The Pay Structure Journey. Dianne Auld

Transcription

1 The Pay Structure Journey Dianne Auld

2 Where does the journey to an effective pay structure begin? The organisation strategy, culture The country culture, market norms, legislative framework How does the journey continue? Measuring internal equity Measuring external equity Utilising sound pay structuring principles Linking pay to performance Where does the journey end? With a pay structure and base pay reward practices that are aligned to the culture, the business strategy and the market

3 The Journey Begins with

4 The Business Strategy Operational excellence Product / service leadership Customer intimacy Source: Worldatwork

5 The Country

6 The Culture Power Distance The degree to which a culture accepts that there will be inequality between individuals Large PD Malaysia, Mexico, India Small PD Norway, Austria, NZ Individualism vs Collectivism The degree to which a culture favours the needs of the individual vs the needs of the broader society Individualistic Australia, UK, US Collectivist Hong Kong,Pakistan,Taiwan Uncertainty Avoidance The degree to which a culture accepts ambiguity and deviation from the norm High UA France, Greece, Japan Low UA UK, US, South Africa Masculinity vs Femininity Masculine cultures favour assertiveness and acquisition while feminine cultures are more concerned with people and the quality of life Masculine Germany, Japan, Mexico Feminine Chile, Denmark, Sweden Developed by Geert Hofstede in 1980

7 Bringing it all together Source: Worldatwork

8 The Journey Continues with

9 Base Pay Level Designing the Pay Structure Step 1 Draw up a scattergram Scattergram of current employee data Internal Equity can measure using Grades / Jobs / Skills / Competencies

10 Grade / Other Basis for Pay Structure Grade Basis Grading system to be used Number of grades Career Bands (4-7) Broad Grades (9-12) Narrow Grades (15-25) Job Basis Skills Basis Competency Basis Slide 10 11/11/ :52

11 Grading System to be used CONTROL CULTURE STYLE DIVERSITY PURPOSE MESS- EXPECT- ATIONS PROCESS AGES RESOURCES SCALE HISTORY FUTURE Source: Jobs, Roles and People AUDIENCES Pritchard and Murlis

12 SYSTEM INPUT PROCESS OUTPUT Qualifications, Knowledge & Skills Problem Solving Financial Impact REMEASURE Experience and Training Communication Influence Preliminary Banding Factor HAY Know-how Problem Solving Accountability Acquisition & Applic of Knowledge Planning and Leadership Job Impact J E MANAGER Skills Acquisition & Practice Communication Judgement Knowledge Problem Solving Job impact Comprehension Pressure of Work Consequence of error of judgement PEROMNES Educationa Qualifications Training & Experience Complexity of decision processes TASK Knowledge Pressure of Work Job Impact PATERSON Decision making

13 Narrow Grades (Traditional) Range spreads average 30 to 50% 40% Typically about 15 to 25 grades Strong centralised control of grades and pay structures, use of min, max and midpoint, pressure on grading system and maximums

14 Broad Grades Range spreads average 75% Typically about 9 to 12 grades 75% Use of range controls such as minimums, maximums and zones

15 Career Bands Jobs / Skills / Competencies Where ranges are used, spreads average 150% and can be as broad as 300 to 400% Variation in range designs including minimum and maximum only, minimum and no maximum, or no ranges at all 150% 4 to 7 bands

16 Implementing Job Evaluation - Process Write job profiles for all jobs linked to job evaluation system Evaluate benchmark jobs Make any modifications required to system Evaluate non benchmark jobs Audit of all jobs vertically and horizontally with line management and key stakeholders Use the system for new positions / re-evaluations

17 Linking Pay Scales to Grades Grades provide logical and fair structure for pay scales Assist with external benchmarking Simplify pay review process but.. Can attach too much status to grades Can be time consuming, expensive and bureaucratic Can be contentious Manipulation of the system can lead to grade creep Pros and Cons

18 Pay Scales Linked to Jobs Set a pay scale per job within the broad range or a pay scale per job linked to market data Job 3 Job 2 Job 1

19 Linking Pay Scales to Jobs Responsive to market data Minimum of bureaucracy but.. Very reliant on survey data May not be able to match jobs to market Job data often has small unstable samples Time consuming when large no. of jobs Pros and Cons

20 Pay Scales Linked to Skills skill level linear exponential basis basis entry level R R skill unit 1 R R skill unit 2 R R skill unit 3 R R skill unit 4 R R skill unit 5 R R skill unit 6 R R maximum R R increase per R % skill unit

21 Linking Pay Scales to Skills Encourages skills development Very effective in certain types of jobs E.g. call centre, assembly line, multi-skilled artisans but.. Very complex to administer: Define skills, train skills, measure skills, record skills, link pay to skills What happens when skills obsolete? Pay for skills acquired or utilised? How is pay set? No pay data for skills in surveys Pros and Cons

22 Pay Scales Linked to Competencies Competencies Business Awareness Leadership & Guidance Planning & Organisation Decision-Making and Independence Knowledge 4 Information that a person has in 5 a particular area Skills 3 Behaviour 5 demonstration of expertise Self-Concepts Problem-Solving 4 Attitudes, 5 values and 1 self- 4 5 image Traits Technical Expertise A general disposition to Innovation 2 behave in 5 a certain way Motives Profile Job Max Min Indiv A Indiv B Communication Total Rands per Mth Recurrent thoughts that drive behaviour Rands per point / 32 = 500

