CSP 2017 Online Program

Balanced Salary Structure Modeling (303423)

Keywords: business analytics, human resources, operations research, compensation, talent acquisition, retention

Most large organizations link employee salaries to an internally defined salary band structure. These structures are typically market-based, and thus represent a simplified conception of external market salary data aggregated into a series of discrete steps. Band structure design involves a tradeoff between discretization error, fit to market, simplicity, and expectation setting. Frequently, Human Resources fits a geometric growth model adapted from financial future value calculations to the band midpoint salaries. While this approach constitutes established modern practice, it does not consider personnel job frequency, thereby amplifying the impact of outliers and the supra-geometric growth often seen among top salaried positions. A more balanced and generalized approach is presented here that employs nonlinear modeling to accommodate acceleration of executive salaries while minimizing discretization and market fit errors within a cohesive structure.