5 Steps To A Smart Compensation Plan

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5 Steps to a Smart Compensation Plan



Rusty Lindquist

VP Strategic HR Insights

BambooHR

Mykkah Herner

Head of Professional Services

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.



“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



Aging is great…

for wine and cheese.



Step 4: Build Pay Ranges



Identify Market Differentials

Schedules 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 data

Verify 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 & CertificationRequirements

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

• Structure

• Policy

• Process



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.



Follow BambooHR and PayScale on social media:

bamboohr.com/blog | payscale.com/compensation-today

Thank you!



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