developing & implementing a compensation structure
DESCRIPTION
This workshop will help you identify and address key considerations for compensation planning, including philosophy and structure. We will also cover how to use national and market-level benchmarks, and different data presentations (differentials, matched samples, etc.), to advance your objectives.TRANSCRIPT
April 20, 2010
What is the question?What is the question?
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Discussion Points
Philosophy Total Rewards Elements Company Statistics Compensation Basics Communication
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Philosophy
Do you want to have a philosophy? What do you want to accomplish with
your rewards & recognition program(s)? Link to company’s mission & values? Link to Talent objectives / needs? Link to Performance? Do you want to pay at Market, below,
above? What else?
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Rewards & Recognition Philosophy Example
A Rewards and Recognition Program that supports our performance culture that aligns individual performance with the achievement of our business goals and individual rewards. Employees who perform at higher levels receive greater rewards.
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Compensation Basics
Market Surveys Analysis Ranges Geographic differentials/zones Minimum wage rates
Job Evaluation Salary Analysis
Hiring; promoting; equity
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Service
Awards
Total Rewards & Recognition Elements
SPIFFS
Total Rewards
Bonuses / Incentives
Commissions
Base Salary
Spot Award
sSafety Award
s
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Benefits
7
Total Rewards & Recognition Elements - Competitors
Who are your competitors?
Company Size
Location
Industry – Business Units
Where do you
recruit?
How many “different” positions do you have?
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List of all positions Basic job description to be used to
match surveys Evaluation system
Various – point factor, internal equity, market
Use market for today’s examples
Total Rewards & Recognition Elements - Positions
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Total Rewards & Recognition Elements – External Equity
Competiveness Total Compensation Base Salary Incentives Commissions – $ per lease, % of lease
value Mix – lower base and higher incentive
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Market Comparisons / Mix
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Other Considerations
Minimum Wage Rates National - $7.25http://www.dol.gov/dol/topic/wages/minimumwage.htm States Vary
Geographic Differentials Impact on Pay References:
NMHC survey ERI (Economic Resources Institute) http://
www.erieri.com/
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NMHC
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Base Salary Issues
Attract, Retain, Motivate Competitive Pay Level Pay for Results (Performance),
Knowledge, or Team Membership
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Base Salary Issues
Pay for Job or Person (Skill Sets) Performance: Team Role Control vs. Decentralize Lateral vs. Vertical Movement
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Questions, Questions and More Questions . . .
Affordable vs. conventional Transaction vs. operations Accountant vs. community manager Degree required vs. no degree Sales vs. non-sales Internal customer service vs.
external customer service Union vs. non-union
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Compensation Structures
Kinds of structures unlimited Driven by several factors:
Company size Objective Positions – career path
ONE SIZE FITS ONE
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Pay Structures – Traditional Example
Grade Minimum 25th Midpoint 75th Maximu
m6 $12.00 $13.00 $14.00 $15.00 $16.00
5 $10.80 $11.60 $12.40 $13.20 $14.00
4 $9.80 $10.40 $11.00 $11.60 $12.20
3 $9.00 $9.45 $9.90 $10.35 $10.80
2 $8.40 $8.75 $9.10 $9.45 $9.80
1 $8.00 $8.25 $8.50 $8.75 $9.00
Market Highly ExperiencedSME
EntryNewly Promoted
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Structure Examples
Traditional $ PAY
Grades 1 2 3 4 5 6 7 8 9
10 11 12 13 14
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Pay Structures – Modified Traditional Example
Grade Minimum 1st Third 2nd Third Maximum6 $12.00 $13.00 $15.00 $16.00
5 $10.80 $11.60 $13.20 $14.00
4 $9.80 $10.40 $11.60 $12.20
3 $9.00 $9.45 $10.35 $10.80
2 $8.40 $8.75 $9.45 $9.80
1 $8.00 $8.33 $8.66 $9.00
Market Highly ExperiencedSME
EntryNewly Promoted
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Structure Examples
Modified Traditional $ PAY
Grades 1 2 3 4 5 6 7 8 9
10 11 12 13 14
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Pay Structures – Band Example
Band Minimum Maximum4 $18.00 $40.00
3 $13.00 $24.00
2 $9.80. $16.00
1 $8.00 $10.80
Market
Highly ExperiencedSME
EntryNewly Promoted
12
34
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Structure Examples
Band $ PAY
Band 1 2 3 4 5
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Pay Structures – Step Example
Steps can be earned by tenure, demonstrated experience , specific skills, certifications or any combination of these..
