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Compensation Budgeting Part 2: Determining Raises

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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.  
  • Org/Plan level: fair pay to marketExamine ranges relative to market dataSolution move ranges or notDept level: fair pay across departmentsDecide how you want to target various depts (percentile of mkt) and use market ratio to checkSolution – move pay in alignment with strategyPosition level: have some positions move faster than others?Examinemkt to range mid for each position, examine EE paySolution – potentially move some positions up or down a grade based on market & EE pay practicesEmployee level: are you paying according to your policy? Fairly based on EEO status?PART I:Examinecompa-ratios and range outliersSolution – course correct with increase %PART II/discrimination:Examine disparate pay reportSolution – course correct with increase %
  • If you reward based on x what would the increases look like, and are there any long-term implications?X=MarketIncreases are allocated based on position in range – those lower in range get a higher increase than those higher in rangeLong term, employees know that they are paid fairly to market, but aren’t given an major incentive to perform betterX=PerformanceIncreases are allocated based on performance – those with higher performance get a higher increase than those with avgperfLong term, ees know that they are paid fairly based on their outputs/efforts/contributionsX=ProficiencyIncreases are allocated based on how well an employee knows various aspects of the jobLong term, ees learn quickly and rapidly learn the basics of the role, but often there isn’t much incentive to go above & beyondX=TenureIncreases are allocated based on how long employee has been in the role/orgLong term, ees know they just have to stick around to keep getting increases. Low incentive to performCOLA – mirror breath test
  • Org LevelHow do you plan to do increases? Do you want to maintain the compa-ratio (across the board market-based increase) or do increases by position in range? What is the $ impact of employees falling out of range in the green? Position LevelCalculate the cost of moving position to a new gradeCalculate costs of your market premium – advantage year over yearEE LevelDetermine the amount to resolve critical issuesCalculate amount to resolve compression issues – increases to existing?Any necessary market adjustments for individuals?DIFFERENCE BETWEEN MARKET ADJ AND MERIT INCREASE!
  • Position LevelCalculate the cost of moving position to a new gradeCalculate costs of your market premium – advantage year over year
  • EE LevelDetermine the amount to resolve critical issuesCalculate amount to resolve compression issues – increases to existing?Any necessary market adjustments for individuals?
  • Transcript

