21st Century Compensation Planning

“We are Passionate about HR and your business success!”

Show of hands:
• You have responsibility for the compensation system
• You have a formal background in compensation
• Drew the “short straw” and have no background in
compensation but are responsible for the discipline

1. Compensation Fundamentals
2. Key Signals of System Distress
3. Guiding Principles of Compensation Philosophy
4. Compensation Philosophy & Strategy
in a Public or Private Sector Organization
5. Mapping Your Compensation Classification Project
6. Hazards to Watch Out For
Agenda

Compensation
Fundamentals

position description job analysis essential function external equity compa ratio
benchmark overtime percentage net pay gross payroll nonexempt market
incentive grade alignment salary differential standard deviation median
weighted average percentile scattered distribution trend line minimum midpoint
quartile maximum range spread fixed variable budget revenue target index
survey data cut job evaluation classification total rewards position description
job analysis essential function external equity compa ratio benchmark overtime
percentage net pay gross payroll nonexempt market incentive grade alignment
salary differential standard deviation median weighted average percentile
scattered distribution trend line minimum midpoint quartile maximum range
spread fixed variable budget revenue target index survey data cut job
evaluation classification total rewards position description job analysis essential
function external equity compa ratio benchmark overtime percentage net pay
gross payroll nonexempt market incentive grade alignment salary differential
standard deviation median weighted average percentile scattered distribution
trend line minimum midpoint quartile maximum range spread fixed variable time
o Complex
o Mysterious
o Tedious
o Divisive
o Strategic
o Powerful
o Creative
o Systematic
A Few Words about the Fundamentals

•Compensation Is:
Check ( ) one
o An “Art”
o A “Science”
The Compensation Discipline

•A strategic compensation system forms a visible link
between organizational objectives, strategies and
business metrics, while balancing the expectations of its
employees with the costs to the employer,
• AND
•Be fluid and flexible enough to meet changing
economic and market conditions.
Strategic

As a system, compensation is:
• Communicating your culture and values as an
organization
• Driving (and incentivizing) employee behavior
• One of largest items on your financial statements
(if not the biggest)
Powerful

Every compensation system is unique!
• Directly tied to organizational culture, industry,
size, complexity
• Each organization, even within the same industry,
may have distinct goals which vary the system
• Identifying how your goals will drive your
structure requires innovation & ingenuity
Creative

Designing compensation programs does
require a logical methodology
• How and why design decisions are made
• There is a framework, either explicit in published
guidelines or understood by administrators
• Ensures an equitable and defensible system
Systematic

• Direct financial rewards (pay)
• Indirect financial rewards
(intrinsic/extrinsic benefits)
• Work content (the work itself)
• Careers (long term opportunities for
development / advancement)
• Affiliation (the feeling of belonging)
5 Reward Categories

Grade 25% 40% Mid-Point 50% 60% 75% Spread
1 $8,520 $9,656 $11,360 $13,064 $14,200 50%
2 $17,827 $20,204 $23,769 $27,334 $29,711 50%
3 $18,000 $20,400 $24,000 $27,600 $30,000 50%
4 $19,304 $21,878 $25,739 $29,600 $32,174 50%
5 $23,727 $26,891 $31,636 $36,381 $39,545 50%
6 $26,268 $29,770 $35,024 $40,278 $43,780 50%
7 $30,648 $35,756 $40,864 $46,994 $51,080 50%
8 $38,645 $43,797 $51,526 $59,255 $64,408 50%
9 $47,675 $54,032 $63,567 $73,102 $79,459 50%
10 $68,165 $77,254 $90,887 $104,520 $113,609 50%
11 $75,902 $86,022 $101,202 $116,382 $126,503 50%
12 $82,385 $93,370 $109,847 $126,324 $137,309 50%
14 $90,740 $102,839 $120,987 $139,135 $151,234 50%
15 $148,434 $168,225 $197,912 $227,599 $247,390 50%

