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7/27/2019 PayScale Bring Back the Sizzle eBook
1/58
SizzleBring back the
PyScs Gu t Cmp Ps
ThaT GeT WorkerS Fired UP(in a good way)
7/27/2019 PayScale Bring Back the Sizzle eBook
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ituct
You want to attract and retain top talent
while motivating employees to perform
at their best. Top talent is critical to
your organizations success but so is
controlling the bottom line. Whether its
your first comp plan or a revamp of an
existing one, this eBook will help you
produce a comp plan thats a win/win for
both you and your employees.
With the recipes for success detailed here
and some prep time you can cook up a
comp plan from scratch even if youve
never done it before.
By the end of this process, youll have a
comp plan that will minimize your costs to
get and retain top talent, drive employees
to perform better and youll have the
confidence to talk comp with anyone.
Your employees want to bring home a
bigger slice of bacon.
7/27/2019 PayScale Bring Back the Sizzle eBook
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Ts B s b wt fv pts.
M ts pts tgt
yu w v cusy
t cmp p.
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1
2
3
4
5
G ecutv SupptEnsure your comp plan succeeds by gaining executive support.
df Yu Cmp SttgySet the foundation for your plan with a well thought-out comp strategy.
dvp Mt-Bs Py StuctuChoose the right market data.
Bu Py rgsEverything you need to know to build your pay ranges.
Gt BusyWhen finished with steps 1-4, its time to implement your tasty, cohesive comp plan.
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Gain Executive
SUPPorT1
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6www.payscale.com
Employers Notice Comp
aFTer SoMeThinGBad haPPenS
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www.payscale.com
Want to make execs take noticebefore its too late? Then youd
better have an action plan at the
ready.
Ty tc
f w:
A valuable employee has a better
job offer.
A hiring manager insists on paying
a recruit above the market rate.
Worries Arise Over Internal
Pay Inequities.
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8www.payscale.com
Identify your ExecsPain PoinTSThe best way to gain executive support is to step into
their shoes and identify the pain points theyre looking
to solve. Theres a good chance theyre different than
HRs.
For example, HR may be concerned with the legalities
of paying people in the same job different salaries
without a justified business reason. Most business
leaders would not place the same emphasis on this
problem.
Instead, you need to identify the major business
priorities and then demonstrate how a comp plan
will tie closely to those priorities. A recent example
comes from one of our customers. The CEO was
not very interested in a compensation plan. To him,
a comp plan was a set of rules that limited his ability
to retain talent. He had been told one too many times
You cant do that. It will cause that person to go
above the top of the range.
http://payscale.com/hrhttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr7/27/2019 PayScale Bring Back the Sizzle eBook
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9www.payscale.com
His new HR leader had an uphill battle to get him
bought in to the concept of a comp plan. She
decided to take a different approach. She asked the
CEO if there were individuals who were key to the
success of the business.
He actually had a list of 12 names in his top drawer
who he considered critical for the companys
expansion plans. The HR exec asked if she could
help the CEO develop a plan to ensure those 12
people would never leave the company for more
money elsewhere. He immediately lit up with
excitement and gave his support because it was
based on his goal of expanding the business.
Sometimes the best way to get executive support is
not by making big promises, but by understanding
their pain points and using a small example that is
meaningful.
I want to see HR and its ability to track data come into the 21st century. The minute youcan properly track and trend data, HR becomes a true strategic business partner vs. the
traditional stereotype of administrative and soft skills. Tracking the right information - theinformation that matters - is critically important. PayScale leads the industry in fresh andtimely data. Combined with their ability to create custom, trend-based reports, strategicHR decision making is unleashed.
- Jim Cook, CFO, Mozilla
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10www.payscale.com
Return onBaConOver 2 years ago, Google made the dramatic decision to givean across-the-board increase of 10% to all employees with thegoal of reducing turnover. It worked. It was a hefty expense, but
the ROI showed that it actually reduced turnover in some critical
areas and the investment more than paid for itself.
The reason it worked is that the HR/Compensation team knew
exactly what the costs of turnover were and they knew what the
cost of this enhancement was. They monitored the results of
performance against the goal and regularly reported back.
This is a dramatic example that shows how even big financialdecisions can be justified with the appropriate tracking and
monitoring. For most organizations the costs seem too high
because there are no goals for the plan and no one is tracking
and reporting on results. HR leaders should be able to justify
large expenditures by understanding the possible rewards.
ROI
http://payscale.com/hrhttp://blogs.payscale.com/compensation/2012/09/turnover.htmlhttp://resources.payscale.com/rs/payscale/images/turnoverROICalculator2.xlsxhttp://resources.payscale.com/rs/payscale/images/turnoverROICalculator2.xlsxhttp://blogs.payscale.com/compensation/2012/09/turnover.htmlhttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr7/27/2019 PayScale Bring Back the Sizzle eBook
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11www.payscale.com
Payroll is by far your biggest expense and the cost of
getting it wrong is tremendous.
Take this fictitious example:
PayDay Pork Company is located in Midland, TX.
Their primary business is makin bacon. With 200
employees, the average pay is $50,000 a year. Their
most valuable employees, the Chief Bacon Engineers,
are paid double that. Midland has one of the lowest
unemployment rates in the nation due to the boom
in oil production there. Getting pay right is crucial to
retaining employees.
Total Payroll = $10,000,000a year. (Thats a lot of bacon!)Without good market data, PayDay Pork guessed
what to pay and this resulted in major expenses for
the company:
Cost of overpayment by just 10%= $1,000,000 a
year.Cost to recruit 3 new Chief Bacon Engineers to
replace the ones who left due to underpayment =
$150,000.
Dont risk the cost of getting comp wrong. Practice
good comp planning to price jobs right.
