SHRM case: “Designing a Pay Structure

Your case analysis should consist of:

 Task A: Create a complete job description for the benefits manager position using

O*NET.

 Task B: Calculate the job evaluation points for the Front Desk Receptionist and benefits

manager jobs. Provide a rationale for assigning specific degrees to the various jobs.

 Task C: If there were any outliers (i.e., extreme data points) in the data, what would you

recommend doing with them? From this point forward, assume no extreme data points

exist in the dataset.

 Task D: Conduct a simple regression in Excel to create a market pay line by entering the

job evaluation points (on the X axis) and the respective weighted average market base

pay (on the Y axis) for each benchmark job.

 Task E: What is your R squared (variance explained)? Is it sufficient to proceed?

 Task F: Calculate the predicted base pay for each benchmark job.

 Task G: Because your company wants to lead in base pay by 3%, adjust the predicted

pay rates to determine the base pay rate you will offer for each benchmark job.

 Task H: Create pay grades by combining any benchmark jobs that are substantially

comparable for pay purposes. Clearly label your pay grades and explain why you

combined any benchmark jobs to form a grade.

 Task I: Use your answer to Task H to determine the pay range (i.e., minimum and

maximum) for each pay grade.

 Task J: Given the pay structure you have generated, consider the following: Does this

pay structure make good business sense? Do you think it is consistent with the

organization’s business strategy? What are the implications of this pay structure for other

HR systems, such as retention and recruiting?

 Your analysis of this case and your written submission should reflect an understanding of

the critical issues of the case, integrating the material covered in the text, and present

concise and well-reasoned justifications for the stance that you take. You are to complete

this case analysis using Excel in a spreadsheet analysis format.

Review

the SHRM case: “

Designing a Pay Structure

”

You will prepare the SHRM case analysis on “Designing a Pay Structure,” which consists of your completion of Tasks A–J that simulate the creation of a compensation system for an organization in meeting its goals and supporting its mission. In your analysis, respond to the following tasks found in the case study by using Excel.

Your case analysis should consist of:

· Task A: Create a complete job description for the benefits manager position using O*NET.

· Task B: Calculate the job evaluation points for the

ront Desk Receptionist and benefits manager jobs. Provide a rationale for assigning specific degrees to the various jobs.

· Task C: If there were any outliers (i.e., extreme data points) in the data, what would you recommend doing with them? From this point forward, assume no extreme data points exist in the dataset.

· Task D: Conduct a simple regression in Excel to create a market pay line by entering the job evaluation points (on the X axis) and the respective weighted average market base pay (on the Y axis) for each benchmark job.

· Task E: What is your

R square

d (variance explained)? Is it sufficient to proceed?

· Task F: Calculate the predicted base pay for each benchmark job.

· Task G: Because your company wants to lead in base pay by 3%, adjust the predicted pay rates to determine the base pay rate you will offer for each benchmark job.

· Task H: Create pay grades by combining any benchmark jobs that are substantially comparable for pay purposes. Clearly label your pay grades and explain why you combined any benchmark jobs to form a grade.

· Task I: Use your answer to Task H to determine the pay range (i.e., minimum and maximum) for each pay grade.

· Task J: Given the pay structure you have generated, consider the following: Does this pay structure make good business sense? Do you think it is consistent with the organization’s business strategy? What are the implications of this pay structure for other HR systems, such as retention and recruiting?

· Your analysis of this case and your written submission should reflect an understanding of the critical issues of the case, integrating the material covered in the text, and present concise and well-reasoned justifications for the stance that you take. You are to complete this case analysis using Excel in a spreadsheet analysis format.

To My Students:

I just wanted to reach out in advance regarding the Unit 4 Assignment. The case study presented asks you to work through calculations for a pay structure involving

different positions. This is a pretty heavy set of tasks to accomplish in one week. Fortunately, I have been able to readjust this a bit so that the work load would be manageable in a week’s time.

FOR THE UNIT 4 ASSIGNMENT, YOU ONLY NEED TO CALCULATE FOR THE FRONT DESK RECEPTIONIST AND THE BENEFITS MANAGER POSITIONS. You do NOT have to calculate for the other 3 positions: Administrative Assistant, Payroll Assistant, Operations Analyst.

Additionally, since this involves math (and a little statistics), I have put together supportive material (see below) to help guide you through how to do this. PLEASE just follow the guidance below and you will be able to move through this easily.

PLEASE be sure to not wait until the last minute to do the Unit 4 Assignment. There’s a lot to it, so I don’t want anyone to be surprised.

I can’t provide a sample since that would contain the answers… But that’s okay, you can take this piece by piece..

PLEASE READ THESE DETAILS BELOW CAREFULLY. If you take it slowly, this goes pretty well. (And! If you get to the math portion below and you feel out of your element, PLEASE touch base with the Math Tutor (see separate announcement about Academic Support Centers for links). They offer wonderful assistance!

First, let’s take this steps..!

In Task A, you have to create one job description for the Benefits Manager. There are details in how to approach this and in the Appendix there are other job descriptions for the other positions so you can see how these should look. The case study provides suggestions about where to go to get info on this job description. So please read through those details for more guidance.

