© 2010 towers watson. all rights reserved. market pricing vs job evaluation presented by theresa...
TRANSCRIPT
© 2010 Towers Watson. All rights reserved.
Market Pricing vs Job Evaluation
Presented by Theresa LynchTo Prince William SHRM
April 4, 2012
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 2
Table of Contents
Introduction Market Pricing Overview Job Evaluation The Intersection of Market Pricing and Job Evaluation
Market Pricing Overview
towerswatson.com 3
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 4
The critical role of market pricing
Compensation plays a critical role in organizations’ ongoing — and increasingly challenging — efforts to attract, retain and motivate a talented workforce It is an important component of an organization’s Reward, Talent and Engagement strategy
Compensation design and management play a vital role in aligning employee behavior with business objectives
Human capital costs represent a significant part of most organizations’ cost bases; they need to spend their limited resources as effectively as possible
Market pricing provides the vital external market perspective and data needed to develop cost-effective, market-relevant compensation designs and manage pay effectively
Market pricing supports a range of pay program designs (base pay, short-term incentives and long-term incentives)
Market pricing is the process of determining the "market rates" for a representative sample of jobs in a specific talent market, based on data for jobs with similar functions and comparable scope of responsibility.
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 5
Market pricing overview
Market pricing provides information to support decisions about “how much” and “how to” pay
The goal is to keep from: Underpaying, and losing talent to competitors or being unable to attract the talent it
needs
Overpaying, and wasting organizational resources or impeding desirable turnover
Market pricing is a descriptive, not a prescriptive activity. Market data are not “the answer” — there’s often more to the story
It’s an imperfect way to make sense of incomplete data The secret is the ability to spot the imperfections and either eliminate them or work
around them
A combination of “art” and “science”
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 6
Why do we market price?
Market pricing helps us understand the influence of supply and demand on the cost of labor Where is the market shifting, how quickly, and by how much?
How competitive is our pay? Are our attraction and retention issues a result of pay or something else?
Talent Readily Available
Reduced Labor Cost
$
Increased Cost
Limited Available Talent
$$$$
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 7
Why do we market price?
It provides us with data for informed decision making: How should we allocate resources?
How do we value an acquisition target?
Is the way we deliver pay consistent with the mix other companies deliver?
How does the market reward employee development? Are we keeping up?
How well are we delivering against our compensation philosophy? Can we afford to bridge gaps between where we are now and our target competitive position?
What do market practices suggest for ongoing compensation management?
It’s essential to developing market-based reward programs Based on detailed understanding of business and HR objectives
Anchored in a company’s HR strategy and compensation philosophy
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 8
Market pricing: One of the many supporting elements of all pay decisions
Communicate with Employee
Final Pay Decision
Performance Information
Informal/Formal
Individual/Team/Business Unit/Organization
Incumbent’s Current Pay Levels
Compensation Information
External
Surveys and other analyses
Recruiting feedback
Trends and prospective changes
Internal equity
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 9
The limitations of market pricing
Numbers imply a precision that is not necessarily accurate
Only as valid as the salary survey data being referenced
Data not always available in sufficient detail — especially for narrowly defined talent markets or small/developing countries
Published compensation surveys do not have every position, and often do not include “hot skills” roles
Cannot provide insights into value of non-benchmark jobs
