Staff Compensation Program Your New Pay Program · PDF fileJohns Hopkins University is implementing a new staff compensation program that will provide enhancements to meet changing

Compensation Basics For Managers and Supervisors

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Johns Hopkins University is implementing a new staff compensation program that will provide enhancements to meet changing workplace needs and expectations. The following presentation will provide step-by-step highlights of this new program.

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Truths About Compensation

Truth #1: Compensation management is more of an art than a science.

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We often hear staff say they don’t understand the comp program, that it is secretive. Rather, it is an art than a science. Yes, it is not easy to understand. How come?

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Many elements influence pay decisions –

1. Job duties2. Market value3. Organization’s pay philosophy4. Salary budget and financial condition5. Business pressures 6. Labor supply7. Individual qualification & performance

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Factors influencing how we classify a job, how we determine appropriate amount of salary or wage to pay someone are many. Includes: Job duties – tend to be a bit more objective and factual Market value – data are estimates of true market value, not always clean or pure Organization’s compensation philosophy – how competitive do we want to be Departmental salary budget or financial situation Business needs, i.e., the competition Labor supply – follow supply and demand principle Individual qualification and performance – particularly when it comes to determining actual pay Judgments are made each time. The challenge is to be able to explain this to our employees.

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Truth #2: The best employees are not attracted, motivated and retained solely by money.

Pay, benefits, attraction,career, & work/life motivation &

retention

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Without a doubt, pay plays a significant and important consideration when we decide to work for an employer. The money In our pocket certainly limits what we are able to afford. We have to earn enough of it; otherwise, we will be seeking other employment opportunities. Studies have shown that employee attraction, motivation and retention are influenced by 4 things: pay, benefits, career/leaning and development opportunities, and work environment. These 4 components together influence our decision to work for a particular employer.

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The Royal Bank Workforce 2000 Study indicated –

67% choose very positive work environment + average compensation package

31% choose above average compensation package + average work environment

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Truth # 3: Fairness does not mean equal pay.

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Employees expect fairness in pay.

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Distinct Forms of Fairness

External equity – pay vs. market pay

Internal equity – pay across different jobs

Individual equity – pay between similar jobs

Procedural equity – how pay is decided

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External equity – how pay rates compare to the market Internal equity – how pay rates compare across different jobs within the organization Individual equity – pay differences between individual doing the same job within the organization Procedural equity – how pay decisions are made, rather than the pay amount itself A study by researchers David Terpstra, Ph.D. and Andre Honoree, Ph.D. of employees across a number of colleges and universities shows that all four areas of fairness are important to pay satisfaction. Based on survey feedback, procedural fairness is significantly more important than the others. Individuals even find negative outcomes more acceptable if they perceive the process used to determine the outcome to be fair. Individual perception of fairness is not based on a simple and direct comparison of pay rates, but rather a more involved comparison of performance-to-pay ratios. Employees fairness expectations are violated if pay fails to vary appropriately across performance differences. While employees will welcome more money, it’s important to remember that feelings of pay fairness cannot be bought.

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Truth # 4: An employee’s knowledge of base pay correlates highly with pay satisfaction which is highly associated with job satisfaction.

(Source: Knowledge of Pay Study (2000) conducted by The LeBlanc Group)

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The Knowledge of Pay Study (2000) conducted by The LeBlanc Group and sponsored by World@Work suggests: that revealing more information about base pay to employees has greater impact on pay satisfaction than the actual pay amount. 2. That work engagement is likely to be improved the more employees know about how base pay systems operate. Knowledge of base pay include: (point to flip chart) Job classification Market pay Salary range structure Base pay increases, i.e., merit, promotion How? (point to flip chart) Knowledge of pay helps employees see if they are likely to receive a “fair day’s pay for a fair day’s work.” In turn, employees who view their pay system as fair also are likely to be satisfied with their pay regardless of the amount of pay that they receive. Then those who are satisfied with their pay are more likely to be fully engaged at work – that is committed to the organization, trusting of management, and less likely to leave. Some statistics.

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Base Pay Knowledge


Pay Satisfaction

Commitment

Trust

Retention

.59

.54

.62

.40

* Number reflects degree of correlation between 2 items.

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More satisfied with pay leads to more engaged workforce with higher commitment, greater trust in management and lower intentions to leave the organization.

