Compensation Budgeting Part II: Determining Raises
Mykkah Herner, MA, CCP Manager of Professional Services PayScale, Inc.
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We will be sending out slides and accreditation information following the presentation
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14,000 Positions 3000 Customers 11 Countries
250 Compensable Factors 40 Million Salary Profiles
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Three-part Series on Compensation Budgeting
Part I: Managing Pay Inequities
Part II: Determining Raises
Part III: Putting it all together with PayScale Insight
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Agenda
Recap of Part I
Part II
What do you want to reward?
o Market, Performance, Proficiency, Tenure, etc
Can you streamline your increase process?
How to calculate pay increases.
o Paying to Market
o Merit Matrix (Pay-for-Performance)
Putting it all together for budget recommendations
Next month: putting it all together with PayScale Insight
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o Start with a plan
o Know your comp Philosophy, Strategy, and Policy
o Get reliable market Data
o Identify comp inequities at Org, Dept, Position, and Individual levels
o Org/Plan level: fair pay to market
o Dept level: fair pay across departments
o Position level: have some positions move faster than others?
o Employee level: are you paying according to your policy? Fairly based on EEO status?
o Develop solutions
Recap of Part I
http://resources.payscale.com/hr-webinar-budgeting-part-1-managing-internal-pay-inequities.html
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What do you want to reward?
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What do you want to reward? You can base increases on… o Market
o Performance
o Proficiency
o Tenure
A note on COLA
Streamlining the Increase Process
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Depends on your organizational values around transparency and inclusion
Determine on what you’ll base increases
Create a timeline
Considerations for your increase process & timeline
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Salary Adjustment Process & Timeline
7/1-10/15 • Complete market study
10/15-10/31 • Create spreadsheet with suggested increases
11/01-11/15
• Train Managers on Compensation Process & their roles; deliver spreadsheets to managers
11/15-11/30 • Have a period of time for edits (managers, HR)
12/01 • Finalize increases / approval
12/15 • Communicate to employees
12/20 • Process adjustments in payroll
1/1 • New pay is live with 1/1 payroll
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How to Calculate Pay Increases
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Market-based Increases
Tier increases by position in range
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
o Create spreadsheet
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Increase Spreadsheet
Name Job Title Current Annual Base
Range Min
Range Mid
Range Max
Compa-Ratio
Range Penetration
Increase %
Annualized Increase
New Annual Base
New Compa-ratio
New Range Penetration
Alexander, Maria Account Manager $45,900 $46,300 $57,100 $67,900 0.804 -2% 3.80% $1,744 $47,644 0.83 6%
Arnold, Alexandra Driver I $29,600 $29,300 $35,700 $42,100 0.829 2% 3.80% $1,125 $30,725 0.86 11%
Baker, Nicholas Account Executive $46,500 $40,400 $49,800 $59,200 0.934 32% 3.80% $1,767 $48,267 0.97 42%
Allen, Ryan Program Manager $86,700 $73,600 $93,300 $113,000 0.929 33% 3.80% $3,295 $89,995 0.96 42%
Bailey, Sara Senior Account Executive $64,000 $54,700 $68,400 $82,100 0.936 34% 2.80% $1,792 $65,792 0.96 40%
Anderson, James Customer Service Rep $45,500 $34,900 $42,500 $50,100 1.071 70% 1.90% $865 $46,365 1.09 75%
Andrews, Vincent Senior Account Executive $76,700 $54,700 $68,400 $82,100 1.121 80% 1.90% $1,457 $78,157 1.14 86%
Adams, Christina Account Manager $63,800 $46,300 $57,100 $67,900 1.117 81% 1.90% $1,212 $65,012 1.14 87%
Total/Average $458,700 0.967625 41% 2.96% $13,257 $471,957 1.00 49%
SUM AVG AVG AVG SUM SUM AVG AVG
• Compa-Ratio = Current Annual Base / Range Mid • Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min) • Annualized Increase = Increase % * Current Annual Base • New Annual Base = Annualized Increase + Current Annual Base • New Compa-Ratio = New Annual Base / Range Mid • New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
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Using a Matrix (Merit or Proficiency)
Tier increases by position in range & performance
o Start with a budget increase %