    • 1. Compensation Budgeting Part II: Determining Raises We will be sending out slides and accreditation information following the presentation Mykkah Herner, MA, CCP Manager of Professional Services PayScale, Inc. www.payscale.com
    • 2. 14,000 Positions 3000 Customers 11 Countries 40 Million Salary Profiles 250 Compensable Factors www.payscale.com
    • 3. Three-part Series on Compensation Budgeting Part I: Managing Pay Inequities Part II: Determining Raises Part III: Putting it all together with PayScale Insight www.payscale.com
    • 4. Agenda Recap of Part I Part II What 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 Market o Merit Matrix (Pay-for-Performance) Putting it all together for budget recommendations Next month: putting it all together with PayScale Insight www.payscale.com
    • 5. o Start with a plan o Know your comp Philosophy, Strategy, and Policy Recap of Part I o Get reliable market Data o Identify comp inequities at Org, Dept, Position, and Individual levels o 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? o Develop solutions http://resources.payscale.com/hr-webinar-budgetingpart-1-managing-internal-pay-inequities.html www.payscale.com
    • 6. What do you want to reward? www.payscale.com
    • 7. What do you want to reward? You can base increases on… o Market o Performance o Proficiency o Tenure A note on COLA www.payscale.com
    • 8. Streamlining the Increase Process
    • 9. Considerations for your increase process & timeline Depends on your organizational values around transparency and inclusion Determine on what you’ll base increases Create a timeline www.payscale.com
    • 10. 7/1-10/15 10/15-10/31 Salary Adjustment Process & Timeline 11/01-11/15 11/15-11/30 12/01 12/15 12/20 1/1 • Complete market study • Create spreadsheet with suggested increases • Train Managers on Compensation Process & their roles; deliver spreadsheets to managers • Have a period of time for edits (managers, HR) • Finalize increases / approval • Communicate to employees • Process adjustments in payroll • New pay is live with 1/1 payroll www.payscale.com
    • 11. How to Calculate Pay Increases www.payscale.com
    • 12. Market-based Increases  Tier increases by position in range o Start with a budget increase % o Allocate increases to EEs based on range penetration o Create spreadsheet www.payscale.com
    • 13. Increase Spreadsheet Name Job Title Alexander, Maria Account Manager Current Range Annual Base Min Range Mid Range Max CompaRatio New Range Increase Annualized Annual Penetration % Increase Base New Compa- New Range ratio Penetration $45,900 $46,300 $57,100 $67,900 0.804 -2% 3.80% $1,744 $47,644 0.83 6% Arnold, Alexandra Driver I $29,600 $29,300 $35,700 $42,100 0.829 2% 3.80% $1,125 $30,725 0.86 11% Baker, Nicholas Account Executive $46,500 $40,400 $49,800 $59,200 0.934 32% 3.80% $1,767 $48,267 0.97 42% Allen, Ryan Program Manager $86,700 $73,600 $93,300 $113,000 0.929 33% 3.80% $3,295 $89,995 0.96 42% Bailey, Sara Senior Account Executive $64,000 $54,700 $68,400 $82,100 0.936 34% 2.80% $1,792 $65,792 0.96 40% Anderson, James Customer Service Rep $45,500 $34,900 $42,500 $50,100 1.071 70% 1.90% $865 $46,365 1.09 75% Andrews, Vincent Senior Account Executive $76,700 $54,700 $68,400 $82,100 1.121 80% 1.90% $1,457 $78,157 1.14 86% Adams, Christina Account Manager $63,800 $46,300 $57,100 $67,900 1.117 81% 1.90% $1,212 $65,012 1.14 87% 0.967625 41% 2.96% $13,257 $471,957 1.00 49% Total/Average $458,700 SUM • • • • • • AVG AVG AVG SUM SUM AVG AVG Compa-Ratio = Current Annual Base / Range Mid 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 Compa-Ratio = New Annual Base / Range Mid New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min) www.payscale.com
    • 14. Using a Matrix (Merit or Proficiency)  Tier increases by position in range & performance o Start with a budget increase % o Allocate increases to EEs based on range penetration and performance o Create spreadsheet o Note: Proficiency, or another factor, can work like performance in this example www.payscale.com
    • 15. Increase Spreadsheet Name Job Title Current Annual Base Performance Range Rating Min Range Mid Range Max New Compa- Range Increase Annualized Annual Ratio Penetration % Increase Base New Compa- New Range ratio Penetration Adams, Christina Account Manager $63,800Meets $46,300 $57,100 $67,900 1.117 81% 1.70% $1,085 $64,885 1.14 86% Alexander, Maria Account Manager $45,900Meets $46,300 $57,100 $67,900 0.804 -2% 3.90% $1,790 $47,690 0.84 6% Allen, Ryan $86,700Meets $73,600 $93,300 $113,000 0.929 33% 3.90% $3,381 $90,081 0.97 42% Anderson, James Customer Service Rep $45,500Meets $34,900 $42,500 $50,100 1.071 70% 1.70% $774 $46,274 1.09 75% Andrews, Vincent Senior Account Executive $76,700Meets $54,700 $68,400 $82,100 1.121 80% 1.70% $1,304 $78,004 1.14 85% Arnold, Alexandra Driver I $29,600Meets $29,300 $35,700 $42,100 0.829 2% 3.90% $1,154 $30,754 0.86 11% Bailey, Sara Senior Account Executive $64,000Does not meet $54,700 $68,400 $82,100 0.936 34% 0% $0 $64,000 0.94 34% Baker, Nicholas Account Executive $46,500Does not meet $40,400 $49,800 $59,200 0.934 32% 0.90% $419 $46,919 0.94 35% Barnes, Paul Customer Service Rep $38,600Exceeds 0.908 24% 7% $2,702 $41,302 0.97 42% 0.961 39% 2.74% $12,608 $509,908 0.99 46% Totals/Averages • • • • • • Program Manager $497,300 $34,900 $42,500 $50,100 Compa-Ratio = Current Annual Base / Range Mid 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 Compa-Ratio = New Annual Base / Range Mid New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min) www.payscale.com
    • 16. Developing Budget Recommendations www.payscale.com
    • 17. Putting it all Together Part I o 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 premiums o Employee Level Solutions – Equity Adjustments • Cost of correcting individual pay inequities Part II o Increase Budget – Pay Increase Adjustments
    • 18. Org Level Solution Costs Range Adjustments o If you decide to maintain compa-ratios, 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 www.payscale.com
    • 19. Position Level Solution Costs Market Adjustments o Moving positions to a new grade o What will be the cost of ensuring all incumbents are in range o For example, Driver I and CSR = 100 + 400 = $500 o Offering a market premium o Calculate yearly market premium payment to all incumbents in the role o For example, Software Engineer = 21 * $1000 = $21,000 www.payscale.com
    • 20. Employee Level Solution Costs Equity Adjustments o 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? www.payscale.com
    • 21. Pay Increase Adjustments Pay Increase Adjustments o 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. www.payscale.com
    • 22. Summary of Comp Budget Requests 2014 Compensation Budget Requests Total Salary Budget: 2014 Range Adjustments 2014 Market Adjustments 2014 Equity Adjustments 2014 Pay Increase Adjustments Total Increase 2014 Salary Budget $15,000,000 Percent 0.06% 0.14% 0.02% 3% Dollar Amount $9,200 $21,500 $3,700 $450,000 $484,400 $15,484,400 Detail for comp budget request is in the following attachments Costing for Range Adjustments Costing for Market Adjustments Costing for Equity Adjustments 2014 Pay Increases www.payscale.com
    • 23. Next Month: Using PayScale’s Insight and Insight Expert to support compensation budgeting www.payscale.com
    • 24. 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 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-today Join our Group on LinkedIn: Compensation Today: HR Best Practices Mykkah Herner, MA, CCP Manager of Professional Services, PayScale, Inc. www.payscale.com

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