Pay Structure Pay Structures

Pay structures are set out the different levels of pay for jobs, groups of jobs, by reference to:
Their external internal value as established by job evaluation External relativities via market rate surveys Where appropriate, negotiated rates for the job

A pay structure provides a framework within which an organisation defines the different levels of pay for jobs or groups of job, on the basis of assessments of their relative internal value and of external relativities ( market rate)

May be one structure covering all occupations- an integrated structure or may be more than onestructural Integrated because of no distinction between work in offices, laboratories and on the shop-floor, no status distinctions Some create separate market group structures for some categories of staff

Pay ranges
Each grade has a pay scale with max. and min with reference point which is normally the market rate. Maximum of the range depending on the pay progression method. Some companies connote reference point as 100% while others max point as reference point.

Pay progression
2 ways to progress through the rage:
Old Type-fixed incremental system
67% Min. 100% Max.

Inexperienced New

Developing

Experienced Fully Competent

Size of Pay Range

Depends upon following factors:
Policy on the scope which should be allowed for pay progression Assumptions on the average time people will take to achieve the fully competent level in the jobs within the grade Time employee normally spends in jobs Amount of flexibility needed to fix pay for new or promoted employees The amount of flexibility required to accommodate differences in the market rates of jobs in the grades.

Larger range emphasize the performance of individuals within the grade while narrower ranges place more emphasis on job size and promotion.

Purpose of pay structures

To provide a fair and consistent basis for motivating and rewarding employees. Enable org. to recognise and reward people appropriately according to their job/role size, performance, contribution, skill and competence. Help the organisation to control the implementation of pay policies and budgets.

Criteria for pay structure

Should be appropriate to characteristics and needs of org. Be flexible Facilitate operational and role flexibility Give scope for high level performance and significant contribution Help to ensure that consistent decisions are made on pay in relation to job size, contribution, skill and competence Clarify pay opportunities Enable the organisation to exercise control over the implementation of pay policies and budgets.

Basis of Pay Structures

Internal Relativities: External comparisons: influenced by level of people the org. wants to attract and retain, degree to which it is thought that pay is a major factor in attracting and retention rates and what it can afford to pay. Some are market driven. Reference point may be alinged to average market rate for jobs in the grade or above or below that rate. Market premium can also be paid.

Graded Pay Structures

A graded pay structure consists of sequence of job grades to each of which is attached a pay range. Job Grades: Pay Ranges and Grades: Grade width describes the range of job sizes contained within a grade, while pay range is there to cater for pay progression based upon such criteria as performance, contribution, skill acquisition, competence or length of service. Defining a pay range: may be defined in terms of the percentage increase between the lowest and highest points in the range. Number of pay ranges: pay of highest and lowest paid jobs in the structure, width of pay ranges and differential between ranges

Overlap between ranges: if size of range = differential between ranges then no overlap
Size of Range (Span as % of min.) Differential between ranges Grade A Min. 50 35 20 20 20 20 12000 12000 12000 Max 18000 16200 14400 Pay Ranges Grade B Min. 14400 14400 14400 Max 21600 19400 17280 50 36 0 % Overlap

Pay progression through ranges: criteria for progressing pay( may be performance, contribution or overall level of competence; or may be linked to increase in skill), limits to progression within a range, rates at which pay can progress within a range (if range of tenure of job holders is narrow, a constant rate of progression would be appropriate. In high growth org. the rate of progression through a range may decelerate, giving an initial boost but slowing down as the ceiling is approached. Makeup of a pay range: Semi-structured, Fully Structured

Individual Job Ranges

Advantages of Graded Structure: easy to explain, allow a degree of job flexibility and individuals can be moved round the organisation to jobs of slightly different sizes without the need to change pay to reflect that size variation, better control can be exercised over pay for new starters. Disadvantages: grade boundaries need to be selected with care otherwise problem, tendency for grade drift, can impose a degree of hierarchical rigidity, existence of known pay range generates expectations amongst employees that they will inevitably reach the top.

