presentation and certification info will be sent following this...
TRANSCRIPT
Presentation and certification info will be sent following this webinar.
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14,000 Positions 3000 Customers 11 Countries
250 Compensable Factors41 Million Salary Profiles
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AgendaWhy have a Pay Structure
Building Structure• Step 1: Identify pay schedules
• Step 2: Determine pay grades
• Step 3: Develop ranges
• Step 4: Assign grades to positions & adjust for internal equity
Using Pay Ranges
Deviating from the Structure
Immediate Actions
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Why have pay structure• Clarifies the market and internal value for each job, and provides
a way to manage employee pay effectively
• Quantifies compensation costs & enables budget decisions
• Validates compensation strategy & aligns to business goals
• Provides a tool to talk with employees about development
• Ensures pay equity
• Determines pay for non-benchmark jobs
• Allows ease of administration
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Why not?
• Small number of jobs
• Quick-moving jobs
• Typical organization
• Just the facts!
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Requirements
• Develop compensation philosophy & strategy
• Know your jobs
• Conduct market analysis
• Know organizational priorities
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• Pay Schedules
• Pay Grades
• Pay Ranges
Pay Structure Elements
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Building StructureStep 1: Identify Pay Schedules
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Identify Pay Schedules
Ensures competitive pay to local
market and internal alignment
Consider Organizational Complexity
• Industries and/or Lines of Business
• Job Functions
• Locations
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6 Different Pay Schedules:
o Home Schedule– 3 labor markets, within 2.5% of HQ
o Schedule A, Minus 15% Schedule – 4 labor markets
o Schedule B, Minus 10% Schedule – 7 labor markets
o Schedule C, Minus 5% Schedule – 4 labor markets
o Schedule D, Plus 5% Schedule – open
o Schedule E, Plus 10% Schedule – 1 labor market
For example…
Building StructureStep 2: Determine Pay Grades
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Determine Pay GradesNumber of pay grades varies in
response to:
• Size of the organization
• Distance between the highest and
lowest level job
• How differentiated the jobs are (i.e.
levels)
• The pay increase and promotion policy
of the organization
Determine the definition or label for
each grade
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Building StructureStep 3: Develop Ranges
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Midpoint Differential.
=(MidB-MidA)/MidA
Range Spread.
=(Max-Min)/Min
Min relative to Mid.
=Mid/(1+(Range
Spread/2))
Max relative to Min.
=Min*(1+Range Spread)
Develop Ranges
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Considerations
Range spread at base vs top of structure
Overlap between pay ranges
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Building StructureStep 4: Assign grades to positions and adjust for internal alignment
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Align positions to structure by matching market value with closest range midpoint
Assign Grades to Positions
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Adjust for Internal Alignment
•Positions with similar level of responsibility and value to the organization
•Where market data is between two grades, use internal equity to tip
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Example
How do you use pay ranges?
• Understand employee placement in range
• Develop guidelines or policies
• Develop processes
• Train your managers
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Understanding Range Penetration (RP)
RP = (EE Pay – Range Min) / (Range Max - Range Min)
• Indicator of how employee is positioned inthe range
• Use RP in policies to get specific
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Employee Placement in Range
Range MidpointMinimum Maximum
$20,000 $32,000$26,000
Range Midpoint:Range Minimum: Range Maximum:
Lower limit of a pay range/band. Pay for new or less experienced employees should be closer to minimum.
The midpoint identifies the proficiency point. Market
based ranges have a midpoint that aligns with the
target percentile in the market.
The upper limit of a pay range/band. Pay for more tenured employees or star
performers should be approaching this number.
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Employee Placement in Range
Range MidpointMinimum Maximum
$20,000 $32,000$26,000
Green-Circled Employees Red-Circled Employees
Employees that are paid below the minimum of the pay range.
Employees that are paid above the maximum of the pay range.
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Comparing Employee Pay to Ranges
Range MidpointMinimum Maximum
$20,000 $32,000$26,000
50% Penetration
33% 66% 100%0%
Range Penetration:
A percentage that shows an employee’s position in the range. The percentage shows a relative comparison to the minimum of the range.
= (Employee Pay – Min) / (Max – Min)
Range Penetration = 0%Employee’s pay is at the minimum
Range Penetration = 50%Employee’s pay is at the midpoint
Range Penetration =100%Employee’s pay is at the maximum
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Deviating from the structure
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Why?
• Paying above and below ranges
• For hot jobs
• For differentials or temporary responsibilities
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How?
• Pay to market, +/- by experience or performance
• Set the range, but adjust ranges quarterly (up and down)
• Pay a market premium over the existing range within structure
• Pay a differential on top of the base pay - can easily be removed if the conditions change
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Immediate Actions
Gather information about your jobs
Talk with managers and executives
Obtain accurate market data for your positions
Identify unique organizational situations
Determine organization capacity for building structure
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Visit our blog: www.payscale.com/compensation-today
Join our Group on LinkedIn: Compensation Today: HR Best Practices
Jennifer Ferris, CCPSr. Compensation Professional
Paige Hanley, CCPSr. Compensation Professional
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