COMPENSATION THAT SUPPORT YOUR BUSINESS STRATEGY NOVEMBER 16, 2016
Compensation Consulting MBL Group, LLC Human Resources Consulting Firm, est. 1993 Total Rewards Custom Surveys Evaluation & Analytics Performance Management Dianne Burt-Green, CCP, SPHR Owner Waaaaaay too many years of Technical Expertise + Practical Application
Today s Presentation Start at the beginning Fundamentals Philosophy Steps in conducting a pay study Salary Surveys Who to turn to? How to read them? Pay Structures Types How to construct them S N A K B R E A K Linking Pay to Performance What is it? How to Reward it Incentive Plan Basics Types of Plans Plan Guidelines 2016 / 2017 Salary Trends Actual/Projected National/Regional/Local
COMPENSATION FUNDAMENTALS
The Compensation Discipline Compensation Is: Check ( ) one o An Art o A Science
A Few Words about the Fundamentals position description job analysis essential function external equity compa ratio benchmark overtime percentage net pay gross payroll nonexempt market incentive grade alignment salary differential standard deviation median weighted oaverage Complex percentile scattered distribution o Strategic trend line minimum midpoint quartile maximum range spread fixed variable budget revenue target index survey o Mysterious data cut job evaluation classification o Powerful total rewards position description job analysis essential function external equity compa ratio benchmarko overtime Tedious percentage net pay grosso Creative payroll nonexempt market incentive grade alignment salary differential standard deviation median weighted oaverage Divisive percentile scattered distribution o Systematic trend line minimum midpoint quartile maximum range spread fixed variable budget revenue target index survey data cut job evaluation classification total rewards position description job analysis essential function external equity compa ratio benchmark overtime percentage net pay gross payroll nonexempt market incentive grade alignment salary differential standard deviation median weighted average percentile scattered distribution trend line minimum midpoint quartile maximum range spread fixed variable time
Strategic A strategic compensation system forms a visible link between an organization s objectives, strategies and business metrics, while balancing the expectations of its employees with the costs to the employer, AND Be fluid and flexible enough to meet changing economic and market conditions.
Powerful As a system, compensation is: Communicating your culture and values as an organization Driving (and incentivizing) employee behavior One of largest items on your financial statements (if not the biggest)
Creative Every compensation system is unique! Directly tied to organizational culture, industry, size, complexity Each organization, even within the same industry, may have distinct goals which vary the system Identifying how your goals will drive your structure requires innovation & ingenuity
Systematic Designing compensation programs does require a logical methodology How and why design decisions are made There is a framework, either explicit in published guidelines or understood by administrators Ensures an equitable and defensible system
COMPENSATION PHILOSOPHY
Compensation Philosophy Building the Compensation Philosophy A Discussion Guide Total Compensation Definitions Sample Compensation Philosophies Sample Discussion Questions Market Data Definitions
Compensation Philosophy Why have a Philosophy anyway? A boat w/o a rudder? Explains the organizations strategy and preferences towards pay Base/Variable mix Internal equity and/or external competitiveness Ties to the overall business strategy Who to engage in these conversations? Top Executive Key Leaders HR Finance Board of Directors? Council?
Compensation Philosophy Concepts to Ponder: Who are we and where are we going? What s working well now; what s not working so hot? Goals of the system? Who are our competitors? Who do we get peeps from? Who do we lose peeps to? One size fits all? Organizational sectors to manage differently? Market target? Base pay / Variable pay mix? Value of the Benefits package? Transparency?
Compensation Philosophy Golden Rule: One size DOES NOT fit all!
