Author: Bianca Valencia

Birches Group and The HR Partners held a Webinar on March 2, 2016 on the subject of “Managing Compensation in Developing Economies.”  If you were unable to join us, or just want to listen to the content again, you can watch a video of the full webinar below.

Date:  Wednesday, March 2, 2016
Time:  9:00 (New York) / 12:00 (São Paulo) / 14:00 (London) / 16:00 (Johannesburg) / 18:00 (Dubai)

Watch the Webinar Recording:

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The salary scale is the single most important document in human resources. It tells you everything you need to know about an organization:

• How the organization positions itself in the market
• The value the organization places on its jobs
• How relationships across jobs are managed
• Possible career progressions
• Where the organization stands on equity and transparency

For an organization to work efficiently and achieve team cohesion, a well-balanced salary scale is crucial as it drives all other critical HR programs — everything from recruitment, staff retention, promotion, and ultimately career development.

Designing a salary scale requires skill and expertise, balancing the internal considerations and team dynamics with the external market. It’s an art form, not just math.

A company’s salary scale is a reflection of its pay philosophy. A salary scale illustrates an organization’s values in terms of how it positions itself in the market and a demonstration of its internal pay policies – whether career-based or project-based. But more importantly, salary scales can tell us everything we need to know about an organization – from its internal cohesion explicitly differentiating the value they are willing to pay at each job level, to how they approach the symmetry between experience and responsibility.

In addition, organizations use salary scales as a tool to manage staff. Its structure shows the relationships of work from one grade level to the next, variable, or predictable movement within the organization, and expectations around career can be identified.

Types of Salary Structures

The three most common salary structures applied by most organizations is the traditional, broadband, and step pay structure.

  • Traditional Structure – typically has multiple grades, each with established salary ranges providing for a well-defined progression path from one job level to the next. Because of its straightforward design, career progression is clearer and easier to communicate because differences between job levels are very distinct and pay and career movement can be done in a controlled manner.
  • Broadband Structure – has fewer bands with multiple job levels grouped into each band. Many organizations find this structure to be more flexible where career progression can be done through lateral movement within each band and salary increases can be provided without necessarily warranting a promotion. However, differences between job levels is not as distinct in the broadband design which could be a cause confusion among staff.
  • Step Pay Structure – is made up of multiple grades, and each grade has several steps representing scheduled pay increments every year. The step pay structure’s rigid design allows for clear and predictable pay movement within each grade, but is linked to staff tenure/time rather than skills growth.

Tailoring Your Salary Structure to Support Multiple Employment Scenarios

Once an organization has decided on their salary structure type, each grade should now be tailored to illustrate different employment scenarios that can be expected in that organization.

What many do not realize is that there is more to building a salary scale than just simply setting minimum and maximum salaries at each level. There are two other things to keep in mind when designing your salary scale, and that is your Span and your Inter-Grade Differential. To put it simply, the span of your salary scale is the difference between the minimum and the maximum salary of each grade level. This ultimately defines the range of pay for work at any position. Your inter-grade differential, on the other hand, refers to the overlap between one grade level to the next. This allows you to differentiate the level of responsibility between grades. Organizations need to keep in mind that the spans of certain grade levels would depend on the nature of the jobs in that grade. For some jobs, their nature is to progress deeper into their grade resulting to more complex and highly-skilled work, some are expected to advance to the next higher grade, while for others, the nature of their role does not change.

In the case of project-based jobs, it would be logical to apply narrow spans for their grade levels because their roles are not designed to be short-term depending on the project. Career-based jobs, on the other hand, would have wider salary ranges to support growth in skills, moving them deeper into the grade or advancement to the next higher grade over time. Lastly, there is also time-based jobs where their nature does not change justifying a wide salary range but does not allow for much discretion for pay increments or career advancement.

Below are three examples of salary scales showing different employment scenarios, number of grade levels and overlaps between salary ranges:

The salary scale above is an example of a traditional structure with multiple grade levels with each grade mapped to one job level. Salary ranges for each grade is defined showing the value the employer has established for each level of work, and movement from one grade level to the next is clear.

The salary scale above is an example of a broadband structure that has fewer grade levels/bands, but with multiple job levels present in each grade. As staff accumulate more skills and experience, pay increases and progression can be provided through lateral movement within each band without necessitating a promotion.

The salary scale above is an example of a project-based employment scenario which also has grades or bands like the first two structure types above.  What makes this structure different is that each grade/band is designed for roles that have short lifespans to reflect the project timing, without the possibility of promotion. A structure like this is only appropriate for project-based organizations with definite term contracts. Project-based structures often have higher minimums reflecting the need for employers to reach experienced talent that can “hit the ground running.”  Employers utilizing such a structure should also consider project completion bonuses to improve retention.

A salary scale is essential for any organization. It affects all other areas of HR – from recruitment, to pay management, career development, and promotion. But we recognize that not all organizations have the capacity to design a salary scale. Birches Group has extensive experience in designing salary scales to fit the needs of organizations from different sectors and markets. Contact us to learn more.

