Designing Pay Levels and Employee Benefits

See also Designing Pay Levels, Pay Mix and Pay Structure and Pay Employment Benefits

decision for externally competitive pay levels and structure.

• employer’s competitive pay policy
• purpose of survey
• construct market line.
• balance competitiveness with internal alignment through pay range, flat rates, bands

survey.

• adjust pay level
• pay mix: stock, benefits
• pay structure: job evaluation results.
• estimate competitors’ labour costs (competitive intelligence)

design

Which job to include?

• benchmark job approach, low-high approach, conversion/survey level What information to collect?
• organisation data, total compensation data, information about incumbent

interpretation

Verify anomalies, accuracy of match, validation to other trends.

select relevant market competitors

1. Relevant labor markets
2. Fuzzy markets: new orgs/orgs with unique jobs fuse diverse factors for relevant markets fuzzy

Question

What factors determine the relevant market for pay surveys? Why is the definition of the relevant market important?

• Industry and Job Function: depending on the job sector and industry size.
• Geographic Location: location-based pay
• Experience and Education Level: pay for experience and education
• Market trends: market trends and changes

importance because:

• Competitiveness: to attract and retain employees.
• Fairness and Equity: enhance satisfaction and reduce turnover.
• Legal compliance: to avoid discrimination.

organization

Basic Elements	Examples	Rationale
Identification	Company name, address, contact person	Further contacts
Financial performance	Assets, sales, profits (after taxes), cashflow	Indicates nature of the product/service markets, the ability to pay, size and financials
Size	Profit centres, product lines	Importance of specific job groups to business success
	Total number of employees	Impact on labour market
Structure	Organizational charts	Indicates how business is organized and how important managerial jobs are.

Total compensation

• cash forms used
• non-cash forms used

	Advantages	Disadvantages
Base pay	Tells how competitors are valuing the work in similar jobs.	Fails to include performance incentives and other forms, so will not give true picture if competitors offer low base but high incentives.
Total cash	Tells how competitors are valuing work; also tells the cash pay for performance opportunity in the job.	Not all employees may receive incentives, so it may overstate the competitors’ pay; plus, it does not include long-term incentives.
Total compensation (base + bonus + stock options + benefits)	Tells the total value competitors place on this work.	All employees may not receive all the forms. Don’t set base pay equal to competitors’ total compensation.

incumbent & jobs

Basic Elements	Examples	Rationale
Date	Date survey data in effect	Need to update rates to current date
Job	Match generic job description	Indicates degree of similarity with survey’s key jobs
Individual	Number of employees supervised and reporting levels	Describes scope of responsibilities
	Years since degree, education, date of hire	Indicates training and tenure of incumbents
Pay	Actual rates paid to each individual, total earnings, last increase, bonuses, incentives

hr outcomes.

Basic Elements	Examples	Rationale
Productivity	Revenues to employee ratio, revenues to labour costs ratio	Reflect organization performance and efficiency
Total labour costs	Number of employees x (average wages and benefits)	Major expense
Attraction	Yield ratio, number accepting offer to number of job offers ratio	Reveals recruiting success
Retention	Turnover rate; number of high or low performers who leave to number of employees ratio	Reveals outflow of people
Employee views	Total pay satisfaction	Reveals what employees think about their pay

market pay line

links a company’s benchmark jobs on horizontal axis with market rates paid by competitors on the vertical axis.

Internal structure and external market rates

• pay-policy line
• pay ranges

pay-policy line

percent above or below market line intend to “lead”, “lag”, or “match” rate.

Develop grades

single grade will have same pay range

pay range

• midpoints where pay-policy line crosses centre of grade, minimum and maximum
• larger ranges in managerial jobs reflect the greater opportunity for performance variants in the work
• firm uses percentiles as maximum and minimums while other establish them separately.

pay disparity among candidates.

1. Internal pressures

• recognize performance pay difference with pay
• expectations pay over time

2. External pressures

• difference in quality among individuals
• difference in productivity or value variations
• mix of pay forms

range overlap

Overlap ought to be large enough to induce employees to seek promotions.

Broadbanding

collapse salary grades into a few broad bands, each with a minimum and maximum

• flexibility
• career growth

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Employee Benefits

• Flexible hours
• WFH: 45% of employees love their jobs (according to Forbes)
• Vacation time and PTO: No timeout more prone to burnt out
• Pay parental leave

part of compensation package, other than pay for time worked.

Growth in Employee Benefits

• Cost effectiveness of Benefits
• Union
• Employer impetus
• Government Impetus

issues.

• ensure external competitiveness

• adequacy of benefits

• Who should be protected?

• How much choice should employees have among an array of benefits?

• How should benefits be financed?

Question

How does external equity differ when pay versus benefits?

• Pay is quantifiable regarding monetary values, whereas benefits are objective in terms of equity.