Creating a Competitive Salary Structure

INTRODUCTION Each employee in an organization is paid a salary. Salaries vary greatly, with executives earning as much as (or greater than) 100 times an entry-level employee s salary. !his variation is not "y chance. #t is rationally esta"lished through a salary structure $ a hierarchy o% salaries. &rganizations develop this structure "ased upon internal %actors (such as current rates, 'o" relationships, and custom) and external %actors (such as la"or mar(ets and laws). Salary structures integrate these %actors to create a hierarchy, in which every 'o" o% the organization has its place. )e%ore esta"lishing a salary structure, you must %irst have a 'o" structure* a hierarchy o% your organization s 'o"s "ased upon their value to the company. +istance ,earning -enter -ourses .. (Conducting Job Analysis) and -ourse ./ (Installing Job Evaluation in Your Organization ) teach you how to create a 'o" structure. 0or the purposes o% this course, we will assume that you have conducted 'o" evaluation %or your company, esta"lished a 'o" structure, and are now ready to create a salary structure. 1e will teach you how to do this "y*

plotting your organization s 'o"s on a matrix drawing a line through the scattering o% dots using this line to determine median salary rates, with which you can esta"lish salary ranges

2ou will then learn how to administer and maintain this salary structure, including how to audit it using research so%tware. DEVELOPING A SALAR STRUCTURE

!he 'o" structure (covered in +,- -ourse ./ on Job Evaluation) presents the compensation decision ma(er with a hierarchy o% the 'o"s in the organization. 3 dollar value now needs to "e placed on this hierarchy. !his value is availa"le %rom either*

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the 'o"s current salary rates

mar(et data collected %rom salary surveys

Current Rate! !he present wage and salary rates in an organization will clearly in%luence any changes made in its current salary structure. #n most organizations there is a %airly well-de%ined group o% 'o"s that represents an important segment o% the total la"or costs o% the company. 1 5rices assigned to this group o% 'o"s may greatly a%%ect an organization s competitive position. 4ates assigned to these 'o"s during 'o"structure pricing largely determine the competitive salary level o% the %irm, and salary structure relationships are "uilt around this cost center.

"ar#et Rate! 6ost o%ten, however, the 'o" structure is priced out through the use o% mar(et rates. !his means the employment o% salary surveys. (See +,- -ourse 7.* Analyzing Salary Surveys %or in%ormation on wage surveys.) &ne such source o% salary survey data is Salaries4eview.com, which provides median pay data %or /,000 positions in 8,000 cities worldwide. 1hen you use salary survey data, you must ad'ust the %igures %or*

single rate determination planning date organization policy

Single rate $etermination !he salary data do not provide a single rate "ut a range o% %igures. !here%ore the "est single rate to use, such as the mean or median, needs to "e determined. (!his set o% decisions is dealt with in +,- -ourse 19* Quantitative Methods Used in Salary Administration .) Planning $ate Salary survey data predates the e%%ective date o% the salary structure you are "uilding. !here%ore, you will need to update (age or trend) the data "y multiplying the salary %igures "y a constant percentage, representing the salary increase o% the interim. E%ample& #% the data was collected one year ago, you may want to age the data "y a percentage o% :;. Organi'ational policy 2our organization must decide whether it will pay*

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a"ove "elow

at mar(et rate

6ost organizations choose to meet the mar(et rate. !hose that wish to pay a"ove mar(et hope to recruite and retain the "est talent. !hose that pay "elow usually do so "ecause their "udgets are constrained, or industry (such as nonpro%it) dictates this position. !he organization s strategy toward the la"or mar(et also re<uires a salary level policy decision, since the new salary structure is going to "e in operation over time. !his decision involves determining how competitive the organization wishes to "e while the salary structure remains in e%%ect. !here are three "asic strategies %or an organization s salary policy*

lag the mar(et lead the mar(et lead-lag

Lag t(e mar#et) #n this strategy, update the salary survey data to the "eginning o% your next compensation year (calendar year, %iscal year, or another appropriate date) and then install the new salary structure. #% a change in the la"or mar(et o% 10; is assumed %or the next year, then the only time the organization will "e competitive with the mar(et is at the "eginning o% the year. )y the end o% the year, any decisions "ased upon the salary structure will lag the mar(et "y 10;. Lea$ t(e mar#et) #n this strategy, the organization wishes to pay a"ove the mar(et rate. Start the year at 10; a"ove the salary survey data. )y the end o% the year, the organization will "e paying the mar(et rate. Lea$*lag) =ere the organization ta(es account o% the 10; estimated change in the mar(et "ut wishes to meet the mar(et at midyear. 2ou can do this "y starting the year at >; a"ove the mar(et rate. 5rovided the increase is steady over the year, this strategy will place the organization ahead o% the mar(et the %irst hal% o% the year and "ehind it the second hal%. !hese three strategies are illustrated "elow.

