The document provides guidance on building an effective compensation plan. It discusses establishing job descriptions, benchmarking salary ranges using market data, developing performance management systems, and creating guidelines for administering pay increases. The compensation plan aims to attract, motivate, and retain talent by linking pay to performance and career progression.
2. BUILDING a Compensation Plan that Works Business Plan Compensation Budget Benefits Job Descriptions Salary Ranges Performance Management Market Data
3. INTRODUCTIONS Your name & title/responsibilities Company name, location, # of EEs Why are you here, your comp. issues, takeaways? Smaller Business Association of New England 3
4. Basic Fundamentals FIRST! Business Plan & budgets – compensation is a key component Define organizational culture, consider employee relations issues Develop a total Compensation strategy and budget Smaller Business Association of New England 4
5. Basic Fundamentals - continued Develop individual and organizational goals and objectives Goals should be mutually agreed upon Work toward meeting objectives of the business plan and budget. Smaller Business Association of New England 5
27. Performance Management Ongoing process of communication Investment in future profitability & success of individuals and organization Facilitates development of loyal, motivated, goal-oriented teams. Frequency of reviews, who does it? Set goals & objectives – SMART goals Developmental tool – skills, behavior Smaller Business Association of New England 9
28. CREATING a Compensation Plan that Works Business Plan Compensation Budget Benefits Job Descriptions Salary Ranges Performance Management Market Data Smaller Business Association of New England
29. Building the Compensation Plan Consider key questions Create a market analysis Build salary ranges Develop pay administration guidelines Smaller Business Association of New England 11
30. Key Questions Is My Company (“MyCo”) able to recruit, retain, and motivate talent? What is “MyCo’s” pay position in the market? What should “MyCo’s” pay position be? What is affordable and realistic? What is the typical mix of base and variable pay? What should “MyCo’s” mix be? Smaller Business Association of New England 12
31. Create a Market Analysis Get reliable data representing relevant labor market Create excel spreadsheet internal and external data Refer to handout for details Compute % difference (“MyCo” data/Market data) Compute overall averages and “slice and dice” Grade (salary range), Function, Location Weighted by “MyCo’s” population Smaller Business Association of New England 13
32. Build Salary Ranges Purpose: Communicate the range of pay for each job. Typical practice: Traditional ranges with a Minimum, Midpoint, Maximum Range widths (Maximum/Minimum-1) of 50-70% (Prof/Managers) Range widths of 40-50% (Clerical/Technicians/Production) OR Smaller Business Association of New England 14
33. Build Salary Ranges Typical practice Divide ranges into two to four parts to administer pay Smaller Business Association of New England 15
34. Build Salary Ranges Step 1: Create salary range Midpoints Take market data for lowest paying job rounded to $100 Multiply it by 1.1 at lower levels, 1.15 at higher levels and round Example: Smaller Business Association of New England 16
35. Build Salary Ranges Step 2: Next create salary range Minimums Define appropriate range width (Maximum/Minimum), i.e., 50% Divide Midpoint by 1+1/2 the width,1.25 to calculate Minimum $24,800/1.25 = $19,840 or $19.8K (rounded) Step 3: Create salary range Maximums Add (Midpoint - Minimum) amount to Midpoint to get Maximum $24.8-$19.8 = $5K; $24.8+5+$29.8K Maximum Smaller Business Association of New England 17
36. Build Salary Ranges Step 4: Slot jobs in salary ranges Start by using closest Midpoint to market data, e.g., 50th percentile “Tweak” slotting considering internal job relationships and fairness Review employee impact (< Minimums, > Maximum) Consider timing and communication of adjustments Alternative Ways to Build Salary Ranges Group jobs at same level and compute average market data to build ranges Create a unique range or “Market Reference Pay” rate for each job Smaller Business Association of New England 18
37. Develop Pay Administration Guidelines Purpose: ensure fair and appropriate pay decisions Typical practice: Facilitate “pay for performance” – “A” players paid more over time Also consider skills, competencies, relevant experience Use merit grids (matrixes) based on employee’s performance rating and pay position within salary ranges Smaller Business Association of New England 19
38. Develop Pay Administration Guidelines Step 1: Determine the budget Typical practice: separate merit and promotion/adjustment budgets Example: 2.5% merit + 1% promotion/adjustment = 3.5% total Step 2: Determine population distribution percentages % of employees with each performance rating % of employees paid in each quartile of their salary range Smaller Business Association of New England 20
39. Develop Pay Administration Guidelines Step 3: Define guiding principles, i.e., Pay for Performance No increases below “Meets”, with minimum increases of 1% At least 2X increase if rated “Far Exceeds”, paid in lower ½ of range versus rated “Meets”, paid in same or higher part of range Also consider position in range (quartile) in deciding increases Provide a range in matrix rather than one fixed number, i.e., 4.5-6.5%, rather than 5.5% Hug the keepers! Smaller Business Association of New England 21
