NEW YEAR, NEW PAY RANGES MODERNIZING - HRSoft

Page 2
New Year, New Pay Ranges: Modernizing Your Strategy in 2019
HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and
allocation of merit, bonus and equity awards to drive manager and employee engagement.
Recently, modernizing pay ranges has become a major area of focus for companies. While the start of the year
provides a fitting opportunity to evaluate pay practices and ensure the right pay structures are in place, it’s also
an activity that can – and should – be done regularly. Thus, whether you’re reading this at the beginning of your
fiscal year or you’re simply gearing up to make a change in your company’s approach to compensation, it’s never
a bad time to reevaluate pay ranges.
Many companies face financial constraints that force them to adjust pay ranges without compromising
profitability, leaving compensation professionals to become increasingly creative to approach pay in a way that
manages both costs and competitiveness effectively. Throughout this guide, we’ll discuss practical ways to
improve your pay strategy to drive competitiveness without sacrificing profits, including:
What pay structures are and why they matter
Considerations for choosing the right pay structure
Types, characteristics, and uses of pay structures
Next steps you can take to implement a new approach
Let’s begin by reviewing some important terminology that will be used throughout the coming sections.
Page 3
Common Pay Range Terminology
let’s take a moment to review some common
terminology for discussing pay ranges. While
these terms are likely familiar to you, they are
often used quite differently in various schools of
thought. For the purposes of clarity and cohesion,
here’s a brief review of some key terms that will be
used throughout this guide.
Function: The major functional areas of a business that represent groups of families. Typical function areas
are Strategy, Product, Marketing, Finance, Human Resources, Technology, and Operations.
Family: A group of related specialties that are focused on common goals related to the function. Typical
Job Families in HR are Rewards, Recruiting, and Administration.
Specialty: A sub-group of a job family that further defines roles of similar job functions that are common
in large and medium sized companies. Typical Job Specialties in HR Rewards are Compensation, Benefits,
Work/Life practitioners.
Job: A series of related job titles with progressively higher levels of impact, knowledge, skills, abilities
(competencies), and other factors, providing for promotional opportunities over time. Typical Job Families
in HR are Rewards, Recruiting, and Administration.
Refer back to these definitions as needed. For now, we’ll move forward to discuss pay structures and their
importance.
What Are Pay Structures & Why Are They Needed?
Pay structures, also known as salary structures, define different levels of pay for jobs in reference to:
their relative internal value,
negotiated rates (i.e., collective bargaining agreements).
A pay structure should include pay rates for jobs within the company, define the range of pay, and be easy to
understand and communicate. They are an effective administrative tool used to help managers make better
pay decisions, and they can also be used as a communication tool for employees. Thus, they should be easy to
understand among to your workforce.
Traditionally, many employers have kept their pay structures hidden. Nowadays, we are seeing an increasing
trend towards transparency, and as companies become more focused on equal pay, the shift away from secrecy
will likely continue.
Here are a few additional reasons why pay structures are necessary:
Provide a framework to offer fair/consistent pay for the workforce
Allow effective budgeting and forecasting for the company
Support recruiting and promotional decisions
Communicate and set pay expectations for the workforce
Can be used to enhance and support overall talent strategy
Page 5
How Can We Use Pay Structures Strategically?
Many companies target the 50th percentile, and while this may be the easiest strategy from an administrative
point of view, it may not be the most impactful strategy for your company. To use pay structures effectively, you
must know which rewards your workforce value most. This will allow you to customize the pay mix appropriately.
For instance, some employers need to pay lower-level jobs more competitively to compensate for costs of living.
Higher-level jobs may not need to be paid as competitively, but can be offered different rewards instead.
Pay structures can also be strategically tied to your talent strategy. When you have transparent pay structures,
you provide your employees with visibility into the career path, allowing them to form pay expectations and map
out a future with the company.
With this important rationale behind pay structures in mind, let’s move on to review some considerations for
selecting the best type for your needs.
Page 6
Considerations for Choosing the Right Pay Structure
How accurate should your pay policy be in relation to market rates? In most cases, employers believe their pay
policy should align with market rates as closely as possible. Yet, there are many cases in which market factors
may not reflect your company’s current needs. In the following scenarios, for example, market data may not be
the most appropriate guiding force for establishing pay structures:
Your company is the industry leader. Other companies follow your pay practices.
The market data doesn’t exist or is of poor quality.
Your workforce value proposition (including total rewards and perks specific to your company) far
exceeds your competitors’.
Your cost of turnover is low, and it’s more important to focus pay on internal fairness.