May cloud the organization’s judgment about taking internal equity into account
Cannot be the only input for making individual pay decisions
Cannot replace business rationale and sound decision making
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 10
Addressing non-benchmark positions
Each organization is unique, and the jobs in those organizations are often also unique In some organizations, as work becomes defined more broadly and where
job tasks may be combined in non-traditional ways, you may not be able to find a “perfect” match for a job in any of your available salary surveys
Not all jobs will be able to be matched to survey data because they are: Specific to an organization
Jobs for which survey data is not collected and/or reported
Do not force non-benchmark jobs to be benchmarks Non-benchmark roles present an additional opportunity to discuss how to
manage pay
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Job Evaluation
towerswatson.com 11
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Job Leveling overview
Job leveling is…A systematic process of determining the relative value of jobs in an
organizationA system for analysing and comparing different jobs according to the overall
responsibilities and scope of each jobIt is not concerned with the volume of work, or with the person doing it, or with
current pay Purpose
Establish a framework for:— Defining jobs and hierarchy — Providing a foundation for reward and talent management decisions including base
pay, incentives, career management, workforce planning, learning and development— Creating a flexible, adaptable means of communicating career paths and facilitating
talent mobilityGoal
A consistent, internally relevant and market-supported approach that can be understood by everyone involved
12
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Examples of Job Leveling SolutionsReflect different methods of analyzing jobs
Job Mapping:
Comparing a job against pre-defined leveling criteria, and assigning the job to a career level based on a holistic view of how the job is expected to
contribute (Career Map)
Job Evaluation:
Analyzing a job against a number of factors where each factor is measured separately and the resulting evaluation is based on a calculation of the
weighted factor scores (GGS)
Ind
ivid
ual
Co
ntr
ibu
tor
Ro
leM
anag
emen
t R
ole
Professional/Expert
Entry Intermed Career Specialist Master Expert
Business Support
Entry Intermed Senior Lead Supv
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Executive
VP SVP EVP CEO
Production
Entry Intermed Senior Lead
Ind
ivid
ual
Co
ntr
ibu
tor
Ro
leM
anag
emen
t R
ole
Professional/Expert
Entry Intermed Career Specialist Master Expert
Professional/Expert
Entry Intermed Career Specialist Master Expert
Business Support
Entry Intermed Senior Lead Supv
Business Support
Entry Intermed Senior Lead SupvEntry Intermed Senior Lead Supv
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp MgrSupv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Executive
VP SVP EVP CEO
Executive
VP SVP EVP CEO
Production
Entry Intermed Senior Lead
Production
Entry Intermed Senior Lead
BUSINESS STRATEGY5BS
GRADE
BAND
TASKS1
SKILLS2
LEADERSHIP4M
EXPERTISE3M
MA
NA
GE
ME
NT
CA
RE
ER
PA
TH
'ROLE' CONTRIBUTES (THROUGH)
CEO
2 3IC1 4IC
SUPERVISOR
PROFESSIONAL
TECHNICIAN
CLERICAL / ADMINISTRATIVE
MANUALMANUAL
FUNCTIONAL STRATEGY5FS
SUBJECT MATTEREXPERT
MIDDLEMANAGEMENT
TOPMANAGEMENT
1 2 3 4 5 6 7 8 9 10
11
12
16
18
20
21
22
23
24
19
25
13
14
15
17
1 2 3 4 5 6 7 8 9 10
11
12
16
18
20
21
22
23
24
19
25
13
14
15
17
1st. LINE TOP MANAGEMENT
IND
IVID
UA
L C
ON
TR
IBU
TO
R
CA
RE
ER
PA
TH
13
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Job Leveling Solutions Aligning tools to support the rewards and career framework
The best job leveling approach will vary based on: Business and cultural needs and
The reward and talent management programs the leveling outcomes are intended to support
Key questions for consideration: What is the primary objective of the job leveling process?
— Create or confirm job family architecture?
— Support compensation design?
— Link to performance management or additional talent management programs?
— Desired degree of transparency of leveling outcomes
What process is envisioned for leveling jobs; who will be involved?
What is the organizational context of the business?