Next, in Task B, you will calculate the job evaluation points for positions. If you look just above the Task B item (on the previous page), you’ll see info and a sample of how to do this based on the receptionist position. Don’t forget to provide your rationale for the job evaluation points assigned. Use those same items as in the sample chart – Skills, Responsibility, Effort (and their subcategories). You can change up the percentages these are worth as you see fit for each job… Please be sure to remember that you have to take into consideration what would be required for each of the elements in the job evaluation – again read the sample that gets you started. For instance, in the education area, please remember that the weight would be more for a job that needs a Bachelor’s degree rather than a high school diploma/GED. Please also be sure that you multiple the Degree times the Weight to get the Points for each line (far right item). Then total that Points column at the bottom. This needs to be done for each Benchmark job. And each one should have a different Points total as they have different requirements from each other.

And in Task C, here’s a little further help/guidance with regard to completing this. The first part deals with what to do with outliers. That would require you to address this via text in your document. (Again your readings will support this, and you can also do more research online if you’d like. Don’t forget to use supporting citations when you can – these strengthen your academic work..!)

The second part deals with calculating weighted means. (This isn’t as bad as it sounds – I promise..!)

Weighted means of base pay should be calculated for each benchmark job from the survey data. Weighted means, as compared to simple means, are calculated to better represent the market data (Milkovich & Newman, 2008). A simple mean would be calculated by adding up the average base pay rates and dividing by the number of organizations (six in this case); but small and large companies would both be given the same weight if using a simple mean. A weighted mean gives equal weight to each job incumbent’s wage and thus is more representative of the data. For example:

Mean # of employees

Co. A 30,000 2

Co. B 15,000 10

The simple mean salary is $22,500.

[(30000 + 15000) / 2 = 22500]

But the weighted mean salary is $17,500.

[(2/12 * 30000) + (10/12 * 15000) = 17500]

For each position, you take the number of employees in Co. A, which is 2. Divide that into the total number of employees in all companies, which is 12. Or 2/12… Which equals 0.16667.

Then multiply that by the mean salary in Co. A, which is $30,000.

So, 30,000 times 0.16667 equals 5,000.

Then for the next company, Co. B, you do the same with those numbers. You take the number of employees in Co. B, which is 10. Divide that into the total number of employees in all companies, which is 12. Or 10/12… Which equals 0.833333.

Then multiply that by the mean salary in Co. B, which is $15,000.

So, 15,000 times 0. 0.833333 equals 12,500.

Then you take the $5,000 from the first company and the $12,500 from the second company and add them together to get the $17,500 weighted means.

—————————–

Do this for the Front Desk Receptionist and the Benefits Manager companies.

For Task D, you are asked to do some statistics with a regression analysis. Don’t worry..! Keep reading and you will see a link to an online calculator that can help you with this! 😉

Regression analysis is “the statistical tool for the investigation of the relationship between variables” (Sykes n.d.). It is used when data is analyzed to determine the causal effect of one variable upon another variable. For example, the effect of the increased cost of a gallon/litre of gasoline/petrol on the demand for that product is determined via “regression analysis”.

If you want to do the regression analysis calculation in Excel (rather than using the online calculator link that is below), you can go to:

https://chicagounbound.uchicago.edu/law_and_economics/51/ – here you will find the article “An introduction to

Regression Analysis

” by Dr. Alan Sykes that may help you understand regression analysis more clearly and help you in answering the discussion questions below.

Video for how to run the regression analysis in Excel:

http://www.wikihow.com/Run-Regression-Analysis-in-Microsoft-Excel

NOTE: I have Excel 2010, so getting the Regression Toolpak added in was easy. You may have to add this Excel Analysis Toolpak in – no matter what version of Excel you may have. Here is link to how to add that toolpak, for the various Excel versions:

https://support.office.com/en-us/article/load-the-analysis-toolpak-in-excel-6a63e598-cd6d-42e3-9317-6b40ba1a66b4

AND FINALLY, IF YOU WANT TO JUST USE AN ONLINE SIMPLE REGRESSION CALCULATOR FOR TASKS D AND E (GETTING THE R SQUARED NUMBER BUT STILL YOU HAVE TO ANSWER THE QUESTION IN TASK E AS WELL…) (AND SKIP USING EXCEL), YOU CAN GO HERE:

http://www.graphpad.com/quickcalcs/linear1/

Here you would plug in your Job Evaluation Points for each position in Task B (under the X column), and also the corresponding weighted average salary for each position in Task C (under the Y column). It would look something like this:

Regression Analysis

Job Evaluation Weighted

Points Avg. $

X Y

Recept. 120 19944.44

Admin Asst. 145 29458.33

Pay Asst. 175 34000

Ops Analyst 215 56875

Ben Mgr. 245 62900

NOTE: THE JOB EVALUATION POINTS YOU HAVE WILL BE DIFFERENT FROM THE EXAMPLE ABOVE. EVERYONE WILL HAVE SLIGHTLY DIFFERENT POINT VALUES, AND THAT IS PERFECTLY OKAY. THE WEIGHTED AVERAGE SALARIES THOUGH MUST MATCH THE ONES IN THIS EXAMPLE. SO IF YOU DIDN’T QUITE GET THE ANSWERS RIGHT FOR TASK C, PLEASE GO AHEAD AND USE THESE WEIGHTED AVERAGE SALARY FIGURES.