Of course, in many other cases, market data is a useful tool for determining pay structures. With that said, it’s also
important to consider how fast your market is moving. Ranges may need to be wider due to an underdeveloped
workforce or in hyperinflationary environments. In such circumstances, you may need to visit pay structures more
frequently, such as on a quarterly basis. Hot jobs, too, may demand a different strategy, and you may have to
track pay very accurately to navigate talent wars successfully.
Another question to ask is: How much pay variation is tolerable for jobs of the same level? The answer is different
for every company. Roles that are easier to fill may have a narrower range, while the range may be wider in roles
that have larger differences in performance, knowledge, skills, and abilities.
How much variation is then tolerable for jobs within the same family? This, too, can vary from company to
company, and may be based on organizational culture. If you have many levels within a job family, the midpoint
differential will naturally be smaller.
Should the pay structure support career paths? Modern career paths are no longer linear, so be sure to factor in
the lateral movements employees may consider in addition to hierarchical advancements. Many employees also
take on project management roles, and the contingent workforce is also becoming more prevalent. Make sure
you’re managing costs with external sources, such as consultants and gig workers, too.
An additional consideration is how your company will recognize performance and competency growth. You may
be able to use your pay structure to encourage growth and development, moving employees across the pay
range as they gain experience.
A final but important question to ask is how you’ll manage the cost and administration of the pay structures.
Many smaller enterprises prefer structures that won’t take a great deal of time and effort to administer, so keep
resources in mind as you make your decisions.
Page 7
Types, Characteristics, and Uses of Pay Structures
There are many pay structures to choose from,
each of which serves a distinct purpose in specific
organizations and areas of business. The most
common types are outlined below in a brief guide
to help you determine which is best for your
company’s needs.
Market Ranges
Best for small companies just starting out, this method is used to match structures directly to market. It works
well when the company has many hybrid jobs, but it does have some disadvantages. For instance, market values
can be highly volatile year over year, and survey data must be used correctly to accurately capture market rates.
It requires high administration and may be difficult to communicate without confusion, due to the inherent market
volatility.
Continuum
With this mathematical method, a base pay policy line is created by regressing job evaluation points with external
market rates. Each job is evaluated using a point factor methodology and assigned a pay range. It’s appropriate
for companies that value internal equity over market-competitive rates, and also works well in small start-ups.
The continuum method is also practical for any company who wants to move subjectivity from the pay process.
Nonetheless, its formulaic approach isn’t flexible and can cause frustration in managers and staff. The point factor
methodology may also fail to capture all compensable factors in various disciplines.
Single Rate Pay Structure
Companies with a large, developed labor force that have little difficulty finding talent may be drawn to this simple
structure. In it, each job has a fixed rate of pay, and rates are reviewed regularly based on market pay movement,
and/or collective bargaining agreements. The approach works well for routine work with little variation in
performance, as well as high-commission sales jobs, internships, and contingent labor. It, too, can be used for
companies who wish to avoid equal pay issues. While it does require a fairly high level of administration, it’s easy
to communicate. The downside is that it may prompt some workers to leave for slightly higher pay elsewhere.
Page 8
Traditional Pay Structure
The most common pay structure, the traditional approach is an easy way to manage pay. Each job is assigned to
a grade and range of pay, and multiple job functions are assigned to the structure. You can have wide or narrow
range spreads, based upon the number of grades. Rates are reviewed regularly based on market pay movement
and/or internal job valuation. The typical number of grades are 12 to 20 or more. The more grades, the narrower
the pay ranges, and thus, the greater the pay accuracy.
Traditional pay structures are best applied in companies with low to moderate concerns of tracking market-
competitive pay. They also work for companies in which the workforce may have a desire to understand relative
job value across job functions. This approach can be used to emphasize promotions and career advancement.
Nonetheless, traditional pay structures tend to focus on the job instead of the individual, and may not be a good
fit for talent-based companies. They also may not work for organizations with many single incumbent positions or
hybrid roles. Finally, they can be overly bureaucratic in fast-moving, agile companies.
Broadband Pay Structure
The broadband pay structure mimics the traditional pay structure approach, except there are fewer grades
(usually just three to six). Ranges are very wide – as much as 100% to 300%. Broadband pay structures tend to
be used in companies running a lot of projects with a talent-based workforce. A node-based organizational
structure is best-suited for this approach. It may also work well in companies that desire pay flexibility based on
individual competency development, or situations in which leadership wants to remove the hierarchical structure
and promote a flatter organization. Thus, it also fits well in companies that have a significant amount of lateral
movement in the career path.
Page 9
One disadvantage of broadband pay structures
is that they require strong, experienced
managers who are able to reward, recognize,
and communicate with talent effectively. There
must also be ample trust between managers and
employees. Overuse of control points can begin
to mimic aspects of a traditional pay structure,
and the approach is not suitable for lower-paid,
market-sensitive positions. While there is low
administration involved, it puts much more of a
burden on manager’s pay decisions.
Job Function Pay Structure
A more advanced method, the job function pay structure consists of grouping jobs in to job families, and creating
pay ranges that are the same by the entire level across the organization. Support, professional, and manager
roles may be on a different structure. It is best applied in emerging markets, and companies with low to moderate
concerns of tracking market-competitive pay. It facilitates the ability to pay jobs equitably that perform a similar
scope of work, and allows for lateral movement and career mobility.
Job function pay structures require more of an administrative investment than traditional pay structures, and may
fail to track the market closely.
Job Family Pay Structure
The job family pay structure uses the same process as the job function pay structure, except that pay is specific
for each job. A job structure is created, and jobs are leveled consistently. Support, professional, and manager
roles may be on a different structure.
This approach works well for companies in highly competitive markets with a desire to target pay accurately. It
can also be used to promote career mobility in the job family. Yet, it is the most administratively burdensome pay
structure method.
Page 10
What Should You Do Now?
Clearly, there are many considerations that must be accounted for before you determine which job structures to
implement in your company. Here’s a practical guide for applying the principles discussed thus far:
Diagnose: Review your current pay structure methods and determine if they fit the company’s strategy.
Analyze the cost savings of switching to a better method.
Coordinate: Work with other talent initiatives such as career planning and mobility. Use the new structure
to drive performance.
Plan: Obtain the appropriate pay surveys and job analysis software to support and maintain your new pay
structures.
Evolve: Bring pay into alignment each cycle by tightening the pay ranges where applicable. Improving
pay accuracy and fairness can save the company a significant amount of money.
Adapt: Monitor the pay structures each year or sooner to ensure success.
Page 11
Summary
Pay ranges are an effective vehicle for helping your company move towards greater transparency. They can be
used as both an administrative tool and communication tactic for helping your employees understand potential
career paths and pay equity. By strategically implementing the appropriate pay ranges for your organization, you
can allocate funds in the ways that best support your overarching goals.
Yet, it’s critical to ensure you’re making meaningful changes that drive competitiveness and meet the specific
needs of the different groups within your workforce. To that end, you must consider:
how accurate your pay policy should be in relation to market rates,
how much pay variation is tolerable for jobs of the same level,
how much variation is tolerable for jobs of the same family,
the degree to which the pay structure will support career paths,
how your company will recognize performance and competency growth, and,
the funds and level of administration you can devote to managing the pay ranges.
Page 12
Once you’ve answered these questions, you can move on and revisit the various job structures to determine
which will fit best for your organization:
Market Ranges: ideal for small companies and startups; based solely on market data
Continuum: a mathematical approach that is also practical for startups, but may be too rigid for
companies that need some degree of flexibility
Single Rate Pay Structure: a straightforward approach in which each job has a fixed rate based on market
pay movement or collective bargaining agreements; ideal for companies with a large, developed labor
force
Traditional Pay Structure: the most common approach which assigns each job to a grade and range of
pay, with multiple functions assigned to the structure
Broadband: similar to traditional pay structures, except there are fewer, wider ranges; best for flatter
organizations with significant lateral movement in career paths
Job Function: an advanced method in which jobs are grouped into families, and ranges are created by
level across the entire organization
Job Family: similar to job function structures, except each job has specific pay; administratively
burdensome but ideal for promoting career mobility in highly competitive markets
Keep in mind that you may need to mix approaches across different functions to meet the diverse needs of your
workforce. While any approach will require careful planning and an investment of your time, its payoff can be
tremendous in terms of aligning your employees with the needs of your business.
Page 13
About the Contributors
Sam Reeve | CCP, GRP | President, CompTeam
Sam Reeve is the President of CompTeam, a management consulting firm that
focuses on improving the relationship between employee motivation, happiness, and
performance. He is a recognized thought leader in human capital talent strategies
with over 15 years of experience in leading companies through transformational
change by optimizing talent initiatives with reward programs to achieve long-term
strategic objectives. Sam’s diverse experience includes the design and optimization
of performance-driven variable compensation plans for executive, sales, and core
employee populations of growing companies.
Prior to joining CompTeam, Sam worked in compensation functions at notable firms such
as BlackRock, Barclays, McKesson, and Automatic Data Processing (ADP).
Phone: 925-596-0147 | [email protected] | www.compteam.net
HRsoft is the trusted global leader in compensation management
software whose COMPview solution is proven to control and
simplify the full process and allocation of merit, bonus and equity
awards to drive manager and employee engagement.
Phone: 866.953.8800 | Email: [email protected] | Web: hrsoft.com

Date post:	27-Mar-2022
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

NEW YEAR, NEW PAY RANGES MODERNIZING - HRSoft

Documents