Strategic Compensation

Document Sample
Strategic Compensation Powered By Docstoc
					  Strategic Compensation

Kathy Starnick, SPHR, CCP, CBP
Director Human Resources
TYBRIN Corporation
What is Total Compensation?

   All forms of financial returns that
    employees receive:

       Direct compensation – pay system

       Indirect compensation – benefits and
        work environment
Direct Compensation

   Base Pay
   Differential Pay
   Short and long term incentive pay
   Cash Awards
Indirect Compensation
   Legally required benefits
   Disability insurance
   Life Insurance
   Medical, dental, vision insurance
   Deferred pay
   Unpaid Leave
   Pay for time not worked
   Flex benefits
   Perks
   Work environment
   Non-cash awards
Equity Issues

   Internal Equity
       Fairness between what employees
        bring to the company and how they are
   External Equity
       Comparison of compensation levels and
        practices with organizations in the
        same market that are competing for
        the same employees
Cold, hard cash

   Direct compensation isn’t the total
    answer, but employers may be
    misinterpreting its importance
Cold, hard cash

 2005 Workforce Study by Spherion
  shows that 49% of employers rate
   financial compensation as a very
     important driver of retention.

         69% of workers
        Rate very important
Market Pay Strategies

   Match – Pay approximately the
    same wages and benefits as
   Lag – Salaries and/or benefits below
   Lead – Pay higher salaries and/or
    benefits as a strategy to attract
    most desirable employees.
Market Based Pay

   The ultimate goal is to determine
    the market rate – what other
    organizations pay for similar work in
    the external marketplace.
       Most employees expect to be paid at a
        level that is consistent with that paid in
        the market for comparable work.
Market Pricing

   Market pricing should complement
    internal value determinations that
    are most frequently made by job
    content evaluation
Job Evaluation

   Non-quantitative (whole job)
       Evaluates an entire job and places the
        job in order without assigning a
        numerical value
          Job ranking – establishes a hierarchy of
           jobs from highest to lowest
          Job classification – groups jobs into
           predetermined grades or classifications
The “Market Rate”

   Market rate may apply to all jobs in
       Same physical area
       Same industry within the area
       Same industry, regardless of area
Competitive Market Rates

   By discovering competitive market
    rates in an area and/or industry, an
    organization should be able to:
       Determine appropriate compensation
        levels for comparable work and
       Diagnose existing or potential salary
Competitive Market Rates

   Once an organization determines
    competitive market rates of pay for
    benchmark positions, the
    organization can determine if
    positions are underpaid or overpaid,
    and internal equity situations may
    be identified and corrected.
Benchmark Jobs

   Benchmark jobs are positions
    selected on the basis of similarity of
    duties, responsibilities, skills,
    education and experience. These
    positions are used for comparison
    with other organizations that have
    similar positions.
Where do I find market data?

   Unlimited number of compensation
    surveys are available:
       Do you develop your own survey?
       Purchase external surveys?
       Rely on “free” survey data?
    Survey Options

   U.S. government surveys
   Internet data (from free salary sites)
   Online survey sites
   Computer data banks
   Research outsourcers
   Surveys conducted by a professional or
    trade association, a large consulting
    firm, or an independent consultant
Survey Options

   Joining an informal group of
    employers to conduct a survey
   Conducting a survey for your own
Government Surveys

   Free and statistically reliable
       May not be sufficiently timely or
        specific to meet needs
Government Surveys

   Two well-known surveys published
    by the Department of Labor’s
    Bureau of Labor Statistics:
       The Occupational Employment
        Statistics Survey
       The National Compensation Survey
Occupational Employment Statistics
   The Occupational Employment Statistics
    (OES) program conducts a semi-annual mail
    survey designed to produce estimates of
    employment and wages for specific occupations.
    The OES program collects data on wage and
    salary workers in non-farm establishments in
    order to produce employment and wage estimates
    for about 800 occupations. Data from self-
    employed persons are not collected and are not
    included in the estimates.
National Compensation Survey


   Analyzes jobs found in the federal
    government so these jobs can be
    paid competitively.
Internet Data

   Internet compensation data comes
    in three forms:
    1.   Free salary sites
    2.   Online survey reports
    3.   Computer data banks