14
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Towers Watson’s Reward and Career Framework
Supporting the Employee Life Cycle
Workforce Analytics & Planning Staffing & Selection
Development and Career
Management
Performance Management
Compensation & Benefits
Succession Management
Competency Model
Inputs
Business Context Reward andTalent Strategy Job Content Employee Data Market Data
Job Family ArchitectureThe infrastructure for organizing jobs
(job codes, job titles, functions, disciplines)
Job LevelingA systematic process of determining the relative value of jobs in an organization
Reward and Career Architecture
DRAFT
15
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
The Intersection of Market Pricing and Job Evaluation
towerswatson.com 16
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 17
The critical role of salary structures
Salary structures help organizations manage compensation by aligning pay with the competitive marketplace, recognizing the relative internal value of different jobs, and maintaining the cost-effectiveness of pay programs
They provide a framework for rewarding performance, making consistent pay decisions, and linking career paths and pay opportunities, and can provide a framework for total rewards design and delivery
Salary structures are sets of pay ranges that define the minimum and maximum pay rates for jobs. They provide guidance to managers in administering pay, recruiting and retaining employees, and fostering
employee growth and development
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 18
Salary Structure Design:Historical Perspective on Market Practice
Narrow grade structures are the most traditional, reflecting a historical emphasis on employees as inputs and costs, as opposed to strategic assets (personnel vs. human capital)
Broad-band structures became popular in the early 1990’s Existing grade hierarchies no longer reflected flatter organizations that resulted from down-sizing
activities Work became more broadly defined – careers were perceived to grow laterally through experience
and cross-functional experience Broad-bands were seen as a tool to ensure talent mobility across functions
Increasing demand for labor brought a greater focus on pure market pricing and deemphasized the need for talent mobility, requiring: Administrative rigor – stringent market analysis and credible market info Ongoing manager training to effectively use the ranges, pure market data and reference points
Today the focus is increasingly on achieving balance to support: Internal consistency, employee development and external competitiveness Differentiated pay for performance, manager flexibility and overall cost management tools
As a result, many organizations have adopted wide grade structures to better balance changing organizational structures, evolving views of human resources, and the continued need to manage costs
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 19
Employee Value Proposition
A Reward and Career Architecture serves as a foundation for critical talent and reward programs and applications
Workforce Analytics and
Planning
Staffing and Selection
Development & Career
Management
Performance Management
Compensation & Benefits
Succession Management
Reward and Career Architecture
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Integrated Reward and Career Framework: Using Leveling Results to Develop a Global Salary Structure
$125,000 – $225,000
$100,000 – $200,000
$85,000 – $175,000
$60,000 – $115,000
$40,000 – $85,000
$25,000 – $50,000
$125,000 – $225,000
$100,000 – $200,000
$85,000 – $175,000
$60,000 – $115,000
$40,000 – $85,000
$25,000 – $50,000
$180k$180k
$155k$155k
$120k$120k
$95k$95k
$35k$35k
$60k$60k
£95,000 – £150,000
£85,000 – £125,000
£60,000 – £100,000
£40,000 – £80,000
£22,000 – £52,000
£18,000 – £32,000
£95,000 – £150,000
£85,000 – £125,000
£60,000 – £100,000
£40,000 – £80,000
£22,000 – £52,000
£18,000 – £32,000
£125k£125k
£102k£102k
£85k£85k
£65k£65k
£15k£15k
£35k£35k
Common Leveling
Framework
IndividualContributor
Manager
Local MarketData
Local MarketData
20
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com 21
Integrated Reward and Career Framework Sample Pay Delivery Model
Ind
ivid
ual
Co
ntr
ibu
tor
Ro
leM
anag
emen
t R
ole
Professional/Expert
Entry Intermed Career Specialist Master Expert
Business Support
Entry Intermed Senior Lead Supv
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Executive
VP SVP EVP CEO
Production
Entry Intermed Senior Lead
Ind
ivid
ual
Co
ntr
ibu
tor
Ro
leM
anag
emen
t R
ole
Professional/Expert
Entry Intermed Career Specialist Master Expert
Professional/Expert
Entry Intermed Career Specialist Master Expert
Business Support
Entry Intermed Senior Lead Supv
Business Support
Entry Intermed Senior Lead SupvEntry Intermed Senior Lead Supv
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp MgrSupv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Executive
VP SVP EVP CEO
Executive
VP SVP EVP CEO
Production
Entry Intermed Senior Lead
Production
Entry Intermed Senior Lead
Low High
10% 10% 10% 15% 20% 20% 25% 30% 40%
30% 35% 40% 50%
Salary Grade
STI Target
LTI Target
Spot Award Eligible
Annual Incentive Eligible
Long-term Incentive Eligible
Global Job Level
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com
