Market pricing - Prince William SHRM Inc.

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Transcript Market pricing - Prince William SHRM Inc.

Market Pricing vs Job Evaluation

Presented by Theresa Lynch To Prince William SHRM April 4, 2012

 Introduction  Market Pricing Overview  Job Evaluation  The Intersection of Market Pricing and Job Evaluation

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Market Pricing Overview

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The critical role of market pricing

 Compensation plays a critical role in organizations’ ongoing — and increasingly challenging — efforts to attract, retain and motivate a talented workforce  It is an important component of an organization’s Reward, Talent and Engagement strategy  Compensation design and management play a vital role in aligning employee behavior with business objectives  Human capital costs represent a significant part of most organizations’ cost bases; they need to spend their limited resources as effectively as possible  Market pricing provides the vital external market perspective and data needed to develop cost-effective, market-relevant compensation designs and manage pay effectively  Market pricing supports a range of pay program designs (base pay, short-term incentives and long-term incentives) Market pricing is the process of determining the "market rates" for a representative sample of jobs in a specific talent market, based on data for jobs with similar functions and comparable scope of responsibility.

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Market pricing overview

 Market pricing provides information to support decisions about “how much” and “how to” pay  The goal is to keep from:  Underpaying, and losing talent to competitors or being unable to attract the talent it needs  Overpaying, and wasting organizational resources or impeding desirable turnover  Market pricing is a descriptive, not a prescriptive activity. Market data are not “the answer” — there’s often more to the story  It’s an imperfect way to make sense of incomplete data  The secret is the ability to spot the imperfections and either eliminate them or work around them  A combination of “art” and “science”

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Why do we market price?

 Market pricing helps us understand the influence of supply and demand on the cost of labor  Where is the market shifting, how quickly, and by how much?

 How competitive is our pay? Are our attraction and retention issues a result of pay or something else?

Talent Readily Available Limited Available Talent towerswatson.com

$ Reduced Labor Cost $$$$ Increased Cost 5

Why do we market price?

 It provides us with data for informed decision making:  How should we allocate resources?  How do we value an acquisition target?  Is the way we deliver pay consistent with the mix other companies deliver?  How does the market reward employee development? Are we keeping up?

 How well are we delivering against our compensation philosophy? Can we afford to bridge gaps between where we are now and our target competitive position?

 What do market practices suggest for ongoing compensation management?

 It’s essential to developing

market-based

reward programs  Based on detailed understanding of business and HR objectives  Anchored in a company’s HR strategy and compensation philosophy

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Market pricing: One of the many supporting elements of all pay decisions

Performance Information

 Informal/Formal  Individual/Team/Business Unit/Organization

Compensation Information

 External 

Surveys and other analyses

 Recruiting feedback  Trends and prospective changes  Internal equity

Incumbent’s Current Pay Levels towerswatson.com

Final Pay Decision Communicate with Employee 7

The limitations of market pricing

 Numbers imply a precision that is not necessarily accurate  Only as valid as the salary survey data being referenced  Data not always available in sufficient detail — especially for narrowly defined talent markets or small/developing countries  Published compensation surveys do not have every position, and often do not include “hot skills” roles  Cannot provide insights into value of non-benchmark jobs  May cloud the organization’s judgment about taking internal equity into account  Cannot be the only input for making individual pay decisions  Cannot replace business rationale and sound decision making

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Addressing non-benchmark positions

 Each organization is unique, and the jobs in those organizations are often also unique  In some organizations, as work becomes defined more broadly and where job tasks may be combined in non-traditional ways, you may not be able to find a “perfect” match for a job in any of your available salary surveys  Not all jobs will be able to be matched to survey data because they are:  Specific to an organization  Jobs for which survey data is not collected and/or reported  Do not force non-benchmark jobs to be benchmarks  Non-benchmark roles present an additional opportunity to discuss how to manage pay

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Job Evaluation

Job Leveling overview

  

Job leveling is…

 A systematic process of determining the relative value of jobs in an organization  A system for analysing and comparing different jobs according to the overall responsibilities and scope of each job  It is not concerned with the volume of work, or with the person doing it, or with current pay

