Individual Pay Determination

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Individual Pay Determination

• Creating Equitable Salary Structures

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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

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Match Pay Policy

Lead Pay Policy
Lag Pay Policy
Job Evaluation Points
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Maximum
Midpoint
Minimum
Salary Pay Grade
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Salary Structures

• Minimum
• Provides flexibility to hire new employees who
  need training and experience.
• Employee paid more as competency is certified
  through performance reviews.

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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.

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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 25th and 75th percentiles in
  salary survey
• Range above and below midpoint may be different

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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)

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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

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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 gt 1.10 is quite high
• CR lt .90 is quite low

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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

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Broadbanding

• Collapse narrow salary grades into wide bands.
• 20 grades reduced to 4 to 5 bands.
• 40-60 ranges increased to 100-250
• Increased emphasis on market pricing jobs
• Decreased emphasis on job evaluation

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Technical Band
Broadbanding
160
85K
IV
40
III
40
Salary grades for Engineers
40
II
40
I
35K
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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