Individual Pay Determination

Creating Equitable Salary Structures

MGMT 4030 - Managing Employee

Reward Systems
 Salary Structures
Pay for jobs according to prevailing pay levels and
preferred position (lead, lag, match) in the market
Establish pay ranges for each job with a minimum,
maximum, and midpoint to the range.
Use control points (maximum and midpoint) to
control payroll expenses
Create pay grades to more simply classify jobs
according to similar worth

MGMT 4030 - Managing Employee

Reward Systems
 Market Pay Line

60000
50000
40000
30000
Y

20000
10000
0
400 500 600 700 800
Points
MGMT 4030 - Managing Employee
Reward Systems
 $$
Maximum

Midpoint

Minimum
Salary Pay Grade
MGMT 4030 - Managing Employee
Reward Systems
 Salary Structures

Minimum
Provides flexibility to hire new employees who
need training and experience.
Employee paid more as competency is certified
through performance reviews.

MGMT 4030 - Managing Employee

Reward Systems
 Salary Structure: Control Points

Midpoint of Range
Ties the pay range to the market pay line
Must be fully competent on job
Maximum of Range
Caps the salary
Only exceptional cases may receive more pay
Normal way to earn more is with a promotion.

MGMT 4030 - Managing Employee

Reward Systems
 Pay Grade Range (Spread)

Function of amount of discretion or range of

performance in the grade
20-25% for lower level jobs
30-40% for clerical, technical
40-50% for professional, middle mgmt
50+% for senior mgmt and executive
Or might be set to 25th and 75th percentiles in
salary survey
Range above and below midpoint may be
different
MGMT 4030 - Managing Employee
Reward Systems
 Pay Grade Dimensions

Midpoint to Midpoint Difference

Represents pay differential from one pay grade
to the next one in a sequence
Must be meaningful amount
Ranges from 8% (non-exempts) to 12%
(management and exempts)

MGMT 4030 - Managing Employee

Reward Systems
 Pay Grade Dimensions
Pay Grade Overlap
Provides flexibility to promote employees
without an overly generous pay raise.
Too much overlap leads to pay inequity,
Too little overlap causes barriers to
promotion and inefficiencies

MGMT 4030 - Managing Employee

Reward Systems
 Compa-Ratio

Average of all actual salaries in a pay grade

divided by the midpoint of the range
Used to monitor distribution of salaries and
identify grades that are out of control
CR = 1.00 is the ideal (for market match policy)
CR > 1.10 is quite high
CR < .90 is quite low

MGMT 4030 - Managing Employee

Reward Systems
 Identifying Outliers

Compa-Ratios can also be used for

individual jobs
Red Circle Pay Rates
Pay rate above the maximum
Usually requires executive approval
Green Circle Rates
Pay rate below minimum
Need to bring up to level
MGMT 4030 - Managing Employee
Reward Systems
 Broadbanding

Collapse narrow salary grades into wide

bands.
20 grades reduced to 4 to 5 bands.
40-60% ranges increased to 100-250%
Increased emphasis on market pricing jobs
Decreased emphasis on job evaluation

MGMT 4030 - Managing Employee

Reward Systems
 Broadbanding Technical Band

160%

IV $85K
40%

III 40%
Salary grades
for Engineers

II 40%

40%
I $35K

MGMT 4030 - Managing Employee

Reward Systems
 Advantages of Broadbanding

Facilitate Lateral career moves

Enhanced flexibility for transfers
Cross-functional teams with fluid duties
More flexible pay decisions
Few control points such as midpoints or salary
caps.
More pay opportunities based on skills

MGMT 4030 - Managing Employee

Reward Systems