We conduct several analyses for companies with regards to benchmarking remuneration. We have developed and customised analytic tools that assist clients to simplify the market benchmarking process. We conduct scenario analysis, gap analysis, job matching exercises to market salary surveys and costing analysis. We also provide illustrative dashboards to clients that assist them with presenting market benchmarking analysis to executive and remuneration committees. Our analysis tools also have the compatibility to be administered online via an Intranet web-site.
We also assist companies in designing pay scales. We have extensive experience in the design process and also facilitate workshops to remuneration teams to assist and advise on best fit design principles around their pay scale design. Our pay scale practice and recommendations are aligned with market best practice as well as with the standard requirements as set out by Reward Associations such as WorldatWork.
Read more on the Considerations when Benchmarking Local National Salaries in African Countries
Considerations when Benchmarking Local National Salaries in African Countries
Most companies soon after starting up business in African countries reach a stage where local national salary benchmarking becomes a requirement in order to attract and retain the right skills for business growth and profitability.
When conducting this benchmarking exercise, there are a number of considerations to be borne in mind.
Is there a reliable survey house?
Selection of the right survey providers is an important first step in the process. There are not many survey houses that conduct salary surveys in and around Africa. Only a few survey houses have penetrated the Africa environment.
- Reputable international or local firm. Do they have a reputation to protect data confidentiality? Be careful of “fly by night” or “one man” operators. Bear in mind that you will have to defend or justify any remuneration related decisions to employees, unions, etc.
- Presence in country well established and permanent i.e. They understand the country’s remuneration environment. In other words, do they fully grasp the local context in terms of remuneration, legislative requirements, the economy and other local contextual factors the impact on the levels of pay and benefits?
- Client consulting support capability? Are there local consultants or internationally mobile consultants and that can provide you with consulting advisory services in terms of implementation of market-related data i.e. remuneration and benefits policies, pay scale design, etc.
Validity and Reliability of Information Provided
- Type of data provided? Is the data job specific or provided per broad band grade? Is information provided for different functional areas or job families? Only basic salary is reflected or a comprehensive breakdown of other benefits and allowances?
- Consistent results? Are the year-on-year results consistent for different grades and jobs or is there a large measure of volatility due to small surveys samples that change each year?
- Accuracy of data. There is the data accurately reflecting the market or does one find mistakes/inconsistent data in the results?
- Survey sample? Use the survey sample representative enough? Does it cover enough industries and sectors in the local jobs market?
- Participant domination? In many cases start-up surveys (as opposed to longstanding, well established surveys) do not have enough participants to obviate what we call participant domination. This is where one or two companies, typically multinationals, reward so high above the market that the inclusion of their data skews the market data upwards.
Local remuneration landscape.
It is important to understand the local remuneration landscape, particularly in terms of legislative and taxation requirements as well as benefits and allowances practices, which can change dramatically from one African country to another.
- Minimum wages. Are there any local legislative or collective bargaining provisions which will affect your decision in terms of levels of pay?
- Benefits and allowances practices. You may be some benefits and allowances that are considered as extremely competitive by local employees due to the local economic, environmental, customary and employee cultural practices.
Pay Scales Design
Our pay scale practice and recommendations are aligned with market best practice as well as with the standard requirements as set out by Reward Associations such as WorldatWork.
Our extensive experience in the design process includes:
- Design principle workshops with Remuneration teams covering the important aspects or factors required in the design process.
- Job matching to external salary surveys.
- Develop pay scales based on market best practice principles and to cater for the organisational specific culture and remuneration philosophy and strategy.
- Customised scenario analysis.
- Conduct internal pay cost analysis to align to proposed pay scales designed.
- Assist in providing technical expertise for executive and remuneration committee submissions.
- Annual maintenance and updates on pay scales
Need help on payscale design principles?
Pay Scales – 7 Design Principles You Need to Know
There are several factors or principles that need to be decided on and put into place before designing a set of useful pay scales. Many companies use pay scales that have been designed for them but they are unaware of what principles of design their pay scales are based on.
Before delving into any design principles the following must be taken into consideration. Why do we need pay scales?
- Internal equity to promote equal-pay-for-equal job worth. This objective is in line with the Employment Equity Amendment Act, 2013, Chapter 2, Section 6. This should support the values of internal equity in any organisation.
- External equity and competitiveness to promote competitive levels of fixed guaranteed pay against the market ensuring appropriate levels of attraction of key talent.
