The document provides guidance on maintaining competitive pay structures. It discusses the importance of regularly reviewing salary structures and market data to ensure pay remains aligned. Key checklist items include reviewing structures at least annually, separating budgets for merit increases, promotions and cost-of-living adjustments, and evaluating incentive plans yearly. The document also stresses the importance of transparency with employees through annual communications about compensation philosophy, total rewards statements, and answering employee questions. Regular maintenance of these areas can help attract and retain talent while preventing larger issues.

1. “Rules for Keeping Pay Competitive”

2. 22
Motor Vehicle
Maintenance 101

3. 33
Basic Maintenance
Prevents Larger Problems

4. 44
Program
Maintenance
• What are the major
checklist items to maintain
competitive pay?
• How frequently should I be
monitoring these items?
• How will preemptively
addressing these issues
prevent larger problems?

5. Salary
Performance
Incentives
Sales
Incentives
Growth
Incentives
Core Health
& Welfare
Plans
Executive
Benefit
Plans
Qualified
Retirement
Plans
Nonqualified
Retirement
Plans
Salaries
Competitive with market standards?
Tied to strong performance management process (merit)?
Managed within a flexible but effective structure?
Performance Incentives
Tied to productivity gains?
Clear, achievable and meaningful?
Self-financing?
Sales Incentives
Challenging yet achievable?
Reinforcing the right behaviors?
Differentiating your offering?
Growth Incentives
Linked to a compelling future?
Supporting an ownership mentality?
Securing premier talent?
Core Benefits
Responsive to today’s employee marketplace?
Allocating resources where most needed?
Evaluated to eliminate unnecessary expense?
Executive Benefits
Flexible enough to address varying circumstances?
Communicating a unique relationship?
Reducing employee tax expense?
Qualified Retirement Plans
Giving employees an opportunity to optimize retirement values?
Operated with comprehensive fiduciary accountability?
Avoiding conflicts and minimizing expenses?
Nonqualified Retirement Plans
Optimizing tax-deferral opportunities?
Aligning long-term interests of employees with shareholders?
Structured to receive best possible P&L impact?
An Aligned
Compensation
Strategy

6. 66
Salary Maintenance

7. 77
Lets Start with Salary
 Salary always gets the most attention
 Probably one of, if not the largest cost to run
your business
 With any large expense it needs to be closely
monitored
 Who should own salary management?
 Individual Managers?
 Finance?
 Human Resources!

8. 88
Why a Salary Structure?
 Pay scales determine employee salary
 All companies need some form of a
salary structure
 Sensitivity around pay discrimination is at an all
time high (Equal Pay Act)
 Salary structures ensure that pay
decisions are both proper and
defensible

9. 99
Position Specific Structures
 There are two common structure types
 Position Specific Ranges
 Found in organizations with fewer unique
positions
 Usually have narrowly defined ranges
 Easy to explain progression to employee
population

10. 1010
Grade/Band Structures
 Grade/Band Structure
 Positions with similar market value and internal
equity grouped together
 Appropriate when you have significant number of
unique roles
Grade Minimum Midpoint Maximum
8 52,270 71,863 70,939
9 48,398 64,163 65,684
10 44,813 57,288 60,818
11 41,494 51,150 56,313
12 38,420 45,670 52,142

11. 1111
Checklist Item #1
Review your structures frequently
 Too many organizations have a “Set it and Forget It”
mentality around pay structures
 A structure that has not been adjusted, at least, on
an annual basis is not keeping pace with the market

12. 1212
Acquire Market Data
How Do I Ensure I am Not Falling Behind?
 Salary ranges are commonly set and maintained
using market data:
 ERI
 PayScale
 Towers Watson
 Mercer
 Industry surveys
 Ensure you have access to
some market data

13. 1313
Using Market Data
 Market data can help:
 Validate ranges for positions you have difficulty
recruiting or with high turnover.
 Determine how we should adjust the salary
structure
Variance 3.1% -2.6% -3.3%

14. 1414
Frequency
Should I be Comparing my Positions to
Market Data Every Year?
 Depends on your budget as well as staff size vs. number
of positions
 Organizations with limited budget and resources
typically reprice all positions every 2-3 years.
 However, the structure should be adjusted at least
every year.

