XYZ Company Market Competitiveness Analysis: Senior Management Presentation December 30, 2003

2 Prepared by: Jennifer C. Loftus, SPHR, CCP, CBP, GRP National Director Jason Mitchell Statistical Analyst

3 Original Project Charter Assist XYZ Company in the analysis of all positions to determine the organizations competitive position. Develop market based pay ranges for the positions. If warranted, recommend potential realignment with the market.

Market Pricing Methodology

5 Selection of Market Data Nine compensation surveys were selected for use in the market analysis. A total of thirty-seven positions were reviewed and compared to the market. –Job matches were made based on comparability of duties and requirements, not job titles. Salary survey data for New York City were selected as a first priority for use. If local data were not available, national not-for-profit salary survey data were utilized and factored for the New York City area. –The geographic wage factor for New York, NY is 119.0% of the national average. –Wage differentials are similar to, but not the same as, cost of living differentials. n For example, if a person earns $20,000 in Tulsa, OK (100% of the national average), an equivalent wage in New York City would be $23,800 (119.0% of the national average). All survey data were aged to 1/1/04 using a prorated 4% annual figure. Comparisons are based on the 50 th and 75 th percentiles of the average base pay reported.

6 Survey Data Sources 2003 Abbott-Langer Compensation in Nonprofit Organizations 2003 BLR Northeast / Middle-Atlantic Survey of Exempt Compensation 2003 BLR New York Survey of Nonexempt Compensation 2003 CompData Surveys Compensation Data New York 2003 / 2004 Watson Wyatt ECS Geographic Report on Accounting & Finance Personnel Compensation 2003 / 2004 Watson Wyatt ECS Geographic Report on Human Resources Personnel Compensation 2003 / 2004 Watson Wyatt ECS Geographic Report on Office Personnel Compensation 2003 / 2004 Watson Wyatt ECS Industry Report on Top Management Compensation 2003 Mercer Metropolitan Benchmark Compensation Survey

Results of the Base Pay Market Pricing Process

8 Important Considerations When Reviewing Market Pricing Results Titles falling between -10% and 10% of market average are generally considered to be market competitive. Generally, XYZ Company strives to be market competitive with base pay. –Market competitive tends to equate to the 50 th percentile (P50) of the market. –P50 means that in the salary survey data for a specific job, one half of the respondents pay below the P50 rate. One half of the respondents pay above the P50 rate. Market data do not take into consideration years of experience of reported incumbents in the position or their job performance. –Organizations with high or low turnover may appear off of the market due to length of service differences from survey participants.

9 Percentile Example Data PointsPercentile $200,000 $150,000 $100,000$100,000 is the 75 th percentile (average of $100,000 and $100,000) $100,000 $99,000$94,000 is the 50 th percentile (average of $99,000 and $89,000) $89,000 $86,000 $85,000$80,000 is the 25 th percentile (average of $85,000 and $75,000) $75,000 $70,000

10 Results of Market Pricing Process 50 th Percentile Base Salary Data Based on a comparison of XYZ Company average salaries and 50 th percentile blended market average data

11 Results of Market Pricing Process 75 th Percentile Base Salary Data Based on a comparison of XYZ Company average salaries and 75 th percentile blended market average data

Conclusions Based on the Market Pricing Process

13 Conclusions – Base Pay Market Competitiveness On average, when current average salaries are compared to P50 average pay market data, XYZ Companys average salaries fall at the market. 2.3% above the market On average, when current average salaries are compared to P75 average pay market data, XYZ Companys average salaries fall below the market. 15.0% below the market

Proposed Market Based Salary Ranges Developed From Market Pricing Results

15 Development of Market Based Pay Ranges The job titles under review were broken into four families with similar work duties, recruitment market trends, and pay market trends. –Administration –Clerical –Client Services –Management n Top seven executives – not part of todays discussion Within each family, the positions P75 market data were sorted from high to low. Approximate 15% breaks between market levels were made to create a grade. The average market P75 rate of pay within each grade was used as the midpoint of the salary range. When current XYZ Company pay range minimums were higher than the prevailing market rate, the current XYZ Company range minimum was used as the salary range minimum.

16 Pay Range Spreads Range minimums and maximums were constructed around each midpoint. Range spread is the distance between the range minimum and the range maximum. In the proposed XYZ Company ranges, the range spread for the Administrative and Client Services positions is 50%. In the proposed XYZ Company ranges, the range spread for the Clerical positions is 30%. A typical range spread of 50% allows for flexibility in placing employees in the range and future room for growth, while controlling payroll costs.

17 Sample Salary Range (50% Range Spread) Minimum (Start of Q1) Start of Q2 Midpoint (Start of Q3) Start of Q4 Range Maximum $10.00$15.00$12.50 $11.25$13.75

18 General Anatomy of a Salary Range Generally, the target zone for seasoned, consistently satisfactory performers, or newer employees with hot technical skills or a uniquely impactful role. MinimumMidpoint Maximum Generally, the target zone for employees relatively new in this position (less than 5 years), or longer service employees with some performance deficiencies. Generally, the target zone for seasoned outstanding performers or selected individuals who, because of hot technical skills or a uniquely impactful role, need to be paid at or above market average in order to attract and/or retain.

19 Important Considerations When Reviewing Market Based Pay Ranges The proposed ranges do not take into consideration any incentive compensation, benefits, or perks incumbents in the positions may receive. Placement in the range is dependent on a number of factors, uniquely weighted by each organization. –Performance –Length of service with the organization n In the same or similar positions n In a different position –Prior experience in similar positions at other organizations

20 Important Considerations When Reviewing Cost Implications of Market Based Pay Ranges Three cost levels have been provided for each family. –Bring to minimum only n The cost to bring each employees pay, if necessary, to the minimum of the new range. n This is the minimum cost XYZ Company will incur to implement the new ranges. –Placement in the range assuming a 10 years to midpoint scenario n The cost to bring each employees pay, if necessary, to a point in the range, assuming it takes 10 years to bring each employees pay to the midpoint of the range. –Placement in the range assuming a 5 years to midpoint scenario n The cost to bring each employees pay, if necessary, to a point in the range, assuming it takes 5 years to bring each employees pay to the midpoint of the range.

21 Sample Placement in the Salary Range: Employee with 5 years experience Placement under bring to minimum scenario Placement under 10 years to midpoint scenario Placement under 5 years to midpoint scenario $10.00$15.00$12.50 $11.25$13.75

22 Cost Implications of the Proposed Market Based Pay Ranges Bring to minimum only n Seventy-seven of 166 current employees pay will require bring to minimum adjustments. n Assuming current payroll levels, this approach would cost an additional $205,859, or an increase of 2.9% of the current payroll of $7,020,238. Placement in the range assuming a 10 years to midpoint scenario n One hundred forty-two of 166 current employees pay will require adjustments. n Assuming current payroll levels, this approach would cost an additional $426,502, or an increase of 6.1% of the current payroll of $7,020,238. Placement in the range assuming a 5 years to midpoint scenario n One hundred fifty of 166 current employees pay would require adjustments. n Assuming current payroll levels, this approach would cost an additional $734,856, or an increase of 10.5% of the current payroll of $7,020,238.

Looking Ahead: Base Pay Recommendations

24 Recommendations XYZ Company should review the proposed costs to determine if such a program is fiscally responsible. n If current fiscal concerns preclude implementing the ranges in their entirety, a phased-in approach over two years may be advisable. If fiscally possible, bring the incumbents base pay at least to the minimum of the range. XYZ Company may want to consider the use of variable incentives to provide additional compensation opportunities to employees without adding fixed salary costs to organizational budgets.