Base Pay Administration and Pay for Performance (C4).

General (across-the-board) Increase

An identical pay raise either in a flat rate or as a percentage of salary given to all eligible employees.

Acquired Rights

Any regular, repeated ongoing employment condition which may become a protected benefit.

What do you do with your audit findings?

Audit will identify issues but will not solve anything. Follow-up with appropriate actions.

Types of Performance Measurements Systems

Balanced scorecard, business excellence model, shareholder value added, activity based costing & cost of quality, and competitive benchmarking.

Components of a Pay Structure Design

Base pay policy line, the number of pay structures, and the number of pay grades or bands (ranges, spreads, midpoint differentials, overlap).

Transaction Phase

Build, manage, and participate on teams, perform due diligence (HR has the ability to shape both the deal and the price by identifying risks and liabilities), and plan integration process early.

Hourly Rate

Compensation paid by the hour for a job being performed. An individuals annual pay is dependent on the number of hours worked during the course of the year. Positions are generally overtime eligible.

Salary

Compensation paid on a weekly, biweekly, monthly basis. Generally positions are not eligible for overtime pay.

Variable Pay

Compensation that is contingent on discretion, performance, or results achieved. It can be referred to "pay at risk."

Example Question for Perception Audits

How do you think the company's pay levels compare to similar employers in this area?

Position in Range

How far should a particular performance level take an employee into the range? How long should it take?

Perception Audits

Identify various interested parties, measure perceptions, analyze "gaps," and identify potential fixes to programs or policies.

Job Worth Hierarchy

Illustrates where each job fits relative to other jobs.

Reason to Adopt Broadbanding

Improve competitive advantage, support a new culture/climate, support flatter organizational structure, promote broader view of work, and increase flexibility of pay practices.

What does it look like?

Market Wage vs. Point Factor (job content-based)

Company Generated Pay Actions

Market adjustments (external), reclassification (external), promotion (internal), and demotion (internal).

Compensation Philosophy Components

Market position, basis of job value, pay mix, reward focus, structure, and administration. NOT a be all, end all and it is not a simple statement.

Considerations of Single-Rate Pay

May not reflect skill level on job, does not consider individual performance, and does not consider seniority.

Technical Audits

Measure actual results against intended results, identify sources of malfunctioning, identify potential "fixes" to methodology/process, and review program fairness and pay delivery.

Integrating Compensation Plan Options

Merging systems, separate systems, or new system and deciding who the decision makers are.

Module 1 Overview

Module 1 Overview

Module 2 Overview

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Module 4 Overview

Module 4 Overview

Module 5 Overview

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Module 6 Overview

Module 6 Overview

Module 7 Overview

Module 7 Overview

Module 3 Overview

Mostly just an exercise.

Compensation Stategy

Must be evaluated continually in light of changes in a company's mission, environment, culture, and strategy.

How should you plan an audit process?

Need to be comprehensive, structure, detailed, and planned according to schedule.

Causes of Compression

New hire pay rates are higher, supervisor/subordinate total pay (overtime included), midpoint differentials too close, automatic increases, merit pay inadequacies, unionized environment.

Fixed Pay

No discretionary compensation that does not regularly vary according to perfirmance or results achieved

Is the process of building a new one different from updating the existing one?

No, the process is generally the same or similar.

Examples of Pay Increases

Promotion, merit, general (across the board), and market adjustments.

Job Analysis

Provides key information about the nature and level of work performed.

Advantages of Anniversary Date Increases

Spreads the administrative burden throughout the year and allows the manager to spend more time specific to the employee evaluation.

Business Life Cycle

Start-up, growth , maturity, decline

Strategy for Determining Merit Payouts

Step 1: Anticipate distribution of performance ratings. Step 2: Determine anticipated mean performance rating. Step 3: Develop two-dimensional matrix of increases. Step 4: Determine payout. Step 5: Revise if necessary.

