Session 4,Developing A Salary Structure,WHAT IS A SALARY STRUCTURE?,A salary structure sets out different salary levels for different groups of jobs based on:- internal relativities of job value (x-axis, established through job evaluation) external market pay rates of jobs (y-axis, established through market surveys),$,Job Grades (Job Evaluation Points),OVERVIEW OF SALARY STRUCTURE DEVELOPMENT,IMPORTANCE OF SALARY STRUCTURES,Ensure reward policies are equitably, fairly & consistently implemented & administered Allow internal relativities to be managed Provides a framework through which pay opportunities can be communicated to employees,ISSUES IN DEVELOPING SALARY STRUCTURES,Business Strategy Extent of Competition Industry Practice Capacity to Pay Reward Philosophy & Strategy,DESIGN CONSIDERATIONS,Number of salary structures Pay policy line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,IS ONE ENOUGH?,Organization hierarchy Diversity of business units Hot jobs Ease of administration Reward philosophy,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,DETERMINING THE PAY POLICY LINE,market trend line,company trend line,Market data (median) Company data (minimum, median, maximum),Definition: Is a group of jobs similar in job worth or size Links the evaluation points or value of a job & its assigned pay,WHAT IS A SALARY GRADE?,$,Job Grades (Job Evaluation Points),Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,TOO MANY recognize extremely fine distinctions of jobs,TOO FEW cannot recognize significant difference in job worth,NUMBER OF SALARY GRADES,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,A,B,C,D,E,F,G,H,Considerations: Number of distinct job grades or skill levels Organization hierarchy Ease of administration,Formula for Midpoint to Midpoint Differential Midpoint to Midpoint = Midpoint b - Midpoint a X 100% Differential Midpoint a Example:- 1750 - 1250 X 100% = 40% 1250,100 199,200 299,300 399,$,a,d,c,b,Midpoint,Midpoint,Midpoint,400 499,Job Grades (Job Evaluation Points),$1000,$1250,Midpoint to Midpoint Differential,Midpoint,MIDPOINT-to-MIDPOINT DIFFERENTIALS,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,$1750,Formula for Salary Range Spread Salary Range = Maximum - Minimum X 100% Spread Minimum Example:- 1500 - 1000 X 100% = 50% 1000,$,SALARY RANGE SPREADS,100 199,200 299,300 399,$,400 499,Job Grades (Job Evaluation Points),$1000,$1500,$1250,Salary Range Spread,Maximum,Midpoint,Minimum,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,SALARY RANGE SPREADS,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,Exercise,SALARY RANGE SPREADS,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,Exercise,Entry level jobs - 30% 40% Professional & Supervisory - 50% 60% Management - 60% 75% Senior Executives - 75% 100%,SALARY RANGE SPREADS,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,Typical Range Spreads,Graphical Example of Inconsistent Salary Range Spreads,SALARY RANGE SPREADS,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,LARGE OVERLAP,Salary Range Overlap,SMALL OVERLAP,INCONSISTENT OVERLAP,SALARY RANGE OVERLAP,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,MODERATE OVERLAP,Formula for Salary Range Overlap Salary Range = Maximum a - Minimum b X 100% Overlap Maximum a - Minimum a Example:- 1500 - 1350 X 100% = 30% 1500 - 1000,SALARY RANGE OVERLAP,Number of salary structures Pay Policy Line Number of salary grades Midpoint-to-midpoint differentials Salary range spreads Salary range overlap,$,100 199,200 299,300 399,$,400 499,Job Grades (Job Evaluation Points),$1000,$1500,$1250,Maximum,Minimum,Salary Range Overlap,a,b,Midpoint,$1350,Salary Range Spread,SALARY STRUCTURE TERMINOLOGIES,100 19