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Consulting Inc. Compensation 101. Creating & Administering your Variable pay strategy. Our Agenda. Identifying your variable pay goals Establishing eligibility Determining your cash compensation mix Identifying variable pay triggers Establishing variable pay formula Evaluating the program.

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Compensation 101

Consulting Inc.

Compensation 101

Creating & Administering your Variable pay strategy


Our agenda
Our Agenda

  • Identifying your variable pay goals

  • Establishing eligibility

  • Determining your cash compensation mix

  • Identifying variable pay triggers

  • Establishing variable pay formula

  • Evaluating the program


Variable pay goals
Variable Pay goals

OBJECTIVE: To increase company performance by focusing and shaping employee behaviour

GOALS:

  • Ensure performance targets reflect the behaviour and results that matter most

  • Ensure rewards adequately reflect different levels of contribution and performance

  • Ensure individual rewards align with corporate performance



Identifying variable pay triggers
Identifying variable pay triggers

  • Company financial performance

    • Net income

    • Profitability

  • Other company metrics

    • Competitive ranking

    • Customer growth targets

    • Safety

  • Team performance

  • Individual performance

    • Results achievement

    • Alignment with company values


Establishing the formula
Establishing the formula

  • Modifiers

  • Thresholds

  • Performance Multipliers


Establishing the formula1
Establishing the formula

INTEGRATIVE – results in company and/or team performance modifying the individual’s reward.

Company performance establishes pool available.

  • If company achieves targets, pool available is 100%. 100% of pool reflects the amount needed to pay out 100% bonus targets to all employees.

  • If company exceeds targets, pool available will exceed 100%, to the extent that financial results can support a higher overall payout.


Establishing the formula2
Establishing the formula

INTEGRATIVE: Financial Target Payout


Establishing the formula3
Establishing the formula

INTEGRATIVE : Multipliers

If the company achieved 110% of financial targets, then bonus pool would be 120% of budget.

If the company just met threshold targets, then bonus pool would be 80% of budget. (Are qualifiers required?)


Establishing the formula4
Establishing the formula

INTEGRATIVE : Multipliers

Individual and team performance combine together to establish payout.


Establishing the formula5
Establishing the formula

INTEGRATIVE

EXAMPLE 1

  • Employee eligible for 10% bonus.

  • Company achieves 110% financial target

  • Team achieves threshold targets.

  • Individual meets targets.

  • Payout = 10% x (120% x 75%) = 9% payout

EXAMPLE 2

  • Employee eligible for 10% bonus.

  • Company achieves 100% financial targets

  • Team exceeds meets targets.

  • Individual exceeds targets.

  • Payout = 10% x (100% x 200%) = 20% payout


Establishing the formula6
Establishing the formula

ADDITIVE – results in company and/or team performance adding together with individual performance to define the payout.

  • Company performance comprises a percentage of the total eligible payout.

  • Team performance comprises a percentage of the total eligible payout.

  • Individual performance comprises a percentage of the total eligible payout.


Establishing the formula7
Establishing the formula

ADDITIVE : Bonus Composition

Line of Sight helps determine weight


Establishing the formula8
Establishing the formula

ADDITIVE : Multipliers are established


Establishing the formula9
Establishing the formula

ADDITIVE

EXAMPLE 2

  • Manager eligible for 10% bonus.

  • Company meets targets.

  • Team exceeds targets.

  • Individual achieves threshold targets.

  • Payout =

    • 10% x 30% x 100% +

    • 10% x 20% x 200% +

    • 10% x 50% x 50% =

    • 3% + 4% + 2.5% = 9.5%

EXAMPLE 1

  • Manager eligible for 10% bonus.

  • Company exceeds targets.

  • Team achieves threshold targets.

  • Individual meets targets.

  • Payout =

    • 10% x 30% x 200% +

    • 10% x 20% x 50% +

    • 10% x 50% x 100% =

    • 6% + 1% + 5% = 12%


Establishing the formula10
Establishing the formula

  • Is it shaping the right behaviours?

  • Does it have integrity?

    • Are managers effectively distinguishing between different levels of performance?

    • Is there a correlation between cumulative individual/team and company performance?

    • Is there a correlation between individual merit increases and bonus awards?

  • Is it sustainable?

  • Has it resulted in an entitlement attitude?

  • Is it competitive?