Budgeting Part 2: Determining Pay Ranges

1. Compensation Budgeting Part II:
Determining Raises
Mykkah Herner, MA, CCP
Head of Expert Services
Ian Englund, CCP
Senior Compensation Professional
www.payscale.com
We will be sending out slides and accreditation information following the presentation.

2. 14,000 Positions 3000 Customers 11 Countries
40 Million Salary Profiles
250 Compensable Factors
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3. Three-part Series on
Compensation Budgeting
Part I: Managing Pay Inequities
Part II: Determining Raises
Part III: Putting it all together with
PayScale Insight
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4. www.payscale.com
Agenda
Recap of Part I
Part II
What do you want to reward?
o Market, performance, proficiency, tenure, etc
Can you streamline your increase process?
How to calculate pay increases
o Paying to market
o Merit matrix (pay-for-performance)
Putting it all together for budget recommendations
Next month: putting it all together with PayScale Insight

5. Identify comp inequities at org, dept, position, and individual levels
o Employee level: are you paying according to your policy? Fairly based
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Recap of Part I
Start with a plan
o Know your comp philosophy, strategy, and policy
o Get reliable market data
o Org/Plan level: fair pay to market
o Dept level: fair pay across departments
o Position level: have some positions move faster than others?
on EEO status?
Develop solutions
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6. What do
you want to
reward?
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7. www.payscale.com
What do you want
to reward?
You can base increases on…
o Market
o Performance
o Proficiency
o Tenure
A note on COLA

8. www.payscale.com
Streamlining
the Increase
Process

9. Considerations for your increase
process & timeline
Depends on your organizational values about
transparency and inclusion
Determine what basis you’ll use for increases
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Create a timeline

10. www.payscale.com
7/1-10/15
• Complete market study
10/15-10/31
• Create spreadsheet with suggested increases
11/01-11/15
• Train managers on compensation process & their
roles; deliver spreadsheets to managers
11/15-11/30
• Have a period of time for edits (managers, HR)
12/01
• Finalize increases / approval
12/15
• Communicate to employees
12/20
• Process adjustments in payroll
1/1
• New pay is live with 1/1 payroll
Salary
Adjustment
Process &
Timeline

11. How to Calculate Pay
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Increases

12. www.payscale.com
Market-based Increases
 Tier increases by position in range
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
o Create spreadsheet

13. www.payscale.com
Increase Spreadsheet
Name Job Title
Current
Annual Base
Range
Min
Range
Mid
Range
Max
Range
Penetration
Increase
%
Annualized
Increase
New
Annual
Base
New Range
Penetration
Alexander, Maria Account Manager $45,900 $46,300 $57,100 $67,900 -2% 3.80% $1,744 $47,644 6%
Arnold, Alexandra Driver I $29,600 $29,300 $35,700 $42,100 2% 3.80% $1,125 $30,725 11%
Baker, Nicholas Account Executive $46,500 $40,400 $49,800 $59,200 32% 3.80% $1,767 $48,267 42%
Allen, Ryan Program Manager $86,700 $73,600 $93,300 $113,000 33% 3.80% $3,295 $89,995 42%
Bailey, Sara Senior Account Executive $64,000 $54,700 $68,400 $82,100 34% 2.80% $1,792 $65,792 40%
Anderson, James Customer Service Rep $45,500 $34,900 $42,500 $50,100 70% 1.90% $865 $46,365 75%
Andrews, Vincent Senior Account Executive $76,700 $54,700 $68,400 $82,100 80% 1.90% $1,457 $78,157 86%
Adams, Christina Account Manager $63,800 $46,300 $57,100 $67,900 81% 1.90% $1,212 $65,012 87%
Total/Average $458,700 41% 2.96% $13,257 $471,957 49%
SUM AVG AVG SUM SUM AVG
• Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)
• Annualized Increase = Increase % * Current Annual Base
• New Annual Base = Annualized Increase + Current Annual Base
• New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)

14. Using a Matrix (Merit or Proficiency)
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 Tier increases by position in range & performance
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
and performance
o Create spreadsheet
o Note: Proficiency, or another factor, can work like
performance in this example

