New Thinking About Pay Structures - Chicago Benefits and

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New Thinking About Pay Structures

Jeff Carlsen, SVP HR, Reyes Holdings

Barb Manny, President, Benefits & Compensation Resources (BCR) Rich Sperling, Sperling HR, LLC

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The Rear View Mirror

n  Back in the Day – Whole Job Ranking and Point Factor n  The 80s Saw Market Pricing n  The 90s Saw a Movement to Broadbanding

Being Out of Sync With Business Reality n  Employees earning patterns over the course of a career often do

not resemble a traditional salary structure. n  Pay levels are adjusted year after year and are rarely reduced. n  Annual percentage increases vary and correlate to cost of living

indexes. n  Salary budgets increase slightly year to year. n  Employees are promoted and occasionally granted an increase

outside of market parameters. n  Salary management defaults to regular pay increase decisions

(aka, non-differentiating) over the course of a person’s career.

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Today’s Business Needs

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Today’s Needs

Traditional Pay Programs

•  Hierarchy, gradations

•  Job-focused •  Slow, bureaucratic

•  Policy-based; structured

• More driven by internal equity

Today’s Needs

•  Flat, delayered structure •  Team-focused •  Adaptive; mobility required •  Flexible; decentralized •  External focus

Job Family Possibilities

•  Fewer levels

•  Fewer labels •  Reinforcement for

horizontal or lateral development

•  Less structure

• Market-driven pay

The Business Case For Job Families n  Job families avoid the problems with traditional compensation

structures and broadband approaches. n  There is a focus on job family progression, not on titles and grades. n  Job families create a broader view of work and cross-functional

knowledge. n  Job families facilitate acquisitions. n  They reflect pay levels defined by labor markets that are relevant to

a set of circumstances and people-management strategy. n  They shift focus away from managers making frequent decisions

about compensation and place the focus on people progress and job duty changes.

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Key Elements of a Job Family Structure n  Typical job family has 5 to 7 levels. n  Grades cease to be the prime focus for job changes. n  Separate salary bands are defined for each career stage linked to

competitive market. n  Managers have increased flexibility and responsibility for

deployment of resources and compensation actions. n  Job movement and development of knowledge within a job family is

facilitated and teamwork can be fostered.

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Job Family Structure Example: Finance and Accounting

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Job Family: Finance and Accounting

Job family profile: Responsible for day-to-day operations of various accounting operations. General accounting operations including debit and credit ledgers, preparations of statistics, development of financial reports, financial statements, budgeting, financial analysis, decision support, period closing, financial planning, etc.

FA V Function: Responsible for a particular accounting function or division supported by a number of professional section/ location professionals. Ensures that effective procedures are established and followed in order to meet business requirements including management of financial controls. Involved in the development of new accounting systems to improve financial reporting. Actively involved in management decisions relating to business and strategic planning (e.g., budgeting and financial forecasting).

Education: Accounting degree and professional exam or postgraduate degree. Experience: 10+. People or process management responsibility: Management of capital and revenue budgets. Reporting relationship: Corporate controller or financial leader. Primary facing assumptions: Direct reports, section leaders.

Job Family Structure Example: Finance and Accounting

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Example: Job Family Structure

Chief Executive Officer (CEO) Corporate Vice Presidents

Division Presidents Division Vice Presidents

VI – Director, Customer Service

VI – Director, Finance

VI –Director, HR VI – Director, IT VI – Director, Operations/ Director

VI – Director, Engineering

VI – Regional Sales Manager or Sr. Sales/ Marketing Mgr.

V – Natl. Cust. Service Manager

V – Sr. Finance Manager/Division Controller

V – Sr. HR Manager

V – Sr. IT Mgr. V – Sr. Plant Manager/ Sr. Manager

V – Sr. Engineering Manager

V - Regional Systems Mgr., Sales/Mktg. Mgr. or BDM

IV – Area Customer Service Mgr./Mgr.

