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Building a Compensation Plan Part 3: Implementing the Total Rewards Plan Stacey Carroll, SPHR, CCP Principal Consultant PayScale, Inc.

Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

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Building a compensation plan… easy. Making it work for the organization . . . . . not so easy. It’s true that the most difficult part of any major HR project is the implementation, and when building a compensation plan it’s no different. In this webinar, we’ll talk about how to develop an effective implementation plan, including: Get an implementation plan approved by senior leadership with appropriate budget allocation Think through one-time vs. multi-year rollout approaches Develop a communication strategy tailored to employee, managers and leaders.

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Page 1: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Building a Compensation Plan Part 3: Implementing the Total Rewards Plan

Stacey Carroll, SPHR, CCP

Principal Consultant

PayScale, Inc.

Page 2: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

13,000 Positions. 50 Major Industries. 11 Countries

PayScale is a market leader in global online compensation data. With the world's largest database of individual employee compensation profiles, PayScale provides an immediate and precise snapshot of the job market.

Our patent-pending, real-time profiling system indexes custom employee attributes (such as industry-specific certifications) and specific job titles for every industry.

Our secure, on-demand business solutions, PayScale MarketRate and PayScale Insight, provide employers with accurate, reliable compensation detail never before available.

Page 3: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Agenda

• Implementation Planning

• Strategies for Implementation

• What will your reward

• Salary Targeting

• Increase budgeting

• How will you deal with outliers

• Equipping Managers

Page 4: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Implementation Planning

1. Review benchmarking conclusions with senior leadership

2. Lead the discussion about reward strategy

3. Show the reward strategy in action

4. Educate management about decisions

5. Educate employee about decisions

Page 5: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Strategies: what will you reward?

Once again, there is no “right” answer

Rewards should be based on business necessity/strategies

Options include:

Changes in market conditions

Longevity

Proficiency

Performance

Skill attainment

Some combination

Page 6: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Strategies: Salary Targeting

The idea behind salary targeting is it helps quantify how far off the organization is from the desired strategy

It is NOT a budgeting or decision making exercise

It brings to light your “weak spots”

It helps your Exec team visual the results/consequences

It should be done at the highest levels of the organization.

Page 7: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Sample Salary Targeting Exercise

Proficiency + Performance

Salary Targeting Matrix

Performance & Proficiency

Employee Placement

Pe

rfo

rman

ce 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 the

position Fully proficient

Experience above proficiency level

Ready for promotion

Proficiency

Page 8: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Sample Salary Targeting Worksheet

FIRST NAME LAST NAME DEPT # JOB TITLE Current Salary

Target Compa-

Ratio Range

Midpoint Target Salary

Delta to desired salary

% behind target

Reccd increase Cost

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

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

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

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

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

Hidden Hidden 000005 Cardio/Pulminary Mgr $65,000 1.00 $76,000.00 $76,000.00 $11,000.00 16.92% 2.00% $1,300

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

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

Hidden Hidden 000090 COOK $25,376 1.10 $13.25 $14.58 $2.38 19.47% 4.00% $1,015

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

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

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

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

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

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

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

Hidden Hidden 000115 Accountant $38,147 1.00 $47,000.00 $47,000.00 $8,853.00 23.21% 7.00% $2,670

Page 9: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Strategies: Increase budgeting

This is the opportunity to actually plan a budget, bringing into account all the decisions that have been made

It’s best to break out the pieces

Budget different scenarios

For more detail on how to budget, attend Compensation Budgeting webinar

Page 10: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Sample Implementation Budget

1. Market

2. Market movers

3. Merit Matrix

(Performance +

Placement in range)

4. Consistency

Page 11: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Sample Merit Matrix

Page 12: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Strategies: Green Outliers (below the minimum)

Option 1: Minimize Outliers – Bring all employees who are not at minimum to the minimum of the pay range. This method is favored when

your organization has a strong commitment to correcting outliers in your compensation plan. No discretion is given to managers. In the long

term, employees will get raises when the market shifts, thus creating outliers.