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

In human resources, salary benchmarking serves many critical needs. It helps organizations assess the competitiveness of their total compensation versus the market, and is an important step in managing your human resources program. When organizations look to introduce new positions, salary benchmarking ensures a good understanding of the prevailing market conditions.

Here’s a short checklist – five steps – to follow for your next benchmarking exercise:

  1. Start with a High-Quality Survey

To do any benchmarking, you need market data, and that market data comes in the form of a survey.  The foundation to any market survey is its job matching approach. The job matching exercise ensures that jobs of similar levels of complexity are benchmarked against each other to establish common value across the market. 

It’s important to understand the methodology for job matching used by the survey provider and how the process is managed.  Are clients responsible for job matching, or does the consultant take the lead?

In Birches Group’s Community™ Market surveys, our survey specialists perform the job matching on behalf of every client, ensuring consistency and high-quality.

We use a job matching methodology that is simple, clear, and consistent, based on our Community™ Jobs evaluation approach.  Community™ Jobs considers three factors – PurposeEngagement, and Delivery.

Purpose enables us to examine each role within the organization and determine its primary objectives and how it supports the overall mission of the organization. Engagement identifies how each job interacts and collaborates with internal and external stakeholders to carry out its function. Delivery examines how each role plans, organizes and delivers work to fulfill the organization’s mission.

These three factors are present in any job, at any level. And together, they allow us to understand how an organization conducts business across all levels of work, starting with defining the purpose of its jobs, determining their level of engagement, and examining how each of its roles organizes and delivers service.

2. Focus on Grade Data

Many salary surveys take pride in the number of specific jobs captured in their surveys, but this is really a questionable practice.  Most organizations use generic pay bands and set pay ranges for all jobs at a particular level across all occupations.  Jobs with the same internal grade are paid in the same pay range, so the differences measured in the survey between different jobs are based not on job characteristics at all, but personal ones, like performance or tenure. Job data is also easily affected by the number of incumbents matched to a particular role, giving an illusion of precise differences based on volatile data of questionable value. The differences reported in the survey by job are misleading

When benchmarking your salaries, we believe that organizations should focus on grade data. Grade data is based on the job level and the associated ranges, and not the actual people sitting in those jobs. It’s a more reliable analysis because grade data captures all jobs with the same contribution level to an organization.  Grade data is a more stable representation of actual market movement versus incumbent salaries, which is highly variable.

3. Know Your Target Market

Before making your assessment, it is important that you select the survey comparators that are relevant to your organization. Out of the bigger survey sample, you will need to choose a smaller group of comparators relevant for your organization.

Market surveys can have twenty to over a hundred participants, or even more. But it does not necessarily mean that you compete with each one of them. If you are unsure where to begin with your selection, the criteria below are great places to start:

  • Organizations working in the same/similar sectors;
  • Those which you have lost staff to/hired staff from;
  • and Organizations in the same geographic area. 

You should also consider comparator organizations which share a similar Employee Value Proposition (EVP). Each company’s EVP is different, but look for organizations that have similar mission, approaches to career development, or pay and benefits philosophies similar to your own organization.

4. Identify Your Market Position

Once you have narrowed down the selection to your chosen comparators, the next step is to identify which level or percentile of the sample you want to target. But before making that decision, you will need to go back to your company’s EVP. Your EVP for total rewards should state your organization’s objective for competitive market position. 

Organizations typically state their target market position as a percentile of the targeted comparator group.  A position versus the 50th percentile or median of the market is common; going higher or lower is OK, too – it depends on what talent market you are trying to reach.

Being competitive is not always just about salaries. Allowances and benefits – monetary and non-monetary – can also be used to attract and retain talent. In our own experience, we have encountered companies that choose to position their salaries a bit lower in the market range but offer additional benefits on top of market practice. Again, depending on your company’s EVP, its all about striking that balance.

5. Always Use Fresh Data

If you are responsible for managing your company’s compensation and benefits, one concern that you might have is making sure that you are working with the most updated market information. Companies that have solid compensation policies will still struggle to maintain their competitiveness in the market if they are working with outdated information.

In Birches Group, we recognize that not all organizations update salaries at the same time every year or apply the same frequency between salary reviews. We know that organizations choose to participate in salary surveys when it makes sense for them. Our surveys are evergreen, with the opportunity to participate when it makes the most sense for you, and multiple publication dates.

Our Community™ Market salary surveys are updated three times a year, every AprilJuly, and October. This ensures that we always have the freshest data in our surveys and that any change to your compensation and benefits can easily be captured anytime during the year. Our evergreen approach also allows us to grow our survey sample throughout the year, providing our participants with the most robust data possible.

Birches Group provides labor market information for over 150 countries around the world. Our compensation and benefits surveys cover a full range of professional and support levels, providing information that ensures a client’s pay practices are aligned with the market conditions of leading employers in each country. Contact us to learn more.

Want to know if your existing compensation practices have the elements of a good compensation program or if there are areas that could use some improvement? Take our quick Compensation Program Assessment Quiz to know your score!

