Increasing Organizational Flexibility Through Compensation Design

Below you'll find just one example of how our performances and rewards practice helped a client with compensation structure design.

Client issue

A manufacturing and packaging site of a global company had a compensation structure for non-exempt employees that was not market-based, promoted entitlement, and did not define clear career paths.

This caused the following direct and indirect costs:

  • Pay levels that did not reflect market data for the location of this site
  • A sense of entitlement to pay increases year after year with minimal link to performance, which drove employee pay up without providing commensurate benefits to the company
  • Broad pay ranges that were more relevant for exempt jobs than non-exempt jobs and did not help the company control pay or distinguish between different pay levels
  • Unclear career paths and inability for employees to identify advancement opportunities, which contributed to undesirable turnover and low engagement
  • Loss of efficiency due to inflexibility of workforce to perform multiple tasks or stand-in for an absent employee

Our solution

Through a collaborative approach with Sibson Consulting, the organization developed and implemented a skill-based compensation system that included the following components:

  • Market-Based Pay Ranges: Utilized data from national, regional, and local geographies containing similar manufacturing participants to establish pay ranges that better reflected the market for non-exempt jobs at the site.
  • Clearly Defined Levels: Established levels based on skill acquisition and expertise that aligned with the business needs. Defined criteria for each level and created new job descriptions.
  • Assessment and Calibration Process: Designed tools for assessing competencies and skills. Held calibration sessions among managers to ensure equitable assessment of skill level.
  • Training Opportunities: Developed training opportunities for employees to cross-train, learn new skills, and master current skills.
  • Progression Guidelines: Developed guidelines that outlined career progression through the new levels, addressing both skill acquisition and business needs. Managers discussed individual progression opportunities with employees.

Results of our Recommendation

Through careful planning, the organization implemented the new program successfully.

Organization leadership was better able to manage pay levels to keep in line with the market and to differentiate pay more effectively based on skills and performance.

Employees had greater confidence in how pay rates were determined and understood that continued skill development benefited both themselves and the company.

The company gained flexibility that enabled it to respond more quickly to the volatility of current market conditions.

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