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7/11/2011




     Trends in Compensation
       and Best Practices in
      the Current Economy
                             CBIZ Human                                    
                             Capital Services




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                                                                              2




                                                                                         1
7/11/2011




Introduction

 •   Edward R. Rataj
              R
 •   Managing Director, Compensation Consulting
 •   Certified Compensation Professional (CCP)
 •   Frequently quoted in national news publications such as
     the Wall Street Journal and Smartmoney.com




                                                               3




     “HR matters enormously in
      the good times. It defines
           you in the bad."
                         - Jack Welch



                                                               4




                                                                          2
7/11/2011




Overview

 • Explore turnover in the rebounding economy
 • Examine compensation economics 101
 • Offensive and defensive strategies
 • Review steps for designing a market-based
   compensation system
 • Recognition and sustaining high performance through a
   merit matrix
 • Answer your questions



                                                                                                                           5




Unemployment in Improving Economy

 • Common perception supported by monthly reports from
               perception,
   the U.S. Bureau of Labor Statistics:
 • 10% unemployment
 • In reality, a strong negative correlation exists between
   unemployment percentage and education:

                Bachelor s
                Bachelor’s degree or above                                                         4.8%
                                                                                                   4 8%
                Some college or an associate’s degree                                              8.1%
                High school graduate                                                               9.8%
                Less than high school diploma                                                     15.3%


     Bureau of Labor Statistics Table A4: Employment status of the civilian population 25 years and over by educational    6
     attainment 




                                                                                                                                      3
7/11/2011




Projected Turnover as Economy Improves

 • According to a recent WorldatWork survey, more than
                                       survey
   half of employees intend to leave their current job as the
   economy improves.
 • The survey asked: Do you plan to pursue new job
   opportunities as the economy improves?
   –   60% —   Yes, I intend to leave
   –   21% —   Maybe,
               Maybe so I’m networking
                           Im
   –   6% —    Not likely, but I’ve updated my resume
   –   13% —   No, I intend to stay.



                                                                7
          www.worldatwork.org/waw/adimComment?id=35633 




Compensation Economics 101




                                                                8




                                                                           4
7/11/2011




Compensation Economics

 • Why is a burger flipper no long an entry level job?
 • Why does minimum wage negatively impact the
   employees whom it is designed to protect?
 • Why are banking executives leaving the industry?
 • If options are significantly under water and the board
   refuses to re-price, what is the potential outcome?




                                                                   9




Supply of Labor

                                                        Supply
                                                        of Labor



                                                   C
                     P3
     Cost of Labor




                                     B
                     P2
     C




                          A
                     P1




                          Q1          Q2           Q3
                               Quantity of Labor                   10




                                                                               5
7/11/2011




Demand for Labor

                                            Demand
                                            for Labor



                                                         A
                            P3
    Cost of Labor




                            P2                                        B
    C




                            P1                                                     C




                                                        Q1          Q2            Q3
                                                             Quantity of Labor                    11




Supply and Demand of Labor – Market Equilibrium


                                         Demand                                        Supply
                                         for Labor                                     of Labor




                                                             Market Equilibrium
                                                             Supply = Demand
                    Cost of Labor




                                    P*
                       t




                                                                    Q*
                                                                                                  12
                                                             Quantity of Labor




                                                                                                              6
7/11/2011




Effect of Minimum Wage

                                      Demand                                        Supply
                                      for Labor           Excess Supply             of Labor
                                                             of Labor



                                P3
                                                                                      Price Floor
               Cost of Labor
               C




                                                  Q1                          Q3
                                                          Quantity of Labor
                                                                                                    13




Effect of an Executive Compensation Cap

                                     Demand                                         Supply
                                     for Labor                                      of Labor
   Cost of Labor
   C




                                                                                   Price Ceilng
                               P1



                                                       Unsatisfied Demand
                                                            for Labor


                                                  Q1                          Q3
                                                         Quantity of Labor
                                                                                                    14




                                                                                                                7
7/11/2011




The Rebounding Economy

                                                                                      Supply

                              Demand1
         Cost of Labor




                         P2




                                                     Q2
                                                   Quantity of Labor
  As the economy rebounds, the demand for all employees will increase. Accordingly, differentiation in 
   Because high performers can drive an organization through the down economy and 
    Additionally, due to unemployment, the supply of average‐performing employees is up.
    Because of the poor economy, the demand for average‐performing employees is down.                     15
   position it well for a rebound, there is an increased demand for high‐performing employees.
  compensation based on performance will become more important.




