCurrent population survey
– Employment Cost Employment Cost SurveysSurveys
– Compensation per hourCompensation per hour
– Major union settlementsMajor union settlements
Professional AssociationsProfessional Associations– American Compensation Association American Compensation Association
publishes the Salary Budget Survey, publishes the Salary Budget Survey, reported by region and industry.reported by region and industry.
– Society for Human Resource Management Society for Human Resource Management publishes information on salaries in the human publishes information on salaries in the human resources field.resources field.
Accounting companiesAccounting companies– KPMG Peat Marwick; Deloite & KPMG Peat Marwick; Deloite &
Touche; Ernst & YoungTouche; Ernst & Young Professional, trade organizationsProfessional, trade organizations Private published sourcesPrivate published sources InternetInternet
Survey Sources, cont’dSurvey Sources, cont’d
Sources of Compensation Survey Information Sources of Compensation Survey Information (cont’d)(cont’d)
Industry AssociationsIndustry Associations– Administration Management SocietyAdministration Management Society– American Association of University American Association of University
ProfessorsProfessors– American Banker’s AssociationAmerican Banker’s Association– American Bar AssociationAmerican Bar Association– American Electronics AssociationAmerican Electronics Association– American Mathematical SocietyAmerican Mathematical Society– American Society of Association American Society of Association
ExecutivesExecutives– Association of General ContractorsAssociation of General Contractors– National Institute of Business National Institute of Business
ManagementManagement– National Restaurant AssociationNational Restaurant Association– National Retail FederationNational Retail Federation– National Society of EngineersNational Society of Engineers
Consulting FirmsConsulting Firms
–Abbott, Langer & AssociatesAbbott, Langer & Associates
–Coopers & LybrandCoopers & Lybrand
–Dietrich Associates Inc.Dietrich Associates Inc.
–Executive Compensation Executive Compensation ServiceService
–Hay Management ConsultantsHay Management Consultants
–Hewitt AssociatesHewitt Associates
–Mercer-Meidinger-HansonMercer-Meidinger-Hanson
–Robert Half AssociatesRobert Half Associates
–Towers & PerrinTowers & Perrin
–Wyatt Co.Wyatt Co.
Exhibit 8-4Exhibit 8-4
Engineers’ Pay for Cleveland, Ohio, Engineers’ Pay for Cleveland, Ohio, Metropolitan AreaMetropolitan Area
LEVEL
Level ILevel IILevel IIILevel IVLevel VLevel VI
NUMBER OFWORKERSSURVEYED MEAN MEDIAN MIDDLE RANGE
Source: US Bureau of Labor Statistics, Occupational compensation survey: Pay only. Cleveland, Ohio, Metropolitan Area, August 1995 (Washington, DC: US Government Printing Office, 1996).
AVERAGEWEEKLYHOURS
WORKED
232753
1,5591,332
479188
40.040.040.039.939.940.0
$ 649$ 752$ 924$1,077$1,257$1,479
$626$741$930
$1,080$1,254$1,478
$ 598 - $ 712$ 667 - $ 827$ 827 - $1,020$ 989 - $1,165$1,156 - $1,337$1,377 - $1,569
WEEKLY PAY
Exhibit 8-5Exhibit 8-5
Summary: Participation in Selected Employee Benefits Programs Summary: Participation in Selected Employee Benefits Programs for Full-Time Employees by Geographic Regionfor Full-Time Employees by Geographic Region
BENEFIT
Paid time off:HolidaysVacationsPersonal leave
Survivor benefits:Life insuranceSurvivor income
Health care benefits:Medical careDental careVision care
NORTHEAST SOUTH NORTH-CENTRAL
94%98%40%
93%5%
83%62%31%
92%96%16%
88%4%
80%52%17%
93%98%18%
95%7%
84%65%24%
WEST
87%96%13%
88%5%
79%72%40%
Source: US Bureau of Labor Statistics, Employee benefits in medium and large private establishments, 1993 (Washington, DC: US Government Printing Office, 1994).
