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The Strategic Compensation Model

Concepts Compensation Techniques Compensation Objectives

Internal Job Job Job Job Role clarity and accountability.

equity Analysis Description Evaluation Grades
Facilitates administration and
performance management.

External Market Salary Policy Pay Competitive wage policies and

practices.
equity Definitions Surveys Lines Structures
Influence employees’ work
attitudes and behaviour.
Employee Seniority Performance Increase
equity Increases Evaluation Guidelines Attract talents.
Retain talents.
Motivate employees.

Comply with regulations.

Administration Planning, Budgeting, Monitoring, Evaluating Consistency in policy
administration.

5 / 111

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SPONSORED SEARCHES 1 Compensation Management :

powerpoint presentation Tools and Techniques

Lee Kok Wai Lectures 4 and 5

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2 HR’s 4 Roles & Key

compensation management
Accountabilities
Future/Strategic Focus
hr management Processes
People
ppt presentation Strategic
Partner
Change Agent
Sta ng
Organizational
Design
Succession
Planning
Performance Measurement
Training & Development
Strategic HR Planning
HR as Business Partner
Culture and Image
Employee Relations
Labor Relations
Environment, Health, Safety & Security
VOW Survey Action Plan
Compensation
Bene ts
HR Information Systems
Compliance
Employee Relations Expert
Administrative Expert
Day-to-Day Operational Focus

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 3 Managing Human Resources in COMPAQ
Manpower Mgt.
Headcount management
Recruitment strategies
Sources of labor supply
Selection process & tools
Retention strategies & plans
Sta deployment
Sta orientation
Employee Relations Mgt.
Bene ts administration
Code of conduct & ethics
Employee discipline
Employee communications
Sta social, sports & recreation
Community services & relations
Human Resource Admin.
Records & information mgt.
Personnel research
HR policy review
HR process improvements
HR performance stds & audit
Legal compliance
Document control
Performance Mgt. (HRD)
Sta training & development
Succession planning
Career planning
Coaching & counseling
Appraisal review/ranking
Organization development
Leadership development
Compensation Mgt.
T-Comp philosophy & design
T-Comp planning & admin.
Incentive plans (MIPs/LTB)
Pro t-sharing scheme
Reward & recognition prog.
Expatriate mgt.
Culture/Values Mgt.
Corporate vision
Corporate mission
Culture building
Teambuilding
Habits building
EHS&S Mgt.
Environment mgt.
Employee wellness
Employee health services
Loss prevention
Asset management
Safety mgt.

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 4 Strategic Components of Human Resources
COMPENSATION MANAGEMENT
We believe in paying competitive wages that commensurate with job size and
individual performance
WELFARE MANAGEMENT
We believe in being a rm, fair and caring employer. We strive to make employees
value their jobs and want to remain in the organization based on their abilities to
contribute and grow.
PERFORMANCE MANAGEMENT
We believe in equipping employees with the necessary skills to do a good job,
providing them with the tools, the environment, the support and the information
needed to excel in their jobs.
CAREER MANAGEMENT
We believe in matching employees’ strengths and aptitudes to available jobs,
developing them to their highest potential and o ering them opportunities to
advance in their careers.
CULTURE/VALUE MANAGEMENT
We believe in instilling our corporate core values and promoting a corporate culture
that emphasizes results, teamwork, learning, sharing, service quality and work
excellence.

5 The Strategic Compensation Model

Concepts
Compensation Techniques
Compensation Objectives
Internal
equity
Role clarity and accountability.
Facilitates administration and
performance management.
Competitive wage policies and
practices.
In uence employees’ work
attitudes and behaviour.
Attract talents.
Retain talents.
Motivate employees.
Comply with regulations.
Consistency in policy
administration.
Job
Analysis
Job
Description
Job
Evaluation
Job
Grades
External
equity
Market
De nitions
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Salary I agree.     
 Surveys
Policy
Lines
Pay
Structures
Employee
equity
Seniority
Increases
Performance
Evaluation
Increase
Guidelines
Administration
Planning, Budgeting, Monitoring, Evaluating

6 What is Job Evaluation?

Job evaluation is a decision process of comparing one job with another job with the
aim of establishing the relative importance of jobs within the organization.
Job evaluation will provide an internally logical ranking of all jobs which will form the
basis of the company’s salary structure

7 Principles For Job Evaluation

Evaluating the job, not the job-holder
Evaluating the present job, not the future job
Job is being carried out in a fully acceptable and competent manner
Process of evaluation is based on given facts in the job descriptions.
Evaluate the job based on the “primary responsibilities” and ignore the “special
personal-to-holder responsibilities.”

8 Job Evaluation : 3 Main Methods

Qualitative Method (an example is the Job Classi cation Method and the Job
Comparison Method)
Quantifying the Qualitative Method (an example is the Point Method)
Quantitative Method (an example is the Guide Chart Pro le Method)

9 Job Classi cation Method adopted by Academic Institutions such as

Universities
Job Class A : Doctorate Degree with at least 10 years post doctoral experience plus
relevant management experience (Faculty Head)
Job Class B : Doctoral Degree with at least 5 to 10 years post doctoral experience
(Full Professor)
Job Class C : Doctoral Degree with less than 5 years post doctoral experience or
Masters Degree with over 10 years post graduate experience (Associate Professor
and Senior Lecturer)
Job Class D : Masters Degree with 5 to 10 years post graduate experience (Lecturer)
Job Class E : Masters Degree with 3 to 5 years experience (Assistant Lecturer)
Job Class F : Masters Degree with less than 3 years experience (Teaching or Research
Assistant)