Salary Level Strategie! +or A$,u!ting Salary Structure! Pricing a -o. Structure &nce you have the 'o" structure (%rom 'o" evaluation) and the salary rates (%rom current rates and?or mar(et rates), you can create a salary structure. !he %irst step is to plot these : sets o% data on a grid, in order to create a scatter diagram.

Scatter Diagram Vertical a%i! !he dollar value (mar(et rate) %or each 'o" occupies the vertical axis. /ori'ontal a%i! !he organizational ran(ings are on the horizontal axis. !here are . possi"ilities %or the horizontal axis*

mar(et (salary) rate 'o" evaluation rates negotiated rates

"ar#et rate!) 3ssuming that the organization wishes to pay competitive mar(et rates %or 'o"s, you will place dollar values on "oth axes, ma(ing a totally consistent structure. -learly this alternative assumes that there is a mar(et rate %or all (or most) o% the organization s 'o"s and that this rate is satis%actory. -o. evaluation rate!) !he most common alternative %or the horizontal axis is the set o% ratings developed through 'o" evaluation. +epending upon the method o% 'o" evaluation you used, these ratings may consist o% a ran(ing o% 'o"s %rom low to high, a series o% classi%ication levels, or a range o% points. #n the case o% the graph a"ove, the 'o" evaluation system placed 'o"s into grades o% :0 points. Negotiate$ rate!) 1here there is a union, the hierarchy o% 'o"s may "e a negotiated ran(ing "ased upon custom or the relative power o% a group o% unions. Developing t(e Pay*Policy Line !o create a smooth progression, you will need to %it a pay-policy line to the plotted points. !he line may "e straight or curved, and may %it a num"er o% di%%erent methods. "et(o$! 1hen plotting 'o" structures o% single 'o" clusters, a straight line is usually employed. !ypes o% lines include*

low-high %reehand least-s<uare

Lo0*(ig( line) !his is a straight line connecting the highest and the lowest o% the plotted points (o%ten called anchor points). !he rates o% all intervening 'o"s are made to %all on the line. !he low-high line appears especially use%ul in union "argaining o% the salary structure "ecause o% its %lexi"ility. 1hen a %inal "argain is reached, you may implement it "y raising either end or "oth ends in such a way that re%lects the contract. )elow is an example o% a low-high line. "ultiple Salary Structure! 3n organization may have several salary structures, one %or each "road 'o" cluster, %or instance. !he choice may depend on whether 'o" evaluation is %ormal or in%ormal@ i% %ormal, the choice %urther depends on which type o% method is used.

!he ran(ing, classi%ication, and %actor-comparison methods lend themselves to a single 'o" structure %or the organization. Even these plans, however, are o%ten applied to distinct 'o" clusters. !he point method is more li(ely than any o% the other three to "e designed %or a single 'o" cluster.

REVIE1 O2 -O3 EVALUATION "ET/ODS Ran#ing Cla!!i+ication 2actor Compari!on Point Plan 4an( the 'o"s in the organization %rom highest to lowest. +e%ine classes or grades o% 'o"s and %it the organization s 'o"s into them. -ompare 'o"s on several %actors to o"tain a numerical value %or each 'o". 4ate each 'o" on several compensa"le %actors. 3dd the scores o% each %actor to o"tain a total point score %or each 'o".

(!hese methods are reviewed in +,- -ourse ./* Installing Job Evaluation in Your Organization .) E%empt v!) none%empt ,o.! &rganizations with more than one salary structure usually have separate structures %or exempt and nonexempt groups o% 'o"s.

Exempt structures are o%ten divided into pro%essional and managerial groups. Aon-exempt structures are usually divided into production (or manu%acturing) wor(ers and o%%ice (administrative) sta%%.

!here seem to "e : reasons %or these "rea(downs* 1. :. #t may "e di%%icult to compare these di%%erent types o% 'o"s, in which case the horizontal axis o% the scatter diagram is not use%ul. 6ore importantly, the slope o% the pay-policy line %or these groups may "e very di%%erent. 3t opposite extremes are physical la"orers, with a very %lat slope, and the managerial group, with a very steep slope. 0urther, the pay-policy lines will start and stop at di%%erent places, so that there will "e little overlap "etween them.