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This study shows …

1.employees lack understanding of how pay decisions are made

2.understanding how pay decisions are made is a better predictor of job satisfaction than the actual amount an employee is paid

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This study shows: employees know much less about how their base pay system operates (process) than about base pay structure and outcomes (i.e., people know their grade and pay level) They do not understand the processes used to make these decisions or how these processes impact them (i.e., how their pay range and base pay increases are determined) While both knowledge of base pay and actual amount of pay impact pay satisfaction level, knowledge of base pay more strongly predicts pay satisfaction than does the actual amount of pay received In lean economic times, the key to employee satisfaction with their pay is through building employees’ knowledge of base pay processes. Some statistics

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The study also shows…

1. most effective source for an employee’s understanding about pay is the employee’s supervisor

2. understanding pay concepts is not enough – needs to be personalized

3. one-on-one communication is key

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Pay knowledge should be personalized so people can apply the concepts to their own situation. The study shows that people gauge the effectiveness of policy manuals, handbooks, in-class training and videos as minimal. People believe that conversations with their supervisors and managers, along with interactive training on web sites and intranet, are most effective.

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Some Statistics

One/One SatisfiedDiscussion Satisfied WithWith Supervisor With Job Supervisor

Very often 74% 88%Occasionally 50% 48%Never 32% 15%

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Employees who have had pay discussions are more satisfied with their job, their supervisor, and their pay. This is why it is important to take the time to communicate with employees about their pay.

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Truth #7: Talking about pay with an employee is an emotional and uncomfortable experience …BUT it is worthwhile having these conversations

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Manager/HR Partnership

Job Classification

Market Surveys

Pay Decisions

Legal Compliance

Effective compensation management requires collaboration and partnership between managers and Human Resources.

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Manager/HR Partnership in all aspects of compensation management. In each of these areas, managers and HR have their respective role and responsibility.

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Job Classification

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Job Classification System – process of assigning role, level and salary range. The role and level reflect internal comparison of jobs in the organization. Range reflect the going rate in the market or “market pay.”

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Manager/HR Partnership – Job Classification

Process

Review of job duties, responsibilities and requirements

Assign the job a role, level, and salary range

Identify market pay for the job

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The job classification process involves 3 steps: Understanding the job through a variety of ways: Job description or job description questionnaire, including job requirements (e.g. education, experience, skills, competencies) Interview of manager and/or incumbent Desk audit Review of organizational structure Job dependencies Using the Role & Contribution Based Classification System, a job is assigned a role, level, and a salary range To assign a salary range, Identify market pay for the job as reported in salary surveys Slot the job relative to other jobs in the organization

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Manager/HR Partnership – Job Classification System

Key concepts

1. Job classification depends on accurate job information & understanding

2. Job classification involves interpretation & judgment

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The more HR/Comp understands the job the better it can perform job classifications Various elements affect job classification decisions In the new classification system, there are 9 elements – equally weighted

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Manager/HR Partnership – Job Classification System

Key concepts

3. Consensus & consistency are vital

4. Look at a job when work is done properly

5. Level does not equal salary range

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Not black and white process; deals with many shades of reality – as a result, it is better to have a system just like the new system because one cannot be exact in job classification. Broad categories/classifications. There will be some variations in interpretations but hopefully, there will be general agreement on the overall level assigned to position.

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Manager/HR Partnership – Job Classification

Managers/Supervisors

Provide accurate job information

Assist HR/Comp understand the job

Provide objective insight/input

Understand/explain job classification

HR/Compensation

Understand job; ask questions & listen

Make objective assessments

Make internal comparisons

Make classification decision

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Rely on the manager to give an accurate picture of the job and how it relates/compares to other jobs Bonafide Qualification – key HR/Compensation has nothing to gain in the job classification process. To do it wrong, we only lose credibility and employee trust. Just like the manager and the employee, we have a lot more to gain from making accurate/equitable classification decisions than making inaccurate ones.

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Market Surveys

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Manager/HR Partnership – Market Surveys

Process

Participate in market surveys annually

Purchase market surveys annually

Collect & analyze market data regularly

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Multi-industry; higher education; local, regional, national Consult with experts on job matches Good pay data is critical! Reliable Current – re-examined regularly Valid – appropriate job matching

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Uses of Market Surveys

How we compare

What we need to pay

Range to assign a job

How much to adjust ranges

Amount of annual salary increase

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Market Pricing Process

Step 1: Match JHU job to survey job

Step 2: Select market data to use

Step 3: Calculate market rate composite

Step 4: Determine appropriate salary range

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Manager/HR Partnership – Market SurveysKey concepts

