I am a company that trades metal cutting tools. How should the salary system be formulated?

Salary design step by step

The key point of salary design is to be “fair internally and competitive externally.” ‘

---- Establishing a salary system that is “fair internally and competitive externally” is currently a top priority for personnel managers and general managers of many companies in our country.

---- Different people have different understandings of 'salary'. Some people understand 'salary' as all tangible (financial form) and intangible (non-financial form) labor remuneration received by employees. It includes not only cash income such as wages and bonuses, but also various forms of benefits, award. I would like to focus here on the design of the salary system. Issues regarding rewards and benefits will be introduced more in subsequent articles.

---- To design a reasonable and scientific salary system and compensation system, you generally need to go through the following steps:

Step one: Position analysis

---- As mentioned in a previous issue of this journal, job analysis is the basis for determining compensation. Combined with the company's business objectives, the company's management should clarify department functions and position relationships based on business analysis and personnel analysis. The human resources department and the heads of each department should work together to prepare job descriptions.

Step 2: Job Evaluation

---- Job evaluation (job evaluation) focuses on solving the problem of internal fairness of salary. It has two purposes. One is to compare the relative importance of various positions within the enterprise and derive the position grade sequence; the other is to establish unified position evaluation standards for salary surveys and eliminate the differences between different companies due to different job titles or even job titles. The difference in difficulty of positions caused by the same but different actual job requirements and work content makes different positions comparable and lays the foundation for ensuring wage fairness. It is a natural outcome of job analysis and is based on the job description.

---- There are many methods of job evaluation. The more complex and scientific one is the scoring comparison method. It first determines the evaluation elements related to salary distribution and defines different weights and scores for these elements. Internationally, the more popular models such as Hay model and CRG model adopt the method of quantitative assessment of the value of the position, and comprehensively evaluate the position from three major elements and several sub-factors. Different consulting companies have different definitions and corresponding scores for evaluation elements.

---- The scientific job evaluation system determines the salary level through comprehensive evaluation of various factors, rather than simply linking it to the position. This helps to solve the problem of 'being an official' and 'being an expert' The issue of grade differences. For example, a senior R&D engineer is not necessarily lower than a technical R&D manager. The former focuses on technical difficulty and innovation capabilities, while the latter focuses on management difficulty and comprehensive capabilities. Both have their own strengths.

---- Some large enterprises have job levels as high as 17 or above, while small and medium-sized enterprises mostly use levels 11 to 15. There is an international trend of broadbanding, that is, the job levels within an enterprise are gradually decreasing, and the salary gap becomes wider.

Step Three: Salary Survey

---- Salary survey focuses on solving the problem of external competitiveness of salary. When enterprises determine wage levels, they need to refer to wage levels in the labor market. The company can entrust a more professional consulting firm to conduct investigations in this area. When foreign companies choose salary survey consulting companies, they often focus on the American Chamber of Commerce, William Mercer, Watson Wyatt, Hewitt, Deloitte and others. Some private salary survey agencies are emerging, but the sampling of survey data and job definitions are not yet complete.

---- For salary surveys, it is best to choose companies that compete with you or similar companies in the same industry, focusing on employee turnover directions and recruitment sources.

The data of the salary survey should include salary growth in the previous year, comparison of different salary structures, salary data for different positions and levels, bonuses and benefits, long-term incentives, and analysis of future salary trends, etc.

---- Only by using the same standards for job evaluation and providing real salary data can the accuracy of salary surveys be guaranteed. In newspapers and websites, you can often see articles such as "The Secret to the Salary of XX Position". The data mostly contains random sampling elements, and the accuracy is very questionable. Even statistics from the national labor department cannot replace salary surveys as the basis for determining wages.

---- Due to the frequent turnover of personnel in the IT industry, you can take advantage of recruitment interviews and job-hopping opportunities to understand the salary levels of competitors, but be careful not to overgeneralize.

----The result of the salary survey is a salary curve drawn based on the survey data (see Figure 1). On the position level-salary level coordinate diagram, first mark the points where employees of all surveyed companies are located; then sort out the salary curves of each company. This chart can intuitively reflect where a company's salary levels are compared to those in the same industry.

Step 4: Salary Positioning

---- After analyzing the salary data of the same industry, what needs to be done is to select different salary levels according to the company's conditions.

---- There are many factors that affect a company's salary level. From outside the company, the country's macroeconomics, inflation, industry characteristics and industry competition, talent supply conditions and even changes in foreign currency exchange rates all have varying degrees of impact on salary positioning and wage growth levels. Within a company, profitability and payment capabilities, as well as personnel quality requirements, are key factors that determine salary levels. The stage of enterprise development, talent scarcity, recruitment difficulty, the company's market brand and comprehensive strength are also important influencing factors.