1996 Salary Offers to Bachelor’s 1996 Salary Offers to Bachelor’s Degree Candidates by DegreeDegree Candidates by Degree
AccountingAccounting 29,47629,476 Business Admin (& MS)Business Admin (& MS) 27,25527,255 DistributionDistribution 27,65527,655 Econ & Finance (&Bank)Econ & Finance (&Bank) 29,78329,783 Hotel/RestaurantHotel/Restaurant 24,08424,084 Human Resources (& LR)Human Resources (& LR) 25,42625,426 MISMIS 33,76933,769 MarketingMarketing 26,55126,551 Real EstateReal Estate 27,34027,340
Source: National Association of Colleges and Employers
1996 Salary Offers to Masters’ 1996 Salary Offers to Masters’ Degree Candidates by DegreeDegree Candidates by Degree
MBA -Non-tech undergrad < 1 yr exp 40,731 1-2 yrs exp 46,394 2-4 yrs exp 54,999 > 4 yrs exp 67,209
MBA -Tech undergrad < 1 yr exp 39,146 1-2 yrs exp 43,000 2-4 yrs exp 51,600 > 4 yrs exp 70,339
Accounting32,537
Econ/Finance (Banking)42,650
HR (inc LR)39,870
MIS 38,400 Marketing
41,547 MS - Business
37,237
Source: National Association of Colleges and Employers
1996 Salary Offers to Doctoral 1996 Salary Offers to Doctoral Degree Candidates by DegreeDegree Candidates by Degree
Bus AdmBus Adm& Mgt& Mgt 56,66756,667
Computer & Computer & Info SciencesInfo Sciences 63,55563,555
EconomicsEconomics 54,33354,333 Educ AdminEduc Admin43,39943,399 EnglishEnglish 33,37533,375 PsychologyPsychology 31,94931,949 Social SciencesSocial Sciences 30,66830,668
Aerospace 55,547
Chemical Eng60,161
Computer Eng65,050
Elec Eng61,180
Mech Eng52,184
Agriculture48,399
Bilogical Sci37,661
Chemistry54,693
Math 54,125
Source: National Association of Colleges and Employers
Average Salaries of MBA Average Salaries of MBA Graduates by Function (1992)Graduates by Function (1992)
Acct/AuditAcct/Audit 44,47944,479 ConsultingConsulting 61,73961,739 EngineeringEngineering 47,09647,096 FinanceFinance 57,72957,729 Gen MgtGen Mgt 70,59370,593 H RH R 59,36459,364
Info Syst47,890
Marketing53,208
Ops/Prod48,492
Project Mgt52,713
Plan/Corp51,127
Sales51,644
Source: Association of MBA Executives, Inc.
Human Resources Salaries 1991Human Resources Salaries 1991
E Benefits MgrE Benefits Mgr 59,50059,500 Comp MgrComp Mgr 58,20058,200 EEO MgrEEO Mgr 57,90057,900 Plant HR MgrPlant HR Mgr 57,40057,400 Grp Ins MgrGrp Ins Mgr 55,40055,400 Mgt Dev MgrMgt Dev Mgr 54,10054,100 HRIS MgrHRIS Mgr 51,80051,800 EAP ManagerEAP Manager 51,80051,800 Emp&Recr MgrEmp&Recr Mgr 51,70051,700 Plant P MgrPlant P Mgr 50,00050,000 Emp Tng MgrEmp Tng Mgr 48,40048,400
VP, Admin 143,300 ... Top Comp & Ben 75,600 Exec Comp Mgr 73,700 Top E Relation 67,900 HR Director 64,800 Tng & OD Mgr 63,100 Int’l Comp Mgr 63,100 HR Planning 62,400 LR Supervisor 61,300 Top Safety Mgr 60,400
Source: Society for Human Resource Management
Human Resources Avg SalariesHuman Resources Avg Salaries LR GeneralistLR Generalist 47,10047,100 Exec RecruitExec Recruit 44,50044,500 Safety SupervSafety Superv 44,40044,400 Safety SpecialistSafety Specialist 42,70042,700 GeneralistGeneralist 41,00041,000 Benefits Pln An.Benefits Pln An. 41,00041,000 Sr Comp AnSr Comp An 40,30040,300 EEO SpecialistEEO Specialist 39,90039,900 Security SpecSecurity Spec 39,40039,400 Sr Tng SpecSr Tng Spec 39,30039,300 Prof RecruitProf Recruit 37,70037,700
Comp&Ben Ad37,600
EAP Counselor37,000
Plant P Admin36,400
HRIS Specialist35,200
Benefits Admin33,800
Comp Analyst31,900
