PAY STRUCTURE EXERCISE - WORKSHEET Your Name: ________________________________ Date Submitted: __________________ Classmates who worked with you on this assignment: ________________________________ _____________________________________ _____________________________________ SITUATION: You are the salary specialist for a medium sized organization, Widget. Because of economic changes over time, you think that it may be helpful for Widget to consider multiple pay scales, including a separate scale for the job family provided below. Before you can make your proposal, you need to create a traditional pay structure for the jobs cited below. Your assigned pay architecture requires that the midpoint differentials fall between 5% and 15% and spread of range between 20% and 80%. Assume that the lowest paid job in the organization receives Texas' minimum wage, which is indexed to the federal minimum wage. # Positions / Jobs Points Middle Market Pay Widget Current Pay 1 senior technician 450 points $15.00 per hour $16.20 per hour 2 senior mechanics 400 points $15.00 per hour $15.08 per hour 5 technicians 275 points $12.00 per hour $12.10 per hour 5 mechanics 250 points $ 10.80 per hour $ 10.25 per hour 10 technical assistants 190 points $ 9.50 per hour $ 9.78 per hour 5 production specialists 175 points $ 9.00 per hour $ 8.82 per hour 2 inventory clerks 85 points $ 8.00 per hour $ 7.50 per hour INSTRUCTIONS: 1. Carefully study your text reading assignment (chapter 8). 2. Read the situation above. 3. Complete each of the three tables below: 1) pay structure, 2) grade assigned to each of the jobs, and 3) red or green circle jobs. Use the pay architecture information in the situation, above, to complete Table 1 Pay Structure. You must decide on appropriate range spread and calculate dollar values. Note that midpoint differential and point data are provided. Based on the completed pay structure data, complete Table 2 - Jobs Assigned to Grade. Be sure to use point data to complete this step. Based on the completed pay structure data, complete Table 3 - Red and green circle jobs. 4. Submit all three pages of this assignment, including your calculation, for scoring. Table 1 - Pay Structure (based on pay architecture) [40 points] Grade No. Midpt Diff. Range Spread % Points Lo Hi Hourly Pay Minimum Hourly Pay Middle Hourly Pay Maximum 1 -- ?% 50 75 $? $? $? 2 6% ?% 76 100 $? $? $? 3 7% ?% 101 125 $? $? $? 4 8% ?% 126 175 $? $? $? 5 9% ?% 176 225 $? $? $? 6 10% ?% 226 275 $? $? $? 7 11% ?% 276 350 $? $? $? 8 12% ?% 351 425 $? $? $? 9 13% ?% 426 500 $? $? $? 10 14% ?% 501 600 $? $? $? Table 2 - Jobs Assigned to Grade (based on pay data) [5 points] Grade 1 2 3 4 5 6 7 8 9 10 Job Titles Assigned to Grade Table 3 - Red and Green Circle Jobs (based on pay data) [5 points] Job Title Points If red circle job check box, below. If green circle job check box, below. Senior technician 450 points Senior mechanics 400 points Technicians 275 points Mechanics 250 points Technical assistants 190 points Production specialists 175 points Inventory clerks 85 points Submit this page provided for hand calculations. - or - Submit completed Excel (.xls/.xlsx) file to show calculations. [10 points] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Pay Structure Exercise - Assignment Notes The process of calculating pay within grades is an essential tool for the wage and salary analyst--as well as for the job applicant. (Get good at this process and you will be able to better negotiate appropriate salaries in any job application process.) When preparing pay grades for the pay structure, you begin with the market wage line, as all of the middle pay points will lay on the line. (Remember that job evaluation points fall on the X/horizontal axis and corresponding market pay is set on the Y/vertical axis, and then a basic regression formula is applied to calculate the market pay line. Also remember that each dot on the scatter plot (XY intercept) represent the points and market pay for each benchmark jobs and that the slope of the line represents our pay philosophy--approximately 45 degree line = market pay; a steeper slope represents a high wage employer; a flatter line represents a low wage employer. Because of problems associated with high- and low pay conditions, most organizations use the market approach.) Once the market line is drawn, the Y/horizontal axis becomes the organization's pay instead of the market pay. That is an important distinction because we will decide on pay for each of our jobs based on the new pay structure that is created around our pay policy line, which is exactly the same as the market pay line. Here are the steps to making it happen: 1.) Carefully study chapter 8 in your textbook: Strategic Compensation (7th ed.), by Martocchio. (You may find it helpful to read this chapter a second time after you reviewing this assignment.) 2.) Check your instructions for the number of grades determined appropriate for the organization, the minimum pay applied in the organization, as well as the midpoint-tomidpoint differential percent(s) and the spread of range percent(s). Your assigned pay architecture requires that the midpoint differentials fall between 5% and 15% and spread of range between 20% and 80%. (See notes below to help choose appropriate spread of range for the job family assigned.) According to the textbook, Strategic Compensation (7th ed.), by Martocchio, executives and senior management generally have spread of range set at 50% and above. Middle level management, administrative and professional---40% to 50%. Clerical, paraprofessional, and technical---30% to 40%. Laborer and trades---up to 30%. According to the textbook, Compensation Management, by Henderson, middle and senior management have 50% to 100% range spreads. First level management, administrative and professional---40% to 50%. Clerical, paraprofessional, and technical---30% to 40%. Lower-level service, production and maintenance--20%-30. According to the textbook, Compensation, by Milkovich and Newman, top level management positions commonly have 30% to 60% above and below the midpoint. Entry to midlevel level professional and management positions, between 15% and 30%. Office and production, 5% to 15%. 3.) For the first pay grade, you must first calculate the pay range by applying the spread of range percent to the minimum wage; this will give you the maximum pay. After posting the minimum pay and maximum pay for grade one, calculate the middle pay. (See formulas in chapter 8 of your textbook.) The middle pay point falls on the pay policy (wage) line and it is used to calculate the second midpoint, which is discussed in step three, below. 4) From the first middle pay value, you may then calculate all of the midpoints, as they fall on the only known point that you have for all pay grades after the first--that is the middle pay falls on the line. The midpoint-to-midpoint differential percent, therefore, is applied to calculate the middle pay data for each additional pay grade, after the first. (You want 100% of the first midpoint, plus the designated midpoint-to-midpoint differential percent.) 5) Based on the midpoint pay values, you are able to calculate the minimum and maximum pay for each of the grades. (See formulas in chapter 8 of your textbook.) 6) You may type your data onto the Word document table provided, or prepare a new spreadsheet with your answers. 7) Provide a list that includes each job title, points assigned, the average current pay for each job, and the new pay grade assigned to each. 8) Highlight job titles and pay grades, as appropriate, to indicate red- and green-circle jobs. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A related career note from Dr. Lyon: When you are negotiating salary for a job, a 40% spread of range is a good rule of thumb for middle management jobs. Determine the market pay based on 3-4 available surveys (BLS, TWC, industry Websites, etc.) and then apply the spread of range percent to determine an estimated spread of pay for the job. Never expect to receive the maximum pay upon employment, but don't forget to use your experience and professional knowledge to approximate an appropriate salary range and present your case for a best-case negotiation outcome. Odds are that your best negotiated pay will be somewhere near the midpoint between the lowest value and the middle rate of pay for the range