- 1. Salary Survey based on Hay MethodHay Point RangeUpper Quartile (Q3) Salary Formula200 - 300144.89 * HP - 1648301 - 400165.55 * HP - 7845401 - 500195.67 * HP - 19,893501 - 600176.16 * HP - 10,140601 - 700194.51 * HP - 21,145701 - 800168.63 * HP - 3029
- 2. Internal
equityExternal
equityEmployee
equityAdministrationConceptsCompensation TechniquesPlanning, Budgeting, Monitoring, EvaluatingJob
AnalysisJob
DescriptionJob
EvaluationJob
GradesMarket
DefinitionsSalary
SurveysPolicy
LinesPay
StructuresSeniority
IncreasesPerformance
EvaluationIncrease
GuidelinesCompensation ObjectivesRole clarity and accountability.
Facilitates administration and
performance management.
Competitive wage policies and
practices.
Influence employees’ work
attitudes and behaviour.
Attract talents.
Retain talents.
Motivate employees.
Comply with regulations.
Consistency in policy
administration.The Strategic Compensation Model
- 3. Compensation ManagementThe fundamentals of salary administration
Salary administration is concerned with deciding how and what staff should be paid and with the techniques and procedures for designing and maintaining salary structures, rewarding staff and exercising salary control.
- 4. Aims Of Salary Administration The basic aims of salary administration are to attract, retain and motivate staff by developing and maintaining a competitive and equitable salary structure.
To ensure that a sufficient number of suitable staff is attracted to join the organization;
To encourage suitable staff to remain with the organization;
To develop and maintain a logical salary structure which achieves equity in the pay for jobs of similar responsibility and consistency in the differentials between jobs in accordance with their relative values;
To ensure that salary levels match market rates;
To keep the salary levels adjusted in line with increases in the cost of living;
- 5. Aims Of Salary AdministrationTo maintain consistency in methods used to fix and review salary levels and differentials;
To provide for progression within the salary structure in accordance with performance and level of responsibility;
To operate the salary system fairly and convince the staff that the system is fair;
To maintain a flexible salary system which will accommodate changes in the market rates for different skills and in the company’s organization structure;
To achieve simplicity in operations as an aid to staff understanding and to minimize administrative effort;
To operate effective systems of controlling salary costs and the administrative procedures required to achieve the above aims at the least cost to the organization.
- 6. Components Of Salary Administration The starting point of salary administration is the determination of salary levels by job evaluation. Thereafter, salary administration is concerned with:
The design and maintenance of salary structures;
The operation of salary progression systems;
The administration and control of salary reviews;
The design and operation of bonus schemes;
The provision of employee benefits and other allowances;
The development of a total remuneration policy.
- 7. Compensation Tools and TechniquesPay Structure
Salary Structure
Performance Related Pay
Merit Payment Scheme
Incentive Scheme
Benefit Policies
Salary Review Guidelines
Compa-ratio
Salary Problems
- 8. Criteria for Pay StructuresBe appropriate to the needs of the organization, in terms of its:
- culture, size and the degree in which changes take place
- need for flexibility
- type and level of employees to be covered
Be flexible in response to internal and external pressures, especially those related to market rates and skill shortages.
Provide scope for rewarding high-flyers while still providing appropriate rewards for the majority of employees.
Ensure that rewards are given in line with performances and achievements.
Provide a basis for career planning which will motivate ambitious employees with high potential.
Facilitate consistency in the treatment of varying levels of responsibility and performance.
- 9. Graded Salary StructuresAll jobs are allocated into salary grade within the structure on the basis of an assessment of their internal and external value to the organization.
Each salary grade consists of a salary range or band.
The jobs allocated to a salary grade are assumed to be broadly of the same level – normally the same minimum and maximum rates, which correspond with grade boundaries.
- 10. Graded Salary Structures A typical graded structure consists of a sequence of salary grades or ranges, each of which has a defined minimum and maximum. It is assumed that all the jobs allocated into a grade are broadly of the same value, although actual salaries earned by individuals will depend on their performance or length of service.
Across the board cost of living or market rate increases will usually result in an increase to the minima and maxima of each grade. All the jobs in an organization may be covered by the same structure of salary ranges or there may be different structures for different levels or categories of jobs.
- 11. Make-up of a Salary GradeA basic principle of a salary structure is that individuals advance through the structure either by progressing within the salary grade for the job as they improve their performance, or by promotion.
In the simplest structure, people move more or less steadily from the entry point of the grade (with might be above the minimum if they have already gained relevant experience elsewhere or within the firm) to the upper limit, unless they move to a higher grade. It is possible, however, to distinguish three stages into which this progression is divided, and for salary administration purposes it is helpful to divide the grade into three zones which correspond to these stages.
- 12. Salary Structure : Ratio Method
- 13. Salary Structure : Ratio Method
- 14. Salary Structure : Dispersion Method
- 15. Salary Structure : Dispersion Method
- 16. The learning zone covers the period when a person is on his ‘learning curve’, familiarizing himself with the knowledge and skills required if he is to become fully competent. The length of time to go through this zone will vary according to the individual’s experience, competence and ability to learn. It would be accepted that someone might enter the range at any point in this zone, from bottom to top, depending on experience.
The Learning Zone
- 17. The qualified zone covers the period when the job holder continues to increase his capacity to do the work and to improve his performance.
