PayScale Bring Back the Sizzle eBook

7/27/2019 PayScale Bring Back the Sizzle eBook

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SizzleBring back the

PyScs Gu t Cmp Ps

ThaT GeT WorkerS Fired UP(in a good way)


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ituct

You want to attract and retain top talent

while motivating employees to perform

at their best. Top talent is critical to

your organizations success but so is

controlling the bottom line. Whether its

your first comp plan or a revamp of an

existing one, this eBook will help you

produce a comp plan thats a win/win for

both you and your employees.

With the recipes for success detailed here

and some prep time you can cook up a

comp plan from scratch even if youve

never done it before.

By the end of this process, youll have a

comp plan that will minimize your costs to

get and retain top talent, drive employees

to perform better and youll have the

confidence to talk comp with anyone.

Your employees want to bring home a

bigger slice of bacon.


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Ts B s b wt fv pts.

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1

2

3

4

5

G ecutv SupptEnsure your comp plan succeeds by gaining executive support.

df Yu Cmp SttgySet the foundation for your plan with a well thought-out comp strategy.

dvp Mt-Bs Py StuctuChoose the right market data.

Bu Py rgsEverything you need to know to build your pay ranges.

Gt BusyWhen finished with steps 1-4, its time to implement your tasty, cohesive comp plan.


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Gain Executive

SUPPorT1


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6www.payscale.com

Employers Notice Comp

aFTer SoMeThinGBad haPPenS
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www.payscale.com

Want to make execs take noticebefore its too late? Then youd

better have an action plan at the

ready.

Ty tc

f w:

A valuable employee has a better

job offer.

A hiring manager insists on paying

a recruit above the market rate.

Worries Arise Over Internal

Pay Inequities.


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8www.payscale.com

Identify your ExecsPain PoinTSThe best way to gain executive support is to step into

their shoes and identify the pain points theyre looking

to solve. Theres a good chance theyre different than

HRs.

For example, HR may be concerned with the legalities

of paying people in the same job different salaries

without a justified business reason. Most business

leaders would not place the same emphasis on this

problem.

Instead, you need to identify the major business

priorities and then demonstrate how a comp plan

will tie closely to those priorities. A recent example

comes from one of our customers. The CEO was

not very interested in a compensation plan. To him,

a comp plan was a set of rules that limited his ability

to retain talent. He had been told one too many times

You cant do that. It will cause that person to go

above the top of the range.


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9www.payscale.com

His new HR leader had an uphill battle to get him

bought in to the concept of a comp plan. She

decided to take a different approach. She asked the

CEO if there were individuals who were key to the

success of the business.

He actually had a list of 12 names in his top drawer

who he considered critical for the companys

expansion plans. The HR exec asked if she could

help the CEO develop a plan to ensure those 12

people would never leave the company for more

money elsewhere. He immediately lit up with

excitement and gave his support because it was

based on his goal of expanding the business.

Sometimes the best way to get executive support is

not by making big promises, but by understanding

their pain points and using a small example that is

meaningful.

I want to see HR and its ability to track data come into the 21st century. The minute youcan properly track and trend data, HR becomes a true strategic business partner vs. the

traditional stereotype of administrative and soft skills. Tracking the right information - theinformation that matters - is critically important. PayScale leads the industry in fresh andtimely data. Combined with their ability to create custom, trend-based reports, strategicHR decision making is unleashed.

- Jim Cook, CFO, Mozilla


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Return onBaConOver 2 years ago, Google made the dramatic decision to givean across-the-board increase of 10% to all employees with thegoal of reducing turnover. It worked. It was a hefty expense, but

the ROI showed that it actually reduced turnover in some critical

areas and the investment more than paid for itself.

The reason it worked is that the HR/Compensation team knew

exactly what the costs of turnover were and they knew what the

cost of this enhancement was. They monitored the results of

performance against the goal and regularly reported back.

This is a dramatic example that shows how even big financialdecisions can be justified with the appropriate tracking and

monitoring. For most organizations the costs seem too high

because there are no goals for the plan and no one is tracking

and reporting on results. HR leaders should be able to justify

large expenditures by understanding the possible rewards.

ROI
http://payscale.com/hrhttp://blogs.payscale.com/compensation/2012/09/turnover.htmlhttp://resources.payscale.com/rs/payscale/images/turnoverROICalculator2.xlsxhttp://resources.payscale.com/rs/payscale/images/turnoverROICalculator2.xlsxhttp://blogs.payscale.com/compensation/2012/09/turnover.htmlhttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr


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Payroll is by far your biggest expense and the cost of

getting it wrong is tremendous.

Take this fictitious example:

PayDay Pork Company is located in Midland, TX.

Their primary business is makin bacon. With 200

employees, the average pay is $50,000 a year. Their

most valuable employees, the Chief Bacon Engineers,

are paid double that. Midland has one of the lowest

unemployment rates in the nation due to the boom

in oil production there. Getting pay right is crucial to

retaining employees.

Total Payroll = $10,000,000a year. (Thats a lot of bacon!)Without good market data, PayDay Pork guessed

what to pay and this resulted in major expenses for

the company:

Cost of overpayment by just 10%= $1,000,000 a

year.Cost to recruit 3 new Chief Bacon Engineers to

replace the ones who left due to underpayment =

$150,000.

Dont risk the cost of getting comp wrong. Practice

good comp planning to price jobs right.

T Cst Gttg

Cmp Wg
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Know the Reasons You'reCreaTinG a CoMP Plan

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1. It makes good business senseFor almost every organization, the cost of salaries

and benefits is the single biggest expense to thebusiness. Mismanagement of compensation could be

putting the entire organization on the line.

When designed well, comp plans can drive

profitability by incenting behaviors that support

business goals.

2. It helps attract and retain talentFor most organizations in the service or knowledge

business, the ability to attract and retain talent can be

a primary differentiator from its competitors.

A well designed comp plan takes more into

consideration than simply paying the most. It is

founded on paying people the right amount of money

to attract, retain and motivate performance.