Di!crimination &ne pro"lem that can occur in constructing separate structures is discrimination. #% a structure contains most o% the %emale or minority-dominated 'o"s, then the structure may appear discriminatory. !here%ore, all 'o" clusters that constitute a salary structure need to "e examined %or their gender and racial composition. #% women and minorities are segregated, then the composition o% 'o"s in all groups will have to "e "alanced "y gender and race.

Lo0*/ig( Pay*Policy Line 2ree(an$ line) 3%ter you plot the points, you can visualize the trend o% the data. #n this case, it is possi"le %or you to draw a %reehand line that "est descri"es the plotted points. 3 %reehand line is not commonly used since so%tware programs are a"le to <uic(ly calculate the leasts<uares line. )elow is an example o% a %reehand straight line.

2ree(an$ Straig(t Line Lea!t*!4uare! line) !he least-s<uares line minimizes the overall vertical distance %rom the points to the line. Spreadsheets and other so%tware can automatically add such trend lines, or

the slope and intercept o% the least-s<uares can "e calculated %rom the points and the resulting line plotted. (See +,- -ourse /9* egression Analysis Used in Com!ensation Administration %or instructions %or computing a least-s<uares line.) 1(ic( line !(oul$ you u!e5 #n most cases, a low-high (anchor-point) line or a %reehand line achieves the level o% accuracy inherent in 'o" evaluation results. 0urthermore, "oth permit ad'ustment to achieve agreement o% committee mem"ers, or union and management, on salary determinations. 5ro%essionals or other statistically sophisticated groups, however, may pre%er a wage line calculated "y least s<uares. Experience suggests that the additional accuracy o% the leasts<uares line (compared with that o% a %reehand line) is seldom su%%icient to o%%set the added di%%iculty o% explaining the method involved to the statistically unsophisticated. CO"PLETING T/E SALAR STRUCTURE

3t this point the salary structure consists o% a horizontal dimension and a vertical dimension, with a pay-policy line derived %rom the plotting o% 'o"s. 2ou could plot every 'o" in the organization on the pay-policy line to determine its salary. 0or the sa(e o% convenience and practicality though, most salary structures group data on "oth the horizontal and vertical dimensions.

&n the horizontal dimension, group 'o"s into salary grades. &n the vertical dimension, group money into salary ranges.

Salary Gra$e! #% 'o" structures o% individual 'o"s are developed, as is done through 'o" evaluation, it is possi"le to assign an individual dollar value to each and every 'o". =owever, simpli%ied wage and salary structures are easier to administer. &n the 'o" side, this means grouping 'o"s that are close together in the hierarchy into BgradesB %or pay purposes. 3 !alary gra$e is a group o% 'o"s that have "een determined "y 'o" evaluation to "e approximately e<ual in di%%iculty or importance to the company.

Csing grades, large organizations can save much time and e%%ort. +ealing with 10 salary grades rather than 100 s o% 'o" rates is much more convenient. 1hen individual 'o" rates are used, even small changes in duties may re<uire changes in salary. -o. evaluation met(o$ !he %ollowing 'o" evaluation methods dictate the type o% salary grades you will use. grade contains 'o"s that %all within a range o% points grade is a range o% evaluated rates

Point Plan 2actor Compari!on

Ran#ing Cla!!i+ication

grades are a num"er o% ran(s a grade consists o% all 'o"s that are compara"le to the level description

/o0 many !alary gra$e! !(oul$ you u!e5 !here appears to "e no optimum num"er o% grades %or a particular salary structure, and in practice, grades vary %rom as %ew as / to as many as 80. #% there are %ew grades, the num"er o% 'o"s in each will "e relatively large, as will the increments (midpoint-to-midpoint di%%erential) %rom one grade to another. #%, on the other hand, there are many pay grades, the num"er o% 'o"s in each grade and the increments "etween grades will "e relatively small. #n the end, most organizations use 10-18 grades %or a given 'o" structure. )roader salary structures, o% course, contain more grades. 0or example, salary plans that encompass clerical, pro%essional, and administrative employees may average 18 grades. 5ay distance "etween grades is commonly calculated using a midpoint-to-midpoint di%%erential and they typically re%lect*

7 $ 9; %or hourly and clerical 'o"s 10$ 1: ; %or pro%essional and administrative 'o"s 6anagerial structures may have di%%erentials "etween grades :0; and higher

!he actual esta"lishment o% salary grades is a decision-ma(ing process designed to*

ensure that the grades %it the organization and the la"or mar(et place 'o"s o% the same general value in the same salary grade ensure that 'o"s o% signi%icantly di%%erent value are in di%%erent salary grades provide a smooth progression

3roa$.an$ing 4ecently, there has "een a trend toward reducing the num"er o% grades in a salary structure. !his movement is called broadbanding. !he impetus %or this movement has "een the %act that organizations are "ecoming smaller and the wor(ers must "e more %lexi"le, reducing the num"er o% management levels and degrees o% "ureaucracy. 3roa$.an$ing results in reducing the num"er o% salary grades and ma(ing them B%atter.B !he minimums and maximums %or salary rates are increased, and the num"er o% points covered in the 'o" structure is increased.

