5 Steps To A Smart Compensation Plan

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5 Steps to a Smart Compensation Plan

Rusty Lindquist
VP Strategic HR Insights
BambooHR
Mykkah Herner
Head of Professional Services
PayScale

5 steps to set up your
compensation plan
Gain executive support.
Define your compensation strategy.
Develop a market-based pay structure.
Build pay ranges.
Implement a total rewards plan.

Step 1: Gain
Executive Support

Payroll is, by far, a company’s
biggest expense; the cost of
getting it wrong is tremendous.

Pay is the number 3 reason people quit jobs
[BambooHR study]. If employees aren’t being paid
what they’re worth, they will find it somewhere else.
Executives must care about compensation
if they care about retention.

Top Compensation Mistakes
• Not updating compensation regularly
• Not empowering managers to fix
problems
• Not being transparent
• Giving across-the-board raises
• Not having a structured plan

Compensation plans help
the bottom line.
1. They make good business sense.
2. They help attract and retain talent.
3. They support your company’s mission,
strategy and culture.

“If you pick the right people and give them
the opportunity to spread their wings and
put compensation as a carrier behind it,
you almost don’t have to manage them.”
—Jack Welch

Step 2: Define Your
Compensation Strategy

Questions to ask:
• What is your market?
• What are your goals?
• How competitive do you need to be?
• What should you reward?
• Is your current strategy working?

What is the right compensation
mix for your company?

—Harvard Business Review
“Keep the plan simple. It should be
extraordinarily clear which
outcomes you are rewarding.”

Step 3: Develop a Market-
Based Pay Structure

Decide on the correct job evaluation method.
Market Pricing v. Point Factoring

Aging is great…
for wine and cheese.

Step 4: Build Pay Ranges

Identify Market Differentials
Schedules preserve both competitive pay to local
markets and internal equity.
Baltimore
+5%
Dallas
Main
Minneapolis
+5%

Determine Your Pay Grades
The number of pay grades you use will influence your
midpoint differential and should sufficiently distinguish
difficulty levels of different jobs.

Some considerations include
• How wide should my ranges be?
• How much overlap between pay ranges is good?
Build Pay Ranges

Evaluating employee placement in range.
Developing guidelines or policies for movement.
Using Pay Ranges

Use market data
Verify internal alignment
Assign Jobs to Grades

Basic Function
& Key
Differentiators
• Administrative
Accounting Functions
to support AP & AR
• Update General Ledger
• AP / Vendor Relations
• AR
• Maintain General
Ledger
• Prepare financial
reports
• Interpret financial
reports and statements
for management
• Analyze financial data
• Prepare budgets
Degree &
Certification
Requirements
None Bachelor’s Degree
No certification required
Bachelor’s Degree
CPA required at proficiency
Bachelor’s Degree
CPA required at start
Critical Skills at
proficiency
• Attention to Detail
• Excel
• Data Entry
• Quickbooks
• Attention to Detail
• Quickbooks
• GAAP
• General Ledger
• Monthly Reconciliation
• Financial Reporting
• GAAP
• Financial Reporting
• Financial Analysis
• Budgeting
Years of
Experience
• 1-2 at proficiency • 3-5 at proficiency • 5-7 at proficiency • 8-10 at proficiency
Accounting
Assistant
Senior
Accountant
Accountant I
Accountant II
Grade C Grade E Grade 5 Grade 7
Build Career Path

Step 5: Implement Total
Rewards Plan

Compensation Plan Element
• Philosophy
• Strategy
• Structure
• Policy
• Process

Budgeting for Increases

Deal with Outliers

Strategies: Equip Managers
• Educate them
• Give them the big picture
• Give them tools

What can we do now?
1. Talk with executives about the need for an
updated compensation plan.
2. Research market data for your employees’ jobs.
3. Create a pay structure to ensure internal equity.
4. Review your current compensation policies and
decide where updates are needed.

Follow BambooHR and PayScale on social media:
bamboohr.com/blog | payscale.com/compensation-today
Thank you!

Questions?
BambooHR
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Download our free eBook: Communicating Compensation: Your guide to
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PayScale

5 Steps To A Smart Compensation Plan

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