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Developing Competency Based

Salary Structure Workshop

Grading structures: options
and considerations in design
And it is not just about pay!

Agenda

Understanding the dynamics of pay

Definition of grading

Why grading?

The use of grading in managing pay

Various options in designing grading structures:
grading is organization specific

Summary and conclusions

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Understanding the dynamics of pay

What are you paying employees for and what do
you want to pay them for?
Job/Role

Performance

Competencies
•Working conditions and environment
•Market
3

Understanding the dynamics of pay Job/Role Pay for Position Performance Competencies Pay for Performance Pay for People •Working conditions and environment •Market 4 .

competencies (‘how’)   labour market need/desire to be innovator 5 .results (’what’)   job weight   age   years in service   limited job scope   job weight   experience   market value   broad job scope / multi-availability   experience Differentiating factors  blue or white collar  organisation type  phase of development   performance input .Trends in what to pay for Major developments in reward base from to output .

Definition grading  A grading ~ classification  is a (for the organization) logical grouping/clustering of the different jobs by their relative job weight     Which jobs have a similar value for the organization and do we thus consider as equal? Which jobs do we consider as higher or lower? has a big impact on the company culture. atmosphere and the employee attitudes defines the status of each employee 6 .

Why grading?  Organizations use grades      as a reference framework for the organization / easy administration. most typically     Career paths Promotions Compensation & Benefits policy Training & Development 7 . to make the results of job evaluation easier to communicate and to manage. as a basis for remuneration management. A grading is basically the cornerstone of all HR processes. to provide more transparency.

etc. scope.The characteristics of an optimum grading structure  Applicable across the current organization  Flexible enough to accommodate future growth  Practical. Development. Recruitment. easily understood and culturally suited to the environment within the Company  Underpinned by a process that differentiates jobs according to content. Succession Planning. 8 . Performance Management.g. size and contribution  Enabling links to appropriate pay market  Low in maintenance  Easily linked into a number of other HR systems and processes– e.

EI+3 264 E3+ 38 100 D4-c 115 479 A1 April 2002 Organisation chart: Job description Evaluation Grading JOBS Job : Job Identification : Job holder: Irina Job : Recruiter Division : Human Resources Job Identification : Job holder: Irina Reporting to : Head of Department – HR Department Job : Recruiter Division : Human Resources Date : April 2002 Job holder: Irina Reporting to : Head of Department – HR Department Division : Human Resources Date :chart: April 2002 Organisation Reporting to : Head of Department – HR Department 9 .Where do we situate a grading exercise? Job Description Company DATE: ####### Job Description JOBTITLE Job Identification : Recruiter Job Description Date :chart: Organisation Depart.KNOW-HOW PROBL SOLV ACCOUNTAB ment SLOT PNTS SLOT % PNTS SLOT PNTS TOTAL PNTS PROF. SHRT Head of Financial Transactions Finance EII-3 264 E3+ 38 100 D4c 132 496 A2 Telecom expert Support F-I+2 264 E3+ 38 100 E-4+ 115 479 A1 Lawyer Legal E+I3 264 E3+ 38 100 E-4+ 115 479 A1 Head of Heads Prod.

Exercise  Rank the following jobs from highest to lowest job size:         Management Consultant Bus driver Car mechanic Researcher / product development Doctor Professor Pilot Secretary 10 .

From job grades to salary structure Job ranking Jobs Salary structure Salary 5 4 3 2 1 1 2 3 4 5 6 Job grades or job structure 11 .

‘x’ % to ‘y’ %) +20% 30.How Grading is linked to pay Monthly Base Pay Ranges +20% 80.000 -20% Salary scale (e.g.000 -20% 11 10 9 8 7 6 5 4 3 2 1 Grades/ Bands/Levels 12 .000 Breadth of grade -20% +20% 10.

