How to Set a Comp Budget

Mykkah Herner, MA, CCPModern Compensation Evangelist

Jenni Marquez, CCPSenior Compensation Professional

A copy of the presentation and recertification credit will be sent out within a couple of business days

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Jenni Marquez, CCPSenior Compensation Professional

https://www.linkedin.com/in/jennimarquez

Mykkah Herner, MA, CCPModern Comp Evangelist

https://www.linkedin.com/in/mykkahherner

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Selling the need for a comp budget

Elements of a budget request

Identifying the right numbers

Getting started

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Selling the need for a decent comp budget

*

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MANUFACTURINGwww.payscale.com/cbpr

65% of manufacturing orgs perceive a lack of qualified candidates for their open positions

vs 55% of all

55.0%

45.0%

64.8%

35.2%

True

False

T/F: lack of qualified applicants for open positions

Manufacturing All

*

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TECHNOLOGYwww.payscale.com/cbpr

54.0%

31.4%

67.1%

19.1%

Yes

No

Pay more for competitive rolesTechnology All

67% of tech companies will pay more for competitive roles

vs 54% of all

*

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HEALTHCAREwww.payscale.com/cbpr

42% of Healthcare organizations cite leaving for personal reasons as the #1 reason for leaving

vs 29% of all 29.1%

25.1%

7.3%

20.0%

5.5%

8.5%

42.3%

23.3%

2.6%

14.3%

4.2%

10.1%

Personal reasons (family,marriage, health, school,…

Compensation – higher pay offer elsewhere

Retirement

Professional advancement-more attractive title, role…

Company culture clash

Bad relationship with directsupervisor/manager

#1 reason people left in 2015Medical & Healthcare All

*

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Baby Boomers 1946 – 1964 Size: 74M

Communication

About Comp:

Private

Average Tenure:

15 Years

Career Mindset:

Loyal

Self-driven

High Work Ethic

Retirement

Generation X 1965 – 1979 Size: 66M

Communication

About Comp:

Semi-private

Average Tenure:

5 Years

Career Mindset:

Pessimistic

Self-reliant

Work/Life Balance

Management

Millennials 1980 – 1995 Size: 74M

Communication

About Comp:

Public

Average Tenure:

18-24 Months

Career Mindset:

Idealistic

Fairness, Flexibility Values

Work/Life Balance

Advancement

Generation Z 1996 – Present Size: TBD, 69M+

Communication

About Comp:

Semi-private

Average Tenure:

TBD

Career Mindset:

Realistic

Multicultural Fluency

Technology Native

Learning with a Purpose

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Elements of a comp budget

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What is the Right Compensation Mix?

Sample Budget Request

2017 Compensation Budget

2016 Total Rewards Budget: $24,150,000

2016 Base Comp Budget: $15,000,000

BASE PAY Percent Dollar Amount

2017 Promotions 0.80% $120,000

2017 Projected New Headcount 10.00% $1,500,000

2017 Range Adjustments 0.06% $9,000

2017 Market Adjustments 0.14% $21,000

2017 Equity Adjustments 0.02% $3,000

2017 Pay Increase Adjustments 3% $450,000

Total Base Comp Increase 14% $2,103,000

2017 Base Comp Budget $17,103,000

VARIABLE PAY (% of 2017 Base) 24% $3,660,042

TOTAL REWARDS (PTO, Benefits, Perks) 25% $4,275,750

TAXES 12% $2,491,565

2017 Total Rewards Budget $27,530,357

Total Total Rewards Increase 14% $3,380,357

2017 Compensation Budget

2016 Total Rewards Budget: $24,150,000

2016 Base Comp Budget: $15,000,000

BASE PAY Percent Dollar Amount

2017 Promotions 0.80% $120,000

2017 Projected New Headcount 10.00% $1,500,000

2017 Range Adjustments 0.06% $9,000

2017 Market Adjustments 0.14% $21,000

2017 Equity Adjustments 0.02% $3,000

2017 Pay Increase Adjustments 3% $450,000

Total Base Comp Increase 14% $2,103,000

2017 Base Comp Budget $17,103,000

VARIABLE PAY 24% $3,660,042

TOTAL REWARDS (PTO, Benefits, Perks) 25% $4,275,750

TAXES 12% $2,491,565

2017 Total Rewards Budget $27,530,357

Total Total Rewards Increase 14% $3,380,357

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Identifying the right numbers

Range Adjustments Plan

Market Adjustments Job

Equity Adjustments Employee

Increases Employee

What’s changed?

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Range Adjustments -Plan

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What are you looking for?

Pay Fairly to Market

• Determine your target market percentile

Stay competitive relative to market

• Annually, keep ranges current

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Analyze Ranges to Market

Create a report and include, for each job:

• range midpoints, market values, delta between

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Options and Costs

Plan Level Options

Do nothing

Make incremental change

Update comp strategy

Adjust all ranges at once

Plan Level Costs

Employee adjustments

$ impact of green outliers

Former red outlier

eligibility for increase

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Calculating adjustments Option 1

2 options for calculating costs of range movement

Option 1: Maintain range penetrations

Cost equals the % you are increasing your ranges

Example: starting base pay budget is $15,000,000. Ranges increase by 2%. Total impact is $300,000.

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Calculating adjustments Option 2

Option 2: Ensure no green outliers

Cost is equal to the adjustment necessary to keep all EEs at or above Min

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Market Adjustments -Job

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What are you looking for?

Market movement & critical positions

Employee morale and mobility

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Analyze market movement by job

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Options and Costs

Position Level Options

Keep position static

Move position to new

grade

Offer market premium

Position Level Costs

Market premium

Move to new grade

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Offer a market premium

• Calculate yearly market premium payment to all incumbents in the role

• For example, Software Engineer = 21 * $1000 = $21,000

Calculating adjustments Option 1

2 options for calculating costs of hot jobs

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Calculating adjustments Option 2

Move positions to a new grade

• What will be the cost of ensuring all incumbents are in range

• For example, Driver I and CSR = 100 + 400 = $500

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Adjustments for Employees

Equity

Increases

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What are you looking for?

Problems with employee pay

• Compliance• Compression

Employee increases

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Analyze disparate pay

Create a Disparate Pay Report

• High disparity - flag for litigation

• Low disparity - following your comp plan?

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Analyze position in range by employee

Pay according to comp plan

Compression issues

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Employee Level Options

Identify critical issues

Compression

Disparate pay

Green outliers

Employee Level Costs

$ for critical issues

$ for compression

$ for market adjustments

Options and Costs

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Calculating adjustments Compliance

Determine the amount to resolve critical issues

For example, if Cathern has demonstrated higher experience, tenure, and performance than Cam, consider increasing pay to $79k

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Calculating adjustments Compression

Will bringing them in range solve? Is it already resolved though another adjustment?

For example: Increase HR Manager to $74K and freeze HR Generalist at $70K

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Merit Matrix

Allocates increases by performance and position in range

Increases - Employee

42

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Pay Increase Adjustments

Percentage of total salary budget

Example:

Budget is $15M3% increase is $450K

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Getting Started

• Identify options• Determine cost to remedy• Examine budget allowance• Consider multi-year strategy• How critical to resolve?• Develop multiple scenarios• Create communication plan

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Jenni Marquez, CCP

Senior Compensation Professional

Mykkah Herner, MA, CCP

Modern Compensation Evangelist

www.payscale.com