Compensation Strategies in the Rebounding
Economy
 • Offensive Strategies:
    – Top Grading
         • Poach top performers at competitors who would help drive your
           organization forward.
         • This is especially true for sales staff.
         • Pay the “winners like winners and losers like losers.”
    – Aggressively pay for performance via a merit matrix (further
      discussion in the following slides)




                                                                                                          16




                                                                                                                      8
7/11/2011




Compensation Strategies in the Rebounding
Economy
 • Defensive Strategies:
   – Total Rewards Statements
   – Communication regarding other positive aspects of being
     employed by your organization
   – Consider changing targets for sales staff to ensure that they are
     reasonable given the current downturn
   – Re-price Options – otherwise executives will




                                                                         17




Compensation Strategies in the Rebounding
Economy
 • Merit Matrix is a blended strategy:
   – Offensive component of performance management = Helps attract
     key talent from outside the organization
   – Defensive component of performance management = Helps
     motivate and retain high performers within the organization




                                                                         18




                                                                                     9
7/11/2011




Designing a Market-Based Compensation System

 •   Plan and collect data
 •   Ensure job documentation accuracy
 •   Complete market analysis
 •   Design pay structures
 •   Model implementation costs
 •   Assess internal equity
                      q y
 •   Create procedure manual
 •   Report results


                                                      19




Purpose of a Compensation System

 •   Implement compensation philosophy
 •   Ensure efficient allocation of resources
 •   Provide rational basis for pay decisions
 •   Assist supervisors in evaluating and rewarding
     performance




                                                      20




                                                                 10
7/11/2011




Job Documentation


                     Job Documentation




                        Market Matches
                                                             21




Market Pricing Methodology

 • What is market pricing?
 • Valuation of pay for jobs in the external labor markets
 • Key considerations when determining labor markets:
   – Location
      • Local
      • Region
      • Nation
         at o
   – Industry
      • Industry specific
      • Broad spectrum of employers



                                                             22




                                                                        11
7/11/2011




Market Pricing Methodology

 • Reliable Data
      – Published survey data
          • Major consulting and surveying firms
          • Statistically validated
          • Standard deviation analysis of data
 • Unreliable data examples:
      – Self-reported data
      – DOL
      – Data from one or two competitors




                                                          23




Designing Salary Structures


 Range Spread
                                         midpoint




                                  Midpoint Differential   24




                                                                     12
7/11/2011




Assessing Current State of Compensation Program




                                                         25       25




Compensation Strategies in the Rebounding
Economy
 • Merit Matrix Approach:
   – Affects pay increases, not pay structure
   – Rewards performance
   – Focuses dollars on employees that are most likely to leave
     because of pay




                                                                  26




                                                                             13
7/11/2011




Compensation Strategies in the Rebounding
Economy – Merit Matrix
 • Employee 1 ( 1 ) and Employee 2 ( 2 ) are both accountants
   with exactly the same tenure, experience, education and pay.
   Only performance differentiates them. To whom would you
   provide a higher pay increase, low-performing Employee 1 or
   high-performing Employee 2?



                           High
                                  2
                           H



                                  1
                           Low




                                                                27




Compensation Strategies in the Rebounding
Economy – Merit Matrix
 • In this example all other factors are equal except current base
           example,
   salary. To whom would you provide a higher pay increase,
   high-paid Employee 1 or low-paid Employee 2?


                      COMPENSATION
             Low                                     High

               2                                       1




                                                                28




                                                                           14
7/11/2011




Compensation Strategies in the Rebounding
Economy – Merit Matrix
 • Finally all other factors being equal to whom would you
   Finally,                        equal,
   provide a higher pay increase, high-paid/low-performing
   Employee 1 or low-paid/high-performing Employee 2?

