Creating a Pay Structure

Creating a Pay Structure

Activity

• Divide into groups of 6• Identify any one firm of your choice (discuss with group

members)• List down any 5 positions• Answer the questions for framing compensation

guidelines (from ppt)• For each position – do job evaluation by Hay’s method• Map to market• Create pay policy line• Ranges / Grades / Bands

Designing Pay Structure - Steps

• Job Evaluation points help to determine internal alignment amongst jobs

• Industry pay practices tell us competitiveness in market place

• Next, we design a pay structure

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Compensation Policy Guidelines

Decisions for the compensation manager to follow in developing a pay structure ; Made by top management

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Pay Structure DesignQuestions and Issues

• What is the lowest rate of pay that can be offered and still hire desirable employees ?

• What is the rate of pay necessary to retain employees ?

• Will the organization want to recognize seniority and merit through the base pay schedule ?

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• Is it wise or necessary to offer more than one rate of pay to employees performing either identical or similar kinds of work ?

• Does the organization wish to recognize dangerous working conditions in its base pay schedule ?

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• Do employees have a significant opportunity to progress to higher level jobs ? If so, what should be the relationship between promotion to a higher job and changes in base pay ?

• Will policies and regulations permit incumbents to earn rates of pay higher than established maximums and lower than established minimums ? What should be the reasons for allowing such deviations ?

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• How will the pay structure accommodate across-the-board, cost-of-living, or other adjustments not related to employee tenure, performance, or responsibility and duty changes ?


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• How will the pay structure accommodate across-the-board, cost-of-living, or other adjustments not related to employee tenure, performance, or responsibility and duty changes ?


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Pay Structure Architecture

With the generation of internal and external pay data and information, managers are now ready to design a pay schedule.

• To do so they must:–Determine a pay policy line.–Decide on the need for one or more pay

structures.

Pay policy line

• The pay level that a company sets its pay at compared to the market pay, typically the midpoint of the pay structure is set to judge the going market rate.

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Internal Structure: JE Points (for different jobs)

Develop Pay Grades

Develop Grades

• Grades group job evaluation data on horizontal axis– All jobs considered substantially equal for pay purposes

placed in same grade– Each grade has its own pay range and all jobs in a single

grade have same pay range– Enhances ability to move people among jobs within a

grade with no change in pay• How many pay grades?– Number of jobs– Organization hierarchy– Reporting relationships

Develop Pay Grades

Establish Range Midpoints, Minimums, and Maximums

• Ranges group salary data on vertical axis– Establish upper and

lower pay limits for all jobs in each grade

• Midpoints correspond to competitive pay policy– Point where pay-policy

line crosses center of each grade

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Pay Structure Terms

• Range or Spread Dimension

– The difference between the upper and lower limits of the grade. It may be expressed in absolute amounts or as a percentage.

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Pay Structure Terms

• Broadbanding– The grouping of jobs of significant

differences or worth or value within one band or pay grade.

Exhibit 8.18: From Grades to Bands

Contrast Between Ranges and Bands

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Determining Progression From Lowest To Highest Pay Rate

• For jobs at the lower end of the pay structure, a 6% to 7.5% difference in midpoints may be appropriate;

• For those in the middle of the pay structure an 8% to 10% difference would typically apply; and

• At the executive end of the structure the difference would normally range from 15% to 25%.

Documents

Creating a Pay Structure