Most people will not leave s imply for more money but

for perception of fair pay and career satisfaction. The

organization needs to formalize practices around pay

that attract and retain top talent.


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When decisions about comp levels are systematic

and communicated with employees, the

organizations expectations of its employees become

clear. They will know how they will be rewarded and

how to reach their personal career and financial

goals.

By sharing your expectations, youre also giving your

employees more control over their destiny, thereby

raising satisfaction and retention.

3. It supports the mission, strategyand culture of the organization

When you reward the behaviors that you want your

organization to be known for, your employees will act

in a way that supports your brand and mission.

This is one of the primary reasons an organization

would want to establish a comp plan.

Once you have executive support for establishing

a comp plan, the next step is to decide what your

strategy will be.


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2 Define Your Comp

STraTeGY


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factors toConSiderW s my mt?

When choosing salary data that reflects your labor

market youll want to be conscious of how you

define your market. PayScale recently worked with

a customer in the aerospace industry. They are a

small company (less than 100 employees) based in

Texas. When running local market data they found

that the data for the sales positions seemed highly

inaccurate. With further investigation it turned out

they were sourcing sales people from the two largest

aerospace companies in the United States, and those

same sales people spent much of their time not in the

office, but in the Washington DC area where business

deals were done. Their labor market wasnt Texas

aerospace as they assumed, but global aerospace

and defense. After making modifications to more

accurately reflect their talent pool the numbers

seemed right on.

Make sure to correctly identify the labor market that is

the source for your talent and think through the varied

markets for different departments in your business.
http://payscale.com/hrhttps://vimeo.com/46894991https://vimeo.com/46894991https://vimeo.com/46894991https://vimeo.com/46894991http://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr


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a T Tw Cts

Overall economic indicators arent specific enough

for compensation decisions. To win the talent wars,

know whats happening right now, specific to your

locale. For example, the national year-over-year wage

growth for Q2, 2012 was 2.3%, but these two cities

arent exactly average:

Houston 3.0%

Its burning in Houston and its not just the sun,

its also the red-hot economy. The largest city in

Texas hosts a variety of strong industries, including

aeronautics and healthcare, but the boom in the oil

and gas industry has had the biggest positive impact

on wages in Houston.

Riverside 0.3%

The wages for ful l-time private workers in the

Riverside area followed the rollercoaster brought on

by the recession. Though there was actual growth in

Q2, 2012 it trailed the national average by two whole

percentage points.

Read about other top and bottom cities here.
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hw cmpttv yu wt

t b?There is no universal rule that says you must pay at

the 50th percentile. As a matter of fact, this is not a

strategy that is going to work for most organizations.

Instead, your strategy should reflect the competitive

pressures of the market and your willingness to pay

higher salaries for key talent.

For example, an organization that is coming out

of start-up mode and focused on expansion may

choose to reward their sales employees at the 90th

percentile and their R&D department at the 75th

percentile. They may choose to achieve this by

targeting general administrative and support positions

at the 40th percentile. This is a strategy that can work

well for the organization who wants to be competitive

in the areas where it really matters most.

Generally speaking, its a good idea to start with

an understanding of where your salaries place in

the market range currently by benchmarking your

positions. This helps to identify where weak spots

exist in your current practice.
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Wt i wt

t w?

Longevity

Skills

Certifications

Performance

Proficiency

In most cases, a combination of these variables is the right

strategy. Most organizations use a combination of these to

reward employees and have a set amount of money that can

be spent on increases. Important decisions need to be made

about how to allocate those increases.


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ecutv lsp TmThis is non-negotiable. They must be part of the

process since the comp plan will most definitely fail

without their buy-in.

hum rsucsYou should be an advisor to senior leaders, coming

up with ideas, research and advice, but HRs role is

to champion the project.

dcts MgsEngage them early, make sure they understand

and identify with the process and goals. This will

improve your chances of buy-in.

empysSome organizations choose to involve employees in

the process especially a group of highly influential

employees who have the ability to gain support

from their colleagues. If you are going to involve

employees in the process be sure to consult with

an attorney about potential labor issues (even if you

are in a non-union environment).

W su b

vv?

How to Create a

CoMPSTraTeGY


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Wt s t pcss?

TmgA typical overhaul of an existing comp plan or

creating one from scratch can take months. Take this

into account and plan accordingly for when you will

need to have your new strategy in place.

hr su pp t

sttgy cvsts wt

ts wg:

1. Where is the Organization Now?

o Growth Cycle: The growth stage of your

organization will influence the emphasis of your

comp strategy.

Startup = EquityEstablished Co = Benefits


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o Demographics: Early stage career employees

may need different incentives than those later in

their career.

o Culture / Management Style: You have to

create a culture of pay-for-performance before

you can reward it. Challenge the executive team

if they are not willing to change the company

culture.

2. The relative importance of

attraction, motivation and retention.The issue is not if each factor is important by itself

but understanding the way each factor influences the

others. Spending top dollar for a candidate may affect

the motivation of everyone else in that department.

Be prepared with recent examples where this was the

case to talk about these issues in an open way.

3. Market competitiveness vs.internal equity.Companies struggle with this issue when theyre

paying a highly specialized individual contributor more

than managers or directors at the organization. An

example would be a highly specialized technician who

is being paid more than the manager who supervises

him. A focus on external alignment would address

this while a focus on internal alignment would not.Its a good idea to bring a few of these issues to the

table.

4. The right mix ofcompensation elements.

You must have a clear picture of the amounts yourespending on training and development, benefits,

equity, compensation, and other non-cash items. Its

a good idea to understand how these compensation

elements compare to the market but more

importantly, how they are valued by your employees.

