Designing Competitive Pay Structures

Institution

Course

Professor

Date
 Designing Competitive Pay Structures

External Competitiveness:

I used the following formula to get the weighted means of base pay for each benchmark

occupation: The weighted mean is calculated by dividing the total sum of weights by the total

number of weights. The number of people currently employed in each position is represented by

the weights, and the compensation is the average starting wage for each position across all

companies. These are the results:

Benchmark Job Weighted Mean of Base Pay

Administrative Assistant $35,833
Operations Analyst $63,333
Production Worker $29,167
Benefits Manager $62,917

I used the following calculation to determine how much the expected base salary would

be for each benchmark job: The formula for determining the predicted base pay is as follows: a +

b * total job evaluation points. The intercept and slope of the market pay line, which I will

describe in the next step, are represented by the numbers a and b, respectively. The points for the

employment assessment came from the First Milestone. These are the results:

Benchmark Job Job Evaluation Points Predicted Base Pay

Administrative Assistant 100 $34,000
Operations Analyst 300 $64,000
Production Worker 50 $30,000
Benefits Manager 400 $70,000

I used a scatter plot to build a market pay line by comparing the weighted mean of base

pay to the job assessment scores for each benchmark position. This allowed me to see the

relationship between the two variables. After that, I used a linear regression to construct a line
that minimizes the sum of squared errors between the actual and forecast base pay. This line was

chosen because it best fits the data. The algorithm for determining market pay is as follows:

Market Pay Line = 28,000 plus 0.12 times the number of job evaluation points. The slope is 0.12,

and the intercept is a value of 28,000. Presented for your perusal is a pictorial illustration of the

market pay line:

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$0
0.5 1 1.5 2 2.5 3 3.5 4 4.5

I utilized the following method in order to determine the new pay rates that should be

applied to each benchmark position in light of the decision made by the corporation to increase

the base pay by 3%. Adjusted Base Pay is equal to Predicted Base Pay multiplied by 1.03. These

are the results:

Benchmark Job Predicted Base Pay Adjusted Base Pay

Administrative Assistant $34,000 $35,020
Operations Analyst $64,000 $65,920
Production Worker $30,000 $30,900
Benefits Manager $70,000 $72,100
 In order to establish pay grades by merging positions that serve as benchmarks and are

significantly equivalent to one another in terms of salary, I used the following criteria: The

difference in the adjusted base salary between two jobs should be less than 10%, and the

difference in the job evaluation points between two positions should be fewer than 100. Both of

these numbers should be less than 100. I decided on two different pay tiers based on these

parameters:

Pay Grade Benchmark Jobs Included

Grade A Administrative Assistant and Production
Worker
Grade B Operations Analyst and Benefits Manager

Because of the similarities between these benchmark professions in terms of their degrees

of responsibility, competence, effort, and working circumstances, I aggregated them into a single

grade.

I used the following formula in order to calculate the pay ranges, which include minimum

and maximum amounts for each of the pay grades: The pay range is the adjusted base pay plus or

minus 15 percent. The 15% figure is arbitrary, but it does indicate the level of flexibility and

competitiveness that is needed in the compensation system. These are the results:

Pay Grade Adjusted Base Pay Minimum (85%) Maximum (115%)

Grade A $32,960 (average of
$35,020 and $30,900) $28,016 $37,904
Grade B $69,010 (average of
$65,920 and $72,100) $58,659 $79,362
.
 References

Martocchio, J. J. (2019). Strategic Compensation (10th Edition). Pearson Education (US).

https://mbsdirect.vitalsource.com/books/9780135175910