Building Pay Structures That Recognize Individual Contribution Chapter 9

Constructing a Pay Structure Step 1: Deciding in the number of pay structures Exempt vs non-exempt; job family; geography Step 2: Determining the market pay line Step 3: Defining pay grades Step 4: Calculating pay ranges for each pay grade Step 5: Evaluating the results

Step 2: Market Pay Line Pay Structure for Clerk Jobs (1 of 5) 26,000 Market Pay Line 24,000 21,000 Annual Salary ($) 18,000 15,000 12,000 250 Clerk I 500 Clerk II 750 Clerk III 1,200 Chief Clerk Job Evaluation Points

Exhibit 9-1 Pay Structure for Clerk Jobs (2 of 5) Clerk I Employees receive training in basic office support procedures, the operation of office equipment, and the specific activities of the unit. tasks assigned are simple and repetitive in nature and are performed in accordance with explicit instructions and clearly established guidelines. Sample duties include: Files materials in established alphabetical order and prepared new file folders and affixes labels. Clerk Is must possess a high school diploma or equivalent.

Exhibit 9-1 Pay Structure for Clerk Jobs (3 of 5) Clerk II Employees work under general supervision in support of an office. They perform routine office support tasks that require a knowledge of standard office procedures and the ability to operate a variety of office equipment. Sample duties include: Prepares simple factual statements or reports involving computations such as totals or subtotals and composes memos requesting or transmitting factual information. Clerk IIs must possess a high school diploma or equivalent and one year work experience performing simple clerical tasks.

Exhibit 9-1 Pay Structure for Clerk Jobs (4 of 5) Clerk III Employees work under general supervision in support of an office. They perform office support tasks requiring knowledge of general office and departmental procedures and methods and ability to operate a variety of office equipment. Sample duties include: Reconciles discrepancies between unit records and those of other departments and assigns and reviews work performed by Clerks I and II. Clerk IIIs must possess a high school diploma or equivalent, two years work experience performing moderately complex clerical tasks, and completed coursework (five in all) in such related topics as word processing and basic accounting principles.

Exhibit 9-1 Pay Structure for Clerk Jobs (5 of 5) Chief Clerk Employees work under direction in support of an office. They perform a wide variety of office support tasks that require the use of judgment and initiative. A knowledge of the organization, programs, practices, and procedures of the unit is central to the performance of the duties. Chief clerks must possess a high school diploma or equivalent, four years work experience performing moderately difficult clerical tasks, and an associate’s degree in office management.

Step 3: Defining Pay Grades Pay Grade Definitions 26,000 Market Pay Line 24,000 21,000 18,000 Annual Salary ($) 15,000 200-300 301-650 651-1,150 1,151-2,000 12,000 Messenger (200) Mail Clerk I (220) Clerk I (250) Recep. (300) Mail Clerk II (350) Clerk II (500) Sec.I (650) Mail Clerk III (675) Clerk III (750) Sec. II (1,000) Mailroom Super (1,175) Chief Clerk (1,200) Exec. Sec. (1,900) Job Evaluation Points

Exhibit 9-3 Pay Range Definitions 26,000 24,000 Maximum 21,000 18,000 Midpoint Annual Salary ($) Minimum 15,000 200-300 301-650 651-1,150 1,151-2,000 12,000 Messenger (200) Mail Clerk I (220) Clerk I (250) Recep. (300) Mail Clerk II (350) Clerk II (500) Sec.I (650) Mail Clerk III (675) Clerk III (750) Sec. II (1,000) Mailroom Super (1,175) Chief Clerk (1,200) Exec. Sec. (1,900) Job Evaluation Points

Designing Merit Pay Systems Merit increase amounts Diminishing marginal returns, just-meaningful differences (COLA, recognition); increase as substantive (equity theory) Timing Common review date, anniversary date Recurring vs. nonrecurring merit pay increases Present level of base pay Rewarding performance: The merit pay grid Performance and position in range

Exhibit 9-7 Merit Pay Grid Performance Rating Above Average Below Average Excellent Average Poor Q3 $60,000 $55,000 $50,000 7% 5% 3% 0% 0% Q2 $45,000 $40,000 $35,000 9% 7% 6% 2% 0% Current Annual Salary Q1 $30,000 $25,000 $20,000 12% 10% 8% 4% 0%

Merit Pay Grid Higher Pay for Performance Lo% Hi% Position in Range High % Low % Percent increase already allocated: 6.3%

Sales Force as a Special Group High initiative needed, customer focus, feedback to company. Extended periods without supervision. Need to stay motivated regardless. Incentives when willingness to work hard can make the difference between success and failure 7

Designing Sales Incentive Compensation Plans Alternative sales compensation plans Salary only; salary-plus-bonus plans; salary-plus commission; commission-plus-draw; commission-only. Determining fixed pay and the compensation mix Influence of salesperson on buying decision Competitive pay standards Amount of nonsales activities Noncash incentives

Designing Pay-for-Knowledge Programs Establishing skill blocks Transition matters Skills assessment; Aligning pay with knowledge structure; access to training Training and certification In-house or outsourcing training Expertise, timeliness; size of employee population to be trained; sensitivity or proprietary nature Certification and recertification

Pay Structure Variations Broadbanding Advantages and limitations Two-tier pay structures

Job Worth (based on job evaluation points) Exhibit 9-9 Broadbanding Structure and Its Relationship to Traditional Pay Grades and Ranges Grade E Grade D Annual Salary Grade C Grade B Grade A Band A Band B Job Worth (based on job evaluation points)

Exhibit 9-10 Two-Tier Wage Structure The following pay rates apply to the 1998 calendar year. Employees hired on or after 1/1/98 will be paid according to Schedule A below. Employees hired after 1/1/98 will be paid according to Schedule B below. SCHEDULE A HOURLY PAY RATE COST-OF-LIVING ADJUSTMENT TOTAL HOURLY PAY RATE JOB CLASSICATION Shop floor laborers Assemblers Carpenters Plumbers $12.10 $14.05 $16.50 $16.90 $1.36 $13.46 $15.41 $17.86 $18.26 SCHEDULE B HOURLY PAY RATE COST-OF-LIVING ADJUSTMENT TOTAL HOURLY PAY RATE JOB CLASSIFICATION Shop floor laborers Assemblers Carpenters Plumbers $14.10 $16.05 $18.50 $18.90 $1.36 $15.46 $17.41 $19.86 $20.26