Individual Pay Determination

1. Individual Pay Determination Creating Equitable Salary Structures MGMT 4030 - Managing Employee Reward Systems

2. 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

3. MGMT 4030 - Managing Employee Reward Systems

4. $$ Maximum Midpoint Minimum Salary Pay Grade MGMT 4030 - Managing Employee Reward Systems

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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 MGMT 4030 - Managing Employee Reward Systems

11. 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 MGMT 4030 - Managing Employee Reward Systems

12. 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 MGMT 4030 - Managing Employee Reward Systems

13. Technical Band Broadbanding 160% $85K IV 40% III 40% Salary grades for Engineers 40% II 40% I $35K MGMT 4030 - Managing Employee Reward Systems

14. 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