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What is Benchmarking ? • A method for identifying and importing best practices in order to improve performance. • The process of learning, adapting and measuring outstanding practices and processes from any organization to improve performance.
Why Benchmark ? • Identify opportunities to improve performance. • Learn from others’ experiences. • Set realistic but ambitious targets. • Uncover strengths in one’s own organization. • Better prioritize and allocate resources.
Types of Benchmarking: 1 • Strategic Benchmarking How public, private, and nonprofit organizations compare with each other. It moves across industries and cities to determine what are the best strategic outcomes.
Types of Benchmarking: 2 • Performance Benchmarking How public, private, and nonprofit organizations compare themselves with each other in terms of product and service. It focuses on elements of cost, technical quality, service features, speed, reliability, and other performance comparisons.
Types of Benchmarking: 3 • Process Benchmarking How public, private, and nonprofit organizations compare through the identification of the most effective operating practices from many organizations that perform similar work processes.
When not to Benchmark • Target is not critical to the core business functions • Customer’s requirement is not clear • Key stakeholders are not involved • Inadequate resources to carry through • No plan for implementing findings • Fear of sharing information with other organizations
Benchmarking Process Planning Improving Practices Collecting Data Analysis
1. Planning • Determine the purpose and scope of the project • Select the process to be benchmarked • Choose the team • Define the scope • Develop a flow chart for the process • Establish process measures • Identify benchmarking partners
2. Collecting Data • Conduct background research to gain thorough understanding on the process and partnering organizations • Use questionnaires to gather information necessary for benchmarking • Conduct site visits if additional information is needed • Conduct interviews if more detail information is needed
3. Analysis • Analyze quantitative data of partnering organizations and your organization • Analyze qualitative data of partnering organizations and your organization • Determine the performance gap
4. Improving Practices • Report findings and brief management • Develop an improvement implementation plan • Implement process improvements • Monitor performance measurements and track progress • Recalibrate the process as needed
Resources • American Productivity and Quality Centerhttp://www.apqc.org • National Institute of Standards and Technology Quality Programhttp://www.quality.nist.gov
Elements of Reward Career Development Promotion Opportunities Organizational Level Work / Life Balance Flexible Work Environment
Objectives of a Base Salary Structure Before delving into the details of how actually to pay people, there are many factors that impact a base salary program that an organization must consider. In general, every organization's base salary program has certain objectives. The principal ones are as follows: • internal equity • external equity (or competitiveness), • individual equity, • process equity, • performance or productivity incentives, • maximum use of financial resources, • compliance with laws and regulations, and • administrative efficiency.
Objectives of a Base Salary Structure Management needs to ask itself: Is this point important to this organization? If so, how important? What are the implications of this point to the current or desired practices?
Internal & External Equity Internal equity deals with the perceived worth of a job relative to other jobs in the organization. All employees compare their jobs to other jobs within the organization. Generally, they consider skill, effort, responsibility and working conditions in this comparison in order to determine the value of their jobs relative to other jobs. Likewise, management must often determine the "worth" or "value" of one job in relation other jobs for the purpose of salary programs. Maintaining appropriate salary relative to value or worth is achieving internal equity. External equity deals with the issue of market rates for jobs. An employer's goal should be to pay what is necessary to attract, retain and motivate a sufficient number of qualified employees. This requires a base salary program that pays competitively. Among others, internal data such as turnover rates and exit interviews can be helpful in determining the competitiveness of pay rates.
Individual & Process Equity Individual equity deals with how individuals perceive how they are being paid relative to other individuals within the organization and perhaps within the same position. This focus of individual equity is on the merits of the person filling a job, as opposed to the job itself. In simple terms, employees want to feel that the rewards they receive for how they do their work are comparable to the rewards received by others for the same amount of effort or output, all other factors being equal. How merit rewards or increases are given strongly impacts perceptions of individual equity. Process equity deals with how employees perceive the fairness or equity in the administration of the compensation system is process equity. Process equity, in the perceptions of employees, is strongly influenced by the openness of the system, communication of the system to employees, participation in design or administration of the system and a grievance appeal procedure.
