TOWSON UNIVERSITY

MNGT433.020
_________________________________________________________

PHASE TWO:
External Competitiveness: Pricing the Structure
Alison Bishop, Vanessa Flores, Blake Schindler, Anthony Gregory
TABLE OF CONTENTS
Executive Summary 2
Recommend Strategy for Competitiveness
Best Alternatives for FastCat...2
Pay Level.....3
Pay Mix ...3
Integration of Internal and External Structure.3
Pay Strategy Support Objectives.4
Design Survey
Selecting Benchmarks and Matching with FastCat Jobs.4
Selecting Competitors in FastCats External Market...5
Deciding What Forms of Pay to Compare...6
Aging the Data to Include Collection Time.8
Regression Line...9
Evaluating the Fit Between FastCat and the Market.....10
Policy Line
Integrate the Internal and External Structure
Grades/Ranges...10
Overlap Facilitates Career Path.....14
Some Flexibilities within Controls....15
Evaluating the Results
FastCats Leading and Lagging Pay Levels...15

Consistency with Previous Strategic Decisions.16

EXECUTIVE SUMMARY
Phase Two involved Team Trim the Fat further examined the pay system at FastCat.
After some discoveries in Phase One we decided to keep the pay in the leading position. We
want to attract and retain above average employees who overall will have a feeling of equity,
leading to higher production levels. Pay grades and ranges will remain tight in order to keep
costs in line. We do not want to pay employees too much as salaries is a large expense however
we need to make sure we are retaining and attracting talented employees. After our regression
analysis we have decided that our leading strategy of 3-5% will help get FastCat on track. As
FastCat grows and becomes more profitable, expansion will occur as well as raises for current
employees. FastCat has to have a number one priority of profitability, however this goal is
nearly impossible without a dedicated team of employees.
RECOMMENDED STRATEGIES FOR COMPETITIVENESS
Best Alternatives for FastCat
We decided that the best alternative for FastCat was to lead versus lag. Although FastCat
has been in minor financial difficulties, we strongly believe that it is nearly impossible to attract
and retain the proper talent without paying them slightly above market average. Unfortunately
the expenses at FastCat will be above market average based on our pay structure. We
wholeheartedly believe that paying above market average will affect our growth exponentially.
Our job based strategy will help keep the company strategy aligned by holding employees
responsible for their individual performance as well as having specific responsibilities for
employees.

Pay Level

As previously mentioned we have made a decision for FastCat to slightly lead the market.
As much as we would like to lag the market as this would allow for the company to have less
employment expense, we just do not think we will be able to attract the proper talent without
slightly leading the market. With six pay levels employees will be in their positions for longer
periods of time. Obviously this means there are less promotions, so in order to keep employees
happy, and therefore productive, we have decided the pay 3-5% above market average. Since
FastCat is a small to medium sized company, employees will usually be working very close with
their direct reports and their Bosss Boss. This leads to higher satisfaction as employees believe
that if they have a concern they know the right person to talk with and how to get the proper
changes in place.
Pay Mix
FastCat is currently in a lead the market pay structure. This has been put into place so
that we can attract the retain the highest functioning employees in the healthcare industry. We
will be mixing base salary, bonus, and benefits, like most companies. We are heavily weighting
our pay on salary with a smaller bonus and benefits plan. Since we will be leading the market in
base pay we will have smaller bonuses. This pay plan will need to be revisited in every six
months for the first two years and then yearly from there on out. FastCat has to make a change
however if this payplan is not working they will need to adjust very quickly.
Integration of Internal and External Structure
FastCat will have pay Grades and Ranges under our proposed pay system. Grades and
Ranges typically lead to faster promotions which will help keep employees motivated. Our pay
grade regression chart featured in the document also outlines how the Grades and Ranges will be

put into place in diagram form, which is sometimes easier to comprehend. FastCat has to have
the best employees which will help them get back on track in sales and profit margins.
Pay Strategy Support Objectives
Our objectives outlined in Phase 1 were as follows:

