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Compensation Budgeting Part 2: Determining Raises
1. Compensation Budgeting Part II:
Determining Raises
We will be sending out slides and accreditation information following the presentation
Mykkah Herner, MA, CCP
Manager of Professional
Services
PayScale, Inc.
www.payscale.com
3. Three-part Series on
Compensation Budgeting
Part I: Managing Pay Inequities
Part II: Determining Raises
Part III: Putting it all together with
PayScale Insight
www.payscale.com
4. Agenda
Recap of Part I
Part II
What do you want to reward?
o Market, Performance, Proficiency, Tenure, etc
Can you streamline your increase process?
How to calculate pay increases.
o Paying to Market
o Merit Matrix (Pay-for-Performance)
Putting it all together for budget recommendations
Next month: putting it all together with PayScale Insight
www.payscale.com
5. o Start with a plan
o Know your comp Philosophy, Strategy, and
Policy
Recap of
Part I
o Get reliable market Data
o Identify comp inequities at
Org, Dept, Position, and Individual
levels
o Org/Plan level: fair pay to market
o Dept level: fair pay across departments
o Position level: have some positions move faster
than others?
o Employee level: are you paying according to
your policy? Fairly based on EEO status?
o Develop solutions
http://resources.payscale.com/hr-webinar-budgetingpart-1-managing-internal-pay-inequities.html
www.payscale.com
9. Considerations for your increase
process & timeline
Depends on your organizational values around
transparency and inclusion
Determine on what you’ll base increases
Create a timeline
www.payscale.com
12. Market-based Increases
Tier increases by position in range
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
o Create spreadsheet
www.payscale.com
13. Increase Spreadsheet
Name
Job Title
Alexander, Maria
Account Manager
Current
Range
Annual Base Min
Range
Mid
Range
Max
CompaRatio
New
Range
Increase Annualized Annual
Penetration %
Increase
Base
New
Compa- New Range
ratio
Penetration
$45,900
$46,300 $57,100 $67,900
0.804
-2%
3.80%
$1,744
$47,644
0.83
6%
Arnold, Alexandra Driver I
$29,600
$29,300 $35,700 $42,100
0.829
2%
3.80%
$1,125
$30,725
0.86
11%
Baker, Nicholas
Account Executive
$46,500
$40,400 $49,800 $59,200
0.934
32%
3.80%
$1,767
$48,267
0.97
42%
Allen, Ryan
Program Manager
$86,700
$73,600 $93,300 $113,000
0.929
33%
3.80%
$3,295
$89,995
0.96
42%
Bailey, Sara
Senior Account Executive
$64,000
$54,700 $68,400 $82,100
0.936
34%
2.80%
$1,792
$65,792
0.96
40%
Anderson, James
Customer Service Rep
$45,500
$34,900 $42,500 $50,100
1.071
70%
1.90%
$865
$46,365
1.09
75%
Andrews, Vincent
Senior Account Executive
$76,700
$54,700 $68,400 $82,100
1.121
80%
1.90%
$1,457
$78,157
1.14
86%
Adams, Christina
Account Manager
$63,800
$46,300 $57,100 $67,900
1.117
81%
1.90%
$1,212
$65,012
1.14
87%
0.967625
41%
2.96%
$13,257
$471,957
1.00
49%
Total/Average
$458,700
SUM
•
•
•
•
•
•
AVG
AVG
AVG
SUM
SUM
AVG
AVG
Compa-Ratio = Current Annual Base / Range Mid
Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)
Annualized Increase = Increase % * Current Annual Base
New Annual Base = Annualized Increase + Current Annual Base
New Compa-Ratio = New Annual Base / Range Mid
New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
www.payscale.com
14. Using a Matrix (Merit or Proficiency)
Tier increases by position in range & performance
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
and performance
o Create spreadsheet
