American Association of School Personnel Administrators

1
American Association of School Personnel
Administrators

• Key Elements of a
• Total Compensation Plan
• Presented by
• Bruce G. Lawson, CCP
• President
• Fox Lawson Associates LLC
• PO Box 32985
• Phoenix, AZ 85064
• Phone [phone]
• Fax [phone]
• October 22, 1999

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Objectives of This Presentation

• Discuss latest best practice
• Strategic focus
• Multiple systems to meet specific business unit
  needs
• Key Elements of a strategic compensation plan
• Job analysis
• Job evaluation options
• Compensation program
• Alternative reward systems

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Strategic Compensation

• Aligning the compensation system with the goals
  and objectives of the School District Spend
  dollars to achieve greatest impact Match
  productivity with results Stimulate
  creativity Enhance "ownership" value

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Strategic Compensation

• The conceptual design of a compensation program
  should be based on The business
  environment The organizational
  environment Employee considerations The
  market environment

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The New Business Environment

• Strategic planning is necessary
• Planning is specific and long term
• Market share is threatened - there are new
  competitors
• Past success is no guarantee of future success
• Productivity and quality are paramount
• Reorganization and restructuring

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The New Organizational Environment

• Reduced layers of management - fewer career
  opportunities
• More direct impact on performance
• Shorter term employees - loyalty to career, not
  the organization
• An aging work force - decreasing pool of talent
• Decreasing number of specialists but increasing
  needs
• Entry level educational skills - changing
  demographics

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Current Considerations

• Attract, retain and motivate
• Increased interest in incentives
• Achieving pay in relation to performance

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Future Compensation Trends

• Emergence of management as an "investor"
• Increased focus on entrepreneurship
• Higher pay levels of all types
• Growth in variable elements of pay - linking pay
  directly with productivity and "profit"
• Increased decentralization of pay programs
• Decreased emphasis on internal equity
• Increased differentiation of pay practices by
  organizational unit

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Systems to Consider

• Mix of reward versus entitlement pay
• Individual versus group incentives
• Performance measurement
• Alternative reward approaches
• Broad banding
• Skill based pay
• Individual incentives
• Group based incentives

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Elements of a Strategic Compensation Program

• Job analysis
• Job evaluation
• Base compensation plan
• Alternative reward systems

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Job Analysis Considerations

• Data collection
• Data verification
• Establishment of classification structure

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Job Evaluation Options

• Point factor
• Factor comparison
• Market pricing
• Decision banding

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Compensation Plan Development

• Select benchmarks
• Market pricing
• Surveys versus published data
• Compensation structure design

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Alternative Reward Systems

• Broad banding
• Skill based pay
• Goal sharing/Gain sharing
• Performance based pay

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Broad Banding

• Broad Banding is the collapsing
• of a number of traditional salary
• ranges within a traditional salary
• structure into a few broad bands.

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Characteristics of a Broad Band system

• Significantly fewer salary grades (or bands)
• Much wider ranges than those of conventional pay
  structures
• No salary range midpoint identified because a
  band encompasses so many jobs of differing value

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Broad Banding - Advantages

• Greater flexibility in moving employees to meet
  organizational needs (lateral moves)
• Less focus on titles and pay grades (supports
  team approach)
• Encourages broadening of skills
• Eliminates geographical structures
• Supports flatter organizational structures
• Less time spent on job evaluation
• Offers a wider spread of pay opportunity in which
  to recognize and reward different levels of
  individual employee contribution
• Supports an orientation towards greater
  responsibility on the part of management to
  "manage compensation"

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Broad Banding - Disadvantages

• Can be difficult to conduct external competitive
  analysis by job title or class summary
  benchmarking
• Wider ranges result in less traditional cost
  control measures
• elimination of control points (midpoints)
• higher salary range maximums
• Places more responsibility for administration on
  both Human Resources and Management
• Employee education/communication is critical
• Requires a different job evaluation orientation
  (traditional systems will not work)
• Inflated expectations from stakeholders

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Broad Banding - When Will It Work?

• When you want a pay structure which supports a
  flatter organizational structure
• The organization strongly supports career
  development, cross-training and
  inter-occupational mobility
• Pay for skills (compensation) is encouraged
• Change has top management's support
• Effective communication channels exist within the
  organization
• An effective performance management system is in
  place
• First-line supervisors are well trained in
  performance management and in communicating the
  elements of the pay system to employees

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Broad Banding - When Is It Likely to Fail?

