Building Compensation Plans

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A major piece of a company\'s operating budget is spent on compensation. Getting it right - designing an effective compensation strategy to attract, engage, and retain the right people - and leveraging that major investment are key to running a successful enterprise.

This interactive session will address the questions and topics below:

Where do we begin?
Define the basic building blocks for an effective compensation strategy
How do we build a fair compensation plan, using market analysis, salary ranges and pay administration guidelines?
How do we build and implement a compensation plan and integrate it with our business plan?
Learn from experts in the field who will identify how to develop and implement a compensation package to attract, retain and compensate your most valuable resource - human capital!



This will be an interactive, information packed seminar where you will learn techniques on how to develop and implement your total compensation plan.

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  • Job Descriptions have already done this work for you!!!60% of job seekers respond to emotional appeal of postingsUse job postings to sell your company!Sell the culture, locationWHY DO YOU WORK THERE???
  • Solid Interviewing Practices will filter out your best candidates quickly!Always use a VARIETY of compensation plan data.Remember “pay” is only ONE piece…BEFORE you start recruiting… build your IDEAL candidate profile… otherwise you won’t be able to “spot” them.
  • GROUP DISCUSSION????What job offer would you make?CONSIDER. Does he meet all your requirements?Do you have existing staff?At what pay level?Note; his salary requirements
  • Performance ExpectationsNeed to be clearly spelled out… understood and mutually agreed uponWhenever possible allow the employee input on setting the goalIndividual goals should roll up to reach the department goals; roll up to company goalsDiscuss pros and cons of indivdual vs. team goals Best to have a combination whenever possible Team goals can build morale, positive culture, “healthy competition”Always have at least one STRETCH GOAL
  • Performance Reviews:Keep it Real *** HR NIGHTMARE - AVG AVGAVG – FIRE THEM ***Formally at least once per yearKeep notes, samples, etc through out the year – NOT JUST THE FEW PRECEEDING WEEKS.Your effort in the review tells the employee how much you value them and the processSMART Goals – HAND OUTSpecific•Well defined•Clear to anyone that has a basic knowledge of the projectMeasurable•Know if the goal is obtainable and how far away completion is•Know when it has been achievedAttainable•Set checkpoints to monitor progress and make adjustments on processesRealistic•Within the availability of resources, knowledge and timeTime Line•Enough time to achieve the goal•Not too much time, which can affect project performance
  • Performance review was scored on a 1-5 rating…3.5 – Meets Plus3 = Meets3.75 Meets Plus Better4 Exceeds3.5 Meets Plus4 on Accuracy – ExceedsExcellent AttendanceOverall Rating = 3.8
  • What to do if the current salary is at the top of your range?Reward performance with a one time paymentDevelop an Incentive PlanSet KPI’s – Key Performance IndicatorsDevelopment Plan for PromotionAdd other areas/skills IF/WHEN applicable
  • You’ve got that long term employee who’s yearly review sounds like a broken record…Need a development plan…Add skillsCross TrainDevelop New areas of interest Machinist to Repairs QC to ISO Materials to Inventory Control HR to Safety
  • TrainingIncreased ValueTraining adds to the value of the job… some ee’s value the training as a perk of their job.They see their value being increased as their skills build.Additional qualifications increase their earning potential… now and in the future.TIP: BUILD QUALIFICATION TESTS!Ee’s love it! Auditor’s especially love it!Give them a certification of completion. 
  • Benefits shown here are defined as Health related2010 Hired at $41,6003-5 years experience2010 41600 3.80% 2011 43180.8 5% 2012 45339.84 10% 2013 49873.82 20% Promo 2014 59848.59 20% MBA2015 75000 Promo
  • Building Compensation Plans

