components of a compensation system

Report
Human Resources Peer Network
Fundamentals of Compensation and
Utilizing the CPCA Compensation &
Benefits Survey
April 3, 2014
Presented by: Brenda Gilchrist, The HR Matrix
OBJECTIVE
LEARN HOW TO CREATE
EFFECTIVE
MARKET-BASED
COMPENSATION PLANS
AGENDA
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
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)
Comp Study Project Plan
Phase 1
Phase 2
Phase 3
Phase 4
 Develop
implementation
plan
 Review job
descriptions and
titling (and FLSA
exemptions)
 Conduct
assessment of
available survey
sources
 Develop
recommended
salary structure
 Identify
benchmark jobs
for market
assessment
 Collect and
Match jobs with
salary survey
data
 Conduct
interviews and
focus groups
 Develop
Compensation
Philosophy
Statement
 Review results
with
Compensation
Committee
 Review draft
with
Compensation
Committee
February – March
March – April
April – May
 Slot all jobs in
new structure
 Define pay
guidelines for
management of
new structure
June – August
Sample project plan/timeline for compensation study
6
Phase 5
 Communicate
structure and
implications to
employees
 Distribute
Individual
Compensation
Statements
 Ongoing
maintenance of
structure
September
Steps to Develop a Compensation Program
Obtain Position
Descriptions
Competitive
Assessment
Salary Structure
$






Note: Salary structure is illustrative.
7
$$$
10
Survey
Survey
9
8
7
Survey
Survey
6
5
4
3
Survey
Survey
2
1
Survey
Survey
Survey
Survey
Pay Policies
COMPONENTS OF A COMPENSATION SYSTEM
The Ultimate Compensation =
Competitive Pay Versus the Market
Recognition of Individual Differences
Job Role,
Responsibilities, and
Skill Requirements
Range within Salary
Structure
+
Knowledge, Skills,
Experience, and
Performance
=
Total Base Pay
Opportunity
+
Positioning
in Range
=
Pay Competitiveness
and Link to
Performance
“A job’s pay opportunity
as defined by the market”
“A person’s actual pay”
8
COMPONENTS OF A COMPENSATION SYSTEM
• Job Analysis - The process of analyzing
jobs from which job descriptions are
developed. Techniques include the use
of interviews, questionnaires, and
observation.
• Job Descriptions - A critical component
for matching jobs against salary survey
data
• Job Evaluation - A system for
comparing jobs for the purpose of
determining appropriate compensation
levels for individual jobs. Four main
techniques: Ranking, Classification,
Factor Comparison, and Point Method

COMPONENTS CONTINUED
• Pay Structures –
– Standardize
– Grades
• Ranges
• Steps
$
$$$
10
9
8
7
6
5
4
3
2
• Salary Surveys
• Policies and Regulations
• Communication Materials
1
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.
$
$$$
10
• Determine a minimum and a
maximum percent spread.
9
8
7
6
5
• Slot the remaining jobs.
4
3
2
• Meet with the compensation
committee for review,
adjustments, and approval.
1
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 Survey
Title
Source
HR
HRD/MG CompManager
R
SF
HR
HRD/MG CompManager
R
SF
HR
HRD/MG CompManager
R
SF
HR
HR
HRM
Manager Manager Survey
Survey
Date
Dec-13
Dec-13
Variable
Median
75th
No.
pay %
No. Ees. Base Percentil
Variable Pay
Cos.
above
Salary
e
base
Matching Criteria
CPCA 2013, $10M$20M
CPCA 2013, 101-200
FTE's
19
18
85,680 92,730
0%
0
16
15
85,267 92,391
0%
0
Dec-13
CPCA 2013, NorCal
18
13
73,500 80,278
0%
0
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
Median
Average
Job Title
Base
Salary
HR
Manager
87,279
75
%
Variable
Pay
Total
Cash
Comp
95,366
6,087
93,366
th
Current Current
Variance
Current
Variance
Variable Total Cash
Variable
Base Pay
Base Pay
Pay
Comp.
Pay
90,000
1,500
91,500
Variance
Total
Cash
Comp.
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)
10th
Percentile
25th
Percentile
Survey
Mean
Annual
Salary
75th
Percentile
90th
Percentile
A1
$28,366.00 $30,729.00 $32,456.00 $35,107.00 $37,057.00 $39,377.00
A2
$31,447.00 $32,593.00 $35,517.00 $39,613.00 $43,248.00 $47,018.00
B1
$39,156.00 $41,796.00 $45,471.00 $50,391.00 $54,991.00 $59,918.00
$45,282.00 $46,305.50 $50,514.00 $56,165.50 $61,583.50 $67,193.50
$41,162.00 $47,712.00 $51,777.50 $57,318.50 $62,466.00 $67,796.50
B2
C1
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 COMPANY
SAMPLE 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
The following resources that should be used to conduct an
organization-wide 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 ALLSTAFF
FINAL PHASE MEMO TO
MANAGERS
ROLL OUT POWERPOINT
PRESENTATION
JOB EVALUATION APPROVAL
FORM (for New positions)
MONITOR
• Monitor feedback from managers AND
employees
• Make changes where necessary
• Find flaws or problems in the program and
adjust or modify where necessary

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