MGMT Managing Employee Reward Systems Individual Pay Determination Creating Equitable Salary Structures

MGMT Managing Employee Reward Systems Salary Structures Pay for jobs according to prevailing pay levels and preferred position (lead, lag, match) in the market Establish pay ranges for each job with a minimum, maximum, and midpoint to the range. Use control points (maximum and midpoint) to control payroll expenses Create pay grades to more simply classify jobs according to similar worth

MGMT Managing Employee Reward Systems

$ Job Evaluation Points Lag Pay Policy Lead Pay Policy Match Pay Policy

MGMT Managing Employee Reward Systems Salary Pay Grade Maximum Minimum Midpoint $$

MGMT Managing Employee Reward Systems Salary Structures Minimum –Provides flexibility to hire new employees who need training and experience. –Employee paid more as competency is certified through performance reviews.

MGMT Managing Employee Reward Systems Salary Structure: Control Points Midpoint of Range –Ties the pay range to the market pay line –Must be fully competent on job Maximum of Range –Caps the salary –Only exceptional cases may receive more pay –Normal way to earn more is with a promotion.

MGMT Managing Employee Reward Systems Pay Grade Range (Spread) Function of amount of discretion or range of performance in the grade 20-25% for lower level jobs 30-40% for clerical, technical 40-50% for professional, middle mgmt 50+% for senior mgmt and executive –Or might be set to 25 th and 75 th percentiles in salary survey –Range above and below midpoint may be different

MGMT Managing Employee Reward Systems Pay Grade Dimensions Midpoint to Midpoint Difference –Represents pay differential from one pay grade to the next one in a sequence –Must be meaningful amount –Ranges from 8% (non-exempts) to 12% (management and exempts)

MGMT Managing Employee Reward Systems Pay Grade Dimensions Pay Grade Overlap –Provides flexibility to promote employees without an overly generous pay raise. –Too much overlap leads to pay inequity, –Too little overlap causes barriers to promotion and inefficiencies

MGMT Managing Employee Reward Systems Compa-Ratio Average of all actual salaries in a pay grade divided by the midpoint of the range Used to monitor distribution of salaries and identify grades that are out of control –CR = 1.00 is the ideal (for market match policy) –CR > 1.10 is quite high –CR <.90 is quite low

MGMT Managing Employee Reward Systems Identifying Outliers Compa-Ratios can also be used for individual jobs Red Circle Pay Rates –Pay rate above the maximum –Usually requires executive approval Green Circle Rates –Pay rate below minimum –Need to bring up to level

MGMT Managing Employee Reward Systems Broadbanding Collapse narrow salary grades into wide bands. –20 grades reduced to 4 to 5 bands. –40-60% ranges increased to % Increased emphasis on market pricing jobs Decreased emphasis on job evaluation

MGMT Managing Employee Reward Systems Technical Band 160% Broadbanding Salary grades for Engineers I II III IV $35K $85K 40%

MGMT Managing Employee Reward Systems Advantages of Broadbanding Facilitate Lateral career moves – Enhanced flexibility for transfers –Cross-functional teams with fluid duties More flexible pay decisions –Few control points such as midpoints or salary caps. –More pay opportunities based on skills