o Note: Proficiency, or another factor, can work like
performance in this example
www.payscale.com
15. Increase Spreadsheet
Name
Job Title
Current
Annual
Base
Performance Range
Rating
Min
Range
Mid
Range
Max
New
Compa- Range
Increase Annualized Annual
Ratio Penetration %
Increase Base
New
Compa- New Range
ratio Penetration
Adams, Christina Account Manager
$63,800Meets
$46,300 $57,100 $67,900
1.117
81%
1.70%
$1,085 $64,885
1.14
86%
Alexander, Maria Account Manager
$45,900Meets
$46,300 $57,100 $67,900
0.804
-2%
3.90%
$1,790 $47,690
0.84
6%
Allen, Ryan
$86,700Meets
$73,600 $93,300 $113,000
0.929
33%
3.90%
$3,381 $90,081
0.97
42%
Anderson, James Customer Service Rep
$45,500Meets
$34,900 $42,500 $50,100
1.071
70%
1.70%
$774 $46,274
1.09
75%
Andrews, Vincent Senior Account Executive
$76,700Meets
$54,700 $68,400 $82,100
1.121
80%
1.70%
$1,304 $78,004
1.14
85%
Arnold, Alexandra Driver I
$29,600Meets
$29,300 $35,700 $42,100
0.829
2%
3.90%
$1,154 $30,754
0.86
11%
Bailey, Sara
Senior Account Executive
$64,000Does not meet $54,700 $68,400 $82,100
0.936
34%
0%
$0 $64,000
0.94
34%
Baker, Nicholas
Account Executive
$46,500Does not meet $40,400 $49,800 $59,200
0.934
32%
0.90%
$419 $46,919
0.94
35%
Barnes, Paul
Customer Service Rep
$38,600Exceeds
0.908
24%
7%
$2,702 $41,302
0.97
42%
0.961
39%
2.74%
$12,608 $509,908
0.99
46%
Totals/Averages
•
•
•
•
•
•
Program Manager
$497,300
$34,900 $42,500 $50,100
Compa-Ratio = Current Annual Base / Range Mid
Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)
Annualized Increase = Increase % * Current Annual Base
New Annual Base = Annualized Increase + Current Annual Base
New Compa-Ratio = New Annual Base / Range Mid
New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
www.payscale.com
17. Putting it all Together
Part I
o Org Level Solutions – Range Adjustments
• Cost of changing ranges (adjusting green outliers)
o Position Level Solutions – Market Adjustments
• Cost of adjusting positions or adding temporary
position premiums
o Employee Level Solutions – Equity Adjustments
• Cost of correcting individual pay inequities
Part II
o Increase Budget – Pay Increase Adjustments
18. Org Level Solution Costs
Range Adjustments
o If you decide to maintain compa-ratios, this cost will be equal to the % you
are increasing your ranges.
For example, if your total base pay budget is $15,000,000 and you increase your
ranges by 2%, the total impact is $300,000
o If you decide to ensure no green outliers, this cost is equal to the
adjustment necessary to keep all EEs in range at the low end
www.payscale.com
19. Position Level Solution Costs
Market Adjustments
o Moving positions to a new grade
o What will be the cost of ensuring all incumbents are in range
o For example, Driver I and CSR = 100 + 400 = $500
o Offering a market premium
o Calculate yearly market premium payment to all incumbents in the role
o For example, Software Engineer = 21 * $1000 = $21,000 www.payscale.com
20. Employee Level Solution Costs
Equity Adjustments
o Determine the amount to resolve critical issues
• For example, bump HRM/F to 73,600 ($3700)
o Calculate amount to resolve compression issues – increases to existing?
o Any necessary market adjustments for individuals?
www.payscale.com
21. Pay Increase Adjustments
Pay Increase Adjustments
o Typically this is the easiest to budget as it is usually a
percentage of total salary budget.
o For example, if your budget is $15,000,000, a 3% increase
would be $450,000.
