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External Equity

External Equity. Reward System. Reward System. Job Analysis. Benefits. Job Description. Managing Base Pay. Jpb Evaluation. Working conditions. Variable Pay. Long term Incentives. Recognition Awards. Recruitment. Selection & Hiring. Training & Dev’mt. Career planning.

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External Equity

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  1. External Equity

  2. Reward System Reward System Job Analysis Benefits Job Description Managing Base Pay Jpb Evaluation Working conditions Variable Pay Long term Incentives Recognition Awards Recruitment Selection & Hiring Training & Dev’mt Career planning Perf. evaluation HR Planning

  3. Reward System Reward System Job Analysis Developing a Salary Structure Benefits Job Description Managing Base Pay Jpb Evaluation Working conditions Variable Pay Long term Incentives Recognition Awards Recruitment Selection & Hiring Training & Dev’mt Career planning Perf. evaluation HR Planning

  4. Some Definitions • External competitiveness • The pay relationships among organizations - the organization’s pay relative to its competitors • Salary Structure • Refers to the range of pay rates for different jobs within a single organization • Pay Level • The average of the array of rates paid by the employer • Pay Forms • The various types of payments, or pay mix, that make up total compensation

  5. Pay Mix • Different Mixes

  6. Pay-Mix Policy Alternatives

  7. Pay Mix and Structure • Pay Mix varies within the Structure Internal Job Structure

  8. Relationship External Pay Policies & Objectives

  9. Factors Influencing Pay levels Business Sector Legislation Labor Supply & Demand Location Size Market productivity Market Pay Levels

  10. Factors Influencing Organization Comp Policy Business Strategy Union Influence Prestige & Tradition Other HR mgmt policies & practices Capacity to Pay Compensation factors The Organization Compensation Policy: • Lead • Lag • Follow Competition

  11. The Pay Model • Three important contributions to keep in mind • There is no “going rate” and so managers make conscious pay level and mix decisions influences by several factors • There are both product market and labor market competitors that impact the pay level and mix decisions • Alternative pay level and mix decisions have different consequences

  12. Salary Structure • Over engineered structure • Rigid • Heavy administrative burden • Often inefficient • Simple structure • Easily adaptable • Flexible • Suitable for small organization • Can easily be manipulated • Find the right mix

  13. Structure Approach • Corporate structure for Worldwide Mgmt & Executives • Employee rotations within countries/regions • Many senior positions compete at international level • Facilitate transfer/expatriate policy design • Facilitate management incentive design • Ease-up perquisites and benefits implementation • Local structure for professional, sales and mainstream employees • Better data at local level • Better local understanding of the job content

  14. What Criteria to be used to Evaluate the Management • To remunerate managers in a competitive way based on their responsibilities as well as their individual performance • Establish a coherent salary structure (external equity) • Create an internal equity within a competitive market environment • Establish a link between individual performance and the job requirement

  15. Linking Internal Equity with External Market Position : Telemarketing Know-How 65 Communication 101 Dimension 33 Effectiveness 78 Leadership 55 Challenge 45 Total 377 Evaluation Questionnaire = 112’300 Salary Surveys

  16. Development of a Salary Structure Analysis of evaluated jobs against competitive market values. Development of a salary structure

  17. Percentiles

  18. Salary Curve

  19. Development of a Salary Structure • Salary Structure 200 ’000 Compagny XYZ 150 ’000 Euro 100 ’000 50 ’000 5 6 7 8 9 10 11 12 13 14 15 Grades

  20. Min, Max, Range: Spread & Overlap • Set pay ranges • Determine minimum and maximum compensation for each grade. • Determine the spread for each grade • Set the overlap between pay ranges.

  21. Min, Max, Range: Example Range Overlap Range Spread Max Midpoint Spread Midpoint 200 ’000 Compagny XYZ Min 150 ’000 Euro 100 ’000 50 ’000 5 6 7 8 9 10 11 12 13 14 15 Grades

  22. Contrasts Between Ranges and Bands • Ranges support • Some flexibility within controls • Relatively stable organization design • Recognition via titles or career progression • Midpoint controls, comparatives • Controls designed into system • Give managers “freedom with guidelines” • Up to 150 percent range- spread

  23. Contrasts Between Ranges and Bands • Bands support • Emphasis on flexibility within guidelines • Global organizations • Cross-functional experience and lateral progression • Reference market rates, shadow ranges • Controls in budget, few in system • Give managers “freedom to manage” • 100 -400 % spreads

  24. Why Bother with Grades and Ranges? • Internal pressures • Be able to justify pay differences • Recognize individual performance differences with pay • Meet employees’ expectations that their pay will increase over time • Encourage employees to remain with organization • External pressures • Differences in quality among individuals in external market • Differences in productivity • Differences in mix of pay forms of competitors

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