Determining Compensations Objectively !

Creating (and maintaining) an objective and relevant HR structure in any company or organization is vital to ensure jobs and thus compensation / salary scale reflect the value (importance) of each position in the organization. This is as opposed to having compensation / salary reflecting length of service, age or other subjective criteria.

For instance how would you order the following positions with regards to salary ? and what should each be in relations to the other ? in a medium sized bank for example:

• the 50 years old Administration Manager who has been in the bank for 25 years;
• the 26 years old Currency trader who has been working for 3 years in the bank's dealing room (and who deals daily in average of USD 5 million worth of transactions)
• the 31 years old Deputy IT Director, responsible for all the online banking and ATM operations of the bank ? (he joined the bank 1 year ago)

The above example reflects how complex it is to assess jobs and implement and objective compensation structure. It is an aim, not that many organizations in the Arab Region have achieved.

Establishing such a structure, getting it endorsed by a company's senior management and obtaining buy-in from staff requires going through a thorough process. Such an undertaking could be directly handled by the head of Human Resources or as it frequently happens, by retaining qualified consultants.

While retaining consultants is not a must, if used right they bring an independent / unbiased approach to positions and people; additionally they are not distracted by the day to day responsibilities of the HR department, thus they are more likely to get the work done on time. Consultants would also bring a new perspective, due to their exposure to numerous clients in a variety of sectors.

So how to go about creating a structure compensation scheme ?

1. Confirming the organization structure:
While a number of entities do not even have a detailed organization chart, others often have an outdated one, that do not reflect the current work and functional relationships. Thus reviewing the actual roles, responsibilities and relationships is a must.

Out of this review and the functional breakdown of the company, roles of each function and their inter relations will be confirmed with senior management.

Once the above tasks are completed, job descriptions must be updated (or developed from scratch); since these present the 'ground' for all subsequent work (related to: compensation, benefits and incentive etc..).

2. Job Measurement:
Now we must proceed to identifying the different organizational positions/jobs existing within the company. It is often the cast that positions with the same name may be very different due to their impact, scope of responsibility, technical knowledge required etc….
For example two individuals may have the position / title of Senior Civil Engineer, but actually one of them is handling complex bridge construction projects, while the other is dedicated to building small villas and residential buildings. These are two different jobs.

Once an inventory of all jobs within the company has been generated, a job profile for the identified jobs is developed.

The job profile analyzes the job's contents from a number of aspects: impact, technical know-how, risk, managerial role, communication requirements, problem solving etc.., assigning a relative weight to each of them. This should result in the allocation of an overall objective 'score' or 'grade' to each job reflecting its relative value within the company (regardless of who occupies it). This is by no means an easy task, it is advisable that a committee handles such as task.

There are a number of methods and methodologies to conduct such a scoring, one of the best known is the "Hay Method" developed by the reputable HR consultancy: Hay Group.

3. Job Grades:
A grouping / banding of jobs with similar or close 'scores' will follow to define the grading system of the company in question. This will result in the company having a number of grades to which all staff will be allocated regardless of their organizational titles.

This is similar to the military, where officers have grades, example: Lieutenant, Major, Colonel, General etc.… A job or an organizational role/title is different from the grade. So in the military, a Colonel (grade) could be in numerous positions such as Commander of a Brigade, Deputy Head of a military base, Military Attache in an embassy etc…. The grade required for a certain job depends on its complexity, know how, associated risks etc…

A salary range (bracket) is assigned to each grade based on the relative 'scoring' of that grade.

For example, a company will have the following grades and compensation:

Grade 1: (LE 12,000 - LE 16,000)
Grade 2: (LE 8,000 - LE 13,000)
Grade 3: (LE 5,000 - LE 9,000)
Grade 4: (LE 3,200 - LE 5,500)
Grade 5: (LE 1,500 - LE 3,500)
Grade 6: (LE 1,100 - LE 1,700)
Grade 8: (LE 750 - LE 1,200)

Once the grading and salary scheme are set, a Performance Appraisal System for the various functions / grade levels could be designed to support skill development, advancement and incentive schemes.

It is very important to communicate and orient staff on the new grading structure & compensation scheme to ensure clear understanding of job roles and minimize resentment.