PayScales Guide to Comp Plans

Sizzle
(in a good way)

Bring back the

That Get Workers Fired Up

Introduction

Your employees want to bring home a bigger slice of bacon.

You want to attract and retain top talent while motivating employees to perform at their best. Top talent is critical to your organizations success but so is controlling the bottom line. Whether its your first comp plan or a revamp of an existing one, this eBook will help you produce a comp plan thats a win/win for both you and your employees. With the recipes for success detailed here and some prep time you can cook up a comp plan from scratch even if youve never done it before. By the end of this process, youll have a comp plan that will minimize your costs to get and retain top talent, drive employees to perform better and youll have the confidence to talk comp with anyone.

This eBook is broken down into five parts. Mix these parts together and you will have a deliciously hot comp plan.

1 2 3 4 5

Gain Executive Support

Ensure your comp plan succeeds by gaining executive support.

Define Your Comp Strategy

Set the foundation for your plan with a well thought-out comp strategy.

Develop a Market-Based Pay Structure

Choose the right market data.

Build Pay Ranges

Everything you need to know to build your pay ranges.

Get Busy
When finished with steps 1-4, its time to implement your tasty, cohesive comp plan.

Gain Executive Support

After something bad happens

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Employers Notice Comp

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They notice and look for a fix when:

A valuable employee has a better job offer. A hiring manager insists on paying a recruit above the market rate. Worries Arise Over Internal Pay Inequities.
Want to make execs take notice before its too late? Then youd better have an action plan at the ready.

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Pain Points
The best way to gain executive support is to step into their shoes and identify the pain points theyre looking to solve. Theres a good chance theyre different than HRs. For example, HR may be concerned with the legalities of paying people in the same job different salaries without a justified business reason. Most business leaders would not place the same emphasis on this problem. Instead, you need to identify the major business priorities and then demonstrate how a comp plan will tie closely to those priorities. A recent example comes from one of our customers. The CEO was not very interested in a compensation plan. To him, a comp plan was a set of rules that limited his ability to retain talent. He had been told one too many times You cant do that. It will cause that person to go above the top of the range.
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Identify your Execs

I want to see HR and its ability to track data come into the 21st century. The minute you can properly track and trend data, HR becomes a true strategic business partner vs. the traditional stereotype of administrative and soft skills. Tracking the right information - the information that matters - is critically important. PayScale leads the industry in fresh and timely data. Combined with their ability to create custom, trend-based reports, strategic HR decision making is unleashed. - Jim Cook, CFO, Mozilla

His new HR leader had an uphill battle to get him bought in to the concept of a comp plan. She

decided to take a different approach. She asked the CEO if there were individuals who were key to the success of the business. He actually had a list of 12 names in his top drawer who he considered critical for the companys expansion plans. The HR exec asked if she could help the CEO develop a plan to ensure those 12
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people would never leave the company for more money elsewhere. He immediately lit up with excitement and gave his support because it was based on his goal of expanding the business. Sometimes the best way to get executive support is not by making big promises, but by understanding their pain points and using a small example that is meaningful.

I O R Return on BACON
Over 2 years ago, Google made the dramatic decision to give an across-the-board increase of 10% to all employees with the goal of reducing turnover. It worked. It was a hefty expense, but the ROI showed that it actually reduced turnover in some critical areas and the investment more than paid for itself. The reason it worked is that the HR/Compensation team knew exactly what the costs of turnover were and they knew what the cost of this enhancement was. They monitored the results of performance against the goal and regularly reported back. This is a dramatic example that shows how even big financial decisions can be justified with the appropriate tracking and monitoring. For most organizations the costs seem too high because there are no goals for the plan and no one is tracking and reporting on results. HR leaders should be able to justify large expenditures by understanding the possible rewards.
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The Cost of Getting Comp Wrong

Payroll is by far your biggest expense and the cost of getting it wrong is tremendous.

Take this fictitious example:

PayDay Pork Company is located in Midland, TX. Their primary business is makin bacon. With 200 employees, the average pay is $50,000 a year. Their most valuable employees, the Chief Bacon Engineers, are paid double that. Midland has one of the lowest unemployment rates in the nation due to the boom in oil production there. Getting pay right is crucial to retaining employees.
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Total Payroll = $10,000,000 a year. (Thats a lot of bacon!)

Without good market data, PayDay Pork guessed what to pay and this resulted in major expenses for the company: Cost of overpayment by just 10%= $1,000,000 a year. Cost to recruit 3 new Chief Bacon Engineers to replace the ones who left due to underpayment = $150,000. Dont risk the cost of getting comp wrong. Practice good comp planning to price jobs right.

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Creating a Comp Plan

Which of the following reasons would motivate your execs?

Know the Reasons You're

2. It helps attract and retain talent

For most organizations in the service or knowledge business, the ability to attract and retain talent can be a primary differentiator from its competitors. A well designed comp plan takes more into consideration than simply paying the most. It is founded on paying people the right amount of money to attract, retain and motivate performance. Most people will not leave simply for more money but for perception of fair pay and career satisfaction. The organization needs to formalize practices around pay that attract and retain top talent.
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1. It makes good business sense

For almost every organization, the cost of salaries and benefits is the single biggest expense to the business. Mismanagement of compensation could be putting the entire organization on the line. When designed well, comp plans can drive profitability by incenting behaviors that support business goals.