    Remember – you get what you pay for!
Internet data – free salary sites

   The most popular sites provide data
    designed for general employee, not
    the employer
   Compensation administrators deal
    with employees asking for raises
    based on this free, accessible, and
    typically inflated information.
       Revenue comes from advertising, so
        they need to increase their “hits”
Internet Data

   Be wary of sites that don’t provide
    sources, surveys, methodology, and
    a standard error
Online surveys

    Four interactive surveys covering
    salaries for up to 4,000 jobs in
    6,000 cities including cost of living,
    competitive benefits, and
    salary/merit increases. Reduced
    price to survey participants.
Online Surveys

 – one-time
    survey retrievals for individual fees,
    or you can subscribe to the site.

 – salary
    information for an annual fee
Computer Data Banks

   Computer data banks let you tap
    into their data files to make your
    own survey. Expensive, but less so
    than conducting your own custom
Computer Data Banks
   Salary Information Retrieval System
       Comprehensive cross-industry
        database. Covers 600 companies in 11
        industry groups, and lets you select
        specific companies to compare. SIRS
        requires participation and an annual
        fee. Maintained by Organization
        Resource Counselors
Computer Data Banks

   Other database systems:
       Mercer HR Consulting
       The Hay Group
       Towers Perrin
       Radford – a leader in high-tech and
        biotech survey reports. Requires
        participation and is expensive
Research Outsourcers

   Alternative to collecting and
    analyzing survey data yourself is
    utilizing the skills of a service.
   ERI Economic Research Institute
    collects, analyzes and reports data
    from thousands of salary and cost
    of living surveys
Surveys by Private Organizations

   A large number of trade
    associations, industry groups,
    professional societies and consulting
    organizations conduct wage and
    salary surveys. Some are free and
    some cost several thousand dollars.
Informal Groups

   Formation of informal groups within
    specific areas or specific companies
    to perform pay research
Conducting your own survey

   It can be very expensive to conduct
    your own survey. It’s a large and
    time consuming task.
       May be worth it if you need to
          Control the data sought or
          Maintain confidentiality of results
Conducting your own survey steps
   Planning the survey
       Purpose of the survey
       Jobs to be included
       Markets to be surveyed
       Organizations to be invited to
       Information to be obtained
       Methodology
       Determine who conducts and prepares
Conducting your own survey steps

   Conducting the survey
       Collect information
       Ensure job comparability
   Preparing results
       Tabulate the data
       Analyze the results
       Present results in report form
What’s next?

   Once market data is collected from
    the desired competitive markets,
    the hierarchy of relative worth is
   Unlikely that a survey match can be
    found for every job. Benchmark
    jobs are those that can be matched.
Benchmark jobs
   Are representative of the types of
    work performed in the organization

   Represent a broad cross section of
    employees (high to low job

   Represent a significant portion of
    the employee population
Benchmark jobs

   Hold duties and responsibilities that
    are identifiable in the marketplace

   Exist in the organizations and
    geographic areas to be surveyed
Identify the Reference Point

   Compare job duties and
    responsibilities that:
       Reflect the scope of the position and
        reporting relationships – can’t rely on
       Focus on the specific job or industry
       Are within market based on size,
        profitability, sales/assets, geographic
        area, and/or industry
Approaches to market pricing
   Pure market pricing – evaluation based on
    market value

   Guideline method – combination of
    traditional job evaluation method and
    market based job evaluation

   Maturity curves – method used as a
    premium pay mechanism to correlate pay
    in relation to tenure in a professional field
    such as teaching

   Pure market pricing carried to an
    extreme deemphasizes internal
    alignment and can result in an
    inefficient pay structure

   Internal and external employee
    pressures for a fair and equitable
    pay system is a matter of
Ignoring Internal Pay Alignment

   Deemphasizing may result in:
       Feelings of unfair treatment
       Inconsistency in fundamental culture in
        relation to recognizing and rewarding
       Employees seeking other employment,
        filing grievances, or foregoing
        opportunities for advancement within
        the organization
Ignoring External Pay Alignment

   May affect the ability to attract, hire
    and retain applicants who match the
    organization’s needs
Where do you go for help?