Once you run your simple regression through the calculator link (http://www.graphpad.com/quickcalcs/linear1/ ), you will get results that will look something like this (yours will be different since everyone will have different job evaluation points that they created in Task B – again, that’s perfectly okay):

Best-fit values

Slope

360.33 ± 36.29

Y-intercept

-24324.19 ± 6737

X-intercept

66.31

1/Slope

0.002798

95% Confidence Intervals

Slope

241.9 to 472.9

Y-intercept

-45137 to -2262

X-intercept

9.211 to 96.90

Goodness of Fit

R square

0.9700

Sy.x

3683

Is slope significantly non-zero?

96.99

DFn,DFd

1,3

P Value

0.0022

Deviation from horizontal?

Significant

Data

Number of XY pairs

Equation

Y = 360.33*X – 24324.19

**************

Note: I’ve gone through this material and it really does provide useful info that can basically hold your hand through this process. So I encourage you to take a look and follow along – I hope it you find this helpful! (I really think you will!)

Now, let’s focus on the next bit to get you started..! The first item that Task D asks for is: Identify the slope and y-intercept and write the equation for the market pay line.

Regression creates a “line of best fit” by merging the job evaluation points (X) and the external salary data (Y). The resulting regression line is used to predict the base pay (Y) for a specific number of job evaluation points (X). The equation for the simple regression line (as it is for any line) can be represented as: y=mx+b; in which:

y =the predicted base pay

m =the slope of the line

x =the job evaluation points

b =the y-intercept

So, for example, if the regression results show that m = 400 and b is -20000, then the equation is y=400(x) – 20000 and the predicted pay rate for a job assigned 100 points would be y= 400(100)-20000, or $20,000.

The regression output will also show information about how good the regression line fits the data. Specifically, look at the “R squared” in the regression output. Generally, the R squared, referred to as variance explained, should be .95 or higher. If R squared is significantly lower than this, there may be problems stemming from the job evaluation step. For example, the points assigned to certain benchmark jobs may be off – i.e., not make sense given the level of tasks, duties and responsibilities required for the job and the knowledge, skills and abilities needed by the job incumbent. If this is the case, re-examine the job descriptions and reconsider the points assigned to the benchmark jobs. Alternatively, there may be errors in the weighted average calculations. After conducting the regression again, examine the new R squared.

To calculate the slope of the market pay line, look in the Excel regression output for the “Coefficient of the X Variable.” The y-intercept is located in the regression output as the “Coefficient of the Intercept.” Be sure to write out the regression equation appropriately. Here’s an example:

Y = m(x)+b

Y = 360.33(x) -24324.19

This means that each job evaluation point is worth $360.33 based on the figures I used. PLEASE remember that everyone will have different figures based on how they planned their job evaluation points. And that’s fine..! It’s perfectly okay for different people to have different numbers for this.

For Task E, the sample R squared from above is .9699 (or .97 when rounded up). The description below tells you about R squared and how to interpret it:

R-squared is a statistical measure of how close the data are to the fitted regression line. It is also known as the coefficient of determination, or the coefficient of multiple determination for multiple regression.

The definition of R-squared is fairly straight-forward; it is the percentage of the response variable variation that is explained by a linear model. Or:

R-squared = Explained variation / Total variation

R-squared is always between 0 and 100%:

0% indicates that the model explains none of the variability of the response data around its mean.

100% indicates that the model explains all the variability of the response data around its mean.

Please check your R-squared to proceed with your response.

——————————————-

PLEASE BE SURE TO ANSWER TASK E’S QUESTION: What is the R squared? And is it sufficient to proceed?

For Task F:

Let’s have you do the basic math:

Here’s the formula to use: y=mx+b, where x is the job evaluation points, b is the y-intercept, and m is the slope coefficient from the regression. So you can use this formula:

Y = 360.33(x) -24324.19

as the predicted base pay for each job.

Just insert for (x), the job evaluation point number that you created in Task B. Each job evaluation point number will be different, so you’ll get a different output for each position.

So your calculations would be:

-Y = 360.33 times (the job evaluation point number that you created in Task B for the receptionist) minus 24324.19 (Note: Y would be the answer to the calculations above…)

-Y = 360.33 times (the job evaluation point number that you created in Task B for the benefits manager) minus 24324.19 (Note: Y would be the answer to the calculations above…)

Then for Task G, you take each of the answers for Task F, and increase them by 3% (as the case states the policy will be to lead base pay by 3%).

Your calculation would be:

-Take your answer for the receptionist in Task F, and multiply it by 1.03.

-Take your answer for the business manager in Task F, and multiply it by 1.03.

For Task H, you create pay grades for the job, put them in the grades, and be sure to explain what each pay grade represents and why you put the positions into those grades. No calculations are needed here. You can select 2 pay grades (you can name them A, B, or 1, 2,… or whatever you would like). Then based on the predicted pay that you just did, and taking into consideration the skills required, place these into the necessary pay grade and provide a rationale as to why you you put that job there. (Everyone may end up with a slightly different answer to this item, and that’s fine!)

For Task I, you’ll show the minimum and maximum for each pay grade. You’ll use the pay figures for the positions from Task H here to show these. So if you have 2 positions in one pay grade – the lower position would be the minimum… The higher one would be the maximum. Then calculate the average for the two positions. (Add them together, and divide by 2 for the average.) Note: If you have just one position in a pay grade, then you just have the one pay for an average and that’s it…

Then finally, apply the percent guidelines provided in the case to determine the pay ranges. For administrative/clerical positions, the focus is 10% above and below midpoint to create this range. Take the midpoint pay for each pay grade in the administrative/clerical areas, and multiply by .90. Then take the midpoint pay again, and multiply by 1.10. (If you only have one position in a pay grade, take that midpoint pay and multiply by .90 (which is 10% below the midpoint) and then multiply that again by 1.10 (which is 10% above the midpoint).)