T Cst Gttg
Cmp Wg
http://payscale.com/hrhttp://www.payscale.com/payscale-index-Q2-2012/http://www.payscale.com/payscale-index-Q2-2012/http://www.payscale.com/payscale-index-Q2-2012/http://www.payscale.com/payscale-index-Q2-2012/http://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr7/27/2019 PayScale Bring Back the Sizzle eBook
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12www.payscale.com
Know the Reasons You'reCreaTinG a CoMP Plan
Wc t wg
ss wu mtvt yucs?
1. It makes good business senseFor almost every organization, the cost of salaries
and benefits is the single biggest expense to thebusiness. Mismanagement of compensation could be
putting the entire organization on the line.
When designed well, comp plans can drive
profitability by incenting behaviors that support
business goals.
2. It helps attract and retain talentFor most organizations in the service or knowledge
business, the ability to attract and retain talent can be
a primary differentiator from its competitors.
A well designed comp plan takes more into
consideration than simply paying the most. It is
founded on paying people the right amount of money
to attract, retain and motivate performance.
Most people will not leave s imply for more money but
for perception of fair pay and career satisfaction. The
organization needs to formalize practices around pay
that attract and retain top talent.
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When decisions about comp levels are systematic
and communicated with employees, the
organizations expectations of its employees become
clear. They will know how they will be rewarded and
how to reach their personal career and financial
goals.
By sharing your expectations, youre also giving your
employees more control over their destiny, thereby
raising satisfaction and retention.
3. It supports the mission, strategyand culture of the organization
When you reward the behaviors that you want your
organization to be known for, your employees will act
in a way that supports your brand and mission.
This is one of the primary reasons an organization
would want to establish a comp plan.
Once you have executive support for establishing
a comp plan, the next step is to decide what your
strategy will be.
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2 Define Your Comp
STraTeGY
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15www.payscale.com
factors toConSiderW s my mt?
When choosing salary data that reflects your labor
market youll want to be conscious of how you
define your market. PayScale recently worked with
a customer in the aerospace industry. They are a
small company (less than 100 employees) based in
Texas. When running local market data they found
that the data for the sales positions seemed highly
inaccurate. With further investigation it turned out
they were sourcing sales people from the two largest
aerospace companies in the United States, and those
same sales people spent much of their time not in the
office, but in the Washington DC area where business
deals were done. Their labor market wasnt Texas
aerospace as they assumed, but global aerospace
and defense. After making modifications to more
accurately reflect their talent pool the numbers
seemed right on.
Make sure to correctly identify the labor market that is
the source for your talent and think through the varied
markets for different departments in your business.
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16www.payscale.com
a T Tw Cts
Overall economic indicators arent specific enough
for compensation decisions. To win the talent wars,
know whats happening right now, specific to your
locale. For example, the national year-over-year wage
growth for Q2, 2012 was 2.3%, but these two cities
arent exactly average:
Houston 3.0%
Its burning in Houston and its not just the sun,
its also the red-hot economy. The largest city in
Texas hosts a variety of strong industries, including
aeronautics and healthcare, but the boom in the oil
and gas industry has had the biggest positive impact
on wages in Houston.
Riverside 0.3%
The wages for ful l-time private workers in the
Riverside area followed the rollercoaster brought on
by the recession. Though there was actual growth in
Q2, 2012 it trailed the national average by two whole
percentage points.
Read about other top and bottom cities here.
http://payscale.com/hrhttp://www.adweek.com/news/advertising-branding/talent-wars-139906http://blogs.payscale.com/compensation/2012/08/how-fast-are-salaries-growing-in-your-city.htmlhttp://blogs.payscale.com/compensation/2012/08/how-fast-are-salaries-growing-in-your-city.htmlhttp://www.adweek.com/news/advertising-branding/talent-wars-139906http://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr7/27/2019 PayScale Bring Back the Sizzle eBook
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17www.payscale.com
hw cmpttv yu wt
t b?There is no universal rule that says you must pay at
the 50th percentile. As a matter of fact, this is not a
strategy that is going to work for most organizations.
Instead, your strategy should reflect the competitive
pressures of the market and your willingness to pay
higher salaries for key talent.
For example, an organization that is coming out
of start-up mode and focused on expansion may
choose to reward their sales employees at the 90th
percentile and their R&D department at the 75th
percentile. They may choose to achieve this by
targeting general administrative and support positions
at the 40th percentile. This is a strategy that can work
well for the organization who wants to be competitive
in the areas where it really matters most.
Generally speaking, its a good idea to start with
an understanding of where your salaries place in
the market range currently by benchmarking your
positions. This helps to identify where weak spots
exist in your current practice.
http://payscale.com/hrhttp://www.payscale.com/hr/resources/how-to-benchmark-compensation-datahttp://www.payscale.com/hr/resources/how-to-benchmark-compensation-datahttp://pinterest.com/pin/142496775680884319/http://www.linkedin.com/cws/share?url=http://bit.ly/QCQjBkhttps://www.facebook.com/sharer/sharer.php?u=http://bit.ly/QCQjBkhttp://twitter.com/?status=Bring%20Back%20the%20Sizzle%20with%20@PayScale%20Free%20Guide%20to%20Comp%20Plans%20http://bit.ly/QCQjBk%20%23compSizzle%20%23ebookhttp://payscale.com/hr7/27/2019 PayScale Bring Back the Sizzle eBook
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18www.payscale.com
Wt i wt
t w?
Longevity
Skills
Certifications
Performance
Proficiency
In most cases, a combination of these variables is the right
strategy. Most organizations use a combination of these to
reward employees and have a set amount of money that can
be spent on increases. Important decisions need to be made
about how to allocate those increases.
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19www.payscale.com
ecutv lsp TmThis is non-negotiable. They must be part of the
process since the comp plan will most definitely fail
without their buy-in.
hum rsucsYou should be an advisor to senior leaders, coming
up with ideas, research and advice, but HRs role is
to champion the project.
dcts MgsEngage them early, make sure they understand
and identify with the process and goals. This will
improve your chances of buy-in.
empysSome organizations choose to involve employees in
the process especially a group of highly influential
employees who have the ability to gain support
from their colleagues. If you are going to involve
employees in the process be sure to consult with
an attorney about potential labor issues (even if you
are in a non-union environment).
