Strategic Compensation

1
Strategic Compensation

• Kathy Starnick, SPHR, CCP, CBP
• Director Human Resources
• TYBRIN Corporation

2
What is Total Compensation?

• All forms of financial returns that employees
  receive
• Direct compensation pay system
• Indirect compensation benefits and work
  environment

3
Direct Compensation

• Base Pay
• Differential Pay
• Short and long term incentive pay
• Cash Awards

4
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

5
Equity Issues

• Internal Equity
• Fairness between what employees bring to the
  company and how they are rewarded
• External Equity
• Comparison of compensation levels and practices
  with organizations in the same market that are
  competing for the same employees

6
Cold, hard cash

• Direct compensation isnt the total answer, but
  employers may be misinterpreting its importance

7
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

8
Market Pay Strategies

• Match Pay approximately the same wages and
  benefits as competition
• Lag Salaries and/or benefits below market
• Lead Pay higher salaries and/or benefits as a
  strategy to attract most desirable employees.

9
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.

10
Market Pricing

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

11
Job Evaluation

• Non-quantitative (whole job) evaluation
• 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

12
The Market Rate

• Market rate may apply to all jobs in the
• Same physical area
• Same industry within the area
• Same industry, regardless of area

13
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 issues

14
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.

15
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.

16
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?

17
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

18
Survey Options

• Joining an informal group of employers to conduct
  a survey
• Conducting a survey for your own organization

19
Government Surveys

• Free and statistically reliable
• May not be sufficiently timely or specific to
  meet needs

20
Government Surveys

• Two well-known surveys published by the
  Department of Labors Bureau of Labor Statistics
• The Occupational Employment Statistics Survey
• The National Compensation Survey

21
Occupational Employment Statistics Survey

• www.bls.gov/oes/
• 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.

22
National Compensation Survey

• www.bls.gov/ncs/home.htm
• Analyzes jobs found in the federal government so
  these jobs can be paid competitively.

23
Internet Data

• Internet compensation data comes in three forms
• Free salary sites
• Online survey reports
• Computer data banks
• Remember you get what you pay for!

24
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

25
Internet Data

• Be wary of sites that dont provide sources,
  surveys, methodology, and a standard error

26
Online surveys

• www.SalariesReview.com
• 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.

27
Online Surveys

• www.SalarySource.com one-time survey retrievals
  for individual fees, or you can subscribe to the
  site.
• www.WageWeb.com salary information for an
  annual fee

28
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 survey.

29
Computer Data Banks

• Salary Information Retrieval System (SIRS)
• 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
• www.orc-sirs.com

30
Computer Data Banks

• Other database systems
• Mercer HR Consulting www.imercer.com
• The Hay Group www.haygroup.com
• Towers Perrin www.towers.com
• Radford a leader in high-tech and biotech
  survey reports. Requires participation and is
  expensive www.radford.com

31
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
• www.erieri.com

32
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.

33
Informal Groups

• Formation of informal groups within specific
  areas or specific companies to perform pay
  research

34
Conducting your own survey

• It can be very expensive to conduct your own
  survey. Its a large and time consuming task.
• May be worth it if you need to
• Control the data sought or
• Maintain confidentiality of results

35
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 participate
• Information to be obtained
• Methodology
• Determine who conducts and prepares results

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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

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Whats next?

• Once market data is collected from the desired
  competitive markets, the hierarchy of relative
  worth is priced.
• Unlikely that a survey match can be found for
  every job. Benchmark jobs are those that can be
  matched.

38
Benchmark jobs

• Are representative of the types of work performed
  in the organization
• Represent a broad cross section of employees
  (high to low job categories)
• Represent a significant portion of the employee
  population

39
Benchmark jobs

• Hold duties and responsibilities that are
  identifiable in the marketplace
• Exist in the organizations and geographic areas
  to be surveyed

40
Identify the Reference Point

• Compare job duties and responsibilities that
• Reflect the scope of the position and reporting
  relationships cant rely on titles
• Focus on the specific job or industry
• Are within market based on size, profitability,
  sales/assets, geographic area, and/or industry

41
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

42
Cautions

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

43
Balance

• Internal and external employee pressures for a
  fair and equitable pay system is a matter of
  judgment.

44
Ignoring Internal Pay Alignment

• Deemphasizing may result in
• Feelings of unfair treatment
• Inconsistency in fundamental culture in relation
  to recognizing and rewarding employees
• Employees seeking other employment, filing
  grievances, or foregoing opportunities for
  advancement within the organization

45
Ignoring External Pay Alignment

• May affect the ability to attract, hire and
  retain applicants who match the organizations
  needs

46
Where do you go for help?

• WWW.SHRM.ORG
• WWW.WORLDATWORK.ORG