A MIXED INTEGER LINEAR PROGRAMMING APPROACH FOR DEVELOPING SALARY ADMINISTRATION SYSTEMS

Determining salary increases of executive personnel is a challenging decision process for many companies. Salary administration policies that aid in the determination of salary increases and other compensation benefits have a wide variety of advantages for both a company and its employees. This thesis develops a mathematical programming approach to create a salary administration system that recognizes the importance of performance and potential of employees for future promotions as major components of a salary increase policy for executive personnel. A number of companies all over the world use salary administration systems that integrate work performance and potential for advancement to develop compensation packages that include benefits in addition to the base salary of their executive personnel. Some of these systems aid decision making concerning salary increase percentages, frequency of salary increases, and guidelines for promotion. The specific policy considered in this thesis assigns salary increase categories and intervals between successive salary increases based on performance and potential assessments. Two mixed integer linear programming models are formulated to assign personnel to salary increase categories and to determine intervals. Solution procedures are clearly illustrated based on a hypothetical application. The optimization toolbox of the commercial software, MATLAB, is used as the problem solver.