STUDeNT WORKBOOK Designing A Pay Structure

STUDeNT WORKBOOK
Designing A Pay Structure
©2008 SHRM Lisa Burke, Ph.D., SPHR
45
CASE STUDY AND INTEGRATED APPLICATION E X E

RCISES
By Lisa A. Burke, Ph.D., SPHR
Student Workbook

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INSTRUCTOR’S MANUAL
AUTHOR : Lisa Burke. PhD

This case study has been adapted from the original version of
the case study found at www.shrm.org.
The submission instruction is the portion that has been adapted.

http://www.shrm.org/
Student Workbook - Case Study
Introduction to Compensation and Designing a Pay Structure
Compensation is a critical area of human resource (HR)
management, and one that can greatly affect employee behavior.

To be effective,
compensation must be perceived by employees as fair,
competitive in the market, accurately based, motivating and
easy to understand.
HR professionals might create the pay structure for their
organization, or they might work with an external compensation
consultant. There are several steps to designing a pay structure:
job analysis; job evaluation; pay survey analysis; pay policy
development; and pay structure formation. Each step is briefly
explained below. For a more extensive discussion, please review
Milkovich & Newman, 2008.
Step 1: Job Analysis
Job analysis is the process of studying jobs in an organization.
The outcome of this process is a job description that includes
the job
title, a summary of the job tasks, a list of essential tasks and
responsibilities, and a description of the work context. Also
included are
the knowledge, skills and abilities needed to perform the job.
Step 2: Job Evaluation
Job evaluation is the process of judging the relative worth of
jobs in an organization. The outcome of job evaluation is the
development of an internal structure or hierarchical ranking of
jobs. Job-based evaluation is used more often than person-based
evaluation, and so the former will be the focus in this case.
There are three methods of job-based evaluation: the point
method
(which is the most commonly used); ranking; and classification.

Job evaluation helps to ensure that pay is internally aligned and
perceived to be fair by employees.
Step 3: Pay Policy Identification
Pay policy identification is the process of determining whether
the organization wants to lead, lag or meet the market in
compensation. The pay policy or strategy will likely influence
employee attraction and retention. Pay policies can vary across
job
families (i.e., groups of similar jobs) and job levels if the top
management feels that different strategies can be effective in
different
areas of the organization.
Step 4: Pay Survey Analysis
Pay survey analysis is the process of analyzing compensatio n
data gathered from other employers in a survey of the relevant
labor
market. Gathering external pay data (e.g., base pay, bonuses,
stock options and benefits) is essential to keep the
organization’s
compensation externally competitive within its industry.
Employee attraction and retention can be improved by
maintaining
externally aligned pay structures.
Step 5: Pay Structure Creation
Pay structure creation is the final step, in which the internal
structure (Step 2) is merged with the external market pay rates
(Step 4)

in a simple regression to develop a market pay line. Depending
on whether the organization wants to lead, lag or meet the
market,
the market pay line can be adjusted up or down. To complete
the pay structure, pay grades and pay ranges are developed.
In this case, you will design a pay structure using a case
scenario and integrated application.
©2008 SHRM Lisa Burke, Ph.D., SPHR
CASE
You are the newly hired human resource (HR) director for an
engineering consulting
firm that is expanding its operations to Chattanooga, Tenn. The
organization is
headquartered in Indianapolis, Ind. Based on the organization’s
mission statement,
you know the firm strives to create customized and technically
proficient electrical
engineering plans for regional clients. The following personnel
are required to start
the Chattanooga operation (the numbers in parentheses indicate
the number of

positions):
• Director of regional operations
• Assistant to the director of
operations
• Operations analyst (2)
• Operations trainee
• HR director (this is you)
• Administrative assistant in HR
• Benefits manager
• Benefits counselor
• Payroll assistant
• Lead engineer (3)
• Engineer (6)
• Engineering associate for special
projects
• Manager of information systems
• Senior information systems analyst
• Information systems analyst
• Security guard

• Front desk receptionist
You can see from the list that there are several job families,
including operations, HR,
engineering, information systems and office support. You can
now begin the process
of designing a pay structure for the organization.
Job analysis is central to many HR functions, including
compensation, recruiting and
training. You need to understand what tasks, duties and
responsibilities various jobs
will entail before you can assign fair and competitive pay rates.
Begin the process by gathering the needed job description
information. To do so, combine information from O*NET
(http://online.onetcenter.org), an online job analysis resource
developed by the Department of Labor, and existing internal
corporate HR documents (such as previous job descriptions).
Each job description includes the job title; a job summary;
essential
job tasks; the job’s work context; and job-relevant knowledge
and skills that an incumbent must possess.
Benchmark jobs (jobs that are common and consistent across a
wide range of employers) will be the focus of this exercise,
because
they will be used to design the pay structure. Appendix A
contains the job descriptions of the benchmark jobs. You have
one
description left to complete; your first task is to create a job

description for the benefits manager position.
48 ©2008 SHRM Lisa Burke, Ph.D., SPHR
Learning Objectives
In this case, students will learn to
design a pay structure. To do so,
you will:
• Write a job description, using the
O*NET website.
• Use the point method to conduct
a job evaluation.
• Analyze pay survey data for
benchmark jobs.
• Create a market pay line using
Excel.
• Establish a pay policy line based
on a pay level strategy.
• Create pay grades.
• Establish pay ranges.
Recommended Reading