IV – Finance Mgr. IV Regional HR Manager

IV – IT Manager IV – Plant Manager/ Manager

IV – Engineering Manager

IV – Account Manager/ Manager

III – Customer Service Supv./ Team Leader

III – Plant Controller/Lead Professional

III –HR Manager/ Lead Professional

III – Lead Professional

III – Line Manager/Lead Professional

III – Lead Engineer III Supervisor/ Lead Professional

III – Sr. Support Services

II – Sr. Customer Service

II – Sr. Professional II – Sr. Professional II – Sr. Professional II – Supervisor/ Team Leader or Sr. Professional

II – Sr. Engineer II – Sr. Professional II – Mid-Level Support Services

I – Customer Service

I - Professional I – Professional I – Professional I – Operations Professional

I – Engineer or Designer/ Draftsman

I – Professional I – Support Services

Customer Service and Pricing

Support Finance &

Accounting Human

Resources* IT Operations** Product/Design Engineering

Sales and Marketing Support Services

Job Families    

Note: Each salary band will be developed for each job family level based on market data relevant for that level and will not necessarily match the same band level of another job family. If a level is left blank, there are no current positions slotted in that level.

Steps To Developing A Job Family Structure Step 1: Identify the Career Paths in Each Functional Area of the

Organization Step 2: Align Job Family Levels Step 3: Value the Job Family Level Step 4: Slot Employees Into Job Family Levels Step 5: Develop Pay Bands Step 6: Communicate With Managers and Employees Step 7: Oversee Systems Implementation

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Reyes Holdings’ Job Family Approach

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About Reyes Holdings

n  Reyes Holdings is the largest privately-held company headquartered in Chicago and the 25th in America.

n  Food and Beverage distribution of some of the best-known brands. n  The Company has more than 90 warehouses in the U.S., Canada,

Puerto Rico, Central and South America, and Ireland. n  Three divisions: The Martin-Brower Company, Reyes Beverage

Group and Reinhart Food Service. n  Approximately 11,000 employees and annual sales in excess of

$12 billion.

Why Did We Create a Common Compensation Structure? n  Our Senior Management wanted to:

•  Create better linkage between compensation and performance. —  They agreed we needed to improve our compensation structures and

processes to strengthen the link between pay and performance and our decisions regarding compensation.

•  Create more consistent compensation practices across all of our divisions. —  There was too much variability of compensation practices across the

divisions, given that our business model is very similar. •  Strengthen the processes through which compensation is determined.

—  Improve our systems and communications regarding compensation to our employees so there is greater transparency and understanding, driving common processes providing greater visibility and analytic capabilities.

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Our Business Case For Job Family Groups n  Our business was changing. n  Increased emphasis on career development. n  Provided flexibility to remain competitive. n  Eliminated unnecessary barriers. n  Reflected pay levels defined by labor markets that are relevant to a

set of circumstances and our people management strategy. n  Focused managers on making value-added decisions about

employees’ progress and job duty changes. n  Provided opportunities to those who add value to our business.

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What Are the Benefits of Having a Common Job Family Framework?

n  Creates a consistent compensation structure, administration processes and compensation metrics for the entire enterprise.

n  Maximizes flexibility within company-wide strategic context without sacrificing meaningfulness.

n  Minimizes corporate resources required to administer a compensation structure.

n  Provides a set of built-in checks and balances, creating measurable results.

n  Makes it easy to understand and communicate to employees and people supporting the structure and administration.

n  Aligns well with the performance management process. n  Supports effective work system design and enhances career

development. n  Aligns HR Strategy with the business strategy.

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Job Family Compensation Structure–A Strategic HR Tool

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Function Job Families

In order to do things better, we had to see things differently

How Did We Proceed?

n  Developed an enterprise-wide compensation philosophy through senior leadership.

n  Created a Compensation Modeling Task Force. n  Created a template to identify the current compensation practices

of each operating company. n  Gained buy-in on current state. n  Identified job families for each operating company. n  Defined levels within each of the job families. n  Aligned all current employees with one of the levels in the

appropriate job family. n  Tested compensation for range appropriateness. n  Created salary administration guidelines. n  Communicated salary administration guidelines. n  Created compensation metrics. 16

What is Our Job Family Structure?

n  The Job Family Structure is to be used as a framework to categorize all of our salaried exempt and non-exempt positions.

n  It also allows us to assimilate new jobs into the Company from acquisitions we make. •  The Job Groups and Job levels facilitate the Company’s ability to react

more quickly and easily to changing business needs and market conditions in a more timely fashion.

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What is Our Job Family Structure?

