Chapt. 11

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Chapt. 11 Designing a Base Pay Structure

• Major Policy Decisions
• Minimum maximum levels of pay
• Factors
• Ability to pay
• Profitability
• Government regulations
• Union influences
• Market pressures

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• General relationships among pay levels
• Non-exempt vs. exempt
• Senior management operating mgmt.
• Operatives supervisors

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• Lead, lag, or at-market
• Results of each choice

4

• Total compensation dollar
• Base pay
• Benefits
• Merit pay
• Other pay-for-performance

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• Openness/Secrecy of Communication of compensation
  information

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Major Compensation Decisions

• 1. Lowest rate of pay to entice quality job
  incumbents?
• 2. Rate of pay to encourage employee retention
  efforts?
• 3. Recognize seniority and merit through base
  pay?
• 4. More than one rate of pay for identical or
  similar jobs?

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• 5. Differences in pay rates among jobs requiring
  varying levels of KSAs?
• 6. Recognition of dangerous or distressing
  working conditions?
• 7. Different job progression in jobs of varying
  worth?
• 8. Opportunity for advancement? If so,
  differences in pay related to promotion?

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• 9. Can job holders go higher than max. or lower
  than min. for jobs?
• 10.How will we handle across the board
  cost-of-living adjustments?

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Determining Pay Policy Line

• Step 1 Establish the lowest and highest rates
  of pay for company
• Step 2 Draw a line connecting the two points
• Another option obtain lowest/highest rates of
  pay from market survey to draw the pay line

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Scatter Plots

• Plotted job data provide a convenient way to see
  array of relationships and identify natural
  groupings of jobs
• X Axis job points, assigned pay grades, or
  job-worth identification
• Y Axis dollar value for the job

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Do We Need More Than One Pay Structure?

• 1. What does the company consider to be the
  appropriate value of each job in relation to
  other jobs?
• 2. What influences alter internal relationships?
• 3. How will the company relate pay policy to
  labor markets?
• 4. How do unions influence pay?

12
Determining Midpoint-to-Midpoint Pay Differences

• This is the percentage change in the middle value
  from one adjacent pay grade to the next
• Usually range from 3 to 25
• Lower differences normally found in lower-paid,
  unskilled, semiskilled, and clerical workers vs.
  executives/senior managers
• Usually determined by going or market rate

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Issues for Consideration in Deciding Midpoints

• The smaller the differences, the more pay rates
  are available to assign to specific jobs due to
  more grades available in pay structure
• More pay rates available, greater opportunity for
  assigning different pay rates for minor
  differences in jobs

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• Greater differences in pay rates, the easier for
  job holders to perceive differences in job worth
• Smaller differences may force companies to adopt
  more than one pay structure

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Developing Pay Grades

• Pay grades are groupings of jobs that have
  similar work difficulty and complexity
• Top of pay grade signifies this is most important
  work produced in pay grade
• Bottom of pay grade signifies this is the least
  important work produced in pay grade

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Common Characteristics of Pay Grades

• Each grade provides a range of pay
• Within a pay grade, there is a minimum, midpoint,
  and maximum
• Range from minimum to maximum is usually from 30
  50
• Most pay grades have from 6 7 in-grade steps

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• The relationship between rate of increase per
  step and number of steps in grade is usually
  equally distributed
• Midpoint of pay grades normally overlap

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Principal Considerations on Pay Grades, Steps,
Progression

• 1. Identify the number of different jobs in
  company receiving different pay rates
• 2. Determine number of pay structures used in
  company --- if only one pay structure, probably
  have more grades
• 3. Use steps within grades to recognize
  seniority and longevity
• 4. Use steps to recognize merit increases

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Spread of a Pay Grade

• The height of a pay grade is its spread
• What should be the spread?
• Maximum dollar-minimum dollar x 100
• Minimum dollar

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Pay Grade Width

• Normally arbitrary --- many times total points
  (if using a point-factor plan) are just divided
  by a multiple and all grades are same width
• Example 1000 points total in plan 20 grades
  pay grade width 50

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Within Grade Design

• Organizations can choose to have as many steps
  within each grade as needed
• Simple approach use different steps for
  employees advancement in organization (or can
  tie to longevity or years of service)
• Example page 343-344

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Should Pay Grades Overlap?

• Overlapping pay grades allow more productive and
  senior employees in lower pay grades to make more
  than new, inexperienced employees in higher pay
  grades
• Drawback in large overlap is that promoted
  employees moving from lower pay grade to higher
  grade may not receive much pay increase