23 Linking Pay Scales to Competencies Very mechanistic approach Complex to administer Preferable to link competencies to selection and development rather than pay Pros and Cons

24 How should the pay scale be linked to job evaluation, jobs, skills, competencies? Easiest and lowest maintenance pay structure is a grade based pay structure Job based structures very high maintenance Skill / competency structures also high maintenance and only reward input, not output My personal preference Link pay structure to broad grades (9 to 11 grades) Differentiate jobs where market / business requires Link competencies to development, not pay Slide 24 11/11/ :52

25 Base Pay Level Designing the Pay Structure Step 1 Draw up a scattergram Scattergram of current employee data Grades / Jobs / Skills / Competencies

26 Complexity of admin Pay Base (Base to which apply increases) High Complex Cannot use Total Package including variable pay Guaranteed Package / TCOE Sophistication / Size of Organisation Total Cash Pensionable Earnings Simple Basic Salary Low Low Flexibility / Cost Control / Equity Accuracy of Market Comparison High

27 Pay Base varies by Country SA Favours total cost to company approach US Total cash Africa Basic salary plus multitude of benefits, e.g. Security Allowance Caretaker Allowance Furniture Grant Leave Allowance Special Allowance Airtickets Cost (Holiday) School - Education Allowance Utility Allowance Meal Allowance Telephone Allowance Many countries in Asia/Pacific, Latin America, Middle East mandatory severance pay linked to basic salary, so want to keep base pay low and exclude benefits

28 Base Pay Level Designing the Pay Structure Step 2 Draw internal line of best fit (grades) Line of Best Fit for current employee data Grades / Jobs / Skills / Competencies

29 Base Pay Level Designing the Pay Structure Step 3 Plot the target market Target Market Per Grade Grades / Jobs / Skills / Competencies

30 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Pay Level Target Market Factors Market Position Mean Median Lower Quartile Upper Quartile 120 Date of Market Comparison Which Market 90 Review Months Market Lag Lead/Lag Lead

31 Market Position Dependent on Affordability Choose appropriate target market position Mean Median Lower Quartile Upper Quartile Xth Percentile

32 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Pay Level Date of Market Comparison Review Months Market Lag Lead/Lag Lead

33 Pay Differences Which market? Function Sector Geography Company Performance Local Regional National International Manual/ Clerical Source: Jobs, Roles and People Pritchard and Murlis Superv. Prof. Middle Mgmt Job Level Senior Mgmt Top Executive

34 2008 Guar Package Differentials In SA Differential Differential Area Secretary II (Ave = 100) Regional Sales Manager I (Ave = 100) North West Province 11, Eastern Cape 11, Free State 11, Cape Town 12, Durban 12, Midrand 13, Jbg Northern Metro 14, National Average

35 Functional Compa Ratios in SA Finance Logistics Sales Manuf Admin Science IT HR

36 2008 Salary Differentials In USA Lower level Differential Middle Mgmt Differential Area Salaried job (Ave = 100) or Technical (Ave = 100) Position Brownsville, Texas $ $ Houston $ $ Pittsburgh $ $ New York $ $ San Jose, California $ $ Average $ $

37 2007 Differentials in Saudi Arabia Sector Basic Salary Total Cash Local Multinational Oil & Gas / Petrochemical Financial Function Basic Salary Total Cash Operations Sales & Marketing Finance & Accounting IT & Telecoms Nationality Basic Salary Total Cash Eastern Expatriates Other Arabs Saudi Nationals Western Expatriates

38 Base Pay Level Designing the Pay Structure Step 4 Decide on a compromise midpoint Compromise Pay Midpoint Grades / Jobs / Skills / Competencies

39 Base Pay Level Designing the Pay Structure Step 5 Draw up pay scales Pay Scales around the midpoint Grades / Jobs / Skills / Competencies

40 Pay Scale Principles Number of grades Number of different pay scales Pay ranges, pay slope and pay overlap Different norms in different countries

41 R R R = 15% Pay Slope R R R R Maximum R R R R % R R9 200 BU Minimum R8 000 R8 000 R R8 000 R8 000 B1 B2 B3 BL Max of lower grade - min of higher grade / min of higher grade = (R R10 400) / R = 53% Pay Range Pay Overlap

42 International Comparative Ratios: CEO of $250-$500m turnover org to Production Worker (BL) Source: Towers Perrin Worldwide Report Includes STI, excludes LTI

43 Base Pay Level Designing the Pay Structure Step 6 Positioning within the pay scales Decide how to position salaries within pay scale Grade / Other Base

44 Positioning Salaries within the pay scale Initial Positioning Position / grade New employee s expertise Skills or competencies Qualifications Experience Reputation Prior remuneration package Ongoing Positioning (Salary Increases) Performance Performance and position in range Competency / skills acquisition Across the board cost of living increase COL and a separate perf bonus Notch increase based on service

45 The Journey Ends with

46 An effective pay structure, which Reflects the company s business strategy and culture Reflects the culture and pay practices of the country Rewards adequately for higher levels of job responsibilities, skills or competencies Reflects the target market Is affordable Adheres to sound design principles Provides a structure to reward performance Slide 46 11/11/ :52

47 Questions?