You will do the same for the professional and management positions; however, the focus will be 30% above and below midpoint to create this range. Take the midpoint pay for each pay grade in the administrative/clerical areas, and multiply by .70. Then take the midpoint pay again, and multiply by 1.30. (If you only have one position in a pay grade, take that midpoint pay and multiply by .70 (which is 30% below the midpoint) and then multiply that again by 1.30 (which is 30% above the midpoint).)

Now you’ve created minimums and maximums as defined by the case for each pay grade..!

And for Task J, please just answer the questions..!

STUDeNT WORKBOOK

Designing A Pay Structure

CASE STUDY AND INTEGRATED APPLICATION EXERCISES

Designing A Pay Structure
By Lisa A. Burke, Ph.D., SPHR

Student Workbook

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INSTRUCTOR’S MANUAL

Designing A Pay Structure

AUTHOR : Lisa Burke. PhD

This case study has been adapted from the original version of the case study found at www.shrm.org.
The submission instruction is the portion that has been adapted.

http://www.shrm.org/

Student Workbook – Case Study

Introduction to Compensation and Designing a Pay Structure

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. For a more extensive discussion, please review
Milkovich & Newman, 2008.

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.

Designing A Pay Structure

CASE

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 in parentheses 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
corporate HR documents (such as previous job descriptions). Each job description includes the job title; a job summary; essential
job tasks; the job’s work context; and job-relevant knowledge and skills that an incumbent must possess.

Benchmark jobs (jobs that are common and consistent across a wide range of employers) will be the focus of this exercise, because
they will be used to design the pay structure. Appendix A contains the job descriptions of the benchmark jobs. You have one
description left to complete; your first task is to create a job description for the benefits manager position.

Learning Objectives

In this case, students will learn to
design a pay structure. To do so,
you will:

• Write a job description, using the

O*NET website.

• Use the point method to conduct
a job evaluation.

• Analyze pay survey data for
benchmark jobs.

• Create a market pay line using
Excel.

• Establish a pay policy line based
on a pay level strategy.

• Create pay grades.

• Establish pay ranges.

Recommended Reading

Milkovich, G., and Newman, J.
(2008). Compensation. McGraw-
Hill Irwin. Chapters 1-8.

STUDENT WORKBOOK

Designing A Pay Structure

» Task A: Create a complete job description for the Benefits Manager position using O*NET.

To design a pay structure, there must be a formal way to value the work inside the organization so that pay is awarded fairly. The
job evaluation process will help develop this internal work hierarchy.

Different evaluation methods, pay strategies, and pay structures will be used for different job families in the organization. You
decide to use a job-based evaluation approach for the operations, office support, and HR job families. A skills-based approach
will be used for information systems and engineering job families, although it is not included as a task in this case. The security
guard and director of regional operations jobs will be assigned pay rates primarily using market pricing and slotted later into the
pay structure.

Company representatives from various job levels and families will periodically provide you with input during the job evaluation
process. This will help you gain acceptance of the established job structure. You ask this job evaluation committee whether they
agree with the specific benchmark jobs identified in the job analysis step (see below).

Office Support Operations HR

HR Director

Assistant to the director of operations Director of regional operations *Benefits manager

*Admin assistant (HR) *Operations analyst Benefits counselor

*Front desk receptionist Operations trainee *Payroll assistant

* Benchmark job.

The committee studies the various job titles and asks why the administrative assistant in HR is not included in the HR job family.
You explain that administrative assistants perform similar tasks across departments and do not handle functional-specific tasks (e.g.,
HR). You suggest grouping the front-line administrative jobs in a separate job family called office support. The other job families
that will be evaluated are operations and HR.

You decide to use the point method for job evaluation for operations, HR, and office support job families because it is the most
commonly used job evaluation method. Next, the compensable factors, degrees and weights of each factor must be determined.
With input from the job evaluation committee and your knowledge of the organization’s mission and work content, three common
compensable factors are selected: skill, responsibility and effort, each having two specific sub-factors. For example, the compensable
factor of skill is comprised of education level and the degree of technical skills.

You recommend weighting the skill compensable factor at 50 percent because the organization is very knowledge-intensive and
depends heavily on its human capital. Responsibility is weighted 30 percent because each job has the potential to affect other jobs;
and effort is assigned 20 percent because problem solving and task complexity are integral across jobs in the organization.

Four degrees should be sufficient for rating the various jobs. For example, the four degrees for education level are identified as:

1=High School/GED
2=Associates
3=Bachelors
4=Masters/Graduate

Points are then calculated by multiplying the degrees by the weights.

You present an example of how this point scheme is applied to the front desk receptionist benchmark job (see below). The
committee agrees with the approach.