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Job Group Name # of Jobs or Levels

Job Group Name # of Jobs or Levels

Administration 5 Marketing 5 Applications 4 Network Operations 5 Aviation 4 Operations Support 4 Customer Relations 5 Payroll 3 Finance/Accounting 7 Production 4 General Management 4 Purchasing 5 Human Resources 4 Quality Assurance 5 Human Resources Shared Services 6 Risk Management 5 Inventory Control 5 Sales 7 Information Systems 5 Transportation & Delivery 6 Logistics 5 Technical Services 4 Maintenance 8 Warehousing 6

How Are Our Pay Bands Set?

1.  Position descriptions are matched to Job Groups. •  Job Groups recognize broader distinctions of jobs in order to

facilitate organizational flexibility, encourage career development and support a more efficient organization structure. —  Each of the Job Groups contain multiple skill levels ranging from

minimal experience to highly experienced. —  Each Job Group describes, in greater detail, the experience and

competency requirements for a position to be placed in each of the various Job levels designated by a unique Job Code.

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How Are Our Pay Bands Set?

2.  To ensure our compensation practices remain competitive, RH compares its jobs to similar jobs benchmarked annually, both in and out of our industry, using third-party compensation surveys. •  Market data used in benchmarking was collected from various well-

established survey sources. •  Different pay data is used depending on whether the job is exempt

(based on level) or non-exempt. —  For exempt jobs, based on pay practices of similarly-sized

companies: national data is used above a certain level. —  For non-exempt and hourly jobs, based on the pay practices of

major employers in the local geographic area.

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How Are Our Pay Bands Set?

3.  The market data is used to create Pay Bands for each Job level within a Job Group. •  A Pay Band has a lower and upper range to it that applies to all positions

related to that Job code and level within a Job Group. The Pay Band is divided into sections so that differences in skill levels and competencies can be appropriately recognized and rewarded. Market data was used to create the Pay Bands.

•  Each Pay Band’s minimum is 80% of the Mid-Market Zone; the maximum is 120% of the Mid-Market Zone. The Pay Band has a spread of 50% from the lower end of the zone to the upper end (120%/80% - 100% = 50%).

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Lower Market Zone

Mid Market Zone

Upper Market Zone

Market Zone Minimum (80%

of Market Value)

Market Value (100%)

Market Zone Maximum (120% of

Market Value)

How Are Our Pay Bands Set?

4.  Pay Bands must be locally competitive in order to attract and retain talent but, Pay Bands must also reflect the geographic area from which talent is recruited, so we are not paying too little or too much for talent. •  The data from the Economic Research Institute (ERI) is used to create

pay bands across the U.S. and North America. Locations with similar geographic differentials are grouped together to create appropriate Pay Bands.

•  There are 10 geographic clusters in the U.S. and 7 in Canada. Each location was assigned to one of these clusters. Geographic differentials were applied to Pay Bands to align them with local markets.

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How Are Our Pay Bands Set?

5.  Within each Job Group, the overall accountability, responsibility and complexity of the work defined within each Job level differentiates one from the other.

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Pay Band Below Market

Zone Minimum Lower Market

Zone Mid-Market Zone Upper Market

Zone Above Market

Zone Maximum

Review Employees paid

below minimum of Market Zone may need adjustment

to minimum

•  Partially meets performance expectations (meets some, but not all performance expectations)

•  New employee •  Learners

(gaining needed skills/ experience)

•  Meets performance expectations

•  Fully competent (all the needed skills/ experience)

•  Consistently exceeds performance expectations

•  Top performer •  Highly

experienced •  Possess

special skills (beyond normal requirements)

Review Employees paid above Market

Zone maximum may be “red-

circled” or frozen

What Is Management’s and HR’s Role? n  Managers are responsible for ensuring that they:

•  Follow the appropriate processes for hiring, promoting and determining pay increases for employees.

•  Perform pay actions that are equitable when compared to others in a same or similar job with the same level of performance.

•  Make pay decisions that do not intentionally or unintentionally discriminate against employees based on gender, race or other protected classes.

•  Place employees in the appropriate pay bands given their education, experience, accountabilities and skills.

•  Have defined individual performance goals for employees that align to business/functional goals.

•  Do not communicate starting salaries or salary increases without first obtaining the appropriate management and Human Resource approvals.