Where the content and size of jobs is widely different Overcome the problem of grouping a number of jobs with widely different job sizes into a grade with the inevitable consequence that some jobs are underpaid while others are overpaid Defines separate pay range for each job

Benefit Grade Structure

Relativities between jobs are determined by points factor job evaluation . Reference point in each range which is aligned to market rates in accordance with the organsiations pay stance. For senior jobs where there are likely to be considerably greater differences between job sizes. But encourage individuals to put pressure on management to have their jobs re-evaluated on the grounds that more points mean more pay. More difficult to control

Jobs may be allocated to benefit grades by means of job evaluation. Jobs placed more subjectively into benefit grades according to a broad assessment of levels of responsibility e.g. senior, middle and junior mgt.

Job family structures

Jobs will be related in terms of the fundamental activities carried out and the basic skills required, but they will be differentiated by the level of responsibility, skill or competence involved. Job families may also distinguished from one another in terms of the market rates for the occupations within the family. Significant differences in market rates may mean that a family will constitute a separate market group.
Job Family is a group of jobs their essential nature and purpose is similar but the work is carried out at different levels. Jobs may be linked in any of the following ways:
Nature of work undertaken: administration, data processing Technical or professional discipline: scientists, engineers A common function: production or sales mgt A hierarchy in a regionalised organisation: regional area and branch managers Same job operating at different levels: secretaries

Job Family Modelling:

Process of
Identifying groups of roles in which the type of work is similar but where it is carried out at different levels, Analysing the essential nature of each of these groups or job families Defining the differentiating factors between each level in the family in terms of role size Producing functional or generic role specifications

Job family levels

Levels in job families are differentiated by changes in the following:
Accountabilities: main outputs or tasks carried out Competencies: personal qualities and behaviors which have a high degree of impact on performance Technical knowledge: learned technical, task, managerial or supervisory skills which are needed.

Advantages of JF Modeliing
A separate graded pay structure for each of the job families which have been identified for this purpose. Structures are aligned individually to market rates and contain a number of pay ranges which reflect the particular levels of work within the job family. Suitable where occupations need to be treated differently because of the nature of the work and /or their special market rate position. Clarifies career ladders within and between functions promotes flexibility in career and reward mgt Focused guidance to people on how to develop their careers Enables the organsiation to react more selectively to changes in market rates for roles in different families

disadvantages
Equity may be more difficult to achieve Difficult to avoid pay discrimination More complex May lack coherence if it is fragmented into anumber of unrelated ministructures.

Spot rate Structures

A specific rate for a job No scope for the basic rate for the job to progress through a defined pay range Fixed entirely by reference to market rates in a market driven structure Typically for manual workers

Pay Spines
Consist of a series of incremental points extending from the lowest to the highest paid jobs covered by the structure. Pay scales or ranges for different job grades may then be superimposed on the pay spine. Mostly in public sector or in agencies and voluntary organisations which have adopted a public sector approach to reward management

Integrated Pay Structures

Based on same system of job evaluation applied to all employees. Reasons for Integration: Blurring of the differences between manual and nonmanual employment; introduction of new technology and processes has entailed greater flexibility; move towards the single table bargaining with trade unions; equal pay for work of equal value considerations; HRM concept of integrating all aspects of personnel mgt.

Broad Band Pay Structure

Compression of hierarchy of pay grades or salary ranges into a small number of wide bands. A combination of job classifications into pay bands and places a larger spread between bottom and top rates of pay. Together with greater pay range within each band and the smaller number of bands, broad banding is quite distinct from conventional grading systems. Pay progression through each band is normally related to competency based, performance, contribution or market rates of pay.
No more than 4-5 bands to cover all the employees covered by the structure, although some org describe their structures as being broadbanded. Wide pay spans, which can be 100 per cent or more above the min. rate in the band Focus on later career development and skill/competence growth Less reliance on conventional and rigidly applied analytical job evaluation schemes Less emphasis on hierarchical lables for bands Less concern for structure and rigid guidelines and more concern for flexibility and paying for the person rather than the job.