PROPOSED - SUMMARY OF JOB CLASSIFICATIONS AND RANGES
Fiscal Year 2018 - Effective January1,2018 As of: 11/17/2017
Salary Range
Grade The Chamber Job Titles 25% 40% Mid-Point 50% 60% 75% Spread
1 $8,520 $9,656 11,360 $13,064 $14,200 50%
Resource Desk Asst I (part-time) I
`
2 $17,827 $20,204 23,769 $27,334 $29,711 50%
Resource Desk Asst II
Resource Desk Coord I
3 $18,000 $20,400 24,000 $27,600 $30,000 50%
Mship Account Executive
4 $19,304 $21,878 25,739 $29,600 $32,174 50%
Econ Dev Asast
Executive Assistant I
Resource Desk Asst III
Resource Desk Coord II
5 $23,727 $26,891 31,636 $36,381 $39,545 50%
Econ. Dev. Coord.I
Executive Assistant II
Facilities Supervisor I
Govt & Public Affairs Coord. I
Resource Desk Coord III
Small Business and Events Coordinator I
6 $26,268 $29,770 35,024 $40,278 $43,780 50%
Accounting Specialist I
Econ. Dev. Coord. II
Executive Assistant III
Facilities Supervisor II
Govt & Public Affairs Coord. II
Graphic Designer I
Small Business and Events Coordinator II
Web Designer I
7 $30,648 $34,734 40,864 $46,994 $51,080 50%
Accounting Specialist II
Econ. Dev. Coord. III
Facilities Supervisor III
Govt & Public Affairs Coord. III
Graphic Designer II
Small Business and Events Coordinator III
Web Designer II

Last Name First Name Job Title/Occupation
New XYZ Corp.
Pay Grade Annual Salary
EE
compared
to Mid-point
75% 100% (Mid-Point) 125%
John Doe Accounting Assistant 1 $33,000.00 87.35% 28,334 $37,778 47,223
John Doe Clerical Assistant 1 $25,000.00 66.18% 28,334 $37,778 47,223
John Doe Integrator 1 $37,080.00 98.15% 28,334 $37,778 47,223
John Doe Jr. IT Technician/ISSO 1 $41,000.00 108.53% 28,334 $37,778 47,223
John Doe Receptionist 1 $31,200.00 82.59% 28,334 $37,778 47,223
John Doe Configuration Manager 2 $50,000.00 91.71% 40,889 $54,518 68,148
John Doe Financial Analyst 2 $52,000.00 95.38% 40,889 $54,518 68,148
John Doe Marketing/Public Relations Admin 2 $54,802.00 100.52% 40,889 $54,518 68,148
John Doe Protocol & Event Mgmt. Analyst 2 $52,159.20 95.67% 40,889 $54,518 68,148
John Doe Public Works Specialist 2 $45,000.00 82.54% 40,889 $54,518 68,148
John Doe .NET Developer 3 $49,000.00 78.49% 46,824 $62,432 78,040
John Doe Administrative Assistant 3 $40,000.00 64.07% 46,824 $62,432 78,040
John Doe Documentation Specialist 3 $63,550.00 101.79% 46,824 $62,432 78,040
John Doe Drafter 3 $52,000.00 83.29% 46,824 $62,432 78,040
John Doe Education Analyst 3 $52,500.00 84.09% 46,824 $62,432 78,040
John Doe Jr. Network Architect 3 $57,200.00 91.62% 46,824 $62,432 78,040
John Doe Jr. Software Developer 3 $54,600.00 87.46% 46,824 $62,432 78,040
John Doe Logistics Specialist 3 $64,533.76 103.37% 46,824 $62,432 78,040
John Doe Manufacturing Tech 3 $45,417.81 72.75% 46,824 $62,432 78,040
John Doe Security Specialist 3 $46,000.00 73.68% 46,824 $62,432 78,040
John Doe Trainer 3 $48,830.83 78.21% 46,824 $62,432 78,040
John Doe Accountant 4 $54,000.00 73.35% 55,217 $73,622 92,028
John Doe Asst. FSO 4 $66,802.47 90.74% 55,217 $73,622 92,028
John Doe Benefits Specialist 4 $60,000.00 81.50% 55,217 $73,622 92,028
John Doe Business Specialist 4 $71,500.00 97.12% 55,217 $73,622 92,028