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What Is Management’s and HR’s Role? n  HR is responsible for ensuring that they:

•  Are knowledgeable about RH’s compensation structure and guidelines, as well as the laws impacting compensation decisions.

•  Provide the right guidance to Managers to follow the appropriate processes for hiring, promoting and determining pay increases for employees.

•  Assist Managers in making pay decisions within the established framework of RH’s compensation structure and guidelines and its compensation system and processes.

•  Initiate job level or pay band reviews with Corporate HR, as appropriate.

•  Bring forward to Corporate HR any pay decisions or concerns that they view as potentially discriminatory.

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What is the Linkage Between Job Family Groups and Our Compensation Structure?

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Manager’s Perspective

•  Increased ability to attract, retain and motivate employees.

•  Increased flexibility and accountability for compensation actions.

•  Provide managers with a tool kit to help guide sound compensation decisions.

•  Creates an ability to communicate pay decisions more effectively and transparently.

Employee’s Perspective

•  Promotes a higher level understanding of total pay.

•  Provides a clear career path along with development requirements to move ahead in my career.

•  A better link of my pay to my performance.

Organization’s Perspective

•  Optimizes the financial investments by targeting high performing, high-valued employees.

•  Empowers management to make informed decisions about pay.

•  Creates a consistent, sustainable process.

•  Provides flexibility to more quickly respond to market and economic changes.

What’s In It For Me?

Job Family Structure

•  A system to link total pay with performance and talent management. •  A compensation structure that will allow for competitive positioning, flexibility, scalability

and facilitate the integration of acquisitions. •  Compensation tools and guides that will foster fair and consistent pay decisions.

We’ve Come A Long Way

n  When we started this process, we had about 2,500 employees – now we have 11,000.

n  We’ve assimilated 35 acquisitions into this structure since that time.

n  We’ve added a few new job families to accommodate the changes in our business.

n  We’ve been successful in passing 15 OFCCP Audits throughout the country.

n  All of the job codes are automated along with our applicant tracking system.

n  The divisions cannot add or change any jobs without Corporate approval.

n  The structure facilitates salary planning and our PMD process.

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Questions?

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When Do Job Families Present Challenges? And What Do We Do Then?

Job Families Work Best In Functional Organization Structures n  If you are organized differently, you may need a different approach

n  Other types of organization structures:

•  Geographic/Product/Customer Structures

•  Front-Back Hybrid Structures

•  Matrix Organizations

n  These other organization structures are characterized by:

•  Cross-Function Teams rather than functional jobs

•  Combination or hybrid jobs

•  Shorter professional (functional) hierarchies

•  General management roles at lower organization levels

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What is a job family?

Is it the same as a function? n  Operations n  Marketing and Sales n  Technology n  Accounting / Finance n  Human Resources n  Information Technology n  Corporate Affairs n  External Affairs

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Or a Sub-Function?

n  Engineering •  Product Engineering •  Manufacturing Engineering •  Quality Engineering •  Environmental Engineering •  Research and Development •  Industrial Engineering

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Or a Sub-Sub-Function?

Aerodynamics Engineer Aerospace Engineer Agricultural Engineer Biomedical Engineer Calibration Engineer Ceramic Engineer Chemical Engineer Civil Engineer Computer Engineer Development Engineer Electrical Engineer Electronics Engineer Engine Engineer Environmental Engineer Facilities Engineer

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Hardware Engineer Health and Safety Engineer Industrial Engineer Maintenance Engineer Manufacturing Engineer Marine Engineer Materials Engineer Mechanical Engineer Mining Engineer Mining Safety Engineer Miscellaneous Engineer Nuclear Engineer Packaging Engineer Petroleum Engineer Process Engineer

Product Engineer Product Safety Engineer Product Testing Engineer Quality Engineer Reliability Engineer Research and Development Research Engineer Safety Engineer Software Engineer Specifications Engineer Standards Engineer Structural Engineer Systems Engineer Tooling Engineer

What is a Job Family?

