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Budgeting Part 2: Determining Pay Ranges
Citation preview
Compensation Budgeting Part II: Determining Raises
We will be sending out slides and accreditation information following the presentation.
Mykkah Herner, MA, CCPHead of Expert Services
Ian Englund, CCPSenior Compensation Professional
www.payscale.com
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14,000 Positions 3000 Customers 11 Countries
250 Compensable Factors40 Million Salary Profiles
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Three-part Series on Compensation Budgeting
Part I: Managing Pay Inequities
Part II: Determining Raises Part III: Putting it all together with PayScale Insight
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Agenda
Recap of Part I
Part IIWhat do you want to reward?
o Market, performance, proficiency, tenure, etc
Can you streamline your increase process?How to calculate pay increases
o Paying to marketo Merit matrix (pay-for-performance)
Putting it all together for budget recommendations
Next month: putting it all together with PayScale Insight
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Recap of Part I
http://resources.payscale.com/hr-webinar-recorded-compensation-budgeting-three-part-series.html
Start with a plano Know your comp philosophy, strategy, and policy
o Get reliable market data
Identify comp inequities at org, dept, position, and individual levelso Org/Plan level: fair pay to market
o Dept level: fair pay across departments
o Position level: have some positions move faster than others?
o Employee level: are you paying according to your policy? Fairly based on EEO status?
Develop solutions
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What do you want to reward?
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What do you want to reward?You can base increases on…o Marketo Performanceo Proficiencyo Tenure
A note on COLA
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Streamlining the Increase Process
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Depends on your organizational values about transparency and inclusion
Determine what basis you’ll use for increases
Create a timeline
Considerations for your increase process & timeline
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7/1-10/15 •Complete market study
10/15-10/31 •Create spreadsheet with suggested increases
11/01-11/15 •Train managers on compensation process & their roles; deliver spreadsheets to managers
11/15-11/30 •Have a period of time for edits (managers, HR)
12/01 •Finalize increases / approval
12/15 •Communicate to employees
12/20 •Process adjustments in payroll
1/1 •New pay is live with 1/1 payroll
Salary Adjustment Process & Timeline
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How to Calculate Pay Increases
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Market-based Increases
Tier increases by position in rangeo Start with a budget increase %o Allocate increases to EEs based on range penetration
o Create spreadsheet
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Increase Spreadsheet
Name Job TitleCurrent Annual Base
Range Min
Range Mid
Range Max
Range Penetration
Increase %
Annualized Increase
New Annual Base
New Range Penetration
Alexander, Maria Account Manager $45,900 $46,300 $57,100 $67,900 -2% 3.80% $1,744 $47,644 6%
Arnold, Alexandra Driver I $29,600 $29,300 $35,700 $42,100 2% 3.80% $1,125 $30,725 11%
Baker, Nicholas Account Executive $46,500 $40,400 $49,800 $59,200 32% 3.80% $1,767 $48,267 42%
Allen, Ryan Program Manager $86,700 $73,600 $93,300 $113,000 33% 3.80% $3,295 $89,995 42%
Bailey, Sara Senior Account Executive $64,000 $54,700 $68,400 $82,100 34% 2.80% $1,792 $65,792 40%
Anderson, James Customer Service Rep $45,500 $34,900 $42,500 $50,100 70% 1.90% $865 $46,365 75%
Andrews, Vincent Senior Account Executive $76,700 $54,700 $68,400 $82,100 80% 1.90% $1,457 $78,157 86%
Adams, Christina Account Manager $63,800 $46,300 $57,100 $67,900 81% 1.90% $1,212 $65,012 87%
Total/Average $458,700 41% 2.96% $13,257 $471,957 49%
SUM AVG AVG SUM SUM AVG
• Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)• Annualized Increase = Increase % * Current Annual Base• New Annual Base = Annualized Increase + Current Annual Base• New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
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Using a Matrix (Merit or Proficiency)
Tier increases by position in range & performanceo Start with a budget increase %o Allocate increases to EEs based on range penetration
and performance
o Create spreadsheeto Note: Proficiency, or another factor, can work like
performance in this example
