compensation budgeting part 1: managing internal pay inequities
DESCRIPTION
Learn some of the key considerations for determining if there are internal pay issues at your organization.TRANSCRIPT
Compensation Budgeting Part I: Managing Pay Inequities
Mykkah Herner, MA, CCPManager of Professional ServicesPayScale, Inc.
www.payscale.com
www.payscale.com
14,000 Positions 2500 Customers 11 Countries
250 Compensable Factors40 Million Salary Profiles
www.payscale.com
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
Agendao Start with a Plan
o Do you have a clear pay philosophy, strategy, structure, policy?
o Are you using accurate and current Market Data?
o Identify Compensation Inequities
o Organizational Level
o Department Level
o Position Level
o Individual Level
o Develop solutions
o Next month: determining increases & putting it all together
www.payscale.com
Start with a (comp) plan
www.payscale.com
Comp Plan Elements
o Philosophy - high-level view on the aims of the organization with regard to compensation
o Strategy –
o Define your Labor Market(s)
o Determine level of competitiveness
o What do you want to reward?
o Structure - Mathematically sound way of aligning your positions to market and internally
o Policy – ensures that the comp plan is carried out
www.payscale.com
Getting Reliable Market Data
Critical factors for benchmarking jobso Know your positions, go beyond titleso What are the top 3 functions of the roleo What’s the level of responsibilityo What kind of decision-making authorityo What typical tenures do you seek for your roles
(newer, more tenured, etc)o Are there required degrees or certifications
Defining your competitive set Accurate and current market data
www.payscale.com
Testing for Pay Inequities
www.payscale.com
Types of Pay Inequities
At the Plan Levelo Are you paying fairly to market?o Are your ranges competitive with the market?
At the Department level o Are you paying fairly across departments?
At the Position levelo Have some of your positions moved faster?
At the Employee level o Are you paying fairly across employees based on• Your comp policy (what do you reward)?• EEO status?
www.payscale.com
Plan-wide Pay Inequities
Paying Fairly to Marketo Determining your target market percentile
o Budgeto Competitiveness and impact on retention/attraction
Staying competitive relative to marketo Annually, examine your ranges to see if they’re current relative to market
values
www.payscale.com
Analyzing Ranges to Market
Create a report showing your range midpoints relative to the market, and the difference between the two
o Look through your positions- do most go up? Most go down? A mix?o If most positions moved up, you may want to consider adjusting your ranges
by 1-3 percentage points.o Determine the cost impact of the shift prior to making the change.
www.payscale.com
Cross-Department Pay Inequities
Targeting
Determine the appropriate targets for your departments
Build ranges around the appropriate targets
Execution
Ensure that you are paying according to strategy by looking at department-level compa-ratios and market-ratios
www.payscale.com
Position-specific Pay Inequities
Identifying inequities at the position levelo Critical positions may move faster in the market than otherso Review these positions on a quarterly basiso Listen to your employees – flight risko Consider adjusting the grade level and perhaps employee payo Be prepared to adjust pay between cycles for your critical roles
www.payscale.com
Employee-specific Pay Inequities
Identifying Employee-specific pay inequitieso Are you paying according to your comp plan?o Do you have compression issues?o Examine your compa-ratios (.8-1.2)o Look at your outliers (green and red)o Determine your plan to bring people in range, or have a clear
policy for why it’s ok to not be in range.
www.payscale.com
Disparate Pay and EEO Concerns
Create a Disparate Pay Report
o Examine when % difference is high and lowo A good guideline is a % difference greater than your range widthso A high difference is a flag for potential litigationo A low difference may not be an EEO concern, but is a concern that you may
not be rewarding according to your comp philosophy
www.payscale.com
Develop Solutions
www.payscale.com
Identifying Solutions
o What are the options for remedying the inequities identified?
o How much will it cost?
o Can we absorb that cost in this year’s increases or are we talking about a larger amount?
o Do we need to resolve over multiple years?
o How critical is it that we resolve the inequities?
o Legal considerationso Attraction/retention issueso Morale
o Develop multiple scenarios
o How will we communicate:
o To Execso To Managerso To Staff
www.payscale.com
Identifying Options & How much it will cost: Plan LevelPlan Level Options
o Do nothingo Make small incremental changeo Update your comp strategyo Adjust all the ranges at once
Plan Level Costing
o How 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?
o What is the $ impact of employees falling out of range in the green?
o Former red-outliers may again be eligible for increases.
www.payscale.com
Identifying Options & How much it will cost: Position Level
Position Level Optionso Keep the position where it is – may have high compa-ratios
o Move the position to a new grade
o Keep the position where it is but offer a “market premium”
Position Level Costingo Calculate the cost of moving position to a new grade
o Calculate costs of your market premium – advantage year over year
www.payscale.com
Identifying Options & How much it will cost: Employee Level
Employee Level Optionso Identify any critical issueso Determine the cost of non-critical issues and priority to organization
o How will you handle compression issues?o What about disparate pay (non-EEO)?o Are there any concerns amongst your green outliers that won’t be
remedied with a regular increase?
Employee Level Costingo Determine the amount to resolve critical issueso Calculate amount to resolve compression issues – increases to existing?o Any necessary market adjustments for individuals?
www.payscale.com
Communicating about Pay InequitiesAsk for what the organization needso Provide solutionso Share the big picture – with only
the detail needed to make your case
o Make your recommendations concise and easy to understand
o Explain the whyo Communicate what the
impact/cost will be to the organization
Help the organization manage the budget once approved
www.payscale.com
Next Month:
• Determining Increases• Putting it all together
PayScale Delivers Where Other Compensation Providers Fall ShortPayScale leads the world in compensation knowledge with the freshest and most detailed data from over 40 million salary profiles. More than 2500 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-todayJoin our Group on LinkedIn: Compensation Today: HR Best Practices
Mykkah Herner, MA, CCPManager of Professional Services, PayScale, Inc.
www.payscale.com