Developing & Implementing a Compensation Structure

April 20, 2010

What is the question?What is the question?

Compensation is the Answer4/20/2010 2

Discussion Points

Philosophy Total Rewards Elements Company Statistics Compensation Basics Communication

4/20/2010 Page 3Compensation is the Answer

Philosophy

Do you want to have a philosophy? What do you want to accomplish with

your rewards & recognition program(s)? Link to company’s mission & values? Link to Talent objectives / needs? Link to Performance? Do you want to pay at Market, below,

above? What else?


Rewards & Recognition Philosophy Example

A Rewards and Recognition Program that supports our performance culture that aligns individual performance with the achievement of our business goals and individual rewards. Employees who perform at higher levels receive greater rewards.


Compensation Basics

Market Surveys Analysis Ranges Geographic differentials/zones Minimum wage rates

Job Evaluation Salary Analysis

Hiring; promoting; equity


Service

Awards

Total Rewards & Recognition Elements

SPIFFS

Total Rewards

Bonuses / Incentives

Commissions

Base Salary

Spot Award

sSafety Award

s

Compensation is the Answer4/20/2010

Benefits

7

Total Rewards & Recognition Elements - Competitors

Who are your competitors?

Company Size

Location

Industry – Business Units

Where do you

recruit?

How many “different” positions do you have?


List of all positions Basic job description to be used to

match surveys Evaluation system

Various – point factor, internal equity, market

Use market for today’s examples

Total Rewards & Recognition Elements - Positions


Total Rewards & Recognition Elements – External Equity

Competiveness Total Compensation Base Salary Incentives Commissions – $ per lease, % of lease

value Mix – lower base and higher incentive


Market Comparisons / Mix


Other Considerations

Minimum Wage Rates National - $7.25http://www.dol.gov/dol/topic/wages/minimumwage.htm States Vary

Geographic Differentials Impact on Pay References:

NMHC survey ERI (Economic Resources Institute) http://

www.erieri.com/


http://www.dol.gov/dol/topic/wages/minimumwage.htm

http://www.dol.gov/dol/topic/wages/minimumwage.htm

http://www.erieri.com/



NMHC


Base Salary Issues

Attract, Retain, Motivate Competitive Pay Level Pay for Results (Performance),

Knowledge, or Team Membership


Base Salary Issues

Pay for Job or Person (Skill Sets) Performance: Team Role Control vs. Decentralize Lateral vs. Vertical Movement


Questions, Questions and More Questions . . .

Affordable vs. conventional Transaction vs. operations Accountant vs. community manager Degree required vs. no degree Sales vs. non-sales Internal customer service vs.

external customer service Union vs. non-union


Compensation Structures

Kinds of structures unlimited Driven by several factors:

