Strategies to Create and Maintain a Competitive Compensation - - PowerPoint PPT Presentation

Strategies to Create and Maintain a Competitive Compensation Environment

Coalition of Human Resource Management Associations Staff Compensation Strategies and Best Practices October 6, 2017

Topics

► When do compensation issues arise? ► What is “competitive” compensation? ► What are the barriers to competitive pay? ► How do you maintain competitive compensation?

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When do compensation issues arise?

► Pay is substantially below market ► Staff think pay is below market (e.g. salary.com, “my friend makes

more,” etc.)

► Employees are paid differently for doing the same job ► Pay equity (e.g., new employees are paid more) ► Over-titling ► Employees perceive system as unfair

▪ Easy graders ▪ “HR doesn’t understand what I do” ▪ Different titles for the same work

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“Fair” vs. “competitive” compensation?

► From the employee’s perspective…

▪ Fair = paying the same for employees who hold similar titles / do similar type of work (internal equity) ▪ Competitive = paying the same as other organizations (not just nonprofits) for similar positions in similar cost of living areas

► From the business perspective…

▪ Fair = paying appropriately relative to the value of their job and their contributions/performance while balancing equity ▪ Competitive = pay that allows the business to recruit and retain the talent they need (conversely not overpaying for unnecessary tenure/experience)

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“Fair” AND “competitive” compensation

► Compensation is only “fair” and “competitive” if staff believe it is fair

and competitive. Perception is reality.

▪ A “fair” and “competitive” compensation system from the business perspective is insufficient. It requires staff buy-in. ▪ Fair = pay that is internally consistent and reflects individual performance history ▪ Competitive = pay that (1) reflects an individual position’s true market value, (2) tracks annual market movement, and (3) recognizes individual growth and performance

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What are barriers to maintaining competitive pay?

► Limited salary budgets ► Inexperienced or uncommitted managers ► Limited internal promotion opportunity among associations compared

to large corporations

► Capabilities and qualities outpacing growth potential (individuals who

develop skills more quickly than the organization can accommodate)

► Lack of market knowledge ► Stakeholder expectations and perceptions of pay levels (e.g., members

who believe not-for-profit means not-for-pay)

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How do you maintain competitive compensation?

► A formal process and system → fewer internal equity issues and a

rationale and justification for compensation decisions

▪ Consistent ▪ Defensible and logical ▪ Recognize performance and pay relative to market → equity ▪ Clarity around salary potential

► However…a formal system is only effective if employees know it

exists, trust it, and understand it.

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How do you maintain competitive compensation?

► Staff support and buy-in through:

▪ Regular communication – not just new employee orientation ▪ Staff engagement in system development and ongoing maintenance

• Review/update job descriptions
• Employee surveys
• Focus groups

▪ Third-party reviews ▪ Strong and committed managers ▪ Transparency around compensation decisions

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What is the right level of pay transparency?

► Depends on the type of organization and its culture ► Uniqueness of positions ► Strength of executive leadership, human resources, and management ► Strength (and perception) of performance management process ► Type of compensation system

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Parting thoughts

► Regardless of system, compensation must be actively managed

throughout the year (not just once a year)

► Incentive compensation is not a magic bullet ► It’s not always about the cash

▪ Organization mission ▪ Opportunity and growth ▪ Transparency about career path ▪ Lifestyle ▪ Recognition ▪ Noncash benefits

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Additional Resources

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Nonprofit compensation systems

► Individual salary ranges ► Job families ► Grades

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Individual salary ranges

► Customized, market-based range for every unique position ► How it works

1)

Determine position’s market value

2)

Construct salary range based on position’s market value

3)

Make compensation decisions based on compa-ratios, not dollars

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Individual salary ranges

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Accountant

$65,000

$52,000 $78,000

Database Administrator

$85,000

$68,000 $102,000

Meeting Planner

$63,000

$50,400 $75,600

Advantages and disadvantages of individual ranges

► Advantages

▪ Logical and easy to understand and explain ▪ Strategic and efficient use of compensation dollars ▪ Flexible

► Disadvantages

▪ Initial implementation costs (financial and non-financial) ▪ Increased requests to review salary ranges when jobs change, even if minimally ▪ Many ranges to administer

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Job families

► Market-based ranges based on career ladders

▪ One salary range for each level in each job family aligned with market

► How it works

1)

Identify job families

2)

Establish market values for each level in each job family

3)

Determine position’s organizational level/title

4)

Determine position’s job family

5)

Assign salary range based on position’s level and job family

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Job families

Range Midpoints by Job Family Level Accounting Meetings IT Vice President $150,000 $135,000 $175,000 Director $120,000 $112,000 $145,000 Manager $100,000 $94,000 $120,000 Senior professional $80,000 $75,000 $100,000 Mid-level professional $65,000 $63,000 $85,000 Entry-level professional $52,000 $50,000 $65,000

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Advantages of job families

► Logical – it’s how employees think about their own careers ► Strategic and efficient use of compensation dollars ► Moderately flexible – easy to add families and move structures at

different rates

► Consistent approach to job levels and titling ► Demonstrates position and compensation potential

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Disadvantages of job families

► Employees or managers may disagree with job family assignment for

hard-to-categorize jobs

► Most nonprofits can’t populate all levels – can create unrealistic

expectations and/or promotions to levels that are unnecessary

► Publishing ranges may hurt morale of employees in lower-paying job

families

► Position titles that are inconsistent with structure level or with titles of

• ther positions at the same level can create confusion

► Many ranges to administer (compared to a grade structure)

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Grade structure

► Single set of ranges that apply to all positions ► How it works

1)

Determine position’s market value

2)

Assign grade with a midpoint closest to the position’s market value

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Grade structure

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Grade Minimum Midpoint Maximum Q $239,400 $299,200 $359,000 P $208,200 $260,200 $312,200 O $181,000 $226,300 $271,600 N $157,400 $196,800 $236,200 M $136,900 $171,100 $205,300 L $119,000 $148,800 $178,600 K $103,500 $129,400 $155,300 J $90,000 $112,500 $135,000 I $78,200 $97,800 $117,400 H $68,000 $85,000 $102,000 G $59,100 $73,900 $88,700 F $51,400 $64,300 $77,200 E $44,700 $55,900 $67,100 D $38,900 $48,600 $58,300 C $33,800 $42,300 $50,800 B $29,400 $36,800 $44,200 A $25,600 $32,000 $38,400

Advantages and disadvantages of grades

► Advantages

▪ Simple ▪ It’s a system

► Disadvantages

▪ Easy to mismanage - often used for compensation adjustments rather than tie to market ▪ Hard to adapt to rapidly changing markets ▪ Sends mixed messages to employees

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Simon Quint, Principal Quatt Associates Washington, D.C. (202) 386-7621 squint@quatt.com James Wynn, Principal Quatt Associates Washington, D.C. (202) 386-7626 jwynn@quatt.com

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