Effective Compensation Systems for Organizational Success

1. Compensation 101 2019 FPHRA Academy Jeffrey Ling, PhD Evergreen Solutions, LLC

2. Our discussion • Compensation Matters • Key Concepts to Remember • Compensation Systems • Different Approaches

3. Compensation matters • Compensation practices impact: • Individuals: how we define ourselves, how satisfied we are, how motivated we are • Groups: how fair and equitable the practices are considered, how well we function as a team, how well we work together • Organization: how productive our organization is, how well we recruit, attract, and maximize our investment

4. Can Not Afford to Get It Wrong

5. Alignment instead of conflict Pay

6. Individual needs

7. Organizational need

8. What is a system and what does it give us? • A successful compensation system that allows us to define the value of work, recognize and reward contribution, and motivate growth and improvement. • Two key characteristics of the a solid compensation system: • internal equity • external equity

9. Components of System

10. Structure (Range) • Aligns with type of work being perform (simple to complex organizations – few to many jobs) • Establishes the minimum and maximum value of a job (value to organization and earning potential) • Determines the differences between the levels in the hierarchy (rank and level) • Needs to be consistent and easily understood

11. Placement • Determines what is the value of the incumbent considering the range of options for the job. • Addresses what is of value to the organization – time, performance, skills, etc • Ensure the financial and administrative capability to support placement

12. Movement • Movement is the most reoccurring factor since it is typically an annual occurrence. • Most public organizations utilize elements of several approaches.

13. Valuing market • Value = based on desired market position (position to peers) • Aligns position with a certain percentile or placement • Communicates positioning as recruitment and retention tool • Must account for change over career in value • Result: open range plans, fixed market-based plans

14. Valuing time • Value = Time in job (Experience) • Specific tradeoff: fix the value of rewards • Range movement critical to ensure high value • Each year of experience has a specific value • Result: step plans, open ranges with fixed COLAs, longevity increases

15. Valuing skill • Value = Full Competence (Skill and Ability) • Gain skills until reaching point of performing at an average level (know, can, and will) • Some might be purely skill based • Competency implies the ability to teach others • Market value equals full competence • Result: midpoint indexed plans, market control point plans

16. Valuing results • Value = Performance (Production/Resources) • Move away from specific formula to outcome • More concern with technology, analytical ability, and adaptability • Attempts to assess outcomes as well as motivation • Result: broad market plans, performance-based plans

17. Valuing hybrid • Value = Multiple factors • Combine factors most important to the organization • Adds flexibility since emphasis can be changed • Allows for difference emphasis at different career points • Result: open range, zone plans, hybrid plans (steps and open range)

18. Valuing flexibility • Value = Management Flexibility • Lacks a real “method to the madness” • Maximizes flexibility with hiring and advancement • Creates issues with internal equity • Result: non-formal plans, practice diverging from the plan

19. Elements of all systems • What do we want to reward? • How will we reward? • How can everyone benefit from the system? • How do we deal with inequities?

20. Conclusion • What does your organization really want? • What is your business strategy? • What is your human capital strategy? • How do you position yourself vs the market? • How do you want to organize work?