Page 192 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)
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178 The Complete Guide to Executive Compensation
manager grade 17—all based on survey data. The vice president of production (for which no
survey data exists) is probably grade 19, 20, or 21, depending on the perceived internal value
in relation to the vice president of sales and marketing.
Many will argue that it is possible to be more precise and accurate in classifying jobs
using the market-pricing method at the lower end of the structure, where there is a greater
likelihood of similar jobs existing in other companies. The difficulty in market pricing the
executive positions is that, with the possible exception of functional division heads, there is a
great divergence of differences in specific responsibilities. While this may make job match-
ing more suspect, it may be possible to obtain meaningful data through multiple regression
studies, as will be discussed subsequently.
After the initial structuring, the need for extensive surveys is minimized since the struc-
ture is adjusted periodically on an assessment of the rate of compensation growth over the
previous period. Therefore, only those jobs that have not moved at the same rate would be
regraded, probably by not more than a grade.
Table 5-7 shows a listing of market-pricing principles that might be appropriate.
Market-Pricing Principles
1. In using survey data, consideration will be given not only to measures of central tendency (simple
or adjusted for scope measurement) but also to raw data where available (viewing its dispersion
from reported measurement of central tendency). Other reported compensation correlates will be
examined (e.g., total compensation and five-year average return on investment) where appropriate
and believed significant.
2. Survey results will be factored up or discounted to the extent it is believed the position is heavier
or lighter than the position surveyed.
3. Market data will also be tempered by the lack of necessity of replacing the job incumbent from a
particular industry (i.e., sales and marketing positions would relate very strongly to industry survey
data, whereas staff positions would primarily be based on cross-divisional data and internal factors).
4. In structuring the grade for a job with a market-oriented compensation program, it can always be
placed higher than market dictates (in order to preserve internal relationships), but it cannot be
placed lower without running the risk of turnover.
5. When survey data older than one year is used in ranking jobs, a factor will be added to equate it
with other data used.
6. Survey problems (e.g., small sample and significant dispersion from reported averages) will require
a closer look at internal job relationships.
7. In viewing relative positions of jobs, at least a two-grade differential is needed in order to talk of a
significant difference (i.e., a likely promotion). Furthermore, at least a two- or three-grade
difference would normally be expected when talking of reporting relationships.
8. Market data on average compensation paid for the position dictates the job grade.The
performance of the individual within the job determines the position within the range.
9. Staff and line positions are both sensitive to size of unit served (as a general indicator of extent of
responsibility); however, staff positions are much more sensitive to the individual in the position.
There is, therefore, usually a greater range on competitive compensation data for staff positions.
10. When evaluating a position, it is important to determine how jobs with similar responsibilities
interact with the one in question. Decentralization causes some duplication; it is important to
determine to what extent this affects the rating of a particular job.