Cost Essay

Structure Setting and Adjustment| Definition| A pay structure is a collection of pay rates or pay ranges. Structure setting and adjustment is the process of developing, adjusting, and maintaining a pay structure. | Purpose| Pay structures are used to help organizations: * maintain pay levels that are competitive with the external labor market, * maintain internal pay relationships among jobs, * recognize and reward differences in level of responsibility, skill, and performance, and * manage pay expenditures.

Structure setting and adjustment provides a systematic way to manage pay structures. | Elements of a pay structure| A pay structure is defined by several elements, including: * coverage – the occupations, positions, or persons included, * the number of pay ranges or grades, * the differences between pay ranges, and * range width – the difference(s) between the range minimum and maximum. | Types of pay structure| Common approaches to establishing pay structures include:| | Approach| Common characteristics:| Traditional (Grades)| * separate structures for each employee type (e. g. , nonexempt, salaried nonexempt, exempt, executive), function, or occupation, * many ranges or grades (often 10 or more), * narrow ranges (15% – 50% for professional positions), and * small to moderate differences between grades. | | Broadbanding(“Broad grades”)| * separate structures by employee type, * relatively few ranges (4 to 6 bands are common), and * wide ranges (50% to 80% for white-collar non-managerial positions).

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Federal broadbanding: * maintains distinctions between developmental and full performance level positions, * may include technical and administrative support occupations, and * typically has more grades and narrower ranges than “pure” broadbanding. | | Career Banding| * one or few structures, * few ranges (4 or less), and * no or extremely wide ranges (150% or more). | | Market Pricing| * separate ranges for each distinct type of job, as defined by the external labor market (jobs and ranges, however, may be grouped for ease of administration. , * the absence of a coherent structure (systematic relationships between different jobs), and * narrow pay ranges, to keep pay levels closely linked to external labor markets. | Structural vs. individual adjustments| Structural adjustments and individual pay adjustments are distinct. They may occur simultaneously, and may be equal, as is typical in the Federal Government. However, this is not necessarily the case. Many organizations adjust their salary structures, leaving employee salaries unchanged, and use a separate process to adjust employees’ pay. Examples| Examples of structure setting and adjustment include: * an organization conducts a salary survey and establishes a set of occupation-specific pay rates in response to labor-market pressure, * an organization increases the minimum and maximum rates for its pay ranges based on the employment cost index (ECI), and * an organization negotiates wage rates and future cost-of-living adjustments for bargaining unit positions. In each case, the action affects the salary structure, its coverage, or both. |

Federal history| Pay StructureThe Classification Act of 1949 created the General Schedule. By the early 1960s, the General Schedule had most of its present-day features, including: * range widths of roughly 30 percent, divided into ten steps, * grade intervals of approximately 10 percent for one-grade interval positions up to GS-11, and * grade intervals of approximately 20 percent for two-grade interval positions at grades GS-5 through GS-15. With the exception of the elimination of grades GS-16 through GS-18, there have been no significant changes since.

Structural Adjustments Through the mid 1950s, structural (schedule) adjustments required legislation, and were made at irregular intervals. Since then, the Federal Government has taken measures to make the process more administrative in nature. | Year| Event| 1962| Formally establishes principle of comparability with non-Federal rates of pay| 1970| Creates the President’s Pay Agent (originally the Directors of OMB and CSC), with responsibility for recommending annual structural adjustment| 1979| Establishes the Senior Executive Service| 991| Establishes Senior Level (SL) and Scientific and Professional (ST) positions to provide for positions classified above GS-15 that carry out research and development functions that require the services of specially qualified personnel. | 1994| Establishes system of national and local General Schedule rates (in 48 states and the District of Columbia), based on labor market rates and changes. | Salary structures –public and private sector| OPM’s review of private firms and state governments revealed several differences. | | Private Sector| Public Sector| * Relatively few structures prevail; one to three was typical. * Structures tend to follow broad dividing lines, e. g. , non-exempt, exempt, and executive. * Organizations use specific structures to address competitive pressures. | * More variation prevails; most states had few structures, but some had more than ten. * Structures tend to follow occupational or bargaining unit lines. | | Grades and ranges prevail, but a substantial minority use broadbanding. | Grades and ranges prevail; broadbanding is relatively rare. | Geographic differentials generally limited to non-exempt positions. | Geographic differentials are relatively uncommon, but broadly applied when used. | | Range width of 40 percent or more is common. | Range width of less than 40 percent is typical. | Structure adjustments –public and private sector practice| Public and private schedule adjustment processes differ substantially. In general, the public sector adjustment process involves state legislatures or Congress, while the private sector adjustment process is primarily administrative.

Some broad differences between the public and private sector are highlighted below. These are illustrative and do not apply to all organizations. | | In the private sector …| In the public sector …| | * market data plays a primary role, * competitiveness is critical, * no external approval is required, and * public perception is not very important. | * market data plays a limited role, * affordability is critical, * adjustments are subject to external (legislative) approval, and * public perception is important. Trends| The general trend is toward delegation – to let business units and their managers, rather than centralized policies or salary schedules, drive pay decisions. Salary Structures * Organizations are emphasizing management “ownership” and flexibility over uniformity (equity) and ease of administration. * Although grades and ranges prevail, broadbanding is gaining in popularity. * Many public sector organizations are also adopting or considering broadbanding, although coverage of unionized employees remains rare.

Structural Adjustments * Most organizations make periodic structural adjustments. * Average structural increases remain relatively low (generally three to four percent, based on a recent Watson-Wyatt survey) despite low unemployment rates and increased competition for employees. | Example: How external equity might be analyzed for practices in this component. Structure Setting and Adjustment varies across the dimension of external equity from a Very High Level of external equity (e. g. , occupation-specific pay ranges, based on labor market surveys) through a Moderate Level (e. g. broadbands with labor-market based adjustment) to a Very Low Level of external equity (e. g. , pay ranges based on internal measures of job value, with adjustments determined by availability of funds). The workgroup might observe that structure setting and adjustment practices merit further consideration if they fall somewhere between High and Low on the external equity dimension. Workgroup Member Selection These general and specific qualities would support a workgroup member’s capacity to contribute. General| * Ability to represent the perspective of the organization on compensation issues. Knowledge of human resources laws and policies. * Ability to analyze possible new compensation practices in a broad context and to visualize their application in the Federal environment. * Ability to work on ad hoc teams. | Specific| * Knowledge of GS pay structure (e. g. , ranges, grade intervals for different grades). * Knowledge of GS structure adjustments. * Familiarity with broadbanding structures, career banding, market pricing. * Familiarity with pay adjustments in broadbanding structures, career banding, market pricing or other methods of adjustment. |