Purpose

 Establish a framework for: — Defining jobs and hierarchy — Providing a foundation for reward and talent management decisions including base pay, incentives, career management, workforce planning, learning and development — Creating a flexible, adaptable means of communicating career paths and facilitating talent mobility

Goal

 A consistent, internally relevant and market-supported approach that can be understood by everyone involved

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Examples of Job Leveling Solutions

Reflect different methods of analyzing jobs

Job Mapping:

 Comparing a job against pre defined leveling criteria, and assigning the job to a career level based on a holistic view of how the job is expected to contribute

(Career

Map)

BAND GRADE Job Evaluation:

 Analyzing a job against a number of factors where each factor is measured separately and the resulting evaluation is based on a calculation of the weighted factor scores

(GGS)

1 TASKS 1 2 3 1 2 1 3 4 5 4 5 SKILLS 2 6 2 6 7 8 'ROLE' CONTRIBUTES (THROUGH) 9 EXPERTISE 3M 1 0 1 1 1 2 1 3 LEADERSHIP 4M 1 4 1 5 1 6 1 7 1 8 FUNCTIONAL STRATEGY 5FS 1 9 2 0 2 1 BUSINESS STRATEGY 5BS 2 2 2 3 2 4 1 st . LINE TOP MANAGEMENT TOP MANAGEMENT 2 5 MIDDLE MANAGEMENT 7 8 9 SUPERVISOR 3IC 1 0 1 1 1 2 1 3 4IC 1 4 1 5 SUBJECT MATTER EXPERT 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 2 4 2 5 TECHNICIAN PROFESSIONAL CLERICAL / ADMINISTRATIVE MANUAL towerswatson.com

Job Leveling Solutions

Aligning tools to support the rewards and career framework

 The best job leveling approach will vary based on:  Business and cultural needs

and

 The reward and talent management programs the leveling outcomes are intended to support 

Key questions for consideration:

 What is the primary objective of the job leveling process? — — Create or confirm job family architecture?

Support compensation design?

— Link to performance management or additional talent management programs?

— Desired degree of transparency of leveling outcomes  What process is envisioned for leveling jobs; who will be involved?

 What is the organizational context of the business?

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Towers Watson’s Reward and Career Framework DRAFT

Workforce Analytics & Planning Staffing & Selection Supporting the Employee Life Cycle Development and Career Management Performance Management Competency Model Reward and Career Architecture Compensation & Benefits Succession Management Business Context towerswatson.com

Job Leveling A systematic process of determining the relative value of jobs in an organization Job Family Architecture The infrastructure for organizing jobs (job codes, job titles, functions, disciplines) Reward and Talent Strategy Inputs Job Content Employee Data Market Data 14

The Intersection of Market Pricing and Job Evaluation

The critical role of salary structures

 Salary structures help organizations manage compensation by aligning pay with the competitive marketplace, recognizing the relative internal value of different jobs, and maintaining the cost-effectiveness of pay programs  They provide a framework for rewarding performance, making consistent pay decisions, and linking career paths and pay opportunities, and can provide a framework for total rewards design and delivery

Salary structures are sets of pay ranges that define the minimum and maximum pay rates for jobs. They provide guidance to managers in administering pay, recruiting and retaining employees, and fostering employee growth and development towerswatson.com

Salary Structure Design: Historical Perspective on Market Practice

  Narrow grade structures are the most traditional, reflecting a historical emphasis on employees as inputs and costs, as opposed to strategic assets (personnel vs. human capital) Broad band structures became popular in the early 1990’s    Existing grade hierarchies no longer reflected flatter organizations that resulted from down-sizing activities Work became more broadly defined – careers were perceived to grow laterally through experience and cross-functional experience Broad-bands were seen as a tool to ensure talent mobility across functions   Increasing demand for labor brought a greater focus on pure market pricing and deemphasized the need for talent mobility, requiring:  Administrative rigor – stringent market analysis and credible market info  Ongoing manager training to effectively use the ranges, pure market data and reference points Today the focus is increasingly on achieving balance to support:  Internal consistency, employee development and external competitiveness  Differentiated pay for performance, manager flexibility and overall cost management tools  As a result, many organizations have adopted wide grade structures to better balance changing organizational structures, evolving views of human resources, and the continued need to manage costs

