Designing Pay Levels, Mix and Structure

Identifying Major Decisions in Determining Externally Competitive Pay Levels

Agenda

? Identify the major decisions (6) in determining externally competitive pay levels and structures
? Discuss the purpose, design, and interpretation of surveys.
? Explain the practice of using Pay Policy Lines to make pay decisions
? Discuss the concepts of Lead, Lag and Match
? Explain why or when an adjustment to pay structure is made as it relates to market lines
? Discuss how decisions are made with pay grades and ranges

Activity… Pay Levels

1. Make a list of what could happen if a company does not have accurate pay levels for job?
2. Case Incident – New HR Manager: You’re in your first HR Manager job for a small?sized wheel manufacturing company in South Etobicoke. The owner is looking to grow the business as a result of a recent contract from Ford Motor Company in Oakville. The owner now needs to hire many different jobs in the immediate future. The owner has no idea what to pay for these jobs and now looks over to you. What doyou do to start figuring this out?

Designing Pay Levels, Mix and Structure

• External Competitiveness Policies (from Chapter 7) are influenced by

(1) market factors and

(2) organizational factors
• Information related to pay levels and pay forms that competitors in the relevant labour market offer (e.g., base salary, bonuses and stock options) is what drives external competitiveness
• Market Factors that influence compensation policy decisions:
? Supply of qualified workers
? Demand for these workers by other firms
• Organizational Factors that influence compensation policy decisions:
? Company’s financial condition,
? Technology and size,
? Strategy and productivity

Select Relevant Market Competitors

? Who do you want to analyze to help set your pay?
? Relevant labor markets include employers who compete in one or more areas: 
1. The same occupations or skills,
2. Employees within the same geographic area, or
3. The same products and services.

Design the Compensation Survey

? Few organizations conduct their own full?scale surveys
? Most organizations will use a consulting firm (e.g., Towers?Watson)
? Have banks of compensation surveys for many job families and industry groups
? Designing a compensation survey requires answering four (4) questions:

1. Who should be involved in the survey design?
2. How many employers should be included?
3. Which jobs should be included?
4. What information should be collected?

(1) Whom to Involve?
? Responsibility is usually with Compensation Manager
? Usually hire a third?party consultant – who manages

(2) How Many Employers to Survey?
? This will vary by size of organization.
? Often an organization will hire a consulting company
? Use Public Data – Example: Stats Canada
? Internet data – Monster and other similar institutions

Purpose, Design, and Interpretation of Surveys

(3) Which Jobs to Include?
? General Rule – Keep things simple (i.e., fewest employees and jobs)
Benchmark jobs approach

? Examine stable jobs common across employers with sizeable numbers
Low high approach

? Simple approach – identify highest and lowest paid benchmark jobs for relevant skills in relevant market and use wages as the “anchors”

Benchmark Conversion/Survey Levelling approach

? Situations where certain jobs do NOT match jobs in the salary survey.
? Need to do a “conversion” using a JE plan to survey these jobs.

Benefits Agenda

? What are employee benefits?
? What is the value of benefits – to employees and the organization?
? The key issues in planning benefits (Design and Administration)
? The Employer Factors that associated with designing and offering employee benefits
? What are the types of benefits?
? What are the legally required benefits? (Note: This includes content from Chapter 12, p.173?178)
? Examine retirement savings and different types types of plans

Benefits Planning and Design Issues (There are [4] four)
1) Need to address a vital question: “What is the Role of benefits in a total compensation package?”
• Example: if you want to attract good employees
• Then, “what is the best way to achieve this?”

2) Include benefit strategies to ensure External competitiveness
• What are competitors offering as benefits?

3) Ensure the benefits are Adequate
• What is the impact if an employee does not have a particular benefit?

4) Are the benefits Cost Effective?
• Are employee benefits cost justified?

A series of critical questions need to answered to make this decision:

1. There are a variety of employees and statuses
2. Are there probationary periods?
3. Which dependents are covered?
4. Should retirees be covered?
5. How about survivors of deceased employees?
6. What coverage is extended to employees with disabilities? During layoffs? Strikes?
7. Should coverage be limited to full?time workers?

 Employee benefits should always be considered a part of the total compensation costs.
? What is the best way to use and distribute benefits?

• Explain the role of performance appraisals in compensation decisions
• Describe strategies for better understanding and measuring job performance
• Describe how to design pay?for?performance plans
• Describe how pay is linked to appraised performance

What Behaviors Do Employers Care About?

Critical Questions

? How do we attract good employees to join our company?
? How do we retain these good employees once they join?
? How do we get employees to develop skills for current/future jobs?
? How do we get employees to perform well while they are here?

What Behaviors Do Employers Care About?

Strategy
• The plan must support  corporate objectives.
• Should link well with HR strategy/objectives.
• How much increase makes a difference?

Structure
• Is organization structure decentralized, allowing flexible variations on a general plan?

What Is a pay?for?performance?

? Is a company required to Pay "Merit"?
? If YES, what is it based on ?
? If NO, should a company consider merit pay and why?
? Does Merit Pay automatically improve employee performance? Why or Why Not?
? Should company’s just offer an annual bonus percentage rather than give Merit Pay? Why or Why Not?

? Designing Merit Guidelines involves answering four (4) questions:

Specific Pay?for?Performance Plans: Short?term

? What should the Poorest performer be paid as an increase?
? Many company’s give no increase to very poor performance

? What should an Average performer be paid as an increase?
? Many company’s give a value relative to the cost of living (i.e., the change in the CPI – Consumer Price Index)

? What should a Top Performer be paid as an increase?
? Budgetary considerations answer this question

? What should Differential size be between performance levels?
? A larger jump between levels would signal a stronger commitment to recognizing performance with higher pay increases