CONDUCTING A PAY STUDY
Conducting a Pay Study The Basics: When, if ever, was the last study conducted Determine which jobs to include in scope of work Business growth strategies Turnover On-demand hot skills Labor agreement requirements Job Analysis Methodology Required (if any)? Questionnaire Observation Interview Combination
Capturing Job Scope Job Descriptions Reporting relationship (org chart) Position overview Essential functions Secondary functions % of time in each function KSA s Educational requirements Certifications Physical activities
Job Evaluation Defining the job s worth 2 major schools of thought: Market-driven System Going Rate for job Data captured from salary surveys Pros: Reflective of market Cons: Susceptible to market flux Job-worth System Value of the job to the organization Point factor Pros: Internal equity Cons: Complex to administer Not as prevalent today
Sample Market vs. Job-Worth Market- Driven System Sr. DBA - $95K Sr. HRG - $75K Job-Worth System Sr. DBA 110 pts Sr. HRG 100 pts
SALARY SURVEYS
Salary Surveys Types of Salary Surveys Cross-Industry Multiple industries combined For profit / Non profit Industry specific Specific to 1 industry, eg., Banking, Manufacturing, Healthcare, Public employers Profession specific Specific to 1 profession, eg., HR, Finance, IT, Sales, Executive
Salary Surveys Who to rely on? Credible administrators who codify organizational input Aon/Hewitt BlueWater (nonprofit) Dolan/Compdata MBL Group Mercer Milliman Towers/Watson Western Management Group Professional Associations Who to be leery of? Incumbent reported surveys Parade magazine www.iwantaraise.com
Salary Surveys What makes a good survey Administered by neutral 3 rd party who: Pays attention to anti-trust requirements Organization reported data vs. incumbent reported data Job descriptions to map your jobs to Size of the survey sample Timing of the survey Open vs. Closed panel Cost Effective date of the data
Salary Surveys Common categories of data: Base Pay EVERY survey has this!!!! Variable Pay Target + Actual Total Cash Target + Actual Premium Pay Equity Target + Actual Data Sets All Participants Geography Industry FTE Revenue Definitions Simple Average Weighted Average Median / 50 th %tile Percentiles
Salary Surveys Think of the percentiles like a 12 ruler 1 25th%tile Median 50th%tile 75th%tile 3 6 9 12
Salary Surveys Now that we know who to go to, how do you interpret the data? MBL 2015 Nonprofit Survey: Executive Director Employee Work Location # Orgs # EEs Weighted Average Simple Average 10 th %tile 25th %tile Median 50th %tile Portland Metro 101 101 $118,934 $118,934 $68,245 $81,120 $107,931 $139,090 $169,998 I5 Corridor: Salem to Ashland 32 32 $99,466 $99,466 $55,744 $69,701 $91,291 $109,491 $135,907 Oregon All Other 10 12 $135,658 $148,200 $45,885 $58,510 $76,731 $93,018 $359,133 Clark County Washington 9 9 $74,235 $74,235 $37,981 $48,006 $85,010 $102,502 $105,664 75th %tile 90th %tile
PAY STRUCTURES
Pay Structures Common types of pay structures: Flat rate system EVERYONE paid the same rate 1 size fits all Cashier = $10/hour Step system Move thru structure based on tenure Set increase amount between steps Cashier = Step 1 = $10/hr; Step 2 = $10.25; Step 3 = $10.50/hr Pay Ranges Minimum, Midpoint, Maximum Cashier = Minimum $10/hr; Midpoint $12.50/hr; Maximum $15/hr
Pay Structures Where does the salary survey market data go: Flat rate system There s only 1 place Step system At the fully competent step in the structure Pay Ranges Typically at the midpoint
Pay Structures Step System Length of Service At Year 3 At Year 2 At Year 1 After 6 months Entry Rate Rate of Pay $11.04/hr $10.77/hr $10.51/hr $10.25/hr $10.00/hr
Pay Structures Step System Step System: Most common in Public sector, unionized organizations, hourly laborer workforce Grade # Hire Step 1 6 months Step 2 1 year Step 3 2 years Step 4 3 years Step 5 1 $12.18 $12.48 $12.80 $13.12 $13.44 2 $12.79 $13.11 $13.44 $13.77 $14.12 3 $13.43 $13.76 $14.11 $14.46 $14.82 4 $14.10 $14.45 $14.81 $15.18 $15.56 5 $14.80 $15.17 $15.55 $15.94 $16.34 6 $15.55 $15.93 $16.33 $16.74 $17.16 7 $16.32 $16.73 $17.15 $17.58 $18.02 8 $17.14 $17.57 $18.01 $18.46 $18.92 9 $18.00 $18.45 $18.91 $19.38 $19.86 10 $18.90 $19.37 $19.85 $20.35 $20.86 2.5% between steps 5% between grades
Pay Structures Pay Range 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Min Q2 Mid Q3 Max Midpoint is typically market weighted average simple average or median (50 th Percentile)
Compression Free Pay Ranges 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile A B Min Q2 Mid Q3 Max To tackle compression, keep the midpoint spreads substantial
Grades & Ranges Box Design Midpoint Differential Midpoint Range Spread 10% 50%
Grades & Ranges Flared Design Midpoint Differential 10%-12% Midpoint Range Spread 25%-30% 12%-14% 30-35% 15%-18% 40-45% 18%-20% 45%-50% 20%+ 50%+
Grades & Ranges Box vs. Flared Min MP Max Box may Underpay Box may Overpay Box may Overpay Box may Underpay
Snack Break!