Company size Objective Positions – career path

ONE SIZE FITS ONE


Pay Structures – Traditional Example

Grade Minimum 25th Midpoint 75th Maximu

m6 $12.00 $13.00 $14.00 $15.00 $16.00

5 $10.80 $11.60 $12.40 $13.20 $14.00

4 $9.80 $10.40 $11.00 $11.60 $12.20

3 $9.00 $9.45 $9.90 $10.35 $10.80

2 $8.40 $8.75 $9.10 $9.45 $9.80

1 $8.00 $8.25 $8.50 $8.75 $9.00

Market Highly ExperiencedSME

EntryNewly Promoted


Structure Examples

Traditional $ PAY

Grades 1 2 3 4 5 6 7 8 9

10 11 12 13 14


Pay Structures – Modified Traditional Example

Grade Minimum 1st Third 2nd Third Maximum6 $12.00 $13.00 $15.00 $16.00

5 $10.80 $11.60 $13.20 $14.00

4 $9.80 $10.40 $11.60 $12.20

3 $9.00 $9.45 $10.35 $10.80

2 $8.40 $8.75 $9.45 $9.80

1 $8.00 $8.33 $8.66 $9.00

Market Highly ExperiencedSME

EntryNewly Promoted


Structure Examples

Modified Traditional $ PAY

Grades 1 2 3 4 5 6 7 8 9

10 11 12 13 14


Pay Structures – Band Example

Band Minimum Maximum4 $18.00 $40.00

3 $13.00 $24.00

2 $9.80. $16.00

1 $8.00 $10.80

Market

Highly ExperiencedSME

EntryNewly Promoted

12

34


Structure Examples

Band $ PAY

Band 1 2 3 4 5


Pay Structures – Step Example

Steps can be earned by tenure, demonstrated experience , specific skills, certifications or any combination of these..


Pay Structures – Position Example

Position Minimum Midpoint MaximumTech $9.00 $10.00 $11.00

Leasing Consultant $7.25 $8.00 $8.75

Bookkeeper $12,000 $15,000 $18,000Community

Manager $35,000 $50,000 $65,000

Regional Property Manager

$50,000 $70,000 $90,000


Pay Structures – Position Example


Pay Grade Development

The salary and grade structure is reflective of the internal equity, external equity and individual equity of the organization. This combined with your willingness and ability to pay, determines the career ladder that will give us the appropriate allocation of pay dollars across all job categories.


Pay Grade Development

Entry LevelEntry Level Fully CompetentFully Competent Extraordinary SkillsExtraordinary Skills

New and Performance New and Performance undeterminedundetermined

Fully Satisfactory PerformanceFully Satisfactory Performance Superior PerformanceSuperior Performance

InexperiencedInexperienced Market competitive Market competitive Seldom UsedSeldom Used

Minimum Midpoint Maximum

25th 75th


NHMC Data


Data Selection

Surveys Many available Select to fit your need Compensation Data Industry Function Policy Data Metrics


SurveySurvey AreaArea TypeTypeNMHCNMHC – National Multi Housing Council – National Multi Housing Council

(Towers Watson)(Towers Watson)NationaNationa

llApartment Professionals Apartment Professionals

NAREITNAREIT – National Association of Real – National Association of Real Estate Investment Trusts (FPL & Estate Investment Trusts (FPL & Assoc)Assoc)

NationaNationall

Executive, Global, Senior Management, Corporate Services, Executive, Global, Senior Management, Corporate Services, Asset Management, Capital Markets, Construction, Asset Management, Capital Markets, Construction, Development, Engineering/Security, Investments, Development, Engineering/Security, Investments, Leasing, Marketing, Property Management, Technology, Leasing, Marketing, Property Management, Technology, TransactionsTransactions

Towers WatsonTowers Watson – – Reports PackageReports Package Comp Data BankComp Data Bank

NationaNationall

General Executive, Accounting/Finance, Human Resources, General Executive, Accounting/Finance, Human Resources, Information Systems, Administrative Services, Marketing, Information Systems, Administrative Services, Marketing, Property Management, Security, Maintenance, Brokerage Property Management, Security, Maintenance, Brokerage & Leasing, Legal, Business Development, Acquisitions & & Leasing, Legal, Business Development, Acquisitions & Asset Management, Construction, Real Estate AppraisalAsset Management, Construction, Real Estate Appraisal

National Real Estate National Real Estate (CEL & Assoc)(CEL & Assoc) NationaNationall

Corporate, Office/Industrial, Residential, RetailCorporate, Office/Industrial, Residential, Retail

MercerMercer – Benchmark – Benchmark NationaNationall

Executive & Non-Executive Executive & Non-Executive

MSECMSEC – Mountain States Employers – Mountain States Employers Council: Front Range & ITCouncil: Front Range & IT

ColoColo Executive, General Support, Financial, Human Resources, Executive, General Support, Financial, Human Resources, Legal, Sales/ Marketing, Engineering, Scientific & Legal, Sales/ Marketing, Engineering, Scientific & Technical, Maintenance & Facilities, Technical, Maintenance & Facilities, Procurement/Material Handling, Information TechnologyProcurement/Material Handling, Information Technology

