1 / 50

External Equity:

External Equity: . Building Market-Competitive Compensation Systems. Compensation Techniques. INTERNAL: Job Analysis, Job Descriptions, Job Evaluation, Internal Work Structure EXTERNAL: Market definitions, Market surveys, Policy lines, Pay structures

lotus
Download Presentation

External Equity:

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. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. External Equity: Building Market-Competitive Compensation Systems

  2. Compensation Techniques • INTERNAL: Job Analysis, Job Descriptions, Job Evaluation, Internal Work Structure • EXTERNAL: Market definitions, Market surveys, Policy lines, Pay structures • INDIVIDUAL: Seniority based, Performance based, Incentive guidelines, Incentive programs • ADMINISTRATION: Planning, Budgeting, Communicating, Evaluating

  3. External Equity/Competitiveness • “Refers to the pay relationships among organizations. The organization’s pay relative to its competitors.” • Market-competitive pay systems represent companies’ compensation policies that fit the imperatives of competitive advantage • Attract and retain qualified employees

  4. Competitive Pay Policy Options • Lead • Lag • Match

  5. Match Pay Policy • Determine average market rate • Pay WITH market rate/competitors • Similar ability to attract and retain • Match industry/product market costs

  6. Lead Pay Policy • Determine market rates • Pay ABOVE the average market rate • Maximizes ability to attract and retain quality employees • Minimizes employee dissatisfaction with pay • Offsets less attractive features of work

  7. Lag Pay Policy • Determine market rates • Pay BELOW the average market rate • Hinders ability to attract and retain • Promise of higher future returns • Lead on other aspects

  8. Consequences of Pay Level Decisions • Labor Costs • Attraction • Numbers, quality, experience • Retention • Voluntary Turnover • Pay Satisfaction • Work stoppages, Unionization Competitiveness of Pay Policy

  9. Turnover Rates

  10. Salary Survey • “The systematic process of collecting and making judgments about the compensation paid by other employers.” • The Overpaid Bank Tellers case

  11. Salary Survey Steps • Define the relevant market • Include jobs--Benchmark approach • Collect information • Interpret & apply survey results • Job matches • Build grades and ranges withminimums, maximums andmidpoints. • Regression line • Apply competitive pay policy • Design pay grades and ranges

  12. Define the Relevant Market • The fields of potentially qualified candidates for particular jobs. • Occupations/skills • Geographic distance • Same industry, product • Size of competitors • Number of competitors • For project: at least 10 companies

  13. Industry Weekly Earnings

  14. Industry Hourly Earnings

  15. Include Jobs: Benchmark Approach Characteristics of Benchmark Jobs: • Job contents well-known, stable over time, agreed upon by employees involved • Common across a number of different employers • Generally accepted for setting pay levels • Represent entire job structure under study

  16. A B C D E F G H I J K L M N O P Benchmark Jobs O 1800 * 1450 L * 1300 I * F * 1200 B * 1000 800 120 235 370 450 600

  17. Bureau of Labor Statistics Area and industry surveys (Local Area Wage Survey --AWS) National Survey of Professional, Administrative, Technical, and Clerical Workers (PACT) Employee Benefit Surveys Current employment statistics survey Current population survey Employment Cost Surveys Compensation per hour Major union settlements Collect Info: Survey Sources

  18. Survey Sources, cont’d • Professional Associations • American Compensation Association publishes the Salary Budget Survey, reported by region and industry. • Society for Human Resource Management publishes information on salaries in the human resources field. • Accounting companies • KPMG Peat Marwick; Deloite & Touche; Ernst & Young • Professional, trade organizations • Private published sources • Internet

  19. Sources of Compensation Survey Information (cont’d) • Consulting Firms • Abbott, Langer & Associates • Coopers & Lybrand • Dietrich Associates Inc. • Executive Compensation Service • Hay Management Consultants • Hewitt Associates • Mercer-Meidinger-Hanson • Robert Half Associates • Towers & Perrin • Wyatt Co. • Industry Associations • Administration Management Society • American Association of University Professors • American Banker’s Association • American Bar Association • American Electronics Association • American Mathematical Society • American Society of Association Executives • Association of General Contractors • National Institute of Business Management • National Restaurant Association • National Retail Federation • National Society of Engineers

