TalentTakeawayswebinar & podcast series

COMP PLANNING PROS How To Design A Cash Compensation Program For Global & Growing Organizations

AGENDAThe Series

TalentTakeawayswebinar & podcast series

Talent Takeaways Series

AGENDAAGENDAThe Sponsor

Talent Takeaways Series

Comp Planning Pros: How To Design A Cash Compensation

Program For Global & Growing Organizations

John A. RubinoPresident, Rubino Consulting Services

rubinoconsulting.comrubinoconsulting@aol.com

Internally equitable Externally competitive Affordable Understandable Legal / defensible Efficient to administer

Capable of being reshaped for the future

Appropriate for the organization

Attract, retain and motivate employees

Create alignment of employee efforts and business objectives

Job ContentEvaluation

Data Collectionand Analysis

Job ContentEvaluation

Base Pay Structure

Job Worth Hierarchy

Data Collectionand Analysis

Reconciliation of Internaland External Considerations

Market Data Emphasis Job Content Emphasis

Job Documentation

Job Evaluation

Job Analysis

Job AnalysisJob Analysis Job EvaluationJob EvaluationJobJobDocumentationDocumentation

Job WorthJob WorthHierarchyHierarchy

Base PayStructure

Job Descriptions

• Developing a job worth hierarchy• Identification of performance

standards• Organizational design uses• Salary survey exchanges• Legal defenses• Job assignments• Selection / recruitment • Establishment of career paths

and succession planning

*These are components which should be included or implied in all job descriptions used for job evaluation and market pricing.

Job titles

Job group category

Reporting relationships

General summary*

Principal duties and responsibilities*

Job specifications*

Working conditions*

Disclaimer statement

Dates and approvals

JobComponent

Job Content Evaluation

Nonquantitative or Whole Job Quantitative or Factor

Ranking Classification Point Factor

Why are salary surveys used?

• Price jobs and determine market positions• Diagnose compensation problems• Analyze pay trends• Establish job worth hierarchies

Individual company data should not be identified - aggregate data is the norm

Includes an executive summary Match your organization’s benchmark jobs One benchmark job is not matched to two

different job titles

FactorsSample size, participant base, statistical

analyses, survey methodology, job-matching procedures

Acquiring dataPublished surveys, utilize third parties, design

and conduct custom surveys, acquire web-based data

Commonly found and defined A benchmark job is a job that is commonly

found in many organizations and used to make pay comparisons

Data available in surveysPay data for these jobs are readily available

in published surveys

Internal jobs that serve as anchor points At least 70% match of duties to the

market

Characteristics◦ Easily defined ◦ Representative of all levels ◦ Important to internal hierarchy◦ At least 50% of jobs in an organization should be

identified as benchmark jobs

Data Collection Method Cost Time Reliability Confidentiality

Published Low Fast High /Medium High

Third-party custom High Slow to

Medium High High

Conducting your own Low Slow High /

Medium Low

Free None Fast Low ?

Pay range

◦ MaximumMost paid for the job

◦ MidpointCompetitive rate

◦ MinimumLeast paid for the job

Max

Mid

Min

Maximum

Midpoint

Minimum

+20%*

–20%*

90,000

75,000

60,000

50% range spread

* ± 20% of the range midpoint

= Individual Compa-Ratio(actual to structure)

= Market Index(actual to market)

= Unit / Organizational Compa-Ratio(actual to structure)

Salary

Midpoint

Weighted Avg. Salary

Midpoint

Weighted Avg. Salary

Weighted Market Avg.

1,200

1,000

800

1,200

900

800

Pay Rate – MinimumRange Penetration =

Maximum – Minimum

Provide information about the center of a distribution

Mode, median, mean

Three different approaches

1st 2nd 3rd 4th

quartile quartile quartile quartile

P25P25 P50P50 P75P75

Q1Q1 Q2Q2 Q3Q3

MedianMedian

25%25% 25% 25%

A tool to help visualize the distribution of data

Based upon P10, P25, P50, P75, P90 and the mean ( x )

Can indicate the shape of the distribution

57.20 ( P90 )

45.50 ( P75 )

33.3530.00 ( P50 )

6560

5550

454035

302520

1510

5 0

21.50 ( P25 )16.80 ( P10 )

509509

1,7231,723

9029021,0111,011

1010

127127

9595

3232

2,1392,139

4343

2,2002,200

1,9001,900

2,0002,000

2,1002,100

1,4001,400

1,1001,100

1,2001,200

1,3001,300

1,8001,800

1,5001,500

1,6001,600

1,7001,700

1,0001,000

800800

900900

GradeGrade

Mon

thly

Sal

ary

Mon

thly

Sal

ary

4444 4545 4646 4747 4848

Salary Structure and Market Salary Data

Market DataCompany Data

y = a + bx

y = dependent (criterion) variablex = independent (predictor) variablea = interceptb = slope

