Compensation Analytics: The ROI of Turnover


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Review of critical comp analytics to give you a better understanding of basic compensation language, including how to actually calculate the numbers that matter to your organization. You’ll learn how to talk like a comp pro, calculate basic comp metrics and present the health of your comp program to execs.

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  • Creator of the largest database of individual compensation profiles in the world, PayScale, Inc. provides an immediate and precise snapshot of current market salaries to employees and employers through its online tools and software. PayScale’s products are powered by innovative search and query algorithms that dynamically acquire, analyze and aggregate compensation information for millions of individuals in real time. Publisher of the quarterly PayScale IndexTM, PayScale's subscription software products for employers include PayScale MarketRateTMand PayScale InsightTM. Among PayScale's 2,500 corporate customers are organizations small and large across industries including Mozilla, Tully’s Coffee, Clemson University and the United States Postal Service.  
  • Stems from the larger concept of Business IntelligenceIt’s the quantifiable data that provides detailed information about the compensation costs within your organizationIt’s your scorecard – your evaluation tool for understanding if the compensation program is meeting the stated goals
  • Mykkah
  • Philosophy: Employee-facing document that gives a high-level view on the aims of the organization with regard to compensationStrategy: Management-facing (typically) and answers critical comp questions of – labor market, competitiveness, and what to rewardPolicy: how are comp decisions carried out – more tactical documentStructure: the bones – how is the comp program laid out – how are positions aligned.
  • Leaders don’t want to be told what to do - typically leaders are leaders b/c they lead. While they vary in style, generally they’re in the habit of telling vs being told.Leaders can be distrustful of change – Change, especially from HR, traditionally has meant more hoops, more paperwork, more expense without incoming $Leaders are decision-makers – Give them options & choices, and they’ll select the appropriate path forward for the orgMany leaders have access to information – Their peers are leaders at other organizations. Often they’re already talking about these things with their peers.What matters to your leaders?Ultimately, you know what will work best for your leaders. The key is to put yourself in their shoes and think about *what* and *how* they want information about comp.
  • 83813/9049491= 0.9% of total salary budget232262/9049491 = 2.5% of total salary budget
  • Mykkah
  • Targeting the 50th percentile
  • To put this into perspective, let's assume the average salary of employees in a given company is $50,000 per year. Taking the cost of turnover at 150% of salary, the cost of turnover is then $75,000 per employee who leaves the company. For the mid-sized company of 1,000 employees who has a 10% annual rate of turnover, the annual cost of turnover is $7.5 million!
  • Compensation Analytics: The ROI of Turnover

