Is Your Compensation Plan Due for a Makeover?

Working with outdated pay ranges can create turnover, pay equity issues, low morale, and legal challenges. Also, granting merit increases without an accurate budget or distribution methodology has the potential to damage your professional credibility. Is calling in a compensation consultant the only solution?

Can You DIY It?

Budgets for consulting services remain tight, but your organization still has a strong need to get the job done. To handle basic compensation administration, you must feel comfortable with the process—from market pricing positions and aging survey data to addressing wage compression and developing a merit matrix that recognizes performance and market relationships while adhering to budgetary requirements.

Today and tomorrow, we’ll offer some tips from Barry L. Brown, SPHR, CCP, on performing a cost-effective—yet effective—DIY compensation makeover. Brown is a principal at Effective Resources, Inc.

Some of Brown’s Compensation ‘Truths’

• There are no secrets in compensation.
• Regardless of how well you try to justify something, there will always be somebody who disagrees with you.
• Data that are put together with good technique and high integrity will be hard to
  argue with.
• Inviting the managers to review your job matches will help to build credibility in the process.

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Quality Is Key When It Comes to Survey Data

Brown urges employers to use only quality surveys—meaning that you know all of the following:

• The source of the data
• The number of participating companies
• The number of incumbents for each data point
• The effective date of the data
• The data demographics

Use more than one source to smooth out data bias, Brown recommends, and use industry-specific data for jobs that are truly industry-specific. Age data to a common point in time, and use an Excel® spreadsheet to capture your work and make future updates a breeze. Also, be sure to capture the survey job number, job title, and any demographics used.

More survey hints from Brown:

• Determine which surveys are best suited for your company and stick with them. (You can see trends over time.)
• Consider data preferences—in order: weighted average, median, mean (average).
• Review your market data at least annually.
• Review market data for technical jobs at least twice a year.
• Don’t use a survey more than 2 years old unless you have no other options.

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Market Pricing Techniques

There will hardly ever be a perfect match to your job, Brown emphasizes. If your job is a little “bigger” or “smaller,” adjust the market data up or down by 10% to 15%, as appropriate. Maintain high integrity and ensure your credibility by consistently using demographic breakouts. Finally, invite managers to confirm your matches, but don’t show them the dollars.

As for updating pay structures, Brown says it’s easiest to do this in an Excel spreadsheet. Adjust range midpoints by market change, and write your program to automatically update if you change your mind later.

Calculate range min and max using the following formula:

spread % / (2 + spread %)

So, for example:

.50 / (2 + .50) = ± 20%

Tomorrow, we’ll look at Brown’s tips for a problem he says is “self-induced” at virtually every company: wage compression.