15. 1515
Single Position Adjustments
What if I am Having Difficulty
Hiring/Retaining Positions?
 Any salary ranges that are presenting challenges in
hiring/retention should be addressed immediately
 Establish new ranges/adjust current ranges on a
frequent basis
 No need to wait until the end of the year to review

16. 1616
Adjusting The Structure
Option 1 – Use the Market Data
 Measure the variance between your positions and
the market data
 Can use a random sampling of positions if you are
not re-benchmarking your positions every year
 If your structure is position specific each position
may have a different adjustment

17. 1717
Adjusting The Structure
Option 2 – Using General Trends
 Industry and geographic trends are
commonly discussed and available
 Ranges can be adjusted by a flat rate
 Manufacturing – Kansas City – 2.3%
 Cost of Living vs. Cost of Labor
 Cost of Living – Price of milk
 Cost of Labor – Price of
hiring a new accountant

18. 1818
Cost of Living vs. Cost of Labor
Price of Gas
(Cost of Living)
 Fort Smith, AR - $1.89/g
 Los Angeles, CA - $2.96 /g
 +56.6% Higher
When adjusting your salary structure, ensure
you’re intelligence is based on cost of labor
Software Developer Salary
(Cost of Labor)
 Fort Smith, AR – $81,235
 Los Angeles, CA - $98,228
 +22.6% Higher

19. 1919
Employee Salaries
Why Do Employees Stay With You?
 Employees typically stay because they value
nonmonetary awards:
 However, if salaries are not perceived as fair and
competitive, employees with leave you.
 Provide employees reasons to stay instead of giving
them reasons to leave.
Enjoy the work Appreciate the culture
Coworkers are friends Feel Important
Believe in Company Comfortable
Flexibliity Other

20. 2020
Internal Equity
Employee A vs. Employee B
Employee A has been a valuable employee with
the company for 10 years
Employee B was just hired right out of college
Employee B’s salary is higher than Employee A
How will Employee A react when he/she
finds out about Employee B’s salary?

21. 2121
Best Practice Fix
 Most of the time the focus is
on Employee B
 Employee B’s salary offer
was too high
 Ensure Employee B’s salary is beneath
Employee A
 The bigger problem in this scenario is Employee A.
 10 years experience and is making less than
a new hire?

22. 2222
Problem’s Origin
 What is the purpose of
your salary budget?
 Merit/Performance
 Promotion
 New Hires
 COLA/Inflation
 Can all of that be accounted for in 2-3% salary
budget every year?
 After subtracting out promotional and new hire
considerations your budget may realistically
be 1-2% for merit and COLA

23. 2323
Compounding Effect
 Best Practice - Pay For Performance
 Don’t evenly “spread” your budget
 Focus on high performers
 If you only have a 1-2% merit/COLA
budget, and its all focused on the
top 10-20% of your organization
(high performers), how will the
salaries for everyone else track
against the market?

24. 2424
In Addition
 Answer:
 The average salary increase of Employee A
is less than the increase in cost of labor
 Or you’ve created a culture where promotion with
a significant salary increase (10-15%)
is necessary every few years.
 You’ve either incentivized
Employee A to leave you
 Is there a less expensive
alternative?
You Can’t!

25. 2525
Checklist Item # 2
Separate Your Budgets

26. 2626
Setting Your Budgets
Your Budgeting Should Reflect the Organizations
Priorities for the Upcoming Year
 Merit - Should reflect market conditions (market data or
general trend info)
 Promotions - Usually a constant number based on the
promotional culture of your organization
 New Hires – How will staffing next year compare to the present
 COLA – Are employees falling behind the market data?

