Compensation System Design & Strategies

Transcription

1 Compensation System Design & Strategies Winston L. Tan, Managing Principal Employment Value Balance Experience Competencies Skill Network Base pay Variable pay Benefits Perquisites Work environment 2 Time Changes the Balance Experience Competencies Skill Network Base pay? Variable pay? Benefits Perquisites Work environment Out of Balance = Distraction 3 1

2 Compensation Philosophy How should you define the market? With whom do we want to compare? Data posture: low, median, high What other considerations should you reflect? Economy? Industry? Politics? Bargaining unit? How strong are your recruitment/retention drivers? Geography Availability of higher education, cultural events, recreation Stability Developmental/growth opportunities 4 Market Position & HR Strategy Market Position Lowest 50 th Percentile Highest Recruiting Strength Weaker Average Higher Retention Risk Higher Medium Lower Workforce Impact High Turnover Expected Continuity 5 Compensation Plan Components External Market Values Internal Equity Funding the Plan & Administrative Procedures 6 2

3 Internal Equity Compensation for each position is appropriate relative to other positions in the organization Injects fairness into the pay plan Compliance with equal pay for equal work 7 Point Factor Systems Standardized factor evaluation applied to all jobs equally Measures Relative Worth and establishes a proxy for positions which do not have market data Compliance to equal pay for equal work Factors can be adjusted to fit organizational requirements Use of a committee (obtains expertise, enhances support) 8 Sources of Market Data Formal Trade associations Professional associations Consulting firms Survey firms Government Bureau of Labor Statistics Guidestar Informal Direct Survey Sleuthing Friends & family Bargaining units Free Sources Job postings Internet 9 3

4 Geographic Differentials 10 Source: Economic Research Institute Geographic Assessor Oct. 2009, Industry Differentials 11 Source: ERI Salary Assessor Allows a finger on the pulse for a defined population What it is and what it isn t Reported data aggregated into a statistical array Data reliability/continuity Submission errors Adequate sample size 12 Evaluating Data Bias Self reported (e.g. Compensation Survey of Professional Wingwalker s Association) Statistically enhanced (e.g. Recruiting firm surveys) Aging of data Reliability of free information 4

5 Labor Market Considerations Position Type Executive Middle Management and professional Non-exempt trades Non-exempt administrative Market composition National geography, functional and organizational metrics National/regional geography, functional and industry Regional, functional, industry Local, functional Set pay policy for your most important jobs (strategically) above market 13 Market Composition Number/types of survey sources Positioning within data sources Aging, blending and weighting data Funding Market Industry vs. local data History/industry lifecycle Geographic differential 14 Building the Market Model Reflect the recruiting environment for that particular job family Select positions with the best fit between internal evaluations and survey values Represent all job families Review outliers (especially rapidly evolving jobs). Adjust as necessary 15 5

6 Plotting Benchmark Positions (Points vs. Target Market) 16 Resultant Market Curve Regression Line 17 Salary Range Design Range Max Midpoint Range Minimum 18 6

7 Range Administration Lower Third Newly hired Emerging capability Middle Third Fully qualified & competent Solid performer Upper Third High performers Leaders Special situations 5-10% 80-90% 5-10% Minimum MP Maximum 19 Types of Salary Increases Type Addresses Example Economic Changes in labor market values The average hourly rate for a Design Tech changed 3.5% over the past 12 months Competency Progression through the salary range John started work at the minimum. After six months he progressed to 85% of the market rate Performance/ Merit Extra efforts and capability Suzy continues to be the most accurate and fastest CSR in the department Incentive Individual or corporate After a stellar year bonus payments of $5,000 were given to key performers 20 Salary Increase Decision Factors Corporate compa ratio Market change CPI/ECI What others are doing Bargaining unit Expectation/history Local economy Commodity prices Political sensitivity Market Environmental 21 7

8 Salary Increase Matrices Performance Increase Performance Only Exceeds Expectation Meets Expectation Needs Improvement 5% 3% 1% Market Only Lower Middle Upper Increase 6% 4% 2% 22 Performance/Market Matrix Exceeds Expectations Meets Expectations Needs Improvement Lower Range Mid Range Upper Range 6.5% 5.0% 3.5% 5.0% 3.5% 2.0% 3.5% 2.0% 0% Efficient but dilutes the performance differentiation for most experienced employees! 23 Typical Distribution Minimizes Performance Emphasis Performance Competency 20-40% allocated to performance and merit Base 60-80% of total funding allocated to economic increases 24 8

9 Supporting Pay for Performance Low Range Mid Range Upper Range Exceeds Expectations Meets Expectations Needs Improvement 6.5% 5.0% 3.5% 5.0% 3.5% 2.0% 3.5% 2.0% 0% Minimum Performance Distribution Performance Exceeds Expectation Meets Expectation Needs Improvement Increase 6% 3% 1% Example: Suzie is Exceeds Expectations /Upper Range 3.5% base + (6%-3.5%) cash = Total Performance Distribution 25 Incumbents vs. Projected Salary Line Lump Sum Increases? 26 Funding Caveats Funding at the same level as market movements no net improvement toward target Funding increases based on what others are doing. dissimilar compa ratio profile Glacial range progression 27 9

10 Updating the Plan Job Hierarchy New positions Reorganization Redistribution of function and responsibilities Job enlargement Development of single incumbent position Establishment of a progression ladder Market Indexing ranges by a common rate Dissimilar to true market movements With time, under stated and over stated jobs become significant Reflect true market movements 28 Changes in Benchmark Positions 29 Updated Market Curve 30 10

11 Questions? Winston L. Tan

12 Full Slides These are some of the slides already provided in the 3 slides per page. They are intended to provide a better view of the detail.

13 Geographic Differentials Source: Economic Research Institute Geographic Assessor Oct. 2009, 10

14 Industry Differentials 11 Source: ERI Salary Assessor

15 16 Plotting Benchmark Positions (Points vs. Target Market)

16 Resultant Market Curve Regression Line 17

17 Salary Range Design Range Max Midpoint Range Minimum 18

18 Supporting Pay for Performance Low Range Mid Range Upper Range Exceeds Expectations Meets Expectations Needs Improvement 6.5% 5.0% 3.5% 5.0% 3.5% 2.0% 3.5% 2.0% 0% Minimum Performance Distribution Performance Exceeds Expectation Meets Expectation Increase 6% 3% Example: Suzie is Exceeds Expectations /Upper Range 3.5% base + (6%-3.5%) cash = Total Performance Distribution Needs Improvement 1% 25

19 Incumbents vs. Projected Salary Line Lump Sum Increases? 26

20 29 Changes in Benchmark Positions

21 30 Updated Market Curve