The goal is to get your leadership team talking aboutthese issues so you can reach a consensus on the

goals of your compensation plan. When you have

engagement from your senior leadership team, they

will start to own the outcome. The toolkit contains

a list of sample questions that you can use to help

engage your leadership team in meaningful dialogue.
http://payscale.com/hrhttp://resources.payscale.com/BringBacktheSizzleEbook_toolkit.htmlhttp://resources.payscale.com/BringBacktheSizzleEbook_toolkit.htmlhttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr


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22www.payscale.com

Wtg Yu Cmp PspyAt the end of the strategy process

its a good idea to write your strategy

in a way that it can be shared with

employees. This is often called

a compensation philosophy. Its

a broader way to talk about thedecisions that were made by the

senior leadership team.

A compensation philosophy has very

specific goals:o Recognize organizational goals. These usuallyhave something to do with people whether its

reaching people in a new market or introducing

new products and services.

o Discuss how talent links to these goals. What

talent is key to reach your goals?

o Discuss how the comp program will support

these goals. How will it achieve these goals?

How will the company meet their goals with their

people?

o The philosophy should be optimistic and

realistically represent your organization. If yourgoal is to understand the market and set wages

that are competitive based on your company

strategy, that is an optimistic way to say that

you have a goal that is aligned with business

priorities.

o Demonstrate your commitment to ensuring fair,

equitable and competitive pay increases.

o Your philosophy should be broad enough that you

can make changes in your strategy as the market

warrants. It is similar to a mission statement

that states the overall goal, but doesnt have to

describe how you will achieve it.


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SmpCmp PspyThe philosophy behind XYZ companys compensation

program is to provide an attractive, flexible and

market-based total compensation program that is

tied to performance and aligned with shareholder

interests. Our goal is for XYZ Company to be

competitive in recruiting and retaining employees

through its high-quality compensation practices.

Equally important, we view compensation practicesas a means for communicating our goals and

standards of performance and for motivating

and rewarding employees in relation to their

achievements.

XYZ company competes in several different

businesses, most of which are involved in helping

individuals manage financial risk and secure theirfinancial futures. These businesses draw their key

people from different segments of the marketplace.

Thus, our compensation programs are designed with

the flexibility to be competitive and motivational within

the different marketplaces in which we compete for

talent, while being subject to centralized design,

approval and control.


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3 Develop a Market- BasedPaY STrUCTUre


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Why External Market Analysis

iS iMPorTanTThe war for talent and proliferation of pay information, especially free and low-costdata online, are increasing pressure on HR ofces to have and use accurate, up-to-date market pay information, to share it with managers and employees and, at times,

to defend its use while refuting incorrect or inferior data. Knowledge of and skill inselecting and using compensation surveys are required.- Kenneth H. Pritchard, Selecting and Using Compensation Surveys:

Critical Issues for Todays HR Professionals


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Create Market centered

ranGeS

Market Pricing vs. Point Factoring

Selecting survey data

Applying your compensation

philosophy to the data

Choosing benchmark jobs

Getting the data right

Aging data

Weighting your sources

Determining your pay grades

Building your ranges

Hot jobs


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Market pricing is the most effective approach to jobevaluation. Based primarily on external factors, the

goal is to be competitive. Point factoring or other

systems that evaluate jobs internally are approaches

that rely on internal alignment. For example, in a

traditional point factoring approach, you would assigna certain number of points to factors which would

span a broad spectrum of jobs (i.e. decision making,

size of impact, etc). These jobs are assigned pay

grades according to their total points.

dc t Cct Jb

evut Mt

Market Pricing Point FactoringVS


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avtgs Mt PcgA market-based approach, balanced with some

internal alignment, will enable more reliable

pay grades.

The advantages of using market data:o There is an objective standard (market data) that establishes

jobs within ranges.

o Allows you to establish pay ranges

minimums and maximums that are

competitive with the local market - and

helps you retain employees. In todays

highly competitive labor market, its not

enough to just be competitive internally,

you need to be competitive in your

market so that you can attract and

retain talented employees.

o It takes less time to maintain.

o It is harder to manipulate the results.


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Sctg Suvy dt

Sctg SucsTraditional compensation consultants will tel l you it

is a best practice to select three salary sources to

provide an equal balance when analyzing data. With

three different sources, you can validate your data

one against the other, which can help you confirm

your pay ranges.

When choosing your surveys, select ones with good

coverage for your industry, geography and type of

organization. These are the three most important

factors when looking at overall survey data. For

example, If you are a non-profit organization, you

must get non-profit data.

A smart alternative to the expense of multiple survey

sources is to use a data source that has good

comprehensive coverage. PayScale is a good single-

source option. We never limit the types of positions,

industry or the geography you have access to. This

means that youll have access to a broad cut

of information for one simple price.

The goal is to be able to benchmark 75-80% of the

positions within your organization. Generally this is

best accomplished through multiple sources, but if

you only have a budget for one source, then go with

PayScale for the broadest single source coverage.

The methodology of the survey that you are using

is important to understand and validate because it

provides credibility to your comp plan as you sell this

plan to your executives.

PayScale=35 million currentemployee profiles, 250 compensable

factors, 13,000 unique job titles.


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Consider the following questions:o How is data collected?

o Where does the data come from?

o How many employers/employees are represented

in the data?

o How reliable and recent is the data?

o Do they use aging or geographical differentials?

Perhaps the survey source is taking a major

metropolitan area and applying different locales within

the same state. This wont be reliable data for you if

youre operating in a smaller city. The same goes for

aging. If you have a survey that is using data from two

years ago and are trying to age it, that data wont be

reliable because a lot has happened or changed within

the last two years.

At PayScale we provide up-to-datedata. A lot of our reports are takenfrom data collected in the past 6months and this timeliness is crucial ina fast moving economy like this.

Aging is Great.. .

for Wine and Cheese


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Though price is also important, make sure to focus

instead on value. Good data doesnt come for free.

Keep in mind that in a lot of traditional surveys,

participation is required in order to get the data, so whileyoure considering the costs, you also have to factor in

your time to participate in that survey.

As you are evaluating different sources, check to see

how many jobs you will be able to benchmark from that

source and divide it by the price of the survey.Find out which survey will give you the most value and

at what price.

