Comp Stagnated for 2 Years? Time to Reboot

Compensation Planning
by Stephen Bruce, PhD, PHR
"There’s a renewed interest in being competitive in compensation, says consultant Diana D. Neelman, CCP, especially in companies that stagnated over the last few years. But it’s not that easy to get back on track."

Here’s what’s on comp managers’ minds, says Neelman:

  • Evaluating market competitiveness, especially if pay has been stagnant at your organization
  • Keeping on track with your strategic plan, typically refocusing on growth
  • Increasing attention on incentive pay and pay to performance
  • Using compensation dollars more effectively
  • Differentiating pay based on performance, even if differentiation is modest
  • Keeping best talent
  • Communicating value of total rewards

Neelman, who is principal and senior consultant with Compensation Resources, Inc., in Upper Saddle River, New Jersey, shared her tips at a recent webinar sponsored by BLR and HR Hero.

Average Merit Increase Budgets

Compensation Resources’ annual salary budget planning survey’s predictions are below. Note, says Neelman, that increases are still being offered, but they are not as robust as in the past. Also, there is little difference between groups.
(The survey excludes respondents that indicated zero increases.)

 

2008

2009

2010

2011

2012

Project-ed 2013

Executive

4.4%

4.3%

3.2%

3.1%

3.3%

3.2%

Management

4.1%

3.3%

3.0%

2.9%

2.9%

3.2%

Exempt

3.9%

3.2%

2.9%

2.9%

2.9%

2.9%

Non-Exempt

3.7%

3.2%

2.8%

2.9%

3.0%

2.9%

Hourly/Prod.

3.7%

3.2%

2.8%

2.9%

2.9%

3.0%

Sometimes it’s easier to look at the same information in graphic form, Neelman says:


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How to Fight the Entitlement Mentality

An entitlement mentality still exists in many organizations. Culture plays a key role in this, says Neelman; however, it is possible to refocus on performance.

First, there needs to be an evaluation of the performance management process. You have to start with strong performance management, training, and communication processes, and the result has to be consistently and objectively evaluating performance.

Turnover may result from this new emphasis, but often it will be concentrated around poor performers. That’s good, but when that happens, be careful, because good performers have to take on the workload until you can replace the poor performers with someone better, says Neelman.

Reassessing Your Compensation Philosophy

The compensation philosophy establishes a company’s position relative to the market. Most organizations choose to compete at market average, Neelman says. If you haven’t reexamined your compensation philosophy in a few years do it now, says Neelman. Ask:

  • What labor market(s) do we compete in; how has it changed? (Many organizations that used to only compare within their industries now need to look more broadly, Neelman says.)
  • What is our desired level of competitiveness?
  • Where and how will we use incentives? And for what employees?
  • Will we provide employees with the opportunity for professional development? Work-life balance?

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Compensation Budgets

Although merit increase budgets continue to be modest, you can still differentiate pay based on performance, even if the difference is subtle, says Neelman. You can still say, “As a high performer, you’re getting a higher increase.”

When were your salary structures last updated? For many clients it’s been 5–6 years—that’s too long, Neelman says. You need to know:

  • Do our salary structures reflect the competitive marketplace?
  • Where are employees positioned in their grades?
  • Where are people in grade?
  • What changes do we need to make, or do we need to redesign?

Market Pricing Steps

Here’s how to organize your market pricing step by step, says Neelman.

  1. Collect job information. One challenge is that many hybrid jobs have been created in the past few years as staffs have thinned. Take care in evaluating these positions, says Neelman.
  1. Ensure that job descriptions are accurate.
  1. Select benchmarks. These should:
    • Be common positions.
    • Represent a cross-section of the workforce.
    • Total a significant portion of the employee population.
    • Include "hot" jobs, which tend to move more quickly in the marketplace.
  1. Identify competitive market(s) (industry, geography, revenue, number of employees, etc.).
  1. Based on the pay position identified in your philosophy, extract data from external surveys (e.g., 75th percentile) for your competitive markets.
  1. Match benchmark jobs to survey jobs:
    • Try to get a 70% match on duties and responsibilities.
    • Use at least 2–3 sources.
    • Collect data on fixed and variable pay.
  1. Compare and analyze internal data to the external (market) consensus data.
  1. Ask, what picture does this comparison paint vis-à-vis ourphilosophy? Are we in line? Do we need to build new structures? Grade changes?
  1. Slot benchmark jobs into pay structure.
  1. Slot nonbenchmark jobs based on internal equity and similarity to benchmarks.

In tomorrow’s Advisor, range placement and PFP, plus an introduction to the all-comp-in-one website, Compensation.BLR.com.

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