Building a Compensation Plan Part 1: Strategy & Executive Support

Stacey Carroll, SPHR, CCP

Principal Consultant

PayScale, Inc.

13,000 Positions. 50 Major Industries. 11 Countries

PayScale is a market leader in global online compensation data. With the world's largest database of individual employee compensation profiles, PayScale provides an immediate and precise snapshot of the job market.

Our patent-pending, real-time profiling system indexes custom employee attributes (such as industry-specific certifications) and specific job titles for every industry.

Our secure, on-demand business solutions, PayScale MarketRate and PayScale Insight, provide employers with accurate, reliable compensation detail never before available.

• Why a comp plan?

• How to gain executive support

• Compensation Strategy

• Who is my market?

• How competitive do I want/need to be ?

• What do I want to reward?

• Writing a compensation philosophy

Agenda

Have you ever . . . .

Had an employee come to you

with a ransom job offer from

down the street?

Had a hiring manager who insists

on paying a new hire $10,000 above

the market rate because “they must have this individual”?

Worried about the equity among your employee’s when it comes to compensation?

Create a formal

compensation program

The solution . . .

Support for a plan has to be more than “HR”

Unfortunately HR’s pain points are often different than your senior executive’s pain points

So, to get executive support we MUST:

Identify the Exec’s pain points

Solve real problems

Address the costs and consequences of the plan

Report on ROI

Most importantly, the process should be owned by the organization (not HR).

Why should you have a formal compensation program?

• Good business sense

• Compensation is one of your largest single costs of doing business

• Attract, retain and engage the talent you already have within your organization

• Supports the desired mission, strategy and culture of the organization.

• Can ensure equity and fairness among employees

• Improves employee morale

• Can reduce risk to the organization

Creating Compensation Strategy

Roles & Responsibilities

Exec Team

HR

Directors & Managers

Employees

Process

Preparation

Decision making

Timing

Preparing for the compensation strategy conversations

Start with:

Where is the Organization Now? • Growth cycle

• Demographics

• Culture/management style

Then:

Where Do

We Want To Be? • Importance of attraction, motivation

and retention

• Market competitiveness vs. internal equity

• Competitors and degree of competitiveness

• The right mix of compensation elements

• Salary administration and decision making

Sample Questions to guide strategy conversations

What companies make up the profile of our market and where do we compete for talent?

How competitive do we want/need to be?

What is it that we want to reward in this organization?

Why is NOW the right time to change our pay philosophy?

How will we change the mindset of employees to accept this change?

What does success look like?

How will we respond to employees who feel like we are disrespecting loyalty and/or their financial well-being?

Who will be involved in driving this initiative?

Do we have the right managers in place to reach a successful outcome?

Can we afford this?

What could go wrong or what outcomes are we unprepared to deal with?

Strategy Outcomes

Clear idea on how to benchmark

Clear idea on how competitive to be with salaries

Clear idea on the right mix of compensation elements

Clear idea of how people will be rewarded

Strong executive support for compensation structure

A commitment to clear communication

Communication Strategy

• Communicate about the project

• What is the organization doing and why

• What is the process

• Choose the right messenger

• Be transparent about the process

• Be realistic about the goal – no promises should be made

• Don’t give employees the opportunity to assume what the outcome will be

• Let employees know what to expect in terms of additional communication regarding the project.

Writing a compensation philosophy

Recognize the goals of the organization

Discuss how talent links to these goals

Discuss how the compensation programs will support these goals

The philosophy should be optimistic yet not unrealistic (representative of your organization)

Demonstrates your commitment to ensuring fair, equitable and competitive pay practices

Sample Compensation Philosophy & Strategy

Compensation Philosophy and Strategy

The philosophy behind XYZ company’s compensation program is to provide an attractive, flexible and market-based total compensation program tied to performance and aligned with shareholder interests. Our goal is for XYZ Company to be competitive in recruiting and retaining employees through its high-quality compensation practices. Equally important, we view compensation practices as a means for communicating our goals and standards of performance and for motivating and rewarding employees in relation to their achievements.

XYZ company competes in several different businesses, most of which are involved in helping individuals manage financial risk and secure their financial futures. These businesses draw their key people from different segments of the marketplace. Thus, our compensation programs are designed with the flexibility to be competitive and motivational within the different marketplaces in which we compete for talent, while being subject to centralized design, approval and control.

Questions?

Save Time and Money on Your Compensation Initiatives

PayScale is your key to saving money, recruiting talent at the right price, and retaining top performers with accurate, real-time compensation data matched to your workplace and workforce.

Visit our blog: http://blogs.payscale.com/compensation/

Connect with me on LinkedIN: http://www.linkedin.com/in/hrstacey