KNOW-HOW PROBL SOLV ACCOUNTAB ment SLOT PNTS SLOT % PNTS SLOT PNTS TOTAL PNTS PROF.Determining individual pay Job Description Company DATE: ####### Job Description Recruiter Job holder: Irina Reporting to : Head of Department – HR Department Division : Human Resources Date : April 2002 Reporting to : Head of Department – HR Department Date :chart: Organisation Depart. 12769 + Salary Database PEOPLE Job : Job Identification : Job holder: Irina Job : Recruiter Division : Human Resources JOBS JOBTITLE Job Identification : . EI+3 264 E3+ 38 100 D4-c 115 479 A1 April 2002 Organisation chart: Job description Evaluation Grading Pay structure Salary evolution NAME PUSKIN DOSTOJEVSKI BOLSOI WODKA KREMLIN ARBAT BASIL HERMITAGE Bonus pay-out FUNCTION Economist Accountant Lawyer Specialist Recruiter Architect Benefits specialist Translator Grade 14 14 13 12 12 11 11 11 BASE SAL BONUS BENEFITS 34500 30% car 54700 30% car 34222 20% car 23000 20% car 24590 20% car 23987 15% lunch all. 23008 15% lunch all. SHRT Head of Financial Transactions Finance EII-3 264 E3+ 38 100 D4c 132 496 A2 Telecom expert Support F-I+2 264 E3+ 38 100 E-4+ 115 479 A1 Lawyer Legal E+I3 264 E3+ 38 100 E-4+ 115 479 A1 Head of Heads Prod. 15% lunch all.

Options in designing classifications/grading structures 14 .

clerical. specialists.Grades are organization specific  A classification/grading is a management tool and should support the goals of the organization  It should reflect the organizational structure  The grading structure must fit with the internal ‘’value of work’’ perceptions of the company  The starting point of grades will often be tied to internal populations: management. blue collar  The choice of the width of grades is also company-specific as it will be the basis for remuneration. sector leader. ‘Most Admired’ won’t work  Benchmarking is not a solution 15 . competitor. promotion and mobility policies  Copying a classification of another organization.

re-evaluation of jobs.Decision points in designing a job grading structure  The number of structures  The number or levels/grades and width of classes/grades  Overlaps?  Method/approach for determining job weight and thus positioning of jobs in grades  Border-management: processes to determine how to go over border (assessment. promotion panels) 16 . role of HR as system owner.

How it can look like (1) “Traditional”: One Structure Narrow Grades Broad Bands 17 .Grading .

How it can look like (2) Multiple Structures CEO 2 Directors 3 Management I 4 Project Manager 5 C O R E 2 3 Sr. Experts Experts 6 Supervisors I 7 Supervisors II Directors Officers -C 8 SUPPORT STAFF I 9 SUPPORT STAFF II 10 11 S U P P O R T 4 Management II 5 Project Manager Experts 6 Supervisors I Officers -S 7 Junior Officers -S 8 SUPPORT STAFF I 9 SUPPORT STAFF II SUPPORT STAFF III 10 SUPPORT STAFF III SUPPORT STAFF IV 11 SUPPORT STAFF IV 18 .Grading .

Grading .How it can look like (3) Overlapping Grades 19 .

Grading . IT & Business Planning Head of Projects 18 Asst Secretary Legal Head of Communication OPERATIONS Head of Operational Services Assistant Director.How it can look like (4) “Technical Ladders” reference level and job unit range LEGAL STRATEGIC PLANNING HR & COMMUNICATIONS FINANCE Head of Policy & Planning Assistant Director. HR 19 Assistant Finance Director INFORMATION TECHNOLOGY Assistant Director. Procurement & Systems Financial Controller Information Systems Manager 17 16 SYSTEMS & Principal Legal Officer Land Manager Principal Systems Systems Developer Operations Manager 20 .

Grading – how it can look like (5) Creating parallel ladders “Job Grades” and “Personal Grades” 21 .

Broadbanding versus narrow grades 22 .

Two fundamental types of grading structure  small bands     Similar job weight by grade Increase in responsibility = promotion Career perspective in terms of ‘climbing the hierarchy’ broad bands    Limited number of broader grades Jobs of significantly different job weights are in the same grade Increase in job weight: not necessarily promotion in grade 23 .

Broadbanded pay structure Base Salary    New reference salaries  Extra pay possibilities Grade 24 .

Why broadbanding? A changing organizational environment From  Hierarchical strong structure Towards  Flat ~ networks  Taylorised  (Flexibly) integrated  Decentralized  Centralized  Job specific jargon  Ad hoc solutions   Common (company) language  System solutions  Integrated company strategy No strategic connections  People create value  People are a resource 25 .

hierarchy and job size  To reduce pressure for promotion and re-grading  To accommodate more flexible working patterns  To explicitly reduce the number of grades in the pay structure to match a delayered organizational structure  To allow and focus on individual performance and contribution as a driver for higher pay without the need for formal promotion  To accommodate a range of market pay requirements  To move towards more individual pay determination 26 .Why adopt broadbanding?  To de-emphasize status.

