Designing A Base Pay Structure education
- 1. Designing A Base Pay Structure Richard I. Henderson 1
- 2. Chapter lesson What do you mean by Pay Structure? Types of Pay Structures Designing A Base Pay Structure When you will design A Base Pay Structure? What must be included to design a Base Pay Structure? Compensation Policy Guidelines 2
- 3. Chapter lesson What are the questions and issues to be consider for to design Pay Structure ? Pay Structure Design Questions and Issues Pay Structure Architecture Developing Pay Grades Pay Structure Terms 3
- 4. Q. What do you mean by Pay Structure? The pay policy resulting from job structure and pay level decisions. Pay Structure also defined a pay rates for different jobs within a single organization. The relative pay for different jobs in the organization The average amount the organization pays for a particular job.
- 5. Q. Types of Pay Structures FLAT ~ Single Pay Rate for a job (ie., $6.67/hour, no range) RANGES ~ Open (range has a min, mid, max) or Step (defined pay increases or steps based on time-in-job or performance, usually automatic) 5
- 6. 6 When you will design A Base Pay Structure? After determining internal equity relationships among jobs, and Identifying competitive pay practices in the market place, The next order of business is the design of a pay structure.
- 7. 7 Q. What must be included to design a Base Pay Structure? The Architects of the Pay Structure Must: Establish a pay policy line. Determine if the organization needs more than one pay structure and why. Determine overlap between pay grades. Design pay grades using pay grade minimum and maximum and desired spreads of the range.
- 8. 8 Q. Compensation Policy Guidelines Decisions that provide guidelines for the compensation manager to follow in developing a pay structure are made at the highest levels of the organization.
- 9. 9 Compensation Policy Guidelines THESE POLICY DECISIONS INCLUDE: Minimum and maximum levels of pay. The general relationship among pay levels. Whether or not the pay structure should lead or lag or laglead the market. The division of the total compensation dollar.
- 10. 10 Compensation Policy Guidelines Additionally Senior management decides how best to administer its pay policies. How much, to whom, when, where and how.
- 11. 11 Q. What are the questions and issues to be consider for to design Pay Structure ? 1) What is the lowest rate of pay that can be offered and still hire desirable employees ? 2) What is the rate of pay necessary to retain employees ? 3) Will the organization want to recognize seniority and merit through the base pay schedule ?
- 12. 12 Questions and Issues…… 4. Is it wise or necessary to offer more than one rate of pay to employees performing either identical or similar kinds of work ? 5. What is considered to be a sufficient difference in base rates of pay among jobs in a class-series that requires varying levels of knowledge, skills, responsibilities, and duties.
- 13. 13 Questions and Issues…… 6) Does the organization wish to recognize dangerous working conditions in its base pay schedule ? 7) Should there be a difference in changes in base pay progression opportunities among jobs of varying worth ?
- 14. 14 Questions and Issues…… 8) Do employees have a significant opportunity to progress to higher level jobs ? If so, what should be the relationship between promotion to a higher job and changes in base pay ? 9) Will policies and regulations permit incumbents to earn rates of pay higher than established maximums and lower than established minimums ? What should be the reasons for allowing such deviations ?
- 15. 15 10) How will the pay structure accommodate across-the-board, cost-of-living, or other adjustments not related to employee tenure, performance, or responsibility and duty changes ? Questions and Issues……
- 16. 16 There are a number of logical and rational considerations for having multiple pay structures that focus on the forces that influence the actual pay of the various occupational groups comprising most organizations. The Need For More Than One Pay Structure (why should an organization use more than one pay structure ?)
- 17. 17 A major reason for using multiple pay structures is that rates of pay for more advanced jobs increase geometrically rather than linearly. The Need For More Than One Pay Structure…….
- 18. 18 The Need For More Than One Pay Structure…… It is not unusual for large organizations to have at least three pay structure lines: Blue collar manual labor, craft, and trade workers. Nonexempt white collar salaried workers. Managerial, administrative, and professional exempt employees.
- 19. PAY Job Evaluation Points ©a Times Mirror Higher Education Group, Inc., company, 1997 a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN 80 120 160 200 240 280 320 monthly salary ($000) 8 7 6 5 4 3 2 1 40 Job Evaluation Points = 315 Predicted Salary = $6,000 Pay Policy Line Pay structure =3 Pay structure =2 Pay structure =1 Predicted Salary = $8,000 Predicted Salary = $3000 Y= a + bx
- 20. 20 Some organizations have a fourth pay structure for their highly paid executives. The Need For More Than One Pay Structure……
- 21. 21 Q. As a HR Manager of a MNC what are the general characteristics you have to follow to develop a Pay Grade Systems? 1) Each grade provides for a range of pay. 2) Within a pay grade range there is a minimum, a midpoint, and a maximum pay. 3) The range from the minimum to the maximum within a single pay grade may vary from 20 to 100 percent. The most common range is from 30 to 50 percent.
- 22. 22 General Characteristics Of Pay Grade Systems….. 4) The number of steps within a grade may also vary. Grades having steps will normally have from 3 to 10 steps, with 6 to 7 in-grade steps most common. 5) There is a direct relationship between the rate of increase per step and the number of steps within a grade.
- 23. 23 General Characteristics Of Pay Grade Systems 8) The requirements of the organization will provide answers to the correct number of grades, the number of steps within grades, and their rates of progression within and between grades.
- 24. 24 General Characteristics Of Pay Grade Systems The number of pay grades to be included within a pay structure varies with the circumstances--there is no right number.
- 25. 25 Pay Structure Terms Single-Rate Pay Grade A flat rate structure that appears in organizations in which pay rate negotiations between management and unions are common practice, in some small organizations, or in industries using skilled craftworkers.
- 26. 26 Pay Structure Terms Multiple-Point Pay Structure Some organizations that use point- factor job evaluation plans establish a rate of pay for every possible point score.
- 27. Pay Structure Terms o Comparable Worth The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same
- 28. 28 Pay Structure Terms Broadbanding The grouping of jobs of significant differences or worth or value within one band or pay grade.
- 29. Pay Structure Terms Shadow Range: when Internally evaluated job is out of line with market demand rate. Example: exotic job that means information technology field jobs. 29
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