Option 2: Market-based Pay – Allocate increases based solely on where employees are in their range (which is alignment with the

market). For example if you are farther 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.

Option 3: 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

both range and performance. Some flexibility may be given to managers

by providing a range rather than an exact percentage. This method is

favored if your organization both has a commitment to paying relative to

the market and to rewarding top performers. In the long term, high

performers have higher salaries and moderate performers’ salaries will

shift as the market shifts. Note: this option can be used with market &

performance, market & tenure, or any number of variables you may wish

to reward.

Page 13: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Strategies: Red Outliers (over the maximum)

Option A: Do nothing– Continue to give increases to employees, even if they fall over the top of the pay range. This method is favored if the

situations that call for individual outliers to fall above the range are acceptable to the organization, and if the need to avoid the possibility that

they will leave the organization outweighs the cost. In the long term, red outliers will become even more skewed and above the market.

Option B: 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 you are 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 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.

Option C: 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 both has 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.

Option D: Freeze base pay – Discontinue base pay increases for red outliers

until the market catches up. This option has a moderate to high risk of

turnover among red outliers – including those who are top performers.

Option E: 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,

especially top performers. This option is not recommended unless there is a

strong policy desire for it.

Page 14: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Equipping Managers

Who: Managers first – then employees

What: Educate Managers about compensation

When: Before required action

Why: Give the big picture

Give Managers tools (FAQ’s, scripts, documents to share)

Verify understanding

Page 15: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Sample Budget Worksheet

Total Payroll $981,000

Increase Budget % 3

Increase Budget $39,240

Proposed $32,685

$6,555

Name Employee Dept Employee Job Title Annualized Base Pay Rating Grade

Annualized Base Min

Annualized Base Mid

Annualized Base Max

Annualized Compa-ratio

Expected comp-ratio Increase % Increase $

Jackson, Susan Marketing Director of Marketing $150,000 3 7 $72,200 $90,300 $108,400 1.661 1.00 1.00% $1,500

Johnson, Leonard Sales Director, Sales $140,000 3 8 $84,600 $105,800 $127,000 1.323 1.00 5.00% $7,000

Lawson, Madeline Administration Controller $102,000 2 5 $75,000 $85,000 $100,000 1.2 0.90 0.00% $0

Jones, Daniel Development Software Engineer $89,000 2 7 $72,200 $90,300 $108,400 0.986 0.90 1.50% $1,335

Edmonds, Tim Sales Account Executive $45,000 5 1 $28,000 $35,000 $42,000 1.286 1.20 2.00% $900

Jennings, Sean Development Program Manager $89,000 3 7 $72,200 $90,300 $108,400 0.986 1.00 3.50% $3,115

James, Bob Development Software Engineer $84,000 3 7 $72,200 $90,300 $108,400 0.93 1.00 4.00% $3,360

Vincent, Keven Sales Account Manager $38,000 2 4 $45,000 $55,000 $65,000 0.691 0.90 5.50% $2,090

Dillings, Jeff Development Software Engineer $87,000 4 7 $72,200 $90,300 $108,400 0.963 1.10 5.50% $4,785

Cowan, Leanne Marketing Product Manager $82,000 4 7 $72,200 $90,300 $108,400 0.908 1.10 5.00% $4,100

Smith, Jane Development Software Engineer $75,000 5 7 $72,200 $90,300 $108,400 0.831 1.20 6.00% $4,500

$981,000 $32,685

Page 16: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Questions?

Page 17: Building a Compensation Plan Part 3: Implementing Your Total Rewards Plan

Save Time and Money on Your Compensation Initiatives

PayScale is your key to saving money, recruiting talent at the right price, and retaining top performers with accurate, real-time compensation data matched to your workplace and workforce.

Visit our blog: http://blogs.payscale.com/compensation/

Connect with me on LinkedIN: http://www.linkedin.com/in/hrstacey