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8external

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8external

  1. 1. External Equity: Building Market-Competitive Compensation Systems
  2. 2. Compensation Techniques INTERNAL: Job Analysis, Job Descriptions, Job Evaluation, Internal Work Structure EXTERNAL: Market definitions, Market surveys, Policy lines, Pay structures INDIVIDUAL: Seniority based, Performance based, Incentive guidelines, Incentive programs ADMINISTRATION: Planning, Budgeting, Communicating, Evaluating
  3. 3. External Equity/Competitiveness “Refers to the pay relationships among organizations. The organization’s pay relative to its competitors.” Market-competitive pay systems represent companies’ compensation policies that fit the imperatives of competitive advantage – Attract and retain qualified employees
  4. 4. Competitive Pay Policy Options Lead Lag Match
  5. 5. Match Pay Policy Determine average market rate Pay WITH market rate/competitors Similar ability to attract and retain Match industry/product market costs
  6. 6. Lead Pay Policy Determine market rates Pay ABOVE the average market rate Maximizes ability to attract and retain quality employees Minimizes employee dissatisfaction with pay Offsets less attractive features of work
  7. 7. Lag Pay Policy Determine market rates Pay BELOW the average market rate Hinders ability to attract and retain Promise of higher future returns Lead on other aspects
  8. 8. Consequences of Pay Level Decisions Labor Costs Attraction Competitiveness of Pay Policy – Numbers, quality, experience Retention – Voluntary Turnover Pay Satisfaction Work stoppages, Unionization
  9. 9. Turnover Rates 18 16 14 Manufacturing Nonmanufact Finance Nonbusiness Health Care 12 10 8 6 4 2 0 1991 AVG
  10. 10. Salary Survey “The systematic process of collecting and making judgments about the compensation paid by other employers.” The Overpaid Bank Tellers case
  11. 11. Salary Survey Steps Define the relevant market Include jobs--Benchmark approach Collect information Interpret & apply survey results – Job matches Build grades and ranges with minimums, maximums and midpoints. – Regression line – Apply competitive pay policy – Design pay grades and ranges
  12. 12. Define the Relevant Market The fields of potentially qualified candidates for particular jobs. – – – – – – Occupations/skills Geographic distance Same industry, product Size of competitors Number of competitors For project: at least 10 companies
  13. 13. Industry Weekly Earnings 600 500 400 300 200 100 0 Wkly Earn Total Private Mining Construction Manufacturing Trans. & Util Whls Trade Retail Trade Fin, Ins, RE Services
  14. 14. Industry Hourly Earnings 14 Total Private Mining Construction Manufacturing Trans. & Util Whls Trade Retail Trade Fin, Ins, RE Services 12 10 8 6 4 2 0 Hrly Earn
  15. 15. Include Jobs: Benchmark Approach Characteristics of Benchmark Jobs: Job contents well-known, stable over time, agreed upon by employees involved Common across a number of different employers Generally accepted for setting pay levels Represent entire job structure under study
  16. 16. Benchmark Jobs O 1800 * 1450 1300 1200 1000 F * B * * I * L 800 A B C DE F G H I J K L M N O P 120 235 370 450 600
  17. 17. Collect Info: Survey Sources Bureau of Labor Statistics – Area and industry surveys (Local Area Wage Survey --AWS) – National Survey of Professional, Administrative, Technical, and Clerical Workers (PACT) – Employee Benefit Surveys – Current employment statistics survey – Current population survey – Employment Cost Surveys – Compensation per hour – Major union settlements
  18. 18. Survey Sources, cont’d Professional Associations – American Compensation Association publishes the Salary Budget Survey, reported by region and industry. – Society for Human Resource Management publishes information on salaries in the human resources field. Accounting companies – KPMG Peat Marwick; Deloite & Touche; Ernst & Young Professional, trade organizations Private published sources Internet
  19. 19. Sources of Compensation Survey Information (cont’d) Industry Associations – Administration Management Society – American Association of University Professors – American Banker’s Association – American Bar Association – American Electronics Association – American Mathematical Society – American Society of Association Executives – Association of General Contractors – National Institute of Business Management – National Restaurant Association – National Retail Federation – National Society of Engineers Consulting Firms –Abbott, Langer & Associates –Coopers & Lybrand –Dietrich Associates Inc. –Executive Compensation Service –Hay Management Consultants –Hewitt Associates –Mercer-Meidinger-Hanson –Robert Half Associates –Towers & Perrin –Wyatt Co.
