HRM9

11 Establishing
Strategic Pay Plans

Human Resource
Management
4-
Gary Dessler
Copyright © 2015 Pearson Education

11-1
Ltd.
LEARNING OUTCOMES
1. List the basic factors determining pay rates.

2. Define how to conduct a job evaluation
3. Explain the different job evaluation methods.
4. Explain how to establish pay rates.
5. Explain how to price managerial and professional jobs.
Copyright © 2015 Pearson Education Ltd. 11–2

A WORD OF CAUTION ON
LEARNING OUTCOME
Copyright © 2015 Pearson Education

11–3
Ltd.
Basic Factors in Determining
Pay Rates
Employee Compensation
Components
Direct financial Indirect financial

payments payments

Legal Considerations in Compensation
Davis-Bacon Act (1931) Equal Pay Act (1963)
Walsh-Healey Public Employee Retirement

Contract Act (1936) Income Security Act
Title VII of the 1964 Employee Age Discrimination in

Civil Rights Act Compensation Employment Act
Fair Labor Standards Act Americans with

(1938) Disabilities Act
The Family and Medical The Social Security Act of

Leave Act 1935 (as amended)
National Labor Relations

Workers’ Compensation
Act of 1935 (Wagner Act)

6
7
8
9
Corporate Policies, Competitive Strategy,
and Compensation
• Aligned Reward Strategy
➢ The employer’s basic task:
❖ To create a bundle of rewards—a total reward package—that
specifically elicits the employee behaviors that the firm needs
to support and achieve its competitive strategy.
➢ The HR or compensation manager along with top management
creates pay policies that are consistent with the firm’s strategic
aims.

Developing an Aligned Reward Strategy
Questions to Ask:
1. What must our company do, (for instance in terms of improving

customer service), to be successful in fulfilling its mission or
achieving its desired competitive position?
2. What are the employee behaviors or actions necessary to
successfully implement this competitive strategy?
3. What compensation programs should we use to reinforce those
behaviors? What should be the purpose of each program in
reinforcing each desired behavior?
4. What measurable requirements should each compensation
program meet to be deemed successful in fulfilling its purpose?
5. How well do our current compensation programs match these
requirements?

Pay Policies
• The employer’s compensation strategy will manifest itself
in pay policies.
• For example, a top hospital like Johns Hopkins might
have a policy of paying nurses 20% above the prevailing
market wage
• Examples from Egypt?

Compensation Policy Issues
• Pay for performance
• Pay for seniority
• The pay cycle
• Salary increases and promotions
• Overtime and shift pay
• Probationary pay
• Paid and unpaid leaves
• Paid holidays
• Geographic costs of living differences

What is Equity?

Equity and Its Impact on Pay Rates
‫اإلنصاف‬
Forms of Compensation
Equity
External Internal Individual Procedural

equity equity equity equity
How can you achieve Equity?

Establishing Pay Rates
Steps in Establishing Pay Rates
Determine the worth of each job in your organization

1
through job evaluation (to ensure internal equity).
Conduct a salary survey of what other employers are paying

2 for comparable jobs (to help ensure external equity).
3 Group similar jobs into pay grades.
4 Price each pay grade by using wave curves.
5 Fine-tune pay rates.

Salary Increase matrix
% of increase corresponding to performance
Below 71% - 86% - 101% - 116 % - Above

Rating
70 % 85 % 100% 115% 130% 130%
Exceptional E 25% 20% 15% 5% 3% 3%
High H 20% 15% 5% 3% 2% 0%
Solid Performer S 15% 5% 3% 2% 2% 0%
Needs Development D 5% 3% 2% 0% 0% 0%
Poor P FREEZE
Key Jobs X

Job Evaluation
• It is a formal and systematic comparison of jobs
to determine the worth of one job relative to
another. Job evaluation aims to determine a
job’s relative worth.
• Job evaluation eventually results in a wage or
salary structure or hierarchy (this shows the
pay rate for various jobs or groups of jobs).
• The basic principle of job evaluation is this: Jobs
that require greater qualifications, more
responsibilities, and more complex job duties
should receive more pay than jobs with lesser
requirements.
Job Evaluation
• The basic job evaluation procedure is to
compare jobs in relation to one another for
example, in terms of required effort, job
complexity, and skills.
• Suppose you know (based on your job
evaluation) the relative worth of the key jobs in
your firm. You then conduct a salary survey to
see what others are paying for similar jobs.
• You are then well on your way to being able to
price all the jobs in your organization equitably.