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When decisions about comp levels are systematic and communicated with employees, the organizations expectations of its employees become clear. They will know how they will be rewarded and how to reach their personal career and financial goals. By sharing your expectations, youre also giving your employees more control over their destiny, thereby raising satisfaction and retention.

3. It supports the mission, strategy

and culture of the organization

When you reward the behaviors that you want your organization to be known for, your employees will act in a way that supports your brand and mission. This is one of the primary reasons an organization would want to establish a comp plan. Once you have executive support for establishing a comp plan, the next step is to decide what your strategy will be.

Define Your Comp Strategy

factors to consider
Who is my market?
When choosing salary data that reflects your labor market youll want to be conscious of how you define your market. PayScale recently worked with a customer in the aerospace industry. They are a small company (less than 100 employees) based in Texas. When running local market data they found that the data for the sales positions seemed highly inaccurate. With further investigation it turned out they were sourcing sales people from the two largest aerospace companies in the United States, and those
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same sales people spent much of their time not in the office, but in the Washington DC area where business deals were done. Their labor market wasnt Texas aerospace as they assumed, but global aerospace and defense. After making modifications to more accurately reflect their talent pool the numbers seemed right on. Make sure to correctly identify the labor market that is the source for your talent and think through the varied markets for different departments in your business.

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A Tale of Two Cities

Overall economic indicators arent specific enough for compensation decisions. To win the talent wars, know whats happening right now, specific to your locale. For example, the national year-over-year wage growth for Q2, 2012 was 2.3%, but these two cities arent exactly average:

Houston 3.0%
Its burning in Houston and its not just the sun, its also the red-hot economy. The largest city in Texas hosts a variety of strong industries, including aeronautics and healthcare, but the boom in the oil and gas industry has had the biggest positive impact on wages in Houston.

Riverside 0.3%
The wages for full-time private workers in the Riverside area followed the rollercoaster brought on by the recession. Though there was actual growth in Q2, 2012 it trailed the national average by two whole percentage points. Read about other top and bottom cities here.
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How competitive do you want or need to be?

There is no universal rule that says you must pay at the 50th percentile. As a matter of fact, this is not a strategy that is going to work for most organizations. Instead, your strategy should reflect the competitive pressures of the market and your willingness to pay higher salaries for key talent. For example, an organization that is coming out of start-up mode and focused on expansion may choose to reward their sales employees at the 90th percentile and their R&D department at the 75th
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percentile. They may choose to achieve this by targeting general administrative and support positions at the 40th percentile. This is a strategy that can work well for the organization who wants to be competitive in the areas where it really matters most. Generally speaking, its a good idea to start with an understanding of where your salaries place in the market range currently by benchmarking your positions. This helps to identify where weak spots exist in your current practice.

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What do I want to reward?

Longevity Performance Skills Proficiency Certifications
In most cases, a combination of these variables is the right strategy. Most organizations use a combination of these to reward employees and have a set amount of money that can be spent on increases. Important decisions need to be made about how to allocate those increases.
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How to Create a
Who should be involved?

Executive Leadership Team

This is non-negotiable. They must be part of the process since the comp plan will most definitely fail without their buy-in.

Comp Strategy

Human Resources
You should be an advisor to senior leaders, coming up with ideas, research and advice, but HRs role is to champion the project.

Directors and Managers

Engage them early, make sure they understand and identify with the process and goals. This will improve your chances of buy-in.

Employees
Some organizations choose to involve employees in the process especially a group of highly influential employees who have the ability to gain support from their colleagues. If you are going to involve employees in the process be sure to consult with an attorney about potential labor issues (even if you are in a non-union environment).

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What is the process?

HR should prepare for the strategy conversations with this knowledge:

1. Where is the Organization Now?

o Growth Cycle: The growth stage of your organization will influence the emphasis of your

Timing
A typical overhaul of an existing comp plan or creating one from scratch can take months. Take this into account and plan accordingly for when you will need to have your new strategy in place.

comp strategy.

Startup

= Equity Established Co = Benefits

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o Demographics: Early stage career employees may need different incentives than those later in their career. o Culture / Management Style: You have to create a culture of pay-for-performance before you can reward it. Challenge the executive team if they are not willing to change the company culture.

than managers or directors at the organization. An example would be a highly specialized technician who is being paid more than the manager who supervises him. A focus on external alignment would address this while a focus on internal alignment would not. Its a good idea to bring a few of these issues to the table.

2. The relative importance of attraction, motivation and retention.

The issue is not if each factor is important by itself but understanding the way each factor influences the others. Spending top dollar for a candidate may affect the motivation of everyone else in that department. Be prepared with recent examples where this was the case to talk about these issues in an open way.

compensation elements.
You must have a clear picture of the amounts youre spending on training and development, benefits, equity, compensation, and other non-cash items. Its a good idea to understand how these compensation elements compare to the market but more importantly, how they are valued by your employees.

4. The right mix of

3. Market competitiveness vs.

internal equity.

Companies struggle with this issue when theyre paying a highly specialized individual contributor more
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The goal is to get your leadership team talking about these issues so you can reach a consensus on the goals of your compensation plan. When you have engagement from your senior leadership team, they will start to own the outcome. The toolkit contains a list of sample questions that you can use to help engage your leadership team in meaningful dialogue.

