en

Case Study: Develop Performance Aligned Salary Structure

Background

  • A well-established company with diversified businesses has transformed to focus on institutional and high net worth clients which serve as the engines for the next phase of growth.
  • The company is competing with international and leading local peers for both business and talent. Various businesses are in different development stages with vastly different performance levels.

Objectives

  • Understand the performance levels and development stage of each business in order to determine growth priority.
  • Differentiate allocation of compensation budget to steer the growth engines, transform the businesses and address talent attraction and retention under tight budgetary constraints.

Process

  • Select the peer group based on the similarity of business model, organizational structure and industry background.
  • Benchmark the aggregate and per capita revenue, profit before tax, fixed pay, total incentives and total compensation of each business and the company as a whole.
  • Differentiate compensation positioning based on performance ranking among peers to reinforce pay and performance alignment.
  • Develop salary scales based on the desired compensation positioning for each department and estimate the cost for catch-up by phases.
  • Provide salary management guidelines for new hires, promotion, annual salary adjustment, and employees falling outside the salary ranges. 

Results

  • By implementing a differentiated and performance-aligned salary scales, it can steer long-term sustainable growth of the company.

Illustration: ​Pay & Performance —— Division A of XYZ company

  • Division A's total revenue and profit before tax is between the market median and upper quartile, with a percentile ranking of 62% and 71% respectively. ​
  • From the total revenue or profit before tax ÷ total compensation analysis which assesses the return on investment for every compensation dollar spent, both percentile rankings are 100%, reflecting that Division A is the most competitive among its peers. 
  • With a highly productive Division A, its fixed pay, total incentives and total compensation have substantial room to catch up with peers. This indicates the lack of pay and performance alignment, which may increase the risk of staff turnover.

Illustration: Pay Positioning and Catch-up Cost

  • Division A's performance is competitive in the market though its pay positioning is the lowest among peers. Pretium recommends the client to increase its desired pay positioning for talent retention.
  • On the contrary, Division B exhibits below the market performance but its pay positioning is close to the market median. Pretium recommends the client to downwardly adjust its desired pay positioning for pay and performance alignment.
  • For those division that requires catch up on pay positioning, the recommendation is to catch up by phases in order to prioritize the compensation budget effectively.

Illustration: Salary Scale

  • The salary scale aims to align the salaries with the performance and competency level of employees to promote pay for performance and to provide clear career pathing and salary planning for each department.
  • Each salary scale balances different considerations, for example, the spread should be wider for senior levels to reflect more diverse roles and accountabilities. The progression between grades should support employee development and career pathing of the department. 

Relevant Links: