Measuring Pay Dispersion & Pay Level Pay Level 1.

For each of the benchmark companies identify comparable job categories. 2. For each job category, identify the average (arithmetic mean) and the standard deviation in the job category across the benchmark companies. 3. For each job category and for each company calculate the standardized score for salary level The standardized score is calculated by subtracting from the original salary the mean for that salary category and then dividing the result by the standard deviation for the category. 4. For each company calculate the average standardized score across the various categories. 5. Positive values of the average standardized scores signify leading the market and negative values of the average standardized scores signify lagging the market.

Pay Dispersion 1. Arrange all the jobs in a particular company in descending order from the highest paid to the lowest paid and give them a serial number from 1 to n. 2. Calculate the average wages across levels as y . 3. Calculate the gini coefficient as 1+

1 2 n n2 y

( y + 2 y + 3 y + 4 y + 5 y + ... + ny ) 2 3 4 5 n 1

4. Where n is the number of levels; y is the average wage across levels; and y1 , y 2 ,... y n is the sequence of average salaries for the job categories in an organization arranged in decreasing order of size. 5. Gini coefficients can theoretically range from 0 (indicating a totally egalitarian pay structure) to 1 (indicating a totally hierarchical pay structure).

Source: Brown, M. P., Sturman, M. C., & Simmering, M. J. (2003). Compensation policy and organizational performance: The efficiency, operational, and financial implications of pay levels and pay structure. Academy of Management Journal, 46(6): 752-762.

Practice Problem 1 Given below are the average salaries of employees at different levels in four software companies. All the figures are in Rs. Lacs per annum. Use the data to calculate the gini coefficient and the average dispersion for each of the companies.
Delivery manager Project manager Project leader Senior Developer Developer Team member Average Pay dispersion Alpha 24.00 12.00 8.00 6.00 3.60 1.80 9.23 Beta 30.00 14.00 9.00 6.50 4.00 2.00 10.92 Gama 28.00 13.00 8.50 6.25 3.50 1.80 10.18 Delta 14.25 9.25 7.00 5.00 3.00 1.80 6.72 Average SD 6.06 1.77 0.74 0.57 0.36 0.09

Alpha Delivery manager Project manager Project leader Senior Developer Developer Team member Pay level

Beta

Gama

Delta

Practice Problem 2 Given below are the average salaries of employees at different levels in four FMCG companies. All the figures are in Rs. Lacs per annum. Use the data to calculate the Gini coefficient and the average dispersion for each of the companies.
Rank Sr. Director Director Sr. Brand Mgr. Brand Mgr. Area Sales Mgr. Asst. ASM Sales/Brand officer TSI Average Pay dispersion Rank Sr. Director Director Sr. Brand Mgr. Brand Mgr. Area Sales Mgr. Asst. ASM Sales/Brand officer TSI Pay level Company A Company B 125 85 42 22 12 6 3 1.5 45 30 25 15 11 3.5 2.5 1.25 Company C 90 75 30 16 9 7 3 1.75 Company D Average 100 70 40 20 15 10 5 3 SD

Company A Company B

Company C

Company D