Last Name First Name Job Title/Occupation
New XYZ Corp.
Pay Grade Annual Salary
EE
compared
to Mid-point
75% 100% (Mid-Point) 125%
John Doe Systems Integrator/Analyst 8 $55,647.12 51.07% 81,721 $108,961 136,201
John Doe Network Support Specialist 7 $52,761.13 54.56% 72,533 $96,711 120,889
John Doe System Crew Chief 10 $80,031.00 56.94% 105,410 $140,547 175,684
John Doe Director, HR Special Projects 10 $81,000.00 57.63% 105,410 $140,547 175,684
John Doe Protocol Event Mgmt. Analyst 6 $53,000.00 60.59% 65,601 $87,468 109,335
John Doe IT Support Specialist 6 $53,601.00 61.28% 65,601 $87,468 109,335
John Doe Administrative Assistant 3 $40,000.00 64.07% 46,824 $62,432 78,040
John Doe Clerical Assistant 1 $25,000.00 66.18% 28,334 $37,778 47,223
John Doe Senior Military Operations Analyst 10 $93,177.00 66.30% 105,410 $140,547 175,684
John Doe TOC (SR. HR Administrator) 7 $65,000.00 67.21% 72,533 $96,711 120,889
John Doe Facility Security Officer 8 $75,712.00 69.49% 81,721 $108,961 136,201
John Doe HR Specialist (Policy) 5 $56,773.60 70.40% 60,479 $80,639 100,799
John Doe HR Liasion 4 $51,900.99 70.50% 55,217 $73,622 92,028
John Doe Program Analyst 4 $52,000.00 70.63% 55,217 $73,622 92,028
John Doe Sr. Military Operations Analyst 10 $100,000.00 71.15% 105,410 $140,547 175,684
John Doe Director of Contracts 11 $120,000.00 74.63% 120,600 $160,800 201,000
John Doe Manufacturing Tech 4 $55,140.18 74.90% 55,217 $73,622 92,028
John Doe Senior Subject Matter Expert 10 $105,323.55 74.94% 105,410 $140,547 175,684
John Doe Sr. Subject Matter Expert 10 $105,350.00 74.96% 105,410 $140,547 175,684
John Doe Network Support Specialist 8 $82,017.00 75.27% 81,721 $108,961 136,201
John Doe Software Developer 9 $91,780.00 75.38% 91,319 $121,758 152,198
John Doe HR Liaison 4 $56,000.00 76.06% 55,217 $73,622 92,028
John Doe HR Specialist (Policy) 4 $56,000.00 76.06% 55,217 $73,622 92,028
John Doe Program Control Analyst 4 $56,150.00 76.27% 55,217 $73,622 92,028
John Doe Sr. Systems Integrator 10 $107,625.00 76.58% 105,410 $140,547 175,684
John Doe HR Specialist 5 $61,800.00 76.64% 60,479 $80,639 100,799

Key
Signals of
System
Distress

• Time
• Metrics
• Labor Market
• Motivational Goals
“Distress” Signals

Distress #1: TIME

External Internal Ability to Pay
o Time to hire o Compa-ratio o Budget
o Salary offers o Compression o Benefits as a % of payroll
o Cost of turnover
o Tenure/ Retention
o Market Index
o Salary distribution by
division, dept, mgr, location
o Complaints
o Variable costs vs. fixed
o Awards tied to organization
results
o Communication
o Compliance: salary
differences by gender, age
or minority status
o Revenue / Operating Budget
per employee
What do the Metrics tell us?
Distress #2: METRICS

