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Determining the salary structure- The wage mix Module 3 Determining the salary structure- The wage mix Designing compensation system, Internal and external equity in compensation, Compensation policy. Reference : Milkovich .G.T, Newman J.M, Ratnam.C.S.V Compensation , McGrawHill, 9th edition, pp 187-221 Salary structure Salary structure consists of the companys salary grades/ ranges and its salary level for a single job or group of jobs. Job evaluation is used to form a salary structure, into which jobs can be correctly graded based on the relative value of the job. Wage survey is also done before considering salary structure to ensure competitive pay. Major consideration for setting up salary structure 1. Specify the employers competitive compensation policy 2. Define the purpose of the survey 3. Select relevant market competitors 4. Design the survey 5. Interpret survey results and construct the market line 6.Construct a pay policy line that reflects external pay policy 7. Balance competitiveness with internal alignment through the use of ranges, flat rates and or bands to form wage structure (6 hrs)
Exhibit TOYOTA Vs GM
Wage survey
A survey is the systematic process of collecting and making judgments about the compensation paid by other employers Steps in conducting wage and salary surveys: 1. 2. 3. 4. 5. 6. select the jobs to be surveyed define the relevant markets select the firms to be surveyed determine the information to ask determine the data collection technique administer the survey
An employer conducts/participates in a survey for the following reasons its an opportunity to collect information to make judgments regarding compensation to adjust pay to changing external pay rates & recognize pay trends in marketplace to establish/develop or price an adequate pay structure to analyze personnel problems that may be pay related defending pay practices in a court of law to attempt to estimate the labor costs of product market competitors hiring and retaining competent employees promoting worker productivity
3. Select relevant market competitors Employers who compete in one or more of the following areas: 1. Same occupation/ skills
4. Design the survey Who should be involved in survey design Survey consulting firms : Hay group, Gallup How many employers should be included 6-10 top performers National surveys include up to 100 companies. Which jobs should be included Benchmark jobs( stable job content, are common across different employers and include sizable amount of employees) Ex : Managerial group will include : VP, GM, Managers,PL What information should be collected Organisational data ( Assets , sales , cash flow, size of the company) Data on compensation system ( Wage mix ,benefits HR outcomes- ( Labour cost, Yield ratio, Turn over ratio) 5. Interpret survey results and construct the market line Check accuracy of job matches & check for anomalies, age of data) Conduct statistical anaysis of data Use of regression analysis to calculate the pay for jobs based on job evaluation points For each benchmark job, job evelauation point and rupee rate for the job are to be compared A market line links a companys benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical
axis. It summarizes the distribution of going rates paid by competitors in the market
Understanding Regression
Balance competitiveness with internal alignment Two parts of the total pay model merge Internally aligned structure - Horizontal axis External competitive data - Vertical axis Two aspects of pay structure Pay-policy line Pay ranges
Any match between an organisation job and survey job should be done based on the job content and not based on the job title.
Pay grades
Pay grades are jobs that are similar in their worth to the organization Grouping of jobs Each grade will have its own pay range: minimum, maximum & midpoint Midpoint represents a fully trained employee, performing satisfactorily
Practical Considerations
Midpoints: center of the range Range spread: width of each range Rise: difference between midpoints Target position: midpoint relative to market Should we pay high compared to everyone or pay average among top paying firms? Timing: target position date (lead/lag)
1.Community concerns : Price stability Improving standard of living of workers Generating employment
2. Companys plans of expansion and diversification, cost reduction etc 3. Employee concerns: Internal equity External equity Individual equity
Assignment
Write a brief note on compensation policy as retention strategy for the company you have selected for doing your major project. Identify the wage mix of the company and represent it diagrammatically. Mention the kinds of fringe benefits given by the company. Submission date : March 1st 2012