        Low                  COMPENSATION                                   High
 High




                     2
 Low




                                                                     1


                                                                                29




Compensation Strategies in the Rebounding
Economy – Merit Matrix

         Typical

         Matrix
                                                 Quartile in Range
                    Performance             1       2          3           4
                    Exceptional           3.5%    3.5%       3.0%        3.0%
               Exceeds Expectation        3.0%    3.0%       3.0%        3.0%
                     Effective            2.5%    2.5%       2.5%        2.0%
               Development Needed         2.5%    2.5%       2.0%        2.0%
          Critical Need for Improvement   2.5%    2.0%       2.0%        2.0%




                                                                                30




                                                                                           15
7/11/2011




Compensation Strategies in the Rebounding
Economy – Merit Matrix

    Best Practice

    Matrix
                                            Quartile in Range
              Performance             1        2          3       4
              Exceptional           6.5%     5.5%       5.0%    4.0%
         Exceeds Expectation        6.0%     5.0%       4.0%    3.0%
               Effective            5.0%     4.0%       3.0%    2.0%
         Development Needed         2.0%     1.0%       0.0%    0.0%
    Critical Need for Improvement   0.0%     0.0%       0.0%    0.0%




                                                                       31




Compensation Strategies in the Rebounding
Economy – Merit Matrix

    Ultra-Aggressive

    Matrix
                                            Quartile in Range
              Performance              1       2          3       4
              Exceptional           13.0%   11.0%       5.0%    3.0%
         Exceeds Expectation        11.0%    6.0%       3.0%    1.0%
               Effective            4.0%     0.0%       0.0%    0.0%
         Development Needed         0.0%     0.0%       0.0%    0.0%
    Critical Need for Improvement    0.0%    0.0%       0.0%    0.0%




                                                                       32




                                                                                  16
7/11/2011




                                       Typical

Results                                Matrix
                                                                                               Quartile in Range
                                                Performance                  1                 2               3               4
                                                 Exceptional               8.0%              7.0%            6.0%            5.0%
                                            Exceeds Expectation            6.0%              5.0%            4.0%            2.5%
                                                  Effective                4.5%
                                                                           4 5%              3.5%
                                                                                             3 5%            3.0%
                                                                                                             3 0%            2.0%
                                                                                                                             2 0%
                                            Development Needed             2.0%              0.0%            0.0%            0.0%
                                       Critical Need for Improvement       0.0%              0.0%            0.0%            0.0%

                                       Cost Summary
                                                              Payroll: $30,400,917                         Budget $:     $1,064,032
                                                     Merit Increases: $1,071,120.86            Budget as % of Payroll:        3.5%
                                                                                                                                      Model fits
                                                 Percent Increase: 3.5%
                                                                                                                                      within budget
                                       Cost Detail
                                                                                              Quartile in Range
                                                Performance                First            Second          Third         Fourth
                                                 Exceptional              $83,979          $184,222        $88,669       $15,200
                                           Exceeds Expectations          $109,175          $158,310        $58,617          $0
                                             Meets E
                                             M t Expectations
                                                          t ti           $108,116
                                                                         $108 116          $191,830
                                                                                           $191 830        $36,698
                                                                                                           $36 698        $3,650
                                                                                                                          $3 650
                                            Development Needed           $32,654              $0             $0             $0
                                       Critical Need for Improvement        $0                $0             $0             $0
                                                          Total Cost: $1,071,121

                                       Employee Count Detail
                                                                                              Quartile in Range
                                                Performance                 1                 2               3               4
                                                 Exceptional                24                36             16               4
                                           Exceeds Expectations             36                60             20               0
                                                  Effective                 52                96             16               4
                                            Development Needed              36                40             20               4
                                       Critical Need for Improvement        24                32             12          33   4
                                                                                                                                                    33
                                             Total Employees:        536




Results                                                                 Company XYZ
                                                                       Cost by Quartile
                        $600,000




                        $500,000
                                                                                                                                      Critical Need
                                                                                                                                      for
                                                                                                                                      Improvement