Milkovich, G., and Newman, J.
(2008). Compensation. McGraw-
Hill Irwin. Chapters 1-8.
STUDENT WORKBOOK
» Task A: Create a complete job description for the Benefits
Manager position using O*NET.
To design a pay structure, there must be a formal way to value
the work inside the organization so that pay is awarded fairly.
The
job evaluation process will help develop this internal work
hierarchy.
Different evaluation methods, pay strategies, and pay structures
will be used for different job families in the organization. You
decide to use a job-based evaluation approach for the
operations, office support, and HR job families. A skills-based
approach
will be used for information systems and engineering job
families, although it is not included as a task in this case. The
security
guard and director of regional operations jobs will be assigned
pay rates primarily using market pricing and slotted later into

the
pay structure.
Company representatives from various job levels and families
will periodically provide you with input during the job
evaluation
process. This will help you gain acceptance of the established
job structure. You ask this job evaluation committee whether
they
agree with the specific benchmark jobs identified in the job
analysis step (see below).
Office Support Operations HR
HR Director
Assistant to the director of operations Director of regional
operations *Benefits manager
*Admin assistant (HR) *Operations analyst Benefits counselor
*Front desk receptionist Operations trainee *Payroll assistant
* Benchmark job.
The committee studies the various job titles and asks why the
administrative assistant in HR is not included in the HR job
family.
You explain that administrative assistants perform similar tasks
across departments and do not handle functional-specific tasks
(e.g.,
HR). You suggest grouping the front-line administrative jobs in
a separate job family called office support. The other job

families
that will be evaluated are operations and HR.
You decide to use the point method for job evaluation for
operations, HR, and office support job families because it is the
most
commonly used job evaluation method. Next, the compensable
factors, degrees and weights of each factor must be deter mined.
With input from the job evaluation committee and your
knowledge of the organization’s mission and work content,
three common
compensable factors are selected: skill, responsibility and
effort, each having two specific sub-factors. For example, the
compensable
factor of skill is comprised of education level and the degree of
technical skills.
You recommend weighting the skill compensable factor at 50
percent because the organization is very knowledge-intensive
and
depends heavily on its human capital. Responsibility is
weighted 30 percent because each job has the potential to affect
other jobs;
and effort is assigned 20 percent because problem solving and
task complexity are integral across jobs in the organization.
©2008 SHRM Lisa Burke, Ph.D., SPHR 49
Four degrees should be sufficient for rating the various jobs.

For example, the four degrees for education level are identified
as:
1=High School/GED
2=Associates
3=Bachelors
4=Masters/Graduate
Points are then calculated by multiplying the degrees by the
weights.
You present an example of how this point scheme is applied to
the front desk receptionist benchmark job (see below). The
committee agrees with the approach.
Compensable Factor Job evaluation for front desk receptionist
Degree (1, 2, 3, 4) Weight Points
Skill (50%)
-Education Level 1 25% 25
-Degree of Technical Skills 1 25% 25
Responsibility (30%)
-Scope of Control 1 10% 10
-Impact of Job 2 20% 40

Effort (20%)
-Degree of Problem Solving 1 10% 10
-Task Complexity 1 10% 10
120 points
The next task is to calculate the job evaluation points for the
remaining benchmark jobs using the established compensable
factors
and specified weights above. In other words, the degrees of
each remaining benchmark job must be determined based on a
logical
rationale, and then the total job evaluation points for each
benchmark job can be calculated. To do so, consult the job
descriptions
in Appendix A.
STUDeNT WORKBOOK
STUDeNT WORKBOOK

» Task B: Calculate the job evaluation points for the
administrative assistant, payroll assistant, operational
analyst, and benefits manager jobs. Provide a rationale for
assigning specific degrees to the various jobs.
After determining the job evaluation points for the remaining
benchmark positions, you meet with the president, the head of
corporate HR in Indianapolis and the director of regional
operations in Chattanooga to discuss a pay level strategy for
each job
family. One decision resulting from these meetings is that your
organization will pay 3 percent above the market in base pay for
the
HR, operations and office support job families. The group
realizes that this lead pay policy will help meet the firm’s
customer-focus
business strategy by attracting and retaining high-potential
employees without incurring labor costs too far above their
competitors.
Top management also decides to match the market in benefits to
contain benefit costs (e.g., health care costs). After analyzing
web-based data about benefits offered in your industry by
smaller organizations (retrieved from BenefitsLink, SHRM, and
Employee Benefits Research Institute) you discern that on
average, employee benefits costs are approximately 25 percent
of
total compensation. Once the pay structure is finalized, you will
set benefits at a similar ratio of total compensation to achieve a
matching benefits policy.

To ensure that the pay structure is externally competitive, a pay
survey will be conducted. For the results of a survey to be valid,
the market pay data must be from the relevant labor market for
each benchmark job. That is, regional pay data should be
gathered
because most of the office support, HR and operations jobs will
be filled by regional candidates (i.e., within a 90-mile radius of
Chattanooga).
You develop a streamlined pay survey and administer it to
industry competitors. Descriptive organization data (e.g., size,
industry,
annual revenue) is gathered as well as compensation data for
each of the benchmark jobs, including base pay, bonuses, stock
options and benefits. [Note: All participating organizations will
receive the survey results.]
Surveys are completed and returned by six organizations
(referred to as companies A, B, C, D, E, and F) who recruit and
hire
similar benchmark jobs in the surrounding region. Base pay
salary data from the responding organizations are reflected in
the
following table. You have already checked to ensure that
summary job descriptions for the benchmark jobs (in the sample
data) are
appropriately similar to those in your organization (to ensure
you are comparing “apples to apples”). The next step is to
analyze the
pay data and generate weighted means for each benchmark job
to use in future parts of the case.

