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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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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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