Individual Pay Determination

Creating Equitable Salary Structures

MGMT 4030 - 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 4030 - Managing Employee Reward Systems

Market Pay Line

60000 50000 40000 30000 20000 10000 0 400

500

600 Points

700

800

MGMT 4030 - Managing Employee Reward Systems

$$ Maximum

Midpoint

Minimum Salary Pay Grade

MGMT 4030 - 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 4030 - 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 4030 - 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 25th and 75th percentiles in salary survey Range above and below midpoint may be different
MGMT 4030 - 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 4030 - 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 4030 - 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 charminglife
MGMT 4030 - Managing Employee Reward Systems

Broadbanding

Technical Band 160%

IV 40%

$85K

Salary grades III for Engineers

II 40% 40%

40%

$35K
MGMT 4030 - 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
MGMT 4030 - Managing Employee Reward Systems