5 Steps to a Smart
Compensation Plan

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PayScale's compensation
and data platform gives
you insights into how to
invest in your people, so
you can build and retain
the right team

Camie Bailey
Software Implementation Manager
PayScale
Speaker

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What are the benefits of having a comp
plan?
Fairness Communication Alignment

Pay Equity Can Make or Break Your
Brand

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37% have a compensation strategy. 39% are developing one.
56% have done a market study within the past year. 25% have done
one less than 6 months ago.
80% have a pay structure in place. 30% use pay ranges for each
position.
2019 PayScale Compensation Best Practices Report

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Elements of a Comp Plan
Philosophy
Strategy
Guidelines (e.g. pay ranges)
Policies
Processes

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Lay the Ground Work

Get Buy-in From Executives

Develop a Clear Compensation Philosophy,
Based on Your Company Values
If you believe employees are your most valuable asset, pay fairly
If you have a fast-paced organization, examine pay frequently
If you value open communication, prove it
If you give your managers autonomy, support them

Start getting your jobs in order
Job descriptions need to clearly list the essential functions of the role (the key
compensable factors).

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2. Define a Compensation Strategy

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Where do you compete for
talent?
Step 1.1: Define your target candidate profile
Step 1.2: Define your talent market(s):
• Industry
• Org size/stage
• Org type
• Location

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How competitive do you want to be?
What do you want to reward?

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3. Select Market Data Source(s)

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Types of Salary
Data
•Free data
•Crowd-sourced data (paid
subscriptions)
•Company-sourced data
•Employer-sourced surveys provided
by consulting firms

Crowdsourced
Google Search &
Original Research
Free Salary
Information
Dynamic
Survey
Detailed
Profiles
PayScale crowd-sourced data collection
methodology

Company-sourced data
✓ No Participation Required
✓ No Friction
✓ Quarterly Releases
✓ Smart Geography Differentials
Automatically matched and quarterly refreshed data aggregated from PayScale
customers.

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Employer-
sourced and
industry
surveys

How do you know which data sources
are right for you?
Breadth
Precision
Age
Ease of Use

4. Set Pay Guidelines

Creating Pay Ranges: Key Steps
1. Determine the range mid-point
2. Determine the width of the salary range
3. Create guidelines for each compensation scenario

Step 1: Determine the range midpoint
Key tip: do not take market data at face value.
Key considerations:
1. How critical is this role to your organization?
2. What’s your organizational profile and company stage?
3. What can you afford?
4. How much would you like to spend on base pay versus other parts of the
rewards mix?

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25th 50th 75th
$49,907 $63,927
11.2% 12.1%
$48,900 $56,205 $63,500
MidMin Max
15% 15%
Spectrum of Market
Data Based on Your
Market Strategy
$56,205
Pay Range Built
Around Your Target
Percentile
Building a pay range
Key tip: When benchmarking, look at essential function and key
skills for the role, not job title. Use selected market target as
midpoint of pay range

Step 2: Determine the Width of a Range
Range Spread (or Range Width) = (Range Max – Range Min)/ Range Min

Step 3: Create Guidelines for Each Scenario
Account for different situations, including
• Where new employees enter ranges
• How & how quickly current employees move within range
• What happens when an employee is promoted
• How much discretion managers have to move someone
through the range.

Use Metrics to Stay Consistent

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5. Implement the Plan

Define the Implementation Plan
3 key components
• Compare incumbent pay to new ranges
• How will you handle green-circled and red-circled employees?
• Make plan for gaining executive support & approval
• Decide how transparent to be with employees about new ranges

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Decide how transparent you want
to be with employees

Develop Policies and Processes
Review your pay ranges on an annual basis
Keep an eye on your key jobs:
• Newer jobs
• Technology jobs
• Mission-critical jobs for your organization
Consider adjusting the range if it deviates >5% from the market

Checklist
Processes
• Add or evaluating a job
• Market study
• Budget
• Increase cycle
• New hire process (pay)
• Promotion process
Policies
• Increases
• New hire
• Promotion
• Outliers
• Eligibility

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Key take-aways
• A comp plan helps ensure fair pay, alignment and facilitates honest
conversations about pay between employees and managers
• Start by creating a compensation philosophy based on values
• Understand competitive you need to be
• Create a range for each position based on market data & internal factors
• Develop policies and processes to ensure adherence to plan
• Communicate your comp plan with employees to build trust

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Questions