Some companies use "road"anding with the traditional controls inherent in salary grades, such as midpoints, minimums and maximums. &rganizations that use "road"anding in this manner tend to reduce the num"er o% grades until they are a"out twice as wide as they used to "e.

A$vantage!) #t is claimed that "road"anding increases the prospects %or cross-%unctional growth and employee development in the organization. )road"anding helps employees to move laterally in an era in which promotion prospects have "een reduced. Ea!ier to a$mini!ter5 1hether "road"anding is easier to administer or not is a matter o% your point o% view. #t is clearly more %lexi"le and gives supervisors a greater a"ility to reward their employees without the continuous need to promote in order to provide more %inancial incentive. &n the other hand, it can create a much more chaotic system. #t also can lead to inconsistency and %eelings o% %avoritism. )oth employees and supervisors have am"ivalent %eelings when the supervisor uses personal discretion %or something as important as pay.

/o0 to !et !alary gra$e! )e%ore determining salary grades, it may "e wise to assess how many 'o"s and how many employees are a%%ected "y the num"er o% grades and the division chosen. !his can "e done "y plotting each employee on the salary structure matrix and noting whether there is a spread o% employees over the matrix. Employee acceptance) Since large num"ers o% employees may "e a%%ected "y small changes in salary grades, great care and %airness must "e used in determining salary grades. Drievances can "e avoided "y seeing that salary grades with large num"ers o% employees are not placed in a grade that greatly changes their pay rate. )ecause 'o"s in a salary grade are treated as identical %or pay purposes, it is extremely important that employees accept grade "oundaries. 0or this reason, it is o%ten use%ul to move 'o"s that are very close to the maximum cuto%% point into the next higher grade. "et(o$! !here are a num"er o% ways o% grouping 'o"s into a limited num"er o% grades. 1e will examine / o% these approaches*

cluster division midpoint-progression continuum

Clu!ter approac( !he simplest approach is to ma(e a scatter diagram o% the organization s 'o"s, as is done in esta"lishing the pay-policy line. 1hen you do this, you can o%ten o"serve that the 'o"s tend to cluster rather than scatter evenly. 2ou can ta(e advantage o% this e%%ect "y encasing the clusters horizontally and vertically, as illustrated in the %igure "elow.

Clu!ter Approac( to Salary Gra$e! A$vantage) -lustering has the advantages o% simplicity and %lexi"ility* it can "e changed each time the salary structure is ad'usted. #t tends to "e used with ran(ing or slotting methods o% 'o" evaluation, so small organizations are more li(ely to use this approach. Di!a$vantage) !his provides all three dimensions, "ut none o% them is arrived at consistently, nor are they li(ely to "e symmetrical. !his may have a negative impact on salary and career progression in the organization. Divi!ion approac( 3nother relatively simple approach is to use the horizontal dimension o% the salary structure $ the 'o" evaluation points $ to determine the num"er o% salary grades. !his is done most easily "y determining a set num"er o% points %or each salary grade. !hen, starting with the least num"er o% points, you mar( o%% the lines "etween ad'acent grades. #n the %igure "elow, each salary grade is /0 points wide.

Divi!ion Approac( to Salary Gra$e! 3n alternative to using a set num"er o% points %or each grade is to use increasing num"ers o% points as you move up the scale. !his would answer the di%%iculty experienced in 'o" evaluation o% determining exact di%%erentials "etween 'o"s higher in the hierarchy. "ar#et rate) #n the division approach, the mar(et rate %or each grade should "e set "y placing the range midpoint at the point where a vertical line %rom the point value in the middle o% the grade meets the pay-policy line. 0or the %igure a"ove, this is :00 points %or level .. -o. evaluation) !his method can "e used success%ully with a point system o% 'o" evaluation and can also "e adapted to other systems, such as classi%ication. "i$point*progre!!ion approac( !his method is a little more sophisticated and allows %or "roader de%inition at higher grades. #t %ocuses on the pay-policy line and the vertical axis o% the salary structure. #n this example, the num"er o% salary grades is o"tained "y determining a standard distance "etween the midpoints o% ad'oining grades. #n the %igure "elow, 10; is the distance decided upon "etween grades. Starting at the midpoint o% the lowest grade, we place the midpoint %or each succeeding grade 10; higher than the lower one. !he dividing line "etween grades is

hal%way "etween the two midpoints. 3s can "e seen, the horizontal-dimension 'o" evaluation points widen with each higher grade.