RIMSRIMS – Risk & Insurance Management – Risk & Insurance Management SocietySociety

NationaNationall

Risk Management; ClaimsRisk Management; Claims

EmpsightEmpsight NationaNationall

LegalLegal

ACRACR – American Compensation – American Compensation Resources Inc: Resources Inc:

Tax Planning & Tax ComplianceTax Planning & Tax Compliance

NationaNationall

Global, Domestic, International, Sales/Use/Property, Global, Domestic, International, Sales/Use/Property,

ACRACR – American Compensation – American Compensation Resources Inc: Investor RelationsResources Inc: Investor Relations

NationaNationall

Investor Relations, Shareholder ServicesInvestor Relations, Shareholder Services


Survey Data

What information are we going to use?1.What positions?

a. Allb. Benchmark positions

2.Philosophya. Average / Meanb. Medianc. 75th ile



NHMC


Example – Maintenance Positions


NMHC Survey

All Orgs. Base Salary Total CompPosition Weighted

Avg50th

PercentileWeighted Avg

50th Percentile

Maintenance Tech

$31,900 $31,300 $32,700 $32,500

Make Ready $28,900 $28,500 $29,800 $29,100Groundskeeper $23,700 $22,500 $24,400 $23,100Painter $30,400 $29,500 $31,100 $30,300

Next step is charting or graphing.


Survey Data

When conducted When needed Adjust for market movement by:

Aging the Data

4/20/2010 Compensation is the Answer Page 37

Survey Data – Aging the Data

Three stances: Lead – Lead Lead – Lag Lag - Lag


Collect & Analyze Survey Data

4/20/2010 Compensation is the Answer Page 39GRADE

Survey Data- Midpoint

Regression analysis (linear trend line) Best-fit straight line that is used with

simple linear data sets Pay and Assigned grade or position

Estimate Use the charted data and draw the line.


Collect & Analyze Survey Data- Midpoint


Trendline

Drawn Midpoint

Survey Data - Range

Basic Considerations In deciding the range from min to max –

think about the time you would expect someone to stay in the range. The shorter the time, the closer you would

pay to market at hire or promotion. The longer someone is in a position, the

greater the range from min to max


Pay Structures – Traditional Example

Grade

Minimum 25th Midpoin

t 75th Maximum

Range Spread

6 $12.00 $13.00 $14.00 $15.00 $16.00 33.33%

5 $10.80 $11.60 $12.40 $13.20 $14.00 29.6%

4 $9.80 $10.40 $11.00 $11.60 $12.20 24.5%

3 $9.00 $9.45 $9.90 $10.35 $10.80 20%

2 $8.40 $8.75 $9.10 $9.45 $9.80 16.67%

1 $8.00 $8.25 $8.50 $8.75 $9.00 12.5%


Collect & Analyze Survey Data- Range Development


Maximum

75%

Midpoint

25%

Minimum

Actual Pay Data – Next Step

1. Match all incumbents against the Market Data for their position.

Watch for variances between job families and/or skill level.

Are your maintenance techs paid closer to market than your community managers?

Are the property level employees paid below market and your corporate level employees paid above?

2. Calculate the difference (dollars & percent) between actual pay and market pay.


Collect & Analyze Survey Data- Actual Pay


Maximum

75%

Midpoint

25%

Minimum


3. Calculate the difference (dollars & percent) to appropriate pay based on performance / skill.

For instance, you may not need to increase a new hire’s salary automatically to the midpoint.

Your SME may need to be paid in the upper portion of the range and may need a larger increase.

If your philosophy includes a performance factor, make sure you have all the performance ratings available.