Pay

Pay

Job ValueJob Value

The simplest mathematical model is the straight line.The simplest mathematical model is the straight line.

ad

e

Cf

b

Base PayPolicy Line

Job Value

g

Pay

Discussion Exercise ExampleExample

Benchmark Job Internal Value Current Pay Market Wage

Receptionist 140 21,900 23,000

Admin. Asst. 194 30,400 27,300

Staff Accountant 217 34,100 34,900

HR Generalist 281 44,100 49,000

Payroll Supervisor 310 48,700 43,000

Marketing Mgr. 432 67,900 62,100

Employment Mgr. 480 75,300 73,200

Dir. Of Operations 627 98,400 102,700

Dir. of Finance 925 145,200 138,000

Sr. VP of Sales 980 153,800 152,000

Wage Survey Trend Line

Current Company Trend Line

Internal Job Value

Average company rate for jobAverage market rate for job

Mon

etar

y V

alue

y = payx 1 = experiencex 2 = performance levelx 3 = education

etc.a intercept

x 1, x 2, x 3 critical factorsb 1, b 2, b 3 slopes (i.e., regression weights)

of critical factors

kk332211 xbxbxbxbay

Establishing job worth Examining how supervisors make

decisions Projecting funding needs Evaluating budget increase trends Modelling decisions

Percent Pay Increase as a Function of Both Performance and Compa-Ratio (3-Dimensional Scatterplot)

Pay

Incr

ease

10

9

8

7

6

5

4

3

2

1

Performance

6.0 5.0 4.0 3.0 2.0 1.0Compa-Ratio

1.21.1

1.00.9

Can this be accomplished by using a Base Salary

“Merit” Increase Program?

It’s a zero-sum game - and the budget is small Performance evaluation scores are all relative All employees exceeded their performance

objectives - now what? Base salary increases are now and forever! Is Old Joe motivated?

But Are You Ready ?

THE SUCCESS CRITERIA…

Organizational culture and values must support a performance/reward framework: instilling a ‘sales mentality’

Compensation policies and programs must be aligned with the organization’s strategic objectives

Senior management must allow the variable pay program to work

Should have ‘pay by example’ at the top of the organization

Must be internally equitable and externally competitive

Variable pay program must deliver what is promised on time and fairly

Plan design should guard against ‘windfall’ payments Performance criteria must be discernible, valid and

understandable Variable payouts must be aligned with performance

criteria achievement Variable opportunities must be perceived as ‘valuable

enough’ to motivate performance. Timing of payout allocations should be as close as

possible to the qualifying event If designed and implemented properly, variable

payouts to employees will yield ‘slices from an expanding financial pie’

Middle managers will make or break the variable pay program.

Should involve managers in variable pay program design and performance criteria identification

Must build trust and get buy-in from managers and employees through effective training and communication

A well-designed and executed variable pay program can improve the organization’s bottom line

Measurable benefits can include improved: morale, productivity, quality, customer service, on-time performance, work methods, etc., etc., etc.

Remove performance considerations from base salary increase decisions – pay for performance within the variable pay framework.

Re-define base salary increases as across-the-board market adjustments only, determined by competitive position analyses.

The difference between the base salary “merit” budget and the market adjustment factor can be used to partially fund the incentive program. (Will not be fully-funded the first year; requires an “investment” on the part of the organization)

On-going “fixed” expenses can be considerably reduced due to the compounding effect of base salary increases.

Variable compensation is paid in lump sum only when performance warrants: “pay at risk”.

RANGE: PERFORMANCE TARGET 0 – 150% WEIGHTINGS

TIER OPPORT. OF TARGET CORP. DEPT. INDIV.-----------------------------------------------------------------1 – Officers 35.0% 0 – 52.5% 70% 20% 10%

2 – Directors 25.0% 0 – 37.5% 40% 50% 10%

3 – Managers 15.0% 0 – 22.5% 30% 50% 20%

4 – Profess. 10.0% 0 – 15.0% 20% 20% 60%

5 – Support 8.0% 0 – 12.0% 10% 20% 70%

Without question, comprehensive variable pay programs will continue to be the U.S. and global trend (for those organizations that are culturally ready).

An increasing number of organizations will adopt a simplified market-based salary approach to determine base salary control points and pay increases.

Employee performance objectives will be removed from base salary determination, and placed entirely within the comprehensive variable pay program, paid in lump sum.

Comp Planning Pros: How To Design A Cash Compensation

Program For Global & Growing Organizations

John A. RubinoPresident, Rubino Consulting Services

rubinoconsulting.comrubinoconsulting@aol.com

AGENDAAGENDA

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COMP PLANNING PROS How To Design A Cash Compensation Program For Global & Growing Organizations