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 10 Job Evaluation: The Point Method
Job Evaluation Process
1. Form a Job Evaluation Steering Committee
2. Draw up a workplan for the exercise
3. Decide on the benchmark jobs
4. Decide on the job factors for the evaluation
5. Determine number of degrees for each factor
6. Prepare job descriptions based on job-factor format
7. Analyse each benchmark job in terms of factors and degrees
8. Decide on the weights of each factor
9. Determine the weighted score for each benchmark job
10. Slot in all other jobs into the job grades

11 The Point Method Form the Job Evaluation (JE) Steering Committee
a. The Steering Committee should be chaired by the CEO with functional Managers/
Heads as members. The HR Manager should be the Secretary of the JE Steering
Committee.
b. If an external consultant is employed to assist in the exercise, then he should be
designated as the advisor to the Steering Committee. The HR Manager should then
double-up as the counterpart for internal skills transfer.

12 Job Factor Score Sheet : Job # 12

DE
Education
20 40 60 80
100
Experience
30 90
120
150
Interpersonal Skills
10 50
Problems Encountered
Size of unit supervised
Decision Making
Work Environment
Impact of errors
Contacts/Committees
Assets Controlled ($)
Total Score = 440 points

13 The Point Method Slot all other jobs into the job grades
a. From the clusters, decide on the number of job grades to adopt.
b. Slot in all other jobs into the job grades adopted.

14 The Guide-Chart Pro le : Hay Method

This method, rst developed by Dr Edward N. Hay in the early 1950s, is essentially
concerned with decision making and responsibility. Guide Charts were created in
1951this
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 Emphasis was placed on answerability for the consequences of decisions, the degree
of freedom to take decisions and bring them to fruition, the degree to which there is
prime accountability, as compared to shared or contributory accountability in a job.

15 The Guide-Chart Pro le : 4 Critical Observations

The most signi cant factor could be grouped as representing the knowledge
required to do a job, the kind of thinking needed to solve the problems commonly
faced, and the responsibilities assigned.
Jobs could be ranked not only in the order of importance within the organization,
but the distances between the ranks could be determined.
The factors appeared in certain kinds of patterns that seemed to be inherent to
certain kinds of jobs
The focus of the process of job evaluation must be on the nature and requirements
of the job itself, not on the skills or background or characteristics or pay of the job
holder.

16 The Guide-Chart Pro le : Hay Method

There are Three Factors with a total of eight elements which determine the value of
di erent jobs. They are:
1. Know-How
2. Problem-Solving
3. Accountability

17 The Guide-Chart Pro le Method : Know-How

What is Know-How
Know-How is the total of every kind of skill required for average acceptable job
performance. It is knowledge and experience in professional, managerial and
human Relations activities necessary to ful ll the job.
Know-How is measured in depth by eight degrees and in breadth by ve degrees

18 The Guide-Chart Pro le Method : Know-How

The three dimensions of Know-How are:
Practical procedures, specialized techniques and knowledge within occupational
elds, commercial functions, and professional or scienti c disciplines. This is
commonly referred to as the Depth of Know- How.
Integrating and harmonizing simultaneous achievements of diversi ed functions
within managerial situations occurring in operating, technical, support or
administrative elds. This is referred to as the Breadth of Know-How
Active, practicing person-to-person skills in work with other people. This is referred
to as the Human Relations Skill.

19 The Guide-Chart Pro le Method : Know-How

Depth Of Know-How
A. Education to post –primary level
B. Practiced in standard work routines and /or use of simple equipment and
machines
C. Procedural or systematic e ciency and use of specialized equipment
D. Specialized skill gained by on-the-job experience or through part professional
quali cation
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 E. Understanding of theoretical principles normally gained through professional
quali cation or through a detailed group of involved practices and procedures
F. Seasoned pro ciency in a highly specialized eld, gained through experience built
on theories or a broad and deep understanding of complex practices
G. Mastery of principles, practices and theories gained through wide experience
and/or special development
H. Unique command of principles, theories and practices

20 The Guide-Chart Pro le Method : Know-How

Breadth Of Know-How
I. Non or minimal – Performance or supervision of jobs which have closely speci ed
objectives
II. Homogeneous – Integration of operations which are homogeneous in nature and
objective, and coordination with associated functions
III. Heterogeneous – Integration or coordination of diverse functions or sub-
functions in a company; or inter-company coordination of a tactical function
IV. Broad – Integration of the major functions in an operating company; or group-
wide coordination of a strategic function a ecting policy formation
V. Total – The management of strategic functions and policy formation

21 The Guide-Chart Pro le Method : Know-How

Human Relations Skills
1. Basic – Ordinary courtesy and e ectiveness in dealing with others
2. Important – Understanding and in uencing people, important but not over-riding
considerations
3. Over-riding – Skills in developing and motivating people are over-riding
considerations

22 The Guide-Chart Pro le Method : Know-How

23 Guide-Chart Pro le Method : Problem Solving

What is Problem Solving
The use of Know-How required by the job to identify, de ne, and resolve problems.
“You think with what you know.” This is even true for the most creative work. The
raw material of any thinking is knowledge of facts, principles and means. For that
reason, Problem Solving is measured as a percentage of Know-How.
Problem Solving has two dimensions:
The environment in which the thinking takes place
The challenge presented by the thinking to be done