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

Recognizing and rewarding employees for their contributions is required to motivate and retain staff. But “Pay for Performance” as we know it just doesn’t work!

For the longest time, companies have used performance ratings to decide merit pay increases and sometimes, annual incentives. Typically, merit increases are determined according to a combination of performance ratings and position in range (compa-ratio) – those with a combination of higher performance ratings and lower compa-ratios are eligible for higher increases, while those with lower ratings and higher compa-ratios get less.  The idea is that such an approach provides a differentiated reward to those with better performance, while ensuring that, on average, the company is paying at the market rate (compa-ratio of 100).

The level of differentiation between strong performers and good ones isn’t much with annual salary budgets of 3% or less in many countries.  Employees don’t get excited about getting an increase of 3.2% instead of 2.9%.  It’s not really motivating, and does little for retention, which are the two primary goals.  Not to mention employees and managers probably hate your performance management system and do not trust the results are fair.

What’s Wrong with Pay for Performance?

Putting aside that last thought, and assuming your performance management approach is working well and is perceived by management and staff to be fair and effective, the problem with pay for performance is one of alignment.  Pay for performance rewards a one-time achievement (as measured by the annual performance rating) with a salary increase forever. That’s a huge misalignment!

Merit increases are essentially “baked in” and will remain a part of salary until the employee leaves the organization.  On the other hand, performance is variable, and usually changes from year to year.  If an employee is a high performer one year, and gets a “high” merit increase, and then in the next year, their performance is lower, how much do they give back?  Yeah, right.  The penalty for lower performance is a smaller increase going forward.

Using annual performance assessment to determine salary increases is crazy.

Alignment is Key

To align your pay for performance strategy, the first thing you need to change is the role performance management plays in determining rewards.  Birches Group believes performance management, which measures periodic, time-bound achievements, should be used to grant one-time recognition such as bonuses.  When performance is higher, bonuses go up.  If performance drops, bonuses go down, sometimes to zero.  You should do something else for salary movement.  But what?

Using Skills to Recognize Growth

In Birches Group, we believe that pay movement should reflect one’s experience. As an employee gains more experience in their job over time, they develop a deeper understanding of their role and accumulate the necessary skills that enable them to be more efficient and produce results of increasing quality. Linking an employee’s growth in skills and knowledge to the determination of their salary movement makes sense, and it’s totally aligned.  The accumulation of skills and knowledge stays with your employees and can be applied continuously in the future.  Skills are like an annuity that keeps paying over and over – like salary!   The challenge with such an approach has always been how to measure skills and knowledge.  Until now.

Birches Group Community™ Skills provides a framework for measuring experience.  Skills uses five skill levels – Basic, Proficient, Skilled, Advanced, Master – anchored to our job levels.  For each job level, explicit measures or milestones are defined, enabling managers to evaluate employees’ accumulated skills and knowledge.  Companies can link their compensation administration to the progression of Skills in any number of ways, and provide increases based on employee growth in their jobs rather than performance.

The New Pay for Performance

Employee’s should be recognized for both the growth they demonstrate in their job and their achievement during a performance period.  By structuring your pay for performance philosophy using two concepts instead of just one, you can solve the alignment issue and create a pay for performance program that works.

If an organization’s goal is to motivate and engage their staff, the approach must be clear and fair. By linking salary movement to growth in skills and knowledge, you will be paying for increased capacity, while also recognizing achievement. Contact us to learn more about our Community™ approach to recognition and reward.

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

The International Potato Center (commonly known as CIP) is part of the CGIAR consortium of research centers dedicated to agricultural research and food security.  With headquarters in Lima, Peru, and country offices in 20 developing countries, CIP was facing stiff competition for talent and other issues with their pay structure.  CIP engaged Birches Group to help revamp their compensation strategy and local pay structures, while still maintaining a linkage to the other CGIAR centers, all of which participate in Birches Group surveys.

Right To Play, headquartered in Toronto, Canada, was experiencing challenges in attracting and retaining talent for their programs in more than 20 developing countries around the world. Their compensation system was still based on a cost of living approach, rather than cost of labor. Internal job grading had been developed, and the focus shifted to salary structures. Right To Play was a long-time participant in the NGO Local Pay surveys and agreed to partner with Birches Group to implement the “Pay Right Project.”

The Institute of International Education developed a strong, market-driven approach to compensation for their field offices, including salary structures and a consistent grading system.  But they lacked the internal resources to maintain the structures across a very diverse group of countries.  They faced additional challenges in selected markets due to economic volatility, and the response time from headquarters HR was slow.  IIE engaged Birches Group to assist in maintaining the salary structures and to guide the organization towards a policy-driven approach for special measures.

The Elizabeth Glaser Pediatric AIDS Foundation was seeking assistance with the management of their compensation program.  Prior to engaging Birches Group, they centralized the responsibilities for pay management at headquarters and created salary structures.  But the team recognized the need for professional guidance and expertise, choosing a co-sourcing arrangement with Birches Group.