Contemporary Compensation Practices in Higher Education: Clear, Simple

1
Contemporary Compensation Practices in Higher
Education Clear, Simple Effective

• CUPA-HRGeorgia Chapter
• February 8, 2007
• Presented byKaren Hutcheson, Vice
  PresidentPeter J. Martel, Senior Higher
  Education Consultant

2
Effective Practices in Higher Education
Compensation

• Today we will help you answer several questions
• Whats going on in compensation in higher
  education?
• How can compensation enable your institution to
  achieve its strategic priorities?
• What kind of program makes sense for your
  institution?
• How can pay be administered effectively without
  unnecessary processes?
• How can you integrate pay, career development and
  performance?

3
Trends in Higher Education Compensation

• Executive Compensation
• Faculty Compensation
• Staff Compensation

4
Executive Compensation

• Increasing interest in adopting more corporate
  compensation strategies for system and campus
  chief executives, with consideration for
  Intermediate Sanctions
• Deferred compensation
• Incentives and bonuses
• Housing and personal perquisites
• Sarbanes-Oxley Impact
• Closer board oversight of executive compensation
  practices
• Federal and state government interest in higher
  education performance accountability
• External interest in institutional pay practices
  for senior executives

5
Faculty Compensation

• Old egalitarian culture is being challenged on
  many fronts
• External Competitiveness
• Increasing competitiveness and market focus
• Institutional raiding of top faculty talent
• Internal Equity
• Campus-specific definitions
• Faculty Compensation Committee oversight
• Discipline Specific
• Variable competitiveness by discipline
• Left behind Arts and Sciences faculty
• Junior Faculty Expectations
• Willing to negotiate for best starting salary
• Expect to be rewarded for performance

6
Administration and Staff Compensation

• Increasing emphasis on market vs. internal
  evaluation as way to manage pay
• Market referenced systems
• Provide flexibility when market trends dictate
  adjustments
• Ensures competitiveness
• Point factor/internal ranking systems
• System rigidity limits flexibility to adapt to
  market trends or institutional needs
• Finite outcomes
• Can be overly restrictive and inflexible

7
Administration and Staff Compensation continued

• Salary becoming a more important factor in talent
  acquisition and management strategies
• Recruitment
• Retention
• Increasing need to pay more aggressively in some
  areas
• Technology
• Development and advancement roles
• Fewer, broader salary ranges
• Process transparency and inclusiveness

8
Red FlagsAre they waving on your campus?

• Red Flags indicating an ineffective compensation
  program
• High number of narrow salary grades, or grades
  with very similar salary ranges
• Salary compression within grades
• Burdensome number of job re-classifications each
  year
• Re-classification requests that seemed less about
  job content changes and more about rewarding the
  incumbent or about providing a more market
  appropriate salary
• High frequency of promotions
• Lack of management rigor in using the current
  program guidelines
• Over-emphasis on grade assignments
• Title changes intended to reward individuals in
  lieu of salary increases

9
Building a Compensation Program

• The Fundamentals
• An explicit Compensation Philosophy
• KISS Keep it Simple, You Know Who
• Program model
• Pay guidelines
• Open, clear, frequent communications, consistent
  with your culture

10
Consider the Employee Value Proposition

• Pay is only part of the rewards executives,
  faculty, administration and staff receive from
  working in your institution
• Our experience suggests that
• Pay alone does not attract, retain, and motivate
  talent
• Institutions need to consider a balanced approach
  to investments in their Employee Value
  Proposition
• Institutions generally dont maximize the value
  of the total rewards package
• Institutions that have a clear and compelling EVP
  are more likely to attract high quality talent

• Affiliation
• Mission and Values
• Reputation and Ranking
• Work Environment
• Community Citizenship
• Institutional Culture

• Work Content
• Variety
• Challenge
• Structure
• Autonomy
• Feedback
• Impact

• Pay
• Base Salary
• Incentives
• Cash recognition
• Pay Process and Transparency

Employee Value Proposition

• Benefits
• Health
• Retirement
• Time Off
• Work Arrangements
• Tuition

• Career
• Advancement
• Title
• Personal Growth
• Training
• Employment Security

11
The EVP is Part of a Value Exchange thatYields
Mutual Employee/Employer Benefit
Value Exchange
Employee Value Proposition

• Employee Outcomes
• Engagement
• Motivation to Perform
• Focus on Goals
• Career Growth

• Institutional Outcomes
• Innovation
• Financial Strength
• Efficiency
• Enhanced Academic Performance