24 The Guide-Chart Pro le Method – Problem-Solving

Thinking Environment
A. Detailed rules and/or rigid supervision
B. Standard instructions and/or continuous close supervision
C. Well-de ned procedures, somewhat diversi ed and/or supervised
D. Substantially diversi ed established company procedures, and general
supervision
E. Clearly de ned company policies, principles and speci c objectives under readily
available direction
F. Broad policies and objectives, under general direction
G. General
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 H. Business philosophy and/or principles controlling human a airs

25 The Guide-Chart Pro le Method – Problem-Solving

Thinking Challenge
I. Repetitive – Identical situations requiring solution by simple choice of things
learned
II. Patterned – Similar situations requiring solution by discriminating choice of things
learned
III. Variable – Di ering situations requiring searching, nding and selecting solutions
within the area of things learned
IV. Adaptive – Situations requiring analytical interpretive and/or constructive
thinking. Judgment is required
V. Creative – Novel or non-recurring path- nding situations requiring the
development of new concepts and imaginative approaches

26 Guide-Chart Pro le Method : Accountability

What is Accountability?
The answerability for action and for the consequences thereof. It is the measured
e ect of the job on end results of the organization. It has three dimensions:
Freedom to Act - is the extent of personal, procedural, or systematic guidance or
control of actions in relation to the primary emphasis of the job
Job Impact on End Results – is the extent to which job can directly a ects actions
necessary to produce results within its primary emphasis.
Magnitude – is the portion of the total organization encompassed by the primary
emphasis of the job. This is usually but not necessarily, re ected by the annual
revenue or expense dollars associated with the area in which the job has its primary
emphasis.

27 The Guide-Chart Pro le Method - Accountability

Freedom To Act
A. Prescribed – Direct and detailed instructions, and close supervision
B. Controlled – Established work routines and close supervision
C. Standardised – Standardised practices and procedures, general work instructions
and supervision of progress and results
D. Generally regulated – Practices and procedures which have clear precedents
E. Directed – Broad practice and procedures covered by functional precedents and
policies and managerial direction
F. Oriented Direction – Functional policies and goals, and general managerial
direction
G. Senior Guidance – Inherently and primarily to direct top management guidance
H. Ownership Guidance – Only to ownership review and public recreation

28 The Guide-Chart Pro le Method - Accountability

Impact
I. Very Small (under US$1M)
II. Small (Between US$1M to US$10M)
III. Medium (Between US$10M to US$100M)
IV. Large (More than US$100M)

29 The Guide-Chart
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 Environment
1. Remote – Giving information on other incidental services for use by others
involved in the action
2. Contributory – Interpreter, advisory or facilitating services to those involved in the
action
3. Shared – Participating with others (except superiors and subordinates) in taking
action
4. Prime – Wholly responsible, with little or no shared responsibility

30 Salary Survey based on Hay Method

Hay Point Range
Median Salary Formula
* HP
* HP
* HP - 13,916
* HP - 10,033
* HP - 17,881
* HP

31 Salary Survey based on Hay Method

Hay Point Range
Upper Quartile (Q3) Salary Formula
* HP
* HP
* HP - 19,893
* HP - 10,140
* HP - 21,145
* HP

32 The Strategic Compensation Model

Concepts
Compensation Techniques
Compensation Objectives
Internal
equity
Role clarity and accountability.
Facilitates administration and
performance management.
Competitive wage policies and
practices.
In uence employees’ work
attitudes and behaviour.
Attract talents.
Retain talents.
Motivate employees.
Comply with regulations.
Consistency in policy
administration.
Job
Analysis
Job
Description
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 Job
Evaluation
Job
Grades
External
equity
Market
De nitions
Salary
Surveys
Policy
Lines
Pay
Structures
Employee
equity
Seniority
Increases
Performance
Evaluation
Increase
Guidelines
Administration
Planning, Budgeting, Monitoring, Evaluating

33 Compensation Management
The fundamentals of salary administration
Salary administration is concerned with deciding how and what sta should be paid
and with the techniques and procedures for designing and maintaining salary
structures, rewarding sta and exercising salary control.

34 Aims Of Salary Administration

The basic aims of salary administration are to attract, retain and motivate sta by
developing and maintaining a competitive and equitable salary structure.
To ensure that a su cient number of suitable sta is attracted to join the
organization;
To encourage suitable sta to remain with the organization;
To develop and maintain a logical salary structure which achieves equity in the pay
for jobs of similar responsibility and consistency in the di erentials between jobs in
accordance with their relative values;
To ensure that salary levels match market rates;
To keep the salary levels adjusted in line with increases in the cost of living;

35 Aims Of Salary Administration

To maintain consistency in methods used to x and review salary levels and
di erentials;
To provide for progression within the salary structure in accordance with
performance and level of responsibility;
To operate the salary system fairly and convince the sta that the system is fair;
To maintain a exible salary system which will accommodate changes in the market
rates for di erent skills and in the company’s organization structure;

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 To achieve simplicity in operations as an aid to sta understanding and to minimize
administrative e ort;
To operate e ective systems of controlling salary costs and the administrative
procedures required to achieve the above aims at the least cost to the organization.

36 Components Of Salary Administration

The starting point of salary administration is the determination of salary levels by job
evaluation. Thereafter, salary administration is concerned with:
The design and maintenance of salary structures;
The operation of salary progression systems;
The administration and control of salary reviews;
The design and operation of bonus schemes;
The provision of employee bene ts and other allowances;
The development of a total remuneration policy.