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Pay Structures – Position Example
Position Minimum Midpoint MaximumTech $9.00 $10.00 $11.00
Leasing Consultant $7.25 $8.00 $8.75
Bookkeeper $12,000 $15,000 $18,000Community
Manager $35,000 $50,000 $65,000
Regional Property Manager
$50,000 $70,000 $90,000
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Pay Structures – Position Example
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Pay Grade Development
The salary and grade structure is reflective of the internal equity, external equity and individual equity of the organization. This combined with your willingness and ability to pay, determines the career ladder that will give us the appropriate allocation of pay dollars across all job categories.
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Pay Grade Development
Entry LevelEntry Level Fully CompetentFully Competent Extraordinary SkillsExtraordinary Skills
New and Performance New and Performance undeterminedundetermined
Fully Satisfactory PerformanceFully Satisfactory Performance Superior PerformanceSuperior Performance
InexperiencedInexperienced Market competitive Market competitive Seldom UsedSeldom Used
Minimum Midpoint Maximum
25th 75th
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NHMC Data
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Data Selection
Surveys Many available Select to fit your need Compensation Data Industry Function Policy Data Metrics
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SurveySurvey AreaArea TypeTypeNMHCNMHC – National Multi Housing Council – National Multi Housing Council
(Towers Watson)(Towers Watson)NationaNationa
llApartment Professionals Apartment Professionals
NAREITNAREIT – National Association of Real – National Association of Real Estate Investment Trusts (FPL & Estate Investment Trusts (FPL & Assoc)Assoc)
NationaNationall
Executive, Global, Senior Management, Corporate Services, Executive, Global, Senior Management, Corporate Services, Asset Management, Capital Markets, Construction, Asset Management, Capital Markets, Construction, Development, Engineering/Security, Investments, Development, Engineering/Security, Investments, Leasing, Marketing, Property Management, Technology, Leasing, Marketing, Property Management, Technology, TransactionsTransactions
Towers WatsonTowers Watson – – Reports PackageReports Package Comp Data BankComp Data Bank
NationaNationall
General Executive, Accounting/Finance, Human Resources, General Executive, Accounting/Finance, Human Resources, Information Systems, Administrative Services, Marketing, Information Systems, Administrative Services, Marketing, Property Management, Security, Maintenance, Brokerage Property Management, Security, Maintenance, Brokerage & Leasing, Legal, Business Development, Acquisitions & & Leasing, Legal, Business Development, Acquisitions & Asset Management, Construction, Real Estate AppraisalAsset Management, Construction, Real Estate Appraisal
National Real Estate National Real Estate (CEL & Assoc)(CEL & Assoc) NationaNationall
Corporate, Office/Industrial, Residential, RetailCorporate, Office/Industrial, Residential, Retail
MercerMercer – Benchmark – Benchmark NationaNationall
Executive & Non-Executive Executive & Non-Executive
MSECMSEC – Mountain States Employers – Mountain States Employers Council: Front Range & ITCouncil: Front Range & IT
ColoColo Executive, General Support, Financial, Human Resources, Executive, General Support, Financial, Human Resources, Legal, Sales/ Marketing, Engineering, Scientific & Legal, Sales/ Marketing, Engineering, Scientific & Technical, Maintenance & Facilities, Technical, Maintenance & Facilities, Procurement/Material Handling, Information TechnologyProcurement/Material Handling, Information Technology
RIMSRIMS – Risk & Insurance Management – Risk & Insurance Management SocietySociety
NationaNationall
Risk Management; ClaimsRisk Management; Claims
EmpsightEmpsight NationaNationall
LegalLegal
ACRACR – American Compensation – American Compensation Resources Inc: Resources Inc:
Tax Planning & Tax ComplianceTax Planning & Tax Compliance
NationaNationall
Global, Domestic, International, Sales/Use/Property, Global, Domestic, International, Sales/Use/Property,
ACRACR – American Compensation – American Compensation Resources Inc: Investor RelationsResources Inc: Investor Relations
NationaNationall
Investor Relations, Shareholder ServicesInvestor Relations, Shareholder Services
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Survey Data
What information are we going to use?1.What positions?
