Building a Benchmark For Devising Pay Ranges
Many organisations nowadays use job grades and bands for the sizing of their jobs, and as the basis for setting their pay ranges. These are usually based on whatever job sizing system they have adopted. Because of the high direct and indirect resource costs of getting large numbers of jobs evaluated, it is a common practice to evaluate only a limited number of roles – a benchmark – and for all the other jobs to be allocated to a grade/band by comparison with the evaluated roles in the benchmark.
How many benchmark positions do you need to give you a stable structure?
The traditional rule-of-thumb is 10% to 15% of roles/people, but that is an over-simplification: there is no ‘right’ answer or formula that will apply everywhere, because there are contextual variables that impact on what is required.
Having extra jobs in the benchmark will not necessarily add value, but it will certainly add cost (probably some $500 on average, directly and indirectly), and may indeed hinder the process by muddying the waters over frequently trivial issues.
What should a benchmark do?
To recap – the benchmark is a representative selection of organisational roles, by reference to which the size of all other organisational roles can be estimated by knowledgeable parties. The quality of a benchmark is therefore not determined by its size, but by how well it allows those parties to allocate to every other role in the organisation a place in the job-sizing structure.
1) The largest jobs must be included in the evaluation process, if not in the actual benchmark. This entails the CEO and their senior management team, because they are the ceiling under which every other role has to fit.
2) A high proportion of tier 3 managers should be included, to set the respective ceilings for their areas.
3) Each business group needs its own framework that allows the GM and senior managers to slot all their other jobs around them. The degree to which they are prepared to use the benchmark values from other business groups will dictate how many benchmark roles a business group needs. An estimate for each business group can be made, but it will be important that the senior management is heavily involved in the selection process.
4) Some managers minimise the number of their benchmark roles, to maximise the proportion that will be determined by the less rigorous slotting process. Others boost the number of evaluated roles to avoid making decisions, or to promote the perception of objectivity. The balance between these extremes will influence the number of roles put forward for consideration.
5) There may be some roles that allow for a cross-organisation view.
So how many? Ultimately, there needs to be enough, which is a very subjective measure, and will ultimately only be known in retrospect!
Where do you start?
The usual process remains the simplest – HR and managers sit down with updated organisation charts, and look for those roles that are obvious because of their frequency or numbers, and refine the selection from there. In general terms, the benchmark selection will start with the most obvious roles, and these are the roles with the highest population.
What variables determine the ‘right’ number of benchmark roles?
The homogeneity of the organisation. If the same types of role appear all through the organisation, cross-departmental benchmarks are possible. This gives internal consistency and stability, with fewer benchmarks. If cross-fertilisation is not possible, more benchmark positions are needed;
Diversity within business groups. One or two benchmark roles may be enough for a unit with a hundred people doing the same job. Another similarly-sized unit may cover diverse functions, each with a range of roles and levels, and need sub-sets of benchmarks for each function;
The capability of the people doing the slotting. The quality of the slotters’ insights, and their ability to call on others to fill in the gaps in their own understanding, will determine the number of other positions that a benchmark is able to “capture”;
The degree of manager/staff trust in the process. Where trust is high, credence in the quality of the managerial slotting will be high. The opposite also applies;
The nature of the grading structure adopted. “Standard” grades are the best and most logical grading system for both trained and untrained users to work with and slot roles into. Customising grades to suit an organisation’s structure is always feasible, and has its attraction, but their building/customisation can be complex. Also, you may find yourself having to modify your survey data to get it to fit with the way your grades are built. Care is recommended, to avoid problems.
Large-population roles need only a few benchmarks. These may vary from one instance or location to another, but may be sufficiently similar to fall within the same grade (or grades, if more than one level). Hence, one or two examples of each, at each level, will suffice for the whole group. If there are significant exceptions to the norm, these must be clearly identified.
And don’t get confused over titles – if staff are doing the same things under different names, they should all be the same size; whether the titles follow, is immaterial to the sizing.