Performance Incentives & Use of Resources Performance Incentives - A significant element of a base pay program is to encourage higher or increased levels of employee performance. Pay systems need to be designed to improve organizational performance. Maximum Use of Financial Resources - Since an organization does not have unlimited financial resources, the base pay program needs to be designed to maximize the value to the organization with minimum use of these limited resources. In order to accomplish this, salary programs have a variety of tools such as salary range maximums, pay increase budgets, authorization procedures, compensation committees or various internal auditing procedures available to help accomplish this objective.
Compliance & Administration Compliance with Laws and Regulations - While not the primary objective of a salary program, one of the objectives needs to be to keep the organization in compliance with various state and federal laws and regulations. Administrative Efficiency - Due to the limited financial resources in an organization, one of the objectives should be to have a salary program that is easy to administer, flexible, and cost-effective.
Developing a Salary Structure The basis for most salary programs is a salary structure - a hierarchy of jobs with salary ranges and/or rates assigned. Salary structures are designed so that the greater the worth of a job (as determined by internal or external equity), the higher the salary grade and range. Developing a salary structure is a process with a series of steps: 1. Job analysis and documentation 2. Development of a job evaluation methodology 3. Establishment of Salary Ranges 4. Benchmarking Data Collection
Job Analysis & Documentation Job Analysis - This involves collecting and evaluating relevant information about jobs. Any data collected should clarify the nature of the work being performed (principal or essential tasks, duties and responsibilities), the level of the work being performed, the extent and types of knowledge, skill, mental and physical effort and requirements, and responsibility required for the work being performed. Job Documentation - There needs to be a formalized way to document job content. In most organizations, a job description is the means used to accomplish this. Job documentation is used to evaluate job content, provide objective criteria for making pay comparisons, ensure that jobs are classified according to content as opposed to individual personalities, effectively communicate the job duties to both supervisors and employees, and help the organization defend itself against charges of discrimination.
Checklist for Job Descriptions • Job Title • Based at (Business Unit, Section - if applicable) • Position reports to (Line Manager title, location, and Functional Manager, location if matrix management structure) • Job Purpose Summary (ideally one sentence) • Key Responsibilities and Accountabilities, (or 'Duties'. 8-15 numbered points) • Dimensions/Territory/Scope/Scale indicators (the areas to which responsibilities extend and the scale of responsibilities - staff, customers, territory, products, equipment, premises, etc) • Skills, expertise and experience required for the job
Tips and Hints on Job Descriptions • Think about all aspects of the job: processes, planning, executing, monitoring, reporting, communicating, managing people, resources, activities, money, information, inputs, outputs, communications and time. • Combine ideas into a set of key responsibilities and rank them roughly in order of importance. • Double check that everything on the list is genuinely important and achievable. • Do not put targets into a job description. Targets are a moving output over which flexible control is needed. • Do not put 'must achieve sales target' into a job description. This is a pure output and does not describe the job. The job description must describe the activities required to ensure that target will be met.
Creating a Job Description Create a Job Description for the Head of the Business School
Job Evaluation Methodology A job architecture is the result of job evaluation, the overall process of comparing jobs. There are 2 major methods of comparing jobs: • "whole-job" evaluations and are non-quantitative in nature. These include ranking, classification and slotting. • "factor" evaluation and are quantitative in nature. These include point factor, factor comparison, and scored questionnaires.
