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? 1

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 2

“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) 3

“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 4

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) 5

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. 6

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 7

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 8

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 9

Additional Resources 10

Nonprofit compensation systems ► Individual salary ranges ► Job families ► Grades 11

Individual salary ranges ► Customized, market-based range for every unique position ► How it works Determine position’s market value 1) Construct salary range based on position’s market value 2) Make compensation decisions based on compa-ratios, not dollars 3) 12

Individual salary ranges Accountant $52,000 $65,000 $78,000 Database Administrator $68,000 $85,000 $102,000 Meeting Planner $50,400 $63,000 $75,600 13

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 14

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 Identify job families 1) Establish market values for each level in each job family 2) Determine position’s organizational level/title 3) Determine position’s job family 4) Assign salary range based on position’s level and job family 5) 15

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 16

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 17

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 other positions at the same level can create confusion ► Many ranges to administer (compared to a grade structure) 18

Grade structure ► Single set of ranges that apply to all positions ► How it works Determine position’s market value 1) Assign grade with a midpoint closest to the position’s market value 2) 19

Grade structure Grade Minimum Midpoint Maximum $239,400 $299,200 $359,000 Q $208,200 $260,200 $312,200 P $181,000 $226,300 $271,600 O $157,400 $196,800 $236,200 N $136,900 $171,100 $205,300 M $119,000 $148,800 $178,600 L $103,500 $129,400 $155,300 K $90,000 $112,500 $135,000 J $78,200 $97,800 $117,400 I $68,000 $85,000 $102,000 H $59,100 $73,900 $88,700 G $51,400 $64,300 $77,200 F $44,700 $55,900 $67,100 E $38,900 $48,600 $58,300 D $33,800 $42,300 $50,800 C $29,400 $36,800 $44,200 B $25,600 $32,000 $38,400 A 20

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 21

Simon Quint , Principal James Wynn , Principal Quatt Associates Quatt Associates Washington, D.C. Washington, D.C. (202) 386-7621 (202) 386-7626 squint@quatt.com jwynn@quatt.com 22