SESSION 3 Designing Competitiveness Pay Levels Mix and

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures External Equity p. 1

Reward System SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Job Analysis Benefits Job Description Managing Base Pay Jpb Evaluation Variable Pay Recruitment Selection & Hiring Training & Dev’mt Career planning Working conditions Long term Incentives Recognition Awards Perf. evaluation HR Planning p. 2

Reward System Developing a Salary Structure SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Job Analysis Benefits Job Description Managing Base Pay Jpb Evaluation Variable Pay Recruitment Selection & Hiring Training & Dev’mt Career planning Working conditions Long term Incentives Recognition Awards Perf. evaluation HR Planning p. 3

Some Definitions Ø External competitiveness SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures • The pay relationships among organizations - the organization’s pay relative to its competitors Ø Salary Structure • Refers to the range of pay rates for different jobs within a single organization Ø Pay Level • The average of the array of rates paid by the employer Ø Pay Forms • The various types of payments, or pay mix, that make up total compensation p. 4

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Pay Mix Ø Different Mixes p. 5

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Pay-Mix Policy Alternatives p. 6

Pay Mix and Structure ØPay Mix varies within the Structure SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Internal Job Structure p. 7

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Relationship External Pay Policies & Objectives p. 8

Factors Influencing Pay levels SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Business Sector Legislation Labor Supply & Demand Location Size Market productivity Market Pay Levels p. 9

Factors Influencing Organization Comp Policy SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Business Strategy Union Influence Prestige & Tradition Other HR mgmt policies & practices Capacity to Pay Compensation factors The Organization Compensation Policy: -Lead -Lag -Follow Competition p. 10

The Pay Model SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Three important contributions to keep in mind • There is no “going rate” and so managers make conscious pay level and mix decisions influences by several factors • There are both product market and labor market competitors that impact the pay level and mix decisions • Alternative pay level and mix decisions have different consequences p. 11

Salary Structure SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Over engineered structure • Rigid • Heavy administrative burden • Often inefficient Ø Simple structure • • Easily adaptable Flexible Suitable for small organization Can easily be manipulated Ø Find the right mix p. 12

Structure Approach SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Corporate structure for Worldwide Mgmt & Executives • • • Employee rotations within countries/regions Many senior positions compete at international level Facilitate transfer/expatriate policy design Facilitate management incentive design Ease-up perquisites and benefits implementation Ø Local structure for professional, sales and mainstream employees • Better data at local level • Better local understanding of the job content p. 13

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures What Criteria to be used to Evaluate the Management Ø To remunerate managers in a competitive way based on their responsibilities as well as their individual performance • Establish a coherent salary structure (external equity) • Create an internal equity within a competitive market environment • Establish a link between individual performance and the job requirement p. 14

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Linking Internal Equity with External Market Position : Telemarketing Evaluation Questionnaire Know-How Communication Dimension Effectiveness Leadership Challenge 65 101 33 78 55 45 Total 377 = 112’ 300 Salary Surveys p. 15

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Development of a Salary Structure Analysis of evaluated jobs against competitive market values. Development of a salary structure p. 16

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Percentiles p. 17

SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Salary Curve p. 18

Development of a Salary Structure 200 ’ 000 Compagny XYZ 150 ’ 000 Euro SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Salary Structure 100 ’ 000 5 6 7 8 9 10 11 12 13 14 15 Grades p. 19

Min, Max, Range: Spread & Overlap SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Set pay ranges • Determine minimum and maximum compensation for each grade. • Determine the spread for each grade • Set the overlap between pay ranges. p. 20

Min, Max, Range: Example Max Range Spread Midpoint 200 ’ 000 Min Compagny XYZ 150 ’ 000 Euro SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Range Overlap 100 ’ 000 5 6 7 8 9 10 11 12 13 14 15 Grades p. 21

Contrasts Between Ranges and Bands SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Ranges support • • Some flexibility within controls Relatively stable organization design Recognition via titles or career progression Midpoint controls, comparatives Controls designed into system Give managers “freedom with guidelines” Up to 150 percent range- spread p. 22

Contrasts Between Ranges and Bands SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Bands support • • Emphasis on flexibility within guidelines Global organizations Cross-functional experience and lateral progression Reference market rates, shadow ranges Controls in budget, few in system Give managers “freedom to manage” 100 -400 % spreads p. 23

Why Bother with Grades and Ranges? SESSION 3 - Designing Competitiveness Pay Levels, Mix and Pay Structures Ø Internal pressures • Be able to justify pay differences • Recognize individual performance differences with pay • Meet employees’ expectations that their pay will increase over time • Encourage employees to remain with organization Ø External pressures • Differences in quality among individuals in external market • Differences in productivity • Differences in mix of pay forms of competitors p. 24