a. Allb. Benchmark positions
2.Philosophya. Average / Meanb. Medianc. 75th ile
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NHMC
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Example – Maintenance Positions
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NMHC Survey
All Orgs. Base Salary Total CompPosition Weighted
Avg50th
PercentileWeighted Avg
50th Percentile
Maintenance Tech
$31,900 $31,300 $32,700 $32,500
Make Ready $28,900 $28,500 $29,800 $29,100Groundskeeper $23,700 $22,500 $24,400 $23,100Painter $30,400 $29,500 $31,100 $30,300
Next step is charting or graphing.
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Survey Data
When conducted When needed Adjust for market movement by:
Aging the Data
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Survey Data – Aging the Data
Three stances: Lead – Lead Lead – Lag Lag - Lag
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Collect & Analyze Survey Data
4/20/2010 Compensation is the Answer Page 39GRADE
Survey Data- Midpoint
Regression analysis (linear trend line) Best-fit straight line that is used with
simple linear data sets Pay and Assigned grade or position
Estimate Use the charted data and draw the line.
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Collect & Analyze Survey Data- Midpoint
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Trendline
Drawn Midpoint
Survey Data - Range
Basic Considerations In deciding the range from min to max –
think about the time you would expect someone to stay in the range. The shorter the time, the closer you would
pay to market at hire or promotion. The longer someone is in a position, the
greater the range from min to max
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Pay Structures – Traditional Example
Grade
Minimum 25th Midpoin
t 75th Maximum
Range Spread
6 $12.00 $13.00 $14.00 $15.00 $16.00 33.33%
5 $10.80 $11.60 $12.40 $13.20 $14.00 29.6%
4 $9.80 $10.40 $11.00 $11.60 $12.20 24.5%
3 $9.00 $9.45 $9.90 $10.35 $10.80 20%
2 $8.40 $8.75 $9.10 $9.45 $9.80 16.67%
1 $8.00 $8.25 $8.50 $8.75 $9.00 12.5%
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Collect & Analyze Survey Data- Range Development
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Maximum
75%
Midpoint
25%
Minimum
Actual Pay Data – Next Step
1. Match all incumbents against the Market Data for their position.
Watch for variances between job families and/or skill level.
Are your maintenance techs paid closer to market than your community managers?
Are the property level employees paid below market and your corporate level employees paid above?
2. Calculate the difference (dollars & percent) between actual pay and market pay.
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Collect & Analyze Survey Data- Actual Pay
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Maximum
75%
Midpoint
25%
Minimum
Actual Pay Data – Next Step
3. Calculate the difference (dollars & percent) to appropriate pay based on performance / skill.
For instance, you may not need to increase a new hire’s salary automatically to the midpoint.
Your SME may need to be paid in the upper portion of the range and may need a larger increase.
If your philosophy includes a performance factor, make sure you have all the performance ratings available.
