Chapter 7 - Class Notes

- better to grade in the midpoint

- difference between minimum salary of each grade is called a grade differential - shouldn't be
more than 20%

Market surveys
- salary surveys collect information about employee salaries and benefits across different
industries, regions and jobs. These surveys serve as benchmarking tools to enable companies
to make informed business decisions about compensation.
- credible salary surveys are valuable in any economic environment.
- they provide statistical insights into the markets in which you compete for employee skills.
- a thorough analysis of your skills market will allow you to maximise the return on investment
(ROI) of your compensation programs.
Such market intelligence can protect your startup from paying either too little or too much for
skills, which is key in any industry
- to understand what the market is paying to plot your salaries
- know minimum wage
- pay above or below market rate
- take into account kind of employees (skilled, etc), affordability
- difference between firm (single business) and industry (group of businesses)
- don’t compare to other industries

Why use market surveys

- put pay scales to the job grades
- compare with other organisations
- track pay increases and market movements
- salaries are not negotiated per organisation but in industries
- industries have bargaining councils to come together and discuss conditions of services in that
industry, eg. salaries etc
- cannot reduce conditions of service less than what labour laws say
- collective bargaining agreement is what we achieve from bargaining councils and unions
- provide input into the remunerations policy and strategy

What market surveys help organisations achieve

- set entry rates or new graduate starting salaries
- verify salary structures or make appropriate changes
- keep up to date to prevent losing valuable employees
- identify positions that need to be paid differently for the rate of grade
- assess typical salary increases required fro the salary structure as a whole or by grade or by
position
- keep informed of benefits and perquisites being offered
- review all the compe=onents of the remuneration mix
- assess the slop, pay ranges and overlap of the salary
Regional and organisational variables
- salary information is sometimes analysed using variables such as:
- location
- organisational size
- eg. small organisation located on the coats would not expect to pay the same as a merchant
bank in the city regardless of position
- research suggests that there is a strong correlation between executive salaries and
organisation size
- organisation size is measured using several indicators such as sales turnover, net profit before
tax and the number of employees
- cost of living is more in some parts of the country therefore pay might be more for the same
work
- can we compare public and private sector salaries - no don’t mix

Job matching
- salary survey will stand or fall by how well the jobs were matched with one another
- jobs are matched by:
- industry
- sector
- location
- size of organisation
- range of responsibilities
- job size and complexity

Club surveys
- organisations in an industry may come together to form survey circles and share salary and
benefits information with one another
- up to the organisations to decide which companies are eligible for membership
- in the same business?
- of similar size and type?
- in the same locality?
- similar parentage - the big company smaller brands fall under, eg. tiger brands
- are separate parts of organisation allowed to participate?
- how are decentralised companies treated?
- is there a maximum and minimum number of participants?
- if you participate, get for free or discount, if you did not participate you have to pay for the
information

Collecting data
- who collects the data?
- how frequently will surveys be conducted?
- how can accurate job matching be ensured?
- how is the information collected?
- what data are required?
- is the survey open or closed?
- are all grades included?
- is a 100% response rate expected?
- what sanctions can the club members impose if members fail to provide the data?
- information collected must be valuable and stabilises the market

Analysing and presenting the results

- are actual salaries and salary ranges listed by the organisation in rank order?
- what statistical analyses are produced from the aggregate data? Averages, means e.t.c.
- are any significance of correlation tests made on the statistical results?
- how can the results of the club survey be compared with general data on salaries from
commercial surveys, for example?
- are club members charged a few to cover the cost of analysing the results and producing the
survey report?

Published surveys
- surveys that are readily available to the public
- if used need to consider:
- what is the core competence of the producers of the survey?
- what is the survey based on?
- is there a participant list?
- what data collection method was used?
- which methods of job matching were used?
- from what date is the data valid?
- what presentation format is used?
- is there a different survey for top executives?
- are pay increase predictions included in the survey?
- is there information on fringe benefits?
- what is the cost of the survey?

- statistic south africa is more reliable

Other sources of pay data

- professional associations and societies collect data and you can get information from them
- personnel and recruitment agents make information available for you at a fee
- internet searches are available but not always reliable
- newspaper advertisements
- government salaries are publicly available but private sector is not

*annual salary - cost to company - ask how much to get per month
- Includes every expense included as an employee
- 52 weeks divided by 12 months = 4.333 to account for different number of weeks per
month
Setting the CEO pay
- committee to decide what the ceo gets paid
- HR managers will be tasked to look for information about ceo salaries
- need to take into account the following factors:
- organisation size - vodacom in South Africa, MTN in Africa
- organisation performance
- unfair to judge a ceo based on their first few years of managing
- executive specific factors
- older people are assumed to be better as ceos - education, experience, qualification
- job-or position-specific factors
- responsibilities one has as a ceo
- job complexity

Factors to consider when defining the market

- as a committee member collecting data, we need to understand the market:
- holding, subsidiary or single unit organisation
- private, public or state owned enterprise
- monopoly or many companies
- complexity of industry or market
- listed or not
- local listing only or both
- organisation size in terms of budget, profit, assets, number of employees
- job content
- performance of organisation in terms of financials, shareholder return, strategic vision
- these will help determine salary structures

Resolving conflict between executive management and the remunerations committees

- well trained remuneration committees
- comprehensive remuneration committees parks showing all the components of the
remuneration structure and how the proposal will affect the total earnings
- a clear definition of the market
- a good anchor for the CEOs package
- ensuring that remuneration committees have access to top remuneration experts for advice
- committees are there to dilute the power of executives
- executives are human and might use their power for their own personal gain
- how to minimise tension between these parties

Guidelines for setting CEO and executive pay

- defensible is the key word
- tie pay directly to the value delivered
- market norms are a valuable guide
- robust remuneration policies and strategies are a must
- impeccable governance is mandatory
- we justify the pay to the general public as well as our stakeholders
Remuneration benchmarking
- comparing with others out there
- when presenting benchmarking reports to the board, or any stakeholder, the question that
often gets asked is ‘who did you compare us with?’
- this is often followed by a heated debate
- there will be conflicting views, depending on through whose eyes you are looking
- the employees want to ‘upgrade’ comparators and the shareholders want to ‘downplay’ the
comparators and the remuneration committee is stuck in the middle
- if you compare with the correct organisations, you will have a good argument against the
committee

Guidelines for selecting comparators

- good starting point would be to choose comparators of similar size using the following factors:
- turnover/income/budget
- profit
- number of employees
- market capitalisation
- assets