Market-Pricing Approach

Step 1: Complete a competitive market pricing analysis of benchmark jobs and create a job worth hierarchy. Step 2: Develop a pay structure. Step 3: Assign benchmark jobs to pay structure. Step 4: Assign nonbenchmark jobs to the pay structure.

Base Pay

The fixed compensation paid to an employee for performing specific job responsibilities.

Individual Compa Ratio Formula

salary/midpoint

What is the goal of the integration team?

"Make the deal work."

Range Penetration

(Pay Rate - Minimum) (Maximum - Minimum) This measurement does not focus on midpoint.

Range Spread Formula

(maximum - minimum)/minimum (maximum/minimum - midpoint)/midpoint

Midpoint-to-Midpoint Differentials Formula

(midpoint of higher grade - midpoint of lower grade)/midpoint of lower grade.

Sample Questions to Ask when Building a Base Pay Structure

1. Will this compensation structure enable our organization to achieve its goals? 2. Can we attract, retain, engage and motivate the right employees? 3. Is our organization's compensation strategy to value internal job worth, external market data or both?

Midpoint Differential Guidelines

5% to 12% between grades for clerical/production 8% to 15% between grades for paraprofessionals, professional management 15% to 25% total midpoint differential between supervisor and subordinates 20% to 35% midpoint differential between grades for executive level

Mark-Based Salary Increase Budget

A budget necessary to achieve pay policy by year-end.

Promotion Job Change

A job change that can be either organizational or growth.

Demotion Job Change

A job change where an employee is performing poorly, there is a reorganization or reengineering of a role due to merger or acquisition, or it could be due to an employee request.

Benchmarked Jobs

A job used for making pay comparisons to develop or validate a job worth hierarchy. These jobs are internal positions that can serve as a market anchor points because they closely resemble jobs performed in other organizations or industries (at least 70% match).

Pay Structure

A management tool that reflects the collection and organization of internal and external compensation data to support job values. It consists of a series of pay ranges that represents jobs of similar internal or external worth.

Shareholder Value Added

A measure that incorporates the cost of capital into the equation.

Performance and Position in Range

A merit process that causes the rates for employees with the same performance to converge on a target quartile or point. Employees who are farther from the target point are moved more quickly (potential "pick-off" from competition) and employees who are near the target point are slowed down.

Increase as Percent of Midpoint

A merit process where an employee will receive an increase, not based upon his or her current compensation, but on the midpoint of the range.

Performance Only

A merit process where employee increases are based on performance that are simple to understand and employees with the same performance receive the same percent increase.

Demotion Pay Actions

A pay action where we would take away money (i.e. immediate to maximum of salary grade or periodic) or freeze pay until it falls within the range.

Continuum Approach

A point factor approach that has no job grades and internal equity is the priority. Each point value and the corresponding jobs will have its own salary range.

Integrating Market Data into Point Factor

A point factor approach that values both internal and external relationships and uses formal job evaluation system and market data (allows the company to emphasis the formal evaluation system while ensuring compensation is based on the market).

Pay Structure Approach

A point factor approach where job grades are developed based upon the specific point factors results and based on job evaluation or internal value.

Communication Pay Actions

A process where you describe pay simply and briefly from the employee perspective, focus on the main elements, who should communicate the change, and usually it should be face-to-face.

Pay for Performance

A process where you establish measures, communicate links between measures and agreement, and assess performance against measures.establish measures, communicate links between measures and agreement, and assess performance against measures.

New Hires Rates

A rate where you should review current compensation for incumbent salary data, review most recent market data for potential new hire positions, speak with recruiters about their experience, and set new hire rates and get manager buy-in.

Clerical, Technical, and Operational

A relatively flat to correspond to the learning curve needed for those kinds of positions.

Hazard Pay

A special payment for work environment where violence, physical or political dangers are present because of the job or location of the job. It can help fill undesirable jobs.

Compensation Philosophy

A statement of what the organization believes about how people should be paid. It should support the business strategy and be a good fit with the organization's culture.