W su b
vv?
How to Create a
CoMPSTraTeGY
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20www.payscale.com
Wt s t pcss?
TmgA typical overhaul of an existing comp plan or
creating one from scratch can take months. Take this
into account and plan accordingly for when you will
need to have your new strategy in place.
hr su pp t
sttgy cvsts wt
ts wg:
1. Where is the Organization Now?
o Growth Cycle: The growth stage of your
organization will influence the emphasis of your
comp strategy.
Startup = EquityEstablished Co = Benefits
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21www.payscale.com
o Demographics: Early stage career employees
may need different incentives than those later in
their career.
o Culture / Management Style: You have to
create a culture of pay-for-performance before
you can reward it. Challenge the executive team
if they are not willing to change the company
culture.
2. The relative importance of
attraction, motivation and retention.The issue is not if each factor is important by itself
but understanding the way each factor influences the
others. Spending top dollar for a candidate may affect
the motivation of everyone else in that department.
Be prepared with recent examples where this was the
case to talk about these issues in an open way.
3. Market competitiveness vs.internal equity.Companies struggle with this issue when theyre
paying a highly specialized individual contributor more
than managers or directors at the organization. An
example would be a highly specialized technician who
is being paid more than the manager who supervises
him. A focus on external alignment would address
this while a focus on internal alignment would not.Its a good idea to bring a few of these issues to the
table.
4. The right mix ofcompensation elements.
You must have a clear picture of the amounts yourespending on training and development, benefits,
equity, compensation, and other non-cash items. Its
a good idea to understand how these compensation
elements compare to the market but more
importantly, how they are valued by your employees.
The goal is to get your leadership team talking aboutthese issues so you can reach a consensus on the
goals of your compensation plan. When you have
engagement from your senior leadership team, they
will start to own the outcome. The toolkit contains
a list of sample questions that you can use to help
engage your leadership team in meaningful dialogue.
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22www.payscale.com
Wtg Yu Cmp PspyAt the end of the strategy process
its a good idea to write your strategy
in a way that it can be shared with
employees. This is often called
a compensation philosophy. Its
a broader way to talk about thedecisions that were made by the
senior leadership team.
A compensation philosophy has very
specific goals:o Recognize organizational goals. These usuallyhave something to do with people whether its
reaching people in a new market or introducing
new products and services.
o Discuss how talent links to these goals. What
talent is key to reach your goals?
o Discuss how the comp program will support
these goals. How will it achieve these goals?
How will the company meet their goals with their
people?
o The philosophy should be optimistic and
realistically represent your organization. If yourgoal is to understand the market and set wages
that are competitive based on your company
strategy, that is an optimistic way to say that
you have a goal that is aligned with business
priorities.
o Demonstrate your commitment to ensuring fair,
equitable and competitive pay increases.
o Your philosophy should be broad enough that you
can make changes in your strategy as the market
warrants. It is similar to a mission statement
that states the overall goal, but doesnt have to
describe how you will achieve it.
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SmpCmp PspyThe philosophy behind XYZ companys compensation
program is to provide an attractive, flexible and
market-based total compensation program that is
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 practicesas 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 theirfinancial 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.
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3 Develop a Market- BasedPaY STrUCTUre
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25www.payscale.com
Why External Market Analysis
iS iMPorTanTThe war for talent and proliferation of pay information, especially free and low-costdata online, are increasing pressure on HR ofces to have and use accurate, up-to-date market pay information, to share it with managers and employees and, at times,
to defend its use while refuting incorrect or inferior data. Knowledge of and skill inselecting and using compensation surveys are required.- Kenneth H. Pritchard, Selecting and Using Compensation Surveys:
Critical Issues for Todays HR Professionals
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26www.payscale.com
Create Market centered
ranGeS
Market Pricing vs. Point Factoring
Selecting survey data
Applying your compensation
philosophy to the data
Choosing benchmark jobs
Getting the data right
Aging data
Weighting your sources
Determining your pay grades
Building your ranges
Hot jobs
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Market pricing is the most effective approach to jobevaluation. Based primarily on external factors, the
goal is to be competitive. Point factoring or other
systems that evaluate jobs internally are approaches
that rely on internal alignment. For example, in a
traditional point factoring approach, you would assigna certain number of points to factors which would
span a broad spectrum of jobs (i.e. decision making,
size of impact, etc). These jobs are assigned pay
grades according to their total points.
dc t Cct Jb
evut Mt
Market Pricing Point FactoringVS
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avtgs Mt PcgA market-based approach, balanced with some
internal alignment, will enable more reliable
pay grades.
The advantages of using market data:o There is an objective standard (market data) that establishes
jobs within ranges.
o Allows you to establish pay ranges
minimums and maximums that are
competitive with the local market - and
helps you retain employees. In todays
highly competitive labor market, its not
enough to just be competitive internally,
you need to be competitive in your
market so that you can attract and
retain talented employees.
o It takes less time to maintain.
o It is harder to manipulate the results.
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Sctg Suvy dt
Sctg SucsTraditional compensation consultants will tel l you it
is a best practice to select three salary sources to
provide an equal balance when analyzing data. With
three different sources, you can validate your data
one against the other, which can help you confirm
your pay ranges.
When choosing your surveys, select ones with good
coverage for your industry, geography and type of
organization. These are the three most important
factors when looking at overall survey data. For
example, If you are a non-profit organization, you
must get non-profit data.
A smart alternative to the expense of multiple survey
sources is to use a data source that has good
comprehensive coverage. PayScale is a good single-
source option. We never limit the types of positions,
industry or the geography you have access to. This
means that youll have access to a broad cut
of information for one simple price.