15. www.payscale.com
Increase Spreadsheet
Name Job Title
Current
Annual
Base
Performance
Rating
Range
Min
Range
Mid
Range
Max
Range
Penetration
Increase
%
Annualized
Increase
New
Annual
Base
New Range
Penetration
Adams, Christina Account Manager $63,800Meets $46,300 $57,100 $67,900 81% 1.70% $1,085 $64,885 86%
Alexander, Maria Account Manager $45,900Meets $46,300 $57,100 $67,900 -2% 3.90% $1,790 $47,690 6%
Allen, Ryan Program Manager $86,700Meets $73,600 $93,300 $113,000 33% 3.90% $3,381 $90,081 42%
Anderson, James Customer Service Rep $45,500Meets $34,900 $42,500 $50,100 70% 1.70% $774 $46,274 75%
Andrews, Vincent Senior Account Executive $76,700Meets $54,700 $68,400 $82,100 80% 1.70% $1,304 $78,004 85%
Arnold, Alexandra Driver I $29,600Meets $29,300 $35,700 $42,100 2% 3.90% $1,154 $30,754 11%
Bailey, Sara Senior Account Executive $64,000Does not meet $54,700 $68,400 $82,100 34% 0% $0 $64,000 34%
Baker, Nicholas Account Executive $46,500Does not meet $40,400 $49,800 $59,200 32% 0.90% $419 $46,919 35%
Barnes, Paul Customer Service Rep $38,600Exceeds $34,900 $42,500 $50,100 24% 7% $2,702 $41,302 42%
Totals/Averages $497,300 39% 2.74% $12,608 $509,908 46%
• Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)
• Annualized Increase = Increase % * Current Annual Base
• New Annual Base = Annualized Increase + Current Annual Base
• New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)

16. Developing Budget
Recommendations
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17. www.payscale.com
Putting it all Together
Part I
o Org Level Solutions – Range Adjustments
• Cost of changing ranges (adjusting green outliers)
o Position Level Solutions – Market Adjustments
• Cost of adjusting positions or adding temporary
position premiums
o Employee Level Solutions – Equity Adjustments
• Cost of correcting individual pay inequities
Part II
o Increase Budget – Pay Increase Adjustments

18. www.payscale.com
Org Level Solution Costs
Range Adjustments
o If you decide to maintain range penetrations, this cost will be equal to the %
you are increasing your ranges.
For example, if your total base pay budget is $15,000,000 and you increase your
ranges by 2%, the total impact is $300,000
o If you decide to ensure no green outliers, this cost is equal to the
adjustment necessary to keep all EEs in range at the low end

19. www.payscale.com
Position Level Solution Costs
Market Adjustments
o Moving positions to a new grade
o What will be the cost of ensuring all incumbents are in range
o For example, Driver I and CSR = 100 + 400 = $500
o Offering a market premium
o Calculate yearly market premium payment to all incumbents in the role
o For example, Software Engineer = 21 * $1000 = $21,000

20. www.payscale.com
Employee Level Solution Costs
Equity Adjustments
o Determine the amount to resolve critical issues
• For example, bump HRM/F to 73,600 ($3700)
o Calculate amount to resolve compression issues – increases to existing?
o Any necessary market adjustments for individuals?

21. www.payscale.com
Pay Increase Adjustments
Pay Increase Adjustments
o Typically this is the easiest to budget as it is usually a
percentage of total salary budget.
o For example, if your budget is $15,000,000, a 3% increase
would be $450,000.

22. Summary of Comp Budget Requests
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2015 Compensation Budget Requests
Total Salary Budget: $15,000,000
Percent Dollar Amount
2015 Range Adjustments 0.06% $9,200
2015 Market Adjustments 0.14% $21,500
2015 Equity Adjustments 0.02% $3,700
2015 Pay Increase Adjustments 3% $450,000
Total Increase $484,400
2015 Salary Budget $15,484,400
Detail for comp budget request is in the following attachments
Costing for Range Adjustments
Costing for Market Adjustments
Costing for Equity Adjustments
2015 Pay Increases

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Next Month:
Using PayScale’s Insight and
Insight Expert to support
compensation budgeting

24. PayScale Delivers Where Other Compensation Providers Fall Short
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Mykkah Herner, MA, CCP
Head of Expert Services
Ian Englund, CCP
Senior Compensation Professional
www.payscale.com