Employee Reward Strategy

1

• From last week…

Source: Werner et al., 2012 – Human Resource Management

The Organizational Environment

Corporate

Culture

Strategy Size

Approach to

Compensation

Internal Factors

• Size

– Small organisations typically offer less monetary compensation than larger ones do

• Employer’s Compensation Strategy

– Establishes the internal wage relationship among jobs and skill levels

– Sets organisation compensation policy

– Rewards employee performance

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Source: Werner et al., 2012 – Human Resource Management

EXHIBIT 9.6 Employer Costs per Hour Worked by Organization Size

Source: Werner et al., 2012 – Human Resource Management

Average Hourly Compensation Costs in Several Industries

Employee reward strategy

Two possible approaches:

• Strategic fit approach - align pay and benefits policies with needs of the business strategy

• Best practice approach - there is one best way for all to manage pay and benefits

Strategic fit: cost leader

Business strategy - to be a low-cost competitor (cost leader):

• HR priority - productivity (short-term performance) and cost reduction

• Reward strategy - just competitive; tied to efficiency.

• Reward policy - pay at the median or lower if possible; limited benefits provision (legal requirements as benchmark); incentive pay tied to output/sales (individual if possible).

Strategic fit: differentiation

Business strategy - to compete on service quality (differentiation):

• HR priority - attract, retain and motivate high quality, customer-oriented employees.

• Reward strategy - more than competitive; reward loyalty and quality

• Reward policy - pay at 75th quartile; extensive benefits provision; link pay to quality service and/or development of customer service skills

Best practice approach

A notion of ‘best’ or ‘excellent’ practice:

• Package of “state of the art” reward practices

• Apply universally – in (almost?) all situations

• Allows the organisation to attract, retain, develop & motivate best talent

• Which practices are we referring to?

– Sophisticated HRM practices (Pfeffer, 1998), including high pay linked to performance

– High commitment management (Walton, 1985), including group/team incentives

© 2010 South-Western, a part of

Cengage Learning. All rights

reserved.

Internal Factors (cont’d)

• Worth of a Job

– Establishing the internal wage relationship among jobs and skill levels.

• Employee’s Relative Worth

– Rewarding individual employee performance

• Employer’s Ability-to-Pay

– Having the resources and profits to pay employees.

Corporate Culture

• Easy to understand and access the rewards;

• Be consistent and fair;

• Respect what employees’ values

• Employee’s worth.

• Payment in New Zealand

Summary

• There are two forces influencing rewards: external and internal.

• External forces relate to institutions, the role of regulations, education, labour market, culture.

• Internal forces relate to strategy, organisational culture, size, industry.

Pay structures – the relative worth of jobs and pay structure design

Professor Roberta Aguzzoli

Agenda • Job Evaluation Systems

– Job ranking

– Job classification

– Point factor rating

• Compensation Structure – Rate for the job or “spot rate” – Pay spine – Broadbanding – job ranges

• A pay structure combines job evaluation information and information about market pay rates to establish a policy that specifies the base pay of the employee in each job.

– Werner et al. 2012

Snell and Bohlander, 2010 4–17

What is a Job?

• Job

– A group of related activities and duties

Job

Job Job Job

● Market pricing: uses external sources of information about how others are compensating a certain position to assign value to a company’s similar job

● Job evaluation methods: a systematic process that uses expert judgment to assess differences in value between jobs

Evaluating the Worth of a Job

Market pricing

It is a way of collecting data on the pay rates for similar jobs in other organisations to establish their market rate and track movements in those rates.

It aims to set the employer's own pay rates at an appropriate level (recruitment and retention).

CIPD, 2022

Market pricing

• It involves the use of some form of job matching to enable pay rates in the organisation to be compared with equivalent jobs in other employers, with a view to setting appropriate rates to attract and keep staff.

• Different types of reward to be compared, for example, basic salary, total earnings (including bonuses, location allowances, and so on) or the wider package (including such elements as pension provision, private medical insurance, and so on).

CIPD, 2022

Market pricing

• Gathering pay data

– Sources of pay data can also vary from specifically collected survey information to more general commercial data:

• National survey data might help set and maintain pay structures and rates for management grades.

• Locally collected data might be useful to set rates for secretarial, clerical, and process staff.

• Occupation-specific data can help inform pay decisions for groups such as marketing staff or accountants.

• Organisational practice

– There's very little published information on organisations’ market pricing practices. In general, private sector companies tend to benchmark against their own industries, and against companies of similar size (internationally as necessary). Some companies match generic jobs to a management consultancy database.