---- Similar to product positioning, companies can choose a leading strategy or a following strategy when it comes to salary positioning. The leader in salary may not necessarily be the company with the strongest brand, because companies with a strong brand can rely on their comprehensive advantages to find the best talents without spending the highest wages. It is often those rising stars with deep pockets who are most likely to adopt high-paying strategies. Most of them are in the early stages of entrepreneurship or in the period of rapid growth. Investors are willing to spend money to buy time, hoping to quickly close the gap with giant companies by poaching first-class talents.

---- In salary design, there is a special term called 25P, 50P, 75P, which means that if 100 companies (or positions) participate in the salary survey, the salary levels will be in order from low to High rankings represent the 25th ranking (low value), the 50th ranking (median value), and the 75th ranking (high value) respectively. A company that adopts the 75P strategy needs strong financial resources, sound management, and excellent products to support it. Because salary is rigid, it is almost impossible to reduce salary. Once the company's market prospects are not good, it will make it difficult for the company to retain employees.

Step 5: Salary structure design

---- The remuneration concept reflects the company's distribution philosophy, that is, the principles on which employees' remuneration is determined. Different companies have different views on compensation. Some have even formulated a "Basic Talent Law" and included the concept of remuneration in the "Company Constitution". Compensation measures in emerging companies often differ from those in mature, bureaucratic companies. IT companies should pay special attention to making their allocation methods consistent with their own industry characteristics and corporate culture.

---- Many multinational companies often take three factors into consideration when determining personnel salaries: first, their position level, second, personal skills and qualifications, and third, personal performance. Corresponding to them in terms of salary structure are position salary, skill salary and performance salary. Some also consider the first two together as the basis for determining a person's basic salary.

---- Position salary is determined by the position level, which is the main determinant of a person's salary. Position salary is a range, not a point. The company can select some data from the salary survey as the midpoint of this range, and then determine the upper and lower limits of each position level based on this midpoint.

For example, within a job level, the upper limit can be 20 above the midpoint and the lower limit can be 20 below the midpoint.

---- Due to differences in skills, experience, resource ownership, work efficiency, historical contributions, etc., different incumbents in the same position have different contributions to the company (due to performance appraisal There are limitations and this contribution cannot be fully quantified), so there are differences in skill wages. Therefore, officeholders within the same grade may not necessarily have the same basic salary. As mentioned above, within the same position level, setting an upper and lower salary range based on the midpoint of the position salary is used to reflect the difference in skill wages. This increases the flexibility of salary changes, allowing employees to gradually increase their salary levels within the same position level as their skills and experience increase without changing their positions.

---- Performance pay is a reward for employees to complete business goals, that is, pay must be linked to the economic value created by employees for the company. Performance pay can be short-term, such as sales bonuses, project floating bonuses, annual incentives, or long-term, such as stock options. The determination of this part of remuneration is closely related to the company's performance evaluation system.

---- To sum up, to determine the position salary, you need to evaluate the position; to determine the skill salary, you need to evaluate the personnel qualifications; to determine the performance salary, you need to evaluate the work performance; to determine the company's The overall salary level requires an assessment of the company's profitability and payment ability. Every type of assessment requires a set of procedures and methods. Therefore, the design of salary system is a systematic project.

---- No matter how perfectly the wage structure is designed, there will generally always be a few people whose wages are below the minimum limit or above the maximum limit. This can be corrected during the annual salary adjustment, such as increasing the salary increase ratio for the former, while making less or even no adjustment for the latter, etc.

Step 6: Implementation and modification of the salary system

---- When determining the salary adjustment ratio, an accurate budget for the overall salary level must be made. At present, most companies have their financial departments doing this calculation. My suggestion is that, for the sake of accuracy, it is best to have the HR department do this calculation at the same time. Because according to the practice of foreign companies, the financial department does not know the specific salary data and personnel changes. The human resources department needs to establish a salary ledger and design a better calculation method.

---- In the process of formulating and implementing the salary system, timely communication and necessary publicity or training are one of the factors that ensure the success of salary reform. In essence, labor compensation is the result of a trade-off between human resource costs and employee needs. There is no absolutely fair salary method in the world, there is only a salary system that determines whether employees are satisfied or not. The human resources department can use salary system Q&A, employee symposiums, satisfaction surveys, internal publications and even BBS forums to fully introduce the company's salary setting basis.

---- In order to ensure the applicability of the salary system, standardized companies have stipulated regular adjustments to salary.

---- Designing the basic salary system in accordance with the above steps and principles may seem a bit troublesome, but it can achieve good results. Employees have always suffered from both scarcity and inequality in remuneration. Although some companies have higher salary levels, if there is a lack of a reasonable distribution system, it will be counterproductive.