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Money TalksCommunicating Pay to Employees

HRTennessee Conference & Exposition

October 2017

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Overview

• Session objective – equip human resources professionals

to have constructive conversations about compensation

• Keys to effective communication

– Knowledge

– Confidence

– Fluency

• Session is divided into two parts

– Compensation Fundamentals

– Communicating Pay

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Expectations

• Communication about pay is not easy

• Most effective communication through fluency

• HR Business Partner audience

– People managers

– Staff

– Leaders

• Role of Compensation function

– Provide market intelligence

– Identify evidenced based recommended practices

– Consult with business partners as part of overall HR strategy

– Offer compensation solutions to business objectives as defined by

operations leaders

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Compensation Landscape

• Competing pressures

• Compensation is a Zero

Sum Game

• Compensation is not

“more art than science”

New, Irrational

Competitors

Pay for Performance

Smaller Budgets

Internal Equity

Employee Retention

Generational Differences

Employee Engagement

Longer Careers

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Compensation Ideals

Compensation Programs

Strategic

Consistent

EquitableUnified

Intentional

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COMPENSATION FUNDAMENTALS

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Compensation Philosophy

• A documented compensation philosophy provides a:

– Framework for senior-level compensation decisions

– “Blueprint” for Human Resources when developing specific pay

programs

– Approach that can be clearly communicated to managers and

employees

• Key elements of the Compensation Philosophy:

– Definition of competitive market

– Competitive positioning of compensation

– Use of incentive compensation and bonus eligibility

– Balance between internal equity and external competitiveness

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Compensation Strategy

• Compensation is cash provided by an employer to an

employee for services rendered

• Primary objective of compensation function is to pay the

exact amount necessary to attract and retain talent

needed to meet business objectives

• Elements of compensation strategy

– Competitive targets

– Pay mix: base pay, short term incentives, long term incentives

– Variable pay design

– Hiring scales

– Increase methodology

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Compensation Program

Job Evaluation

Job Descriptions

Salary Structures

Pay PoliciesMarket

Assessment

Job Analysis

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Market Assessment

• Collect market data to:

– Analyze pay competitiveness by gathering information on the

going rate for benchmark jobs

– Identify pay trends by watching movement of salaries

– Compare competitive pay practices

• Benchmark job

– Standard job used to make pay comparisons

– Jobs easily defined and found in other organizations

– Job is appropriate for benchmark analysis if 70% of job content is

similar to market job description

• Accurate and current job descriptions critical to valid

market pricing

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The Rules

• Sherman Antitrust Act

– Intended to promote a competitive business environment

– Prohibits price fixing

– Restricts exchange of compensation information

• Survey Safe Harbor Guidelines

– Published by neutral third party

– Composite statistics

• No incumbent or organization specific data

• Minimum five (5) reporting organizations

• No single organization comprises more than 25% of sample

– Data at least three (3) months old

Warning: It is a violation of federal and state antitrust law to obtain and use individual competitor pay information to set compensation levels and practices.

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Implications of Targeting Median

• The median is the value separating the higher half of a

data sample, a population, or a probability distribution,

from the lower half

• Common pay strategy to target market median

Will employees believe that the organization offers competitive compensation when HALF of competing

companies are paying more?

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Compensation Structures Overview

• A compensation (pay) structure is a series of ranges or

grades, each with a minimum and maximum pay rate

• Well designed and properly maintained structures are

essential for effective pay administration

• Organizations may elect to have more than one structure

– Usually in response to differentiation among job groups

– Based on function or job level

– Allows flexibility in design and maintenance

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Importance of Pay Structures

Drive Business Outcomes

• Attract and retain talent needed to achieve objectives

• Support operations leaders

• Optimize compensation spend

Increase Employee Engagement

• Foster internal equity

• Link pay and performance

• Clarify communication

Enhance Human Resources Service Delivery

• Equip business partners to consult with leaders on pay

• Unify pay decisions

• Promote administrative efficiency

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Pay Grade/Range

• Range minimum – lowest financial value a job has to an organization

• Range maximum – highest financial value a job has to an organization

• Range midpoint – midway point between minimum and maximum, usually the target financial value

