advanced salary structures webinar final
TRANSCRIPT
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SALARY STRUCTURES ANDVARIABLE COMPENSATION:TEN CRITERIA FOR SUCCESS
We will begin shortly
Welcome to Todays Web Seminar:
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Polling Question
What region are you located in?
a) US
b) Canada
c) Latin America/Caribbeand) Europe/Middle East/Africa
e) Asia - Pacific
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John A. Rubino, President
Rubino Consulting Services
29 Conant Valley Road
Pound Ridge, New York USA 10576
rubinoconsulting.com +914-533-5310
John A. Rubino
President, Rubino Consulting Services
Senior manager, HR consulting, Ernst & Young LLP
25+ years of experience compensation systems design
Internationally-acclaimed motivational speaker
mailto:[email protected]:[email protected] -
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Polling Question
How would you assess your understanding of salarystructures?
a) Im an expert
b) Im an intermediatec) Im a beginner
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Base Salary Structures
Minimum, Midpoint, Maximum, Spread, Midpoint Differential
Structure Development, Regression Analysis
Grade Segmentation (Quartiles, Thirds)
Salary Distribution Within Grades and Structures
Salary Structure Compression
Broadbanding --- Dos And Donts
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Using Compensation Programs To
Successfully Attract And Retain The Best AndThe Brightest
Can this be accomplished byusing a Base Salary Merit
Increase Program as the primary
reward vehicle?
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Wheres The Merit?
Its a zero-sum game --- and its not enough!
Its all relative
They all exceeded their performance objectives ---now what?
Base salary increases are forever!
Is Old Joe motivated?
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What Are The Alternatives?
Variable Compensation Plans AndOther Alternative Reward
Programs
But Are You Ready?
The Ten Criteria For Success
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Polling Question
Do you have a comprehensive or broad based variablecompensation plan?
a) Yes
b) Noc) Were considering putting it in place
d) Dont know
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1. A Successful Plan Is Aligned WithOrganizational Culture/Values
Culture and values must support a variable/
incentive framework: instilling a
Sales Mentality
Senior management must allow the
variable program to work
Should have Pay By Example at the top
of the organization
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2. A Successful Plan Is Fair to Employees
Must be internally equitable and
externally competitive
Performance criteria must be discernible,valid and understandable
Program must deliver what is promised
on time and fairly
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3. A Successful Plan Is Fair to the
Organization
Should work towards self-funding
Organization should be relatively
profitable when the program is initiated
Plan design should guard against
windfall payments
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4. A Successful Plan Sets Total
Compensation (Total Rewards)
Compensation policy must be aligned with
total rewards and strategic objectives
Variable pay should be directlytied to
performance criteria achievement: direct line-of-sight
Consider re-defining what is meant by a
base salary increase
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5. A Successful Plan Yields FinancialReturns to Employees
Variable opportunities must be
perceived as substantial
enough to motivate performance
Timing of variable payments should be as close
as possible to the qualifying event
If designed properly, payouts to employees will yieldslices from an expanding financial pie
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6. A Successful Plan Yields FinancialReturns to the Company
A well-designed and executed variable compensationprogram can improve the organizations bottom line
Measurable benefits can include improved:- Morale - On-time
Performance
- Productivity - Work Methods
- Quality - Etc., Etc., Etc.
- Customer Service
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7. A Successful Plan Involves Employees
And Managers
Middle managers will make or breakthe variable compensation program
Must get buy-in from employees
Should involve employees and managers in the plandesign, including identification of performance criteria
Build trust!
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8. A Successful Plan Uses Internal
And External Data
Collect and analyze accurate and
valid competitive data
Build the variable program from a
rational base pay foundation
Base salary serves as the anchorin total
compensation planning
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9 (a). A Successful Plan Sets Forth
Clear Performance Goals
Performance criteria in successful
programs are:
- cascading- a combination of quantitative
and qualitative measures
- simple to understand
- supported by valid data
- monitored through strong controls
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9 (b). A Successful Plan Sets Forth
Clear Performance Goals
Aligning rewards to performance
requires the following:
- a clear (and clearly-perceived)relationship between pay and performance
- predictable measures of performance
- visible benefits to the employees and theorganization
- regular formal and informal performance feedback
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10. A Successful Plan Achieves ClarityThrough Communication
Communication mega-objectives:
- to ensure understanding
- to change perceptions
(get buy-in)
- to motivate behavior
Even the most elegantly-designed variable program will not
achieve the desired results unless employees andmanagers understand and, ultimately, buy into the program
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VARIABLE PLAN FRAMEWORK(Can Be Tailored To Your Organization)
RANGE: PERFORMANCE
TARGET 0 150% WEIGHTINGS
TIER OPPORT. OF TARGET CORP. DEPT. INDIV.
--------------------------------------------------------------------------------------------------------
1 Officers 35.0% 0 52.5% 70% 20% 10%
2 Directors 25.0% 0 37.5% 40% 50% 10%
3 Managers 15.0% 0 22.5% 30% 50% 20%
4 Profess. 10.0% 0 15.0% 20% 20% 60%
5 Support 8.0% 0 12.0% 10% 20% 70%
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Cascading Performance Management
Corporate criteria are always quantitative: measures how the
organization defines financial/operational success (2 or 3 criteria).
Also, develop Qualitative Corporate Goals (QCGs): organizational-wide business & operational objectives for the upcoming performanceperiod.
QCGs are used to cascade Departmental and Individual/Team Goals.
Departmental and Individual/Team Goals should be bothquantitative and qualitative:
Criteria must be valid, discernible and measurable and, if applicable, withmilestone dates.
No more than four to six criteria per category. Narrative rating scale can be used to assess qualitative criteria.
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VARIABLE PLAN PerformanceCriteria (example)
Corporate criteria (Quantitative):
NET INCOME
(% growth over previous year)
Criteria Payout
MAXIMUM >=17% 150%
TARGET 12% 100%
THRESHOLD 9% 50%
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The Ten Criteria For Success!
A SUCCESSFUL VARIABLE COMPENSATION PLAN
1. Is Aligned With Organizational Culture/Values
2. Is Fair To Employees
3. Is Fair To The Organization
4. Sets Total Compensation (Total Rewards)5. Yields Financial Returns To Employees
6. Yields Financial Returns To The Company
7. Involves Employees And Managers
8. Uses Internal And External Data
9. Sets Forth Clear Performance Goals
10. Achieves Clarity Through Communication
S St t M ti ti F
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Seven Steps to a Motivation-FreeCompensation Program
1. Be sure no one quite knows what his/her job is2. Keep selection and promotional criteria vague
3. Dont tie yourself or employees to tangible goals
4. Be vague about who measures performance and how
5. Keep salary ranges, increase percentages, variable planguidelines, and most components of compensationsecret
6. Surprise employees with a bigger paycheck or lump-
sum/spot award7. Be defensive when asked to explain and defend human
resources actions
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John A. Rubino, PresidentRubino Consulting Services
29 Conant Valley Road
Pound Ridge, New York USA 10576
rubinoconsulting com +914-533-5310
Thank You for Attending!
John A. Rubino, President, Rubino Consulting Services
Senior manager, HR consulting, Ernst & Young LLP
25+ years of experience compensation systems design
Internationally-acclaimed motivational speaker
mailto:[email protected]:[email protected]