"i$point*Progre!!ion Approac( !his approach is o%ten com"ined with increasingly "road rate ranges to ma(e the salary structure "alloon out at the higher levels. !he rationale is that at higher levels, positions are harder to de%ine and evaluate accurately, and greater variation in per%ormance is possi"le. Continuum approac( =ere, in essence, each 'o" evaluation point on the horizontal axis has its own rate range@ there is no grouping o% 'o"s. !he pay-policy line constitutes the midpoints. 3 standard maximum and minimum, which are a set percentage a"ove and "elow the midpoint, are de%ined. 3s can "e seen in the %igure "elow, these lines widen as the salary level rises, ma(ing the range "roader at the top than at the "ottom.

Continuum Approac( to Salary Gra$e! 3 system such as this re<uires a lot o% con%idence in the 'o" evaluation method. #t is li(ely to engender considera"le argument over small di%%erences in the num"er o% points assigned to 'o"s. Small technically oriented organizations are more li(ely to use this method. Salary Range! Eust as it is use%ul to group 'o"s on the horizontal axis, it is also use%ul to use a range o% salary %or each salary grade created. !his range o% salary allows an organization to hire less experienced employees at lower level within the range and reward employees %or "etter-thanaverage per%ormance. !he points to de%ine in the range are the*

minimum midpoint maximum

&rdinarily the midpoint o% the range will "e the mar"et rate, the mean or median o% the salary survey data. !he range s!read $ the distance %rom minimum to maximum $ varies greatly "ut

is usually within a :> to 80 percent range. 6any large salary structures with a variety o% 'o"s have smaller ranges at the "ottom o% the graph and wider ranges at the higher levels. 2inal Re!ult &nce salary grades and salary ranges are designed, the salary structure is complete. !his is depicted "elow.

Complete$ Salary Structure Revie0 o+ (o0 to create t(i! grap( !he horizontal axis is the hierarchical ran(ing o% the organization s 'o"s as derived through internal mechanisms, mostly 'o" evaluation. #t is arrayed %rom low to high.

!he vertical axis is an array o% %inancial salary rates, %rom low to high. 1hen these two sets o% data are plotted, it creates a scatter diagram. 3 pay-policy line is drawn through the diagram, using either a hand-drawn line or a line o% least-s<uares.

3round this pay-policy line, salary grades are developed using the horizontal dimension. Salary ranges are developed using the vertical dimension.

3ny one 'o" can now "e assigned to the appropriate salary grade. !he actual salary then lies within the range designated %or that salary grade. !he midpoint o% the salary grade is considered to "e the mar(et rate %or the 'o"s within that salary grade. 6ovement within the grade is determined "y the organization s pay system policies. Ot(er Option! !he process descri"ed here is, o% course, not the only method %or esta"lishing a salary structure. #n a salary structure study, compensation specialists at .7 organizations were <ueried a"out how they went a"out esta"lishing their wage structures. !he %indings showed that 19 distinct approaches were used, and that only two were per%ormed in as many as > organizations. !hese two were a comparison o% mar(et "enchmar(s with an internal ran(ing o% "enchmar(s, and a comparison o% 'o" evaluation with mar(et "enchmar(s. : AD"INISTERING T/E SALAR STRUCTURE

!he salary structure is designed to ta(e the organization one step closer to determining what to pay an individual employee, "y de%ining a mar(et rate or range to "e paid %or the 'o". !he implementation o% this structure involves a num"er o% issues and pro"lems, which we will deal with in the remainder o% this course. A$mini!tration I!!ue! +ecisions a"out the design o% the salary structure a%%ect the paychec( o% all employees. 0rom the standpoint o% e<uity within the organization, it is important that all parties clearly understand and accept the method in which these salary structure decisions are made. 0rom an external perspective, the organization must deal with the <uestion o% its competitiveness in the la"or mar(et compared with its values and customs. 1e will now examine the con%lict "etween la"or mar(et and organizational rates. Pricing -o.! 1hen salary grades are used, the rate %or a 'o" should "e within the range o% the salary grade in which the 'o" is located. 3 system o% code num"ers identi%ying the 'o"s and their proper salary grade %acilitates control and record (eeping. Some organizations pre%er to wor( with a 'o" structure composed o% individual 'o"s rather than salary grades. 0or small organizations (with less than >00 employees), salary grades may "e more challenging to maintain than the "ene%it provided. #% your company desires to create a 'o" structure o% individual 'o"s (not grades), the procedures are largely the same as those we have covered. !he essential di%%erence is that ad'ustments are made to accommodate the di%%erent 'o" evaluation plans. -o. Evaluation A$,u!tment "et(o$ Point Plan 5lot points and rates %or separate 'o"s on scatter diagrams.

