Pecos Valley SteakHouse Case
Pay Structures-
As we have seen the goals of compensation system is to attract, retain, and motivate employees. Implied in these goals is the issue of competitive wages and benefits. Organizations must have a sense of the wages and benefits being offered in the locale, (i.e., "the market"). Some organizations will take a very formal approach by conducting wage surveys. These activities may be done by a third party consultant for an individual company, industry, or region. Some organizations will use a less formal approach. For example, throughout the year HR managers may gather newspaper clippings of any article that discusses union contract settlements, proposed health insurance changes, or plant closures. Another informal approach is to use the resources of the Bureau of Labor Statistics (http://www.b1s.govibls/bIswage.htm). The BLS will list wage data by occupation and industry at the national and regional level. Some states through their department of labor and industry will publish wage data. Likewise many trade associations will publish wage data specific to that industry.
After gathering the data HR needs to establish the pay ranges for each job family. The pay range consists of a minimum (i.e., entry level) pay, middle (i.e., relates to the market wages), and maximum (i.e., the top level of pay). The range spread (i.e., the difference between the minimum and maximum rates of pay) is normally expressed as a percentage. Compensation managers must establish their midpoint for the pay range based on their compensation goal. If a company follows the market, the midpoint will represent the median market pay for that particular job family. If a company has a lead or lag wage policy, they adjust their middle point accordingly. For example if your research shows the median salary for the occupation is $30,000 and you want to lag the market by 10%, then the midpoint salary for this occupation would be $27,000 or 10% below the median market. Similarly, leading the market by 10% would mean a $33,000 midpoint for your base pay.
After establishing the midpoint, Compensation managers must calculate the minimum and maximum pay rates based on the given midpoint. One method calculates the minimum and maximum rates based on the range spread. Another method calculates the minimum and maximum rates as a percentage of change from the midpoint. Both methods are acceptable, but the calculations provide slightly different results.
Using the data collected in the previous Pecos Valley SteakHouse projects combined with the BLS, state online resources, and news article wage data, determine the salary structure for the General Manager and Assistant Manager jobs.
1. What will be the compensation goal relative to the market? Will Pecos Valley SteakHouse lead, follow, or lag the market in terms of pay for these occupations? What is the rationale for this decision?
2. Pay systems normally are a combination of base pay, incentive pay, and pay-for-performance. What will be the combination at Pecos Valley SteakHouse for Pecos Valley SteakHouse Case these occupations? If you are using incentive pay as part of your plan, then you must decide on the combination of individual, group, and company-wide incentives that be used in your pay structure. You will need to provide details and a rationale for the various incentive plans used in your pay structure.
3. Assume a 40% range spread for each occupation. Calculate the midpoint, minimum, and maximum salary points for each occupation's pay grade.
4. Using the pay range calculated in number 3 above, what is the salary for a General Manager at a 87% compa-ratio level? What is the salary for an Assistant Manager at a 105% compa-ratio level?
5. Calculate the pay overlap between these two pay grades.
6. Referring to your CPI analysis earlier in this project, what is your estimated CPI rate for 2015? Using this estimate recalculates the midpoint, minimum, and maximum points for each pay grade to reflect this inflationary salary increase.