Webinar-Budgeting Part 1: Managing Internal Pay Inequities
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It’s budget season again, and that makes it time to update your data for next years comp plan. The first critical step is to get a sense of where the issues are.
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Webinar-Budgeting Part 1: Managing Internal Pay Inequities
- 1. Mykkah Herner, MA, CCP Director of Professional Services Jenni Marquez, CCP Sr. Compensation Professional www.payscale.com Compensation Budgeting Part I: Managing Pay Inequities
- 2. www.payscale.com 14,000 Positions 3000 Customers 11 Countries 250 Compensable Factors 40 Million Salary Profiles
- 3. Compensation Budgeting Part I: Managing Pay Inequities Part II: Determining Increases
- 4. Agenda Start with a Plan Identify Compensation Inequities o Organizational Level o Department Level o Position Level o Individual Level Develop solutions Next month: determining increases
- 5. Start with a (comp) plan
- 6. Comp Design Elements Philosophy High-level view on the aims of the organization with regard to compensation Strategy o Define your talent market(s) o Determine level of competitiveness o What do you want to reward? Structure Mathematically sound way of aligning your positions to market and internally Policy Ensures that the comp plan is carried out
- 7. Get Reliable Market Data Compensable factors for benchmarking jobs Defining your competitive set Accurate and current market data
- 8. Build Compensation Structure Define Grades & Ranges Assign Jobs to Grades
- 10. Types of Pay Inequities Plan Level Department level Position level Employee level
- 11. Plan-wide Pay Inequities • Pay Fairly to Market –Determine your target market percentile • Budget • Competitiveness and impact on retention/attraction • Stay competitive relative to market –Annually, keep ranges current
- 12. Analyze Ranges to Market Create a report: range midpoints, market values, and delta
- 13. Identify Solutions: Plan Level Plan Level Options Do nothing Make small incremental change Update comp strategy Adjust all ranges at once Plan Level Costing Increase plan $ impact of green outliers Former red outlier eligibility for increase
- 14. Cross-Department Pay Inequities Target / Strategy Determine appropriate target(s) by department Build ranges around targets
- 15. Position-specific Pay Inequities Market movement & critical positions Listen to your employees
- 16. Identify Solutions: Position Level Position Level Options Keep position static Move position to new grade Offer market premium Position Level Costing Cost to move to new grade Cost to market premium
- 17. Employee-specific Pay Inequities Pay according to your comp plan Compression issues Examine compa-ratio (.8-1.2) Look at range outliers
- 18. Disparate Pay & EEO Concerns Create a Disparate Pay Report o High disparity is a flag for litigation o Low disparity may indicate not following your comp plan
- 19. Identify Solutions: Employee Level Employee Level Options Identify critical issues Compression Disparate pay Green outliers Employee Level Costing $ for critical issues $ for compression $ for market adjustments
- 20. Identify options Determine cost to remedy Examine budget allowance Consider multi-year strategy How critical to resolve? Develop multiple scenarios Create communication plan Identify Solutions
- 21. Communicate Pay Inequities Develop Budget Request Ask for what the organization needs Help the organization manage the budget once approved
- 22. Next Month Calculating Increases to Base Pay
- 23. PayScale Delivers Where Other Compensation Providers Fall Short PayScale leads the world in compensation knowledge with the freshest and most detailed data from over 40 million salary profiles. More than 3000 organizations use PayScale’s software and intelligence to get the greatest return on their talent. Smart businesses use PayScale Insight to recruit, retain and motivate their people. Visit our blog: www.payscale.com/compensation-today Join our Group on LinkedIn: Compensation Today: HR Best Practices Mykkah Herner, MA, CCP Head of Professional Services Jenni Marquez, CCP Sr. Compensation Professional www.payscale.com
Editor's Notes
- Hedge Manage polls Type all the stuffs in “create” Then it’ll be there when you want it… Launch Show/Share Hide Quiz for the end: What are your biggest challenges in developing a pay structure? We lack a compensation philosophy or strategy We lack market data for our jobs I’m still unclear about the purpose of a structure I need help building a pay structure Something else
- Hedge Creator of the largest database of individual compensation profiles in the world, PayScale, Inc. provides an immediate and precise snapshot of current market salaries to employees and employers through its online tools and software. PayScale’s products are powered by innovative search and query algorithms that dynamically acquire, analyze and aggregate compensation information for millions of individuals in real time. Publisher of the quarterly PayScale IndexTM, PayScale's subscription software products for employers include PayScale MarketRateTM and PayScale InsightTM. Among PayScale's 2,500 corporate customers are organizations small and large across industries including Mozilla, Tully’s Coffee, Clemson University and the United States Postal Service.