4. Compile research from various surveys on projected merit and structure increases.


SurveySurvey AreaArea TypeTypeNMHC – National Multi NMHC – National Multi

Housing Council (Towers Housing Council (Towers Watson)Watson)

NationalNational Apartment Professionals Apartment Professionals

Towers WatsonTowers Watson NationalNational Increase ProjectionsIncrease ProjectionsWorld at WorkWorld at Work NationalNational Salary Budget QuestionnaireSalary Budget QuestionnaireThe Conference BoardThe Conference Board NationalNational Salary Increase SurveySalary Increase SurveyMSEC – Mountain States MSEC – Mountain States

Employers Council: Employers Council: Planning PacketPlanning Packet

ColoradoColorado Salary Budget/Increase QuestionnaireSalary Budget/Increase Questionnaire


Survey - Market Projections


5. Compare the market research % against your internal calculated %.

How close are they? If you applied the projected market

range increase, what is the $ impact? What is your budget?

6. Decision point




7. Budget is approved – How do I allocate the money?

One approach – everyone gets the same amount, OR

8. Performance Based Dollars are allocated to:

Top Performers High Potential Position in Range

Merit $ Allocation Example

Potential Codes

Performance Rating 1 2 3 4 5 Too New

to Rate

Outstanding Up to 6% Up to 5% Up to 4% Up to 2.5% 0%

Exceeds Up to 5% Up to 4% Up to 3.25% Up to 2% 0%

Full Up to 4% Up to 3.25%

Up to 2.5%

Up to 1.5% 0%

Improvement Expected 0% 0% 0% 0% 0%

Unacceptable 0% 0% 0% 0% 0%

Too New to Rate

Up to 2%



Range Penetration

Performance Rating

Min to 25%

25% to 50%

50% to 75%

75% to Max

Over Max

Too New to Rate

Outstanding Up to 6% Up to 5% Up to 4% Up to 2.5% 0%

Exceeds Up to 5% Up to 4% Up to 3.25% Up to 2% 0%

Full Up to 4% Up to 3.25%

Up to 2.5%

Up to 1.5% 0%

Improvement Expected 0% 0% 0% 0% 0%

Unacceptable 0% 0% 0% 0% 0%

Too New to Rate

Up to 2%



Pay below Minimum More frequent increases (every 9 months

versus 12 months) Increase to minimumREMEMBER TO PAY ATTENTION TO

MINIMUM WAGE



Pay over Maximum No Increase Lump Sum Increase


Other Options to Merit Allocations

Stretch time between increases Adjust time between increases based

on performance Outstanding performance – 10 months Exceeds performance – 12 months Meets performance – 15 months

Delay range adjustment Adjust “Aging” factor


Communication

What are we communicating? Job title? Grade? Range structure – minimum, midpoint,

maximum? Pay ? Opportunity for advancement? Career paths? More?


Communication

Several Forms Town hall Webcasts Group Meetings – HR, Manager, Sr

Management One-on-one meetings Pamphlets Booklet Flyer Company Newspaper


Communication

PRIORTYCompensation is the Answer4/20/2010 58

Other Considerations

Total Rewards Cash + Benefits

Benefits Health & Welfare Retirement

Defined Benefit & Defined Contribution (401 (k))

Paid Time Off Others (e.g., perquisites, alternative work

arrangements, etc.)



“Usually, keeping a plan simple is stupid.”

Ed Lawler


Compensation works best when…

IT DOESN’T GET IN THE WAY!


Questions


For follow up questions, please feel free to contact us at:

Marc M. McBrearty, CCPNorth American Leader, Data

Services Towers Watson Data

Services218 Route 17 NorthRochelle Park, NJ 07662 T +1 201 843 1177D +1 201 226 3405M +1 201 921 8850F +1 201 843 1764dataservices.towerswatson.com

Sherlyn Keiling, CCP SPHRMulti-Family Compensation

Consultant

9734 Raleigh StWestminster, CO 80031

+1 303-887-4486

[email protected]


Documents

Developing & Implementing a Compensation Structure