• Midpoint Progression/Differential - difference between midpoints of adjacent grades

• Grade assignments based on:– Benchmark data

– Strategic impact

– Internal equity: job family/organizational level

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Range Spread/Width

• The width of a pay range from minimum to maximum,

expressed as a percentage ((max – min) / min)

• Range width is critical to establishing competitive pay

rates at all experience levels

• Factors to consider when determining range spread

– Tenure needed to reach full proficiency in role

– Career trajectory or expected time in job

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Pay Structure Illustration

Grade Minimum Midpoint Maximum Range Spread

Midpoint

Progression

1 $20,000 $23,500 $27,000 35% --

2 $21,600 $25,380 $29,160 35% 8%

3 $23,328 $27,410 $31,493 35% 8%

4 $25,194 $29,603 $34,012 35% 8%

5 $27,210 $31,971 $36,733 35% 8%

6 $29,387 $34,529 $39,672 35% 8%

7 $31,737 $37,292 $42,846 35% 8%

8 $34,911 $41,021 $47,130 35% 10%

9 $37,602 $45,123 $52,643 40% 10%

10 $41,363 $49,635 $57,908 40% 10%

11 $45,499 $54,599 $63,698 40% 10%

12 $50,049 $60,058 $70,068 40% 10%

13 $55,054 $66,064 $77,075 40% 10%

14 $60,559 $72,671 $84,782 40% 10%

15 $65,113 $81,391 $97,669 50% 12%

16 $72,926 $91,158 $109,390 50% 12%

17 $81,678 $102,097 $122,516 50% 12%

18 $91,479 $114,349 $137,218 50% 12%

19 $105,201 $131,501 $157,801 50% 15%

20 $120,981 $151,226 $181,471 50% 15%

21 $139,128 $173,910 $208,692 50% 15%

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Hiring Scales

• Current pay ranges are the foundation for hiring scales

• Mechanics vary by job type

• Considerations

– Is experience the primary determinant of starting rate?

– Can years-of-experience be consistently calculated?

– In what other ways are candidates assessed?

• Education

• Certification

• Experience type

– Industry

– Leadership

– Does the organization set maximum hire rates?

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Pay Rate Within Grade

Range

Minimum

Range

Midpoint

Range

Maximum

Emerging Professional Expert

Seasoned Professional

• New to role • Fully proficient in role • Highly proficient in role (mastery)

• Extensive opportunity for skill acquisition and development

• Performance consistently meets and/or exceeds expectations

• Sustained exemplaryperformance

• Seasoned new hire • Exceptional impact on company results

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Employee Pay Assessment

• Linear progression through pay range

• Position-in-range

• Compa-ratio (Employee pay rate / Grade midpoint)

Establish target pay levels

• Experience rating

• Organizational tenure

• Career assessment

Determine individual targets • Determine cost to adjust

• Budget for key increases

• Communicate remediation strategy

Identify employees below target rate

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Annual Increase Methodology

• Performance Based

– Annual increase tied to performance rating

• Scale

• Matrix

– Forced ranking

• Across-the Board

• Policies and rules

– Eligibility

– Proration

– Green and Red Circle rates

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Maintenance Activities

• Annual

– Update market pricing

– Adjust structures

– Confirm grade assignments

– Assess employee pay levels

• Ongoing

– Implement policy and practice to assign new jobs to grades

– Link promotion guidelines to structure design

– Establish governance and process for off-cycle pay adjustments

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COMMUNICATING PAY TO EMPLOYEES

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Employee Engagement – Pay

• How is my pay determined?

– Target pay

– Grade assignment

– Pay within range

• How can I earn more money?