Also think about which target you are going to use from

the survey data. Be aware of the difference between the

average and the median and make sure not to confuse

or exchange them. If you choose to use percentiles,

make sure you can get that same percentile from every

survey source. Then, you have to decide if you want

to look at the Base Salary or the Total Cash

Compensation (TCC).

Do you have time to

fill out salary surveys?A survey can take 10-100+ hoursdepending on your company size.


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CsgBcm JbsOnce you have your survey data and have decided

how you will look at the data, then you have to

choose your benchmark jobs. When selecting your

benchmark jobs, focus on those positions that are

standard across different industries. Jobs such

as Administrative Assistant, Accountant, and HR

Generalist are a few examples of standard jobs.

Next you will want to choose industry specific

positions that are standard at your company

compared to positions within other organizations in

your industry. Civil Engineer, RN and Assembly Line

Worker are three such examples. Try to avoid hybrid

jobs which dont make good benchmarks. Theserefer to employees who do multiple jobs or tasks.

What should you do with non-benchmark positions?The key thing to know here is not to force matches

to market data. Dont make a decision on how a

job should be paid using inferior data. Instead, use

your job evaluation tool to slot the position within

a pay grade, or use your own internal assessment

of comparable positions within your organization

with similar skill, scope, decision making andresponsibility. Typical surveys will result in more non-

benchmark jobs, which is not ideal.

Organizations using PayScale data will

be able to benchmark 85-95% of

their jobs because of the broad rangeof data available.It is easier for you to have a great depth of data

and less non-benchmark jobs, but occasionally non

benchmark positions need to be handled.
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Getting the Data RightWhen matching jobs, dont match on title alone. Look

at the duties, the scope, experience, education etc.

PayScale calls these compensable factors. You also

have to decide how to handle hybrid jobs and leveling

within your organization.

For hybrid jobs, consider the two (or more) jobs this

person does. One may require higher skill than the other,

and this could affect the pay range. You are likely paying

this person for their highest skill level even though you

may ask them to perform at a lower skilled job. You willdecide how to handle hybrid jobs in your organization.

In terms of leveling, you may want to think about

whether you want to price one job within a series or

price each job within the series. For example, if the

market data for three jobs in a series shows a disparity

greater than 75%, it may mean that the jobs dont fall

in consecutive pay grades. However, it more correctlyreflects the market for these jobs. If on the other hand

you price the middle job in the sequence, you can place

the lower level and higher level job one grade lower and

higher respectively. This would allow for smooth

internal progression, but may not reflect the external

market as well.

PayScales

MarketMatch

AlgorithmPayScale uses a modern methodology in bothsourcing our data and in matching it to your

real-world scenarios.

While surveys may provide data that was

sourced a year ago, our research model is

built on the concept of crowdsourcing. We

update our data twice daily with salary profiles

sourced from real people.

That gives us the biggest, freshest data set

in the world, currently more than 35 million

profiles.

Just as Google matches your search terms

to the most relevant results, PayScales

MarketMatch algorithm matches your

unique positions to the most relevant salary

data in your market.


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agg dtAging data is sometimes necessary when youre

dealing with dated information, but it is risky because

the market changes fast and doesnt move the same

for all jobs.

Even though its become common, it doesnt really

make sense. Its simply the best you can do when

your data was collected a year ago or more.

If you are using PayScales data, aging is not

necessary as all reports are aged to 30 days priorto the report run date. This aging is done with our

sophisticated MarketMatch algorithm that uses

information about the changes in market that are

reflective of the variables in your report (industry,

geography, position, etc).

To age data, you first want to choose the mult ipl ier

that represents what has been happening in the

market since the date of the survey. There are many

ways to find a multiplier. For example, World at Work

(www.worldatwork.com) publishes a survey everyyear with actual and anticipated wage increases.

Heres how to age data:o Find the effective date of the survey data and

decide on the target date for the data.

o Decide on an annual adjustment factor, or

percentage.

o Calculate the portion of the factor to use, which

is based on the effective date of your market data

and the date to which you want to age the data.

o Apply the aging factor to the market data.

Aging DAtA ADjustment FActor: 2.9%

eff Da ta Da s 1 s 1 Ad s 2 s 2 Ad s 3 s 3 Ad

Buyer ll 7/1/2012 1/1/2013 1.47% $38,500 $39,064 $41,000 $41,601 $43,000 $43,630

Marketing Coordinator 7/1/2012 1/1/2013 1.47% $31,000 $31,454 $32,000 $32,469 $33,00 $33,484

Accountant 2 7/1/2012 1/1/2013 1.47% $54,000 $54,792 $56,500 $57,328


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Wgtg dtWeighting is recommended when using multiple

sources of data. This can help you determine anappropriate market wage from multiple sources of

data.

Here's How to weight data:o Choose a percentage weight you will assign to

each source. Put more weight on sources you

find more reliable based on the representation or

quality of the data.

o Multiply the source market data by the

percentage (weight) assigned to that source.

o Add the weighted numbers from each source

together.

This is your weighted average. This data average will

be used to make the decisions for your compensation

structure. You can do this for every job and it willshow you the market value for that job.

Position source 1 Weight source 2 Weight source 3 Weight WeighteD AverAge

Buyer ll $39,064 0.25 $41,601 0.5 $43,630 0.25 $41,474

Marketing Coordinator $31,454 0.25 $32,469 0.5 $33,484 0.25 $32,469

Accountant 2 $54,792 0.25 $57,328 0.5 $56,060

Wt s, utmt sut?

TrY PaYSCale inSiGhT
http://payscale.com/hrhttp://www.payscale.com/hr/solutions/payscale-insighthttp://www.payscale.com/hr/solutions/payscale-insighthttp://www.payscale.com/hr/solutions/payscale-insighthttp://www.payscale.com/hr/solutions/payscale-insighthttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr


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4 Build Pay

ranGeS


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Wy bu py gs?