37 Compensation Tools and Techniques

Pay Structure
Salary Structure
Performance Related Pay
Merit Payment Scheme
Incentive Scheme
Bene t Policies
Salary Review Guidelines
Compa-ratio
Salary Problems

38 Criteria for Pay Structures

Be appropriate to the needs of the organization, in terms of its:
- culture, size and the degree in which changes take place
- need for exibility
- type and level of employees to be covered
Be exible in response to internal and external pressures, especially those related to
market rates and skill shortages.
Provide scope for rewarding high- yers while still providing appropriate rewards for
the majority of employees.
Ensure that rewards are given in line with performances and achievements.
Provide a basis for career planning which will motivate ambitious employees with
high potential.
Facilitate consistency in the treatment of varying levels of responsibility and
performance.

39 Graded Salary Structures

All jobs are allocated into salary grade within the structure on the basis of an
assessment of their internal and external value to the organization.
Each salary grade consists of a salary range or band.
The jobs allocated to a salary grade are assumed to be broadly of the same level –
normally the same minimum and maximum rates, which correspond with grade
boundaries.

40 Graded
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 A typical graded structure consists of a sequence of salary grades or ranges, each of
which has a de ned minimum and maximum. It is assumed that all the jobs
allocated into a grade are broadly of the same value, although actual salaries earned
by individuals will depend on their performance or length of service.
Across the board cost of living or market rate increases will usually result in an
increase to the minima and maxima of each grade. All the jobs in an organization
may be covered by the same structure of salary ranges or there may be di erent
structures for di erent levels or categories of jobs.

41 Make-up of a Salary Grade

A basic principle of a salary structure is that individuals advance through the
structure either by progressing within the salary grade for the job as they improve
their performance, or by promotion.
In the simplest structure, people move more or less steadily from the entry point of
the grade (with might be above the minimum if they have already gained relevant
experience elsewhere or within the rm) to the upper limit, unless they move to a
higher grade. It is possible, however, to distinguish three stages into which this
progression is divided, and for salary administration purposes it is helpful to divide
the grade into three zones which correspond to these stages.

42 Salary Structure : Ratio Method

43 Salary Structure : Ratio Method

44 Salary Structure : Dispersion Method

45 Salary Structure : Dispersion Method

46 The Learning Zone

The learning zone covers the period when a person is on his ‘learning curve’,
familiarizing himself with the knowledge and skills required if he is to become fully
competent. The length of time to go through this zone will vary according to the
individual’s experience, competence and ability to learn. It would be accepted that
someone might enter the range at any point in this zone, from bottom to top,
depending on experience.

47 The Quali ed Zone

The quali ed zone covers the period when the job holder continues to increase his
capacity to do the work and to improve his performance.
The minimum salary in this zone should be the market rate for the job, so far as this
can be ascertained, the assumption being that the market rate is the salary level
required to attract a competent individual from another job to join the company.The
mid-point in this zone, which is also the mid-point of the grade, is the salary level
which all competent employees would be expected to achieve. This is above the
market rate in order to retain these individuals. An employee who is no more than
competent could stop at this point, but most would continue to advance until they
reach the top of the quali ed zone, which would be regarded as the normal
maximum for the job. Many such employees would in any case be promoted to a
higher grade before they reach the upper limit of this zone.

48 The Premium
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 The premium zone is reserved for those employees, especially in the higher grade
jobs, who achieve exceptional results but for whom suitable promotion
opportunities do not exist.
This zone enables outstanding sta to be given additional rewards and
encouragement. In some salary structures, the published salary grades for each job
only cover the learning and quali ed zones, the premium zone being reserved for
use in special cases. Progression through that zone would not be regarded as
normal by management or sta .

49 Make-up of a Salary Range

50 Relationships Between Grades

20%
20%

51 Graded Salary Structures

The range may be de ned in terms of the di erence between the lowest and highest
points in the range, using the minimum as the anchor (Maxmin ratio method):
Min Midpoint Max Maxmin
$20,000 $24,000 $30,000 1:50
$20,000 $25,000 $32,000 1:60
$20,000 $26,000 $34,000 1:70
Alternatively, the range may be de ned as a percentage of the midpoint using the
midpoint as the anchor (Salary dispersion method):
Min Midpoint Max Dispersion Max
Point (100%) Point Ratio
$20,000(80%) $25,000(100%) $30,000(120%) +20% 1.50
$18,750(75%) $25,000(100%) $31,250(125%) +25% 1.67
$17,500(70%) $25,000(100%) $32,5000(130%) +30% 1.85

52 Graded Salary Structures

The midpoint of the range is regarded as the “target salary” for the grade, which
would be the average salary of the sta in the grade. The target salary is the salary
that you will pay to a fully competent professional doing the job on that grade
The midpoint is usually aligned to the market rates for jobs in the grade.
The salary policy of the organization determines whether the midpoint is equated to
the median market rate or whether it is related to another point. eg upper quartile

53 Graded Salary Structures

The rate of salary progression through a range is determine by:
- time or length of service (service increments)
- individual performance (variable or merit increments)
The number of salary ranges required depend on:
- the upper and lower salary levels of the jobs to be covered by the structure, which
give the overall range of salaries within which the individual salary ranges have to be
tted
- the number of distinct levels of responsibility in the hierarchy which needs to be
catered for by separate grades
- the size of the di erentials between each salary range.

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 54 Graded Salary Structures
There is a di erential between the midpoints of each salary range which provides
adequate scope for rewarding increased responsibility on promotion.
It does not create too wide a gap between adjacent grades or reduce the amount of
exibility available for grading jobs.
The salary ranges are su ciently wide to allow recognition of the fact that people in
same job grade can perform di erently, from satisfactory performance to
outstanding performance.
There is an overlap between two consecutive salary grades which acknowledges that
an experienced person should be of more value on the current grade than a
newcomer in the next higher grade.