  20. 20. Exhibit 8-4 Engineers’ Pay for Cleveland, Ohio, Metropolitan Area LEVEL Level I Level II Level III Level IV Level V Level VI NUMBER OF WORKERS SURVEYED 232 753 1,559 1,332 479 188 AVERAGE WEEKLY HOURS WORKED MEAN MEDIAN MIDDLE RANGE 40.0 40.0 40.0 39.9 39.9 40.0 $ 649 $ 752 $ 924 $1,077 $1,257 $1,479 $626 $741 $930 $1,080 $1,254 $1,478 $ 598 - $ 712 $ 667 - $ 827 $ 827 - $1,020 $ 989 - $1,165 $1,156 - $1,337 $1,377 - $1,569 WEEKLY PAY Source: US Bureau of Labor Statistics, Occupational compensation survey: Pay only. Cleveland, Ohio, Metropolitan Area, August 1995 (Washington, DC: US Government Printing Office, 1996).
  21. 21. Exhibit 8-5 Summary: Participation in Selected Employee Benefits Programs for Full-Time Employees by Geographic Region BENEFIT NORTHEAST Paid time off: Holidays Vacations Personal leave Survivor benefits: Life insurance Survivor income Health care benefits: Medical care Dental care Vision care SOUTH NORTH-CENTRAL WEST 94% 98% 40% 92% 96% 16% 93% 98% 18% 87% 96% 13% 93% 5% 88% 4% 95% 7% 88% 5% 83% 62% 31% 80% 52% 17% 84% 65% 24% 79% 72% 40% Source: US Bureau of Labor Statistics, Employee benefits in medium and large private establishments, 1993 (Washington, DC: US Government Printing Office, 1994).
  22. 22. 1996 Salary Offers to Bachelor’s Degree Candidates by Degree Accounting Business Admin (& MS) Distribution Econ & Finance (&Bank) Hotel/Restaurant Human Resources (& LR) MIS Marketing Real Estate 29,476 27,255 27,655 29,783 24,084 25,426 33,769 26,551 27,340
  23. 23. 1996 Salary Offers to Masters’ Degree Candidates by Degree Accounting Econ/Finance (Banking) 42,650 HR (inc LR) MIS Marketing 41,547 MS - Business 32,537 39,870 38,400 37,237 MBA -Non-tech undergrad < 1 yr exp 40,731 1-2 yrs exp 46,394 2-4 yrs exp 54,999 > 4 yrs exp 67,209 MBA -Tech undergrad < 1 yr exp 39,146 1-2 yrs exp 43,000 2-4 yrs exp 51,600 > 4 yrs exp 70,339 Source: National Association of Colleges and Employers
  24. 24. 1996 Salary Offers to Doctoral Degree Candidates by Degree Bus Adm & Mgt Computer & Info Sciences Economics Educ Admin English Psychology Social Sciences 56,667 63,555 54,333 43,399 33,375 31,949 30,668 Aerospace 55,547 Chemical Eng 60,161 Computer Eng 65,050 Elec Eng 61,180 Mech Eng 52,184 Agriculture 48,399 Bilogical Sci 37,661 Chemistry 54,693 Source: National Association of Colleges and Employers
  25. 25. Average Salaries of MBA Graduates by Function (1992) Acct/Audit Consulting Engineering Finance Gen Mgt HR 44,479 61,739 47,096 57,729 70,593 59,364 Info Syst Marketing 53,208 Ops/Prod 48,492 Project Mgt Plan/Corp 51,127 Sales 47,890 52,713 51,644
  26. 26. Human Resources Salaries 1991 VP, Admin 143,300 ... Top Comp & Ben 75,600 Exec Comp Mgr 73,700 Top E Relation 67,900 HR Director 64,800 Tng & OD Mgr 63,100 Int’l Comp Mgr 63,100 HR Planning 62,400 LR Supervisor 61,300 Top Safety Mgr 60,400 E Benefits Mgr Comp Mgr EEO Mgr Plant HR Mgr Grp Ins Mgr Mgt Dev Mgr HRIS Mgr EAP Manager Emp&Recr Mgr Plant P Mgr Emp Tng Mgr 59,500 58,200 57,900 57,400 55,400 54,100 51,800 51,800 51,700 50,000 48,400
  27. 27. Human Resources Avg Salaries LR Generalist Exec Recruit Safety Superv Safety Specialist Generalist Benefits Pln An. Sr Comp An EEO Specialist Security Spec Sr Tng Spec Prof Recruit 47,100 44,500 44,400 42,700 41,000 41,000 40,300 39,900 39,400 39,300 37,700 Comp&Ben Ad EAP Counselor Plant P Admin HRIS Specialist Benefits Admin Comp Analyst Jr. Training 31,500 Entry Generalist Recruiter Pers Asst Benefits Clerk 37,600 37,000 36,400 35,200 33,800 31,900 30,600 30,500 23,100 23,000