There are a few ways you can proceed to build pay

ranges. You can use your data to create a market

midpoint and then build individual ranges for every

job in your organization. Doing it this way, every

separate job will have a different pay range. Or, you

can choose to build grades.

Grades are recommended over individual ranges,

but it is up to you to decide what is best for your

organization.

three main reasons why pay grades are

preferred over individual ranges:o Easier to administer with fewer pay ranges.

o Allows decisions regarding internal alignment.

o Easier placement of jobs that dont have a market

benchmark.

Pay grades also help you evaluate where a specific

employee should be. Placement within the grade

can be measured by compa-ratio, which is the

employees pay divided by the range midpoint.

Pay grades are used to group jobs that have

approximately the same relative worth. All jobs within

a particular grade are paid at the same rate or within

the same pay range.

Traditional salary survey providersare like the 10 oclock news. Idont wait until 10 oclock to watch

the news anymore. PayScale isinformation on demand.- Shad Glass, HR Director at Kimray
http://payscale.com/hrhttp://en.wikipedia.org/wiki/Compa-ratiohttp://en.wikipedia.org/wiki/Compa-ratiohttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr


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How To Build Pay Rangeso Using a specific formula, pay grades can be easily

determined. Choose a mid starting point based on

minimum salaries within your organization.

o Build new midpoints from a midpoint differential.

o Create minimums and maximums for the range.

o Verify grade placement against internal alignment and

hierarchy.

Building Pay Structure (ranges)Pay ranges set the upper and lower bounds of possible

compensation for individuals whose jobs fall in a pay

grade. Pay ranges are created for each grade. A grade

is what an employee is assigned to based on the scope

of his or her responsibilities. A range is the value of the

minimum to the maximum.


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dtmg Yu Py Gs

The number of pay grades you use wil l influence your

midpoint differential and should sufficiently distinguishdifficulty levels of different jobs.

The number of pay grades varies in

response to:o The size of the organization.

o The vertical distance between the highest and

lowest level job.

o How you define the jobs within your organization

and how you differentiate between them. For

example, if you finely define jobs into levels, such

as Junior, Senior, etc., then you will have more

pay ranges than if you use a general definition of

a position, such as Software Developer.

o The pay increase and promotion policy of the

organization. The easier it is for employees to

advance within their jobs, the more grades there

will likely be as well.

Midpoint differentials

The number of grades is determined by a midpoint

differential. Choose a midpoint differential based on

all the factors listed above (Determining the Number

of Pay Grades). With more grades, the midpoint

differential will be smaller. With fewer grades, the

differential will be wider. Typically, midpoint differential

will be a number between 10-25%.

For example, if you have an organization that has

relatively small differences in pay between the highest

level employee and the lowest level employee and

you have lots of job levels (Jr., Sr. etc) you would

want to have smaller midpoint differentials (likely

12-15%).


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Ccutg Mpts

Starting Point: $32,000

Midpoint Differential: 15%

Grade Rounding

1 $32,000 $32,000

2 $36,800 $37,000

3 $42,320 $42,000

4 $48,668 $49,000

5 $55,968 $56,000

6 $64,363 $64,000

7 $74,018 $74,000

8 $85,121 $85,000

9 $97,889 $98,000

10 $112,572 $113,000

o Choose starting midpoint

o Choose midpoint differential

o Choose rounding (optional)

Range WidthsThe spread between minimum to maximum wil l

depend on many variables within your organization.Generally, pay spreads are narrower for lower paying

jobs and wider for higher paying jobs. This is because

of longevity, time to proficiency and tenure. Its more

likely that a person at a higher paying job, with more

responsibility and bigger scope, will have a greater

range to grow in their position and pay than someone ata lower-level job where the skill level is lower.

Having an overlap in pay ranges makes it possible for

an experienced employee in a low-grade job to be paid

more than an inexperienced employee in a higher-grade

job.

Typical range spreads:o Hourly positions: 30-40%

o Salaried positions: 40-50%

o Executive positions: 50-60%


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Calculating minimums and maximumsOnce you have your midpoint and you have

determined range widths, you will calculate the

minimum by taking the midpoint and dividing it by

1.xx (1/2 of range spread), and the maximum by

multiplying the minimum by 1.xx (the whole range

spread).

Calculating Minimum

Calculating Maximum

$25,000 x 1.40 =$35,000

PayScales Insight software makes creating pay ranges a simple process.

$30,000 1.20 =$25,000

midpoint minimum

minimum maximum

1/2 range spread = 20%

Whole range spread = 40%

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assgg Jbs t Gs

Using market data to assign jobsto pay gradesMatch the value of the aged, weighted market data at

the target for the position to the range midpoint that

is closest to determine the pay range. For example,

if the value of the aged, weighted market data at the

60th percentile (your competitive target) is $48,967

use the table on page 40 to see that the job would

fall in pay grade 4 which has a range midpoint of

$49,000.

Verifying Internal alignmentYou should verify the internal alignment of positions

within a pay grade by evaluating the scope,

responsibility, etc. of each job assigned to that pay

grade, because you want to make sure all those

jobs are relative ly simi lar. At times, you will find that

you may have to build your own pay structures for

exempt, non-exempt or technical jobs, because they

may not fit with the pay structure.


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ht Jbs rg BustsYou may have a group of jobs or a specific job that

out-paces the rest. Those jobs are rising faster than

the ranges and other jobs assigned to the pay range.

If this is the case, you need to decide what to do with

these hot jobs.

h sm tgs t

cs ts stut:Double check that the position is assigned to the

right pay grade and that the market data is accurate.

If multiple jobs begin to show up as hot jobs, then

you may consider putting those into their own pay

range. This would be the best option if you see a

trend in the hot jobs, i.e. technology jobs or jobs

within a certain geographic location.

If its only a job or two, you can consider paying these

employees a market premium. This is an amount over

and above their base wage that is meant to account

for the increased market pressure on the position.