STUDeNT WORKBOOK
» Task C: If there were any outliers (i.e., extreme data points)
in these data, what would you recommend doing
with them? [From this point forward, assume no extreme data
points exist in the dataset.]
Second, calculate the weighted means (for base pay) for each
benchmark job.
Company # of Job Incumbents Base Pay
A
Front Desk Receptionist 1 Average $21,000
Minimum
Maximum
B

Minimum $21,000
Maximum $23,000
C
Minimum
Maximum
D
Minimum $20,000
Maximum $22,000
E
Minimum $18,000
Maximum $19,000
F
Minimum
Maximum

STUDENT WORKBOOK
A
Administrative Assistant 4 Average $25,000
Minimum $21,000
Maximum $28,000
B
Minimum $27,000
Maximum $34,500

C
Minimum $29,000
Maximum $32,000
D
Minimum $28,000
Maximum $34,000
E
Minimum $27,000
Maximum $30,000
F
Minimum $27,000
Maximum $30,000

A
Operations Analyst 2 Average $55,000
Minimum $50,000
Maximum $60,000
B
Minimum $54,000
Maximum $59,000
C
Minimum $54,000
Maximum $58,000
D
Minimum $52,000
Maximum $61,000

E
Minimum $57,000
Maximum $61,000
F
Minimum $53,000
Maximum $55,000
STUDENT WORKBOOK
STUDENT WORKBOOK

A
Payroll Assistant 2 Average $35,000
Minimum $34,000
Maximum $36,000
B
Minimum $32,000
Maximum $35,000
C
Minimum
Maximum
D
Minimum $33,000
Maximum $37,000
E

Minimum $35,000
Maximum $37,000
F
Minimum $27,000
Maximum $31,000
A
Benefits Manager 1 Average $62,000
Minimum
Maximum
B

Minimum $61,000
Maximum $62,000
C
Minimum
Maximum
D
Minimum $62,000
Maximum $65,000
E
Minimum $62,000
Maximum $64,000
F
Minimum
Maximum

STUDENT WORKBOOK
STUDENT WORKBOOK
The next task is to conduct a simple regression using Microsoft
Excel to create a market pay line. Enter the job evaluation
points
(as X) and weighted average base pay rates (as Y) for each
benchmark job and generate the regression results.
» Task D: Conduct a simple regression in Excel to create a
market pay line by entering the job evaluation points
(on the X axis) and the respective weighted average market base
pay (on the Y axis) for each benchmark job.
Identify the slope and y-intercept and write the equation for the
market pay line.

The regression output will also show information about how
good the regression line fits the data. Specifically, look at the
“R
squared” in the regression output. Generally, the R squared,
referred to as variance explained, should be .95 or higher.
If R squared is significantly lower than this, there may be
problems stemming from the job evaluation step. For example,
the points
assigned to certain benchmark jobs may be off – i.e., not make
sense given the level of tasks, duties and responsibilities
required for
the job and the knowledge, skills and abilities needed by the job
incumbent. If this is the case, re-examine the job descriptions
and
reconsider the points assigned to the benchmark jobs.
Alternatively, there may be errors in the weighted average
calculations. After
conducting the regression again, examine the new R squared.
» Task E: What is your R squared (variance explained)? Is it
sufficient to proceed?
Using the regression output (the slope and y-intercept),
calculate the predicted market pay rate (using Excel) for each
benchmark job.

» Task F: Calculate the predicted base pay for each benchmark
job.
Next, adjust the market pay line based on the organization’s
lead pay level strategy; this will create the pay policy line.
Since the
organization wants to lead the market by 3 percent across the
operations, office support and HR job families, adjust the
market pay
line accordingly (by 3 percent). In other words, each predicted
pay rate can be multiplied by 1.03 to get a new base pay rate
that is
3 percent above market.
» Task G: Because your company wants to lead in base pay by 3
percent, adjust the predicted pay rates to
determine the base pay rate you will offer for each benchmark
job.
Next, create pay grades for the pay structure. Pay grades
represent groupings of jobs that are similar for pay purposes
(i.e., of
similar value to the organization). All the jobs in a pay grade

share the same pay range (minimum and maximum pay rates).
Examine the benchmark jobs in this case again and determine
which ones are sufficiently similar for compensation purposes.
Do
this by revisiting the job evaluation results.
» Task H: Create pay grades by combining any benchmark jobs
that are substantially comparable for pay
purposes. Clearly label your pay grades and explain why you
combined any benchmark jobs to form a grade.
The final step to designing the pay structure is to set the pay
ranges for each pay grade. Pay ranges create upper and lower
pay
rates (on the Y axis) for each job in the pay grade. Each pay
grade will have a minimum and maximum pay rate. It is
important to
remember that all jobs in a pay grade will have the same
minimum and maximum pay rates.
Percent guidelines are used to determine how far above and
below the midpoint the pay range will reach. For example, the
maximum might be 10 percent above the midpoint and the
minimum might be 10 percent below the midpoint.
The percent guidelines, based on input from the job evaluation
committee, are:
• Clerical and office positions: 10 percent above and below the

midpoint.
• Entry to mid-level professional and management positions: 30
percent above and below the midpoint.
» Task I: Use your answer to Task H to determine the pay range
(i.e., minimum and maximum) for each pay
grade.
» Task J: Given the pay structure you have generated, consider
the following:
» Does this pay structure make good business sense? Do you
think it is consistent with the organization’s
business strategy?
» What are the implications of this pay structure for other HR
systems, such as retention and recruiting?

