Compensation Budgeting Part I: Managing Pay Inequities Mykkah Herner, MA, CCP Manager of Professional Services PayScale, Inc.
14,000 Positions 2500 Customers 11 Countries 40 Million Salary Profiles 250 Compensable Factors
Three-part Series on Compensation Budgeting Part I: Managing Pay Inequities Part II: Determining Raises Part III: Putting it all together with PayScale Insight
Agenda o Start with a Plan o Do you have a clear pay philosophy, strategy, structure, policy? o Are you using accurate and current Market Data? o Identify Compensation Inequities o Organizational Level o Department Level o Position Level o Individual Level o Develop solutions o Next month: determining increases & putting it all together
Start with a (comp) plan
Comp Plan Elements o Philosophy-high-level view on the aims of the organization with regard to compensation o Strategy o Define your Labor Market(s) o Determine level of competitiveness o What do you want to reward? o Structure-Mathematically sound way of aligning your positions to market and internally o Policy ensures that the comp plan is carried out
Getting Reliable Market Data Critical factors for benchmarking jobs o Know your positions, go beyond titles o What are the top 3 functions of the role o What s the level of responsibility o What kind of decision-making authority o What typical tenures do you seek for your roles (newer, more tenured, etc) o Are there required degrees or certifications Defining your competitive set Accurate and current market data
Testing for Pay Inequities
Types of Pay Inequities At the Plan Level o Are you paying fairly to market? o Are your ranges competitive with the market? At the Department level o Are you paying fairly across departments? At the Position level o Have some of your positions moved faster? At the Employee level o Are you paying fairly across employees based on Your comp policy (what do you reward)? EEO status?
Plan-wide Pay Inequities Paying Fairly to Market o Determining your target market percentile o Budget o Competitiveness and impact on retention/attraction Staying competitive relative to market o Annually, examine your ranges to see if they re current relative to market values
Analyzing Ranges to Market Create a report showing your range midpoints relative to the market, and the difference between the two o Look through your positions- do most go up? Most go down? A mix? o If most positions moved up, you may want to consider adjusting your ranges by 1-3 percentage points. o Determine the cost impact of the shift prior to making the change.
Cross-Department Pay Inequities Targeting Determine the appropriate targets for your departments Build ranges around the appropriate targets Execution Ensure that you are paying according to strategy by looking at department-level compa-ratios and market-ratios
Position-specific Pay Inequities Identifying inequities at the position level o o o o o Critical positions may move faster in the market than others Review these positions on a quarterly basis Listen to your employees flight risk Consider adjusting the grade level and perhaps employee pay Be prepared to adjust pay between cycles for your critical roles
Employee-specific Pay Inequities Identifying Employee-specific pay inequities o Are you paying according to your comp plan? o Do you have compression issues? o Examine your compa-ratios (.8-1.2) o Look at your outliers (green and red) o Determine your plan to bring people in range, or have a clear policy for why it s ok to not be in range.
Disparate Pay and EEO Concerns Create a Disparate Pay Report o Examine when % difference is high and low o A good guideline is a % difference greater than your range widths o A high difference is a flag for potential litigation o A low difference may not be an EEO concern, but is a concern that you may not be rewarding according to your comp philosophy
Develop Solutions
o What are the options for remedying the inequities identified? o How much will it cost? Identifying Solutions o Can we absorb that cost in this year s increases or are we talking about a larger amount? o Do we need to resolve over multiple years? o How critical is it that we resolve the inequities? o Legal considerations o Attraction/retention issues o Morale o Develop multiple scenarios o How will we communicate: o To Execs o To Managers o To Staff
Identifying Options & How much it will cost: Plan Level Plan Level Options o Do nothing o Make small incremental change o Update your comp strategy o Adjust all the ranges at once Plan Level Costing o How do you plan to do increases? Do you want to maintain the comparatio (across the board market-based increase) or do increases by position in range? o What is the $ impact of employees falling out of range in the green? o Former red-outliers may again be eligible for increases.
Identifying Options & How much it will cost: Position Level Position Level Options o Keep the position where it is may have high compa-ratios o Move the position to a new grade o Keep the position where it is but offer a market premium Position Level Costing o Calculate the cost of moving position to a new grade o Calculate costs of your market premium advantage year over year
Identifying Options & How much it will cost: Employee Level Employee Level Options o Identify any critical issues o Determine the cost of non-critical issues and priority to organization o How will you handle compression issues? o What about disparate pay (non-eeo)? o Are there any concerns amongst your green outliers that won t be remedied with a regular increase? Employee Level Costing o Determine the amount to resolve critical issues o Calculate amount to resolve compression issues increases to existing? o Any necessary market adjustments for individuals?
Communicating about Pay Inequities Ask for what the organization needs o o o o o Provide solutions Share the big picture with only the detail needed to make your case Make your recommendations concise and easy to understand Explain the why Communicate what the impact/cost will be to the organization Help the organization manage the budget once approved
Next Month: Determining Increases Putting it all together
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