    1. 1. Compensation Analytics: The ROI of Turnover Mykkah Herner, MA, CCP Manager of Professional Services PayScale, Inc.
    2. 2. 14,000 Positions 2500 Customers 11 Countries 250 Compensable Factors 40 Million Salary Profiles
    3. 3. Agenda o What are comp analytics and why do they matter? o Basic language and calculations. o Communicating with execs about comp. o How are we doing? o Are we keeping up with the market? o What about our critical positions? o How are our top performers doing? o Are there any potential risks? o Any turnover issues? The cost of turnover. o Immediate action.
    4. 4. What are comp analytics and why do they matter?
    5. 5. Comp analytics defined: Quantifiable data that provides detailed information about compensation costs at your organization.
    6. 6. Why bother with comp analytics? o Measure performance of your comp program. o Identify pay issues that create unnecessary cost. o Identify pay issues that create risk of litigation. o Condense large amounts of information into small understandable nuggets. o Substantiate your hunches. o Get your CFO on your side.
    7. 7. Basic Comp Language and Calculations
    8. 8. Basic Comp Language: Describing the Plan  Comp Plan o Comp Philosophy o Comp Strategy o Defining “The Market” o Percentile – 50th percentile o Comp Policy o Comp Structure o Ranges & Grades o Schedules
    9. 9. Basic Comp Language: Structure Hourly Structure o 17 hourly grades o Expanding range spreads from 30-62% o Midpoint differential of 12.5% Grade Range Width Min Mid Max A 30% $8.75 $10.00 $11.25 B 32% $9.75 $11.25 $12.75 C 34% $10.75 $12.75 $14.50 D 36% $12.00 $14.25 $16.50 E 38% $13.50 $16.00 $18.50 F 40% $15.00 $18.00 $21.00 G 42% $16.75 $20.25 $23.75 H 44% $18.75 $22.75 $27.00 I 46% $20.75 $25.75 $30.50 J 48% $23.25 $28.75 $34.50 K 50% $26.00 $32.50 $39.00 L 52% $29.00 $36.50 $44.00 M 54% $32.25 $41.00 $49.75 N 56% $36.00 $46.25 $56.25 O 58% $40.25 $52.00 $63.75 P 60% $45.00 $58.50 $72.00 Q 62% $50.25 $65.75 $81.50 Hourly Structure
    10. 10. Basic Comp Language: Schedules and Market Differentials Purpose Preserve both competitive pay and internal equity. Support simplicity of structure. Implementation Schedule = set of ranges & grades. Markets are grouped in 5% increments; schedules are adjusted to reflect markets. TAMPA Schedule C: -5% NEW YORK Schedule G: +15% PORTLAND Schedule D: Main
    11. 11. Basic Comp Language: Understanding Ranges o Range Width [=(max-min)/min] o How much flexibility do we give our managers in setting pay? o Midpoint Differential [=(midpoint grade2-midpoint grade1)/midpoint grade1)] o Do we have a more or less hierarchical org structure? Positions with multiple levels?
    12. 12. Basic Comp Language: Using Ranges o Range Penetration [=(EE Pay-min)/(max-min)] o How well are employees moving through their ranges – do the ones at the top deserve it? o Green-Circled Employees [Below bottom of range] o We may be untruthful and/or paying un”fair”ly. o Red-Circled Employees [Above top of range] o These are employees we decide to pay more, even though the data doesn’t support it.
    13. 13. Basic Comp Language: Measuring Plan Performance o Compa-Ratio [=EE Pay/Mid] o Are we on track with our pay philosophy? o Market Ratio [=EE Pay/Market] o How are we doing vs our competitors? o Midpoint to Market Delta [=(Mid-Market)/Market] o Are our ranges current to market?
    14. 14. Communicating with Execs about Compensation
    15. 15. Executive Communication Basics o Know your audience! o Kill the HR Jargon, yet do use enough industry language to demonstrate your knowledge. o Don’t present problems without solutions. o Focus on results not processes. o Be succinct. o For every question, identify: o What’s the real concern? o What’s the response? o Proof for your claim.
    16. 16. How are we doing? What’s the real concern o Comp is something nebulous that I can’t control or understand o I’m afraid we’re far far away from the market What’s the response o Educate and update execs regularly on the comp info they need to know Proof o Market-Ratio – report for the org and by dept* o Compa-Ratio – report for the org and by dept. Provide individual info to managers, as appropriate
    17. 17. How are we doing? Sample Compa Ratio Report
    18. 18. Are we keeping up with the market? What’s the real concern? o We’re losing a lot of people to our competitors. o Someone annoying has been coming into my office every week for the past quarter asking for an increase. o Are we overpaying? What’s the response? o Share real-time data on your organization’s position relative to the market. Proof o Market-Ratio – report for the org and by dept.* o Compa-Ratio – report for the org and by dept. Provide individual info to managers, as appropriate.
    19. 19. Are we keeping up with the market? Sample Market Ratio Report
    20. 20. What about our critical positions? What’s the real concern? o We have 12 names in a drawer and we’re willing to pay those people anything – don’t tie my hands. o We’ve had 3 of our best 8 people leave a critical job in the past few months. What’s going on? What’s the response? o Share current market trends on critical jobs so you can be more responsive to market shifts in an uncertain time. Proof o Market Reports – Hot jobs analysis.
    21. 21. What about our critical positions? Hot Jobs Analysis
    22. 22. How are our top performers doing? What’s the real concern? o We just lost a really critical, high-performing, employee to our competitor. What’s the response? o Share info about where your top performers fall in range. Proof o Flight Risk Report. o Underpaid over-achievers.
    23. 23. How are our top performers doing? Flight Risk Report
    24. 24. Are there any potential risks? What’s the real concern? o Where are we open to law suits? o We have a report due on our compliance with EEO. What’s the response? o Share info on disparate pay/potential risk areas. o Provide assurance that there are no risk issues. Proof o Disparate pay report, divided by EEO classes.
    25. 25. Are there any potential risks? Disparate Pay and Reports by EEO Disparate Pay Gender-based Report
    26. 26. Any turnover issues? The Cost of Turnover What’s the real concern? o We’ve had a lot of folks who have been here a while leave! Is that ok? o We’ve had some critical positions turnover, is that ok? What’s the response? o Get to the reasons behind the turnover. Not all turnover is bad. o Share the physical costs of turnover. Proof o Turnover calculation.
    27. 27. Any turnover issues? Calculating the Cost of Turnover Monetary o Costs due to leaving o Recruitment o Training o Low Productivity Costs o New Hire o Lost sales / opportunity costs Morale o Bad turnover vs good turnover Typical Projections o Line Staff = 150% of annual salary o Managerial staff = 200-250% of annual salary Additional Resource:
    28. 28. Immediate Action 1) Set ranges for positions 2) Evaluate ranges to market 3) Evaluate employees in ranges 4) Verify range penetration of top performers 5) Begin reporting and educating execs on comp analytics
    29. 29. PayScale Delivers Where Other Compensation Providers Fall Short PayScale leads the world in compensation knowledge with the freshest and most detailed data from over 40 million salary profiles. More than 2500 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: Join our Group on LinkedIn: Compensation Today: HR Best Practices Mykkah Herner, MA, CCP Manager of Professional Services, PayScale, Inc.