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Writing Your Comp Philosophy

At the end of the strategy process its a good idea to write your strategy in a way that it can be shared with employees. This is often called a compensation philosophy. Its a broader way to talk about the decisions that were made by the senior leadership team.
talent is key to reach your goals? o Discuss how the comp program will support these goals. How will it achieve these goals? How will the company meet their goals with their people? o The philosophy should be optimistic and realistically represent your organization. If your goal is to understand the market and set wages that are competitive based on your company strategy, that is an optimistic way to say that you have a goal that is aligned with business priorities. o Demonstrate your commitment to ensuring fair, equitable and competitive pay increases. o Your philosophy should be broad enough that you can make changes in your strategy as the market warrants. It is similar to a mission statement that states the overall goal, but doesnt have to describe how you will achieve it.
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A compensation philosophy has very specific goals:

o Recognize organizational goals. These usually have something to do with people whether its reaching people in a new market or introducing new products and services. o Discuss how talent links to these goals. What

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Sample Comp Philosophy

The philosophy behind XYZ companys compensation program is to provide an attractive, flexible and market-based total compensation program that is tied to performance and aligned with shareholder interests. Our goal is for XYZ Company to be competitive in recruiting and retaining employees through its high-quality compensation practices. Equally important, we view compensation practices as a means for communicating our goals and standards of performance and for motivating and rewarding employees in relation to their achievements. XYZ company competes in several different businesses, most of which are involved in helping individuals manage financial risk and secure their financial futures. These businesses draw their key people from different segments of the marketplace. Thus, our compensation programs are designed with the flexibility to be competitive and motivational within the different marketplaces in which we compete for talent, while being subject to centralized design, approval and control.

Pay Structure

Develop a Market- Based

Why External Market Analysis

IS IMPORTANT
- Kenneth H. Pritchard, Selecting and Using Compensation Surveys: Critical Issues for Todays HR Professionals
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The war for talent and proliferation of pay information, especially free and low-cost data online, are increasing pressure on HR offices to have and use accurate, up-todate market pay information, to share it with managers and employees and, at times, to defend its use while refuting incorrect or inferior data. Knowledge of and skill in selecting and using compensation surveys are required.

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Create Market centered

Ranges

Market Pricing vs. Point Factoring Selecting survey data Applying your compensation philosophy to the data Choosing benchmark jobs Getting the data right Aging data Weighting your sources Determining your pay grades Building your ranges Hot jobs
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Decide on the Correct Job Evaluation Method

Market Pricing VS Point Factoring

Market pricing is the most effective approach to job evaluation. Based primarily on external factors, the goal is to be competitive. Point factoring or other systems that evaluate jobs internally are approaches that rely on internal alignment. For example, in a traditional point factoring approach, you would assign a certain number of points to factors which would span a broad spectrum of jobs (i.e. decision making, size of impact, etc). These jobs are assigned pay grades according to their total points.

Advantages of Market Pricing

A market-based approach, balanced with some internal alignment, will enable more reliable pay grades.

The advantages of using market data:

o There is an objective standard (market data) that establishes jobs within ranges. o Allows you to establish pay ranges minimums and maximums that are competitive with the local market - and helps you retain employees. In todays highly competitive labor market, its not enough to just be competitive internally, you need to be competitive in your market so that you can attract and retain talented employees. o It takes less time to maintain. o It is harder to manipulate the results.
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Selecting Survey Data

Selecting Sources
Traditional compensation consultants will tell you it is a best practice to select three salary sources to provide an equal balance when analyzing data. With three different sources, you can validate your data one against the other, which can help you confirm your pay ranges. When choosing your surveys, select ones with good coverage for your industry, geography and type of organization. These are the three most important factors when looking at overall survey data. For example, If you are a non-profit organization, you must get non-profit data. A smart alternative to the expense of multiple survey sources is to use a data source that has good comprehensive coverage. PayScale is a good singlesource option. We never limit the types of positions, industry or the geography you have access to. This means that youll have access to a broad cut of information for one simple price.

PayScale= 35 million current employee profiles, 250 compensable factors, 13,000 unique job titles.
The goal is to be able to benchmark 75-80% of the positions within your organization. Generally this is best accomplished through multiple sources, but if you only have a budget for one source, then go with PayScale for the broadest single source coverage. The methodology of the survey that you are using is important to understand and validate because it provides credibility to your comp plan as you sell this plan to your executives.

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Consider the following questions:

o How is data collected? o Where does the data come from? o How many employers/employees are represented in the data? o How reliable and recent is the data? o Do they use aging or geographical differentials? Perhaps the survey source is taking a major metropolitan area and applying different locales within the same state. This wont be reliable data for you if youre operating in a smaller city. The same goes for aging. If you have a survey that is using data from two years ago and are trying to age it, that data wont be reliable because a lot has happened or changed within the last two years.

Aging is Great.. for Wine and Cheese

At PayScale we provide up-to-date from data collected in the past 6 a fast moving economy like this.
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data. A lot of our reports are taken months and this timeliness is crucial in

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Though price is also important, make sure to focus instead on value. Good data doesnt come for free. Keep in mind that in a lot of traditional surveys, participation is required in order to get the data, so while youre considering the costs, you also have to factor in your time to participate in that survey. As you are evaluating different sources, check to see how many jobs you will be able to benchmark from that source and divide it by the price of the survey. Find out which survey will give you the most value and at what price. Also think about which target you are going to use from the survey data. Be aware of the difference between the average and the median and make sure not to confuse or exchange them. If you choose to use percentiles, make sure you can get that same percentile from every survey source. Then, you have to decide if you want to look at the Base Salary or the Total Cash Compensation (TCC).
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Do you have time to fill out salary surveys?

