“Pay for Points” Grade Structures

Over the weekend I was thinking about comp structures, 1 and I designed what I think is a wonderfully ambitious compensation program.

It’s based around a “pay for points” system. The structure goes:

Midpoint = Job Points * Function Multiplier + Sweetener

The structure isn’t designed at all around the market rate for jobs (for the most part), and is instead almost entirely based on the internal valuation of work. The Function Multiplier is between 100 (Clerical) and 500 (Executive), with each function having its own specific multiplier based on its relative value to the business. The “Sweetener” is a job specific number that is added on to a job if the internal structure isn’t yielding wages competitive enough in the market to attract talent (in which case the job is market priced and the sweetener is added as a supplement to bring the job to p50).

The jobs point system works using the following criteria:

  1. Education / Technical skill required to do the work
  2. Impact the job has on the P&L (from either an earnings or cost savings standpoint)
  3. Human relations skills required to do the job
  4. Span of control
  5. Safety / Working conditions

The factors are weighted using the following ranges (percentage weights were assigned to each factor and then given a range starting and ending at the beginning and ending of the adjacent levels, respectively):

Note: Level 1 / Safety and Working Conditions should have a minimum of 12.5, but I rounded up when typing in the ranges. Just noticed this after I posted.

So if one wanted to grade an HR Manager on this structure they might get:

In the above case the midpoint for the HR Manager would be 425*150+0 = $63,750 and the salary range is +/- 20% of the midpoint

What’s wonderful about this though is that each level actually has ranges. An HR Manager could theoretically be at a midpoint of:

670*150+0 = $100,500

… If the site he or she supported was large enough.

I love this system because it recognizes that there are different levels of work within any given job while also recognizing differences in the value that various functions bring to the organization.

…Of course, this would be a nightmare to manage as it requires analyses of every job in the organization. Additionally, it has lots of subjective elements (what’s the difference between 13 points and 14 points?) and basically ignores the market (instead looking to attract talent with equity stakes – which I didn’t get into here as I’m still thinking about it).

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Categories: Compensation