Human Resources Peer Network

Fundamentals of Compensation and Utilizing the CPCA Compensation & Benefits Survey

April 3, 2014Presented by: Brenda Gilchrist, The HR Matrix

OBJECTIVE

LEARN HOW TO CREATE EFFECTIVE

MARKET-BASED COMPENSATION PLANS

1. How is compensation used?

2. What are the components of a compensation system?

3. What are different types of compensation?

4. How to effectively conduct a compensation study

AGENDA

COMPENSATION IS USEDTO:

• recruit and retain qualified employees.

• plan and forecast budgets (CFO’s likes this!)

• increase or maintain morale/satisfaction.

• reward and encourage peak performance.

• achieve internal and external equity.

• encourage company engagement and reduce turnover

PAY FOR EXCEPTIONAL SERVICE/VARIABLE PAY

• bonuses• commissions• stock• profit sharing• gain sharing

– 409A Regulations (Caution)

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· Review job descriptions and titling (and FLSA exemptions)

· Identify benchmark jobs for market assessment

Comp Study Project Plan

March – April

· Develop implementation plan

· Conduct interviews and focus groups

· Develop Compensation Philosophy Statement

· Review draft with Compensation Committee

February – March

· Conduct assessment of available survey sources

· Collect and Match jobs with salary survey data

· Review results with Compensation Committee

· Develop recommended salary structure

· Slot all jobs in new structure

· Define pay guidelines for management of new structure

June – AugustApril – May

· Communicate structure and implications to employees

· Distribute Individual Compensation Statements

· Ongoing maintenance of structure

September

Phase 1 Phase 2 Phase 4Phase 3 Phase 5

Sample project plan/timeline for compensation study

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Steps to Develop a Compensation Program

Competitive Assessment

Obtain Position Descriptions

Salary Structure Pay Policies

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2

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5

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10

$ $$$

Note: Salary structure is illustrative.

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

COMPONENTS OF A COMPENSATION SYSTEM

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The Ultimate Compensation =Competitive Pay Versus the Market Recognition of Individual Differences

+ =

+ =“A job’s pay opportunity

as defined by the market”“A person’s actual pay”

Range within SalaryStructure

Job Role, Responsibilities, and Skill Requirements

Positioningin Range

Knowledge, Skills, Experience, and

Performance

Pay Competitiveness and Link to

Performance

Total Base Pay Opportunity

COMPONENTS OF A COMPENSATION SYSTEM

• Job Analysis - The process of analyzing jobs from which job descriptions are developed. Techniques include the use of interviews, questionnaires, and observation.

• Job Descriptions - A critical component for matching jobs against salary survey data

• Job Evaluation - A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs. Four main techniques: Ranking, Classification, Factor Comparison, and Point Method

COMPONENTS CONTINUED

• Pay Structures – – Standardize– Grades

• Ranges• Steps

• Salary Surveys

• Policies and Regulations

• Communication Materials

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$ $$$

DEVELOP A PROJECT PLAN

• Set an objective for the program

• Establish target dates for

implementation and completion (be realistic on the timeline!)

• Determine a budget, including the

cost for a compensation consultant and salary survey data

• Develop a Gantt Chart – Project Plan

COMPENSATION PHILOSOPHY

• Form a compensation committee - at least one executive

• Decide differences in pay structures for– Executives– Professional employees– Hourly versus salaried rates– Incentive-based versus non-contingent pay

• Determine whether the company should set salaries at, above, or below market.

• Decide the extent to which employee benefits and/or variable pay should replace or supplement cash compensation.

GATHER SALARY SURVEY DATA

• Research applicable salary surveys available

• Evaluate validity of survey data – is it statistically valid?

• Conduct a custom survey, if needed

• Pull at least 2-3 survey sources for validation

• Decide who and what you want to match against– Industries?– Size; # of FTE’s, Revenue– Geography

• Match position duties (not Titles!) against survey data

• Compile survey data by position in xls spreadsheet

DETERMINE APPROPRIATE SALARY STRUCTURE

• Determine the difference between each salary step.

• Determine a minimum and a maximum percent spread.

• Slot the remaining jobs.

• Meet with the compensation committee for review, adjustments, and approval.

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$ $$$

DETERMINE APPROPRIATE SALARY STRUCTURE

DEVELOP SALARY ADMINISTRATION POLICY

• Develop and document the general company policy.

• Develop and document specific policies for selected groups.

• Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, annual reviews, and promotions.

• Meet with comp committee for review, adjustments, and approval.

FORECASTING/BUDGETING/APPROVALS

• Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels.

• Present data to the

compensation committee for review, adjustment, and approval.

2013 CPCA SURVEY DATA•Which data line do you use? FTE’s or BUDGET?•What geographic area, for which positions?

EXAMPLE: SURVEY DATA COLLECTION

Job Title Survey Job Title

Survey Source

Survey Date Matching Criteria No.