In our experience, the linkages between the
Employee Value Proposition employee outcomes and
institutional outcomes can be measured and
improved.
12
Our Definition of Pay

• Our definition of pay includes all cash rewards
  offered to the employee
• We consider not only the size of the opportunity
  provided (by pay element and in total) but also
  the vehicles used to deliver pay
• Guidelines and administrative processes for
  managing pay are essential elements in defining
  pay and ensuring satisfaction

• PAY
• Base Salary
• Incentives
• Cash Recognition
• Pay Process and Transparency

Base salary remains the primary pay vehicle, but
institutions are increasingly exploring
incentives (albeit cautiously).
13
Elements of a Pay Philosophy

• A pay philosophy is a compass that guides
  current and future pay decisions. It
• Articulates the role of pay
• Links pay to strategic institutional objectives,
  performance requirements, and talent needs
• Serves as a foundation for pay system development
• Describes the intent of the pay system and
  provides a basis for measuring the systems
  effectiveness

14
Identifying the Competitive Markets

• Consider realities of recruiting markets
• May not be the same as peers lists for other
  purposes
• May not look like your institution

• Get comfortable with multiple markets
• By roleexecutive, faculty staff
• By job familydevelopment, enrollment management,
  information technology
• By disciplineAS, business, law, nursing
• Articulate markets and use for pay management

15
Balancing External and Internal Influences
External Market Price
Internal Role
Total Compensation Opportunity
Am I paid fairly for my talents, knowledge and
experience compared to my peers on other campuses
or with other employers?
Am I paid fairly for my talents, knowledge,
experience and contributions compared to my peers
and colleagues at my institution?
What is the appropriate balance between the
external and internal value at your institution?
Does it vary by college/division/department?
16
Traditional Structure with Narrow Pay Ranges
Traditional Structure Graphic View
Influence of Market on Determining Traditional
Structure
Below Minimum
Above Maximum
Midpoint
Minimum
Maximum
Maximum 50

• Characteristics
• 30 grade levels are common
• 10 15 MP differential
• 50 salary range spreads
• Compensation managed to midpoint

• Design Considerations
• Less flexibility in administration of structure
• Needs to be maintained more frequently due to
  market changes
• Career growth focused on vertical movement
  through the structure

• Structure Most Effective in Environments with
• Standardized work, with minimal changes to job
  content or requirement
• A strong vertical hierarchy
• Highly structured environments
• Career growth occurring through vertical moves,
  supported by a hierarchical system

17
Blended Structure with Broader Pay Ranges
Band Structure Graphic View
Influence of Market on Determining Band Structure
Below Minimum
Above Maximum

Midpoint
Minimum
Maximum
50 75
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

• Characteristics
• 15 20 grade levels
• 20 30 midpoint progressions
• Range spreads of 50 to 75
• Compensation managed to internal control points
  (zones or reference points), taking into account
  market pay for each individual job

• Design Considerations
• A relatively simple structure with less frequent
  maintenance and reevaluation of grading of jobs
  required due to flexibility built into the
  structure
• Allows for increased flexibility in
  cross-functional job movement
• Allows for balancing pay for both the job and the
  person, rather than to an inflexible control point

• Structure Most Effective in Environments with
• Some jobs with standardized tasks and activities
  and others with more diversity of responsibility
• Mixed competitive environmentsstable for some
  jobs and dynamic for others
• A somewhat hierarchical yet complex organization
• An organization which requires some structure but
  also wants the flexibility to manage compensation
  from a systematic standpoint

18
Broadbanded Structure with Wide Pay Ranges
Band Structure Graphic View
Influence of Market on Determining Band Structure
Below Minimum
Above Maximum

Midpoint
Minimum
Maximum
80 100
1
2
3
4
5
6
7

• Characteristics
• 5 8 broad bands
• 30 50 midpoint to midpoint progressions
• Salary range spreads from 80 100 at lower
  levels to 100 for mid to upper levels
• Compensation managed within zones or market
  reference points

• Design Considerations
• More flexibility in administration of structure
• Structure does not need to be updated as
  frequently
• Allows for more differentiation of employees
  within band
• Career growth focused on lateral movement through
  a band, with band-to-band movement possible, but
  uncommon

• Structure Most Effective in Environments with
• Diverse employee segments
• A non hierarchical organizational structure
• A dynamic competitive environment
• A preponderance of non-lateral career growth
  opportunities

19
Questions and Discussion