Jr. Training31,500
Entry Generalist30,600
Recruiter30,500
Pers Asst23,100
Benefits Clerk23,000
Internet SourcesInternet Sources
Variety of voluntary informationVariety of voluntary information Variety of purchasable informationVariety of purchasable information
Example sitea: see my webpageExample sitea: see my webpage http://wvnvm.wvnet.edu/~mrenard/http://wvnvm.wvnet.edu/~mrenard/
websiteswebsites
Avg Faculty Salaries - 1993-94Avg Faculty Salaries - 1993-94
0
10000
20000
30000
40000
50000
60000
70000
Prof Assoc Asst Inst Lect
MenWomen
All Universities (public and private) 1993-94. American Assoc. of Univ. Professors; The Chronicle of Higher Ed., April 20, 1994
Salary Survey StepsSalary Survey Steps
Define the relevant marketDefine the relevant market Include jobs--Benchmark approachInclude jobs--Benchmark approach Collect informationCollect information Interpret & apply survey resultsInterpret & apply survey results
– Job matchesJob matches Build grades and ranges withBuild grades and ranges with
minimums, maximums andminimums, maximums andmidpoints.midpoints.– Regression lineRegression line– Apply competitive pay policyApply competitive pay policy– Design pay grades and rangesDesign pay grades and ranges
Interpret & Apply Survey ResultsInterpret & Apply Survey Results
Survey JobAcctg Clerk AAcctg Clerk BAcctg Clerk CPg. 56-58
FastCat JobIntermediate Acctg ClerkAcctg ClerkSr. Acctg Clerk BPg. 19-44
Verify data - Job Matches
Not Job Title only, use job descriptions, duties, etcNot Job Title only, use job descriptions, duties, etc Compare survey jobs with MedTech’sCompare survey jobs with MedTech’s Choose closest match, use as benchmarkChoose closest match, use as benchmark
Interpret & Apply Survey ResultsInterpret & Apply Survey Results
Matched jobs can be used as benchmarksMatched jobs can be used as benchmarks Leveling - if nec. for unmatched jobsLeveling - if nec. for unmatched jobs Update salary informationUpdate salary information Central tendencyCentral tendency
– Mean, Mean, weighted meanweighted mean, median, , median, modemode DispersionDispersion
– Correlation ( -1.00 > r > 1.00)Correlation ( -1.00 > r > 1.00)– r should be > .90r should be > .90
Build Pay Structure - OverviewBuild Pay Structure - Overview
Once you have survey informationOnce you have survey information:: Combine internal structure and external Combine internal structure and external
wage rates - regression linewage rates - regression line Apply pay policyApply pay policy Design pay ranges Design pay ranges Balance internal and Balance internal and
external pressuresexternal pressures
An
nu
al S
ala
ry (
$)
55,000
50,000
45,000
40,000
35,000
30,0000 100 200 300 400 500 600 700 800 900 1,000Engineer I Engineer II Engineer III
Job Evaluation Points
44,525
38,420
33,536
Annual salaryPredicted annual salary
36,00034,500
33,000
36,000
43,500
45,000
55,000
Market Pay Line
Exhibit 8-15Exhibit 8-15
Regression Analysis Results for the Regression Analysis Results for the Engineer Survey DataEngineer Survey Data
Apply Pay PolicyApply Pay Policy
A B C D E F G H I J K L M N O P120 235 370 450 600
B
F IL
O
**
**
800
1000
1200
13001450
1800 *Lead
Lag
Match
Design Pay Grades and Ranges Design Pay Grades and Ranges
Allow for quality, productivity, performance Allow for quality, productivity, performance differences, employee expectationsdifferences, employee expectations
