Tag: compensation design

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WHY ORGANIZATIONS SHOULD OUTSOURCE THEIR SALARY SCALE DESIGN

Written by Kai Donesa on . Posted in Resources.

Organizations are beginning to recognize that the key to attracting and retaining top talent hinges heavily on a strategic, fair, and competitive salary scale. Yet, tailoring this structure to your unique needs can be complex.

Do you have the tools to properly analyze labor market data? Can your human resources (HR) team maintain the salary scale annually, in addition to addressing other responsibilities? Is there a way to design and update your salary scale more efficiently? This is where outsourcing is necessary.

Outsourcing the design and maintenance of your salary scale unburdens you and your HR team from this intricate task, allowing you to focus on your core business operations. Handing this responsibility over to more experienced professionals does not only save time; it ensures that your salary scale aligns with your strategic goals, global policies, market trends, and industry standards.

This article discusses why organizations should consider outsourcing the design and maintenance of their salary scale. We will explore how this pragmatic move can help you, from gaining expert advice to ensuring market alignment. If you’ve been second-guessing whether you need to outsource your salary scale design, our insights might be what you need to make an informed decision.

Understanding salary scale design

Your salary scale is the single most important document in HR. The structure determines how much an employee will be paid based on their role, their value for experience at each grade level, and the difference between one grade level to the next. It tells your stakeholders everything they need to know about your organization, including:

  • How you position yourself in the market
  • What value you place on your jobs
  • How you manage relationships across jobs
  • What are the possible career progressions
  • Where you stand on equity and transparency

A well-balanced salary scale is crucial for your people to work efficiently and achieve team cohesion. Your salary scale drives all other HR programs, including recruitment, staff retention, promotion, and career development.

Designing the scale is not only about deciding how much to pay an employee or listing pay grades. It is driven by building a fair and equitable compensation structure that shows how you attract and retain talent, as well as motivate staff. It involves balancing internal considerations and team dynamics with the external market.

However, designing and updating your salary scale requires a deep understanding of your business strategy, a thorough knowledge of the labor market, and keen insight into the motivations and expectations of staff. These tasks demand a high level of skill, expertise, and experience.

Why it’s essential to have a well-designed salary scale

A well-designed salary scale establishes a framework for determining staff compensation and sets the standard for pay equity within your organization. It also helps ensure employees are rewarded fairly, boosting morale and motivation.

Your salary scale also serves as a roadmap for career progression, giving staff a clear idea of what they can expect as they advance. This transparency can help foster trust and loyalty among staff, leading to increased job satisfaction and lower turnover rates.

Further, a well-designed and updated salary scale can help your organization attract and retain top talent. By offering competitive salaries in line with market rates, you can position your organization as an employer of choice.

Common challenges in designing a salary scale

Designing a salary scale is not without its challenges, though. One of the fundamental issues is determining the appropriate pay range for each grade level within your organization. This requires a thorough understanding of the job market and the ability to assess the value of each level accurately, carefully balancing your organization’s workforce needs and overall budget.

Another challenge is ensuring pay equity. This involves making sure employees are paid fairly for their work. Achieving pay equity can be complicated, especially in large organizations with a diverse workforce across labor markets.

Keeping the salary scale up to date is also a concern. The job market constantly evolves, and the value of specific roles can change rapidly. The salary scale must be updated every year to reflect market trends.

The benefits of outsourcing salary scale design

Outsourcing the design of your salary scale offers several advantages:

  1. First, it frees up valuable time and resources. Designing a salary scale requires a significant amount of time and expertise. By outsourcing this task, your HR team can focus on other vital projects, such as employee engagement and talent development.
  2. Second, outsourcing gives you access to expert knowledge and insights. An HR consultancy firm like Birches Group has a deeper understanding of labor markets across continents. Additionally, firms such as ours can share accurate and timely information about salary trends and benchmarks.
  3. Finally, outsourcing ensures fairness and objectivity. An external firm can design a salary scale free of internal biases or conflicts of interest.

Case study: Elizabeth Glaser Pediatric AIDS Foundation

To illustrate the benefits of outsourcing your salary scale design and maintenance, let’s consider the case of the Elizabeth Glaser Pediatric AIDS Foundation (EGPAF), a nonprofit organization supporting activities in 19 countries. EGPAF had a centralized salary system but needed to ensure its salary scales kept up with the market, especially in Africa.