  20. Exhibit 8-4Engineers’ Pay for Cleveland, Ohio, Metropolitan Area AVERAGEWEEKLY HOURSWORKED WEEKLY PAY NUMBER OF WORKERS SURVEYED MEAN MEDIAN MIDDLE RANGE LEVEL Level I Level II Level III Level IV Level V Level VI 232 753 1,559 1,332 479 188 40.0 40.0 40.0 39.9 39.9 40.0 $ 649 $ 752 $ 924 $1,077 $1,257 $1,479 $626 $741 $930 $1,080 $1,254 $1,478 $ 598 - $ 712 $ 667 - $ 827 $ 827 - $1,020 $ 989 - $1,165 $1,156 - $1,337 $1,377 - $1,569 Source: US Bureau of Labor Statistics, Occupational compensation survey: Pay only. Cleveland, Ohio, Metropolitan Area, August 1995 (Washington, DC: US Government Printing Office, 1996).

  21. Exhibit 8-5Summary: Participation in Selected Employee Benefits Programs for Full-Time Employees by Geographic Region BENEFIT NORTHEAST SOUTH NORTH-CENTRAL WEST Paid time off: Holidays Vacations Personal leave Survivor benefits: Life insurance Survivor income Health care benefits: Medical care Dental care Vision care 94% 98% 40% 93% 5% 83% 62% 31% 92% 96% 16% 88% 4% 80% 52% 17% 93% 98% 18% 95% 7% 84% 65% 24% 87% 96% 13% 88% 5% 79% 72% 40% Source: US Bureau of Labor Statistics, Employee benefits in medium and large private establishments, 1993 (Washington, DC: US Government Printing Office, 1994).

  22. 1996 Salary Offers to Bachelor’s Degree Candidates by Degree • Accounting 29,476 • Business Admin (& MS) 27,255 • Distribution 27,655 • Econ & Finance (&Bank) 29,783 • Hotel/Restaurant 24,084 • Human Resources (& LR) 25,426 • MIS 33,769 • Marketing 26,551 • Real Estate 27,340 Source: National Association of Colleges and Employers

  23. 1996 Salary Offers to Masters’ Degree Candidates by Degree • MBA -Non-tech undergrad • < 1 yr exp 40,731 • 1-2 yrs exp 46,394 • 2-4 yrs exp 54,999 • > 4 yrs exp 67,209 • MBA -Tech undergrad • < 1 yr exp 39,146 • 1-2 yrs exp 43,000 • 2-4 yrs exp 51,600 • > 4 yrs exp 70,339 • Accounting 32,537 • Econ/Finance (Banking) 42,650 • HR (inc LR) 39,870 • MIS 38,400 • Marketing 41,547 • MS - Business 37,237 Source: National Association of Colleges and Employers

  24. 1996 Salary Offers to Doctoral Degree Candidates by Degree • Aerospace 55,547 • Chemical Eng 60,161 • Computer Eng 65,050 • Elec Eng 61,180 • Mech Eng 52,184 • Agriculture 48,399 • Bilogical Sci 37,661 • Chemistry 54,693 • Math 54,125 • Bus Adm& Mgt 56,667 • Computer & Info Sciences 63,555 • Economics 54,333 • Educ Admin 43,399 • English 33,375 • Psychology 31,949 • Social Sciences 30,668 Source: National Association of Colleges and Employers

  25. Average Salaries of MBA Graduates by Function (1992) • Acct/Audit 44,479 • Consulting 61,739 • Engineering 47,096 • Finance 57,729 • Gen Mgt 70,593 • H R 59,364 • Info Syst 47,890 • Marketing 53,208 • Ops/Prod 48,492 • Project Mgt 52,713 • Plan/Corp 51,127 • Sales 51,644 Source: Association of MBA Executives, Inc.