55 Designing the Salary Structure

Step 1
Conduct market rate surveys for existing jobs.
Review existing salary structures and di erentials between the salary levels of the
most senior and junior jobs to be covered by the new structure.
Identify key problem areas (if any) in existing structures.
Step 2
Conduct an update of the job evaluation exercise, taking into consideration all
changes to jobs since the last job evaluation review
Step 3
Obtain market rate data for the evaluated jobs, bearing in mind that there is likely be
a range of market rates rather than a precise gure.
Preferably the market rate data should be based on a similar job evaluation system
for comparability.

56 Designing the Salary Structure

Step 4
Draw up a salary grade structure between the upper and lower limits, according to
policies for di erentials, the width of salary grades and the size of overlap between
two consecutive grades.
Step 5
Slot all jobs into grade structure in accordance with the results of both the job
evaluations and the market rate surveys.
Step 6
Identify all cases that are below the salary range and cases that have exceeded the
salary range (max-out cases) and review their job evaluation scores and grades

57 Advantages of Graded Structures

The relative levels of jobs in di erent functions can be readily assessed and
recognized.
Consistent methods of grading jobs and establishing di erentials between them can
be maintained.
A well-de ned and comprehensible framework exists within which salary and career
progression can be planned and controlled.
Better control can be exercised over salaries for new hires, merit increments and
promotion increases.
Graded structures facilitate order, consistency and control.
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 58 Disadvantages of Graded Structures
It can be in exible at times, unless periodic review is carry out every 3 years or so.
Fixed grades make it more di cult to accommodate the many changes to which
reward structures are subject because of internal and external pressures.
The sort of people they employ cannot be con ned within rigid range boundaries,
unless incentive schemes are available.
It brings people to the top of the range barriers where they become stuck if there
are no opportunities for promotion to the next grade.

59 Salary Administration
Key topics covered
Minimum Point of Salary Range
Maximum Point of Salary Range
Entry Point for new sta
Annual increments
Salary adjustments
Promotion increments
Lumpsum payments
Incentive schemes
Flexible bene ts

60 Current and Proposed Salary Structure Midpoints, Market Average, and

Company Average Salary

61 Job Grades & Salary Ranges

62 Compa-ratios (CR)
a compa-ratio (comparative ratio) is a measure of the extent which the average
salaries in a grade deviate from the target salary.
it is used to compare actual averages with the target salary to indicate the extent
which salary levels are high or low.
the formula for calculating a compa-ratio is:
Average of all salaries in the grade
x 100
Midpoint of the salary range
a compa-ratio of 100 indicates that the average salary is aligned to the midpoint of
the salary grade and no corrective steps need to be taken.

63 Compa-ratios (CR)
a compa-ratio of 80 would indicate a need to investigate why average salaries were
low and possibly no longer competitive.
a compa-ratio of 120 would suggest either there were a lot of long-service sta or
that sta were being overpaid, and that increases needed to be modi ed.
compa-ratio analysis can reveal a situation where earnings drift has taken place.

64 Competitive Posture (CP)

Competitive Posture is a measure of how competitive the salary is with respect to a
given market benchmark.
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 Competitive Posture can be used to measure the competitiveness of both company’s
or individual’s salary competitiveness in the market
Competitive Posture for a company is computed as:
CR = Average of all Salaries in a given Job Grade
Market Benchmark Salary
Competitive Posture for an individual is computed by:
CR = Salary of the individual Employee

65 Salary Administration
Minimum Salary Points
1. Minimum salary for the grade
2. Minimum for Job In the market
3. Set compa-ratio at 1 .00
4. Overlap between 60% to 80%
5. Avoid leapfrogging tendencies
6. Allow for realistic minimum

66 Salary Administration
Maximum Salary Points
1. Maximum salary for the grade
2. Maximum for job in the market
3. Keep salary range short ( years)
4. Maxmin ratio between 1.5 to 2.0
5. Set compa-ratio at 1.00
6. Allow for realistic maximum

67 Salary Administration
Minimum And Maximum Points
Minimum
1. Minimum salary for the grade
2. Minimum for Job In the market
3. Set compa-ratio at 1 .00
4. Overlap between 60% to 80%
5. Avoid leapfrogging tendencies
6. Allow for realistic minimum
Maximum
1. Maximum salary for the grade
2. Maximum for job in the market
3. Keep salary range short ( years)
4. Maxmin ratio between 1.5 to 2.0
5. Set compa-ratio at 1.00
6. Allow for realistic maximum

68 Streamlining of Salary Ranges (Executives)

E ective 1 January 1995
* Most typical value corresponds to the working midpoint of the range
@ Derived from annual base salary
# Dispersion factor of +/ - 25% around Q1 values

69 Job Reference
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 The reference job description prepared to assist non-hay evaluated companies with
job matching, are each evaluated and quality assured against Hay’s standards. The
evaluations are then slotted into the relevant job unit range which forms the
reference levels. These reference levels and corresponding job unit ranges are now
standard throughout all Hay’s main remuneration surveys and are detailed below.