The goal is to be able to benchmark 75-80% of the
positions within your organization. Generally this is
best accomplished through multiple sources, but if
you only have a budget for one source, then go with
PayScale for the broadest single source coverage.
The methodology of the survey that you are using
is important to understand and validate because it
provides credibility to your comp plan as you sell this
plan to your executives.
PayScale=35 million currentemployee profiles, 250 compensable
factors, 13,000 unique job titles.
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Consider the following questions:o How is data collected?
o Where does the data come from?
o How many employers/employees are represented
in the data?
o How reliable and recent is the data?
o Do they use aging or geographical differentials?
Perhaps the survey source is taking a major
metropolitan area and applying different locales within
the same state. This wont be reliable data for you if
youre operating in a smaller city. The same goes for
aging. If you have a survey that is using data from two
years ago and are trying to age it, that data wont be
reliable because a lot has happened or changed within
the last two years.
At PayScale we provide up-to-datedata. A lot of our reports are takenfrom data collected in the past 6months and this timeliness is crucial ina fast moving economy like this.
Aging is Great.. .
for Wine and Cheese
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Though price is also important, make sure to focus
instead on value. Good data doesnt come for free.
Keep in mind that in a lot of traditional surveys,
participation is required in order to get the data, so whileyoure considering the costs, you also have to factor in
your time to participate in that survey.
As you are evaluating different sources, check to see
how many jobs you will be able to benchmark from that
source and divide it by the price of the survey.Find out which survey will give you the most value and
at what price.
Also think about which target you are going to use from
the survey data. Be aware of the difference between the
average and the median and make sure not to confuse
or exchange them. If you choose to use percentiles,
make sure you can get that same percentile from every
survey source. Then, you have to decide if you want
to look at the Base Salary or the Total Cash
Compensation (TCC).
Do you have time to
fill out salary surveys?A survey can take 10-100+ hoursdepending on your company size.
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CsgBcm JbsOnce you have your survey data and have decided
how you will look at the data, then you have to
choose your benchmark jobs. When selecting your
benchmark jobs, focus on those positions that are
standard across different industries. Jobs such
as Administrative Assistant, Accountant, and HR
Generalist are a few examples of standard jobs.
Next you will want to choose industry specific
positions that are standard at your company
compared to positions within other organizations in
your industry. Civil Engineer, RN and Assembly Line
Worker are three such examples. Try to avoid hybrid
jobs which dont make good benchmarks. Theserefer to employees who do multiple jobs or tasks.
What should you do with non-benchmark positions?The key thing to know here is not to force matches
to market data. Dont make a decision on how a
job should be paid using inferior data. Instead, use
your job evaluation tool to slot the position within
a pay grade, or use your own internal assessment
of comparable positions within your organization
with similar skill, scope, decision making andresponsibility. Typical surveys will result in more non-
benchmark jobs, which is not ideal.
Organizations using PayScale data will
be able to benchmark 85-95% of
their jobs because of the broad rangeof data available.It is easier for you to have a great depth of data
and less non-benchmark jobs, but occasionally non
benchmark positions need to be handled.
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Getting the Data RightWhen matching jobs, dont match on title alone. Look
at the duties, the scope, experience, education etc.
PayScale calls these compensable factors. You also
have to decide how to handle hybrid jobs and leveling
within your organization.
For hybrid jobs, consider the two (or more) jobs this
person does. One may require higher skill than the other,
and this could affect the pay range. You are likely paying
this person for their highest skill level even though you
may ask them to perform at a lower skilled job. You willdecide how to handle hybrid jobs in your organization.
In terms of leveling, you may want to think about
whether you want to price one job within a series or
price each job within the series. For example, if the
market data for three jobs in a series shows a disparity
greater than 75%, it may mean that the jobs dont fall
in consecutive pay grades. However, it more correctlyreflects the market for these jobs. If on the other hand
you price the middle job in the sequence, you can place
the lower level and higher level job one grade lower and
higher respectively. This would allow for smooth
internal progression, but may not reflect the external
market as well.
PayScales
MarketMatch
AlgorithmPayScale uses a modern methodology in bothsourcing our data and in matching it to your
real-world scenarios.
While surveys may provide data that was
sourced a year ago, our research model is
built on the concept of crowdsourcing. We
update our data twice daily with salary profiles
sourced from real people.
That gives us the biggest, freshest data set
in the world, currently more than 35 million
profiles.
Just as Google matches your search terms
to the most relevant results, PayScales
MarketMatch algorithm matches your
unique positions to the most relevant salary
data in your market.
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agg dtAging data is sometimes necessary when youre
dealing with dated information, but it is risky because
the market changes fast and doesnt move the same
for all jobs.
Even though its become common, it doesnt really
make sense. Its simply the best you can do when
your data was collected a year ago or more.
If you are using PayScales data, aging is not
necessary as all reports are aged to 30 days priorto the report run date. This aging is done with our
sophisticated MarketMatch algorithm that uses
information about the changes in market that are
reflective of the variables in your report (industry,
geography, position, etc).
To age data, you first want to choose the mult ipl ier
that represents what has been happening in the
market since the date of the survey. There are many
ways to find a multiplier. For example, World at Work
(www.worldatwork.com) publishes a survey everyyear with actual and anticipated wage increases.
Heres how to age data:o Find the effective date of the survey data and
decide on the target date for the data.
o Decide on an annual adjustment factor, or
percentage.
o Calculate the portion of the factor to use, which
is based on the effective date of your market data
and the date to which you want to age the data.
o Apply the aging factor to the market data.