A survey can take 10-100+ hours depending on your company size.

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Choosing Benchmark Jobs

Once you have your survey data and have decided how you will look at the data, then you have to choose your benchmark jobs. When selecting your benchmark jobs, focus on those positions that are standard across different industries. Jobs such as Administrative Assistant, Accountant, and HR Generalist are a few examples of standard jobs. Next you will want to choose industry specific positions that are standard at your company compared to positions within other organizations in your industry. Civil Engineer, RN and Assembly Line Worker are three such examples. Try to avoid hybrid jobs which dont make good benchmarks. These refer to employees who do multiple jobs or tasks.

What should you do with nonbenchmark positions?

The key thing to know here is not to force matches to market data. Dont make a decision on how a job should be paid using inferior data. Instead, use your job evaluation tool to slot the position within a pay grade, or use your own internal assessment of comparable positions within your organization with similar skill, scope, decision making and responsibility. Typical surveys will result in more nonbenchmark jobs, which is not ideal.

Organizations using PayScale data will be able to benchmark 85-95% of their jobs because of the broad range of data available.
It is easier for you to have a great depth of data and less non-benchmark jobs, but occasionally non benchmark positions need to be handled.
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Getting the Data Right

When matching jobs, dont match on title alone. Look at the duties, the scope, experience, education etc. PayScale calls these compensable factors. You also have to decide how to handle hybrid jobs and leveling within your organization. For hybrid jobs, consider the two (or more) jobs this person does. One may require higher skill than the other, and this could affect the pay range. You are likely paying this person for their highest skill level even though you may ask them to perform at a lower skilled job. You will decide how to handle hybrid jobs in your organization. In terms of leveling, you may want to think about whether you want to price one job within a series or price each job within the series. For example, if the market data for three jobs in a series shows a disparity greater than 75%, it may mean that the jobs dont fall in consecutive pay grades. However, it more correctly reflects the market for these jobs. If on the other hand you price the middle job in the sequence, you can place the lower level and higher level job one grade lower and higher respectively. This would allow for smooth internal progression, but may not reflect the external market as well.

PayScales MarketMatch Algorithm

PayScale uses a modern methodology in both sourcing our data and in matching it to your real-world scenarios. While surveys may provide data that was sourced a year ago, our research model is built on the concept of crowdsourcing. We update our data twice daily with salary profiles sourced from real people. That gives us the biggest, freshest data set in the world, currently more than 35 million profiles. Just as Google matches your search terms to the most relevant results, PayScales MarketMatch algorithm matches your unique positions to the most relevant salary data in your market.

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Aging Data
Aging data is sometimes necessary when youre dealing with dated information, but it is risky because the market changes fast and doesnt move the same for all jobs. Even though its become common, it doesnt really make sense. Its simply the best you can do when your data was collected a year ago or more. If you are using PayScales data, aging is not necessary as all reports are aged to 30 days prior to the report run date. This aging is done with our sophisticated MarketMatch algorithm that uses information about the changes in market that are reflective of the variables in your report (industry, geography, position, etc).

To age data, you first want to choose the multiplier that represents what has been happening in the market since the date of the survey. There are many ways to find a multiplier. For example, World at Work (www.worldatwork.com) publishes a survey every year with actual and anticipated wage increases.

Heres how to age data:

o Find the effective date of the survey data and decide on the target date for the data. o Decide on an annual adjustment factor, or percentage. o Calculate the portion of the factor to use, which is based on the effective date of your market data and the date to which you want to age the data. o Apply the aging factor to the market data.

Aging Data
Effective Date Buyer ll Marketing Coordinator Accountant 2 7/1/2012 7/1/2012 7/1/2012

Adjustment Factor: 2.9%

Target Date 1/1/2013 1/1/2013 1/1/2013 1.47% 1.47% 1.47% Source 1 $38,500 $31,000 $54,000 Source 1 Aged $39,064 $31,454 $54,792 Source 2 $41,000 $32,000 $56,500 Source 2 Aged $41,601 $32,469 $57,328 Source 3 $43,000 $33,00 Source 3 Aged $43,630 $33,484

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Weighting Data
Weighting is recommended when using multiple sources of data. This can help you determine an appropriate market wage from multiple sources of data.

find more reliable based on the representation or quality of the data. o Multiply the source market data by the percentage (weight) assigned to that source. o Add the weighted numbers from each source together. This is your weighted average. This data average will be used to make the decisions for your compensation structure. You can do this for every job and it will show you the market value for that job.

Here's How to weight data:

o Choose a percentage weight you will assign to each source. Put more weight on sources you

Position
Buyer ll Marketing Coordinator Accountant 2

SOURce 1
$39,064 $31,454 $54,792

Weight
0.25 0.25 0.25

Source 2
$41,601 $32,469 $57,328

Weight
0.5 0.5 0.5

Source 3
$43,630 $33,484

Weight
0.25 0.25

Weighted Average
$41,474 $32,469 $56,060

Want an easier, automated solution?