70 Job Reference Levels

71 Salary Administration
Determining Entry Salary
1. Market value
2. Candidate's existing salary
3. Basic quali cations
4. Additional quali cations
5. Relevant working experience
6. Related working experience
7. Completion of national service
8. Geographical location of company
9. Nature of industry (dirty or hazardous)
10. Minimum salary for job grade
11. Salaries of existing incumbents
12. Re-grossing annual salary

72 Incremental Systems
Incremental systems vary from rigid procedures with xed and predetermined
movements through a scale related to age, service in the company or service in the
job, to exible systems where management exercises complete discretion over the
award and size of increments without any guidelines. Between the two extremes
there is a middle ground of semi- exible systems.

73 Incremental Systems
Fixed scales with automatic progression where individuals move through jobs or
grades by predetermined steps related to age or service, these could be rate for age
scales. Fixed scales are criticized because they do not give enough incentive to e ort
and the improvement of performance-promotion might only be an award in the
longer term, if at all. They are defended because they can be operated with
complete impartiality- many people, especially civil servants, question the possibility
of determining a fair relationship between merit and reward where the only method
of measurement is the subjective opinion of someone’s boss.

74 Incremental Systems
Fixed scales with limited exibility where it is possible to give double or even triple
increments to high yers and withhold increments for poor performers.
Semi- xed scales which allow automatic progression to a ‘merit bar’ at which
progression for some people may stop while other can advance at di erent rates
according to performance.
Fixed parallel scales which allow for the exercise of more managerial discretion by
providing di erent patterns of incremental progression for di erent levels of
performance, as shown in gure 10.

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 75 Incremental Systems
Variable progression with guidelines where there are no xed incremental points,
but managers are given more or less mandatory instructions on how they should
exercise their discretion. The minimum guidelines in this system nay consist of the
annual increments that can be awarded for di erent levels of performance. These
may be extended in more rigid systems to give the proportion of sta who should
receive a given increment.
Variable progression in range without guidelines where management discretion in
the award of increments and the determination of their size tends to be restricted
only by the maximum of the salary range and the budget they are allowed for salary
increases.

76 Annual Increment Fixed increment system - Fixed $ - Fixed %

Variable increment system
- Fixed variable
- Fixed Plus (merit increment)
Flexible increment system
- Fixed component + exible component
Matrix system
- Salary quadrant vs. performance matrix

77 Salary Progression Curve

78 Increment vs Performance Matrix

79 Market Value Computation

80 Salary Review Guidelines

Overall cost guidelines
in which a budget of x% of payroll is imposed for merit reviews. This is the
essential guideline, and managers may be left to distribute the pool as they please,
or subject to various degrees of control.
Guidelines maximum and minimum increases
managers are told that they cannot give an increase of more than x% or less, on
the grounds that too high an increase could produce inequities and too low of an
increase is meaningless.

81 Salary Review Guidelines

Guidelines on the relationship between performance and reward
the awards should be related to an overall assessment of performance on a scale
such as:
Assessment Increment (%)
A – Outstanding 9 – 10
B – Good 7 – 8
C – Satisfactory 4 – 6
D – Needs improvement 0% plus counseling*
E – Unsatisfactory Termination
*only if there is hope of improvement & individual needs encouragement

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 82 Salary Review Guidelines
Guidelines on the distribution of increments
an attempt to overcome the varying standards of judgment leading to an ‘all my
ducks are swans’ approach to rewarding sta . The distribution scale may be related
to a guideline like this:
Assessment Increment (%) Distribution
A – outstanding 9 %– 10% 10%
B – good 7% – 8% 20%
C – satisfactory 4 %– 6% 50%
D – needs improvement 0% 10%
E – unsatisfactory 0% 10%

83 Salary Review Guidelines

Guidelines on rates of progression
managers are helped to plan salary progression by being given an indication of
the number of years it should take sta at di erent levels of performance to reach
the top of the grade and, in zones of salary range, the limits within the range which
can be reach according to their performance.
Assessment Limit In Grade Typical Length
Learning zone 1 to 3 years years
Performing zone 4 to 6 years years
Exceeding zone 2 to 4 years years
-

84 Salary Problems Absorbing market rates pressures

arises when general and individual salary reviews have not enabled the company’s
salary levels to keep pace with increase in market rates.
it is exacerbated if the company is expanding and is compelled to obtain key sta
who are in short supply.
Widening di erentials
di erentials are widening between and within companies in the following areas:
- between high-and low-paying organizations – the variations in prosperity between
di ering sectors of industry and commerce and between regions are major
contributors to this problems.
- between companies paying bonuses or incentives and those paying straight
salaries.

85 Salary Problems Performance pay

- between top and middle management within companies – this is partly incentive
led
- between executives recruited by search and those with a one-company career.
Performance pay
tend to favour the few whose results can be measured.
merit-assessment are too often based on subjective and biased judgments.
can be avoided only by intensive training of assessors and by careful monitoring of
the appraisal scheme.

86 Salary Problems Sta reaching the top of their salary league

sta reaching the top of their salary range may feel demotivated if there are no
prospects
To make for promotion
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 it is possible to deal with this problem by introducing on top of the normal salary
range a premium zone which is reserved for outstanding sta whose promotion is
blocked.
Starting salaries
the problem of starting new sta at higher rates than existing employees should
be minimized if internal salary levels are regularly reviewed in comparison with
market rates.

87 Salary Problems Deteriorating job evaluation schemes

the scheme may not have been controlled properly, so that grade drift occurs
through unjusti able upgradings.
scheme may have lost credibility because it no longer gives acceptable solutions.
administration may have become so bureaucratic that the time taken to produce
answers is unduly prolonged.
the solution is to make a determined e ort to tighten controls and speed up
administration, making only minor modi cations to the scheme.