Aging DAtA ADjustment FActor: 2.9%
eff Da ta Da s 1 s 1 Ad s 2 s 2 Ad s 3 s 3 Ad
Buyer ll 7/1/2012 1/1/2013 1.47% $38,500 $39,064 $41,000 $41,601 $43,000 $43,630
Marketing Coordinator 7/1/2012 1/1/2013 1.47% $31,000 $31,454 $32,000 $32,469 $33,00 $33,484
Accountant 2 7/1/2012 1/1/2013 1.47% $54,000 $54,792 $56,500 $57,328
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Wgtg dtWeighting is recommended when using multiple
sources of data. This can help you determine anappropriate market wage from multiple sources of
data.
Here's How to weight data:o Choose a percentage weight you will assign to
each source. Put more weight on sources you
find more reliable based on the representation or
quality of the data.
o Multiply the source market data by the
percentage (weight) assigned to that source.
o Add the weighted numbers from each source
together.
This is your weighted average. This data average will
be used to make the decisions for your compensation
structure. You can do this for every job and it willshow you the market value for that job.
Position source 1 Weight source 2 Weight source 3 Weight WeighteD AverAge
Buyer ll $39,064 0.25 $41,601 0.5 $43,630 0.25 $41,474
Marketing Coordinator $31,454 0.25 $32,469 0.5 $33,484 0.25 $32,469
Accountant 2 $54,792 0.25 $57,328 0.5 $56,060
Wt s, utmt sut?
TrY PaYSCale inSiGhT
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4 Build Pay
ranGeS
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Wy bu py gs?
There are a few ways you can proceed to build pay
ranges. You can use your data to create a market
midpoint and then build individual ranges for every
job in your organization. Doing it this way, every
separate job will have a different pay range. Or, you
can choose to build grades.
Grades are recommended over individual ranges,
but it is up to you to decide what is best for your
organization.
three main reasons why pay grades are
preferred over individual ranges:o Easier to administer with fewer pay ranges.
o Allows decisions regarding internal alignment.
o Easier placement of jobs that dont have a market
benchmark.
Pay grades also help you evaluate where a specific
employee should be. Placement within the grade
can be measured by compa-ratio, which is the
employees pay divided by the range midpoint.
Pay grades are used to group jobs that have
approximately the same relative worth. All jobs within
a particular grade are paid at the same rate or within
the same pay range.
Traditional salary survey providersare like the 10 oclock news. Idont wait until 10 oclock to watch
the news anymore. PayScale isinformation on demand.- Shad Glass, HR Director at Kimray
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How To Build Pay Rangeso Using a specific formula, pay grades can be easily
determined. Choose a mid starting point based on
minimum salaries within your organization.
o Build new midpoints from a midpoint differential.
o Create minimums and maximums for the range.
o Verify grade placement against internal alignment and
hierarchy.
Building Pay Structure (ranges)Pay ranges set the upper and lower bounds of possible
compensation for individuals whose jobs fall in a pay
grade. Pay ranges are created for each grade. A grade
is what an employee is assigned to based on the scope
of his or her responsibilities. A range is the value of the
minimum to the maximum.
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dtmg Yu Py Gs
The number of pay grades you use wil l influence your
midpoint differential and should sufficiently distinguishdifficulty levels of different jobs.
The number of pay grades varies in
response to:o The size of the organization.
o The vertical distance between the highest and
lowest level job.
o How you define the jobs within your organization
and how you differentiate between them. For
example, if you finely define jobs into levels, such
as Junior, Senior, etc., then you will have more
pay ranges than if you use a general definition of
a position, such as Software Developer.
o The pay increase and promotion policy of the
organization. The easier it is for employees to
advance within their jobs, the more grades there
will likely be as well.
Midpoint differentials
The number of grades is determined by a midpoint
differential. Choose a midpoint differential based on
all the factors listed above (Determining the Number
of Pay Grades). With more grades, the midpoint
differential will be smaller. With fewer grades, the
differential will be wider. Typically, midpoint differential
will be a number between 10-25%.
For example, if you have an organization that has
relatively small differences in pay between the highest
level employee and the lowest level employee and
you have lots of job levels (Jr., Sr. etc) you would
want to have smaller midpoint differentials (likely
12-15%).
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Ccutg Mpts
Starting Point: $32,000
Midpoint Differential: 15%
Grade Rounding
1 $32,000 $32,000
2 $36,800 $37,000
3 $42,320 $42,000
4 $48,668 $49,000
5 $55,968 $56,000
6 $64,363 $64,000
7 $74,018 $74,000
8 $85,121 $85,000
9 $97,889 $98,000
10 $112,572 $113,000
o Choose starting midpoint
o Choose midpoint differential
o Choose rounding (optional)
Range WidthsThe spread between minimum to maximum wil l
depend on many variables within your organization.Generally, pay spreads are narrower for lower paying
jobs and wider for higher paying jobs. This is because
of longevity, time to proficiency and tenure. Its more
likely that a person at a higher paying job, with more
responsibility and bigger scope, will have a greater
range to grow in their position and pay than someone ata lower-level job where the skill level is lower.
Having an overlap in pay ranges makes it possible for
an experienced employee in a low-grade job to be paid
more than an inexperienced employee in a higher-grade
job.
Typical range spreads:o Hourly positions: 30-40%
o Salaried positions: 40-50%
o Executive positions: 50-60%
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Calculating minimums and maximumsOnce you have your midpoint and you have
determined range widths, you will calculate the
minimum by taking the midpoint and dividing it by
1.xx (1/2 of range spread), and the maximum by
multiplying the minimum by 1.xx (the whole range
spread).
Calculating Minimum
Calculating Maximum
$25,000 x 1.40 =$35,000
PayScales Insight software makes creating pay ranges a simple process.
$30,000 1.20 =$25,000
midpoint minimum
minimum maximum
1/2 range spread = 20%
Whole range spread = 40%
PaYSCale
inSiGhT
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assgg Jbs t Gs
Using market data to assign jobsto pay gradesMatch the value of the aged, weighted market data at
the target for the position to the range midpoint that
is closest to determine the pay range. For example,
if the value of the aged, weighted market data at the
60th percentile (your competitive target) is $48,967
use the table on page 40 to see that the job would
fall in pay grade 4 which has a range midpoint of
$49,000.