The Role of Base Pay

A tool to achieve business objectives.

Shift Differential

A type of differential that adds an additional amount to base pay for evening and overnight shifts or can help fill undesirable shifts.

Automatic Step Rate

A type of job-based pay where there is typically five to seven steps, 3 to 5 percentage points apart, prescribed time schedule, and structure updated to maintain competitive position. If you show up, you get it (does not consider performance).

Single-rate Pay

A type of job-based that is the easiest approaching to pay delivery since each job has a fixed pay rate. It may be a training rate and is changed based on the market or collective bargaining.

Problem with General Increases

A type of pay increase that can perpetuate salary inequities and can create or reinforce an entitlement mentality.

Organizational Promotion

A type of promotion due to a change in nature of work, such as from a nonsupervisory to a supervisory position or to a significantly different type of supervisory responsibility.

Growth Promotion

A type of promotion due to a recognition of personal development and the assumption that growth will continue. There is a smaller change in duties in this type of promotion compared to the organizational promotion.

Advantages of Focal Point Review Increases

Ability to project budgetary impact and linkage among business-unit performance, individual performance, and merit increases can be clearer.

Pay Differential

Additional pay to employees due to a change in cost of living or as a hardship which is typically used for hourly employees and can be referred to as premium pay.

When should an internal audit occur?

After a program cycle is complete.

Overlap

Allows for possible progression from within strategy.

Advantages of Increase as Percent of Midpoint

Allows high performers lower in the range to accelerate more quickly through the range, while slowing down employees that have reached midpoint or above. It is most commonly used in a situation with broadbanding and control points.

New System

Can be based on the characteristics and dynamics of the newly formed organization, created with input from both sides, may help to nurture a new company culture.

Potential Disadvantages of Automatic Step Rate

Cannot acknowledge different rates of progress of skill attainment, cannot differentiate based on performance, can be discouraging to employees seeking pay awards, and utilize money that could be better spent.

Communicating Compensation Changes

Choosing the messenger and information to be communicated.

Market Model Analysis Steps

Collect survey data, age survey data to start of plan year, develop a market model which describes the relation between aged external survey data and internal grades for benchmarked jobs.

Job Evaluation

Collects data needed to create a job worth hierarchy using market data or job content approach.

Competitive Practices

Consider if it externally equitable.

Job/Workplace Design Approach

Consider if it is internally equitable.

Strategic Issues

Consider if it supports the organization's business strategy, and total rewards strategy (base, variable, work experience and/or other rewards).

Point Factor Approaches to Pay Structure Development

Continuum approach, pay structure approach, or integrating market data into point factor approach.

Pay Increases

Could be delivered as a lump-sum increase, periodic increase, or other (i.e. take care of it at the next review or "it depends").

Integration Phase

Create a sense of involvement and security, promote opportunities in the change, achieve cultural alignment, integrate employee total rewards programs.

Integrating Compensation Plans

Decide on a recommended approach, give rationale for the group's decisions, identify issues of importance, and record answers and be ready to discuss with the larger group.

Examples of Pay Decreases

Demotion and reclassifications.

Causes of Red Circles

Demotion, goldstar (high potential employee), reorganization or acquisition, or ranges may need adjusting if many people are above the maximum.

Emerging

Someone who meets standards, is deep into the learning curve, and gaining productivity.

Action Plan

Elements, recommendations, and outcomes.

Green Circle Rate

Employee paid below range minimum.

Red Circle Rate

Employees paid above the maximum of the range.

Market-Based Approach to Pay Structure Development

External market pricing or competitiveness takes priority.

Elements of Compensation

Fixed pay and variable pay.

Market Data Approach

For this job evaluation method job descriptions used to match survey data, benchmark jobs are arranged in a hierarchy based on analysis of the market, and jobs with no market data are slotted using job content to determine relative worth.