Develop grades - similar jobs paid the sameDevelop grades - similar jobs paid the same Develop ranges - wages vary from midpointDevelop ranges - wages vary from midpoint Establish min, mid, maxEstablish min, mid, max Determine overlap -Determine overlap -
mid near min of mid near min of next gradenext grade
Build Pay GradesBuild Pay Grades
A B C D E F G H I J K L M N O P120 235 370 450 600
B
F IL
O
**
**
800
1000
1200
13001450
1800 *
Midpoints
Build Pay RangesBuild Pay Ranges
A B C D E F G H I J K L M N O P120 235 370 450 600
B
F*
*800
1000
1200
13001450
1800
Maximum
Midpoint
Minimum
Salary StructureSalary Structure
Considers relative internal job valuesConsiders relative internal job values Establishes grades containing like-valued jobsEstablishes grades containing like-valued jobs Reflects prevailing salary levels in the relevant Reflects prevailing salary levels in the relevant
market placemarket place Establishes salary ranges for each job--minimum, Establishes salary ranges for each job--minimum,
midpoint, maximummidpoint, maximum Responds to changes in competitive levelsResponds to changes in competitive levels Communicates earnings potentials to employees Communicates earnings potentials to employees
for current job and jobs to which they aspirefor current job and jobs to which they aspire
Chapter EightChapter Eight
Building Market-Competitive Building Market-Competitive Compensation SystemsCompensation Systems
Exhibit 8-1Exhibit 8-1
Economic Activities Indexed by the Federal Government’s Economic Activities Indexed by the Federal Government’s Standard Industrial Classification ManualStandard Industrial Classification Manual
Agriculture, forestry, fishing, hunting, and trappingAgriculture, forestry, fishing, hunting, and trapping MiningMining ConstructionConstruction ManufacturingManufacturing Transportation, communications, electric, gas, and sanitary servicesTransportation, communications, electric, gas, and sanitary services Wholesale tradeWholesale trade Retail tradeRetail trade Finance, insurance, and real estateFinance, insurance, and real estate Personal, business, professional, repair, recreation, and other servicesPersonal, business, professional, repair, recreation, and other services Public administrationPublic administration Nonclassifiable establishmentsNonclassifiable establishments
Source: US Office of Mgmt. and Budget, Standard industrial classification manual (Wash.DC: US Office of Mgmt. and Budget, 1987).
Exhibit 8-2Exhibit 8-2
Standard Industrial Classification Code ElementsStandard Industrial Classification Code Elements
Industry Number:Business and Secretarial Schools
8
Industry Group Number:Vocational Schools
Major Group:Educational Services
2 4 4
SIC Code 8244
Exhibit 8-3Exhibit 8-3
Sources of Compensation Survey Information Sources of Compensation Survey Information (1 of 3)(1 of 3)
Professional AssociationsProfessional Associations
– The American Compensation Association publishes the Salary The American Compensation Association publishes the Salary Budget Survey, reported by region and industry.Budget Survey, reported by region and industry.
– The Society for Human Resource Management publishes The Society for Human Resource Management publishes information on salaries in the human resources field.information on salaries in the human resources field.