- MYKKAH
- JENNI The agenda for today’s call. We’ll talk through starting with a plan and then ways to research potential comp inequities at the organizational level all the way down to the individual level. We’ll discuss potential solutions and then next month, we’ll go through the exercise of calculating increases and making budget requests.
- JENNI If you want to do a compensation budget, you’ll need to start with a compensation plan. In the next few slides we’ll walk through elements of a plan and the basics around creating one.
- JENNI A compensation plan is designed using the following elements. Philosophy is… High-level view on what we are trying to accomplish with our compensation dollars. From there, we operationalize the plan with the… Strategy This is where we define your markets, decide on how competitive you want to be in those markets, and what you want to reward with the comp plan. The strategy then guides the creation of a…. Structure A set of grades/ranges that are aligned internally and to the market Then we have our… Policies Which ensure that we are carrying out the comp plan as intended by our strategy, structure, and philosophy.
- JENNI Evaluating how competitive your compensation plan is to market necessitates having a solid data foundation. Start by considering the compensable factors for your benchmark jobs. A benchmark job is one common in the market. The compensable factors are those details that influence how the job is paid. You’ll want to go beyond just a title for title match – consider what are the top 3 functions of the job? What level of responsibility does the job have? Does the role have decision-making authority? Are there required degrees or certifications for the job? Another important consideration is the general make-up of your workforce and your hiring preferences – what typical experience do you seek when filling your jobs? Do you tend to hire more tenured employees? Do you recruit larger segments of your workforce right out of school? Evaluating your jobs and their compensable factors will ensure the success of your benchmarking. In addition, it’s important to consider your competitive set – not so much who you compete with in a business sense, but who are you competing with to hire employees? Consider whether you pull talent from industries other than your own? Do you compete with much larger or much smaller organizations? Does the definition of your talent market vary for different segments of your business? And finally, it’s important to verify your selected source of data. Consider whether you plan to use market pricing or an internal valuation method, like Point Factor. If you are market pricing, consider the data source you are using – what is the data collection methodology? Will you need to age your data? Does the source cover your competitive set? Is it trusted, reliable, accurate? Does it fit your budget? Remember that time is money – participation for “free” surveys isn’t always free.
- JENNI Once you have market data for your benchmark jobs and you’ve identified your talent market and how competitively you wish to pay to that market, it’s time to build a pay structure. Consider the structure of your organization, how many jobs you have, the difference between your highest and lowest pay points, the number of leveled positions you have. If you have more than 20 jobs, you may want to consider a grade and range structure, where jobs of similar market and internal value are grouped together in the same range. To help control costs, you may also want to build out ranges that expand from narrow at the base of the structure to wider at the top of the structure, where there is usually a greater need to differentiate how you pay incumbents in a single range. To anchor your structure to the market, reference the market data at your target percentile for your benchmark jobs. Whichever midpoint in your ranges is closest to that market value will determine the grade assignment for the job.
- MYKKAH The first step to take in building a pay structure is to identify if you need pay schedules and how many may be necessary
- MYKKAH At the Plan Level Are you paying fairly to market? Are your ranges competitive with the market? At the Department level Are you paying fairly across departments? At the Position level Have some of your positions moved faster? At the Employee level Are you paying fairly across employees based on Your comp policy (what do you reward)? EEO status?
- JENNI To discover whether plan-wide inequities exist, you will want to evaluate the compensation plan against the market to determine if you’re paying fairly at the organizational level. Consider your budget and level of competitiveness as that will influence what your target percentile will be. The target percentile is what anchors your plan to the market data – examine your range midpoints to determine if you are above or below where you are aiming to be. We recommend reviewing your grades and ranges on an annual basis to ensure you are still market competitive. Make sure you keep your ranges current if you want to ensure you are paying fairly to market.