Suggested Actions for Red Circles

Freeze pay (most common), less frequent increases, reduce base pay and make up difference with lump sum, reduce salary (not recommended rare), promote employee to higher level job they can perform, or give lump-sum increase in the future.

Job Documentation

Includes written information about the job content or functions of the jobs and associated knowledge, skills, and abilities.

When are market adjustments appropriate?

Incumbent base pay is below market, company philosophy is to pay at/above market, reclassification (i.e. addition of responsibilities to job).

Geographical Differential Approaches

Individual pay adjustments or salary structure differences where structural recognition of differences in average pay levels for locations.

Most Common Compensation Program Objectives

Internally equitable and externally competitive.

Why is communicating pay actions important?

It can improve the emotional environment.

Why is Job Worth Hierarchy important?

It determines which jobs should be grouped together and it forms the foundation of the base pay system.

Separate Systems

It may perpetuate the isolation of the two organizations from on another and create an "us versus them" mentality within the organization.

Culture

Sometimes this may affect the number of pay structures required.

Base Pay Structure

Job analysis, job documentation, job evaluation, and job worth hierarchy. It is the last step in the process where this is created and utilized as a framework for pay decisions.

Disadvantages of Performance Only

Larger amounts go to people higher in the range for the same performance and employees with same performance receive different amounts/increases.

Midpoint Differential Considerations

Level of refinement of job evaluation method, market competitiveness, cost of promotions, midpoint differential guidelines.

Establish Measures

The first step in the pay for performance process where these might be financial or non-financial.

Advantages of Lump-sum Increases

Not an increase of base pay, so no "rollup" cost as with increase in base pay, employee recognizes the entire increase at one time, and easy of administration, due to one time increase.

Most important Elements of an Action Plan

Objectives and work steps required.

Base Pay Pay Practices Considerations

Objectives, salary structures, salary administration, collection bargaining agreements.

Developing a Base Pay Policy Line

One of the first steps in designing a pay structure where you plot internal value against current salaries, plot internal value against market data, compute the trend line(s), reconcile with compensation strategy.

Expatriate Pay

One or more supplemental payments made to compensate for hardship, to educate children in their native language, or other assignment-location-specific conditions or costs.

Business Life Cycle and Variable Pay

Overall summary of business life cycle and variable pay.

Job-based Pay

Pay based on the nature and level of defined work (i.e. single rate, step rate). It does not recognize employee skills or knowledge for grade assignment.

Geographical Differential

Pay differences established for the same job based on variations in costs of living or costs of labor among two or more geographical areas.

Career Stages

Pay levels within the range typically vary for employees depending on a this.

Piece Rate

Payment is based on an individual employee's rate of production. A payment is received for each piece or unit of work produced. It is usually in place of or in addition to hourly payment. Must ensure employee earns minimum wage.

Merit Increase Guidelines

Performance only, increase as a percent of midpoint, performance and position in range.

Suggested Actions for Green Circles

Raise pay to new minimum when ranges move, raise pay to minimum (don't allow green circles), separate merit budget from adjustment to minimum, evaluate to see if position is properly graded. **Green circles can create possible legal issues.

Components of Base Pay Structure

Range minimum, maximum, midpoint, range spread (depth), range overlap, midpoint differential, base pay policy line.

Information to be Communicated

Reason for changes in compensation, how the decision will affect the employees, the time frame for changes to be made, whether there will be any one-time pay adjustments, and any action required on the part of the employee.

Causes of Green Circles

Recent promotion or hired at minimum then the range moves, job reevaluation, reorganization or acquisition.

Data Collection and Analysis

Regardless of which job evaluation method is used these are both important parts of the process.

Job Content Approach

Relative internal value is determined between jobs based on the nature and level of work and some jobs are priced at anchor points.

Employee Generated Pay Actions

Requested demotion or shift change.

Broadbanding

Results in pay structure that consolidates a large number of pay grades and salary ranges into much fewer of this with relatively wide salary ranges, typically with 100 percent different between minimum and maximum or more.