  26. E Benefits Mgr 59,500 Comp Mgr 58,200 EEO Mgr 57,900 Plant HR Mgr 57,400 Grp Ins Mgr 55,400 Mgt Dev Mgr 54,100 HRIS Mgr 51,800 EAP Manager 51,800 Emp&Recr Mgr 51,700 Plant P Mgr 50,000 Emp Tng Mgr 48,400 Human Resources Salaries 1991 • VP, Admin 143,300 • ... • Top Comp & Ben 75,600 • Exec Comp Mgr 73,700 • Top E Relation 67,900 • HR Director 64,800 • Tng & OD Mgr 63,100 • Int’l Comp Mgr 63,100 • HR Planning 62,400 • LR Supervisor 61,300 • Top Safety Mgr 60,400 Source: Society for Human Resource Management

  27. Human Resources Avg Salaries • Comp&Ben Ad 37,600 • EAP Counselor 37,000 • Plant P Admin 36,400 • HRIS Specialist 35,200 • Benefits Admin 33,800 • Comp Analyst 31,900 • Jr. Training 31,500 • Entry Generalist 30,600 • Recruiter 30,500 • Pers Asst 23,100 • Benefits Clerk 23,000 • LR Generalist 47,100 • Exec Recruit 44,500 • Safety Superv 44,400 • Safety Specialist 42,700 • Generalist 41,000 • Benefits Pln An. 41,000 • Sr Comp An 40,300 • EEO Specialist 39,900 • Security Spec 39,400 • Sr Tng Spec 39,300 • Prof Recruit 37,700

  28. Internet Sources • Variety of voluntary information • Variety of purchasable information Example sitea: see my webpage • http://wvnvm.wvnet.edu/~mrenard/websites

  29. Avg Faculty Salaries - 1993-94 All Universities (public and private) 1993-94. American Assoc. of Univ. Professors; The Chronicle of Higher Ed., April 20, 1994

  30. Salary Survey Steps • Define the relevant market • Include jobs--Benchmark approach • Collect information • Interpret & apply survey results • Job matches • Build grades and ranges withminimums, maximums andmidpoints. • Regression line • Apply competitive pay policy • Design pay grades and ranges

  31. Interpret & Apply Survey Results • Verify data - Job Matches • Not Job Title only, use job descriptions, duties, etc • Compare survey jobs with MedTech’s • Choose closest match, use as benchmark FastCat Job Intermediate Acctg Clerk Acctg Clerk Sr. Acctg Clerk B Pg. 19-44 Survey Job Acctg Clerk A Acctg Clerk B Acctg Clerk C Pg. 56-58

  32. Interpret & Apply Survey Results • Matched jobs can be used as benchmarks • Leveling - if nec. for unmatched jobs • Update salary information • Central tendency • Mean, weighted mean, median, mode • Dispersion • Correlation ( -1.00 > r > 1.00) • r should be > .90

  33. Build Pay Structure - Overview Once you have survey information: • Combine internal structure and external wage rates - regression line • Apply pay policy • Design pay ranges • Balance internal and external pressures

  34. Exhibit 8-15Regression Analysis Results for the Engineer Survey Data 55,000 55,000 Annual salary Predicted annual salary 50,000 45,000 45,000 44,525 43,500 Annual Salary ($) 40,000 Market Pay Line 38,420 36,000 36,000 35,000 34,500 33,536 33,000 30,000 0 100 200 300 400 500 600 700 800 900 1,000 Engineer I Engineer II Engineer III Job Evaluation Points

  35. A B C D E F G H I J K L M N O P Apply Pay Policy O Lead 1800 * Match 1450 L * 1300 I * F * Lag 1200 B * 1000 800 120 235 370 450 600

  36. Design Pay Grades and Ranges • Allow for quality, productivity, performance differences, employee expectations • Develop grades - similar jobs paid the same • Develop ranges - wages vary from midpoint • Establish min, mid, max • Determine overlap -mid near min of next grade

  37. A B C D E F G H I J K L M N O P Build Pay Grades O 1800 * 1450 L * 1300 I * F * Midpoints 1200 B * 1000 800 120 235 370 450 600

  38. A B C D E F G H I J K L M N O P Build Pay Ranges Maximum 1800 Midpoint Minimum 1450 1300 F * 1200 B * 1000 800 120 235 370 450 600

  39. Salary Structure • Considers relative internal job values • Establishes grades containing like-valued jobs • Reflects prevailing salary levels in the relevant market place • Establishes salary ranges for each job--minimum, midpoint, maximum • Responds to changes in competitive levels • Communicates earnings potentials to employees for current job and jobs to which they aspire