                        $400,000
                                                                                                                                      Meets
  Merit Increase Cost




                                                                                                                                      Expectations

                        $300,000

                                                                                                                                      Exceeds
                                                                                                                                        pectat o s
                                                                                                                                      Expectations
  M




                        $200,000


                                                                                                                                      Exceptional

                        $100,000




                             $0
                                   1                           2                              3                          4
                                                                       Quartile in Range                                                            34




                                                                                                                                                               17
7/11/2011




  Results                                                         Company XYZ
                                                            Costs by Performance Level
                  $400,000



                  $350,000



                  $300,000                                                                                                               Fourth


                  $250,000


                                                                                                                                         Third
           Cost




                  $200,000



                  $150,000
                                                                                                                                         Second

                  $100,000



                   $50,000                                                                                                               First


                       $0
                                 Exceptional   Exceeds Expectations    Meets Expectations    Development Needed   Critical Need for
                                                                                                                   Improvement               35
                                                                         Performance




  Employee Analysis


                                                           Salary Grade                                   Perf-  Merit           New        Merit
Last Name            Name         Job Title                Min      Max            Salary      Quartile ormance Percent         Salary    Increase

Brown                Stan         HR Generalist           $47,042      $72,915    $46,000          1         4      6.0%      $47,042     $2,822.52
Phillips             Kevin        IT Analyst              $53,058      $84,892    $64,550          2         4      5.0%      $64,550     $3,227.50
Pence                Skyler       Construction Manager    $47,042      $72,915    $76,000          4         5      5.0%      $76,000    $3,800.00
Pratt                Jason        Controller              $70,169     $112,270   $103,299          4         2      0.0%      $103,299      $0.00
Beals                Susan        Maintenance Manger      $47,042      $72,915    $59,000          2         3      3.5%      $59,000     $2,065.00
Duncan               Elizabeth    President              $153,058     $229,587   $200,000          3         5      6.0%      $200,000   $12,000.00




                                                                                            Adjustment due to
                                                                                            employee being             Lump sum increase
                                                                                            below salary range         due to employee
                                                                                                                       being at top of salary
                                                                                                                       range


                                                                                                                                             36




                                                                                                                                                            18
7/11/2011




Compensation Strategies in the Rebounding
Economy– Merit Matrix
 •   Cost neutral
 •   Rewards performance
 •   “Targeted” turnover
 •   Fair and efficient method for administering pay
 •   Accelerates employees to market competitive pay levels




                                                                              37




Compensation Strategies in the Rebounding
Economy– Merit Matrix
 • Common Pitfalls
     – Structures out of alignment with market
        • Garbage in, garbage out
        • May improperly allocate limited salary increase dollars based upon the
          current competitiveness of pay
     – Performance scores not calibrated
        • Supervisors can learn to game the system
        • Cheating is rewarded
        • Top performers may not be properly rewarded
     – Matrix results outside of budget



                                                                              38




                                                                                         19
7/11/2011




Additional Considerations

  •   Nonprofit compensation
  •   Executive compensation in closely held businesses
  •   Fair pay based on race and gender
  •   Online performance management
  •   Sales compensation




                                                                                      39




              CBIZ CompCasts



                   How to Set Pay Ranges that are Fair and Effective


CompCasts          Nonprofit Quick Guide to Navigating Intermediate Sanctions


                   Creating and Using a Salary Increase Matrix


                   Fair Pay: Maintaining Equality in Today’s Litigious Society




                           In development at:
                        www.cbiz.com/hr/compcasts
                                                                                 40   40




                                                                                                 20
7/11/2011




Questions?