 Ensure evaluation & understanding of metrics
 Benchmark your metrics against your region, industry
and comparable organizations
 Track your metrics over time
Distress #2: METRICS

What is the labor market doing?
• Economy
• Political environment
• Availability of talent
• Variable in job categories; while some jobs have a
flood of candidates others jobs have a scarcity of
talent
• Ease of obtaining comparable data
Distress #3: LABOR MARKET

Strategic Alignment
• Values of the organization / values of the
workforce
• Performance, productivity
• Clarity and communication
• Transparency of the system
• Ease of administration
Distress #4: MOTIVATIONAL GOALS

Guiding
Principles
of
Compensation
Philosophy

• WorldatWork’s Compensation Programs &
Practices research report (9/2015):
• 9 out of 10 organizations report having a
compensation philosophy
• 61% have a written philosophy
• 29% have an unwritten philosophy
• 42% reported that all or most of employees do not
understand the compensation philosophy
Compensation Philosophy . . .Who has one?

Compensation Philosophy . . .What it should explain?
Foundation and guide for
future compensation
decisions
• Intentional practices
• Direct actions strategically in
good times and bad times
Clear, consistent
understanding and
communication
• You, Executives, Employees,
Elected Officials, Union – On
the same page!

Who the organization defines as its competitors for labor
How the organization prefers to set pay levels for its various
titles compared to market
What the balance is between internal equity and the external
marketplace
What role performance plays
What role incentives play
The amount of transparency
Compensation Philosophy . . .What it should explain?

Setting the Foundation

Where the
Market Is
Where Your
organization
Is
Elementals of the Foundation
Budget, balance sheet & organization success
Ability to Pay

A Strategic Compensation Philosophy:
o Links to the unique factors of your
organization
o Bonds to your values & culture
o Accounts for the overall market, industry and
workforce
o Inseparable from your ability to pay
Not a “Best Practice”, your “Inspired Practice”
One Size Does Not Fit All . . . .

Compensation
Philosophy &
Strategy
in a
Public or
Private
Sector
Organization

• Perception vs. Reality
• People speak as if there are distinct differences
• Private sector = product innovation, operational excellence, nonprofit, publicly traded,
business differentiation, market based, performance based, stock option rich
• Public sector = homogeneous group w/o organizational variations, seniority based,
general increase, entitlement style
• Reality is compensation systems in public sector are varied; some
reflect current private sector practices
Differences between Public & Private Sector

• The “key” to the successful
development of a
compensation philosophy/
strategy, in the public or
private sector, is to follow a
process from the initial
business case through
program implementation
The “Key”

• Sponsorship/Support must be at the organization’s Senior most level
• Tie process to full Executive team vs. any one Executive
• May take years and a charismatic Executive
• Anticipate influence at the political level
• May stop or re-direct initiative (sometimes in a totally opposite direction)
• Anticipation of this element may “justify” ultra conservative (play it sfe) approach which
will offend no one, but accomplish little
Sponsorship/Support

1. Business Case
2. Due Diligence
3. Philosophy / Strategy Development
4. Implementation
4 Stage Process

•Research the business / organization and its workforce
o Identify stakeholders (Besides management and employees):
• Union?
• Political bodies?
• Media?
• Public?
• Peer organizations?
o Identify why compensation strategy is critical to future organizational success
o Careful “costing” to include systems or process improvements
Step 1: Business Case

•Create project team
• Comprised of individuals influential enough to “champion” the project both within and
outside the organization
• Guided / facilitated discussions
•Stakeholder communications are critical, but must be carefully orchestrated
• Too little information leads to apathy; too much information may lead to analysis paralysis
•Determine what resources are necessary and what systems, policies and procedures
will be affected
Step 2: Due Diligence