o Allocate increases to EEs based on range penetration and performance
o Create spreadsheet o Note: Proficiency, or another factor, can work like
performance in this example
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Increase Spreadsheet
Name Job Title
Current Annual Base
Performance Rating
Range Min
Range Mid
Range Max
Compa-Ratio
Range Penetration
Increase %
Annualized Increase
New Annual Base
New Compa-ratio
New Range Penetration
Adams, Christina Account Manager $63,800 Meets $46,300 $57,100 $67,900 1.117 81% 1.70% $1,085 $64,885 1.14 86%
Alexander, Maria Account Manager $45,900 Meets $46,300 $57,100 $67,900 0.804 -2% 3.90% $1,790 $47,690 0.84 6%
Allen, Ryan Program Manager $86,700 Meets $73,600 $93,300 $113,000 0.929 33% 3.90% $3,381 $90,081 0.97 42%
Anderson, James Customer Service Rep $45,500 Meets $34,900 $42,500 $50,100 1.071 70% 1.70% $774 $46,274 1.09 75%
Andrews, Vincent Senior Account Executive $76,700 Meets $54,700 $68,400 $82,100 1.121 80% 1.70% $1,304 $78,004 1.14 85%
Arnold, Alexandra Driver I $29,600 Meets $29,300 $35,700 $42,100 0.829 2% 3.90% $1,154 $30,754 0.86 11%
Bailey, Sara Senior Account Executive $64,000 Does not meet $54,700 $68,400 $82,100 0.936 34% 0% $0 $64,000 0.94 34%
Baker, Nicholas Account Executive $46,500 Does not meet $40,400 $49,800 $59,200 0.934 32% 0.90% $419 $46,919 0.94 35%
Barnes, Paul Customer Service Rep $38,600 Exceeds $34,900 $42,500 $50,100 0.908 24% 7% $2,702 $41,302 0.97 42%
Totals/Averages $497,300 0.961 39% 2.74% $12,608 $509,908 0.99 46%
• Compa-Ratio = Current Annual Base / Range Mid • Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min) • Annualized Increase = Increase % * Current Annual Base • New Annual Base = Annualized Increase + Current Annual Base • New Compa-Ratio = New Annual Base / Range Mid • New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
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Developing Budget Recommendations
Part I
o Org Level Solutions – Range Adjustments • Cost of changing ranges (adjusting green outliers)
o Position Level Solutions – Market Adjustments • Cost of adjusting positions or adding temporary
position premiums o Employee Level Solutions – Equity Adjustments
• Cost of correcting individual pay inequities
Part II
o Increase Budget – Pay Increase Adjustments
Putting it all Together
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Org Level Solution Costs
Range Adjustments
o If you decide to maintain compa-ratios, this cost will be equal to the % you are increasing your ranges.
For example, if your total base pay budget is $15,000,000 and you increase your ranges by 2%, the total impact is $300,000
o If you decide to ensure no green outliers, this cost is equal to the adjustment necessary to keep all EEs in range at the low end
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Position Level Solution Costs
Market Adjustments
o Moving positions to a new grade
o What will be the cost of ensuring all incumbents are in range
o For example, Driver I and CSR = 100 + 400 = $500
o Offering a market premium
o Calculate yearly market premium payment to all incumbents in the role
o For example, Software Engineer = 21 * $1000 = $21,000
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Employee Level Solution Costs
Equity Adjustments
o Determine the amount to resolve critical issues • For example, bump HRM/F to 73,600 ($3700)
o Calculate amount to resolve compression issues – increases to existing?
o Any necessary market adjustments for individuals?
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Pay Increase Adjustments
Pay Increase Adjustments
o Typically this is the easiest to budget as it is usually a percentage of total salary budget.
o For example, if your budget is $15,000,000, a 3% increase would be $450,000.
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Summary of Comp Budget Requests
2014 Compensation Budget Requests
Total Salary Budget: $15,000,000
Percent Dollar Amount
2014 Range Adjustments 0.06% $9,200
2014 Market Adjustments 0.14% $21,500
2014 Equity Adjustments 0.02% $3,700
2014 Pay Increase Adjustments 3% $450,000
Total Increase $484,400
2014 Salary Budget $15,484,400
Detail for comp budget request is in the following attachments
Costing for Range Adjustments
Costing for Market Adjustments
Costing for Equity Adjustments
2014 Pay Increases
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Next Month: Using PayScale’s Insight and Insight Expert to support compensation budgeting
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Mykkah Herner, MA, CCP Manager of Professional Services, PayScale, Inc.
www.payscale.com