                    Ed Rataj, CCP
                       Rataj
     Managing Director – Compensation Consulting
            CBIZ Human Capital Services
                   (314) 692-5884
                  erataj@cbiz.com




                                                   41




                                                              21

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The Three R’s of Talent Management

  • 1. 7/11/2011 Trends in Compensation and Best Practices in the Current Economy CBIZ Human                                     Capital Services Upcoming Webinars • The Three R’s of Talent Management Rs – Tuesday, August 2, 10:00 am to 11:00 am CDT • Total Rewards Design for an Intergenerational Workforce – Tuesday, August 23, 10:00 am to 11:00 am CDT • Strategies to Enhance the ROI of Wellness Programs g g – Wednesday, September 14, 10:00 am to 11:00 am 2 1
  • 2. 7/11/2011 Introduction • Edward R. Rataj R • Managing Director, Compensation Consulting • Certified Compensation Professional (CCP) • Frequently quoted in national news publications such as the Wall Street Journal and Smartmoney.com 3 “HR matters enormously in the good times. It defines you in the bad." - Jack Welch 4 2
  • 3. 7/11/2011 Overview • Explore turnover in the rebounding economy • Examine compensation economics 101 • Offensive and defensive strategies • Review steps for designing a market-based compensation system • Recognition and sustaining high performance through a merit matrix • Answer your questions 5 Unemployment in Improving Economy • Common perception supported by monthly reports from perception, the U.S. Bureau of Labor Statistics: • 10% unemployment • In reality, a strong negative correlation exists between unemployment percentage and education: Bachelor s Bachelor’s degree or above 4.8% 4 8% Some college or an associate’s degree 8.1% High school graduate 9.8% Less than high school diploma 15.3% Bureau of Labor Statistics Table A4: Employment status of the civilian population 25 years and over by educational  6 attainment  3
  • 4. 7/11/2011 Projected Turnover as Economy Improves • According to a recent WorldatWork survey, more than survey half of employees intend to leave their current job as the economy improves. • The survey asked: Do you plan to pursue new job opportunities as the economy improves? – 60% — Yes, I intend to leave – 21% — Maybe, Maybe so I’m networking Im – 6% — Not likely, but I’ve updated my resume – 13% — No, I intend to stay. 7 www.worldatwork.org/waw/adimComment?id=35633  Compensation Economics 101 8 4
  • 5. 7/11/2011 Compensation Economics • Why is a burger flipper no long an entry level job? • Why does minimum wage negatively impact the employees whom it is designed to protect? • Why are banking executives leaving the industry? • If options are significantly under water and the board refuses to re-price, what is the potential outcome? 9 Supply of Labor Supply of Labor C P3 Cost of Labor B P2 C A P1 Q1 Q2 Q3 Quantity of Labor 10 5
  • 6. 7/11/2011 Demand for Labor Demand for Labor A P3 Cost of Labor P2 B C P1 C Q1 Q2 Q3 Quantity of Labor 11 Supply and Demand of Labor – Market Equilibrium Demand Supply for Labor of Labor Market Equilibrium Supply = Demand Cost of Labor P* t Q* 12 Quantity of Labor 6
  • 7. 7/11/2011 Effect of Minimum Wage Demand Supply for Labor Excess Supply of Labor of Labor P3 Price Floor Cost of Labor C Q1 Q3 Quantity of Labor 13 Effect of an Executive Compensation Cap Demand Supply for Labor of Labor Cost of Labor C Price Ceilng P1 Unsatisfied Demand for Labor Q1 Q3 Quantity of Labor 14 7
  • 8. 7/11/2011 The Rebounding Economy Supply Demand1 Cost of Labor P2 Q2 Quantity of Labor As the economy rebounds, the demand for all employees will increase. Accordingly, differentiation in  Because high performers can drive an organization through the down economy and  Additionally, due to unemployment, the supply of average‐performing employees is up. Because of the poor economy, the demand for average‐performing employees is down. 15 position it well for a rebound, there is an increased demand for high‐performing employees. compensation based on performance will become more important. Compensation Strategies in the Rebounding Economy • Offensive Strategies: – Top Grading • Poach top performers at competitors who would help drive your organization forward. • This is especially true for sales staff. • Pay the “winners like winners and losers like losers.” – Aggressively pay for performance via a merit matrix (further discussion in the following slides) 16 8
