Transcript Compensation 101 - University of Michigan HR

Compensation 101
Today’s lesson plan: Compensation 101 How To Use Market Data To Support Your
Compensation Philosophy
Compensation 101
Market Pricing
Data Analysis
Job Matching
Compensation
Philosophy
= Putting all of the pieces
together for the final product
= Taking accurate measurements
based on the foundation created
= Selecting appropriate
resources that are easily
recognizable; limit custom design
= Foundation for defining your
market and competitive position
Foundation for defining your
market and competitive position.
Compensation philosophy:
Compensation
Philosophy
We use an external marketreferenced approach to attracting
and retaining top candidates in
Southeast Michigan. We pursue
all avenues to get what we want;
no company is safe from our
recruiting efforts. We strive to
lead the market and pay more
than the going rate to our
employees based on
demonstrated skill and
performance– our money grows
on trees.
Foundation for defining your
market and competitive position.
So what do we know about
this company in terms of the
market-referenced approach?
Compensation
Philosophy
•What is the hiring and
retention strategy?
•What is the labor market?
•What is the market position?
Selecting appropriate resources
that are easily recognizable
Using our job descriptions that
are reviewed and updated every
year…
Job Matching
Select benchmark jobs from the
surveys
Do not rely on job titles or levels
Selecting appropriate resources
that are easily recognizable
There are few jobs in the market
that will match your jobs 100%
in terms of job content
Job Matching
Therefore one rule of thumb is to
consider the match to be
appropriate if 70% or more of
the job content is similar
Selecting appropriate resources
that are easily recognizable
So what do you do about the job
that doesn’t meet the 70%
criteria?
Job Matching
Consider different approaches to
tackle the “person-specific” jobs
in your organization
Selecting appropriate resources that are
easily recognizable; limit custom design
Job Matching
Let’s say 60% of a job is “chief
bottle washer” and 40% of a job
is “executive chef”. What can you
do?
• Pay market rate of similar
benchmark job
• Pay the market rate of the
bottle washer
• Pay the “bottle washer” rate +
a premium %
• Combine the market data
60%/40%
• Pay the highest market rate of
the two jobs
Taking accurate measurements
based on the foundation created
Data Analysis
What did we say in our
compensation philosophy about:
Our labor market?
Our target competitive pay?
Our market position?
Taking accurate measurements
based on the foundation created
•Target - Pay more than the
going rate
Data Analysis
The Median or 50th percentile is
generally considered to be the
going rate of pay for the position
•Paying more than the going rate
might could mean using the 75th
percentile for competitive
positioning
Taking accurate measurements
based on the foundation created
•Market Position - Lead the
market
Data Analysis
•All survey data must be aged
•Salary surveys will typically
publish projected structure and
budget increases
•Select your change rate and a
future common date to age your
data
Taking accurate measurements
based on the foundation created
•Reacting to trends
Data Analysis
•Data jumping up or down?
•Consider removing data from
your study that appears
inconsistent based on your
research
Putting all of the pieces together
for the final product
Market Pricing
What do you do with multiple
survey sources or data points?
•Take the average of the data
points for each job
•Weight surveys/data differently
based on your compensation
strategy
•Weight surveys/data differently
based on the quality of the
survey/data
Putting all of the pieces together
for the final product
Market Pricing
What do you do with the market
data points?
•Could use the data points
(10th %, 25th %, 50th %, 75th %,
90th %) to establish market rates
for each job or to develop/update
salary ranges
Putting all of the pieces together
for the final product
Market Pricing
•Pay rates are set – they are
aligned with the compensation
philosophy……so now what?
•Compare incumbent pay to the
market data and analyze need to
adjust pay
Putting all of the pieces together
for the final product
Market Pricing
•Look at incumbent pay or job
family pay compared to market
rate.
•Market index – divide the base
salary by the market rate
•Compa-ratio – divide the base
salary by the midpoint
•1.00 or greater – at or above
market rate/midpoint
•Less than 1.00 – below market
rate/midpoint
Putting all of the pieces together
for the final product
Market Pricing
Things to consider if it appears
you are over/underpaying:
•Match to market
•Skill/performance
•Accuracy of survey data
•Labor market conditions
•Plan to correct issues over time
Putting all of the pieces together
for the final product
Market Pricing
Educating staff:
•Communicate, communicate,
communicate
•Transparency
•Support the “right” decisions
Compensation 101
Market Pricing
Data Analysis
Job Matching
Compensation
Philosophy
Final Exam