Maintaining Pay Structures

Review benchmark jobs, reevaluate jobs, reevaluate competitive posture, review internal equity and external competitiveness, adjust "policy line," evaluate impact, and management understanding.

Keeping Salary Structure Current

Review compensation strategy and competitive posture, determine competitive pay movement (historical or future), consider COLA or market movement, determine the amount for adjustment.

Solutions for Compression

Review pay structure, establish midpoint differentials (15% to 25%), use merit pay, reclassfication (add additional job duties), rotate overtime, use additional work/life issues, utilize lump-sum increases, make market adjustments, or include supervisors in incentive plan.

Best Application of Single-Rate Pay

Routine job short learning, jobs with limited performance, collective bargaining environments, sales job where commission is significant and summer intern/temporary jobs.

Examples of Base Pay

Salary, hourly rate, and piece rate.

Types of Differentials

Shift, geographic, hazard pay, and expatriate pay.

Variable Step Rate

Similar to automatic step rate expect with this structure you have the opportunity to reward employee performance and/or skill acquisition by granting more than one step.

Determining the Number of Pay Grades

Skill responsibilities (how many),Supervisor/ subordinate relationships (how many levels or grades between each level), career progression (how is it viewed), and administrative considerations (more grades equals more administration).

New to Role

Someone who does not fully meet standards and not performing the full scope of the role.

Established

Someone who exceeds expectations that is fully functioning in the role and demonstrating desired competencies and behaviors.

Expert

Someone who is consistently outstanding that has mastered the job function and performs complex responsibilities.

Point Factor Evaluation Apporach

Step 1: Review overall job evaluation point differentials by job family Step 2: Rank order from high to low Step 3: Look for logical grouping of jobs Step 4: Develop point bands (absolute or percent based) Step 5: Check instrafamily and supervisor/subordinate relationships.

Pay Structure Design Considerations

Strategic issues, competitive practices, the organization's job and workplace design approach, the organization's administrative policies, the funds available for compensation plan, and the value the program adds.

Job Evaluation Methods

Systematic method and process for determining and comparing the relative value of one job to others (i.e. market data and job content approach).

Effective Total Rewards Strategy

The ability to change according to the company's business strategy.

Total Rewards Design Process

The combination of the corporate vision/mission, business strategy, and human resources strategy the drives the compensation program design/administration and the evaluation (revision or enhancement) of compensation programs.

Lead the Market

The company will consciously set its pay at anticipated market level (age to January 1 of the following year).

Lead-lag

The company will consciously set its pay at mid-year (age to July 1) anticipated market level (most common).

Lag the Market

The company will consciously set its pay equal to current market levels at the beginning of the year.

Merging Systems

The complexity of attempting to consolidate or integrate two different compensation systems may be formidable challenge.

Compression

The difference between two grades or in certain instances when the pay difference between two employees is too small.

Midpoint Differential

The difference in wage rates paid in the midpoint of two adjacent grades.

Pay Actions

The movement of an employee's base pay due to either external or internal pressures can be both company and employee generated which can results in either an increase or decrease in base pay.

What is Job Worth Hierarchy?

The perceived value of jobs in relationship to each other.

50% of Jobs

The percentage of jobs in the organization that should be benchmarked when using the mark-based job evaluation method.

Compensation Strategy

The principles that guide design, implementation, and administration of a compensation program at an organization.

Reclassification

The reassignment of a job to a higher or lower grade in the organization's job worth hierarchy due to job content reevaluation and/or significant change in the going rate for comparable jobs in the external labor market.

Communicate Links between Measures and Assessment

The second step in the pay for performance process.

Executive

The slant has the highest level of acceleration due to the challenges and responsibilities of the positions as well as the market value.

Professional/Management

The slant is more accelerated due to the responsibilities of the position.

Linear Regression

The statistical technique of fitting a straight line to a set of (x,y) data, using the method of least squares.