4. Compile research from various surveys on projected merit and structure increases.
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SurveySurvey AreaArea TypeTypeNMHC – National Multi NMHC – National Multi
Housing Council (Towers Housing Council (Towers Watson)Watson)
NationalNational Apartment Professionals Apartment Professionals
Towers WatsonTowers Watson NationalNational Increase ProjectionsIncrease ProjectionsWorld at WorkWorld at Work NationalNational Salary Budget QuestionnaireSalary Budget QuestionnaireThe Conference BoardThe Conference Board NationalNational Salary Increase SurveySalary Increase SurveyMSEC – Mountain States MSEC – Mountain States
Employers Council: Employers Council: Planning PacketPlanning Packet
ColoradoColorado Salary Budget/Increase QuestionnaireSalary Budget/Increase Questionnaire
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Survey - Market Projections
Actual Pay Data – Next Step
5. Compare the market research % against your internal calculated %.
How close are they? If you applied the projected market
range increase, what is the $ impact? What is your budget?
6. Decision point
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Actual Pay Data – Next Step
7. Budget is approved – How do I allocate the money?
One approach – everyone gets the same amount, OR
8. Performance Based Dollars are allocated to:
Top Performers High Potential Position in Range
Merit $ Allocation Example
Potential Codes
Performance Rating 1 2 3 4 5 Too New
to Rate
Outstanding Up to 6% Up to 5% Up to 4% Up to 2.5% 0%
Exceeds Up to 5% Up to 4% Up to 3.25% Up to 2% 0%
Full Up to 4% Up to 3.25%
Up to 2.5%
Up to 1.5% 0%
Improvement Expected 0% 0% 0% 0% 0%
Unacceptable 0% 0% 0% 0% 0%
Too New to Rate
Up to 2%
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Merit $ Allocation Example
Range Penetration
Performance Rating
Min to 25%
25% to 50%
50% to 75%
75% to Max
Over Max
Too New to Rate
Outstanding Up to 6% Up to 5% Up to 4% Up to 2.5% 0%
Exceeds Up to 5% Up to 4% Up to 3.25% Up to 2% 0%
Full Up to 4% Up to 3.25%
Up to 2.5%
Up to 1.5% 0%
Improvement Expected 0% 0% 0% 0% 0%
Unacceptable 0% 0% 0% 0% 0%
Too New to Rate
Up to 2%
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Merit $ Allocation Example
Pay below Minimum More frequent increases (every 9 months
versus 12 months) Increase to minimumREMEMBER TO PAY ATTENTION TO
MINIMUM WAGE
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Merit $ Allocation Example
Pay over Maximum No Increase Lump Sum Increase
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Other Options to Merit Allocations
Stretch time between increases Adjust time between increases based
on performance Outstanding performance – 10 months Exceeds performance – 12 months Meets performance – 15 months
Delay range adjustment Adjust “Aging” factor
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Communication
What are we communicating? Job title? Grade? Range structure – minimum, midpoint,
maximum? Pay ? Opportunity for advancement? Career paths? More?
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Communication
Several Forms Town hall Webcasts Group Meetings – HR, Manager, Sr
Management One-on-one meetings Pamphlets Booklet Flyer Company Newspaper
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Communication
PRIORTYCompensation is the Answer4/20/2010 58
Other Considerations
Total Rewards Cash + Benefits
Benefits Health & Welfare Retirement
Defined Benefit & Defined Contribution (401 (k))
Paid Time Off Others (e.g., perquisites, alternative work
arrangements, etc.)
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“Usually, keeping a plan simple is stupid.”
Ed Lawler
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Compensation works best when…
IT DOESN’T GET IN THE WAY!
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Questions
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For follow up questions, please feel free to contact us at:
Marc M. McBrearty, CCPNorth American Leader, Data
Services Towers Watson Data
Services218 Route 17 NorthRochelle Park, NJ 07662 T +1 201 843 1177D +1 201 226 3405M +1 201 921 8850F +1 201 843 1764dataservices.towerswatson.com
Sherlyn Keiling, CCP SPHRMulti-Family Compensation
Consultant
9734 Raleigh StWestminster, CO 80031
+1 303-887-4486
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