When was the Last Time You Adjusted Your Salary Structures for Compensation Planning?

by ERI Salary Surveys 2. September 2011 10:56

By Malak Kazan, Senior Associate

Get ready for 2011 merit increases and compensation planning. Historically, at this time of the year, most compensation professionals on a fiscal calendar planning cycle begin “kicking off” their communications and planning calendars. Many anticipate this year to have the highest merit increases since the 2007 financial crisis, after “tightening the belts” the past few years.

Two things will be required to have an effective compensation planning cycle for 2011: Job Evaluations and Salary Structure Adjustments. Since workers are doing more with less, their jobs have likely changed, creating new hybrid jobs. Job evaluations to re-validate core benchmark jobs serve as a foundation for determining the salary structure adjustments. Unfortunately, there are no shortcuts here. Let’s take, for example, a retail organization in West Lafayette, Indiana, named Jenny Jeans. Two benchmark jobs, Warehouse Worker and Merchandise Marker, are representative of 15% of the company's workforce and are in the same salary grade. The Compensation Analyst conducts a job analysis doing an on-site visit and concludes these two jobs have melded together to become a hybrid job subsequent to job losses experienced at the organization and is now titled Warehouse Merchandise Specialist. The new hybrid job responsibilities are weighted 40% Merchandise Marker and 60% Warehouse Worker. Below is a depiction of this explanation:

Click image for larger view.

Now, we want to market-price the core benchmark jobs (Cashier, Packer, and Warehouse Merchandise Specialist) in this salary grade and determine the adjustment to this grade within Jenny Jeans’ overall salary structure. To do this you will need to have access to recent salary survey data. Once you have the external data, market-price the benchmark jobs, calculate the differential between the market data and the actual internal pay rates and determine the adjustment to the midpoint or control point of the salary grade that is aligned with overall business objective and strategy. (Note, the market data has been adjusted to the January 2, 2012, effective planning date for the merit increases.) The minimum and maximum of the grade should be adjusted keeping the current spread (unless you are considering redesigning the overall structure, which is beyond the scope of this blog). Below is an example walk-through of this explanation:

Click image for larger view.

This process will need to be repeated for each salary grade in your salary structure. If you have any questions about the tools used in these explanations, please contact ERI at 800.627.3697.