2actor Compari!on Ran#ing

5lot evaluated rates. 2ou may choose to plot all 'o"s or only (ey 'o"s. 4ecord 'o"s "y ran(. !hen ma(e rate ad'ustments to correspond with the ran(ing.

"ar#et v!) Evaluate$ Rate! Eo" evaluation is an attempt to su"stitute rationality %or a variety o% non-rational in%luences on wages and salaries, "y appraising 'o"s in terms o% their contri"ution to the organization. !he process presuma"ly produces a hierarchy o% 'o"s that accords with "oth organizational re<uirements and employee values, including customary relationships. !his internally developed 'o" structure is uni<ue to each organization. Con+lict 6ar(et rates, on the other hand, represent an agglomeration o% prices paid "y organizations o% every size and type within the competitive la"or mar(et. &rganizational rates may con%lict with mar(et rates "ecause o% the %ollowing reasons.

Some 'o"s are never %illed %rom the la"or mar(et "ut rather are occupied "y employees trained within the organization. Some organizations are almost completely insulated %rom most la"or mar(ets, except in the case o% 'o"s %or which they cannot provide training in-house. Even i% 'o"s in di%%erent organizations are identical, it is unli(ely that the 'o" will occupy the same position within the 'o" hierarchy. Even highly s(illed 'o"s may vary in importance to the various employing organizations.

Severity !he severity o% the con%lict varies considera"ly %rom one organization to another.

,ow-wage organizations may experience con%lict on many 'o"s. &rganizations employing largely semi-s(illed wor(ers, and promoting %rom within, have less con%lict than organizations employing many highly s(illed wor(ers who must "e hired %rom outside the organization. #% there is high unemployment in the local la"or mar(et, less con%lict "etween mar(et rates and evaluated rates occurs, even in low-wage organizations. Deographically isolated organizations, or those with large num"ers o% uni<ue 'o"s, experience less con%lict.

#n the end, no 'o"-evaluated salary structure is immune to con%lict with mar(et rates. Solution! !here are various solutions to this con%lict.

1. :.

&ne way an organization could completely avoid such con%lict would "e to pay at or a"ove the mar(et on every 'o". 3nother "asic solution is to develop a num"er o% salary structures. 1ith this strategy, a 'o" cluster that must "e tied closely to the la"or mar(et ("ecause it is %illed %rom outside the organization) will not seriously distur" other salary structures. =owever, this alternative may create discrimination in pay that violates the law. 3 less pre%era"le solution is to exempt certain 'o"s or 'o" clusters %rom 'o" evaluation. !his approach is di%%icult to de%end and endangers internal relationships. 2ou could use the guideline method o% 'o" evaluation, which in e%%ect determines internal relationships "y mar(et relationships. (See +,- -ourse ./* Installing Job Evaluation in Your Organization %or more in%ormation on this method.)

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/.

Salary Structure "aintenance #nternal salary structures %ace continuous change. -hange may occur due to*

the addition or su"traction o% tas(s within 'o"s, according to the needs o% the organization changes in technology, with conse<uent changes in methodology and various e<uipment used employees leaving the organization and "eing replaced "y others employees "eing trans%erred and promoted to di%%erent 'o"s

4esponding to these changes involves salary structure maintenance. 2our organization must pay particular attention to*

reclassi%ication 'o" descriptions and titles unions

Recla!!i+ication -lassi%ying new employees properly and changing classi%ications when employees change 'o"s are essential to maintaining consistent salary structures. Employee misclassi%ication destroys pay relationships and creates vested interests that are di%%icult to change. 6isclassi%ied employees may grow to %eel entitled to their current salaries and place in the organizational wage structure, even when the positions they hold do not merit these rewards. -o. $e!cription! an$ title! Eo" changes call %or changes in 'o" descriptions and re-evaluation to ensure that the 'o"s carry the appropriate salary rate. Aew 'o"s call %or 'o" analysis and 'o" evaluation to determine the appropriate rate. )oth cases represent additional e%%ort %or "usy supervisors and managers, even i% the analysis and evaluation are done "y others. 3s such, there may "e a tendency %or managers to neglect these important chores. =owever, consistent salary structures re<uire that updated descriptions and evaluations are maintained. Standard 'o" titles are also an essential part o% 'o" evaluation maintenance. Such standard titles should apply to all 'o"s that entail identical duties and responsi"ilities, wherever they are %ound in the organization.

