Creating a Strategic Pay Structure: A Comprehensive Guide

1 Pay Structure Strategic Pay Structure HRM-FPX 5055 Comprehensive Rewards Gabrielle Hawkins-Dimming 1/19/2024

2 Pay Structure Hypothetical Using data from Capra Tek's Key Issues and Initial Analysis, Job Structure and Compensation, and Strategic Pay Structure, this paper discusses the application of Martocchio's five-step system process to create a strategic pay structure for the company. It also includes the number of pay structures, market pay lines, defined pay grades, pay ranges, and commensurate job classification. It also examines the applicability of Capra Tek's merit- pay systems, sales-incentive compensation plans, and person-focused programs. Vital Pay System Using data from Capra Tek's Key Issues and Initial Analysis, Job Structure and Compensation, and Strategic Pay Structure, this paper discusses the application of Martocchio's five-step system process to create a strategic pay structure for the company. It also includes the number of pay structures, market pay lines, defined pay grades, pay ranges, and commensurate job classification. It also examines the applicability of Capra Tek's merit- pay systems, sales-incentive compensation plans, and person-focused programs. Most businesses, like Capra Tek, take into account the process of building pay structures, which comprises the following steps: figuring out how many pay structures to have, figuring out a market pay line, defining pay grades, figuring out pay ranges for each pay grade; and assessing the outcome. Five-Step System

3 Pay Structure Pay structures use job analysis, job evaluation, pay survey analysis, pay policy development, and pay structure formation to determine multiple pay levels for individual jobs or groups of jobs based on their internal value and external relativities (Designing A Pay Structure, 2017). Employers use this system to identify pay disparities based on employee performance, knowledge, or credentials (Martocchio, 2020). Capra Tek will implement a two-tiered pay structure, creating a lower pay scale for recently hired employees than for senior employees. Positions within each job structure will gauge jobs that are common and uniform across a broad range of employers, including, but not limited to, other Capra Tek locations, to assist in determining a market pay line that will be used to represent the typical market pay rates that are relative to the company's job structure. Capra Tek uses a two-tiered prospective pay structure that allows the consolidation of a pay system for newly hired workers that is on a lower one for senior employees. Each internal promotion to the next level will increase pay due to the difficulty and demands of duties and worker requirements. For instance, pay rates for the Research & Development (R & D) job structure will be based on applicable labor markets that will help to promote internal stability. According to Compensation and Benefits (2017), Pay policies will assign pay grades to jobs based on value, experience, education, career advancement, and interchangeable compensable factors. The number of grades will be sufficient to indicate the degree of difficulty for each job, but not so many that the differences between two adjacent grades are negligible (Compensation and Benefits, 2017). For every job grade, pay ranges define the upper and lower bounds of compensation for workers whose jobs fall into that grade. Market data will determine the pay range's maximum, lowest, and midpoint. The pay structure results will be analyzed by comparing the market's valuation

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4 Pay Structure of the jobs to the company's internal values for the same jobs (Martocchio, 2020). If there are apparent disparities, the internal values and the market's valuation of the jobs will be reevaluated. There are six types of jobs in R&D, and the following are the jobs and their low point, mid-point, and high point of pay. Grade 1: Research and Development Assistant (Salary.com et al. Salary in Illinois n.d.) Grade 2: Research and Development Associate ( Research and development associate I salary | Salary.com n.d.) Grade 3: Research and Development Coordinator (Salary.com et al. Salary in Illinois n.d.) Grade 4: Research and Development Officer (Salary.com et al. Salary in Illinois n.d.) Grade 5: Research and Development Executive (Salary.com, n.d.) Grade 6: Head of Research and Development (Salary.com, n.d) Step1 Step 2 Step 3 Pay grade 1 42, 831 48, 886 52, 267 Pay grade 2 62, 259 72, 252 83, 483 Pay grade 3 68,282 94,1088 118,664 Pay grade 4 93,008 113,411 131, 364 Pay grade 5 109,156 123,180 139,102 Pay grade 6 275,833 343,623 427,293

5 Pay Structure Merit-Pay Martocchio (2020) states that several approaches concerning production workers were considered for the merit-pay system. One suggestion was that a skill-based pay structure would be more adaptable. An employee's pay would depend on how many tasks they can perform; for example, if there are ten different tasks on a manufacturing line and the supervisors want the most excellent flexibility in assigning work, it would be beneficial to ensure that the employees are cross-trained to be able to work on any of those tasks. Entry- level employees would start at the lowest rate and work up to the highest rate after completing all ten tasks. When using this system, the pay typically increases, allowing managers more flexibility with workflow and control costs. The company will provide equal training for every employee in the department to take advantage of those opportunities and to be evaluated on the different tasks. Sales Incentive The target selection of salespeople comprises the younger generation; Capra Tek will offer a salary-plus-commission plan to spread the risk of selling between the company and sales professionals. The portion of the salary improves the company's ability to attract good, skilled employees. It allows them to direct their efforts to non-selling tasks that do not lead directly to commission. (Martocchio, 2020). Salespeople rely on compensation programs to provide incentives, making it a difficult challenge for management in a new business. However, from a company's point of view, a salary-only plan is burdensome because the company must pay employees regardless of the levels they have achieved (Martocchio, 2020).

6 Pay Structure Person-Focused Capra Tek uses two different types of pay plans: skill-based and pay-for-knowledge. Person- focused plans reward employees for acquiring job-related competencies, knowledge, or skills rather than performance (Martocchio, 2020). The two program types that Capra Tek uses are pay-for-knowledge and skill-base. It is advised to apply both since most employees will acquire competencies, knowledge, or skills through their job structure. Employee behavior, knowledge, abilities, and skills will determine the most appropriate pay plan. Conclusion The compensation professionals at Capra Tek have provided management with recommendations that appropriately pinpoint correct incentives to generate desired behaviors. However, general guidelines should be followed for specific pay plans to build the connection between the pay structure and the successful recognition of employee contributions (Martocchio, 2020). The management team at Capra Tek faces the challenge of determining which pay structure will best fit the five job structures identified. References Designing A Pay Structure. (2017, May 16). Retrieved from SHRM: https://www.shr.org/ResourcesAndTools Martocchio, J. J. (2020). Strategic compensation: A human resource management approach (10th ed.). Boston, MA: Pearson

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7 Pay Structure Salary.com, S. built by: (n.d.-a). Head of research and development salary . https://www.salary.com/research/salary/alternate/head-of-research-and-development-salary Salary.com, S. built by: (n.d.-b). Research and development assistant salary in Illinois . https://www.salary.com/research/salary/recruiting/research-and-development-assistant- salary/il Salary.com, S. built by: (n.d.-b). Research and development coordinator salary in Illinois . https://www.salary.com/research/salary/recruiting/research-and-development-coordinator- salary/il Salary.com, S. built by: (n.d.-b). Research and development executive salary in Illinois . https://www.salary.com/research/salary/recruiting/research-and-development-executive- salary/il Salary.com, S. built by: (n.d.-c). Research and development officer salary in Illinois . https://www.salary.com/research/salary/recruiting/research-and-development-officer- salary/il

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