IPE Methodology Less Complexity Greater Complexity Standardized Point Factor Whole Job Ranking Classification (“Roles”) Market Pricing & Slotting Customized Point Factor Jobs ranked using general criteria of worth to organisation (e.g., importance or complexity) Classes/grades defined using aspects of job content; jobs assigned to classes/grades Market rates established for benchmark jobs; non-benchmark jobs slotted in salary structure Points assigned to jobs based on factors, degrees and points. Universal factors and weights Points assigned to jobs based on factors, levels and factor weights Customized factors and weights to client Description Simple Easy to maintain Easy to explain Easy to modify Adaptable to job families Relationship to market values Credible Can quickly compare jobs across functions and organisations. Common links to market Can compare jobs across functions Is perceived to be objective and consistent Strengths Effort required to develop factors Much effort to administer and implement Potential for bias May over emphasize a single factor Unusual jobs may be “forced” Potential for bias Interpretation needed to slot jobs Difficult if poor data or fast changing market Volatile May seem inflexible Administration may seem to be a barrier Limitations
Organisation size is determined by monetary scale such as sales and assets, range of activity and number of employees. Organisation Assess nature of impact a position has on the organisation. 1. Impact Impact Assess relative contribution that a position holder makes in the context of Impact. Contribution Assess the nature of the necessary communication ability required by a position. 2. Communication Communication Determine both organisation frame and nature of interests of communication contacts. Frame Assess the requirements to identify, make improvements to, or develop procedures, services or products Position Innovation 3. Innovation Assess level of complexity that a position holder must deal with. Complexity Measure the nature of knowledge required in the job to accomplish objectives and create value. Knowledge 4.Knowledge Assess the way the knowledge is applied. Team Assess the breadth (geographic context) in which the knowledge is to be applied. Breadth Assess the exposure to risk of mental or physical injury in the job. No points are yielded if work conditions meet international standards. 5. Risk Risk Assess level of exposure from the working environment. Environment The Five Factors
Procure Logistics Distri- bution Apply Assemble BasicR&D Applied R&D Produce Market Sales Service Engineer Organisation Sizing The Organisation Context • include at least one “line” function and two “service” functions. • is operational enough to produce added value.
1 2 3 4 5 Level of Contribution Limited Significant Major Some Direct NATURE OF IMPACT Delivery 1 Marked contribution to defining the direction for new products, processes, standards or operational plans based upon business strategy, with a significant mid-term impact on business unit overall results -- 21 to 30% Operational 2 3 Tactical 4 Strategic 5 Visionary Impact
1 2 3 4 External Shared Internal Shared Internal Divergent External Divergent FRAME COMMUNICATION 1 Convey Convince others within the organisation that are skeptical or unwilling to accept new concepts, practices, and approaches 2 Adapt & Exchange Influence 3 4 Negotiate 5 Negotiate Long term Communication
1 2 3 4 Defined Difficult Multi-Dimensional Complex COMPLEXITY INNOVATION 1 Follow 2 Check Analyze complex issues and significantly improve, change or adapt existing methods and techniques. 3 Modify 4 Improve 5 Create / Conceptualize 6 Scientific/Technical Breakthrough Innovation
1 2 3 Team Member Team Leader Teams Manager TEAMS BREADTH KNOWLEDGE Domestic 1 Limited Job Knowledge Regional 2 Basic Job Knowledge 3 Broad Job Knowledge Global 4 Expertise 5 ProfessionalStandard Lead a team through application of broad knowledge of one job area or basic knowledge of several related job areas 6 Organisational Generalist / Functional Specialist 7 Broad Practical Experience / Functional Preeminence 8 Broad and Deep Practical Experience Knowledge
2 1 3 Environment ModerateExposure Low Exposure HighExposure Risk Normal 0 1 Mental Injury 2 Normal working conditions. Physical and/or mental work in an environment where international standards of safety apply. 3 Disability Risk
Position Position Position Total point range Total point range Total point range Class Class Class 26 - 50 40 426 - 450 56 826 - 850 72 51 - 75 41 451 - 475 57 851 - 875 73 76 - 100 42 476 - 500 58 876 - 900 74 101 - 125 43 501 - 525 59 901 - 925 75 126 - 150 44 526 - 550 60 926 - 950 76 151 - 175 45 551 - 575 61 951 - 975 77 176 - 200 46 576 - 600 62 976 - 1000 78 201 - 225 47 601 - 625 63 1001 - 1025 79 226 - 250 48 626 - 650 64 1026 - 1050 80 251 - 275 49 651 - 675 65 1051 - 1075 81 276 - 300 50 676 - 700 66 1076 - 1100 82 301 - 325 51 701 - 725 67 1101 - 1125 83 326 - 350 52 726 - 750 68 1126 - 1150 84 351 - 375 53 751 - 775 69 1151 - 1175 85 376 - 400 54 776 - 800 70 1176 - 1200 86 401 - 425 55 801 - 825 71 1201 - 1225 87 Position Class Conversion Table
A clear ranking of positions that is internally consistent A first analysis of the organisational effectiveness A global comparison of relations between positions A starting point to establish position / competency profiles A database to support career planning and succession An objective reference to solve title issues A reliable base for an equitable salary structure A tool that facilitates market benchmarking Major IPE applications
Purpose of Salary Ranges • To accomplish the organization's objectives with regards to a salary program, • To reflect the organization's philosophy on how it wishes to relate its salary program to the market, • To demonstrate the internal job values of positions, • To support how the organization wishes to mix base pay, benefits and incentives.