    1. 1. BUILDING COMPENSATION PLANS<br />Creating a Comp Plan that Works!<br />
    2. 2. BUILDING<br />a Compensation Plan that Works<br />Business<br />Plan<br />Compensation<br />Budget<br />Benefits<br />Job Descriptions<br />Salary Ranges<br />Performance Management<br />Market Data<br />
    3. 3. INTRODUCTIONS<br />Your name & title/responsibilities<br />Company name, location, # of EEs<br />Why are you here, your comp. issues, takeaways?<br />Smaller Business Association of New England<br />3<br />
    4. 4. Basic Fundamentals FIRST!<br />Business Plan & budgets – compensation is a key component<br />Define organizational culture, consider employee relations issues<br />Develop a total Compensation strategy and budget<br />Smaller Business Association of New England<br />4<br />
    5. 5. Basic Fundamentals - continued<br />Develop individual and organizational goals and objectives<br />Goals should be mutually agreed upon<br />Work toward meeting objectives of the business plan and budget.<br />Smaller Business Association of New England<br />5<br />
    6. 6. Components of a Compensation Plan<br /><ul><li>Job descriptions – baseline for salary ranges
    7. 7. Benchmark salary ranges – based on skill sets
    8. 8. Survey data – sources & resources
    9. 9. Current salaries – base, adjustments, and increases</li></ul>Smaller Business Association of New England<br />6<br />
    10. 10. Components of a Compensation Plan- continued<br /><ul><li>Salary components: Base, bonus, incentives, performance, annual, commissions
    11. 11. Performance management systems
    12. 12. Merit Increase matrix </li></ul>Smaller Business Association of New England<br />7<br />
    13. 13. Smaller Business Association of New England<br />Job Description<br /> PRELIMINARY JOB DESCRIPTION Outline<br /><ul><li>JOB TITLE:DATE:
    14. 14. INCUMBENT:REPORTS TO: (position)
    15. 15. DEPARTMENT:APPROVED BY:
    16. 16. LOCATION:
    17. 17. DIMENSIONS (%, $$, units, #, etc.), if applicable:</li></ul> Reporting Staff (#): Personnel in Group (#):<br /> Customers: Annual Revenues: <br /> Collections: $ Budget: $<br /> Inventory: Facilities: <br /> Committees:<br /><ul><li>OBJECTIVE
    18. 18. NATURE & SCOPE -JOB DUTIES AND RESPONSIBILITIES
    19. 19. DESCRIBE THE MOST CRITICAL/COMPLEX TASKS/CHALLENGES CONSISTENTLY FACED
    20. 20. DECISION MAKING
    21. 21. INTERPERSONAL RELATIONSHIPS: Internal & External
    22. 22. EXPERIENCE/GENERAL QUALIFICATIONS & PERSONAL CHARACTERISTICS/SKILLS
    23. 23. EDUCATION/BASIC KNOWLEDGE
    24. 24. WORKING CONDITIONS
    25. 25. PHYSICAL DEMANDS
    26. 26. SOFTWARE, HARDWARE, MACHINES & EQUIPMENT USED:</li></ul>8<br />Smaller Business Association of New England<br />
    27. 27. Performance Management <br />Ongoing process of communication<br />Investment in future profitability & success of individuals and organization<br />Facilitates development of loyal, motivated, goal-oriented teams.<br />Frequency of reviews, who does it?<br />Set goals & objectives – SMART goals<br />Developmental tool – skills, behavior<br />Smaller Business Association of New England<br />9<br />
    28. 28. CREATING<br />a Compensation Plan that Works<br />Business<br />Plan<br />Compensation<br />Budget<br />Benefits<br />Job Descriptions<br />Salary Ranges<br />Performance Management<br />Market Data<br />Smaller Business Association of New England<br />
    29. 29. Building the Compensation Plan<br />Consider key questions <br />Create a market analysis<br />Build salary ranges<br />Develop pay administration guidelines<br />Smaller Business Association of New England<br />11<br />
    30. 30. Key Questions<br />Is My Company (“MyCo”) able to recruit, retain, and motivate talent?<br />What is “MyCo’s” pay position in the market?<br />What should “MyCo’s” pay position be?<br />What is affordable and realistic?<br />What is the typical mix of base and variable pay?<br />What should “MyCo’s” mix be?<br />Smaller Business Association of New England<br />12<br />