- To limit salary variances over a period of time within the same job and grade.
- To address salary disparities and to align to a more structured fixed guaranteed pay framework.
- To provide guidance on placing new hires within the organisation fixed guaranteed pay levels.
- To facilitate informed decision-making around managing fixed guaranteed pay within the organisation.
The Types of Pay Scales
There several types of pay scales. We provide the advantages and disadvantages all three in the table below.
|Grade based Composite i.e. all job families represented in each grade||· Allows for one continuous pay scale from the lowest to the highest grade in the organisation i.e. easy to administer||· It does not account for market pay level differentiations based on a specific premium in the market related to a specific job family e.g. Finance as opposed to human resources|
|· Probably more acceptable from an Employment Equity Act section 6 perspective i.e. “equal pay for work of equal value”||· Will not illuminate or pinpoint a market disparity for a particular skill i.e. particular job|
|· It allows for benchmarking in cases where available remuneration surveys do not provide job specific data|
|· It is based on a job grading system i.e. justifiable differentiation between jobs based on relative worth to company|
|· Easier to provide for mechanisms that allow progression through a particular pay scale e.g. performance|
|Grade based per job family i.e. Job families in each grade benchmarked separately||· All the advantages of 1. above with the additional advantage that it results in more accurate benchmarking than one
composite pay scale
|· The same disadvantages for 1. above except that it is more difficult to administer in the sense that one needs to deal with many different pay scales in one employee population|
|Job specific benchmarking i.e. Each individual job compared to a similar job in the market||· Allows for very accurate benchmarking on an individual job basis||· Very difficult to administer i.e. Annual adjustment exercise is administratively intense and requires a lot of time and effort|
|· Can pinpoint specific short skill in the market||· Not possible in cases where a job specific remuneration survey is unavailable|
|· One does not need a job grading system in place i.e. no need for a justified organisational hierarchy i.e. the market decides the relative worth of jobs||· Not conducive to easy or simplified pay scale design|
|· Could result in employment equity/internal equity misalignment or perceptions thereof particularly in a basic salary plus add on benefits i.e. traditional base system as allowances and benefits are based on base salary|
|· Not popular with organised labour in that it is contradictory to the “one pay for all” approach|
The Pay Element/Component
There are remuneration professionals that feel benchmarking and designing pay scales based on basic salary is suitable and defensible. This is an argument that will most probably continue for as long as pay scales are around. Should an organisation base their pay scales on basic salary? The typical consultant answer will be “it depends”.
One needs to take care when designing and benchmarking pay using basic salary. Only when it “makes sense” for the organisation to do so, should you consider using basic salary as the benchmarking component. The issue here is that benchmarking using basic salary is not as accurate as you may think. Using Total Cost to Company (Also known as Total Guaranteed Package) is the appropriate component of pay to use when benchmarking and designing pay scales.
The reason is simple. TCTC covers the entire portion of fixed pay, whereas basic salary only refers to the cash portion of fixed pay. It does not take into account the benefits portion of fixed pay, which can differ enormously from company to company depending on the of the benefits and allowances programme. In other words, it is not possible to compare apples with apples when benchmarking on basic salary.
Note: when it comes to designing pay scales at bargaining unit level, there will be tremendous pressure to use basic salary as the benchmarking component.
Position Within the Market
You will need to decide where you want to pitch your pay within the market. This will determine the midpoint of your pay scale for each grade. This decision should be based on the company’s business and remuneration strategy. The following considerations are noteworthy:
Lagging the market – this scenario is typical of a company that consciously sets or equates its pay equal to the current market level at the beginning of the year or at the date of annual increase. The reason for this is that the guaranteed fixed pay of the remuneration mix is not considered to position the company competitively in the market. Instead variable pay is used to incentivise a performance driven culture or to drive certain behaviours to align with the business objectives and strategy. In this case variable pay makes up a large portion of the overall pay, meaning that the sum of fixed pay and variable pay positions at a more competitive level against the market. This type of an approach is typically found in companies that are in the growth phase of the companies’ life cycle.
Lead-lag the market – this scenario is typically found in companies that consciously sets or equates their guaranteed fixed pay at the mid-year anticipated or projected market level. The philosophy in this scenario is to lead the market with regards to fixed guaranteed pay, for half of the year and lag the market the other half. The reason for this is to position the companies’ pay levels competitively against the market to attract talent that will drive the sustainable growth of the organisation. This is a typical philosophy and strategy associated with a company that wants to position them against the market at a moderate to aggressive position. This type of an approach is typically found in companies that lean towards the mature phase of the company life cycle.