40. Develop Pay Administration Guidelines Step 4: Calculate payouts in each matrix cell Refer to handout for details Step 5: Sum cell payouts to see if total is within budget Step 6: Communicate final matrix to management Smaller Business Association of New England 22
41. IMPLEMENTING a Compensation Plan that Works Business Plan Compensation Budget Benefits Job Descriptions Salary Ranges Performance Management Market Data Smaller Business Association of New England
42. Using it to build your business ATTRACT TALENT MOTIVATE TALENT MAINTAIN TALENT Smaller Business Association of New England 24
43. How can you use a solid compensation plan to ATTRACT employees? Recruiting Define Job Requirements and Skill Sets (Job Descriptions) Salary Pay Ranges and Other Compensation Culture!! Sell Added Value Smaller Business Association of New England 25
44. ATTRACT TALENT! Smaller Business Association of New England Toolbox Solid Interviewing Practices Interview Guides Based on Job Descriptions Candidate Evaluation Form Compensation Plan Data Use Several Sources Have pre-defined ranges Salary is only ONE piece of the pie! Market Place Position KNOW who target audience or IDEAL candidate KNOW where you are and where you want to be 26
50. How can you use a solid compensation plan to MOTIVATE employees? Performance Management Define Performance Expectations Individual Goals – Department & Company Goals Team Goals vs. Individual Goals WIIFM!!! (What’s In It For Me?) Smaller Business Association of New England 28
51. MOTIVATE TALENT! Smaller Business Association of New England Toolbox Performance Management Process Clear Expectations Discuss Performance and Salary separately Keep it real! Include good, bad and ugly! Set SMART Goals Merit Matrix Increase See Handout for example 29
54. How can you use a solid compensation plan to MAINTAIN employees? Employee Engagement Define Career Progression Training Gaps WIIFM!!! (What’s In It For Me?) Smaller Business Association of New England 32
55. MAINTAIN TALENT! Smaller Business Association of New England Toolbox Career Progression Show how their compensation plan builds toward future Review all facets; salary, benefits, retirement Define skills needed for “next step” Pay Grade Increase? Title Change? Training Increased “Value” as qualifications build Part of compensation 33
56. Samuel Bane Career Progression Smaller Business Association of New England 34
Job Descriptions have already done this work for you!!!60% of job seekers respond to emotional appeal of postingsUse job postings to sell your company!Sell the culture, locationWHY DO YOU WORK THERE???
Solid Interviewing Practices will filter out your best candidates quickly!Always use a VARIETY of compensation plan data.Remember “pay” is only ONE piece…BEFORE you start recruiting… build your IDEAL candidate profile… otherwise you won’t be able to “spot” them.
GROUP DISCUSSION????What job offer would you make?CONSIDER. Does he meet all your requirements?Do you have existing staff?At what pay level?Note; his salary requirements
Performance ExpectationsNeed to be clearly spelled out… understood and mutually agreed uponWhenever possible allow the employee input on setting the goalIndividual goals should roll up to reach the department goals; roll up to company goalsDiscuss pros and cons of indivdual vs. team goals Best to have a combination whenever possible Team goals can build morale, positive culture, “healthy competition”Always have at least one STRETCH GOAL
Performance Reviews:Keep it Real *** HR NIGHTMARE - AVG AVGAVG – FIRE THEM ***Formally at least once per yearKeep notes, samples, etc through out the year – NOT JUST THE FEW PRECEEDING WEEKS.Your effort in the review tells the employee how much you value them and the processSMART Goals – HAND OUTSpecific•Well defined•Clear to anyone that has a basic knowledge of the projectMeasurable•Know if the goal is obtainable and how far away completion is•Know when it has been achievedAttainable•Set checkpoints to monitor progress and make adjustments on processesRealistic•Within the availability of resources, knowledge and timeTime Line•Enough time to achieve the goal•Not too much time, which can affect project performance
Performance review was scored on a 1-5 rating…3.5 – Meets Plus3 = Meets3.75 Meets Plus Better4 Exceeds3.5 Meets Plus4 on Accuracy – ExceedsExcellent AttendanceOverall Rating = 3.8
What to do if the current salary is at the top of your range?Reward performance with a one time paymentDevelop an Incentive PlanSet KPI’s – Key Performance IndicatorsDevelopment Plan for PromotionAdd other areas/skills IF/WHEN applicable
You’ve got that long term employee who’s yearly review sounds like a broken record…Need a development plan…Add skillsCross TrainDevelop New areas of interest Machinist to Repairs QC to ISO Materials to Inventory Control HR to Safety
TrainingIncreased ValueTraining adds to the value of the job… some ee’s value the training as a perk of their job.They see their value being increased as their skills build.Additional qualifications increase their earning potential… now and in the future.TIP: BUILD QUALIFICATION TESTS!Ee’s love it! Auditor’s especially love it!Give them a certification of completion.
Benefits shown here are defined as Health related2010 Hired at $41,6003-5 years experience2010 41600 3.80% 2011 43180.8 5% 2012 45339.84 10% 2013 49873.82 20% Promo 2014 59848.59 20% MBA2015 75000 Promo