Compensation structure

1. Compensation structure

2. • A pay structure provides framework within which an organization
defines the different levels of pay for jobs or groups of jobs on the
basis of their relative internal value and of external relatives.

3. Criteria for pay structures
• Be appropriate to the characteristics and need of the organization
• Flexible in response to market rates and skill shortages
• Facilitate operational and role flexibility
• Scope for rewarding performance
• Ensure that consistent decisions are made on pay in relation to job size,
contribution, skill and competence
• Clarify career ladders
• Logically and clearly constructed
• Enable the organizations to exercise control over the implementation of p[ay
policies and budgets

4. Principles of pay structure design
• Is in accordance with the organization's philosophy and policies concerning differentials,
relationships with market rates, and the scope for and methods of progressing the pay in jobs.
• Designed on a logical basis and helps in the application of equitable and consistent reward
management process.
• Assist the management and maintenance of appropriate internal and external relativities
• Flexible enough to enable the organization to respond to change
• Reward competence and performance
• Can be implemented with minimum amount of efforts and cost.
• Is likely to be acceptable to management and every other member of the organization

5. Methodology of developing pay structures
• Analyze present arrangement
• Set objectives and timetable
• Decide who is going to conduct the review
• Estimate the likely cost of conducting and implementing the review
• Decide the extent of employee involvement
• Brief employees
• Make preliminary decision about the type of structure required
• Analyze and evaluate jobs
• Make a final decision on the type of structure (s) required and the main design and operational features
• Prepare a detailed design for the structure and how it will be managed and maintained.
• Communicate with the staff the details of the structure and how it will affect them
• Train managers on hoe to operate the structure
• Monitor the implementation of the structure
• Evaluate the application and impact of the structure.

6. Three important types of pay structures
• Graded
• Job family
• Broad banded

7. Graded pay structure
• A graded pay structure consists of a sequence of job grades to each of which is
attached a pay range.
• A pay grade is a grouping of different jobs that are considered substantially equal
for pay purposes. Grades enhance the organizations’ ability to move people
among jobs that are within a pay grade without changing their pay.
• Jobs are allotted to grades on the basis of their relative size.
• A pay range is attached to each grade. This defines the minimum and maximum
rate payable to any job in a grade and indicates the scope provided for job
holders to progress through the range

8. Job family structures
• Market rate pressures operate differently on particular occupations
or categories of employees
• There are significant variations in the type of work carried out and the
competencies required by different occupational groups , which can
not be easily centered for in a single pay structure
• A job family structure consists of separate graded pay structures for each of the
job families which have been identified for this purpose. These structures are
aligned individually to market rates and contain a number of pay ranges which
reflect the particular levels of work within the job family.

9. What are job families?
• A job family consists of jobs in a function or discipline such as research scientists,
development engineers or personnel specialists. The jobs will be related in terms
of fundamental activities carried out and the basic skills required , by they will be
differentiated by the level of responsibility, skill or competence involved.
• A job family is a group of jobs. Their essential nature and purpose is similar but
the work is carried out at different levels. Job families may be functional, in that
they cover specific work groups within a function such as marketing, finance or
personnel. Or they may be generic , in that they cover similar types of work
across functional boundaries e.g. administrators, managers or team leaders

10. Broadbanding
• Collapse narrow salary grades into wide bands.
• 20 grades reduced to 4 to 5 bands.
• 40-60% ranges increased to 100-250%
• Increased emphasis on market pricing jobs
• Decreased emphasis on job evaluation

11. Broadbanding
• Compressing a hierarchy of pay grades or salary ranges into a number
of wider bands
• Typically no more than five or six bands
• Wide pay spans
• Market pricing used to define reference points
• Focus on lateral career development and competence growth

12. Broadbanding
• What are the advantages and disadvantages of broadbanding?

13. Technical Band
160%
Broadbanding
Salary grades
for Engineers
I
II
III
IV
$35K
$85K
40%
40%
40%
40%

14. Advantages of Broadbanding
• Facilitate Lateral career moves
• Enhanced flexibility for transfers
• Cross-functional teams with fluid duties
• More flexible pay decisions
• Few control points such as midpoints or salary caps.
• More pay opportunities based on skills