Exhibit 8-3Exhibit 8-3
Sources of Compensation Survey Information Sources of Compensation Survey Information (2 of 3)(2 of 3)
Industry AssociationsIndustry Associations– Administration Management SocietyAdministration Management Society– American Association of University ProfessorsAmerican Association of University Professors– American Banker’s AssociationAmerican Banker’s Association– American Bar AssociationAmerican Bar Association– American Electronics AssociationAmerican Electronics Association– American Mathematical SocietyAmerican Mathematical Society– American Society of Association ExecutivesAmerican Society of Association Executives– Association of General ContractorsAssociation of General Contractors– National Institute of Business ManagementNational Institute of Business Management– National Restaurant AssociationNational Restaurant Association– National Retail FederationNational Retail Federation– National Society of EngineersNational Society of Engineers
Exhibit 8-3Exhibit 8-3
Sources of Compensation Survey Information Sources of Compensation Survey Information (3 of 3)(3 of 3)
Consulting FirmsConsulting Firms
– Abbott, Langer & AssociatesAbbott, Langer & Associates
– Coopers & LybrandCoopers & Lybrand
– Dietrich Associates Inc.Dietrich Associates Inc.
– Executive Compensation ServiceExecutive Compensation Service
– Hay Management ConsultantsHay Management Consultants
– Hewitt AssociatesHewitt Associates
– Mercer-Meidinger-HansonMercer-Meidinger-Hanson
– Robert Half AssociatesRobert Half Associates
– Towers & PerrinTowers & Perrin
– Wyatt Co.Wyatt Co.
Exhibit 8-4Exhibit 8-4
Engineers’ Pay for Cleveland, Ohio, Engineers’ Pay for Cleveland, Ohio, Metropolitan AreaMetropolitan Area
LEVEL
Level ILevel IILevel IIILevel IVLevel VLevel VI
NUMBER OFWORKERSSURVEYED MEAN MEDIAN MIDDLE RANGE
Source: US Bureau of Labor Statistics, Occupational compensation survey: Pay only. Cleveland, Ohio, Metropolitan Area, August 1995 (Washington, DC: US Government Printing Office, 1996).
AVERAGEWEEKLYHOURS
WORKED
232753
1,5591,332
479188
40.040.040.039.939.940.0
$ 649$ 752$ 924$1,077$1,257$1,479
$626$741$930
$1,080$1,254$1,478
$ 598 - $ 712$ 667 - $ 827$ 827 - $1,020$ 989 - $1,165$1,156 - $1,337$1,377 - $1,569
WEEKLY PAY
Exhibit 8-5Exhibit 8-5
Summary: Participation in Selected Employee Benefits Programs Summary: Participation in Selected Employee Benefits Programs for Full-Time Employees by Geographic Regionfor Full-Time Employees by Geographic Region
BENEFIT
Paid time off:HolidaysVacationsPersonal leave
Survivor benefits:Life insuranceSurvivor income
Health care benefits:Medical careDental careVision care
NORTHEAST SOUTH NORTH-CENTRAL
94%98%40%
93%5%
83%62%31%
92%96%16%
88%4%
80%52%17%
93%98%18%
95%7%
84%65%24%
WEST
87%96%13%
88%5%
79%72%40%
Source: US Bureau of Labor Statistics, Employee benefits in medium and large private establishments, 1993 (Washington, DC: US Government Printing Office, 1994).
0
2
4
6
8
10
12
14
$30,000-$35,000
$35,001-$40,000
$40,001-$45,000
$45,001 &above
Exhibit 8-9Exhibit 8-9
Histogram of Survey Data for EngineersHistogram of Survey Data for Engineers
Annual Salary
Fre
qu
en
cy (
no
. of
inc
um
be
nts
)
An
nu
al S
ala
ry (
$)
55,000
50,000
45,000
40,000
35,000
30,0000 100 200 300 400 500 600 700 800 900 1,000Engineer I Engineer II Engineer III
Job Evaluation Points
44,525
38,420
33,536
Annual salaryPredicted annual salary
36,00034,500
33,000
36,000
43,500
45,000
55,000
Market Pay Line
Exhibit 8-15Exhibit 8-15
Regression Analysis Results for the Regression Analysis Results for the Engineer Survey DataEngineer Survey Data