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How Many Job Families Do You Want or Need? n  It depends on what you want to use them for

•  Compensation probably requires the least precise job families and therefore the fewest

•  Selection, development, performance management and the like require more differentiation and more families

n  What do you do? 1.  Define the purpose of the job families 2.  Determine the degree of precision required 3.  Involve experts – from the functions

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Changes in Job Structures

n  Executives have told us that, “Jobs won’t come back in the same numbers as before the recession.”

n  How then will the work get done as volumes and revenues increase?

n  One solution will be combination or hybrid jobs

•  Finance and HR

•  Environment, Health and Safety (may also be combined with HR)

•  Engineering and Production

•  Sales and Product Support

•  Outside Sales and Inside Sales

•  Others?

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Combination Jobs – What to Do

1.  Determine likely combinations and decide whether to develop families for each

2.  Develop job families based on levels of work rather than specific work activities

3.  Involve experts

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Blended Work Levels Example: Supply Planner

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1 2 3 4 1.  Schedules and expedites

deliveries for production parts. 2.  Communicates with suppliers

regarding schedule releases. 3.  Drives continuous improvement. 4.  Executes inventory plans using

system parameters 5.  Plans purchase requirements

based on production schedules. 6.  Implements optimal logistic

processes and material management systems within the unit.

7.  Responsible for logistic performance of suppliers.

1.  Schedules and expedites deliveries for production and prototype parts.

2.  Manages the ongoing performance and relationships of multiple suppliers

3.  Works with the Supply Base to drive continuous improvement in quality and delivery.

4.  Processes supplier non-conformance.

5.  Supports change management process.

6.  Coordinates and executes inventory plans.

Blended Work Levels Example: Supply Planner

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1 2 3 4 1.  Schedules and expedites

deliveries for production parts. 2.  Communicates with suppliers

regarding schedule releases. 3.  Drives continuous

improvement. 4.  Executes inventory plans using

system parameters 5.  Plans purchase requirements

based on production schedules. 6.  Implements optimal logistic

processes and material management systems within the unit.

7.  Responsible for logistic performance of suppliers.

1.  Schedules and expedites deliveries for production and prototype parts.

2.  Manages the ongoing performance and relationships of multiple suppliers

3.  Works with the Supply Base to drive continuous improvement in quality and delivery.

4.  Processes supplier non-conformance.

5.  Supports change management process.

6.  Coordinates and executes inventory plans.

Plant Manager Job Family From a Common Survey

Job Title General Characteristics Typical Employees

Plant Mgr V Large, complex, diverse 2,000

Plant Mgr IV Large, complex 1,000

Plant Mgr III Mid-size, full function 500

Plant Mgr II Complex, engineered products, often components 250

Plant Mgr I Standard, limited-technology products 125

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Applying the Plant Manager Job Family n  There are plants that are very large and very complex n  There are plants that are small and simple n  It gets pretty muddy after that:

•  There are smaller plants producing customized, highly complex products

•  There are large plants producing high volumes of standard products •  And so on

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Factory Manager Job Family from a real organization Job Title

Products Processes Typical Employees

Typical Budget

FM VII Most Complex Most Diverse

Most Complex, Most Diverse, Integrated

3,000 $500M

FM VI Highly Complex Highly Diverse

Complex, Diverse, Integrated 2,000 $300M

FM V Highly Complex or Highly Diverse

Complex, Diverse 1,000 $125M

FM IV Moderately Complex and Diverse

Moderately Complex and Diverse

500 $65M

FM III Narrow Less Complex

Less Complex, Focused 500 $25M

FM II Narrow Low Complexity

Low Complexity, Focused 150 $15M

FM I Single standard product line

Primarily assembly 150 $10M

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Applying the Factory Manager Job Family n  Even with this more robust model, not all factories fit neatly into

one category. n  There were over 50 factories to slot compared to the model n  About 40 were clear – all of their major characteristics fit with one

level n  For the remaining 10,

•  We used an expert panel •  We asked if the factory was a smaller example of the next level up or a

larger example of the next level down •  We slotted the jobs based on the predominant characteristics •  We had lots of debate, but we achieved consensus.

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Summary

n  Determine desired uses

n  Define number of families

n  Develop families for combination jobs

n  Define a process for slotting jobs with work at multiple

n  Define a process for dealing with ambiguous or contradictory characteristics

n  Involve experts

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Questions?

Contact Information

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Jeff Carlsen Sr. Vice President, HR 9500 W. Bryn Mawr Avenue Suite 700 Rosemont, IL 60018 Phone: (847) 227-6688 Fax: (847) 227-6689 Email: [email protected]