1. Market Based Pay System The Market Based Pay System Project

2. Objective: Wages and Salaries are a very large part of the business expense. Excessive costs jeopardize the business. Employees need to believe they are paid for their contribution.

3. Process Outline: Part 1:Job Descriptions Part 2:Market Data Collection Part 3:Market Data to Current Pay Analysis Part 4:Develop Pay Structure

4. Part 1: Job Descriptions Without a Job Description, any pay plan is “rational”. No Job Description? Then look at the process to develop them.process Job Descriptions identify the following: Reason for the position Key duties Qualifications Knowledge, skills, and abilities

5. Part 2: Market Data Collection Published Market Data is obtained for the Job Description. Generally at least two sources are used. Data should represent same labor area, current time period.

6. Process… Market Data Sheet This position has multiple components, as a result several different sets of market data are used.

7. Part 3: Market Data to Current Pay Collect: Market data presents a picture of the existing “job-worth hierarchy”. Comparisons will determine whether the company is currently paying above or below market for each job and allow calculation of projected costs to implement any proposed new pay structure.

8. Process… Market Data Sheet Since there is one incumbent, the actual compensation 25 th and 75 th are same. Otherwise, these would be lowest and highest reported compensation for the job.

9. Part 4: Develop Pay Structure Pay structure has multiple pay or salary ranges. Each pay range has a minimum, maximum and midpoint value. The difference between minimum and maximum is range spread. Range spread does not have to be uniform throughout the pay structure. Typically positions quickly mastered skills that are have narrower pay ranges than supervisory, managerial or high level technical positions. Job Grades should be designed to provide midpoints that reflect market rate and minimum and maximums that are reasonably close to the minimum and maximum rates paid in the market. Job (pay) grades are groups of jobs that have been determined to be approximately equal in difficulty or importance. Number of Job Grades typically ranges from 10 to 16. The grades can be established by number of job evaluation points or by the points on a trend line that represents the midpoints of the market averages.

10. Part 4: Develop Pay Structure Job (Pay) Grades: Cluster Create a scatter diagram from the set of compensation and market averages. Freehand the groups that appear similar. Equal Spread Using the same basic set of data, divide the x-axis into equal divisions based on the number of grades to be used. Midpoint Progression should be designed to provide midpoints that reflect market rate and minimum and maximums that are reasonably close to the minimum and maximum rates paid in the market. Continuous typically ranges from 10 to 16. The grades can be established by number of job evaluation points or by the points on a trend line that represents the midpoints of the market averages. Rate Ranges typically ranges from 10 to 16. The grades can be established by number of job evaluation points or by the points on a trend line that represents the midpoints of the market averages.

11. This structure does not require the grades be equal in width. It tends to be used with ranking or slotting methods of job evaluation. Cluster Part 4: Develop Pay Structure

12. Done…for now.

13. This structure uses equal widths. The x-axis is job evaluation points. Equal Divisions Part 4: Develop Pay Structure

14. This structure uses pay grades that are percentage increases of each grade (starting at 8% and increasing to 20%) The trend line indicates a linear relationship. This structure perhaps should be split into two structures.

15. Process… Market Data Sheet This position has multiple incumbents. The minimum and maximum differ significantly. This situation should be reviewed for incumbents mis-graded or perhaps otherwise mis- classifed.

16. Process… Market Data Sheet This is a report that compares market survey data with the company under evaluation.

17. Process… Market Data Sheet This table compares market compensation to company actual compensation. The existing “grade structure” is shown.

18. Process… Market Data Sheet This table presents “Compa-ratio” that analyzes the expresses the relationship between base salary and the midpoint.

19. Process… Market Data Sheet This table now uses revised grades and computes new ratios. Revised grades are highlighted.

20. Process… Market Data Sheet This graph depicts the “first cut” for the relationship of actual compensation and grades. The relationship is poor. Incumbents may be misclassified (job description is faulty), paid inconsistently, or placed in an incorrect grade.

21. Process… Market Data Sheet This graph depicts a “second cut” for the relationship of actual compensation and grades after an initial re-grading. The relationship is improved, but this schedule considers both exempt and non-exempt personnel.

22. Process… Market Data Sheet This graph depicts relationship of actual compensation, market compensation, and grades. The relationship is not good, suggesting that the grading structure can be improved.

23. Process… Market Data Sheet This graph depicts a “second cut” for the relationship of actual compensation and grades after an second re-grading. The relationship is improved, but this schedule considers both exempt and non-exempt personnel.

24. Process… Market Data Sheet This graph depicts the results when only exempt employees are considered. The relationship of actual compensation and grades.

25. Done…for now.