STUDENT WORKBOOK
STUDENT WORKBOOK
References
Milkovich, G., and Newman, J. (2008). Compensation.
McGraw-Hill Irwin.
O*NET. Available at http://online.onetcenter.org.
other ComPensAtion texts

Bergmann, T., and Scarpello, V. (2002). Compensation decision
making. Southwestern.
Martocchio, J. (2006). Strategic Compensation.
Pearson/Prentice Hall.
relevAnt websites
WorldAtWork: www.worldatwork.org.
Society for Human Resource Management: www.shrm.org.
Economic Research Institute: www.eridlc.com.
http://online.onetcenter.org/
http://www.worldatwork.org/
http://www.shrm.org/
http://www.eridlc.com/
INSTRUCTOR’S MANUAL

Appendix A – Job Descriptions for Benchmark Jobs
[Created using O*NET]
Front Desk Receptionist
Job Summary
Answer inquiries and obtain information for general public,
customers, visitors and other interested parties. Provide
information
regarding activities conducted at establishment; location of
departments, offices, and employees within organization.
Essential Job Tasks
• Operate telephone to answer, screen and forward calls,
providing information, taking messages and scheduling
appointments.
• Greet persons entering establishment, determine nature and
purpose of visit, and direct or escort them to specific
destinations.
• Hear and resolve complaints from customers and public.
• Transmit information or documents to customers, using e-
mail, mail or fax machine.
• Analyze data to determine answers to questions from
customers or members of the public.
• Provide information about the establishment, such as location
of departments or offices, employees within the organization, or

services provided.
Job Context
Indoor, environmentally controlled; telephone; contact with
others.
Knowledge, Skills and Abilities
• Knowledge of principles and processes for providing customer
and personal services. This includes customer needs assessment,
meeting quality standards for services and evaluation of
customer satisfaction.
• Knowledge of administrative and clerical procedures and
systems such as word processing, managing files and records,
taking
and organizing messages, and other office procedures and
terminology.
• Awareness of others’ reactions and understanding why they
react as they do.
• Gives full attention to what other people are saying, taking the
time to understand the points being made, asking questions as
appropriate and not interrupting at inappropriate times.
• Actively looks for ways to help people.
• Manages one’s own time and the time of others.
• Talks to others to convey information effectively.
• Knowledge of the English language including the meaning and

spelling of words, rules of composition, and grammar.
• Understands written sentences and paragraphs in work-related
documents.
• Communicates effectively in writing as appropriate for the
needs of the audience.
Administrative Assistant
Job Summary
Provide administrative support by conducting research,
preparing reports, handling information requests and performing
clerical
functions such as preparing correspondence, receiving visitors,
arranging conference calls, and scheduling meetings.
Essential Job Tasks
• Manage and maintain executives’ schedules.
• Prepare invoices, reports, memos, letters, financial statements
and other documents, using word processing, spreadsheet,
database, or presentation software.
• Read and analyze incoming memos, submissions and reports to
determine their significance and plan their distribution.

• Open, sort and distribute incoming correspondence, including
faxes and e-mail.
• File and retrieve corporate documents, records and reports.
• Greet visitors and determine whether they should be given
access to specific individuals.
• Prepare responses to correspondence containing routine
inquiries.
• Perform general office duties such as ordering supplies,
maintaining records, management systems and performing basic
bookkeeping work.
• Make travel arrangements for executives.
Job Context
others.
designing and completing forms, and other office procedures
and terminology.
and personal services. This includes customer needs assessment,
meeting quality standards for services, and evaluation of
customer satisfaction.

• Knowledge of computer hardware and software.
• Knowledge of the structure and content of the English
language including the meaning and spelling of words, rules of
composition and grammar.
• Gives full attention to what other people are saying, taking
appropriate, and not interrupting at inappropriate times.
• Monitors/assesses performance of self, other individuals or
organizations to make improvements or take corrective action.
• Manages one’s own time and the time of others.
documents.
• Adjusts actions in relation to others’ actions.
APPENDIX A

APPENDIX A
Payroll Assistant
Job Summary
Compile and post employee time and payroll data. Compute
employees’ time worked, production and any commission.
Compute
and post wages and deductions.
Essential Job Tasks
• Process and issue employee paychecks and statements of
earnings and deductions.
• Compute wages and deductions and enter data into computers.
• Compile employee time, production and payroll data from
time sheets and other records.

• Review time sheets, work charts, wage computation and other
information to detect and reconcile payroll discrepancies.
• Verify attendance, hours worked and pay adjustments, and
post information to records.
• Record employee information, such as exemptions, transfers
and resignations to maintain and update payroll records.
• Issue and record adjustments to pay related to previous errors
or retroactive increases.
• Complete time sheets showing employees’ arrival and
departure times.
Job Context
others.
designing and completing forms, and other office procedures
and terminology.
service.
• Knowledge of math, arithmetic, statistics to analyze data and
solve problems and use of Microsoft Excel.
• Uses logic and reasoning to identify the strengths and

weaknesses of alternative solutions, conclusions or approaches
to
problems.
documents.
• Gives full attention to what other people are saying, taking
appropriate, and not interrupting at inappropriate times.