    31. 31. Create a Market Analysis<br />Get reliable data representing relevant labor market<br />Create excel spreadsheet internal and external data<br />Refer to handout for details<br />Compute % difference (“MyCo” data/Market data)<br />Compute overall averages and “slice and dice”<br />Grade (salary range), Function, Location<br />Weighted by “MyCo’s” population<br />Smaller Business Association of New England<br />13<br />
    32. 32. Build Salary Ranges<br />Purpose: <br />Communicate the range of pay for each job.<br />Typical practice: <br />Traditional ranges with a Minimum, Midpoint, Maximum<br />Range widths (Maximum/Minimum-1) of 50-70% (Prof/Managers)<br />Range widths of 40-50% (Clerical/Technicians/Production)<br /> OR<br />Smaller Business Association of New England<br />14<br />
    33. 33. Build Salary Ranges<br />Typical practice<br />Divide ranges into two to four parts to administer pay<br />Smaller Business Association of New England<br />15<br />
    34. 34. Build Salary Ranges<br />Step 1: Create salary range Midpoints <br />Take market data for lowest paying job rounded to $100<br />Multiply it by 1.1 at lower levels, 1.15 at higher levels and round<br />Example: <br />Smaller Business Association of New England<br />16<br />
    35. 35. Build Salary Ranges<br />Step 2: Next create salary range Minimums <br />Define appropriate range width (Maximum/Minimum), i.e., 50% <br />Divide Midpoint by 1+1/2 the width,1.25 to calculate Minimum<br />$24,800/1.25 = $19,840 or $19.8K (rounded) <br />Step 3: Create salary range Maximums <br />Add (Midpoint - Minimum) amount to Midpoint to get Maximum<br />$24.8-$19.8 = $5K; $24.8+5+$29.8K Maximum<br />Smaller Business Association of New England<br />17<br />
    36. 36. Build Salary Ranges<br />Step 4: Slot jobs in salary ranges<br />Start by using closest Midpoint to market data, <br />e.g., 50th percentile<br />“Tweak” slotting considering internal job relationships and fairness<br />Review employee impact (< Minimums, > Maximum)<br />Consider timing and communication of adjustments<br />Alternative Ways to Build Salary Ranges<br />Group jobs at same level and compute average market data to build ranges<br />Create a unique range or “Market Reference Pay” rate for each job<br />Smaller Business Association of New England<br />18<br />
    37. 37. Develop Pay Administration Guidelines<br />Purpose: ensure fair and appropriate pay decisions<br />Typical practice: <br />Facilitate “pay for performance” – “A” players paid more over time<br />Also consider skills, competencies, relevant experience<br />Use merit grids (matrixes) based on employee’s performance rating and pay position within salary ranges<br />Smaller Business Association of New England<br />19<br />
    38. 38. Develop Pay Administration Guidelines<br />Step 1: Determine the budget<br />Typical practice: separate merit and promotion/adjustment budgets<br />Example: 2.5% merit + 1% promotion/adjustment = 3.5% total<br />Step 2: Determine population distribution percentages<br />% of employees with each performance rating <br />% of employees paid in each quartile of their salary range<br />Smaller Business Association of New England<br />20<br />
    39. 39. Develop Pay Administration Guidelines<br />Step 3: Define guiding principles, i.e., Pay for Performance<br />No increases below “Meets”, with minimum increases of 1%<br />At least 2X increase if rated “Far Exceeds”, paid in lower ½ of range versus rated “Meets”, paid in same or higher part of range <br />Also consider position in range (quartile) in deciding increases<br />Provide a range in matrix rather than one fixed number, i.e., 4.5-6.5%, rather than 5.5% <br />Hug the keepers!<br />Smaller Business Association of New England<br />21<br />
