7/11/2011     Trends in Compensation       and Best Practices in      the Current Economy                             CBIZ...
7/11/2011Introduction •   Edward R. Rataj              R •   Managing Director, Compensation Consulting •   Certified Comp...
7/11/2011Overview • Explore turnover in the rebounding economy • Examine compensation economics 101 • Offensive and defens...
7/11/2011Projected Turnover as Economy Improves • According to a recent WorldatWork survey, more than                     ...
7/11/2011Compensation Economics • Why is a burger flipper no long an entry level job? • Why does minimum wage negatively i...
7/11/2011Demand for Labor                                            Demand                                            for...
7/11/2011Effect of Minimum Wage                                      Demand                                        Supply ...
7/11/2011The Rebounding Economy                                                                                      Suppl...
7/11/2011Compensation Strategies in the ReboundingEconomy • Defensive Strategies:   – Total Rewards Statements   – Communi...
7/11/2011Designing a Market-Based Compensation System •   Plan and collect data •   Ensure job documentation accuracy •   ...
7/11/2011Job Documentation                     Job Documentation                        Market Matches                    ...
7/11/2011Market Pricing Methodology • Reliable Data      – Published survey data          • Major consulting and surveying...
7/11/2011Assessing Current State of Compensation Program                                                         25       ...
7/11/2011Compensation Strategies in the ReboundingEconomy – Merit Matrix • Employee 1 ( 1 ) and Employee 2 ( 2 ) are both ...
7/11/2011Compensation Strategies in the ReboundingEconomy – Merit Matrix • Finally all other factors being equal to whom w...
7/11/2011Compensation Strategies in the ReboundingEconomy – Merit Matrix    Best Practice    Matrix                       ...
7/11/2011                                       TypicalResults                                Matrix                      ...
7/11/2011  Results                                                         Company XYZ                                    ...
7/11/2011Compensation Strategies in the ReboundingEconomy– Merit Matrix •   Cost neutral •   Rewards performance •   “Targ...
7/11/2011Additional Considerations  •   Nonprofit compensation  •   Executive compensation in closely held businesses  •  ...
7/11/2011Questions?                    Ed Rataj, CCP                       Rataj     Managing Director – Compensation Cons...
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The Three R’s of Talent Management

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The Three R’s of Talent Management uncovers trends and reveals insider secrets for recruiting and retaining your organization’s top talent. The Three R’s is presented by Jay Meschke, President of CBIZ Human Capital Services who has written for Entrepreneur Magazine and has more than 20 years of expertise in the art and science of executive recruiting.

For more information visit http://www.cbiz.com

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Transcript of "The Three R’s of Talent Management"

