1. Compensation 101
Today’s lesson plan: Compensation How To Use Market Data To Support Your Compensation Philosophy

2. Compensation Philosophy
Market Pricing
= Putting all of the pieces together for the final product
= Taking accurate measurements based on the foundation created
= Selecting appropriate resources that are easily recognizable; limit custom design
= Foundation for defining your market and competitive position
Data Analysis
Job Matching
Compensation Philosophy

3. Foundation for defining your market and competitive position.
Compensation philosophy:
We use an external market-referenced approach to attracting and retaining top candidates in Southeast Michigan. We pursue all avenues to get what we want; no company is safe from our recruiting efforts. We strive to lead the market and pay more than the going rate to our employees based on demonstrated skill and performance– our money grows on trees.
Compensation Philosophy

4. Foundation for defining your market and competitive position.
So what do we know about this company in terms of the market-referenced approach?
What is the hiring and retention strategy?
What is the labor market?
What is the market position?
Compensation Philosophy

5. Selecting appropriate resources that are easily recognizable
Using our job descriptions that are reviewed and updated every year…
Select benchmark jobs from the surveys
Do not rely on job titles or levels
Job Matching

6. Selecting appropriate resources that are easily recognizable
There are few jobs in the market that will match your jobs 100% in terms of job content
Therefore one rule of thumb is to consider the match to be appropriate if 70% or more of the job content is similar
Job Matching

7. Selecting appropriate resources that are easily recognizable
So what do you do about the job that doesn’t meet the 70% criteria?
Consider different approaches to tackle the “person-specific” jobs in your organization
Job Matching

8. Selecting appropriate resources that are easily recognizable; limit custom design
Let’s say 60% of a job is “chief bottle washer” and 40% of a job is “executive chef”. What can you do?
Pay market rate of similar benchmark job
Pay the market rate of the bottle washer
Pay the “bottle washer” rate + a premium %
Combine the market data 60%/40%
Pay the highest market rate of the two jobs
Job Matching

9. Taking accurate measurements based on the foundation created
What did we say in our compensation philosophy about:
Our labor market?
Our target competitive pay?
Our market position?
Data Analysis

10. Taking accurate measurements based on the foundation created
Target - Pay more than the going rate
The Median or 50th percentile is generally considered to be the going rate of pay for the position
Paying more than the going rate might could mean using the 75th percentile for competitive positioning
Data Analysis

11. Taking accurate measurements based on the foundation created
Market Position - Lead the market
All survey data must be aged
Salary surveys will typically publish projected structure and budget increases
Select your change rate and a future common date to age your data
Data Analysis

12. Taking accurate measurements based on the foundation created
Reacting to trends
Data jumping up or down?
Consider removing data from your study that appears inconsistent based on your research
Data Analysis

13. Putting all of the pieces together for the final product
Market Pricing
What do you do with multiple survey sources or data points?
Take the average of the data points for each job
Weight surveys/data differently based on your compensation strategy
Weight surveys/data differently based on the quality of the survey/data

14. Putting all of the pieces together for the final product
Market Pricing
What do you do with the market data points?
Could use the data points
(10th %, 25th %, 50th %, 75th %, 90th %) to establish market rates for each job or to develop/update salary ranges

15. Putting all of the pieces together for the final product
Market Pricing
Pay rates are set – they are aligned with the compensation philosophy……so now what?
Compare incumbent pay to the market data and analyze need to adjust pay

16. Putting all of the pieces together for the final product
Market Pricing
Look at incumbent pay or job family pay compared to market rate.
Market index – divide the base salary by the market rate
Compa-ratio – divide the base salary by the midpoint
1.00 or greater – at or above market rate/midpoint
Less than 1.00 – below market rate/midpoint

17. Putting all of the pieces together for the final product
Market Pricing
Things to consider if it appears you are over/underpaying:
Match to market
Skill/performance
Accuracy of survey data
Labor market conditions
Plan to correct issues over time

18. Putting all of the pieces together for the final product
Market Pricing
Educating staff:
Communicate, communicate, communicate
Transparency
Support the “right” decisions

19. Compensation Philosophy
Market Pricing
Final Exam
Data Analysis
Job Matching
Compensation Philosophy