Aligning your Compensation

Philosophy with Business Priorities

Stacey Carroll, M.B.A., SPHR

Director of Customer Service & Education

7,000 Positions. 50 Major Industries. 11 Countries

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Do you believe . . . .

How many of you think employees are the company’s most important asset?

How many of work for an organization that has a pay for performance compensation philosophy?

How many of you believe that 20% of your employees do 70% of the work?

How many of you think your compensation program is aligned with your business priorities?

How many of your companies have started buying cheaper products (less quality) in the last 2 years?

How many of you gave at least 10% of your employees in your organization a increase of larger than 8% last year?

How many of you have given a “cost of living” increase to employees?

How many of you have RE-DESIGNED your compensation program in the last 5 years?

Agenda

Step 1 – get SMART

Step 2 – Analyze your compensation program

Not all jobs are created equal

Common Myths

Step 3 – Align your comp plan with the business

Step 4 – Present your findings/reccomendations

Step 1 – Get SMART

Know your business – what is the plan? Read your balance sheet, income statement and cash flow statement. Talk with your business leaders about where the business is going in the

next year, 5 years and 10 years. If you don’t understand something, ask someone (even if it’s google). Think through the implications on talent within the organization.

Know where you stand relative to your current compensation philosophy Benchmark Employee Feedback

Meet with Senior Leadership to seek permission to align talent strategies with business priorities Ask for any resources needed to get the project started

Step 2 – Analyze your compensation program

Have we accurately defined our compensation strategy? Considerations include: industry, geography and

organizational size.

Blog Post: Employee Compensation Plan Design

Webinar: Defining Your Compensation Policy & Philosophy

Pharmaceutical CFO Story

Have we positioned ourselves well relative to the market? How competitive do we want/need to be?

Build pay ranges in alignment with competitive strategy

Not all jobs are created equal

Where should you be spending your labor dollars?

What matters to your company (competitive advantage)?

Walmart vs. Nordstrom

What positions are going to have the biggest impact to your company’s bottom line?

Google’s “ad word” salesperson vs. data miner

What positions are the most difficult to fill?

The more specialized the profession – the more creative you need to be.

Common Myths

People work for money - Money will never attract or retain talent on it’s own.

Pay is going down with the recession - Contrary to what we hear about the economy, the market IS moving – dramatically in some industries.

Employees will never be satisfied with their pay - You can improve an employee’s satisfaction with their pay by doing two simple things. Communicating Designing a pay structure that is “fair”

Access to pay information is limited- Employees know their worth.

Step 3 - Align your comp program with the business

Revisit your benchmarking strategy Marketing Client Story

Revisit the design of your pay ranges relative to business goals Job are not equal – therefore, targets should not be either.

Find out where you are Salary Budgeting Matrix Analytics - Budgeting

Eliminate “across the board increases”

Ask for the budget you need Prioritize requests (next slide)

Design compensation plans (incentive plans) that are in alignment with company goals Examples (next slide)

Example #1 – Plan Design

You are charged with designing a sales incentive plan for a company that is trying to grow fast and is cash sensitive. What would you base the incentives on and how would you design the program to be sensitive to the company requirements?

Base incentives on:

Increasing profits (more sales while holding costs down)

Renewal or customer retention

Customer payment terms

Design

Pay commissions upon receipt of customer payment and/or delay commission payments (i.e. quarterly)

Example #2 – Design Considerations

You are charged with designing a management bonus program that is applicable across many different departments with a goal towards cutting operating costs. What could be some potential pitfalls and how could you design the program in mitigating these issues?

Trade-offs (i.e. quality, safety) Build incentives into the plan

that account for all company goals.

Cuts for the short term, not the long term. Limit staffing cuts Impact analysis

Cuts that have an impact on other depts./divisions Have divisions work together

on cost cutting Make it proportionate to the

overall budget of each dept.

Step 4 – Present your findings/recommendations

Get agreement from your executive leadership team that your “competitive set” is right

Get agreement from your executive leadership team that your degree of competitiveness is right

Recommend changes to improve the overall structure of your compensation program

Work with divisional heads to re-design incentive programs in alignment with company goals

Prepare budget proposals for salary increases

Questions?

Save Time and Money on Your Compensation Initiatives

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Visit our blog: http://blogs.payscale.com/compensation/

Connect with me on LinkedIN: http://www.linkedin.com/in/hrstacey