Compensation Budgeting Part II: Determining Raises

Mykkah Herner, MA, CCPManager of Professional ServicesPayScale, Inc.

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We will be sending out slides and accreditation information following the presentation

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14,000 Positions 3000 Customers 11 Countries

250 Compensable Factors40 Million Salary Profiles

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Three-part Series on Compensation Budgeting

Part I: Managing Pay Inequities

Part II: Determining Raises Part III: Putting it all together with PayScale Insight

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Agenda

Recap of Part I

Part IIWhat do you want to reward?

o Market, Performance, Proficiency, Tenure, etcCan you streamline your increase process?How to calculate pay increases.

o Paying to Marketo Merit Matrix (Pay-for-Performance)

Putting it all together for budget recommendations

Next month: putting it all together with PayScale Insight

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o Start with a plano Know your comp Philosophy, Strategy, and

Policy

o Get reliable market Data

o Identify comp inequities at Org, Dept, Position, and Individual levelso Org/Plan level: fair pay to market

o Dept level: fair pay across departments

o Position level: have some positions move faster than others?

o Employee level: are you paying according to your policy? Fairly based on EEO status?

o Develop solutions

Recap of Part I

http://resources.payscale.com/hr-webinar-budgeting-part-1-managing-internal-pay-inequities.html

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What do you want to reward?

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What do you want to reward?You can base increases on…o Marketo Performanceo Proficiencyo Tenure

A note on COLA

Streamlining the Increase Process

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Depends on your organizational values around transparency and inclusion

Determine on what you’ll base increases

Create a timeline

Considerations for your increase process & timeline

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Salary Adjustment Process & Timeline

7/1-10/1

5

• Complete market study

10/15-

10/31

• Create spreadsheet with suggested increases

11/01-

11/15

• Train Managers on Compensation Process & their roles; deliver spreadsheets to managers

11/15-

11/30

• Have a period of time for edits (managers, HR)

12/01

• Finalize increases / approval

12/15

• Communicate to employees

12/20

• Process adjustments in payroll

1/1• New pay is live with 1/1 payroll

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How to Calculate Pay Increases

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Market-based Increases

Tier increases by position in rangeo Start with a budget increase %o Allocate increases to EEs based on range penetration

o Create spreadsheet

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Increase Spreadsheet

Name Job TitleCurrent Annual Base

Range Min

Range Mid

Range Max

Compa-Ratio

Range Penetration

Increase %

Annualized Increase

New Annual Base

New Compa-ratio

New Range Penetration

Alexander, Maria Account Manager $45,900 $46,300 $57,100 $67,900 0.804 -2% 3.80% $1,744 $47,644 0.83 6%

Arnold, Alexandra Driver I $29,600 $29,300 $35,700 $42,100 0.829 2% 3.80% $1,125 $30,725 0.86 11%

Baker, Nicholas Account Executive $46,500 $40,400 $49,800 $59,200 0.934 32% 3.80% $1,767 $48,267 0.97 42%

Allen, Ryan Program Manager $86,700 $73,600 $93,300 $113,000 0.929 33% 3.80% $3,295 $89,995 0.96 42%

Bailey, Sara Senior Account Executive $64,000 $54,700 $68,400 $82,100 0.936 34% 2.80% $1,792 $65,792 0.96 40%

Anderson, James Customer Service Rep $45,500 $34,900 $42,500 $50,100 1.071 70% 1.90% $865 $46,365 1.09 75%

Andrews, Vincent Senior Account Executive $76,700 $54,700 $68,400 $82,100 1.121 80% 1.90% $1,457 $78,157 1.14 86%

Adams, Christina Account Manager $63,800 $46,300 $57,100 $67,900 1.117 81% 1.90% $1,212 $65,012 1.14 87%

Total/Average $458,700 0.967625 41% 2.96% $13,257 $471,957 1.00 49%

SUM AVG AVG AVG SUM SUM AVG AVG

• Compa-Ratio = Current Annual Base / Range Mid• Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)• Annualized Increase = Increase % * Current Annual Base• New Annual Base = Annualized Increase + Current Annual Base• New Compa-Ratio = New Annual Base / Range Mid• New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)

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Using a Matrix (Merit or Proficiency)