1. Market data not available for all jobs

2. No such thing as 100% match

3. Market reference point is not an exact amount

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Survey descriptions are brief – assumptions are made when job matching, not so bad since everyone participating in the survey are making similar assumptions & interpretations Market pay (market reference point) is not an exact amount although it is typically seen as 1 figure. Have to think of market pay to be a range of salaries of employees from the highest to the lowest paid, varied education, experience, performance levels. Use 70-80% rule in determining a good match. When multiple matches for the same job, we take one of several approaches: (1) average them out, (2) weight them and average them out, (3) go with the highest market data. It depends on the circumstances. Judgment is applied - interpretative process than a direct process. We also look at the data and make decisions on what data to include or exclude in the analysis, i.e., extreme pay data (outliers). Market reference point is simply a guide and an estimate of pay in the market. This # can vary year to year depending on who participates in the survey. Validity and reliability of data are key. Efforts are taken to ensure validity and reliability, i.e., choosing surveys with big sample sizes, surveys with sound methodology/data cleansing. Pay levels can jump substantially in a particular year due to labor shortages; most organizations prefer to wait out these changes rather than immediately increase pay. Not all jobs are covered in market surveys – only jobs that are found in most organizations are surveyed. These are called benchmark jobs. Where market data is not available, assigning a salary range is difficult and slotting is required.

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Key concepts

4. Valid and reliable data is critical

5. A job’s market value does not always reflect internal equity

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Many sources of data – not all are good, some may be misleading – data is not always good Judgment is applied here as well Choice of or changing market comparisons show different results.

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Alert HR of market pay pressures

Identify market and sources of data

Assist with job matching

HR/Compensation

Conduct survey

Collect/analyze data

Help you make sense of data

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Be proactive. Do not wait for hiring and retention to become a big issue. Ask for market data. For job matches to be good, we need you to help us understand the jobs through good job documentation, discussion with HR/Comp and assisting with job matching process. Remember the saying “garbage in, garbage out.” Our understanding of statistical concepts and familiarity with the nature of the survey data collection process and methodology…

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Pay Decisions

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Manager/HR Partnership – Pay Decisions

Process

Know the different salary increase opportunities available

Know your internal approval path & parameters

Identify need find $$$ request/justify

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Throughout your employees employment with you, you will be making many pay decisions Annual salary increase Market equity adjustments Internal equity adjustments Promotion increase Developmental increase Alternative forms of rewards and recognition

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Key concepts

1. Pay is a significant & important consideration

2. Employees expect fairness in pay

3. Knowledge of base pay more strongly predicts pay satisfaction than actual $$

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Pay plays a significant and important consideration when we decide to work for an employer. The money in our pocket certainly limits what we are able to afford. We have to earn enough of it; otherwise, we will be seeking other employment opportunities While both knowledge of base pay and actual amount of pay impact pay satisfaction level, knowledge of base pay more strongly predicts pay satisfaction than does the actual amount of pay received

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Key concepts

4. Pay discussions with employees correlate with job, supervisor, and pay satisfaction

5. Pay decisions must be made appropriately and timely

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You get the behavior that you reward Pay is to reward and reinforce desirable behaviors. If given inappropriately or late, will lose its power to influence employee behavior.

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Be aware of different salary increase opportunities

Make the case for compensation awards

Create development plan

HR/Compensation

Provide market data & conduct research

Provide tools, guidelines and resources

Assist and review development plan

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Be fiscally responsible

Monitor & maintain equity & fairness

Communicate/explain pay decisions to staff

HR/Compensation

Review and support salary increase requests for fairness and equity across departments

Assist with salary planning and costing

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Legal Compliance

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One of the most important aspects of a compensation system is that it complies with existing laws and regulations, and that it be legally defensible in this era of litigation. In your managers toolkit is a summary of existing laws that affect compensation practices.

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Manager/HR Partnership – Legal Compliance

Key Regulations

Fair Labor Standards Act

Wage & Hour Laws

Sherman Anti-trust Act

Equal Pay Act

Title VII of Civil Rights Act (EEO)

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Wage-Hour lawsuits climb rapidly - # of minimum wage and overtime lawsuits filed under FLSA has risen sharply in recent years, according to statistics collected by the federal judicial system. After hovering between 1,000 and 2,000 a year during the 1900s, the annual # of filings stood at 3,617 as of 2004, last year for which statistics are available

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Your role

Know & observe what the law requires

Update and maintain accurate job documentation

Use bona fide occupational qualification

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Know & observe what the law requires

Update and maintain accurate job documentation

Use bona fide occupational qualification

HR/Compensation

Monitor compliance and enforce the law

Provide guidance & answers to issues & questions

Keep up with changes in the law

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FLSA

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Fair Labor Standards Act (FLSA)

Enacted in 1938

Defines the criteria for determining exemption status for white collar employees

Either exempt or non-exempt from overtime pay, minimum wage, and time record keeping requirements

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FLSA Background

According to the FLSA regulations, employers do not have to pay overtime to white collar employees who are determined to be exempt.

