Pay for Performance

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External Equity
p. 1
Reward System
Reward System
Job Analysis
Benefits
Job Description
Managing Base
Pay
Jpb Evaluation
Variable Pay
Recruitment
Selection & Hiring
Training & Dev’mt
Career planning
Working
conditions
Long term
Incentives
Recognition
Awards
Perf. evaluation
HR Planning
p. 2
Reward System
Reward System
Developing a
Salary Structure
Job Analysis
Benefits
Job Description
Managing Base
Pay
Jpb Evaluation
Variable Pay
Recruitment
Selection & Hiring
Training & Dev’mt
Career planning
Working
conditions
Long term
Incentives
Recognition
Awards
Perf. evaluation
HR Planning
p. 3
Some Definitions
 External competitiveness
• The pay relationships among organizations - the
organization’s pay relative to its competitors
 Salary Structure
• Refers to the range of pay rates for different jobs within a
single organization
 Pay Level
• The average of the array of rates paid by the employer
 Pay Forms
• The various types of payments, or pay mix, that make up
total compensation
p. 4
Pay Mix
 Different Mixes
C py A : T otal C ompens ation = € 1 1 2 '4 0 0 .-
Bas e
O ptions
Bonus
Benefits
Cpy B : Total Compensation = € 112'400.-
Base
Options
Bonus
Benefits
p. 5
Pay-Mix Policy Alternatives
Market Match
Performance Driv en
Bas e
O ptions
Bonus
Benefits
Bas e
O ptions
Bonus
Benefits
Security
Work/Life Balance
Bas e
O ptions
Bonus
Benefits
Bas e
O ptions
Bonus
Benefits
p. 6
Pay Mix and Structure
Pay Mix varies within the Structure
Internal Job Structure
100%
75%
50%
25%
0%
E ntry
L evel
M id- L evel
M anager
E xec utive
Bas e Salary
C as h I nc entive
Stoc k I nc entive
p. 7
Relationship External Pay Policies & Objectives
Compensation Objectives
A bility to
A tt ract
A bility to
Ret ain
Cont ain
Labor Costs
Reduce Pay
Dissat isf act ion
Pay above market (lead)
+
+
?
+
?
Pay with market (match)
=
=
=
=
?
Pay below market (lag)
-
?
+
-
?
Hybrid Employee
?
?
+
?
+
Employer of choice
+
+
+
-
?
Policy
Increase
Productivit y
p. 8
Factors Influencing Pay levels
Business Sector
Legislation
Labor Supply & Demand
Location
Size
Market productivity
Market
Pay Levels
p. 9
Factors Influencing Organization Comp Policy
Business Strategy
Union Influence
Prestige & Tradition
Other HR mgmt policies
& practices
Capacity to Pay
Compensation factors
The Organization
Compensation
Policy:
-Lead
-Lag
-Follow Competition
p. 10
The Pay Model
 Three important contributions to keep in mind
• There is no “going rate” and so managers make conscious
pay level and mix decisions influences by several factors
• There are both product market and labor market
competitors that impact the pay level and mix decisions
• Alternative pay level and mix decisions have different
consequences
p. 11
Salary Structure
 Over engineered structure
• Rigid
• Heavy administrative burden
• Often inefficient
 Simple structure
•
•
•
•
Easily adaptable
Flexible
Suitable for small organization
Can easily be manipulated
 Find the right mix
p. 12
Structure Approach
 Corporate structure for Worldwide Mgmt &
Executives
•
•
•
•
•
Employee rotations within countries/regions
Many senior positions compete at international level
Facilitate transfer/expatriate policy design
Facilitate management incentive design
Ease-up perquisites and benefits implementation
 Local structure for professional, sales and
mainstream employees
• Better data at local level
• Better local understanding of the job content
p. 13
What Criteria to be used to Evaluate the
Management
 To remunerate managers in a competitive way
based on their responsibilities as well as their
individual performance
• Establish a coherent salary structure (external equity)
• Create an internal equity within a competitive market
environment
• Establish a link between individual performance and the job
requirement
p. 14
Linking Internal Equity with External Market
Position : Telemarketing
Evaluation
Questionnaire
Know-How
Communication
Dimension
Effectiveness
Leadership
Challenge
65
101
33
78
55
45
Total
377
= 112’300
Salary
Surveys
p. 15
Development of a Salary Structure
Position
Points
Accountant
125
Mktg assistant
158
Financial Analyst
210
Project Mgr
250
Product Mgr
300
IT Director
335
HR Director
380
Finance& Admin Dir.