Union! Cnder union conditions, %ailure to ma(e such changes can limit the organization s right to ma(e 'o" changes. #n a num"er o% cases, management has lost a considera"le portion o% its right to ma(e 'o" changes "y %ailing to ma(e prompt changes in 'o" descriptions. )y custom and practice, employees may ac<uire the right to do certain wor( and to re%use to do wor( not called %or in 'o" descriptions. 6a'or union-management pro"lems have "een caused "y laxity in salary administration. "aintenance proce$ure! 5ro"lems o% salary structure administration emphasize the importance o% 'o" evaluation maintenance. 6aintenance, at a minimum, consists o%* 1. :. maintaining updated 'o" descriptions and 'o" ratings insuring that employees are actually per%orming the 'o"s outlined in the 'o" descriptions

=uman 4esources may "e assigned the tas(s o%* 1. :. .. /. >. analyzing new or changed 'o"s insuring that 'o" changes are reported monitoring the description and evaluation %iles to assess their ade<uacy veri%ying that identical 'o"s have identical 'o" titles receiving and processing appeals and grievances with respect to 'o" ratings

Supervi!or!) Supervisors are normally responsi"le %or advising =uman 4esources o% any changes in 'o" content that they are planning to ma(e or have made. !hey are li(ewise responsi"le %or seeing that employees are assigned to tas(s and duties included in their 'o" descriptions. !o %acilitate carrying out these responsi"ilities, supervisors may "e re<uired to meet regularly with each employee to review his or her 'o" description and, i% the 'o" description is not ade<uate, to re<uest a new analysis and evaluation. Au$it!) #n addition to supervisory re<uests %or 'o" restudy, other methods may "e used to maintain the 'o" evaluation system. =uman 4esources may "e set up to audit 'o"s in all departments on a continual "asis. !hus, each department s 'o"s would "e su"'ect to regular audit. #nterim chec(s might "e made, in addition, "y regularly chec(ing departmental 'o" lists against a list o% standard 'o" titles. 3nother device is to limit the li%e o% 'o" descriptions. !hus a 'o" description would "e valid only %or a certain period, a%ter which the 'o" would have to "e restudied. Appeal!) 3 %urther chec( on the ade<uacy o% 'o" in%ormation and the correctness o% 'o" values is the grievance or appeal procedure. Employees should "e encouraged to appeal whenever they "elieve their 'o" description or 'o" rating is incorrect. #% the organization is unionized, the regular grievance procedure may "e used. #% the organization is nonunion, an appeal procedure may "e devised. #n either case, a re<uest %or restudy o% the 'o" is made early in the procedure. 3n organization s salary structure should "e "oth internally consistent and externally competitive. #t is internally consistent i% it replicates the hierarchy and %low o% the wor(. 5ay di%%erentials "etween levels will then re%lect di%%erences in s(ills and responsi"ility.

!o determine external competitiveness, you must compare the salary structure to the la"or mar(et. 0irms that compete on a cost "asis, where la"or costs must "e (ept low, will set their salary structure "elow mar(et levels. 0irms that need to recruit top-level talent will set their salary structure a"ove mar(et levels. 3enc(mar#! !hus, all organizations need to understand how their pay relates to competitive levels. 4ather than examine every 'o" in the organization, the %ocus is typically on (ey 'o"s, or "enchmar( positions. 3enc(mar# po!ition! are a representative sample o% important 'o"s. !hey are*

well-de%ined sta"le across organizations 'o"s %or which mar(et data is readily availa"le