- JENNI When evaluating a plan to market, focus on your range midpoints and look by job to see if there are any trends. Do most midpoints look low to market? Or high to market? Is it a mix? If the market value for most positions is higher than your current range midpoints, consider adjusting your ranges by 1% to 3%, depending on the overall market movement. It’s a good idea to determine the cost impact of this type of shift prior to making the change. You may want to create a multiple year plan rather than implement the adjustments all at once. If you are seeing a greater than 5% shift in market, have a second look, and make it a conversation rather than a line item on a budget request. Can you absorb the cost? If you decide to implement a smaller adjustment, like 1%, pay attention to how you communicate it to employees so they stay motivated even though the change is minimal. If you see that the market has moved up or down for a handful of jobs, evaluate the current grade assignment for those jobs and decide whether it makes sense to shift the grade assignment up or down a grade to keep current with market. Keep in mind internal equity when shifting grade assignments to avoid compression.
- JENNI Plan Level Options: Do nothing – If your strategy is high, and compa-ratios and morale are good, you may get by another year without movement Consider making a small incremental change – the market may suggest moving 3%, but you can decide instead to do 1% a year over the next few years. Update your comp strategy – it may be appropriate at more cost effective to just shift ranges for your critical departments Adjust all the ranges at once Plan Level Costing How do you plan to do increases? Do you want to maintain the compa-ratio (across the board market-based increase) or do increases by position in range? What is the dollar impact of employees falling below range (green-circled)? Evaluate your former red-outliers – they may again be eligible for increases if you chose to freeze their base pay in the past.
- MYKKAH Paying fairly cross-department doesn’t necessarily mean paying equally across departments. Targeting Determine the appropriate targets for your departments Build ranges around the appropriate targets Execution Ensure that you are paying according to strategy by looking at department-level compa-ratios and market-ratios
- JENNI Identifying inequities at the position level Critical positions may move faster in the market than others Review these positions on a quarterly basis Listen to your employees – if you are hearing consistent grumblings regarding pay, especially from your top performers, you likely have some potential flight risks Consider adjusting both the grade level and perhaps employee pay And be prepared to adjust pay between cycles for your critical roles
- JENNI Position Level Options Keep the position where it is – you may have some high compa-ratios, but that could be ok depending on the job Move the position to a new grade – if the market has shifted enough it may warrant changing the grade assignment. As I mentioned before, keep in mind the job’s career path when reassigning grades and what ripple effect that may have on other jobs in that career path. Keep the position where it is but offer a “market premium” – give them a bonus based on market. Make sure you communicate the reason behind the bonus as it may not be offered the following year, depending on market movement. Position Level Costing Calculate the cost of moving position to a new grade Calculate costs of your market premium – advantage year over year
- MYKKAH Identifying Employee-specific pay inequities Are you paying according to your comp plan? Do you have compression issues? Examine your compa-ratios (.8-1.2) Look at your outliers (green and red) Determine your plan to bring people in range, or have a clear policy for why it’s ok to not be in range.
- MYKKAH Create a Disparate Pay Report Examine when % difference is high and low A guideline: is the % difference greater than your range widths? A high difference is a flag for potential litigation A low difference may not be an EEO concern, but is a concern that you may not be rewarding according to your comp philosophy
- MYKKAH Employee Level Options Identify any critical issues Determine the cost of non-critical issues and priority to organization How will you handle compression issues? What about disparate pay (non-EEO)? Are there any concerns amongst your green outliers that won’t be remedied with a regular increase? Employee Level Costing Determine the amount to resolve critical issues Calculate amount to resolve compression issues – increases to existing? Any necessary market adjustments for individuals?
- MYKKAH What are the options for remedying the inequities identified? How much will it cost? Can we absorb that cost in this year’s increases or are we talking about a larger amount? Do we need to resolve over multiple years? How critical is it that we resolve the inequities? Legal considerations Attraction/retention issues Morale Develop multiple scenarios How will we communicate: To Execs To Managers To Staff
- MYKKAH Ask for what the organization needs Provide solutions Share the big picture – with only the detail needed to make your case Make your recommendations concise and easy to understand Explain the why Communicate what the impact/cost will be to the organization Help the organization manage the budget once approved
- MYKKAH