Establishing Salary Ranges • How should the organization's pay level relate to the external market? • Should the organization be a pay leader, match the market or pay less than market? • What is the organization willing to pay for: job content, seniority, performance, skills, cost of labor, or some combination of all of these? • How does the organization pay its employees: • based on a single rate structure (all employees in the same job receive the same pay), • based on seniority, • based on merit, • based on productivity (piece work), • based on new skills (skill-based pay), • or based on some combination of these factors? • Are short term or long term incentives provided?
Establishing Salary Ranges Number of Salary Ranges The number of salary ranges will depend on the number of different levels of relative job value that are recognized by the organization and the difference in pay between the highest and lowest paid jobs in the pay structure. Creating a Range around a mid point The focal point of a salary range is the mid-point as this is generally the "going" rate for jobs assigned to that range. The range minimum is the usually the lowest pay rate for any job in that range and is usually the pay rate given to people hired in that range who meet minimal qualifications only. The maximum of a range is the highest rate an employer is willing to pay for jobs in that pay range. Other important range issues include the range width and the degree of overlap between ranges. more at http://www.citehr.com/19824-compensation-management.html#ixzz1VewEHqcY
Managing Salary Rates and Increases An organization must also decide how to administer their salary structure: • How to pay new employees? • How and when to give employees increases? • How to move existing employees from the minimum to the maximum of their assigned salary range? • How to determine the pay increase for an employee being promoted from one job to another? • What influence, if any, cost of labor increases will have on the determination of pay increases for employees? In addition, an organization must develop policies and procedures that will implement the results of these decisions in a consistent manner.
Managing Salary Rates and Increases Starting Pay for New Employees In order to avoid paying new employees the same as more experienced employees, most employers choose to start new employees closer to the minimum of the salary range. In general, an employee with minimum qualifications should be paid the minimum of the range. This general rule is not true when a new hire has skills which are in great demand or has skills or other expertise substantially above the minimum. Employee Increases There are several different types of base pay increases: general (across-the-board) increases, cost-of-living/labor increases, promotion increases, step increases (based on longevity), and merit increases.
Managing Salary Rates and Increases General increases These are diminishing in popularity because they are not consistent with the idea of pay for performance. With a general increase, employees in a certain group based on established requirements are eligible for a certain monetary or percent increase to their base salary. A cost-of-living increase This is a type of general increase given to all eligible employees. This type of increase may happen as a result of union contract negotiation. Some companies choose to track benchmark positions over a period of time and modify other positions based on changes in the ranges of benchmark positions.
Managing Salary Rates and Increases Promotion increases These are given when an employee is moved from one job to another with a higher pay grade and range. The size of the increase will be influenced by the difference between the old and new pay ranges, and the pay of the newly promoted person's peers, superiors and subordinates, if any. Merit increases These are also known as pay for performance. To be successful, an organization must be able to measure differences in job performance and these differences must be significant enough to merit the time and effort required to measure them and pay accordingly. Managers require training in performance planning and appraisal, and control mechanisms must be in place to successfully administer a merit increase program.