    40. 40. Develop Pay Administration Guidelines<br />Step 4: Calculate payouts in each matrix cell<br />Refer to handout for details<br />Step 5: Sum cell payouts to see if total is within budget<br />Step 6: Communicate final matrix to management <br />Smaller Business Association of New England<br />22<br />
    41. 41. IMPLEMENTING<br />a Compensation Plan that Works<br />Business<br />Plan<br />Compensation<br />Budget<br />Benefits<br />Job Descriptions<br />Salary Ranges<br />Performance Management<br />Market Data<br />Smaller Business Association of New England<br />
    42. 42. Using it to build your business<br />ATTRACT TALENT<br />MOTIVATE TALENT<br />MAINTAIN TALENT<br />Smaller Business Association of New England<br />24<br />
    43. 43. How can you use a solid compensation plan to ATTRACT employees? <br />Recruiting<br />Define<br />Job Requirements and Skill Sets (Job Descriptions)<br />Salary Pay Ranges and Other Compensation<br />Culture!! Sell Added Value<br />Smaller Business Association of New England<br />25<br />
    44. 44. ATTRACT TALENT!<br />Smaller Business Association of New England<br />Toolbox<br />Solid Interviewing Practices<br />Interview Guides<br />Based on Job Descriptions<br />Candidate Evaluation Form<br />Compensation Plan Data<br />Use Several Sources<br />Have pre-defined ranges<br />Salary is only ONE piece of the pie!<br />Market Place Position<br />KNOW who target audience or IDEAL candidate<br />KNOW where you are and where you want to be<br />26<br />
    45. 45. Introducing Samuel Bane<br />Smaller Business Association of New England<br />JOB POSTING<br />ACCOUNTANT <br /><ul><li>CPA Required
    46. 46. 5-7 years experience
    47. 47. Manufacturing background preferred
    48. 48. QuickBooks knowledge a plus
    49. 49. Salary based on experience</li></ul>Samuel Bane Resume<br /><ul><li>Education/Certification:</li></ul>CPA<br /><ul><li>Employment:</li></ul>ABC Manufacturing<br />Jan. 2005 – present<br /><ul><li>Software:</li></ul>QuickBooks, Peachtree<br /><ul><li>Salary requirements:</li></ul> $50k<br />27<br />
    50. 50. How can you use a solid compensation plan to MOTIVATE employees? <br />Performance Management<br />Define<br />Performance Expectations<br />Individual Goals – <br />Department & Company Goals<br />Team Goals vs. Individual Goals<br />WIIFM!!! (What’s In It For Me?)<br />Smaller Business Association of New England<br />28<br />
    51. 51. MOTIVATE TALENT!<br />Smaller Business Association of New England<br />Toolbox<br />Performance Management Process<br />Clear Expectations<br />Discuss Performance and Salary separately<br />Keep it real! Include good, bad and ugly!<br />Set SMART Goals<br />Merit Matrix Increase<br />See Handout for example<br />29<br />
    52. 52. Samuel BanePerformance Review<br />Smaller Business Association of New England<br />30<br />
    53. 53. Smaller Business Association of New England<br />MERIT INCREASE MATRIX<br />31<br />
    54. 54. How can you use a solid compensation plan to MAINTAIN employees? <br />Employee Engagement<br />Define<br />Career Progression<br />Training Gaps<br />WIIFM!!! <br />(What’s In It For Me?)<br />Smaller Business Association of New England<br />32<br />
    55. 55. MAINTAIN TALENT!<br />Smaller Business Association of New England<br />Toolbox<br />Career Progression<br />Show how their compensation plan builds toward future<br />Review all facets; salary, benefits, retirement<br />Define skills needed for “next step”<br />Pay Grade Increase? Title Change?<br />Training<br />Increased “Value” as qualifications build<br />Part of compensation<br />33<br />
    56. 56. Samuel Bane Career Progression<br />Smaller Business Association of New England<br />34<br />
    57. 57. Smaller Business Association of New England<br />
    58. 58. Smaller Business Association of New England<br />CONTACT INFO.<br />

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