420
market value
75,000
80,000
99,600
121,000
142,300
158,960
178,900
201,200
Development of a
salary structure
Grade
5
6
7
8
9
10
11
12
regression
74,800
83,900
100,500
115,500
137,500
155,200
181,600
208,700
120
160
200
240
280
320
360
400
min
58,800
67,600
77,700
89,300
102,600
110,600
127,100
146,000
Analysis of
evaluated jobs
against
competitive
market values.
midpoint
73,500
84,500
97,100
111,600
128,200
147,400
169,400
194,700
max
88,200
101,400
116,500
133,900
153,800
184,300
211,800
243,400
p. 16
Percentiles
Sample
14
9
7
5
3
2
1
25 ile
Median
Mean
75 ile
90 ile
2.5
5
5.9
8
11
Q1
MEDIAN
Q3
D1
10%
D9
10%
50%
25%
25%
80%
100%
Terminologies :
ABS
ATR
D1
Q1
Md
Avg
Q3
D9
Annual Base Salary
Annual Total Remuneration
lower decile (= 10th ile)
f irst or lower decile (25th ile)
median
Av erage/mean
Third or upper quartile (75th ile)
upper decile (90th ile)
p. 17
Salary Curve
Points
100
200
300
400
500
600
700
Projected $
87,339
100,375
115,357
132,576
152,365
175,107
201,245
Projected $
87,339
107,606
116,973
136,317
163,341
195,722
212,761
Salary
Structure
Salary
Structure
250,000
250,000
200,000
200,000
150,000
150,000
Smooth
Smooth
Actual
$
Actual $
80,000
110,000
125,000
150,000
156,000
180,000
220,000
$
Points
100
250
310
420
550
680
740
Actual
100,000
100,000
50,000
50,000
-
-
0
0
200
200
400
400
Points/Grade
600
800
600
800
Points/Grade
p. 18
Development of a Salary Structure
 Salary Structure
200 ’000
Compagny XYZ
Euro
150 ’000
100 ’000
50 ’000
5
6
7
8
9
10 11 12 13 14 15
Grades
p. 19
Min, Max, Range: Spread & Overlap
 Set pay ranges
• Determine minimum and maximum compensation for each
grade.
• Determine the spread for each grade
• Set the overlap between pay ranges.
p. 20
Min, Max, Range: Example
Range
Overlap
Max
Range
Sprea
d
Midpoint
Spread
Midpoint
200 ’000
Min
Compagny XYZ
Euro
150 ’000
100 ’000
50 ’000
5
6
7
8
9
10 11 12 13 14 15
Grades
p. 21
Contrasts Between Ranges and Bands
 Ranges support
•
•
•
•
•
•
•
Some flexibility within controls
Relatively stable organization design
Recognition via titles or career progression
Midpoint controls, comparatives
Controls designed into system
Give managers “freedom with guidelines”
Up to 150 percent range- spread
p. 22
Contrasts Between Ranges and Bands
 Bands support
•
•
•
•
•
•
•
Emphasis on flexibility within guidelines
Global organizations
Cross-functional experience and lateral progression
Reference market rates, shadow ranges
Controls in budget, few in system
Give managers “freedom to manage”
100 -400 % spreads
p. 23
Why Bother with Grades and Ranges?
 Internal pressures
• Be able to justify pay differences
• Recognize individual performance differences with pay
• Meet employees’ expectations that their pay will increase
over time
• Encourage employees to remain with organization
 External pressures
• Differences in quality among individuals in external market
• Differences in productivity
• Differences in mix of pay forms of competitors
p. 24
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