Operations Analyst
Job Summary
Formulate and apply mathematical modeling and other
optimizing methods using a computer to develop and interpret
information
that assists management with decision making or other
managerial functions. Frequently concentrates on collecting and
analyzing
data using decision support software.
Essential Job Tasks
• Analyze information obtained from management to
conceptualize and define operational problems.
• Collaborate with senior managers and decision makers to
identify and solve a variety of problems and to clarify
management
objectives.
• Define data requirements and then gather and validate
information, applying judgment.
• Study and analyze information about alternative courses of
action to determine which plan will offer the best outcome.
• Prepare management reports defining and evaluating problems

and identifying solutions.
• Formulate mathematical or simulation models of problems,
relating constants and variables, restrictions, alternatives,
conflicting objectives and their parameters.
Job Context
others.
• Knowledge and application of arithmetic, algebra, geometry,
calculus and statistics.
• Knowledge of the practical application of engineering science
and technology. This includes applying principles, techniques,
procedures and equipment.
• Knowledge of computer hardware and software including
applications and programming.
• Identifies complex problems and reviews related information
to develop and evaluate options and implement solutions.
• Uses logic and reasoning to identify the strengths and
weaknesses of alternative solutions, conclusions or approaches
to
problems.
• Analyzes needs and product requirements to create a design.
• Determines how a system should work and how changes in

conditions, operations and the environment will affect
outcomes.
• Considers the relative costs and benefits of potential actions
to determine course of action.
• Understands the implications of new information for both
current and future problem solving and decision making.
documents.
APPENDIX A

APPeNDIx A
Designing
08-0745 1800 Duke Street
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www.shrm.org/hreducation/cases.asp
http://www.shrm.org/hreducation/cases.aspIntroduction to
Compensation and Designing a Pay StructureStep 1: Job
AnalysisStep 2: Job EvaluationStep 3: Pay Policy
IdentificationStep 4: Pay Survey AnalysisStep 5: Pay Structure
CreationCASE» Task A: Create a complete job description for
the Benefits Manager position using O*NET.Compensable
Factor Job evaluation for front desk receptionist» Task B:
Calculate the job evaluation points for the administrative
assistant, payroll assistant, operational analyst, and benefits
manager jobs. Provide a rationale for assigning specific degrees
to the various jobs.» Task C: If there were any outliers (i.e.,
extreme data points) in these data, what would you recommend
doing with them? [From this point forward, assume no extreme
data points exist in the dataset.]» Task D: Conduct a simple
regression in Excel to create a market pay line by enteri ng the
job evaluation points (on the X axis) and the respective
weighted average market base pay (on the Y axis) for each
benchmark job.» Task E: What is your R squared (variance
explained)? Is it sufficient to proceed?» Task F: Calculate the
predicted base pay for each benchmark job.» Task G: Because

your company wants to lead in base pay by 3 percent, adjust the
predicted pay rates to determine the base pay rate you will offer
for each benchmark job.» Task H: Create pay grades by
combining any benchmark jobs that are substantially
comparable for pay purposes. Clearly label your pay grades and
explain why you combined any benchmark jobs to form a
grade.» Task I: Use your answer to Task H to determine the pay
range (i.e., minimum and maximum) for each pay
grade.Referencesother ComPensAtion textsrelevAnt
websitesFront Desk ReceptionistJob SummaryEssential Job
TasksJob ContextKnowledge, Skills and AbilitiesAdministrative
AssistantJob SummaryEssential Job TasksJob
ContextKnowledge, Skills and AbilitiesPayroll AssistantJob
SummaryEssential Job TasksJob ContextKnowledge, Skills and
AbilitiesOperations AnalystJob SummaryEssential Job TasksJob
ContextKnowledge, Skills and Abilities
Walmart: What Happened In India?
Walter LoebSenior Contributor
Retail
I cover major developments in the retail industry.
This article is more than 7 years old.
·
has been dissolved. Formed in 2007, the joint venture’s purpose
was to build and operate cash and carry superstores in India
under the name Best Price Modern Wholesale. As partners, the
two companies jointly built 20 superstores. These superstores
are located in major cities such as Amritsar, Zirakpur,
Jalandhar, Kota, Bhopai, Ludhiana, Ralpur, Indore, Vijayawada,
Agra, Meerut, Lucknow and Jammu.
But the two companies have now agreed to go their separate
ways. Bharti will acquire the Compulsory Convertible
Debentures held by Walmart in Cedar Support Services, a
company owned and controlled by Bharti. Bharti, which

