Compensation: Creating an Equitable and Market-driven Pay System

1. YWCA –USA National Capacity Building Institute February 2014 Alice Conner, M.S., SPHR HR Consultant alice.conner@cox.net Compensation:Creating an Equitable and Market-driven Pay System alice.conner@cox.net

2. Today’s Objectives • Compensation Philosophy • Legal Considerations • Sources of market data • Setting a fair and equitable pay structure • Job evaluation methods • Strategies for market adjustments and other pay increases • Benefits as part of total compensation alice.conner@cox.net

3. alice.conner@cox.net

4. What People Earn http://parade.condenast.com/210590/parade/what-people-earn-2013/ alice.conner@cox.net

5. Compensation Strategy and Philosophy • Value of pay • Market competitiveness • Benefits’ Package • Pay as a motivator alice.conner@cox.net

6. Compensation Philosophy and Strategy Market Adjustments Skill Differentials Internal Promotions Capping Pay at the Max Acting/ Interim Roles Supervisory Authority Demotions Geographic Differentials Academic Degrees

7. Legal Considerations • Exempt classifications • Overtime pay for non-exempt • Independent Contractor vs. Employee • IRS sanctions for excessive executive pay • Compliance with collective bargaining agreement alice.conner@cox.net

8. Job Descriptions:The Basis for Determining Fair and Market-driven Pay Job descriptions should include: • Essential functions • Core competencies • Education • Experience level • Supervisory responsibility • Level of independent judgment alice.conner@cox.net

9. Job Descriptions’ Link to Pay • Compensable factors include: • Scope of responsibility • Knowledge (education and experience) • Problem-solving • Financial management responsibility • Internal and external relationships • For “hybrid” jobs, estimate % of time spent in each functional area (i.e.—Facilities and Executive Assistant) alice.conner@cox.net

10. Market Analysis Techniques • Use third party survey data, not individual employers • Mean vs. median • Use job summaries, not just job titles • Match 80% of essential functions • “Age” the data to a common date • Determine local, regional or national data for each job alice.conner@cox.net

11. Reasons for Job Evaluation • Objective analysis of the job’s worth to the organization • Ensures internal equity • Assists in determining pay grades • Rational basis for negotiating pay rates in collective bargaining • Identifies a ladder of progression for employees • Complies with Equal Pay Act and Fair Pay Act (2009) • Develops a base for merit or pay for performance increases alice.conner@cox.net

12. Comparing Unlike Jobs alice.conner@cox.net

13. Method A: Establishing a range • Use the market median as the mid-point of the pay range for each position • Build a 30% spread on either side of the median for non-exempt; 40% for exempt, 50-60% for senior management • Example of an exempt pay range: 34,000-----42,500----51,000 Minimum-----Mid-point---Maximum alice.conner@cox.net

14. Method B: Establishing a Range • Establish a range for the most entry level non-exempt position and then build each subsequent ranges using a 10-12% differential between ranges. Example: Min. Mid Max • N-1 Receptionist 10.20 12.00 13.80 • N-2 Child Care Asst. 11.42 13.44 15.46 • N-3 Admin. Asst. 12.79 15.05 17.31 • N-4 Payroll Clerk 14.32 16.86 19.38 alice.conner@cox.net

15. Placement in the range • Calculate “compa-ratio” (each position compared to the mid-point) • Use clear criteria to determine appropriate placement in new range • Length of service • Performance documentation • Performance rating by supervisor • Current placement in range • Combination • Recommend capping salaries at maximum of range alice.conner@cox.net

16. Salary Increase Methods • General • Cost of Living • Market adjustment within range • Merit or performance based • Skill-based differentials • Productivity based • Lump sum bonus alice.conner@cox.net

17. 2014 Compensation Forecast:Partially Cloudy with an 90% Chance of Raises • Retention is a primary concern of most employers • 3.1% budgeted for pay increases • 2.1% projected for salary structure increases Sources:2013-14 World at Work Salary Budget Survey 2013 PayScale Compensation Best Practices

18. Benefits as a recruitment/retention tool • Benefits typically cost 30% of payroll • Recommend annual benefits statements • 401k or 403b plan designs • Paid time off plans • Cost analysis of benefits

19. Salary and wage data sources • ERI (www.economicresearchinstitute.com) • Bureau of Labor Statistics (www.bls.gov) • Business and Legal Reports (www.blr.com) • Medical Group Management Association (www.mgma.org) • Kenexa CompAnalyst • www.salary.com • Local surveys produced by universities, United Way, non-profit associations, human resource associations, professional associations • Towers Watson data available at World at Work (WAW) library, Scottsdale, AZ • Mercer… Data available at WAW library alice.conner@cox.net

20. Resources and References • External compensation consultants • World at Work coursework • Society of Human Resource Management (SHRM) • www.dol.gov (FLSA exempt classifications) • Solving the Compensation Puzzle by Sharon Koss alice.conner@cox.net

21. Questions? Comments! Suggestions Thank you, YWCA! alice.conner@cox.net