Job Evaluation – Compensable Factors
• You can take an intuitive approach. You might
decide that one job is more important than
another is, and not dig any deeper
• OR
• You can compare the jobs by focusing on
certain basic factors the jobs have in common.
• Compensation management specialists call
these compensable factors. They are the
factors that establish how the jobs compare to
one another, and that determine the pay for
each job.
Job Evaluation – Identifying Compensable
Factors
Identifying Compensable Factors
Working
Skills Effort Responsibility
conditions

Methods for Evaluating Jobs?
Methods for Evaluating Jobs
Job Factor
Ranking Point method
classification comparison
Non-Analytical Analytical
Non-Quantitative Quantitative

The Point Method
• The point method’s overall aim is to determine
the degree to which the jobs you are evaluating
contain selected compensable factors.
• It involves identifying several compensable
factors for the jobs, as well as the degree to
which each factor is present in each job.
• Assume there are five degrees of the
compensable factor “responsibility” a job could
contain.
• Further, assume you assign a different number
of points to each degree of each compensable
factor.
The Point Method
• Once the evaluation committee determines the
degree to which each compensable factor (like
responsibility and effort ) is present in a job, it
can calculate a total point value for the job by
adding up the corresponding degree points for
each factor.
• The result is a quantitative point rating for each
job.
• The point method of job evaluation is the most
popular job evaluation method today

11–30
Packaged Point Plans – Example HAY
• A number of groups (such as the Hay Group)
and others have developed standardized point
plans. Many thousands of employers use these
systems.
• They contain ready-made factor and degree
definitions and point assessments for a wide
range of jobs. Employers can often use them
with little or no modification.

ILLUSTRATIVE EXAMPLE
FROM HAY(NOW KORN-
FERRY)
NOT TO BE SHARED
OUTSIDE CLASS

JE Ground Rules
• Job not the jobholder

• Job as it would be done at normal 100%
fully acceptable performance
• Job as it is defined now not as it will be
• Disregard current grade or rate of pay
• No understanding No evaluation
The JE Process
• At least one evaluator can provide first hand info. on
job
• Guide charts represent an objective framework for

making judgement
• Benchmark reference jobs (key jobs)
• Consensus (accepting the most convincing argument)
• Numerical scale helps comparing internally across

functions and externally
• QA checks
The Underlying Principle of the
Hay Methodology
Output Process Input
1 2 3
To achieve this end Therefore, the job holder
Jobs Exist to requires a level of knowledge
result, job holders must
achieve an end and experience commensurate
address problems, create, with the scale and complexity
result analyse and apply of the deliverable
judgement
Know-How
Problem Solving Problem Solving
Accountability Accountability Accountability

7. Compensation &Benefits
7.3 Compensation Structure: 7.3.4 Pay Structure
Grade (Points)
11–36
Example of pay survey data analysis

Annual
D9
salaries
Q3
M
Q1
D1
11–37
7.3 Compensation Structure: 7.3.4 Pay Structure
Grade
(Points)
11–38
7.3 Compensation Structure
4. Pay Structure
Grade (Points)
11–39
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Printed in the United States of America.

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11 Establishing

Strategic Pay Plans

Copyright © 2015 Pearson Education

1. List the basic factors determining pay rates.

Copyright © 2015 Pearson Education Ltd. 11–2

Copyright © 2015 Pearson Education

Direct financial Indirect financial

Copyright © 2015 Pearson Education Ltd. 11–4

Davis-Bacon Act (1931) Equal Pay Act (1963)

Walsh-Healey Public Employee Retirement

Title VII of the 1964 Employee Age Discrimination in

Fair Labor Standards Act Americans with

The Family and Medical The Social Security Act of

National Labor Relations

Copyright © 2015 Pearson Education Ltd. 11–5

Copyright © 2015 Pearson Education Ltd. 11–10

1. What must our company do, (for instance in terms of improving

Copyright © 2015 Pearson Education Ltd. 11–11

Copyright © 2015 Pearson Education Ltd. 11–12

Copyright © 2015 Pearson Education Ltd. 11–13

Copyright © 2015 Pearson Education Ltd. 11–14

External Internal Individual Procedural

How can you achieve Equity?

Copyright © 2015 Pearson Education Ltd. 11–15

Steps in Establishing Pay Rates

Determine the worth of each job in your organization

Conduct a salary survey of what other employers are paying

3 Group similar jobs into pay grades.

4 Price each pay grade by using wave curves.

5 Fine-tune pay rates.

Copyright © 2015 Pearson Education Ltd. 11–17

Below 71% - 86% - 101% - 116 % - Above

Exceptional E 25% 20% 15% 5% 3% 3%

High H 20% 15% 5% 3% 2% 0%

Solid Performer S 15% 5% 3% 2% 2% 0%

Copyright © 2015 Pearson Education Ltd. 11–18

Copyright © 2015 Pearson Education Ltd. 11–22

Identifying Compensable Factors

Copyright © 2015 Pearson Education Ltd. 11–24

Methods for Evaluating Jobs

Copyright © 2015 Pearson Education Ltd. 11–26

Copyright © 2015 Pearson Education Ltd. 11–28

Copyright © 2015 Pearson Education Ltd. 11–31

Copyright © 2015 Pearson Education Ltd. 11–32

• Job not the jobholder

• Guide charts represent an objective framework for

• Benchmark reference jobs (key jobs)

• Consensus (accepting the most convincing argument)

• Numerical scale helps comparing internally across

Problem Solving Problem Solving

Accountability Accountability Accountability

Example of pay survey data analysis

Copyright © 2015 Pearson Education Ltd. 11–40

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