Help employees better understand how pay is determined

Create and support internal alignment

Support financial growth of employees as well as longevity

Individually recognizing efforts as well as team efforts

The pay system that we have designed will help support each of these items. Employees

will be better understand how pay is determined as they will have more supervisor interaction
with a simple arbitration process. Internal alignment will be supported since pay grades will be
mapped out with a clear map of the future for promotions with good behavior. Financial growth
and longevity will absolutely be supported with a leading mentality and a company that will
thrive. Individual and team efforts will be recognized as well with bonuses and benefits for high
performing members.
DESIGN SURVEY
Selecting Benchmarks and Matching with FastCat Jobs
Using the job rankings from Phase I, we were able to categorize the jobs into 12
benchmarks, taking the lowest, middle, and highest positions. We then proceeded to read the job
descriptions for each of the job surveys and matched them accordingly to the benchmark jobs
and their JE point values which are seen below:
Table 1: FastCat Benchmarks

FastCat Job

Point Value

Survey Job

Programer Analyst

215

Engineer 1

User Interface Designer

290

Engineer 3

Software User Interface Arch.

355

Engineer 5

Graphics Designer

235

Marketer 1

Marketing Services Rep.

335

Marketer 3

Visionary Champion

375

Engineering Manager 2

Technician

195

Technician 1

Implementation Consultant

285

Technician 3

Senior Fellow

335

Engineering Manager 1

Administrative Aide

185

Office Support 1

Administrative Assistant

285

Office Support 3

Training Assistant

325

Office Support 5

Selecting Competitors in FastCats External Market

We decided to compare FastCat to several different software companies of different sizes
based on their number of employees, 200, and the amount of their revenue, $36.5 million. We
mainly chose small and medium companies because it those are the most similar to FastCats. We
also compared it to a few large as their ultimate objective is to grow as company similar to Epic
Systems, MCKesson, Cerner, And Siemens Healthcare, all of which have more than 5,000
employees and more than $1 billion dollars in revenue. The tables below show the specific
competitors we chose to compare to FastCat as well as their compensation features breakdown:
Table 2: External Competitors: Small and Medium Software Companies
Company
#

Industr
y

Size

Base/Total
Comp

Benefits/Ba
se

Stock/Ba
se

Bonus/
Base

10

Softwa

Mediu

87%

14%

0%

0%

re

14

Softwa
re

Mediu
m

80%

20%

0%

5%

23

Softwa
re

Small

80%

20%

0%

5%

25

Softwa
re

Mediu
m

83%

83%

6%

3%

33

Softwa
re

Mediu
m

72%

8%

20%

12%

46

Softwa
re

Small

83%

12%

7%

4%

47

Softwa
re

Mediu
m

79%

14%

5%

8%

54

Softwa
re

Small

78%

13%

15%

0%

53

Softwa
re

Small

62%

10%

47%

4%

55

Softwa
re

Small

60%

12%

48%

7%

60

Softwa
re

Mediu
m

85%

10%

3%

4%

Deciding What Forms of Pay to Compare

After comparing the external salary data of the __ companies chosen to be included in
our survey, we chose to use the mean salary data of the jobs which included base pay, bonuses,
total cash, stock options, and total compensation. Taking all of this into account, we were able to
generate table 3 below, which states the mean compensation for each job and their corresponding
company size. The reason for using the mean compensation of the data as opposed to the
weighted mean was because we wanted the compensation weight to be even distributed among
the companies, regardless of their size. This would allow FastCat to compare how its
compensation stacks up among the rest of its competitors.

Table 3: Salary Data: Small and Medium Software Companies

Benchmar
k Job

FastCat Job

Base
Salary

Total
Cash

Total
Compensati
on

Bonuses

Stock
Options

Engineer 1

Programmer
Analyst

$61,699.
37

$63,348.
74

$88,275.92

$3,438.1
8

$9,745.61

Engineer 3

User Interface
Designer

$92,632.
20

$95,754.
96

$142,271.2
3

$6,846.1
9

$30,782.9
3

Engineer 5

Software User
Interface
Architect

$134,823
.17

$145,377
.91

$227,916.8
5

$11,619.
08

$61,137.6
2

Engineerin
g Manager
1

Senior Fellow

$118,786.70

$126,708
.79

$216,442.2
1

$9,476.3
1

$81,743.3
3

Engineerin
g Manager
2

Visionary
Champion

$144,108
.08

$155,329
.02

$293,937.5
5

$13,822.
08

$101,551.
63

Marketer 1

Graphics
Designer

$66,793.
35

$76,465.
02

$92,979.84

$9,671.6
7

Marketer 3

Marketing
Services Rep.