•Assess your compensation system today
• What is working? What is not?
• Is the system well defined?
• Does staff understand the compensation system?
• Does the compensation system link pay to performance?
Longevity to pay? Skills to Pay?
• What are the goals of the Total Compensation System

Link to your organization
What stage is your organization
in today?
Start Up
Growth
ExpansionMaturity
Transition

Linked to your organization
Who is your workforce?
• Competition for talent
• Motivational drivers
• Perceptions of staff
• Investments in hiring,
orientation, training
• Turnover costs
• Union impact
• Generational influences
Hourly
Low skill
Production
Hourly
High skill
Human
capital
Salary
Skill growth
Career
advancement
Salary
Specialized
Intellectual
property

Bond to your culture & values
What is your culture?
oIndividual Pay for Performance or Team Based Pay
oEmphasis on base? Incentive? Benefits? Or all?
oEmphasis on flexibility or structure
oReward performance, innovation, productivity,
tenure
oTransparent or closed system
oAbility to administer (simple, complex)

Bond to your culture & values
What are your values?
oWork/life balance
oFamily focused
oStability
oCareer growth
oFlexibility
oLiving wage
oWellness

Step 2: Evaluating the external market
What (or who) do you benchmark to? Who are your
market comparables?
oGeography: Local / Regional / National
oIndustry Sector: Public? Private? Both?
oFTE Size
oRevenue / Operating Budget
General Rule:
Where you recruit from / Where do you loose talent to

Positioning to market
Lead, Match or Lag
• What is the relationship to your Total Compensation
Package?
• Should the market position be the same for each
compensation component of your system?
• Base Pay
• Variable Pay
• Benefits
• Should the market position be the same for all employee
groups?
• Vary by function (i.e., production, design, administration)
• Vary by level (entry vs. experienced)

If at any point, you find the project and/or process is not ideal,
take comfort, it never is.
Remember this is both an Art and a Science.
Carry on because once the development of a strategy is initiated,
you will find it is difficult to stop the momentum.
The relationships you develop with the project members and
stakeholders are the key to success.
Press on!
Take Comfort

• Written statement of philosophies, objectives and standards
• Not specifics on design or administration detail
• Defines all the major elements of total compensation and how they will
support the business strategy
• Base pay
• Additional cash
• Benefits TOTAL COMPENSATION
• Perquisites
• Draft strategy “tested” stakeholders
Step 3: Philosophy / Strategy Development

The City of Wagga Wagga, Department of Adorable Animals, is a newly created public agency focused
exclusively on serving the needs of koala bears. We recognize that the people at the agency are
our primary asset and our principal competitive advantage. To achieve the organization’s mission,
we must attract, retain and motivate a highly qualified and competent workforce. Accordingly, we
target our base pay at the market median (50th percentile) for other public agencies, while
remaining internally equitable.
Wagga DoAA will utilize organization-wide, performance based incentive programs to supplement
our base pay such that the average direct compensation will approximate market median + 5%
(55th percentile) of cash compensation vs. our defined competitor group when our overall financial
performance meets or exceeds target.
In addition to direct cash compensation, Wagga DoAA will provide a comprehensive benefits package
for our employees to include health and welfare and income security. We value the components
of the work experience including a positive and healthy work environment that addresses the
physical and emotional well-being of employees and their families and is consistent with Fortune
Magazine’s “100 Best Companies to Work For.” Total rewards shall not exceed 60% of Wagga
DoAA annual revenues, including statutory benefit contributions.
“Sample” Total Compensation Philosophy

• Detailed assessment of existing programs, processes and CBA’s to
determine how well they fit with the new strategy
• Implementation / Budget Impact Analysis
• No compensation system works if you can’t afford it
• Caution about quick hits or low hanging fruit
• May only result in confusing comp processes that do not gel well with overall
system
• Detailed listing of desired changes along with timelines, costing and
measures of success
• Changes to CBA may take form of long-term negotiating agenda
Step 4: Implementation