  1. 1. 7/11/2011 Trends in Compensation and Best Practices in the Current Economy CBIZ Human                                     Capital ServicesUpcoming Webinars • The Three R’s of Talent Management Rs – Tuesday, August 2, 10:00 am to 11:00 am CDT • Total Rewards Design for an Intergenerational Workforce – Tuesday, August 23, 10:00 am to 11:00 am CDT • Strategies to Enhance the ROI of Wellness Programs g g – Wednesday, September 14, 10:00 am to 11:00 am 2 1
  2. 2. 7/11/2011Introduction • Edward R. Rataj R • Managing Director, Compensation Consulting • Certified Compensation Professional (CCP) • Frequently quoted in national news publications such as the Wall Street Journal and Smartmoney.com 3 “HR matters enormously in the good times. It defines you in the bad." - Jack Welch 4 2
  3. 3. 7/11/2011Overview • Explore turnover in the rebounding economy • Examine compensation economics 101 • Offensive and defensive strategies • Review steps for designing a market-based compensation system • Recognition and sustaining high performance through a merit matrix • Answer your questions 5Unemployment in Improving Economy • Common perception supported by monthly reports from perception, the U.S. Bureau of Labor Statistics: • 10% unemployment • In reality, a strong negative correlation exists between unemployment percentage and education: Bachelor s Bachelor’s degree or above 4.8% 4 8% Some college or an associate’s degree 8.1% High school graduate 9.8% Less than high school diploma 15.3% Bureau of Labor Statistics Table A4: Employment status of the civilian population 25 years and over by educational  6 attainment  3
  4. 4. 7/11/2011Projected Turnover as Economy Improves • According to a recent WorldatWork survey, more than survey half of employees intend to leave their current job as the economy improves. • The survey asked: Do you plan to pursue new job opportunities as the economy improves? – 60% — Yes, I intend to leave – 21% — Maybe, Maybe so I’m networking Im – 6% — Not likely, but I’ve updated my resume – 13% — No, I intend to stay. 7 www.worldatwork.org/waw/adimComment?id=35633 Compensation Economics 101 8 4
  5. 5. 7/11/2011Compensation Economics • Why is a burger flipper no long an entry level job? • Why does minimum wage negatively impact the employees whom it is designed to protect? • Why are banking executives leaving the industry? • If options are significantly under water and the board refuses to re-price, what is the potential outcome? 9Supply of Labor Supply of Labor C P3 Cost of Labor B P2 C A P1 Q1 Q2 Q3 Quantity of Labor 10 5
  6. 6. 7/11/2011Demand for Labor Demand for Labor A P3 Cost of Labor P2 B C P1 C Q1 Q2 Q3 Quantity of Labor 11Supply and Demand of Labor – Market Equilibrium Demand Supply for Labor of Labor Market Equilibrium Supply = Demand Cost of Labor P* t Q* 12 Quantity of Labor 6
  7. 7. 7/11/2011Effect of Minimum Wage Demand Supply for Labor Excess Supply of Labor of Labor P3 Price Floor Cost of Labor C Q1 Q3 Quantity of Labor 13Effect of an Executive Compensation Cap Demand Supply for Labor of Labor Cost of Labor C Price Ceilng P1 Unsatisfied Demand for Labor Q1 Q3 Quantity of Labor 14 7
  8. 8. 7/11/2011The Rebounding Economy Supply Demand1 Cost of Labor P2 Q2 Quantity of Labor As the economy rebounds, the demand for all employees will increase. Accordingly, differentiation in  Because high performers can drive an organization through the down economy and  Additionally, due to unemployment, the supply of average‐performing employees is up. Because of the poor economy, the demand for average‐performing employees is down. 15 position it well for a rebound, there is an increased demand for high‐performing employees. compensation based on performance will become more important.Compensation Strategies in the ReboundingEconomy • Offensive Strategies: – Top Grading • Poach top performers at competitors who would help drive your organization forward. • This is especially true for sales staff. • Pay the “winners like winners and losers like losers.” – Aggressively pay for performance via a merit matrix (further discussion in the following slides) 16 8
  9. 9. 7/11/2011Compensation Strategies in the ReboundingEconomy • Defensive Strategies: – Total Rewards Statements – Communication regarding other positive aspects of being employed by your organization – Consider changing targets for sales staff to ensure that they are reasonable given the current downturn – Re-price Options – otherwise executives will 17Compensation Strategies in the ReboundingEconomy • Merit Matrix is a blended strategy: – Offensive component of performance management = Helps attract key talent from outside the organization – Defensive component of performance management = Helps motivate and retain high performers within the organization 18 9
  10. 10. 7/11/2011Designing a Market-Based Compensation System • Plan and collect data • Ensure job documentation accuracy • Complete market analysis • Design pay structures • Model implementation costs • Assess internal equity q y • Create procedure manual • Report results 19Purpose of a Compensation System • Implement compensation philosophy • Ensure efficient allocation of resources • Provide rational basis for pay decisions • Assist supervisors in evaluating and rewarding performance 20 10
  11. 11. 7/11/2011Job Documentation Job Documentation Market Matches 21Market Pricing Methodology • What is market pricing? • Valuation of pay for jobs in the external labor markets • Key considerations when determining labor markets: – Location • Local • Region • Nation at o – Industry • Industry specific • Broad spectrum of employers 22 11
  12. 12. 7/11/2011Market Pricing Methodology • Reliable Data – Published survey data • Major consulting and surveying firms • Statistically validated • Standard deviation analysis of data • Unreliable data examples: – Self-reported data – DOL – Data from one or two competitors 23Designing Salary Structures Range Spread midpoint Midpoint Differential 24 12