Try PayScale Insight

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ranges

Build Pay

Why build pay grades?

Traditional salary survey providers are like the 10 oclock news. I dont wait until 10 oclock to watch the news anymore. PayScale is information on demand.
-

but it is up to you to decide what is best for your organization.

Shad Glass, HR Director at Kimray

There are a few ways you can proceed to build pay ranges. You can use your data to create a market midpoint and then build individual ranges for every job in your organization. Doing it this way, every separate job will have a different pay range. Or, you can choose to build grades. Grades are recommended over individual ranges,
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three main reasons why pay grades are preferred over individual ranges:
o Easier to administer with fewer pay ranges. o Allows decisions regarding internal alignment. o Easier placement of jobs that dont have a market benchmark. Pay grades also help you evaluate where a specific employee should be. Placement within the grade can be measured by compa-ratio, which is the employees pay divided by the range midpoint. Pay grades are used to group jobs that have approximately the same relative worth. All jobs within a particular grade are paid at the same rate or within the same pay range.

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How To Build Pay Ranges

o Using a specific formula, pay grades can be easily determined. Choose a mid starting point based on minimum salaries within your organization. o Build new midpoints from a midpoint differential. o Create minimums and maximums for the range. o Verify grade placement against internal alignment and

Building Pay Structure (ranges)

Pay ranges set the upper and lower bounds of possible compensation for individuals whose jobs fall in a pay grade. Pay ranges are created for each grade. A grade is what an employee is assigned to based on the scope of his or her responsibilities. A range is the value of the minimum to the maximum.

hierarchy.

Determining Your Pay Grades

The number of pay grades you use will influence your midpoint differential and should sufficiently distinguish difficulty levels of different jobs.

o The pay increase and promotion policy of the organization. The easier it is for employees to advance within their jobs, the more grades there will likely be as well.

The number of pay grades varies in response to:

o The size of the organization. o The vertical distance between the highest and lowest level job. o How you define the jobs within your organization and how you differentiate between them. For example, if you finely define jobs into levels, such as Junior, Senior, etc., then you will have more pay ranges than if you use a general definition of a position, such as Software Developer.
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Midpoint differentials
The number of grades is determined by a midpoint differential. Choose a midpoint differential based on all the factors listed above (Determining the Number of Pay Grades). With more grades, the midpoint differential will be smaller. With fewer grades, the differential will be wider. Typically, midpoint differential will be a number between 10-25%. For example, if you have an organization that has relatively small differences in pay between the highest level employee and the lowest level employee and you have lots of job levels (Jr., Sr. etc) you would want to have smaller midpoint differentials (likely 12-15%).

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Calculating Midpoints
Starting Point: $32,000 Midpoint Differential: 15%
Grade 1 2 3 4 5 6 7 8 9 10 Rounding $32,000 $36,800 $42,320 $48,668 $55,968 $64,363 $74,018 $85,121 $97,889 $112,572 $32,000 $37,000 $42,000 $49,000 $56,000 $64,000 $74,000 $85,000 $98,000 $113,000

Range Widths
The spread between minimum to maximum will depend on many variables within your organization. Generally, pay spreads are narrower for lower paying jobs and wider for higher paying jobs. This is because of longevity, time to proficiency and tenure. Its more likely that a person at a higher paying job, with more responsibility and bigger scope, will have a greater range to grow in their position and pay than someone at a lower-level job where the skill level is lower. Having an overlap in pay ranges makes it possible for an experienced employee in a low-grade job to be paid more than an inexperienced employee in a higher-grade job.

Typical range spreads:

o Hourly positions: 30-40% o Salaried positions: 40-50% o Executive positions: 50-60%
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o Choose starting midpoint o Choose midpoint differential o Choose rounding (optional)

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Calculating minimums and maximums

Once you have your midpoint and you have determined range widths, you will calculate the minimum by taking the midpoint and dividing it by 1.xx (1/2 of range spread), and the maximum by multiplying the minimum by 1.xx (the whole range spread).

Calculating Minimum
midpoint

1/2 range spread = 20%

Calculating Maximum
minimum

$30,000

1.20 = $25,000
Whole range spread = 40%

minimum

$25,000 x 1.40 = $35,000

PayScale

maximum

PayScales Insight software makes creating pay ranges a simple process.

Insight

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Assigning Jobs to Grades

Using market data to assign jobs to pay grades
Match the value of the aged, weighted market data at the target for the position to the range midpoint that is closest to determine the pay range. For example, if the value of the aged, weighted market data at the 60th percentile (your competitive target) is $48,967 use the table on page 40 to see that the job would fall in pay grade 4 which has a range midpoint of $49,000.

Verifying Internal alignment

You should verify the internal alignment of positions within a pay grade by evaluating the scope, responsibility, etc. of each job assigned to that pay grade, because you want to make sure all those jobs are relatively similar. At times, you will find that you may have to build your own pay structures for exempt, non-exempt or technical jobs, because they may not fit with the pay structure.