Compensable Factor Job evaluation for front desk receptionist

Degree (1, 2, 3, 4) Weight Points

Skill (50%)

-Education Level 1 25% 25

-Degree of Technical Skills 1 25% 25

Responsibility (30%)

-Scope of Control 1 10% 10

-Impact of Job 2 20% 40

Effort (20%)

-Degree of Problem Solving 1 10% 10

-Task Complexity 1 10% 10

120 points

The next task is to calculate the job evaluation points for the remaining benchmark jobs using the established compensable factors
and specified weights above. In other words, the degrees of each remaining benchmark job must be determined based on a logical
rationale, and then the total job evaluation points for each benchmark job can be calculated. To do so, consult the job descriptions
in Appendix A.

STUDeNT WORKBOOK

Designing A Pay Structure

STUDeNT WORKBOOK
Designing A Pay Structure

» Task B: Calculate the job evaluation points for the administrative assistant, payroll assistant, operational

analyst, and benefits manager jobs. Provide a rationale for assigning specific degrees to the various jobs.

After determining the job evaluation points for the remaining benchmark positions, you meet with the president, the head of
corporate HR in Indianapolis and the director of regional operations in Chattanooga to discuss a pay level strategy for each job
family. One decision resulting from these meetings is that your organization will pay 3 percent above the market in base pay for the
HR, operations and office support job families. The group realizes that this lead pay policy will help meet the firm’s customer-focus
business strategy by attracting and retaining high-potential employees without incurring labor costs too far above their competitors.

Top management also decides to match the market in benefits to contain benefit costs (e.g., health care costs). After analyzing
web-based data about benefits offered in your industry by smaller organizations (retrieved from BenefitsLink, SHRM, and
Employee Benefits Research Institute) you discern that on average, employee benefits costs are approximately 25 percent of
total compensation. Once the pay structure is finalized, you will set benefits at a similar ratio of total compensation to achieve a
matching benefits policy.

To ensure that the pay structure is externally competitive, a pay survey will be conducted. For the results of a survey to be valid,
the market pay data must be from the relevant labor market for each benchmark job. That is, regional pay data should be gathered
because most of the office support, HR and operations jobs will be filled by regional candidates (i.e., within a 90-mile radius of
Chattanooga).

You develop a streamlined pay survey and administer it to industry competitors. Descriptive organization data (e.g., size, industry,
annual revenue) is gathered as well as compensation data for each of the benchmark jobs, including base pay, bonuses, stock
options and benefits. [Note: All participating organizations will receive the survey results.]

Surveys are completed and returned by six organizations (referred to as companies A, B, C, D, E, and F) who recruit and hire
similar benchmark jobs in the surrounding region. Base pay salary data from the responding organizations are reflected in the
following table. You have already checked to ensure that summary job descriptions for the benchmark jobs (in the sample data) are
appropriately similar to those in your organization (to ensure you are comparing “apples to apples”). The next step is to analyze the
pay data and generate weighted means for each benchmark job to use in future parts of the case.

STUDeNT WORKBOOK

Designing A Pay Structure

» Task C: If there were any outliers (i.e., extreme data points) in these data, what would you recommend doing
with them? [From this point forward, assume no extreme data points exist in the dataset.]

Second, calculate the weighted means (for base pay) for each benchmark job.