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A Reward and Career Architecture serves as a foundation for critical talent and reward programs and applications

Employee Value Proposition Workforce Analytics and Planning Staffing and Selection Development & Career Management Performance Management Compensation & Benefits Succession Management Reward and Career Architecture towerswatson.com

Integrated Reward and Career Framework:

Using Leveling Results to Develop a Global Salary Structure

$125,000 – $225,000 Local Market Data $180k $100,000 – $200,000 $155k $85,000 – $175,000 $120k $60,000 – $115,000 $95k $40,000 – $85,000 $60k $25,000 – $50,000 $35k

Individual Contributor

Common Leveling Framework

Manager

Local Market Data £125k £95,000 – £150,000 £102k £85,000 – £125,000 £85k £60,000 – £100,000 £65k £35k £15k £40,000 – £80,000 £22,000 – £52,000 £18,000 – £32,000 towerswatson.com

Integrated Reward and Career Framework

Sample Pay Delivery Model

Global Job Level Salary Grade STI Target LTI Target Low towerswatson.com

Long-term Incentive Eligible Annual Incentive Eligible Spot Award Eligible

10% 10% 10% 15% 20% 20% 30% 25% 35% 30% 40%

High

40% 50%

Linking Competencies to the Reward and Career Framework:

A robust structure to enable other talent programs and applications

Global Career Framework + Competencies

Executive

SVP EVP  Scaled competencies, aligned with each level of the career framework, describe the behavioral requirements associated with the job

Analytical Thinking

— Applies processes of analysis and synthesis to examine information in a thorough and thoughtful way

Professional/Expert Global Career Framework



Uses career bands (e.g., professional, manager) and career levels (e.g. entry, intermediate) to organize and align roles across the organization



Includes criteria to clearly describe each career level towerswatson.com

Identifies basic implications/conclusions from the logical analysis of a routine situation or issue Collects basic information necessary to analyze a problem, situation or issue Performs routine or basic analysis, following the correct steps and using the appropriate, established tools, observing and seeking guidance from senior staff when necessary Logically synthesizes information to uncover patterns, issues, errors and potential implications Breaks down information from multiple sources to analyze a problem, situation or issue from a variety of perspectives Leverages methods and approaches for data collection from other internal/external sources and best practices to address problems, situations or issues Extrapolates from past experience and facilitates input from others to determine probable outcomes Recognizes and anticipates areas where data may be missing or incomplete and collects all necessary information to analyze a complex problem, situation or issue Uses advanced tools to integrate and assess complex data or information and models effective data synthesis and analysis skills so that others can learn them Maintains a broad perspective to identify interdependencies and relevance of information to uncover subtle or hidden implications and risks Guides others in analytical thinking skills, data gathering and logical analysis Standardizes methods and tools for analyzing complex problems, situations or issues and discerning patterns within the business context Sees relationships in seemingly unrelated data to identify unlikely root causes and potential implications in complex situations Challenges all to think creatively about approaches and conclusions when collecting, analyzing and organizing relevant data Encourages and rewards development of breakthrough methods or tools for analyzing complex problems, situations or issues and discerning patterns within the business context

Competencies



Clarifies the knowledge, skills and abilities required for successful performance



Supports link to performance management, career development, succession planning 21

Market pricing - Prince William SHRM Inc.

Transcript Market pricing - Prince William SHRM Inc.

Market Pricing vs Job Evaluation

Table of Contents

Market Pricing Overview

The critical role of market pricing

Market pricing overview

Why do we market price?

Why do we market price?

Market pricing: One of the many supporting elements of all pay decisions

The limitations of market pricing

Addressing non-benchmark positions

Job Evaluation

Job Leveling overview

Examples of Job Leveling Solutions

Map)

(GGS)

Job Leveling Solutions

Towers Watson’s Reward and Career Framework DRAFT

The Intersection of Market Pricing and Job Evaluation

The critical role of salary structures

Salary Structure Design: Historical Perspective on Market Practice

A Reward and Career Architecture serves as a foundation for critical talent and reward programs and applications

Integrated Reward and Career Framework:

Integrated Reward and Career Framework

Linking Competencies to the Reward and Career Framework:

Questions?