Hot Jobs or Range Busters

You may have a group of jobs or a specific job that out-paces the rest. Those jobs are rising faster than the ranges and other jobs assigned to the pay range. If this is the case, you need to decide what to do with these hot jobs. trend in the hot jobs, i.e. technology jobs or jobs within a certain geographic location. If its only a job or two, you can consider paying these employees a market premium. This is an amount over and above their base wage that is meant to account for the increased market pressure on the position. Example: If the average of the market data for the hot job is 20% above the market rate for the rest of the positions in the same pay grade, apply a market premium for this job. The best rule of thumb is to make the market premium as transparent as possible so that the employee can actually see that they are being paid above the market rate so that if the market changes, and you need to take the extra pay away, the employee will understand why. 2010-2020 Projected Growth 18.7% 32.40% 18.70% 16.40% 13.60% Relative Experienced Median Pay $98,600 $52,200 $59,200 $45,100 $41,700

Here are some things to consider in this situation:

Double check that the position is assigned to the right pay grade and that the market data is accurate. If multiple jobs begin to show up as hot jobs, then you may consider putting those into their own pay range. This would be the best option if you see a

These 5 top jobs are more popular than they were five years ago. See more hot jobs here

Job Title Data Scientist Video Game Designer Sustainability Consultant Solar Sales Consultant Social Media Manager

Implement the Total

Rewards plan

Implementation Planning
Once the structure is built and the foundation has been established, your success depends on how well you can execute the total rewards plan. This eBook is packed with options since there is not a one-size-fits-all approach to follow. Here are the suggested steps to cooking up a plan that satisfies. Like any good implementation process, you want to start with pre-planning to ensure everything goes smoothly. For a successful implementation:

Lead the Discussion about reward strategy

This is where you can debate the merits of how people will be rewarded within the organization.The goal is to identify what you want the rewards to be.

Show the reward strategy in action

Show execs and others in the company what the reward strategy looks with examples of specific people.

Review benchmarking conclusions with execs

Senior management may not have been involved since the strategy creation, and you might be challenged by them when reviewing the benchmarking positions. If so, you will need to reiterate that the information came from the decisions that were made in the strategy session and show how it relates to strategy.
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Educate management about decisions

Educate employees and management about decisions and help them to understand the process. Organizations have differring policies about transparency. At a minimum employees should understand their own pay ranges and where they sit against their potential earning power.

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Strategies: What will you reward?

A challenge will be to get everyone on board with the idea that there is no right answer, but instead to think about rewards in terms of decisions and consequences. executive team how each strategy will benefit the organization. For example, if you have someone who believes in across-the-board increases, ask them to identify the returns on that investment.

Rewards should be based on business necessity and strategy

Rewards should not be based on our personal beliefs about whether employees are due money or not, or on inflation adjustments. The decision about how we should reward employees should be based on what is in the best interest of the business. This may be a barrier to buy in especially if you have a team that is used to adjusting for inflation. Youll need to break down those barriers so you can have a productive dialogue. A good way to talk about this is to ask the

Reward Strategies
o Base rewards on the changes in market conditions. If the cost of labor for a given job is going up, you can choose to reward for that in your organization. o Reward for longevity or proficiency, a demonstrated competence, or an achievement for example. o Reward performance. You may decide that the higher performers are going to be paid more than the lower performing employees.
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o Reward for skill or education attainment. Skill attainment is important in skill-based businesses, such as manufacturing or engineering. o Choose a combination. A business leader can say, I want to reward all of these. It would be expensive, but its your choice.

Salary Targeting
Salary targeting is taking your ideas about salary, benchmark ranges, and rewards and helping to quantify how you align with the desired strategy. Salary targeting is also used as a way to talk about dollars or for approval of your strategy. This is more

of a budgeting exercise than it is a decision-making exercise. The other thing salary targeting can do is to illuminate your organizations weak spots. It helps your executive team visualize the results and consequences. It shows you if youre out-of-sync with a certain employees wages and lets you set a game plan to fix it, which will keep that individual engaged and positive.

Sample Salary Targeting Exercise

If your organization decides to reward for proficiency and performance, you should expect a person who is achieving their goals to be right in the middle of the boxes.

Performance + Proficiency
Salary Targeting Matrix Performance & Proficiency
www.payscale.com Performance 3 - Exceeds 2 - Meets 1 - Does Not Meet

Employee Placement 0.85 0.80 0.80 0.95 0.90 0.85 1.05 1.00 0.95 1.15 1.10 1.05 1.25 1.20 1.10 Ready for promotion

New Hire Learning the (no exp.) position Proficiency

Fully proficient Experience above proficiency level

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Sample Salary Targeting Worksheet

In this example, the organization is hoping to get everyone within 15% of their target. The percentage increase is dependent on how far behind the employee is from the target.
First Name Joy Timothy Jon Mark Emily Leslie Stella Laleh Olive Andrea Oscar Dave Wendy Karaka Heather Blair Sara Last Name Siegfried Lanman Low Moreno Moxley Jolma Hassibi Siotra Raeb Grogan Merritte Stroud Wilson Michele Thomas Reid Cook Dept: 000140 000015 000015 000106 000025 000005 000145 000015 000090 000001 000015 000145 000001 000015 000145 000145 000115 Job Title MDRC RN RN PACC LABT Cardio/Pulminary Mgr. Supervisor, Admissions RN Cook RN NRST AREP RN RN SCHE AREP Accountant Current Salary $27,539 $63,482 $69,784 $34,528 $27,352 $65,000 $39,000 $67,808 $25,376 $67,475 $25,272 $26,416 $60,320 $69,264 $29,952 $25,792 $38,147 Target Compa-Ratio 1.00 1.00 1.10 1.10 1.00 1.00 1.10 1.10 1.10 1.10 1.10 1.00 1.00 1.15 1.15 1.00 1.00

