Pay Structure Design Case

Pay Structure Design Case

Compensation is a critical area of human resource (HR) management, and one that can greatly affect employee behavior. To be effective, compensation must be perceived by employees as fair, competitive in the market, accurately based, motivating and easy to understand.
HR professionals might create the pay structure for their organization, or they might work with an external compensation consultant. There are several steps to designing a pay structure: job analysis; job evaluation; pay survey analysis; pay policy development; and pay structure formation. Each step is briefly explained below.
Step 1: Job Analysis
Job analysis is the process of studying jobs in an organization. The outcome of this process is a job description that includes the job title, a summary of the job tasks, a list of essential tasks and responsibilities, and a description of the work context. Also included are the knowledge, skills and abilities needed to perform the job.
Step 2: Job Evaluation
Job evaluation is the process of judging the relative worth of jobs in an organization. The outcome of job evaluation is the development of an internal structure or hierarchical ranking of jobs. Job-based evaluation is used more often than person-based evaluation, and so the former will be the focus in this case. There are three methods of job-based evaluation: the point method (which is the most commonly used); ranking; and classification. Job evaluation helps to ensure that pay is internally aligned and perceived to be fair by employees.
Step 3: Pay Policy Identification
Pay policy identification is the process of determining whether the organization wants to lead, lag or meet the market in compensation. The pay policy or strategy will likely influence employee attraction and retention. Pay policies can vary across job families (i.e., groups of similar jobs) and job levels if the top management feels that different strategies can be effective in different areas of the organization.
Step 4: Pay Survey Analysis
Pay survey analysis is the process of analyzing compensation data gathered from other employers in a survey of the relevant labor market. Gathering external pay data (e.g., base pay, bonuses, stock options and benefits) is essential to keep the organization’s compensation externally competitive within its industry. Employee attraction and retention can be improved by maintaining externally aligned pay structures.
Step 5: Pay Structure Creation
Pay structure creation is the final step, in which the internal structure (Step 2) is merged with the external market pay rates (Step 4) in a simple regression to develop a market pay line. Depending on whether the organization wants to lead, lag or meet the market, the market pay line can be adjusted up or down. To complete the pay structure, pay grades and pay ranges are developed. In this case, you will design a pay structure using a case scenario and integrated application.
Case Begins…
You are the newly hired human resource (HR) director for an engineering consulting firm that is expanding its operations to Chattanooga, Tenn. The organization is headquartered in Indianapolis, Ind. Based on the organization’s mission statement, you know the firm strives to create customized and technically proficient electrical engineering plans for regional clients. The following personnel are required to start the Chattanooga operation (the numbers indicate the number of positions):
• Director of regional operations
• Assistant to the director of operations
• Operations analyst (2)
• Operations trainee
• HR director (this is you)
• Administrative assistant in HR
• Benefits manager
• Benefits counselor
• Payroll assistant
• Lead engineer (3)
• Engineer (6)
• Engineering associate for special projects
• Manager of information systems
• Senior information systems analyst
• Information systems analyst
• Security guard
• Front desk receptionist
You can see from the list that there are several job families, including operations, HR, engineering, information systems and office support. You can now begin the process of designing a pay structure for the organization. Job analysis is central to many HR functions, including compensation, recruiting and training. You need to understand what tasks, duties and responsibilities various jobs will entail before you can assign fair and competitive pay rates.
Begin the process by gathering the needed job description information. To do so, combine information from O*NET (http://online.onetcenter.org), an online job analysis resource developed by the Department of Labor, and existing internal
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