  • 9. 7/11/2011 Compensation Strategies in the Rebounding Economy • Defensive Strategies: – Total Rewards Statements – Communication regarding other positive aspects of being employed by your organization – Consider changing targets for sales staff to ensure that they are reasonable given the current downturn – Re-price Options – otherwise executives will 17 Compensation Strategies in the Rebounding Economy • Merit Matrix is a blended strategy: – Offensive component of performance management = Helps attract key talent from outside the organization – Defensive component of performance management = Helps motivate and retain high performers within the organization 18 9
  • 10. 7/11/2011 Designing a Market-Based Compensation System • Plan and collect data • Ensure job documentation accuracy • Complete market analysis • Design pay structures • Model implementation costs • Assess internal equity q y • Create procedure manual • Report results 19 Purpose of a Compensation System • Implement compensation philosophy • Ensure efficient allocation of resources • Provide rational basis for pay decisions • Assist supervisors in evaluating and rewarding performance 20 10
  • 11. 7/11/2011 Job Documentation Job Documentation Market Matches 21 Market Pricing Methodology • What is market pricing? • Valuation of pay for jobs in the external labor markets • Key considerations when determining labor markets: – Location • Local • Region • Nation at o – Industry • Industry specific • Broad spectrum of employers 22 11
  • 12. 7/11/2011 Market Pricing Methodology • Reliable Data – Published survey data • Major consulting and surveying firms • Statistically validated • Standard deviation analysis of data • Unreliable data examples: – Self-reported data – DOL – Data from one or two competitors 23 Designing Salary Structures Range Spread midpoint Midpoint Differential 24 12
  • 13. 7/11/2011 Assessing Current State of Compensation Program 25 25 Compensation Strategies in the Rebounding Economy • Merit Matrix Approach: – Affects pay increases, not pay structure – Rewards performance – Focuses dollars on employees that are most likely to leave because of pay 26 13
  • 14. 7/11/2011 Compensation Strategies in the Rebounding Economy – Merit Matrix • Employee 1 ( 1 ) and Employee 2 ( 2 ) are both accountants with exactly the same tenure, experience, education and pay. Only performance differentiates them. To whom would you provide a higher pay increase, low-performing Employee 1 or high-performing Employee 2? High 2 H 1 Low 27 Compensation Strategies in the Rebounding Economy – Merit Matrix • In this example all other factors are equal except current base example, salary. To whom would you provide a higher pay increase, high-paid Employee 1 or low-paid Employee 2? COMPENSATION Low High 2 1 28 14
  • 15. 7/11/2011 Compensation Strategies in the Rebounding Economy – Merit Matrix • Finally all other factors being equal to whom would you Finally, equal, provide a higher pay increase, high-paid/low-performing Employee 1 or low-paid/high-performing Employee 2? Low COMPENSATION High High 2 Low 1 29 Compensation Strategies in the Rebounding Economy – Merit Matrix Typical Matrix Quartile in Range Performance 1 2 3 4 Exceptional 3.5% 3.5% 3.0% 3.0% Exceeds Expectation 3.0% 3.0% 3.0% 3.0% Effective 2.5% 2.5% 2.5% 2.0% Development Needed 2.5% 2.5% 2.0% 2.0% Critical Need for Improvement 2.5% 2.0% 2.0% 2.0% 30 15