Broad-banding at General Electrics, US

Band Title Width Min. Max

How Broadbanding works?

All org. develop their pay structures on the basis of their business, personnel and reward strategies, their culture, their org structure and mgt practices. There is no such thing as a standard broadbanded structure

Senior Professional Lead Professional Professional

115

48000

102000

124

33000

76000

160

20,000

52000

Associate Professional

188

16000

35000

Characteristics of broadbanded structures in various areas:

1. Number of Bands: how many valueadded tiers exists in the org. value added tier means a cluster of roles that have common responsibilities and accountabilities and make a comparable impact on org success. 2. Width of bands: depends upon the type of roles allocated to them and the opportunities for pay progression the org wants to provide in a band. Span may vary from level to level. Normally width is twice.

3. Overlap between bands: overlapd is large in this case. provides for more flexibility in pay provision by recognizing that people in roles in one band may deliver more added value than some in the next higher band.

4. Describing and defining bands: bands named by descriptive labels e.g. managers, team leaders, individual contributors technical and professional. Some by labels such as directing processes, managing requirements and resources, leading teams and implementing in teams.

5. Placing jobs/roles into bands: if broad generic definitions exist for bands such as manager, team leader or individual contributor-slotting roles into the bands is relatively simple process.

6. Positioning roles within bands: on the basis of their external or internal value or both. 7. Architecture of bands: do not have mid-points as in conventional

graded pay structure. No reference point for all jobs in the band which represents the market-related norm and is used as a basis for the traditional control systems of compa-ratios and mid-point mgt. Pay zones may be established for jobs within the band which are anchored by market rates. These define the target rate for a competent individual in the role and indicate that when someone is paid below market value, pay should be brought up to that rate as long as individual achieves the required level of competences. Purpose of pay zones is to provide managers with guidance in making pay decisions and unlike traditional salary ranges it is possible for employees to be paid outside the zone without the need for special approval or procedures.

Advantages of Broadbanding
Decisions on where individuals are placed in the band and the rate at which they move through it will be based on following considerations: Their market worth Level of competence Their contribution or delivered performance in their role 8.Achieving equity and consistency: 9. brief and train managers on the new structure and their roles in managing pay Enhances flexibility in pay delivery, management of reward system and adjusting pay in response to market rate variations Support teamwork by encouraging the development of multi-focus roles and a boundaryless organisation. Reduces the time spent in analyzing and evaluating jobs as fewer as fewer levels between which distinctions need to be made exist. Reduces the pressure for upgrading and therefore grade drift

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disadvantages
Appears to restrict the no. of promotional opportunities. benefits of this may be obvious to management but may not necessarily be equally compelling for employees May mean that employees formerly in higher grades fell that their jobs have been devalued by being placed in the same band as employees previously in a lower grade-team leaders and their staff could be in the same band. May conflict with the culture of traditionally hierarchical organisations where status is defined by job gradings and progress is measured by the speed and extent to which people move up the grade hierarchy

Conditions Favourable to Broadbanding

Delayering has taken place Focus is on flexibility, teamwork and multiskilling An effective and respected performance management process which assesses both inputs and outputs is in place Good opportunities exist for lateral career development

Organisations which derive maximum benefit from broad banding share the following characteristics

Focus on paying for the person rather than paying for the job Communication channels within the organization are effective, the employee relations climate is good and processes exist and are used effectively for involving employees in decisions affecting them.

Have large proportion of knowledge workers Are planning to delayer or have already done so. Status consciousness is not a feature of the orgs culture Want more scope to reward individual differences Take a pragmatic approach and can live with flexible systems.

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Choice of Structure
Type of org. Size, complexity, culture and traditions Larger enterprises and intuitions with formal hierarchical org will tend to prefer conventional graded Org emphasis on more flexibility go for broad banded Concerned with maintaining competitive pay levels and have a number of diff market groups among their employees prefer job family structure

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