Company # of Job Incumbents Base Pay

Front Desk Receptionist

1 Average $21,000

Minimum

Maximum

Front Desk Receptionist 2 Average $22,000

Minimum $21,000

Maximum $23,000

Front Desk Receptionist 1 Average $18,000

Minimum
Maximum

Front Desk Receptionist 2 Average $21,000

Minimum $20,000

Maximum $22,000

Front Desk Receptionist 2 Average $18,500

Minimum $18,000

Maximum $19,000

Front Desk Receptionist 1 Average $17,500

Minimum
Maximum

STUDENT WORKBOOK

Designing A Pay Structure

Company # of Job Incumbents Base Pay
A

Administrative Assistant

4 Average $25,000

Minimum $21,000

Maximum $28,000

Administrative Assistant 4 Average $31,000

Minimum $27,000

Maximum $34,500

Administrative Assistant 3 Average $30,000

Minimum $29,000

Maximum $32,000

Administrative Assistant 5 Average $33,000

Minimum $28,000

Maximum $34,000

Administrative Assistant 4 Average $29,000

Minimum $27,000

Maximum $30,000

Administrative Assistant 4 Average $28,000

Minimum $27,000
Maximum $30,000

Company # of Job Incumbents Base Pay
A

Operations Analyst

2 Average $55,000

Minimum $50,000

Maximum $60,000

Operations Analyst 4 Average $57,000

Minimum $54,000

Maximum $59,000

Operations Analyst 3 Average $56,000

Minimum $54,000

Maximum $58,000

Operations Analyst 5 Average $58,500

Minimum $52,000

Maximum $61,000

Operations Analyst 3 Average $59,000

Minimum $57,000

Maximum $61,000
F

Operations Analyst 3 Average $54,000

Minimum $53,000

Maximum $55,000

STUDENT WORKBOOK

Designing A Pay Structure

STUDENT WORKBOOK
Designing A Pay Structure

Company # of Job Incumbents Base Pay
A

Payroll Assistant

2 Average $35,000

Minimum $34,000

Maximum $36,000

Payroll Assistant 3 Average $34,000

Minimum $32,000

Maximum $35,000

Payroll Assistant 1 Average $35,000

Minimum
Maximum
D

Payroll Assistant 3 Average $35,000

Minimum $33,000

Maximum $37,000

Payroll Assistant 2 Average $36,000

Minimum $35,000

Maximum $37,000
F

Payroll Assistant 2 Average $29,000

Minimum $27,000

Maximum $31,000

Company # of Job Incumbents Base Pay
A

Benefits Manager 1 Average $62,000

Minimum
Maximum
B

Benefits Manager 2 Average $61,500

Minimum $61,000

Maximum $62,000

Benefits Manager 1 Average $60,000

Minimum
Maximum
D

Benefits Manager 3 Average $64,000

Minimum $62,000

Maximum $65,000

Benefits Manager 2 Average $63,000

Minimum $62,000

Maximum $64,000

Benefits Manager 1 Average $66,000

Minimum
Maximum

STUDENT WORKBOOK
Designing A Pay Structure

The next task is to conduct a simple regression using Microsoft Excel to create a market pay line. Enter the job evaluation points
(as X) and weighted average base pay rates (as Y) for each benchmark job and generate the regression results.

» Task D: Conduct a simple regression in Excel to create a market pay line by entering the job evaluation points
(on the X axis) and the respective weighted average market base pay (on the Y axis) for each benchmark job.

Identify the slope and y-intercept and write the equation for the market pay line.

If R squared is significantly lower than this, there may be problems stemming from the job evaluation step. For example, the points
assigned to certain benchmark jobs may be off – i.e., not make sense given the level of tasks, duties and responsibilities required for
the job and the knowledge, skills and abilities needed by the job incumbent. If this is the case, re-examine the job descriptions and
reconsider the points assigned to the benchmark jobs. Alternatively, there may be errors in the weighted average calculations. After
conducting the regression again, examine the new R squared.

» Task E: What is your R squared (variance explained)? Is it sufficient to proceed?

Using the regression output (the slope and y-intercept), calculate the predicted market pay rate (using Excel) for each benchmark job.

» Task F: Calculate the predicted base pay for each benchmark job.

Next, adjust the market pay line based on the organization’s lead pay level strategy; this will create the pay policy line. Since the
organization wants to lead the market by 3 percent across the operations, office support and HR job families, adjust the market pay
line accordingly (by 3 percent). In other words, each predicted pay rate can be multiplied by 1.03 to get a new base pay rate that is
3 percent above market.

» Task G: Because your company wants to lead in base pay by 3 percent, adjust the predicted pay rates to
determine the base pay rate you will offer for each benchmark job.

Next, create pay grades for the pay structure. Pay grades represent groupings of jobs that are similar for pay purposes (i.e., of
similar value to the organization). All the jobs in a pay grade share the same pay range (minimum and maximum pay rates).

Examine the benchmark jobs in this case again and determine which ones are sufficiently similar for compensation purposes. Do
this by revisiting the job evaluation results.

» Task H: Create pay grades by combining any benchmark jobs that are substantially comparable for pay
purposes. Clearly label your pay grades and explain why you combined any benchmark jobs to form a grade.

The final step to designing the pay structure is to set the pay ranges for each pay grade. Pay ranges create upper and lower pay
rates (on the Y axis) for each job in the pay grade. Each pay grade will have a minimum and maximum pay rate. It is important to
remember that all jobs in a pay grade will have the same minimum and maximum pay rates.

Percent guidelines are used to determine how far above and below the midpoint the pay range will reach. For example, the
maximum might be 10 percent above the midpoint and the minimum might be 10 percent below the midpoint.

The percent guidelines, based on input from the job evaluation committee, are:
• Clerical and office positions: 10 percent above and below the midpoint.

• Entry to mid-level professional and management positions: 30 percent above and below the midpoint.

» Task I: Use your answer to Task H to determine the pay range (i.e., minimum and maximum) for each pay
grade.

» Task J: Given the pay structure you have generated, consider the following:

» Does this pay structure make good business sense? Do you think it is consistent with the organization’s
business strategy?

» What are the implications of this pay structure for other HR systems, such as retention and recruiting?

STUDENT WORKBOOK
Designing A Pay Structure

References

Milkovich, G., and Newman, J. (2008). Compensation. McGraw-Hill Irwin.
O*NET. Available at http://online.onetcenter.org.

other ComPensAtion texts

Bergmann, T., and Scarpello, V. (2002). Compensation decision making. Southwestern.
Martocchio, J. (2006). Strategic Compensation. Pearson/Prentice Hall.

relevAnt websites

WorldAtWork: www.worldatwork.org.
Society for Human Resource Management: www.shrm.org.
Economic Research Institute: www.eridlc.com.

http://online.onetcenter.org/

http://www.worldatwork.org/

http://www.shrm.org/

http://www.eridlc.com/

INSTRUCTOR’S MANUAL

Designing A Pay Structure

Appendix A – Job Descriptions for Benchmark Jobs
[Created using O*NET]

Front Desk Receptionist

Job Summary

Answer inquiries and obtain information for general public, customers, visitors and other interested parties. Provide information
regarding activities conducted at establishment; location of departments, offices, and employees within organization.

Essential Job Tasks

• Operate telephone to answer, screen and forward calls, providing information, taking messages and scheduling appointments.

• Greet persons entering establishment, determine nature and purpose of visit, and direct or escort them to specific destinations.

• Hear and resolve complaints from customers and public.

• Transmit information or documents to customers, using e-mail, mail or fax machine.

