Compensation Structure

Job Structure and Evaluation System

Creating an effective compensation program requires a thorough understanding of an organization's jobs — in particular, the relationships between job functions, titles and families. This lays the foundation for the development and support of a sound pay-for-performance system that has accurate and current job information.

Sibson helps companies with the following:

Developing or revising the job description process: Sibson helps organizations either develop a new job description framework or revise an existing one to accurately reflect a position's primary job responsibilities and the necessary skills, experience and competencies needed for an individual to perform the basic duties and functions of his or her position.

Revising titling guidelines and conventions: Having a consistent set of definitions and titling conventions for common job titles makes it easier for employers to make comparisons against similar jobs in the marketplace. It also aligns titles across the organization and establishes a clear progression in determining reporting relationships. Job titles may be broad or specific in nature depending upon an organization's business, its operating strategy and its desire for an internal versus external focus.

Developing criteria for key job levels/families: A clear grouping of jobs, in which the work performed is of similar nature, is necessary from both an internal and external perspective. Externally, job families ensure that appropriate comparison markets are identified, that an organization's pay position is responsive to market pressures and that roles and titles are reflective of market practices, which facilitates the recruitment and retention of qualified staff. Internally, identifying roles that perform similar work across all areas of the organization helps ensure consistency of pay and titling for these positions and clarifies career opportunities for staff.

Common issues our clients face:

  • Our organization has evolved to the point where almost every individual has a unique title. How do we fix this problem?
  • The employees within our communications area are having a difficult time understanding the skills needed to move from one level to the next. Can you help us develop criteria for each of the levels?

Salary Structure

Salary structures provide a framework for organizations to manage employee base salaries. A salary range within the pay structure typically encompasses a particular grouping of jobs (e.g., jobs with similar job responsibilities and levels, employee skill sets and strategic importance to the organization). The pay levels associated with the salary ranges (i.e., minimum, midpoint and maximums) are developed based upon the organization's overall compensation strategy and pay positioning.

Sibson helps companies with the following:

Understanding different salary structure alternatives: Sibson helps organizations understand the various types of salary structures available and the implications of each alternative. We then help them determine which alternative aligns best with the organization's strategic objectives. This process includes detailed explanations of key design features, objectives and outcomes associated with each structure.

Developing salary ranges: Once a structure is determined, Sibson works with organizations to develop the pay levels associated with each salary range (i.e., minimum, midpoint and maximum) and the control mechanisms within each band. Sibson ensures that salary ranges represent the organization's desires for internal versus external equity, while maintaining simplicity, transparency and flexibility.

Detailing cost implications of structures: Sibson provides organizations with detailed analyses of scenarios to help them understand the impact on the organization of either moving from an old to a new structure or implementing a brand new structure (if no structure currently exists).

Common issues our clients face:

  • How do we strike a balance between enforcing the structure and allowing for flexibility?
  • Many of our employees are currently above the maximum of their salary range because the existing salary range does not provide enough room for them to grow. How can we solve this problem?

Pay Equity

Pay equity issues arise from flaws in the compensation process that will continue to produce issues unless they are "caught" with audits and redesigned. Compensation process flaws can impact employee morale and motivation because of a lack of trust in the pay system, and these flaws can also impact the bottom-line because of compensation cost creep versus competitors.

Recent legislation on pay discrimination, including the Lilly Ledbetter Fair Pay Act, has highlighted the importance of having sound methods for determining fair and equitable compensation.

Employers should anticipate an increase in pay discrimination claims as a result of this legislation. To mitigate litigation risks, Sibson can help employers improve their current pay decision-making process as well as assist in reviewing current HR processes. Sibson also has a team of experts that can help our clients identify inequities in pay and make recommendations for reconciling these inequities.

Improving Pay Equity and Other Compensation Outcomes

Signs of process flaws that could have a harmful effect on pay equity and other compensation outcomes include:

  • Managers "gaming the system" or using favoritism
  • Decisions being made in "silos"
  • No visibility of what others are doing
  • No market or internal data for guidance
  • Lack of differentiation
  • Perpetuating or compounding old mistakes
  • Too many guidelines, no real discretion

Pay, Performance and HR Process Audits

Sibson can provide an objective and independent audit of the practices and programs that will receive the majority of scrutiny under this new legislation:

  • Compensation Structure can be evaluated to determine if:
    • Compensation levels are based on a thorough job analysis and job evaluation
    • Compensation structure (i.e., bands, levels) is defined and closely governed by compensation personnel
    • Comparable pay levels exist for comparable jobs
    • Equitable pay levels exist for similarly situated employees
    • Clear ownership and governance has been defined for compensation adjustments
    • There is appropriate visibility on pay across units
    • There is calibration of performance assessment and pay actions across peer managers
    • Impact analysis is conducted before implementation
  • Performance Appraisals and Performance Management can be evaluated to determine if:
    • Performance feedback mechanisms enable the collection of valid job-related performance information
    • Performance ratings are behaviorally-anchored (e.g., differences between ratings are clearly distinguishable)
    • Performance management systems enable the collection of multiple data points on job performance
    • Performance calibration validates performance ratings within and between divisions, departments or functions
    • Clearly documented criteria on the relationship between pay and performance exist
    • Managers and supervisors have the skills and capabilities to deliver effective feedback, evaluate performance and make appropriate pay decisions
  • HR Policies can be evaluated to determine if:
    • Compensation and performance management policies, procedures and forms are documented, clear and easily accessible by employees
    • A governance structure that manages policy changes to ensure alignment and compliance is in place
    • Clear ownership and decision rights for managing compensation and performance management decisions exist

Pay Equity Diagnostics

Sibson uses several methods to evaluate pay equity and determine what the appropriate remedy may be to address the inequity. These methods include:

  • Descriptive statistics: These statistics evaluate pay levels across demographic variables to highlight areas where there are potential differences in pay — note that these analyses alone are insufficient to rule out inequities.
  • Forensic pay analysis: This analysis traces the accumulation of compensation throughout an employee's tenure with a company and compares this accumulation with a gender opposite peer or group of individuals (i.e., a "look-backward" analysis). This method is appropriate for organizations that have a small number of employees, which makes statistical methods such as analysis of variance and regression an unreliable tool.
  • Univariate Analysis of Variance (ANOVA): These can determine whether there are statistically significant differences in employee salaries between categorical independent variables such as gender and ethnicity; post-hoc tests can also indicate where differences within the variables are most pronounced.
  • Multiple Regression Analysis and Hierarchical Multiple Regression: These analyses can determine if there are significant differences in salary across demographic groups while controlling for the effects for other variables. For example, they can highlight whether there are differences in salaries across gender after controlling for the effects of title and tenure.

    Hierarchical Multiple Regression is an advanced form of regression that is particularly useful in estimating the incremental variance a target variable (e.g., gender) accounts for in the dependent variable (e.g., salary) after controlling for the variance accounted by other independent variables in the regression model.

    Note that the Office of Federal Contract Compliance Programs (OFCCP) recently issued revised standards for pay equity audits. Specifically, they declared multiple regression as the new standard for its audit process, moving federal contractors to use this approach. Furthermore, the courts have leaned toward multiple regression analysis as the definitive defense against claims of pay discrimination.