!he salary ranges %or "enchmar( positions are pegged to the mar(et, esta"lishing the %ramewor( %or the salary structure. !hen, the salary ranges %or the rest o% the organization s 'o"s can "e slotted into position, "ased on their relative value compared to the "enchmar(s or "ased on their 'o" evaluation points. Re!earc( So+t0are E4# s Salary 3ssessorF (S3) so%tware data"ase collects and analyzes availa"le wage survey data. #t provides pay range in%ormation %or over >,000 titles in :9G C.S. and -anadian metropolitan areas. (!his expands to 7,:00 Aorth 3merican cities, when used in con'unction with E4# s Deographic 3ssessorF so%tware.) Csing S3, you can compare your organization s entire salary structure against the mar(et. !he %ollowing pro"lem statement will teach you how to use this so%tware to audit an organization s salary structure. Pro.lem Statement !he )an( o% Sunrise in !allahassee, 0lorida has several "ranches in the !allahassee area. !he "an( s salary structure has G levels "elow the top executives. !he ta"le "elow displays a "enchmar( 'o" (one that is representative o% positions at that level) %or each 'o" level. LEVEL -O3 TITLE 1 : . / > )ranch 6anager :, )an(ing 6ortgage ,oan &%%icer -redit 3nalyst 3ssistant )an( -ustomer )ranch 6anager AVERAGE ACTUAL PA H/1,7>. H.9,07> H:G,97> :, H:7,7>0 RANGE "ID* E6PE* POINT RIENCE H/:,000 H.G,000 H:G,000 H:>,800 H:>,/00 8 G > 8 /

Service

4epre- H:.,9>0

sentative 1 8 7 G ,oan 5rocessor ,oan -ler( 1 !eller H:9,000 H1G,07> H1/,7>0 H1G,7>0 H18,900 H1/,>7> 8 . .

!he ta"le gives the*

current average "ase pay %or that 'o" midpoint o% the "ase salary range average experience o% the people in each position

3an#7! Pay Policy 2ou ve 'ust "een named the new -ompensation 3nalyst %or the )an(, a position that has "een vacant %or the past year. Salaries have not "een ad'usted %or the past : years. 2ou have "een as(ed to review the salary structure and ma(e any recommendations concerning necessary ad'ustments. 4ecruitment and retention have not traditionally "een a pro"lem "ecause o% the "an( s prestigious reputation and the good wor(ing conditions within the "an(. -onse<uently, management has esta"lished a compensation policy o% paying slightly (>; or less) "elow mar(et rates. Complaint! 1hile preparing data %or your evaluation, you receive an email %rom a )ranch 6anager indicating that he is having di%%iculty hiring experienced ,oan -ler(s. 2ou also receive a phone call %rom another manager stating that several o% her -ustomer Service 4epresentatives were complaining that their pay is, Bworse than that o% the ,oan 5rocessors,B even though the position entails more responsi"ility. So while you are determining whether the "an( s salary structure is in-line with compensation policy and mar(et rates, you are also as(ed to see i% the salaries %or -ustomer Service 4epresentatives and ,oan 5rocessors are commensurate with the "an( s pay policy. In!truction! -lic( on the Loa$ Step*.y*Step "utton to %ollow along with this analysis. 2ou may wish to print out this 5+0 tutorial (which will open in a new window). 3%ter you have read this 5+0, clic( on the Ne%t "utton to try your hand at using this research so%tware to ad'ust a salary structure. SU""AR !his course explained how to create a rational salary structure. !he salary structure is a com"ination o% the 'o" structure o% the organization and the mar(et rates %or those same 'o"s. Grap( 3 graph representing the salary structure usually starts with the 'o" structure on the horizontal axis, represented "y the 'o" evaluation values given to the 'o"s. !he vertical axis represents the mar(et rates expressed in monetary terms. 2ou can plot each 'o" or use only "enchmar( 'o"s on the graph.

Pay*policy line 3 line o% best #it can then "e drawn that creates the !ay$!olicy line %or the organization. !he pay-policy line is the starting point %or creating the salary structure. !he values o% "oth dimensions need to "e grouped in order to ma(e compensation administration more managea"le.

!he horizontal axis, the 'o" structure, is grouped into salary grades. !his grouping may "e done in a num"er o% ways as discussed in this course. !he vertical axis is grouped %or each salary grade into a salary range.

!his provides the opportunity %or the organization to pay di%%erential amounts to people on the same 'o" or on 'o"s in the same salary grade. "ultiple Structure! Salary structure decisions, as outlined in this course, attempt to "alance internal considerations and external considerations (mar(et rates). 6ost organizations achieve this "y developing a num"er o% separate salary structures and "y emphasizing %lexi"ility in pricing 'o" structures. ,ow-wage employers in competitive industries, especially those operating in tight la"or mar(ets, may have to a"andon their interest in internal relationships and concentrate on (eeping 'o"s %illed "y paying mar(et rates. #n %act, they may have to lower their hiring standards as well. "aintenance 3ny salary structure is only use%ul %or a limited period o% time. -hanges in "oth the la"or mar(et and the organization ma(e redoing the process over time a necessity. 2ou may now test your competence in these areas "y proceeding to the %inal exam.