Assess Performance against Measures

The third step in the pay for performance process where you assess either individuals, team, and/or organization through a formal, informal, performance appraisal, 360 feedback, or coaching/mentoring.

Range Spread

The width of a pay range from minimum to maximum.

Pay Range

These are established to offer competitive ranges of pay for job groupings which contain a minimum, midpoint (pay policy line), and maximum.

Job Analysis & Job Documentation

These steps create the information needed to complete the job evaluation process.

Job Evaluation Process & Job Worth Hierarchy

These steps lay the foundation necessary to establish a base pay structure.

Range Overlap

This allows for movement throughout a pay structure due to performance, promotion, demotion, reclassification, or market adjustment. Point factor usually has large overlap where mark-based will not be as large.

Characteristics of Market Pricing & Slotting

This method is simple to administer, easy to understand, no job evaluation points, and it is responsive to market changes.

Integration Team

This team begins planning as soon as enough details of the transaction are available. The planning continues through the transaction phase and then the plan is actually implemented during the integration phase.

Transaction Team

This team begins work early in the pre-deal phase and ends shortly after the integration begins (i.e. when the deal is being put together).

Base Pay Structure Objectives (goals)

To create alignment between work and rewards, help to achieve organizational objectives (effective compensation tools for supporting the organization), and reflect the company's desired position with respect to competitive pay at a certain point in time (compensation philosophy).

Why is Job Worth Hierarchy used?

To determine internal equity among both positions and groups of positions.

Merit Pay Program Objectives

To link pay to performance in a manner that is consistent with the mission of the organization.

Market Adjustment Eligibility

Typically all employees within the organization or when current trends are more for critical or hot skills.

Examples of Diversity in Grading Procedures

Union negotiated production jobs may be in an automatic step-rate structure. Hourly office jobs may be evaluated using a point factor system. Management jobs may be evaluated using market-driven approach.

Employment Contracts

Unions (review union agreements, you see a greater prevalence outside the US), acquired rights (prevalent in Europe and Latin America, nay restrict acquiring company's flexibility for design changes), and termination indemnities.

Communicating Negative Pay Actions

Use business rationale, earlier the better, make a comparison, explain process, performance related, merger/acquisition related, company-wide (senior management should deliver information).

Separate Pay Structure

Used to address external competitiveness issues (i.e. IT, hot skills jobs, nurses).

Decline

Usually base pay is frozen or cut, short-term incentives are for high-potentials only or low payoff, and long-term incentives may be used to motivate employees.

Maturity

Usually base pay is high, short-term incentives are high, and long-term incentives are decreasing.

Growth

Usually base pay is increasing, short-term incentives are very high for a wider group of people, and long-term incentives are very high for a wider group of people.

Start-up

Usually base pay is low, short-term incentives depends on resources, and long-term incentives are very high for key people.

Diversity of Jobs

Varying by functional area (i.e. nursing, engineering, maintenance) and by job level (clerical, supervisory, executive).

Market Index

Weighted Average Salary/Weighted Market Average

Unit/Organizational Compa Ratio

Weighted Average Salary/midpoint

Variable Pay Element

Where is most innovation occurring?

Best Applications of Variable Step Rate

Where step structure is appropriate, but where environment lends itself to performance-based differences in pay trends, in repetitive jobs, but where it is possible to measure performance difference and in an employee relations environment, such that differences in pay due to performance occur in exceptional cases.

Traditional Salary Structure

Where the range midpoints fall on the base pay policy line.

Determining How Many Pay Structures

Where you consider the diversity of jobs, diversity in grading procedures, internal equity versus external competitiveness, and culture.

Best Application of Automatic Step Rate

With routine jobs where limited performance variability is possible and performance, when the desire to acknowledge seniority exists, in an organization culture where desire for stability and security is high, collective bargaining agreements, and public sector.

Designing base pay structure

management tool that reflect the collection and organization of internal & external compensation data to support job values. It also consists of a series of pay ranges that represent jobs of similar internal & external worth