Verifying Internal alignmentYou should verify the internal alignment of positions
within a pay grade by evaluating the scope,
responsibility, etc. of each job assigned to that pay
grade, because you want to make sure all those
jobs are relative ly simi lar. At times, you will find that
you may have to build your own pay structures for
exempt, non-exempt or technical jobs, because they
may not fit with the pay structure.
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ht Jbs rg BustsYou may have a group of jobs or a specific job that
out-paces the rest. Those jobs are rising faster than
the ranges and other jobs assigned to the pay range.
If this is the case, you need to decide what to do with
these hot jobs.
h sm tgs t
cs ts stut:Double check that the position is assigned to the
right pay grade and that the market data is accurate.
If multiple jobs begin to show up as hot jobs, then
you may consider putting those into their own pay
range. This would be the best option if you see a
trend in the hot jobs, i.e. technology jobs or jobs
within a certain geographic location.
If its only a job or two, you can consider paying these
employees a market premium. This is an amount over
and above their base wage that is meant to account
for the increased market pressure on the position.
Example: If the average of the market data for the
hot job is 20% above the market rate for the rest of
the positions in the same pay grade, apply a marketpremium for this job. The best rule of thumb is to
make the market premium as transparent as possible
so that the employee can actually see that they are
being paid above the market rate so that if the market
changes, and you need to take the extra pay away,
the employee will understand why.
These 5 top jobs are morepopular than they were fiveyears ago.
See more hot jobs here
Job Title2010-2020
Projected Growth
Relative
Experienced
Median Pay
Data Scientist 18.7% $98,600
Video Game Designer 32.40% $52,200
Sustainability Consultant 18.70% $59,200
Solar Sales Consultant 16.40% $45,100
Social Media Manager 13.60% $41,700
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5 Implement the TotalreWardS Plan
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impmtt PgOnce the structure is built and the foundation hasbeen established, your success depends on how well
you can execute the total rewards plan. This eBook is
packed with options since there is not a
one-size-fits-all approach to follow. Here are the
suggested steps to cooking up a plan that satisfies.
Like any good implementation process, you want
to start with pre-planning to ensure everything goes
smoothly. For a successful implementation:
Review benchmarking
conclusions with execs
Senior management may not have been involvedsince the strategy creation, and you might
be challenged by them when reviewing the
benchmarking positions. If so, you will need to
reiterate that the information came from the decisions
that were made in the strategy session and show
how it relates to strategy.
Lead the Discussion aboutreward strategyThis is where you can debate the merits of how
people will be rewarded within the organization.The
goal is to identify what you want the rewards to be.
Show the reward strategy in actionShow execs and others in the company what
the reward strategy looks with examples of
specific people.
Educate management about decisionsEducate employees and management about
decisions and help them to understand the process.
Organizations have differring policies about
transparency. At a minimum employees should
understand their own pay ranges and where they sit
against their potential earning power.
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Sttgs:
Wt w yu w?A challenge will be to get everyone on board with
the idea that there is no right answer, but instead
to think about rewards in terms of decisions and
consequences.
Rewards should be based on business
necessity and strategyRewards should not be based on our personal beliefs
about whether employees are due money or not, or
on inflation adjustments. The decision about how we
should reward employees should be based on what
is in the best interest of the business. This may be a
barrier to buy in especially if you have a team that
is used to adjusting for inflation. Youll need to break
down those barriers so you can have a productive
dialogue. A good way to talk about this is to ask the
executive team how each strategy will benefit the
organization. For example, if you have someone who
believes in across-the-board increases, ask them to
identify the returns on that investment.
Reward Strategieso Base rewards on the changes in market
conditions. If the cost of labor for a given job is
going up, you can choose to reward for that in
your organization.
o Reward for longevity or proficiency, ademonstrated competence, or an achievement
for example.
o Reward performance. You may decide that the
higher performers are going to be paid more than
the lower performing employees.
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o Reward for skill or education attainment. Skill
attainment is important in skill-based businesses,
such as manufacturing or engineering.
o Choose a combination. A business leader can
say, I want to reward all of these. It would be
expensive, but its your choice.
Salary TargetingSalary targeting is taking your ideas about salary,
benchmark ranges, and rewards and helping to
quantify how you align with the desired strategy.Salary targeting is also used as a way to talk about
dollars or for approval of your strategy. This is more
of a budgeting exercise than it is a decision-making
exercise. The other thing salary targeting can do
is to illuminate your organizations weak spots. It
helps your executive team visualize the results and
consequences. It shows you if youre out-of-syncwith a certain employees wages and lets you set
a game plan to fix it, which will keep that individual
engaged and positive.
Sample Salary Targeting ExerciseIf your organization decides to reward for proficiency
and performance, you should expect a person who isachieving their goals to be right in the middle of the
boxes.
Performance + ProficiencySalary Targeting Matrix
Performance & Proficiency
emPloyee PlAcement
PerFormAnce 3 - Exceeds 0.85 0.95 1.05 1.15 1.25
2 - Meets 0.80 0.90 1.00 1.10 1.20
1 - Does Not Meet 0.80 0.85 0.95 1.05 1.10
New Hire(no exp.)
Learning theposition
Fully profcient Experience above
profciency level
Ready orpromotion
ProFiciency
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Sample Salary Targeting WorksheetIn this example, the organization is hoping to get
everyone within 15% of their target. The percentage
increase is dependent on how far behind the employee
is from the target.