Download Salary Budgeting matrix in our Toolkit

Range Midpoint $15.25 $35.25 $35.25 $17.50 $15.25 $76,000 $20.25 $35.25 $13.25 $35.25 $13.25 $15.25 $35.25 $35.25 $15.25 $15.25 $47,000

Target Salary $15.25 $35.25 $38.78 $19.25 $15.25 $76,000 $22.28 $38.78 $14.58 $38.78 $14.58 $15.25 $35.25 $40.54 $17.54 $15.25 $47,000

Delta to % Behind Reccd Desired Salary Target Increase $2.01 $4.73 $5.23 $2.65 $2.10 $11,000 $3.53 $6.18 $2.38 $6.34 $2.43 $2.55 $6.25 $7.24 $3.14 $2.85 $8,853 15.18% 15.50% 15.57% 15.96% 15.97% 16.92% 18.80% 18.94% 19.47% 19.53% 19.96% 20.08% 21.55% 21.73% 21.79% 22.98% 23.21% 1.00% 1.00% 1.00% 1.00% 1.00% 2.00% 3.00% 3.00% 4.00% 4.00% 4.00% 5.00% 6.00% 6.00% 6.00% 7.00% 7.00%

Cost $275 $635 $698 $345 $274 $1,300 $1,170 $2,034 $1,015 $2,699 $1,011 $1,321 $3,619 $4,156 $1,797 $1,805 $2,670

Strategies: Increase Budgeting

If you are proactive in this process and you bring hard facts to the table its much easier to make the case for the budget that is needed. Its best to break out the pieces. If your organization has chosen to focus on numerous reward variables, you will be able to make decisions based on the individual components. For example, if your organization wants to reward performance and market value but rewarding both will be too expensive, you can decide which to cut with the facts in front of you. Come to the budget discussion prepared with different scenarios. For example, if you are using the salary targeting example, you may want to get everybody within 15, 20 or 10% of their target.

has compared their benchmark jobs to the market and has made a decision to alter their range structure based on the movement of the market. In this instance, we are isolating the component that is the change in market. o The second adjustment is a change in market movers (i.e. where the market is moving much faster than the overall trend). o Merit Matrix is how you reward employees, in this case based on performance and placement in the range. Increases are dictated by where a person is within the pay range, as measured by comparatio and performance rating. The logic behind this approach is that you reward proficiency or longevity in addition to performance. o In this company, the final bit of money is a consistency factor. If a particular department does not have the funds, even though they have a high performing team, you can use the consistency funds to even that out.

Sample Implementation Budget

o In the budget request there is a line item for a range adjustment. Most likely the organization
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2012 Budget Compensation Budget Requests

Total Payroll: $125,000,000 Percent 2012 Range Adjustments 2012 Market Adjustments 2012 Salary Increase Adjustments 2012 Equity Adjustments 1.50% 0.50% 4.00% 0.50% $1,875,000 $625,000 $5,000,000 $625,000 $8,125,000

2. Market Movers 3. Merit Matrix

(Performance + Placement in Range)

1. Market

4. Consistency
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Raise Recommender - A PayScale Feature

PayScale Raise Recommender allows you to build a merit matrix in an appropriate way to meet your budget. This tool can do all of that for you and help to ensure that you are following through with your chosen goals for your organizational strategy.
PayScale

Insight

Target Budget Increase All Employees 3%

Actual Budget Increase 2.99%

# of Employees 12

Current Total Base Pay $1,131,000

New Total Base Pay $1,164,846

Below Min (2) (High Performance) 5 (2) 7.7% Raise (1) 4 (3) 3 (4) 2 (3) 6.5% Raise (0) 5.3% Raise (0) 4.1% Raise (1)

Bottom Third (5) Middle Third (1) Top Third (1) 7.7% Raise (0) 6.5% Raise (2) 5.3% Raise (2) 4.1% Raise (1) 2.9% Raise (0) 5.8% Raise (1) 4.9% Raise (0) 4% Raise (0) 3.1% Raise (0) 2.2% Raise (0) 3.9% Raise (0) 3.3% Raise (0) 2.7% Raise (1) 2.1% Raise (0) 1.4% Raise (0)

Above Max (3) 0% Raise (0) 0% Raise (1) 0% Raise (1) 0% Raise (1) 0% Raise (0)

(Low Performance) 1 (0) 2.9% Raise (0)

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Strategies: green outliers (below the minimum)

You may have outliers when you build your strategy. Green outliers (or green circled) are individuals whose pay falls below the minimum of the pay range. As an organization, you want to eliminate as many of these outliers as possible. Your pay range is a public

commitment of what you are willing to pay for a job, and when you have people outside of that range it sends an inconsistent message. So, its important to minimize outliers as much as possible. Here are some ideas for minimizing your outliers. Apply the strategy that is right for your organization. Before you decide how to mitigate this issue you always want to first validate your data. If there is an area where there is a lot of green, you may need to revisit your strategy.