  40. Chapter Eight Building Market-Competitive Compensation Systems

  41. Exhibit 8-1Economic Activities Indexed by the Federal Government’s Standard Industrial Classification Manual • Agriculture, forestry, fishing, hunting, and trapping • Mining • Construction • Manufacturing • Transportation, communications, electric, gas, and sanitary services • Wholesale trade • Retail trade • Finance, insurance, and real estate • Personal, business, professional, repair, recreation, and other services • Public administration • Nonclassifiable establishments Source: US Office of Mgmt. and Budget, Standard industrial classification manual (Wash.DC: US Office of Mgmt. and Budget, 1987).

  42. Exhibit 8-2Standard Industrial Classification Code Elements SIC Code 8244 8 2 4 4 Major Group: Educational Services Industry Group Number: Vocational Schools Industry Number: Business and Secretarial Schools

  43. Exhibit 8-3Sources of Compensation Survey Information (1 of 3) • Professional Associations • The American Compensation Association publishes the Salary Budget Survey, reported by region and industry. • The Society for Human Resource Management publishes information on salaries in the human resources field.

  44. Exhibit 8-3Sources of Compensation Survey Information (2 of 3) • Industry Associations • Administration Management Society • American Association of University Professors • American Banker’s Association • American Bar Association • American Electronics Association • American Mathematical Society • American Society of Association Executives • Association of General Contractors • National Institute of Business Management • National Restaurant Association • National Retail Federation • National Society of Engineers

  45. Exhibit 8-3Sources of Compensation Survey Information (3 of 3) • Consulting Firms • Abbott, Langer & Associates • Coopers & Lybrand • Dietrich Associates Inc. • Executive Compensation Service • Hay Management Consultants • Hewitt Associates • Mercer-Meidinger-Hanson • Robert Half Associates • Towers & Perrin • Wyatt Co.

  46. Exhibit 8-4Engineers’ Pay for Cleveland, Ohio, Metropolitan Area AVERAGEWEEKLY HOURSWORKED WEEKLY PAY NUMBER OF WORKERS SURVEYED MEAN MEDIAN MIDDLE RANGE LEVEL Level I Level II Level III Level IV Level V Level VI 232 753 1,559 1,332 479 188 40.0 40.0 40.0 39.9 39.9 40.0 $ 649 $ 752 $ 924 $1,077 $1,257 $1,479 $626 $741 $930 $1,080 $1,254 $1,478 $ 598 - $ 712 $ 667 - $ 827 $ 827 - $1,020 $ 989 - $1,165 $1,156 - $1,337 $1,377 - $1,569 Source: US Bureau of Labor Statistics, Occupational compensation survey: Pay only. Cleveland, Ohio, Metropolitan Area, August 1995 (Washington, DC: US Government Printing Office, 1996).

  47. Exhibit 8-5Summary: Participation in Selected Employee Benefits Programs for Full-Time Employees by Geographic Region BENEFIT NORTHEAST SOUTH NORTH-CENTRAL WEST Paid time off: Holidays Vacations Personal leave Survivor benefits: Life insurance Survivor income Health care benefits: Medical care Dental care Vision care 94% 98% 40% 93% 5% 83% 62% 31% 92% 96% 16% 88% 4% 80% 52% 17% 93% 98% 18% 95% 7% 84% 65% 24% 87% 96% 13% 88% 5% 79% 72% 40% Source: US Bureau of Labor Statistics, Employee benefits in medium and large private establishments, 1993 (Washington, DC: US Government Printing Office, 1994).

  48. Exhibit 8-9Histogram of Survey Data for Engineers Frequency (no. of incumbents) Annual Salary

  49. Exhibit 8-15Regression Analysis Results for the Engineer Survey Data 55,000 55,000 Annual salary Predicted annual salary 50,000 45,000 45,000 44,525 43,500 Annual Salary ($) 40,000 Market Pay Line 38,420 36,000 36,000 35,000 34,500 33,536 33,000 30,000 0 100 200 300 400 500 600 700 800 900 1,000 Engineer I Engineer II Engineer III Job Evaluation Points

More Related