• Stay strategic by setting system goals first that align with the
mission and vison of the organization
• Keep the Total Compensation Philosophy “front and
present”
• As you address balance sheet actions
• In reaction to the recession
• In recovery from the recession
• Avoid Willy Nilly concerns
Step 4: Implementation

Establish, Revitalize your Total Compensation
Philosophy
• Set the foundation which will guide your decisions
A Strategic Framework which is
Your Size:
 Linked to your organization,
industry and workforce
 Communicates your culture
and values
 Within your ability to pay
Your Total Compensation Philosophy

Mapping
Your
Compensation
Classification
Project

• Internal
• A Champion
• Data, data, data . . .
• Org chart
• Budget / financial information
• Job descriptions
• Employee census data
• Employee Opinion / Climate Survey results
• Time (and more time)
• Technical capabilities to perform analysis
& design programs
 External
 Salary Surveys
 Industry Benchmarking
 Compensation Consultant?
Tools for the Trek

•When the organization needs:
• Independent third-party objectivity
• Security / confidentiality
• Insight into the organization’s competitive market
• HR expertise to supplement in-house staff resources
• An expert opinion in a litigation support role
• Where internal or external resources are lacking
When internal resources are spread too thin, or when
the nature of the initiative would benefit from an
external perspective / voice
When to Hire a Consultant

•Determine your specific needs:
• RFP / RFQ process
• Formal process not mandatory, but is useful exercise to clearly articulate the needs of
the organization and ensure that all prospective consultants and the organization are on
same page about deliverables
•Identify Pool of Experts
• Approach this as if you were hiring a top Executive
• Background checking including industry experience, client lists, references, area of
specialty, length of time in business
• Web search to identify 6-8 “semi-finalists” to submit proposal
How to Choose a Consultant

•The value of independence:
• Direct link to the Client
• Who owns the project? Either the Board or management, but not both
• Opinions without conflict of interest
• Consultancies without multiple lines of business within a Client
• Knowledge Transfer
• Ability to provide transparency and insight into the processes vs. “feeding tube” for
future consulting services
• Executive Session
• As findings and recommendations emerge, ability to conduct executive session to
answer questions
• Provide Expertise with Integrity
What Makes a Good Consultant

Consultant Bonus Points

•Once chosen, the likelihood of the consultant’s success hinges on:
• Providing clean data
• Giving honest feedback
• Introducing consultant to key players
• Acting on consultant’s recommendations
• If advice is not feasible, work with consultant on alternative creative solutions
The best consultants truly care about the client and the
success of the project – it’s their reputation after all!
Consultant Follow-through

Hazards to
Watch Out
For

•“Don’ts”
• Compromise a “principle-driven” compensation system
• It is essential to use consistent guidelines for all staff
• Make compensation decisions in isolation without considering the interaction
between compensation, benefits and intrinsic rewards as important
components of the organization’s compensation philosophy
• Distribute any documents to staff or elected officials without first carefully
scrutinizing each and every word
Hazards To Watch Out For

“Don’ts”
 Allow for conflicting communications or vague / simplest explanations
such as “Compensation made this decision”
 Communicate the mechanics of the system without communicating the
philosophy, strategy and goals of the system

•“Dos”
• Document your system design
• Reference for future updates
• Foundation for challenges or claims
• Anticipate that changes will occur regularly in the compensation system
• Review salary ranges annually along with merit budgets and incentive plans
• Continually seek out new ways to propose new programs

Original Question, How Do You Build Your
Compensation Road Map for the 21st Century…
By:
 Align your compensation system goals with that of the mission
and vision of your organization
 Develop a plan that is flexible and competitive to attract and
retain the right talent you need.
 Establish compensation benchmarks that tell your employees
that they are of value (Compensation and Benefits).

Thank You!

21st Century Compensation Planning

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