  13. 13. 7/11/2011Assessing Current State of Compensation Program 25 25Compensation Strategies in the ReboundingEconomy • Merit Matrix Approach: – Affects pay increases, not pay structure – Rewards performance – Focuses dollars on employees that are most likely to leave because of pay 26 13
  14. 14. 7/11/2011Compensation Strategies in the ReboundingEconomy – Merit Matrix • Employee 1 ( 1 ) and Employee 2 ( 2 ) are both accountants with exactly the same tenure, experience, education and pay. Only performance differentiates them. To whom would you provide a higher pay increase, low-performing Employee 1 or high-performing Employee 2? High 2 H 1 Low 27Compensation Strategies in the ReboundingEconomy – Merit Matrix • In this example all other factors are equal except current base example, salary. To whom would you provide a higher pay increase, high-paid Employee 1 or low-paid Employee 2? COMPENSATION Low High 2 1 28 14
  15. 15. 7/11/2011Compensation Strategies in the ReboundingEconomy – Merit Matrix • Finally all other factors being equal to whom would you Finally, equal, provide a higher pay increase, high-paid/low-performing Employee 1 or low-paid/high-performing Employee 2? Low COMPENSATION High High 2 Low 1 29Compensation Strategies in the ReboundingEconomy – Merit Matrix Typical Matrix Quartile in Range Performance 1 2 3 4 Exceptional 3.5% 3.5% 3.0% 3.0% Exceeds Expectation 3.0% 3.0% 3.0% 3.0% Effective 2.5% 2.5% 2.5% 2.0% Development Needed 2.5% 2.5% 2.0% 2.0% Critical Need for Improvement 2.5% 2.0% 2.0% 2.0% 30 15
  16. 16. 7/11/2011Compensation Strategies in the ReboundingEconomy – Merit Matrix Best Practice Matrix Quartile in Range Performance 1 2 3 4 Exceptional 6.5% 5.5% 5.0% 4.0% Exceeds Expectation 6.0% 5.0% 4.0% 3.0% Effective 5.0% 4.0% 3.0% 2.0% Development Needed 2.0% 1.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% 31Compensation Strategies in the ReboundingEconomy – Merit Matrix Ultra-Aggressive Matrix Quartile in Range Performance 1 2 3 4 Exceptional 13.0% 11.0% 5.0% 3.0% Exceeds Expectation 11.0% 6.0% 3.0% 1.0% Effective 4.0% 0.0% 0.0% 0.0% Development Needed 0.0% 0.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% 32 16
  17. 17. 7/11/2011 TypicalResults Matrix Quartile in Range Performance 1 2 3 4 Exceptional 8.0% 7.0% 6.0% 5.0% Exceeds Expectation 6.0% 5.0% 4.0% 2.5% Effective 4.5% 4 5% 3.5% 3 5% 3.0% 3 0% 2.0% 2 0% Development Needed 2.0% 0.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% Cost Summary Payroll: $30,400,917 Budget $: $1,064,032 Merit Increases: $1,071,120.86 Budget as % of Payroll: 3.5% Model fits Percent Increase: 3.5% within budget Cost Detail Quartile in Range Performance First Second Third Fourth Exceptional $83,979 $184,222 $88,669 $15,200 Exceeds Expectations $109,175 $158,310 $58,617 $0 Meets E M t Expectations t ti $108,116 $108 116 $191,830 $191 830 $36,698 $36 698 $3,650 $3 650 Development Needed $32,654 $0 $0 $0 Critical Need for Improvement $0 $0 $0 $0 Total Cost: $1,071,121 Employee Count Detail Quartile in Range Performance 1 2 3 4 Exceptional 24 36 16 4 Exceeds Expectations 36 60 20 0 Effective 52 96 16 4 Development Needed 36 40 20 4 Critical Need for Improvement 24 32 12 33 4 33 Total Employees: 536Results Company XYZ Cost by Quartile $600,000 $500,000 Critical Need for Improvement $400,000 Meets Merit Increase Cost Expectations $300,000 Exceeds pectat o s Expectations M $200,000 Exceptional $100,000 $0 1 2 3 4 Quartile in Range 34 17
  18. 18. 7/11/2011 Results Company XYZ Costs by Performance Level $400,000 $350,000 $300,000 Fourth $250,000 Third Cost $200,000 $150,000 Second $100,000 $50,000 First $0 Exceptional Exceeds Expectations Meets Expectations Development Needed Critical Need for Improvement 35 Performance Employee Analysis Salary Grade Perf- Merit New MeritLast Name Name Job Title Min Max Salary Quartile ormance Percent Salary IncreaseBrown Stan HR Generalist $47,042 $72,915 $46,000 1 4 6.0% $47,042 $2,822.52Phillips Kevin IT Analyst $53,058 $84,892 $64,550 2 4 5.0% $64,550 $3,227.50Pence Skyler Construction Manager $47,042 $72,915 $76,000 4 5 5.0% $76,000 $3,800.00Pratt Jason Controller $70,169 $112,270 $103,299 4 2 0.0% $103,299 $0.00Beals Susan Maintenance Manger $47,042 $72,915 $59,000 2 3 3.5% $59,000 $2,065.00Duncan Elizabeth President $153,058 $229,587 $200,000 3 5 6.0% $200,000 $12,000.00 Adjustment due to employee being Lump sum increase below salary range due to employee being at top of salary range 36 18
  19. 19. 7/11/2011Compensation Strategies in the ReboundingEconomy– Merit Matrix • Cost neutral • Rewards performance • “Targeted” turnover • Fair and efficient method for administering pay • Accelerates employees to market competitive pay levels 37Compensation Strategies in the ReboundingEconomy– Merit Matrix • Common Pitfalls – Structures out of alignment with market • Garbage in, garbage out • May improperly allocate limited salary increase dollars based upon the current competitiveness of pay – Performance scores not calibrated • Supervisors can learn to game the system • Cheating is rewarded • Top performers may not be properly rewarded – Matrix results outside of budget 38 19
  20. 20. 7/11/2011Additional Considerations • Nonprofit compensation • Executive compensation in closely held businesses • Fair pay based on race and gender • Online performance management • Sales compensation 39 CBIZ CompCasts How to Set Pay Ranges that are Fair and EffectiveCompCasts Nonprofit Quick Guide to Navigating Intermediate Sanctions Creating and Using a Salary Increase Matrix Fair Pay: Maintaining Equality in Today’s Litigious Society In development at: www.cbiz.com/hr/compcasts 40 40 20
  21. 21. 7/11/2011Questions? Ed Rataj, CCP Rataj Managing Director – Compensation Consulting CBIZ Human Capital Services (314) 692-5884 erataj@cbiz.com 41 21

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