88 Objectives of Performance-Related Pay (PRP)

Motivate all employees, not just the high- yers.
Increase the commitment of employees by encouraging them to identify with its
mission and values.
Reinforce existing cultures and values to foster high levels of performance,
innovation and teamwork.
Help to change cultures where they need to become more performance- oriented
and results-oriented; or where the adoption of other new and key values should be
rewarded.
Discriminate consistently and be equitable on the distribution of rewards to
employees according to their performance results and contributions.

89 Objectives of Performance-Related Pay (PRP)

Deliver a positive message about performance expectations of the company –
focuses attention on key performance issues.
Direct attention and endeavour by specifying the organization’s performance goals
and standards.
Emphasize individual performance or teamwork as appropriate.
Improve the recruitment and retention of high-quality sta .
PRP costs will be in line with company performance.

90 Key Factors to Consider When Introducing PRP

Matching the culture
successful PRP schemes need to match the culture and core values of the
organization.
Linking PRP to business strategy
the focus needs to be on strategic business issues which emerge from the business
planning process.
Balancing quantitative and qualitative measures
while most PRP schemes rely on quantitative measures of performance, qualitative
factors need to be introduced for the measurement of individual behaviour eg
balanced scorecards
The need for exibility
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 exibility in making ‘milestone’ payments which convey the right messages for the
future.
The need to promote teamwork
the importance of teamwork should be recognized in structuring the scheme and
de ning critical success factors and performance indicators.

91 Key Factors to Consider When Introducing PRP

The need to avoid short-term thinking
setting long-term as well as short-term goals, and discussing short-term objectives in
their overall context.
Involvement in the design process
designing PRP schemes should be an iterative process : trying and testing ideas on
measures and structures with those who will eventually be involved in a scheme.
Getting the message across
all types of PRP are very powerful forms of communication. To get the right
messages across for any scheme, one must make key decisions on the following:
How can the scheme achieve the best possible launch?
Is it better to give no pay-out rather than a low pay-out?
What is the best psychological moment for pay-out?
What communications should be used to gain maximum motivational impact from
payment?
How should communications be handled when the scheme requires changes?

92 Competence and Performance-Related Pay Curve

New Entry Professional
Competent Professional
Experienced Professional
Performance Levels
Excellent
Good
Salary ($)
Satisfactory
Performing
Exceeding
Learning
Competence bands

93 Advantages of individual Merit Payment Scheme

Directly link individual performance with salary progression.
Provide individualized progression rates.
Recognize increasing competence gained through experience.

94 Disadvantages of Individual Merit Payment Scheme

Dependent on the quality of performance appraisal; which can be arbitrary,
subjective or inconsistent.
Unless carefully conceived and managed, it can demotivate people who, although
not be delivering spectacular results are still important.
Merit payment, as distinct from bonuses, create extra payroll costs when bene ts
such as pensions are related to base pay.
A merit payment is, in e ect, a permanent increase in salary, yet the quality of
performance
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 Merit pay can result in an upward drift in payroll costs without a commensurate
improvement in performance.
Merit pay is e ective as a motivator only if rewards are clearly related to
performance and are of a signi cant value.

95 Sales Incentive Plan Business Objectives Marketing Strategy

Sales Strategy & Coverage Model
The Sales Plan
Sales Job De nition
Quota and Crediting
Compensation Plan Design
Sales Plan Implementation

96 Total Compensation Architecture

Fixed
Variable
Total Potential
Rewards
Target Sales
Incentive for
Quota Achievement
Accelerated Incentives
for Quota
Over-achievement
$ Earnings
Base Salary/ Fixed Pay
+
FAT/MBO
=
Above quota
achievement
Recognition
Performance
Pro t
Sharing
Stock
Options*
*Selective use based on position and performance, competency and future growth
potential

97 Incentive Schemes For Sales Sta

Where it is felt that sales sta need to be motivated by an incentive commission
scheme the majority of companies nd that the best approach is a basic commission
on sales volume or, in more sophisticated rms, on the contribution to xed costs
and pro ts of the sales of each product group or product. The standard commission
is typically set at about one-third of salary to provide a noticeable incentive without
adversely a ecting feelings of security.
A successful sales commission plan should satisfy all the criteria listed above for
bonus schemes. But it is particularly necessary to ensure the following:

98 Incentive Schemes For Sales Sta

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 A) The reward is fair in relation to the e orts of the sales representative. This means
that attention has to be paid to setting and agreeing realistic and equitable targets,
making allowances for special circumstances outside the control of the sales
representative which might a ect sales, and splitting commission fairly when more
than one person has contributed to the sale;
B) The scheme directs sales e ort in accordance with management’s policy on the
product mix and does not encourage the representative to concentrate on what is
easiest to sell;
C) The scheme does not encourage high pressure selling which results in an
unacceptable level of returns, cancellations and complaints;
D) The scheme does not encourage representatives to neglect their indirect selling
activities, such as servicing customers.

99 Criteria for Success of Incentive Scheme

It should be appropriate to the type of work carried out and the workers employed.
The reward should be clearly and closely linked to the e ort of the individual or
group.
Individuals or groups should be able to calculate the reward they get at each of the
level of output they are capable of achieving.
Individuals or groups should have a reasonable amount of control over their e orts
and therefore their rewards.
The scheme should operate by means of a de ned and easily understood formula.
The scheme should be properly installed and maintained.
Provision should be made for controlling the amounts paid to ensure that they are
proportionate to e ort.
Provision should be made for amending rates in de ned circumstances.