Cos. No. Ees.Median Base

Salary

75th Percentil

e

Variable pay % above base

Variable Pay

HR Manager

HRD/MGR

Comp-SF Dec-13 CPCA 2013, $10M-

$20M 19 18 85,680 92,730 0% 0

HR Manager

HRD/MGR

Comp-SF Dec-13 CPCA 2013, 101-200

FTE's 16 15 85,267 92,391 0% 0

HR Manager

HRD/MGR

Comp-SF Dec-13 CPCA 2013, NorCal 18 13 73,500 80,278 0% 0

HR Manager

HR Manager

HRM Survey Mar-14

Northern CA, 15M, Ambulatory Health Center, Community Clinics SIC 8044, 8 years Experience

NA NA 104,670 116,064 6% 6,087

Totals $349,117 $381,463 6% $6,087.00

Average Blended Rates: $87,279 $95,366 7% $6,087.00

TOTAL CASH COMP: $93,366.25

EXAMPLE: MARKET DATA/VARIANCE ANALYSIS

Job TitleMedian Average

Base Salary

75th

%Variable

PayTotal Cash Comp

Current Base Pay

Current Variable

Pay

Current Total Cash

Comp.Variance Base Pay

Variance Variable

Pay

Variance Total Cash

Comp.

HR Manager 87,279 95,366 6,087 93,366 90,000 1,500 91,500 2,721 -4,587 -1,866

3.12% -75.36% -6.97%

DETERMINE PAY GRADES/PAY RANGES

• Establish the number of levels – – senior, junior, intermediate, and beginner -

for each job family and assign a grade to each level.

• Determine the number of pay grades – use the salary survey data to determine

SAMPLE PAY GRADES/PAY RANGES – Based on Market Salary Survey Data

Pay Band Code Range Begins

(mean of 1st year ee's)

10thPercentile

25thPercentile

Survey Mean

Annual Salary

75thPercentile

90thPercentile

A1 $28,366.00 $30,729.00 $32,456.00 $35,107.00 $37,057.00 $39,377.00A2 $31,447.00 $32,593.00 $35,517.00 $39,613.00 $43,248.00 $47,018.00B1 $39,156.00 $41,796.00 $45,471.00 $50,391.00 $54,991.00 $59,918.00B2 $45,282.00 $46,305.50 $50,514.00 $56,165.50 $61,583.50 $67,193.50C1 $41,162.00 $47,712.00 $51,777.50 $57,318.50 $62,466.00 $67,796.50

D1$58,568.00 $62,392.00 $67,472.00 $74,288.00 $80,767.00 $87,398.00

D2

$61,546.00 $66,982.00 $72,846.00 $80,584.00 $87,968.00 $95,366.00

E1$68,538.00 $71,423.50 $77,982.50 $86,545.00 $94,945.00 $103,316.00

SAMPLE PAY GRADES/PAY RANGES

XYZ COMPANYSAMPLE Pay Bands - BASED ON MARKET DATA

Exempt Pay Bands

Band Minimum Midpoint Maximum

G $44.6 $59.4 $74.2

F $35.3 $47.0 $58.8

E $32.5 $43.3 $54.1

Non-Exempt Pay Bands

Band Minimum Midpoint Maximum

D $34.6 $43.3 $52.0

C $29.5 $36.9 $44.3

B $24.4 $30.5 $36.5

A $19.2 $24.0 $28.8

COMMUNICATE PROGRAM TO MGRS/STAFF

• Present the plan to the compensation committee for feedback, adjustments, review, and approval.

• Make a presentation to executive staff managers for approval or change, and incorporate necessary changes.

• Create the communication materials

• Make presentations to managers and employees.

• Design and develop detailed systems and procedures • Execute the program.

LET’S PRACTICE – IN TEAMS

FORM TEAMS OF 5-6

COMPONENTS OF A COMPENSATION STUDY

COMPENSATION PHILOSOPHY

LETTER FROM CEO EMPLOYEE FAQ 1 EMPLOYEE FAQ 2 AGENDA FOR MANAGERS

MEETING JOB ANALYSIS INVITATION INSTRUCTION SHEET FOR

JOB ANALYSIS PROCESS NON-EXEMPT TASK LOG EXEMPT TASK LOG SALARY SURVEY SOURCE

SPREADSHEET

SURVEY RESULTS XLS VARIANCE ANALYSIS XLS PAY BANDS CUSTOM SURVEY COVER CUSTOM SURVEY INDIVIUDALIZED

COMPENSATION STATEMENT FINAL PHASE MEMO TO ALL-

STAFF FINAL PHASE MEMO TO

MANAGERS ROLL OUT POWERPOINT

PRESENTATION JOB EVALUATION APPROVAL

FORM (for New positions)

The following resources that should be used to conduct an organization-wide compensation study

MONITOR

• Monitor feedback from managers AND employees

• Make changes where necessary

• Find flaws or problems in the program and adjust or modify where necessary