Designing Pay Levels, Mix and Pay Structures

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  • Topic: Wage, Quantitative marketing research, Employment
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  • Published : November 26, 2012
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CHAPTER 8

DESIGNING PAY LEVELS, MIX AND PAY STRUCTURES

LEARNING OBJECTIVES

1. Identify the major decisions in establishing externally competitive pay.

2. Describe the purpose(s) of a salary survey.

3. Discuss the importance of defining the relevant market in a pay survey.

4. Explain the steps involved in designing a pay survey.

5. Describe the key issues involved in interpreting the results of a pay survey.

6. Explain how the market pay line combines the internal structure with external market rates.

7. Discuss the use of pay grades and pay ranges and their relationship to internal alignment and external competitiveness.

8. Discuss the pros and cons of the market pricing approach to establishing a pay structure.

OUTLINE

I.MAJOR DECISIONS

A.There are seven major decisions involved in setting externally competitive pay and designing the corresponding pay structures

1. specifying employer's external/competitive pay policy 2. define the purpose of the survey
3. select the relevant market competitors
4. designing and conducting surveys
5. interpreting survey results and constructing the market line 6. constructing a pay policy line that reflects the external pay policy 7. balancing competitiveness with internal alignment through the use of ranges, flat rates, and/or bands

Definition:A survey is the systematic process of collecting and making judgments about the compensation paid by other employers Steps in conducting wage and salary surveys:

1.select the jobs to be surveyed
2.define the relevant markets
3.select the firms to be surveyed
4.determine the information to ask
5.determine the data collection technique
6.administer the survey

II.SPECIFY COMPETITIVE PAY POLICY

• an external pay policy requires information on the external market

• surveys provide the data for translating that policy into pay levels, pay mix & pay structures

III.THE PURPOSE OF A SURVEY?

A.Conducting a salary survey is necessary to obtain data to set an organization’s pay policy relative to its competitors.

B.An employer conducts/participates in a survey for the following reasons

• its an opportunity to collect information to make judgements regarding compensation

• to adjust pay to changing external pay rates & recognize pay trends in marketplace

• to establish/develop or price an adequate pay structure

• to analyze personnel problems that may be pay related

• defending pay practices in a court of law

• to attempt to estimate the labor costs of product market competitors

• hiring and retaining competent employees

• promoting worker productivity

C.Adjust Pay Level – How Much to Pay?

market surveys provide information so that an employer will be able to adjust the firm's pay levels relative to competitors (ex. AACSB salary survey) 1.most organizations make adjustments to employees’ pay on a regular basis

2.these adjustments can be based on one, or more, of the following issues:

a. overall upward movement of pay rates caused by competition for people in the market.

b. performance.

c. ability to pay.

d. terms specified in a contract.

D.Adjust Pay Mix – What Forms?

1. the mix of forms and their relative importance makes up the “pay package”

2. adjustments to the different forms that competitors use (base, bonus, benefits, etc) & the relative importance they place on each form occur less frequently than adjustments to overall pay level

3. it is unclear why changes to the pay mix occur less frequently than changes in the pay level...
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