EGPAF tapped us to design its salary scale over several years. Doing so refined the nonprofit’s salary scales with a view closer to the local setting. We then looked at each African location, improving EGPAF’s pay structures and systems based on our NGO Surveys. Based on their budget, we developed three different salary scale options for each country.

As a result, EGPAF can now:

  • Name which comparators are relevant to them based on consistent comparator criteria developed for their salary scale review, and which scale design approach best addressed its internal compensation issues, all while staying within budget.
  • Get a more precise snapshot of the labor market through our salary survey data.
  • Anticipate and be better equipped when sudden changes in the market occur.

This case illustrates the significant benefits that can be gained from outsourcing your salary scale design.

How Birches Group can help you design and update your salary scale

Creating and maintaining a salary scale is a technical and creative process best left to specialists. If you’re considering developing or updating your organization’s salary scale, we at Birches Group are here to help. With our team of experienced professionals, we can provide salary scale options tailored to your needs.

We have extensive expertise in adapting or creating salary structures through our work with many clients from the public and private sectors. We believe proper salary scale design must be tailored to your needs and culture, as well as your compensation philosophy, market position, and budget. A well-designed salary scale must also align with the local market and adhere to corporate policy and compensation goals.

If you’re ready to learn more about how we can design and maintain your salary scale, contact us today.

Carla is a part-time copywriter in our marketing team in Manila. Before shifting to freelance writing in 2020, she worked as a marketing and communications specialist at the offices of EY and Grant Thornton. She has written about HR and career development for Kalibrr. 

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BUILDING YOUR SALARY SCALE: MEASURING YOUR MARKET POSITION

Written by Kai Donesa on . Posted in Resources.

Measuring your market position is a critical step in building your salary scale. Once your target comparators have been narrowed down and the target percentile has been identified, analyzing your salaries against your chosen external market to arrive at recommendations that will frame your overall pay structure is when strategies around recruitment and retention begin.

There are several ways to go about measuring market position. Here are some steps that you can consider:

  • Focus on Salary Ranges – salary ranges provide a more stable and realistic view of the labor market, rather than using incumbent salaries as a reference. We know that incumbent salaries are person-based, and rates can vary significantly depending on who is sitting in those roles. When building a salary scale, salaries need to be based on the nature of the job and the value the organization is willing to pay for it with reference to similar job levels in the external market. Further, incumbent salaries are extremely volatile especially in developing markets. Using salary ranges provides context and is based on actual market movement, as well as serving as ‘bookends’ that can take away outliers in your analysis.
  • Assessing Your Market Position – when measuring market position, a common approach is to average all benchmark jobs in the same grade level in your organization, while also considering the number of incumbents associated with each data point as the weighted average. Using the recommended salary survey in your compensation policy, you can then begin to measure your market position for each grade level using your findings and assess them against the external market.
  • Less Emphasis on Occupational Variance – over the years, too much importance in terms of pay has been placed on certain occupations simply because they are considered ‘hot jobs.’ But the truth is, occupational variance, when measuring market position, is not as meaningful as you think. When assessing pay, adjustments are applied to the salary scale, which is generic, and not to specific occupations. Moreover, market data results would sometimes report higher pay for certain industries giving an illusion that those functions are paid higher than other jobs of similar levels in the market. But what that higher number simply means is that there are more data points reported for those specific roles, therefore pulling the overall average compared to other jobs with less data points reported.
  • Do Not Forget the Four Job Clusters – in our previous article, It Starts with Jobs, we discussed that the labor market does not move at the same pace for all grade levels. This is especially true in developing markets. In our Community approach, we believe that the labor market has four job clusters – General, Process, Design, and Leadership – each one moving at different paces depending on the availability of talent in each unique market. In highly dynamic markets, it is common for grade levels found under the Leadership cluster to move much quicker than grade levels under the General, Process, and Design clusters. Due to the specific skills required and level of contribution expected from the Leadership cluster, jobs at these grade levels are usually harder to recruit therefore resulting to significantly higher differences in pay. On the other hand, jobs under the General, Process, and Design clusters are more widely available which explains the more gradual pay movement. Since this is the reality in most labor markets, it follows that setting pay should not just be one number but instead, requires a more tailored approach depending on the organization’s needs and objectives.

With the steps that we have recommended when measuring your position against the market, we must not forget that internal cohesion between grade levels is just as important when building your salary scale. Being able to balance external competitiveness while maintaining fair pay relativities internally is what organizations need for an effective and well-designed pay structure. Birches Group is ready to help your organization design a salary scale that meets your needs. 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.

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