The history and track record of evaluation. Continued use of a system may allow recent evaluations to be incorporated, but only as long as:-
They are valid benchmark positions. If not, the roles should be subject to slotting, not to evaluation; and
There is confidence that they are accurate. If there is any doubt, scrap them.
Each business group should have a representative skeleton of meaningful evaluations of its own, to ensure internal consistency and integrity, and to give a feeling of ownership. This will generally increase the overall numbers, but the buy-in by the business group managers is a critical element of the security of the structure.
Once all these strands are pulled together, you start to get the picture. The test is whether you can pick out a few roles at random, and can tell quite readily whether they are decreed a benchmark position, or the local manager knows how they stack up against benchmark positions. Only then you are in a position to approach your external consultant, to get the benchmark positions evaluated.
There are a number of caveats:-
Inclusion in the benchmark does not mean a role is more important or significant to the organisation, only that it serves the narrow purpose of helping managers to establish a comprehensive network of relativities and differentials.
Start at the top where you can, and work downwards. The CEO level determines the ceiling for the GMs, who in turn set the ceilings for tier 3 managers. Starting at the bottom and working upwards invariably leads to problems, if ‘settled’ evaluations have to be revisited because they don’t fit in under the subsequently-evaluated management structure!
The results must be kept totally confidential until the exercise is completed. Leaked results circulate quickly, and subsequent revisions and refinements become much harder to manage.
‘Old’ relativities and differentials don’t count anymore. They applied to a different system. A changed job sizing process may well split up jobs that used to be the same grade, and put together jobs that were previously different.
Hopefully you will not find too much of this, but you do need to identify the possibilities in advance. Internal relativities reflect the social order in an organisation, and there is massive intrinsic motivation/demotivation around how people change place on the organisational ‘totem pole’. The pay aspect is usually secondary – the perceived loss of status is the demotivator, and a common cause of good staff disengaging or even leaving.
This tends to affect managerial/specialist staff in particular, where self-perception is highest. The fallout affects senior management directly, by impacting on their own direct reports: so it is important to help senior managers through this, because how well they handle it will colour how their managers handle it further down the chain.
Any previous evaluations under the adopted system are trumped by evaluations under the new approach. The outcomes may differ due to contextual differences or revised system/evaluator interpretation. A former evaluation has no authority whatsoever.
It is common for there to be heavy emphasis on managerial jobs, often to the neglect of lower level roles. This emphasis is valid to the extent that it sets the ceiling for the roles below them, but there still needs to be a reasonable spread of low level roles in the benchmark, to encourage the perception that everyone is being treated equitably. Often, these lower roles are the least understood (and most underrated) by senior managers when it comes to sizing.
Titles without substance are a drain on the coffers and dangerous to the stability of any banding structure. A ‘senior’ title without extra accountability, expected capability and/or empowerment is an empty title and will distort relativities, both internal and external. If there is to be a ‘senior’, there has to be a ‘non-senior’ comparison, to confirm the differential.
Ownership of the job-sizing structure must rest with the organisation as a whole. Whilst the administration and maintenance may rest with HR, the ownership must be more widely held. Once managers and staff see a value in the preservation of the structure and the stability and ‘transparency’ it offers, they are more likely to protect it, to everyone’s advantage.
There is always a lot of work involved in setting up a new job sizing structure. Picking a system with logical and verifiable processes is fundamental: many of those who will be involved will have no need to know all the machinations of job sizing/banding etc etc, but there must be a core of staff with a reasonable understanding because, whilst the survey methodology and data behind the pay structure may be proprietary,
THE REMUNERATION STRUCTURE BELONGS TO THE ORGANISATION.
Relying too heavily on external consultants has its risks. Proprietary providers and their consultants offer expertise and quality controlled data and advice, but it is too much to expect, that they be analytical of their own products; it is therefore essential for an organisation to retain its own critical faculties.
As such, there must be a reasonable level of internal knowledge and understanding of the system followed and how the structure is designed to work. A lack of in-house understanding of remuneration structuring leaves an organisation vulnerable, and the pay structure is far too important to be left to the good offices of someone who works for somebody else!
This article was written for HRINZ publication by Alan White, SHRINZ, Remuneration Specialist.
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