  28. 28. Internet Sources Variety of voluntary information Variety of purchasable information Example sitea: see my webpage http://wvnvm.wvnet.edu/~mrenard/ websites
  29. 29. Avg Faculty Salaries - 1993-94 70000 60000 50000 40000 Men Women 30000 20000 10000 0 Prof Assoc Asst Inst Lect All Universities (public and private) 1993-94. American Assoc. of Univ. Professors; The Chronicle of Higher Ed., April 20, 1994
  30. 30. Salary Survey Steps Define the relevant market Include jobs--Benchmark approach Collect information Interpret & apply survey results – Job matches Build grades and ranges with minimums, maximums and midpoints. – Regression line – Apply competitive pay policy – Design pay grades and ranges
  31. 31. Interpret & Apply Survey Results Verify data - Job Matches Not Job Title only, use job descriptions, duties, etc Compare survey jobs with MedTech’s Choose closest match, use as benchmark FastCat Job Survey Job Intermediate Acctg Clerk Acctg Clerk A Acctg Clerk Acctg Clerk B Sr. Acctg Clerk B Acctg Clerk C Pg. 19-44 Pg. 56-58
  32. 32. Interpret & Apply Survey Results Matched jobs can be used as benchmarks Leveling - if nec. for unmatched jobs Update salary information Central tendency – Mean, weighted mean, median, mode Dispersion – Correlation ( -1.00 > r > 1.00) – r should be > .90
  33. 33. Build Pay Structure - Overview Once you have survey information: Combine internal structure and external wage rates - regression line Apply pay policy Design pay ranges Balance internal and external pressures
  34. 34. Exhibit 8-15 Regression Analysis Results for the Engineer Survey Data 55,000 55,000 Annual salary Predicted annual salary Annual Salary ($) 50,000 45,000 44,525 45,000 43,500 40,000 38,420 35,000 33,536 30,000 Market Pay Line 36,000 34,500 36,000 33,000 0 100 200 Engineer I 300 400 500 600 Engineer II 700 Job Evaluation Points 800 900 1,000 Engineer III
  35. 35. Apply Pay Policy 1450 1300 1200 1000 O Lead 1800 * Match L F * B * * * Lag I 800 A B C DE F G H I J K L M N O P 120 235 370 450 600
  36. 36. Design Pay Grades and Ranges Allow for quality, productivity, performance differences, employee expectations Develop grades - similar jobs paid the same Develop ranges - wages vary from midpoint Establish min, mid, max Determine overlap mid near min of next grade
  37. 37. Build Pay Grades O 1800 * 1450 1300 1200 1000 F * B * * I * L Midpoints 800 A B C DE F G H I J K L M N O P 120 235 370 450 600
  38. 38. Build Pay Ranges Maximum 1800 Midpoint Minimum 1450 1300 1200 1000 F * B * 800 A B C DE F G H I J K L M N O P 120 235 370 450 600
  39. 39. Salary Structure Considers relative internal job values Establishes grades containing like-valued jobs Reflects prevailing salary levels in the relevant market place Establishes salary ranges for each job--minimum, midpoint, maximum Responds to changes in competitive levels Communicates earnings potentials to employees for current job and jobs to which they aspire
  40. 40. Chapter Eight Building Market-Competitive Compensation Systems
  41. 41. Exhibit 8-1 Economic Activities Indexed by the Federal Government’s Standard Industrial Classification Manual Agriculture, forestry, fishing, hunting, and trapping Mining Construction Manufacturing Transportation, communications, electric, gas, and sanitary services Wholesale trade Retail trade Finance, insurance, and real estate Personal, business, professional, repair, recreation, and other services Public administration Nonclassifiable establishments Source: US Office of Mgmt. and Budget, Standard industrial classification manual (Wash.DC: US Office of Mgmt. and Budget, 1987).
