NRC: Job grades, job evaluation, and Jobscore.
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Page 23

5. Budgeting for Remuneration.

In Section 1.2.4b Alignment with Market Rates, an across-the-board increase of 3% was applied to a salary structure to arrive at the corresponding revised salary range for each grade. Such an adjustment, together with the number of employees in each grade, and their compa-ratio (position in the salary range) allows us to readily calculate the cost of such adjustments. In the simplest case, where there is no movement in individual employee's compa-ratio and the movement is uniform for all grades (such as in the 3% movement example) the overall increase in the payroll budget is simply 3% of the total current payroll.

The second scenario is where the comp-ratios (performance ratings) are to remain constant but the change in salary level for each grade differs. Here the calculation needs to be made on a grade by grade basis, to obtain the total increase in payroll.

More interesting is the case where changes in compa-ratio due to changed performance appraisal levels need to be implemented. The easiest way to assess the change in payroll resulting from the combined effect of changed compa-ratios, with or without changed grade salary levels is with a spreadsheet. If the organisation has a very large number of jobs then a simple computer program is preferable.

Where there is no change to grade salary levels the increase for each employee is calculated as:

Grade mid-point salary multiplied by new compa-ratio, minus current salary. [Here current salary is equal to grade midpoint multiplied by current compa-ratio.]

Take for example the grade salary levels shown in Figure 4 (Section 1.3.1). If a particular employee is in Grade 3 in that structure (where the midpoint salary for the grade is $53,700) and their compa-ratio is 93% then their current salary is 93% of $53,700, or $49,940. If the employee's performance is reassessed as 97% of the fully competent position (100%), then their salary should be increased to 97% of $53,700, or $52,090. This is an increase of $2,150.

In this manner, the increase for each employee is calculated and the total for all employees gives the resulting total payroll increase.

Suppose now that an increase in grade salary ranges is to be implemented in conjunction with performance assessment adjustments. Here, the new salary level for employees must be calculated based on their new compa-ratio in combination with the new mid-point salary for their job grade. Consider the above example again, but assume the mid-point of the grade moves by 3% from $53,700 to $55,310. In this case, the employee's new salary will be 97% of $55,310, or $53,650, giving an overall increase of $3,710.

Increases for all employees are calculated and added to arrive at the total payroll increase.

If the resulting increase in cost due to the combined effect of performance appraisal in combination with grade salary level movements exceeds the allocated budget for salary increases, then the grade salary level movement needs to be adjusted. In such circumstance, compa-ratios should not be amended to reduce the overall cost as that is merely a corruption the performance appraisal system and denies recognition of employees' performance.

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Copyright 2004 National Remuneration Centre, Melbourne.