operates 212 stores plans, plans to continue growing
independent of Walmart. Bharti indicated that it is committed
to building a world class operation and will continue to invest
in a retail concept called “Easyday.” For its part, Walmart will
contiunue to operate the 20 superstores opened since 2007
without the benefit of any partnership.
Walmart management has said it wants to serve India and its
people through its cash and carry business. Management
believes that the company has in place the supply chain
infrastructure, direct farm program, and supplier development
that enables it to make good investments and provide good
returns for its shareholders.
However, there is a problem. The Indian government requires
retailers to source 30 percent from small suppliers which is
difficult for Walmart to comply with. Another problem is the
continuing US investigation of fraud in Mexico, Brazil, China
and India. In Indian, the government is investigating whether a
loan made by Walmart to Bharti broke foreign investment rules.
Both Bharti and Walmart have denied any wrong doing.
While Bharti and Walmart managements each wished the other
well, I suspect that national differences and the challenges of
working together broke up this partnership. Walmart entered
into the partnership with Bharti in hopes of achieving a
liberalization of the Indian market. This hope was not fulfilled
and as a result the relationship with Bharti was no longer
desirable, according to Scott Price, President and CEO of
Walmart Asia.
This action is similar to what happened in to Walmart in
Germany. There Walmart stores were competing with
entrenched local general merchandise and food merchants,
rendering Walmart unprofitable. The company was restricted
from running sales except for certain times, and the operation
never appealed to the German shopper.
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While Walmart’s growth has exceeded anyone’s dreams, its
shifting strategies in India, Japan and Germany highlight the
difficulties of operating a worldwide company. Its amazing
international expansion often has the unfortunate flavor of
inexperience. Dealing with foreign authorities requires finesse
and charm, and even so sometimes still doesn’t pan out as
hoped. The dominance of Walmart in the United States is
unrivaled; but the retailer still has to prove itself country by
country, city by city. Even for global behemoths like Walmart,
retailing is still a truly local business.
Walmart Expands Again In India - But Still Not Able To Open
Consumer Stores To Consumer Detriment
Tim WorstallFormer Contributor
Opinion
This article is more than 3 years old.
·
India. The problem being the Indian government's restrictions
on people doing what Walmart does so well, piling it high and
selling it cheap. This is something of a pity--actually it
impoverishes them--for the consumers of India. For it means
that they still have to purchase retail through the Mom and Pop
stores which dominate the sector. At root this is the conflict
between the Indian insistence upon protecting the producers and
the more normal economic insistence that we should be running
the economy for the benefit of consumers. Walmart really is
strikingly good at the logistics of retail. But they're not allowed

to deploy that knowledge in India.
So, instead of doing so they're expanding the cash and carry
model rather than the retail one:
Walmart India Private Limited, a wholly owned subsidiary of
retail behemoth Walmart Stores Inc, on Saturday inked an
agreement with the Telangana government to set up 10
wholesale stores in the state over a span of five to seven years.
Walmart currently has one store in Hyderabad.
The rules around what can be done in Indian retail are rather
restrictive:
With many arguing there were various obstacles to foreign
multinational corporations setting up shop in India, the Indian
government had made attempts to relax rules. The previous
rules made it mandatory for foreign supermarkets to source 30
per cent of their products from small Indian firms. Whilst this
rule is still in place, the government has now given foreign
firms five years to reach this target, thus easing the pressure.
Foreign retailers were also only able to set up stores in cities
that had a population of over a million; this rule has now been
overturned.
Note that these rules are about what foreign owned retail may
do. Majority domestically owned retail does not face the same
restrictions. It all becomes worse too. Foreigners cannot set up
shop to retail multiple lines of products, from multiple
manufacturers. Cannot, in essence, be supermarkets.
Domestically owned can, thus the various attempts by the likes
of Carrefour and Walmart itself to find local joint venture
partners:
Wal-Mart signed what amounts to a kind of franchise deal with
Bharti Enterprises, one of India's largest cell phone providers.
Wal-Mart will provide logistics, purchasing and support; Bharti,
with 30m Indian cell phone customers and a sophisticated
understanding of the rapidly-evolving Indian consumer market,
will open and run Wal-Mart-branded superstores.
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These JVs generally haven't worked out well. However, the
fully foreign owned company can indeed work in the wholesale
sector, thus the actual strategy being used by Walmart:
Walmart India currently operates 21 cash-and-carry stores in
India and its robust expansion plans will take the number to 71.
If you're foreign owned then wholesale only, or selling only
your own production/brand. To be properly retail across
multiple brands then you've got to be at least in partnership
with a local firm.
All of which is a pity of course. India would be able to make the
consumer vastly richer by abolishing these restrictions. Sure,
we all know why it is being done. North of 90% of the retail
market (itself perhaps $500 billion) is supplied by Mom and Pop
stores and open marketplaces. These are huge employers of
labour. The rules are there to stop the sector being flattened by
the retail behemoths. But that then brings up the question, well,
who should we be managing the economy for?
The producers? To a great extent that's what India does, yes. To
a great extent that's not what the US does. There, instead, the
emphasis is upon whoever offers the best deal to the consumers
well, let them get on with it. And this makes the country richer,
improves the lives of the consumers rather bigly. As Jason
Furman once pointed out:
There is little dispute that Wal-Mart’s price reductions have
benefited the 120 million
American workers employed outside of the retail sector.
Plausible estimates of the magnitude of
the savings from Wal-Mart are enormous – a total of $263
billion in 2004, or $2,329 per
household.

