HRM 5400 Module 3 Written Assignment: Market Pricing and a Pay Structure Example

Meeting the Market: Survey Data, a Pay Policy Line and Grades for Brightwater Systems

Student Name

Master of Science in Human Resources Management, Thomas Edison State University

HRM-5400: Lifestyle Benefits and Compensation in the New Millennium

Mentor Name

Month Day, Year

Meeting the Market: Survey Data, a Pay Policy Line and Grades for Brightwater Systems

Introduction

External competitiveness is the pay relationship between an organization and its competitors. Milkovich et al. (2014) explain that pay level decisions affect both cost and the ability to attract and keep employees. Brightwater Systems now has a point factor ranking of its jobs from Module 2. This assignment attaches market dollars to that ranking.

Choosing Competitors and Surveys

The relevant market differs by job. For engineers and product managers, Brightwater competes with software and technology firms across the New York and Philadelphia regions, many of which allow remote work. For support specialists and analysts, it competes with employers in central New Jersey. The company will purchase two published technology salary surveys and participate in one regional survey, matching jobs by content rather than title, since a title such as "analyst" covers very different work at different firms. Survey data are aged to the plan's effective date using the surveys' reported salary increase projections. Gerhart and Rynes (2003) note that choosing which employers to compare against is itself a strategic decision, because it determines which labor market the pay level answers to.

The Market Pay Line

A least-squares line through these points gives market pay of about $241.82 per point minus $48,451. The line predicts $55,500 for 430 points and $152,300 for 830 points, close to the medians, which suggests the job evaluation plan and the market agree on how these jobs are valued. The engineer's median sits above the line, consistent with the scarcity noted in Module 1.

Pay Policy, Grades and Ranges

Following Module 1, Brightwater will match the market line for most jobs; the 5 percent lead for engineers will be added as a target of 105 percent of midpoint once their current gap is closed. Jobs are grouped into grades of 100 points, and each grade's midpoint is the market line at the center of its point band. Ranges extend 15 percent below and above the midpoint.

Compa-Ratios and Adjustments

A compa-ratio divides an employee's pay by the range midpoint. Brightwater's average pay is $54,000 for support specialists, a compa-ratio of 0.90; $86,000 for analysts, 1.02; $118,000 for software engineers II in grade 4, 0.89; and $149,000 for product managers, 0.95. Four support specialists and two engineers are paid below their range minimums, and no one is above a maximum.

The plan raises everyone below minimum to the minimum at once and moves engineers toward the midpoint over two years, adding about 5 percent each year on top of merit increases. For the company's 80 engineers, closing the gap of about $14,800 to midpoint costs about $1.18 million, spread over two years. Because engineering turnover of 19 percent costs far more in recruiting and lost productivity, the adjustment is likely to pay for itself.

Considerations Beyond the Line

Pay ranges must leave room for growth while controlling cost, and the 30 percent spread from minimum to maximum suits professional jobs where employees progress through the range over several years. Trevor et al. (2012) found that pay differences within teams can help performance when they reflect differences in skill, so the structure should allow differences within ranges based on performance rather than compress everyone to the midpoint. New Jersey's posting rule means these ranges will appear in job advertisements, so they must be defensible.

Conclusion

Market data placed against Brightwater's job evaluation points produce a consistent policy line, five grades and clear evidence that engineers are underpaid. A two-year adjustment plan, funded against the cost of turnover, brings the structure in line with the strategy.

References

Gerhart, B., & Rynes, S. L. (2003). Compensation: Theory, evidence, and strategic implications. Sage.

Milkovich, G. T., Newman, J. M., & Gerhart, B. (2014). Compensation (11th ed.). McGraw-Hill Irwin.

Trevor, C. O., Reilly, G., & Gerhart, B. (2012). Reconsidering pay dispersion's effect on the performance of interdependent work: Reconciling sorting and pay inequality. Academy of Management Journal, 55(3), 585-610. https://doi.org/10.5465/amj.2006.0127