Range Distribution 17 # of Employees 7

PayScale

14

Insight

Min
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Max
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Options for dealing with green outliers (below the minimum)

o Minimize Outliers Bring all employees to at least the minimum of the pay range. This method is favored when your organization has a strong commitment to correcting outliers. No discretion is given to managers. In the long term, employees will get raises when the market shifts, thus creating outliers. o Market-based Pay Allocate increases based solely on where employees are in their range (which is alignment with the market). For example, if you are behind the market you may get a 6% increase, but if you are above the market rate you get a 2% increase. This method is favored when your organization has a strong commitment to compensating staff based on the going market rate for their positions. Little discretion is given to managers. In the long term, employees will get raises when the market shifts. o Market & Performance-based Pay Allocate increases based on both employees placement
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within the range and performance. For example, a star performer who is lower in the range may get an 8% increase, while a star performer who is high in the range may get a 6% increase. A matrix is used to show percent increases by both range and performance. Some flexibility may be given to managers by providing a range rather than using an exact percentage. This method is

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favored if your organization is committed to both paying relative to the market and rewarding top performers. In the long term, high performers have higher salaries and moderate performers salaries will shift as the market shifts. Note: this option can be used with market & performance, market & tenure, or any number of variables you may wish to reward.

more skewed and above the market. o Tier increases by position in range Continue to allocate increases to outliers falling above the range, but give a smaller percentage than to those in or below the range. For example, if you are farther behind the market you may get a 6% increase, but if you are above the market rate you may get a 2% increase. This method is favored when your organization has a commitment to

Strategies: Red Outliers (over the maximum)

There are multiple reasons why people end up in the red. This is an important issue to discuss and agree upon with your leadership team.

Options for Red Outliers (over the maximum)

o Do nothing Continue to give increases to employees, even if they fall over the top of the pay range. This method is favored if the situations that caused it are acceptable to the organization, and if the need to retain them outweighs the cost. In the long term, red outliers will become even
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paying relative to the market, and would like to decrease the amount over range, over a longer period of time. This option has less risk of turnover of red outliers than the following options. o Freeze base pay and offer performance - based bonuses Discontinue base-pay increases for red outliers until the market catches up. Offer clear incentives for a lump-sum performance-based bonus annually (or semiannually or quarterly). Only reward top performers among the red outliers. This method is favored if your organization has both a commitment to paying relative to the market and to rewarding top performers. This option has some risk of turnover among red outliers, especially those who are underperformers. o Freeze base pay Discontinue base pay increases for red outliers until the market catches up. This option has a moderate to high risk of turnover among red outliers, including those who are top performers. o Decrease base pay Decrease base pay for red outliers to the maximum of the range. Increases
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will happen only when the market moves. This option is for organizations with a strong commitment to internal equity and market-based pay. There is a very high risk of turnover among red outliers with this option, especially top performers. This option is not recommended unless there is a strong policy desire for it.

Equipping Managers
Equipping your managers to deal with the changes in the comp plan is critical. Managers have to be bought in before the employees. This gives them the respect that they deserve as chosen managers in your organization. It helps prepare them for some tough conversations by giving them tools to keep employees motivated and enforce the strategy. If you dont treat your managers like managers and treat them like employees, theyll start to act like employees (being self-motivated instead of organizationally motivated). Here are some tips to make the most of getting your managers engaged:

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1. Educate them.
Teach them all the nuts and bolts of the comp plan. Do this before required action. Roll it out with enough time in advance of the increases so managers are equipped to use it to make decisions. Allow significant time for managers to ask questions and get all the answers they need before the roll-out.

PayScale Case Study:

2. Give them the big picture.

Help them see compensation from the organizational point of view. Talk about the comp strategy relative to the company growth plans and goals. Relate the strategy back to the mission of the organization and help them to understand how the underlying company goals manifest in the compensation structure.

1. Vertical Response fell off the 2011 Best Places to Work list. 2. PayScale Insight empowered them to make smart adjustments to salaries.

3. Give them tools

Managers will need tools to be successful during their conversations with employees. Teach them how to talk about compensation with their employees. Give them FAQs and have them practice talking about compensation. Verify their understanding by having them explain it back to you.

3. They communicated changes clearly to employees.

4. Back on the Best Places to Work list in 2012.

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Conclusion

Now that youve done all the hard work to get your comp plan off the ground, youre ready to reap the key rewards of good comp strategy:

planning process. Youll need to revisit your strategy often to make sure that your comp plan continues to perform for your organization.

Attract talent.
By pricing jobs based on an accurate look at market data, youll be more competitive in your recruiting efforts.

About PayScale:
PayScale leads the world in compensation knowledge with the freshest and most detailed data from over 35 million salary profiles. More than 2200 organizations trust PayScales software and intelligence to get the greatest return on their talent. Smart businesses use PayScale insights to recruit, retain and motivate their people.

Retain Employees.
Now that youve got all of your employees within the correct pay ranges and youve communicated your rationale to them, theyll be more satisfied and stay.

Drive Performance.
When employees dont have to worry about their salary, they are more motivated to focus on doing a good job.

Stay on top of compensation with Payscale:

Follow the PayScale Index Subscribe to our Blog: Compensation Today

Be Confident.
With accurate knowledge behind you, you can now be more confident in all of your discussions about salary with execs, directors, recruits and employees. A good compensation strategy doesnt stop with the
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