Tier increases by position in range & performanceo Start with a budget increase %o Allocate increases to EEs based on range penetration

and performance

o Create spreadsheeto Note: Proficiency, or another factor, can work like

performance in this example

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Increase Spreadsheet

Name Job Title

Current Annual Base

Performance Rating

Range Min

Range Mid

Range Max

Compa-Ratio

Range Penetration

Increase %

Annualized Increase

New Annual Base

New Compa-ratio

New Range Penetration

Adams, Christina Account Manager $63,800Meets $46,300 $57,100 $67,900 1.117 81% 1.70% $1,085 $64,885 1.14 86%

Alexander, Maria Account Manager $45,900Meets $46,300 $57,100 $67,900 0.804 -2% 3.90% $1,790 $47,690 0.84 6%

Allen, Ryan Program Manager $86,700Meets $73,600 $93,300 $113,000 0.929 33% 3.90% $3,381 $90,081 0.97 42%

Anderson, James Customer Service Rep $45,500Meets $34,900 $42,500 $50,100 1.071 70% 1.70% $774 $46,274 1.09 75%

Andrews, Vincent Senior Account Executive $76,700Meets $54,700 $68,400 $82,100 1.121 80% 1.70% $1,304 $78,004 1.14 85%

Arnold, Alexandra Driver I $29,600Meets $29,300 $35,700 $42,100 0.829 2% 3.90% $1,154 $30,754 0.86 11%

Bailey, Sara Senior Account Executive $64,000Does not meet $54,700 $68,400 $82,100 0.936 34% 0% $0 $64,000 0.94 34%

Baker, Nicholas Account Executive $46,500Does not meet $40,400 $49,800 $59,200 0.934 32% 0.90% $419 $46,919 0.94 35%

Barnes, Paul Customer Service Rep $38,600Exceeds $34,900 $42,500 $50,100 0.908 24% 7% $2,702 $41,302 0.97 42%

Totals/Averages $497,300 0.961 39% 2.74% $12,608 $509,908 0.99 46%

• Compa-Ratio = Current Annual Base / Range Mid• Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)• Annualized Increase = Increase % * Current Annual Base• New Annual Base = Annualized Increase + Current Annual Base• New Compa-Ratio = New Annual Base / Range Mid• New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)

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Developing Budget Recommendations

Part Io Org Level Solutions – Range Adjustments• Cost of changing ranges (adjusting green outliers)

o Position Level Solutions – Market Adjustments• Cost of adjusting positions or adding temporary

position premiumso Employee Level Solutions – Equity Adjustments• Cost of correcting individual pay inequities

Part IIo Increase Budget – Pay Increase Adjustments

Putting it all Together

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Org Level Solution Costs

Range Adjustmentso If you decide to maintain compa-ratios, this cost will be equal to the % you

are increasing your ranges.

For example, if your total base pay budget is $15,000,000 and you increase your ranges by 2%, the total impact is $300,000

o If you decide to ensure no green outliers, this cost is equal to the adjustment necessary to keep all EEs in range at the low end

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Position Level Solution Costs

Market Adjustments

o Moving positions to a new gradeo What will be the cost of ensuring all incumbents are in range

o For example, Driver I and CSR = 100 + 400 = $500o Offering a market premium

o Calculate yearly market premium payment to all incumbents in the roleo For example, Software Engineer = 21 * $1000 = $21,000

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Employee Level Solution Costs

Equity Adjustmentso Determine the amount to resolve critical issues

• For example, bump HRM/F to 73,600 ($3700)

o Calculate amount to resolve compression issues – increases to existing?

o Any necessary market adjustments for individuals?

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Pay Increase Adjustments

Pay Increase Adjustmentso Typically this is the easiest to budget as it is usually a

percentage of total salary budget.

o For example, if your budget is $15,000,000, a 3% increase would be $450,000.

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Summary of Comp Budget Requests

2014 Compensation Budget Requests

Total Salary Budget: $15,000,000

Percent Dollar Amount2014 Range Adjustments 0.06% $9,200

2014 Market Adjustments 0.14% $21,500 2014 Equity Adjustments 0.02% $3,700

2014 Pay Increase Adjustments 3% $450,000 Total Increase $484,400

2014 Salary Budget $15,484,400

Detail for comp budget request is in the following attachmentsCosting for Range AdjustmentsCosting for Market AdjustmentsCosting for Equity Adjustments2014 Pay Increases

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Next Month:

Using PayScale’s Insight and Insight Expert to support compensation budgeting

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Mykkah Herner, MA, CCPManager of Professional Services, PayScale, Inc.

www.payscale.com