. benefits  Salary benchmarking is more difficult  The most documented negative effect of broadbanding is a drastic increase in salary costs 27 . ..Risks and disadvantages of broadbanding  Risk of “the sky is the limit”  Drive for promotion disappears  Status differences disappear  Lower positioned jobs are being referred to higher reference salaries.

Grades and Ranges Performance Management Pay Increase Budgets Loosening Looseningthe thereigns reignsininone onearea. area.Three ways to control pay….... puts putsincreased increasedtension tensionon onthe theothers others 28 ..

Managing pay in broad bands 29 .

Work Culture should be considered in designing a grading structure Four Work Culture Models Process Driven Functional R Cu st om y ilit b a eli Te ch no lo g y 11 12 10 Network er ilit b i ex Fl y 1 2 3 9 8 7 6 5 4 Time Based 30 .

Functional Work Culture Functional Process Driven Aims Process Driven • Apply specialized technologies • New applications .same technology • Limit risks Work Design Rewards • Job.or grade-based salaries • Management incentives only • Career-based benefits • Years of service • Hierarchy • Specialized position Network • Task team People Management • Functional expertise • Internal training and development Time Based 11 12 1 10 2 3 9 4 8 7 6 5 Performance Management • Goal oriented • Functional criteria 31 .

Process Work Culture Functional Aims • Customer satisfaction • Continuous improvement Process Driven • Customers/individualized services/products Work Design • Customer driven processes • Work teams Network • Roles Rewards • Salaries and increases based on proficiencies and team competencies • Skill-based value-added bands • Competency-based • Team-based output incentives • Career-based benefits People Management • Team-based • Process proficiencies and team competencies Time Based 11 12 1 10 2 3 9 4 8 7 6 5 Performance Management • Process not an event • Team-based • Proficiencies and competency-based 32 .

Network Work Culture Functional Aims Rewards • Temporary alliances • Market creation/penetration • Salaries based on market rate and individual contracts • Negotiated and market driven sharing of gains • Venture incentives • Mobility Process Driven Work Design • Situation determined roles • Relationships not structure • Venture driven Network Time Based 11 12 1 10 2 3 9 4 8 7 6 5 • Team distribution of rewards • Negotiated benefits People Management • Development of personally relevant proficiencies/ competencies • External resources used as needed Performance Management • Based on personal and partnership output • Success of the overall venture 33 .

flexibility • Market dominance • Maximized return on assets Process Driven Network Time Based 11 12 1 10 2 3 9 4 8 7 6 5 Work Design • Flat structure • Situation determines roles • Program teams • Multi-functional expertise Rewards • Salaries and increases based on proficiencies and competencies • High-leverage incentives based upon program success • Project milestone incentives • Team-based equity • Career-based benefits People Management • Development of matrix • Relevant proficiencies/ competencies • Immediate availability and value emphasized Performance Management • “Star” system • Critical contributions • Milestone driven 34 .Time-Based Work Culture Functional Aims • Responsiveness.

Cultural Impact on Grading Process • Wider grades to reduce sensitivity to small job changes (size ranges) • Wider pay ranges to enable focus on performance and competence Functional Network Process Driven Cu st om y ilit b lia e R Te ch no lo g y 11 Functional • Emphasis on job size • Relatively narrow grades • Pay movement through range based on performance • Very few. very broad roles • Individual contracts • Primary focus on individual skill/ competency/ performance 12 10 Network er ilit b i ex Fl y 1 2 3 9 8 7 6 5 Time Based 4 Time-Based • Reduced emphasis on job size • Broad bands • Primary focus on individual skill/ competency/ contribution 35 .

To sum up. 36 ...

supplementary. company-specific Replacing the organizational structure.To sum up Grading: IS IS NOT A different representation of the organizational structure. contradictory A means to group jobs based on assessments of various criteria Changing the nature or content of jobs or where they fit in the organizational structure A framework to define different levels/ ranges of pay based on relative internal value and external relativities A set of rigid rules that support leveling and abolition of uniqueness A system that provides recommendations regarding pay A “Manager” (it will not make the decision for you) 37 .

And It’s Not Just About Pay Impacting Impacting pay paydecisions decisionsis isonly onlyone one of of the the purposes purposesof ofGrading Grading Grading can facilitate:  Differentiating internal contribution  Designing work and organization  Understanding/defining career paths  Planning for succession and continuity  Linking professional behaviors and characteristics with work and work levels/ grades 38 .