Example: If the average of the market data for the

hot job is 20% above the market rate for the rest of

the positions in the same pay grade, apply a marketpremium for this job. The best rule of thumb is to

make the market premium as transparent as possible

so that the employee can actually see that they are

being paid above the market rate so that if the market

changes, and you need to take the extra pay away,

the employee will understand why.

These 5 top jobs are morepopular than they were fiveyears ago.

See more hot jobs here

Job Title2010-2020

Projected Growth

Relative

Experienced

Median Pay

Data Scientist 18.7% $98,600

Video Game Designer 32.40% $52,200

Sustainability Consultant 18.70% $59,200

Solar Sales Consultant 16.40% $45,100

Social Media Manager 13.60% $41,700
http://blogs.payscale.com/compensation/2012/09/hot-new-jobs.htmlhttp://blogs.payscale.com/compensation/2012/09/hot-new-jobs.htmlhttp://blogs.payscale.com/compensation/2012/09/hot-new-jobs.html


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5 Implement the TotalreWardS Plan


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impmtt PgOnce the structure is built and the foundation hasbeen established, your success depends on how well

you can execute the total rewards plan. This eBook is

packed with options since there is not a

one-size-fits-all approach to follow. Here are the

suggested steps to cooking up a plan that satisfies.

Like any good implementation process, you want

to start with pre-planning to ensure everything goes

smoothly. For a successful implementation:

Review benchmarking

conclusions with execs

Senior management may not have been involvedsince the strategy creation, and you might

be challenged by them when reviewing the

benchmarking positions. If so, you will need to

reiterate that the information came from the decisions

that were made in the strategy session and show

how it relates to strategy.

Lead the Discussion aboutreward strategyThis is where you can debate the merits of how

people will be rewarded within the organization.The

goal is to identify what you want the rewards to be.

Show the reward strategy in actionShow execs and others in the company what

the reward strategy looks with examples of

specific people.

Educate management about decisionsEducate employees and management about

decisions and help them to understand the process.

Organizations have differring policies about

transparency. At a minimum employees should

understand their own pay ranges and where they sit

against their potential earning power.
http://payscale.com/hrhttp://resources.payscale.com/rs/payscale/images/PayScale_Communicating_Compensation.pdfhttp://resources.payscale.com/rs/payscale/images/PayScale_Communicating_Compensation.pdfhttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr


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Sttgs:

Wt w yu w?A challenge will be to get everyone on board with

the idea that there is no right answer, but instead

to think about rewards in terms of decisions and

consequences.

Rewards should be based on business

necessity and strategyRewards should not be based on our personal beliefs

about whether employees are due money or not, or

on inflation adjustments. The decision about how we

should reward employees should be based on what

is in the best interest of the business. This may be a

barrier to buy in especially if you have a team that

is used to adjusting for inflation. Youll need to break

down those barriers so you can have a productive

dialogue. A good way to talk about this is to ask the

executive team how each strategy will benefit the

organization. For example, if you have someone who

believes in across-the-board increases, ask them to

identify the returns on that investment.

Reward Strategieso Base rewards on the changes in market

conditions. If the cost of labor for a given job is

going up, you can choose to reward for that in

your organization.

o Reward for longevity or proficiency, ademonstrated competence, or an achievement

for example.

o Reward performance. You may decide that the

higher performers are going to be paid more than

the lower performing employees.


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o Reward for skill or education attainment. Skill

attainment is important in skill-based businesses,

such as manufacturing or engineering.

o Choose a combination. A business leader can

say, I want to reward all of these. It would be

expensive, but its your choice.

Salary TargetingSalary targeting is taking your ideas about salary,

benchmark ranges, and rewards and helping to

quantify how you align with the desired strategy.Salary targeting is also used as a way to talk about

dollars or for approval of your strategy. This is more

of a budgeting exercise than it is a decision-making

exercise. The other thing salary targeting can do

is to illuminate your organizations weak spots. It

helps your executive team visualize the results and

consequences. It shows you if youre out-of-syncwith a certain employees wages and lets you set

a game plan to fix it, which will keep that individual

engaged and positive.

Sample Salary Targeting ExerciseIf your organization decides to reward for proficiency

and performance, you should expect a person who isachieving their goals to be right in the middle of the

boxes.

Performance + ProficiencySalary Targeting Matrix

Performance & Proficiency

emPloyee PlAcement

PerFormAnce 3 - Exceeds 0.85 0.95 1.05 1.15 1.25

2 - Meets 0.80 0.90 1.00 1.10 1.20

1 - Does Not Meet 0.80 0.85 0.95 1.05 1.10

New Hire(no exp.)

Learning theposition

Fully profcient Experience above

profciency level

Ready orpromotion

ProFiciency


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Sample Salary Targeting WorksheetIn this example, the organization is hoping to get

everyone within 15% of their target. The percentage

increase is dependent on how far behind the employee

is from the target.

First Name Last Name Dept: Job TitleCurrentSalary

TargetCompa-Ratio

Range Midpoint Target SalaryDelta to

Desired Salary% Behind

TargetReccd

IncreaseCost

Joy Siegried 000140 MDRC $27,539 1.00 $15.25 $15.25 $2.01 15.18% 1.00% $275

Timothy Lanman 000015 RN $63,482 1.00 $35.25 $35.25 $4.73 15.50% 1.00% $635

Jon Low 000015 RN $69,784 1.10 $35.25 $38.78 $5.23 15.57% 1.00% $698

Mark Moreno 000106 PACC $34,528 1.10 $17.50 $19.25 $2.65 15.96% 1.00% $345

Emily Moxley 000025 LABT $27,352 1.00 $15.25 $15.25 $2.10 15.97% 1.00% $274

Leslie Jolma 000005 Cardio/Pulminary Mgr. $65,000 1.00 $76,000 $76,000 $11,000 16.92% 2.00% $ 1,300

Stella Hassibi 000145 Supervisor, Admissions $39,000 1.10 $20.25 $22.28 $3.53 18.80% 3.00% $ 1,170