• Analyze data to determine answers to questions from customers or members of the public.

• Provide information about the establishment, such as location of departments or offices, employees within the organization, or
services provided.

Job Context

Indoor, environmentally controlled; telephone; contact with others.

Knowledge, Skills and Abilities

• Knowledge of principles and processes for providing customer and personal services. This includes customer needs assessment,
meeting quality standards for services and evaluation of customer satisfaction.

• Knowledge of administrative and clerical procedures and systems such as word processing, managing files and records, taking
and organizing messages, and other office procedures and terminology.

• Awareness of others’ reactions and understanding why they react as they do.

• Gives full attention to what other people are saying, taking the time to understand the points being made, asking questions as
appropriate and not interrupting at inappropriate times.

• Actively looks for ways to help people.

• Manages one’s own time and the time of others.

• Talks to others to convey information effectively.

• Knowledge of the English language including the meaning and spelling of words, rules of composition, and grammar.

• Understands written sentences and paragraphs in work-related documents.

• Communicates effectively in writing as appropriate for the needs of the audience.

Administrative Assistant

Job Summary

Provide administrative support by conducting research, preparing reports, handling information requests and performing clerical
functions such as preparing correspondence, receiving visitors, arranging conference calls, and scheduling meetings.

Essential Job Tasks

• Manage and maintain executives’ schedules.

• Prepare invoices, reports, memos, letters, financial statements and other documents, using word processing, spreadsheet,
database, or presentation software.

• Read and analyze incoming memos, submissions and reports to determine their significance and plan their distribution.

• Open, sort and distribute incoming correspondence, including faxes and e-mail.

• File and retrieve corporate documents, records and reports.

• Greet visitors and determine whether they should be given access to specific individuals.

• Prepare responses to correspondence containing routine inquiries.

• Perform general office duties such as ordering supplies, maintaining records, management systems and performing basic
bookkeeping work.

• Make travel arrangements for executives.

Job Context
Indoor, environmentally controlled; telephone; contact with others.

Knowledge, Skills and Abilities

• Knowledge of administrative and clerical procedures and systems such as word processing, managing files and records,
designing and completing forms, and other office procedures and terminology.

• Knowledge of principles and processes for providing customer and personal services. This includes customer needs assessment,
meeting quality standards for services, and evaluation of customer satisfaction.

• Knowledge of computer hardware and software.

• Knowledge of the structure and content of the English language including the meaning and spelling of words, rules of
composition and grammar.

• Gives full attention to what other people are saying, taking time to understand the points being made, asking questions as
appropriate, and not interrupting at inappropriate times.

• Monitors/assesses performance of self, other individuals or organizations to make improvements or take corrective action.

• Manages one’s own time and the time of others.
• Talks to others to convey information effectively.
• Understands written sentences and paragraphs in work-related documents.

• Communicates effectively in writing as appropriate for the needs of the audience.

• Adjusts actions in relation to others’ actions.

APPENDIX A

Designing A Pay Structure

APPENDIX A

Designing A Pay Structure

Payroll Assistant

Job Summary

Compile and post employee time and payroll data. Compute employees’ time worked, production and any commission. Compute
and post wages and deductions.

Essential Job Tasks

• Process and issue employee paychecks and statements of earnings and deductions.

• Compute wages and deductions and enter data into computers.

• Compile employee time, production and payroll data from time sheets and other records.

• Review time sheets, work charts, wage computation and other information to detect and reconcile payroll discrepancies.

• Verify attendance, hours worked and pay adjustments, and post information to records.

• Record employee information, such as exemptions, transfers and resignations to maintain and update payroll records.

• Issue and record adjustments to pay related to previous errors or retroactive increases.

• Complete time sheets showing employees’ arrival and departure times.

Job Context
Indoor, environmentally controlled; telephone; contact with others.

Knowledge, Skills and Abilities
• Knowledge of administrative and clerical procedures and systems such as word processing, managing files and records,
designing and completing forms, and other office procedures and terminology.

• Knowledge of principles and processes for providing customer service.

• Knowledge of math, arithmetic, statistics to analyze data and solve problems and use of Microsoft Excel.

• Uses logic and reasoning to identify the strengths and weaknesses of alternative solutions, conclusions or approaches to
problems.

• Knowledge of the English language including the meaning and spelling of words, rules of composition, and grammar.
• Understands written sentences and paragraphs in work-related documents.
• Gives full attention to what other people are saying, taking time to understand the points being made, asking questions as
appropriate, and not interrupting at inappropriate times.
• Talks to others to convey information effectively.

• Communicates effectively in writing as appropriate for the needs of the audience.

Operations Analyst

Job Summary

Formulate and apply mathematical modeling and other optimizing methods using a computer to develop and interpret information
that assists management with decision making or other managerial functions. Frequently concentrates on collecting and analyzing
data using decision support software.

Essential Job Tasks

• Analyze information obtained from management to conceptualize and define operational problems.

• Collaborate with senior managers and decision makers to identify and solve a variety of problems and to clarify management
objectives.

• Define data requirements and then gather and validate information, applying judgment.

• Study and analyze information about alternative courses of action to determine which plan will offer the best outcome.

• Prepare management reports defining and evaluating problems and identifying solutions.

• Formulate mathematical or simulation models of problems, relating constants and variables, restrictions, alternatives,
conflicting objectives and their parameters.