• The Organizations existing culture values a
  traditional organizational hierarchy
• The current compensation program is successful
  and already supports the organization's business
  strategy
• Many elements are currently tied to pay grade
  (e.g. eligibility for benefits and incentives,
  office size, etc.)
• Banding is regarded only as a way to solve salary
  administration issues

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Skill Based Pay

• Skill based pay is a system
• designed to reward employees for
• the skills they possess and use in
• the work setting. Pay is directly
• related to the number of definable
• and measurable skills acquired
• and applied.

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Characteristics

• Individually based pay versus job based pay
• Focus is on skill development
• Encourages cross training
• Permits flexibility in staffing

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Skill Based Pay - Advantages

• Encourages skill development and career
  development
• Creates staffing flexibility
• Improved employee satisfaction
• Reinforces teamwork and employee involvement
• Lower staff requirements for the same amount of
  work
• Higher output and quality over the long term

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Skill Based Pay - Disadvantages

• Can be difficult to conduct external competitive
  analysis by job title benchmarking
• Skill blocks can be difficult to define and price
• Works best for trades and production based jobs
• May result in paying for skills not used
• Certification/re-certification process needs to
  be established
• Time and money needed for training
• More employees can "top out"
• Administrative complexities

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Skill Based Pay - When Will It Work?

• When you want a pay system which supports a new
  culture
• The organization strongly supports career
  development and cross-training
• Pay for skills is encouraged
• The change is supported by supervisors and
  managers
• When training money and time are readily
  available
• The organization supports total quality
  initiatives

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Skill Based Pay - When Is It Likely To Fail?

• There is a lack of supervisor and management
  support
• Unwillingness to endure implementation problems
• Cultural desire for equity at expense of
  individual differences
• Skill blocks are not well defined
• Failure to install proper certification process

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Individual Based Incentives

• Individual based incentives
• include any plan(s) that reward(s)
• individual employees for their
• own performance or contribution.

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Characteristics

• Emphasis is on individual performance or
  contribution
• Types of plans include Pay for
  performance Suggestion programs Recognition
  programs

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Individual Based Incentives - Advantages

• Focus on individual employee performance or
  contribution
• Consistent with historical values of pay and
  performance
• Incentive to address performance issues
• Relatively easy to install

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Individual Based Incentives - Disadvantages

• Plans lose potency after 1 - 2 years
• Difficult to set measurable performance criteria
  for many jobs
• Encourages individual performance at expense of
  group
• Can create feelings of superiority and/or
  inferiority
• Creates administrative systems that must be
  monitored
• May be perceived as unfair because of its
  subjective nature
• Forces managers/supervisors to confront employees
  who do not perform at or above standards

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Individual Based Incentives - When Will They Work?

• Clear measures are established for success
• Evaluators receive good and frequent training
• Rewards are worthwhile and meaningful
• Communication is excellent
• When top performance can be distinguished from
  regular duties
• The organization supports individual effort over
  group performance

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Individual Based Incentives - When Are They
Likely To Fail?

• Managers/supervisors cannot or will not
  distinguish between different levels of
  performance
• Organization does not fund the incentive program
  - rewards are not meaningful
• Measurement system is poorly defined
• Monetary value is low in comparison to effort
  expended

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Group Based Incentives

• Group based incentives focus on solving
• problems of cost, quality, and efficiency
• leading to a monetary reward for documented
• improvements. Programs include Small group
  incentives Gain sharing/Goal sharing

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Characteristics

• Emphasis is on teamwork
• Teams are rewarded for improvement
• Rewards () are usually considered "found" money
• Formula based (not subjective)
• Measures of improvement can be financial,
  operational or a combination

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Group Based Incentives - Advantages

• Encourages teamwork and employee involvement
• Increases in pay are funded out of "found" money
• Supports new culture of work
• Encourages higher productivity and quality
• Lower staffing levels needed

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Group Based Incentives - Disadvantages

• Plans need to be re-adjusted every few years
• Difficulty in setting measurable objectives
• Public distrust of paying for improvements
• Productivity improvements need to be bought back
• Rewards may not be large enough to motivate
  change in behavior
• Significant time and cost involved to set up

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Group Based Incentives - When Will They Work?

• When the culture supports teamwork
• Good base line performance measures are available
• Management and employees enjoy a level of mutual
  trust
• When all levels of employees are included
• When rewards are separate from regular pay
• The organization supports total quality
  initiatives

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Group Based Incentives - When Are They Likely To
Fail?

• Lack of policy maker, management, and supervisor
  support
• Overly complex bonus/pay-out formula(s)
• Employee and management distrust
• Legislative meddling
• Lack of good baseline measures
• Poor communication

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The Bottom Line

• Compensation should be used as a tool to assist
  the District in achieving its strategic
  objectives
• It should be consistent with organizational needs
• It should be responsive to employee concerns