Linking Competencies to the Reward and Career Framework:A robust structure to enable other talent programs and applications
Uses career bands (e.g., professional, manager) and career levels (e.g. entry,
intermediate) to organize and align roles across the organization
Includes criteria to clearly describe each career level
Clarifies the knowledge, skills and abilities required for successful performance
Supports link to performance management, career development, succession planning
CompetenciesGlobal Career Framework+
Scaled competencies, aligned with each level of the career framework, describe the behavioral requirements associated with the job
Professional/Expert
SpecialistCareer ExpertMasterIntermediateEntry SpecialistCareer ExpertMasterIntermediateEntry
Analytical Thinking — Applies processes of analysis and synthesis to examine information in a thorough and thoughtful way
Sees relationships in seemingly unrelated data to identify unlikely root causes and potential implications in complex situations
Challenges all to think creatively about approaches and conclusions when collecting, analyzing and organizing relevant data
Encourages and rewards development of breakthrough methods or tools for analyzing complex problems, situations or issues and discerning patterns within the business context
Maintains a broad perspective to identify interdependencies and relevance of information to uncover subtle or hidden implications and risks
Guides others in analytical thinking skills, data gathering and logical analysis
Standardizes methods and tools for analyzing complex problems, situations or issues and discerning patterns within the business context
Extrapolates from past experience and facilitates input from others to determine probable outcomes
Recognizes and anticipates areas where data may be missing or incomplete and collects all necessary information to analyze a complex problem, situation or issue
Uses advanced tools to integrate and assess complex data or information and models effective data synthesis and analysis skills so that others can learn them
Logically synthesizes information to uncover patterns, issues, errors and potential implications
Breaks down information from multiple sources to analyze a problem, situation or issue from a variety of perspectives
Leverages methods and approaches for data collection from other internal/external sources and best practices to address problems, situations or issues
Identifies basic implications/conclusions from the logical analysis of a routine situation or issue
Collects basic information necessary to analyze a problem, situation or issue
Performs routine or basic analysis, following the correct steps and using the appropriate, established tools, observing and seeking guidance from senior staff when necessary
ApplyingSupporting ShapingLeadingDeveloping
Sees relationships in seemingly unrelated data to identify unlikely root causes and potential implications in complex situations
Challenges all to think creatively about approaches and conclusions when collecting, analyzing and organizing relevant data
Encourages and rewards development of breakthrough methods or tools for analyzing complex problems, situations or issues and discerning patterns within the business context
Maintains a broad perspective to identify interdependencies and relevance of information to uncover subtle or hidden implications and risks
Guides others in analytical thinking skills, data gathering and logical analysis
Standardizes methods and tools for analyzing complex problems, situations or issues and discerning patterns within the business context
Extrapolates from past experience and facilitates input from others to determine probable outcomes
Recognizes and anticipates areas where data may be missing or incomplete and collects all necessary information to analyze a complex problem, situation or issue
Uses advanced tools to integrate and assess complex data or information and models effective data synthesis and analysis skills so that others can learn them
Logically synthesizes information to uncover patterns, issues, errors and potential implications
Breaks down information from multiple sources to analyze a problem, situation or issue from a variety of perspectives
Leverages methods and approaches for data collection from other internal/external sources and best practices to address problems, situations or issues
Identifies basic implications/conclusions from the logical analysis of a routine situation or issue
Collects basic information necessary to analyze a problem, situation or issue
Performs routine or basic analysis, following the correct steps and using the appropriate, established tools, observing and seeking guidance from senior staff when necessary
ApplyingSupporting ShapingLeadingDeveloping
Global Career Framework + Competencies
22
Ind
ivid
ual
Co
ntr
ibu
tor
Ca
ree
r P
ath
Ma
na
ge
men
t C
are
er
Pa
th
Professional/Expert
Entry Intermed Career Specialist Master Expert
Professional/Expert
Entry Intermed Career Specialist Master Expert
Business Support
Entry Intermed Senior Lead Supv
Business Support
Entry Intermed Senior Lead SupvEntry Intermed Senior Lead Supv
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Management
Supv Mgr Sr Mgr Grp Mgr Sr Grp MgrSupv Mgr Sr Mgr Grp Mgr Sr Grp Mgr
Executive
VP SVP EVP
Production
Entry Intermed Senior Lead
Production
Entry Intermed Senior Lead