A roundtable discussion market based pay structures for reality based pay july 2005
This presentation is the property of its rightful owner.
Sponsored Links
1 / 14

A Roundtable Discussion: Market Based Pay Structures for “Reality Based” Pay July 2005 PowerPoint PPT Presentation


  • 50 Views
  • Uploaded on
  • Presentation posted in: General

A Roundtable Discussion: Market Based Pay Structures for “Reality Based” Pay July 2005. Objectives of Pay Structures. Attract, retain, reward, motivate Benchmark to appropriate/comparable “markets”, i.e., external equity

Download Presentation

A Roundtable Discussion: Market Based Pay Structures for “Reality Based” Pay July 2005

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


A roundtable discussion market based pay structures for reality based pay july 2005

A Roundtable Discussion:Market Based Pay Structures for “Reality Based” PayJuly 2005


Objectives of pay structures

Objectives of Pay Structures

  • Attract, retain, reward, motivate

  • Benchmark to appropriate/comparable “markets”, i.e., external equity

  • Reconcile internal and external equity for “job slotting” in new pay range

  • Remain legally compliant

  • Be easily communicated and understood

  • Be cost effective

  • Reinforce and reflect the mission and values of ABC

  • Remain unbiased and objective

  • Build trust and buy-in


Pay structures in support of pay philosophy

Pay Structures in Support of Pay Philosophy

  • Business Strategy:

  • ABC, Inc. requires and expects the best from its creative, energetic, knowledgeable, and capable people. Our first responsibility is to serve our clients.

  • Pay Philosophy:

  • We have developed a compensation program that creates enthusiasm in those who serve so that we will create enthusiasm in those whom we serve. To succeed in this endeavor, all ABC employees will be results-oriented, quality-focused, team-driven, cost-minded, and fulfillment seeking and be rewarded at or above the median of like positions in similar organizations.

  • Pay Structure:

  • ABC Institution’s total compensation program (i.e., pay and benefits) supports our mission and strategy. It provides a competitive and affordable level of compensation for each employee in exchange for expected levels of performance and results. Total cash compensation may exceed that offered by comparable organizations provided individual, team, and/or the organization performance and results are exceptional and the organization realizes superior financial performance.


Purpose of pay structures

Purpose of Pay Structures

  • Method to determine fair, equitable and competitive salary levels

  • Demonstrate that work levels and salary levels are established fairly

  • Allow ease of compliance with outside agency requirements – thus helping to reduce financial risk to the organization


Pay structures should fit companies in various stages in the business cycle

Pay Structures Should Fit Companies in Various Stages in the Business Cycle

Company

Emphasis

Long-term

Long-and

short-term

Short- and

long-term

Short-term

Threshold

Growth

Maturity

Decline

Cash

Situation

Varies

Acute

Shortage

All is

reinvested

Substantial

A pay structure that promotes stability has

no place in an organization on the threshold

of fast growth


Pay structure fitting into compensation strategy

Pay Structure – fitting into compensation strategy

ABC Mission/Vision

Performance

Management

Business Strategy

Total Compensation

Strategy

Indirect Compensation

(Benefits)

Performance

Management

Intrinsic Rewards

(Individual Determines)

Direct Compensation

Base Pay

Variable Pay

Having a compensation strategy is THE FIRST AND MOST CRITICAL step to creating an effective pay structure

Pay Structure


Pay structure fitting into compensation strategy1

Pay Structure – fitting into compensation strategy

Base Pay Strategy

Job Value

Pay “Mix”

Pay Delivery

Salary

Structure

External

Value

Internal

Value

Policies &

Procedures

Desired Market Position

Management Philosophy

External Economic Environment

Short- vs. Long-term Orientation

Individual Pay

Determination

Strategic Value

Pay structures shape base compensation

Base compensation influences variable incentive pay

Base compensation influences cash-based benefits

Base compensation is the “new frontier” for reality based pay


Variability in use of market data

Variability in use of market data

Job Analysis

Position Questionnaire

Market

Data Emphasis

Job Evaluation

Job

Content Emphasis

Job Content

Evaluation

Labor Market Data

Collection and Analysis

Reconciliation of Internal

and External Considerations

Labor Market Data

Collection and Analysis

Job Content

Evaluation

Job Worth Hierarchy

Pay Structure

Reality based pay relies on absolute versus relative measures and baselines

In adjusting to reality based pay – internal equity trumps external benchmarks


Typical pay structures remain the basis for reality based pay

Typical Pay Structures Remain the Basis for Reality Based Pay

max pay - min pay

minimum pay

Range Spread =

Midpoint Differential =

Compa-ratio =

Range Penetration =

mid-point of higher pay grade

mid-point of lower pay grade

(

-1 ) x 100

$40,000

employee pay

range mid-point

pay - range minimum

range max - range min

$35,000

$30,000

Range

Spread

Midpoint

Differential

$25,000

$20,000

Maximum

Midpoint

Minimum

$15,000

1

2

3

4

Grade


Reality based pay dictate using multi dimension based approach

Reality Based Pay Dictate Using Multi-Dimension Based Approach

Many

Multi-Dimension

Based Approach

Number

of Job

Characteristics

Measured

Point-Factor Approach

Whole Job

Market-Based Approach

(JVM)

One

External Equity

Internal Equity


Market pricing requires high flexibility and agility

Market Pricing Requires High Flexibility and Agility

MARKET PRICING ISSUES

Industry-specific for line jobs

General industry for staff jobs

Local for nonexempt and lower level exempt jobs

Regional/national for middle-management jobs

National for executive jobs

Relevant

Markets

Data

Validity

Market

Data

Sources

  • From whom you hire - or would like to hire - employees

  • To whom you lose - or are likely to lose - employees

  • Whose pay practices you need to know for competitive business reasons


Internal hierarchies trump external hierarchies new pay

Interdepartment

Intradepartment

Slot Jobs

with no

Market Data

Based on

Internal

Hierarchy

External

Hierarchy

Based on

Market Data

Reconcile

Differences

Between

Departments

Final,

Organization- wide

Job Hierarchy

Job Value

Matrix

Salary

Grades

Reconcile

Department A

Department A

Reconcile

Department B

Department B

Reconcile

Department C

Department C

Department D

Reconcile

Department D

Internal Hierarchies Trump External Hierarchies – New Pay


Questions of the future

Questions of the Future

  • The paradigm (prevailing general theory) shift to “reality based” pay started with –

    • Demise of Dotcom – followed by

    • Oversized total executive compensation – expressed by

    • Overused external compensation surveys

  • Reality based pay (the “New Pay”) focuses on internal equity more than on external comparisons

    • Internal performance versus external comparison is what drives increases to share/stake holder investments

  • Pay structures need to be rethought on the basis of “reality based” pay


A roundtable discussion market based pay structures for reality based pay july 2005

1801 Broadway, Suite 400

Denver, Colorado

80202

www.harlongroup.com

Bill Heck, Managing Principal303.996.5695


  • Login