5 Steps To A Smart Compensation Plan

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5 Steps to a Smart Compensation Plan

Rusty Lindquist

VP S TRATEG I C H R I N S I G HTS

BambooHR

Rita Paterson, CCP

M AN AG E R O F CUSTO M E R EDU CATI O N

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.

– Ram Charan Best-selling Author, World-renowned Business Advisor

“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

Choose the right data source

Step 4: Build Pay Ranges

Identify Market DifferentialsSchedules preserve both competitive pay to local

markets and internal equity.

Baltimore+5%

DallasMain

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 dataVerify 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 DegreeNo certification required

Bachelor’s DegreeCPA required at proficiency

Bachelor’s DegreeCPA 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

• Ranges

• Policies

• Processes

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.

COMP & CULTURE

Everything you dobecomes part of that story…

The story of what you value

Compensation:

The story of how much you are valued

Compensation:

The keystoneof culture

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 tackling tough conversations about pay

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5 Steps To A Smart Compensation Plan

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