Employers are required to pay non-exempt employees at least the minimum wage and overtime pay at time and a half of their regular hourly rate for hours worked in excess of 40 in a work week.

Employers are required to maintain accurate records of actual hours work for non-exempt employees.

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FLSA Background

Recently, the U.S. Department of Labor (DOL) revised the FLSA regulations. These new rules are the first significant update of the FLSA regulations in nearly 50 years.

Failure to comply with these rules could result in back pay liability, penalties, payment of attorney fees, and/or class action claims.

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As some job titles and descriptions were obsolete and technology has changed other jobs, an updated law was required.

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Exempt Employees

University job titles and salary grades do not determine exempt status.

Exempt employees must make a minimum salary of $455 per week or $23,660 annually (cannot annualize or use FTE figures).

Exempt employees must meet one of the primary duties tests/exemptions.

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Primary Duty

The principal, main, or most important duty that the employee performs.

Factors to consider

The relative importance of the exempt duties as compared with other types of duties.

The amount of time spent performing exempt work.

The employee’s relative freedom from direct supervision.

The relationship between the employee’s salary and the wages paid to other employees for the same kind of non-exempt work performed by the employee.

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Primary Duty

Primary duty also includes the exercise of discretion and independent judgment with respect to matters of significance beyond the use of skill or experience in applying specific standards described in a manual or other sources.

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Discretion & Independent Judgment in Matters of Significance – Must have 3 examples

Authority to waive or deviate from established policies and procedures without prior approval.

Authority to negotiate and bind the company on significant matters.

Provides consultation or expert advice to management involved in planning long- or short- term business objectives.

Investigates and resolves matters of significance on behalf of management.

Represents the company in handling complaints, arbitrating disputes, or resolving grievances.

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Discretion & Independent Judgment in Matters of Significance – Must have 3 examples

Authority to formulate, affect, interpret, or implement management policies or operating practices.

Carries out major assignments in conducting the operations of the business.

Performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business.

Authority to commit the employer in matters that have significant financial impact.

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Discretion & Independent Judgment in Matters of Significance

Discretion and independent judgment does not include:

Applying well-established techniques, procedures or specific standards described in manuals or other sources

Clerical or secretarial work

Recording or tabulating data

Performing mechanical, repetitive, recurrent or routine work

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FLSA Exemptions

The following are the various kinds of exemption classifications defined in the Fair Labor Standards Act:

Executive Exemption

Administrative Exemption

Learned Professional

Creative Professional

Computer Exemption

Outside Sales Exemption

Combination Exemption

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Executive Exemption – All must be met

Employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise.

Employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.

Employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, advancement, promotion or any other change of status of other employees must be given particular weight.

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Administrative Exemption – All must be met

Employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.

Employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

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Professional Exemption – All must be met


Employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominately intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.

Advanced knowledge must be in a field of science or learning.

Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

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Professional Exemption – All must be met


Employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

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Computer Employee Exemption

The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below:

The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

The design, development documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

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Computer Employee Exemption (cont.)

The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

A combination of the aforementioned duties, the performance of which requires the same level of skill.

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Exemptions Simplified

Executive Exemption

Exempt: Supervisor of dept. or subdivision with full authority over 2+ FTE.

Non-Exempt: Lead worker

Administrative Exemption

Exempt: Administrator in functional area making decisions re: matters of significance.

Non-Exempt: Administrative support


Exempt: Specialized analyst, lawyer, medical provider in recognized field of science or learning.

Non-Exempt: High level technician

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Exemptions Simplified Continued


Exempt: Work requiring invention, imagination, originality or talent in recognized field (Graphic Designer).

Non-Exempt: Work requiring intelligence, diligence and accuracy (Desktop Publishing Specialist).

Computer Exemption

Exempt: Systems analysis; design, create, test computer systems or programs; design, create, test machine operating systems (all mainframe oriented).

Non-Exempt: High-level technical work.

Documents

Staff Compensation Program Your New Pay Program · PDF fileJohns Hopkins University is implementing a new staff compensation program that will provide enhancements to meet changing