PAY FOR PERFORMANCE
Linking Pay and Performance Mercer sez: Pay for Performance is a financial reward system for employees where some or all of their monetary compensation is related to how their performance is assessed relative to stated criteria. Performance related pay can be used in a business context for how an individual, a team or the entire company performs during a given time frame. DB-G sez: Pay for Performance is the art of aligning employee contributions with fair, equitable and competitive pay!
Linking Performance to Pay Min Q2 Mid Q3 Max Inexperienced New in job Unskilled Low Performers Competent Solid over time Fully acceptable Experienced Meets Requirements Merit Pay Very Experienced Top performers over time Exceptional
Linking Performance to Pay Minimum (minimum to Q1.5) 20% 10.0% 15.0% 60.0% 10.0% 5.0% Exceptional Performance (4.5+) Exceeds Requirements (4.0 4.49) Meets Requirements (3.0 3.99) Needs Improvement (2.0 2.99) Does Not Meet (<1.99) 2nd Quartile (Q2 to Q2.5) 25% Midpoint (midpoint to Mid.5) 30% 3rd Quartile (Q3 to Q3.5) 15% Maximum (*) (maximum) 10%
INCENTIVE PLAN BASICS
Incentive Plan Basics Incentive plans help an organization attract and retain The most popular are: Gain Sharing Profit Sharing Merit or Performance-based pay Stock Options ESOP (Employee Stock Ownership Plans)
Incentive Plan Basics Performance-based plan guidelines: Designed to promote a shared sense of responsibility for the organization s overall growth, teamwork and financial success Typically an annual plan; sunsets at end of plan or calendar year Participants may include: Everyone in the organization or managers & above FT & PT staff who work more than xx hours per week Typically exclude Sales Staff already on another commission plan Funding pool typically includes organization's financial budget: Net Profit EBIT or EBITDA Revenue Growth
Incentive Plan Basics Performance-based plan guidelines: Performance measures should always include: Overall company performance Performance measures may also include: Business Unit performance Performance measures should never include: Individual performance Individual performance should be rewarded through the merit/performance review system
Incentive Plan Basics Performance-based plan guidelines: Award payout levels: Sets the floor and ceiling of the plan Minimum Award = $0 Maximum Award = capped or uncapped Establishes threshold (minimum) performance to achieve xx% award Overall Company Performance Target Bonus Payout < 90% 0% 91% 93% 50% 94% 96%% 65% 97% 99%% 75% 100% 100% 101% 105% 107% 106% 110% 115% 111% 120% 130%
Incentive Plan Basics Payout Methods: As a % of base pay As a flat dollar amount All for 1 and 1 for all!
Incentive Plan Basics And last, but certainly not least.....
2016 / 2017 SALARY TRENDING
2016 / 2017 Salary Trends MBL Group 2016 / 2016 Wage Trends Report National PNW Oregon Portland Wage Trends 2016 Actual 2017 Projected
2016 / 2017 Salary Trends 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Salary Budget Increase Salary Structure Increase Consumer Price Index Unemployment SOURCE: WORLDATWORK 2016-2017 SALARY BUDGET SURVEY
2016 / 2017 Salary Trends Base Pay Increase Projections Structure Increase Projections Actual Oregon Portland Metro 2011 2.6% 2.4% 2012 2.7% 2.6% 2013 2.8% 2.8% 2014 2.9% 2.8% 2015 3.0% 3.0% 2016 3.1% 3.0% Forecasted 2017 2.9% 3.0% Actual Oregon Portland Metro 2011 1.4% 1.6% 2012 1.7% 1.8% 2013 1.7% 1.9% 2014 n/d 1.8% 2015 2.3% 2.1% 2016 2.1% 2.0% Forecasted 2017 2.1% 2.0%
Thank You! Questions?