Laleh Siotra 000015 RN $67,808 1.10 $35.25 $38.78 $6.18 18.94% 3.00% $2,034

Olive Raeb 000090 Cook $25,376 1.10 $13.25 $14.58 $2.38 19.47% 4.00% $1,015

Andrea Grogan 000001 RN $67,475 1.10 $35.25 $38.78 $6.34 19.53% 4.00% $2,699

Oscar Merritte 000015 NRST $25,272 1.10 $13.25 $14.58 $2.43 19.96% 4.00% $1,011

Dave Stroud 000145 AREP $26,416 1.00 $15.25 $15.25 $2.55 20.08% 5.00% $1,321

Wendy Wilson 000001 RN $60,320 1.00 $35.25 $35.25 $6.25 21.55% 6.00% $3,619

Karaka Michele 000015 RN $69,264 1.15 $35.25 $40.54 $7.24 21.73% 6.00% $4,156

Heather Thomas 000145 SCHE $29,952 1.15 $15.25 $17.54 $3.14 21.79% 6.00% $1,797

Blair Reid 000145 AREP $25,792 1.00 $15.25 $15.25 $2.85 22.98% 7.00% $1,805

Sara Cook 000115 Accountant $38,147 1.00 $47,000 $47,000 $8,853 23.21% 7.00% $2,670

doWnload SalarY BUdGeTinGMaTrix in oUr ToolkiT
http://resources.payscale.com/rs/payscale/images/Salary%20Budgeting%20Matrix.xlsxhttp://resources.payscale.com/rs/payscale/images/Salary%20Budgeting%20Matrix.xlsxhttp://resources.payscale.com/rs/payscale/images/Salary%20Budgeting%20Matrix.xlsxhttp://resources.payscale.com/rs/payscale/images/Salary%20Budgeting%20Matrix.xlsx


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Strategies: Increase BudgetingIf you are proactive in this process and you bring hard

facts to the table its much easier to make the casefor the budget that is needed.

Its best to break out the pieces. If your organization

has chosen to focus on numerous reward variables,

you will be able to make decisions based on

the individual components. For example, if your

organization wants to reward performance and

market value but rewarding both will be too

expensive, you can decide which to cut with the

facts in front of you. Come to the budget discussion

prepared with different scenarios. For example, if you

are using the salary targeting example, you may want

to get everybody within 15, 20 or 10% of their target.

Sample Implementation Budgeto In the budget request there is a line item for a

range adjustment. Most likely the organization

has compared their benchmark jobs to the

market and has made a decision to alter their

range structure based on the movement of the

market. In this instance, we are isolating the

component that is the change in market.

o The second adjustment is a change in market

movers (i.e. where the market is moving much

faster than the overall trend).

o Merit Matrix is how you reward employees, in this

case based on performance and placement in the

range. Increases are dictated by where a person

is within the pay range, as measured by compa-

ratio and performance rating. The logic behind

this approach is that you reward proficiency or

longevity in addition to performance.

o In this company, the final bit of money is a

consistency factor. If a particular department

does not have the funds, even though they

have a high performing team, you can use the

consistency funds to even that out.


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2012 Bugt Cmpst

Bugt rqusts1. Market

2. Market Movers3. Merit Matrix(Performance +

Placement in Range)

4. Consistency

Total Payroll: $125,000,000

Percent

2012 Range Adjustments 1.50% $1,875,000

2012 Market Adjustments 0.50% $625,000

2012 Salary Increase

Adjustments

4.00% $5,000,000

2012 Equity Adjustments 0.50% $625,000

$8,125,000


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Raise Recommender - A PayScale FeaturePayScale Raise Recommender allows you to build a

merit matrix in an appropriate way to meet your budget.

This tool can do all of that for you and help to ensure

that you are following through with your chosen goals for

your organizational strategy.

Target Budget

Increase

Actual Budget

Increase# of Employees

Current Total

Base Pay

New Total

Base Pay

All Employees 3% 2.99% 12 $1,131,000 $1,164,846

Below Min (2) Bottom Third (5) Middle Third (1) Top Third (1) Above Max (3)

(High Performance) 5 (2) 7.7% Raise (1) 7.7% Raise (0) 5.8% Raise (1) 3.9% Raise (0) 0% Raise (0)

4 (3) 6.5% Raise (0) 6.5% Raise (2) 4.9% Raise (0) 3.3% Raise (0) 0% Raise (1)

3 (4) 5.3% Raise (0) 5.3% Raise (2) 4% Raise (0) 2.7% Raise (1) 0% Raise (1)

2 (3) 4.1% Raise (1) 4.1% Raise (1) 3.1% Raise (0) 2.1% Raise (0) 0% Raise (1)

(Low Performance) 1 (0) 2.9% Raise (0) 2.9% Raise (0) 2.2% Raise (0) 1.4% Raise (0) 0% Raise (0)

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Strategies: green outliers(below the minimum)You may have outliers when you build your strategy.

Green outliers (or green circled) are individuals whose

pay falls below the minimum of the pay range. As

an organization, you want to eliminate as many of

these outliers as possible. Your pay range is a public

commitment of what you are willing to pay for a job,

and when you have people outside of that range it

sends an inconsistent message. So, its important to

minimize outliers as much as possible. Here are some

ideas for minimizing your outliers. Apply the strategy

that is right for your organization. Before you decide

how to mitigate this issue you always want to first

validate your data. If there is an area where there is a

lot of green, you may need to revisit your strategy.