$86,982.
51

$91,267.
17

$133,681.7
8

$5,285.9
3

$31,914.2
9

Office
Support 1

Administrative
Aide

$29,325.
57

$29,640.
07

$43,000.56

$448.03

$466.67

Office
Support 3

Administrative
Assistant

$43,378.
17

$44,115.
96

$60,182.98

$1,171.1
0

$714.00

Office
Support 5

Training
Assistant

$51,589.
75

$53,557.
30

$73,094.61

$2,892.7
2

$700.00

Technician
1

Technician

$29,034.
20

$29,782.
15

$43,904.73

$839.60

$1,330.00

Technician
2

Implementatio
n Consultant

$33,942.
01

$35,118.
15

$51,122.73

$1,622.1
6

$5,103.64

Aging the Data to Include Collection Time

Due to the amount of time it took to collect the survey data, our results are not about
seven months old. Consequently, we have aged the data by 3% to atone for our competitors pay
increases since the time that the surveys were completed, and to help us stay ahead of our
competitors. Table 7 below shows the benchmark job pay structure increased by 3% to allocate
for prospected development.
Table 4: Aged Salary Data: Small and Medium Software Companies
Benchmar
k Job

FastCat Job

Base
Salary

Total
Cash

Total
Compensati
on

Bonuses

Stock
Options

Engineer 1

Programmer
Analyst

$63,550.35

$65,249.20

$90,924.20

$3,541.33

$10,037.98

Engineer 3

User Interface
Designer

$95,411.17

$98,627.61

$146,539.37

$7,051.58

$31,706.42

Engineer 5

Software User
Interface
Architect

$138,867.87

$149,739.25

$234,754.36

$11,967.65

$62,971.75

Engineerin
g Manager
1

Senior Fellow

$122,350.30

$130,510.05

$222,935.48

$9,760.60

$84,195.63

Engineerin
g Manager
2

Visionary
Champion

$148,431.32

$159,988.89

$302,755.68

$14,236.74

$104,598.18

Marketer 1

Graphics
Designer

$68,797.15

$78,758.97

$95,769.24

$9,961.82

------

Marketer 3

Marketing
Services Rep.

$89,591.99

$94,005.19

$137,692.23

$5,444.51

$32,871.72

Office
Support 1

Administrative
Aide

$30,205.34

$30,529.27

$44,290.58

$461.47

$480.67

Office
Support 3

Administrative
Assistant

$44,679.52

$45,439.44

$61,988.47

$1,206.23

$735.42

Office
Support 5

Training
Assistant

$53,137.44

$55,164.02

$75,287.45

$2,979.50

$721.00

Technician
1

Technician

$29,905.23

$30,675.61

$45,221.87

$864.79

$1,369.90

Technician
2

Implementatio
n Consultant

$34,960.27

$36,171.69

$52,656.41

$1,670.82

$5,256.75

Regression Line
The average base wages in small and medium software companies are shown in Figure 1
below. The equation of this regression line is y = 884.19x + -145104.69, where R-squared = .
551, which indicates that our jobs are adequately matched.
Figure 1: Regression Graph - Small and Medium Software Companies

Evaluating the Fit Between FastCat and the Market

According to our regression line, for every job evaluation point added, the mean base
wage increases by $884.19, and $145,104.69 is subtracted. Our coefficient of determination of .
551 which is relatively low, and tells us that we either did not match up our FastCat jobs to their

best fitted benchmark jobs, or we may have over or under-evaluated our FastCat jobs in Phase
one.
POLICY LINE
INTEGRATE THE INTERNAL AND EXTERNAL STRUCTURE
Grades/Ranges
We decided to use grades and ranges that varied between 10-50%. We also decided to go with 5
grades which would allow for more promotions within the grades. Depending on the type of job
position and level of performance, employees fall among those grades and ranges seen in Figure
2 below:

Figure 2: Grades and Ranges - Small and Medium Software Companies

We have determined the breakdown of grades and their ranges showing their minimum,
medium, and maximum salaries based on the JE points seen in Tables 4-8. With this being said,
employees will be paid no less than the minimum (low) salary and no more than the maximum
(high) salary listed in their grade. For example, an entry-level employee in Grade 1 would start
off earning $29,157.50. The average amount an employee in that grade would earn $38,365.14
and the highest salary an employee in that grade would earn is $47,572.77. This breakdown
would be the same for all of the grades that follow.
Table 4: Grade 1
JE Points

Salary

Low

185

Low

$29,157.50

Mid

207.5

Mid

$38,365.14

High

230

High

$47,572.77

Range

24%

Table 5: Grade 2
JE Points

Salary

Low

231

Low

$63,662.65

Mid

253

Mid

$78,595.87

High

255

High

$93,5529.08

Range

19%

Table 6: Grade 3
JE Points

Salary

Low

276

Low

$99,683.75

Mid

288

Mid

$109,542.60

High

300

High

$119,401.40

Range

9%

Table 7: Grade 4
JE Points

Salary

Low

301

Low

$121,100.80

Mid

318

Mid

$136,068.30

High

335

High

$151,035.90

Range

11%

Table 8: Grade 5
JE Points

Salary

Low

336

Low

$148.918.50

Mid

355.5

Mid

$169.225.50

High

375

High

$189.532.60

Range

12%

Overlap Facilitates Career Path

Overlapping occurs when a salary from a lower grade may at some point be higher than a
salary at a higher grade. Sometimes it works out like that depending on how experienced one is
within their grade. It does not happen in all grades systems but does happen in some. For
example, we experienced some overlap between grade 4 and grade 5. The salary ranges from
$121,100 to $151,035 in grade 4. However, grade 5 salary ranges from $148, 918 to $189,532. It

is entirely possible that someone who is entirely new to grade 5 could make less than someone
who has a wealth of experience in grade 4. Some people may see it is as unfair but it does work
out as it makes it easier for promotion as costs will not be an immediate issue and also gives
room for more potential financial growth once you are in a new grade.

Some Flexibilities within Controls

Using this pay range system it really benefits FastCat in terms of how flexible their
managers can be when deciding how much to compensate their employees. The whole grade and
range process makes it easier for them to pinpoint to the employees why they are where they are
currently within the grades. A manager can easily tell an employee how they can go from grade 3
step 1 to grade 3 step 2. It makes it easy for the employee also to see where they are and see what
they have to do to go to the next level and receive that pay increase. The managers can look
around at everyone who is in grade 4 and see from top to bottom who is the most effective to the
least effective and the pay range within the grade should reflect that. It makes it so much more
convenient for a manager to be flexible up and down the pay range with the employees. Another
benefit to the flexibility of the range is that it makes things a lot less complicated when hiring as
both sides already know what to expect financially.
EVALUATING THE RESULTS
FastCats Leading and Lagging Pay Levels
As mentioned before in the executive summary, part of FastCats structure for the pay
structure is to lead the market. We have looked at what the market offers and are offering 3-5%
above that for every position. We believe that in order to have the best employees that will
contribute to the best production, it is best to pay them above what the average market is paying.

For example, our highest paying job which is the Visionary Champion has a base salary with
FastCat of almost $152,000 while the market for the equivalent job is paying a base salary of
$144,108. One of the lowest base salaries is the administrative aide which has a base salary in
the market of about $29,325. We would pay almost $31,000 for the same job with our lead
strategy. This strategy will continue to bring FastCat the best employees in the business.
Consistency with Previous Strategic Decisions
We are very satisfied with our pay structure and our decision to lead the market by 3-5%.
Although, it does incur more labor costs to employ at higher costs, we believe that in the long
run it will definitely pay off. It will pay off because our employees will more than make up the
difference in our labor costs with their far superior work to the market. We know that salary is
such a game changer when potential candidates look for work. It is proven the ones who are best
are their jobs are compensated the best and that is what we strive to do.