STRATEGIC PAY PLAN

strategic pay plan

1. Strategic pay plan

2. ESTABLISHING STRATEGIC PAY PLANE Strategic pay plans refer to the policies and decisions on how organisations give compensation to its employees that may satisfy employee as well as achieve organisational goals and objectives. 2

3. Determining Pay Rate Employee compensation All forms of pay or rewards going to employees and arising from their employment. It has two main components: Direct Financial Payments Indirect Financial Payments 3

4. Basic factors determining pay rates Aligning total rewards with strategy. Equity and its impact on pay rates Methods to Address Equity Issues 4

5. Basic factors determining pay rates (cont.) Aligning total rewards with strategy The compensation plane should first advance the firm’s strategic aims –management should produce an aligned reward strategy 5

6. Basic factors determining pay rates (cont.) Equity and its impact on pay rates Equity theory of motivation Postulates that people are motivated to maintain a balance between what they perceive as their contribution and their reward. 6

7. Equity (cont.) FORMS OF EQUITY External Equity Internal Equity Procedural Equity Individual Equity 7

8. Methods to Address Equity Issues 1. Salary surveys 2. Job analysis and job evaluation 3. Performance appraisal and incentive pay 4. Communications and employees’ participation 8

9. Establishing Pay Rates Step 1. The salary survey and Benchmark job Step 2. Job evaluation and Compensable factor Step 3. Group Similar Jobs into Pay Grades Step 4. Price Each Pay Grade-Wage Curve Step 5. Fine-tune pay rates

10. Establishing Pay Rates (cont’d) 10 Step 1 . The salary survey and bench mark job: The salary survey Aimed at determining prevailing wage rates . A good salary survey provides specific wage rates for specific jobs. Formal written questionnaire surveys are the most comprehensive, but telephone surveys and newspaper ads are also sources of information.

11. ADD A FOOTER 11 Establishing Pay Rates (cont’d) Benchmark job : A job that is used to anchor the employer’s pay scale and around which other jobs are arranged in order of relative worth. Step 2 . Job evaluation and Compensable factor Job evaluation A systematic comparison done in order to determine the worth of one job relative to another. Compensable factor A fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.

12. 12 Establishing Pay Rates (cont’d) Job Evaluation A systematic comparison done in order to determine the worth of one job relative to another. Job evaluation eventually results in a wage or salary structure or hierarchy

13. 13 Preparing for the Job Evaluation Identifying the need for the job evaluation Getting the cooperation of employees Choosing an evaluation committee. Performing the actual evaluation .

14. Ranking Job classification Point method Computerized job evaluation 14 Job Evaluation Methods

15. Ranking Ranking each job relative to all other jobs, usually based on some overall factor. Steps in job ranking: Obtain job information. Select and group jobs. Select compensable factors. Rank jobs. Combine ratings. 15 Job Evaluation Methods (cont’d)

16. Job classification Job classification is a simple, widely used method in which raters categorize jobs into groups. For pay purposes, all the jobs in each group are of roughly the same value. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. 16 Job Evaluation Methods (cont’d)

17. 17 Job Evaluation Methods (cont’d) The point method The point method involves identifying several compensable factors for the jobs. The method also includes the degree to which each factor is present in each job.

18. 18 Job Evaluation Methods (cont’d) Computer-aided job evaluation: Computer-aided job evaluation streamlines the process. Most computerized systems have two main components: structured questionnaires and statistical models. These elements allow the computer program to price jobs by assigning points .

19. 19 Establishing Pay Rates (cont’d) Step 3. Group Similar Jobs into Pay Grades A pay grade is comprised of jobs of approximately equal difficulty or importance as established by job evaluation. Point method : the pay grade consists of jobs falling within a range of points. Ranking method : the grade consists of all jobs that fall within two or three ranks. Classification method : automatically categorizes jobs into classes or grades.

20. 20 Establishing Pay Rates (cont’d) Step 4. Price Each Pay Grade-Wage Curve Shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grade s.

21. 21 Establishing Pay Rates (cont’d) Step 5. Fine-tune pay rates Developing pay ranges Flexibility in meeting external job market rates Easier for employees to move into higher pay grades Allows for rewarding performance differences and seniority Correcting out-of-line rates Raising underpaid jobs to the minimum of the rate range for their pay grade. Freezing rates or cutting pay rates for overpaid (“red circle”) jobs to maximum in the pay range for their pay grade.

22. 22 How to price managerial and professional jobs? Developing compensation plans for managers or professionals is similar in many respects to developing plans for any employee. There are some big differences, though. Managerial jobs: Managerial jobs tend to stress harder-to-quantify factors like judgment and problem solving more than do production and clerical jobs.

23. Professionals jobs There is emphasis on paying professionals based on their performance or on what they can do. Let’s take a longer look at some of the characteristics of paying managers and professionals 23 (cont’d)

24. Where the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. 24 Competency-based Pay

25. Traditional pay plans may actually backfire if a high-performance work system is the goal. Paying for skills, knowledge, and competencies is more strategic. Measurable skills, knowledge, and competencies are the heart of any company’s performance management process. 25 Why Use Competency-Based Pay?

26. Broad banding : Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels. Wide bands provide for more flexibility in assigning workers to different job grades. Lack of permanence in job responsibilities can be unsettling to new employ 26 (cont’d)

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