First Name Last Name Dept: Job TitleCurrentSalary
TargetCompa-Ratio
Range Midpoint Target SalaryDelta to
Desired Salary% Behind
TargetReccd
IncreaseCost
Joy Siegried 000140 MDRC $27,539 1.00 $15.25 $15.25 $2.01 15.18% 1.00% $275
Timothy Lanman 000015 RN $63,482 1.00 $35.25 $35.25 $4.73 15.50% 1.00% $635
Jon Low 000015 RN $69,784 1.10 $35.25 $38.78 $5.23 15.57% 1.00% $698
Mark Moreno 000106 PACC $34,528 1.10 $17.50 $19.25 $2.65 15.96% 1.00% $345
Emily Moxley 000025 LABT $27,352 1.00 $15.25 $15.25 $2.10 15.97% 1.00% $274
Leslie Jolma 000005 Cardio/Pulminary Mgr. $65,000 1.00 $76,000 $76,000 $11,000 16.92% 2.00% $ 1,300
Stella Hassibi 000145 Supervisor, Admissions $39,000 1.10 $20.25 $22.28 $3.53 18.80% 3.00% $ 1,170
Laleh Siotra 000015 RN $67,808 1.10 $35.25 $38.78 $6.18 18.94% 3.00% $2,034
Olive Raeb 000090 Cook $25,376 1.10 $13.25 $14.58 $2.38 19.47% 4.00% $1,015
Andrea Grogan 000001 RN $67,475 1.10 $35.25 $38.78 $6.34 19.53% 4.00% $2,699
Oscar Merritte 000015 NRST $25,272 1.10 $13.25 $14.58 $2.43 19.96% 4.00% $1,011
Dave Stroud 000145 AREP $26,416 1.00 $15.25 $15.25 $2.55 20.08% 5.00% $1,321
Wendy Wilson 000001 RN $60,320 1.00 $35.25 $35.25 $6.25 21.55% 6.00% $3,619
Karaka Michele 000015 RN $69,264 1.15 $35.25 $40.54 $7.24 21.73% 6.00% $4,156
Heather Thomas 000145 SCHE $29,952 1.15 $15.25 $17.54 $3.14 21.79% 6.00% $1,797
Blair Reid 000145 AREP $25,792 1.00 $15.25 $15.25 $2.85 22.98% 7.00% $1,805
Sara Cook 000115 Accountant $38,147 1.00 $47,000 $47,000 $8,853 23.21% 7.00% $2,670
doWnload SalarY BUdGeTinGMaTrix in oUr ToolkiT
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Strategies: Increase BudgetingIf you are proactive in this process and you bring hard
facts to the table its much easier to make the casefor the budget that is needed.
Its best to break out the pieces. If your organization
has chosen to focus on numerous reward variables,
you will be able to make decisions based on
the individual components. For example, if your
organization wants to reward performance and
market value but rewarding both will be too
expensive, you can decide which to cut with the
facts in front of you. Come to the budget discussion
prepared with different scenarios. For example, if you
are using the salary targeting example, you may want
to get everybody within 15, 20 or 10% of their target.
Sample Implementation Budgeto In the budget request there is a line item for a
range adjustment. Most likely the organization
has compared their benchmark jobs to the
market and has made a decision to alter their
range structure based on the movement of the
market. In this instance, we are isolating the
component that is the change in market.
o The second adjustment is a change in market
movers (i.e. where the market is moving much
faster than the overall trend).
o Merit Matrix is how you reward employees, in this
case based on performance and placement in the
range. Increases are dictated by where a person
is within the pay range, as measured by compa-
ratio and performance rating. The logic behind
this approach is that you reward proficiency or
longevity in addition to performance.
o In this company, the final bit of money is a
consistency factor. If a particular department
does not have the funds, even though they
have a high performing team, you can use the
consistency funds to even that out.
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2012 Bugt Cmpst
Bugt rqusts1. Market
2. Market Movers3. Merit Matrix(Performance +
Placement in Range)
4. Consistency
Total Payroll: $125,000,000
Percent
2012 Range Adjustments 1.50% $1,875,000
2012 Market Adjustments 0.50% $625,000
2012 Salary Increase
Adjustments
4.00% $5,000,000
2012 Equity Adjustments 0.50% $625,000
$8,125,000
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Raise Recommender - A PayScale FeaturePayScale Raise Recommender allows you to build a
merit matrix in an appropriate way to meet your budget.
This tool can do all of that for you and help to ensure
that you are following through with your chosen goals for
your organizational strategy.
Target Budget
Increase
Actual Budget
Increase# of Employees
Current Total
Base Pay
New Total
Base Pay
All Employees 3% 2.99% 12 $1,131,000 $1,164,846
Below Min (2) Bottom Third (5) Middle Third (1) Top Third (1) Above Max (3)
(High Performance) 5 (2) 7.7% Raise (1) 7.7% Raise (0) 5.8% Raise (1) 3.9% Raise (0) 0% Raise (0)
4 (3) 6.5% Raise (0) 6.5% Raise (2) 4.9% Raise (0) 3.3% Raise (0) 0% Raise (1)
3 (4) 5.3% Raise (0) 5.3% Raise (2) 4% Raise (0) 2.7% Raise (1) 0% Raise (1)
2 (3) 4.1% Raise (1) 4.1% Raise (1) 3.1% Raise (0) 2.1% Raise (0) 0% Raise (1)
(Low Performance) 1 (0) 2.9% Raise (0) 2.9% Raise (0) 2.2% Raise (0) 1.4% Raise (0) 0% Raise (0)
PaYSCale
inSiGhT
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Strategies: green outliers(below the minimum)You may have outliers when you build your strategy.
Green outliers (or green circled) are individuals whose
pay falls below the minimum of the pay range. As
an organization, you want to eliminate as many of
these outliers as possible. Your pay range is a public
commitment of what you are willing to pay for a job,
and when you have people outside of that range it
sends an inconsistent message. So, its important to
minimize outliers as much as possible. Here are some
ideas for minimizing your outliers. Apply the strategy
that is right for your organization. Before you decide
how to mitigate this issue you always want to first
validate your data. If there is an area where there is a
lot of green, you may need to revisit your strategy.