Even if you grant that Wal-Mart hurts workers in the retail
sector – and the evidence
for this is far from clear – the magnitude of any potential harm
is small in comparison. One
study, for example, found that the “Wal-Mart effect” lowered
retail wages by $4.7 billion in
2000.
India would make itself very much richer by junking the
restrictions on foreign owned retail and thus allowing Walmart,
and the others, to run riot through the economy. Given that
consumer welfare is our aim they should thus do so.
A Dollar Store's Rich Allure in India; A U.S. Franchise's
Success Shows 'Made in America' Sells; Lessons for Wal -Mart's
Entry?
Bellman, Eric. Wall Street Journal, Eastern edition; New York,
N.Y. [New York, N.Y]23 Jan 2007: B.1.
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Top of Form
Bottom of Form
Ajoy Krishnamurti, chief executive of Sankalp Retail Value
Stores, which was created to manage the My Dollarstore
franchise in India, walks the aisle of a My Dollarstore in
Mumbai's Center One mall, pointing out products. "Hershey's
chocolate syrup really rocks, salad dressing is hot," he says.
"Papaya-and-carrot juice: not particularly hot."
So far the formula is working. Last year, 4.5 million customers
shopped in My Dollarstores in India, up from 370,000 two years

earlier. Most of the 42 My Dollarstore outlets, mainly in India's
larger cities, attract more than 600 customers a day, three times
the average in the U.S. Mr. Krishnamurti estimates the My
Dollarstores in India brought in more than $10 million in sales
last year, almost twice the previous year's revenues.
My Dollarstore learned other lessons on the way to its current
success. Its first shops offered exactly the same products s old in
U.S. stores: container-loads of goods from the franchise's long
list of products, from baby clothes to health-and-beauty
products, snacks and stationary. While Indians rushed to buy
super-size bottles of shampoo and cartons of apple juice, they
were also wary of the discounted products, fearing the goods
might be shoddy, or locally made imitations of international
brands. My Dollarstore solved this problem by hiring more staff
to answer questions. The stores in India have around 20
employees per 1,000 square feet -- more than 10 times that of
the U.S. stores. It's possible because labor is cheap in India: the
average shop helper makes less than $150 a month.
More
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Top of Form
Bottom of Form
Mumbai, India -- Corporate lawyer Archana Singh travels to
Europe every year and returns laden with fine Italian cheeses,
French wines and single-malt Scottish whiskys. At home in
Mumbai, she likes shopping at the neighborhood "dollar store,"
which sells exotic products like the newest flavor of Pringles in
red-white-and-blue decked aisles that make her feel she's on
vacation in the U.S.
As Wal-Mart Stores Inc. and other retail giants prepare to enter
India, an unexpected American rival -- California's My
Dollarstore Inc. -- is already here and attracting the affluent
middle-class customers Wal-Mart and others covet.
In the U.S., most of the so-called dollar stores that sell
discounted products at a single price are in low-rent strip malls.

In India, My Dollarstores target big spenders, setting up i n
prime ground-floor spaces at the newest malls. Even the prices
are higher end. While everything costs $1 at My Dollarstores in
the U.S., in India the same products sell for 99 rupees, or about
$2, thanks to transportation costs and import tariffs.
Since opening its first store in Mumbai in 2004, India's My
Dollarstore franchise has been a testing ground for what works -
- and what doesn't -- for a new entrant to the subcontinent's
nearly $300 billion retail industry spanning food to footwear.
Ajoy Krishnamurti, chief executive of Sankalp Retail Value
Stores, which was created to manage the My Dollarstore
franchise in India, walks the aisle of a My Dollarstore in
Mumbai's Center One mall, pointing out products. "Hershey's
chocolate syrup really rocks, salad dressing is hot," he says.
"Papaya-and-carrot juice: not particularly hot."
Though the average annual salary in India is still less than
$1,000, My Dollarstore's track record suggests "Made in
America" is a good formula for attracting India's well -to-do and
free-spending middle class.
The governments of India and the U.S. have not always seen
eye-to- eye on political issues, but goods associated with the
American way of life -- Doritos chips, Kellogg's Pop-Tarts,
Alberto VO5 hair conditioner -- have long been carried home by
Indians living in and visiting the U.S. That helps explain why a
store chain associated with bargain basements in the U.S. is
attracting the cream of India's shoppers in an economy whose
gross domestic product is growing more than 8% a year
recently.
Ms. Singh, 32, says a trip to My Dollarstore reminds her of
traveling abroad. She enjoys trying new products and likes the
wide aisles -- a contrast to the mom-and-pop shops that
dominate food, cosmetics and clothing retailing in India. She
spends $30 in a typical trip. "Before you realize it, you've
picked up so much," she says.
International chains are scarce in India, where the government
generally doesn't allow direct foreign ownership in the retail

industry. It restricts foreign investment to single-brand
retailers, such as Chanel or Nike, or those that come through
franchise agreements -- international brands provide the
products, retail technology and marketing, but the stores are
owned by Indians. Guess Inc., Tommy Hilfiger Corp. and My
Dollarstore are among those that have entered the market
through franchises.
Yet the government has hinted it's ready to open the sector to
more foreign investment, and Indians are at last shopping
enough to make large retail investments worthwhile.
In November, Wal-Mart announced plans to enter India through
a joint venture. Its Indian partner Bharti Enterprises Ltd. will
own the outlets, while Wal-Mart controls the supply chain and
wholesaling operations. Last week U.S. office supply retailers
Staples Inc. announced it would also enter India through a joint
venture. France's Carrefour SA and Tesco PLC of the U.K. are
scouting for partners, too, and expected to follow with their
own India plans.
Certainly just setting up shop will not be enough. Wal-Mart last
year had to pull out of both the German and South Korean
markets after years of disappointing results there. In India,
these behemoths will likely be learning some of the same
lessons the tiny My Dollarstore chain has already absorbed.
Dollar stores have been around for decades in the U.S., but My
Dollarstore is relatively new. In 1996, Indian immigrant and
former leather importer Rex Mehta started Dollarstore Inc. as a
Web portal to help independent shops buy and sell goods. In
1999, it moved into the brick-and-mortar business of running a
chain of My Dollarstores, and the next year it took the franchise
abroad.
Now, the privately held company has annual sales of close to
$30 million from franchise fees, wholesaling and consulting. It
typically charges $15,000 upfront to anyone who wants to open
a My Dollarstore, provides the layout of the stores, the products
and the technology needed and charges the stores around 4% of
sales.