  42. 42. Exhibit 8-2 Standard Industrial Classification Code Elements SIC Code 8244 8 2 Major Group: Educational Services Industry Group Number: Vocational Schools Industry Number: Business and Secretarial Schools 4 4
  43. 43. Exhibit 8-3 Sources of Compensation Survey Information (1 of 3) Professional Associations – The American Compensation Association publishes the Salary Budget Survey, reported by region and industry. – The Society for Human Resource Management publishes information on salaries in the human resources field.
  44. 44. Exhibit 8-3 Sources of Compensation Survey Information (2 of 3) Industry Associations – Administration Management Society – American Association of University Professors – American Banker’s Association – American Bar Association – American Electronics Association – American Mathematical Society – American Society of Association Executives – Association of General Contractors – National Institute of Business Management – National Restaurant Association – National Retail Federation – National Society of Engineers
  45. 45. Exhibit 8-3 Sources of Compensation Survey Information (3 of 3) Consulting Firms – Abbott, Langer & Associates – Coopers & Lybrand – Dietrich Associates Inc. – Executive Compensation Service – Hay Management Consultants – Hewitt Associates – Mercer-Meidinger-Hanson – Robert Half Associates – Towers & Perrin – Wyatt Co.
  46. 46. Exhibit 8-4 Engineers’ Pay for Cleveland, Ohio, Metropolitan Area LEVEL Level I Level II Level III Level IV Level V Level VI NUMBER OF WORKERS SURVEYED 232 753 1,559 1,332 479 188 AVERAGE WEEKLY HOURS WORKED MEAN MEDIAN MIDDLE RANGE 40.0 40.0 40.0 39.9 39.9 40.0 $ 649 $ 752 $ 924 $1,077 $1,257 $1,479 $626 $741 $930 $1,080 $1,254 $1,478 $ 598 - $ 712 $ 667 - $ 827 $ 827 - $1,020 $ 989 - $1,165 $1,156 - $1,337 $1,377 - $1,569 WEEKLY PAY Source: US Bureau of Labor Statistics, Occupational compensation survey: Pay only. Cleveland, Ohio, Metropolitan Area, August 1995 (Washington, DC: US Government Printing Office, 1996).
  47. 47. Exhibit 8-5 Summary: Participation in Selected Employee Benefits Programs for Full-Time Employees by Geographic Region BENEFIT NORTHEAST Paid time off: Holidays Vacations Personal leave Survivor benefits: Life insurance Survivor income Health care benefits: Medical care Dental care Vision care SOUTH NORTH-CENTRAL WEST 94% 98% 40% 92% 96% 16% 93% 98% 18% 87% 96% 13% 93% 5% 88% 4% 95% 7% 88% 5% 83% 62% 31% 80% 52% 17% 84% 65% 24% 79% 72% 40% Source: US Bureau of Labor Statistics, Employee benefits in medium and large private establishments, 1993 (Washington, DC: US Government Printing Office, 1994).
  48. 48. Exhibit 8-9 Frequency (no. of incumbents) Histogram of Survey Data for Engineers 14 12 10 8 6 4 2 0 $30,000$35,000 $35,001$40,000 $40,001$45,000 Annual Salary $45,001 & above
  49. 49. Exhibit 8-15 Regression Analysis Results for the Engineer Survey Data 55,000 55,000 Annual salary Predicted annual salary Annual Salary ($) 50,000 45,000 44,525 45,000 43,500 40,000 38,420 35,000 33,536 30,000 Market Pay Line 36,000 34,500 36,000 33,000 0 100 200 Engineer I 300 400 500 600 Engineer II 700 Job Evaluation Points 800 900 1,000 Engineer III

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