  • 16. 7/11/2011 Compensation Strategies in the Rebounding Economy – Merit Matrix Best Practice Matrix Quartile in Range Performance 1 2 3 4 Exceptional 6.5% 5.5% 5.0% 4.0% Exceeds Expectation 6.0% 5.0% 4.0% 3.0% Effective 5.0% 4.0% 3.0% 2.0% Development Needed 2.0% 1.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% 31 Compensation Strategies in the Rebounding Economy – Merit Matrix Ultra-Aggressive Matrix Quartile in Range Performance 1 2 3 4 Exceptional 13.0% 11.0% 5.0% 3.0% Exceeds Expectation 11.0% 6.0% 3.0% 1.0% Effective 4.0% 0.0% 0.0% 0.0% Development Needed 0.0% 0.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% 32 16
  • 17. 7/11/2011 Typical Results Matrix Quartile in Range Performance 1 2 3 4 Exceptional 8.0% 7.0% 6.0% 5.0% Exceeds Expectation 6.0% 5.0% 4.0% 2.5% Effective 4.5% 4 5% 3.5% 3 5% 3.0% 3 0% 2.0% 2 0% Development Needed 2.0% 0.0% 0.0% 0.0% Critical Need for Improvement 0.0% 0.0% 0.0% 0.0% Cost Summary Payroll: $30,400,917 Budget $: $1,064,032 Merit Increases: $1,071,120.86 Budget as % of Payroll: 3.5% Model fits Percent Increase: 3.5% within budget Cost Detail Quartile in Range Performance First Second Third Fourth Exceptional $83,979 $184,222 $88,669 $15,200 Exceeds Expectations $109,175 $158,310 $58,617 $0 Meets E M t Expectations t ti $108,116 $108 116 $191,830 $191 830 $36,698 $36 698 $3,650 $3 650 Development Needed $32,654 $0 $0 $0 Critical Need for Improvement $0 $0 $0 $0 Total Cost: $1,071,121 Employee Count Detail Quartile in Range Performance 1 2 3 4 Exceptional 24 36 16 4 Exceeds Expectations 36 60 20 0 Effective 52 96 16 4 Development Needed 36 40 20 4 Critical Need for Improvement 24 32 12 33 4 33 Total Employees: 536 Results Company XYZ Cost by Quartile $600,000 $500,000 Critical Need for Improvement $400,000 Meets Merit Increase Cost Expectations $300,000 Exceeds pectat o s Expectations M $200,000 Exceptional $100,000 $0 1 2 3 4 Quartile in Range 34 17
  • 18. 7/11/2011 Results Company XYZ Costs by Performance Level $400,000 $350,000 $300,000 Fourth $250,000 Third Cost $200,000 $150,000 Second $100,000 $50,000 First $0 Exceptional Exceeds Expectations Meets Expectations Development Needed Critical Need for Improvement 35 Performance Employee Analysis Salary Grade Perf- Merit New Merit Last Name Name Job Title Min Max Salary Quartile ormance Percent Salary Increase Brown Stan HR Generalist $47,042 $72,915 $46,000 1 4 6.0% $47,042 $2,822.52 Phillips Kevin IT Analyst $53,058 $84,892 $64,550 2 4 5.0% $64,550 $3,227.50 Pence Skyler Construction Manager $47,042 $72,915 $76,000 4 5 5.0% $76,000 $3,800.00 Pratt Jason Controller $70,169 $112,270 $103,299 4 2 0.0% $103,299 $0.00 Beals Susan Maintenance Manger $47,042 $72,915 $59,000 2 3 3.5% $59,000 $2,065.00 Duncan Elizabeth President $153,058 $229,587 $200,000 3 5 6.0% $200,000 $12,000.00 Adjustment due to employee being Lump sum increase below salary range due to employee being at top of salary range 36 18
  • 19. 7/11/2011 Compensation Strategies in the Rebounding Economy– Merit Matrix • Cost neutral • Rewards performance • “Targeted” turnover • Fair and efficient method for administering pay • Accelerates employees to market competitive pay levels 37 Compensation Strategies in the Rebounding Economy– Merit Matrix • Common Pitfalls – Structures out of alignment with market • Garbage in, garbage out • May improperly allocate limited salary increase dollars based upon the current competitiveness of pay – Performance scores not calibrated • Supervisors can learn to game the system • Cheating is rewarded • Top performers may not be properly rewarded – Matrix results outside of budget 38 19
  • 20. 7/11/2011 Additional Considerations • Nonprofit compensation • Executive compensation in closely held businesses • Fair pay based on race and gender • Online performance management • Sales compensation 39 CBIZ CompCasts How to Set Pay Ranges that are Fair and Effective CompCasts Nonprofit Quick Guide to Navigating Intermediate Sanctions Creating and Using a Salary Increase Matrix Fair Pay: Maintaining Equality in Today’s Litigious Society In development at: www.cbiz.com/hr/compcasts 40 40 20
  • 21. 7/11/2011 Questions? Ed Rataj, CCP Rataj Managing Director – Compensation Consulting CBIZ Human Capital Services (314) 692-5884 erataj@cbiz.com 41 21