It's been expanding faster internationally than at home, and now
has around 200 store franchises abroad, from Eastern Europe to
Central America to Southeast Asia. In the U.S., where it has
about 50 My Dollarstore franchises and provides 100 other
independent stores with products and services, its major
competitors are the listed giants of the industry, including
Family Dollar Stores Inc. and Dollar Tree Stores Inc. Abroad,
Mr. Mehta says, he has little competition.
"We are very excited about India," says Mr. Mehta, who heads
the entire operation and is chief executive officer of Dol larstore
International Inc., the company that runs the group's
international franchising.
In India, My Dollarstore plays heavily on the American Dream
theme. The store in Mumbai's Center One mall features the
same red-white-and- blue decorating scheme and employee
uniforms as the U.S. stores, and takes it a step further with
posters of the Statue of Liberty on the walls.
So far the formula is working. Last year, 4.5 million customers
shopped in My Dollarstores in India, up from 370,000 two years
earlier. Most of the 42 My Dollarstore outlets, mainly in India's
larger cities, attract more than 600 customers a day, three times
the average in the U.S. Mr. Krishnamurti estimates the My
Dollarstores in India brought in more than $10 million in sales
last year, almost twice the previous year's revenues.
He plans to expand to more than 400 stores across the
subcontinent in the next three years.
My Dollarstore learned other lessons on the way to its current
success. Its first shops offered exactly the same products s old in
U.S. stores: container-loads of goods from the franchise's long
list of products, from baby clothes to health-and-beauty
products, snacks and stationary. While Indians rushed to buy
super-size bottles of shampoo and cartons of apple juice, they
were also wary of the discounted products, fearing the goods
might be shoddy, or locally made imitations of international
brands. My Dollarstore solved this problem by hiring more staff
to answer questions. The stores in India have around 20

employees per 1,000 square feet -- more than 10 times that of
the U.S. stores. It's possible because labor is cheap in India: the
average shop helper makes less than $150 a month.
"Is this really Old Spice?" a customer asks Mr. Krishnamurti at
the Center One store. Customers are confused about newly
arrived cans of hair mousse, the store's manager says. "They
keep calling it mouse."
To encourage consumers to try unfamiliar products like
blueberry syrup and dog shampoo, My Dollarstore offers
something unusual in India: a money-back guarantee, no
questions asked. One customer returned a partially eaten jar of
peanut butter.
Chinese-made products re-exported from the U.S. proved too
expensive, so the stores in India found a way to import directly
from China, a practice allowed under the franchise rules.
Some industry experts caution the novelty of My Dollarstores
could wear off once Wal-Marts, Carrefours and Tescos come to
town. But Mr. Krishnamurti notes that in the U.S., dollar stores
have thrived under the noses of the mega-retailers for decades.
Meanwhile, his team is learning every day -- an edge Mr.
Krishnamurti hopes will help when the global retailers arrive.
"It doesn't scare me at all," he says. "They still have to figure
out what is going on with the Indian consumer."
(c) 2007 Dow Jones & Company, Inc. Reproduced with
permission of copyright owner. Further reproduction or
distribution is prohibited without permission.
GB520M3 Checklist Rubric and CLA and Grade Chart
All competency criteria must be met to earn a B grade and pass
this Course Outcome.

A predefined number of mastery criteria must be met to earn an
A grade, indicating mastery of
the Course Outcome. See the CLA and Grade Criteria Chart
below.
*If work submitted for this Competency Assessment does not
meet the minimum
submission requirements, it will be returned without being
scored.
MET NOT YET
MET
Analyze Job Descriptions and Create Weighted Values for Jobs.
Competency
Create one job description for the benefits manager.
Mastery
Defend the weighted value of the job created.
Utilize Statistical Analysis to Analyze Pay Ranges and
Determine Their
Validity.
Competency
Conduct a regression analysis that results in a market pay line
that supports
the validity of the pay ranges in the case study.
Mastery
Critique the statistical analysis conducted and determine how
the data is valid.
Determine a Base Pay for Identified Jobs and Predict Pay Rates

for
Forecasted Jobs.
Competency
Calculate the predicted base pay for each benchmark job.
Mastery
Create and adjust the predicted pay rates to determine the base
pay rate you
will offer for each benchmark job by 3%.
Create and Develop Pay Grades and Pay Ranges for
Benchmarked Jobs.
Competency
Create pay grades by combining any benchmark jobs that are
substantially
comparable for pay purposes.
Mastery
Determine the pay range (i.e., minimum and maximum) for each
pay grade.
Total Competency Criteria: 4
Total Mastery Criteria: 4
CLA and Grade Criteria Chart

CRITERIA CLA Score Grade Points
Meets all 4 competency criteria and 2–4 of
mastery criteria 5 A 1000
Meets all 4 competency criteria and 0–1 of
mastery criteria 4 B 850
Meets 3 of competency criteria 3 Not Yet Competent* 0
Meets 0 competency criteria 0 Not Yet Competent* 0
No submission NA Not Yet Competent* 0
*Not Yet Competent grades convert to an F at term end.

STUDeNT WORKBOOK Designing A Pay Structure

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