CIPD, 2022

• O*Net

• https://www.onetonline.org/link/summary/11 -3121.00

• Published data, special surveys, consultants, pay ‘groups’ – CIPD, 2022

Market Compensation Levels

Job evaluation: definition

• A systematic procedure to determine the relative worth of jobs in an organisation

– Focus is on the job NOT the person

• Starting point: detailed job description for each job • Job title

• Location

• Reports to…

• Staff supervised

• Main purpose of the job

• Principal job duties

Key Issues:

Key responsibilities and what is produced

Accountabilities for staff and budgets and degree of autonomy

CASE EXHIBIT 4.4 A New Job Description

Associate Programmer

General Statement

of Duties

Performs coding, debugging, testing, and documentation of software under the supervision of a technical superior or manager.

Involves some use of independent judgment.

Supervision Received Works under close supervision of a technical superior or manager.

Supervision Exercised No supervisory duties required.

Examples of Duties (Any one position may not include all the duties listed, nor do listed examples include all duties that may be found in positions

of this class.)

• Confers with analysts, supervisors, and/or representatives of the departments to clarify software intent and programming

requirements.

• Performs coding debugging and testing of software when given program specifications for a particular task or problem.

• Writes documentation for the program.

• Seeks advice and assistance from supervisor when problems outside the realm of understanding arise.

• Communicates any program specification deficiencies back to supervisor.

• Reports ideas concerning design and development back to supervisor.

• Assists in the implementation of the system and training of end users.

• Provides some support and assistance to users. "

• Develops product knowledge and personal expertise and proficiency in system usage.

• Assumes progressively complex and independent duties as experience permits.

• Performs all duties in accordance with corporate and departmental standards.

Minimum Qualifications • Education: BA/BS degree in relevant field or equivalent experience/knowledge in computer science, math, or other closely

related field.

• Experience: No prior computer programming work experience necessary.

• Knowledge, skills, ability to exercise initiative and sound judgment.

• Knowledge of a structured language.

• Working knowledge in operating systems.

• Ability to maintain open working relationship with supervisor.

• Logic and problem-solving skills.

• System flowchart development skills.

Desirable Qualifications • Exposure to Java, C++, and data transfer languages.

• Some training in general accounting practices and controls.

• Effective written and communication skills.

• Is a procedure for establishing the relative internal worth of the job

• Objective of Job Evaluation

– To establish the relative value of jobs with various contents and responsibilities involving the use of various competencies.

Job Evaluation

The Purpose of Job Evaluation

• To provide a rational basis for the design and maintenance of an equitable and defensible pay structure

• To enable consistent decisions to be made on grading and rates of pay

• To establish the extent to which there is comparable worth between jobs so that equal pay can be provided for work of equal value.

• https://www.youtube.com/watch?v=dBfcWcQ WJbg

Job Evaluation

• The three major approaches/methods establishing the value of jobs are

– Job ranking

– Job classification

– Point factor rating

Non-analytical

Job Ranking

• Process of comparing jobs with one another and arranging them in order of importance, their difficulty or their value to the organisation.

• Considerations are usually based on judgements about the scope and impact of the job, impact on results, amount of discretion, level and range of contacts.

Job Ranking

• Involves placing jobs into a rank order according to their perceived overall value on importance.

Source: Phillips and Gully, 2013

Job ranking: exercise

Rank the following jobs in the university in order of importance, difficulty, and value.

• Lecturer in the Business School

• Cleaner

• Dean of the Business School

• Administrator in the Masters Office

• Vice-Chancellor

• Chef in the restaurant

• Head of Department of English in the University

• Librarian in the Business School

• University Director of Finance

Lessons

• Subjective judgement - best have a job evaluation committee

– Chair – senior manager/senior HR manager; consultant

– Secretary – HR dept

– 5-9 people – gender and department mix; perhaps employee/union involved

See: ACAS. (2010) Job evaluation: considerations and risks. Advisory booklet. London: ACAS.

Downloadable at: http://www.acas.org.uk/index.aspx?articleid=682

Job Classification

• Job Classification

– Jobs are classified and grouped according to a series of predetermined grades

– Groups jobs into a set of job classes, and then ranks the jobs classes that are found within each classification.

– Class descriptions specify the kinds and levels of responsibilities assigned to jobs in each grade, the difficulty to the work performed, the required qualifications.

– The factors used to classify jobs must be clearly stated and specific.

Source: Phillips and Gully, 2013

Analytical methods

Analytical methods involve breaking jobs into constituent elements.