The minimum salary in this zone should be the market rate for the job, so far as this can be ascertained, the assumption being that the market rate is the salary level required to attract a competent individual from another job to join the company.The mid-point in this zone, which is also the mid-point of the grade, is the salary level which all competent employees would be expected to achieve. This is above the market rate in order to retain these individuals. An employee who is no more than competent could stop at this point, but most would continue to advance until they reach the top of the qualified zone, which would be regarded as the normal maximum for the job. Many such employees would in any case be promoted to a higher grade before they reach the upper limit of this zone.The Qualified Zone
- 18. The premium zone is reserved for those employees, especially in the higher grade jobs, who achieve exceptional results but for whom suitable promotion opportunities do not exist.
This zone enables outstanding staff to be given additional rewards and encouragement. In some salary structures, the published salary grades for each job only cover the learning and qualified zones, the premium zone being reserved for use in special cases. Progression through that zone would not be regarded as normal by management or staff.The Premium Zone
- 19. Make-up of a Salary Range
- 20. Relationships Between Grades20%20%
- 21. Graded Salary StructuresThe range may be defined in terms of the difference between the lowest and highest points in the range, using the minimum as the anchor (Maxmin ratio method):
Min Midpoint Max Maxmin
$20,000 $24,000 $30,000 1:50
$20,000 $25,000 $32,000 1:60
$20,000 $26,000 $34,000 1:70
Alternatively, the range may be defined as a percentage of the midpoint using the midpoint as the anchor (Salary dispersion method):
Min Midpoint Max Dispersion Max
Point (100%) Point Ratio
$20,000(80%) $25,000(100%) $30,000(120%) +20% 1.50
$18,750(75%) $25,000(100%) $31,250(125%) +25% 1.67
$17,500(70%) $25,000(100%) $32,5000(130%) +30% 1.85
- 22. The midpoint of the range is regarded as the “target salary” for the grade, which would be the average salary of the staff in the grade. The target salary is the salary that you will pay to a fully competent professional doing the job on that grade
The midpoint is usually aligned to the market rates for jobs in the grade.
The salary policy of the organization determines whether the midpoint is equated to the median market rate or whether it is related to another point. eg upper quartile
Graded Salary Structures
- 23. The rate of salary progression through a range is determine by:
- time or length of service (service increments)
- individual performance (variable or merit increments)
The number of salary ranges required depend on:
- the upper and lower salary levels of the jobs to be covered by the structure, which give the overall range of salaries within which the individual salary ranges have to be fitted
- the number of distinct levels of responsibility in the hierarchy which needs to be catered for by separate grades
- the size of the differentials between each salary range.
Graded Salary Structures
- 24. Graded Salary StructuresThere is a differential between the midpoints of each salary range which provides adequate scope for rewarding increased responsibility on promotion.
It does not create too wide a gap between adjacent grades or reduce the amount of flexibility available for grading jobs.
The salary ranges are sufficiently wide to allow recognition of the fact that people in same job grade can perform differently, from satisfactory performance to outstanding performance.
There is an overlap between two consecutive salary grades which acknowledges that an experienced person should be of more value on the current grade than a newcomer in the next higher grade.
- 25. Designing the Salary Structure Step 1
Conduct market rate surveys for existing jobs.
Review existing salary structures and differentials between the salary levels of the most senior and junior jobs to be covered by the new structure.
Identify key problem areas (if any) in existing structures.
Step 2
Conduct an update of the job evaluation exercise, taking into consideration all changes to jobs since the last job evaluation review
Step 3
Obtain market rate data for the evaluated jobs, bearing in mind that there is likely be a range of market rates rather than a precise figure.
Preferably the market rate data should be based on a similar job evaluation system for comparability.
- 26. Designing the Salary Structure Step 4
Draw up a salary grade structure between the upper and lower limits, according to policies for differentials, the width of salary grades and the size of overlap between two consecutive grades.
Step 5
Slot all jobs into grade structure in accordance with the results of both the job evaluations and the market rate surveys.
Step 6
Identify all cases that are below the salary range and cases that have exceeded the salary range (max-out cases) and review their job evaluation scores and grades
- 27. Advantages of Graded StructuresThe relative levels of jobs in different functions can be readily assessed and recognized.
Consistent methods of grading jobs and establishing differentials between them can be maintained.
A well-defined and comprehensible framework exists within which salary and career progression can be planned and controlled.
Better control can be exercised over salaries for new hires, merit increments and promotion increases.
Graded structures facilitate order, consistency and control.
- 28. Disadvantages of Graded StructuresIt can be inflexible at times, unless periodic review is carry out every 3 years or so.
Fixed grades make it more difficult to accommodate the many changes to which reward structures are subject because of internal and external pressures.
The sort of people they employ cannot be confined within rigid range boundaries, unless incentive schemes are available.
It brings people to the top of the range barriers where they become stuck if there are no opportunities for promotion to the next grade.
- 29. Key topics covered
Minimum Point of Salary Range
Maximum Point of Salary Range
Entry Point for new staff
Annual increments
Salary adjustments
Promotion increments
Lumpsum payments
Incentive schemes
Flexible benefits
Salary Administration
- 30. *Current and Proposed Salary Structure Midpoints, Market Average, and Company Average Salary
