Page 235 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 5. Salary 221

Performance Rating
Range Range
Year Maximum 0 1 2 3 4 5 6 Maximum

0 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80 1.20
1 0.80 0.75 0.83 0.86 0.91 0.96 1.00 1.06 1.20
2 0.80 0.71 0.87 0.92 0.94 1.00 1.04 1.13 1.20
3 0.80 0.67 0.88 0.97 0.97 1.03 1.09 1.20 1.20
4 0.80 0.63 0.90 0.97 0.99 1.06 1.15 1.20 1.20
5 0.80 0.60 0.92 0.97 1.00 1.09 1.18 1.20 1.20
6 0.80 0.58 0.94 0.97 1.01 1.12 1.20 1.20 1.20
7 0.80 0.53 0.96 0.97 1.02 1.15 1.20 1.20 1.20
8 0.80 0.50 0.94 0.97 1.03 1.16 1.20 1.20 1.20
9 0.80 0.47 0.94 0.97 1.04 1.17 1.20 1.20 1.20
10 0.80 0.45 0.94 0.97 1.05 1.18 1.20 1.20 1.20
Table 5-41. Position in range after six-month merit adjustment (mid 1/3 0.93
1.07)—50 percent spread

the same logic that applies to merit increases also applies to promotional adjustments. For an
individual receiving a significant increase in responsibilities, a 10 percent increase may still
be far short of the new job’s pay minimum; conversely, it may be a modest organizational
change, and therefore 10 percent would be overly generous (e.g., pay is already well within
the middle one-third of the new job’s pay grade). Remember that position in grade is the
company’s best assessment of the individual’s worth vis-à-vis the marketplace and other indi-
viduals within the company. Following such logic, a guide could be constructed such as the
one shown in Table 5-42, with varying percentages of increase depending on position in the
new job’s salary structure.

Below Minimum Lower 1/3 Middle 1/3
25% 15% 5%

Table 5-42. Promotional guidelines

To test the quality of the adjustment, one could ask, “What would I offer this individual
to accept this job if he or she came from another company?” Under such an examination,
most internal promotional pay actions pale by comparison.
A well-thought-out promotional pay policy is essential to retaining internal equity, not
to mention its value during a period of federal pay controls when promotional increases are
usually easier to accomplish than merit adjustments.

SUMMARY AND CONCLUSIONS

Salary is the compensation element on which the other four elements are layered. It is there-
fore critical that a person’s salary be reflective of organizational importance, viewed both