Range Distribution

47

4

1714

Min Max

#ofEmp

loyees

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Options for dealing with green outliers(below the minimum)

o Minimize Outliers Bring all employees toat least the minimum of the pay range. This

method is favored when your organization has

a strong commitment to correcting outliers. No

discretion is given to managers. In the long

term, employees will get raises when the market

shifts, thus creating outliers.

o Market-based Pay Allocate increasesbased solely on where employees are in their

range (which is alignment with the market). For

example, if you are behind the market you may

get a 6% increase, but if you are above the

market rate you get a 2% increase. This method

is favored when your organization has a strong

commitment to compensating staff based on

the going market rate for their positions. Little

discretion is given to managers. In the long

term, employees will get raises when the market

shifts.

o Market & Performance-based Pay Allocate

increases based on both employees placement

within the range and performance. For example,

a star performer who is lower in the range may

get an 8% increase, while a star performer who

is high in the range may get a 6% increase. A

matrix is used to show percent increases by bothrange and performance. Some flexibility may be

given to managers by providing a range rather

than using an exact percentage. This method is


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favored if your organization is committed to both

paying relative to the market and rewarding top

performers. In the long term, high performers

have higher salaries and moderate performers

salaries will shift as the market shifts. Note: thisoption can be used with market & performance,

market & tenure, or any number of variables you

may wish to reward.

Strategies: Red Outliers

(over the maximum

)There are multiple reasons why people end up in thered. This is an important issue to discuss and agree

upon with your leadership team.

Options for Red Outliers

(over the maximum

)o Do nothing Continue to give increases toemployees, even if they fall over the top of the

pay range. This method is favored if the situations

that caused it are acceptable to the organization,

and if the need to retain them outweighs the cost.

In the long term, red outliers will become even

more skewed and above the market.

o Tier increases by position in range Continue

to allocate increases to outliers falling above the

range, but give a smaller percentage than to

those in or below the range. For example, if youare farther behind the market you may get a 6%

increase, but if you are above the market rate you

may get a 2% increase. This method is favored

when your organization has a commitment to


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paying relative to the market, and would like to

decrease the amount over range, over a longer

period of time. This option has less risk of

turnover of red outliers than the following options.

o Freeze base pay and offer performance

- based bonuses Discontinue base-pay

increases for red outliers until the market

catches up. Offer clear incentives for a lump-sum

performance-based bonus annually (or semi-

annually or quarterly). Only reward top performers

among the red outliers. This method is favored

if your organization has both a commitment to

paying relative to the market and to rewarding top

performers. This option has some risk of turnover

among red outliers, especially those who are

underperformers.

o Freeze base pay Discontinue base pay

increases for red outliers until the market catchesup. This option has a moderate to high risk of

turnover among red outliers, including those who

are top performers.

o Decrease base pay Decrease base pay for red

outliers to the maximum of the range. Increases

will happen only when the market moves.

This option is for organizations with a strong

commitment to internal equity and market-based

pay. There is a very high risk of turnover

among red outliers with this option, especiallytop performers. This option is not recommended

unless there is a strong policy desire for it.

equppg MgsEquipping your managers to deal with the changes

in the comp plan is critical. Managers have to be

bought in before the employees. This gives them

the respect that they deserve as chosen managers

in your organization. It helps prepare them for some

tough conversations by giving them tools to keep

employees motivated and enforce the strategy.

If you dont treat your managers like managersand treat them like employees, theyll start to act

like employees (being self-motivated instead of

organizationally motivated).

Here are some tips to make the most of getting your

managers engaged:


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1. Educate them.Teach them all the nuts and bolts of the comp

plan. Do this before required action. Roll it out with

enough time in advance of the increases so managers

are equipped to use it to make decisions. Allow

significant time for managers to ask questions and

get all the answers they need before the roll-out.

2. Give them the big picture.Help them see compensation from the organizationalpoint of view. Talk about the comp strategy relative

to the company growth plans and goals. Relate the

strategy back to the mission of the organization and

help them to understand how the underlying company

goals manifest in the compensation structure.

3.Give them tools

Managers will need tools to be successful during their

conversations with employees. Teach them how to

talk about compensation with their employees. Give

them FAQs and have them practice talking about

compensation. Verify their understanding by having

them explain it back to you.

PayScale Case Study:1. Vertical Response fell off the 2011

Best Places to Work list.2. PayScale Insight empowered

them to make smart adjustmentsto salaries.

3. They communicated changesclearly to employees.4. Back on the Best Places to Work

list in 2012.


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Conclusion

Now that youve done all the hard work planning process Youll need to revisit your strategy


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Now that you ve done all the hard work

to get your comp plan off the ground,

youre ready to reap the key rewards of

good comp strategy:

Attract talent.By pricing jobs based on an accurate look at

market data, youll be more competitive in your

recruiting efforts.

Retain Employees.Now that youve got all of your employees within the

correct pay ranges and youve communicated yourrationale to them, theyll be more satisfied and stay.

Drive Performance.When employees dont have to worry about their

salary, they are more motivated to focus on doing a

good job.

Be Confident.With accurate knowledge behind you, you can

now be more confident in all of your discussions

about salary with execs, directors, recruits and

employees.

A good compensation strategy doesnt stop with the

planning process. You ll need to revisit your strategy

often to make sure that your comp plan continues to

perform for your organization.

abut PySc:PayScale leads the world in compensation knowledgewith the freshest and most detailed data from over 35

million salary profiles. More than 2200 organizations

trust PayScales software and intelligence to get the

greatest return on their talent. Smart businesses use

PayScale insights to recruit, retain and motivate their

people.

Stay on top of compensationwith Payscale:

Follow the PayScale Index

Subscribe to our Blog: Compensation Today

Attend a Webinar

Download an HR Whitepaper
http://www.payscale.com/hr/resources/current-trends-in-compensationhttp://blogs.payscale.com/compensation/http://www.payscale.com/hr/resources/hr-webinarshttp://www.payscale.com/hr/resources/free-hr-whitepapershttp://blogs.payscale.com/compensation/http://www.payscale.com/hr/resources/hr-webinarshttp://www.payscale.com/hr/resources/current-trends-in-compensationhttp://www.payscale.com/hr/resources/free-hr-whitepapershttp://www.payscale.com/hr/resources/free-hr-whitepapershttp://www.payscale.com/hr/resources/hr-webinarshttp://blogs.payscale.com/compensation/http://www.payscale.com/hr/resources/current-trends-in-compensation

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