• Points rating is the main method

• Each job is rated in term of ‘compensable factors’ and scored accordingly

• Points rating reflects the relative worth of the job

POINTS RATING METHOD

What is a ‘compensable factor’?

‘… those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives.’ (Milkovich & Newman, 1996).

For example:

Complexity, Leadership, Responsibility, Contacts.

Decision making, Knowledge, skills etc...

The most common factors determining where jobs should go within pay grades are:

• the knowledge and skills required, • the complexity of the job • the amount of judgement/decision-making

needed.

CIPD, 2019

Point Rating

• Typically the compensable factors include the major categories of: – Skill

– Responsibilities

– Effort

– Working Conditions

Point Rating • These factors can then be further defined.

– Skill • Experience • Education • Ability

– Responsibilities • Fiscal • Supervisory

– Effort • Mental • Physical

– Working Conditions • Location • Hazards • Extremes in Environment

Points rating method - process

Five steps:

1. Determine the critical/compensable factors.

Which? How choose? How many?

2. Define factor degree

3. Allocate weightings to factors

All equal or weighted? How? Committee judgement – subjective; Policy

capturing - statistical

4. Establish the degree of each factor present in each work

5. Calculate job Values:

Use: job descriptions, the points manual

NHS case page 116

https://www.nhsemployers.org/-/media/Employers/Documents/Pay-and- reward/NHS-TCS-2018-Pay-scales-poster-2018-19.pdf

https://www.n hsemployers.o rg/- /media/Emplo yers/Documen ts/Pay-and- reward/NHS- TCS-2018-Pay- scales-poster- 2018-19.pdf

Designing the Pay structure

Pay structure

A pay structure combines job evaluation information and information about market pay rates to establish a policy that specifies the base pay of the employee in each job.

• Pay structure is a collection of wage, grades, levels or bands that link related jobs within a hierarchy. It provides a framework to implement rewards strategies and policies

– Help to ensure fairness

– Bring order in managing pay rise

– Align the reward strategy with the employer’s mission, vision, culture, business strategies

– Encourage behaviour and performance.

CIPD, 2022

Objectives of Pay Structure

• Equity, fairness and consistency

• Internal structure versus external market

• Capacity for individual growth within the

structure

• The clarity of reward and career paths

• Ease of communication.

(Armstrong, 2002)

Types of pay structure

• Rate for the job or “spot rate” – Most used – Fixed pay rate for each job or grade (may use the reference point)

• Graded pay ranges – second most used – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Pay spine - third most used – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding - fourth most used – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Types of pay structure

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Pay structure – rate for the job

A simple grade structure might look like this:

Grade Salary Minimum Salary Midpoint Salary Maximum

1 $7,500 10,000 12,500

2 9,500 12,000 14,500

3 11,500 14,000 16,500

4 14,000 17,000 20,000

I've used round numbers here. See the accompanying spreadsheet to see an example

using a specific formula.

Points to note:

• The salary range is typically +/- 15 to 25% percent of the nt.

* Grade 1 is for new hires entering grade 2 jobs, and for temporary workers.

GRADE JOB EXAMPLES £ PER ANNUM £ PER HOUR

1* Track assembler* 19,678 10.22

2 Track assembler 22,956 11.93

3 Rectifier, Relief operator 24,021 12.48

4 Craftsman (single skills), Team coordinator 25,008 12.99

5 Multi-skilled craftsman 26,176 13.60

6 Logistics officer, Technician 27,516 14.30

7 Production area manager 28,812 14.97

Types of pay structure

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Pay structure: graded pay ranges

• Salary range typically +/- 15% to 25% of midpoint

• Maximum may by higher than minimum of higher grade (grade overlap) – but depends on organisation policy

• Provides individual salary progression – Incremental (automatic each year)

– Merit based – depends on appraisal rating or other evaluation

GRADE SALARY MINIMUM SALARY MIDPOINT SALARY MAXIMUM

1 25,500 30,000 34,500

2 30,600 36,000 41,400

3 35,700 42,000 48,300

4 43,350 51,000 58,650

Based on: Werner et al., 2012

Types of pay structure

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Pay spine and model grading structure

Source:

Joint Negotiating

Committee for Higher

Education Staffs

Types of pay structure

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Source: http://www.whatishumanresource.com/broadbanding

EXHIBIT 9.9 Common Job Evaluation Practices

Source: Werner et al., 2012

Summary • Job Evaluation Systems

– Job ranking

– Job classification

– Point factor rating

• Compensation Structure – Rate for the job or “spot rate” – Pay spine – Broadbanding – job ranges