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Increase SpreadsheetName Job Title
Current Annual Base
Performance Rating
Range Min
Range Mid
Range Max
Range Penetration
Increase %
Annualized Increase
New Annual Base
New Range Penetration
Adams, Christina Account Manager $63,800Meets $46,300 $57,100 $67,900 81% 1.70% $1,085 $64,885 86%
Alexander, Maria Account Manager $45,900Meets $46,300 $57,100 $67,900 -2% 3.90% $1,790 $47,690 6%
Allen, Ryan Program Manager $86,700Meets $73,600 $93,300 $113,000 33% 3.90% $3,381 $90,081 42%
Anderson, James Customer Service Rep $45,500Meets $34,900 $42,500 $50,100 70% 1.70% $774 $46,274 75%
Andrews, Vincent Senior Account Executive $76,700Meets $54,700 $68,400 $82,100 80% 1.70% $1,304 $78,004 85%
Arnold, Alexandra Driver I $29,600Meets $29,300 $35,700 $42,100 2% 3.90% $1,154 $30,754 11%
Bailey, Sara Senior Account Executive $64,000Does not meet $54,700 $68,400 $82,100 34% 0% $0 $64,000 34%
Baker, Nicholas Account Executive $46,500Does not meet $40,400 $49,800 $59,200 32% 0.90% $419 $46,919 35%
Barnes, Paul Customer Service Rep $38,600Exceeds $34,900 $42,500 $50,100 24% 7% $2,702 $41,302 42%
Totals/Averages $497,300 39% 2.74% $12,608 $509,908 46%
• Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)• Annualized Increase = Increase % * Current Annual Base• New Annual Base = Annualized Increase + Current Annual Base• New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
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Developing Budget Recommendations
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Part Io Org Level Solutions – Range Adjustments• Cost of changing ranges (adjusting green outliers)
o Position Level Solutions – Market Adjustments• Cost of adjusting positions or adding temporary
position premiumso Employee Level Solutions – Equity Adjustments• Cost of correcting individual pay inequities
Part IIo Increase Budget – Pay Increase Adjustments
Putting it all Together
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Org Level Solution Costs
Range Adjustmentso If you decide to maintain range penetrations, this cost will be equal to the %
you are increasing your ranges.
For example, if your total base pay budget is $15,000,000 and you increase your ranges by 2%, the total impact is $300,000
o If you decide to ensure no green outliers, this cost is equal to the adjustment necessary to keep all EEs in range at the low end
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Position Level Solution Costs
Market Adjustments
o Moving positions to a new gradeo What will be the cost of ensuring all incumbents are in range
o For example, Driver I and CSR = 100 + 400 = $500o Offering a market premium
o Calculate yearly market premium payment to all incumbents in the roleo For example, Software Engineer = 21 * $1000 = $21,000
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Employee Level Solution Costs
Equity Adjustmentso Determine the amount to resolve critical issues
• For example, bump HRM/F to 73,600 ($3700)
o Calculate amount to resolve compression issues – increases to existing?
o Any necessary market adjustments for individuals?
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Pay Increase Adjustments
Pay Increase Adjustmentso Typically this is the easiest to budget as it is usually a
percentage of total salary budget.
o For example, if your budget is $15,000,000, a 3% increase would be $450,000.
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Summary of Comp Budget Requests
2015 Compensation Budget Requests
Total Salary Budget: $15,000,000
Percent Dollar Amount2015 Range Adjustments 0.06% $9,200
2015 Market Adjustments 0.14% $21,500 2015 Equity Adjustments 0.02% $3,700
2015 Pay Increase Adjustments 3% $450,000 Total Increase $484,400
2015 Salary Budget $15,484,400
Detail for comp budget request is in the following attachmentsCosting for Range AdjustmentsCosting for Market AdjustmentsCosting for Equity Adjustments2015 Pay Increases
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Next Month:
Using PayScale’s Insight and Insight Expert to support compensation budgeting
PayScale Delivers Where Other Compensation Providers Fall ShortPayScale leads the world in compensation knowledge with the freshest and most detailed data from over 40 million salary profiles. More than 3000 organizations use PayScale’s software and intelligence to get the greatest return on their talent. Smart businesses use PayScale Insight to recruit, retain and motivate their people.
Visit our blog: www.payscale.com/compensation-todayJoin our Group on LinkedIn: Compensation Today: HR Best Practices
Mykkah Herner, MA, CCPHead of Expert Services
Ian Englund, CCPSenior Compensation Professional
www.payscale.com