– Current role

– Additional contribution

– Advancement opportunities

• Efficacy of pay programs

– Communication

– Accuracy

– Consistency

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Communicating Pay

• Transparency is not the ideal

– All employees’ pay as public record

– Full access to all pay policies and rate tables

– Unnecessary and unconstructive

• Initiate and operationalize conversations around pay

– It is impossible to keep compensation a mystery

– If we don’t tell our story to employees, they will make up their own

• Internet

• Anecdotes

• Misconceptions

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Understanding Requests

No one is “just curious”

What is the scope of the request?

How will the answer be used?

Research and confer with team

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Key Messages

• Employee communication goals

– Overarching philosophy and strategy

– Grade information of current role

– Explanation of pay within range

– Relative grade assignments of roles incumbent may consider

• FLSA Status

– Categorization of pay

– Not a reflection of importance or level of contribution

– Non-exempt = overtime eligible, ensuring pay for hours worked

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Preparing for the Conversation

• Research the person’s situation

– Background and qualifications

– Career path

– Grade

– Current and past pay

• Assess the environment

– Internal equity

– Compensation strategy for the job family

• Anticipate questions

• Plan key messages

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Communication Tactics

The Good

Communication

Fluency

Understanding

Honesty

Ownership

The Bad

Secrecy

“Talking points”

Guessing

Apology

Lack of accountability

The Ugly

“This wasn’t my idea, blame Corporate.”

“Don’t worry about the policy, we’ll make it happen.”

“We’ve always done it this way.”

“It’s too complicated to explain.”

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We make this hard on ourselves…

• Range width or hiring scale not calibrated to budget

• Unrealistic employee expectations about pay

• Initiating searches without clear pay parameters

• Exceptions to hiring scales

• Grandfathering

• Extending counteroffers and negotiating salary

• Paying retention bonuses

• Allowing base rates below range minimum

• Communicating/promising out-of-policy pay

• Annual increases when current rate is at or above range maximum

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FREQUENTLY ASKED QUESTIONS

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Retention/Counteroffers

Q: One of my employees is threatening to leave the organization; can I offer more money?

A: Possibly, but this is not a recommended strategy

• A market based pay program targets competitive pay for each incumbent

• Counteroffers and retention bonuses create risk– Unhealthy precedent

– Internal equity issues

• In certain cases companies will deploy these tactics– Below market pay levels

– Exceptional staffing pressure

• Decision rests with Operations leadership

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Anecdotal Information

Q: My friend tells me that another company down the street pays more - why is that?

A: That company has made a pay decision based on its compensation policy and that specific employee

• A market based compensation system determines target pay rates for all positions

• Incumbent pay within range depends on experience, proficiency, and performance

• Other companies may position pay above market median based on– Work location or conditions

– Economic stability

– Company position in business life cycle

– Total rewards mix (pay, benefits, work life)

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Internal Equity

Q: How come another employee makes more than I do

when I…(work harder, am smarter, put in more hours, am

better educated, have more certifications, etc.)?

A: Pay rates are affected by a multitude of factors

• Knowledge of another’s pay does not equal

understanding of pay differences

• Employee can discuss concerns with Manager

• Manager may follow up with Human Resources

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Pay Below Market

Q: If pay is below the market rate for a position is the person being underpaid?

A: Not necessarily

• Why?– Incumbent is an emerging professional

– Internal value of job or job mix differs from market

– Other internal/external factors

• The market value of the job may have grown faster than your salary structure adjustments; adjustment may be warranted

• Employee can discuss concerns with Manager

• Manager may follow up with Human Resources

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Pay Above Market

Q: If pay is above the market rate for a position is the

person being overpaid?

A: Not necessarily

• Why?

– Incumbent is a seasoned professional or expert

– Outstanding performance

– Reduction in job scope

– Changes in labor market

• Pay should not exceed range maximum

– Employee may receive lump sum max out (longevity) bonus

– Follow established Human Resources policy regarding pay at or

above maximum

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Scott KellyAVP Analytics/Business Intelligence/Data ManagementHCA Human Resources Groupscott.kelly@hcahealthcare.com