100 Individual Incentive Schemes

Straight piece-work
payment of a uniform price per unit of production.
can be expressed in two main forms:
- money piecework
- time piecework
Di erential piecework
the wage cost per unit is adjusted in relation to output.

101 Individual Incentive Schemes

Measured daywork
the pay of employees is xed on the understanding that they will maintain a
speci ed level of performance, but the pay does not uctuate in the short term with
their performance.
the criteria for success in operating it are the following:
total commitment of management, employees and unions.
an e ective work measurement system, and e cient production planning and
control and inventory control procedures.
the establishment of a logical pay structure with appropriate di erentials from the
beginning of the scheme’s operation.
the maintenance of good control systems to ensure that corrective action is taken
quickly if there are any shortfall on targets.

102 Group Incentive Scheme

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 Provide for the payment of a bonus either equally or proportionately to individuals
within a group or team.
Bonus is related to the output achieved over an agreed standard or to the time
saved on a job.
Group bonus scheme are in some respects equivalent to individual incentive
schemes.
It encourages team spirit, breaks down demarcation lines, and enables the group to
discipline itself in achieving targets.
Potential disadvantages are that management is less in control of production – the
group decides what earnings are to be achieved and can restrict output.

103 Designing an Incentive Scheme

How performance will be measured.
The employees who will take part in the scheme and who will therefore have part of
their pay directly linked to their own performance or group.
The employees who will not take part in the scheme and how they will be
compensated.
Whether or not the scheme will be an individual one or one linked to group
performance or related to plant performance.
Whether the bonus payments will be related to basic pay.
The proportion of pay which can be earned as bonus.

104 Designing an Incentive Scheme

The full basic rate.
The relationship between output/e ort and reward, eg the extent to which, if at all,
there is a di erential built into the scheme which shares the results of higher
productivity between the company and the workers.
The basis upon which employees not earning bonuses will be paid.
The timings of bonus payments and the lapse of time before payments are made.
The arrangements, if any, to alleviate the problems of large uctuations in bonus
payments.
The methods to be used to maintain the scheme and to inform employees of their
earnings

105 Aims of Bonus Schemes

The principal aim of a bonus scheme is to provide an incentive and a reward for
e ort and achievement. Executive bonus schemes linked to company pro ts can
also aim to make senior managers feel that their personal prosperity is linked to the
performance of their company or unit.
Bonus schemes are supplementary to basic salary and are most appropriate where
they apply to entrepreneurial types such as chief executives, marketing men and
sales sta who, it is assumed, will strive for material reward, and whose results upon
which their bonus depends can be clearly linked to their personal e orts and
achievements.

106 Bonus Schemes Criteria

The amount of the award received after tax should be su ciently high to encourage
sta to accept exacting targets and standards of performance. Standard bonuses
should not be less than 10% of the basic salary and, if an e ective incentive is
wanted , the standard bonus should be around 20% to 30% of salary
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 The incentive should be related to quantitative criteria over which the individual has
a substantial measure of control
The scheme should be sensitive enough to ensure that rewards are proportionate to
achievements
The individual should be able to calculate the reward he can get for a given level of
achievement

107 Bonus Schemes Criteria

The formula for calculating the bonus and the conditions under which it is paid
should be clearly de ned
Constraints should be built into the scheme which ensure that sta cannot receive
in ated bonuses which may not re ect their own e orts
The scheme should contain provisions for a regular review, say, every two or three
years, which could result in its being changed or discontinued
The scheme should be easy to administer and understand, and it should be tailored
to meet the requirements of the company

108 Executive Bonus Schemes

There are innumerable formulae for executive bonus schemes, and each company
must adopt one which suits its own circumstances. The simplest formula is for a
percentage out of net pro ts before tax to be paid Pro- Rata to the executive’s basic
salary. In some schemes, dividend payments and provisions for reserves are
deducted from net pro ts before the distribution of bonuses and there is usually an
upper limit to the amount of bonus that can be paid. These schemes are crude but
provide a direct incentive as long as results are directly in uenced by the actions of
the executives in the scheme. They can get out of hand unless an upper limit is
strictly applied, and their emphasis on pro ts may make some executives seek short
term gains at the expense of the longer term development of the company.

109 Executive Bonus Schemes

Other schemes are based on a formula which measures company performance.
Bonuses are paid when a target gure is attained increased further as the target
gure is exceeded. The increase of bonus may be on a straight-line basis, ie. directly
proportionate to the improvement in results. Alternatively, it may be geared either
by decreasing the rate of bonus the more the target is exceeded, which is generally
regarded as poor practice, or by increasing the rate, which could be an expensive
device. A straight-line progression is to be preferred.
The formula in some schemes is directly applied to the executive’s salary. In other
schemes, a percentage of pro ts on an increasing scale is released into a bonus pool
which is distributed in proportion to salary.

110 Bene ts Policies Range of bene ts provided

- bene ts such as pensions and holidays are mandatory; whilst permanent health
insurance are optional extras.
Scale of bene ts provided
- taking into account its cost to the company and its perceived value to employees.
Proportion of bene ts to total remuneration
- a decision has to be made on the proportion of total remuneration to be allocated
to other bene ts which incur expenditure of cash by the company.
- this policy decision is related to decisions on the range and scale of bene ts
provided.
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 111 Bene ts Policies Allowing choice
a policy is required on the extent to which the company should allow its employees
to choose the bene ts they want.
Allocation of bene ts
the policy on the allocation of bene ts determines the extent to which it is decided
that a single status company should be create.

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