Range Distribution
47
4
1714
Min Max
#ofEmp
loyees
PaYSCale
inSiGhT
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Options for dealing with green outliers(below the minimum)
o Minimize Outliers Bring all employees toat least the minimum of the pay range. This
method is favored when your organization has
a strong commitment to correcting outliers. No
discretion is given to managers. In the long
term, employees will get raises when the market
shifts, thus creating outliers.
o Market-based Pay Allocate increasesbased solely on where employees are in their
range (which is alignment with the market). For
example, if you are behind the market you may
get a 6% increase, but if you are above the
market rate you get a 2% increase. This method
is favored when your organization has a strong
commitment to compensating staff based on
the going market rate for their positions. Little
discretion is given to managers. In the long
term, employees will get raises when the market
shifts.
o Market & Performance-based Pay Allocate
increases based on both employees placement
within the range and performance. For example,
a star performer who is lower in the range may
get an 8% increase, while a star performer who
is high in the range may get a 6% increase. A
matrix is used to show percent increases by bothrange and performance. Some flexibility may be
given to managers by providing a range rather
than using an exact percentage. This method is
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favored if your organization is committed to both
paying relative to the market and rewarding top
performers. In the long term, high performers
have higher salaries and moderate performers
salaries will shift as the market shifts. Note: thisoption can be used with market & performance,
market & tenure, or any number of variables you
may wish to reward.
Strategies: Red Outliers
(over the maximum
)There are multiple reasons why people end up in thered. This is an important issue to discuss and agree
upon with your leadership team.
Options for Red Outliers
(over the maximum
)o Do nothing Continue to give increases toemployees, even if they fall over the top of the
pay range. This method is favored if the situations
that caused it are acceptable to the organization,
and if the need to retain them outweighs the cost.
In the long term, red outliers will become even
more skewed and above the market.
o Tier increases by position in range Continue
to allocate increases to outliers falling above the
range, but give a smaller percentage than to
those in or below the range. For example, if youare farther behind the market you may get a 6%
increase, but if you are above the market rate you
may get a 2% increase. This method is favored
when your organization has a commitment to
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paying relative to the market, and would like to
decrease the amount over range, over a longer
period of time. This option has less risk of
turnover of red outliers than the following options.
o Freeze base pay and offer performance
- based bonuses Discontinue base-pay
increases for red outliers until the market
catches up. Offer clear incentives for a lump-sum
performance-based bonus annually (or semi-
annually or quarterly). Only reward top performers
among the red outliers. This method is favored
if your organization has both a commitment to
paying relative to the market and to rewarding top
performers. This option has some risk of turnover
among red outliers, especially those who are
underperformers.
o Freeze base pay Discontinue base pay
increases for red outliers until the market catchesup. This option has a moderate to high risk of
turnover among red outliers, including those who
are top performers.
o Decrease base pay Decrease base pay for red
outliers to the maximum of the range. Increases
will happen only when the market moves.
This option is for organizations with a strong
commitment to internal equity and market-based
pay. There is a very high risk of turnover
among red outliers with this option, especiallytop performers. This option is not recommended
unless there is a strong policy desire for it.
equppg MgsEquipping your managers to deal with the changes
in the comp plan is critical. Managers have to be
bought in before the employees. This gives them
the respect that they deserve as chosen managers
in your organization. It helps prepare them for some
tough conversations by giving them tools to keep
employees motivated and enforce the strategy.
If you dont treat your managers like managersand treat them like employees, theyll start to act
like employees (being self-motivated instead of
organizationally motivated).
Here are some tips to make the most of getting your
managers engaged:
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1. Educate them.Teach them all the nuts and bolts of the comp
plan. Do this before required action. Roll it out with
enough time in advance of the increases so managers
are equipped to use it to make decisions. Allow
significant time for managers to ask questions and
get all the answers they need before the roll-out.
2. Give them the big picture.Help them see compensation from the organizationalpoint of view. Talk about the comp strategy relative
to the company growth plans and goals. Relate the
strategy back to the mission of the organization and
help them to understand how the underlying company
goals manifest in the compensation structure.
3.Give them tools
Managers will need tools to be successful during their
conversations with employees. Teach them how to
talk about compensation with their employees. Give
them FAQs and have them practice talking about
compensation. Verify their understanding by having
them explain it back to you.
PayScale Case Study:1. Vertical Response fell off the 2011
Best Places to Work list.2. PayScale Insight empowered
them to make smart adjustmentsto salaries.
3. They communicated changesclearly to employees.4. Back on the Best Places to Work
list in 2012.
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Conclusion
Now that youve done all the hard work planning process Youll need to revisit your strategy
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Now that you ve done all the hard work
to get your comp plan off the ground,
youre ready to reap the key rewards of
good comp strategy:
Attract talent.By pricing jobs based on an accurate look at
market data, youll be more competitive in your
recruiting efforts.
Retain Employees.Now that youve got all of your employees within the
correct pay ranges and youve communicated yourrationale to them, theyll be more satisfied and stay.
Drive Performance.When employees dont have to worry about their
salary, they are more motivated to focus on doing a
good job.
Be Confident.With accurate knowledge behind you, you can
now be more confident in all of your discussions
about salary with execs, directors, recruits and
employees.
A good compensation strategy doesnt stop with the
planning process. You ll need to revisit your strategy
often to make sure that your comp plan continues to
perform for your organization.
abut PySc:PayScale leads the world in compensation knowledgewith the freshest and most detailed data from over 35
million salary profiles. More than 2200 organizations
trust PayScales software and intelligence to get the
greatest return on their talent. Smart businesses use
PayScale insights to recruit, retain and motivate their
people.
Stay on top of compensationwith Payscale:
Follow the PayScale Index
Subscribe to our Blog: Compensation Today
Attend a Webinar
Download an HR Whitepaper
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