Creating a Pay Structure

Activity
Divide into groups of 6
Identify any one firm of your choice (discuss with
group members)
List down any 5 positions
Answer the questions for framing compensation
guidelines (from ppt)
For each position do job evaluation by Hays
method
Map to market
Create pay policy line
Ranges / Grades / Bands

Designing Pay Structure Steps

Job Evaluation points help to
determine internal alignment
amongst jobs
Industry pay practices tell us
competitiveness in market place
Next, we design a pay structure

Compensation Policy
Guidelines
Decisions for the
compensation manager to
follow in developing a pay
structure ; Made by top
management

Pay Structure Design

Questions and Issues
What is the lowest rate of pay that can be
offered and still hire desirable
employees ?
What is the rate of pay necessary to retain
employees ?
Will the organization want to recognize
seniority and merit through the base pay
schedule ?
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Pay Structure Design

Questions and Issues
Is it wise or necessary to offer more
than one rate of pay to employees
performing either identical or
similar kinds of work ?
Does the organization wish to
recognize dangerous working
conditions in its base pay
schedule ?
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Pay Structure Design

Questions and Issues
Do employees have a significant
opportunity to progress to higher level
jobs ? If so, what should be the
relationship between promotion to a
higher job and changes in base pay ?
Will policies and regulations permit
incumbents to earn rates of pay higher
than established maximums and lower
than established minimums ? What
should be the reasons for allowing such
deviations ?
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Pay Structure Design

Questions and Issues
How will the pay structure
accommodate across-the-board,
cost-of-living, or other
adjustments not related to
employee tenure, performance, or
responsibility and duty changes ?

Pay Structure Design

Questions and Issues
How will the pay structure
accommodate across-the-board,
cost-of-living, or other
adjustments not related to
employee tenure, performance, or
responsibility and duty changes ?

Pay Structure Architecture

With the generation of internal and
external pay data and information,
managers are now ready to design
a pay schedule.

To do so they must:
Determine a pay policy line.
Decide on the need for one or
more pay structures.
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Pay policy line

The pay level that a company sets its
pay at compared to the market pay,
typically the midpoint of the pay
structure is set to judge the going
market rate.

External Competitiveness:
Salaries paid by competitors

Develop Pay Grades

55,000
50,000
45,000
40,000
35,000

Pay Policy Line

30,000
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Internal Structure: JE Points (for

different jobs)

OP

Develop Grades
Grades group job evaluation data on
horizontal axis
All jobs considered substantially equal for pay
purposes placed in same grade
Each grade has its own pay range and all jobs in
a single grade have same pay range
Enhances ability to move people among jobs
within a grade with no change in pay

How many pay grades?

Number of jobs
Organization hierarchy
Reporting relationships

Develop Pay Grades

Establish Range Midpoints, Minimums, and

Maximums
Ranges group salary
data on vertical axis
Establish upper and
lower pay limits for all
jobs in each grade

Midpoints
correspond to
competitive pay
policy
Point where paypolicy line crosses
center of each grade

Pay Structure Terms

Range or Spread Dimension
The difference between the
upper and lower limits of the
grade. It may be expressed in
absolute amounts or as a
percentage.

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Pay Structure Terms

Broadbanding
The grouping of jobs of
significant differences or
worth or value within one
band or pay grade.

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Exhibit 8.18: From Grades to

Bands

Contrast Between Ranges and Bands

Determining Progression From Lowest

To Highest Pay Rate
For jobs at the lower end of the pay
structure, a 6% to 7.5% difference in
midpoints may be appropriate;
For those in the middle of the pay
structure an 8% to 10% difference
would typically apply; and
At the executive end of the structure
the difference would normally range
from 15% to 25%.
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