Lead the market – in the event that the company decides to take on an aggressive competitive position against the market the lead approach requires consideration. This scenario is typically found in companies that consciously sets or equates their guaranteed fixed pay at the anticipated market level. The company will then lead the market until the next year or until the next pay increase date.
Components of Pay Scales
Pay Policy Line / Reference Point / Midpoint
The pay policy line is an indication of where in the market you wish to benchmark against. This is normally stipulated in an organisations remuneration policy and philosophy. The definition below provides some explanation:
LOWER QUARTILE – This is the 25th percentile value of remuneration. 75% of the sample receives a higher value of remuneration and 25% receives a lower value.
MEDIAN – This is the middle value of remuneration. 50% of the sample receives a higher value of remuneration and 50% receives a lower value.
UPPER QUARTILE – This is the 75th percentile value of remuneration. 25% of the sample receives a higher value of remuneration and 75% receives a lower value.
The following should be taken into consideration deciding on the pay policy line:
- Current internal salaries’ pay policy line positioning against proposed new pay policy line (based on 50th Percentile)
- Take into account internal employee salaries, but at the same time attempt to come as close as possible to the target market midpoint
- Affordability / cost to align to the minimum of the pay ranges
- Strategy to move employees to the minimum of the new ranges
- How competitive you wish to be against external market and peers?
- A different midpoint / reference point closer to the internal pay policy line?
- Company life cycle
How Many Pay Scales
When deciding on how many pay scales your organisation requires to consider the following:
- Different target markets. To what market are you benchmarking the organisations internal pay? One needs to consider whether your organisation needs to benchmark to a national market or perhaps a more industry related market.
- Diversity of jobs. It is important to know what jobs you have within your staff compliment. The type of jobs will dictate whether you may require a separate set of pay scales for a specific job that may be industry specific, a short skill or is a key job that warrants a separate pay scale from other jobs. One also needs to consider if there are job levels that will share the same pay scales. Some organisation, for example, split their pay scales according to bargaining unit vs general staff etc.
- Culture of the organisation may affect number of pay scales/structures required.
- Internal equity vs external competitiveness. Separate pay scales may be developed for certain skills / professions / key skills / core / critical skills.
- Industry type. Does the specific industry warrant separate pay scales, for example, core jobs vs support jobs?
- Organisational structure. Pay scales per holding company vs per business units.
The range spread in the context of pay scale is the maximum and minimum cut-off points to which the organisation is willing to pay employees that fall within a specific grade. The range spread will also guide the remuneration team, HR and line management on pay decisions. The width of the range spread will be determined by whether the organisation uses a narrow or broad banded approach.
Midpoint-to-midpoint differential (slope/gradient)
In order to set the midpoint of the pay scales you need to apply the regression analysis to the market data. The reason for this approach is that when you plot raw market data on a graph the market 50th percentile relationship between each of the grades does not follow a smooth regression. It is not uncommon for market data to have a relative degree of volatility with regards to the 50th percentile relationship. One cannot set the midpoint of the pay scale using the raw market data. One needs to apply regression analysis in order to find the best line of fit which is represented as an exponential pay curve. This minimises the effect of market data volatility to set midpoints that progresses smoothly from the lower levels to the higher levels. Take cognisance of the following:
- 16% to 20% is generally accepted and appropriate slope in narrow graded structure
- 20% to 35% generally at executive levels (higher levels). You would find that the slope would be higher due to higher challenges, responsibilities & market value.
- Market competitiveness – align smoothed midpoints as close as possible to the market data
- Company promotion policy i.e. 10% capped increase
It is also not uncommon to adjust the slope to –
- Align as close as possible to the market 50th percentile
- Attempt a pay slope that is reasonably consistent across all levels OR gradual increase towards the higher levels
- To accommodate potential negotiated minimum wage
Range overlap is an indication of by how much the maximum of the grade exceeds the minimum of the next grade level. Range overlap is a direct function of the pay slope (midpoint-to-midpoint differential) as well as the range spread. The smaller the pay range spread the smaller the range overlap, the wider the pay range spread the larger the range overlap. In addition, the steepness of the midpoint-to-midpoint differential (slope) will determine the range overlap; the steeper the gradient becomes, the smaller the range overlap and vice versa.