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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.
Citation preview
Building a Compensation Plan Part 3: Implementing the Total Rewards Plan
Stacey Carroll, SPHR, CCP
Principal Consultant
PayScale, Inc.
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.
Agenda
• Implementation Planning
• Strategies for Implementation
• What will your reward
• Salary Targeting
• Increase budgeting
• How will you deal with outliers
• Equipping Managers
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
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
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.
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
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
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
Sample Implementation Budget
1. Market
2. Market movers
3. Merit Matrix
(Performance +
Placement in range)
4. Consistency
Sample Merit Matrix
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.
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.
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
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
Questions?
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