27. 2727
Implications
 The cost of having separate budgets can be more expensive
on an annual basis than having one combined budget
 Philosophical change for Mgmt
 Merit, New Hire, Promotional Budget – Owned by Mgmt
 COLA Budget – Owned by HR
 COLA adjustments should be initiated to reduce the actual
cost of turnover
 Does not need to be spent in its entirety

28. 2828
Lets Talk About
Incentive Maintenance

29. 2929
Incentive Trends
Major Changes in Incentive Plans
 Increasing Plan eligibility
 Historically – Senior EE’s and Management
 Change – All Employees
 Sends a message that all
roles are integral and will
share in company success

30. 3030
Simplified Plan Design
 Simplifying incentive plan design
 Incentive plans have historically
been very metric driven
 Potentially creates conflict of
interest
 Should I do what’s in the
Company’s best interest or should
I just worry about performing
my goals?
 Should I be paid because the
company succeeded or because I
accomplished a list or tasks?

31. 3131
Basic Structure
 Plan funds at different levels based on achievement
of company goals
 The incentive pool is then disproportionately shared
with employees
 Higher level employees
receive a higher portion of
the incentive pool
 Employee performance can
“modify” the payout

32. 3232
Advantages
 Easy to understand
 All employees are tasked with achieving high
level goals
 No micromanaging
 No conflict of interest
 Simple to administer

33. 3333
Checklist Item # 3
Review Your Incentive
 Most companies design a plan and fail to
evaluate the effectiveness of the design
 Incentives need to be reviewed on at least an
annual basis
 It may be time to simplify
your plan

34. 3434
Employee Communications

35. 3535
Employee Awareness
 How much do your employees know about pay?
 How much do you want them to know about pay?
 For a long time, employers benefited from
keeping pay practices behind closed doors

36. 3636
Automobile Awareness
 How much do you know about your car?
 How much should you know about cars?
 For a long time, mechanics benefited from
keeping automobile maintenance behind closed
doors

37. 3737
Do You Trust Your Mechanic?
 Why do people not trust their mechanics?
 Because until recently you have had to take their word
 Why should your employees trust you around pay?
 Compensation is just as important to your employees
as transmission fluid
 How do you instill trust in your
compensation practices:
Transparency

38. 3838
Perception is Key
2015 PayScale Study
• The main predictor of both “satisfaction” and “intent to leave
is whether employees feel they are paid fairly.
• Even when people’s compensation was in line with their value
in the job market, two-thirds believed they were underpaid. Of
that huge group, about 60% reported low job satisfaction, and
said they plan to look for a new job within six months.
• By contrast, the researchers found that, even at companies
that pay below-market wages, if employees know why they’re
paid less than they could probably earn elsewhere, 82% say
they’re “satisfied” with their jobs and plan to stick around.
- Fortune Magazine,October 10, 2015,
“How PayTransparency Can Keep People from Quitting”

39. 3939
The Big Idea
 The idea behind pay transparency is
simple: Take the topic off the table
 If employees don’t understand the
basic’s around pay they will always
be suspicious
 There isn’t a need to turn everyone
into a pay expert.
 Most employees don’t want to be
experts
 Recognize the elephant in the room
and explain why its there

40. 4040
Checklist Item 4
Provide Ongoing Comms
 Schedule an annual Compensation Overview Meeting
 Can easily piggyback on benefits open enrollment
 Open forum to discuss:
 General Compensation changes
 Salary Budgets
 Bonus Plan Structure
 Retirement & Benefit programs
 Invite employees to ask questions

41. 4141
Provide Materials
1. Compensation
Philosophy
Statement
2. Personalized Total
Rewards
Statements
3. Incentive Plan
Summaries &
Benefits Materials

42. 4242
Compensation
Philosophy
 Every organization needs a compensation
philosophy
 What is your competitive advantage in hiring?
High Salaries, Low
Incentives, Avg Benefits,
High Retirement
Vs.
Low Salaries, High
Incentives, High Benefits,
Low Retirement

43. 4343
Compensation
Philosophy Statement
 Put it in writing
 Usually 1 – 2 pages
 Share with all
employees
 Provide it to new
hires

44. 4444
Total Rewards Statement
 Summarizes entire
compensation
package
 Usually 1 – 2 pages
 Ensures all employees
understand your
compensation
investment
 Software or self
generated

45. 4545

46. 4646
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