www.payscale.com
22. Summary of Comp Budget Requests
2014 Compensation Budget Requests
Total Salary Budget:
2014 Range Adjustments
2014 Market Adjustments
2014 Equity Adjustments
2014 Pay Increase Adjustments
Total Increase
2014 Salary Budget
$15,000,000
Percent
0.06%
0.14%
0.02%
3%
Dollar Amount
$9,200
$21,500
$3,700
$450,000
$484,400
$15,484,400
Detail for comp budget request is in the following attachments
Costing for Range Adjustments
Costing for Market Adjustments
Costing for Equity Adjustments
2014 Pay Increases
www.payscale.com
24. PayScale Delivers Where Other Compensation Providers Fall Short
PayScale leads the world in compensation knowledge with the freshest and
most detailed data from over 40 million salary profiles. More than 3000
organizations use PayScale’s software and intelligence to get the greatest
return on their talent. Smart businesses use PayScale Insight to recruit, retain
and motivate their people.
Visit our blog: www.payscale.com/compensation-today
Join our Group on LinkedIn: Compensation Today: HR Best Practices
Mykkah Herner, MA, CCP
Manager of Professional
Services,
PayScale, Inc.
www.payscale.com
Hinweis der Redaktion
Creator of the largest database of individual compensation profiles in the world, PayScale, Inc. provides an immediate and precise snapshot of current market salaries to employees and employers through its online tools and software. PayScale’s products are powered by innovative search and query algorithms that dynamically acquire, analyze and aggregate compensation information for millions of individuals in real time. Publisher of the quarterly PayScale IndexTM, PayScale's subscription software products for employers include PayScale MarketRateTMand PayScale InsightTM. Among PayScale's 2,500 corporate customers are organizations small and large across industries including Mozilla, Tully’s Coffee, Clemson University and the United States Postal Service.
Org/Plan level: fair pay to marketExamine ranges relative to market dataSolution move ranges or notDept level: fair pay across departmentsDecide how you want to target various depts (percentile of mkt) and use market ratio to checkSolution – move pay in alignment with strategyPosition level: have some positions move faster than others?Examinemkt to range mid for each position, examine EE paySolution – potentially move some positions up or down a grade based on market & EE pay practicesEmployee level: are you paying according to your policy? Fairly based on EEO status?PART I:Examinecompa-ratios and range outliersSolution – course correct with increase %PART II/discrimination:Examine disparate pay reportSolution – course correct with increase %
If you reward based on x what would the increases look like, and are there any long-term implications?X=MarketIncreases are allocated based on position in range – those lower in range get a higher increase than those higher in rangeLong term, employees know that they are paid fairly to market, but aren’t given an major incentive to perform betterX=PerformanceIncreases are allocated based on performance – those with higher performance get a higher increase than those with avgperfLong term, ees know that they are paid fairly based on their outputs/efforts/contributionsX=ProficiencyIncreases are allocated based on how well an employee knows various aspects of the jobLong term, ees learn quickly and rapidly learn the basics of the role, but often there isn’t much incentive to go above & beyondX=TenureIncreases are allocated based on how long employee has been in the role/orgLong term, ees know they just have to stick around to keep getting increases. Low incentive to performCOLA – mirror breath test
Org LevelHow do you plan to do increases? Do you want to maintain the compa-ratio (across the board market-based increase) or do increases by position in range? What is the $ impact of employees falling out of range in the green? Position LevelCalculate the cost of moving position to a new gradeCalculate costs of your market premium – advantage year over yearEE LevelDetermine the amount to resolve critical issuesCalculate amount to resolve compression issues – increases to existing?Any necessary market adjustments for individuals?DIFFERENCE BETWEEN MARKET ADJ AND MERIT INCREASE!
Position LevelCalculate the cost of moving position to a new gradeCalculate costs of your market premium – advantage year over year
EE LevelDetermine the amount to resolve critical issuesCalculate amount to resolve compression issues – increases to existing?Any necessary market adjustments for individuals?