Job Context
Indoor, environmentally controlled; telephone; contact with others.

Knowledge, Skills and Abilities

• Knowledge and application of arithmetic, algebra, geometry, calculus and statistics.

• Knowledge of the practical application of engineering science and technology. This includes applying principles, techniques,
procedures and equipment.

• Knowledge of computer hardware and software including applications and programming.

• Identifies complex problems and reviews related information to develop and evaluate options and implement solutions.

• Uses logic and reasoning to identify the strengths and weaknesses of alternative solutions, conclusions or approaches to
problems.

• Analyzes needs and product requirements to create a design.

• Determines how a system should work and how changes in conditions, operations and the environment will affect outcomes.

• Considers the relative costs and benefits of potential actions to determine course of action.

• Understands the implications of new information for both current and future problem solving and decision making.

APPENDIX A
Designing A Pay Structure

APPeNDIx A

Designing

08-0745 1800 Duke Street
Alexandria, VA 22314

www.shrm.org/hreducation/cases.asp

http://www.shrm.org/hreducation/cases.asp

» Task B: Calculate the job evaluation points for the administrative assistant, payroll assistant, operational analyst, and benefits manager jobs. Provide a rationale for assigning specific degrees to the various jobs.
» Task C: If there were any outliers (i.e., extreme data points) in these data, what would you recommend doing with them? [From this point forward, assume no extreme data points exist in the dataset.]
» Task D: Conduct a simple regression in Excel to create a market pay line by entering the job evaluation points (on the X axis) and the respective weighted average market base pay (on the Y axis) for each benchmark job.

» Task E: What is your R squared (variance explained)? Is it sufficient to proceed?
» Task F: Calculate the predicted base pay for each benchmark job.

» Task G: Because your company wants to lead in base pay by 3 percent, adjust the predicted pay rates to determine the base pay rate you will offer for each benchmark job.
» Task H: Create pay grades by combining any benchmark jobs that are substantially comparable for pay purposes. Clearly label your pay grades and explain why you combined any benchmark jobs to form a grade.
» Task I: Use your answer to Task H to determine the pay range (i.e., minimum and maximum) for each pay grade.

References
other ComPensAtion texts
relevAnt websites
Front Desk Receptionist
Job Summary
Essential Job Tasks
Job Context
Knowledge, Skills and Abilities
Administrative Assistant
Job Summary
Essential Job Tasks
Job Context
Knowledge, Skills and Abilities
Payroll Assistant
Job Summary
Essential Job Tasks
Job Context
Knowledge, Skills and Abilities
Operations Analyst
Job Summary
Essential Job Tasks
Job Context
Knowledge, Skills and Abilities

Designing a Pay Structure

Ladaijia Beasley

Purdue University Global

Strategic Human Resource Management

Susan Pettine

January 19, 2021

Designing a Pay Structure

Benefits Manager

Job Summary

Plan, direct, or coordinate compensation and benefits activities of an organization.

Essential Job Tasks

· Design, evaluate and modify benefits policies to ensure that programs are current, competitive, and in compliance with legal requirements.

· Analyze compensation policies, government regulations, and prevailing wage rates to develop competitive compensation plan.

· Administer, direct, and review employee benefit programs, including the integration of benefit programs following mergers and acquisitions.

· Fulfill all reporting requirements of all relevant government rules and regulations, including the Employee Retirement Income Security Act (ERISA).

· Formulate policies, procedures and programs for recruitment, testing, placement, classification, orientation, benefits and compensation, and labor and industrial relations.

Job Context

Indoors, environmentally controlled, electronic mail, telephone, face-to-face discussions, and spend time sitting.

Knowledge, Skills and Abilities

· Knowledge of principles and procedures for personnel recruitment, selection, training, compensation and benefits, labor relations and negotiation, and personnel information systems.

· Knowledge of business and management principles involved in strategic planning, resource allocation, human resources modeling, leadership technique, production methods, and coordination of people and resources.

· Knowledge of the structure and content of the English language including the meaning and spelling of words, rules of composition, and grammar.

· Knowledge of principles and processes for providing customer and personal services. This includes customer needs assessment, meeting quality standards for services, and evaluation of customer satisfaction.

· Knowledge of arithmetic, algebra, geometry, calculus, statistics, and their applications.

· Giving full attention to what other people are saying, taking time to understand the points being made, asking questions as appropriate, and not interrupting at inappropriate times.

· Understanding written sentences and paragraphs in work related documents.

· Talking to others to convey information effectively.

· Using logic and reasoning to identify the strengths and weaknesses of alternative solutions, conclusions or approaches to problems.

Compensable FactorDegree (1, 2, 3, 4)WeightPoints

Skill(50%)

-Education Level125%25

-Degree of Technical Skills125%25

Responsibility (30%)

-Scope of Control110%10

-Impact of Job210%40

Effort(20%)

-Degree of Problem Solving110%10

-Task Complexity110%10

Total Points120

Job evaluation for front desk receptionist

>Sheet

1 10% 10

Job evaluation for front desk receptionist
Compensable Factor	Degree (1, 2, 3, 4)	Weight	Points
Skill(50%)
-Education Level			25
-Degree of Technical Skills	25%
Responsibility (30%)
-Scope of Control				10
-Impact of Job			10%	40
Effort(20%)
-Degree of Problem Solving
-Task Complexity
Total Points	120

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